G.R. No.
125948 December 29, 1998
FIRST PHILIPPINE INDUSTRIAL CORPORATION, petitioner,
vs.
COURT OF APPEALS, HONORABLE PATERNO V. TAC-AN, BATANGAS CITY and
ADORACION C. ARELLANO, in her official capacity as City Treasurer of Batangas,
respondents.
MARTINEZ, J.:
This petition for review on certiorari assails the Decision of the Court of Appeals dated
November 29, 1995, in CA-G.R. SP No. 36801, affirming the decision of the Regional Trial Court
of Batangas City, Branch 84, in Civil Case No. 4293, which dismissed petitioners' complaint for a
business tax refund imposed by the City of Batangas.
Petitioner is a grantee of a pipeline concession under Republic Act No. 387, as amended, to
contract, install and operate oil pipelines. The original pipeline concession was granted in
1 2
1967 and renewed by the Energy Regulatory Board in 1992.
Sometime in January 1995, petitioner applied for a mayor's permit with the Office of the Mayor of
Batangas City. However, before the mayor's permit could be issued, the respondent City
Treasurer required petitioner to pay a local tax based on its gross receipts for the fiscal year
3
1993 pursuant to the Local Government Code . The respondent City Treasurer assessed a
business tax on the petitioner amounting to P956,076.04 payable in four installments based on
the gross receipts for products pumped at GPS-1 for the fiscal year 1993 which amounted to
P181,681,151.00. In order not to hamper its operations, petitioner paid the tax under protest in
the amount of P239,019.01 for the first quarter of 1993.
On January 20, 1994, petitioner filed a letter-protest addressed to the respondent City Treasurer,
the pertinent portion of which reads:
Please note that our Company (FPIC) is a pipeline operator with a
government concession granted under the Petroleum Act. It is engaged in
the business of transporting petroleum products from the Batangas
refineries, via pipeline, to Sucat and JTF Pandacan Terminals. As such, our
Company is exempt from paying tax on gross receipts under Section 133 of
the Local Government Code of 1991 . . . .
Moreover, Transportation contractors are not included in the enumeration of
contractors under Section 131, Paragraph (h) of the Local Government
Code. Therefore, the authority to impose tax "on contractors and other
independent contractors" under Section 143, Paragraph (e) of the Local
Government Code does not include the power to levy on transportation
contractors.
The imposition and assessment cannot be categorized as a mere fee
authorized under Section 147 of the Local Government Code. The said
section limits the imposition of fees and charges on business to such
amounts as may be commensurate to the cost of regulation, inspection, and
licensing. Hence, assuming arguendo that FPIC is liable for the license fee,
the imposition thereof based on gross receipts is violative of the aforecited
provision. The amount of P956,076.04 (P239,019.01 per quarter) is not
commensurate to the cost of regulation, inspection and licensing. The fee is
4
already a revenue raising measure, and not a mere regulatory imposition.
On March 8, 1994, the respondent City Treasurer denied the protest contending that petitioner
cannot be considered engaged in transportation business, thus it cannot claim exemption under
5
Section 133 (j) of the Local Government Code.
6
On June 15, 1994, petitioner filed with the Regional Trial Court of Batangas City a complaint for
tax refund with prayer for writ of preliminary injunction against respondents City of Batangas and
Adoracion Arellano in her capacity as City Treasurer. In its complaint, petitioner alleged, inter
alia, that: (1) the imposition and collection of the business tax on its gross receipts violates
Section 133 of the Local Government Code; (2) the authority of cities to impose and collect a tax
on the gross receipts of "contractors and independent contractors" under Sec. 141 (e) and 151
does not include the authority to collect such taxes on transportation contractors for, as defined
under Sec. 131 (h), the term "contractors" excludes transportation contractors; and, (3) the City
Treasurer illegally and erroneously imposed and collected the said tax, thus meriting the
7
immediate refund of the tax paid.
Traversing the complaint, the respondents argued that petitioner cannot be exempt from taxes
under Section 133 (j) of the Local Government Code as said exemption applies only to
"transportation contractors and persons engaged in the transportation by hire and common
carriers by air, land and water." Respondents assert that pipelines are not included in the term
"common carrier" which refers solely to ordinary carriers such as trucks, trains, ships and the
like. Respondents further posit that the term "common carrier" under the said code pertains to
8
the mode or manner by which a product is delivered to its destination.
On October 3, 1994, the trial court rendered a decision dismissing the complaint, ruling in this
wise:
. . . Plaintiff is either a contractor or other independent contractor.
. . . the exemption to tax claimed by the plaintiff has become unclear. It is a
rule that tax exemptions are to be strictly construed against the taxpayer,
taxes being the lifeblood of the government. Exemption may therefore be
granted only by clear and unequivocal provisions of law.
Plaintiff claims that it is a grantee of a pipeline concession under Republic
Act 387. (Exhibit A) whose concession was lately renewed by the Energy
Regulatory Board (Exhibit B). Yet neither said law nor the deed of
concession grant any tax exemption upon the plaintiff.
 Even the Local Government Code imposes a tax on franchise holders under
Sec. 137 of the Local Tax Code. Such being the situation obtained in this
case (exemption being unclear and equivocal) resort to distinctions or other
considerations may be of help:
1. That the exemption granted
under Sec. 133 (j) encompasses
only common carriers so as not to
overburden the riding public or
commuters with taxes. Plaintiff is
not a common carrier, but a special
carrier extending its services and
facilities to a single specific or
"special customer" under a "special
contract."
2. The Local Tax Code of 1992
was basically enacted to give more
and effective local autonomy to
local governments than the
previous enactments, to make
them economically and financially
viable to serve the people and
discharge their functions with a
concomitant obligation to accept
certain devolution of powers, . . .
So, consistent with this policy even
franchise grantees are taxed (Sec.
137) and contractors are also taxed
under Sec. 143 (e) and 151 of the
9
Code.
Petitioner assailed the aforesaid decision before this Court via a petition for review. On February
27, 1995, we referred the case to the respondent Court of Appeals for consideration and
10 11
adjudication. On November 29, 1995, the respondent court rendered a decision affirming
the trial court's dismissal of petitioner's complaint. Petitioner's motion for reconsideration was
12
denied on July 18, 1996.
Hence, this petition. At first, the petition was denied due course in a Resolution dated November
13
11, 1996. Petitioner moved for a reconsideration which was granted by this Court in a
14
Resolution of January 22, 1997. Thus, the petition was reinstated.
Petitioner claims that the respondent Court of Appeals erred in holding that (1) the petitioner is
not a common carrier or a transportation contractor, and (2) the exemption sought for by
petitioner is not clear under the law.
There is merit in the petition.
A "common carrier" may be defined, broadly, as one who holds himself out to the public as
engaged in the business of transporting persons or property from place to place, for
compensation, offering his services to the public generally.
Art. 1732 of the Civil Code defines a "common carrier" as "any person, corporation, firm or
association engaged in the business of carrying or transporting passengers or goods or both, by
land, water, or air, for compensation, offering their services to the public."
The test for determining whether a party is a common carrier of goods is:
1. He must be engaged in the
business of carrying goods for
others as a public employment,
and must hold himself out as ready
to engage in the transportation of
goods for person generally as a
business and not as a casual
occupation;
2. He must undertake to carry
goods of the kind to which his
business is confined;
3. He must undertake to carry by
the method by which his business
is conducted and over his
established roads; and
4. The transportation must be for
hire.
15
Based on the above definitions and requirements, there is no doubt that petitioner is a common
carrier. It is engaged in the business of transporting or carrying goods, i.e. petroleum products,
for hire as a public employment. It undertakes to carry for all persons indifferently, that is, to all
persons who choose to employ its services, and transports the goods by land and for
compensation. The fact that petitioner has a limited clientele does not exclude it from the
16
definition of a common carrier. In De Guzman vs. Court of Appeals we ruled that:
The above article (Art. 1732, Civil Code) makes no
distinction between one whose principal business
activity is the carrying of persons or goods or both, and
one who does such carrying only as an ancillary activity
(in local idiom, as a "sideline"). Article 1732 . . . avoids
making any distinction between a person or enterprise
offering transportation service on
a regular or scheduled basis and one offering such
service on an occasional, episodic or unscheduled
basis. Neither does Article 1732 distinguish between a
 carrier offering its services to the "general public," i.e.,
the general community or population, and one who
offers services or solicits business only from a narrow
segment of the general population. We think that Article
1877 deliberately refrained from making such
distinctions.
So understood, the concept of "common carrier" under
Article 1732 may be seen to coincide neatly with the
notion of "public service," under the Public Service Act
(Commonwealth Act No. 1416, as amended) which at
least partially supplements the law on common carriers
set forth in the Civil Code. Under Section 13, paragraph
(b) of the Public Service Act, "public service" includes:
every person that now or hereafter
may own, operate. manage, or
control in the Philippines, for hire or
compensation, with general or
limited clientele, whether
permanent, occasional or
accidental, and done for general
business purposes, any common
carrier, railroad, street railway,
traction railway, subway motor
vehicle, either for freight or
passenger, or both, with or without
fixed route and whatever may be
its classification, freight or carrier
service of any class, express
service, steamboat, or steamship
line, pontines, ferries and water
craft, engaged in the transportation
of passengers or freight or both,
shipyard, marine repair shop, wharf
or dock, ice plant, ice-refrigeration
plant, canal, irrigation system gas,
electric light heat and power, water
supply andpower
petroleum, sewerage system, wire
or wireless communications
systems, wire or wireless
broadcasting stations and other
similar public services. (Emphasis
Supplied)
Also, respondent's argument that the term "common carrier" as used in Section 133 (j) of the
Local Government Code refers only to common carriers transporting goods and passengers
through moving vehicles or vessels either by land, sea or water, is erroneous.
As correctly pointed out by petitioner, the definition of "common carriers" in the Civil Code makes
no distinction as to the means of transporting, as long as it is by land, water or air. It does not
provide that the transportation of the passengers or goods should be by motor vehicle. In fact, in
17
the United States, oil pipe line operators are considered common carriers.
Under the Petroleum Act of the Philippines (Republic Act 387), petitioner is considered a
"common carrier." Thus, Article 86 thereof provides that:
Art. 86. Pipe line concessionaire as common carrier. —
A pipe line shall have the preferential right to utilize
installations for the transportation of petroleum owned
by him, but is obligated to utilize the remaining
transportation capacity pro rata for the transportation of
such other petroleum as may be offered by others for
transport, and to charge without discrimination such
rates as may have been approved by the Secretary of
Agriculture and Natural Resources.
Republic Act 387 also regards petroleum operation as a public utility. Pertinent portion of Article
7 thereof provides:
that everything relating to the exploration for and
exploitation of petroleum . . . and everything relating to
the manufacture, refining, storage, or transportation by
special methods of petroleum, is hereby declared to be
a public utility. (Emphasis Supplied)
The Bureau of Internal Revenue likewise considers the petitioner a "common carrier." In BIR
Ruling No. 069-83, it declared:
. . . since [petitioner] is a pipeline concessionaire that is
engaged only in transporting petroleum products, it is
considered a common carrier under Republic Act No.
387 . . . . Such being the case, it is not subject to
withholding tax prescribed by Revenue Regulations No.
13-78, as amended.
From the foregoing disquisition, there is no doubt that petitioner is a "common carrier" and,
therefore, exempt from the business tax as provided for in Section 133 (j), of the Local
Government Code, to wit:
Sec. 133. Common Limitations on the Taxing Powers of
Local Government Units. — Unless otherwise provided
herein, the exercise of the taxing powers of provinces,
cities, municipalities, and barangays shall not extend to
the levy of the following:
xxx xxx xxx
 (j) Taxes on franchise at the rate of not more than one-half of 1
the gross percent of the gross annual receipts. So, transportation
receipts of contractors who are enjoying a franchise would be
transportation subject to tax by the province. That is the exception, Mr.
contractors Speaker.
and persons
engaged in the What we want to guard against here, Mr. Speaker, is
transportation the imposition of taxes by local government units on the
of passengers carrier business. Local government units may impose
or freight by taxes on top of what is already being imposed by the
hire and National Internal Revenue Code which is the so-called
common "common carriers tax." We do not want a duplication of
carriers by air, this tax, so we just provided for an exception under
land or water, Section 125 [now Sec. 137] that a province may impose
except as this tax at a specific rate.
provided in this
Code.
MR. AQUINO (A.). Thank you for that clarification, Mr.
18
Speaker. . . .
The deliberations conducted in the House of Representatives on the Local Government Code of
1991 are illuminating:
It is clear that the legislative intent in excluding from the taxing power of the local government
unit the imposition of business tax against common carriers is to prevent a duplication of the so-
MR. AQUINO (A). Thank you, Mr. Speaker. called "common carrier's tax."

Mr. Speaker, we would like to proceed to page 95, line
1. It states: "SEC. 121 [now Sec. 131]. Common
Limitations on the Taxing Powers of Local Government
Units." . . .
MR. AQUINO (A.). Thank you Mr. Speaker.
Petitioner is already paying three (3%) percent common carrier's tax on its gross sales/earnings
19
under the National Internal Revenue Code. To tax petitioner again on its gross receipts in its
transportation of petroleum business would defeat the purpose of the Local Government Code.
WHEREFORE, the petition is hereby GRANTED. The decision of the respondent Court of
Appeals dated November 29, 1995 in CA-G.R. SP No. 36801 is REVERSED and SET ASIDE.

PETRON CORPORATION, G.R. No. 158881

Still on page 95, subparagraph 5, on taxes on the Petitioner,
business of transportation. This appears to be one of Present:
those being deemed to be exempted from the taxing
powers of the local government units. May we know the - versus - QUISUMBING, J.,
reason why the transportation business is being Chairperson,
excluded from the taxing powers of the local CARPIO MORALES,
government units? TINGA,
MAYOR TOBIAS M. TIANGCO, VELASCO, JR, and
MR. JAVIER (E.). Mr. Speaker, there is an exception and MUNICIPAL TREASURER BRION, JJ.
contained in Section 121 (now Sec. 131), line 16, MANUEL T. ENRIQUEZ of the
paragraph 5. It states that local government units may MUNICIPALITY OF NAVOTAS,
not impose taxes on the business of transportation, METRO MANILA,
except as otherwise provided in this code. Respondents.
Promulgated:
April 16, 2008
Now, Mr. Speaker, if the Gentleman would care to go to
page 98 of Book II, one can see there that provinces
x----------------------------------------------------------------------------x
have the power to impose a tax on business enjoying a

DECISION
TINGA, J.:
The novel but important issue before us is whether a local government unit is empowered under
the Local Government Code (the LGC) to impose business taxes on persons or entities engaged
in the sale of petroleum products.
I.
The present Petition for Review on Certiorari under Rule 45 filed by petitioner Petron
Corporation (Petron) directly assails the Decision of the Regional Trial Court (RTC) of Malabon,
Branch 74, which dismissed petitioners complaint for cancellation of assessment made by the
then municipality (now City) of Navotas (Navotas) for deficiency taxes, and ordering the payment
of P10,204,916.17 pesos in business taxes to Navotas. As the issues raised are pure questions
of law, we need not dwell on the facts at length.
Petron maintains a depot or bulk plant at the Navotas Fishport Complex in Navotas. Through
that depot, it has engaged in the selling of diesel fuels to vessels used in commercial fishing in
[1]
and around Manila Bay. On 1 March 2002, Petron received a letter from the office of Navotas
Mayor, respondent Toby Tiangco, wherein the corporation was assessed taxes relative to the
[2]
figures covering sale of diesel declared by your Navotas Terminal from 1997 to 2001. The
stated total amount due was P6,259,087.62, a figure derived from the gross sales of the depot
[3]
during the years in question. The computation sheets that were attached to the letter made
reference to Ordinance 92-03, or the New Navotas Revenue Code (Navotas Revenue Code),
though such enactment was not cited in the letter itself.
Petron duly filed with Navotas a letter-protest to the notice of assessment pursuant to Section
195 of the Code. It argued that it was exempt from local business taxes in view of Art. 232(h) of
the Implementing Rules (IRR) of the Code, as well as a ruling of the Bureau of Local
Government Finance of the Department of Finance dated 31 July 1995, the latter stating that
sales of petroleum fuels are not subject to local taxation. The letter-protest was denied by the
Navotas Municipal Treasurer, respondent Manuel T. Enriquez, in a letter dated 8 May
[4]
2002. This was followed by a letter from the Mayor dated 15 May 2002, captioned Final
Demand to Pay, requiring that Petron pay the assessed amount within five (5) days from receipt
thereof, with a threat of closure of Petrons operations within Navotas should there be no
[5]
payment. Petron, through counsel, replied to the Mayor by another letter posing objections to
[6]
the threat of closure. The Mayor did not respond to this last letter.
Thus, on 20 May 2002, Petron filed with the Malabon RTC a Complaint for
Cancellation of Assessment for Deficiency Taxes with Prayer for the Issuance of a Temporary
Restraining Order (TRO) and/or Preliminary Injunction. The quested TRO was not issued by the
Malabon RTC upon manifestation of respondents that they would not proceed with the closure of
Petrons Navotas bulk plant until after the RTC shall have decided the case on the
[7]
merits. However, while the case was pending decision, respondents refused to issue a
business permit to Petron, thus prompting Petron to file a Supplemental Complaint with Prayer
[8]
for Preliminary Mandatory Injunction against respondents.
On 5 May 2003, the Malabon RTC rendered its Decision dismissing Petrons complaint
[9]
and ordering the payment of the assessed amount. Eleven days later, Petron received a
Closure Order from the Mayor, directing Petron to cease and desist from operating the bulk
[10]
plant. Petron sought a TRO from the Malabon RTC, but this was denied. Petron also filed a
[11]
motion for reconsideration of the order of denial, but this was likewise denied.
On 4 August 2003, this Court issued a TRO, enjoining the respondents from closing
[12]
Petrons Navotas bulk plant or otherwise interfering in its operations.
II.
As earlier stated, Petron has opted to assail the RTC Decision directly before this
Court since the matter at hand involves pure questions of law, a characterization conceded by
the RTC Decision itself. Particularly, the controversy hinges on the correct interpretation of
Section 133(h) of the LGC, and the applicability of Article 232 (h) of the IRR.
Section 133(h) of the LGC reads as follows:
Sec. 133. Common Limitations on the Taxing Powers of Local
Government Units. - Unless otherwise provided herein, the exercise of the
taxing powers of provinces, cities, municipalities, and Barangays shall not
extend to the levy of the following:
xxx
(h) Excise taxes on articles enumerated under the National
Internal Revenue Code, as amended, and taxes, fees or charges on
petroleum products;
Evidently, Section 133 prescribes the limitations on the capacity of local government
units to exercise their taxing powers otherwise granted to them under the LGC. Apparently,
paragraph (h) of the Section mentions two kinds of taxes which cannot be imposed by local
government units, namely: excise taxes on articles enumerated under the National Internal
Revenue Code [(NIRC)], as amended; and taxes, fees or charges on petroleum products.
The power of a municipality to impose business taxes is provided for in Section 143 of
the LGC. Under the provision, a municipality is authorized to impose business taxes on a whole
host of business activities. Suffice it to say, unless there is another provision of law which states
otherwise, Section 143, broad in scope as it is, would undoubtedly cover the business of selling
diesel fuels, or any other petroleum product for that matter.
Nonetheless, Article 232 of the IRR defines with more particularity the capacity of a
municipality to impose taxes on businesses. The enumeration that follows is generally a positive
list of businesses which may be subjected to business taxes, and paragraph (h) of Article 232
does allow the imposition of local business taxes [o]n any business not otherwise specified in the
preceding paragraphs which the sanggunian concerned may deem proper to tax, but subject to
this important qualification, thus:

xxx provided further, that in line with existing national policy, any
business engaged in the production, manufacture, refining, distribution or
sale of oil, gasoline and other petroleum products shall not be subject to any
local tax imposed on this article.
Notably, the Malabon RTC declared Art. 232(h) of the IRR void because the Code purportedly
does not contain a provision prohibiting the imposition of business taxes on petroleum
[13]
products. This submission warrants close examination as well.
With all the relevant provisions of law laid out, we address the core issues submitted by Petron,
namely: first, is the challenged tax on sale of the diesel fuels an excise tax on an article
enumerated under the NIRC, thusly prohibited under Section 133(h) of the Code?; second, is
the challenged tax prohibited by Section 133(h) under the proviso, taxes, fees or charges on
petroleum products? and; third, does Art. 232(h) of the IRR similarly prohibit the imposition of
the challenged tax?
III
As earlier observed, Section 133(h) provides two kinds of taxes which cannot be
imposed by local government units: excise taxes on articles enumerated under the NIRC, as
amended; and taxes, fees or charges on petroleum products. There is no doubt that among the
excise taxes on articles enumerated under the NIRC are those levied on petroleum products, per
Section 148 of the NIRC.
We first consider Petrons argument that the business taxes on its sale of diesel fuels
partakes of an excise tax, which if true, could invalidate the challenged tax solely on the basis of
the phrase excise taxes on articles enumerated under the [NIRC]. To support this argument, it
[14] [15]
cites Cordero v. Conda, Allied Thread Co. Inc. v. City Mayor of Manila, and Iloilo Bottlers,
[16]
Inc. v. City of Iloilo, as having explained that an excise tax is a tax upon the performance,
[17]
carrying on, or the exercise of an activity. Respondents, on the other hand, argue that what
the provision prohibits is the imposition of excise taxes on petroleum products, but not the
imposition of business taxes on the same. They cite Philippine Petroleum Corporation v.
[18]
Municipality of Pililia, where the Court had noted, [a] tax on business is distinct from a tax on
[19]
the article itself.
Petrons argument is fraught with far-reaching implications, for if it were sustained, it
would mean that local government units are barred from imposing business taxes on any of the
articles subject to excise taxes under the NIRC. These would include alcohol
[20] [21] [22] [23]
products, tobacco products, mineral products automobiles, and such non-essential
goods as jewelry, goods made of precious metals, perfumes, and yachts and other vessels
[24]
intended for pleasure or sports.
Admittedly, the proffered definition of an excise tax as a tax upon the performance,
carrying on, or exercise of some right, privilege, activity, calling or occupation derives from the
,[25]
compendium American Jurisprudence, popularly referred to as Am Jur, and has been cited in
previous decisions of this Court, including those cited by Petron itself. Such a definition would
not have been
[26]
inconsistent with previous incarnations of our Tax Code, such as the NIRC of 1939, as
[27]
amended, or the NIRC of 1977 because in those laws the term excise tax was not used at all.
In contrast, the nomenclature used in those prior laws in referring to taxes imposed on specific
[28]
articles was specific tax. Yet beginning with the National Internal Revenue Code of 1986, as
amended, the term excise taxes was used and defined as applicable to goods manufactured or
[29]
produced in the Philippines and to things imported. This definition was carried over into the
[30]
present NIRC of 1997. Further, these two latest codes categorize two different kinds of excise
taxes: specific tax which is imposed and based on weight or volume capacity or any other
physical unit of measurement; and ad valorem tax which is imposed and based on the selling
price or other specified value of the goods. In other words, the meaning of excise tax has
undergone a transformation, morphing from the Am Jur definition to its current signification
which is a tax on certain specified goods or articles.
The change in perspective brought forth by the use of the term excise tax in a different
connotation was not lost on the departed author Jose Nolledo as he accorded divergent
treatments in his 1973 and 1994 commentaries on our tax laws. Writing in 1973, and essentially
alluding to the Am Jur definition of excise tax, Nolledo observed:
Are specific taxes, taxes on property or excise taxes
In the case of Meralco v. Trinidad ([G.R.] 16738, 1925) it was held
that specific taxes are property taxes, a ruling which seems to be erroneous.
Specific taxes are truly excise taxes for the fact that the value of the property
taxed is taken into account will not change the nature of the tax. It is correct
to say that specific taxes are taxes on the privilege to import, manufacture
[31]
and remove from storage certain articles specified by law.
In contrast, after the tax code was amended to classify specific taxes as a subset of
excise taxes, Nolledo, in his 1994 commentaries, wrote:
1. Excise taxes, as used in the Tax Code, refers to taxes
applicable to certain specified goods or articles manufactured or produced
in the Philippines for domestic sale or consumption or for any other
disposition and to things imported into the Philippines. They are
either specific or ad valorem.
2. Nature of excise taxes. They are imposed directly on certain
specified goods. (infra) They are, therefore, taxes on property.
(see Medina vs. City of Baguio, 91 Phil. 854.)
A tax is not excise where it does not subject directly the produce or
goods to tax but indirectly as an incident to, or in connection with, the
[32]
business to be taxed.
 In their 2004 commentaries, De Leon and De Leon restate the Am Jur definition of
excise tax, and observe that the term is synonymous with privilege tax and [both terms] are often
[33]
used interchangeably. At the same time, they offer a caveat that [e]xcise tax, as [defined
by Am Jur], is not to be confused with excise tax imposed [by the NIRC] on certain specified
articles manufactured or produced in, or imported into, the Philippines, for domestic sale or
[34]
consumption or for any other disposition.
It is evident that Am Jur aside, the current definition of an excise tax is that of a tax
levied on a specific article, rather than one upon the performance, carrying on, or the exercise of
an activity. This current definition was already in place when the Code was enacted in 1991, and
we can only presume that it was what the Congress had intended as it specified that local
government units could not impose excise taxes on articles enumerated under the [NIRC]. This
prohibition must pertain to the same kind of excise taxes as imposed by the NIRC, and not those
previously defined excise taxes which were not integrated or denominated as such in our
present tax law.
It is quite apparent, therefore, that our current body of taxation law does not explicitly
accommodate the traditional definition of excise tax offered by Petron. In fact, absent any
statutory adoption of the traditional definition, it may be said that starting in 1986 excise taxes in
this jurisdiction refer exclusively to specific or ad valorem taxes imposed under the NIRC. At the
very least, it is this concept of excise tax which we can reasonably assume that Congress had in
mind and actually adopted when it crafted the Code. The palpable absurdity that ensues should
the alternative interpretation prevail all but strengthens this position.
Thus, Petrons argument concerning excise taxes is founded not on what the NIRC or
the Code actually provides, but on a non-statutory definition sourced from a legal paradigm that
is no longer applicable in this jurisdiction. That such definition was referred to again in our 1998
[35]
decision in Province of Bulacan v. Court of Appeals is ultimately of little consequence, and so
is Petrons reliance on such ruling. The Court therein had correctly nullified, on the basis of
Section 133(h) of the Code, a province-imposed tax of 10% of the fair market value in the locality
per cubic meter of ordinary stones, sand, gravel, earth and other quarry resources xxx extracted
from public lands, because it noted that under Section 151 of the NIRC, all nonmetallic minerals
and quarry resources were assessed with excise taxes of two percent (2%) based on the actual
market value of the gross output thereof at the time of removal, in case of those locally extracted
[36]
or produced. Additionally, the Court also observed that the case had emanated from an
attempt to impose the said tax on quarry resources from private lands, despite the clear
language of the tax ordinance limiting the tax to such resources extracted from public
[37]
lands. On that score alone, the case could have been correctly decided.
It is true that the Court had additionally reasoned in Province of Bulacan that [t]he tax
imposed by the Province of Bulacan is an excise tax, being a tax upon the performance, carrying
on, or exercise of an activity. As earlier noted, such definition of excise tax however was not
explicitly carried over into the NIRC and was even superseded beginning with the 1986
amendments thereto. To insist on utilizing this definition simply because it had been reiterated
in Province of Bulacan, unnecessary as such reiteration may have been to the resolution of that
case, would have the unfortunate effect of infusing life into a concept that is diametrically
inconsistent with the present state of the law.
We thus can assert with clear comfort that excise taxes, as imposed under the NIRC,
do not pertain to the performance, carrying on, or exercise of an activity, at least not to the
extent of equating excise with business taxes.
IV.
We next consider whether the clause taxes, fees or charges on petroleum products in Section
133(h) precludes local government units from imposing business taxes based on the sale of
petroleum products.
The power of a municipality to impose business taxes derives from Section 143 of the Code that
specifically enumerates several types of business on which it may impose taxes, including
manufacturers, wholesalers, distributors, dealers of any article of commerce of whatever
[38]
nature; those engaged in the export or commerce of essential
[39] [40] [41]
commodities; retailers; contractors and other independent contractors; banks and
[42]
financial institutions; and peddlers engaged in the sale of any merchandise or article of
[43]
commerce. This obviously broad power is further supplemented by paragraph (h) of Section
143 which authorizes the sanggunian to impose taxes on any other businesses not otherwise
[44]
specified under Section 143 which the sanggunian concerned may deem proper to tax.
This ability of local government units to impose business or other local taxes is ultimately rooted
in the 1987 Constitution. Section 5, Article X assures that [e]ach local government unit shall
have the power to create its own sources of revenues and to levy taxes, fees and charges,
though the power is subject to such guidelines and limitations as the Congress may provide.
There is no doubt that following the 1987 Constitution and the Code, the fiscal autonomy of local
government units has received greater affirmation than ever. Previous decisions that have been
skeptical of the viability, if not the wisdom of reposing fiscal autonomy to local government units
have fallen by the wayside.
[45]
Respondents cite our declaration in City Government of San Pablo v. Reyes that following the
1987 Constitution the rule thenceforth in interpreting statutory provisions on municipal fiscal
[46]
powers, doubts will have to be resolved in favor of municipal corporations. Such policy is also
echoed in Section 5(a) of the Code, which states that [a]ny provision on a power of a local
government unit shall be liberally interpreted in its favor, and in case of doubt, any question
thereon shall be resolved in favor of devolution of powers and of the lower local government unit.
But somewhat conversely, Section 5(b) then proceeds to assert that [i]n case of doubt, any tax
ordinance or revenue measure shall be construed strictly against the local government unit
[47]
enacting it, and liberally in favor of the taxpayer. And this latter qualification has to be
respected as a constitutionally authorized limitation which Congress has seen fit to
provide. Evidently, local fiscal autonomy should not necessarily translate into abject deference to
the power of local government units to impose taxes.
Congress has the constitutional authority to impose limitations on the power to tax of local
government units, and Section 133 of the Code is one such limitation. Indeed, the provision is
the explicit statutory impediment to the enjoyment of absolute taxing power by local government
units, not to mention the reality that such power is a delegated power. To cite one example,
under Section 133(g), local government units are disallowed from levying business taxes on
business enterprises certified to by the Board of Investments as pioneer or non-pioneer for a
period of six (6) and (4) four years, respectively from the date of registration.
Section 133(h) states that local government units shall not extend to the levy of xxx taxes, fees
or charges on petroleum products. Respondents assert that the phrase taxes, fees or charges
on petroleum products pertains to the imposition of direct or excise taxes on petroleum products,
and not business taxes. If the phrase actually pertains to excise taxes, then it would be an
exercise in utter redundancy, since the preceding phrase already prohibits the imposition of
excise taxes on articles already subject to such taxes under the NIRC, such as petroleum
products. There would be no sense on the part of the legislature to twice emphasize in the same
sentence that excise taxes on petroleum products are beyond the pale of local government
taxation.
It appears that this argument of respondents was fashioned on the basis of the pronouncement
[48]
of the Court in Philippine Petroleum Corporation v. Municipality of Pililla, thus:
xxx [W]hile Section 2 of P.D. 436 prohibits the imposition of local taxes on
petroleum products, said decree did not amend Sections 19 and 19 (a) of
P.D. 231 as amended by P.D. 426, wherein the municipality is granted the
right to levy taxes on business of manufacturers, importers, producers of
any article of commerce of whatever kind or nature. A tax on business is
distinct from a tax on the article itself. Thus, if the imposition of tax on
business of manufacturers, etc. in petroleum products contravenes a
declared national policy, it should have been expressly stated in P.D. No.
436.
The dicta that [a] tax on a business is distinct from a tax on the article itself might at first blush
somehow lend support to respondents position, yet that dicta has not since been reprised by this
Court. It is likewise worth observing that Pililla did involve a tax ordinance that imposed business
taxes on an enterprise engaged in the manufacture and storage of petroleum products.
Significantly, the legal milieu governing Pililla is vastly different from that existing at bar, to the
extent that the earlier case could not be presently controlling.
At the time the taxes sought to be collected in Pililla were imposed, there was no national law in
place similar to Section 133(h) of the Code that barred local taxes, fees or charges on petroleum
products. There were circulars to that effect issued by the Finance Department, yet the Court
could not validate such issuances since under the tax laws then in place
no exemptions were given to
[49]
manufacturers, wholesalers, retailers, or dealers in petroleum products. In fact, the Court
tellingly observed that if the imposition of tax on business of manufacturers, etc. in petroleum
products contravenes a declared national policy, it should have been expressly stated in P.D.
[50]
No. 436. Such expression conspiciously missing in P.D. No. 436 is now found in Section
133(h).
In view of the difference in statutory paradigm between this case and Pililla, the latter case is
severely diminished as applicable precedent at bar. The Court then was correct in observing that
a mere administrative circular could not prohibit a local tax that is not otherwise barred under a
national statute, yet in this case that conflict is not present since the Code explicitly prohibits the
imposition of several classes of local taxes, including those on petroleum products. The final and
only straw Pililla provides that respondents can still grasp at is the bare statement that [a] tax on
[51]
a business is distinct from a tax on the article itself, a sentence which could have been omitted
from that decision without any effect.
We can concede that a tax on a business is distinct from a tax on the article itself, or for that
matter, that a business tax is distinct from an excise tax. However, such distinction is immaterial
insofar as the latter part of Section 133(h) is concerned, for the phrase taxes, fees or charges on
petroleum products does not qualify the kind of taxes, fees or charges that could withstand the
absolute prohibition imposed by the provision. It would have been a different matter had
Congress, in crafting Section 133(h), barred excise taxes or direct taxes, or any category of
taxes only, for then it would be understood that only such specified taxes on petroleum products
could not be imposed under the prohibition. The absence of such a qualification leads to the
conclusion that all sorts of taxes on petroleum products, including business taxes, are prohibited
by Section 133(h). Where the law does not distinguish, we should not distinguish.
The language of Section 133(h) makes plain that the prohibition with respect to petroleum
products extends not only to excise taxes thereon, but all taxes, fees and charges. The earlier
reference in paragraph (h) to excise taxes comprehends a wider range of subjects of taxation: all
articles already covered by excise taxation under the NIRC, such as alcohol products, tobacco
products, mineral products, automobiles, and such non-essential goods as jewelry, goods made
of precious metals, perfumes, and yachts and other vessels intended for pleasure or sports. In
contrast, the later reference to taxes, fees and charges pertains only to one class of articles of
the many subjects of excise taxes, specifically, petroleum products. While local government
units are authorized to burden all such other class of goods with taxes, fees and charges,
excepting excise taxes, a specific prohibition is imposed barring the levying of any other type of
taxes with respect to petroleum products.
V.
We no longer need to dwell on the arguments centering on Article 232 of the IRR. As
earlier stated, the provision explicitly stipulates that in line with existing national policy, any
business engaged in the production, manufacture, refining, distribution or sale of oil, gasoline
and other petroleum products shall not be subject to any local tax imposed on this article [on
business taxes]. The RTC went as far as to declare Article 232 as invalid on the premise that the
prohibition was not similarly warranted under the Code.
Assuming that the Code does not, in fact, prohibit the imposition of business taxes on
petroleum products, we would agree that the IRR could not impose such a prohibition. With our
ruling that Section 133(h) does indeed prohibit the imposition of local business taxes on
petroleum products, however, the RTC declaration that Article 232 was invalid is, in turn, itself
invalid. Even absent Article 232, local government units cannot impose business taxes on
petroleum products. If anything, Article 232 merely reiterates what the Code itself already
provides, with the additional explanation that such prohibition was in line with existing national
policy.
VI.
We have said all that need be said for the resolution of this case, but there is one more line of
argument raised by respondents that deserves a remark. Respondents argue, assuming... that
the Oversight Committee [that drafted the IRR] can legislate, that the existing national policy
referred to in Article 232 had been superseded by Republic Act No. 8180, or the Oil Deregulation
Law. Boiled down to its essence, the argument is that since the oil industry is presently
deregulated the basis for exempting petroleum products from business taxes no longer exists.
Of course, the starting premise for this argument, that the IRR can establish a tax or an
[52]
exemption, is false and has been flatly rejected by this Court before. The Code itself does not
connect its prohibition on taxation of petroleum products with any existing or future national oil While Section 133(h) does not generally bar the imposition of business taxes on
policy, so the change in such national policy with the regime of oil deregulation is ultimately of no articles burdened by excise taxes under the NIRC, it specifically prohibits local government units
moment. Still, we can divine the reasoning behind singling out petroleum products, among all from extending the levy of any kind of taxes, fees or charges on petroleum products.
other commodities, as beyond the power of local government units to levy local taxes. Accordingly, the subject tax assessment is ultra vires and void.

Why the special concern over petroleum products? The answer is quite evident to all sentient WHEREFORE, the Petition is GRANTED. The Decision of
persons. In this age where unfortunately dependence on petroleum as fuel has yet no equally the Regional Trial Court of Malabon City in Civil Case No. 3380-MN is REVERSED and SET
feasible alternative, the cost of petroleum products, though fully controlled by private enterprise, ASIDE and the subject assessment for
remains an area of public concern. To be blunt about it, there is an inevitable link between the deficiency taxes on petitioner is ordered CANCELLED. The Temporary Restraining Order
fluctuation of oil prices and the prices of every other commodity. The reality, indeed, is oil is a dated 4 August 2003 is hereby made PERMANENT. No pronouncement as to costs.
political commodity. Such fact has received recognition from this Court. [O]il [is] a commodity
whose supply and price affect the ebb and flow of the lifeblood of the nation. Its shortage of SO ORDERED.
supply or a slight, upward spiral in its price shakes our economic foundation. Studies show that
the areas most impacted by the movement of oil are food manufacture, land transport, trade,
[53]
electricity and water. [T]he upswing and downswing of our economy materially depend on the
[54]
oscillation of oil. Fluctuations in the supply and price of oil products have a dramatic effect on
economic development and public welfare.
[55] [G.R. No. 152492. October 16, 2003]

It can be reasonably presumed that if municipalities, cities and provinces were authorized to
impose business taxes on manufacturers and retailers of petroleum products, the resulting
losses to these enterprises would be passed on to the consumers, triggering the chain of PALMA DEVELOPMENT CORPORATION, petitioner, vs. MUNICIPALITY OF
increases that normally accompany the increase in oil prices. No similarly massive trigger effect MALANGAS, ZAMBOANGA DEL SUR, respondent.
would ensue upon the imposition of business taxes on other commodities, including those
already subject to excise taxation under the NIRC.

DECISION
It may very well be that the policy of deregulation, which was not yet in effect at the
time of the enactment of the Local Government Code, has changed the complexion of the issue, PANGANIBAN, J.:
for unlike before, oil companies are free at will to increase oil prices, thus mitigating the similarly
arbitrary consequences that could develop if petroleum products were subject to local taxes.
In accordance with the Local Government Code of 1991, a municipal ordinance imposing
Still, it cannot be denied that subjecting petroleum products to business taxes apart from the
fees on goods that pass through the issuing municipalitys territory is null and void.
taxes already imposed by Congress in this age of deregulation would lead to the same result
had they been so taxed during the era of oil regulation the increase of oil prices. We do not
discount the authority of Congress to enact measures that facilitate the increase in oil prices;
witness the Oil Deregulation Law and the most recent Expanded VAT Law. Yet these hard The Case
choices are presumably made by Congress with the expectation that the negative effects of
increased oil prices are offset by the other economic benefits promised by those new laws (i.e.,
a more vibrant oil industry; increased government revenue). [1]
The Petition for Review before us assails the August 31, 2001 Decision and
[2]

[3]
the February 6, 2002 Resolution of the Court of Appeals (CA) in CA-GR CV No.
The Court defers to the other branches of government in the formulation of oil policy, 56477. The dispositive portion of the challenged Decision reads as follows:
but when the choices are made through legislation, the Court expects that the choices are
deliberate, considering that the stakes are virtually all-in. Herein, respondents may be bolstered
UPON THE VIEW WE TAKE OF THIS CASE, THUS, the assailed Decision
by the constitutional and statutory policy favoring local fiscal autonomy, but it would be utter
is VACATED and SET ASIDE, and this case is ordered REMANDED to the court a quo for the
indolence to reflexively affirm such policy when the inevitable effect is an increase in oil prices.
reception of evidence of the parties on the matter or point delineated in the final sentence above-
Any prudent adjudication should fully ascertain the mandate of local government units to impose [4]
stated.
taxes on petroleum products, and such mandate should be cast in so specific terms as to leave
no dispute as to the legislative intendment to extend such power in the name of local autonomy.
What we have found instead, from the plain letter of the law is an explicit disinclination on the The assailed Resolution denied petitioners Motion for Reconsideration.
part of the legislature to impart that particular taxing power to local government units.
The Facts On the premise that the case involved the validity of a municipal ordinance, the RTC
directed respondent to secure the opinion of the Office of the Solicitor General. The trial court
likewise ordered that the opinions of the Departments of Finance and of Justice be sought. As
The facts are undisputed. Petitioner Palma Development Corporation is engaged in milling these opinions were still unavailable as of October 17, 1996, petitioners counsel filed, without
and selling rice and corn to wholesalers in Zamboanga City. It uses the objection from respondent, a Manifestation seeking the submission of the case for
municipal port of Malangas, Zamboanga del Sur as transshipment point for its goods. The port, the RTCs decision on a pure question of law.
as well as the surrounding roads leading to it, belong to and are maintained by
the Municipality of Malangas, Zamboanga del Sur. In due time, the trial court rendered its November 13, 1996 Decision declaring the entire
Municipal Revenue Code No. 09 as ultra vires and, hence, null and void.
On January 16, 1994, the municipality passed Municipal Revenue Code No. 09, Series of
1993, which was subsequently approved by
the SangguniangPanlalawigan of Zamboanga del Sur in Resolution No. 1330 dated August 4,
1994. Section 5G.01 of the ordinance reads: Ruling of the Court of Appeals

Section 5G.01. Imposition of fees. There shall be collected service fee for its use of the
The CA held that local government units already had revenue-raising powers as provided
municipal road[s] or streets leading to the wharf and to any point along the shorelines within the
for under Sections 153 and 155 of RA No. 7160. It ruled as well that within the purview of these
jurisdiction of the municipality and for police surveillance on all goods and all equipment
provisions -- and therefore valid -- is Section 5G.01, which provides for a service fee for the use
harbored or sheltered in the premises of the wharf and other within the jurisdiction of this
of the municipal road or streets leading to the wharf and to any point along the shorelines within
municipality in the following schedule:
the jurisdiction of the municipality and for police surveillance on all goods and all equipment
harbored or sheltered in the premises of the wharf and other within the jurisdiction of this
a) Vehicles and Equipment: rate of fee municipality.

However, since both parties had submitted the case to the trial court for decision on a pure
1. Automatic per unit P10.00
question of law without a full-blown trial on the merits, the CA could not determine whether the
facts of the case were within the ambit of the aforecited sections of RA No. 7160. The appellate
2. Ford Fiera P10.00 court ruled that petitioner still had to adduce evidence to substantiate its allegations that the
assailed ordinance had imposed fees on the movement of goods within
3. Trucks P10.00 the Municipality of Malangas in the guise of a toll fee for the use of municipal roads and a
service fee for police surveillance. Thus, the CA held that the absence of such evidence
necessitated the remand of the case to the trial court.
xxxxxxxxx
[6]
Hence, this Petition.
b) Other Goods, Construction Material products:

1. Bamboo craft P20.00 Issues

2. Bangus/Kilo 0.30
xxxxxxxxx
[5]
41. Rice and corn grits/sack 0.50
Accordingly, the service fees imposed by Section 5G.01 of the ordinance was paid by
petitioner under protest. It contended that under Republic Act No. 7160, otherwise known as the
Local Government Code of 1991, municipal governments did not have the authority to tax goods
and vehicles that passed through their jurisdictions. Thereafter, before the Regional Trial Court
(RTC) of Pagadian City, petitioner filed against the Municipality of Malangas on November 20,
1995, an action for declaratory relief assailing the validity of Section 5G.01 of the municipal
ordinance.
Petitioner raises the following issues for our consideration:
1. Whether or not the Court of Appeals erred when it ordered that the extant case be
remanded to the lower court for reception of evidence.
2. Whether or not the Court of Appeals erred when it ruled that a full blown trial on
the merits is necessary and that plaintiff-appellee, now petitioner, has to adduce
evidence to substantiate its thesis that the assailed municipal ordinance, in fact,
imposes fees on the movement of goods within the jurisdiction of the defendant
and that this imposition is merely in the guise of a toll fee for the use of
municipal roads and service fee for police surveillance.
 3. Whether or not the Court of Appeals erred when it did not rule that the questioned
municipal ordinance is contrary to the provisions of R.A. No. 7160 or the Local
[7]
Government Code of the Philippines.
In brief, the issues boil down to the following: 1) whether Section 5G.01 of Municipal
Revenue Code No. 09 is valid; and 2) whether the remand of the case to the trial court is
necessary.
The Courts Ruling
The Petition is meritorious.
First Issue:
Validity of the Imposed Fees
Petitioner argues that while respondent has the power to tax or impose fees
on vehicles using its roads, it cannot tax the goods that are transported by the vehicles. The
provision of the ordinance imposing a service fee for police surveillance on goods is allegedly
contrary to Section 133(e) of RA No. 7160, which reads:
Section 133. Common Limitations on the Taxing Powers of Local Government Units. Unless
otherwise provided herein, the exercise of the taxing powers of provinces, cities, municipalities,
and barangays shall not extend to the levy of the following:
xxxxxxxxx
e) Taxes, fees and charges and other impositions upon goods carried into and out of, or passing
through, the territorial jurisdictions of local government units in the guise of charges
for wharfage, tolls for bridges or otherwise, or other taxes, fees or charges in any form
whatsoever upon such goods or merchandise;
On the other hand, respondent maintains that the subject fees are intended for services
rendered, the use of municipal roads and police surveillance. The fees are supposedly not
[8]
covered by the prohibited impositions under Section 133(e) of RA No. 7160. It further contends
that it was empowered by the express mandate of Sections 153 and 155 of RA No. 7160 to
enact Section 5G.01 of the ordinance. The pertinent provisions of this statute read as follows:
Section 153. Service Fees and Charges. -- Local government units may impose and collect such
reasonable fees and charges for services rendered.
xxxxxxxxx
Section 155. Toll Fees or Charges. -- The sanggunian concerned may prescribe the terms and
conditions and fix the rates for the imposition of toll fees or charges for the use of any public
road, pier or wharf, waterway, bridge, ferry or telecommunication system funded and constructed
by the local government unit concerned: Provided, That no such toll fees or charges shall be
collected from officers and enlisted men of the Armed Forces of the Philippines and members of
the Philippine National Police on mission, post office personnel delivering mail, physically-
handicapped, and disabled citizens who are sixty-five (65) years or older.
When public safety and welfare so requires, the sanggunian concerned may discontinue the
collection of the tolls, and thereafter the said facility shall be free and open for public use.
Respondent claims that there is no proof that the P0.50 fee for every sack of rice or corn is
a fraudulent legislation enacted to subvert the limitation imposed by Section 133(e) of RA No.
7160. Moreover, it argues that allowing petitioner to use its roads without paying the P0.50 fee
for every sack of rice or corn would contravene the principle of unjust enrichment.
By express language of Sections 153 and 155 of RA No. 7160, local government units,
through their Sanggunian, may prescribe the terms and conditions for the imposition of toll fees
or charges for the use of any public road, pier or wharf funded and constructed by them. A
service fee imposed on vehicles using municipal roads leading to the wharf is thus
valid. However, Section 133(e) of RA No. 7160 prohibits the imposition, in the guise of wharfage,
of fees -- as well as all other taxes or charges in any form whatsoever -- on goods or
merchandise. It is therefore irrelevant if the fees imposed are actually for police surveillance on
the goods, because any other form of imposition on goods passing through the territorial
jurisdiction of the municipality is clearly prohibited by Section 133(e).
Under Section 131(y) of RA No. 7160, wharfage is defined as a fee assessed against the
cargo of a vessel engaged in foreign or domestic trade based on quantity, weight, or measure
received and/or discharged by vessel. It is apparent that a wharfage does not lose its basic
character by being labeled as a service fee for police surveillance on all goods.
Unpersuasive is the contention of respondent that petitioner would unjustly be enriched at
[9]
the formers expense. Though the rules thereon apply equally well to the government, for unjust
enrichment to be deemed present, two conditions must generally concur: (a) a person is unjustly
[10]
benefited, and (b) such benefit is derived at anothers expense or damage.
In the instant case, the benefits from the use of the municipal roads and the wharf were
not unjustly derived by petitioner. Those benefits resulted from the infrastructure that the
[11]
municipality was mandated by law to provide. There is no unjust enrichment where the one
receiving the benefit has a legal right or entitlement thereto, or when there is no causal relation
[12]
between ones enrichment and the others impoverishment.
Second Issue:
Remand of the Case
Petitioner asserts that the remand of the case to the trial court for further reception of
evidence is unnecessary, because the facts are undisputed by both parties. It has already been
clearly established, without need for further evidence, that petitioner transports rice and corn on
board trucks that pass through the municipal roads leading to the wharf. Under protest, it paid
the service fees, a fact that respondent has readily admitted without qualification.
Respondent, on the other hand, is silent on the issue of the remand of the case to the trial
court. The former merely defends the validity of the ordinance, arguing neither for nor against
the remand.
[13]
We rule against the remand. Not only is it frowned upon by the Rules of Court; it is also
unnecessary on the basis of the facts established by the admissions of the parties. Besides, the
fact sought to be established with the reception of additional evidence is irrelevant to the due
settlement of the case.
The pertinent portion of the assailed CA Decision reads:
To be stressed is the fact that local government units now have the following common revenue
raising powers under the Local Government Code:
Section 153. Service Fees and Charges. -- Local government units may impose and collect such
reasonable fees and charges for services rendered.
xxxxxxxxx
Section 155. Toll Fees or Charges. -- The Sanggunian concerned may prescribe the terms and
conditions and fix the rates for the imposition of toll fees or charges for the use of any public
road, pier or wharf, waterway, bridge, ferry or telecommunication system funded and constructed
by the local government unit concerned: Provided, That no such toll fees or charges shall be
collected from officers and enlisted men of the Armed Forces of the Philippines and members of
the Philippine National Police on mission, post office personnel delivering mail, physically-
handicapped, and disabled citizens who are sixty-five (65) years or older.
When public safety and welfare so requires, the Sanggunian concerned may discontinue the
collection of the tolls, and thereafter the said facility shall be free and open for public use. x x x
As we see it, the disputed municipal ordinance, which provides for a service fee for the use of
the municipal road or streets leading to the wharf and to any point along the shorelines within the
jurisdiction of the municipality and for police surveillance on all goods and all equipment
harbored or sheltered in the premises of the wharf and other within the jurisdiction of this
municipality, seems to fall within the compass of the above cited provisions of R.A. No. 7160. As
elsewhere indicated, the parties in this case, nonetheless, chose to submit the issue to the Trial
Court on a pure question of law, without a full-blown trial on the merits: consequently, we are not
prepared to say, at this juncture, that the facts of the case inevitably call for the application,
and/or that these make out a clear-cut case within the ambit and purview, of
the aforecited section. The plaintiff, thus, has to adduce evidence to substantiate its thesis that
the assailed municipal ordinance, in fact, imposes fees on the movement of goods within the
jurisdiction of the defendant, and that this imposition is merely in the guise of a toll fee for the
use of municipal roads and service fee for police surveillance. Competent evidence upon this
score must, thus, be presented.
[14]
We note that Section 5G.01 imposes two types of service fees: 1) one for the use of the
municipal roads and 2) another for police surveillance on all goods and equipment sheltered in
the premises of the wharf. The amount of service fees, however, is based on the type
of vehicle that passes through the road and the type of goods being transported.
While both parties admit that the service fees imposed are for the use of the municipal
roads, petitioner maintains that the service fee for police surveillance on goods harbored on the
[15]
wharf is in the guise of a wharfage, a prohibited imposition under Section 133(e) of RA No.
7160.
Thus, the CA held that the case should be remanded to the trial court in order to resolve
this factual dispute. The appellate court noted that under Section 155 of RA No. 7160,
municipalities apparently now have the power to impose fees for the use of municipal roads.
Nevertheless, a remand is still unnecessary even if the service fee charged against
the goods are for police surveillance, because Section 133(e) of RA No. 7160 expressly
prohibits the imposition of all other taxes, fees or charges in any form whatsoever upon the
merchandise or goods that pass through the territorial jurisdiction of local government units. It is
therefore immaterial to the instant case whether the service fee on the goods is for police
surveillance or not, since the subject provision of the revenue ordinance is invalid. Reception of
further evidence to establish this fact would not legalize the imposition of such fee in any way.
Furthermore, neither party disputes any of the other material facts of the case. From their
respective Briefs before the CA and their Memoranda before this Court, they do not dispute the
fact that petitioner, from its principal place of business, transports rice and corn on board trucks
bound for respondents wharf.The trucks traverse the municipal roads en route to the wharf,
where the sacks of rice and corn are manually loaded into marine vessels bound
for ZamboangaCity. Likewise undisputed is the fact that respondent imposed and collected fees
under the ordinance from petitioner. The former admits that it has been collecting, in addition to
the fees on vehicles, P0.50 for every sack of rice or corn that the latter has been shipping
[16]
through the wharf.
The foregoing allegations are formal judicial admissions that are conclusive upon the
parties making them. They require no further proof in accordance with Section 4 of Rule 129 of
the Rules of Court, which reads:
SEC. 4. Judicial admissions. An admission, verbal or written, made by a party in the course of
the proceedings in the same case, does not require proof. The admission may be contradicted
only by showing that it was made through palpable mistake or that no such admission was
made.
Judicial admissions made by parties in the pleadings, in the course of the trial, or in other
proceedings in the same case are conclusive. No further evidence is required to prove
them. Moreover, they cannot be contradicted unless it is shown that they have been made
[17]
through palpable mistake, or that they have not been made at all.
WHEREFORE, the Petition is GRANTED. The assailed Decision and Resolution of the
Court of Appeals are hereby SET ASIDE. The imposition of a service fee for police surveillance
on all goods harbored or sheltered in the premises of the municipal port of Malangas under Sec.
5G.01 of the MalangasMunicipal Revenue Code No. 09, series of 1993, is declared NULL AND
VOID for being violative of Republic Act No. 7160.
 SO ORDERED.
G.R. No. L-21183 September 27, 1968
VICTORIAS MILLING CO., INC., plaintiff-appellant,
vs.
THE MUNICIPALITY OF VICTORIAS, PROVINCE OF NEGROS OCCIDENTAL, defendant-
appellant.
Hilado & Hilado for plaintiff-appellant.
The Provincial Fiscal of Negros Occidental for defendant-appellant.
SANCHEZ, J.:
This case calls into question the validity of Ordinance No. 1, series of 1956, of the Municipality of
Victorias, Negros Occidental.
The disputed ordinance was approved by the municipal Council of Victorias on September 22,
1956 by way of an amendment to two municipal ordinances separately imposing license taxes
1 2
on operators of sugar centrals and sugar refineries. The changes were: with respect to sugar
centrals, by increasing the rates of license taxes; and as to sugar refineries, by increasing the
rates of license taxes as well as the range of graduated schedule of annual output capacity.
3 the action, the provisions of section 357 of the Revised Manual of Instructions to Treasurers of
Ordinance No. 1 is labeled "An Ordinance Amending Ordinance No. 25, Series of 1953 and
Ordinance No. 18, Series of 1947 on Sugar Central by Increasing the Rates on Sugar Refinery
Mill by Increasing the Range of Graduated Schedule on Capacity Annual Output Respectively".
It was, as the ordinance itself states, enacted pursuant to the taxing power conferred by
Commonwealth Act 472. By Section 1 of the Ordinance: "Any person, corporation or other forms
of companies, operating sugar central or engage[d] in the manufacture of centrifugal sugar shall
be required to pay the following annual municipal license tax, payable quarterly, to wit: . . ."
Section 1 referred to prescribes a wide range of schedule. It starts with a sugar central with mill
having an annual output capacity of not less than 50,000 piculs of centrifugal sugar, in which
case an annual municipal license tax of P1,000.00 is provided. Depending upon the annual
output capacity the schedule of taxes continues with P2,000.00 progressively upward in twelve
other grades until an output capacity of 1,500,001 piculs or more shall have been reached. For
this, the annual tax is P40,000.00. The tax on sugar refineries is likewise calibrated with similar
rates. It also starts with P1,000.00 for a refinery with mill having an annual output capacity of not
less than 25,000 bags of 100 lbs. of refined sugar. Then, it continues with the second bracket of
from 25,001 bags to 75,000 bags of 100 lbs. Here, the municipal license tax is P1,500.00. Then
follow the other rates in the graduated scale with the ceiling placed at a capacity of 1,750,001
bags or more. The annual municipal license tax for the last mentioned output capacity is
P40,000.00.
Of importance are the provisions of Section 1(m) relating to sugar centrals and Section 2(m)
covering sugar refineries with specific reference to the maximum annual license tax, viz:
Section No. 1 — Any person, corporation or other forms of Companies, operating
Sugar Central or engage[d] in the manufacture of centrifugal sugar shall be required to
pay the following annual municipal license tax, payable quarterly, to wit:
xxx xxx xxx
(m) Sugar Central with mill having a capacity of producing an annual output of from
1,500,001 piculs or more shall be required to pay an annual municipal license tax of —
P40,000.00.
Section No. 2 — Any person, corporation or other forms of Companies shall be
required to pay an annual municipal license tax for the operation of Sugar Refinery Mill
at the following rates:
xxx xxx xxx
(m) Sugar Refinery with mill having a capacity of producing an annual output of from
1,750,001 bags of 100 lbs. or more shall be required to pay an annual municipal
license tax of — P40,000.00.
For, the production of plaintiff Victorias Milling Co., Inc. in both its sugar central and its sugar
refinery located in the Municipality of Victorias comes within these items in the schedule.
4
Plaintiff filed suit below to ask for judgment declaring Ordinance No. 1, series of 1956, null and
void; ordering the refund of all license taxes paid and to be paid under protest; directing the
officials of Victorias and the Province of Negros Occidental to observe, during the pendency of
5
Provinces, Cities and Municipalities, 1954 edition, regarding the treatment of license taxes paid
6
under protest by virtue of a disputed ordinance; and other reliefs.
The reasons put forth by plaintiff are that: (a) the ordinance exceeds the amounts fixed in
Provincial Circular 12-A issued by the Finance Department on February 27, 1940; (b) it is
discriminatory since it singles out plaintiff which is the only operator of a sugar central and a
sugar refinery within the jurisdiction of defendant municipality; (c) it constitutes double taxation;
and (d) the national government has preempted the field of taxation with respect to sugar
centrals or refineries.
Upon the complaint as supplemented and amended, and the answer thereto, and following
hearing on the merits, the trial court rendered its judgment. After declaring that "[t]here is no
doubt that" the ordinance in question refers to license taxes or fees," and that "[i]t is settled that
7
a license tax should be limited to the cost of licensing, regulating and surveillance," the trial
8
court ruled that said license taxes in dispute are unreasonable, and held that: "If the defendant
has the power to tax the plaintiff for purposes of revenue, it may do so by proper municipal
9
legislation, but not in the guise of a license tax." The court added: "The Court is not, however,
prepared to order the refund of all the license taxes paid by the plaintiff under protest and
amounting, up to the second quarter of 1960, to P280,000.00, considering that the plaintiff
appears to have agreed to the payment of the license taxes at the rates fixed prior to Ordinance
No. 1, series of 1956; that the defendant had evidently not complied with the provisions of

Section 357 of the Revised Manual of Instructions to Treasurers of Provinces, Cities and
Municipalities, 1954 Edition, as the plaintiff herein seeks an order enjoining the defendant and its
appropriate officials to carry out said provisions; that the financial position of the defendant
would surely be disrupted if ordered to refund, while the plaintiff may perhaps easily forego or
10
forget what it had already parted with". It disposes of the suit in the following manner:
WHEREFORE, judgment is rendered (a) declaring that Ordinance No. 1, series of
1956, of the municipality of Victorias, Negros Occidental, is invalid; (b) ordering all
officials of the defendant to observe the provisions of Section 357 of the Revised
Manual of Instructions to Treasurers of Provinces, Cities and Municipalities, 1954
Edition, with particular reference to any license taxes paid by the plaintiff under said
Ordinance No. 1, series of 1956, after notice of this decision; and (c) ordering the
defendant to refund to the plaintiff any and all such license taxes paid under protest
11
after notice of this decision.
Both plaintiff and defendant appealed direct to this Court. Plaintiff questions that portion of the
decision denying the refund of the license taxes paid under protest in the amount of P280,000
covering the period from the first quarter of 1957 to the second quarter of 1960; and balked at
the court's order limiting refund to "any and all such license taxes paid under protest after notice
of this decision." Defendant, upon the other hand, challenges the correctness of the court's
decision invalidating Ordinance No. 1, series of 1956.
The questions raised in the appeals will be discussed in their proper sequence.
1. We first grapple with the threshold question: Was Ordinance No. 1, series of 1956, passed by
defendant's municipal council as a regulatory enactment or as a revenue measure?
The trial court says, and plaintiff seconds, that the amounts set forth in the ordinance in question
did exceed the cost of licensing, regulating and surveillance, and that defendant cannot impose
a tax — for revenue — in the guise of a police or a regulatory measure. Our finding, however, is
the other way.1awphîl.nèt
The ordinance itself recites that its source of taxing power emanates from Commonwealth Act
472, Section 1 of which reads:
Section 1. A municipal council or municipal district council shall have authority to
impose municipal license taxes upon persons engaged in any occupation or business,
or exercising privileges in the municipality or municipal district, by requiring them to
secure licenses at rates fixed by the municipal council, or municipal district council,
and to collect fees and charges for services rendered by the municipality or municipal
district and shall otherwise have power to levy for public local purposes, and for school
purposes, including teachers' salaries, just and uniform taxes other than percentage
taxes and taxes on specified articles.
Under the statute just quoted and pertinent jurisprudence, a municipality is authorized to impose
three kinds of licenses: (1) license for regulation of useful occupations or enterprises; (2) license
for restriction or regulation of non-useful occupations or enterprises; and (3) license for
12
revenue. The first two easily fall within the broad police power granted under the general
13
welfare clause. The third class, however, is for revenue purposes. It is not a license fee,
properly speaking, and yet it is generally so termed. It rests on the taxing power. That taxing
14
power must be expressly conferred by statute upon the municipality. It is so granted under
Commonwealth Act 472.
To be recalled at this point is that Ordinance No. 1, series of 1956, is but an amendment of
Ordinance No. 18, series of 1947, in reference to refineries, and Ordinance No. 25, series of
1953, covering sugar centrals. Ordinance No. 18 imposes "municipal taxes on persons, firms or
15
corporations operating refinery mills in this municipality." Ordinance No. 25 speaks of
16
municipal taxes "relative to the output of the sugar centrals."
17
What are these taxes for? Resolution No. 60 of the municipal council of Victorias, adopted also
on September 22, 1956 in conjunction with Ordinance No. 1, series of 1956, furnishes a ready
answer. It reads in part:
WHEREAS, the Municipal Treasurer informed the Municipal Council of the revenue of
the Municipality and the heavy obligations which confront it because of the
implementation of Minimum Wage Law on the salaries and wages it pays to its
municipal employees and laborers thus greatly draining the Municipal Treasury;
WHEREAS, this local administration is committed to the plan of ameliorating the
deplorable situation existing in the barrios, sitios and rural areas by giving them
essential and necessary facilities calculated to improve conditions thereat thru
improvements of roads and feeder roads;
WHEREAS, one of the causes of the municipality's financial difficulty is low rates of
municipal taxes imposed by some of the ordinances enacted by the local legislative
body;
WHEREAS, [in] . . . the ordinances known as Ordinance No. 25, Series of 1953,
dealing on the operation of Sugar Central, and Ordinance No. 18, Series of 1947,
which exclusively deals with the operation of Sugar Refinery Mill, the rates so given
are rates suggested and determined by the Provincial Circular No. 12-A, dated
February 27, 1940 issued by the Department of Finance as regards to Sugar Centrals;
WHEREAS, the Municipal Council has come to the conclusion that the rates provided
for in such ordinances are no longer adequate if made in keeping with the present
high cost of living;
WHEREAS, the Municipal Council has also taken cognizance of the fact that the price
of sugar per picul today is more than twice its pre-war average price; . . . .
18
Given the purposes just mentioned, we find no warrant in logic to give our assent to the view that
the ordinance in question is solely for regulatory purpose. Plain is the meaning conveyed. The
ordinance is for raising money. To say otherwise is to misread the purpose of the
ordinance.1awphîl.nèt
We should not hang so heavy a meaning on the use of the term "municipal license tax". This
does not necessarily connote the idea that the tax is imposed — as the lower court would want it
— to mean a revenue measure in the guise of a license tax. For really, this runs counter to the
declared purpose to make money.
Besides, the term "license tax" has not acquired a fixed meaning. It is often "used
19
indiscriminately to designate impositions exacted for the exercise of various privileges." It does
not refer solely to a license for regulation. In many instances, it refers to "revenue-raising
20
exactions on privileges or activities." On the other hand, license feesare commonly called
taxes. But, legally speaking, the latter are "for the purpose of raising revenues," in contrast to the
21
former which are imposed "in the exercise of police power for purposes of regulation."
We accordingly say that the designation given by the municipal authorities does not decide
whether the imposition is properly a license tax or a license fee. The determining factors are the
purpose and effect of the imposition as may be apparent from the provisions of the
22
ordinance. Thus, "[w]hen no police inspection, supervision, or regulation is provided, nor any
23
standard set for the applicant to establish, or that he agrees to attain or maintain, but any and
all persons engaged in the business designated, without qualification or hindrance, may come,
and a license on payment of the stipulated sum will issue, to do business, subject to no
prescribed rule of conduct and under no guardian eye, but according to the unrestrained
judgment or fancy of the applicant and licensee, the presumption is strong that the power of
24
taxation, and not the police power, is being exercised."
Precisely because of these considerations the present imposition must be treated as a levy for
revenue purposes. A quick glance at the big amount of maximum annual tax set forth in the
ordinance, P40,000.00 for sugar centrals, and P40,000.00 for sugar refineries, will readily
convince one that the tax is really a revenue tax. And then, we read in the ordinance nothing
which would as much as indicate that the tax imposed is merely for police inspection,
supervision or regulation.
Our view that the tax imposed by the ordinance is for revenue purposes finds support in judicial
pronouncements which have gained foothold in this jurisdiction. In Standard Vacuum vs.
25
Antigua, this Court had occasion to pass upon a similar ordinance. In categorical terms, we
there stated: "We are satisfied that the graduated license tax imposed by the ordinance in
question is an occupation tax, imposed not under the police or regulatory power of the
municipality but by virtue of its taxing power for purposes of revenue, and is in accordance with
26
the last part of Section 1 of Commonwealth Act No. 472. It is, therefore, valid."
The present case is not to be analogized with Panaligan vs. City of Tacloban cited in the
27
decision below. For there, the inspection fee sought to be collected — upon every head of
specified animals to be transported out of the City of Tacloban (P2.00 per hog, P10.00 per cow
and 20.00 per carabao) — was in reality an export tax specifically withheld from municipal taxing
power under Section 2287 of the Revised Administrative Code.
28
So also do we say that the cases of Pacific Commercial Co. vs. Romualdez, Lacson vs. City of
29 30
Bacolod, and Santos vs. Municipal Government of Caloocan, used by plaintiff as references,
are entirely inopposite. In Pacific Commercial, the tax involved — on frozen meat — was nullified
because tax measures on cold stores were not then within the legislative grant to the City of
Manila. In Lacson, the City of Bacolod taxed every admission ticket sold in the moviehouses.
And justification for this imposition was moored to the general welfare clause of the city charter.
This Court held the ordinance ultra vires for the reason that the authority to tax cannot be
derived from the general welfare clause. In Santos, the taxes in controversy were internal organs
fees, meat inspection fees and corral fees, separate from the slaughter or slaughterhouse fees.
In annulling the taxes there questioned, this Court declared: "[W]hen the Council ordained the
payment of internal organs fees, meat inspection fees and corral fees, aside from the slaughter
or slaughterhouse fees, it overstepped the limits of its statutory grant [Sec. 1, C.A. 655]. Only
one fee was allowed by that law to be charged and that was slaughter or slaughterhouse fees."
In the cases cited then, the tax ordinances did not find plain and clear statutory prop. Such
infirmity is not present here.
We, accordingly, rule that Ordinance No. 1, series of 1956, of the Municipality of Victorias, was
promulgated not in the exercise of the municipality's regulatory power but as a revenue measure
— a tax on occupation or business. The authority to impose such tax is backed by the express
grant of power in Section 1 of Commonwealth Act 472.
2. Not that the disputed ordinance lacks the imprimatur of the Secretary of Finance required in
paragraph 2, Section 4, of Commonwealth Act 472. This legal provision necessitates such
approval "[w]henever the rate of fixed municipal license taxes on businesses not excepted in this
Act or otherwise covered by the preceding paragraph and subject to the fixed annual tax
imposed in section one hundred eighty-two of the National Internal Revenue Law, is in excess of
fifty pesos per annum; . . . ."
The ordinance here challenged was recommended by the Provincial Board of Negros Occidental
31
in its resolution (No. 1864) of October 26, 1956. And, the Undersecretary of Finance in his
letter to the municipal council of Victorias on December 18, 1956 approved said ordinance. But
considering that it is amendatory in nature, that approval was coupled with the mandate that the
ordinance "should take effect at the beginning of the ensuing calendar year [1957] pursuant to
32
Section 2309 of the Revised Administrative Code."
3. Plaintiff argues that the municipality is bereft of authority to enact the ordinance in question
because the national government "had preempted it from entering the field of taxation of sugar
33
centrals and sugar refineries." Plaintiff seeks refuge in Section 189 of the National Internal
Revenue Code which subjects proprietors or operators of sugar centrals or sugar refineries to
percentage tax.
The implausibility of this position is at once apparent. We are not dealing here with percentage
tax. Rather, we are concerned with a tax specifically for operators of sugar centrals and sugar
refineries. The rates imposed are based on the maximum annual output capacity. Which is not a
percentage. Because it is not a share. Nor is it a tax based on the amount of the proceeds
realized out of the sale of sugar, centrifugal or refined.
34
What can be said at most is that the national government has preempted the field of percentage
taxation. Section 1 of Commonwealth Act 472, while granting municipalities power to levy taxes,
expressly removes from them the power to exact "percentage taxes".

It is correct to say that preemption in the matter of taxation simply refers to an instance where
the national government elects to tax a particular area, impliedly withholding from the local
government the delegated power to tax the same field. This doctrine primarily rests upon the
35
intention of Congress. Conversely, should Congress allow municipal corporations to cover
fields of taxation it already occupies, then the doctrine of preemption will not apply.
In the case at bar, Section 4(1) of Commonwealth Act 472 clearly and specifically allows
municipal councils to tax persons engaged in "the same businesses or occupation" on which
"fixed internal revenue privilege taxes" are "regularly imposed by the National Government."
With certain exceptions specified in Section 3 of the same statute. Our case does not fall within
the exceptions. It would therefore be futile to argue that Congress exclusively reserved to the
national government the right to impose the disputed taxes.
We rule that there is no preemption.
4. Petitioner advances the theory that the ordinance is excessive.
An 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
36
excessive as to be prohibitive, 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.
37
Plaintiff has however not sufficiently proven that, taking these factors together, the license taxes
are unreasonable. The presumption of validity subsists. For, plaintiff has limited itself to insisting
that the amounts levied exceed the cost of regulation and that the municipality has adequate
funds for the alleged purposes as evidenced by the municipality's cash surplus for the fiscal year
ending 1956.
The cost of regulation cannot be taken as a gauge, if the municipality really intended to enact a
revenue ordinance. For, "if the charge exceeds the expense of issuance of a license and costs
38
of regulation, it is a tax." And if it is, and it is validly imposed, as in this case, "the rule that
license fees for regulation must bear a reasonable relation to the expense of the regulation has
39
no application."
And then, a cash surplus alone cannot stop a municipality from enacting a revenue ordinance
increasing license taxes in anticipation of municipal needs. Discretion to determine the amount
of revenue required for the needs of the municipality is lodged with the municipal authorities.
Again, judicial intervention steps in only when there is a flagrant, oppressive and excessive
40
abuse of power by said municipal authorities.
Not that defendant municipality was without reason. On February 27, 1940, the Secretary of
Finance, later President, Manuel A. Roxas, issued Provincial Circular 12-A. In that circular, the
then Finance Secretary stated that his "Department has reached the conclusion that a tax on the
basis of one centavo for every picul of annual output capacity of sugar centrals ... would be just
and reasonable." At that time, the price of sugar was around P6.00 per picul. Sixteen years later
— 1956 — when Ordinance No. 1 was approved, the market quotation for export sugar ranged
41
from P12.00 to P15.00 per picul. And yet, since then the rate per output capacity of a sugar
central in Ordinance No. 1 was merely from one centavo to two centavos. There is a statement
42
in the municipality's brief that thereafter the price of sugar had never gone below P16.00 per
picul; instead it had gone up.
The reasonableness of the ordinance may not be disputed. It is not confiscatory.
There was misapprehension in the decision below in its statement that the increase of rates for
refineries was 2,000%. We should not overlook the fact that the original maximum rate covering
refineries in Ordinance No. 18, series of 1947, was P2,000.00; but that was only for a refinery
with an output capacity of 90,000 or more sacks. Under Section 2(c) of Ordinance No. 1, series
of 1956, where the refineries have an output capacity of from 75,001 bags to 100,000 bags, the
tax remains at P2,000.00. From here on, the ordinance provides for ten more scales for the
graduation of the tax depending upon the output capacity (P3,000.00, P4,000.00, P5,000.00,
P10,000.00, P15,000.00, P20,000.00, P25,000.00, P30,000.00, P35,000.00 and P40,000.00).
But it is only where a refinery has an output capacity of 1,750,001 or more bags that the present
ordinance imposes a tax of P40,000.00. The happenstance that plaintiff's refinery is in the last
bracket calling upon it to pay P40,000.00 per annum does not make the ordinance in question
unreasonable.
Neither may we tag the ordinance with excessiveness if we consider the capital invested by
plaintiff in both its sugar central and sugar refinery and its annual income from both. Plaintiff's
43
capital investment in the sugar central and sugar refinery is more or less P26,000,000.00. And
here are its annual net income: for the year 1956 — P3,852,910; for the year 1957 —
P3,854,520; for the year 1958 — P7,230,493; for the year 1959 — P5,951,187; and for the year
44
1960 — P7,809,250. If these figures mean anything at all, they show that the ordinance in
question is neither confiscatory nor unjust and unreasonable.
5. Upon the averment that in the Municipality of Victorias plaintiff is the only operator of a sugar
central and sugar refinery, plaintiff now presses its argument that Ordinance No. 1, series of
1956, is discriminatory. The ordinance does not single out Victorias as the only object of the
ordinance. Said ordinance is made to apply to any sugar central or sugar refinery which may
happen to operate in the municipality. So it is, that the fact that plaintiff is actually the sole
operator of a sugar central and a sugar refinery does not make the ordinance discriminatory.
45
Argument along the same lines was rejected in Shell Co. of P.I., Ltd. vs. Vaño, this Court
holding that the circumstance "that there is no other person in the locality who exercises" the
occupation designated as installation manager "does not make the ordinance discriminatory and
hostile, inasmuch as it is and will be applicable to any person or firm who exercises such calling
or occupation." And in Ormoc Sugar Company, Inc. vs. Municipal Board of Ormoc
46
City, declaratory relief was sought to test the validity of a municipal ordinance which provides a
city tax of twenty centavos per picul of centrifugal sugar and one per centum on the gross sale of
its derivatives and by-products "produced by the Ormoc Sugar Company, Incorporated, or by
any other sugar mill in Ormoc City." Mr. Justice Enrique Fernando, delivering the opinion of this
Court, declared that the ordinance did not suffer "from a constitutional or statutory infirmity." And
yet, in Ormoc, it is to be observed that Section 1 of the ordinance spelled out Ormoc Sugar
Company, Incorporated specifically by name. Not even the name of plaintiff herein was ever
mentioned in the ordinance now disputed.
No discrimination exists.
6. As infirm is plaintiff's stand that its business is not confined to the Municipality of Victorias. It
suffices that plantiff engages in a business or occupation subject to an exaction by the
municipality — within the territorial boundaries of that municipality. Plaintiff's sugar central and
sugar refinery are located within the Municipality of Victorias. In this central and refinery, plaintiff
manufactures centrifugal sugar and refined sugar, respectively.
But plaintiff insists that plaintiff's sugar milling and refining operations are not wholly performed
within the territorial limits of Victorias. According to plaintiff, transportation of canes from
plantation to the mill site, operation and maintenance of telephone system, inspection of crop
progress and other related activities, are conducted not only in defendant's municipality but also
47
in the municipalities of Cadiz, Manapla, Sagay and Saravia as well. We fail to see the
relevance of these facts. Because, if we follow plaintiff's ratiocination, neither Victorias nor any of
the municipalities just adverted to would be able to impose the tax. One thing certain, of course,
is that the tax is imposed upon the business of operating a sugar central and a sugar refinery.
And the situs of that business is precisely the Municipality of Victorias.
7. Plaintiff finally impleads double taxation. Its reason is that in computing the amount of taxes to
be paid by the sugar refinery the cost of the raw sugar coming from the sugar central is not
deducted; ergo, plaintiff is taxed twice on the raw sugar.
48
Double taxation has been otherwise described as "direct duplicate taxation." For double
taxation to exist, "the same property must be taxed twice, when it should be taxed but
49
once." Double taxation has also been "defined as taxing the same person twice by the same
50
jurisdiction for the same thing." As stated in Manila Motor Company, Inc. vs. Ciudad de
51
Manila, there is double taxation "cuando la misma propiedad se sujeta a dos impuestos por la
misma entidad o Gobierno, para el mismo fin y durante el mismo periodo de tiempo."
With the foregoing precepts in mind, we find no difficulty in saying that plaintiff's argument on
double taxation does not inspire assent. First. The two taxes cover two different objects. Section
1 of the ordinance taxes a person operating sugar centrals or engaged in the manufacture of
centrifugal sugar. While under Section 2, those taxed are the operators of sugar refinery mills.
One occupation or business is different from the other. Second. The disputed taxes are imposed
on occupation or business. Both taxes are not on sugar. The amount thereof depends on the
annual output capacity of the mills concerned, regardless of the actual sugar milled. Plaintiff's
argument perhaps could make out a point if the object of taxation here were the sugar it
produces, not the business of producing it.
There is no double taxation.
For the reasons given —
The judgment under review is hereby reversed; and
Judgment is hereby rendered: (a) declaring valid and subsisting Ordinance No. 1, series of
1956, of the Municipality of Victorias, Province of Negros Occidental; and (b) dismissing
plaintiff's complaint as supplemented and amended. Costs against plaintiff. So ordered.
G.R. No. 149110 April 9, 2003
NATIONAL POWER CORPORATION, petitioner,
vs.
CITY OF CABANATUAN, respondent.
PUNO, J.:
1 2 3
This is a petition for review of the Decision and the Resolution 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.
Petitioner is a government-owned and controlled corporation created under Commonwealth Act
4
No. 120, as amended. 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,
5
the transmission of electric power on a nationwide basis." 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
7
a gross income of P107,814,187.96 in 1992. Pursuant to section 37 of Ordinance No. 165-
8
92, 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
Petitioner, whose capital stock was subscribed and paid wholly by the Philippine
10
Government, 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 non-profit
11
organization, it is exempted from the payment of all forms of taxes, charges, duties or fees 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
12
the generation, transmission, utilization, and sale of electric power."
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
13
tax, and 2% monthly interest. Respondent alleged that petitioner's exemption from local taxes
14
has been repealed by section 193 of Rep. Act No. 7160, 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."
15
On January 25, 1996, the trial court issued an Order 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. xxx Being an instrumentality of the government,
PAGCOR should be and actually is exempt from local taxes. Otherwise, its
operation might be burdened, impeded or subjected to control by mere local
government.'
Like PAGCOR, NPC, being a government owned and controlled corporation with an
original charter and its shares of stocks owned by the National Government, is beyond
the taxing power of the Local Government. Corollary to this, it should be noted here
that in the NPC Charter's declaration of Policy, Congress declared that: 'xxx (2) the
total electrification of the Philippines through the development of power from all
services to meet the needs of industrial development and dispersal and needs of rural
electrification are primary objectives of the nations which shall be
pursued coordinately and supported by all instrumentalities and agencies of the
government, including its financial institutions.' (underscoring supplied). To allow
plaintiff to subject defendant to its tax-ordinance would be to impede the avowed goal
of this government instrumentality.
Unlike the State, a city or municipality has no inherent power of taxation. Its taxing
power is limited to that which is provided for in its charter or other statute. Any grant of
taxing power is to be construed strictly, with doubts resolved against its existence.
From the existing law and the rulings of the Supreme Court itself, it is very clear that
16
the plaintiff could not impose the subject tax on the defendant."
17
On appeal, the Court of Appeals reversed the trial court's Order on the ground that section
193, in relation to sections 137 and 151 of the LGC, expressly withdrew the exemptions granted
18
to the petitioner. It ordered the petitioner to pay the respondent city government the following:
(a) the sum of P808,606.41 representing the franchise tax due based on gross receipts for the
year 1992, (b) the tax due every year thereafter based in the gross receipts earned by NPC, (c)
in all cases, to pay a surcharge of 25% of the tax due and unpaid, and (d) the sum of P
19
10,000.00 as litigation expense.
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 xxx are hereby withdrawn.' The
repeal is direct and unequivocal, not implied.
IN VIEW WHEREOF, the motion for reconsideration is hereby DENIED.
20
SO ORDERED."
In this petition for review, petitioner raises the following issues:
"A. THE COURT OF APPEALS GRAVELY ERRED IN HOLDING THAT NPC, A
PUBLIC NON-PROFIT CORPORATION, IS LIABLE TO PAY A FRANCHISE TAX AS
IT FAILED TO CONSIDER THAT SECTION 137 OF THE LOCAL GOVERNMENT
CODE IN RELATION TO SECTION 131 APPLIES ONLY TO PRIVATE PERSONS
OR CORPORATIONS ENJOYING A FRANCHISE.
B. THE COURT OF APPEALS GRAVELY ERRED IN HOLDING THAT NPC'S
EXEMPTION FROM ALL FORMS OF TAXES HAS BEEN REPEALED BY THE
PROVISION OF THE LOCAL GOVERNMENT CODE AS THE ENACTMENT OF A
LATER LEGISLATION, WHICH IS A GENERAL LAW, CANNOT BE CONSTRUED
TO HAVE REPEALED A SPECIAL LAW.
C. THE COURT OF APPEALS GRAVELY ERRED IN NOT CONSIDERING THAT AN
EXERCISE OF POLICE POWER THROUGH TAX EXEMPTION SHOULD PREVAIL
OVER THE LOCAL GOVERNMENT CODE."
21
It is beyond dispute that the respondent city government has the authority to issue Ordinance
No. 165-92 and impose an annual tax on "businesses enjoying a franchise," pursuant to section
151 in relation to section 137 of the LGC, viz:
"Sec. 137. Franchise Tax. - Notwithstanding any exemption granted by any law or
other special law, the province may impose a tax on businesses enjoying a
franchise, at a rate not exceeding fifty percent (50%) of one percent (1%) of the gross
annual receipts for the preceding calendar year based on the incoming receipt, or
realized, within its territorial jurisdiction.
In the case of a newly started business, the tax shall not exceed one-twentieth (1/20)
of one percent (1%) of the capital investment. In the succeeding calendar year,
regardless of when the business started to operate, the tax shall be based on the
gross receipts for the preceding calendar year, or any fraction thereof, as provided
herein." (emphasis supplied)
x x x
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
22
trade or occupation for profit.
Section 131 (m) of the LGC defines a "franchise" as "a right or privilege, affected with public
interest which is conferred upon private persons or corporations, under such terms and
conditions as the government and its political subdivisions may impose in the interest of the
public welfare, security and safety." From the phraseology of this provision, the petitioner claims
that the word "private" modifies the terms "persons" and "corporations." Hence, when the LGC
uses the term "franchise," petitioner submits that it should refer specifically to franchises granted
23
to private natural persons and to private corporations. 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
25
Petitioner also alleges that it is an instrumentality of the National Government, and as such,
may not be taxed by the respondent city government. It cites the doctrine in Basco vs. Philippine
26
Amusement and Gaming Corporation where 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)
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
27
of the very entity which has the inherent power to wield it."
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.
30
Taxes are the lifeblood of the government, for without taxes, the government can neither exist
31
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
32
from necessity; 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
33
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
34
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
35
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
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."
36
To recall, prior to the enactment of the Rep. Act No. 7160, also known as the Local
Government Code of 1991 (LGC), various measures have been enacted to promote local
37 38
autonomy. These include the Barrio Charter of 1959, the Local Autonomy Act of 1959, the
39 40
Decentralization Act of 1967 and the Local Government Code of 1983. 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)
41
limited supervisory control over personnel of national line agencies.
Considered as the most revolutionary piece of legislation on local autonomy, the LGC
42
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
43
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:
x x x not levied on the corporation simply for existing as a corporation, upon its property or its
(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
44
Amusement and Gaming Corporation 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
45
Airport Authority (MCIAA) vs. Marcos, nothing prevents Congress from decreeing that even
instrumentalities or agencies of the government performing governmental functions may be
46
subject to tax. 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 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
47
section 12.'"
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.
In its general signification, a franchise is a privilege conferred by government authority, which
48
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
49
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
50
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
51
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
52
secondary franchises as are charged with a public use.
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, a franchise tax is "a tax on the privilege of
53
transacting business in the state and exercising corporate franchises granted by the state." It is
54
55
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
56
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.
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
57
corporate officers, and its corporate life span. As its secondary franchise, Commonwealth Act
No. 120, as amended, vests the petitioner the following powers which are not available to
ordinary corporations, viz:
"x x x
(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 x x x;
(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 xxx;
(j) To exercise the right of eminent domain for the purpose of this Act in the manner
provided by law for instituting condemnation proceedings by the national, provincial
and municipal governments;
x x x corporation, whether performing governmental or proprietary functions, which
(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,
58
development and maximum utilization of natural resources xxx "
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.
59 60
40, nationalizing the electric power industry. Although Exec. Order No. 215 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
61
own name, 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.
63
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
is directly chartered by special law or if organized under the general corporation law is
owned or controlled by the government directly, or indirectly through a parent
corporation or subsidiary corporation, to the extent of at least a majority of its
outstanding voting capital stock x x x." (emphases supplied)
Governmental functions are those pertaining to the administration of government, and as such,
are treated as absolute obligation on the part of the state to perform while proprietary functions
are those that are undertaken only by way of advancing the general interest of society, and are
64
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
65
Insurance System (GSIS), and the National Water Sewerage Authority (NAWASA), among
others.
Petitioner was created to "undertake the development of hydroelectric generation of power and
the production of electricity from nuclear, geothermal and other sources, as well as the
66
transmission of electric power on a nationwide basis." 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
68
(12%), viz:
"(n) When essential to the proper administration of its corporate affairs or necessary
for the proper transaction of its business or to carry out the purposes for which it was
organized, to contract indebtedness and issue bonds subject to approval of the
President upon recommendation of the Secretary of Finance;
(o) To exercise such powers and do such things as may be reasonably necessary to
carry out the business and purposes for which it was organized, or which, from time to
time, may be declared by the Board to be necessary, useful, incidental or auxiliary to
accomplish the said purpose xxx."(emphases supplied)
It is worthy to note that all other private franchise holders receiving at least sixty percent (60%)
of its electricity requirement from the petitioner are likewise imposed the cap of twelve percent
69
(12%) on profits. The main difference is that the petitioner is mandated to devote "all its returns
70
from its capital investment, as well as excess revenues from its operation, for expansion" 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
71
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
72
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 government-owned or controlled
corporations, except local water districts, cooperatives duly registered under R.A. No.
6938, non-stock and non-profit hospitals and educational institutions, are hereby
withdrawn upon the effectivity of this Code." (emphases supplied)
It is a basic precept of statutory construction that the express mention of one person, thing, act,
or consequence excludes all others as expressed in the familiar maxim expressio unius est
73
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.
But this would be an exercise in futility. Section 137 of the LGC clearly states that the LGUs can
impose franchise tax "notwithstanding any exemption granted by any law or other special law."
This particular provision of the LGC does not admit any exception. In City Government of San
74
Pablo, Laguna v. Reyes, 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
75
of Manila Electric Company v. Province of Laguna. 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
76
have been used." (emphases supplied).
It is worth mentioning that section 192 of the LGC empowers the LGUs, through ordinances duly
77
approved, to grant tax exemptions, initiatives or reliefs. But in enacting section 37 of Ordinance
No. 165-92 which imposes an annual franchise tax "notwithstanding any exemption granted by
law or other special law," the respondent city government clearly did not intend to exempt the
petitioner from the coverage thereof.
Doubtless, the power to tax is the most effective instrument to raise needed revenues to finance
and support myriad activities of the local government units for the delivery of basic services
essential to the promotion of the general welfare and the enhancement of peace, progress, and
prosperity of the people. As this Court observed in the Mactan case, "the original reasons for the
withdrawal of tax exemption privileges granted to government-owned or controlled corporations
and all other units of government were that such privilege resulted in serious tax base erosion
78
and distortions in the tax treatment of similarly situated enterprises." 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.
G.R. No. 188500 July 24, 2013
PROVINCE OF CAGAYAN, represented by HON. ALVARO T. ANTONIO, Governor, and
ROBERT ADAP, Environmental and Natural Resources Officer, Petitioners,
vs.
JOSEPH LASAM LARA, Respondent.
RESOLUTION
PERLAS-BERNABE, J.:
1 merely performing his duty to enforce all laws and ordinances relative to the governance of the
This is a direct recourse to the Court from the Decision of the Regional Trial Court of
2 Province of Cagayan pursuant to the provisions of RA 7160, otherwise known as the "Local
Tuguegarao City, Cagayan, Branch 5 (RTC), through a petition for review on certiorari under
Rule 45 of the Rules of Court, raising a pure question of law. In particular, petitioners assail the
RTC's June 30, 2009 Decision in Civil Case No. 7077, enjoining them from disturbing the
quarrying operations of respondent Joseph Lasam Lara (Lara).
The Facts
3
On September 14, 2007, Lara obtained an Industrial Sand and Gravel Permit (ISAG Permit)
from the Mines and Geosciences Bureau (MGB) of the Department of Environment and Natural
Resources (DENR), authorizing him to conduct quarrying operations in a twenty-hectare area
situated in Barangay Centro, Muncipality of Peñablanca (Peñablanca), Cagayan (Permit Area)
and extract and dispose of sand, gravel, and other unconsolidated materials from the Permit
4 the Permit Area. The parties also determined that the submission of documentary evidence
Area. For the same purpose, Lara obtained an Environmental Compliance Certificate (ECC)
5 would be sufficient to reach a decision and as such, the RTC directed them to simultaneously file
from the DENR Environmental Management Bureau (EMB).
On January 3, 2008, Jovy Balisi (Balisi), Lara’s representative, went to the Cagayan Provincial
Treasurer’s Office (Treasurer’s Office) to pay the extraction fee and other fees for Lara’s
quarrying operations but she was directed to first secure an Order of Payment from the
Environmental and Natural Resources Officer, petitioner Robert Adap (ENRO Adap). However,
when Balisi went to ENRO Adap, the latter refused to issue an Order of Payment. Despite
various pleas from Balisi and Atty. Victorio N. Casauay (Atty. Casauay), Lara’s counsel, ENRO
Adap remained adamant with his refusal. This prompted Atty. Casauay to tender and deposit the
amount of ₱51,500.00 with the Treasurer’s Office corresponding to the said extraction fee and
6
other related fees.
On January 11, 2008, Lara commenced his quarrying operations. Later that day, however, a
total of four trucks loaded with sand and gravel extracted from the Permit Area were stopped
7
and impounded by several local officials. Consequently, Lara filed an action for injunction with
prayer for the issuance of a writ of preliminary injunction, docketed as Civil Case No. 7049,
against the said officials, seeking to enjoin the stoppage of his quarrying operations. After due
8
proceedings, a writ of preliminary injunction was issued enabling Lara to restart his business.
9
Nonetheless, on March 17, 2008, Lara received a Stoppage Order dated March 13, 2008
(Stoppage Order) this time from Cagayan Governor Alvaro T. Antonio (Gov. Antonio), directing
him to stop his quarrying operations for the following reasons: (a) the ISAG Permit was not in
10
accordance with Republic Act No. (RA) 7942, otherwise known as the "Philippine Mining Act of
1995," and its implementing rules and regulations; (b) Lara’s failure to pay sand and gravel fee
under Provincial Ordinance No. 2005-07; and (c) Lara’s failure to secure all necessary permits or
11
clearances from the local government unit concerned as required by the ECC. Hence, Lara
filed the present action for injunction and damages with an urgent and ex-parte motion for the
issuance of a temporary restraining order and/or preliminary injunction before the RTC, docketed
as Civil Case No. 7077.
In their Answer dated June 10, 2008, petitioners raised the following defenses: (a) the mere
issuance of the ISAG Permit does not give Lara the right to commence his quarrying operations
as he still had to comply with the terms and conditions stated therein; (b) Lara has neither
secured all the necessary permits nor paid the local fees and taxes; and (c) Gov. Antonio was
12
13
Government Code of 1991."
14
In an Order dated August 11, 2008, the RTC granted Lara’s application for a writ of preliminary
injunction based on a prima facie finding that he is authorized to extract gravel and sand from
15
the Permit Area. Petitioners filed a motion for reconsideration which was, however denied on
16
September 26, 2008.
During the pre-trial, the parties stipulated on the following facts: (a) that Lara was able to secure
an ISAG Permit from the MGB and an ECC from the DENR-EMB; (b) that Lara deposited the
amount of ₱51,500.00 with the Treasurer’s Office for the extraction and other related fees; and
(c) that Gov. Antonio issued a Stoppage Order directing Lara to stop the quarrying operations in
17
their respective memoranda.
The RTC Ruling
 18
In a Decision dated June 30, 2009, the RTC made permanent the writ of preliminary injunction
and thus, enjoined petitioners from stopping or disturbing Lara’s quarrying operations.
It held that Lara legally acquired the right to operate his quarrying business, as evidenced by the
ISAG Permit and ECC issued by the MGB and the EMB, respectively, which are the government
19
agencies tasked to grant or deny any application for quarrying of industrial sand and gravel. In
this regard, the RTC observed that if Gov. Antonio perceived any defect in Lara’s ISAG Permit,
the proper recourse would have been to bring the matter to the attention of the MGB and not to
20
issue a Stoppage Order. It further noted that Lara could not pay the extraction and other
related fees only because ENRO Adap adamantly refused to issue an Order of Payment. In this
relation, the RTC concluded that there was substantial compliance with the requirements since
Lara, in good faith, tendered and deposited the amount of ₱51,500.00 with the Treasurer’s
21
Office, which can be treated as Lara’s payment of the pertinent fees. Finally, the RTC found no
need to touch on the necessity of securing a mayor’s permit before starting his quarrying
operations, given that it is the main issue in another case, Civil Case No. 7049, pending before
22
the same court.
Aggrieved, petitioners sought direct recourse to the Court via the instant petition.
The Issue Before the Court
The primordial issue raised for the Court’s resolution is whether the RTC properly issued the
permanent injunction subject of this case.
Among others, petitioners argue that despite the issuance of the ISAG Permit, Lara has yet to
comply with its terms and conditions – as he has yet to secure the necessary permits and
clearances from the local government unit concerned – and hence, remains to be proscribed
from conducting any quarrying operations.
23
On the other hand, Lara maintains that the MGB and DENR-EMB had already authorized him to
extract sand and gravel from the Permit Area, as evidenced by the ISAG Permit and ECC,
thereby dispensing with the need to secure any permit from the local government. In any case,
he contends that the only reason why he failed to secure such permits was because the local
government officials deliberately refused to process his applications without any legitimate
24
reason whatsoever.
The Court’s Ruling
The petition is meritorious.
It is well-settled that a writ of injunction would issue upon the satisfaction of two (2) requisites,
namely: (a) the existence of a right to be protected; and (b) acts which are violative of the said
right. In the absence of a clear legal right, the issuance of the injunctive relief constitutes grave
abuse of discretion. Injunction is not designed to protect contingent or future rights. Where the
complainant’s right is doubtful or disputed, injunction is not proper. The possibility of irreparable
25
damage without proof of actual existing right is not a ground for an injunction.
In order for an entity to legally undertake a quarrying business, he must first comply with all the
requirements imposed not only by the national government, but also by the local government
26
unit where his business is situated. Particularly, Section 138(2) of RA 7160 requires that such
entity must first secure a governor’s permit prior to the start of his quarrying operations, viz:
SECTION 138. Tax on Sand, Gravel and Other Quarry Resources.
– x x x.
The permit to extract sand, gravel and other quarry resources shall be issued exclusively by the
provincial governor, pursuant to the ordinance of the sangguniang panlalawigan. (Emphasis and
underscoring supplied)
xxxx
In connection thereto, the Sangguniang Panlalawigan of Cagayan promulgated Provincial
Ordinance No. 2005-07, Article H, Section 2H.04 of which provides:
SECTION 2H.04. Permit for Gravel and Sand Extraction and Quarrying. – No person shall
extract ordinary stones, gravel, earth, boulders and quarry resources from public lands or from
the beds of seas, rivers, streams, creeks or other public waters unless a permit has been issued
by the Governor (or his deputy as provided herein) x x x. (Emphasis and underscoring supplied)
A plain reading of the afore-cited provisions clearly shows that a governor’s permit is a pre-
requisite before one can engage in a quarrying business in Cagayan. Records, however, reveal
that Lara admittedly failed to secure the same; hence, he has no right to conduct his quarrying
operations within the Permit Area. Consequently, he is not entitled to any injunction.
In view of the foregoing, the Court need not delve into the issue respecting the necessity of
securing a mayor’s permit, especially since it is the main issue in another case, Civil Case No.
7049, which remains pending before the court a quo.
WHEREFORE, the petition is GRANTED. Accordingly, the June 30, 2009 Decision of the
Regional Trial Court of Tuguegarao City, Cagayan, Branch 5 in Civil Case No. 7077 is hereby
REVERSED and SET ASIDE.
SO ORDERED.
G.R. No. 183137 April 10, 2013
PELIZLOY REALTY CORPORATION, represented herein by its President, GREGORY K.
LOY, Petitioner,
vs.
THE PROVINCE OF BENGUET, Respondent.
DECISION
LEONEN, J.:
The principal issue in this case is the scope of authority of a province to impose an amusement
tax.
This is a Petition for Review on Certiorari under Rule 45 of the Rules of Court praying that the
December 10, 2007 decision of the Regional Trial Court,- Branch 62, La Trinidad, Benguet in
Civil Case No. 06-CV-2232 be reversed and set aside and a new one issued in which: ( 1)
respondent Province of Benguet is declared as having no authority to levy amusement taxes on
admission fees for resorts, swimming pools, bath houses, hot springs, tourist spots, and other
places for recreation; (2) Section 59, Article X of the Benguet Provincial Revenue Code of 2005
is declared null and void; and (3) the respondent Province of Benguet is permanently enjoined
from enforcing Section 59, Article X of the Benguet Provincial Revenue Code of 2005.
Petitioner Pelizloy Realty Corporation ("Pelizloy") owns Palm Grove Resort, which is designed
for recreation and which has facilities like swimming pools, a spa and function halls. It is located
at Asin, Angalisan, Municipality of Tuba, Province of Benguet.
On December 8, 2005, the Provincial Board of the Province of Benguet approved Provincial Tax
Ordinance No. 05-107, otherwise known as the Benguet Revenue Code of 2005 ("Tax
Ordinance"). Section 59, Article X of the Tax Ordinance levied a ten percent (10%) amusement
tax on gross receipts from admissions to "resorts, swimming pools, bath houses, hot springs and
tourist spots." Specifically, it provides the following:
Article Ten: Amusement Tax on Admission
Section 59. Imposition of Tax. There is hereby levied a tax to be collected from the proprietors,
lessees, or operators of theaters, cinemas, concert halls, circuses, cockpits, dancing halls,
dancing schools, night or day clubs, and other places of amusement at the rate of thirty percent
(30%) of the gross receipts from admission fees; and
A tax of ten percent (10%) of gross receipts from admission fees for boxing, resorts, swimming
pools, bath houses, hot springs, and tourist spots is likewise levied. [Emphasis and underscoring
supplied]
Section 162 of the Tax Ordinance provided that the Tax Ordinance shall take effect on January
1, 2006.
It was Pelizloy's position that the Tax Ordinance's imposition of a 10% amusement tax on gross
receipts from admission fees for resorts, swimming pools, bath houses, hot springs, and tourist
spots is an ultra vires act on the part of the Province of Benguet. Thus, it filed an appeal/petition
before the Secretary of Justice on January 27, 2006.
The appeal/petition was filed within the thirty (30)-day period from the effectivity of a tax
ordinance allowed by Section 187 of Republic Act No. 7160, otherwise known as the Local
1
Government Code (LGC). The appeal/petition was docketed as MSO-OSJ Case No. 03-2006.
Under Section 187 of the LGC, the Secretary of Justice has sixty (60) days from receipt of the
appeal to render a decision. After the lapse of which, the aggrieved party may file appropriate
proceedings with a court of competent jurisdiction.
Treating the Secretary of Justice's failure to decide on its appeal/petition within the sixty (60)
days provided by Section 187 of the LGC as an implied denial of such appeal/petition, Pelizloy
filed a Petition for Declaratory Relief and Injunction before the Regional Trial Court, Branch 62,
La Trinidad, Benguet. The petition was docketed as Civil Case No. 06-CV-2232.
Pelizloy argued that Section 59, Article X of the Tax Ordinance imposed a percentage tax in
violation of the limitation on the taxing powers of local government units (LGUs) under Section
133 (i) of the LGC. Thus, it was null and void ab initio. Section 133 (i) of the LGC 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
(i) Percentage or value-added tax (VAT) on sales, barters or exchanges or similar transactions
on goods or services except as otherwise provided herein
The Province of Benguet assailed the Petition for Declaratory Relief and Injunction as an
improper remedy. It alleged that once a tax liability has attached, the only remedy of a taxpayer
is to pay the tax and to sue for recovery after exhausting administrative remedies.
2
On substantive grounds, the Province of Benguet argued that the phrase ‘other places of
3
amusement’ in Section 140 (a) of the LGC encompasses resorts, swimming pools, bath houses,
hot springs, and tourist spots since "Article 220 (b) (sic)" of the LGC defines "amusement" as
"pleasurable diversion and entertainment x x x synonymous to relaxation, avocation, pastime, or
4
fun." However, the Province of Benguet erroneously cited Section 220 (b) of the LGC. Section
220 of the LGC refers to valuation of real property for real estate tax purposes. Section 131 (b)
of the LGC, the provision which actually defines "amusement", states:
Section 131. Definition of Terms. - When used in this Title, the term:
xxx
(b) "Amusement" is a pleasurable diversion and entertainment. It is synonymous to relaxation,
avocation, pastime, or fun On December 10, 2007, the RTC rendered the assailed Decision
dismissing the Petition for Declaratory Relief and Injunction for lack of merit.
Procedurally, the RTC ruled that Declaratory Relief was a proper remedy. On the validity of
Section 59, Article X of the Tax Ordinance, the RTC noted that, while Section 59, Article X
imposes a percentage tax, Section 133 (i) of the LGC itself allowed for exceptions. It noted that
what the LGC prohibits is not the imposition by LGUs of percentage taxes in general but the
5
"imposition and levy of percentage tax on sales, barters, etc., on goods and services only." It
further gave credence to the Province of Benguet's assertion that resorts, swimming pools, bath
houses, hot springs, and tourist spots are encompassed by the phrase ‘other places of
amusement’ in Section 140 of the LGC.
On May 21, 2008, the RTC denied Pelizloy’s Motion for Reconsideration.
Aggrieved, Pelizloy filed the present petition on June 10, 2008 on pure questions of law. It
assailed the legality of Section 59, Article X of the Tax Ordinance as being a (supposedly)
prohibited percentage tax per Section 133 (i) of the LGC.
In its Comment, the Province of Benguet, erroneously citing Section 40 of the LGC, argued that
Section 59, Article X of the Tax Ordinance does not levy a percentage tax "because the
imposition is not based on the total gross receipts of services of the petitioner but solely and
6
actually limited on the gross receipts of the admission fees collected." In addition, it argued that
provinces can validly impose amusement taxes on resorts, swimming pools, bath houses, hot
springs, and tourist spots, these being ‘amusement places’.
For resolution in this petition are the following issues:
1. Whether or not Section 59, Article X of Provincial Tax Ordinance No. 05-107,
otherwise known as the Benguet Revenue Code of 2005, levies a percentage tax.
2. Whether or not provinces are authorized to impose amusement taxes on admission
fees to resorts, swimming pools, bath houses, hot springs, and tourist spots for being
"amusement places" under the Local Government Code.
7
The power to tax "is an attribute of sovereignty," and as such, inheres in the State. Such,
however, is not true for provinces, cities, municipalities and barangays as they are not the
8
sovereign; rather, they are mere "territorial and political subdivisions of the Republic of the
9
Philippines".
The rule governing the taxing power of provinces, cities, muncipalities and barangays is
summarized in Icard v. City Council of Baguio:
10
It is settled that a municipal corporation unlike a sovereign state is clothed with no inherent
power of taxation. The charter or statute must plainly show an intent to confer that power or the
municipality, cannot assume it. And the power when granted is to be construed in strictissimi
juris. Any doubt or ambiguity arising out of the term used in granting that power must be
resolved against the municipality. Inferences, implications, deductions – all these – have no
11
place in the interpretation of the taxing power of a municipal corporation. [Underscoring
supplied]
Therefore, the power of a province to tax is limited to the extent that such power is delegated to
it either by the Constitution or by statute. Section 5, Article X of the 1987 Constitution is clear on
this point:
Section 5. Each local government unit shall have the power to create its own sources of
revenues and to levy taxes, fees and charges subject to such guidelines and limitations as the
Congress may provide, consistent with the basic policy of local autonomy. Such taxes, fees, and
charges shall accrue exclusively to the local governments. [Underscoring supplied]
Per Section 5, Article X of the 1987 Constitution, "the power to tax is no longer vested
exclusively on Congress; local legislative bodies are now given direct authority to levy taxes,
12
fees and other charges." Nevertheless, such authority is "subject to such guidelines and
13
limitations as the Congress may provide".
14
In conformity with Section 3, Article X of the 1987 Constitution, Congress enacted Republic Act
No. 7160, otherwise known as the Local Government Code of 1991. Book II of the LGC governs
local taxation and fiscal matters.
Relevant provisions of Book II of the LGC establish the parameters of the taxing powers of
LGUS found below.
First, Section 130 provides for the following fundamental principles governing the taxing powers
of LGUs:
1. Taxation shall be uniform in each LGU.
2. Taxes, fees, charges and other impositions shall:
a. be equitable and based as far as practicable on the taxpayer's ability to
pay;
b. be levied and collected only for public purposes;
c. not be unjust, excessive, oppressive, or confiscatory;
d. not be contrary to law, public policy, national economic policy, or in the
restraint of trade.
3. The collection of local taxes, fees, charges and other impositions shall in no case
be let to any private person.
4. The revenue collected pursuant to the provisions of the LGC shall inure solely to the
benefit of, and be subject to the disposition by, the LGU levying the tax, fee, charge or
other imposition unless otherwise specifically provided by the LGC.
5. Each LGU shall, as far as practicable, evolve a progressive system of taxation.
Second, Section 133 provides for the common limitations on the taxing powers of LGUs.
Specifically, Section 133 (i) prohibits the levy by LGUs of percentage or value-added tax (VAT)
on sales, barters or exchanges or similar transactions on goods or services except as otherwise
provided by the LGC.
As it is Pelizloy’s contention that Section 59, Article X of the Tax Ordinance levies a prohibited
percentage tax, it is crucial to understand first the concept of a percentage tax.
15
In Commissioner of Internal Revenue v. Citytrust Investment Phils. Inc., the Supreme Court
defined percentage tax as a "tax measured by a certain percentage of the gross selling price or
gross value in money of goods sold, bartered or imported; or of the gross receipts or earnings
derived by any person engaged in the sale of services." Also, Republic Act No. 8424, otherwise
16
known as the National Internal Revenue Code (NIRC), in Section 125, Title V, lists amusement
taxes as among the (other) percentage taxes which are levied regardless of whether or not a
taxpayer is already liable to pay value-added tax (VAT).
Amusement taxes are fixed at a certain percentage of the gross receipts incurred by certain
specified establishments.
Thus, applying the definition in CIR v. Citytrust and drawing from the treatment of amusement
taxes by the NIRC, amusement taxes are percentage taxes as correctly argued by Pelizloy.
However, provinces are not barred from levying amusement taxes even if amusement taxes are
a form of percentage taxes. Section 133 (i) of the LGC prohibits the levy of percentage taxes
"except as otherwise provided" by the LGC.
Section 140 of the LGC provides:
SECTION 140. Amusement Tax - (a) The province may levy an amusement tax to be collected
from the proprietors, lessees, or operators of theaters, cinemas, concert halls, circuses, boxing
stadia, and other places of amusement at a rate of not more than thirty percent (30%) of the
gross receipts from admission fees.
(b) In the case of theaters of cinemas, the tax shall first be deducted and withheld by
their proprietors, lessees, or operators and paid to the provincial treasurer before the
gross receipts are divided between said proprietors, lessees, or operators and the
distributors of the cinematographic films.
(c) The holding of operas, concerts, dramas, recitals, painting and art exhibitions,
flower shows, musical programs, literary and oratorical presentations, except pop,
rock, or similar concerts shall be exempt from the payment of the tax herein imposed.
(d) The Sangguniang Panlalawigan may prescribe the time, manner, terms and
conditions for the payment of tax. In case of fraud or failure to pay the tax, the
Sangguniang Panlalawigan may impose such surcharges, interests and penalties.
(e) The proceeds from the amusement tax shall be shared equally by the province and
the municipality where such amusement places are located. [Underscoring supplied]
Evidently, Section 140 of the LGC carves a clear exception to the general rule in Section 133 (i).
Section 140 expressly allows for the imposition by provinces of amusement taxes on "the
proprietors, lessees, or operators of theaters, cinemas, concert halls, circuses, boxing stadia,
and other places of amusement."
However, resorts, swimming pools, bath houses, hot springs, and tourist spots are not among
those places expressly mentioned by Section 140 of the LGC as being subject to amusement
taxes. Thus, the determination of whether amusement taxes may be levied on admissions to
resorts, swimming pools, bath houses, hot springs, and tourist spots hinges on whether the
phrase ‘other places of amusement’ encompasses resorts, swimming pools, bath houses, hot
springs, and tourist spots.
Under the principle of ejusdem generis, "where a general word or phrase follows an enumeration
of particular and specific words of the same class or where the latter follow the former, the
general word or phrase is to be construed to include, or to be restricted to persons, things or
17
cases akin to, resembling, or of the same kind or class as those specifically mentioned."
The purpose and rationale of the principle was explained by the Court in National Power
18
Corporation v. Angas as follows:
The purpose of the rule on ejusdem generis is to give effect to both the particular and general
words, by treating the particular words as indicating the class and the general words as including
all that is embraced in said class, although not specifically named by the particular words. This is
justified on the ground that if the lawmaking body intended the general terms to be used in their
unrestricted sense, it would have not made an enumeration of particular subjects but would have
used only general terms. [2 Sutherland, Statutory Construction, 3rd ed., pp. 395-400].
19
20
In Philippine Basketball Association v. Court of Appeals, the Supreme Court had an opportunity
to interpret a starkly similar provision or the counterpart provision of Section 140 of the LGC in
the Local Tax Code then in effect. Petitioner Philippine Basketball Association (PBA) contended
that it was subject to the imposition by LGUs of amusement taxes (as opposed to amusement
taxes imposed by the national government).1âwphi1 In support of its contentions, it cited Section
13 of Presidential Decree No. 231, otherwise known as the Local Tax Code of 1973, (which is
analogous to Section 140 of the LGC) providing the following:
Section 13. Amusement tax on admission. - The province shall impose a tax on admission to be
collected from the proprietors, lessees, or operators of theaters, cinematographs, concert halls,
circuses and other places of amusement xxx.
Applying the principle of ejusdem generis, the Supreme Court rejected PBA's assertions and
noted that:
In determining the meaning of the phrase 'other places of amusement', one must refer to the
prior enumeration of theaters, cinematographs, concert halls and circuses with artistic
expression as their common characteristic. Professional basketball games do not fall under the
same category as theaters, cinematographs, concert halls and circuses as the latter basically
belong to artistic forms of entertainment while the former caters to sports and
21
gaming. [Underscoring supplied]
However, even as the phrase ‘other places of amusement’ was already clarified in Philippine
Basketball Association, Section 140 of the LGC adds to the enumeration of 'places of
amusement' which may properly be subject to amusement tax. Section 140 specifically mentions
'boxing stadia' in addition to "theaters, cinematographs, concert halls and circuses" which were
already mentioned in PD No. 231. Also, 'artistic expression' as a characteristic does not pertain
to 'boxing stadia'.
In the present case, the Court need not embark on a laborious effort at statutory construction.
Section 131 (c) of the LGC already provides a clear definition of ‘amusement places’:
Section 131. Definition of Terms. - When used in this Title, the term:
xxx
(c) "Amusement Places" include theaters, cinemas, concert halls, circuses and other places of
amusement where one seeks admission to entertain oneself by seeing or viewing the show or
performances [Underscoring supplied]
Indeed, theaters, cinemas, concert halls, circuses, and boxing stadia are bound by a common
typifying characteristic in that they are all venues primarily for the staging of spectacles or the
holding of public shows, exhibitions, performances, and other events meant to be viewed by an
audience. Accordingly, ‘other places of amusement’ must be interpreted in light of the typifying
characteristic of being venues "where one seeks admission to entertain oneself by seeing or
viewing the show or performances" or being venues primarily used to stage spectacles or hold
public shows, exhibitions, performances, and other events meant to be viewed by an audience.
22
As defined in The New Oxford American Dictionary, ‘show’ means "a spectacle or display of
23
something, typically an impressive one"; while ‘performance’ means "an act of staging or
24
presenting a play, a concert, or other form of entertainment." As such, the ordinary definitions
of the words ‘show’ and ‘performance’ denote not only visual engagement (i.e., the seeing or
viewing of things) but also active doing (e.g., displaying, staging or presenting) such that actions
are manifested to, and (correspondingly) perceived by an audience.
Considering these, it is clear that resorts, swimming pools, bath houses, hot springs and tourist
spots cannot be considered venues primarily "where one seeks admission to entertain oneself
by seeing or viewing the show or performances". While it is true that they may be venues where
people are visually engaged, they are not primarily venues for their proprietors or operators to
actively display, stage or present shows and/or performances.
Thus, resorts, swimming pools, bath houses, hot springs and tourist spots do not belong to the
same category or class as theaters, cinemas, concert halls, circuses, and boxing stadia. It
follows that they cannot be considered as among the ‘other places of amusement’ contemplated
by Section 140 of the LGC and which may properly be subject to amusement taxes.
At this juncture, it is helpful to recall this Court’s pronouncements in Icard:
The power to tax when granted to a province is to be construed in strictissimi juris. Any doubt or
ambiguity arising out of the term used in granting that power must be resolved against the
province. Inferences, implications, deductions – all these – have no place in the interpretation of
25
the taxing power of a province.
In this case, the definition of' amusement places' in Section 131 (c) of the LGC is a clear basis
for determining what constitutes the 'other places of amusement' which may properly be subject
to amusement tax impositions by provinces. There is no reason for going beyond such basis. To
do otherwise would be to countenance an arbitrary interpretation/application of a tax law and to
inflict an injustice on unassuming taxpayers.
The previous pronouncements notwithstanding, it will be noted that it is only the second
paragraph of Section 59, Article X of the Tax Ordinance which imposes amusement taxes on
"resorts, swimming pools, bath houses, hot springs, and tourist spots". The first paragraph of
Section 59, Article X of the Tax Ordinance refers to "theaters, cinemas, concert halls, circuses,
cockpits, dancing halls, dancing schools, night or day clubs, and other places of
amusement".1âwphi1 In any case, the issues raised by Pelizloy are pertinent only with respect
to the second paragraph of Section 59, Article X of the Tax Ordinance. Thus, there is no reason
to invalidate the first paragraph of Section 59, Article X of the Tax Ordinance. Any declaration as
to the Province of Benguet's lack of authority to levy amusement taxes must be limited to
admission fees to resorts, swimming pools, bath houses, hot springs and tourist spots.
Moreover, the second paragraph of Section 59, Article X of the Tax Ordinance is not limited to
resorts, swimming pools, bath houses, hot springs, and tourist spots but also covers admission
fees for boxing. As Section 140 of the LGC allows for the imposition of amusement taxes on
gross receipts from admission fees to boxing stadia, Section 59, Article X of the Tax Ordinance
must be sustained with respect to admission fees from boxing stadia.
WHEREFORE, the petition for review on certiorari is GRANTED. The second paragraph of
Section 59, Article X of the Benguet Provincial Revenue Code of 2005, in so far as it imposes
amusement taxes on admission fees to resorts, swimming pools, bath houses, hot springs and
tourist spots, is declared null and void. Respondent Province of Benguet is permanently enjoined
from enforcing the second paragraph of Section 59, Article X of the Benguet Provincial Revenue
Code of 2005 with respect to resorts, swimming pools, bath houses, hot springs and tourist
spots.
SO ORDERED.
COMMISSIONER OF INTERNAL G.R. No. 183505
REVENUE,
Petitioner, Present:
CARPIO, J., Chairperson,
- versus - BRION,
DEL CASTILLO,
ABAD, and
SM PRIME HOLDINGS, INC. PEREZ, JJ.
and FIRST ASIA REALTY
DEVELOPMENT CORPORATION, Promulgated:
Respondents. February 26, 2010 CTA Case No. 7111
x-------------------------------------------------------------------x
On April 16, 2004, the BIR sent a PAN to First Asia for VAT deficiency on cinema ticket sales for
DECISION taxable year 2000 in the amount of P35,840,895.78.First Asia protested the PAN through a letter dated April
[18]
22, 2004.
DEL CASTILLO, J.:
Thereafter, the BIR issued a Formal Letter of Demand for alleged VAT
[19] [20]
When the intent of the law is not apparent as worded, or when the application of the law would deficiency. First Asia protested the same in a letter dated July 9, 2004.
lead to absurdity or injustice, legislative history is all important. In such cases, courts may take judicial notice
[1] [2]
of the origin and history of the law, the deliberations during the enactment, as well as prior laws on the On October 5, 2004, the BIR denied the protest and ordered First Asia to pay the VAT deficiency
[3] [21]
same subject matter to ascertain the true intent or spirit of the law. in the amount of P35,840,895.78 for taxable year 2000.

This Petition for Review on Certiorari under Rule 45 of the Rules of Court, in relation to Republic This prompted First Asia to file a Petition for Review before the CTA on December 16, 2004. The
[4] [5] [6] [22]
Act (RA) No. 9282, seeks to set aside the April 30, 2008 Decision and the June 24, 2008 Resolution of case was docketed as CTA Case No. 7111.
the Court of Tax Appeals (CTA).
Factual Antecedents CTA Case No. 7272

Respondents SM Prime Holdings, Inc. (SM Prime) and First Asia Realty Development
Corporation (First Asia) are domestic corporations duly organized and existing under the laws of the
[7]
Republic of the Philippines. Both are engaged in the business of operating cinema houses, among others.
CTA Case No. 7079
On September 26, 2003, the Bureau of Internal Revenue (BIR) sent SM Prime a Preliminary
Assessment Notice (PAN) for value added tax (VAT) deficiency on cinema ticket sales in the amount
[8]
of P119,276,047.40 for taxable year 2000. In response, SM Prime filed a letter-protest dated December 15,
[9]
2003.
On December 12, 2003, the BIR sent SM Prime a Formal Letter of Demand for the alleged VAT
[10]
deficiency, which the latter protested in a letter dated January 14, 2004.
On September 6, 2004, the BIR denied the protest filed by SM Prime and ordered it to pay the
[11]
VAT deficiency for taxable year 2000 in the amount of P124,035,874.12.
On October 15, 2004, SM Prime filed a Petition for Review before the CTA docketed as CTA
[12]
Case No. 7079.
CTA Case No. 7085
Re: Assessment Notice No. 008-02
A PAN for VAT deficiency on cinema ticket sales for the taxable year 2002 in the total amount
of P32,802,912.21 was issued against First Asia by the BIR. In response, First Asia filed a protest-letter
dated November 11, 2004. The BIR then sent a Formal Letter of Demand, which was protested by First Asia
[23]
on December 14, 2004.
Re: Assessment Notice No. 003-03
A PAN for VAT deficiency on cinema ticket sales in the total amount of P28,196,376.46 for the
taxable year 2003 was issued by the BIR against First Asia. In a letter dated September 23, 2004, First Asia
protested the PAN. A Formal Letter of Demand was thereafter issued by the BIR to First Asia, which the
[24]
latter protested through a letter dated November 11, 2004.
On May 11, 2005, the BIR rendered a Decision denying the protests. It ordered First Asia to pay
the amounts of P33,610,202.91 and P28,590,826.50 for VAT deficiency for taxable years 2002 and 2003,
[25]
respectively.
Thus, on June 22, 2005, First Asia filed a Petition for Review before the CTA, docketed as CTA
[26]
Case No. 7272.

On May 15, 2002, the BIR sent First Asia a PAN for VAT deficiency on Consolidated Petitions
[13]
cinema ticket sales for taxable year 1999 in the total amount of P35,823,680.93. First Asia protested the
[14]
PAN in a letter dated July 9, 2002. The Commissioner of Internal Revenue (CIR) filed his Answers to the Petitions filed by SM Prime
[27]
and First Asia.
Subsequently, the BIR issued a Formal Letter of Demand for the alleged VAT deficiency which
[15]
was protested by First Asia in a letter dated December 12, 2002. On July 1, 2005, SM Prime filed a Motion to Consolidate CTA Case Nos. 7085, 7111 and 7272
with CTA Case No. 7079 on the grounds that the issues raised therein are identical and that SM Prime is a
[28]
On September 6, 2004, the BIR rendered a Decision denying the protest and ordering First Asia majority shareholder of First Asia. The motion was granted.
[16]
to pay the amount of P35,823,680.93 for VAT deficiency for taxable year 1999.
Upon submission of the parties respective memoranda, the consolidated cases were submitted
Accordingly, on October 20, 2004, First Asia filed a Petition for Review before the CTA, docketed for decision on the sole issue of whether gross receipts derived from admission tickets by cinema/theater
[17] [29]
as CTA Case No. 7085. operators or proprietors are subject to VAT.
 (1) In not finding/holding that the gross receipts derived by
Ruling of the CTA First Division operators/proprietors of cinema houses from admission tickets [are]
subject to the 10% VAT because:
On September 22, 2006, the First Division of the CTA rendered a Decision granting the Petition
for Review. Resorting to the language used and the legislative history of the law, it ruled that the activity of (a) THE EXHIBITION OF MOVIES BY CINEMA
showing cinematographic films is not a service covered by VAT under the National Internal Revenue Code OPERATORS/PROPRIETORS TO THE PAYING
(NIRC) of 1997, as amended, but an activity subject to amusement tax under RA 7160, otherwise known as PUBLIC IS A SALE OF SERVICE;
the Local Government Code (LGC) of 1991.Citing House Joint Resolution No. 13, entitled Joint Resolution
Expressing the True Intent of Congress with Respect to the Prevailing Tax Regime in the Theater and Local (b) UNLESS EXEMPTED BY LAW, ALL SALES OF
Film Industry Consistent with the States Policy to Have a Viable, Sustainable and Competitive Theater and SERVICES ARE EXPRESSLY SUBJECT TO VAT
[30]
Film Industry as One of its Partners in National Development, the CTA First Division held that the House of UNDER SECTION 108 OF THE NIRC OF 1997;
Representatives resolved that there should only be one business tax applicable to theaters and movie
houses, which is the 30% amusement tax imposed by cities and provinces under the LGC of 1991. Further, (c) SECTION 108 OF THE NIRC OF 1997 IS A CLEAR
it held that consistent with the States policy to have a viable, sustainable and competitive theater and film PROVISION OF LAW AND THE APPLICATION OF
industry, the national government should be precluded from imposing its own business tax in addition to that RULES OF STATUTORY CONSTRUCTION AND
already imposed and collected by local government units. The CTA First Division likewise found that EXTRINSIC AIDS IS UNWARRANTED;
Revenue Memorandum Circular (RMC) No. 28-2001, which imposes VAT on gross receipts from admission
to cinema houses, cannot be given force and effect because it failed to comply with the procedural due (d) GRANTING WITHOUT CONCEDING THAT RULES
[31]
process for tax issuances under RMC No. 20-86. Thus, it disposed of the case as follows: OF CONSTRUCTION ARE APPLICABLE HEREIN,
STILL THE HONORABLE COURT ERRONEOUSLY
IN VIEW OF ALL THE FOREGOING, this Court hereby GRANTS the APPLIED THE SAME AND PROMULGATED
Petitions for Review. Respondents Decisions denying petitioners protests against DANGEROUS PRECEDENTS;
deficiency value-added taxes are hereby REVERSED. Accordingly, Assessment
Notices Nos. VT-00-000098, VT-99-000057, VT-00-000122, 003-03 and 008-02 (e) THERE IS NO VALID, EXISTING PROVISION OF
are ORDERED cancelled and set aside. LAW EXEMPTING RESPONDENTS SERVICES
FROM THE VAT IMPOSED UNDER SECTION 108 OF
[32]
SO ORDERED. THE NIRC OF 1997;

Aggrieved, the CIR moved for reconsideration which was denied by the First Division in its (f) QUESTIONS ON THE WISDOM OF THE LAW
[33]
Resolution dated December 14, 2006. ARE NOT PROPER ISSUES TO BE TRIED BY THE
HONORABLE COURT; and
Ruling of the CTA En Banc
(g) RESPONDENTS WERE TAXED BASED ON THE
[34]
Thus, the CIR appealed to the CTA En Banc. The case was docketed as CTA EB No. PROVISION OF SECTION 108 OF THE NIRC.
[35] [36] [37]
244. The CTA En Banc however denied the Petition for Review and dismissed as well petitioners
Motion for Reconsideration. (2) In ruling that the enumeration in Section 108 of the NIRC of
The CTA En Banc held that Section 108 of the NIRC actually sets forth an exhaustive 1997 is exhaustive in coverage;
enumeration of what services are intended to be subject to VAT.And since the showing or exhibition of
motion pictures, films or movies by cinema operators or proprietors is not among the enumerated activities (3) In misconstruing the NIRC of 1997 to conclude that the showing
contemplated in the phrase sale or exchange of services, then gross receipts derived by cinema/ theater of motion pictures is merely subject to the amusement tax imposed by the
operators or proprietors from admission tickets in showing motion pictures, film or movie are not subject to Local Government Code; and
VAT. It reiterated that the exhibition or showing of motion pictures, films, or movies is instead subject to
[38]
amusement tax under the LGC of 1991. As regards the validity of RMC No. 28-2001, the CTA En (4) In invalidating Revenue Memorandum Circular (RMC) No. 28-2001.
Banc agreed with its First Division that the same cannot be given force and effect for failure to comply with
RMC No. 20-86. Simply put, the issue in this case is whether the gross receipts derived by operators or proprietors
of cinema/theater houses from admission tickets are subject to VAT.
Issue
Petitioners Arguments
Hence, the present recourse, where petitioner alleges that the CTA En Banc seriously erred:
Petitioner argues that the enumeration of services subject to VAT in Section 108 of the NIRC is
not exhaustive because it covers all sales of services unless exempted by law. He claims that the CTA erred
in applying the rules on statutory construction and in using extrinsic aids in interpreting Section 108 because
the provision is clear and unambiguous. Thus, he maintains that the exhibition of movies by cinema
operators or proprietors to the paying public, being a sale of service, is subject to VAT.
Respondents Arguments
Respondents, on the other hand, argue that a plain reading of Section 108 of the NIRC of 1997
shows that the gross receipts of proprietors or operators of cinemas/theaters derived from public admission
are not among the services subject to VAT. Respondents insist that gross receipts from cinema/theater
admission tickets were never intended to be subject to any tax imposed by the national government.
According to them, the absence of gross receipts from cinema/theater admission tickets from the list of
services which are subject to the national amusement tax under Section 125 of the NIRC of 1997 reinforces
this legislative intent. Respondents also highlight the fact that RMC No. 28-2001 on which the deficiency
assessments were based is an unpublished administrative ruling.
Our Ruling
The petition is bereft of merit.
The enumeration of services subject to
VAT under Section 108 of the NIRC is
not exhaustive
Section 108 of the NIRC of the 1997 reads:
SEC. 108. Value-added Tax on Sale of Services and Use or Lease of Properties.
(A) Rate and Base of Tax. There shall be levied, assessed and collected, a value-
added tax equivalent to ten percent (10%) of gross receipts derived from the sale or
exchange of services, including the use or lease of properties.
The phrase sale or exchange of services means the performance of all kinds of
services in the Philippines for others for a fee, remuneration or
consideration, including those performed or rendered by construction and service
contractors; stock, real estate, commercial, customs and immigration brokers; lessors
of property, whether personal or real; warehousing services; lessors or distributors
of cinematographic films; persons engaged in milling, processing, manufacturing or
repacking goods for others; proprietors, operators or keepers of hotels, motels, rest
houses, pension houses, inns, resorts; proprietors or operators of restaurants,
refreshment parlors, cafes and other eating places, including clubs and caterers;
dealers in securities; lending investors; transportation contractors on their transport of
goods or cargoes, including persons who transport goods or cargoes for hire and
other domestic common carriers by land, air and water relative to their transport of
goods or cargoes; services of franchise grantees of telephone and telegraph, radio
and television broadcasting and all other franchise grantees except those under
Section 119 of this Code; services of banks, non-bank financial intermediaries and
finance companies; and non-life insurance companies (except their crop insurances),
including surety, fidelity, indemnity and bonding companies; and similar
servicesregardless of whether or not the performance thereof calls for the exercise or
use of the physical or mental faculties. The phrase sale or exchange of services shall
likewise include:
(1) The lease or the use of or the right or privilege to use any copyright, patent, design
or model, plan, secret formula or process, goodwill, trademark, trade brand or other
like property or right;
xxxx
(7) The lease of motion picture films, films, tapes and discs; and
(8) The lease or the use of or the right to use radio, television, satellite transmission
and cable television time.
x x x x (Emphasis supplied)
A cursory reading of the foregoing provision clearly shows that the enumeration of the sale or exchange of
services subject to VAT is not exhaustive. The words, including, similar services, and shall likewise include,
[39]
indicate that the enumeration is by way of example only.
Among those included in the enumeration is the lease of motion picture films, films, tapes and
discs. This, however, is not the same as the showing or exhibition of motion pictures or films. As pointed out
by the CTA En Banc:
Exhibition in Blacks Law Dictionary is defined as To show or display. x x x To produce
anything in public so that it may be taken into possession (6th ed., p. 573). While the
word lease is defined as a contract by which one owning such property grants to
another the right to possess, use and enjoy it on specified period of time in exchange
for periodic payment of a stipulated price, referred to as rent (Blacks Law Dictionary,
[40]
6th ed., p. 889). x x x
Since the activity of showing motion pictures, films or movies by cinema/ theater operators or
proprietors is not included in the enumeration, it is incumbent upon the court to the determine whether such
activity falls under the phrase similar services. The intent of the legislature must therefore be ascertained.
The legislature never intended
operators
or proprietors of cinema/theater houses
to be covered by VAT
[41]
Under the NIRC of 1939, the national government imposed amusement tax on proprietors,
lessees, or operators of theaters, cinematographs, concert halls, circuses, boxing exhibitions, and other
[42]
places of amusement, including cockpits, race tracks, and cabaret. In the case of theaters or
cinematographs, the taxes were first deducted, withheld, and paid by the proprietors, lessees, or operators of
such theaters or cinematographs before the gross receipts were divided between the proprietors, lessees, or
operators of the theaters or cinematographs and the distributors of the cinematographic films. Section
[43] [44]
11 of the Local Tax Code, however, amended this provision by transferring the power to impose
[45]
amusement tax on admission from theaters, cinematographs, concert halls, circuses and other places of
[46]
amusements exclusively to the local government. Thus, when the NIRC of 1977 was enacted, the national
government imposed amusement tax only on proprietors, lessees or operators of cabarets, day and night
[47]
clubs, Jai-Alai and race tracks.
 [48]
On January 1, 1988, the VAT Law was promulgated. It amended certain provisions of the
NIRC of 1977 by imposing a multi-stage VAT to replace the tax on original and subsequent sales tax and
percentage tax on certain services. It imposed VAT on sales of services under Section 102 thereof, which
provides:
SECTION 102. Value-added tax on sale of services. (a) Rate and base of
tax. There shall be levied, assessed and collected, a value-added tax equivalent to
10% percent of gross receipts derived by any person engaged in the sale of services.
The phrase sale of services means the performance of all kinds of services for others
for a fee, remuneration or consideration, including those performed or rendered by
construction and service contractors; stock, real estate, commercial, customs and
immigration brokers; lessors of personal property; lessors or distributors of
cinematographic films; persons engaged in milling, processing, manufacturing or
repacking goods for others; and similar services regardless of whether or not the
performance thereof calls for the exercise or use of the physical or mental faculties:
Provided That the following services performed in the Philippines by VAT-registered
persons shall be subject to 0%:
(1) Processing manufacturing or repacking goods for other persons doing
business outside the Philippines which goods are subsequently exported, x x x
xxxx
Gross receipts means the total amount of money or its equivalent
representing the contract price, compensation or service fee, including the amount
charged for materials supplied with the services and deposits or advance payments
actually or constructively received during the taxable quarter for the service performed
or to be performed for another person, excluding value-added tax.
(b) Determination of the tax. (1) Tax billed as a separate item in the
invoice. If the tax is billed as a separate item in the invoice, the tax shall be based on
the gross receipts, excluding the tax.
(2) Tax not billed separately or is billed erroneously in the invoice. If the tax
is not billed separately or is billed erroneously in the invoice, the tax shall be
determined by multiplying the gross receipts (including the amount intended to cover
the tax or the tax billed erroneously) by 1/11. (Emphasis supplied)
Persons subject to amusement tax under the NIRC of 1977, as amended, however, were exempted from
[49]
the coverage of VAT.
On February 19, 1988, then Commissioner Bienvenido A. Tan, Jr. issued RMC 8-88, which
clarified that the power to impose amusement tax on gross receipts derived from admission tickets was
exclusive with the local government units and that only the gross receipts of amusement places derived from
sources other than from admission tickets were subject to amusement tax under the NIRC of 1977, as
amended. Pertinent portions of RMC 8-88 read:
Under the Local Tax Code (P.D. 231, as amended), the jurisdiction to levy
amusement tax on gross receipts arising from admission to places of amusement has
been transferred to the local governments to the exclusion of the national
government.
xxxx
Since the promulgation of the Local Tax Code which took effect on June
28, 1973 none of the amendatory laws which amended the National Internal
Revenue Code, including the value added tax law under Executive Order No. 273,
has amended the provisions of Section 11 of the Local Tax Code. Accordingly, the
sole jurisdiction for collection of amusement tax on admission receipts in places of
amusement rests exclusively on the local government, to the exclusion of the national
government. Since the Bureau of Internal Revenue is an agency of the national
government, then it follows that it has no legal mandate to levy amusement tax on
admission receipts in the said places of amusement.
Considering the foregoing legal background, the provisions under Section
123 of the National Internal Revenue Code as renumbered by Executive Order No.
273 (Sec. 228, old NIRC) pertaining to amusement taxes on places of amusement
shall be implemented in accordance with BIR RULING, dated December 4, 1973 and
BIR RULING NO. 231-86 dated November 5, 1986 to wit:
x x x Accordingly, only the gross receipts of the amusement places
derived from sources other than from admission tickets shall be subject to x x
x amusement tax prescribed under Section 228 of the Tax Code, as
amended (now Section 123, NIRC, as amended by E.O. 273). The tax on gross
receipts derived from admission tickets shall be levied and collected by the
city government pursuant to Section 23 of Presidential Decree No. 231, as
amended x x x or by the provincial government, pursuant to Section 11 of P.D.
231, otherwise known as the Local Tax Code. (Emphasis supplied)
On October 10, 1991, the LGC of 1991 was passed into law. The local government retained the
power to impose amusement tax on proprietors, lessees, or operators of theaters, cinemas, concert halls,
circuses, boxing stadia, and other places of amusement at a rate of not more than thirty percent (30%) of the
[50]
gross receipts from admission fees under Section 140 thereof. In the case of theaters or cinemas, the tax
shall first be deducted and withheld by their proprietors, lessees, or operators and paid to the local
government before the gross receipts are divided between said proprietors, lessees, or operators and the
distributors of the cinematographic films. However, the provision in the Local Tax Code expressly excluding
the national government from collecting tax from the proprietors, lessees, or operators of theaters,
cinematographs, concert halls, circuses and other places of amusements was no longer included.
In 1994, RA 7716 restructured the VAT system by widening its tax base and enhancing its
administration. Three years later, RA 7716 was amended by RA 8241. Shortly thereafter, the NIRC of
[51] [52]
1997 was signed into law. Several amendments were made to expand the coverage of VAT. However,
none pertain to cinema/theater operators or proprietors. At present, only lessors or distributors of
[53]
cinematographic films are subject to VAT. While persons subject to amusement tax under the NIRC of
[54]
1997 are exempt from the coverage of VAT.
Based on the foregoing, the following facts can be established:
(1) Historically, the activity of showing motion pictures, films or movies by
cinema/theater operators or proprietors has always been considered as a
form of entertainment subject to amusement tax.
(2) Prior to the Local Tax Code, all forms of amusement tax were imposed
by the national government.

(3) When the Local Tax Code was enacted, amusement tax on admission
tickets from theaters, cinematographs, concert halls, circuses and other
places of amusements were transferred to the local government.
(4) Under the NIRC of 1977, the national government imposed amusement
tax only on proprietors, lessees or operators of cabarets, day and night clubs,
Jai-Alai and race tracks.
(5) The VAT law was enacted to replace the tax on original and subsequent
sales tax and percentage tax on certain services.
(6) When the VAT law was implemented, it exempted persons subject to
amusement tax under the NIRC from the coverage of VAT.
(7) When the Local Tax Code was repealed by the LGC of 1991, the local
government continued to impose amusement tax on admission tickets from
theaters, cinematographs, concert halls, circuses and other places of
amusements.
(8) Amendments to the VAT law have been consistent in exempting persons
subject to amusement tax under the NIRC from the coverage of VAT.
(9) Only lessors or distributors of cinematographic films are included in the
coverage of VAT.
These reveal the legislative intent not to impose VAT on persons already covered by the
amusement tax. This holds true even in the case of cinema/theater operators taxed under the LGC of 1991
precisely because the VAT law was intended to replace the percentage tax on certain services. The mere
fact that they are taxed by the local government unit and not by the national government is immaterial. The
Local Tax Code, in transferring the power to tax gross receipts derived by cinema/theater operators or
proprietor from admission tickets to the local government, did not intend to treat cinema/theater houses as a
separate class. No distinction must, therefore, be made between the places of amusement taxed by the
national government and those taxed by the local government.
To hold otherwise would impose an unreasonable burden on cinema/theater houses operators
[55]
or proprietors, who would be paying an additional 10% VAT on top of the 30% amusement tax imposed by
Section 140 of the LGC of 1991, or a total of 40% tax. Such imposition would result in injustice, as persons
taxed under the NIRC of 1997 would be in a better position than those taxed under the LGC of 1991. We
need not belabor that a literal application of a law must be rejected if it will operate unjustly or lead to absurd
[56]
results. Thus, we are convinced that the legislature never intended to include cinema/theater operators or
proprietors in the coverage of VAT.
[57]
On this point, it is apropos to quote the case of Roxas v. Court of Tax Appeals, to wit:
The power of taxation is sometimes called also the power to destroy.
Therefore, it should be exercised with caution to minimize injury to the proprietary
rights of a taxpayer. It must be exercised fairly, equally and uniformly, lest the tax
collector kill the hen that lays the golden egg. And, in order to maintain the general
public's trust and confidence in the Government this power must be used justly and
not treacherously.
The repeal of the Local Tax Code by
the LGC of 1991 is not a legal basis for
the imposition of VAT
Petitioner, in issuing the assessment notices for deficiency VAT against respondents, ratiocinated
that:
Basically, it was acknowledged that a cinema/theater operator was then
subject to amusement tax under Section 260 of Commonwealth Act No. 466,
otherwise known as the National Internal Revenue Code of 1939, computed on the
amount paid for admission. With the enactment of the Local Tax Code under
Presidential Decree (PD) No. 231, dated June 28, 1973, the power of imposing taxes
on gross receipts from admission of persons to cinema/theater and other places of
amusement had, thereafter, been transferred to the provincial government, to the
exclusion of the national or municipal government (Sections 11 & 13, Local Tax
Code). However, the said provision containing the exclusive power of the provincial
government to impose amusement tax, had also been repealed and/or deleted by
Republic Act (RA) No. 7160, otherwise known as the Local Government Code of
1991, enacted into law on October 10, 1991. Accordingly, the enactment of RA No.
7160, thus, eliminating the statutory prohibition on the national government to
impose business tax on gross receipts from admission of persons to places of
amusement, led the way to the valid imposition of the VAT pursuant to Section
102 (now Section 108) of the old Tax Code, as amended by the Expanded VAT
Law (RA No. 7716) and which was implemented beginning January 1,
[58]
1996. (Emphasis supplied)
We disagree.
The repeal of the Local Tax Code by the LGC of 1991 is not a legal basis for the imposition of
VAT on the gross receipts of cinema/theater operators or proprietors derived from admission tickets. The
removal of the prohibition under the Local Tax Code did not grant nor restore to the national government the
power to impose amusement tax on cinema/theater operators or proprietors. Neither did it expand the
coverage of VAT. Since the imposition of a tax is a burden on the taxpayer, it cannot be presumed nor can it
be extended by implication. A law will not be construed as imposing a tax unless it does so clearly, expressly,
[59]
and unambiguously. As it is, the power to impose amusement tax on cinema/theater operators or
proprietors remains with the local government.
Revenue Memorandum Circular No.
28-2001 is invalid
Considering that there is no provision of law imposing VAT on the gross receipts of
cinema/theater operators or proprietors derived from admission tickets, RMC No. 28-2001 which imposes
VAT on the gross receipts from admission to cinema houses must be struck down. We cannot
overemphasize that RMCs must not override, supplant, or modify the law, but must remain consistent and in
[60]
harmony with, the law they seek to apply and implement.
In view of the foregoing, there is no need to discuss whether RMC No. 28-2001 complied with the
procedural due process for tax issuances as prescribed under RMC No. 20-86.
Rule on tax exemption does not apply
Moreover, contrary to the view of petitioner, respondents need not prove their entitlement to an
exemption from the coverage of VAT. The rule that tax exemptions should be construed strictly against the
[61]
taxpayer presupposes that the taxpayer is clearly subject to the tax being levied against him. The reason is
obvious: it is both illogical and impractical to determine who are exempted without first determining who are
[62]
covered by the provision. Thus, unless a statute imposes a tax clearly, expressly and unambiguously,
[63]
what applies is the equally well-settled rule that the imposition of a tax cannot be presumed. In fact, in case
[64]
of doubt, tax laws must be construed strictly against the government and in favor of the taxpayer.
WHEREFORE, the Petition is hereby DENIED. The assailed April 30, 2008 Decision of the Court
of Tax Appeals En Banc holding that gross receipts derived by respondents from admission tickets in
showing motion pictures, films or movies are not subject to value-added tax under Section 108 of the
National Internal Revenue Code of 1997, as amended, and its June 24, 2008 Resolution denying the motion
for reconsideration are AFFIRMED.
SO ORDERED.
[G.R. No. 127708. March 25, 1999]
CITY GOVERNMENT OF SAN PABLO, LAGUNA, CITY TREASURER OF SAN PABLO,
LAGUNA, and THE SANGGUNIANG PANGLUNSOD OF SAN PABLO,
LAGUNA, petitioners, vs. HONORABLE BIENVENIDO V. REYES, in his capacity
as Presiding Judge, Regional Trial Court, Branch 29, San Pablo City and the
MANILA ELECTRIC COMPANY, respondents.
DECISION
GONZAGA-REYES, J.:
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 Sangguniang Panglunsod of San Pablo City, Laguna. The RTC
declared 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 the respondent MERALCO is concerned for being violative of Act No. 3648, Republic Act No.
2340 and PD 551. The RTC also granted MERALCOS claim for refund of franchise taxes paid
under protest.
The following antecedent facts are undisputed:
Act No. 3648 granted the Escudero Electric Services 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:
x x x 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 place 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.
Escuderos 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 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 the 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 Sangguniang Panglunsod of San Pablo City enacted Ordinance
No. 56, otherwise known as the Revenue Code of the City of San Pablo. The said Ordinance
took effect on October 30, 1992:
[1]
Section 2.09 Article D of said Ordinance provides:
Sec. 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,
[2]
private respondent paid under protest a total amount of P1,857,711.67.
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
[3]
respondent MERALCO 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.
[5]
Its motion for reconsideration having been denied by the trial court 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 the 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
[6]
Airport Authority vs. Marcos 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
rd
Department of Finance in its 3 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.
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. xxx
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.
[7]
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
[8]
number or title, that are intended to be repealed.
 Was there an implied repeal by Republic Act No. 7160 of the MERALCO franchise insofar
as the latter impose 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
subject. A general law cannot be construed to have repealed a special law by mere implication
[9]
unless the intent to repeal or alter is manifest and it must be convincingly demonstrated that
[10]
the two laws are so clearly repugnant and patently inconsistent that they cannot co-exist.
It is our view that petitioners correctly rely on the provisions of Section 137 and 193 of the
LGC to support their position that MERALCOs 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 laws" 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
[11]
exlcusio alterius. In the absence of any provision of the Code to the contrary, and we find no
other 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 Section 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
[12]
contract between the government and the corporation. But these magic words contained in
[13]
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.
[14]
Accordingly in Mactan 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.
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 in Cagayan Electric Power and Light Co.
[15]
Inc. vs. Commissioner of Internal Revenue wherein the Supreme Court stated:
xxx Congress could impair petitioners 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 xxx
xxx Republic Act No. 5431, in amending section 24 of the Tax Code by subjecting to income tax
all corporate tax payers not expressly exempted therein and in section 27 of the Code, had the
effect of withdrawing petitioners exemption from income tax xxx
Private respondents invocation of the non-impairment clause of the Constitution is
accordingly unavailing. The LGC was enacted in pursuance of the constitutional policy to ensure
[16]
autonomy to local governments and to enable them to attain fullest development as self-reliant
[17]
communities. 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 development as self-reliant
communities and make them effective partners in 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
[18]
from them.
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
[19]
precisely to fulfill a constitutional mandate and national policy, no one can doubt its wisdom.
 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, September 16, 2008
[20]
but pursuant to direct authority conferred by Section 5, Article X of the Constitution. Thus x------------------------------------------------------------------------------------x
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 DECISION
Congress may provide, consistent with the basic policy of local autonomy. Such taxes, fees and
charges shall accrue exclusively to the Local Governments. NACHURA, J.:

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

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 Acts 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
[22] [23] [24] [25]
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.
[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
[27]
or in the future 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.
This is a petition for review on certiorari under Rule 45 of the Rules of Court filed by
Smart Communications, Inc. (Smart) against the City of Davao, represented by its Mayor, Hon.
Rodrigo R. Duterte, and the Sangguniang Panlungsod of Davao City, to annul the
[1] [2]
Decision dated July 19, 2002 of the Regional Trial Court (RTC) and its Order dated
September 26, 2002 in Sp. Civil Case No. 28,976-2002.
The Facts
[3]
On February 18, 2002, Smart filed a special civil action for declaratory relief under Rule 63 of
the Rules of Court, for the ascertainment of its rights and obligations under the Tax Code of the
[4]
City of Davao, particularly Section 1, Article 10 thereof, the pertinent portion of which reads:
Notwithstanding any exemption granted by any law or other special law,
there is hereby imposed a tax on businesses enjoying a franchise, at a rate
of seventy-five percent (75%) of one percent (1%) of the gross annual
receipts for the preceding calendar year based on the income or receipts
realized within the territorial jurisdiction of Davao City.

No pronouncement as to costs. Smart contends that its telecenter in Davao City is exempt from payment of franchise tax to the
City, on the following grounds: (a) the issuance of its franchise under Republic Act (R.A.) No.
[5]
SO ORDERED. 7294 subsequent to R.A. No. 7160 shows the clear legislative intent to exempt it from the
[6]
provisions of R.A. 7160; (b) Section 137 of R.A. No. 7160 can only apply to exemptions already
SMART COMMUNICATIONS, INC., G.R. No. 155491 existing at the time of its effectivity and not to future exemptions; (c) the power of the City of
Petitioner, Davao to impose a franchise tax is subject to statutory limitations such as the in lieu of all
Present: taxes clause found in Section 9 of R.A. No. 7294; and (d) the imposition of franchise tax by the
City of Davao would amount to a violation of the constitutional provision against impairment of
[7]
- versus - YNARES-SANTIAGO, J., contracts.
Chairperson,
[8]
AUSTRIA-MARTINEZ, On March 2, 2002, respondents filed their Answer in which they contested the tax exemption
CHICO-NAZARIO, claimed by Smart. They invoked the power granted by the Constitution to local government units
[9]
THE CITY OF DAVAO, represented herein by its Mayor HON. NACHURA, and to create their own sources of revenue.
RODRIGO R. DUTERTE, and the SANGGUNIANG REYES, JJ.
PANLUNGSOD OF DAVAO CITY,
Respondents. Promulgated:
On May 17, 2002, a pre-trial conference was held. Inasmuch as only legal issues were involved
in the case, the RTC issued an order requiring the parties to submit their respective memoranda
[10]
and, thereafter, the case would be deemed submitted for resolution.
[11]
On July 19, 2002, the RTC rendered its Decision denying the petition. The trial court noted
that the ambiguity of the in lieu of all taxes provision in R.A. No. 7294, on whether it covers both
[12]
national and local taxes, must be resolved against the taxpayer. The RTC ratiocinated that tax
exemptions are construed in strictissimi juris against the taxpayer and liberally in favor of the
taxing authority and, thus, those who assert a tax exemption must justify it with words too plain
[13]
to be mistaken and too categorical not to be misinterpreted. On the issue of violation of the
non-impairment clause of the Constitution, the trial court cited Mactan Cebu International Airport
[14]
Authority v. Marcos, and declared that the citys power to tax is based not merely on a valid
delegation of legislative power but on the direct authority granted to it by the fundamental law. It
added that while such power may be subject to restrictions or conditions imposed by Congress,
[15]
any such legislated limitation must be consistent with the basic policy of local autonomy.
[16]
Smart filed a motion for reconsideration which was denied by the trial court in an Order dated
September 26, 2002.
Thus, the instant case.
Smart assigns the following errors:
[a.] THE LOWER COURT ERRED IN NOT HOLDING THAT UNDER
PETITIONERS FRANCHISE (REPUBLIC ACT NO. 7294), WHICH
CONTAINS THE IN LIEU OF ALL TAXES CLAUSE, AND WHICH IS A
SPECIAL LAW ENACTED SUBSEQUENT TO THE LOCAL
GOVERNMENT CODE, NO FRANCHISE TAX MAY BE IMPOSED ON
PETITIONER BY RESPONDENT CITY.
[b.] THE LOWER COURT ERRED IN HOLDING THAT PETITIONERS
FRANCHISE IS A GENERAL LAW AND DID NOT REPEAL RELEVANT
PROVISIONS REGARDING FRANCHISE TAX OF THE LOCAL
GOVERNMENT CODE, WHICH ACCORDING TO THE COURT IS A
SPECIAL LAW.
[c.] THE LOWER COURT ERRED IN NOT HOLDING THAT SECTION 137
OF THE LOCAL GOVERNMENT CODE, WHICH, IN RELATION TO
SECTION 151 THEREOF, ALLOWS RESPONDENT CITY TO IMPOSE
THE FRANCHISE TAX, AND SECTION 193 OF THE CODE, WHICH
PROVIDES FOR WITHDRAWAL OF TAX EXEMPTION PRIVILEGES, ARE
NOT APPLICABLE TO THIS CASE.
[d.] THE LOWER COURT ERRED IN NOT HOLDING THAT SECTIONS
137 AND 193 OF THE LOCAL GOVERNMENT CODE REFER ONLY TO
EXEMPTIONS ALREADY EXISTING AT THE TIME OF ITS ENACTMENT
BUT NOT TO FUTURE EXEMPTIONS.
[e.] THE LOWER COURT ERRED IN APPLYING THE RULE OF
STATUTORY CONSTRUCTION THAT TAX EXEMPTIONS ARE
CONSTRUED STRICTLY AGAINST THE TAXPAYER.
[f.] THE LOWER COURT ERRED IN NOT HOLDING THAT PETITIONERS
FRANCHISE (REPUBLIC ACT NO. 7294) HAS BEEN AMENDED AND
EXPANDED BY SECTION 23 OF REPUBLIC ACT NO. 7925, THE PUBLIC
TELECOMMUNICATIONS POLICY ACT, TAKING INTO ACCOUNT THE
FRANCHISE OF GLOBE TELECOM, INC. (GLOBE) (REPUBLIC ACT NO.
7229), WHICH ARE SPECIAL PROVISIONS AND WERE ENACTED
SUBSEQUENT TO THE LOCAL GOVERNMENT CODE, THEREBY
PROVIDING AN ADDITIONAL GROUND WHY NO FRANCHISE TAX MAY
BE IMPOSED ON PETITIONER BY RESPONDENT CITY.
[g.] THE LOWER COURT ERRED IN DISREGARDING THE RULING OF
THE DEPARTMENT OF FINANCE, THROUGH ITS BUREAU OF LOCAL
GOVERNMENT FINANCE, THAT PETITIONER IS EXEMPT FROM THE
PAYMENT OF THE FRANCHISE TAX IMPOSABLE BY LOCAL
GOVERNMENT UNITS UNDER THE LOCAL GOVERNMENT CODE.
[h.] THE LOWER COURT ERRED IN NOT HOLDING THAT THE
IMPOSITION OF THE LOCAL FRANCHISE TAX ON PETITIONER WOULD
VIOLATE THE CONSTITUTIONAL PROHIBITION AGAINST IMPAIRMENT
OF CONTRACTS.
[17]
[i.] THE LOWER COURT ERRED IN DENYING THE PETITION BELOW.
The Issue
In sum, the pivotal issue in this case is whether Smart is liable to pay the franchise tax imposed
by the City of Davao.
The Ruling of the Court
We rule in the affirmative.
I. Prospective Effect of R.A. No. 7160
On March 27, 1992, Smarts legislative franchise (R.A. No. 7294) took effect. Section 9 thereof,
quoted hereunder, is at the heart of the present controversy:
Section 9. Tax provisions. The grantee, its successors or assigns shall be
liable to pay the same taxes on their real estate buildings and personal
property, exclusive of' this franchise, as other persons or corporations which
are now or hereafter may be required by law to pay. In addition thereto,
the grantee, its successors or assigns shall pay a franchise tax
equivalent to three percent (3%) of all gross receipts of the business
transacted under this franchise by the grantee, its successors or
assigns and the said percentage shall be in lieu of all taxes on this
franchise or earnings thereof: Provided, That the grantee, its successors
or assigns shall continue to be liable for income taxes payable under Title II
of the National Internal Revenue Code pursuant to Section 2 of Executive
 Order No. 72 unless the latter enactment is amended or repealed, in which
case the amendment or repeal shall be applicable thereto.
The grantee shall file the return with and pay the tax due thereon to the
Commissioner of Internal Revenue or his duly authorized representative in
accordance with the National Internal Revenue Code and the return shall be
subject to audit by the Bureau of Internal Revenue. (Emphasis supplied.)
Smart alleges that the in lieu of all taxes clause in Section 9 of its franchise exempts it from all
taxes, both local and national, except the national franchise tax (now VAT), income tax, and real
[18]
property tax.
On January 1, 1992, two months ahead of Smarts franchise, the Local Government Code (R.A.
No. 7160) took effect. Section 137, in relation to Section 151 of R.A. No. 7160, allowed the
imposition of franchise tax by the local government units; while Section 193 thereof provided for
the withdrawal of tax exemption privileges granted prior to the issuance of R.A. No. 7160 except
for those expressly mentioned therein, viz.:
Section 137. Franchise Tax. Notwithstanding any exemption granted
by any law or other special law, the province may impose a tax on
businesses enjoying a franchise, at the rate not exceeding fifty percent
(50%) of one percent (1%) of the gross annual receipts for the
preceding calendar year based on the incoming receipt, or realized,
within its territorial jurisdiction.
In the case of a newly started business, the tax shall not exceed
one-twentieth (1/20) of one percent (1%) of the capital investment. In the
succeeding calendar year, regardless of when the business started to
operate, the tax shall be based on the gross receipts for the preceding
calendar year, or any fraction thereon, as provided herein.
Section 151. Scope of Taxing Powers. Except as otherwise provided in this
Code, the city may levy the taxes, fees, and charges which the province or
municipality may impose: Provided, however, That the taxes, fees and
charges levied and collected by highly urbanized and independent
component cities shall accrue to them and distributed in accordance with
the provisions of this Code.
The rates of taxes that the city may levy may exceed the
maximum rates allowed for the province or municipality by not more
than fifty percent (50%) except the rates of professional and
amusement taxes.
Section 193. Withdrawal of Tax Exemption Privileges. Unless otherwise
provided in this Code, tax exemptions or incentives granted to, or presently
enjoyed by all persons, whether natural or juridical, including government-
owned or controlled corporations, except local water districts, cooperatives
duly registered under RA No. 6938, non-stock and non-profit hospitals and
educational institutions, are hereby withdrawn upon the effectivity of this
Code. (Emphasis supplied.)
Smart argues that it is not covered by Section 137, in relation to Section 151 of R.A. No. 7160,
because its franchise was granted after the effectivity of the said law. We agree with Smarts
contention on this matter. The withdrawal of tax exemptions or incentives provided in R.A. No.
7160 can only affect those franchises granted prior to the effectivity of the law. The intention of
the legislature to remove all tax exemptions or incentives granted prior to the said law is evident
in the language of Section 193 of R.A. No. 7160. No interpretation is necessary.
II. The in lieu of all taxes Clause in R.A. No. 7294
The in lieu of all taxes clause in Smarts franchise is put in issue before the Court. In order to
ascertain its meaning, consistent with fundamentals of statutory construction, all the words in the
statute must be considered. The grant of tax exemption by R.A. No. 7294 is not to be interpreted
from a consideration of a single portion or of isolated words or clauses, but from a general view
of the act as a whole. Every part of the statute must be construed with reference to the
[19]
context.
Smart is of the view that the only taxes it may be made to bear under its franchise are the
[20]
national franchise tax (now VAT), income tax, and real property tax. It claims exemption from
the local franchise tax because the in lieu of taxes clause in its franchise does not distinguish
[21]
between national and local taxes.
We pay heed that R.A. No. 7294 is not definite in granting exemption to Smart from local
taxation. Section 9 of R.A. No. 7294 imposes on Smart a franchise tax equivalent to three
percent (3%) of all gross receipts of the business transacted under the franchise and the said
percentage shall be in lieu of all taxes on the franchise or earnings thereof. R.A. No 7294 does
not expressly provide what kind of taxes Smart is exempted from. It is not clear whether the in
lieu of all taxes provision in the franchise of Smart would include exemption from local or
national taxation. What is clear is that Smart shall pay franchise tax equivalent to three percent
(3%) of all gross receipts of the business transacted under its franchise. But whether the
franchise tax exemption would include exemption from exactions by both the local and the
national government is not unequivocal.
The uncertainty in the in lieu of all taxes clause in R.A. No. 7294 on whether Smart is exempted
from both local and national franchise tax must be construed strictly against Smart which claims
the exemption. Smart has the burden of proving that, aside from the imposed 3% franchise tax,
Congress intended it to be exempt from all kinds of franchise taxes whether local or national.
However, Smart failed in this regard.
Tax exemptions are never presumed and are strictly construed against the taxpayer and liberally
[22]
in favor of the taxing authority. They can only be given force when the grant is clear and
[23]
categorical. The surrender of the power to tax, when claimed, must be clearly shown by a
language that will admit of no reasonable construction consistent with the reservation of the
power. If the intention of the legislature is open to doubt, then the intention of the legislature
[24]
must be resolved in favor of the State.
In this case, the doubt must be resolved in favor of the City of Davao. The in lieu of all taxes
clause applies only to national internal revenue taxes and not to local taxes. As appropriately
 [25]
pointed out in the separate opinion of Justice Antonio T. Carpio in a similar case involving a
demand for exemption from local franchise taxes:
[T]he "in lieu of all taxes" clause in Smart's franchise refers only to taxes,
other than income tax, imposed under the National Internal Revenue Code.
The "in lieu of all taxes" clause does not apply to local taxes. The proviso in
the first paragraph of Section 9 of Smart's franchise states that the grantee
shall "continue to be liable for income taxes payable under Title II of the
National Internal Revenue Code." Also, the second paragraph of Section 9
speaks of tax returns filed and taxes paid to the "Commissioner of Internal
Revenue or his duly authorized representative in accordance with the
National Internal Revenue Code." Moreover, the same paragraph declares
that the tax returns "shall be subject to audit by the Bureau of Internal
Revenue." Nothing is mentioned in Section 9 about local taxes. The clear
intent is for the "in lieu of all taxes" clause to apply only to taxes under the
National Internal Revenue Code and not to local taxes. Even with respect to
national internal revenue taxes, the "in lieu of all taxes" clause does not
apply to income tax.
If Congress intended the "in lieu of all taxes" clause in Smart's franchise to
also apply to local taxes, Congress would have expressly mentioned the
exemption from municipal and provincial taxes. Congress could have used
the language in Section 9(b) of Clavecilla's old franchise, as follows:
x x x in lieu of any and all taxes of any kind, nature or
description levied, established or collected by any
authority whatsoever, municipal, provincialor national,
from which the grantee is hereby expressly exempted, x
x x. (Emphasis supplied).
However, Congress did not expressly exempt Smart from local taxes.
Congress used the "in lieu of all taxes" clause only in reference to national
internal revenue taxes. The only interpretation, under the rule on strict
construction of tax exemptions, is that the "in lieu of all taxes" clause in
Smart's franchise refers only to national and not to local taxes.
It should be noted that the in lieu of all taxes clause in R.A. No. 7294 has become functus
[26]
officio with the abolition of the franchise tax on telecommunications companies. As admitted
by Smart in its pleadings, it is no longer paying the 3% franchise tax mandated in its
franchise. Currently, Smart along with other telecommunications companies pays the uniform
[27]
10% value-added tax.
The VAT on sale of services of telephone franchise grantees is equivalent to 10% of gross
[28]
receipts derived from the sale or exchange of services. R.A. No. 7716, as amended by
the Expanded Value Added Tax Law (R.A. No. 8241), the pertinent portion of which is hereunder
quoted, amended Section 9 of R.A. No. 7294:
SEC. 102. Value-added tax on sale of services and use or lease of
properties. (a) Rate and base of tax. There shall be levied assessed
and collected, a value-added tax equivalent to ten percent (10%) of
gross receipts derived from the sale or exchange of services,
including the use or lease of properties.
The phrase sale or exchange of services means the performance of all
kinds of services in the Philippines for others for a fee, remuneration
or consideration, including those performed or rendered
by construction and service contractors; stock, real estate, commercial,
customs and immigration brokers; lessors of property, whether personal or
real; warehousing services; lessors or distributors of cinematographic films;
persons engaged in milling, processing, manufacturing or repacking goods
for others; proprietors, operators or keepers of hotels, motels, rest houses,
pension houses, inns, resorts; proprietors or operators of restaurants,
refreshment parlors, cafes and other eating places, including clubs and
caterers; dealers in securities; lending investors; transportation contractors
on their transport of goods or cargoes, including persons who transport
goods or cargoes for hire and other domestic common carriers by land, air,
and water relative to their transport of goods or cargoes; services of
franchise grantees of telephone and telegraph, radio and television
broadcasting and all other franchise grantees except those under
Section 117 of this Code; services of banks, non-bank financial
intermediaries and finance companies; and non-life insurance companies
(except their crop insurances) including surety, fidelity, indemnity and
bonding companies; and similar services regardless of whether or not the
performance thereof calls for the exercise or use of the physical or mental
[29]
faculties. x x x.
R.A. No. 7716, specifically Section 20 thereof, expressly repealed the provisions of all special
laws relative to the rate of franchise taxes. It also repealed, amended, or modified all other laws,
[30]
orders, issuances, rules and regulations, or parts thereof which are inconsistent with it. In
effect, the in lieu of all taxes clause in R.A. No. 7294 was rendered ineffective by the advent of
[31]
the VAT Law.
However, the franchise tax that the City of Davao may impose must comply with Sections 137
and 151 of R.A. No. 7160. Thus, the local franchise tax that may be imposed by the City must
not exceed 50% of 1% of the gross annual receipts for the preceding calendar year based on the
income on receipts realized within the territorial jurisdiction of Davao.
III. Opinion of the Bureau of Local Government Finance (BLGF)
In support of its argument that the in lieu of all taxes clause is to be construed as an exemption
from local franchise taxes, Smart submits the opinion of the Department of Finance, through the
BLGF, dated August 13, 1998 and February 24, 1998, regarding the franchises of Smart and
[32]
Globe, respectively. Smart presents the same arguments as the Philippine Long Distance
[33]
Telephone Company in the previous cases already decided by this Court. As previously held
by the Court, the findings of the BLGF are not conclusive on the courts:
[T]he BLGF opined that 23 of R.A. No. 7925 amended the franchise of
petitioner and in effect restored its exemptions from local taxes. Petitioner
contends that courts should not set aside conclusions reached by the BLGF
 because its function is precisely the study of local tax problems and it has
necessarily developed an expertise on the subject.
To be sure, the BLGF is not an administrative agency whose findings on
questions of fact are given weight and deference in the courts. The
authorities cited by petitioner pertain to the Court of Tax Appeals, a highly
specialized court which performs judicial functions as it was created for the
review of tax cases. In contrast, the BLGF was created merely to provide
consultative services and technical assistance to local governments and the
general public on local taxation, real property assessment, and other related
matters, among others. The question raised by petitioner is a legal question,
to wit, the interpretation of 23 of R.A. No. 7925. There is, therefore, no basis
for claiming expertise for the BLGF that administrative agencies are said to
possess in their respective fields.
Petitioner likewise argues that the BLGF enjoys the presumption of
regularity in the performance of its duty. It does enjoy this presumption, but
this has nothing to do with the question in this case. This case does not
concern the regularity of performance of the BLGF in the exercise of its
[34]
duties, but the correctness of its interpretation of a provision of law.
IV. Tax Exclusion/Tax Exemption
Smart gives another perspective of the in lieu of all taxes clause in Section 9 of R.A. No. 7294 in
order to avoid the payment of local franchise tax. It says that, viewed from another angle, the in
lieu of all taxes clause partakes of the nature of a tax exclusion and not a tax exemption. A tax
exemption means that the taxpayer does not pay any tax at all. Smart pays VAT, income tax,
[35]
and real property tax. Thus, what it enjoys is more accurately a tax exclusion.
However, as previously held by the Court, both in their nature and effect, there is no essential
difference between a tax exemption and a tax exclusion. An exemption is an immunity or a
privilege; it is the freedom from a charge or burden to which others are subjected. An exclusion,
on the other hand, is the removal of otherwise taxable items from the reach of taxation, e.g.,
exclusions from gross income and allowable deductions. An exclusion is, thus, also an immunity
or privilege which frees a taxpayer from a charge to which others are subjected. Consequently,
the rule that a tax exemption should be applied in strictissimi juris against the taxpayer and
[36]
liberally in favor of the government applies equally to tax exclusions.
V. Section 23 of R.A. No. 7925
To further its claim, Smart invokes Section 23 of the Public Telecommunications Policy Act (R.A.
No. 7925):
SECTION 23. Equality of Treatment in the Telecommunications
Industry. Any advantage, favor, privilege, exemption, or immunity
granted under existing franchises, or may hereafter be granted,
shall ipso facto become part of previously granted
telecommunications franchise and shall be accorded immediately and
unconditionally to the grantees of such franchises: Provided, however,
That the foregoing shall neither apply to nor affect provisions of
telecommunications franchises concerning territory covered by the
franchise, the life span of the franchise, or the type of service authorized by
the franchise. (Emphasis supplied.)
In sum, Smart wants us to interpret anew Section 23 of R.A. No. 7925, in connection with the
[37]
franchise of Globe (R.A. No. 7227), which was enacted on March 19, 1992.
Allegedly, by virtue of Section 23 of R.A. No. 7925, otherwise known as the most favored
treatment clause or the equality clause, the provision in the franchise of Globe exempting it from
[38]
local taxes is automatically incorporated in the franchise of Smart. Smart posits that, since the
franchise of Globe contains a provision exempting it from municipal or local franchise tax, this
provision should also benefit Smart by virtue of Section 23 of R.A. No. 7925. The provision in
Globes franchise invoked by Smart reads:
(b) The grantee shall further pay to the Treasurer of the Philippines each
year after the audit and approval of the accounts as prescribed in this Act,
one and one-half per centum of all gross receipts from business transacted
under this franchise by the said grantee in the Philippines, in lieu of any
and all taxes of any kind, nature or description levied, established or
collected by any authority whatsoever, municipal, provincial or
national, from which the grantee is hereby expressly exempted,
effective from the date of the approval of Republic Act Numbered Sixteen
[39]
hundred eighteen.
We find no reason to disturb the previous pronouncements of this Court regarding the
interpretation of Section 23 of R.A. No. 7925. As aptly explained in the en banc decision of this
[40]
Court in Philippine Long Distance Telephone Company, Inc. v. City of Davao, and recently
[41]
in Digital Telecommunications Philippines, Inc. (Digitel) v. Province of Pangasinan, Congress,
in approving Section 23 of R.A. No. 7925, did not intend it to operate as a blanket tax exemption
[42]
to all telecommunications entities. The language of Section 23 of R.A. No. 7925 and the
proceedings of both Houses of Congress are bereft of anything that would signify the grant of tax
exemptions to all telecommunications entities, including those whose exemptions had been
[43]
withdrawn by R.A. No. 7160. The term exemption in Section 23 of R.A. No. 7925 does not
mean tax exemption. The term refers to exemption from certain regulations and requirements
[44]
imposed by the National Telecommunications Commission.
Furthermore, in the franchise of Globe (R.A. No. 7229), the legislature incontrovertibly stated
that it will be liable for one and one-half per centum of all gross receipts from business
transacted under the franchise, in lieu of any and all taxes of any kind, nature, or description
levied, established, or collected by any authority whatsoever, municipal, provincial, or national,
[45]
from which the grantee is hereby expressly exempted. The grant of exemption from municipal,
provincial, or national is clear and categorical that aside from the franchise tax collected by virtue
of R.A. No. 7229, no other franchise tax may be collected from Globe regardless of who the
taxing power is. No such provision is found in the franchise of Smart; the kind of tax from which it
is exempted is not clearly specified.
As previously explained by the Court, the stance of Smart would lead to absurd consequences.
 In truth, the Contract Clause has never been thought as a limitation on the
The acceptance of petitioner's theory would result in absurd consequences. exercise of the States power of taxation save only where a tax exemption
To illustrate: In its franchise, Globe is required to pay a franchise tax of only has been granted for a valid consideration. x x x.
one and one-half percentum (1%) of all gross receipts from its transactions
while Smart is required to pay a tax of three percent (3%) on all gross
receipts from business transacted. Petitioner's theory would require that, to WHEREFORE, the instant petition is DENIED for lack of merit. Costs against petitioner.
level the playing field, any "advantage, favor, privilege, exemption, or
immunity" granted to Globe must be extended to all telecommunications SO ORDERED.
companies, including Smart. If, later, Congress again grants a franchise to
another telecommunications company imposing, say, one percent (1%) ERICSSON TELECOMMUNI- G.R. NO. 176667
franchise tax, then all other telecommunications franchises will have to be CATIONS, INC.,
adjusted to "level the playing field" so to speak. This could not have been Petitioner,
the intent of Congress in enacting 23 of Rep. Act 7925. Petitioner's theory Present:
will leave the Government with the burden of having to keep track of all
granted telecommunications franchises, lest some companies be treated YNARES-SANTIAGO, J.,
unequally. It is different if Congress enacts a law specifically granting Chairperson,
uniform advantages, favor, privilege, exemption, or immunity to all - versus - AUSTRIA-MARTINEZ,
[46]
telecommunications entities. CHICO-NAZARIO,
NACHURA, and
REYES, JJ.

CITY OF PASIG, represented by

VI. Non-impairment Clause of the Constitution
Another argument of Smart is that the imposition of the local franchise tax by the City
of Davao would violate the constitutional prohibition against impairment of contracts. The
franchise, according to petitioner, is in the nature of a contract between the government and
[47]
Smart.
However, we find that there is no violation of Article III, Section 10 of the 1987 Philippine
Constitution. As previously discussed, the franchise of Smart does not expressly provide for
exemption from local taxes. Absent the express provision on such exemption under the
franchise, we are constrained to rule against it. The in lieu of all taxes clause in Section 9 of R.A.
No. 7294 leaves much room for interpretation. Due to this ambiguity in the law, the doubt must
be resolved against the grant of tax exemption.
Moreover, Smarts franchise was granted with the express condition that it is subject to
[48] [49]
amendment, alteration, or repeal. As held in Tolentino v. Secretary of Finance:
It is enough to say that the parties to a contract cannot, through the exercise
of prophetic discernment, fetter the exercise of the taxing power of the
State. For not only are existing laws read into contracts in order to fix
obligations as between parties, but the reservation of essential attributes of
sovereign power is also read into contracts as a basic postulate of the legal
order. The policy of protecting contracts against impairment presupposes
the maintenance of a government which retains adequate authority to
secure the peace and good order of society.
its City Mayor, Hon. Vicente P.
*
Eusebio, et al. Promulgated:
Respondent. November 22, 2007
x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - x
DECISION
AUSTRIA-MARTINEZ, J.:
Ericsson Telecommunications, Inc. (petitioner), a corporation with principal office in Pasig City, is
engaged in the design, engineering, and marketing of telecommunication facilities/system. In an
Assessment Notice dated October 25, 2000 issued by the City Treasurer of Pasig City, petitioner
was assessed a business tax deficiency for the years 1998 and 1999 amounting
to P9,466,885.00 and P4,993,682.00, respectively, based on its gross revenues as reported in
its audited financial statements for the years 1997 and 1998. Petitioner filed a Protest
dated December 21, 2000, claiming that the computation of the local business tax should be
based on gross receipts and not on gross revenue.
The City of Pasig (respondent) issued another Notice of Assessment to petitioner on November
19, 2001, this time based on business tax deficiencies for the years 2000 and 2001, amounting
to P4,665,775.51 and P4,710,242.93, respectively, based on its gross revenues for the years
1999 and 2000. Again, petitioner filed a Protest on January 21, 2002, reiterating its position that
the local business tax should be based on gross receiptsand not gross revenue.
Respondent denied petitioners protest and gave the latter 30 days within which to appeal the
[1]
denial. This prompted petitioner to file a petition for review with the Regional Trial Court (RTC)
of Pasig, Branch 168, praying for the annulment and cancellation of petitioners deficiency local
business taxes totaling P17,262,205.66.
Respondent and its City Treasurer filed a motion to dismiss on the grounds that the court had no
jurisdiction over the subject matter and that petitioner had no legal capacity to sue. The RTC
denied the motion in an Order dated December 3, 2002 due to respondents failure to include a
notice of hearing. Thereafter, the RTC declared respondents in default and allowed petitioner to
present evidence ex- parte.
[2]
In a Decision dated March 8, 2004, the RTC canceled and set aside the assessments made by
respondent and its City Treasurer. The dispositive portion of the RTC Decision reads:
WHEREFORE, premises considered, judgment is hereby rendered in favor
of the plaintiff and ordering defendants to CANCEL and SET ASIDE
Assessment Notice dated October 25, 2000 and Notice of Assessment
dated November 19, 2001.
[3]
SO ORDERED.
[4]
On appeal, the Court of Appeals (CA) rendered its Decision dated November 20,
2006, the dispositive portion of which reads:
WHEREFORE, the decision appealed from is hereby ordered
SET ASIDE and a new one entered DISMISSING the
plaintiff/appellees complaint WITHOUT PREJUDICE.
[5]
SO ORDERED.
The CA sustained respondents claim that the petition filed with the RTC should have
been dismissed due to petitioners failure to show that Atty. Maria Theresa B. Ramos (Atty.
Ramos), petitioners Manager for Tax and Legal Affairs and the person who signed the
Verification and Certification of Non-Forum Shopping, was duly authorized by the Board of
Directors.
DECIDING ON THE MERITS OF THE CASE FOR THE SPEEDY
DISPOSITION THEREOF, CONSIDERING THAT THE DEFICIENCY
LOCAL BUSINESS TAX ASSESSMENTS ISSUED BY
RESPONDENT ARE CLEARLY INVALID AND CONTRARY TO THE
PROVISIONS OF THE PASIG REVENUE CODE AND THE LOCAL
[7]
GOVERNMENT CODE.
After receipt by the Court of respondents complaint and petitioners reply, the petition is given
due course and considered ready for decision without the need of memoranda from the parties.
The Court grants the petition.
First, the complaint filed by petitioner with the RTC was erroneously dismissed by the
CA for failure of petitioner to show that its Manager for Tax and Legal Affairs, Atty. Ramos, was
authorized by the Board of Directors to sign the Verification and Certification of Non-Forum
Shopping in behalf of the petitioner corporation.
Time and again, the Court, under special circumstances and for compelling reasons, sanctioned
substantial compliance with the rule on the submission of verification and certification against
[8]
non-forum shopping.
[9]
In General Milling Corporation v. National Labor Relations Commission, the Court deemed as
substantial compliance the belated attempt of the petitioner to attach to the motion for
reconsideration the board resolution/secretarys certificate, stating that there was no attempt on
the part of the petitioner to ignore the prescribed procedural requirements.
[10]
In Shipside Incorporated v. Court of Appeals, the authority of the petitioners resident manager
to sign the certification against forum shopping was submitted to the CA only after the latter
dismissed the petition. The Court considered the merits of the case and the fact that the
petitioner subsequently submitted a secretarys certificate, as special circumstances or
compelling reasons that justify tempering the requirements in regard to the certificate of non-
[11]
forum shopping.

[6] There were also cases where there was complete non-compliance with the rule on certification
Its motion for reconsideration having been denied in a Resolution dated February 9, 2007,
against forum shopping and yet the Court proceeded to decide the case on the merits in order to
petitioner now comes before the Court via a Petition for Review on Certiorari under Rule 45 of [12]
serve the ends of substantial justice.
the Rules of Court, on the following grounds:
In the present case, petitioner submitted a Secretarys Certificate signed on May 6, 2002,
(1) THE COURT OF APPEALS ERRED IN DISMISSING THE CASE FOR
whereby Atty. Ramos was authorized to file a protest at the local government level and to sign,
LACK OF SHOWING THAT THE SIGNATORY OF THE
execute and deliver any and all papers, documents and pleadings relative to the said protest and
VERIFICATION/ CERTIFICATION IS NOT SPECIFICALLY [13]
to do and perform all such acts and things as may be necessary to effect the foregoing.
AUTHORIZED FOR AND IN BEHALF OF PETITIONER.
Applying the foregoing jurisprudence, the subsequent submission of the Secretarys Certificate
(2) THE COURT OF APPEALS ERRED IN GIVING DUE COURSE TO
and the substantial merits of the petition, which will be shown forthwith, justify a relaxation of the
RESPONDENTS APPEAL, CONSIDERING THAT IT HAS NO
rule.
JURISDICTION OVER THE SAME, THE MATTERS TO BE
RESOLVED BEING PURE QUESTIONS OF LAW, JURISDICTION
Second, the CA should have dismissed the appeal of respondent as it has no jurisdiction over
OVER WHICH IS VESTED ONLY WITH THIS HONORABLE COURT.
the case since the appeal involves a pure question of law. The CA seriously erred in ruling that
the appeal involves a mixed question of law and fact necessitating an examination and
(3) ASSUMING THE COURT OF APPEALS HAS JURISDICTION OVER
evaluation of the audited financial statements and other documents in order to determine
RESPONDENTS APPEAL, SAID COURT ERRED IN NOT
petitioners tax base.

There is a question of law when the doubt or difference is on what the law is on a certain state of
facts. On the other hand, there is a question of fact when the doubt or difference is on the truth
[14]
or falsity of the facts alleged. For a question to be one of law, the same must not involve an
examination of the probative value of the evidence presented by the litigants or any of them. The
resolution of the issue must rest solely on what the law provides on the given set of
circumstances. Once it is clear that the issue invites a review of the evidence presented,
the question posed is one of fact. Thus, the test of whether a question is one of law or of fact is
not the appellation given to such question by the party raising the same; rather, it is whether the
appellate court can determine the issue raised without reviewing or evaluating the evidence, in
[15]
which case, it is a question of law; otherwise it is a question of fact.
There is no dispute as to the veracity of the facts involved in the present case. While there is an
issue as to the correct amount of local business tax to be paid by petitioner, its determination will
not involve a look into petitioners audited financial statements or documents, as these are not
disputed; rather, petitioners correct tax liability will be ascertained through an interpretation of
the pertinent tax laws, i.e., whether the local business tax, as imposed by the Pasig City
Revenue Code (Ordinance No. 25-92) and the Local Government Code of 1991, should be
based on gross receipts, and not on gross revenue which respondent relied on in computing
petitioners local business tax deficiency. This, clearly, is a question of law, and beyond the
jurisdiction of the CA.
Section 2(c), Rule 41 of the Rules of Court provides that in all cases where questions
of law are raised or involved, the appeal shall be to this Court by petition for review
on certiorari under Rule 45.
Thus, as correctly pointed out by petitioner, the appeal before the CA should have
been dismissed, pursuant to Section 5(f), Rule 56 of the Rules of Court, which provides:
Sec. 5. Grounds for dismissal of appeal.- The appeal may be
dismissed motu proprio or on motion of the respondent on the following
grounds:
xxxx
(f) Error in the choice or mode of appeal.
xxxx
Third, the dismissal of the appeal, in effect, would have sustained the RTC Decision ordering
respondent to cancel the Assessment Notices issued by respondent, and therefore, would have
rendered moot and academic the issue of whether the local business tax on contractors should
be based on gross receipts or gross revenues.
However, the higher interest of substantial justice dictates that this Court should resolve the
[16]
same, to evade further repetition of erroneous interpretation of the law, for the guidance of the
bench and bar.
As earlier stated, the substantive issue in this case is whether the local business tax on
contractors should be based on gross receipts or gross revenue.
Respondent assessed deficiency local business taxes on petitioner based on the latters gross
revenue as reported in its financial statements, arguing that gross receipts is synonymous with
gross earnings/revenue, which, in turn, includes uncollected earnings.Petitioner, however,
contends that only the portion of the revenues which were actually and constructively received
should be considered in determining its tax base.
Respondent is authorized to levy business taxes under Section 143 in relation to Section 151 of
the Local Government Code.
Insofar as petitioner is concerned, the applicable provision is subsection (e), Section
143 of the same Code covering contractors and other independent contractors, to wit:
SEC. 143. Tax on Business. - The municipality may impose taxes on the
following businesses:
xxxx
(e) On contractors and other independent contractors, in accordance with
the following schedule:
With gross receipts for the preceding Amount of Tax Per
calendar year in the amount of: Annum
xxxx
(Emphasis supplied)
The above provision specifically refers to gross receipts which is defined under Section 131 of
the Local Government Code, as follows:
xxxx
(n) Gross Sales or Receipts include the total amount of money or its
equivalent representing the contract price, compensation or service fee,
including the amount charged or materials supplied with the services and
the deposits or advance payments actually or constructively received during
the taxable quarter for the services performed or to be performed for
another person excluding discounts if determinable at the time of sales,
sales return, excise tax, and value-added tax (VAT);
xxxx
The law is clear. Gross receipts include money or its equivalent actually or constructively
received in consideration of services rendered or articles sold, exchanged or leased, whether
actual or constructive.
[17]
In Commissioner of Internal Revenue v. Bank of Commerce, the Court interpreted gross
receipts as including those which were actually or constructively received, viz.:
 Actual receipt of interest income is not limited to physical
receipt. Actual receipt may either be physical receipt or constructive
receipt. When the depository bank withholds the final tax to pay the tax
liability of the lending bank, there is prior to the withholding a constructive
receipt by the lending bank of the amount withheld. From the
amount constructively received by the lending bank, the depository bank
deducts the final withholding tax and remits it to the government for the
account of the lending bank. Thus, the interest income actually received by
the lending bank, both physically and constructively, is the net interest plus
the amount withheld as final tax.
The concept of a withholding tax on income obviously and
necessarily implies that the amount of the tax withheld comes from the
income earned by the taxpayer. Since the amount of the tax withheld
constitutes income earned by the taxpayer, then that amount manifestly
forms part of the taxpayers gross receipts. Because the amount withheld
belongs to the taxpayer, he can transfer its ownership to the government in
payment of his tax liability. The amount withheld indubitably comes from
income of the taxpayer, and thus forms part of his gross receipts. (Emphasis
supplied)
Further elaboration was made by the Court in Commissioner of Internal Revenue v. Bank of the
[18]
Philippine Islands, in this wise:
Receipt of income may be actual or constructive. We have held that
the withholding process results in the taxpayers constructive receipt of the
income withheld, to wit:
By analogy, we apply to the receipt of income the rules
on actual and constructivepossession provided in Articles 531 and 532 of
our Civil Code.
Under Article 531:
Possession is acquired by the material occupation of a
thing or the exercise of a right, or by the fact that it is subject to
the action of our will, or by the proper acts and legal formalities
established for acquiring such right.
Article 532 states:
Possession may be acquired by the same person who
is to enjoy it, by his legal representative, by his agent, or by any
person without any power whatever; but in the last case, the
possession shall not be considered as acquired until the person in
whose name the act of possession was executed has ratified the
same, without prejudice to the juridical consequences
of negotiorum gestio in a proper case.
The last means of acquiring possession under Article
531 refers to juridical actsthe acquisition of possession by
sufficient titleto which the law gives the force of acts of
possession. Respondent argues that only items of
income actually received should be included in its gross receipts.
It claims that since the amount had already been withheld at
source, it did not have actual receipt thereof.
We clarify. Article 531 of the Civil Code clearly provides
that the acquisition of the right of possession is through the proper
acts and legal formalities established therefor. The withholding
process is one such act. There may not be actual receipt of the
income withheld; however, as provided for in Article 532,
possession by any person without any power whatsoever shall be
considered as acquired when ratified by the person in whose
name the act of possession is executed.
In our withholding tax system, possession is acquired
by the payor as the withholding agent of the government, because
the taxpayer ratifies the very act of possession for the
government. There is thus constructive receipt. The processes of
bookkeeping and accounting for interest on deposits and yield on
deposit substitutes that are subjected to FWT are indeedfor legal
[19]
purposestantamount to delivery, receipt or remittance.
[20]
Revenue Regulations No. 16-2005 dated September 1, 2005 defined and gave examples of
constructive receipt, to wit:
SEC. 4. 108-4. Definition of Gross Receipts. -- x x x
Constructive receipt occurs when the money consideration or its
equivalent is placed at the control of the person who rendered the service
without restrictions by the payor. The following are examples of constructive
receipts:
(1) deposit in banks which are made available to the seller of services
without restrictions;
(2) issuance by the debtor of a notice to offset any debt or obligation and
acceptance thereof by the seller as payment for services rendered; and
(3) transfer of the amounts retained by the payor to the account of the
contractor.
There is, therefore, constructive receipt, when the consideration for the articles sold, exchanged
or leased, or the services rendered has already been placed under the control of the person who
sold the goods or rendered the services without any restriction by the payor.
In contrast, gross revenue covers money or its equivalent actually or constructively
received, including the value of services rendered or articles sold, exchanged or leased,
the payment of which is yet to be received. This is in consonance with the International
[21]
Financial Reporting Standards, which defines revenue as the gross inflow of economic
benefits (cash, receivables, and other assets) arising from the ordinary operating activities of an
 [22]
enterprise (such as sales of goods, sales of services, interest, royalties, and dividends), which DECISION
[23]
is measured at the fair value of the consideration received or receivable.
TINGA, J.:
As aptly stated by the RTC:

[R]evenue from services rendered is recognized when services have been
performed and are billable. It is recorded at the amount received
or expected to be received. (Section E [17] of the Statements of Financial
[24]
Accounting Standards No. 1).
In petitioners case, its audited financial statements reflect income or revenue which accrued to it
during the taxable period although not yet actually or constructively received or paid. This is
because petitioner uses the accrual method of accounting, where income is reportable when all
the events have occurred that fix the taxpayers right to receive the income, and the amount can
be determined with reasonable accuracy; the right to receive income, and not the actual receipt,
[25]
determines when to include the amount in gross income.
The imposition of local business tax based on petitioners gross revenue will inevitably result in
the constitutionally proscribed double taxation taxing of the same person twice by the same
[26]
jurisdiction for the same thing inasmuch as petitioners revenue or income for a taxable year
will definitely include its gross receipts already reported during the previous year and for which
local business tax has already been paid.
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
[1]
pay business taxes.
While we agree with the City Treasurers position on the first issue, there ultimately is
sufficient justification for the Court to overlook what is essentially a procedural error. We uphold
respondents on the second issue. Indeed, there are disturbing aspects in both procedure and
substance that attend the attempts by the City of Makati to flex its taxing muscle. Considering
that the tax imposition now in question has utterly no basis in law, judicial relief is imperative.
There are fewer indisputable causes for the exercise of judicial review over the exercise of the
taxing power than when the tax is based on whim, and not on law.
The facts, as culled from the record, follow.

Thus, respondent committed a palpable error when it assessed petitioners local business tax Respondent BA-Lepanto Condominium Corporation (the Corporation) is a duly organized
[2]
based on its gross revenue as reported in its audited financial statements, as Section 143 of the condominium corporation constituted in accordance with the Condominium Act, which owns
Local Government Code and Section 22(e) of the Pasig Revenue Code clearly provide that the and holds title to the common and limited common areas of the BA-Lepanto Condominium (the
tax should be computed based on gross receipts. 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
WHEREFORE, the petition is GRANTED. The Decision dated November 20, 2006and By-Laws, to collect regular assessments from its members for operating expenses, capital
Resolution dated February 9, 2007 issued by the Court of Appeals are SET ASIDE, and the expenditures on the common areas, and other special assessments as provided for in the
Decision dated March 8, 2004 rendered by the Regional Trial Court of Pasig, Branch 168 Master Deed with Declaration of Restrictions of the Condominium.
is REINSTATED.
On 15 December 1998, the Corporation received a Notice of Assessment dated 14 December
LUZ R. YAMANE, in her G.R. No. 154993 1998 signed by the City Treasurer. The Notice of Assessment stated that the Corporation is
capacity as the CITY liable to pay the correct city business taxes, fees and charges, computed as
[3]
TREASURER OF MAKATI Present: totaling P1,601,013.77 for the years 1995 to 1997. The Notice of Assessment was silent as to
CITY, the statutory basis of the business taxes assessed.
Petitioner, PUNO, J.,
Chairman, Through counsel, the Corporation responded with a written tax protest dated 12
AUSTRIA-MARTINEZ, February 1999, addressed to the City Treasurer. It was evident in the protest that the
CALLEJO, SR., Corporation was perplexed on the statutory basis of the tax assessment.
- versus - TINGA, and
CHICO-NAZARIO, JJ. With due respect, we submit that the Assessment has no basis as
BA LEPANTO CONDOMINUM Promulgated: the Corporation is not liable for business taxes and surcharges and interest
CORPORATION, thereon, under the Makati [Revenue] Code or even under the [Local
Respondent. October 25, 2005 Government] Code.

x-------------------------------------------------------------------x 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
[4]
the Makati [Revenue] Code and even the [Local Government] Code.
Proceeding from the premise that its tax liability arose from Section 3A.02(m) of the
Makati Revenue Code, the Corporation proceeded to argue that under both the Makati Code
and the Local Government Code, business is defined as trade or commercial activity regularly
engaged in as a means of livelihood or with a view to profit. It was submitted that the
Corporation, as a condominium corporation, was organized not for profit, but to hold title over the
common areas of the Condominium, to manage the Condominium for the unit owners, and to
hold title to the parcels of land on which the Condominium was located. Neither was the
Corporation authorized, under its articles of incorporation or by-laws to engage in profit-making
activities. The assessments it did collect from the unit owners were for capital expenditures and
[5]
operating expenses.
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
[6]
[sic] prices for those occupants who would in the future sell their respective units. Thus, she
concluded since the chances of getting higher prices for well-managed common areas of any
condominium are better and more effective that condominiums with poor [sic] managed common
[7]
areas, the corporation activity is a profit venture making [sic].
From the denial of the protest, the Corporation filed an Appeal with the Regional Trial Court
[8]
(RTC) of Makati. On 1 March 2000, the Makati RTC Branch 57 rendered
[9]
a Decision 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
[10]
owners to command better prices in the event of sale.
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
[11]
local business taxation.
From this Decision of the RTC, the Corporation filed a Petition for Reviewunder Rule 42 of the
Rules of Civil Procedure with the Court of Appeals. Initially, the petition was dismissed
[12]
outright on the ground that only decisions of the RTC brought on appeal from a first level court
[13]
could be elevated for review under the mode of review prescribed under Rule 42. 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
[14]
treasurer is to appeal the denial with the court of competent jurisdiction. Persuaded by this
[15]
contention, the Court of Appeals reinstated the petition.
On 7 June 2002, the Court of Appeals Special Sixteenth Division rendered
[16]
the Decision now assailed before this Court. The appellate court reversed the RTC and
[17]
declared that the Corporation was not liable to pay business taxes to the City of Makati. In
[18]
doing so, the Court of Appeals delved into jurisprudential definitions of profit, 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
[19]
maintain the condominium.
The Court of Appeals likewise cited provisions from the Corporations Amended Articles
of Incorporation and Amended By-Laws that, to its estimation, established that the Corporation
was not engaged in business and the assessment collected from unit owners limited to those
necessary to defray the expenses in the maintenance of the common areas and management the
[20]
condominium.
[21]
Upon denial of her Motion for Reconsideration, 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
[22]
incident to the fact of [the Corporations] act of engaging in business.
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
[23]
and executory by reason of the failure of the Corporation to file a notice of appeal.
There are discernible conflicting views on the issue. The first, as expressed by the
Court of Appeals, holds that the RTC, in reviewing denials of protests by local treasurers,
exercises appellate jurisdiction. This position is anchored on the language of Section 195 of the
Local Government Code which states that the remedy of the taxpayer whose protest is denied by
[24]
the local treasurer is to appeal with the court of competent jurisdiction. Apparently though, the
Local Government Code does not elaborate on how such appeal should be undertaken.
 The other view, as maintained by the City Treasurer, is that the jurisdiction exercised
by the RTC is original in character. This is the first time that the position has been presented to
the court for adjudication. Still, this argument does find jurisprudential mooring in our ruling
[25]
in Garcia v. De Jesus, 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
[26]
judgment of a lower Court which tried the case now elevated for judicial review.
The quoted definitions were taken from the commentaries of the esteemed Justice
Florenz Regalado. With the definitions as beacon, the review taken by the RTC over the denial of
the protest by the local treasurer would fall within that courts original jurisdiction. In short, the
review is the initial judicial cognizance of the matter. Moreover, labeling the said review as an
exercise of appellate jurisdiction is inappropriate, since the denial of the protest is not the
judgment or order of a lower court, but of a local government official.
The stringent concept of original jurisdiction may seemingly be neutered by Rule 43 of
the 1997 Rules of Civil Procedure, Section 1 of which lists a slew of administrative agencies and
quasi-judicial tribunals or their officers whose decisions may be reviewed by the Court of Appeals
in the exercise of its appellate jurisdiction. However, the basic law of jurisdiction, Batas
[27]
Pambansa Blg. 129 (B.P. 129), ineluctably confers appellate jurisdiction on the Court of
Appeals over final rulings of quasi-judicial agencies, instrumentalities, boards or commission, by
[28]
explicitly using the phrase appellate jurisdiction. The power to create or characterize
jurisdiction of courts belongs to the legislature. While the traditional notion of appellate jurisdiction
connotes judicial review over lower court decisions, it has to yield to statutory redefinitions that
clearly expand its breadth to encompass even review of decisions of officers in the executive
branches of government.
Yet significantly, the Local Government Code, or any other statute for that matter, does
not expressly confer appellate jurisdiction on the part of regional trial courts from the denial of a
tax protest by a local treasurer. On the other hand, Section 22 of B.P. 129 expressly delineates
the appellate jurisdiction of the Regional Trial Courts, confining as it does said appellate
jurisdiction to cases decided by Metropolitan, Municipal, and Municipal Circuit Trial Courts. Unlike
in the case of the Court of Appeals, B.P. 129 does not confer appellate jurisdiction on Regional
Trial Courts over rulings made by non-judicial entities.
From these premises, it is evident that the stance of the City Treasurer is correct as a
matter of law, and that the proper remedy of the Corporation from the RTC judgment is an
ordinary appeal under Rule 41 to the Court of Appeals. However, we make this pronouncement
subject to two important qualifications. First, in this particular case there are nonetheless
significant reasons for the Court to overlook the procedural error and ultimately uphold the
adjudication of the jurisdiction exercised by the Court of Appeals in this case. Second, the
doctrinal weight of the pronouncement is confined to cases and controversies that emerged prior
to the enactment of Republic Act No. 9282, the law which expanded the jurisdiction of the Court
of Tax Appeals (CTA).
Republic Act No. 9282 definitively proves in its Section 7(a)(3) that the CTA exercises
exclusive appellate jurisdiction to review on appeal decisions, orders or resolutions of the
Regional Trial Courts in local tax cases original decided or resolved by them in the exercise of
their originally or appellate jurisdiction. Moreover, the provision also states that the review is
triggered by filing a petition for review under a procedure analogous to that provided for under
[29]
Rule 42 of the 1997 Rules of Civil Procedure.
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
[30]
implications, and this settled rule would be needlessly emasculated should we declare that the
Corporations position is correct in law.
Be that as it may, characteristic of all procedural rules is adherence to the precept that
they should not be enforced blindly, especially if mechanical application would defeat the higher
ends that animates our civil procedurethe just, speedy and inexpensive disposition of every
[31]
action and proceeding. Indeed, we have repeatedly upheldand utilized ourselvesthe discretion
of courts to nonetheless take cognizance of petitions raised on an erroneous mode of appeal and
[32]
instead treat these petitions in the manner as they should have appropriately been filed. The
Court of Appeals could very well have treated the Corporations petition for review as an ordinary
appeal.
Moreover, we recognize that the Corporations error in elevating the RTC decision for
review via Rule 42 actually worked to the benefit of the City Treasurer. There is wider latitude on
the part of the Court of Appeals to refuse cognizance over a petition for review under Rule 42
than it would have over an ordinary appeal under Rule 41. Under Section 13, Rule 41, the stated
grounds for the dismissal of an ordinary appeal prior to the transmission of the case records are
[33]
when the appeal was taken out of time or when the docket fees were not paid. On the other
hand, Section 6, Rule 42 provides that in order that the Court of Appeals may allow due course to
the petition for review, it must first make a prima facie finding that the lower court has committed
[34]
an error that would warrant the reversal or modification of the decision under review. There is
no similar requirement of a prima facie determination of error in the case of ordinary appeal,
[35]
which is perfected upon the filing of the notice of appeal in due time.
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
[36]
Congress may provide, consistent with the basic policy of local autonomy. These guidelines
and limitations as provided by Congress are in main contained in the Local Government Code of
1991 (the Code), which provides for comprehensive instances when and how local government
units may impose taxes. The significant limitations are enumerated primarily in Section 133 of the
Code, which include among others, a prohibition on the imposition of income taxes except when
 [37]
levied on banks and other financial institutions. None of the other general limitations under
Section 133 find application to the case at bar.
The most well-known mode of local government taxation is perhaps the real property tax, which
is governed by Title II, Book II of the Code, and which bears no application in this case. A
different set of provisions, found under Title I of Book II, governs other taxes imposable by local
government units, including business taxes. Under Section 151 of the Code, cities such as
Makati are authorized to levy the same taxes fees and charges as provinces and municipalities. It
is in Article II, Title II, Book II of the Code, governing municipal taxes, where the provisions on
[38]
business taxation relevant to this petition may be found.
Section 143 of the Code specifically enumerates several types of business on which
municipalities and cities may impose taxes. These include manufacturers, wholesalers,
distributors, dealers of any article of commerce of whatever nature; those engaged in the export
or commerce of essential commodities; contractors and other independent contractors; banks
and financial institutions; and peddlers engaged in the sale of any merchandise or article of
commerce. Moreover, the local sanggunian is also authorized to impose taxes on any other
businesses not otherwise specified under Section 143 which the sanggunian concerned may
deem proper to tax.
The coverage of business taxation particular to the City of Makati is provided by the
Makati Revenue Code (Revenue Code), enacted through Municipal Ordinance No. 92-072. The
Revenue Code remains in effect as of this
writing. Article A, Chapter III of the Revenue Code governs business taxes in Makati, and it is
quite specific as to the particular businesses which are covered by business taxes. To give a
sample of the specified businesses under the Revenue Code which are not enumerated under
the Local Government Code, we cite Section 3A.02(f) of the Code, which levies a gross receipt
tax :
(f) On contractors and other independent contractors defined in Sec.
3A.01(q) of Chapter III of this Code, and on owners or operators of
business establishments rendering or offering services such as:
advertising agencies; animal hospitals; assaying laboratories; belt and
buckle shops; blacksmith shops; bookbinders; booking officers for film
exchange; booking offices for transportation on commission basis;
breeding of game cocks and other sporting animals belonging to others;
business management services; collecting agencies; escort services;
feasibility studies; consultancy services; garages; garbage disposal
contractors; gold and silversmith shops; inspection services for incoming
and outgoing cargoes; interior decorating services; janitorial services; job
placement or recruitment agencies; landscaping contractors; lathe
machine shops; management consultants not subject to professional tax;
medical and dental laboratories; mercantile agencies; messsengerial
services; operators of shoe shine stands; painting shops; perma press
establishments; rent-a-plant services; polo players; school for and/or
horse-back riding academy; real estate appraisers; real estate
brokerages; photostatic, white/blue printing, Xerox, typing, and
mimeographing services; rental of bicycles and/or tricycles, furniture,
shoes, watches, household appliances, boats, typewriters, etc.; roasting
of pigs, fowls, etc.; shipping agencies; shipyard for repairing ships for
others; shops for shearing animals; silkscreen or T-shirt printing shops;
stables; travel agencies; vaciador shops; veterinary clinics; video rentals
and/or coverage services; dancing schools/speed reading/EDP; nursery,
vocational and other schools not regulated by the Department of
[39]
Education, Culture and Sports, (DECS), day care centers; etc.
Other provisions of the Revenue Code likewise subject hotel and restaurant owners
[40] [41]
and operators , real estate dealers, and lessors of real estate to business taxes.
Should the comprehensive listing not prove encompassing enough, there is also a
catch-all provision similar to that under the Local Government Code. This is found in Section
3A.02(m) of the Revenue Code, which provides:
(m) On owners or operators of any business not specified above shall
pay the tax at the rate of two percent (2%) for 1993, two and one-half percent (2
%) for 1994 and 1995, and three percent (3%) for 1996 and the years thereafter
[42]
of the gross receipts during the preceding year.
The initial inquiry is what provision of the Makati Revenue Code does the City
Treasurer rely on to make the Corporation liable for business taxes. Even at this point, there
already stands a problem with the City Treasurers cause of action.
Our careful examination of the record reveals a highly disconcerting fact. At no point
has the City Treasurer been candid enough to inform the Corporation, the RTC, the Court of
Appeals, or this Court for that matter, as to what exactly is the precise statutory basis under the
Makati Revenue Code for the levying of the business tax on petitioner. We have examined all of
the pleadings submitted by the City Treasurer in all the antecedent judicial proceedings, as well
as in this present petition, and also the communications by the City Treasurer to the Corporation
which form part of the record. Nowhere therein is there any citation made by the City Treasurer of
any provision of the Revenue Code which would serve as the legal authority for the collection of
business taxes from condominiums in Makati.
Ostensibly, the notice of assessment, which stands as the first instance the taxpayer is
officially made aware of the pending tax liability, should be sufficiently informative to apprise the
taxpayer the legal basis of the tax. Section 195 of the Local Government Code does not go as far
as to expressly require that the notice of assessment specifically cite the provision of the
ordinance involved but it does require that it state the nature of the tax, fee or charge, the amount
of deficiency, surcharges, interests and penalties. In this case, the notice of assessment sent to
the Corporation did state that the assessment was for business taxes, as well as the amount of
the assessment. There may have been prima facie compliance with the requirement under
Section 195. However in this case, the Revenue Code provides multiple provisions on business
taxes, and at varying rates. Hence, we could appreciate the Corporations confusion, as
[43]
expressed in its protest, as to the exact legal basis for the tax. Reference to the local tax
ordinance is vital, for the power of local government units to impose local taxes is exercised
through the appropriate ordinance enacted by the sanggunian, and not by the Local Government
[44]
Code alone. What determines tax liability is the tax ordinance, the Local Government Code
being the enabling law for the local legislative body.
Moreover, a careful examination of the Revenue Code shows that while Section
3A.02(m) seems designed as a catch-all provision, Section 3A.02(f), which provides for a
different tax rate from that of the former provision, may be construed to be of similar import. While
Section 3A.02(f) is quite exhaustive in enumerating the class of businesses taxed under the
provision, the listing, while it does not include condominium-related enterprises, ends with the
abbreviation etc., or et cetera.
We do note our discomfort with the unlimited breadth and the dangerous uncertainty
which are the twin hallmarks of the words et cetera. Certainly, we cannot be disposed to uphold
any tax imposition that derives its authority from enigmatic and uncertain words such as et
cetera. Yet we cannot even say with definiteness whether the tax imposed on the Corporation in
this case is based on et cetera, or on Section 3A.02(m), or on any other provision of the Revenue
Code. Assuming that the assessment made on the Corporation is on a provision other than
Section 3A.02(m), the main legal issue takes on a different complexion. For example, if it is
based on et cetera under Section 3A.02(f), we would have to examine whether the Corporation
faces analogous comparison with the other businesses listed under that provision.
Certainly, the City Treasurer has not been helpful in that regard, as she has been silent
all through out as to the exact basis for the tax imposition which she wishes that this Court
uphold. Indeed, there is only one thing that prevents this Court from ruling that there has been a
due process violation on account of the City Treasurers failure to disclose on paper the statutory
basis of the taxthat the Corporation itself does not allege injury arising from such failure on the
part of the City Treasurer.
We do not know why the Corporation chose not to put this issue into litigation, though
we can ultimately presume that no injury was sustained because the City Treasurer failed to cite
the specific statutory basis of the tax. What is essential though is that the local treasurer be
required to explain to the taxpayer with sufficient particularity the basis of the tax, so as to leave
no doubt in the mind of the taxpayer as to the specific tax involved.
In this case, the Corporation seems confident enough in litigating despite the failure of
the City Treasurer to admit on what exact provision of the Revenue Code the tax liability ensued.
This is perhaps because the Corporation has anchored its central argument on the position that
the Local Government Code itself does not sanction the imposition of business taxes against it.
This position was sustained by the Court of Appeals, and now merits our analysis.
As stated earlier, local tax on businesses is authorized under Section 143 of the Local
Government Code. The word business itself is defined under Section 131(d) of the Code as trade
or commercial activity regularly engaged in as a means of livelihood or with a view to
[45]
profit. This definition of business takes on importance, since Section 143 allows local
government units to impose local taxes on businesses other than those specified under the
provision. Moreover, even those business activities specifically named in Section 143 are
themselves susceptible to broad interpretation. For example, Section 143(b) authorizes the
imposition of business taxes on wholesalers, distributors, or dealers in any article of commerce of
whatever kind or nature.
It is thus imperative that in order that the Corporation may be subjected to business
taxes, its activities must fall within the definition of business as provided in the Local Government
Code. And to hold that they do is to ignore the very statutory nature of a condominium
corporation.
The creation of the condominium corporation is sanctioned by Republic Act No. 4726,
otherwise known as the Condominium Act. Under the law, a condominium is an interest in real
property consisting of a separate interest in a unit in a residential, industrial or commercial
building and an undivided interest in common, directly or indirectly, in the land on which it is
[46]
located and in other common areas of the building. 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
[47] [48]
units. The necessity of a condominium corporation has not gained widespread acceptance ,
[49]
and even is merely permissible under the Condominium Act. Nonetheless, the condominium
corporation has been resorted to by many condominium projects, such as the Corporation in this
case.
In line with the authority of the condominium corporation to manage the condominium
project, it may be authorized, in the deed of restrictions, to make reasonable assessments to
meet authorized expenditures, each condominium unit to be assessed separately for its share of
such expenses in proportion (unless otherwise provided) to its owners fractional interest in any
[50]
common areas. It is the collection of these assessments from unit owners that form the basis
of the City Treasurers claim that the Corporation is doing business.
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
[51]
convenient to the accomplishment of such purpose. 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
[52]
deed, or the declaration of restrictions of the condominium project.
We can elicit from the Condominium Act that a condominium corporation is precluded
by statute from engaging in corporate activities other than the holding of the common areas, the
administration of the condominium project, and other acts necessary, incidental or convenient to
the accomplishment of such purposes. Neither the maintenance of livelihood, nor the
procurement of profit, fall within the scope of permissible corporate purposes of a condominium
corporation under the Condominium Act.
The Court has examined the particular Articles of Incorporation and By-Laws of the
Corporation, and these documents unmistakably hew to the limitations contained in the
Condominium Act. Per the Articles of Incorporation, the Corporations corporate purposes are
limited to: (a) owning and holding title to the common and limited common areas in the
Condominium Project; (b) adopting such necessary measures for the protection and safeguard of
the unit owners and their property, including the power to contract for security services and for
insurance coverage on the entire project; (c) making and adopting needful rules and regulations
concerning the use, enjoyment and occupancy of the units and common areas, including the
power to fix penalties and assessments for violation of such rules; (d) to provide for the
maintenance, repair, sanitation, and cleanliness of the common and limited common areas; (e) to
provide and contract for public utilities and other services to the common areas; (f) to contract for
the services of persons or firms to assist in the management and operation of the Condominium
Project; (g) to discharge any lien or encumbrances upon the Condominium Project; (h) to enforce
the terms contained in the Master Deed with Declaration of Restrictions of the Project; (i) to levy
and
collect those assessments as provided in the Master Deed, in order to defray the costs, expenses
and losses of the condominium; (j) to acquire, own, hold, enjoy, lease operate and maintain, and
to convey, sell transfer, mortgage or otherwise dispose of real or personal property in connection
with the purposes and activities of the corporation; and (k) to exercise and perform such other
[53]
powers reasonably necessary, incidental or convenient to accomplish the foregoing purposes.
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
[54]
ordinary repairs of the common areas.
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 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
[55]
already required to pay capital gains tax on the appreciated value of the condominium unit.
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
[56]
due process clause, and the taxpayers right to due process is violated when arbitrary or
[57]
oppressive methods are used in assessing and collecting taxes. 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
[58]
or otherwise dispose of real or personal property. What the City Treasurer fails to add is that
every corporation
[59]
organized under the Corporation Code 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
[60]
of the corporation may reasonably and necessarily require . . . . Without this power,
corporations, as juridical persons, would be deprived of the capacity to engage in most
meaningful legal relations.
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 the Condominium Act. A condominium corporation,
while enjoying such powers of ownership, is prohibited by law from transacting its properties for
the purpose of gainful profit.
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
[61]
of the condominium corporation. 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
[62]
condominium corporation , 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 Corporations 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.

G.R. No. 167732 July 11, 2012
TEAM PACIFIC CORPORATION, Petitioner,
vs.
JOSEPHINE DAZA in her capacity as MUNICIPAL TREASURER OF TAGUIG, Respondent.
DECISION
PEREZ, J.:
The proper remedy from the denial of an assessment protest by a local treasurer is at issue in
this Rule 45 petition f(x review on certiorari filed by petitioner Team Pacific Corporation( TPC),
assailing the Order dated 5 April 2005 issued by the Regional Trial Court (RTC), Branch 152,
1
Pasig City in SCA No. 2(,62, dismissing its Rule 65 petition for certiorari.
The facts are not in dispute.
A domestic corporation engaged in the business of assembling and exporting semiconductor
devices, TPC conducts its business at the FTI Complex in the then Municipality of Taguig. It
appears that since the start of its operations in 1999, TPC had been paying local business taxes
assessed at one-half (1/2) rate pursuant to Section 75 (c) of Ordinance No. 24-93, otherwise
2
known as the Taguig Revenue Code. Consistent with Section 143 (c) of Republic Act (RA) No.
7160, otherwise known as the Local Government Code of 1991, said provision of the Taguig
Revenue Code provides as follows:
Section 75. Imposition of Tax. – There is hereby imposed on the following persons, natural or
juridical, who establish, operate conduct or maintain their respective businesses within the
Municipality of Taguig, a graduated business tax in the amounts hereafter prescribed:
xxxx
(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:
(1) Rice and corn;
(2) Wheat or cassava flour, meat, dairy products, locally manufactured, processed or
preserved food, sugar, salt and other agricultural, marine, and fresh water products,
whether in their original state or not;
(3) Cooking oil and cooking gas;
(4) Laundry soap, detergents, and medicine;
(5) Agricultural implements, equipment and post- harvest facilities, fertilizers,
pesticides, insecticides, herbicides and other farm inputs;
(6) Poultry feeds and other animal feeds;
(7) School supplies; and
(8) Cement.
xxxx
When it renewed its business license in 2004, however, TPC’s business tax for the first quarter
of the same year was assessed in the sum of P208,109.77 by respondent Josephine Daza, in
her capacity as then Municipal Treasurer of Taguig. The assessment was computed by Daza by
applying the full value of the rates provided under Section 75 of the Taguig Revenue Code,
instead of the one-half (1/2) rate provided under paragraph (c) of the same provision.
Constrained to pay the assessed business tax on 19 January 2004 in view of its being a
precondition for the renewal of its business permit, TPC filed on the same day a written protest
with Daza, insisting on the one-half (1/2) rate on which its business tax was previously
assessed. In support of its position, TPC invoked Section 143 (c) of the Local Government Code
of 1991 and Section 2 of Local Finance Circular No. 4-93 of the Department of Finance which
provided guidelines for the imposition of business taxes on exporters by municipalities.
3
Subsequent to its 13 April 2004 demand for the refund and/or issuance of a tax credit for the
sum of P104,054.88 which it considered as an overpayment of its business taxes for the same
4
year, TPC filed its 15 April 2004 Rule 65 petition for certiorari which was docketed as SCA No.
2662 before the RTC. Alleging that no formal action was taken regarding its protest on or before
19 March 2004 or within the period of sixty (60) days from the filing thereof as prescribed under
Article 195 of the Local Government Code, TPC maintained that it was simply informed by Atty.
Marianito D. Miranda, Chief of the Taguig Business Permit and Licensing Office, that the
assessment of its business tax at the full rate was justified by the fact that it was not an exporter
of the essential commodities enumerated under Section 143 of the Local Government Code and
Section 75 of the Taguig Revenue Code. Arguing that Daza acted with grave abuse of discretion
in not applying the one-half (1/2) rate provided under paragraph (c) of the same provisions, TPC
prayed for the issuance of a temporary restraining order and/or permanent injunction to restrain
the former from assessing business taxes at the full rate, the refund of its overpayment as well
5
as the grant of its claims for exemplary damages and attorney’s fees.
On 25 June 2004, Daza filed her comment to the foregoing petition, contending that the change
in the administration in the then Municipality of Taguig brought about the assessment and
imposition of the correct business tax on TPC. Not being an exporter of the essential
commodities enumerated under the provisions in question, it was argued that TPC is not entitled
to the fifty (50%) percent business tax exemption it had been granted in the previous years.
Having supposedly denied the letter-protest thru Atty. Miranda, Daza likewise faulted TPC for
not filing its appeal in court within thirty (30) days from receipt of the denial in accordance with
Article 195 of the Local Government Code. Denigrating TPC’s 13 April 2004 demand for the
refund and/or issuance of a tax credit as a vain attempt to rectify its procedural error, Daza
prayed for the dismissal of the petition for certiorari on the ground that the same cannot be
6
resorted to as a substitute for a lost right of appeal and was, by itself, bereft of merit.
In its 14 July 2004 reply, TPC insisted that Daza failed to act formally on its letter-protest and
took the latter to task for not attaching to her comment a copy of the supposed denial issued by
7 8 9
Atty. Miranda. Acting on the memorandum and motions to resolve filed by TPC, the RTC went
on to render the herein assailed Order dated 5 April 2005, dismissing the petition for lack of
merit. While finding that the absence of proof of Atty. Miranda’s denial of TPC’s letter-protest
meant that the latter had thirty (30) days from the lapse of the sixty (60) days prescribed under
Article 195 of the Local Government Code within which to perfect its appeal, the RTC ruled that,
rather than the special civil action of certiorari provided under Rule 65 of the 1997 Rules of Civil
Procedure, an ordinary appeal would have been the proper remedy from the assessment
10
complained against. Without moving for the reconsideration of the foregoing order, TPC filed
11
the petition at bench on 28 April 2005, on pure questions of law.
In its 6 June 2006 Memorandum, TPC proffers the following issues for resolution, to wit: (a)
whether or not it availed of the correct remedy against Daza’s illegal assessment when it filed its
petition for certiorari before the RTC; and, (b) whether or not, as an exporter of semiconductor
devices, it should be assessed business taxes at the full rate instead of the one-half (1/2) rates
provided under Section 75 (c) of the Taguig Revenue Code and 143 (c) of the Local Government
Code. In urging the reversal of the RTC’s assailed 5 April 2005 Order, TPC argues that, without
the remedy of appeal being specified with particularity under Article 195 of the Local
Government Code, a Rule 65 petition for certiorari is the proper and logical remedy since Daza
acted with grave abuse of discretion in assessing its business taxes at the full rate. Although it is
an exporter of semiconductors, TPC insists that its business tax should have been computed at
one-half (1/2) rate in accordance with the clear intendment of the law. It likewise claimed that its
position is congruent with administrative determinations as well as Daza’s own act of reverting
12
back to the half rate assessment of its business tax for the second quarter of 2006.
In her memorandum, Daza, in turn, asserted that the RTC correctly dismissed TPC’s petition for
certiorari in view of its failure to avail of the proper remedy of ordinary appeal provided under
Article 195 of the Local Government Code. As then Municipal Treasurer of Taguig, Daza argued
that she did not exceed her jurisdiction or abuse her discretion in assessing TPC’s business tax
pursuant to Section 143 (c) of the same Code and Section 75 (c) of the Taguig Revenue Code.
Not being an exporter of the basic commodities enumerated under the subject provisions, TPC
cannot insist on the computation of its business taxes on the basis of the one-half (1/2) rate
prescribed for a category of taxpayers to which it clearly did not belong. In view of TPC’s choice
of the wrong mode of appeal, Daza maintained that the assailed assessment had already
13
attained finality and can no longer be modified.
We find the dismissal of the petition in order.
Considering that the RTC’s assailed 5 April 2005 order did not delve on the proper rate of
business tax imposable on TPC as an exporter, we shall limit our discussion to the procedural
aspects of the petition.
A taxpayer dissatisfied with a local treasurer’s denial of or inaction on his protest over an
assessment has thirty (30) days within which to appeal to the court of competent jurisdiction.
Under the law, said period is to be reckoned from the taxpayer’s receipt of the denial of his
protest or the lapse of the sixty (60) day period within which the local treasurer is required to
decide the protest, from the moment of its filing. This much is clear from Section 195 of the Local
Government Code which provides as follows:
SEC. 195. Protest of Assessment. - When the local treasurer or his duly authorized
representative finds that correct taxes, fees, or charges have not been paid, he shall issue a
notice of assessment stating the nature of the tax, fee or charge, the amount of deficiency, the
surcharges, interests and penalties. Within sixty (60) days from the receipt of the notice of
assessment, the taxpayer may file a written protest with the local treasurer contesting the
assessment; otherwise, the assessment shall become final and executory. The local treasurer
shall decide the protest within sixty (60) days from the time of its filing. If the local treasurer finds
the protest to be wholly or partly meritorious, he shall issue a notice canceling wholly or partially
the assessment. However, if the local treasurer finds the assessment to be wholly or partly
correct, he shall deny the protest wholly or partly with notice to the taxpayer. The taxpayer shall
have thirty (30) days from the receipt of the denial of the protest or from the lapse of the sixty
(60) day period prescribed herein within which to appeal with the court of competent jurisdiction
otherwise the assessment becomes conclusive and unappealable.
Absent any showing of the formal denial of the protest by Atty. Miranda, then Chief of the Taguig
Business Permit and Licensing Office, we find that TPC’s filing of its petition before the RTC on
19 April 2004 still timely. Reckoned from the filing of the letter protest on 19 January 2004, Daza
had sixty (60) days or until 19 March 2004 within which to resolve the same in view of the fact
that 2004 was a leap year. From the lapse of said period, TPC, in turn, had thirty (30) days or
until 18 March 2004 within which to file its appeal to the RTC. Since the latter date fell on a
Sunday, the RTC correctly ruled that TPC’s filing of its petition on 19 April 2004 was still within
the period prescribed under the above quoted provision. Whether or not a Rule 65 petition
for certiorari was the appropriate remedy from Daza’s inaction on TPC’s letter-protest is,
however, an entirely different issue which we are now called upon to resolve, considering the
RTC’s ruling that it should have filed an ordinary appeal instead. As correctly observed by TPC,
after all, Section 195 of the Local Government Code does not elaborate on how an appeal is to
14
be made from the denial by a local treasurer of a protest on assessment made by a taxpayer.
15
In the case of Yamane vs. BA Lepanto Condominium Corporation (BLCC), this Court saw fit to
rule that the remedy to be pursued by the taxpayer is one cognizable by the RTC in the exercise
of its original – not its appellate – jurisdiction. In said case, BLCC’s appeal from the denial of its
protest by the Makati City Treasurer was dismissed for lack of merit by the RTC, prompting said
taxpayer to file a Rule 42 petition for review with the Court of Appeals (CA). After reconsidering
its earlier decision to dismiss the petition on the ground that said remedy is restricted to
decisions rendered by the RTC on appeal, the CA went on to render a decision finding BLCC not
liable for the business tax assessed by the Makati City Treasurer. Sustaining the latter’s position
that the jurisdiction exercised by the RTC over BLCC’s appeal was original in character, this
Court ruled as follows:
x x x x [S] significantly, the Local Government Code, or any other statute for that matter, does
not expressly confer appellate jurisdiction on the part of regional trial courts from the denial of a
tax protest by a local treasurer. On the other hand, Section 22 of B.P. 129 expressly delineates
the appellate jurisdiction of the Regional Trial Courts, confining as it does said appellate
jurisdiction to cases decided by Metropolitan, Municipal, and Municipal Circuit Trial Courts.
Unlike in the case of the Court of Appeals, B.P. 129 does not confer appellate jurisdiction on the decision and shall be made by filing a petition for review under a procedure analogous to
Regional Trial Courts over rulings made by non-judicial entities. that provided for under Rule 42 of the 1997 Rules of Civil Procedure.1âwphi1

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.1âwphi1 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
16
(CTA). (Emphasis supplied)
The foregoing pronouncements notwithstanding, we find that TPC erroneously availed of the
wrong remedy in filing a Rule 65 petition for certiorari to question Daza’s inaction on its letter-
protest. The rule is settled that, as a special civil action, certiorari is available only if the following
essential requisites concur: (1) it must be directed against a tribunal, board, or officer exercising
judicial or quasi-judicial functions; (2) the tribunal, board, or officer must have acted without or in
excess of jurisdiction or with grave abuse of discretion amounting to lack or excess of
jurisdiction; and, (3) there is no appeal nor any plain, speedy, and adequate remedy in the
17
ordinary course of law. Judicial function entails the power to determine what the law is and
what the legal rights of the parties are, and then undertakes to determine these questions and
adjudicate upon the rights of the parties. Quasi-judicial function, on the other hand, refers to the
action and discretion of public administrative officers or bodies, which are required to investigate
facts or ascertain the existence of facts, hold hearings, and draw conclusions from them as a
basis for their official action and to exercise discretion of a judicial nature.
18
To our mind, TPC’s erroneous availment of the wrong mode of appeal and direct resort to this
Court instead of the CTA both warrant the dismissal of the petition at bench. The rule is settled
that the perfection of an appeal in the manner and within the period fixed by law is not only
mandatory but jurisdictional and non-compliance with these legal requirements is fatal to a
28 29
party’s cause. In Zamboanga Forest Managers Corp. vs. Pacific Timber and Supply Co., we
ruled as follows:
Although appeal is an essential part of our judicial process, it has been held, time and again, that
the right thereto is not a natural right or a part of due process but is merely a statutory privilege.
Thus, the perfection of an appeal in the manner and within the period prescribed by law is not
only mandatory but also jurisdictional and failure of a party to conform to the rules regarding
appeal will render the judgment final and executory. Once a decision attains finality, it becomes
the law of the case irrespective of whether the decision is erroneous or not and no court — not
even the Supreme Court — has the power to revise, review, change or alter the same. The basic
rule of finality of judgment is grounded on the fundamental principle of public policy and sound
practice that, at the risk of occasional error. the judgment of courts and the award of quasi-
judicial agencies must become final at some definite date fixed by law.
WHEREFORE, premises considered, the petition is DENIED for lack of merit and being the
wrong mode of appeal.
SO ORDERED.

Gauged from the foregoing definitions, Daza cannot be said to be performing a judicial or quasi- ANGELES CITY, G.R. No. 166134
judicial function in assessing TPC’s business tax and/or effectively denying its protest as then Petitioner,
Municipal Treasurer of Taguig. For this reason, Daza’s actions are not the proper subjects of a Present:
Rule 65 petition for certiorari which is the appropriate remedy in cases where a the tribunal,
board, or officer exercising judicial or quasi-judicial functions acted without or in grave abuse of - versus - CORONA, C. J., Chairperson,
discretion amounting to lack or excess of jurisdiction and there is no appeal or any plain, speedy, VELASCO, JR.,
19 20
and adequate remedy in law. Narrow in scope and inflexible in character, certiorari is an LEONARDO-DE CASTRO,
extraordinary remedy designed for the correction of errors of jurisdiction and not errors of ANGELES CITY ELECTRIC DEL CASTILLO, and
21 22
judgment. It is likewise considered mutually exclusive with appeal like the one provided by CORPORATION and PEREZ, JJ.
Article 195 of the Local Government Code for a local treasurer’s denial of or inaction on a REGIONAL TRIAL COURT
protest. BRANCH 57, ANGELES CITY, Promulgated:
Respondents. June 29, 2010
x-------------------------------------------------------------------x
Even if, in the interest of substantial justice, we were to consider its petition for certiorari as an
appeal from Daza’s denial of its protest, TPC’s availment of the wrong mode of appeal from the
RTC’s assailed 5 April 2005 Order has, moreover, clearly rendered the same final and
executory. Granted that a Rule 45 petition for review on certiorari is the proper mode of appeal
23 DECISION
when the issues raised are purely questions of law, TPC lost sight of the fact that, as amended
24 25 26
by RA No. 9282, paragraph c (2) [a], Section 7 of RA No. 1125 has vested the Court of Tax
Appeals (CTA) with the exclusive appellate jurisdiction over, among others, appeals from the
judgments, resolutions or orders of the RTC in tax collection cases originally decided by them in
27 DEL CASTILLO, J.:
their respective territorial jurisdiction. As amended by Section 9 of RA No. 9282, Section 11 of
RA No. 1125 likewise requires that the appeal be perfected within thirty (30) days after receipt of
The prohibition on the issuance of a writ of injunction to enjoin the collection of taxes applies only to national
internal revenue taxes, and not to local taxes. Thereafter, starting July 1995, AEC has been paying the local franchise tax to the Office of the
City Treasurer on a quarterly basis, in addition to the national franchise tax it pays every quarter to the
[1]
This Petition for Certiorari under Rule 65 of the Rules of Court seeks to set aside the Writ of Bureau of Internal Revenue (BIR).
Preliminary Injunction issued by the Regional Trial Court (RTC) of Angeles City, Branch 57, in Civil Case No.
11401, enjoining Angeles City and its City Treasurer from levying, seizing, disposing and selling at public Proceedings before the City Treasurer
auction the properties owned by Angeles Electric Corporation (AEC).
[7]
Factual Antecedents On January 22, 2004, the City Treasurer issued a Notice of Assessment to AEC for payment of
business tax, license fee and other charges for the period 1993 to 2004 in the total amount
On June 18, 1964, AEC was granted a legislative franchise under Republic Act No. (RA) of P94,861,194.10. Within the period prescribed by law, AEC protested the assessment claiming that:
[2]
4079 to construct, maintain and operate an electric light, heat, and power system for the purpose of
generating and distributing electric light, heat and power for sale in Angeles City, Pampanga. Pursuant to (a) pursuant to RA 4079, it is exempt from paying local business tax;
[3]
Section 3-A thereof, AECs payment of franchise tax for gross earnings from electric current sold was in lieu
of all taxes, fees and assessments. (b) since it is already paying franchise tax on business, the payment of business tax
would result in double taxation;
On September 11, 1974, Presidential Decree No. (PD) 551 reduced the franchise tax of electric
franchise holders. Section 1 of PD 551 provided that: (c) the period to assess had prescribed because under the LGC, taxes and fees can
only be assessed and collected within five (5) years from the date they become due;and
SECTION 1. Any provision of law or local ordinance to the contrary
notwithstanding, the franchise tax payable by all grantees of franchises to generate, (d) the assessment and collection of taxes under the RRCAC cannot be made
[8]
distribute and sell electric current for light, heat and power shall be two percent (2%) of retroactive to 1993 or prior to its effectivity.
their gross receipts received from the sale of electric current and from transactions
incident to the generation, distribution and sale of electric current. On February 17, 2004, the City Treasurer denied the protest for lack of merit and requested AEC
[9]
to settle its tax liabilities.
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 Proceedings before the RTC
month following the end of each calendar quarter or month as may be provided in the
respective franchise or pertinent municipal regulation and shall, any provision of the Aggrieved, AEC appealed the denial of its protest to the RTC of Angeles City via a Petition for
[10]
Local Tax Code or any other law to the contrary notwithstanding, be in lieu of all taxes Declaratory Relief, docketed as Civil Case No. 11401.
and assessments of whatever nature imposed by any national or local authority on
[11]
earnings, receipts, income and privilege of generation, distribution and sale of electric On April 5, 2004, the City Treasurer levied on the real properties of AEC. A Notice of Auction
[12]
current. Sale was published and posted announcing that a public auction of the levied properties of AEC would be
held on May 7, 2004.

On January 1, 1992, RA 7160 or the Local Government Code (LGC) of 1991 was passed into
law, conferring upon provinces and cities the power, among others, to impose tax on businesses enjoying
[4]
franchise. In accordance with the LGC, the Sangguniang Panlungsod of Angeles City enacted
on December 23, 1993 Tax Ordinance No. 33, S-93, otherwise known as the Revised Revenue Code of
Angeles City (RRCAC).
On February 7, 1994, a petition seeking the reduction of the tax rates and a review of the
provisions of the RRCAC was filed with the Sangguniang Panlungsod by Metro Angeles Chamber of
Commerce and Industry Inc. (MACCI) of which AEC is a member. There being no action taken by
[5]
the Sangguniang Panlungsod on the matter, MACCI elevated the petition to the Department of Finance,
which referred the same to the Bureau of Local Government Finance (BLGF). In the petition, MACCI alleged
that the RRCAC is oppressive, excessive, unjust and confiscatory; that it was published only once,
simultaneously on January 22, 1994;and that no public hearings were conducted prior to its enactment.
[6]
Acting on the petition, the BLGF issued a First Indorsement to the City Treasurer of Angeles City,
instructing the latter to make representations with the Sangguniang Panlungsod for the appropriate
amendment of the RRCAC in order to ensure compliance with the provisions of the LGC, and to make a
report on the action taken within five days.
This prompted AEC to file with the RTC, where the petition for declaratory relief was pending, an
[13]
Urgent Motion for Issuance of Temporary Restraining Order and/or Writ of Preliminary Injunction to
enjoin Angeles City and its City Treasurer from levying, annotating the levy, seizing, confiscating, garnishing,
selling and disposing at public auction the properties of AEC.
Meanwhile, in response to the petition for declaratory relief filed by AEC, Angeles Cityand its City
[14] [15]
Treasurer filed an Answer with Counterclaim to which AEC filed a Reply.
[16]
After due notice and hearing, the RTC issued a Temporary Restraining Order (TRO) on May 4,
[17]
2004, followed by an Order dated May 24, 2004 granting the issuance of a Writ of Preliminary
Injunction, conditioned upon the filing of a bond in the amount of P10,000,000.00. Upon AECs posting of the
[18]
required bond, the RTC issued a Writ of Preliminary Injunction on May 28, 2004, which was amended
[19]
on May 31, 2004 due to some clerical errors.
On August 5, 2004, Angeles City and its City Treasurer filed a Motion for Dissolution of
[20]
Preliminary Injunction and Motion for Reconsideration of the Order dated May 24, 2004, which was
[21]
opposed by AEC.
 Finding no compelling reason to disturb and reconsider its previous findings, the RTC denied the
[22]
joint motion on October 14, 2004.
Issue
Being a special civil action for certiorari, the issue in the instant case is limited to the determination
of whether the RTC gravely abused its discretion in issuing the writ of preliminary injunction enjoining
Angeles City and its City Treasurer from levying, selling, and disposing the properties of AEC. All other
matters pertaining to the validity of the tax assessment and AECs tax exemption must therefore be left for the
determination of the RTC where the main case is pending decision.
Petitioners Arguments
Petitioners main argument is that the collection of taxes cannot be enjoined by the RTC,
[23]
citing Valley Trading Co., Inc. v. Court of First Instance of Isabela, Branch II, wherein the lower courts
denial of a motion for the issuance of a writ of preliminary injunction to enjoin the collection of a local tax was
upheld. Petitioner further reasons that since the levy and auction of the properties of a delinquent taxpayer
are proper and lawful acts specifically allowed by the LGC, these cannot be the subject of an injunctive
writ. Petitioner likewise insists that AEC must first pay the tax before it can protest the assessment. Finally,
petitioner contends that the tax exemption claimed by AEC has no legal basis because RA 4079 has been
expressly repealed by the LGC.
Private respondents Arguments
Private respondent AEC on the other hand asserts that there was no grave abuse of discretion on the part of
the RTC in issuing the writ of preliminary injunction because it was issued after due notice and hearing, and
was necessary to prevent the petition from becoming moot. In addition, AEC claims that the issuance of the
writ of injunction was proper since the tax assessment issued by the City Treasurer is not yet final, having
[24]
been seasonably appealed pursuant to Section 195 of the LGC. AEC likewise points out that following the
[25]
case of Pantoja v. David, proceedings to invalidate a warrant of distraint and levy to restrain the collection
of taxes do not violate the prohibition against injunction to restrain the collection of taxes because the
proceedings are directed at the right of the City Treasurer to collect the tax by distraint or levy. As to its tax
liability, AEC maintains that it is exempt from paying local business tax. In any case, AEC counters that the
issue of whether it is liable to pay the assessed local business tax is a factual issue that should be
determined by the RTC and not by the Supreme Court via a petition for certiorari under Rule 65 of the Rules
of Court.
Our Ruling
We find the petition bereft of merit.
The LGC does not specifically prohibit
an injunction enjoining the collection of
taxes
A principle deeply embedded in our jurisprudence is that taxes being the lifeblood of the
[26] [27] [28]
government should be collected promptly, without unnecessary hindrance or delay. In line with this
principle, the National Internal Revenue Code of 1997 (NIRC) expressly provides that no court shall have the
authority to grant an injunction to restrain the collection of any national internal revenue tax, fee or charge
[29]
imposed by the code. An exception to this rule obtains only when in the opinion of the Court of Tax
[30]
Appeals (CTA) the collection thereof may jeopardize the interest of the government and/or the taxpayer.
The situation, however, is different in the case of the collection of local taxes as there is no
express provision in the LGC prohibiting courts from issuing an injunction to restrain local governments from
collecting taxes. Thus, in the case of Valley Trading Co., Inc. v. Court of First Instance of Isabela, Branch
II, cited by the petitioner, we ruled that:
[31]
Unlike the National Internal Revenue Code, the Local Tax Code does not contain
any specific provision prohibiting courts from enjoining the collection of local taxes.
Such statutory lapse or intent, however it may be viewed, may have allowed
preliminary injunction where local taxes are involved but cannot negate the procedural
[32]
rules and requirements under Rule 58.
In light of the foregoing, petitioners reliance on the above-cited case to support its view that the
collection of taxes cannot be enjoined is misplaced. The lower courts denial of the motion for the issuance of
a writ of preliminary injunction to enjoin the collection of the local tax was upheld in that case, not because
courts are prohibited from granting such injunction, but because the circumstances required for the issuance
of writ of injunction were not present.
Nevertheless, it must be emphasized that although there is no express prohibition in the LGC,
injunctions enjoining the collection of local taxes are frowned upon. Courts therefore should exercise extreme
caution in issuing such injunctions.
No grave abuse of discretion was
committed by the RTC
Section 3, Rule 58, of the Rules of Court lays down the requirements for the issuance of a writ of
preliminary injunction, viz:
(a) That the applicant is entitled to the relief demanded, and the whole or
part of such relief consists in restraining the commission or continuance of the acts
complained of, or in the performance of an act or acts, either for a limited period or
perpetually;
(b) That the commission, continuance or non-performance of the act or
acts complained of during the litigation would probably work injustice to the applicant;
or
(c) That a party, court, or agency or a person is doing, threatening, or
attempting to do, or is procuring or suffering to be done, some act or acts probably in
violation of the rights of the applicant respecting the subject of the action or
proceeding, and tending to render the judgment ineffectual.
Two requisites must exist to warrant the issuance of a writ of preliminary injunction, namely: (1)
the existence of a clear and unmistakable right that must be protected; and (2) an urgent and paramount
[33]
necessity for the writ to prevent serious damage.

In issuing the injunction, the RTC ratiocinated that:
[34]
It is very evident on record that petitioner resorted and filed an urgent
motion for issuance of a temporary restraining order and preliminary injunction to stop
the scheduled auction sale only when a warrant of levy was issued and published in
the newspaper setting the auction sale of petitioners property by the City
Treasurer, merely few weeks after the petition for declaratory relief has been
filed, because if the respondent will not be restrained, it will render this petition moot
and academic. To the mind of the Court, since there is no other plain, speedy and
adequate remedy available to the petitioner in the ordinary course of law except this
application for a temporary restraining order and/or writ of preliminary injunction to
stop the auction sale and/or to enjoin and/or restrain respondents from levying,
annotating the levy, seizing, confiscating, garnishing, selling and disposing at public
auction the properties of petitioner, or otherwise exercising other administrative
remedies against the petitioner and its properties, this alone justifies the move of the
petitioner in seeking the injunctive reliefs sought for.
Petitioner in its petition is questioning the assessment or the ruling of the
City Treasurer on the business tax and fees, and not the local ordinance
concerned. This being the case, the Court opines that notice is not required to the
Solicitor General since what is involved is just a violation of a private right involving the
right of ownership and possession of petitioners properties. Petitioner,therefore, need
not comply with Section 4, Rule 63 requiring such notice to the Office of the Solicitor
General.
The Court is fully aware of the Supreme Court pronouncement that
injunction is not proper to restrain the collection of taxes. The issue here as of the
moment is the restraining of the respondent from pursuing its auction sale of the
petitioners properties. The right of ownership and possession of the petitioner over the
properties subject of the auction sale is at stake.
Respondents assert that not one of the witnesses presented by the
petitioner have proven what kind of right has been violated by the respondent, but
merely mentioned of an injury which is only a scenario based on speculation because
of petitioners claim that electric power may be disrupted.
Engr. Abordos testimony reveals and even his Affidavit Exhibit S showed
that if the auction sale will push thru, petitioner will not only lose control and operation
of its facility, but its employees will also be denied access to equipments vital to
petitioners operations, and since only the petitioner has the capability to operate
Petersville sub station, there will be a massive power failure or blackout which will
adversely affect business and economy, if not lives and properties in Angeles City and
surrounding communities.
Petitioner, thru its witnesses, in the hearing of the temporary restraining
order, presented sufficient and convincing evidence proving irreparable damages and
injury which were already elaborated in the temporary restraining order although the
same may be realized only if the auction sale will proceed. And unless
prevented, restrained, and enjoined, grave and irreparable damage will be suffered
not only by the petitioner but all its electric consumers in Angeles, Clark, Dau and
Bacolor, Pampanga.
The purpose of injunction is to prevent injury and damage from being
incurred, otherwise,it will render any judgment in this case ineffectual.
As an extraordinary remedy, injunction is calculated to preserve or
maintain the status quo of things and is generally availed of to prevent actual or
threatened acts, until the merits of the case can be heard (Cagayan de Oro City
Landless Res. Assn. Inc. vs. CA, 254 SCRA 220)
It appearing that the two essential requisites of an injunction have been
satisfied, as there exists a right on the part of the petitioner to be protected, its right[s]
of ownership and possession of the properties subject of the auction sale, and that the
acts (conducting an auction sale) against which the injunction is to be directed, are
violative of the said rights of the petitioner, the Court has no other recourse but to
grant the prayer for the issuance of a writ of preliminary injunction considering that if
the respondent will not be restrained from doing the acts complained of, it will preempt
the Court from properly adjudicating on the merits the various issues between the
[35]
parties,and will render moot and academic the proceedings before this court.
As a rule, the issuance of a preliminary injunction rests entirely within the discretion of the court
taking cognizance of the case and will not be interfered with, except where there is grave abuse of discretion
[36]
committed by the court. For grave abuse of discretion to prosper as a ground for certiorari, it must be
demonstrated that the lower court or tribunal has exercised its power in an arbitrary and despotic manner, by
reason of passion or personal hostility, and it must be patent and gross as would amount to an evasion or to
[37]
a unilateral refusal to perform the duty enjoined or to act in contemplation of law. In other words, mere
[38]
abuse of discretion is not enough.
Guided by the foregoing, we find no grave abuse of discretion on the part of the RTC in issuing
[39]
the writ of injunction. Petitioner, who has the burden to prove grave abuse of discretion, failed to show that
the RTC acted arbitrarily and capriciously in granting the injunction. Neither was petitioner able to prove that
the injunction was issued without any factual or legal justification. In assailing the injunction, petitioner
primarily relied on the prohibition on the issuance of a writ of injunction to restrain the collection of taxes. But
as we have already said, there is no such prohibition in the case of local taxes. Records also show that
before issuing the injunction, the RTC conducted a hearing where both parties were given the opportunity to
present their arguments. During the hearing, AEC was able to show that it had a clear and unmistakable
legal right over the properties to be levied and that it would sustain serious damage if these properties, which
are vital to its operations, would be sold at public auction. As we see it then, the writ of injunction was properly
issued.
A final note. While we are mindful that the damage to a taxpayers property rights generally takes
[40]
a back seat to the paramount need of the State for funds to sustain governmental functions, this rule finds
no application in the instant case where the disputed tax assessment is not yet due and
demandable. Considering that AEC was able to appeal the denial of its protest within the period prescribed
[41]
under Section 195 of the LGC, the collection of business taxes through levy at this time is, to our mind,
[42]
hasty, if not premature. The issues of tax exemption, double taxation, prescription and the alleged
retroactive application of the RRCAC, raised in the protest of AEC now pending with the RTC, must first be
resolved before the properties of AEC can be levied. In the meantime, AECs rights of ownership and
possession must be respected.
 Upon evaluation of petitioners application, then OIC of the License Division, Ms.
[6]
WHEREFORE, the petition is hereby DISMISSED. Jesusa E. Cuneta, issued to petitioner, a billing slip assessing the following taxes against
petitioner:
SO ORDERED.
th
MOBIL PHILIPPINES, INC., G.R. No. 154092 For the 4 Quarter of 1998 (based on 1997 gross sales)
Petitioner, As Manufacturer P 14,439.54
Present: As Wholesaler 550,778.58
Garbage Fee 1,250.00
Davide, Jr., C.J., Sub-Total P 566,468.12
(Chairman),
- versus - Quisumbing, For the Gross Sales made in 1998
Ynares-Santiago, As Manufacturer P 40,008.33
Carpio, and As Wholesaler 1,291,630.51
Azcuna, JJ. Sub-Total __1,331,638.84
[7]
TOTAL ASSESSED BUSINESS TAXES P 1,898,106.96
THE CITY TREASURER OF MAKATI and the Promulgated:
CHIEF OF THE LICENSE DIVISION OF THE
CITY OF MAKATI,
On September 11, 1998, petitioner paid the assessed amount of P1,898,106.96 under
Respondents. July 14, 2005 [8]
protest. The City Treasurer issued therefor Official Receipt No. 9065025C and approved the
petitioners application for retirement of business from Makati to Pasig City.
x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x
[9]
On July 21, 1999, petitioner filed a claim for P1,331,638.84 refund. On August 11,
DECISION [10]
1999, petitioner received a letter denying the claim for refund on the ground that petitioner
was merely transferring and not retiring its business, and that the gross sales realized while
QUISUMBING, J.:
petitioner still maintained office in Makati from January 1 to August 31, 1998 should be taxed in
[11]
the City of Makati.
[1]
This petition for review on certiorari seeks the reversal of the Decision dated
November 22, 2001 of the Regional Trial Court of Pasig City, Branch 268, in Civil Case No. Petitioner subsequently filed a petition with the Regional Trial Court of Pasig City,
[2]
67599, subsequently affirmed in an Order dated May 15, 2002. Branch 268, seeking the refund of business taxes erroneously collected by the City of Makati.

Petitioner is a domestic corporation engaged in the manufacturing, importing,
exporting and wholesaling of petroleum products, while respondents are the local government
officials of the City of Makati charged with the implementation of the Revenue Code of the City of
Makati, as well as the collection and assessment of business taxes, license fees and permit fees
[3]
within said city.
Prior to September 1998, petitioners principal office was at the National Development
Company Building, in 116 Tordesillas St., Salcedo Village, Makati City. On August 20, 1998,
petitioner filed an application with the City Treasurer of Makati for the retirement of its business
[4]
within the City of Makati as it moved its principal place of business to Pasig City.
In its application, petitioner declared its gross sales/receipts as follows:
Gross Sales Receipts for Calendar Year 1997 P 453,799,493.29
Gross Sales Receipts for Calendar Year 1998
January to August
In its Decision, the trial court ruled as follows:
In summary, the pertinent law provides that a person or entity
doing business in the Municipality shall be subject to business tax. The tax
shall be fixed by the quarter. The initial tax for the quarter in which a
business starts to operate shall be two and one-half percent (2%) of one
percent (1%) of its capital investment. Thereafter, the tax shall be computed
based on the gross sales or receipts of the preceding quarter. In the
succeeding calendar year, regardless of when the business started to
operate, the tax shall be based on the gross sales or receipts for the
preceding calendar year. That tax shall accrue on the first day of January of
each year and payment shall be made within the first 20 days of January or
of each subsequent quarter as the case may be.
Considering therefore that the business tax accrues only on the
[5]
267,952,766.67 first day of January as provided in Sec. 3A.07 and becomes payable within
the first 20 days thereof or of each subsequent quarter, the payments made
by Mobil in the year 1998 are therefore payments for the business tax for
1997 which accrued in January of 1998 and became payable within the first
20 days of January or of each subsequent quarter. Thus, upon retirement in
 August 1998, the taxes for said year which should accrue in January 1999
[become] immediately payable before the application for retirement can be
approved (Ibid, (g), Sec. 3A.08). The assessment of the Chief of the License
Division of Makati is therefore with legal basis and does not constitute
double taxation.
WHEREFORE, premises considered, the instant petition for
refund is hereby DENIED and the case is dismissed for lack of merit.
SO ORDERED.
[12]
[13]
Petitioner filed a Motion for Reconsideration which was denied in an Order dated
May 15, 2002, hence this appeal.
Before us, petitioner alleges now that,
THE TRIAL COURT ERRED IN HOLDING THAT PETITIONERS
BUSINESS TAX PAYMENTS MADE IN 1998 ARE ACTUALLY PAYMENTS
FOR BUSINESS TAXES IN 1997. THIS CONCLUSION IS
CONTROVERTED BY MAKATI CITYS REVENUE CODE, AND, IN FACT,
CONSTITUTES DOUBLE TAXATION.
[14]
Simply stated, the issue is: Are the business taxes paid by petitioner in 1998, business
taxes for 1997 or 1998?
According to petitioner, the 1997 gross sales/revenue is merely the basis for the
amount of business taxes due for the privilege of carrying on a business in the year when the tax
was paid.
For their part, respondents argue that since local taxes, which include business taxes,
are paid either within the first twenty days of January of each year or of each subsequent
quarter, as the case may be, what the taxpayer actually pays during the recorded calendar year
is actually its business tax for the preceding year.
Prefatorily, it is necessary to distinguish between a business tax vis--vis an income
tax.
Business taxes imposed in the exercise of police power for regulatory purposes are
paid for the privilege of carrying on a business in the year the tax was paid. It is paid at the
beginning of the year as a fee to allow the business to operate for the rest of the year. It is
deemed a prerequisite to the conduct of business.
Income tax, on the other hand, is a tax on all yearly profits arising from property,
professions, trades or offices, or as a tax on a persons income, emoluments, profits and the like.
[15]
It is tax on income, whether net or gross realized in one taxable year. It is due on or before the
th th
15 day of the 4 month following the close of the taxpayers taxable year and is generally
regarded as an excise tax, levied upon the right of a person or entity to receive income or profits.
The trial court erred when it said that the payments made by petitioner in 1998 are
payments for business tax incurred in 1997 which only accrued in January 1998. Likewise, it
erred when it ruled that petitioner was still liable for business taxes based on its gross
income/revenue for January to August 1998.
Section 3A.04 of the Makati City Revenue Code states:
Sec.3A.04. Computation of tax for newly-started business. In the
case of newly-started business under Sec. 3A.02, (a), (b), (c), (d), (e), (f),
(g), (h), (i), (j), (k), (l), and (m) above, the tax shall be fixed by the quarter.
The initial tax of the quarter in which the business starts to operate shall be
two and one half percent (2 %) of one percent (1%) of the capital
investment.
In the succeeding quarter or quarters, in cases where the
business opens before the last quarter of the year, the tax shall be based on
the gross sales or receipt for the preceding quarter at one-half ( ) of the
rates fixed therefor by the pertinent schedule in Section 3A.02, (a), (b), (c),
(d), (e), (f), (g), (h), (i), (j), (k), (l), and (m).
In the succeeding calendar year, regardless of when the business
started to operate, the tax shall be based on the gross sales or receipts for
the preceding calendar year, or any fraction thereof as provided in the same
[16]
pertinent schedules.
Under the Makati Revenue Code, it appears that the business tax, like income tax, is
computed based on the previous years figures. This is the reason for the confusion. A newly-
started business is already liable for business taxes (i.e. license fees) at the start of the quarter
when it commences operations. In computing the amount of tax due for the first quarter of
operations, the business capital investment is used as the basis. For the subsequent quarters of
the first year, the tax is based on the gross sales/receipts for the previous quarter. In the
following year(s), the business is then taxed based on the gross sales or receipts of the previous
year. The business taxes paid in the year 1998 is for the privilege of engaging in business for the
same year, and not for having engaged in business for 1997.
Upon its transfer, petitioner was apparently subjected to Sec. 3A.11 par. (g) which
states:
...
(g) Retirement of business.
...
For purposes thereof, termination shall mean that business
operation are stopped completely.
...
 (2) If it is found that the retirement or termination of the business
is legitimate, [a]nd the tax due therefrom be less than the tax due for the
current year based on the gross sales or receipts, the difference in the
amount of the tax shall be paid before the business is considered officially
[17]
retired or terminated.
Based on this foregoing provision, on the year an establishment retires or terminates
its business within the municipality, it would be required to pay the difference in the amount if the
tax collected, based on the previous years gross sales or receipts, is less than the actual tax due
based on the current years gross sales or receipts.
For the year 1998, petitioner paid a total of P2,262,122.48 to the City Treasurer of
[18]
Makati as business taxes for the year 1998. The amount of tax as computed based on
petitioners gross sales for 1998 is only P1,331,638.84. Since the amount paid is more than the
amount computed based on petitioners actual gross sales for 1998, petitioner upon its retirement
is not liable for additional taxes to the City of Makati. Thus, we find that the respondent
erroneously treated the assessment and collection of business tax as if it were income tax, by
rendering an additional assessment of P1,331,638.84 for the revenue generated for the year
1998.
WHEREFORE, the assailed Decision is hereby REVERSED and respondents City
Treasurer and Chief of the License Division of Makati City are ordered to REFUND to petitioner
business taxes paid in the amount of P1,331,638.84. Costs against respondents.
SO ORDERED.
G.R. No. 175723, February 04, 2014
The record shows that petitioner City of Manila, through its treasurer, petitioner Liberty Toledo,
assessed taxes for the taxable period from January to December 2002 against private
respondents SM Mart, Inc., SM Prime Holdings, Inc., Star Appliances Center, Supervalue, Inc.,
Ace Hardware Philippines, Inc., Watsons Personal Care Stores Phils., Inc., Jollimart Philippines
Corp., Surplus Marketing Corp. and Signature Lines. In addition to the taxes purportedly due
from private respondents pursuant to Section 14, 15, 16, 17 of the Revised Revenue Code of
Manila (RRCM), said assessment covered the local business taxes petitioners were authorized
to collect under Section 21 of the same Code. Because payment of the taxes assessed was a
precondition for the issuance of their business permits, private respondents were constrained to
pay the P 19,316,458.77 assessment under protest.
On January 24, 2004, private respondents filed [with the Regional Trial Court of Pasay City] the
complaint denominated as one for “Refund or Recovery of Illegally and/or Erroneously–Collected
Local Business Tax, Prohibition with Prayer to Issue TRO and Writ of Preliminary Injunction”
which was docketed as Civil Case No. 04–0019–CFM before public respondent’s sala [at
Branch 112]. In the amended complaint they filed on February 16, 2004, private respondents
alleged that, in relation to Section 21 thereof, Sections 14, 15, 16, 17, 18, 19 and 20 of
the RRCM were violative of the limitations and guidelines under Section 143 (h) of Republic Act.
No. 7160 [Local Government Code] on double taxation. They further averred that petitioner city’s
Ordinance No. 8011 which amended pertinent portions of the RRCM had already been declared
2
to be illegal and unconstitutional by the Department of Justice. ChanRoblesVirtualawlibrary
3
In its Order dated July 9, 2004, the RTC granted private respondents’ application for a writ of
preliminary injunction.
4 5
Petitioners filed a Motion for Reconsideration but the RTC denied it in its Order dated October
15, 2004.
Petitioners then filed a special civil action for certiorari with the CA assailing the July 9, 2004 and
6
October 15, 2004 Orders of the RTC.

In its Resolution promulgated on April 6, 2006, the CA dismissed petitioners’ petition

THE CITY OF MANILA, REPRESENTED BY MAYOR JOSE L. ATIENZA, JR., AND MS.
for certiorariholding that it has no jurisdiction over the said petition. The CA ruled that since
LIBERTY M. TOLEDO, IN HER CAPACITY AS THE CITY TREASURER OF
appellate jurisdiction over private respondents’ complaint for tax refund, which was filed with the
MANILA, Petitioners, v. HON. CARIDAD H. GRECIA–CUERDO, IN HER CAPACITY AS
RTC, is vested in the Court of Tax Appeals (CTA), pursuant to its expanded jurisdiction under
PRESIDING JUDGE OF THE REGIONAL TRIAL COURT, BRANCH 112, PASAY CITY; SM
Republic Act No. 9282 (RA 9282), it follows that a petition for certiorari seeking nullification of an
MART, INC.; SM PRIME HOLDINGS, INC.; STAR APPLIANCES CENTER; SUPERVALUE,
interlocutory order issued in the said case should, likewise, be filed with the CTA.
INC.; ACE HARDWARE PHILIPPINES, INC.; WATSON PERSONAL CARE STORES, PHILS.,
INC.; JOLLIMART PHILS., CORP.; SURPLUS MARKETING CORPORATION AND 7
Petitioners filed a Motion for Reconsideration, but the CA denied it in its Resolution dated
SIGNATURE LINES, Respondents.
November 29, 2006.

DECISION Hence, the present petition raising the following issues:chanRoblesvirtualLawlibrary

I– Whether or not the Honorable Court of Appeals gravely erred in dismissing the case for
PERALTA, J.: lack of jurisdiction.

II– Whether or not the Honorable Regional Trial Court gravely abuse[d] its discretion
Before the Court is a special civil action for certiorari under Rule 65 of the Rules of Court
1 amounting to lack or excess of jurisdiction in enjoining by issuing a Writ of Injunction the
seeking to reverse and set aside the Resolutions dated April 6, 2006 and November 29, 2006 of
petitioners[,] their agents and/or authorized representatives from implementing Section
the Court of Appeals (CA) in CA–G.R. SP No. 87948.
21 of the Revised Revenue Code of Manila, as amended, against private respondents.

The antecedents of the case, as summarized by the CA, are as

III– Whether or not the Honorable Regional Trial Court gravely abuse[d] its discretion
follows:chanRoblesvirtualLawlibrary
amounting to lack or excess of jurisdiction in issuing the Writ of Injunction despite failure
of private respondents to make a written claim for tax credit or refund with the City
Treasurer of Manila. In any case , the Court finds it necessary to resolve the issue on jurisdiction raised by petitioners
owing to its significance and for future guidance of both bench and bar. It is a settled principle
IV– Whether or not the Honorable Regional Trial Court gravely abuse[d] its discretion that courts will decide a question otherwise moot and academic if it is capable of repetition, yet
14
amounting to lack or excess of jurisdiction considering that under Section 21 of the evading review.
Manila Revenue Code, as amended, they are mere collecting agents of the City
Government. However, before proceeding, to resolve the question on jurisdiction, the Court deems it proper to
likewise address a procedural error which petitioners committed.
V– Whether or not the Honorable Regional Trial Court gravely abuse[d] its discretion
amounting to lack or excess of jurisdiction in issuing the Writ of Injunction because Petitioners availed of the wrong remedy when they filed the instant special civil action
petitioner City of Manila and its constituents would result to greater damage and for certiorari under Rule 65 of the Rules of Court in assailing the Resolutions of the CA which
8
prejudice thereof. (sic) ChanRoblesVirtualawlibrary dismissed their petition filed with the said court and their motion for reconsideration of such
Without first resolving the above issues, this Court finds that the instant petition should be dismissal. There is no dispute that the assailed Resolutions of the CA are in the nature of a final
denied for being moot and academic. order as they disposed of the petition completely. It is settled that in cases where an assailed
judgment or order is considered final, the remedy of the aggrieved party is appeal. Hence, in the
9
U pon perusal of the original records of the instant case, this Court discovered that a Decision in instant case, petitioner should have filed a petition for review on certiorari under Rule 45, which
15
the main case had already been rendered by the RTC on August 13, 2007, the dispositive is a continuation of the appellate process over the original case.
portion of which reads as follows:chanRoblesvirtualLawlibrary
WHEREFORE, in view of the foregoing, this Court hereby renders JUDGMENT in favor of the Petitioners should be reminded of the equally–settled rule that a special civil action
plaintiff and against the defendant to grant a tax refund or credit for taxes paid pursuant to for certiorari under Rule 65 is an original or independent action based on grave abuse of
Section 21 of the Revenue Code of the City of Manila as amended for the year 2002 in the discretion amounting to lack or excess of jurisdiction and it will lie only if there is no appeal or
16
following amounts:chanRoblesvirtualLawlibrary any other plain, speedy, and adequate remedy in the ordinary course of law. As such, it cannot
17
P be a substitute for a lost appeal.
To plaintiff SM Mart, Inc. –
11,462,525.02
To plaintiff SM Prime Holdings, Inc. – 3,118,104.63 Nonetheless, in accordance with the liberal spirit pervading the Rules of Court and in the interest
To plaintiff Star Appliances Center – 2,152,316.54 of substantial justice, this Court has, before, treated a petition for certiorari as a petition for
To plaintiff Supervalue, Inc. – 1,362,750.34 review on certiorari, particularly (1) if the petition for certiorari was filed within the reglementary
To plaintiff Ace Hardware Phils., Inc. – 419,689.04 period within which to file a petition for review on certiorari; (2) when errors of judgment are
To plaintiff Watsons Personal Care averred; and (3) when there is sufficient reason to justify the relaxation of the
– 231,453.62 18
Health Stores Phils., Inc. rules. Considering that the present petition was filed within the 15–day reglementary period for
To plaintiff Jollimart Phils., Corp. – 140,908.54 filing a petition for review on certiorari under Rule 45, that an error of judgment is averred, and
To plaintiff Surplus Marketing Corp. – 220,204.70 because of the significance of the issue on jurisdiction, the Court deems it proper and justified to
To plaintiff Signature Mktg. Corp. – 94,906.34 relax the rules and, thus, treat the instant petition for certiorari as a petition for review
on certiorari.
P
TOTAL:
19,316,458.77 Having disposed of the procedural aspect, we now turn to the central issue in this case. The
Defendants are further enjoined from collecting taxes under Section 21, Revenue Code of basic question posed before this Court is whether or not the CTA has jurisdiction over a special
Manila from herein plaintiff. civil action for certiorari assailing an interlocutory order issued by the RTC in a local tax case.

10
SO ORDERED. ChanRoblesVirtualawlibrary This Court rules in the affirmative.
The parties did not inform the Court but based on the records, the above Decision had already
11
become final and executory per the Certificate of Finality issued by the same trial court on On June 16, 1954, Congress enacted Republic Act No. 1125 (RA 1125) creating the CTA and
12
October 20, 2008. In fact, a Writ of Execution was issued by the RTC on November 25, 2009. giving to the said court jurisdiction over the following:chanRoblesvirtualLawlibrary
(1) Decisions of the Collector of Internal Revenue in cases involving disputed assessments,
In view of the foregoing, it clearly appears that the issues raised in the present petition, which refunds of internal revenue taxes, fees or other charges, penalties imposed in relation thereto, or
merely involve the incident on the preliminary injunction issued by the RTC, have already other matters arising under the National Internal Revenue Code or other law or part of law
become moot and academic considering that the trial court, in its decision on the merits in the administered by the Bureau of Internal Revenue;
main case, has already ruled in favor of respondents and that the same decision is now final and
executory. Well entrenched is the rule that where the issues have become moot and academic, (2) Decisions of the Commissioner of Customs in cases involving liability for customs duties,
there is no justiciable controversy, thereby rendering the resolution of the same of no practical fees or other money charges; seizure, detention or release of property affected fines, forfeitures
13
use or value. or other penalties imposed in relation thereto; or other matters arising under the Customs Law or
other law or part of law administered by the Bureau of Customs; and and penalties, claimed is less than One million pesos ( P 1,000,000.00) or where there is no
specified amount claimed shall be tried by the regular Courts and the jurisdiction of the CTA
(3) Decisions of provincial or City Boards of Assessment Appeals in cases involving the shall be appellate. Any provision of law or the Rules of Court to the contrary notwithstanding, the
assessment and taxation of real property or other matters arising under the Assessment Law, criminal action and the corresponding civil action for the recovery of civil liability for taxes and
including rules and regulations relative thereto. penalties shall at all times be simultaneously instituted with, and jointly determined in the same
On March 30, 2004, the Legislature passed into law Republic Act No. 9282 (RA 9282) amending proceeding by the CTA, the filing of the criminal action being deemed to necessarily carry with it
RA 1125 by expanding the jurisdiction of the CTA, enlarging its membership and elevating its the filing of the civil action, and no right to reserve the filing of such civil action separately from
rank to the level of a collegiate court with special jurisdiction. Pertinent portions of the the criminal action will be recognized.
amendatory act provides thus:chanRoblesvirtualLawlibrary
Sec. 7. Jurisdiction. – The CTA shall exercise:chanRoblesvirtualLawlibrary 2. Exclusive appellate jurisdiction in criminal offenses:
a. Exclusive appellate jurisdiction to review by appeal, as herein
provided:chanRoblesvirtualLawlibrary a. Over appeals from the judgments, resolutions or orders of the Regional Trial Courts in tax
1. Decisions of the Commissioner of Internal Revenue in cases involving disputed assessments, cases originally decided by them, in their respected territorial jurisdiction.
refunds of internal revenue taxes, fees or other charges, penalties in relation thereto, or other
matters arising under the National Internal Revenue or other laws administered by the Bureau of b. Over petitions for review of the judgments, resolutions or orders of the Regional Trial Courts in
Internal Revenue; the exercise of their appellate jurisdiction over tax cases originally decided by the Metropolitan
Trial Courts, Municipal Trial Courts and Municipal Circuit Trial Courts in their respective
2. Inaction by the Commissioner of Internal Revenue in cases involving disputed assessments, jurisdiction.
refunds of internal revenue taxes, fees or other charges, penalties in relations thereto, or other
matters arising under the National Internal Revenue Code or other laws administered by the c. Jurisdiction over tax collection cases as herein provided:
Bureau of Internal Revenue, where the National Internal Revenue Code provides a specific
period of action, in which case the inaction shall be deemed a denial; 1. Exclusive original jurisdiction in tax collection cases involving final and executory
assessments for taxes, fees, charges and penalties: Provides, however, that collection cases
3. Decisions, orders or resolutions of the Regional Trial Courts in local tax cases where the principal amount of taxes and fees, exclusive of charges and penalties, claimed is
originally decided or resolved by them in the exercise of their original or appellate less than One million pesos ( P 1,000,000.00) shall be tried by the proper Municipal Trial Court,
jurisdiction; Metropolitan Trial Court and Regional Trial Court.

4. Decisions of the Commissioner of Customs in cases involving liability for customs duties, fees 2. Exclusive appellate jurisdiction in tax collection cases:chanRoblesvirtualLawlibrary
or other money charges, seizure, detention or release of property affected, fines, forfeitures or a. Over appeals from the judgments, resolutions or orders of the Regional Trial Courts in tax
other penalties in relation thereto, or other matters arising under the Customs Law or other laws collection cases originally decided by them, in their respective territorial jurisdiction.
administered by the Bureau of Customs;
b. Over petitions for review of the judgments, resolutions or orders of the Regional Trial Courts in
5. Decisions of the Central Board of Assessment Appeals in the exercise of its appellate the Exercise of their appellate jurisdiction over tax collection cases originally decided by the
jurisdiction over cases involving the assessment and taxation of real property originally decided Metropolitan Trial Courts, Municipal Trial Courts and Municipal Circuit Trial Courts, in their
19
by the provincial or city board of assessment appeals; respective jurisdiction. ChanRoblesVirtualawlibrary
A perusal of the above provisions would show that, while it is clearly stated that the CTA has
6. Decisions of the Secretary of Finance on customs cases elevated to him automatically for exclusive appellate jurisdiction over decisions, orders or resolutions of the RTCs in local tax
review from decisions of the Commissioner of Customs which are adverse to the Government cases originally decided or resolved by them in the exercise of their original or appellate
under Section 2315 of the Tariff and Customs Code; jurisdiction,there is no categorical statement under RA 1125 as well as the amendatory RA
9282, which provides that the CTA has jurisdiction over petitions for certiorari assailing
7. Decisions of the Secretary of Trade and Industry, in the case of nonagricultural product, interlocutory orders issued by the RTC in local tax cases filed before it.
commodity or article, and the Secretary of Agriculture in the case of agricultural product,
commodity or article, involving dumping and countervailing duties under Section 301 and 302, The prevailing doctrine is that the authority to issue writs of certiorari involves the exercise of
respectively, of the Tariff and Customs Code, and safeguard measures under Republic Act No. original jurisdiction which must be expressly conferred by the Constitution or by law and cannot
8800, where either party may appeal the decision to impose or not to impose said duties. be implied from the mere
b. Jurisdiction over cases involving criminal offenses as herein
20 21
provided:chanRoblesvirtualLawlibrary existence of appellate jurisdiction. Thus, in the cases of Pimentel v. COMELEC, Garcia v. De
22 23
1. Exclusive original jurisdiction over all criminal offenses arising from violations of the National Jesus, Veloria v. COMELEC, Department of Agrarian Reform Adjudication Board v.
24 25
Internal Revenue Code or Tariff and Customs Code and other laws administered by the Bureau Lubrica, and Garcia v. Sandiganbayan, this Court has ruled against the jurisdiction of courts
of Internal Revenue or the Bureau of Customs: Provided, however, That offenses or felonies or tribunals over petitions for certiorari on the ground that there is no law which expressly gives
mentioned in this paragraph where the principal amount of taxes and fees, exclusive of charges
 26
these tribunals such power. It must be observed, however, that with the exception of Garcia v.
27
Sandiganbayan, these rulings pertain not to regular courts but to tribunals exercising quasi– If this Court were to sustain petitioners’ contention that jurisdiction over their certiorari petition
28
judicial powers. With respect to the Sandiganbayan, Republic Act No. 8249 now provides that lies with the CA, this Court would be confirming the exercise by two judicial bodies, the CA and
the special criminal court has exclusive original jurisdiction over petitions for the issuance of the CTA, of jurisdiction over basically the same subject matter – precisely the split–jurisdiction
35
the writs of mandamus, prohibition, certiorari,habeas corpus, injunctions, and other situation which is anathema to the orderly administration of justice. The Court cannot accept
ancillary writs and processes in aid of its appellate jurisdiction. that such was the legislative motive, especially considering that the law expressly confers on the
CTA, the tribunal with the specialized competence over tax and tariff matters, the role of judicial
In the same manner, Section 5 (1), Article VIII of the 1987 Constitution grants power to the review over local tax cases without mention of any other court that may exercise such power.
Supreme Court, in the exercise of its original jurisdiction, to issue writs of certiorari, prohibition Thus, the Court agrees with the ruling of the CA that since appellate jurisdiction over private
and mandamus. With respect to the Court of Appeals, Section 9 (1) of Batas Pambansa Blg. 129 respondents’ complaint for tax refund is vested in the CTA, it follows that a petition
(BP 129) gives the appellate court, also in the exercise of its original jurisdiction, the power to for certiorari seeking nullification of an interlocutory order issued in the said case should,
issue, among others, a writ of certiorari,whether or not in aid of its appellate jurisdiction. As to likewise, be filed with the same court. To rule otherwise would lead to an absurd situation where
Regional Trial Courts, the power to issue a writ of certiorari, in the exercise of their original one court decides an appeal in the main case while another court rules on an incident in the very
jurisdiction, is provided under Section 21 of BP 129. same case.

The foregoing notwithstanding, while there is no express grant of such power, with respect to the Stated differently, it would be somewhat incongruent with the pronounced judicial abhorrence to
CTA, Section 1, Article VIII of the 1987 Constitution provides, nonetheless, that judicial power split jurisdiction to conclude that the intention of the law is to divide the authority over a local tax
shall be vested in one Supreme Court and in such lower courts as may be established by law case filed with the RTC by giving to the CA or this Court jurisdiction to issue a writ
and that judicial power includes the duty of the courts of justice to settle actual controversies of certiorari against interlocutory orders of the RTC but giving to the CTA the jurisdiction over the
involving rights which are legally demandable and enforceable, and to determine whether or appeal from the decision of the trial court in the same case. It is more in consonance with logic
not there has been a grave abuse of discretion amounting to lack or excess of jurisdiction and legal soundness to conclude that the grant of appellate jurisdiction to the CTA over tax
on the part of any branch or instrumentality of the Government. cases filed in and decided by the RTC carries with it the power to issue a writ of certiorari when
necessary in aid of such appellate jurisdiction. The supervisory power or jurisdiction of the CTA
On the strength of the above constitutional provisions, it can be fairly interpreted that the power to issue a writ of certiorari in aid of its appellate jurisdiction should co–exist with, and be a
of the CTA includes that of determining whether or not there has been grave abuse of discretion complement to, its appellate jurisdiction to review, by appeal, the final orders and decisions of
36
amounting to lack or excess of jurisdiction on the part of the RTC in issuing an interlocutory the RTC, in order to have complete supervision over the acts of the latter.
order in cases falling within the exclusive appellate jurisdiction of the tax court. It, thus, follows
that the CTA, by constitutional mandate, is vested with jurisdiction to issue writs of certiorari in A grant of appellate jurisdiction implies that there is included in it the power necessary to
these cases. exercise it effectively, to make all orders that will preserve the subject of the action, and to give
effect to the final determination of the appeal. It carries with it the power to protect that
Indeed, in order for any appellate court to effectively exercise its appellate jurisdiction, it must jurisdiction and to make the decisions of the court thereunder effective. The court, in aid of its
have the authority to issue, among others, a writ of certiorari. In transferring exclusive jurisdiction appellate jurisdiction, has authority to control all auxiliary and incidental matters necessary to the
over appealed tax cases to the CTA, it can reasonably be assumed that the law intended to efficient and proper exercise of that jurisdiction. For this purpose, it may, when necessary,
transfer also such power as is deemed necessary, if not indispensable, in aid of such appellate prohibit or restrain the performance of any act which might interfere with the proper exercise of
37
jurisdiction. There is no perceivable reason why the transfer should only be considered as its rightful jurisdiction in cases pending before it.
partial, not total.
Lastly, it would not be amiss to point out that a court which is endowed with a particular
Consistent with the above pronouncement, this Court has held as early as the case of J.M. jurisdiction should have powers which are necessary to enable it to act effectively within such
29
Tuason & Co., Inc. v. Jaramillo, et al. that “if a case may be appealed to a particular court or jurisdiction. These should be regarded as powers which are inherent in its jurisdiction and the
judicial tribunal or body, then said court or judicial tribunal or body has jurisdiction to issue the court must possess them in order to enforce its rules of practice and to suppress any abuses of
30
extraordinary writ of certiorari, in aid of its appellate jurisdiction.” This principle was affirmed its process and to defeat any attempted thwarting of such process.
31
in De Jesus v. Court of Appeals, where the Court stated that “a court may issue a writ
of certiorari in aid of its appellate jurisdiction if said court has jurisdiction to review, by appeal or In this regard, Section 1 of RA 9282 states that the CTA shall be of the same level as the CA
32
writ of error, the final orders or decisions of the lower court.” The rulings in J.M. Tuason and De and shall possess all the inherent powers of a court of justice.
33
Jesus were reiterated in the more recent cases of Galang, Jr. v. Geronimo and Bulilis v.
34
Nuez. Indeed, courts possess certain inherent powers which may be said to be implied from a general
grant of jurisdiction, in addition to those expressly conferred on them. These inherent powers are
Furthermore, Section 6, Rule 135 of the present Rules of Court provides that when by law, such powers as are necessary for the ordinary and efficient exercise of jurisdiction; or are
jurisdiction is conferred on a court or judicial officer, all auxiliary writs, processes and other essential to the existence, dignity and functions of the courts, as well as to the due
means necessary to carry it into effect may be employed by such court or officer. administration of justice; or are directly appropriate, convenient and suitable to the execution of
their granted powers; and include the power to maintain the court’s jurisdiction and render it The trial court upheld the validity of the City of Cagayan de Oro’s Ordinance No. 9503-2005 and
38
effective in behalf of the litigants. denied Cagayan Electric Power and Light Co., Inc.’s (CEPALCO) claim of exemption from the
said ordinance.
Thus, this Court has held that “while a court may be expressly granted the incidental powers
necessary to effectuate its jurisdiction, a grant of jurisdiction, in the absence of prohibitive The Facts
legislation, implies the necessary and usual incidental powers essential to effectuate it, and,
subject to existing laws and constitutional provisions, every regularly constituted court has power
to do all things that are reasonably necessary for the administration of justice within the scope of The appellate court narrated the facts as follows:
39
its jurisdiction and for the enforcement of its judgments and mandates.” Hence, demands,
matters or questions ancillary or incidental to, or growing out of, the main action, and coming On January 10, 2005, the Sangguniang Panlungsod of Cagayan de Oro (City Council) passed
within the above principles, may be taken cognizance of by the court and determined, since such Ordinance No. 9503-2005 imposing a tax on the lease or rental of electric and/or
jurisdiction is in aid of its authority over the principal matter, even though the court may thus be telecommunication posts, poles or towers by pole owners to other pole users at ten percent
called on to consider and decide matters which, as original causes of action, would not be within (10%) of the annual rental income derived from such lease or rental.
40
its cognizance.
The City Council, in a letter dated 15 March 2005, informed appellant Cagayan Electric Power
Based on the foregoing disquisitions, it can be reasonably concluded that the authority of the and Light Company, Inc. (CEPALCO), through its President and Chief Operation Manager, Ms.
CTA to take cognizance of petitions for certiorari questioning interlocutory orders issued by the Consuelo G. Tion, of the passage of the subject ordinance.
RTC in a local tax case is included in the powers granted by the Constitution as well as inherent
in the exercise of its appellate jurisdiction.
On September 30, 2005, appellant CEPALCO, purportedly on pure question of law, filed a
petition for declaratory relief assailing the validity of Ordinance No. 9503-2005 before the
Finally, it would bear to point out that this Court is not abandoning the rule that, insofar as quasi–
Regional Trial Court of Cagayan de Oro City, Branch 18, on the ground that the tax imposed by
judicial tribunals are concerned, the authority to issue writs of certiorari must still be expressly
the disputed ordinance is in reality a tax on income which appellee City of Cagayan de Oro may
conferred by the Constitution or by law and cannot be implied from the mere existence of their
not impose, the same being expressly prohibited by Section 133(a) of Republic Act No. 7160
appellate jurisdiction. This doctrine remains as it applies only to quasi–judicial bodies.
(R.A. 7160) otherwise known as the Local Government Code (LGC) of 1991. CEPALCO argues
that, assuming the City Council can enact the assailed ordinance, it is nevertheless exempt from
WHEREFORE, the petition is DENIED.ChanRoblesVirtualawlibrary
the imposition by virtue of Republic Act No. 9284 (R.A. 9284) providing for its franchise.
CEPALCO further claims exemplary damages of PhP200,000.00 alleging that the passage of
SO ORDERED.
the ordinance manifests malice and bad faith of the respondent-appellee towards it.

G.R. No. 191761 November 14, 2012

In its Answer, appellee raised the following affirmative defenses: (a) the enactment and
implementation of the subject ordinance was a valid and lawful exercise of its powers pursuant
CAGAYAN ELECTRIC POWER AND LIGHT CO., INC., Petitioner, to the 1987 Constitution, the Local Government Code, other applicable provisions of law, and
vs. pertinent jurisprudence; (b) non-exemption of CEPALCO because of the express withdrawal of
CITY OF CAGAYAN DE ORO, Respondent. the exemption provided by Section 193 of the LGC; (c) the subject ordinance is legally presumed
valid and constitutional; (d) prescription of respondent-appellee’s action pursuant to Section 187
DECISION of the LGC; (e) failure of respondent-appellee to exhaust administrative remedies under the
Local Government Code; (f) CEPALCO’s action for declaratory relief cannot prosper since no
5
breach or violation of the subject ordinance was yet committed by the City.
CARPIO, J.:

Ordinance No. 9503-2005 reads:

The Case

1 2 ORDINANCE IMPOSING A TAX ON THE LEASE OR RENTAL OF ELECTRIC AND/OR

G.R. No. 191761 is a petition for review assailing the Decision promulgated on 28 May 2009 as
3 TELECOMMUNICATION POSTS, POLES OR TOWERS BY POLE OWNERS TO OTHER
well as the Resolution promulgated on 24 March 2010 by the Court of Appeals (appellate court)
4 POLE USERS AT THE RATE OF TEN (10) PERCENT OF THE ANNUAL RENTAL INCOME
in CA-G.R. CV No. 01105-Min. The appellate court affirmed the 8 January 2007 Decision of
DERIVED THEREFROM AND FOR OTHER PURPOSES BE IT ORDAINED by the City Council
Branch 18 of the Regional Trial Court of Misamis Oriental (trial court) in Civil Case No. 2005-
(Sangguniang Panlungsod) of the City of Cagayan de Oro in session assembled that:
207.

SECTION 1. - Whenever used in this Ordinance, the following terms shall be construed as:
 a. Electric companies include all public utility companies whether corporation or
cooperative engaged in the distribution and sale of electricity;
b. Telecommunication companies refer to establishments or entities that are holders of
franchise through an Act of Congress to engage, maintain, and operate
telecommunications, voice and data services, under existing Philippine laws, rules and
regulations;
c. Pole User includes any person, natural or juridical, including government agencies
and entities that use and rent poles and towers for the installation of any cable, wires,
service drops and other attachments;
d. Pole Owner includes electric and telecommunication company or corporation that
owns poles, towers and other accessories thereof.
SECTION 2. - There shall be imposed a tax on the lease or rental of electric and/or
telecommunication posts, poles or towers by pole owners to other pole users at the rate of ten
(10) percent of the annual rental income derived therefrom.
SECTION 3. - The tax imposed herein shall not be passed on by pole owners to the bills of pole
users in the form of added rental rates.
SECTION 4. (a) Pole owners herein defined engaged in the business of renting their posts,
poles and/or towers shall secure a separate business permit therefor as provided under Article
(P), Section 62(a) of Ordinance No. 8847-2003, otherwise known as the Cagayan de Oro City
Revenue Code of 2003.
(b) Pertinent provisions of Ordinance No. 8847-2003, covering situs of the tax, payment of taxes
and administrative provisions shall apply in the imposition of the tax under this Ordinance.
SECTION 5. - This Ordinance shall take effect after 15 days following its publication in a local
newspaper of general circulation for at least three (3) consecutive issues.
6
UNANIMOUSLY APPROVED.
Ordinance No. 9503-2005 was unanimously approved by the City Council of Cagayan de Oro on
10 January 2005.
The Trial Court’s Ruling
7
On 8 January 2007, the trial court rendered its Decision in favor of the City of Cagayan de Oro.
The trial court identified three issues for its resolution: (1) whether Ordinance No. 9503-2005 is
valid; (2) whether CEPALCO should be exempted from tax; and (3) whether CEPALCO’s action
is barred for non-exhaustion of administrative remedies and for prescription.
In ruling for the validity of Ordinance No. 9503-2005, the trial court rejected CEPALCO’s claim
that the ordinance is an imposition of income tax prohibited by Section 133(a) of the Local
8
Government Code. The trial court reasoned that since CEPALCO’s business of leasing its posts
to pole users is what is directly taxed, the tax is not upon the income but upon the privilege to
engage in business. Moreover, Section 143(h), in relation to Section 151, of the Local
Government Code authorizes a city to impose taxes, fees and charges on any business which is
not specified as prohibited under Section 143(a) to (g) and which the city council may deem
proper to tax.
The trial court also rejected CEPALCO’s claim of exemption from tax. The trial court noted that
9 10 11
Republic Act (R.A.) Nos. 3247, 3570 and 6020, which previously granted CEPALCO’s
franchise, expressly stated that CEPALCO would pay a three percent franchise tax in lieu of all
assessments of whatever authority. However, there is no similar provision in R.A. No. 9284,
which gave CEPALCO its current franchise.
Finally, the trial court found that CEPALCO’s action is barred by prescription as it failed to raise
an appeal to the Secretary of Justice within the thirty-day period provided in Section 187 of the
Local Government Code.
The dispositive portion of the trial court’s decision reads:
WHEREFORE, it is crystal clear that Petitioner CEPALCO failed not only in proving its
allegations that City Ordinance 9503-2005 is illegal and contrary to law, and that [it] is exempted
from the imposition of tax, but also in convincing the Court that its action is not barred for non-
exhaustion of administrative remedy [sic] and by prescription. Hence, the instant petition is
DENIED.
12
SO ORDERED.
CEPALCO filed a brief with the appellate court and raised the following errors of the trial court:
A. The lower court manifestly erred in concluding that the instant action is barred for
non-exhaustion of administrative remedies and by prescription.
B. The lower court gravely erred in finding that Ordinance No. 9503-2005 of the City of
Cagayan de Oro does not partake of the nature of an income tax.
C. The lower court gravely erred in finding that Ordinance No. 9503-2005 of the City of
Cagayan de Oro is valid.
D. The lower court seriously erred in finding that herein appellant is not exempted from
payment of said tax.
13
The Appellate Court’s Ruling
14
On 28 May 2009, the appellate court rendered its Decision and affirmed the trial court’s
decision.
The appellate court stated that CEPALCO failed to file a timely appeal to the Secretary of
Justice, and did not exhaust its administrative remedies. The appellate court agreed with the trial
court’s ruling that the assailed ordinance is valid and declared that the subject tax is a license
tax for the regulation of business in which CEPALCO is engaged. Finally, the appellate court
found that CEPALCO’s claim of tax exemption rests on a strained interpretation of R.A. No.
9284.
15
In a Resolution dated 24 March 2010, the appellate court denied CEPALCO’s motion for
reconsideration for lack of merit. The resolution also denied CEPALCO’s 3 August 2009
supplemental motion for reconsideration for being filed out of time.
CEPALCO filed the present petition for review before this Court on 27 May 2010.
The Issues
CEPALCO enumerated the following reasons for warranting review:
1. In spite of its patent illegality, a City Ordinance passed in violation or in excess of
the city’s delegated power to tax was upheld;
2. In a case involving pure questions of law, the Court of Appeals still insisted on a
useless administrative remedy before resort to the court may be made; and
3. Recent legislation affirming CEPALCO’s tax exemptions was disregarded.
16
17
In a Resolution dated 6 July 2011, this Court required both parties to discuss whether the
amount of tax imposed by Section 2 of Ordinance No. 9503-2005 complies with or violates, as
the case may be, the limitation set by Section 151, in relation to Sections 137 and 143(h), of the
Local Government Code.
The Court’s Ruling
Failure to Exhaust Administrative Remedies
Ordinance No. 9503-2005 is a local revenue measure. As such, the Local Government Code
applies.
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.
SEC. 188. Publication of Tax Ordinances and Revenue Measures. – Within ten (10) days after
their approval, certified true copies of all provincial, city, and municipal tax ordinances or
revenue measures shall be published in full for three (3) consecutive days in a newspaper of
local circulation: Provided, however, That in provinces, cities and municipalities where there are
no newspapers of local circulation, the same may be posted in at least two (2) conspicuous and
publicly accessible places.
The Sangguniang Panlungsod of Cagayan de Oro approved Ordinance No. 9503-2005 on 10
January 2005. Section 5 of said ordinance provided that the "Ordinance shall take effect after 15
days following its publication in a local newspaper of general circulation for at least three (3)
consecutive issues." Gold Star Daily published Ordinance No. 9503-2005 on 1 to 3 February
2005. Ordinance No. 9503-2005 thus took effect on 19 February 2005. CEPALCO filed its
petition for declaratory relief before the Regional Trial Court on 30 September 2005, clearly
beyond the 30-day period provided in Section 187. CEPALCO did not file anything before the
18
Secretary of Justice. CEPALCO ignored our ruling in Reyes v. Court of Appeals on the
mandatory nature of the statutory periods:
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. 7160 is fatal to their cause.
As in Reyes, CEPALCO’s failure to appeal to the Secretary of Justice within the statutory period
of 30 days from the effectivity of the ordinance should have been fatal to its cause. However, we
relax the application of the rules in view of the more substantive matters.
City of Cagayan de Oro’s Power to Create Sources of Revenue
vis-a-vis CEPALCO’s Claim of Exemption
Section 5, Article X of the 1987 Constitution provides that "each local government unit shall have
the power to create its own sources of revenues and to levy taxes, fees, and charges subject to
such guidelines and limitations as the Congress may provide, consistent with the basic policy of
local autonomy. Such taxes, fees, and charges shall accrue exclusively to the local government."
The Local Government Code supplements the Constitution with Sections 151 and 186:
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.
SEC. 186. Power to Levy Other Taxes, Fees or Charges. ‒ Local government units may
exercise the power to levy taxes, fees or charges on any base or subject not otherwise
specifically enumerated herein or taxed under the provisions of the National Internal Revenue
Code, as amended, or other applicable laws: Provided, That the taxes, fees, or charges shall not
be unjust, excessive, oppressive, confiscatory or contrary to declared national policy: Provided,
further, That the ordinance levying such taxes, fees, or charges shall not be enacted without any
prior public hearing conducted for the purpose.
Although CEPALCO does not question the authority of the Sangguniang Panlungsod of
Cagayan de Oro to impose a tax or to enact a revenue measure, CEPALCO insists that
Ordinance No. 9503-2005 is an imposition of an income tax which is prohibited by Section
19
133(a) of the Local Government Code. Unfortunately for CEPALCO, we agree with the ruling of
the trial and appellate courts that Ordinance No. 9503-2005 is a tax on business. CEPALCO’s
act of leasing for a consideration the use of its posts, poles or towers to other pole users falls
under the Local Government Code’s definition of business. Business is defined by Section
131(d) of the Local Government Code as "trade or commercial activity regularly engaged in as a
20 21
means of livelihood or with a view to profit." In relation to Section 131(d), Section 143(h) of the
Local Government Code provides that the city may impose taxes, fees, and charges on any
22
business which is not specified in Section 143(a) to (g) and which the sanggunian concerned
may deem proper to tax.
In contrast to the express statutory provisions on the City of Cagayan de Oro’s power to tax,
CEPALCO’s claim of tax exemption of the income from its poles relies on a strained
23
interpretation. Section 1 of R.A. No. 9284 added Section 9 to R.A. No. 3247, CEPALCO’s
franchise:
SEC. 9. Tax Provisions. ‒ The grantee, its successors or assigns, shall be subject to the
payment of all taxes, duties, fees or charges and other impositions applicable to private electric
utilities under the National Internal Revenue Code (NIRC) of 1997, as amended, the Local
Government Code and other applicable laws: Provided, That nothing herein shall be construed
as repealing any specific tax exemptions, incentives, or privileges granted under any relevant
law: Provided, further, That all rights, privileges, benefits and exemptions accorded to existing
and future private electric utilities by their respective franchises shall likewise be extended to the
grantee.
The grantee shall file the return with the city or province where its facility is located and pay the
taxes due thereon to the Commissioner of Internal Revenue or his duly authorized
representative in accordance with the NIRC and the return shall be subject to audit by the
Bureau of Internal Revenue.
The Local Government Code withdrew tax exemption privileges previously given to natural or
24
juridical persons, and granted local government units the power to impose franchise tax, 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.
xxxx
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.
SEC. 534. Repealing Clause. – x x x.
(f) All general and special laws, acts, city charters, decrees, executive orders, proclamations and
administrative regulations, or part or parts thereof which are inconsistent with any of the
provisions of this Code are hereby repealed or modified accordingly.
It is hornbook doctrine that tax exemptions are strictly construed against the claimant. For this
reason, tax exemptions must be based on clear legal provisions. The separate opinion in PLDT
25
v. City of Davao is applicable to the present case, thus:
Tax exemptions must be clear and unequivocal. A taxpayer claiming a tax exemption must point
to a specific provision of law conferring on the taxpayer, in clear and plain terms, exemption from
a common burden. Any doubt whether a tax exemption exists is resolved against the taxpayer.
Tax exemptions cannot arise by mere implication, much less by an implied re-enactment of a
repealed tax exemption clause.
CEPALCO’s claim of exemption under the "in lieu of all taxes" clause must fail in light of Section
193 of the Local Government Code as well as Section 9 of its own franchise.
Ordinance No. 9503-2005’s Compliance with
the Local Government Code
26
In our Resolution dated 6 July 2011, we asked both parties to discuss whether the amount of
tax imposed by Section 2 of Ordinance No. 9503-2005 complies with or violates, as the case
may be, the limitation set by Section 151, in relation to Sections 137 and 143(h), of the Local
Government Code.
CEPALCO argues that Ordinance No. 9503-2005 should be invalidated because the City of
Cagayan de Oro exceeded its authority in enacting it. CEPALCO argued thus:
5. Thus, the taxes imposable under either Section 137 or Section 143(h) are not
unbridled but are restricted as to the amount which may be imposed. This is the first
limitation. Furthermore, if it is a city which imposes the same, it can impose only up to
one-half of what the province or municipality may impose. This is the second
limitation.
6. Let us now examine Ordinance No. 9503-2005 of the respondent City of Cagayan
de Oro in the light of the twin limitations mentioned above.
7. Ordinance No. 9503-2005 of the respondent City of Cagayan de Oro imposes a tax
on the lease or rental of electric and/or telecommunication posts, poles or towers by
pole owners to other pole users "at the rate of ten (10) percent of the annual rental
income derived therefrom."
8. With respect to Section 137, considering that the tax allowed provinces "shall not
exceed 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," the tax imposed by Ordinance No. 9503-2005 "at the rate of ten (10)
percent of the annual rental income derived therefrom" is too much. There is a whale
of a difference between the allowable 50% of 1% and the 10% tax imposed by the
respondent. To illustrate: assuming that the gross annual receipt is Php100, the
maximum tax that a province may impose under Section 137 (50% of 1%) shall be
Php0.5 or only fifty centavos. Therefore, the maximum tax that the City may impose
shall only be one-half of this, which is Php0.25 or only twenty-five centavos. But the
questioned Ordinance imposes a tax amounting to 10% of the gross annual receipt of
Php100, which is Php10, or Ten Pesos. This a whooping [sic] 40 times more than that
allowed for the province! The violation made by respondent city of its delegated taxing
authority is all too patent.
9. With respect to Section 143(h), the rate of tax which the municipality may impose
"shall not exceed two percent (2%) of gross sales or receipts of the preceding
calendar year." On the other hand, the tax imposed by Ordinance No. 9503-2005 is "at
the rate of ten (10) percent of the annual rental income derived therefrom." Again, it is
obvious that the respondent City’s questioned tax ordinance is way too much. Using
the same tax base of Php100 to illustrate, let us compute:
Under Section 143(h), the maximum tax that a municipality may impose is 2% of Php100, which
is Php2 or Two Pesos. Therefore, the maximum tax that the City may impose shall be one-half
of this, which is Php1 or One Peso. But the tax under Ordinance No. 9503-2005 is Php10, or
Ten Pesos. This is a whooping [sic] 10 times more than that allowed for the municipality! As in
the earlier instance discussed above, the violation made by the respondent city of its delegated
27
taxing authority is all too patent. (Boldfacing and underscoring in the original)
The interpretation of the City of Cagayan de Oro is diametrically opposed to that of CEPALCO.
The City of Cagayan de Oro points out that under Section 151 of the Local Government Code,
cities not only have the power to levy taxes, fees and charges which the provinces or
municipalities may impose, but the maximum rate of taxes imposable by cities may exceed the
maximum rate of taxes imposable by provinces or municipalities by as much as 50%. The City of
Cagayan de Oro goes on to state:
6. Thus, Section 30 of City of Cagayan de Oro’s Ordinance No. 8847-2003, otherwise
known as the Revenue Code of Cagayan de Oro, imposes a franchise tax on the
gross receipts realized from the preceding year by a business enjoying a franchise, at
the rate of 75% of 1%. The increase of 25% over that which is prescribed under
Section 137 of the LGC is in accordance with Section 151 thereof prescribing the
allowable increase on the rate of tax on the businesses duly identified and
enumerated under Section 143 of the LGC or those defined and categorized in the
preceding sections thereof;
7. Section 143 of the LGC prescribes the rate of taxes on the identified categories of
business enumerated therein which were determined to be existing at the time of its
enactment. On the other hand, Section 151 of the LGC prescribes the allowable rate
of increase over the rate of taxes imposed on businesses identified under Section 143
and the preceding sections thereof. It is [City of Cagayan de Oro’s humble opinion that
the allowable rate of increase provided under Section 151 of the LGC applies only to
those businesses identified and enumerated under Section 143 thereof. Thus, it is
respectfully submitted by City of Cagayan de Oro that the 2% limitation prescribed
under Section 143(h) applies only to the tax rates on the businesses identified
thereunder and does not apply to those that may thereafter be deemed taxable under
Section 186 of the LGC, such as the herein assailed Ordinance No. 9503-2005. On
the same vein, it is the respectful submission of City of Cagayan de Oro that the
limitation under Section 151 of the LGC likewise does not apply in our particular
instance, otherwise it will run counter to the intent and purpose of Section 186 of the
LGC;
8. Be it strongly emphasized here that CEPALCO is differently situated vis-á-vis the
rest of the businesses identified under Section 143 of the LGC. The imposition of a tax
"xxx on the lease or rental of electric and/or telecommunications posts, poles or
towers by pole owners to other pole users at the rate of ten (10%) of the annual rental
income derived therefrom" as provided under Section 2 of the questioned Ordinance
No. 9503-2005 is based on a reasonable classification, to wit: (a) It is based on
substantial distinctions which make a real difference; (b) these are germane to the
purpose of the law; (c) the classification applies not only to the present conditions but
also to future conditions which are substantially identical to those of the present; and
(d) the classification applies only to those belonging to the same class;
9. Furthermore, Section 186 of the LGC allow [sic] local government units to exercise
their taxing power to levy taxes, fees or charges on any base or subject not otherwise
specifically enumerated in the preceding sections, more particularly Section 143
thereof, or under the provisions of the National Internal Revenue Code, as long as
they are not unjust, excessive, oppressive, confiscatory or contrary to declared
national policy. Moreover, a public hearing is required before the Ordinance levying
such taxes, fees or charges can be enacted;
 10. It is respectfully submitted by City of Cagayan de Oro that the tax rate imposed
under Section 2 of the herein assailed Ordinance is not unjust, excessive, oppressive,
confiscatory or contrary to a declared national policy;
11. A reading of Section 143 of the LGC reveals that it has neither identified the
operation of a business engaged in leasing nor prescribed its tax rate. Moreover, a
Lessor, in any manner, is not included among those defined as Contractor under
Section 131(h) of the LGC. However, a Lessor, in its intended general application in
City of Cagayan de Oro (one who rents out real estate properties), was identified,
categorized and included as one of the existing businesses operating in the city, and
thus falling under the provisions of Ordinance No. 8847-2003 (the Revenue Code of
Cagayan de Oro) and, therefore, imposed only a tax rate of 2% on their gross annual
receipts;
12. While the herein assailed Ordinance similarly identifies that the base of the tax
imposed therein are receipts and/or revenue derived from rentals of poles and posts,
CEPALCO cannot be considered under the definition of Lessor under the spirit,
essence and intent of Section 58(h) of the Revenue Code of Cagayan de Oro,
because the same refers only to "Real Estate Lessors, Real Estate Dealers and Real
Estate Developers." Thus, CEPALCO should be, as it has been, categorized as a
(Distinct) Lessor where it enjoys not only a tremendous and substantial edge but also
an absolute advantage in the rental of poles, posts and/or towers to other
telecommunication and cable TV companies and the like over and above all others in
view of its apparent monopoly by allowing the use of their poles, posts and/or towers
by, leasing them out to, telecommunication and cable TV companies operating within
the city and suburbs. Furthermore, CEPALCO has neither competition in this field nor
does it expect one since there are no other persons or entities who are engaged in
this particular business activity;
28
xxxx
CEPALCO is mistaken when it states that a city can impose a tax up to only one-half of what the
province or city may impose. A more circumspect reading of the Local Government Code could
have prevented this error. Section 151 of the Local Government Code states that, subject to
certain exceptions, a city may exceed by "not more than 50%" the tax rates allowed to provinces
29
and municipalities. A province may impose a franchise tax at a rate "not exceeding 50% of 1%
30
of the gross annual receipts." Following Section 151, a city may impose a franchise tax of up to
0.0075 (or 0.75%) of a business’ gross annual receipts for the preceding calendar year based on
the incoming receipt, or realized, within its territorial jurisdiction. A municipality may impose a
31
business tax at a rate not exceeding "two percent of gross sales or receipts." Following Section
151, a city may impose a business tax of up to 0.03 (or 3%) of a business’ gross sales or
receipts of the preceding calendar year.
CEPALCO also erred when it equates Section 137’s "gross annual receipts" with Ordinance No.
9503-2005’s "annual rental income." Section 2 of Ordinance No. 9503-2005 imposes "a tax on
the lease or rental of electric and/or telecommunication posts, poles or towers by pole owners to
other pole users at the rate of ten (10) percent of the annual rental income derived therefrom,"
and not on CEPALCO’s gross annual receipts. Thus, although the tax rate of 10% is definitely
higher than that imposable by cities as franchise or business tax, the tax base of annual rental
income of "electric and/or telecommunication posts, poles or towers by pole owners to other pole
users" is definitely smaller than that used by cities in the computation of franchise or business
tax. In effect, Ordinance No. 9503-2005 wants a slice of a smaller pie.
However, we disagree with the City of Cagayan de Oro’s submission that Ordinance No. 9503-
2005 is not subject to the limits imposed by Sections 143 and 151 of the Local Government
Code. On the contrary, Ordinance No. 9503-2005 is subject to the limitation set by Section
143(h). Section 143 recognizes separate lines of business and imposes different tax rates for
different lines of business. Let us suppose that one is a brewer of liquor and, at the same time, a
distributor of articles of commerce. The brewery business is subject to the rates established in
Section 143(a) while the distribution business is subject to the rates established in Section
143(b). The City of Cagayan de Oro’s imposition of a tax on the lease of poles falls under
Section 143(h), as the lease of poles is CEPALCO’s separate line of business which is not
covered by paragraphs (a) to (g) of Section 143. The treatment of the lease of poles as a
separate line of business is evident in Section 4(a) of Ordinance No. 9503-2005. The City of
Cagayan de Oro required CEPALCO to apply for a separate business permit.1âwphi1
More importantly, because "any person, who in the course of trade or business x x x leases
32
goods or properties x x x shall be subject to the value-added tax," the imposable tax rate
should not exceed two percent of gross receipts of the lease of poles of the preceding calendar
year. Section 143(h) states that "on any business subject to x x x value-added x x x 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" from the lease of goods or
properties. Hence, the 10% tax rate imposed by Ordinance No. 9503-2005 clearly violates
Section 143(h) of the Local Government Code.
Finally, in view of the lack of a separability clause, we declare void the entirety of Ordinance No.
9503-2005. Any payment made by reason of the tax imposed by Ordinance No. 9503-2005
should, therefore, be refunded to CEPALCO. Our ruling, however, is made without prejudice to
the enactment by the City of Cagayan de Oro of a tax ordinance that complies with the limits set
by the Local Government Code.
WHEREFORE, we GRANT the petition. The Decision of the Court of Appeals in CA-G.R. CV
No. 01105-Min promulgated on 28 May 2009 and the Resolution promulgated on 24 March 2010
are REVERSED and SET ASIDE Ordinance No. 9503-2005 is declared void.
SO ORDERED.
JARDINE DAVIES INSURANCE BROKERS, INC., petitioner, vs. HON. ERNA ALIPOSA, in
her capacity as Presiding Judge of Branch 150 of the Makati Regional Trial
Court, CITY (previously Municipality) OF MAKATI and ROLANDO M. CARLOS, in
his capacity as Acting Treasurer of Makati, respondents.
DECISION
CALLEJO, SR., J.:
 Pursuant to Republic Act No. 7160, otherwise known as the Local Government Code of
1991, the then Sangguniang Bayan of Makati enacted Municipal Ordinance No. 92-072,
otherwise known as the Makati Revenue Code, which provides, inter alia, for the schedule of
real estate, business and franchise taxes in the Municipality of Makati at rates higher than those
in the Metro Manila Revenue Code.
On May 10, 1993, the Philippine Racing Club, Inc. (PRCI for brevity), a taxpayer of Makati,
appealed to the Department of Justice (DOJ for brevity) for the nullification of said ordinance,
alleging that it was approved without previous public hearings, in violation of the Local
Government Code and Article 276 of its Implementing Rules, and that some of the ordinances
provisions were unconstitutional:
(2) The in-lieu-of-all-taxes clause of the franchise of the Philippine Racing Club, Inc. exempts it
from payment of the real property tax, annual business tax and other new taxes imposed by the
ordinance here in question. To withdraw the exemption would impair the obligation of contract in
violation of its constitutional right as franchise holder.
(3) The imposition of the franchise tax is not within the scope of the taxing powers of the
Municipality of Makati (Sections 134, 137 and 142 of Republic Act No. 7160 and Articles 223,
226 and 231 of Rule XXX of the Implementing Rules and Regulations of the Local Government
Code of 1991). and
(4) The Municipality of Makati already shares 5 of the 25% franchise tax provided for in Section
8 of the franchise of the Philippine Racing Club, Inc. To allow the said municipality to impose
another franchise tax and to base the tax on the gross annual receipts, as it does in the
ordinance, would certainly be unjust, excessive, oppressive or confiscatory (Section 130 of
Republic Act No. 7160 and Article 219 of Rule XXX of the Implementing Rules and
[1]
Regulations).
Although required by the DOJ to comment on the appeal, respondent Makati failed to do
so.
[2]
On July 5, 1993, the DOJ came out with a resolution declaring null and void and without
legal effect the said ordinance for having been enacted in contravention of Section 187 of the
[3]
Local Government Code of 1991 and its implementing rules and regulations.
On August 19, 1993, respondent Makati sought a reconsideration of the ruling of the DOJ.
[4]
Pending resolution of its motion, said respondent filed a petition ad cautelam with the Regional
Trial Court (RTC) of Makati, entitled Hon. Jejomar C. Binay and the Municipality of Makati,
Petitioners, v. Hon. Franklin M. Drilon, Department of Justice and Philippine Racing Club, Inc.,
Respondents, and docketed as Case No. 93-2844. The case was raffled to Branch 148 of the
Makati RTC. Respondent Makati alleged, inter alia, that public hearings were conducted before
the approval of the ordinance and hence the ordinance was valid. It prayed that after due
proceedings judgment be rendered in its favor, thus:
WHEREFORE, petitioners respectfully pray that this Honorable Court promulgate judgment:
(a) declaring null and void the DOJ Decision dated July 5, 1993; and
(b) allowing the full implementation of Makati Municipal Ordinance No. 92-072.
Petitioners pray for such further or other reliefs as this Honorable Court may deem just and
equitable.
[5]
In the meantime, respondent Makati continued to implement the ordinance. Petitioner
Jardine Davies Insurance Brokers, Inc., a duly-organized corporation with principal place of
business at No. 222 Sen. Gil J. Puyat Avenue, Makati, Metro Manila, was assessed and billed
by Makati the amount of P63,822.47 for taxes, fees and charges under the ordinance for the
second quarter of 1993. It was again billed by respondent Makati the same amount for the third
quarter of 1993 and the same amount for the fourth quarter of 1993. Petitioner did not protest
the assessment for its quarterly business taxes for the second, third and fourth quarters of 1993
based on said ordinance effective April 1, 1993. Petitioner, in fact, paid the said amounts on
April 26, 1993 (for the second quarter), July 12, 1993 (for the third quarter) and October 19,
1993 (for the fourth quarter), respectively, without any protest. Respondent Makati issued the
[6]
corresponding receipts in favor of petitioner.
On January 30, 1994, petitioner wrote the municipal treasurer of Makati requesting that
respondent Makati compute its business tax liabilities in accordance with the Metro Manila
Revenue Code and not under the ordinance considering that said ordinance was already
declared by the DOJ null and void. Petitioner likewise requested that respondent Makati credit
the overpayment in the total amount of P27,854.91 for the second to fourth quarters of 1993
against its 1994 liabilities for 1994, or in the alternative, for Makati to refund the said amount to
petitioner.
[7]
In a Letter 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
[8]
credit in favor of Plaintiff the sum of P9,284.97.
On May 18, 1994, respondents Makati and its Acting Municipal Treasurer filed a motion to
[9]
dismiss the complaint on the ground of prematurity. They argued that petitioners 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
ordinance but also on its claim that the ordinance took effect only in July 1, 1993 but Makati
applied the ordinance effective April 1, 1993. Petitioner further averred that under Section 166 of
the Local Government Code, new taxes, fees or charges or charges provided for in the
ordinance shall accrue on the first day of the quarter following the effectivity of the new
ordinance. Hence, assuming that the tax ordinance was valid, the same should have been
enforced only from the first (1st) day of the quarter following next the effectivity of the ordinance
imposing such new levies or rates as provided for in Section 166 of the Local Government Code.
On August 29, 1994, the RTC issued an order granting the motion to dismiss of
respondent and ordering the dismissal of the complaint. The trial court ruled that plaintiffs cause
of action, if any, had prescribed. Citing Sections 187 and 195 of the Local Government Code of
1991, the trial court ratiocinated that petitioner failed to file an opposition or protest to the written
notice of assessment of Makati for taxes, fees and charges at rates provided for in the ordinance
within 60 days from the notice of said assessment as required by Section 195 of the Local
Government Code. Hence, petitioner was barred from demanding a refund of its payment or that
it be credited for said amounts.
Petitioner received a copy of said order on October 7, 1994. On October 13, 1994,
[10]
petitioner filed with the trial court a motion for reconsideration of the order of dismissal,
arguing that the trial court erred in applying Section 195 of the Local 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.
[11]
On December 28, 1994, the trial court issued an order 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 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
[12]
BRANCH 148 OF THE REGIONAL TRIAL COURT OF MAKATI.
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
[13]
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.
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.
[14]
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 enhancement of peace, progress, and prosperity of the people.
Consequently, any delay in implementing tax measures would be to the detriment of the public.
It is for this reason that protests over tax ordinances are required to be done within certain time
frames. In the instant case, it is our view that the failure of petitioners to appeal to the Secretary
of Justice within 30 days as required by Sec. 187 of R.A. 7160 is fatal to their cause.
Moreover, petitioner even paid without any protest the amounts of taxes assessed by
respondents Makati and Acting Treasurer as provided for in the ordinance. Evidently, the
complaint of petitioner with the Regional Trial Court was merely an afterthought.
In view of our foregoing disquisitions, the Court no longer deems it necessary to resolve
other issues posed by petitioner.
IN LIGHT OF ALL THE FOREGOING, the petition is DENIED. The order of the Regional
Trial Court dismissing the complaint of petitioner is AFFIRMED.
SO ORDERED
[G.R. NO. 154126 : September 15, 2006]
ALLIED BANKING CORPORATION as Trustee for the Trust Fund of College Assurance
Plan Philippines, Inc. (CAP), Petitioner, v. THE QUEZON CITY GOVERNMENT, the Quezon
City Treasurer, the Quezon City Assessor and the City Mayor of Quezon City,Respondents.
RESOLUTION
CARPIO MORALES, J.:
Allied Banking Corporation (petitioner) filed the instant motion for clarification of the Decision of
this Court promulgated on October 11, 2005 which declared as invalid the third sentence of
1
Section 3, Quezon City Ordinance No. 357 Series of 1995 (the proviso) for adopting a method
of assessment or appraisal of real property contrary to the Local Government Code and its
Implementing Rules and Regulations and the Local Assessment Regulations No. 1-92 issued by
the Department of Finance.
Petitioner contends in its motion for clarification that thereturn of the real property tax
erroneously collected and paid is a necessary consequence of this Court's finding that the
proviso is invalid, hence, there is no need to claim for a refund with the Local Board of
2
Assessment Appeals as provided by the second paragraph of the dispositive portion of the
decision to wit:
WHEREFORE, the petition is hereby GRANTED. The assailed portion of the provisions of
Section 3 of Quezon City Ordinance No. 357 is hereby declared invalid.
Petitioner's claim for refund, however, must be lodged with the Local Board of Assessment
Appeals, if it is not barred by the statute of limitations. (Underscoring supplied)cralawlibrary
Treating the motion for clarification as a motion for reconsideration, this Court required
respondents to comment thereon.
In their Comment, respondents aver that with the Court's finding that petitioner failed to exhaust
3
administrative remedies, "it cannot be allowed to create legal shortcut" by demanding that the
real property tax it paid be refunded to it without going through the usual procedure provided for
4 5 6 7 8 9
by the Local Government Code, specifically Sections 252, 226, 229, 230 and 231 thereof.
As respondents conclude that the Court's decision is clear and exhaustive to guide the parties,
they pray that the motion for clarification be denied.
This Court notes that prior to the filing before the trial court of the petition for declaration of nullity
of the proviso, petitioner commenced a claim for refund with the City Treasurer who referred it to
the City Assessor.
The City Assessor denied petitioner's claim for refund by letter dated May 7, 2000:
Please be informed that the subject new assessment was made by the Office of the City
Assessor in faithful compliance with the provision of 3rd [s]entence of Section 3, Ordinance No.
SP-357, S-95. The duty of the City Assessor is to apply the said statutory provision and not
interpret the same. Under the settled jurisprudence in our jurisdiction, the City Assessor, being in
the Executive Department, is duty bound to implement the said provision. The same is
presumed valid and legal unless declared otherwise by a court of competent
10
jurisdiction. (Underscoring supplied)cralawlibrary
In its Decision subject of the present motion, this Court ruled that the assailed proviso is null and
void ab initio for being ultra vires and for contravening the provisions of the Local Government
Code and its Implementing Rules and Regulations and Local Assessment Regulations No. 1-92
11
and, as such, it acquired no legal effect and conferred no rights from its inception.
Clearly, petitioner and all those similarly situated are entitled to a tax refund/credit corresponding
to the difference between the assessed value based on the proviso and the assessed value
based on the then prevailing schedule of fair market values prepared by the City Assessor. DECISION

It bears stressing, however, that entitlement to a tax refund does not necessarily call for the
12
automatic payment of the sum claimed. The amount of the claim being a factual matter, it must CHICO-NAZARIO, J.:
still be proven in the normal course and in accordance with the administrative procedure for
obtaining a refund of real property taxes, as provided under the Local Government Code.
This case is a Petition for Review on Certiorari under Rule 45 of the Revised Rules of
[1]
Civil Procedure seeking to review and reverse the Decision dated 18 January 2008 and
Under Section 253 of the Local Government Code, the claim for refund or credit for taxes must [2]
Resolution dated 18 February 2008 of the Court of Tax Appeals en banc(CTA en banc) in
13
be filed before the city treasurer who shall decide the claim based on the tax declarations, C.T.A. EB No. 307. In its assailed Decision, the CTA en bancdismissed the Petition for Review
affidavits, documents and other documentary evidence to be presented by petitioner. of herein petitioners City of Manila, Liberty M. Toledo (Toledo), and Joseph Santiago (Santiago);
[3] [4] [5]
and affirmed the Resolutions dated 24 May 2007, 8 June 2007, and 26 July 2007, of the
SEC. 253. Repayment of Excessive Collections. - When an assessment of basic real property CTA First Division in C.T.A. AC No. 31, which, in turn, dismissed the Petition for Review of
tax, or any other tax levied under this Title, is found to be illegal or erroneous and the tax is petitioners in said case for being filed out of time. In its questioned Resolution, the CTA en
accordingly reduced or adjusted, the taxpayer may file a written claim for refund or credit for banc denied the Motion for Reconsideration of petitioners.
taxes and interests with the provincial or city treasurer within two (2) years from the date the
taxpayer is entitled to such reduction or adjustment. Petitioner City of Manila is a public corporation empowered to collect and assess
business taxes, revenue fees, and permit fees, through its officers,
The provincial or city treasurer shall decide the claim for tax refund or credit within sixty (60) petitioners Toledo and Santiago, in their capacities as City Treasurer and Chief of the Licensing
days from receipt thereof. In case the claim for tax refund or credit is denied, the taxpayer may Division, respectively. On the other hand, respondent Coca-Cola Bottlers Philippines, Inc. is a
avail of the remedies provided in Chapter 3, Title Two, Book II of this Code. corporation engaged in the business of manufacturing and selling beverages, and which
maintains a sales office in the City of Manila.

WHEREFORE, in light of the foregoing discussion, the second paragraph of the earlier quoted
The case stemmed from the following facts:
dispositive portion of the Decision of this Court dated October 11, 2005 is amended to read:
Prior to 25 February 2000, respondent had been paying the City of Manila local
[6]
Petitioner's claim for refund may be pursued in accordance with Section 253 of the Local business tax only under Section 14 of Tax Ordinance No. 7794, being expressly exempted
Government Code within Two (2) Years from the finality of this Decision. from the business tax under Section 21 of the same tax ordinance. Pertinent provisions of Tax
Ordinance No. 7794 provide:
SO ORDERED.
Section 14. Tax on Manufacturers, Assemblers and Other
Processors. There is hereby imposed a graduated tax on manufacturers,
THE CITY OF MANILA,LIBERTY M. TOLEDO, in her G.R. No. 181845 assemblers, repackers, processors, brewers, distillers, rectifiers, and
capacity as THE TREASURER OF MANILA and compounders of liquors, distilled spirits, and wines or manufacturers of any
JOSEPH SANTIAGO, in his capacity as the CHIEF article of commerce of whatever kind or nature, in accordance with any of
OF THE LICENSE DIVISION OF CITY OF MANILA, Present: the following schedule:
Petitioners, xxxx
YNARES-SANTIAGO, J.,
Chairperson, over P6,500,000.00 up to
- versus - CHICO-NAZARIO, P25,000,000.00 - - - - - - - - - - - - - - - - - - - -- P36,000.00 plus 50% of 1%
VELASCO, JR., in excess of P6,500,000.00
NACHURA, and
COCA-COLA BOTTLERS PHILIPPINES, INC., PERALTA, JJ. xxxx
Respondent.
Section 21. Tax on Businesses Subject to the Excise, Value-
Promulgated: Added or Percentage Taxes under the NIRC. On any of the following
businesses and articles of commerce subject to excise, value-added or
August 4, 2009 percentage taxes under the National Internal Revenue Code hereinafter
x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x 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.
xxxx
(D) Excisable goods subject to VAT
(1) Distilled spirits
(2) Wines
xxxx
(8) Coal and coke
(9) Fermented liquor, brewers wholesale price, excluding the ad
valorem tax
xxxx
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
[7]
No. 7988, 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
[8]
in Coca-Cola Bottlers Philippines, Inc. v. City of Manila (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.
[9]
On 14 July 2006, the RTC rendered a Decision 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;
[10]
therefore, there was no double taxation. The RTC, though, in an Order 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 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
[11]
Order 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.
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 banc similarly denied the Motion for
Reconsideration of petitioners in a Resolution dated 18 February 2008.
Hence, the present Petition, where petitioners raise the following issues:
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 [COCA-COLA 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.
[12]
Petitioners assert that Section 1, Rule 7 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
[13]
Section 1, Rule 42 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.
[14]
Petitioners argue in the alternative that even assuming that Section 3(a), Rule 8 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 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.
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:
xxxx
(b) On wholesalers, distributors, or dealers in any article of
commerce of whatever kind or nature in accordance with the following
schedule:
xxxx
(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:
xxxx
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.
(e) On contractors and other independent contractors, in
accordance with the following schedule:
xxxx
 (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, value-added 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
[15]
Review is specifically governed by Section 11 of Republic Act No. 9282, and Section 3(a),
Rule 8 of the Revised Rules of the CTA.
Section 11 of Republic Act No. 9282 provides:
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 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. x x x.
(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 by petition 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. x x x. (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 Reviewwith 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
[16]
Revised Rules of Civil Procedure. Section 1, Rule 42 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 30-day 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.
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
[17]
Civil Procedure x x x.
 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.
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 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 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.
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 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
[18]
same taxing period; and the taxes must be of the same kind or character.
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.
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 respondents, 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].
WHEREFORE, premises considered, the instant Petition for Review on Certiorari is
hereby DENIED. No costs.
SO ORDERED.
G.R. No. 132161 January 17, 2005
CONSOLIDATED RURAL BANK (CAGAYAN VALLEY), INC., petitioner,
vs.
THE HONORABLE COURT OF APPEALS and HEIRS OF TEODORO DELA
CRUZ, respondents.
DECISION
TINGA, J.:
Petitioner Consolidated Rural Bank, Inc. of Cagayan Valley filed the instant Petition for
1 2
Certiorari under Rule 45 of the Revised Rules of Court, seeking the review of the Decision of
the Court of Appeals Twelfth Division in CA-G.R. CV No. 33662, promulgated on 27 May 1997,
3 4
which reversed the judgment of the lower court in favor of petitioner; and the Resolution of the
Court of Appeals, promulgated on 5 January 1998, which reiterated its Decision insofar as
respondents Heirs of Teodoro dela Cruz (the Heirs) are concerned.
From the record, the following are the established facts:
Rizal, Anselmo, Gregorio, Filomeno and Domingo, all surnamed Madrid (hereafter the Madrid
brothers), were the registered owners of Lot No. 7036-A of plan Psd-10188, Cadastral Survey
211, situated in San Mateo, Isabela per Transfer Certificate of Title (TCT) No. T-8121 issued by
5
the Register of Deeds of Isabela in September 1956.
On 23 and 24 October 1956, Lot No. 7036-A was subdivided into several lots under subdivision
plan Psd- 50390. One of the resulting subdivision lots was Lot No. 7036-A-7 with an area of Five
6 25
Thousand Nine Hundred Fifty-Eight (5,958) square meters.
Claiming to be null and void the issuance of TCT Nos. T-149375 to T-149382; the foreclosure
sale of Lot Nos. 7036-A-7-A to 7036-A-7-D; the mortgage to RBC; and the sale to Calixto, the
24
Heirs-now respondents herein-represented by Edronel dela Cruz, filed a case for
reconveyance and damages the southern portion of Lot No. 7036-A (hereafter, the subject
property) against Marquez, Calixto, RBC and CRB in December 1986.
Evangeline del Rosario, the successor-in-interest of Restituto Hernandez, filed with leave of
court a Complaint in Intervention wherein she claimed the northern portion of Lot No. 7036-A-7.

26
On 15 August 1957, Rizal Madrid sold part of his share identified as Lot No. 7036-A-7, to Aleja In the Answer to the Amended Complaint, Marquez, as defendant, alleged that apart from
7
Gamiao (hereafter Gamiao) and Felisa Dayag (hereafter, Dayag) by virtue of a Deed of Sale, to being the first registrant, he was a buyer in good faith and for value. He also argued that the sale
which his brothers Anselmo, Gregorio, Filomeno and Domingo offered no objection as executed by Rizal Madrid to Gamiao and Dayag was not binding upon him, it being unregistered.
8
evidenced by their Joint Affidavit dated 14 August 1957. The deed of sale was not registered For his part, Calixto manifested that he had no interest in the subject property as he ceased to
27
with the Office of the Register of Deeds of Isabela. However, Gamiao and Dayag declared the be the owner thereof, the same having been reacquired by defendant Marquez.
9
property for taxation purposes in their names on March 1964 under Tax Declaration No. 7981.
CRB, as defendant, and co-defendant RBC insisted that they were mortgagees in good faith and
On 28 May 1964, Gamiao and Dayag sold the southern half of Lot No. 7036-A-7, denominated that they had the right to rely on the titles of Marquez which were free from any lien or
10 28
as Lot No. 7036-A-7-B, to Teodoro dela Cruz, and the northern half, identified as Lot No. 7036- encumbrance.
11 12
A-7-A, to Restituto Hernandez. Thereupon, Teodoro dela Cruz and Restituto Hernandez took
13
possession of and cultivated the portions of the property respectively sold to them. After trial, the Regional Trial Court, Branch 19 of Cauayan, Isabela (hereafter, RTC) handed
down a decision in favor of the defendants, disposing as follows:
Later, on 28 December 1986, Restituto Hernandez donated the northern half to his daughter,
14
Evangeline Hernandez-del Rosario. The children of Teodoro dela Cruz continued possession WHEREFORE, in view of the foregoing considerations, judgment is hereby rendered:
of the southern half after their father’s death on 7 June 1970.

15
1. Dismissing the amended complaint and the complaint in intervention;
In a Deed of Sale dated 15 June 1976, the Madrid brothers conveyed all their rights and
interests over Lot No. 7036-A-7 to Pacifico Marquez (hereafter, Marquez), which the former
16 17
confirmed on 28 February 1983. The deed of sale was registered with the Office of the 2. Declaring Pacifico V. Marquez the lawful owner of Lots 7036-A-7 now Lots 7036-A-
Register of Deeds of Isabela on 2 March 1982.
18 7-A to 7036-A-7-H, inclusive, covered by TCT Nos. T-149375 to T-149382, inclusive;

Subsequently, Marquez subdivided Lot No. 7036-A-7 into eight (8) lots, namely: Lot Nos. 7036- 3. Declaring the mortgage of Lots 7036-A-7-A, 7036-A-7-B, 7036-A-7-C and 7036-A-7-
A-7-A to 7036-A-7-H, for which TCT Nos. T-149375 to T-149382 were issued to him on 29 D in favor of the defendant Consolidated Rural Bank (Cagayan Valley) and of Lot
19
March 1984. On the same date, Marquez and his spouse, Mercedita Mariana, mortgaged Lots 7036-A-7-E in favor of defendant Rural Bank of Cauayan by Pacifico V. Marquez valid;
Nos. 7036-A-7-A to 7036-A-7-D to the Consolidated Rural Bank, Inc. of Cagayan Valley
20
(hereafter, CRB) to secure a loan of One Hundred Thousand Pesos (₱100,000.00). These 4. Dismissing the counterclaim of Pacifico V. Marquez; and
deeds of real estate mortgage were registered with the Office of the Register of Deeds on 2 April
1984. 5. Declaring the Heirs of Teodoro dela Cruz the lawful owners of the lots covered by
TCT Nos. T-33119, T-33220 and T-7583.
On 6 February 1985, Marquez mortgaged Lot No. 7036-A-7-E likewise to the Rural Bank of
21
Cauayan (RBC) to secure a loan of Ten Thousand Pesos (₱10,000.00). No pronouncement as to costs.

As Marquez defaulted in the payment of his loan, CRB caused the foreclosure of the mortgages SO ORDERED.
29
22
in its favor and the lots were sold to it as the highest bidder on 25 April 1986.

23
In support of its decision, the RTC made the following findings:
On 31 October 1985, Marquez sold Lot No. 7036-A-7-G to Romeo Calixto (Calixto).

With respect to issues numbers 1-3, the Court therefore holds that the sale of Lot 7036-A-7
made by Rizal Madrid to Aleja Gamiao and Felisa Dayag and the subsequent conveyances to
the plaintiffs and intervenors are all valid and the Madrid brothers are bound by said contracts by
virtue of the confirmation made by them on August 14, 1957 (Exh. B).
Are the defendants Pacifico V. Marquez and Romeo B. Calixto buyers in good faith and for value
of Lot 7036-A-7?
It must be borne in mind that good faith is always presumed and he who imputes bad faith has
the burden of proving the same (Art. 527, Civil Code). The Court has carefully scrutinized the
evidence presented but finds nothing to show that Marquez was aware of the plaintiffs’ and
intervenors’ claim of ownership over this lot. TCT No. T-8121 covering said property, before the
issuance of Marquez’ title, reveals nothing about the plaintiffs’ and intervenors’ right thereto for it
is an admitted fact that the conveyances in their favor are not registered.
The Court is therefore confronted with two sales over the same property. Article 1544 of the Civil
Code provides:
"ART. 1544. If the same thing should have been sold to different vendees, the ownership shall
be transferred to the person who may have first taken possession thereof in good faith, if it
should be movable property.
Should it be immovable property, the ownership shall belong to the person acquiring it who in
good faith first recorded it in the Registry of Property. x x x " (Underscoring supplied).
From the foregoing provisions and in the absence of proof that Marquez has actual or
constructive knowledge of plaintiffs’ and intervenors’ claim, the Court has to rule that as the
30
vendee who first registered his sale, Marquez’ ownership over Lot 7036-A-7 must be upheld.
The Heirs interposed an appeal with the Court of Appeals. In their Appellant’s Brief, they
31
ascribed the following errors to the RTC: (1) it erred in finding that Marquez was a buyer in good
faith; (2) it erred in validating the mortgage of the properties to RBC and CRB; and (3) it erred in
32
not reconveying Lot No. 7036-A-7-B to them.
Intervenor Evangeline del Rosario filed a separate appeal with the Court of Appeals. It was,
however, dismissed in a Resolution dated 20 September 1993 for her failure to pay docket fees.
Thus, she lost her standing as an appellant.
33
34
On 27 May 1997, the Court of Appeals rendered its assailed Decision reversing the RTC’s
judgment. The dispositive portion reads:
WHEREFORE, the decision appealed from is hereby REVERSED and SET ASIDE. Accordingly,
judgment is hereby rendered as follows:
1. Declaring the heirs of Teodoro dela Cruz the lawful owners of the southern half
portion and Evangeline Hernandez-del Rosario the northern half portion of Lot No.
7036-A-7, now covered by TCT Nos. T-149375 to T-149382, inclusive;
2. Declaring null and void the deed of sale dated June 15, 1976 between Pacifico V.
Marquez and the Madrid brothers covering said Lot 7036-A-7;
3. Declaring null and void the mortgage made by defendant Pacifico V. Marquez of Lot
Nos. 7036-A-7-A, 7036-A-7-B, 7036-A-7-C and 7036-A-7-D in favor of the defendant
Consolidated Rural Bank and of Lot 7036-A-7-E in favor of defendant Rural Bank of
Cauayan; and
4. Ordering Pacifico V. Marquez to reconvey Lot 7036-A-7 to the heirs of Teodoro dela
Cruz and Evangeline Hernandez-del Rosario.
No pronouncement as to costs.
SO ORDERED.
35
In upholding the claim of the Heirs, the Court of Appeals held that Marquez failed to prove that
he was a purchaser in good faith and for value. It noted that while Marquez was the first
registrant, there was no showing that the registration of the deed of sale in his favor was coupled
with good faith. Marquez admitted having knowledge that the subject property was "being taken"
36
by the Heirs at the time of the sale. The Heirs were also in possession of the land at the time.
According to the Decision, these circumstances along with the subject property’s attractive
location—it was situated along the National Highway and was across a gasoline station—should
have put Marquez on inquiry as to its status. Instead, Marquez closed his eyes to these matters
37
and failed to exercise the ordinary care expected of a buyer of real estate.
Anent the mortgagees RBC and CRB, the Court of Appeals found that they merely relied on the
certificates of title of the mortgaged properties. They did not ascertain the status and condition
thereof according to standard banking practice. For failure to observe the ordinary banking
procedure, the Court of Appeals considered them to have acted in bad faith and on that basis
38
declared null and void the mortgages made by Marquez in their favor.
39
Dissatisfied, CRB filed a Motion for Reconsideration pointing out, among others, that the
Decision promulgated on 27 May 1997 failed to establish good faith on the part of the Heirs.
Absent proof of possession in good faith, CRB avers, the Heirs cannot claim ownership over the
subject property.
40
In a Resolution dated 5 January 1998, the Court of Appeals stressed its disbelief in CRB’s
allegation that it did not merely rely on the certificates of title of the properties and that it
conducted credit investigation and standard ocular inspection. But recalling that intervenor
Evangeline del Rosario had lost her standing as an appellant, the Court of Appeals accordingly
modified its previous Decision, as follows:
WHEREFORE, the decision dated May 27, 1997, is hereby MODIFIED to read as follows:
WHEREFORE, the decision appealed from is hereby REVERSED and SET ASIDE insofar as
plaintiffs-appellants are concerned. Accordingly, judgment is hereby rendered as follows:
 1. Declaring the Heirs of Teodoro dela Cruz the lawful owners of the southern half
portion of Lot No. 7036-A-7;
2. Declaring null and void the deed of sale dated June 15, 1976 between Pacifico V.
Marquez and the Madrid brothers insofar as the southern half portion of Lot NO. (sic)
7036-A-7 is concerned;
3. Declaring the mortgage made by defendant Pacifico V. Marquez in favor of
defendant Consolidated Rural Bank (Cagayan Valley) and defendant Rural Bank of
Cauayan as null and void insofar as the southern half portion of Lot No. 7036-A-7 is
concerned;
4. Ordering defendant Pacifico V. Marquez to reconvey the southern portion of Lot No.
7036-A-7 to the Heirs of Teodoro dela Cruz.
No pronouncement as to costs.
41
SO ORDERED.
Hence, the instant CRB petition. However, both Marquez and RBC elected not to challenge the
Decision of the appellate court.
Petitioner CRB, in essence, alleges that the Court of Appeals committed serious error of law in
upholding the Heirs’ ownership claim over the subject property considering that there was no
finding that they acted in good faith in taking possession thereof nor was there proof that the first
buyers, Gamiao and Dayag, ever took possession of the subject property. CRB also makes
issue of the fact that the sale to Gamiao and Dayag was confirmed a day ahead of the actual
sale, clearly evincing bad faith, it adds. Further, CRB asserts Marquez’s right over the property
being its registered owner.
The petition is devoid of merit. However, the dismissal of the petition is justified by reasons
different from those employed by the Court of Appeals.
Like the lower court, the appellate court resolved the present controversy by applying the rule on
double sale provided in Article 1544 of the Civil Code. They, however, arrived at different
conclusions. The RTC made CRB and the other defendants win, while the Court of Appeals
decided the case in favor of the Heirs.
Article 1544 of the Civil Code reads, thus:
ART. 1544. If the same thing should have been sold to different vendees, the ownership shall be
transferred to the person who may have first taken possession thereof in good faith, if it should
be movable property.
Should it be immovable property, the ownership shall belong to the person acquiring it who in
good faith first recorded it in the Registry of Property.
Should there be no inscription, the ownership shall pertain to the person who in good faith was
first in possession; and, in the absence thereof, to the person who presents the oldest title,
provided there is good faith.
The provision is not applicable in the present case. It contemplates a case of double or multiple
sales by a single vendor. More specifically, it covers a situation where a single vendor sold one
42
and the same immovable property to two or more buyers. According to a noted civil law author,
it is necessary that the conveyance must have been made by a party who has an existing right in
43
the thing and the power to dispose of it. It cannot be invoked where the two different contracts
of sale are made by two different persons, one of them not being the owner of the property
44
sold. And even if the sale was made by the same person, if the second sale was made when
such person was no longer the owner of the property, because it had been acquired by the first
45
purchaser in full dominion, the second purchaser cannot acquire any right.
In the case at bar, the subject property was not transferred to several purchasers by a single
vendor. In the first deed of sale, the vendors were Gamiao and Dayag whose right to the subject
property originated from their acquisition thereof from Rizal Madrid with the conformity of all the
other Madrid brothers in 1957, followed by their declaration of the property in its entirety for
taxation purposes in their names. On the other hand, the vendors in the other or later deed were
the Madrid brothers but at that time they were no longer the owners since they had long before
disposed of the property in favor of Gamiao and Dayag.
Citing Manresa, the Court of Appeals in 1936 had occasion to explain the proper application of
Article 1473 of the Old Civil Code (now Article 1544 of the New Civil Code) in the case of Carpio
46
v. Exevea, thus:
In order that tradition may be considered performed, it is necessary that the requisites which it
implies must have been fulfilled, and one of the indispensable requisites, according to the most
exact Roman concept, is that the conveyor had the right and the will to convey the thing. The
intention to transfer is not sufficient; it only constitutes the will. It is, furthermore, necessary that
the conveyor could juridically perform that act; that he had the right to do so, since a right which
he did not possess could not be vested by him in the transferee.
This is what Article 1473 has failed to express: the necessity for the preexistence of the right on
the part of the conveyor. But even if the article does not express it, it would be understood, in our
opinion, that that circumstance constitutes one of the assumptions upon which the article is
based.
This construction is not repugnant to the text of Article 1473, and not only is it not contrary to it,
47
but it explains and justifies the same. (Vol. 10, 4th ed., p. 159)
In that case, the property was transferred to the first purchaser in 1908 by its original owner,
Juan Millante. Thereafter, it was sold to plaintiff Carpio in June 1929. Both conveyances were
unregistered. On the same date that the property was sold to the plaintiff, Juan Millante sold the
same to defendant Exevea. This time, the sale was registered in the Registry of Deeds. But
despite the fact of registration in defendant’s favor, the Court of Appeals found for the plaintiff
and refused to apply the provisions of Art. 1473 of the Old Civil Code, reasoning that "on the
date of the execution of the document, Exhibit 1, Juan Millante did not and could not have any
48
right whatsoever to the parcel of land in question."
Citing a portion of a judgment dated 24 November 1894 of the Supreme Court of Spain, the
Court of Appeals elucidated further:
Article 1473 of the Civil Code presupposes the right of the vendor to dispose of the thing sold,
and does not limit or alter in this respect the provisions of the Mortgage Law in force, which
upholds the principle that registration does not validate acts or contracts which are void, and that
although acts and contracts executed by persons who, in the Registry, appear to be entitled to
do so are not invalidated once recorded, even if afterwards the right of such vendor is annulled
49
or resolved by virtue of a previous unrecorded title, nevertheless this refers only to third parties.
In a situation where not all the requisites are present which would warrant the application of Art.
1544, the principle of prior tempore, potior jure or simply "he who is first in time is preferred in
50 51
right," should apply. The only essential requisite of this rule is priority in time; in other words,
the only one who can invoke this is the first vendee. Undisputedly, he is a purchaser in good
faith because at the time he bought the real property, there was still no sale to a second
52
vendee. In the instant case, the sale to the Heirs by Gamiao and Dayag, who first bought it
from Rizal Madrid, was anterior to the sale by the Madrid brothers to Marquez. The Heirs also
had possessed the subject property first in time. Thus, applying the principle, the Heirs, without a
scintilla of doubt, have a superior right to the subject property.
In the instant case, the actions of Marquez have not satisfied the requirement of good faith from
the time of the purchase of the subject property to the time of registration. Found by the Court of
Appeals, Marquez knew at the time of the sale that the subject property was being claimed or
"taken" by the Heirs. This was a detail which could indicate a defect in the vendor’s title which he
failed to inquire into. Marquez also admitted that he did not take possession of the property and
at the time he testified he did not even know who was in possession. Thus, he testified on direct
examination in the RTC as follows:
ATTY. CALIXTO –
Q Can you tell us the circumstances to your buying the land in question?
A In 1976 the Madrid brothers confessed to me their problems about their lots in San
Mateo that they were being taken by Teodoro dela Cruz and Atty. Teofilo A. Leonin;
that they have to pay the lawyer’s fee of ₱10,000.00 otherwise Atty. Leonin will
confiscate the land. So they begged me to buy their properties, some of it. So that on
June 3, 1976, they came to Cabagan where I was and gave them ₱14,000.00, I think.
We have talked that they will execute the deed of sale.
Q Why is it, doctor, that you have already this deed of sale, Exh. 14, why did you find
it necessary to have this Deed of Confirmation of a Prior Sale, Exh. 15?

Moreover, it is an established principle that no one can give what one does not have¾nemo dat
quod non habet. Accordingly, one can sell only what one owns or is authorized to sell, and the
53
buyer can acquire no more than what the seller can transfer legally. In this case, since the
A Because as I said a while ago that the first deed of sale was submitted to the
Register of Deeds by Romeo Badua so that I said that because when I became a
Municipal Health Officer in San Mateo, Isabela, I heard so many rumors, so many
things about the land and so I requested them to execute a deed of confirmation.
56

Madrid brothers were no longer the owners of the subject property at the time of the sale to
Marquez, the latter did not acquire any right to it.
...

In any event, assuming arguendo that Article 1544 applies to the present case, the claim of
Marquez still cannot prevail over the right of the Heirs since according to the evidence he was ATTY. CALIXTO-
not a purchaser and registrant in good faith.
Q At present, who is in possession on the Riceland portion of the lot in question?
Following Article 1544, in the double sale of an immovable, the rules of preference are:
A I can not say because the people working on that are changing from time to time.
(a) the first registrant in good faith;
Q Why, have you not taken over the cultivation of the land in question?
(b) should there be no entry, the first in possession in good faith; and
A Well, the Dela Cruzes are prohibiting that we will occupy the place.
54
(c) in the absence thereof, the buyer who presents the oldest title in good faith.
Q So, you do not have any possession?
Prior registration of the subject property does not by itself confer ownership or a better right over
57
the property. Article 1544 requires that before the second buyer can obtain priority over the first, A None, sir.
he must show that he acted in good faith throughout (i.e., in ignorance of the first sale and of the
first buyer’s rights)¾from the time of acquisition until the title is transferred to him by registration One who purchases real property which is in actual possession of others should, at least, make
55
or failing registration, by delivery of possession. some inquiry concerning the rights of those in possession. The actual possession by people
other than the vendor should, at least, put the purchaser upon inquiry. He can scarcely, in the
absence of such inquiry, be regarded as a bona fidepurchaser as against such
58
possessions. The rule of caveat emptor requires the purchaser to be aware of the supposed
title of the vendor and one who buys without checking the vendor’s title takes all the risks and
59
losses consequent to such failure.
It is further perplexing that Marquez did not fight for the possession of the property if it were true
that he had a better right to it. In our opinion, there were circumstances at the time of the sale,
and even at the time of registration, which would reasonably require a purchaser of real property
to investigate to determine whether defects existed in his vendor’s title. Instead, Marquez willfully
closed his eyes to the possibility of the existence of these flaws. For failure to exercise the
measure of precaution which may be required of a prudent man in a like situation, he cannot be
60
called a purchaser in good faith.
61
As this Court explained in the case of Spouses Mathay v. Court of Appeals:
Although it is a recognized principle that a person dealing on a registered land need not go
beyond its certificate of title, it is also a firmly settled rule that where there are circumstances
which would put a party on guard and prompt him to investigate or inspect the property being
sold to him, such as the presence of occupants/tenants thereon, it is, of course, expected from
the purchaser of a valued piece of land to inquire first into the status or nature of possession of
the occupants, i.e., whether or not the occupants possess the land en concepto de dueño, in
concept of owner. As is the common practice in the real estate industry, an ocular inspection of
the premises involved is a safeguard a cautious and prudent purchaser usually takes. Should he
find out that the land he intends to buy is occupied by anybody else other than the seller who, as
in this case, is not in actual possession, it would then be incumbent upon the purchaser to verify
the extent of the occupant’s possessory rights. The failure of a prospective buyer to take such
precautionary steps would mean negligence on his part and would thereby preclude him from
62
claiming or invoking the rights of a "purchaser in good faith."
This rule equally applies to mortgagees of real property. In the case of Crisostomo v. Court of
63
Appeals, the Court held:
It is a well-settled rule that a purchaser or mortgagee cannot close his eyes to facts which should
put a reasonable man upon his guard, and then claim that he acted in good faith under the belief
that there was no defect in the title of the vendor or mortgagor. His mere refusal to believe that
such defect exists, or his willful closing of his eyes to the possibility of the existence of a defect
in the vendor’s or mortgagor’s title, will not make him an innocent purchaser or mortgagee for
value, if it afterwards develops that the title was in fact defective, and it appears that he had such
notice of the defects as would have led to its discovery had he acted with the measure of a
64
prudent man in a like situation.
Banks, their business being impressed with public interest, are expected to exercise more care
and prudence than private individuals in their dealings, even those involving registered lands.
Hence, for merely relying on the certificates of title and for its failure to ascertain the status of the
mortgaged properties as is the standard procedure in its operations, we agree with the Court of
Appeals that CRB is a mortgagee in bad faith.
In this connection, Marquez’s obstention of title to the property and the subsequent transfer
thereof to CRB cannot help the latter’s cause. In a situation where a party has actual knowledge
of the claimant’s actual, open and notorious possession of the disputed property at the time of
registration, as in this case, the actual notice and knowledge are equivalent to registration,
because to hold otherwise would be to tolerate fraud and the Torrens system cannot be used to
65
shield fraud.
While certificates of title are indefeasible, unassailable and binding against the whole world, they
merely confirm or record title already existing and vested. They cannot be used to protect a
usurper from the true owner, nor can they be used for the perpetration of fraud; neither do they
66
permit one to enrich himself at the expense of others.
We also find that the Court of Appeals did not err in awarding the subject property to the Heirs
absent proof of good faith in their possession of the subject property and without any showing of
possession thereof by Gamiao and Dayag.
67
As correctly argued by the Heirs in their Comment, the requirement of good faith in the
68
possession of the property finds no application in cases where there is no second sale. In the
case at bar, Teodoro dela Cruz took possession of the property in 1964 long before the sale to
Marquez transpired in 1976 and a considerable length of time—eighteen (18) years in
fact¾before the Heirs had knowledge of the registration of said sale in 1982. As Article 526 of
the Civil Code aptly provides, "(H)e is deemed a possessor in good faith who is not aware that
there exists in his title or mode of acquisition any flaw which invalidates it." Thus, there was no
need for the appellate court to consider the issue of good faith or bad faith with regard to
Teodoro dela Cruz’s possession of the subject property.
Likewise, we are of the opinion that it is not necessary that there should be any finding of
possession by Gamiao and Dayag of the subject property. It should be recalled that the
69
regularity of the sale to Gamiao and Dayag was never contested by Marquez. In fact the RTC
upheld the validity of this sale, holding that the Madrid brothers are bound by the sale by virtue
of their confirmation thereof in the Joint Affidavit dated 14 August 1957. That this was executed
a day ahead of the actual sale on 15 August 1957 does not diminish its integrity as it was made
before there was even any shadow of controversy regarding the ownership of the subject
property.
Moreover, as this Court declared in the case of Heirs of Simplicio Santiago v. Heirs of Mariano
70
E. Santiago , tax declarations "are good indicia of possession in the concept of an owner, for
no one in his right mind would be paying taxes for a property that is not in his actual or
71
constructive possession."
WHEREFORE, the Petition is DENIED. The dispositive portion of the Court of Appeals’
Decision, as modified by its Resolution dated 5 January 1998, is AFFIRMED. Costs against
petitioner.
SO ORDERED.
G.R. No. 169234 October 2, 2013
CAMP JOHN HAY DEVELOPMENT CORPORATION, Petitioner,
vs.
CENTRAL BOARD OF ASSESSMENT APPEALS, REPRESENTED BY ITS CHAIRMAN HON.
CESAR S. GUTIERREZ, ADELINA A. TABANGIN, IN HER CAPACITY AS CHAIRMAN OF
THE BOARD OF TAX (ASSESSMENT) APPEALS OF BAGUIO CITY, AND HON. ESTRELLA
B. TANO, IN HER CAPACITY AS THE CITY ASSESSOR OF THE CITY OF
BAGUIO, Respondents.
DECISION
PEREZ, J.:
A claim for tax exemption, whether full or partial, does not deal with the authority of local
assessor to assess real property tax. Such claim questions the correctness of the assessment
and compliance with the Q applicable provisions of Republic Act (RA) No. 7160 or the Local
Government Code (LGC) of 1991, particularly as to requirement of payment under protest, is
mandatory.
Before the Court is a Petition for Review on Certiorari seeking tore verse and set aside the 27
1
July 2005 Decision of the Court of Tax Appeals(CTA) En Banc in C.T.A. E.B. No. 48 which
affirmed the Resolutions dated 23 May 2003 and 8 September 2004 issued by the Central Board
of Assessment Appeals (CBAA) in CBAA Case No. L-37 remanding the case to the Local Board
of Assessment Appeals (LBAA) of Baguio City for further proceedings.
The facts
The factual antecedents of the case as found by the CTA En Banc areas follows:
In a letter dated 21 March 2002, respondent City Assessor of Baguio City notified petitioner
Camp John Hay Development Corporation about the issuance against it of thirty-six (36)
Owner’s Copy of Assessment of Real Property (ARP), with ARP Nos. 01-07040-008887 to 01-
07040-008922covering various buildings of petitioner and two (2) parcels of land owned by the
Bases Conversion Development Authority (BCDA) in the John Hay Special Economic Zone
(JHSEZ), Baguio City, which were leased out to petitioner.
In response, petitioner questioned the assessments in a letter dated 3April 2002 for lack of legal
basis due to the City Assessor’s failure to identify the specific properties and its corresponding
assessed values. The City Assessor replied in a letter dated 11 April 2002 that the subject ARPs
(with an additional ARP on another building bringing the total number of ARPs to thirty-seven
[37]) against the buildings of petitioner located within the JHSEZ were issued on the basis of the
approved building permits obtained from the City Engineer’s Office of Baguio City and pursuant
to Sections 201 to 206 of RA No. 7160 or the LGC of 1991.
Consequently, on 23 May 2002, petitioner filed with the Board of Tax Assessment Appeals
2
(BTAA) of Baguio City an appeal under Section 226 of the LGC of 1991 challenging the validity
and propriety of the issuances of the City Assessor. The appeal was docketed as Tax Appeal
Case No. 2002-003. Petitioner claimed that there was no legal basis for the issuance of the
assessments because it was allegedly exempted from paying taxes, national and local, including
real property taxes, pursuant to RA No. 7227, otherwise known as the Bases Conversion and
3
Development Act of 1992.
The Ruling of the BTAA
4 5
In a Resolution dated 12 July 2002, the BTAA cited Section 7, Rule V of the Rules of
Procedure Before the LBAA, and enjoined petitioner to first comply therewith, particularly as to
the payment under protest of the subject real property taxes before the hearing of its appeal.
Subsequently, the BTAA dismissed petitioner’s Motion for Reconsideration in the 20 September
6
2002 Resolution for lack of merit.
Aggrieved, petitioner elevated the case before the CBAA through a Memorandum on Appeal
docketed as CBAA Case No. L-37.
The Ruling of the CBAA
7
The CBAA denied petitioner’s appeal in a Resolution dated 23 May 2003, set aside the BTAA’s
order of deferment of hearing, and remanded the case to the LBAA of Baguio City for further
proceedings subject to a full and up-to-date payment of the realty taxes on subject properties as
assessed by the respondent City Assessor of Baguio City, either in cash or in bond.
8
Citing various cases it previously decided, the CBAA explained that the deferment of hearings
by the LBAA was merely in compliance with the mandate of the law. The governing provision in
this case is Section 231, not Section 226, of RA No. 7160 which provides that "appeal on
assessments of real property made under the provisions of this Code shall, in no case, suspend
the collection of the corresponding realty taxes on the property involved as assessed by the
provincial or city assessor, without prejudice to subsequent adjustment depending upon the final
outcome of the appeal." In addition, as to the issue raised pertaining to the propriety of the
subject assessments issued against petitioner, allegedly claimed to be a tax-exemptentity, the
CBAA expressed that it has yet to acquire jurisdiction over it since the same has not been
resolved by the LBAA.
On 8 September 2004, the CBAA denied petitioner’s Motion for Reconsideration for lack of
9
merit.
Undaunted by the pronouncements in the abovementioned Resolutions, petitioner appealed to
the CTA En Banc by filing a Petition for Review under Section 11 of RA No. 1125, as amended
by Section 9 of RA No. 9282, on 24 November 2004, docketed as C.T.A. EB No. 48, and raised
the following issues for its consideration: (1) whether or not respondent City Assessor of the City
of Baguio has legal basis to issue against petitioner the subject assessments with serial nos. 01-
07040-008887 to 01-07040-008922for real property taxation of the buildings of the petitioner, a
tax-exemptentity, or land owned by the BCDA under lease to the petitioner; and (2)whether or
not the CBAA, in its Resolutions dated 23 May 2003 and 8September 2004, has legal basis to
order the remand of the case to the LBAA of Baguio City for further proceedings subject to a full
and up-to- date payment, in cash or bond, of the realty taxes on the subject properties as
10
assessed by the City Assessor of the City of Baguio.
The Ruling of the CTA En Banc
11
In the assailed Decision dated 27 July 2005, the CTA En Banc found that petitioner has indeed
failed to comply with Section 252 of RA No. 7160or the LGC of 1991. Hence, it dismissed the
petition and affirmed the subject Resolutions of the CBAA which remanded the case to the LBAA
for further proceedings subject to compliance with said Section, in relation to Section 7, Rule V
of the Rules of Procedure before the LBAA.
Moreover, adopting the CBAA’s position, the court a quo ruled that it could not resolve the issue
on whether petitioner is liable to pay real property tax or whether it is indeed a tax-exempt entity
considering that the LBAA has not decided the case on the merits. To do otherwise would not
only be procedurally wrong but legally wrong. It therefore concluded that before a protest may be
entertained, the tax should have been paid first without prejudice to subsequent adjustment
depending upon the final outcome of the appeal and that the tax or portion thereof paid under
protest, shall be held in trust by the treasurer concerned.
Consequently, this Petition for Review wherein petitioner on the ground of lack of legal basis
seeks to set aside the 27 July 2005 Decision, and to nullify the assessments of real property tax
12
issued against it by respondent City Assessor of Baguio City.
The Issue
The Issue before the Court is whether or not respondent CTA En Banc erred in dismissing for
lack of merit the petition in C.T.A. EB No. 48, and accordingly affirmed the order of the CBAA to
remand the case to the LBAA of Baguio City for further proceedings subject to a full and up-to-
date payment of realty taxes, either in cash or in bond, on the subject properties assessed by
the City Assessor of Baguio City.
In support of the present petition, petitioner posits the following grounds: (a) Section 225 (should
be Section 252) of RA No. 7160 or the LGC of 1991 does not apply when the person assessed
is a tax-exemptentity; and (b) Under the doctrine of operative fact, petitioner is not liable for the
13
payment of the real property taxes subject of this petition.
Our Ruling
The Court finds the petition unmeritorious and therefore rules against petitioner.
14
Section 252 of RA No. 7160, also known as the LGC of 1991 , categorically provides:
SEC. 252. Payment Under Protest. – (a) No protest shall be entertained unless the taxpayer first
pays the tax. There shall be annotated on the tax receipts the words "paid under protest." The
protest in writing must be filed within thirty (30) days from payment of the tax to the provincial,
city treasurer or municipal treasurer, in the case of a municipality within Metropolitan Manila
Area, who shall decide the protest within sixty (60) days from receipt.
(b) The tax or a portion thereof paid under protest, shall beheld in trust by the
treasurer concerned.
(c) In the event that the protest is finally decided in favor of the taxpayer, the amount
or portion of the tax protested shall be refunded to the protestant, or applied as tax
credit against his existing or future tax liability.
(d) In the event that the protest is denied or upon the lapse of the sixty-day period
prescribed in subparagraph (a), the tax payer may avail of the remedies as provided
for in Chapter 3, Title Two, Book II of this Code. (Emphasis and underlining supplied)
Relevant thereto, the remedies referred to under Chapter 3, Title Two, Book II of RA No. 7160 or
the LGC of 1991 are those provided for under Sections 226 to 231. Significant provisions
pertaining to the procedural and substantive aspects of appeal before the LBAA and CBAA,
including its effect on the payment of real property taxes, follow:
SEC. 226. Local Board of Assessment Appeals. – Any owner or person having legal interest in
the property who is not satisfied with the action of the provincial, city or municipal assessor in the
assessment of his property may, within sixty (60) days from the date of receipt of the written
notice of assessment, appeal to the Board of Assessment Appeals of the province or city by
filing a petition under oath in the form prescribed for the purpose, together with copies of the tax
declarations and such affidavits or documents submitted in support of the appeal.
SEC. 229. Action by the Local Board of Assessment Appeals. – (a)The Board shall decide the
appeal within one hundred twenty (120) days from the date of receipt of such appeal. The Board,
after hearing, shall render its decision based on substantial evidence or such relevant evidence
on record as a reasonable mind might accept as adequate to support the conclusion.
(b) In the exercise of its appellate jurisdiction, the Board shall have the powers to
summon witnesses, administer oaths, conduct ocular inspection, take depositions, and
issue subpoena and subpoena duces tecum. The proceedings of the Board shall be
conducted solely for the purpose of ascertaining the facts without necessarily adhering
to technical rules applicable in judicial proceedings.
(c) The secretary of the Board shall furnish the owner of the property or the person
having legal interest therein and the provincial or city assessor with a copy of the
decision of the Board. In case the provincial or city assessor concurs in the revision or
the assessment, it shall be his duty to notify the owner of the property or the person
having legal interest therein of such fact using the form prescribed for the purpose.
The owner of the property or the person having legal interest therein or the assessor
who is not satisfied with the decision of the Board may, within thirty (30) days after
receipt of the decision of said Board, appeal to the Central Board of Assessment
Appeals, as here in provided. The decision of the Central Board shall be final and
executory.
SEC. 231. Effect of Appeal on the Payment of Real Property Tax. – Appeal on assessments of
real property made under the provisions of this Code shall, in no case, suspend the collection of
the corresponding realty taxes on the property involved as assessed by the provincial or city
assessor, without prejudice to subsequent adjustment depending upon the final outcome of the
appeal. (Emphasis supplied)
The above-quoted provisions of RA No. 7160 or the LGC of 1991,clearly sets forth the
administrative remedies available to a taxpayer or real property owner who does not agree with
the assessment of the real property tax sought to be collected.
The language of the law is clear. No interpretation is needed. The elementary rule in statutory
construction is that if a statute is clear, plain and free from ambiguity, it must be given its literal
meaning and applied without attempted interpretation. Verba legis non est recedendum. From
15
the words of a statute there should be no departure.
To begin with, Section 252 emphatically directs that the taxpayer/real property owner
questioning the assessment should first pay the tax due before his protest can be entertained.
As a matter of fact, the words "paid under protest" shall be annotated on the tax receipts.
Consequently, only after such payment has been made by the taxpayer may he file a protest in
writing (within thirty (30) days from said payment of tax) to the provincial, city, or municipal
treasurer, who shall decide the protest within sixty (60)days from its receipt. In no case is the
local treasurer obliged to entertain the protest unless the tax due has been paid.
Secondly, within the period prescribed by law, any owner or person having legal interest in the
property not satisfied with the action of the provincial, city, or municipal assessor in the
assessment of his property may file an appeal with the LBAA of the province or city concerned,
as provided in Section 226 of RA No. 7160 or the LGC of 1991. Thereafter, within thirty (30)
days from receipt, he may elevate, by filing a notice of appeal, the adverse decision of the LBAA
with the CBAA, which exercises exclusive jurisdiction to hear and decide all appeals from the
decisions, orders, and resolutions of the Local Boards involving contested assessments of real
properties, claims for tax refund and/or tax credits, or overpayments of taxes.
16
17
Significantly, in Dr. Olivares v. Mayor Marquez, this Court had the occasion to extensively
discuss the subject provisions of RA No. 7160 or the LGC of 1991, in relation to the impropriety
of the direct recourse before the courts on issue of the correctness of assessment of real estate
taxes. The pertinent articulations follow:
x x x A perusal of the petition before the RTC plainly shows that what is actually being assailed
is the correctness of the assessments made by the local assessor of Parañaque on petitioners’
properties. The allegations in the said petition purportedly questioning the assessor’s authority to
assess and collect the taxes were obviously made in order to justify the filing of the petition with
the RTC. In fact, there is nothing in the said petition that supports their claim regarding the
assessor’s alleged lack of authority. What petitioners raise are the following:
(1) some of the taxes being collected have already prescribed and may no longer be
collected as provided in Section 194 of the Local Government Code of 1991; (2) some
properties have been doubly taxed/assessed; (3) some properties being taxed are no
longer existent;
(4)some properties are exempt from taxation as they are being used exclusively for
educational purposes; and (5) some errors are made in the assessment and collection
of taxes due on petitioners’ properties, and that respondents committed grave abuse
of discretion in making the "improper, excessive and unlawful the collection of taxes
against the petitioners."
Moreover, these arguments essentially involve questions of fact. Hence, the petition should have
been brought, at the very first instance, to the LBAA.
Under the doctrine of primacy of administrative remedies, an error in the assessment must be
administratively pursued to the exclusion of ordinary courts whose decisions would be void for
lack of jurisdiction. But an appeal shall not suspend the collection of the tax assessed without
prejudice to a later adjustment pending the outcome of the appeal.
Even assuming that the assessor’s authority is indeed an issue, it must be pointed out that in
order for the court a quo to resolve the petition, the issues of the correctness of the tax
assessment and collection must also necessarily be dealt with.
xxxx
In the present case, the authority of the assessor is not being questioned. Despite petitioners’
protestations, the petition filed before the court a quo primarily involves the correctness of the
assessments, which are questions of fact, that are not allowed in a petition for certiorari,
prohibition and mandamus. The court a quo is therefore precluded from entertaining the petition,
18
and it appropriately dismissed the petition. (Emphasis and underlining supplied)
By analogy, the rationale of the mandatory compliance with the requirement of "payment under
19
protest" similarly provided under Section 64of the Real Property Tax Code (RPTC) was earlier
20
emphasized in Meralcov. Barlis, wherein the Court held:
We find the petitioner’s arguments to be without merit. The trial court has no jurisdiction to
entertain a Petition for Prohibition absent petitioner’s payment under protest, of the tax assessed
as required by Sec.64 of the RPTC. Payment of the tax assessed under protest, is a condition
sine qua non before the trial court could assume jurisdiction over the petition and failure to do
so, the RTC has no jurisdiction to entertain it.
The restriction upon the power of courts to impeach tax assessment without a prior payment,
under protest, of the taxes assessed is consistent with the doctrine that taxes are the lifeblood of
the nation and as such their collection cannot be curtailed by injunction or any like action;
otherwise, the state or, in this case, the local government unit, shall be crippled in dispensing the
needed services to the people, and its machinery gravely disabled.
xxxx
There is no merit in petitioner’s argument that the trial court could take cognizance of the petition
as it only questions the validity of the issuance of the warrants of garnishment on its bank
deposits and not the tax assessment. Petitioner MERALCO in filing the Petition for Prohibition
before the RTC was in truth assailing the validity of the tax assessment and collection. To
resolve the petition, it would not only be the question of validity of the warrants of garnishments
that would have to be tackled, but in addition the issues of tax assessment and collection would
necessarily have to be dealt with too. As the warrants of garnishment were issued to collect back
taxes from petitioner, the petition for prohibition would be for no other reason than to forestall the
collection of back taxes on the basis of tax assessment arguments. This, petitioner cannot do
without first resorting to the proper administrative remedies, or as previously discussed, by
paying under protest the tax assessed, to allow the court to assume jurisdiction over the petition.
xxxx
It cannot be gainsaid that petitioner should have addressed its arguments to respondent at the
first opportunity - upon receipt of the3 September 1986 notices of assessment signed by
Municipal Treasurer Norberto A. San Mateo. Thereafter, it should have availed of the proper
administrative remedies in protesting an erroneous tax assessment, i.e., to question the
correctness of the assessments before the Local Board of Assessment Appeals (LBAA), and
later, invoke the appellate jurisdiction of the Central Board of Assessment Appeals(CBAA).
Under the doctrine of primacy of administrative remedies, an error in the assessment must be
administratively pursued to the exclusion of ordinary courts whose decisions would be void for
lack of jurisdiction. But an appeal shall not suspend the collection of the tax assessed without
prejudice to a later adjustment pending the outcome of the appeal. The failure to appeal within
the statutory period shall render the assessment final and unappealable.
Petitioner having failed to exhaust the administrative remedies available to it, the assessment
attained finality and collection would be in order. (Emphasis and underscoring supplied)
From the foregoing jurisprudential pronouncements, it is clear that the requirement of "payment
under protest" is a condition sine qua non before a protest or an appeal questioning the
correctness of an assessment of real property tax may be entertained.
Moreover, a claim for exemption from payment of real property taxes does not actually question
the assessor’s authority to assess and collect such taxes, but pertains to the reasonableness or
correctness of the assessment by the local assessor, a question of fact which should be
resolved, at the very first instance, by the LBAA. This may be inferred from Section 206 of RA
No. 7160 or the LGC of 1991which states that:
SEC. 206. Proof of Exemption of Real Property from Taxation. – Every person by or for whom
real property is declared, who shall claim tax exemption for such property under this Title shall
file with the provincial, city or municipal assessor within thirty (30) days from the date of the
declaration of real property sufficient documentary evidence in support of such claim including
corporate charters, title of ownership, articles of incorporation, bylaws, contracts, affidavits,
certifications and mortgage deeds, and similar documents.
If the required evidence is not submitted within the period herein prescribed, the property shall
be listed as taxable in the assessment roll. However, if the property shall be proven to be tax
exempt, the same shall be dropped from the assessment roll. (Emphasis supplied)
In other words, by providing that real property not declared and proved as tax-exempt shall be
included in the assessment roll, the above-quoted provision implies that the local assessor has
the authority to assess the property for realty taxes, and any subsequent claim for exemption
21
shall be allowed only when sufficient proof has been adduced supporting the claim.
Therefore, if the property being taxed has not been dropped from the assessment roll, taxes
must be paid under protest if the exemption from taxation is insisted upon.
In the case at bench, records reveal that when petitioner received the letter dated 21 March
2002 issued by respondent City Assessor, including copies of ARPs (with ARP Nos. 01-07040-
008887 to 01-07040-008922) attached thereto, it filed its protest through a letter dated 3 April
2002seeking clarification as to the legal basis of said assessments, without payment of the
assessed real property taxes. Afterwards, respondent City Assessor replied thereto in a letter
dated 11 April 2002 which explained the legal basis of the subject assessments and even
included an additional ARP against another real property of petitioner. Subsequently, petitioner
then filed before the BTAA its appeal questioning the validity and propriety of the subject ARPs.
Clearly from the foregoing factual backdrop, petitioner considered the11 April 2002 letter as the
"action" referred to in Section 226 which speaks of the local assessor’s act of denying the
protest filed pursuant to Section252. However, applying the above-cited jurisprudence in the
present case, it is evident that petitioner’s failure to comply with the mandatory requirement of
payment under protest in accordance with Section 252 of the LGC of 1991 was fatal to its
appeal. Notwithstanding such failure to comply therewith, the BTAA elected not to immediately
dismiss the case but instead took cognizance of petitioner’s appeal subject to the condition that
payment of the real property tax should first be made before proceeding with the hearing of its
appeal, as provided for under Section 7, Rule V of the Rules of Procedure Before the LBAA.
Hence, the BTAA simply recognized the importance of the requirement of "payment under
protest" before an appeal may be entertained, pursuant to Section 252, and in relation with
Section231 of the same Code as to non-suspension of collection of the realty tax pending
appeal.
Notably, in its feeble attempt to justify non-compliance with the provision of Section 252,
petitioner contends that the requirement of paying the tax under protest is not applicable when
the person being assessed is a tax-exempt entity, and thus could not be deemed a "taxpayer"
within the meaning of the law. In support thereto, petitioner alleges that it is exempted from
paying taxes, including real property taxes, since it is entitled to the tax incentives and
exemptions under the provisions of RA No. 7227 and Presidential Proclamation No. 420, Series
22 23
of 1994, as stated in and confirmed by the lease agreement it entered into with the BCDA.
This Court is not persuaded.
First, Section 206 of RA No. 7160 or the LGC of 1991, as quoted earlier, categorically provides
that every person by or for whom real property is declared, who shall claim exemption from
payment of real property taxes imposed against said property, shall file with the provincial, city or
municipal assessor sufficient documentary evidence in support of such claim. Clearly, the
burden of proving exemption from local taxation is upon whom the subject real property is
declared; thus, said person shall be considered by law as the taxpayer thereof. Failure to do so,
said property shall be listed as taxable in the assessment roll.
In the present case, records show that respondent City Assessor of Baguio City notified
24 25
petitioner, in the letters dated 21 March 2002 and 11April 2002, about the subject ARPs
covering various buildings owned by petitioner and parcels of land (leased out to petitioner) all
located within the JHSEZ, Baguio City. The subject letters expressed that the assessments were
based on the approved building permits obtained from the City Engineer’s Office of Baguio City
and pursuant to Sections 201 to 206 of RA No. 7160 or the LGC of 1991 which pertains to whom
the subject real properties were declared.
Noticeably, these factual allegations were neither contested nor denied by petitioner. As a matter
of fact, it expressly admitted ownership of the various buildings subject of the assessment and
thereafter focused on the argument of its exemption under RA No. 7227. But petitioner did not
present any documentary evidence to establish that the subject properties being tax exempt
have already been dropped from the assessment roll, in accordance with Section 206.
Consequently, the City Assessor acted in accordance with her mandate and in the regular
performance of her official function when the subject ARPs were issued against petitioner
herein, being the owner of the buildings, and therefore considered as the person with the
obligation to shoulder tax liability thereof, if any, as contemplated by law.
It is an accepted principle in taxation that taxes are paid by the person obliged to declare the
same for taxation purposes. As discussed above, the duty to declare the true value of real
property for taxation purposes is imposed upon the owner, or administrator, or their duly
authorized representatives. They are thus considered the taxpayers. Hence, when these
persons fail or refuse to make a declaration of the true value of their real property within the
prescribed period, the provincial or city assessor shall declare the property in the name of the
defaulting owner and assess the property for taxation. In this wise, the taxpayer assumes the
character of a defaulting owner, or defaulting administrator, or defaulting authorized
representative, liable to pay back taxes. For that reason, since petitioner herein is the declared
owner of the subject buildings being assessed for real property tax, it is therefore presumed to
be the person with the obligation to shoulder the burden of paying the subject tax in the present
case; and accordingly, in questioning the reasonableness or correctness of the assessment of
real property tax, petitioner is mandated by law to comply with the requirement of payment under
protest of the tax assessed, particularly Section 252 of RA No. 7160 or the LGC of 1991.
Time and again, the Supreme Court has stated that taxation is the rule and exemption is the
exception. The law does not look with favor on tax exemptions and the entity that would seek to
be thus privileged must justify it by words too plain to be mistaken and too categorical to be
26
misinterpreted. Thus applying the rule of strict construction of laws granting tax exemptions,
and the rule that doubts should be resolved in favor of provincial corporations, this Court holds
that petitioner is considered a taxable entity in this case.
Second, considering that petitioner is deemed a taxpayer within the meaning of law, the issue on
whether or not it is entitled to exemption from paying taxes, national and local, including real
property taxes, is a matter which would be better resolved, at the very instance, before the
LBAA, for the following grounds: (a) petitioner’s reliance on its entitlement for exemption under
the provisions of RA No. 7227 and Presidential Proclamation No. 420, was allegedly confirmed
27
by Section 18, Article XVI of the Lease Agreement dated 19 October 1996 it entered with the
BCDA. However, it appears from the records that said Lease Agreement has yet to be presented
nor formally offered before any administrative or judicial body for scrutiny; (b) the subject
provision of the Lease Agreement declared a condition that in order to be allegedly exempted
from the payment of taxes, petitioner should have first paid and remitted 5% of the gross income
earned by it within ninety (90) days from the close of the calendar year through the JPDC.
Unfortunately, petitioner has neither established nor presented any evidence to show that it has
indeed paid and remitted 5% of said gross income tax; (c) the right to appeal is a privilege of
statutory origin, meaning a right granted only by the law, and not a constitutional right, natural or
inherent. Therefore, it follows that petitioner may avail of such opportunity only upon strict
compliance with the procedures and rules prescribed by the law itself, i.e. RA No. 7160 or the
LGC of 1991; and (d) at any rate, petitioner’s position of exemption is weakened by its own
admission and recognition of this Court’s previous ruling that the tax incentives granted in RA
No. 7227 are exclusive only to the Subic Special Economic and Free Port Zone; and thus, the
extension of the same to the JHSEZ (as provided in the second sentence of Section 3 of
28
Presidential Proclamation No. 420) finds no support therein and therefore declared null and
29
void and of no legal force and effect. Hence, petitioner needs more than mere arguments
and/or allegations contained in its pleadings to establish and prove its exemption, making prior
proceedings before the LBAA a necessity.
With the above-enumerated reasons, it is obvious that in order for a complete determination of
petitioner’s alleged exemption from payment of real property tax under RA No. 7160 or the LGC
of 1991, there are factual issues needed to be confirmed. Hence, being a question of fact,
petitioner cannot do without first resorting to the proper administrative remedies, or as previously
discussed, by paying under protest the tax assessed in compliance with Section 252 thereof.
Accordingly, the CBAA and the CTA En Banc correctly ruled that real property taxes should first
be paid before any protest thereon may be considered. It is without a doubt that such
requirement of "payment under protest" is a condition sine qua non before an appeal may be
entertained. Thus, remanding the case to the LBAA for further proceedings subject to a full and
up-to-date payment, either in cash or surety, of realty tax on the subject properties was proper.
To reiterate, the restriction upon the power of courts to impeach tax assessment without a prior
payment, under protest, of the taxes assessed is consistent with the doctrine that taxes are the
lifeblood of the nation and as such their collection cannot be curtailed by injunction or any like
action; otherwise, the state or, in this case, the local government unit, shall be crippled in
30
dispensing the needed services to the people, and its machinery gravely disabled. The right of
local government units to collect taxes due must always be upheld to avoid severe erosion. This
consideration is consistent with the State policy to guarantee the autonomy of local governments
and the objective of RA No. 7160 or the LGC of 1991 that they enjoy genuine and meaningful
local autonomy to empower them to achieve their fullest development as self-reliant
31
communities and make them effective partners in the attainment of national goals.
All told, We go back to what was at the outset stated, that is, that a claim for tax exemption,
whether full or partial, does not question the authority of local assessor to assess real property
tax, but merely raises a question of the reasonableness or correctness of such assessment,
which requires compliance with Section 252 of the LGC of 1991. Such argument which may
involve a question of fact should be resolved at the first instance by the LBAA.
The CTA En Bane was correct in dismissing the petition in C.T.A. EB No. 48, and affirming the
CBAA's position that it cannot delve on the issue of petitioner's alleged non-taxability on the
ground of exemption since the LBAA has not decided the case on the merits. This is in
compliance with the procedural steps prescribed in the law.
WHEREFORE, the petition is DENIED for lack of merit. The Decision of the Court of Tax subject properties in the scheduled October 30, 2002 public auction of all delinquent properties
Appeals En Bane in C.T.A. EB No. 48 is AFFIRMED. The case is remanded to the Local Board in Manila should the unpaid taxes remain unsettled before that date.
of Assessment Appeals of Baguio City for further proceedings. No costs.
On September 16, 2002, the City Treasurer of Manila issued separate Notices of
[5]
SO ORDERED. Realty Tax Delinquency for the subject properties, with the usual warning of seizure and/or
sale. On October 8, 2002, GSIS, through its legal counsel, wrote back emphasizing the GSIS
[6]
exemption from all kinds of taxes, including realty taxes, under Republic Act No. (RA) 8291.
GOVERNMENT SERVICE INSURANCE SYSTEM, G.R. No. 186242
Petitioner,
[7]
Present: Two days after, GSIS filed a petition for certiorari and prohibition with prayer for a
restraining and injunctive relief before the Manila RTC. In it, GSIS prayed for the nullification of
CORONA, J., Chairperson, the assessments thus made and that respondents City of Manila officials be permanently
[8]
VELASCO, JR., enjoined from proceedings against GSIS property. GSIS would later amend its petition to
- versus - NACHURA, include the fact that: (a) the Katigbak property, covered by TCT Nos. 117685 and 119465 in the
PERALTA, and name of GSIS, has, since November 1991, been leased to and occupied by the Manila Hotel
*
DEL CASTILLO, JJ. Corporation (MHC), which has contractually bound itself to pay any realty taxes that may be
imposed on the subject property; and (b) the Concepcion-Arroceros property is partly occupied
CITY TREASURER and CITY ASSESSOR of the CITY Promulgated: by GSIS and partly occupied by the MeTC of Manila.
OF MANILA,
Respondents. December 23, 2009 The Ruling of the RTC
x-----------------------------------------------------------------------------------------x
By Decision of November 15, 2007, the RTC dismissed GSIS petition, as follows:
DECISION
VELASCO, JR., J.: WHEREFORE, in view of the foregoing, judgment is hereby
The Case rendered, DISMISSING the petition for lack of merit, and declaring the
assessment conducted by the respondents City of Manila on the subject
For review under Rule 45 of the Rules of Court on pure question of law are the real properties of GSIS as valid pursuant to law.
[1] [2] [9]
November 15, 2007 Decision and January 7, 2009 Order of the Regional Trial Court (RTC), SO ORDERED.
Branch 49 in Manila, in Civil Case No. 02-104827, a suit to nullify the assessment of real
property taxes on certain properties belonging to petitioner Government Service Insurance
System (GSIS). GSIS sought but was denied reconsideration per the assailed Order dated January 7,
2009.

Thus, the instant petition for review on pure question of law.

The Facts

Petitioner GSIS owns or used to own two (2) parcels of land, one located at Katigbak
th
25 St., Bonifacio Drive, Manila (Katigbak property), and the other, at Concepcion cor. Arroceros The Issues
Sts., also in Manila (Concepcion-Arroceros property). Title to the Concepcion-Arroceros property
[3]
was transferred to this Court in 2005 pursuant to Proclamation No. 835 dated April 27, 2005. 1. Whether petitioner is exempt from the payment of real property taxes
Both the GSIS and the Metropolitan Trial Court (MeTC) of Manila occupy the Concepcion- from 1992 to 2002;
Arroceros property, while the Katigbak property was under lease. 2. Whether petitioner is exempt from the payment of real property taxes on
the property it leased to a taxable entity; and
[4]
The controversy started when the City Treasurer of Manila addressed a letter dated
September 13, 2002 to GSIS President and General Manager Winston F. Garcia informing him 3. Whether petitioners real properties are exempt from warrants of levy and
[10]
of the unpaid real property taxes due on the aforementioned properties for years 1992 to 2002, from tax sale for non-payment of real property taxes.
broken down as follows: (a) PhP 54,826,599.37 for the Katigbak property; and (b) PhP
48,498,917.01 for the Concepcion-Arroceros property. The letter warned of the inclusion of the
The Courts Ruling

The issues raised may be formulated in the following wise: first, whether GSIS under
its charter is exempt from real property taxation; second, assuming that it is so exempt, whether
GSIS is liable for real property taxes for its properties leased to a taxable entity; and third,
whether the properties of GSIS are exempt from levy.
In the main, it is petitioners posture that both its old charter, Presidential Decree No.
(PD) 1146, and present charter, RA 8291 or the GSIS Act of 1997, exempt the agency and its
properties from all forms of taxes and assessments, inclusive of realty tax. Excepting,
respondents counter that GSIS may not successfully resist the citys notices and warrants of levy
on the basis of its exemption under RA 8291, real property taxation being governed by RA 7160
or the Local Government Code of 1991 (LGC, hereinafter).
The petition is meritorious.
First Core Issue: GSIS Exempt from Real Property Tax
Full tax exemption granted through PD 1146
[11]
In 1936, Commonwealth Act No. (CA) 186 was enacted abolishing the then pension
systems under Act No. 1638, as amended, and establishing the GSIS to manage the pension
system, life and retirement insurance, and other benefits of all government employees. Under
what may be considered as its first charter, the GSIS was set up as a non-stock corporation
managed by a board of trustees. Notably, Section 26 of CA 186 provided exemption from any
legal process and liens but only for insurance policies and their proceeds, thus:
Section 26. Exemption from legal process and liens. No policy of
life insurance issued under this Act, or the proceeds thereof, when paid to
any member thereunder, nor any other benefit granted under this Act, shall
be liable to attachment, garnishment, or other process, or to be seized,
taken, appropriated, or applied by any legal or equitable process or
operation of law to pay any debt or liability of such member, or his
beneficiary, or any other person who may have a right thereunder, either
before or after payment; nor shall the proceeds thereof, when not made
payable to a named beneficiary, constitute a part of the estate of the
member for payment of his debt. x x x
[12]
In 1977, PD 1146, otherwise known as the Revised Government Service Insurance
Act of 1977, was issued, providing for an expanded insurance system for government
employees. Sec. 33 of PD 1146 provided for a new tax treatment for GSIS, thus:
Section 33. Exemption from Tax, Legal Process and Lien. It is
hereby declared to be the policy of the State that the actuarial solvency of
the funds of the System shall be preserved and maintained at all times and
that the contribution rates necessary to sustain the benefits under this Act
shall be kept as low as possible in order not to burden the members of the
System and/or their employees. Taxes imposed on the System tend to
impair the actuarial solvency of its funds and increase the contribution rate
necessary to sustain the benefits under this Act. Accordingly,
notwithstanding any laws to the contrary, the System, its assets, revenues
including all accruals thereto, and benefits paid, shall be exempt from
all taxes, assessments, fees, charges or duties of all kinds. These
exemptions shall continue unless expressly and specifically revoked and
any assessment against the System as of the approval of this Act are
hereby considered paid.
The benefits granted under this Act shall not be subject, among
others, to attachment, garnishment, levy or other processes. This, however,
shall not apply to obligations of the member to the System, or to the
employer, or when the benefits granted herein are assigned by the member
with the authority of the System. (Emphasis ours.)
A scrutiny of PD 1146 reveals that the non-stock corporate structure of GSIS, as
[13]
established under CA 186, remained unchanged. Sec. 34 of PD 1146 pertinently provides that
the GSIS, as created by CA 186, shall implement the provisions of PD 1146.
RA 7160 lifted GSIS tax exemption
Then came the enactment in 1991 of the LGC or RA 7160, providing the exercise of
[14]
local government units (LGUs) of their power to tax, the scope and limitations thereof, and the
exemptions from taxations. Of particular pertinence is the general provision on withdrawal of tax
exemption privileges in Sec. 193 of the LGC, and the special provision on withdrawal of
exemption from payment of real property taxes in the last paragraph of the succeeding Sec. 234,
thus:
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.
SEC. 234. Exemption from Real Property Tax. x x x 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 corporation are hereby
withdrawn upon the effectivity of this Code.
From the foregoing provisos, there can be no serious doubt about the Congress
intention to withdraw, subject to certain defined exceptions, tax exemptions granted prior to the
passage of RA 7160. The question that easily comes to mind then is whether or not the full tax
exemption heretofore granted to GSIS under PD 1146, particular insofar as realty tax is
concerned, was deemed withdrawn. We answer in the affirmative.
 disallowances and from all financial obligations of the members, including
[15]
In Mactan Cebu International Airport Authority v. Marcos, the Court held that the his pecuniary accountability arising from or caused or occasioned by his
express withdrawal by the LGC of previously granted exemptions from realty taxes applied to exercise or performance of his official functions or duties, or incurred
instrumentalities and government-owned and controlled corporations (GOCCs), such as the relative to or in connection with his position or work except when his
Mactan-Cebu International Airport Authority. In City of Davao v. RTC, Branch XII, Davao monetary liability, contractual or otherwise, is in favor of the
[16]
City, the Court, citing Mactan Cebu International Airport Authority, declared the GSIS liable for GSIS.(Emphasis ours.)
real property taxes for the years 1992 to 1994 (contested real estate tax assessment therein), its
previous exemption under PD 1146 being considered withdrawn with the enactment of the LGC
in 1991.
The foregoing exempting proviso, couched as it were in an encompassing manner,
brooks no other construction but that GSIS is exempt from all forms of taxes. While not
Significantly, the Court, in City of Davao, stated the observation that the GSIS tax-
[17] determinative of this case, it is to be noted that prominently added in GSIS present charter is a
exempt status withdrawn in 1992 by the LGC was restored in 1997 by RA 8291.
paragraph precluding any implied repeal of the tax-exempt clause so as to protect the solvency
of GSIS funds. Moreover, an express repeal by a subsequent law would not suffice to affect the
Full tax exemption reenacted through RA 8291
full exemption benefits granted the GSIS, unless the following conditionalities are met: (1) The
repealing clause must expressly, specifically, and categorically revoke or repeal Sec.
39; and (2) a provision is enacted to substitute or replace the exemption referred to herein
Indeed, almost 20 years to the day after the issuance of the GSIS charter, i.e., PD
as an essential factor to maintain or protect the solvency of the fund. These restrictions for a
1146, it was further amended and expanded by RA 8291 which took effect on June 24,
[18] future express repeal, notwithstanding, do not make the proviso an irrepealable law, for such
1997. Under it, the full tax exemption privilege of GSIS was restored, the operative provision
restrictions do not impinge or limit the carte blanche legislative authority of the legislature to so
being Sec. 39 thereof, a virtual replication of the earlier quoted Sec. 33 of PD 1146. Sec. 39 of
amend it. The restrictions merely enhance other provisos in the law ensuring the solvency of the
RA 8291 reads:
GSIS fund.
SEC. 39. Exemption from Tax, Legal Process and Lien. It is
hereby declared to be the policy of the State that the actuarial solvency of
Given the foregoing perspectives, the following may be assumed: (1) Pursuant to Sec.
the funds of the GSIS shall be preserved and maintained at all times and
33 of PD 1146, GSIS enjoyed tax exemption from real estate taxes, among other tax burdens,
that contribution rates necessary to sustain the benefits under this Act shall
until January 1, 1992 when the LGC took effect and withdrew exemptions from payment of real
be kept as low as possible in order not to burden the members of the GSIS
estate taxes privileges granted under PD 1146; (2) RA 8291 restored in 1997 the tax exempt
and their employers. Taxes imposed on the GSIS tend to impair the [19]
status of GSIS by reenacting under its Sec. 39 what was once Sec. 33 of P.D. 1146; and (3) If
actuarial solvency of its funds and increase the contribution rate necessary
any real estate tax is due to the City of Manila, it is, following City of Davao, only for the interim
to sustain the benefits of this Act. Accordingly, notwithstanding, any laws to
period, or from 1992 to 1996, to be precise.
the contrary, the GSIS, its assets, revenues including all accruals
thereto, and benefits paid, shall be exempt from all taxes,
Real property taxes assessed and due from GSIS considered paid
assessments, fees, charges or duties of all kinds. These exemptions
shall continue unless expressly and specifically revoked and any
assessment against the GSIS as of the approval of this Act are hereby
While recognizing the exempt status of GSIS owing to the reenactment of the full tax
considered paid. Consequently, all laws, ordinances, regulations,
exemption clause under Sec. 39 of RA 8291 in 1997, the ponencia in City of Davaoappeared to
issuances, opinions or jurisprudence contrary to or in derogation of this
have failed to take stock of and fully appreciate the all-embracing condoning proviso in the very
provision are hereby deemed repealed, superseded and rendered
same Sec. 39 which, for all intents and purposes, considered as paid any assessment against
ineffective and without legal force and effect.
the GSIS as of the approval of this Act. If only to stress the point, we hereby reproduce the
Moreover, these exemptions shall not be affected by pertinent portion of said Sec. 39:
subsequent laws to the contrary unless this section is expressly,
specifically and categorically revoked or repealed by law and a
SEC. 39. Exemption from Tax, Legal Process and Lien. x x
provision is enacted to substitute or replace the exemption referred to
x Taxes imposed on the GSIS tend to impair the actuarial solvency of its
herein as an essential factor to maintain or protect the solvency of the
funds and increase the contribution rate necessary to sustain the benefits of
fund, notwithstanding and independently of the guaranty of the national
this Act. Accordingly, notwithstanding, any laws to the contrary, the GSIS,
government to secure such solvency or liability.
its assets, revenues including all accruals thereto, and benefits paid,shall
The funds and/or the properties referred to herein as well as be exempt from all taxes, assessments, fees, charges or duties of all
the benefits, sums or monies corresponding to the benefits under this kinds. These exemptions shall continue unless expressly and specifically
Act shall be exempt from attachment, garnishment, execution, levy or revoked and any assessment against the GSIS as of the approval of
other processes issued by the courts, quasi-judicial agencies or this Act are hereby considered paid.Consequently, all laws, ordinances,
administrative bodies including Commission on Audit (COA) regulations, issuances, opinions or jurisprudence contrary to or in
 derogation of this provision are hereby deemed repealed, superseded and proclamation, Proclamation No. 835. Pertinently, the text of the proclamation announces that the
rendered ineffective and without legal force and effect. (Emphasis added.) Concepcion-Arroceros property was earlier ceded to the GSIS on October 13, 1954 pursuant to
Proclamation No. 78 for office purposes and had since been titled to GSIS which constructed an
office building thereon. Thus, the transfer on April 27, 2005 of the Concepcion-Arroceros
GSIS an instrumentality of the National Government
property to this Court by the President through Proclamation No. 835. This illustrates the nature
of the government ownership of the subject GSIS properties, as indubitably shown in the last
clause of Presidential Proclamation No. 835:
Apart from the foregoing consideration, the Courts fairly recent ruling in Manila
[20]
International Airport Authority v. Court of Appeals, a case likewise involving real estate tax
WHEREAS, by virtue of the Public Land Act (Commonwealth Act
assessments by a Metro Manila city on the real properties administered by MIAA, argues for the
No. 141, as amended), Presidential Decree No. 1455, and the
non-tax liability of GSIS for real estate taxes. There, the Court held that MIAA does not qualify as
Administrative Code of 1987, the President is authorized to transfer any
a GOCC, not having been organized either as a stock corporation, its capital not being divided
government property that is no longer needed by the agency to which
into shares, or as a non-stock corporation because it has no members. MIAA is rather
it belongs to other branches or agencies of the government.(Emphasis
an instrumentality of the National Government and, hence, outside the purview of local taxation
ours.)
by force of Sec. 133 of the LGC providing in context that unless otherwise provided, local
governments cannot tax national government instrumentalities. And as the Court pronounced
in Manila International Airport Authority, the airport lands and buildings MIAA administers belong
Third, GSIS manages the funds for the life insurance, retirement, survivorship, and
to the Republic of the Philippines, which makes MIAA a mere trustee of such assets. No less
disability benefits of all government employees and their beneficiaries. This undertaking, to be
than the Administrative Code of 1987 recognizes a scenario where a piece of land owned by the
sure, constitutes an essential and vital function which the government, through one of its
Republic is titled in the name of a department, agency, or instrumentality. The following provision
agencies or instrumentalities, ought to perform if social security services to civil service
of the said Code suggests as much:
employees are to be delivered with reasonable dispatch. It is no wonder, therefore, that the
Republic guarantees the fulfillment of the obligations of the GSIS to its members (government
Sec. 48. Official Authorized to Convey Real Property.Whenever
employees and their beneficiaries) when and as they become due. This guarantee was first
real property of the Government is authorized by law to be conveyed, the [22] [23] [24]
formalized under Sec. 24 of CA 186, then Sec. 8 of PD 1146, and finally in Sec. 8 of RA
deed of conveyance shall be executed in behalf of the government by the
8291.
following: x x x x
Second Core Issue: Beneficial Use Doctrine Applicable
(2) For property belonging to the Republic of the Philippines, but
titled in the name of x x x any corporate agency or instrumentality, by the
[21] The foregoing notwithstanding, the leased Katigbak property shall be taxable pursuant
executive head of the agency or instrumentality.
to the beneficial use principle under Sec. 234(a) of the LGC.

While perhaps not of governing sway in all fours inasmuch as what were involved
It is true that said Sec. 234(a), quoted below, exempts from real estate taxes real
in Manila International Airport Authority, e.g., airfields and runways, are properties of the public
property owned by the Republic, unless the beneficial use of the property is, for consideration,
dominion and, hence, outside the commerce of man, the rationale underpinning the disposition
transferred to a taxable person.
in that case is squarely applicable to GSIS, both MIAA and GSIS being similarly situated. First,
SEC. 234. Exemptions from Real Property Tax. The following
while created under CA 186 as a non-stock corporation, a status that has remained unchanged
are exempted from payment of the real property tax:
even when it operated under PD 1146 and RA 8291, GSIS is not, in the context of the
afore quoted Sec. 193 of the LGC, a GOCC following the teaching of Manila International Airport
(a) Real property owned by the Republic of the Philippines or
Authority, for, like MIAA, GSIS capital is not divided into unit shares. Also, GSIS has no
any of its political subdivisions except when the beneficial use thereof
members to speak of. And by members, the reference is to those who, under Sec. 87 of the
has been granted, for consideration or otherwise, to a taxable person.
Corporation Code, make up the non-stock corporation, and not to the compulsory members of
the system who are government employees. Its management is entrusted to a Board of Trustees
This exemption, however, must be read in relation with Sec. 133(o) of the LGC,
whose members are appointed by the President.
which prohibits LGUs from imposing taxes or fees of any kind on the national government,
its agencies, and instrumentalities:
Second, the subject properties under GSISs name are likewise owned by the
Republic. The GSIS is but a mere trustee of the subject properties which have either been ceded
SEC. 133. Common Limitations on the Taxing Powers of
to it by the Government or acquired for the enhancement of the system. This particular property
Local Government Units. Unless otherwise provided herein, the exercise
arrangement is clearly shown by the fact that the disposal or conveyance of said subject
of the taxing powers of provinces, cities, municipalities, and
properties are either done by or through the authority of the President of
barangays shall not extend to the levy of the following:
the Philippines. Specifically, in the case of the Concepcion-Arroceros property, it was
transferred, conveyed, and ceded to this Court on April 27, 2005 through a presidential
xxxx

(o) Taxes, fees or charges of any kinds on the National
Government, its agencies and instrumentalities, and local government
units. (Emphasis supplied.)
Thus read together, the provisions allow the Republic to grant the beneficial use of its
property to an agency or instrumentality of the national government. Such grant does not
necessarily result in the loss of the tax exemption. The tax exemption the property of the
Republic or its instrumentality carries ceases only if, as stated in Sec. 234(a) of the LGC of
1991, beneficial use thereof has been granted, for a consideration or otherwise, to a taxable
person. GSIS, as a government instrumentality, is not a taxable juridical person under Sec.
133(o) of the LGC. GSIS, however, lost in a sense that status with respect to the Katigbak
property when it contracted its beneficial use to MHC, doubtless a taxable person. Thus, the real
estate tax assessment of PhP 54,826,599.37 covering 1992 to 2002 over the subject Katigbak
property is valid insofar as said tax delinquency is concerned as assessed over said property.
Taxable entity having beneficial use of leased
property liable for real property taxes thereon
The next query as to which between GSIS, as the owner of the Katigbak property, or
MHC, as the lessee thereof, is liable to pay the accrued real estate tax, need not detain us long.
MHC ought to pay.
As we declared in Testate Estate of Concordia T. Lim, the unpaid tax attaches to the
property and is chargeable against the taxable person who had actual or beneficial use and
possession of it regardless of whether or not he is the owner. Of the same tenor is the Courts
[25]
holding in the subsequent Manila Electric Company v. Barlis and later in Republic v. City
[26]
of Kidapawan. Actual use refers to the purpose for which the property is principally or
[27]
predominantly utilized by the person in possession thereof.
Being in possession and having actual use of the Katigbak property since November
1991, MHC is liable for the realty taxes assessed over the Katigbak property from 1992 to 2002.
The foregoing is not all. As it were, MHC has obligated itself under the GSIS-MHC
Contract of Lease to shoulder such assessment. Stipulation l8 of the contract pertinently reads:
18. By law, the Lessor, [GSIS], is exempt from taxes,
assessments and levies.Should there be any change in the law or the
interpretation thereof or any other circumstances which would subject the
Leased Property to any kind of tax, assessment or levy which would
constitute a charge against the Lessor or create a lien against the Leased
Property, the Lessee agrees and obligates itself to shoulder and pay
[28]
such tax, assessment or levy as it becomes due. (Emphasis ours.)
As a matter of law and contract, therefore, MHC stands liable to pay the realty taxes
due on the Katigbak property. Considering, however, that MHC has not been impleaded in the
instant case, the remedy of the City of Manila is to serve the realty tax assessment covering the
subject Katigbak property to MHC and to pursue other available remedies in case of
nonpayment, for said property cannot be levied upon as shall be explained below.
Third Core Issue: GSIS Properties Exempt from Levy
In light of the foregoing disquisition, the issue of the propriety of the threatened levy of
subject properties by the City of Manila to answer for the demanded realty tax deficiency is now
moot and academic. A valid tax levy presupposes a corresponding tax liability. Nonetheless, it
will not be remiss to note that it is without doubt that the subject GSIS properties are exempt
from any attachment, garnishment, execution, levy, or other legal processes. This is the clear
import of the third paragraph of Sec. 39, RA 8291, which we quote anew for clarity:
SEC. 39. Exemption from Tax, Legal Process and Lien. x x x.
xxxx
The funds and/or the properties referred to herein as well as
the benefits, sums or monies corresponding to the benefits under this
Act shall be exempt from attachment, garnishment, execution, levy or
other processes issued by the courts, quasi-judicial agencies or
administrative bodies including Commission on Audit (COA)
disallowances and from all financial obligations of the members, including
his pecuniary accountability arising from or caused or occasioned by his
exercise or performance of his official functions or duties, or incurred
relative to or in connection with his position or work except when his
monetary liability, contractual or otherwise, is in favor of the
GSIS.(Emphasis ours.)
The Court would not be indulging in pure speculative exercise to say that the
underlying legislative intent behind the above exempting proviso cannot be other than to isolate
GSIS funds and properties from legal processes that will either impair the solvency of its fund or
hamper its operation that would ultimately require an increase in the contribution rate necessary
to sustain the benefits of the system. Throughout GSIS life under three different charters, the
need to ensure the solvency of GSIS fund has always been a legislative concern, a concern
expressed in the tax-exempting provisions.
Thus, even granting arguendo that GSIS liability for realty taxes attached from 1992,
when RA 7160 effectively lifted its tax exemption under PD 1146, to 1996, when RA 8291
restored the tax incentive, the levy on the subject properties to answer for the assessed realty
tax delinquencies cannot still be sustained. The simple reason: The governing law, RA 8291, in
force at the time of the levy prohibits it. And in the final analysis, the proscription against the levy
extends to the leased Katigbak property, the beneficial use doctrine, notwithstanding.
Summary
In sum, the Court finds that GSIS enjoys under its charter full tax exemption.
Moreover, as an instrumentality of the national government, it is itself not liable to pay real estate
taxes assessed by the City of Manila against its Katigbak and Concepcion-Arroceros
properties. Following the beneficial use rule, however, accrued real property taxes are due from
the Katigbak property, leased as it is to a taxable entity. But the corresponding liability for the
payment thereof devolves on the taxable beneficial user.The Katigbak property cannot in any
event be subject of a public auction sale, notwithstanding its realty tax delinquency. This means
that the City of Manila has to satisfy its tax claim by serving the accrued realty tax assessment
on MHC, as the taxable beneficial user of the Katigbak property and, in case of nonpayment,
through means other than the sale at public auction of the leased property.
WHEREFORE, the instant petition is hereby GRANTED. The November 15, 2007
Decision and January 7, 2009 Order of the Regional Trial Court, Branch
49, Manilaare REVERSED and SET ASIDE. Accordingly, the real property tax assessments
issued by the City of Manila to the Government Service Insurance System on the subject
properties are declared VOID, except that the real property tax assessment pertaining to the
leased Katigbak property shall be valid if served on the Manila Hotel Corporation, as lessee
which has actual and beneficial use thereof. The City of Manila is permanently restrained from
levying on or selling at public auction the subject properties to satisfy the payment of the real
property tax delinquency.
No pronouncement as to costs.
SO ORDERED.
G.R. No. 166102, August 05, 2015 - MANILA ELECTRIC COMPANY, Petitioner, v. THE CITY
ASSESSOR AND CITY TREASURER OF LUCENA CITY, Respondents. : AUGUST 2015 -
PHILIPPINE SUPREME COURT JURISPRUDENCE - CHANROBLES VIRTUAL LAW
LIBRARY
G.R. No. 166102, August 05, 2015
investment, of the company: (a) transformer and electric post; (b) transmission line; (c) insulator;
and (d) electric meter, located in Quezon Ave. Ext., Brgy. Gulang-Gulang, Lucena City. Under
Tax Declaration No. 019-6500, these electric facilities had a market value of P81,811,000.00
and an assessed value of P65,448,800.00, and were subjected to real property tax as of 1985.
MERALCO appealed Tax Declaration No. 019-6500 before the LBAA of Lucena City, which was
docketed as LBAA-89-2. MERALCO claimed that its capital investment consisted only of its
substation facilities, the true and correct value of which was only P9,454,400.00; and that
MERALCO was exempted from payment of real property tax on said substation facilities.
14
The LBAA rendered a Decision in LBAA-89-2 on July 5, 1989, finding that under its franchise,
MERALCO was required to pay the City Government of Lucena a tax equal to 5% of its gross
earnings, and "[s]aid 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 x x x, on its poles, wires,
insulators, transformers and structures, installations, conductors, and accessories, x x x, from
15
which taxes the grantee (MERALCO) is hereby expressly exempted." As regards the issue of
whether or not the poles, wires, insulators, transformers, and electric meters of MERALCO were
real properties, the LBAA cited the 1964 case of Board of Assessment Appeals v. Manila Electric
16
Company (1964 MERALCO case) in which the Court held that: (1) the steel towers fell within
the term "poles" expressly exempted from taxes under the franchise of MERALCO; and (2) the
steel towers were personal properties under the provisions of the Civil Code and, hence, not
subject to real property tax. The LBAA lastly ordered that Tax Declaration No. 019-6500 would
remain and the poles, wires, insulators, transformers, and electric meters of MERALCO would
be continuously assessed, but the City Assessor would stamp on the said Tax Declaration the
word "exempt." The LBAA decreed in the end:cralawlawlibrary
WHEREFORE, from the evidence adduced by the parties, the Board overrules the claim of the
[City Assessor of Lucena] and sustain the claim of [MERALCO].

Further, the Appellant (Meralco) is hereby ordered to render an accounting to the City Treasurer
Before the Court is a Petition for Review on Certiorari under Rule 45 of the Rules of Court filed
1 of Lucena and to pay the City Government of Lucena the amount corresponding to the Five (5%)
by Manila Electric Company (MERALCO), seeking the reversal of the Decision dated May 13,
2 per centum of the gross earnings in compliance with paragraph 13 both Resolutions 108 and
2004 and Resolution dated November 18, 2004 of the Court of Appeals in CA-G.R. SP No.
3 2679, respectively, retroactive from November 9, 1957 to date, if said tax has not yet been
67027. The appellate court affirmed the Decision dated May 3, 2001 of the Central Board of 17
paid. chanrobleslaw
Assessment Appeals (CBAA) in CBAA Case No. L-20-98, which, in turn, affirmed with
4 5
modification the Decision dated June 17, 1998 of the Local Board of Assessment Appeals
The City Assessor of Lucena filed an appeal with the CBAA, which was docketed as CBAA
(LBAA) of Lucena City, Quezon Province, as regards Tax Declaration Nos. 019-6500 and 019- 18
Case No. 248. In its Decision dated April 10, 1991, the CBAA affirmed the assailed LBAA
7394, ruling that MERALCO is liable for real property tax on its transformers, electric posts (or
judgment. Apparently, the City Assessor of Lucena no longer appealed said CBAA Decision and
poles), transmission lines, insulators, and electric meters, beginning 1992.
it became final and executory.

MERALCO is a private corporation organized and existing under Philippine laws to operate as a
Six years later, on October 29, 1997, MERALCO received a letter19 dated October 16, 1997
public utility engaged in electric distribution. MERALCO has been successively granted
from the City Treasurer of Lucena, which stated that the company was being assessed real
franchises to operate in Lucena City beginning 1922 until present time, particularly, by: (1)
6 property tax delinquency on its machineries beginning 1990, in the total amount of
Resolution No. 36 dated May 15, 1922 of the Municipal Council of Lucena; (2) Resolution No.
7 8 P17,925,117.34, computed as follows:chanRoblesvirtualLawlibrary
108 dated July 1, 1957 of the Municipal Council of Lucena; (3) Resolution No. 2679 dated June
9 10
13, 1972 of the Municipal Board of Lucena City; (4) Certificate of Franchise dated October 28,
1993 issued by the National Electrification Commission; and (5) Republic Act No. TAX ASSESSED COVERED TAX DUE PENALTY TOTAL
11
9209 approved on June 9, 2003 by Congress.
12 DEC. VALUE PERIOD
#
On February 20, 1989, MERALCO received from the City Assessor of Lucena a copy of Tax
13
Declaration No. 019-6500 covering the following electric facilities, classified as capital
019- P65,448,800.00 1990-94 P3,272,440.00 P2,356,156.80 P5,628,596.80
6500 MERALCO went before the CBAA on appeal, which was docketed as CBAA Case No. L-20-
98. The CBAA, in its Decision dated May 3, 2001, agreed with the LBAA that MERALCO could
019- 78,538,560.00 1995 785,385.60 534,062.21 1,319,447.81 no longer claim exemption from real property tax on its machineries with the enactment of
7394 Republic Act No. 7160, otherwise known as the Local Government Code of 1991,
thus:cralawlawlibrary
1996 785,385.60 345,569.66 1,130,955.26
st rd
l -3 /1997 589,039.20 117,807.84 706,847.04
Indeed, the Central Board of Assessment Appeals has had the opportunity of ruling in
th
4 1997 196,346.40 (19,634.64) 176,711.76 [MERALCO's] favor in connection with this very same issue. The matter was settled on April 10,
1991 where this Authority ruled that "wires, insulators, transformers and electric meters which
BASIC---- P8,962,558.67
are mounted on poles and can be separated from the poles and moved from place to place
SEF---- 8,962,558.67 without breaking the material or causing [the] deterioration of the object, are deemed movable or
personal property". The same position of MERALCO would have been tenable and that decision
TOTAL TAX DELINQUENCY---- P17,925,117.34 may have stood firm prior to the enactment of R.A. 7160 but not anymore in this jurisdiction. The
Code provides and now sets a more stringent yet broadened concept of machinery, x x
x:chanRoblesvirtualLawlibrary
The City Treasurer of Lucena requested that MERALCO settle the payable amount soon to
avoid accumulation of penalties. Attached to the letter were the following documents: (a) Notice x x x x
20
of Assessment dated October 20, 1997 issued by the City Assessor of Lucena, pertaining to
Tax Declaration No. 019-7394, which increased the market value and assessed value of the The pivotal point where the difference lie between the former and the current case is that by the
21
machinery; (b) Property Record Form; and (c) Tax Declaration No. 019-6500.
22
very wordings of [Section 199(0)], the ground being anchored upon by MERALCO concerning
the properties in question being personal in nature does not hold anymore for the sole reason
MERALCO appealed Tax Declaration Nos. 019-6500 and 019-7394 before the LBAA of Lucena that these come now within the purview and new concept of Machineries. The new law has
23
City on December 23, 1997 and posted a surety bond dated December 10, 1997 to guarantee treated these in an unequivocal manner as machineries in the sense that they are instruments,
payment of its real property tax delinquency. MERALCO asked the LBAA to cancel and nullify mechanical contrivances or apparatus though not attached permanently to the real properties of
the Notice of Assessment dated October 20, 1997 and declare the properties covered by Tax [MERALCO] are actually, directly and exclusively used to meet their business of distributing
Declaration Nos. 019-6500 and 019-7394 exempt from real property tax. electricity.

In its Decision dated June 17, 1998 regarding Tax Declaration Nos. 019-6500 and 019-7394, the x x x x
LBAA declared that Sections 234 and 534(f) of the Local Government Code repealed the
24
provisions in the franchise of MERALCO and Presidential Decree No. 551 pertaining to the Clearly, [Section 234 of the Local Government Code] lists down the instances of exemption in
exemption of MERALCO from payment of real property tax on its poles, wires, insulators, real property taxation and very apparent is the fact that the enumeration is exclusive in character
transformers, and meters. The LBAA refused to apply as res judicata its earlier judgment in in view of the wordings in the last paragraph. Applying the maxim "Expressio Unius est Exclusio
LBAA-89-2, as affirmed by the CBAA, because it involved collection of taxes from 1985 to 1989, Alterius", we can say that "Where the statute enumerates those who can avail of the exemption,
while the present case concerned the collection of taxes from 1989 to 1997; and LBAA is only an it is construed as excluding all others not mentioned therein". Therefore, the above-named
administrative body, not a court or quasi-judicial body. The LBAA though instructed that the company [had] lost its previous exemptions under its franchise because of non-inclusion in the
computation of the real property tax for the machineries should be based on the prevailing 1991 enumeration in Section 234. Furthermore, all tax exemptions being enjoyed by all persons,
Schedule of Market Values, less the depreciation cost allowed by law. The LBAA ultimately whether natural or juridical, including all government-owned or controlled corporations are
disposed:cralawlawlibrary expressly withdrawn, upon effectivity of R.A. 7160.

In the given facts, it has been manifested that the Municipal Board of Lucena passed Resolution
WHEREFORE, in view of the foregoing, it is hereby ordered that:chanRoblesvirtualLawlibrary No. 108 on July 1, 1957 extending the franchise of MERALCO to operate in Lucena city an
electric light system for thirty-five years, which should have expired on November 9, 1992 and
1) MERALCO's appeal be dismissed for lack of merit;ChanRoblesVirtualawlibrary under Resolution No. 2679 passed on June 13, 1972 by the City Council of Lucena City
awarding [MERALCO] a franchise to operate for twenty years an electric light, heat and power
2) MERALCO be required to pay the realty tax on the questioned properties, because they are system in Lucena City, also to expire in the year 1992. Under those franchises, they were only
not exempt by law, same to be based on the 1991 level of assessment, less depreciation cost bound to pay franchise taxes and nothing more.
25
allowed by law. chanrobleslaw
Now, granting arguendo that there is no express revocation of the exemption under the franchise
of [MERALCO] since, unquestionably [MERALCO] is a recipient of another franchise granted
this time by the National Electrification Commission as evidenced by a certificate issued on 16, 2001.
October 28, 1993, such conferment does not automatically include and/or award exemption from
taxes, nor does it impliedly give the franchisee the right to continue the privileges like exemption Disgruntled, MERALCO sought recourse from the Court of Appeals by filing a Petition for
granted under its previous franchise. It is just a plain and simple franchise. In countless times, Review under Rule 43 of the Rules of Court, which was docketed as CA-G.R. SP No. 67027.
the Supreme Court has ruled that exemption must be clear in the language of the law granting
such exemption for it is strictly construed and favored against the person invoking it. In addition, The Court of Appeals rendered a Decision on May 13, 2004 rejecting all arguments proffered by
a franchise though in the form of a contract is also a privilege that must yield to the sublime yet MERALCO. The appellate court found no deficiency in the Notice of Assessment issued by the
inherent powers of the state, one of these is the power of taxation. City Assessor of Lucena:cralawlawlibrary

Looking into the law creating the National Electrification Administration (Commission), P.D. 269
as amended by P.D. 1645, nowhere in those laws can we find such authority to bestow upon the It was not disputed that [MERALCO] failed to provide the [City Assessor and City Treasurer of
grantee any tax exemption of whatever nature except those of cooperatives. This we believe is Lucena] with a sworn statement declaring the true value of each of the subject transformer and
basically in consonance with the provisions of the Local Government Code more particularly electric post, transmission line, insulator and electric meter which should have been made the
Section 234. basis of the fair and current market value of the aforesaid property and which would enable the
assessor to identify the same for assessment purposes. [MERALCO] merely claims that the
Furthermore, Section 534(f) of R.A. 7160 which is taken in relation to Section 234 thereof states assessment made by the [City Assessor and City Treasurer of Lucena] was incorrect but did not
that "All general and special laws, acts, city charters, decrees, executive orders, proclamations even mention in their pleading the true and correct assessment of the said properties. Absent
and administrative regulations or part or parts thereof which are inconsistent with any of the any sworn statement given by [MERALCO], [the City Assessor and City Treasurer of Lucena]
provisions of this Code are hereby repealed or modified accordingly". Anent this unambiguous were constrained to make an assessment based on the materials within [their
30
mandate, P.D. 551 is mandatorily repealed due to its contradictory and irreconcilable provisions reach]. chanrobleslaw
26
with R.A. 7160.
chanrobleslaw The Court of Appeals further ruled that there was no more basis for the real property tax
exemption of MERALCO under the Local Government Code and that the withdrawal of said
Yet, the CBAA modified the ruling of the LBAA by excluding from the real property tax deficiency exemption did not violate the non-impairment clause of the Constitution, thus:cralawlawlibrary
assessment the years 1990 to 1991, considering that:cralawlawlibrary

Although it could not be denied that [MERALCO] was previously granted a Certificate of
In the years 1990 and 1991, the exemption granted to MERALCO under its franchise which Franchise by the National Electrification Commission on October 28, 1993 x x x, such
incidentally expired upon the effectivity of the Local Government Code of 1991 was very much in conferment does not automatically include an exemption from the payment of realty tax, nor
effect and the decision rendered by the Central Board of Assessment Appeals (CBAA) does it impliedly give the franchisee the right to continue the privileges granted under its
classifying its poles, wires, insulators, transformers and electric meters as personal property was previous franchise considering that Sec. 534(f) of the Local Government Code of 1991 expressly
still controlling as the law of the case. So, from 1990 to 1991, it would be inappropriate and repealed those provisions which are inconsistent with the Code.
illegal to make the necessary assessment on those properties, much more to impose any
penalty for nonpayment of such. At the outset, the Supreme Court has held that "Section 193 of the LGC prescribes the general
rule, viz., tax exemptions or incentives granted to or presently enjoyed by natural or juridical
But, assessments made beginning 1992 until 1997 by the City Government of Lucena is legal, persons are withdrawn upon the effectivity of the LGC except with respect to those entities
both procedurally and substantially. When R.A. 7160, which incorporated amended provisions of expressly enumerated. In the same vein, We must hold that the express withdrawal upon
the Real Property Tax Code, took effect on January 1, 1992, as already discussed, the nature of effectivity of the LGC of all exemptions except only as provided therein, can no longer be
the aforecited questioned properties considered formerly as personal metamorphosed to invoked by MERALCO to disclaim liability for the local tax." (City Government of San Pablo,
machineries and the exemption being invoked by [MERALCO] was automatically withdrawn Laguna vs. Reyes, 305 SCRA 353, 362-363)
27
pursuant to the letter and spirit of the law. x x x. chanrobleslaw
In fine, [MERALCO's] invocation of the non-impairment clause of the Constitution is accordingly
Resultantly, the decretal portion of said CBAA Decision reads:cralawlawlibrary 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. The power to tax is primarily vested in Congress. However, in our jurisdiction, it
WHEREFORE, in view of the foregoing, the Decision appealed from is hereby modified. The City may be exercised by local legislative bodies, no longer merely by virtue of a valid delegation as
Assessor of Lucena City is hereby directed to make a new assessment on the subject properties before, but pursuant to [a] direct authority conferred by Section 5, Article X of the Constitution.
to retroact from the year 1992 and the City Treasurer to collect the tax liabilities in accordance The important legal effect of Section 5 is that henceforth, in interpreting statutory provisions on
28
with the provisions of the cited Section 222 of the Local Government Code. chanrobleslaw municipal fiscal powers, doubts will be resolved in favor of the municipal corporations. (Ibid. pp.
31
363-365) chanrobleslaw
29
The CBAA denied the Motion for Reconsideration of MERALCO in a Resolution dated August

MERALCO similarly failed to persuade the Court of Appeals that the transformers, transmission
lines, insulators, and electric meters mounted on the electric posts of MERALCO were not real
properties. The appellate court invoked the definition of "machinery" under Section 199(o) of the
Local Government Code and then wrote that:cralawlawlibrary
We firmly believe and so hold that the wires, insulators, transformers and electric meters
mounted on the poles of [MERALCO] may nevertheless be considered as improvements on the
land, enhancing its utility and rendering it useful in distributing electricity. The said properties are
actually, directly and exclusively used to meet the needs of [MERALCO] in the distribution of
electricity.
In addition, "improvements on land are commonly taxed as realty even though for some
purposes they might be considered personalty. It is a familiar personalty phenomenon to see
things classed as real property for purposes of taxation which on general principle might be
considered personal property." (Caltex (Phil) Inc. vs. Central Board of Assessment Appeals, 114
32
SCRA 296, 301-302) chanrobleslaw
Lastly, the Court of Appeals agreed with the CBAA that the new assessment of the transformers,
electric posts, transmission lines, insulators, and electric meters of MERALCO shall retroact to
1992.
Hence, the Court of Appeals adjudged:cralawlawlibrary
WHEREFORE, premises considered, the assailed Decision [dated] May 3, 2001 and
Resolution dated August 16, 2001 are hereby AFFIRMED in toto and the present petition
33
is hereby DENIED DUE COURSE and accordingly DISMISSED for lack of merit.
chanrobleslaw
In a Resolution dated November 18, 2004, the Court of Appeals denied the Motion for
Reconsideration of MERALCO.
MERALCO is presently before the Court via the instant Petition for Review
on Certiorari grounded on the following lone assignment of error:cralawlawlibrary
THE COURT OF APPEALS COMMITTED A GRAVE REVERSIBLE ERROR IN AFFIRMING IN
TOTO THE DECISION OF THE CENTRAL BOARD OF ASSESSMENT APPEALS WHICH
HELD THAT THE SUBJECT PROPERTIES ARE REAL PROPERTIES SUBJECT TO REAL
PROPERTY TAX; AND THAT ASSESSMENT ON THE SUBJECT PROPERTIES SHOULD BE
MADE TO TAKE EFFECT RETROACTIVELY FROM 1992 UNTIL 1997, WITH PENALTIES;
THE SAME BEING UNJUST, WHIMSICAL AND NOT IN ACCORD WITH THE LOCAL
34
GOVERNMENT CODE. chanrobleslaw
MERALCO argues that its transformers, electric posts, transmission lines, insulators, and
electric meters are not subject to real property tax, given that: (1) the definition of "machinery"
under Section 199(o) of the Local Government Code, on which real property tax is imposed,
must still be within the contemplation of real or immovable property under Article 415 of the Civil
Code because it is axiomatic that a statute should be construed to harmonize with other laws on
the same subject matter as to form a complete, coherent, and intelligible system; (2) the
Decision dated April 10, 1991 of the CBAA in CBAA Case No. 248, which affirmed the Decision
dated July 5, 1989 of the LBAA in LBAA-89-2, ruling that the transformers, electric posts,
transmission lines, insulators, and electric meters of MERALCO are movable or personal
properties, is conclusive and binding; and (3) the electric poles are not exclusively used to meet
the needs of MERALCO alone since these are also being utilized by other entities such as cable
and telephone companies.
MERALCO further asserts that even if it is assumed for the sake of argument that the
transformers, electric posts, transmission lines, insulators, and electric meters are real
properties, the assessment of said properties by the City Assessor in 1997 is a patent nullity.
The collection letter dated October 16, 1997 of the City Treasurer of Lucena, Notice of
Assessment dated October 20, 1997 of the City Assessor of Lucena, the Property Record Form
dated October 20, 1997, and Tax Declaration No. 019-6500 simply state a lump sum market
value for all the transformers, electric posts, transmission lines, insulators, and electric meters
covered and did not provide an inventory/list showing the actual number of said properties, or a
schedule of values presenting the fair market value of each property or type of property, which
would have enabled MERALCO to verify the correctness and reasonableness of the valuation of
its properties. MERALCO was not furnished at all with a copy of Tax Declaration No. 019-7394,
and while it received a copy of Tax Declaration No. 019-6500, said tax declaration did not
contain the requisite information regarding the date of operation of MERALCO and the original
cost, depreciation, and market value for each property covered. For the foregoing reasons, the
assessment of the properties of MERALCO in 1997 was arbitrary, whimsical, and without factual
basis - in patent violation of the right to due process of MERALCO. MERALCO additionally
explains that it cannot be expected to make a declaration of its transformers, electric posts,
transmission lines, insulators, and electric meters, because all the while, it was of the impression
that the said properties were personal properties by virtue of the Decision dated July 5, 1989 of
the LBAA in LBAA-89-2 and the Decision dated April 10, 1991 of the CBAA in CBAA Case No.
248.
Granting that the assessment of its transformers, electric posts, transmission lines, insulators,
and electric meters by the City Assessor of Lucena in 1997 is valid, MERALCO alternatively
35 36
contends that: (1) under Sections 221 and 222 of the Local Government Code, the
assessment should take effect only on January 1, 1998 and not retroact to 1992; (2) MERALCO
should not be held liable for penalties and interests since its nonpayment of real property tax on
its properties was in good faith; and (3) if interest may be legally imposed on MERALCO, it
should only begin to run on the date it received the Notice of Assessment on October 29, 1997
and not all the way back to 1992.
At the end of its Petition, MERALCO prays:cralawlawlibrary
WHEREFORE, it is respectfully prayed of this Honorable Court that the appealed Decision dated
May 13, 2004 of the Court of Appeals, together with its Resolution dated November 18, 2004 be
reversed and set aside, and judgment be rendered x x x nullifying and cancel[l]ing the Notice of
Assessment, dated October 20, 1997, issued by respondent City Assessor, and the collection
letter dated October 16, 1997 of respondent City Treasurer.
Petitioner also prays for such other relief as may be deemed just and equitable in the
37
premises.
chanrobleslaw
The City Assessor and City Treasurer of Lucena counter that: (1) MERALCO was obliged to pay By posting the surety bond, MERALCO may be considered to have substantially complied with
the real property tax due, instead of posting a surety bond, while its appeal was pending, Section 252 of the Local Government Code for the said bond already guarantees the payment to
because Section 231 of the Local Government Code provides that the appeal of an assessment the Office of the City Treasurer of Lucena of the total amount of real property taxes and
shall not suspend the collection of the real property taxes; (2) the cases cited by MERALCO can penalties due on Tax Declaration Nos. 019-6500 and 019-7394. This is not the first time that the
no longer be applied to the case at bar since they had been decided when Presidential Decree Court allowed a surety bond as an alternative to cash payment of the real property tax before
No. 464, otherwise known as the Real Property Tax Code, was still in effect; (3) under the now protest/appeal as required by Section 252 of the Local Government Code. In Camp John Hay
39
prevailing Local Government Code, which expressly repealed the Real Property Tax Code, the Development Corporation v. Central Board of Assessment Appeals the Court affirmed the
transformers, electric posts, transmission lines, insulators, and electric meters of MERALCO fall ruling of the CBAA and the Court of Tax Appeals en bane applying the "payment under protest"
within the new definition of "machineries," deemed as real properties subject to real property tax; requirement in Section 252 of the Local Government Code and remanding the case to the LBAA
and (4) the Notice of Assessment dated October 20, 1997 covering the transformers, electric for "further proceedings subject to a full and up-to-date payment, either in cash or surety, of
posts, transmission lines, insulators, and electric meters of MERALCO only retroacts to 1992, realty tax on the subject properties x x x."
which is less than 10 years prior to the date of initial assessment, so it is in compliance with
Section 222 of the Local Government Code, and since MERALCO has yet to pay the real Accordingly, the LBAA herein correctly took cognizance of and gave due course to the appeal of
property taxes due on said assessment, then it is just right and appropriate that it also be held Tax Declaration Nos. 019-6500 and 019-7394 filed by MERALCO.
liable to pay for penalties and interests from 1992 to present time. Ultimately, the City Assessor
and City Treasurer of Lucena seek judgment denying the instant Petition and ordering Beginning January 1, 1992,
MERALCO to pay the real property taxes due. MERALCO can no longer claim
exemption from real property tax of
The Petition is partly meritorious. its transformers, electric posts,
transmission lines, insulators, and
The Court finds that the transformers, electric posts, transmission lines, insulators, and electric electric meters based on its
meters of MERALCO are no longer exempted from real property tax and may qualify as franchise.
"machinery" subject to real property tax under the Local Government Code. Nevertheless, the
Court declares null and void the appraisal and assessment of said properties of MERALCO by MERALCO relies heavily on the Decision dated April 10, 1991 of the CBAA in CBAA Case No.
the City Assessor in 1997 for failure to comply with the requirements of the Local Government 248, which affirmed the Decision dated July 5, 1989 of the LBAA in LBAA-89-2. Said decisions
Code and, thus, violating the right of MERALCO to due process. of the CBAA and the LBAA, in turn, cited Board of Assessment Appeals v. Manila Electric
40
Co., which was decided by the Court way back in 1964 (1964 MERALCO case). The decisions
By posting a surety bond before in CBAA Case No. 248 and the 1964 MERALCO case recognizing the exemption from real
filing its appeal of the assessment with property tax of the transformers, electric posts, transmission lines, insulators, and electric meters
the LBAA, MERALCO substantially complied of MERALCO are no longer applicable because of subsequent developments that changed the
with the requirement of payment under factual and legal milieu for MERALCO in the present case.
protest in Section 252 of the Local
Government Code. In the 1964 MERALCO case, the City Assessor of Quezon City considered the steel towers of
MERALCO as real property and required MERALCO to pay real property taxes for the said steel
Section 252 of the Local Government Code mandates that "[n]o protest shall be entertained towers for the years 1952 to 1956. MERALCO was operating pursuant to the franchise granted
unless the taxpayer first pays the tax." It is settled that the requirement of "payment under under Ordinance No. 44 dated March 24, 1903 of the Municipal Board of Manila, which it
38
protest" is a condition sine qua non before an appeal may be entertained. Section 231 of the acquired from the original grantee, Charles M. Swift. Under its franchise, MERALCO was
same Code also dictates that "[a]ppeal on assessments of real property x x x shall, in no case, expressly granted the following tax exemption privilege:cralawlawlibrary
suspend the collection of the corresponding realty taxes on the property involved as assessed
by the provincial or city assessor, without prejudice to subsequent adjustment depending upon
the final outcome of the appeal." Clearly, under the Local Government Code, even when the Par 9. The grantee shall be liable to pay the same taxes upon its real estate, buildings, plant (not
assessment of the real property is appealed, the real property tax due on the basis thereof including poles, wires, transformers, and insulators), machinery and personal property as other
should be paid to and/or collected by the local government unit concerned. persons are or may be hereafter required by law to pay. x x x Said percentage shall be due and
payable at the times stated in paragraph nineteen of Part One hereof, x x xand shall be in lieu of
In the case at bar, the City Treasurer of Lucena, in his letter dated October 16, 1997, sought to all taxes and assessments of whatsoever nature, and by whatsoever authority upon the
collect from MERALCO the amount of P17,925,l 17.34 as real property taxes on its machineries, privileges, earnings, income, franchise, and poles, wires, transformers, and insulators of the
plus penalties, for the period of 1990 to 1997, based on Tax Declaration Nos. 019-6500 and grantee from which taxes and assessments the grantee is hereby expressly exempted, x x
41
019-7394 issued by the City Assessor of Lucena. MERALCO appealed Tax Declaration Nos. x. chanrobleslaw
019-6500 and 019-7394 with the LBAA, but instead of paying the real property taxes and
penalties due, it posted a surety bond in the amount of PI 7,925,117.34. Given the express exemption from taxes and assessments of the "poles,wires, transformers,
and insulators" of MERALCO in the aforequoted paragraph, the sole issue in the 1964
MERALCO case was whether or not the steel towers of MERALCO qualified as "poles" which
were exempted from real property tax. The Court ruled in the affirmative, ratiocinating
that:cralawlawlibrary
Along the streets, in the City of Manila, may be seen cylindrical metal poles, cubical concrete
poles, and poles of the PLDT Co. which are made of two steel bars joined together by an
interlacing metal rod. They are called "poles" notwithstanding the fact that they are not made of
wood. It must be noted from paragraph 9, above quoted, that the concept of the "poles" for
which exemption is granted, is not determined by their place or location, nor by the character of
the electric current it carries, nor the material or form of which it is made, but the use to which
they are dedicated. In accordance with the definitions, a pole is not restricted to a long cylindrical
piece of wood or metal, but includes "upright standards to the top of which something is affixed
or by which something is supported." As heretofore described, respondent's steel supports
consist of a framework of four steel bars or strips which are bound by steel cross-arms atop of
which are cross-arms supporting five high voltage transmission wires (See Annex A) and their
sole function is to support or carry such wires.
The conclusion of the CTA that the steel supports in question are embraced in the term "poles"
is not a novelty. Several courts of last resort in the United States have called these steel
supports "steel towers", and they have denominated these supports or towers, as electric poles.
In their decisions the words "towers" and "poles" were used interchangeably, and it is well
understood in that jurisdiction that a transmission tower or pole means the same thing.
x x x x
It is evident, therefore, that the word "poles", as used in Act No. 484 and incorporated in the
petitioner's franchise, should not be given a restrictive and narrow interpretation, as to defeat the
very object for which the franchise was granted. The poles as contemplated thereon, should be
understood and taken as a part of the electric power system of the respondent Meralco, for the
42
conveyance of electric current from the source thereof to its consumers, x x x. chanrobleslaw
rights, privileges, receipts, revenues and profits, from which taxes the grantee is hereby
expressly exempted. (Emphases supplied.)chanrobleslaw
In CBAA Case No. 248 (and LBAA-89-2), the City Assessor assessed the transformers, electric
posts, transmission lines, insulators, and electric meters of MERALCO located in Lucena City
beginning 1985 under Tax Declaration No. 019-6500. The CBAA in its Decision dated April 10,
1991 in CBAA Case No. 248 sustained the exemption of the said properties of MERALCO from
real property tax on the basis of paragraph 13 of Resolution No. 2679 and the 1964 MERALCO
case.
Just when the franchise of MERALCO in Lucena City was about to expire, the Local
Government Code took effect on January 1, 1992, Sections 193 and 234 of which
provide:cralawlawlibrary
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 nonprofit hospitals and
educational institutions, are hereby withdrawn upon the effectivity of this Code.
Section 234. Exemptions from Real Property Tax. - The following are exempted from payment of
the real property tax:chanRoblesvirtualLawlibrary
(a) 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;ChanRoblesVirtualawlibrary
(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;ChanRoblesVirtualawlibrary

Similarly, it was clear that under the 20-year franchise granted to MERALCO by the Municipal (c) All machineries and equipment that are actually, directly and exclusively used by local water
Board of Lucena City through Resolution No. 2679 dated June 13, 1972, the transformers, districts and government-owned or controlled corporations engaged in the supply and
electric posts, transmission lines, insulators, and electric meters of MERALCO were exempt distribution of water and/or generation and transmission of electric
from real property tax. Paragraph 13 of Resolution No. 2679 is quoted in full power;ChanRoblesVirtualawlibrary
below:cralawlawlibrary
(d) All real property owned by duly registered cooperatives as provided for under R.A. No. 6938;
and
13. The grantee shall be liable to pay the same taxes upon its real estate, building, machinery,
and personal property (not including poles, wires, transformers, and insulators) as other (e) Machinery and equipment used for pollution control and environmental protection.
persons are now or may hereafter be required by law to pay. In consideration of the franchise
and rights hereby granted, the grantee shall pay into the City Treasury of Lucena a tax equal to Except as provided herein, any exemption from payment of real property tax previously granted
FIVE (5%) PER CENTUM of the gross earnings received from electric current sold or supplied to, or presently enjoyed by, all persons, whether natural or juridical, including all government-
under this franchise. Said tax shall be due and payable quarterly and shall be in lieu of any and owned or controlled corporations are hereby withdrawn upon the effectivity of this
all taxes of any kind, nature or description levied, established, or collected by any authority Code.chanrobleslaw
whatsoever, municipal, provincial, or national, now or in the future, on its poles, wires,
insulators, switches, transformers and structures, installations, conductors, and The Local Government Code, in addition, contains a general repealing clause under Section
accessories, placed in and over and under all the private and/or public property, including 534(f) which states that "[a]ll general and special laws, acts, city charters, decrees, executive
public streets and highways, provincial roads, bridges, and public squares, and on its franchise 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 person, thing, act, or consequence excludes all others as expressed in the familiar
45
accordingly." maxim expressio unius est exclusio alterius. Not being among the recognized exemptions from
real property tax in Section 234 of the Local Government Code, then the exemption of the
Taking into account the above-mentioned provisions, the evident intent of the Local Government transformers, electric posts, transmission lines, insulators, and electric meters of MERALCO
Code is to withdraw/repeal all exemptions from local taxes, unless otherwise provided by the from real property tax granted under its franchise was among the exemptions withdrawn upon
Code. The limited and restrictive nature of the tax exemption privileges under the Local the effectivity of the Local Government Code on January 1, 1998.
Government Code is consistent with the State policy to ensure autonomy of local governments
and the objective of the Local Government Code to grant genuine and meaningful autonomy to It is worthy to note that the subsequent franchises for operation granted to
enable local government units to attain their fullest development as self-reliant communities and MERALCO, i.e., under the Certificate of Franchise dated October 28, 1993 issued by the
make them effective partners in the attainment of national goals. The obvious intention of the law National Electrification Commission and Republic Act No. 9209 enacted on June 9, 2003 by
is to broaden the tax base of local government units to assure them of substantial sources of Congress, are completely silent on the matter of exemption from real property tax of MERALCO
43
revenue. or any of its properties.

Section 234 of the Local Government Code particularly identifies the exemptions from payment It is settled that tax exemptions must be clear and unequivocal. A taxpayer claiming a tax
of real property tax, based on the ownership, character, and use of the exemption must point to a specific provision of law conferring on the taxpayer, in clear and plain
property, viz.:cralawlawlibrary terms, exemption from a common burden. Any doubt whether a tax exemption exists is resolved
46
against the taxpayer. MERALCO has failed to present herein any express grant of exemption
from real property tax of its transformers, electric posts, transmission lines, insulators, and
(a) Ownership Exemptions. Exemptions from real property taxes on the basis of ownership are electric meters that is valid and binding even under the Local Government Code.
real properties owned by: (i) the Republic, (ii) a province, (iii) a city, (iv) a municipality, (v) a
barangay, and (vi) registered cooperatives. The transformers, electric posts,
transmission lines, insulators, and electric
(b) Character Exemptions. Exempted from real property taxes on the basis of their character are: meters of MERALCO may qualify as
(i) charitable institutions, (ii) houses and temples of prayer like churches, parsonages or "machinery" under the Local Government
convents appurtenant thereto, mosques, and (iii) nonprofit or religious cemeteries. Code subject to real property tax.

(c) Usage exemptions. Exempted from real property taxes on the basis of the actual, direct and Through the years, the relevant laws have consistently considered "machinery" as real property
exclusive use to which they are devoted are: (i) all lands, buildings and improvements which are subject to real property tax. It is the definition of "machinery" that has been changing and
actually directly and exclusively used for religious, charitable or educational purposes; (ii) all expanding, as the following table will show:chanRoblesvirtualLawlibrary
machineries and equipment actually, directly and exclusively used by local water districts or by
government-owned or controlled corporations engaged in the supply and distribution of water Real Property 47
and/or generation and transmission of electric power; and (iii) all machinery and equipment used Incidence of Real Property Tax Definition of Machinery
Tax Law
for pollution control and environmental protection.
The Section 2. Incidence of real property Section 3. Property exempt from
To help provide a healthy environment in the midst of the modernization of the country, all Assessment tax. - Except in chartered cities, tax. - The exemptions shall be as
machinery and equipment for pollution control and environmental protection may not be taxed by Law there shall be levied, assessed, and follows:
local governments. (Commonwealth collected, an annual ad valorem tax x x x x
Act No. 470) on real property, including land, (f) Machinery, which term shall
2. Other Exemptions Withdrawn. All other exemptions previously granted to natural or juridical buildings, machinery, and other embrace machines, mechanical
persons including government-owned or controlled corporations are withdrawn upon the Effectivity: improvements not hereinafter contrivances, instruments,
44
effectivity of the Code. chanrobleslaw January 1, 1940 specifically exempted. appliances, and apparatus attached
to the real estate, used for industrial
The last paragraph of Section 234 had unequivocally withdrawn, upon the effectivity of the Local agricultural or manufacturing
Government Code, exemptions from payment of real property taxes granted to natural or purposes, during the first five years
juridical persons, including government-owned or controlled corporations, except as provided in of the operation of the machinery.
the same section.
Real Property Section 38. Incidence of Real Section 3. Definition of Terms. -
Tax Code Property Tax. - There shall be When used in this Code -
MERALCO, a private corporation engaged in electric distribution, and its transformers, electric
posts, transmission lines, insulators, and electric meters used commercially do not qualify under levied, assessed and collected in all
any of the ownership, character, and usage exemptions enumerated in Section 234 of the Local Effectivity: June provinces, cities and municipalities x x x x
Government Code. It is a basic precept of statutory construction that the express mention of one 1, 1974 an annual ad valorem tax on real
 property, such as land, buildings, (m) Machinery - shall embrace propelled, and those not
machinery and other improvements machines, mechanical contrivances, permanently attached to the real
affixed or attached to real property instruments, appliances and property which are actually, directly,
not hereinafter specifically apparatus attached to the real and exclusively used to meet the
exempted. estate. It includes the physical needs of the particular industry,
facilities available for production, as business or activity and which by
well as the installations and their very nature and purpose are
appurtenant service facilities, designed for, or necessary to its
together with all other equipment manufacturing, mining,logging,
designed for or essential to its commercial, industrial or
manufacturing, industrial or agricultural purposes[.]
agricultural purposes.

Real Property Section 38. Incidence of Real Section 3. Definition of Terms.

Tax Code, as Property Tax. - There shall be When used in this Code - MERALCO is a public utility engaged in electric distribution, and its transformers, electric posts,
amended by levied, assessed and collected in all x x x x transmission lines, insulators, and electric meters constitute the physical facilities through which
Presidential provinces, cities and municipalities MERALCO delivers electricity to its consumers. Each may be considered as one or more of the
Decree No. an annual ad valorem tax on real (m) Machinery - shall embrace following: a
48 49 50 51 52 53
1383 property, such as land, buildings, machines, equipment, mechanical "machine," "equipment," "contrivance," "instrument," "appliance," "apparatus," or
54
machinery and other improvements contrivances, instruments, "installation."
Effectivity: May affixed or attached to real property appliances and apparatus attached
25, 1978 not hereinafter specifically to the real estate. It shall include the The Court highlights that under Section 199(o) of the Local Government Code, machinery, to be
exempted. physical facilities available for deemed real property subject to real property tax, need no longer be annexed to the land or
production, as well as the building as these "may or may not be attached, permanently or temporarily to the real property,"
55
installations and appurtenant and in fact, such machinery may even be "mobile." The same provision though requires that to
service facilities, together with all be machinery subject to real property tax, the physical facilities for production, installations, and
those not permanently attached to appurtenant service facilities, those which are mobile, self-powered or self-propelled, or not
the real estate but are actually, permanently attached to the real property (a) must be actually, directly, and exclusively used to
directly and essentially used to meet meet the needs of the particular industry, business, or activity; and (2) by their very nature and
the needs of the particular industry, purpose, are designed for, or necessary for manufacturing, mining, logging, commercial,
business, or works, which by their industrial, or agricultural purposes. Thus, Article 290(o) of the Rules and Regulations
very nature and purpose are Implementing the Local Government Code of 1991 recognizes the following
designed for, or essential to exemption:cralawlawlibrary
manufacturing, commercial, mining,
industrial or agricultural purposes.
Machinery which are of general purpose use including but not limited to office equipment,
Local Section 232. Power to Levy Real Section 199. Definitions. - When typewriters, telephone equipment, breakable or easily damaged containers (glass or cartons),
Government Property Tax. — A province or city used in this Title: microcomputers, facsimile machines, telex machines, cash dispensers, furnitures and fixtures,
Code or a municipality within the x x x x freezers, refrigerators, display cases or racks, fruit juice or beverage automatic dispensing
Metropolitan Manila Area may levy machines which are not directly and exclusively used to meet the needs of a particular industry,
Effectivity: an annual ad valorem tax on real (o) "Machinery" embraces business or activity shall not be considered within the definition of machinery under this Rule.
January 1, 1992 property such as land, machines, equipment, mechanical (Emphasis supplied.)chanrobleslaw
building, machinery, and other contrivances, instruments,
improvement not hereinafter appliances or apparatus which may The 1964 MERALCO case was decided when The Assessment Law was still in effect and
specifically exempted. or may not be attached, Section 3(f) of said law still required that the machinery be attached to the real property.
permanently or temporarily, to Moreover, as the Court pointed out earlier, the ruling in the 1964 MERALCO case - that the
the real property. It includes the electric poles (including the steel towers) of MERALCO are not subject to real property tax - was
physical facilities for production, the primarily based on the express exemption granted to MERALCO under its previous franchise.
installations and appurtenant The reference in said case to the Civil Code definition of real property was only an alternative
service facilities, those which are argument:cralawlawlibrary
mobile, self-powered or self-
 and (2) by their very nature and purpose, be designed for, or necessary for manufacturing,
mining, logging, commercial, industrial, or agricultural purposes.
Granting for the purpose of argument that the steel supports or towers in question are
not embraced within the term poles, the logical question posited is whether they Article 415, paragraph (1) of the Civil Code declares as immovables or real properties "[l]and,
constitute real properties, so that they can be subject to a real property tax. The tax law buildings, roads and constructions of all kinds adhered to the soil." The land, buildings, and
does not provide for a definition of real property; but Article 415 of the Civil Code does, by roads are immovables by nature "which cannot be moved from place to place," whereas the
stating the following are immovable property:cralawlawlibrary constructions adhered to the soil are immovables by incorporation "which are essentially
movables, but are attached to an immovable in such manner as to be an integral part
57
thereof." Article 415, paragraph (3) of the Civil Code, referring to "[ejverything attached to an
(1) Land, buildings, roads, and constructions of all kinds adhered to the immovable in a fixed manner, in such a way that it cannot be separated therefrom without
soil;ChanRoblesVirtualawlibrary breaking the material or deterioration of the object," are likewise immovables by incorporation. In
contrast, the Local Government Code considers as real property machinery which "may or may
x x x x not be attached, permanently or temporarily to the real property," and even those which are
"mobile."
(3) Everything attached to an immovable in a fixed manner, in such a way that it cannot be
separated therefrom without breaking the material or deterioration of the Article 415, paragraph (5) of the Civil Code considers as immovables or real properties
object;ChanRoblesVirtualawlibrary "[machinery, receptacles, instruments or implements intended by the owner of the tenement for
an industry or works which may be carried on in a building or on a piece of land, and which tend
x x x x directly to meet the needs of the said industry or works." The Civil Code, however, does not
define "machinery."
(5) Machinery, receptacles, instruments or implements intended by the owner of the tenement
for an industry or works which may be carried in a building or on a piece of land, and which The properties under Article 415, paragraph (5) of the Civil Code are immovables by destination,
tends directly to meet the needs of the said industry or works;ChanRoblesVirtualawlibrary or "those which are essentially movables, but by the purpose for which they have been placed in
an immovable, partake of the nature of the latter because of the added utility derived
58
xxxx therefrom." These properties, including machinery, become immobilized if the following
The steel towers or supports in question, do not come within the objects mentioned in paragraph requisites concur: (a) they are placed in the tenement by the owner of such tenement; (b) they
1, because they do not constitute buildings or constructions adhered to the soil. They are not are destined for use in the industry or work in the tenement; and (c) they tend to directly meet
59
constructions analogous to buildings nor adhering to the soil. As per description, given by the the needs of said industry or works. The first two requisites are not found anywhere in the
lower court, they are removable and merely attached to a square metal frame by means of bolts, Local Government Code.
which when unscrewed could easily be dismantled and moved from place to place. They can not
be included under paragraph 3, as they are not attached to an immovable in a fixed manner, and MERALCO insists on harmonizing the aforementioned provisions of the Civil Code and the Local
they can be separated without breaking the material or causing deterioration upon the object to Government Code. The Court disagrees, however, for this would necessarily mean imposing
which they are attached. Each of these steel towers or supports consists of steel bars or metal additional requirements for classifying machinery as real property for real property tax purposes
strips, joined together by means of bolts, which can be disassembled by unscrewing the bolts not provided for, or even in direct conflict with, the provisions of the Local Government Code.
and reassembled by screwing the same. These steel towers or supports do not also fall under
paragraph 5, for they are not machineries or receptacles, instruments or implements, and even if As between the Civil Code, a general law governing property and property relations, and the
they were, they are not intended for industry or works on the land. Petitioner is not engaged in Local Government Code, a special law granting local government units the power to impose real
an industry or works on the land in which the steel supports or towers are property tax, then the latter shall prevail. As the Court pronounced in Disomangcop v. The
56
constructed. (Emphases supplied.)chanrobleslaw Secretary of the Department of Public Works and Highways Simeon A.
60
Datumanong :cralawlawlibrary
The aforequoted conclusions of the Court in the 1964 MERALCO case do not hold true anymore
under the Local Government Code.
It is a finely-imbedded principle in statutory construction that a special provision or law prevails
While the Local Government Code still does not provide for a specific definition of "real over a general one. Lex specialis derogant generali. As this Court expressed in the case
property," Sections 199(o) and 232 of the said Code, respectively, gives an extensive definition of Leveriza v. Intermediate Appellate Court, "another basic principle of statutory construction
of what constitutes "machinery" and unequivocally subjects such machinery to real property tax. mandates that general legislation must give way to special legislation on the same subject, and
The Court reiterates that the machinery subject to real property tax under the Local Government generally be so interpreted as to embrace only cases in which the special provisions are not
Code "may or may not be attached, permanently or temporarily to the real property;" and the applicable, that specific statute prevails over a general statute and that where two statutes are of
physical facilities for production, installations, and appurtenant service facilities, those which are equal theoretical application to a particular case, the one designed therefor specially should
mobile, self-powered or self-propelled, or are not permanently attached must (a) be actually, prevail." (Citations omitted.)chanrobleslaw
directly, and exclusively used to meet the needs of the particular industry, business, or activity;
 Government Code, which read:cralawlawlibrary
The Court also very clearly explicated in Vinzons-Chato v. Fortune Tobacco
61
Corporation that:cralawlawlibrary
Section 224. Appraisal and Assessment of Machinery. - (a) The fair market value of a brand-new
machinery shall be the acquisition cost. In all other cases, the fair market value shall be
A general law and a special law on the same subject are statutes in pah materia and should, determined by dividing the remaining economic life of the machinery by its estimated economic
accordingly, be read together and harmonized, if possible, with a view to giving effect to both. life and multiplied by the replacement or reproduction cost.
The rule is that where there are two acts, one of which is special and particular and the other
general which, if standing alone, would include the same matter and thus conflict with the special (b) If the machinery is imported, the acquisition cost includes freight, insurance, bank and other
act, the special law must prevail since it evinces the legislative intent more clearly than that of a charges, brokerage, arrastre and handling, duties and taxes, plus cost of inland transportation,
general statute and must not be taken as intended to affect the more particular and specific handling, and installation charges at the present site. The cost in foreign currency of imported
provisions of the earlier act, unless it is absolutely necessary so to construe it in order to give its machinery shall be converted to peso cost on the basis of foreign currency exchange rates as
words any meaning at all. fixed by the Central Bank.

The circumstance that the special law is passed before or after the general act does not change Section 225. Depreciation Allowance for Machinery. - For purposes of assessment, a
the principle. Where the special law is later, it will be regarded as an exception to, or a depreciation allowance shall be made for machinery at a rate not exceeding five percent (5%) of
qualification of, the prior general act; and where the general act is later, the special statute will its original cost or its replacement or reproduction cost, as the case may be, for each year of
be construed as remaining an exception to its terms, unless repealed expressly or by necessary use: Provided, however, That the remaining value for all kinds of machinery shall be fixed at not
implication. (Citations omitted.)chanrobleslaw less than twenty percent (20%) of such original, replacement, or reproduction cost for so long as
the machinery is useful and in operation.chanrobleslaw
62
Furthermore, in Caltex (Philippines), Inc. v. Central Board of Assessment Appeals, the Court
acknowledged that "[i]t is a familiar phenomenon to see things classed as real property for It is apparent from these two provisions that every machinery must be individually appraised and
purposes of taxation which on general principle might be considered personal property[.]" assessed depending on its acquisition cost, remaining economic life, estimated economic life,
replacement or reproduction cost, and depreciation.
Therefore, for determining whether machinery is real property subject to real property tax, the
definition and requirements under the Local Government Code are controlling. Article 304 of the Rules and Regulations Implementing the Local Government Code of 1991
expressly authorizes the local assessor or his deputy to receive evidence for the proper
MERALCO maintains that its electric posts are not machinery subject to real property tax appraisal and assessment of the real property:cralawlawlibrary
because said posts are not being exclusively used by MERALCO; these are also being utilized
by cable and telephone companies. This, however, is a factual issue which the Court cannot
take cognizance of in the Petition at bar as it is not a trier of facts. Whether or not the electric Article 304. Authority of Local Assessors to Take Evidence. - For the purpose of obtaining
posts of MERALCO are actually being used by other companies or industries is best left to the information on which to base the market value of any real property, the assessor of the province,
determination of the City Assessor or his deputy, who has been granted the authority to take city, or municipality or his deputy may summon the owners of the properties to be affected or
evidence under Article 304 of the Rules and Regulations Implementing the Local Government persons having legal interest therein and witnesses, administer oaths, and take deposition
Code of 1991. concerning the property, its ownership, amount, nature, and value.
chanrobleslaw
Nevertheless, the appraisal and
assessment of the transformers, electric The Local Government Code further mandates that the taxpayer be given a notice of the
posts, transmission lines, insulators, and assessment of real property in the following manner:cralawlawlibrary
electric meters of MERALCO as machinery
under Tax Declaration Nos. 019-6500 and
019-7394 were not in accordance with the Section 223. Notification of New or Revised Assessment. - When real property is assessed for
Local Government Code and in violation of the first time or when an existing assessment is increased or decreased, the provincial, city or
the right to due process of MERALCO and, municipal assessor shall within thirty (30) days give written notice of such new or revised
therefore, null and void. assessment to the person in whose name the property is declared. The notice may be delivered
personally or by registered mail or through the assistance of the punong barangay to the last
The Local Government Code defines "appraisal" as the "act or process of determining the value known address of the person to served.chanrobleslaw
of property as of a specific date for a specific purpose." "Assessment" is "the act or process of
determining the value of a property, or proportion thereof subject to tax, including the discovery, A notice of assessment, which stands as the first instance the taxpayer is officially made aware
63
listing, classification, and appraisal of the properties[.]" When it comes to machinery, its of the pending tax liability, should be sufficiently informative to apprise the taxpayer the legal
64 65
appraisal and assessment are particularly governed by Sections 224 and 225 of the Local basis of the tax. In Manila Electric Company v. Barlis, the Court described the contents of a
valid notice of assessment of real property and differentiated the same from a notice of
collection:cralawlawlibrary
A notice of assessment as provided for in the Real Property Tax Code should effectively inform
the taxpayer of the value of a specific property, or proportion thereof subject to tax, including the
discovery, listing, classification, and appraisal of properties. The September 3, 1986 and
October 31, 1989 notices do not contain the essential information that a notice of assessment
must specify, namely, the value of a specific property or proportion thereof which is being taxed,
nor does it state the discovery, listing, classification and appraisal of the property subject to
taxation. In fact, the tenor of the notices bespeaks an intention to collect unpaid taxes, thus the
reminder to the taxpayer that the failure to pay the taxes shall authorize the government to
auction off the properties subject to taxes x x x.chanrobleslaw
Although the ruling quoted above was rendered under the Real Property Tax Code, the
requirement of a notice of assessment has not changed under the Local Government Code.
A perusal of the documents received by MERALCO on October 29, 1997 reveals that none of
them constitutes a valid notice of assessment of the transformers, electric posts, transmission
lines, insulators, and electric meters of MERALCO.
The letter dated October 16, 1997 of the City Treasurer of Lucena (which interestingly precedes
the purported Notice of Assessment dated October 20, 1997 of the City Assessor of Lucena) is a
notice of collection, ending with the request for MERALCO to settle the payable amount soon in
order to avoid accumulation of penalties. It only presented in table form the tax declarations
covering the machinery, assessed values in the tax declarations in lump sums for all the
machinery, the periods covered, and the taxes and penalties due again in lump sums for all the
machinery.
The Notice of Assessment dated October 20, 1997 issued by the City Assessor gave a summary
of the new/revised assessment of the "machinery" located in "Quezon Avenue Ext., Brgy.
Gulang-Gulang, Lucena City," covered by Tax Declaration No. 019-7394, with total market value
of P98,173,200.00 and total assessed value of P78,538,560.00. The Property Record Form
basically contained the same information. Without specific description or identification of the
machinery covered by said tax declaration, said Notice of Assessment and Property Record
Form give the false impression that there is only one piece of machinery covered.
In Tax Declaration No. 019-6500, the City Assessor reported its findings under "Building and
Improvements" and not "Machinery." Said tax declaration covered "capital investment-
commercial," specifically: (a) Transformer and Electric Post; (b) Transmission Line, (c) Insulator,
and (d) Electric Meter, with a total market value of P81,811,000.00, assessment level of 80%,
and assessed value of £65,448,800.00. Conspicuously, the table for "Machinery" - requiring the
description, date of operation, replacement cost, depreciation, and market value of the
machinery - is totally blank.
MERALCO avers, and the City Assessor and the City Treasurer of Lucena do not refute at all,
that MERALCO has not been furnished the Owner's Copy of Tax Declaration No. 019-7394, in
which the total market value of the machinery of MERALCO was increased by PI6,632,200.00,
compared to that in Tax Declaration No. 019-6500.
The Court cannot help but attribute the lack of a valid notice of assessment to the apparent lack
of a valid appraisal and assessment conducted by the City Assessor of Lucena in the first place.
It appears that the City Assessor of Lucena simply lumped together all the transformers, electric
posts, transmission lines, insulators, and electric meters of MERALCO located in Lucena City
under Tax Declaration Nos. 019-6500 and 019-7394, contrary to the specificity demanded under
Sections 224 and 225 of the Local Government Code for appraisal and assessment of
machinery. The City Assessor and the City Treasurer of Lucena did not even provide the most
basic information such as the number of transformers, electric posts, insulators, and electric
meters or the length of the transmission lines appraised and assessed under Tax Declaration
Nos. 019-6500 and 019-7394. There is utter lack of factual basis for the assessment of the
transformers, electric posts, transmission lines, insulators, and electric meters of MERALCO.
The Court of Appeals laid the blame on MERALCO for the lack of information regarding its
transformers, electric posts, transmission lines, insulators, and electric meters for appraisal and
assessment purposes because MERALCO failed to file a sworn declaration of said properties as
required by Section 202 of the Local Government Code. As MERALCO explained, it cannot be
expected to file such a declaration when all the while it believed that said properties were
personal or movable properties not subject to real property tax. More importantly, Section 204 of
the Local Government Code exactly covers such a situation, thus:cralawlawlibrary
Section 204. Declaration of Real Property by the Assessor. -When any person, natural or
juridical, by whom real property is required to be declared under Section 202 hereof, refuses or
fails for any reason to make such declaration within the time prescribed, the provincial, city or
municipal assessor shall himself declare the property in the name of the defaulting owner, if
known, or against an unknown owner, as the case may be, and shall assess the property for
taxation in accordance with the provision of this Title. No oath shall be required of a declaration
thus made by the provincial, city or municipal assessor.chanrobleslaw
Note that the only difference between the declarations of property made by the taxpayer, on one
hand, and the provincial/city/municipal assessor, on the other, is that the former must be made
under oath. After making the declaration of the property himself for the owner, the
provincial/city/municipal assessor is still required to assess the property for taxation in
accordance with the provisions of the Local Government Code.
It is true that tax assessments by tax examiners are presumed correct and made in good faith,
66
with the taxpayer having the burden of proving otherwise. In this case, MERALCO was able to
overcome the presumption because it has clearly shown that the assessment of its properties by
the City Assessor was baselessly and arbitrarily done, without regard for the requirements of the
Local Government Code.
The exercise of the power of taxation constitutes a deprivation of property under the due process
clause, and the taxpayer's right to due process is violated when arbitrary or oppressive methods
67
are used in assessing and collecting taxes. The Court applies by analogy its pronouncements
68
in Commissioner of Internal Revenue v. United Salvage and Towage (Phils.), Inc., concerning
an assessment that did not comply with the requirements of the National Internal Revenue
Code:cralawlawlibrary
On the strength of the foregoing observations, we ought to reiterate our earlier teachings that "in
balancing the scales between the power of the State to tax and its inherent right to prosecute
perceived transgressors of the law on one side, and the constitutional rights of a citizen to due
process of law and the equal protection of the laws on the other, the scales must tilt in favor of
the individual, for a citizen's right is amply protected by the Bill of Rights under the Constitution."
Thus, while "taxes are the lifeblood of the government," the power to tax has its limits, in spite of
all its plenitude. Even as we concede the inevitability and indispensability of taxation, it is a
requirement in all democratic regimes that it be exercised reasonably and in accordance with the
prescribed procedure. (Citations omitted.)chanrobleslaw
The appraisal and assessment of the transformers, electric posts, transmission lines, insulators,
and electric meters of MERALCO under Tax Declaration Nos. 019-6500 and 019-7394, not
being in compliance with the Local Government Code, are attempts at deprivation of property
without due process of law and, therefore, null and void.
WHEREFORE, premises considered, the Court PARTLY GRANTS the instant Petition
and AFFIRMS with MODIFICATION the Decision dated May 13, 2004 of the Court of Appeals in
CA-G.R. SP No. 67027, affirming in toto the Decision dated May 3, 2001 of the Central Board of
Assessment Appeals in CBAA Case No. L-20-98. The Court DECLARES that the transformers,
electric posts, transmission lines, insulators, and electric meters of Manila Electric Company
are NOT EXEMPTED from real property tax under the Local Government Code. However, the
Court also DECLARES the appraisal and assessment of the said properties under Tax
Declaration Nos. 019-6500 and 019-7394 as NULL and VOID for not complying with the
requirements of the Local Government Code and violating the right to due process of Manila
Electric Company, and ORDERS the CANCELLATION of the collection letter dated October 16,
1997 of the City Treasurer of Lucena and the Notice of Assessment dated October 20, 1997 of
the City Assessor of Lucena, but WITHOUT PREJUDICE to the conduct of a new appraisal and
assessment of the same properties by the City Assessor of Lucena in accord with the provisions
of the Local Government Code and guidelines issued by the Bureau of Local Government
Financing.
SO ORDERED
G.R. No. 191109 July 18, 2012
REPUBLIC OF THE PHILIPPINES, represented by the PHILIPPINE RECLAMATION
AUTHORITY (PRA),Petitioner,
vs.
CITY OF PARANAQUE, Respondent.
DECISION
MENDOZA, J.:
This is a petition for review on certiorari under Rule 45 of the 1997 Rules of Civil Procedure, on
1
pure questions of law, assailing the January 8, 2010 Order of the Regional Trial Court, Branch
195, Parafiaque City (RTC), which ruled that petitioner Philippine Reclamation Authority (PRA) is
a government-owned and controlled corporation (GOCC), a taxable entity, and, therefore, . not
exempt from payment of real property taxes. The pertinent portion of the said order reads:
In view of the finding of this court that petitioner is not exempt from payment of real property
taxes, respondent Parañaque City Treasurer Liberato M. Carabeo did not act xxx without or in
excess of jurisdiction, or with grave abuse of discretion amounting to lack or in excess of
jurisdiction in issuing the warrants of levy on the subject properties.
WHEREFORE, the instant petition is dismissed. The Motion for Leave to File and Admit
Attached Supplemental Petition is denied and the supplemental petition attached thereto is not
admitted.
The Public Estates Authority (PEA) is a government corporation created by virtue of Presidential
Decree (P.D.) No. 1084 (Creating the Public Estates Authority, Defining its Powers and
Functions, Providing Funds Therefor and For Other Purposes) which took effect on February 4,
1977 to provide a coordinated, economical and efficient reclamation of lands, and the
administration and operation of lands belonging to, managed and/or operated by, the
government with the object of maximizing their utilization and hastening their development
consistent with public interest.
On February 14, 1979, by virtue of Executive Order (E.O.) No. 525 issued by then President
Ferdinand Marcos, PEA was designated as the agency primarily responsible for integrating,
directing and coordinating all reclamation projects for and on behalf of the National Government.
On October 26, 2004, then President Gloria Macapagal-Arroyo issued E.O. No. 380
transforming PEA into PRA, which shall perform all the powers and functions of the PEA relating
to reclamation activities.
By virtue of its mandate, PRA reclaimed several portions of the foreshore and offshore areas of
Manila Bay, including those located in Parañaque City, and was issued Original Certificates of
Title (OCT Nos. 180, 202, 206, 207, 289, 557, and 559) and Transfer Certificates of Title (TCT
Nos. 104628, 7312, 7309, 7311, 9685, and 9686) over the reclaimed lands.
On February 19, 2003, then Parañaque City Treasurer Liberato M. Carabeo (Carabeo) issued
Warrants of Levy on PRA’s reclaimed properties (Central Business Park and Barangay San
Dionisio) located in Parañaque City based on the assessment for delinquent real property taxes
made by then Parañaque City Assessor Soledad Medina Cue for tax years 2001 and 2002.
On March 26, 2003, PRA filed a petition for prohibition with prayer for temporary restraining
order (TRO) and/or writ of preliminary injunction against Carabeo before the RTC.
On April 3, 2003, after due hearing, the RTC issued an order denying PRA’s petition for the
issuance of a temporary restraining order.
On April 4, 2003, PRA sent a letter to Carabeo requesting the latter not to proceed with the
public auction of the subject reclaimed properties on April 7, 2003. In response, Carabeo sent a
letter stating that the public auction could not be deferred because the RTC had already denied
PRA’s TRO application.
On April 25, 2003, the RTC denied PRA’s prayer for the issuance of a writ of preliminary
injunction for being moot and academic considering that the auction sale of the subject
properties on April 7, 2003 had already been consummated.
On August 3, 2009, after an exchange of several pleadings and the failure of both parties to
arrive at a compromise agreement, PRA filed a Motion for Leave to File and Admit Attached
Supplemental Petition which sought to declare as null and void the assessment for real property
taxes, the levy based on the said assessment, the public auction sale conducted on April 7,
2003, and the Certificates of Sale issued pursuant to the auction sale.
On January 8, 2010, the RTC rendered its decision dismissing PRA’s petition. In ruling that PRA
was not exempt from payment of real property taxes, the RTC reasoned out that it was a GOCC
under Section 3 of P.D. No. 1084. It was organized as a stock corporation because it had an
authorized capital stock divided into no par value shares. In fact, PRA admitted its corporate
personality and that said properties were registered in its name as shown by the certificates of
title. Therefore, as a GOCC, local tax exemption is withdrawn by virtue of Section 193 of
Republic Act (R.A.) No. 7160 Local Government Code (LGC) which was the prevailing law in
2001 and 2002 with respect to real property taxation. The RTC also ruled that the tax exemption
claimed by PRA under E.O. No. 654 had already been expressly repealed by R.A. No. 7160 and
that PRA failed to comply with the procedural requirements in Section 206 thereof.
Not in conformity, PRA filed this petition for certiorari assailing the January 8, 2010 RTC Order
based on the following GROUNDS
I from the payment of real estate taxes. Reclaimed lands retain their inherent potential as areas
THE TRIAL COURT GRAVELY ERRED IN FINDING THAT PETITIONER IS LIABLE TO PAY
REAL PROPERTY TAX ON THE SUBJECT RECLAIMED LANDS CONSIDERING
THAT PETITIONER IS AN INCORPORATED INSTRUMENTALITY OF THE NATIONAL
GOVERNMENT AND IS, THEREFORE, EXEMPT FROM PAYMENT OF REAL PROPERTY
TAX UNDER SECTIONS 234(A) AND 133(O) OF REPUBLIC ACT 7160 OR THE LOCAL
GOVERNMENT CODE VIS-À-VIS MANILA INTERNATIONAL AIRPORT AUTHORITY V.
COURT OF APPEALS.
II
THE TRIAL COURT GRAVELY ERRED IN FAILING TO CONSIDER THAT RECLAIMED
LANDS ARE PART OF THE PUBLIC DOMAIN AND, HENCE, EXEMPT FROM REAL
PROPERTY TAX.
PRA asserts that it is not a GOCC under Section 2(13) of the Introductory Provisions of the
Administrative Code. Neither is it a GOCC under Section 16, Article XII of the 1987 Constitution
because it is not required to meet the test of economic viability. Instead, PRA is a government
instrumentality vested with corporate powers and performing an essential public service
pursuant to Section 2(10) of the Introductory Provisions of the Administrative Code. Although it
has a capital stock divided into shares, it is not authorized to distribute dividends and allotment
of surplus and profits to its stockholders. Therefore, it may not be classified as a stock
corporation because it lacks the second requisite of a stock corporation which is the distribution
of dividends and allotment of surplus and profits to the stockholders.
It insists that it may not be classified as a non-stock corporation because it has no members and
it is not organized for charitable, religious, educational, professional, cultural, recreational,
fraternal, literary, scientific, social, civil service, or similar purposes, like trade, industry,
agriculture and like chambers as provided in Section 88 of the Corporation Code.
Moreover, PRA points out that it was not created to compete in the market place as there was
no competing reclamation company operated by the private sector. Also, while PRA is vested
with corporate powers under P.D. No. 1084, such circumstance does not make it a corporation
but merely an incorporated instrumentality and that the mere fact that an incorporated
instrumentality of the National Government holds title to real property does not make said
instrumentality a GOCC. Section 48, Chapter 12, Book I of the Administrative Code of 1987
recognizes a scenario where a piece of land owned by the Republic is titled in the name of a
department, agency or instrumentality.
Thus, PRA insists that, as an incorporated instrumentality of the National Government, it is
exempt from payment of real property tax except when the beneficial use of the real property is
granted to a taxable person. PRA claims that based on Section 133(o) of the LGC, local
governments cannot tax the national government which delegate to local governments the
power to tax.
It explains that reclaimed lands are part of the public domain, owned by the State, thus, exempt
for public use or public service. While the subject reclaimed lands are still in its hands, these
lands remain public lands and form part of the public domain. Hence, the assessment of real
property taxes made on said lands, as well as the levy thereon, and the public sale thereof on
April 7, 2003, including the issuance of the certificates of sale in favor of the respondent
Parañaque City, are invalid and of no force and effect.
On the other hand, the City of Parañaque (respondent) argues that PRA since its creation
consistently represented itself to be a GOCC. PRA’s very own charter (P.D. No. 1084) declared
it to be a GOCC and that it has entered into several thousands of contracts where it represented
itself to be a GOCC. In fact, PRA admitted in its original and amended petitions and pre-trial brief
filed with the RTC of Parañaque City that it was a GOCC.
Respondent further argues that PRA is a stock corporation with an authorized capital stock
divided into 3 million no par value shares, out of which 2 million shares have been subscribed
and fully paid up. Section 193 of the LGC of 1991 has withdrawn tax exemption privileges
granted to or presently enjoyed by all persons, whether natural or juridical, including GOCCs.
Hence, since PRA is a GOCC, it is not exempt from the payment of real property tax.
THE COURT’S RULING
The Court finds merit in the petition.
Section 2(13) of the Introductory Provisions of the Administrative Code of 1987 defines a GOCC
as follows:
SEC. 2. General Terms Defined. – x x x x
(13) Government-owned or controlled corporation refers to any agency organized as a stock or
non-stock corporation, vested with functions relating to public needs whether governmental or
proprietary in nature, and owned by the Government directly or through its instrumentalities
either wholly, or, where applicable as in the case of stock corporations, to the extent of at least
fifty-one
(51) percent of its capital stock: x x x.
On the other hand, Section 2(10) of the Introductory Provisions of the Administrative Code
defines a government "instrumentality" as follows:
SEC. 2. General Terms Defined. –– x x x x
(10) Instrumentality refers to any 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. x x x
From the above definitions, it is clear that a GOCC must be "organized as a stock or non-stock
corporation" while an instrumentality is vested by law with corporate powers. Likewise, when the
law makes a government instrumentality operationally autonomous, the instrumentality remains
part of the National Government machinery although not integrated with the department
framework.
When the law vests in a government instrumentality corporate powers, the instrumentality does
not necessarily become a corporation. Unless the government instrumentality is organized as a
stock or non-stock corporation, it remains a government instrumentality exercising not only
governmental but also corporate powers.
Many government instrumentalities are vested with corporate powers but they do not become
stock or non-stock corporations, which is a necessary condition before an agency or
instrumentality is deemed a GOCC. Examples are the Mactan International Airport Authority, the
Philippine Ports Authority, the University of the Philippines, and Bangko Sentral ng Pilipinas. All
these government instrumentalities exercise corporate powers but they are not organized as
stock or non-stock corporations as required by Section 2(13) of the Introductory Provisions of the
Administrative Code. These government instrumentalities are sometimes loosely called
government corporate entities. They are not, however, GOCCs in the strict sense as understood
under the Administrative Code, which is the governing law defining the legal relationship and
2
status of government entities.
Correlatively, Section 3 of the Corporation Code defines a stock corporation as one whose
"capital stock is divided into shares and x x x authorized to distribute to the holders of such
shares dividends x x x." Section 87 thereof defines a non-stock corporation as "one where no
part of its income is distributable as dividends to its members, trustees or officers." Further,
Section 88 provides that non-stock corporations are "organized for charitable, religious,
educational, professional, cultural, recreational, fraternal, literary, scientific, social, civil service,
or similar purposes, like trade, industry, agriculture and like chambers."
Two requisites must concur before one may be classified as a stock corporation, namely: (1) that
it has capital stock divided into shares; and (2) that it is authorized to distribute dividends and
allotments of surplus and profits to its stockholders. If only one requisite is present, it cannot be
properly classified as a stock corporation. As for non-stock corporations, they must have
3
members and must not distribute any part of their income to said members.
In the case at bench, PRA is not a GOCC because it is neither a stock nor a non-stock
corporation. It cannot be considered as a stock corporation because although it has a capital
4
stock divided into no par value shares as provided in Section 7 of P.D. No. 1084, it is not
authorized to distribute dividends, surplus allotments or profits to stockholders. There is no
provision whatsoever in P.D. No. 1084 or in any of the subsequent executive issuances
5 6 7
pertaining to PRA, particularly, E.O. No. 525, E.O. No. 654 and EO No. 798 that authorizes
PRA to distribute dividends, surplus allotments or profits to its stockholders.
PRA cannot be considered a non-stock corporation either because it does not have members. A
8
non-stock corporation must have members. Moreover, it was not organized for any of the
purposes mentioned in Section 88 of the Corporation Code. Specifically, it was created to
manage all government reclamation projects.
Furthermore, there is another reason why the PRA cannot be classified as a GOCC. Section 16,
Article XII of the 1987 Constitution provides as follows:
Section 16. The Congress shall not, except by general law, provide for the formation,
organization, or regulation of private corporations. Government-owned or controlled corporations
may be created or established by special charters in the interest of the common good and
subject to the test of economic viability.
The fundamental provision above authorizes Congress to create GOCCs through special
charters on two conditions: 1) the GOCC must be established for the common good; and 2) the
GOCC must meet the test of economic viability. In this case, PRA may have passed the first
condition of common good but failed the second one - economic viability. Undoubtedly, the
purpose behind the creation of PRA was not for economic or commercial activities. Neither was
it created to compete in the market place considering that there were no other competing
reclamation companies being operated by the private sector. As mentioned earlier, PRA was
created essentially to perform a public service considering that it was primarily responsible for a
coordinated, economical and efficient reclamation, administration and operation of lands
belonging to the government with the object of maximizing their utilization and hastening their
development consistent with the public interest. Sections 2 and 4 of P.D. No. 1084 reads, as
follows:
Section 2. Declaration of policy. It is the declared policy of the State to provide for a coordinated,
economical and efficient reclamation of lands, and the administration and operation of lands
belonging to, managed and/or operated by the government, with the object of maximizing their
utilization and hastening their development consistent with the public interest.
Section 4. Purposes. The Authority is hereby created for the following purposes:
(a) To reclaim land, including foreshore and submerged areas, by dredging, filling or
other means, or to acquire reclaimed land;
(b) To develop, improve, acquire, administer, deal in, subdivide, dispose, lease and
sell any and all kinds of lands, buildings, estates and other forms of real property,
owned, managed, controlled and/or operated by the government.
(c) To provide for, operate or administer such services as may be necessary for the
efficient, economical and beneficial utilization of the above properties.
The twin requirement of common good and economic viability was lengthily discussed in the
9
case of Manila International Airport Authority v. Court of Appeals, the pertinent portion of which
reads:
Third, the government-owned or controlled corporations created through special charters are
those that meet the two conditions prescribed in Section 16, Article XII of the Constitution.
The first condition is that the government-owned or controlled corporation must be established
for the common good. The second condition is that the government-owned or controlled
corporation must meet the test of economic viability. Section 16, Article XII of the 1987
Constitution provides:
SEC. 16. The Congress shall not, except by general law, provide for the formation, organization,
or regulation of private corporations. Government-owned or controlled corporations may be
created or established by special charters in the interest of the common good and subject to the
test of economic viability.
The Constitution expressly authorizes the legislature to create "government-owned or controlled
corporations" through special charters only if these entities are required to meet the twin
conditions of common good and economic viability. In other words, Congress has no power to
create government-owned or controlled corporations with special charters unless they are made
to comply with the two conditions of common good and economic viability. The test of economic
viability applies only to government-owned or controlled corporations that perform economic or
commercial activities and need to compete in the market place. Being essentially economic
vehicles of the State for the common good — meaning for economic development purposes —
these government-owned or controlled corporations with special charters are usually organized
as stock corporations just like ordinary private corporations.
In contrast, government instrumentalities vested with corporate powers and performing
governmental or public functions need not meet the test of economic viability. These
instrumentalities perform essential public services for the common good, services that every
modern State must provide its citizens. These instrumentalities need not be economically viable
since the government may even subsidize their entire operations. These instrumentalities are
not the "government-owned or controlled corporations" referred to in Section 16, Article XII of the
1987 Constitution.
Thus, the Constitution imposes no limitation when the legislature creates government
instrumentalities vested with corporate powers but performing essential governmental or public
functions. Congress has plenary authority to create government instrumentalities vested with
corporate powers provided these instrumentalities perform essential government functions or
public services. However, when the legislature creates through special charters corporations that
perform economic or commercial activities, such entities — known as "government-owned or
controlled corporations" — must meet the test of economic viability because they compete in the
market place.
This is the situation of the Land Bank of the Philippines and the Development Bank of the
Philippines and similar government-owned or controlled corporations, which derive their
incometo meet operating expenses solely from commercial transactions in competition with the
private sector. The intent of the Constitution is to prevent the creation of government-owned or
controlled corporations that cannot survive on their own in the market place and thus merely
drain the public coffers.
Commissioner Blas F. Ople, proponent of the test of economic viability, explained to the
Constitutional Commission the purpose of this test, as follows:
MR. OPLE: Madam President, the reason for this concern is really that when the government
creates a corporation, there is a sense in which this corporation becomes exempt from the test
of economic performance. We know what happened in the past. If a government corporation
loses, then it makes its claim upon the taxpayers' money through new equity infusions from the
government and what is always invoked is the common good. That is the reason why this year,
out of a budget of P115 billion for the entire government, about P28 billion of this will go into
equity infusions to support a few government financial institutions. And this is all taxpayers'
money which could have been relocated to agrarian reform, to social services like health and
education, to augment the salaries of grossly underpaid public employees. And yet this is all
going down the drain.
Therefore, when we insert the phrase "ECONOMIC VIABILITY" together with the "common
good," this becomes a restraint on future enthusiasts for state capitalism to excuse themselves
from the responsibility of meeting the market test so that they become viable. And so, Madam
President, I reiterate, for the committee's consideration and I am glad that I am joined in this
proposal by Commissioner Foz, the insertion of the standard of "ECONOMIC VIABILITY OR
THE ECONOMIC TEST," together with the common good.1âwphi1
Father Joaquin G. Bernas, a leading member of the Constitutional Commission, explains in his
textbook The 1987 Constitution of the Republic of the Philippines: A Commentary:
The second sentence was added by the 1986 Constitutional Commission. The significant
addition, however, is the phrase "in the interest of the common good and subject to the test of
economic viability." The addition includes the ideas that they must show capacity to function
efficiently in business and that they should not go into activities which the private sector can do
better. Moreover, economic viability is more than financial viability but also includes capability to
make profit and generate benefits not quantifiable in financial terms.
Clearly, the test of economic viability does not apply to government entities vested with
corporate powers and performing essential public services. The State is obligated to render
essential public services regardless of the economic viability of providing such service. The non-
economic viability of rendering such essential public service does not excuse the State from
withholding such essential services from the public.
However, government-owned or controlled corporations with special charters, organized
essentially for economic or commercial objectives, must meet the test of economic viability.
These are the government-owned or controlled corporations that are usually organized under
their special charters as stock corporations, like the Land Bank of the Philippines and the
Development Bank of the Philippines. These are the government-owned or controlled
corporations, along with government-owned or controlled corporations organized under the
Corporation Code, that fall under the definition of "government-owned or controlled corporations"
in Section 2(10) of the Administrative Code. [Emphases supplied]
This Court is convinced that PRA is not a GOCC either under Section 2(3) of the Introductory
Provisions of the Administrative Code or under Section 16, Article XII of the 1987 Constitution.
The facts, the evidence on record and jurisprudence on the issue support the position that PRA
was not organized either as a stock or a non-stock corporation. Neither was it created by
Congress to operate commercially and compete in the private market. Instead, PRA is a
government instrumentality vested with corporate powers and performing an essential public
service pursuant to Section 2(10) of the Introductory Provisions of the Administrative Code.
Being an incorporated government instrumentality, it is exempt from payment of real property
tax.
Clearly, respondent has no valid or legal basis in taxing the subject reclaimed lands managed by
PRA. On the other hand, Section 234(a) of the LGC, in relation to its Section 133(o), exempts
PRA from paying realty taxes and protects it from the taxing powers of local government units.
Sections 234(a) and 133(o) of the LGC provide, as follows:
SEC. 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 subdivisions
except when the beneficial use thereof has been granted, for consideration or otherwise, to a
taxable person.
xxxx
SEC. 133. Common Limitations on the Taxing Powers of Local Government Units. – Unless
otherwise provided herein, the exercise of the taxing powers of provinces, cities, municipalities,
and barangays shall not extend to the levy of the following:
xxxx
(o) Taxes, fees or charges of any kinds on the National Government, its agencies and
instrumentalities, and local government units. [Emphasis supplied]
It is clear from Section 234 that real property owned by the Republic of the Philippines (the
Republic) is exempt from real property tax unless the beneficial use thereof has been granted to
a taxable person. In this case, there is no proof that PRA granted the beneficial use of the
subject reclaimed lands to a taxable entity. There is no showing on record either that PRA
leased the subject reclaimed properties to a private taxable entity.
This exemption should be read in relation to Section 133(o) of the same Code, which prohibits
local governments from imposing "taxes, fees or charges of any kind on the National
Government, its agencies and instrumentalities x x x." The Administrative Code allows real
property owned by the Republic to be titled in the name of agencies or instrumentalities of the
national government. Such real properties remain owned by the Republic and continue to be
exempt from real estate tax.
Indeed, the Republic grants the beneficial use of its real property to an agency or instrumentality
of the national government. This happens when the title of the real property is transferred to an
agency or instrumentality even as the Republic remains the owner of the real property. Such
arrangement does not result in the loss of the tax exemption, unless "the beneficial use thereof
has been granted, for consideration or otherwise, to a taxable person."
10
The rationale behind Section 133(o) has also been explained in the case of the Manila
11
International Airport Authority, to wit:
Section 133(o) recognizes the basic principle that local governments cannot tax the national
government, which historically merely delegated to local governments the power to tax. While
the 1987 Constitution now includes taxation as one of the powers of local governments, local
governments may only exercise such power "subject to such guidelines and limitations as the
Congress may provide."
When local governments invoke the power to tax on national government instrumentalities, such
power is construed strictly against local governments. The rule is that a tax is never presumed
and there must be clear language in the law imposing the tax. Any doubt whether a person,
article or activity is taxable is resolved against taxation. This rule applies with greater force when
local governments seek to tax national government instrumentalities.
Another rule is that a tax exemption is strictly construed against the taxpayer claiming the
exemption. However, when Congress grants an exemption to a national government
instrumentality from local taxation, such exemption is construed liberally in favor of the national
government instrumentality. As this Court declared in Maceda v. Macaraig, Jr.:
The reason for the rule does not apply in the case of exemptions running to the benefit of the
government itself or its agencies. In such case the practical effect of an exemption is merely to
reduce the amount of money that has to be handled by government in the course of its
operations. For these reasons, provisions granting exemptions to government agencies may be
construed liberally, in favor of non tax-liability of such agencies.
There is, moreover, no point in national and local governments taxing each other, unless a
sound and compelling policy requires such transfer of public funds from one government pocket
to another.
There is also no reason for local governments to tax national government instrumentalities for
rendering essential public services to inhabitants of local governments. The only exception is
when the legislature clearly intended to tax government instrumentalities for the delivery of
essential public services for sound and compelling policy considerations. There must be express
language in the law empowering local governments to tax national government instrumentalities.
Any doubt whether such power exists is resolved against local governments.
Thus, Section 133 of the Local Government Code states that "unless otherwise provided" in the
Code, local governments cannot tax national government instrumentalities. As this Court held in
Basco v. Philippine Amusements and Gaming Corporation:
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 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" (McCulloch v.
Maryland, supra) cannot be allowed to defeat an instrumentality or creation of the very entity
which has the inherent power to wield it. [Emphases supplied]
The Court agrees with PRA that the subject reclaimed lands are still part of the public domain,
owned by the State and, therefore, exempt from payment of real estate taxes.
Section 2, Article XII of the 1987 Constitution reads in part, as follows:
Section 2. All lands of the public domain, waters, minerals, coal, petroleum, and other mineral
oils, all forces of potential energy, fisheries, forests or timber, wildlife, flora and fauna, and other
natural resources are owned by the State. With the exception of agricultural lands, all other
natural resources shall not be alienated. The exploration, development, and utilization of natural
resources shall be under the full control and supervision of the State. The State may directly
undertake such activities, or it may enter into co-production, joint venture, or production-sharing
agreements with Filipino citizens, or corporations or associations at least 60 per centum of
whose capital is owned by such citizens. Such agreements may be for a period not exceeding
twenty-five years, renewable for not more than twenty-five years, and under such terms and
conditions as may provided by law. In cases of water rights for irrigation, water supply, fisheries,
or industrial uses other than the development of waterpower, beneficial use may be the measure
and limit of the grant.
Similarly, Article 420 of the Civil Code enumerates properties belonging to the State:
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. [Emphases
supplied]
Here, the subject lands are reclaimed lands, specifically portions of the foreshore and offshore
areas of Manila Bay. As such, these lands remain public lands and form part of the public
domain. In the case of Chavez v. Public Estates Authority and AMARI Coastal Development
12
Corporation, the Court held that foreshore and submerged areas irrefutably belonged to the
public domain and were inalienable unless reclaimed, classified as alienable lands open to
disposition and further declared no longer needed for public service. The fact that alienable
lands of the public domain were transferred to the PEA (now PRA) and issued land patents or
certificates of title in PEA’s name did not automatically make such lands private. This Court also
held therein that reclaimed lands retained their inherent potential as areas for public use or
public service.
As the central implementing agency tasked to undertake reclamation projects nationwide, with
authority to sell reclaimed lands, PEA took the place of DENR as the government agency
charged with leasing or selling reclaimed lands of the public domain. The reclaimed lands being
leased or sold by PEA are not private lands, in the same manner that DENR, when it disposes of
other alienable lands, does not dispose of private lands but alienable lands of the public domain.
Only when qualified private parties acquire these lands will the lands become private lands. In
the hands of the government agency tasked and authorized to dispose of alienable of disposable
lands of the public domain, these lands are still public, not private lands.
Furthermore, PEA's charter expressly states that PEA "shall hold lands of the public domain" as
well as "any and all kinds of lands." PEA can hold both lands of the public domain and private
lands. Thus, the mere fact that alienable lands of the public domain like the Freedom Islands are
transferred to PEA and issued land patents or certificates of title in PEA's name does not
13
automatically make such lands private.
Likewise, it is worthy to mention Section 14, Chapter 4, Title I, Book III of the Administrative
Code of 1987, thus:
SEC 14. Power to Reserve Lands of the Public and Private Dominion of the Government.-
(1)The President shall have the power to reserve for settlement or public use, and for specific
This is a clear opportunity for this Court to clarify the effects of our two previous decisions,
issued a decade apart, on the power of local government units to collect real property taxes from
airport authorities located within their area, and the nature or the juridical personality of said
airport authorities.
Before us is a Petition for Review on Certiorari under Rule 45 of the 1997 Rules of Civil
1
Procedure seeking to reverse and set aside the October 8, 2007 Decision of the Court of
Appeals (Cebu City) in CA-G.R. SP No. 01360and the February 12, 2008 Resolution denying
2

public purposes, any of the lands of the public domain, the use of which is not otherwise directed petitioner’s motion for reconsideration.
by law. The reserved land shall thereafter remain subject to the specific public purpose indicated
until otherwise provided by law or proclamation. THE FACTS

Reclaimed lands such as the subject lands in issue are reserved lands for public use. They are Petitioner Mactan-Cebu International Airport Authority (MCIAA) was created by Congress on
3
properties of public dominion. The ownership of such lands remains with the State unless they July 31, 1990 under Republic Act No. 6958 to “undertake the economical, efficient and effective
are withdrawn by law or presidential proclamation from public use. control, management and supervision of the Mactan International Airport in the Province of Cebu
and the Lahug Airport in Cebu City x x x and such other airports as may be established in the
Under Section 2, Article XII of the 1987 Constitution, the foreshore and submerged areas of Province of Cebu.” It is represented in this case by the Office of the Solicitor General.
Manila Bay are part of the "lands of the public domain, waters x x x and other natural resources"
and consequently "owned by the State." As such, foreshore and submerged areas "shall not be Respondent City of Lapu-Lapu is a local government unit and political subdivision, created and
alienated," unless they are classified as "agricultural lands" of the public domain. The mere existing under its own charter with capacity to sue and be sued. Respondent Elena T. Pacaldo
reclamation of these areas by PEA does not convert these inalienable natural resources of the was impleaded in her capacity as the City Treasurer of respondent City.
State into alienable or disposable lands of the public domain. There must be a law or
presidential proclamation officially classifying these reclaimed lands as alienable or disposable Upon its creation, petitioner enjoyed exemption from realty taxes under the following provision of
and open to disposition or concession. Moreover, these reclaimed lands cannot be classified as Republic Act No. 6958:chanRoblesvirtualLawlibrary
alienable or disposable if the law has reserved them for some public or quasi-public use.
Section 14. Tax Exemptions. – The Authority shall be exempt from realty taxes imposed by the
National Government or any of its political subdivisions, agencies and
As the Court has repeatedly ruled, properties of public dominion are not subject to execution or
14 instrumentalities: Provided, That no tax exemption herein granted shall extend to any subsidiary
foreclosure sale. Thus, the assessment, levy and foreclosure made on the subject reclaimed
which may be organized by the Authority.chanroblesvirtuallawlibrary
lands by respondent, as well as the issuances of certificates of title in favor of respondent, are
On September 11, 1996, however, this Court rendered a decision in Mactan-Cebu International
without basis. 4
Airport Authority v. Marcos (the 1996 MCIAA case) declaring that upon the effectivity of
Republic Act No. 7160 (The Local Government Code of 1991), petitioner was no longer exempt
WHEREFORE, the petition is GRANTED. The January 8, 2010 Order of the Regional Trial from real estate taxes. The Court held:chanRoblesvirtualLawlibrary
Court, Branch 195, Parañaque City, is REVERSED and SET ASIDE. All reclaimed properties
owned by the Philippine Reclamation Authority are hereby declared EXEMPT from real estate Since the last paragraph of Section 234 unequivocally withdrew, upon the effectivity of the LGC,
taxes. All real estate tax assessments, including the final notices of real estate tax exemptions from payment of real property taxes granted to natural or juridical persons, including
delinquencies, issued by the City of Parañaque on the subject reclaimed properties; the assailed government-owned or controlled corporations, except as provided in the said section, and the
auction sale, dated April 7, 2003; and the Certificates of Sale subsequently issued by the petitioner is, undoubtedly, a government-owned corporation, it necessarily follows that its
Parañaque City Treasurer in favor of the City of Parañaque, are all declared VOID. exemption from such tax granted it in Section 14 of its Charter, R.A. No. 6958, has been
withdrawn. x x x.chanroblesvirtuallawlibrary
SO ORDERED. On January 7, 1997, respondent City issued to petitioner a Statement of Real Estate Tax
assessing the lots comprising the Mactan International Airport in the amount of
P162,058,959.52. Petitioner complained that there were discrepancies in said Statement of Real
G.R. No. 181756, June 15, 2015 - MACTAN-CEBU INTERNATIONAL AIRPORT AUTHORITY Estate Tax as follows:chanRoblesvirtualLawlibrary
(MCIAA), Petitioner, v. CITY OF LAPU-LAPU AND ELENA T. PACALDO, Respondents. :
JUNE 2015 - PHILIPPINE SUPREME COURT JURISPRUDENCE - CHANROBLES VIRTUAL (a) [T]he statement included lots and buildings not found in the inventory of petitioner’s real
LAW LIBRARY properties;

G.R. No. 181756, June 15, 2015 (b) [S]ome of the lots were covered by two separate tax declarations which resulted in double
assessment;

(c) [There were] double entries pertaining to the same lots; and

5 9
(d) [T]he statement included lots utilized exclusively for governmental purposes.
Respondent City amended its billing and sent a new Statement of Real Estate Tax to petitioner
in the amount of P151,376,134.66. Petitioner averred that this amount covered real estate taxes
on the lots utilized solely and exclusively for public or governmental purposes such as the
6
airfield, runway and taxiway, and the lots on which they are situated. chanrobleslaw
Petitioner paid respondent City the amount of four million pesos (P4,000,000.00) monthly, which
was later increased to six million pesos (P6,000,000.00) monthly. As of December 2003,
7
petitioner had paid respondent City a total of P275,728,313.36. chanrobleslaw
Upon request of petitioner’s General Manager, the Secretary of the Department of Justice (DOJ)
8
issued Opinion No. 50, Series of 1998, and we quote the pertinent portions of said Opinion
below:chanRoblesvirtualLawlibrary
You further state that among the real properties deemed transferred to MCIAA are the airfield,
runway, taxiway and the lots on which the runway and taxiway are situated, the tax declarations
of which were transferred in the name of the MCIAA. In 1997, the City of Lapu-Lapu imposed
real estate taxes on these properties invoking the provisions of the Local Government Code.
It is your view that these properties are not subject to real property tax because they are
exclusively used for airport purposes. You said that the runway and taxiway are not only used by
the commercial airlines but also by the Philippine Air Force and other government agencies. As
such and in conjunction with the above interpretation of Section 15 of R.A. No. 6958, you believe
that these properties are considered owned by the Republic of the Philippines. Hence, this
request for opinion.
The query is resolved in the affirmative. The properties used for airport purposes
(i.e. airfield, runway, taxiway and the lots on which the runway and taxiway are situated)
are owned by the Republic of the Philippines.
x x x x
Under the Law on Public Corporations, the legislature has complete control over the property
which a municipal corporation has acquired in its public or governmental capacity and which is
devoted to public or governmental use. The municipality in dealing with said property is subject
to such restrictions and limitations as the legislature may impose. On the other hand, property
which a municipal corporation acquired in its private or proprietary capacity, is held by it in the
same character as a private individual. Hence, the legislature in dealing with such property, is
subject to the constitutional restrictions concerning property (Martin, Public Corporations [1997],
p. 30; see also Province of Zamboanga del [Norte] v. City of Zamboanga [131 Phil. 446]). The
same may be said of properties transferred to the MCIAA and used for airport purposes, such as
those involved herein. Since such properties are of public dominion, they are deemed held by
the MCIAA in trust for the Government and can be alienated only as may be provided by law.
Based on the foregoing, it is our considered opinion that the properties used for airport
purposes, such as the airfield, runway and taxiway and the lots on which the runway and
taxiway are located, are owned by the State or by the Republic of the Philippines and are
merely held in trust by the MCIAA, notwithstanding that certificates of titles thereto may
have been issued in the name of the MCIAA. (Emphases added.)
nd
Based on the above DOJ Opinion, the Department of Finance issued a 2 Indorsement to the
City Treasurer of Lapu-Lapu dated August 3, 1998, which reads:chanRoblesvirtualLawlibrary
The distinction as to which among the MCIAA properties are still considered “owned by the State
or by the Republic of the Philippines,” such as the resolution in the above-cited DOJ Opinion No.
50, for purposes of real property tax exemption is hereby deemed tenable considering that the
subject “airfield, runway, taxiway and the lots on which the runway and taxiway are situated”
appears to be the subject of real property tax assessment and collection of the city government
of Lapu-Lapu, hence, the same are definitely located within the jurisdiction of Lapu-Lapu City.
Moreover, then Undersecretary Antonio P. Belicena of the Department of Finance, in his
st
1 Indorsement dated May 18, 1998, advanced that “this Department (DOF) interposes no
objection to the request of Mactan Cebu International Airport Authority for exemption
from payment of real property tax on the property used for airport purposes” mentioned
above.
The City Assessor, therefore, is hereby instructed to transfer the assessment of the
subject airfield, runway, taxiway and the lots on which the runway and taxiway are
situated, from the “Taxable Roll” to the “Exempt Roll” of real properties.
The City Treasurer thereat should be informed on the action taken for his immediate appropriate
action. (Emphases added.)
Respondent City Treasurer Elena T. Pacaldo sent petitioner a Statement of Real Property Tax
Balances up to the year 2002 reflecting the amount of P246,395,477.20. Petitioner claimed that
the statement again included the lots utilized solely and exclusively for public purpose such as
the airfield, runway, and taxiway and the lots on which these are built. Respondent Pacaldo then
10
issued Notices of Levy on 18 sets of real properties of petitioner. chanrobleslaw
11
Petitioner filed a petition for prohibition with the Regional Trial Court (RTC) of Lapu-Lapu City
with prayer for the issuance of a temporary restraining order (TRO) and/or a writ of preliminary
injunction, docketed as SCA No. 6056-L. Branch 53 of RTC Lapu-Lapu City then issued a 72-
hour TRO. The petition for prohibition sought to enjoin respondent City from issuing a warrant of
levy against petitioner’s properties and from selling them at public auction for delinquency in
realty tax obligations. The petition likewise prayed for a declaration that the airport terminal
building, the airfield, runway, taxiway and the lots on which they are situated are exempted from
real estate taxes after due hearing. Petitioner based its claim of exemption on DOJ Opinion No.
50.
The RTC issued an Order denying the motion for extension of the TRO. Thus, on December 10,
2003, respondent City auctioned 27 of petitioner’s properties. As there was no interested bidder
who participated in the auction sale, respondent City forfeited and purchased said properties.
The corresponding Certificates of Sale of Delinquent Property were issued to respondent
12
City. chanrobleslaw
Petitioner claimed before the RTC that it had discovered that respondent City did not pass any
ordinance authorizing the collection of real property tax, a tax for the special education fund
(SEF), and a penalty interest for its nonpayment. Petitioner argued that without the
corresponding tax ordinances, respondent City could not impose and collect real property tax, an
13
additional tax for the SEF, and penalty interest from petitioner. chanrobleslaw
14
The RTC issued an Order on December 28, 2004 granting petitioner’s application for a writ of
preliminary injunction. The pertinent portions of the Order are quoted law without any ordinance for the purpose, as there is no need for it. Even when RA 5447 was
below:chanRoblesvirtualLawlibrary amended by PD 464 (Real Property Tax Code), respondent City had continued to collect the tax,
as it used to.
The supervening legal issue has rendered it imperative that the matter of the consolidation of the
ownership of the auctioned properties be placed on hold. Furthermore, it is the view of the Court It is true that RA 7160 has repealed RA 5447, but what has been repealed are only Section 3,
that great prejudice and damage will be suffered by petitioner if it were to lose its dominion over a(3) and b(2) which concern the allocation of the additional tax, considering that under RA 7160,
these properties now when the most important legal issue has still to be resolved by the Court. the proceeds of the additional 1% tax on real property accrue exclusively to the Special
Besides, the respondents and the intervenor have not sufficiently shown cause why petitioner’s Education Fund. Nevertheless, RA 5447 has not been totally repealed; there is only a partial
application should not be granted. repeal.

WHEREFORE, the foregoing considered, petitioner’s application for a writ of preliminary It may be observed that there is no requirement in RA 7160 that an ordinance be enacted to
injunction is granted. Consequently, upon the approval of a bond in the amount of one million enable the collection of the additional 1% tax. This is so since RA 5447 is still in force and effect,
pesos (P1,000,000.00), let a writ of preliminary injunction issue enjoining the respondents, the and the declared policy of the government in enacting the law, which is to contribute to the
intervenor, their agents or persons acting in [their] behalf, to desist from consolidating and financial support of the goals of education as provided in the Constitution, necessitates the
exercising ownership over the properties of the petitioner.chanroblesvirtuallawlibrary continued and uninterrupted collection of the tax. Considering that this is a tax of far-reaching
However, upon motion of respondents, the RTC lifted the writ of preliminary injunction in an importance, to require the passage of an ordinance in order that the tax may be collected would
15
Order dated December 5, 2005. The RTC reasoned as follows:chanRoblesvirtualLawlibrary be to place the collection of the tax at the option of the local legislature. This would run counter
to the declared policy of the government when the SEF was created and the tax imposed.
The respondent City, in the course of the hearing of its motion, presented to this Court a certified
copy of its Ordinance No. 44 (Omnibus Tax Ordinance of the City of Lapu-Lapu), Section 25 As regards the allegation of respondents that this Court has no jurisdiction to entertain the
whereof authorized the collection of a rate of one and one-half (1 ½) [per centum] from owners, instant petition, the Court deems it proper, at this stage of the proceedings, not to treat this
executors or administrators of any real estate lying within the jurisdiction of the City of Lapu- issue, as it involves facts which are yet to be established.
Lapu, based on the assessed value as shown in the latest revision.
x x x [T]he Court’s issuance of a writ of preliminary injunction may appear to be a futile gesture
Though this ordinance was enacted prior to the effectivity of Republic Act No. 7160 (Local in the light of Section 263 of RA 7160. x x x.
Government Code of 1991), to the mind of the Court this ordinance is still a valid and effective
ordinance in view of Sec. 529 of RA 7160 x x x [and the] Implementing Rules and Regulations of x x x x
RA 7160 x x x.
It would seem from the foregoing provisions, that once the taxpayer fails to redeem within the
x x x x one-year period, ownership fully vests on the local government unit concerned. Thus, when in
the present case petitioner failed to redeem the parcels of land acquired by respondent City, the
The tax collected under Ordinance No. 44 is within the rates prescribed by RA 7160, though the ownership thereof became fully vested on respondent City without the latter having to perform
25% penalty collected is higher than the 2% interest allowed under Sec. 255 of the said law any other acts to perfect its ownership. Corollary thereto, ownership on the part of respondent
which provides:chanRoblesvirtualLawlibrary City has become a fait accompli.

In case of failure to pay the basic real property tax or any other tax levied under this Title upon WHEREFORE, in the light of the foregoing considerations, respondents’ motion for
the expiration of the periods as provided in Section 250, or when due, as the case may be, shall reconsideration is granted, and the order of this Court dated December 28, 2004 is hereby
subject the taxpayer to the payment of interest at the rate of two percent (2%) per month on the reconsidered. Consequently, the writ of preliminary injunction issued by this Court is hereby
unpaid amount or a fraction thereof, until the delinquent tax shall have been fully paid: Provided, lifted.chanroblesvirtuallawlibrary
16
however, That in no case shall the total interest on the unpaid tax or portion thereof exceed Aggrieved, petitioner filed a petition for certiorari with the Court of Appeals (Cebu City), with
thirty-six (36) months.chanroblesvirtuallawlibrary urgent prayer for the issuance of a TRO and/or writ of preliminary injunction, docketed as CA-
17
This difference does not however detract from the essential enforceability and effectivity of G.R. SP No. 01360. The Court of Appeals (Cebu City) issued a TRO on January 5, 2006 and
18
Ordinance No. 44 pursuant to Section 529 of RA 7160 and Article 278 of the Implementing shortly thereafter, issued a writ of preliminary injunction on February 17, 2006.
Rules and Regulations. The outcome of this disparity is simply that respondent City can only
collect an interest of 2% per month on the unpaid tax. Consequently, respondent City [has] to RULING OF THE COURT OF APPEALS
recompute the petitioner’s tax liability.
The Court of Appeals (Cebu City) promulgated the questioned Decision on October 8, 2007,
It is also the Court’s perception that respondent City can still collect the additional 1% tax on real holding that petitioner is a government-owned or controlled corporation and its properties are
property without an ordinance to this effect. It may be recalled that Republic Act No. 5447 has subject to realty tax. The dispositive portion of the questioned Decision
created the Special Education Fund which is constituted from the proceeds of the additional tax reads:chanRoblesvirtualLawlibrary
on real property imposed by the law. Respondent City has collected this tax as mandated by this
WHEREFORE, in view of the foregoing, judgment is hereby rendered by us as follows:
Thus, the LGC, enacted pursuant to Section 3, Article X of the Constitution, provides for the
exercise by local government units of their power to tax, the scope thereof or its limitations, and
a. We DECLARE the airport terminal building, the airfield, runway, taxiway and the lots the exemptions from local taxation.
on which they are situated NOT EXEMPT from the real estate tax imposed by the
respondent City of Lapu-Lapu; Section 133 of the LGC prescribes the common limitations on the taxing powers of local
government units. x x x.
b. We DECLARE the imposition and collection of the real estate tax, the additional levy
for the Special Education Fund and the penalty interest as VALID and LEGAL. x x x x
However, pursuant to Section 255 of the Local Government Code, respondent city can
only collect an interest of 2% per month on the unpaid tax which total interest shall, in The above-stated provision, however, qualified the exemption of the National Government, its
no case, exceed thirty-six (36) months; agencies and instrumentalities from local taxation with the phrase “unless otherwise provided
herein.”
c. We DECLARE the sale in public auction of the aforesaid properties and the eventual
forfeiture and purchase of the subject property by the respondent City of Lapu-Lapu Section 232 of the LGC provides for the power of the local government units (LGUs for brevity)
as NULL and VOID. However, petitioner MCIAA’s property is encumbered only by a to levy real property tax. x x x.
limited lien possessed by the respondent City of Lapu-Lapu in accord with Section 257
of the Local Government Code.
19 x x x x

20
Section 234 of the LGC provides for the exemptions from payment of real property taxes and
Petitioner filed a Motion for Partial Reconsideration of the questioned Decision covering only withdraws previous exemptions granted to natural and juridical persons, including government-
the portion of said decision declaring that petitioner is a GOCC and, therefore, not exempt from owned and controlled corporations, except as provided therein. x x x.
the realty tax and special education fund imposed by respondent City. Petitioner cited Manila
21
International Airport Authority v. Court of Appeals (the 2006 MIAA case) involving the City of x x x x
Parañaque and the Manila International Airport Authority. Petitioner claimed that it had been
described by this Court as a government instrumentality, and that it followed “as a logical Section 193 of the LGC is the general provision on withdrawal of tax exemption privileges. x x
consequence that petitioner is exempt from the taxing powers of respondent City of Lapu- 24
x. (Citations omitted.)
22
Lapu.” Petitioner alleged that the 1996 MCIAA case had been overturned by the Court in the The Court of Appeals went on to state that contrary to the ruling of the Supreme Court in the
2006 MIAA case. Petitioner thus prayed that it be declared exempt from paying the realty tax, 2006 MIAA case, it finds and rules that:chanRoblesvirtualLawlibrary
special education fund, and interest being collected by respondent City.
a) Section 133 of the LGC is not an absolute prohibition on the power of the LGUs to tax the
On February 12, 2008, the Court of Appeals denied petitioner’s motion for partial reconsideration National Government, its agencies and instrumentalities as the same is qualified by Sections
in the questioned Resolution. 193, 232 and 234 which “otherwise provided”; and

The Court of Appeals followed and applied the precedent established in the 1996 MCIAA case
and refused to apply the 2006 MIAA case. The Court of Appeals wrote in the questioned
Decision: “We find that our position is in line with the coherent and cohesive interpretation of the
relevant provisions of the Local Government Code on local taxation enunciated in the
[1996 MCIAA] case which to our mind is more elegant and rational and provides intellectual
23
clarity than the one provided by the Supreme Court in the [2006] MIAAcase.” chanrobleslaw
In the questioned Decision, the Court of Appeals held that petitioner’s airport terminal building,
airfield, runway, taxiway, and the lots on which they are situated are not exempt from real estate
tax reasoning as follows:chanRoblesvirtualLawlibrary
Under the Local Government Code (LGC for brevity), enacted pursuant to the constitutional
mandate of local autonomy, all natural and juridical persons, including government-owned or
controlled corporations (GOCCs), instrumentalities and agencies, are no longer exempt from
local taxes even if previously granted an exemption. The only exemptions from local taxes are
those specifically provided under the Code itself, or those enacted through subsequent
legislation.
25
b) Petitioner MCIAA is a GOCC. (Emphasis ours.)
The Court of Appeals ratiocinated in the following manner:chanRoblesvirtualLawlibrary
Pursuant to the explicit provision of Section 193 of the LGC, exemptions previously enjoyed by
persons, whether natural or juridical, like the petitioner MCIAA, are deemed withdrawn upon the
effectivity of the Code. Further, the last paragraph of Section 234 of the Code also unequivocally
withdrew, upon the Code’s effectivity, exemptions from payment of real property taxes previously
granted to natural or juridical persons, including government-owned or controlled corporations,
except as provided in the said section. Petitioner MCIAA, undoubtedly a juridical person, it
follows that its exemption from such tax granted under Section 14 of R.A. 6958 has been
withdrawn.
x x x x
From the [1996 MCIAA] ruling, it is acknowledged that, under Section 133 of the LGC,
instrumentalities were generally exempt from all forms of local government taxation, unless
otherwise provided in the Code. On the other hand, Section 232 “otherwise provided” insofar as
it allowed local government units to levy an ad valorem real property tax, irrespective of who Weigel, Jr., petitioner’s subject properties, specifically the runway and taxiway, as exempt from
owned the property. At the same time, the imposition of real property taxes under Section 232 is, taxes. However, as astutely pointed out by the respondent city it “can never be in estoppel,
in turn, qualified by the phrase “not hereinafter specifically exempted.” The exemptions from real particularly in matters involving taxes. It is a well-known rule that erroneous application and
property taxes are enumerated in Section 234 of the Code which specifically states that only real enforcement of the law by public officers do not preclude subsequent correct application of the
properties owned by the Republic of the Philippines or any of its political subdivisions are statute, and that the Government is never estopped by mistake or error on the part of its
28
exempted from the payment of the tax. Clearly, instrumentalities or GOCCs do not fall within the agents.” (Citations omitted.)
exceptions under Section 234 of the LGC. The Court of Appeals established the following:chanRoblesvirtualLawlibrary

Thus, as ruled in the [1996 MCIAA] case, the prohibition on taxing the national government, its a) [R]espondent City was able to prove and establish that it has a valid and existing ordinance
agencies and instrumentalities under Section 133 is qualified by Sections 232 and 234, and for the imposition of realty tax against petitioner MCIAA;
accordingly, the only relevant exemption now applicable to these bodies is what is now provided
under Section 234(a) of the Code. It may be noted that the express withdrawal of previously b) [T]he imposition and collection of additional levy of 1% Special Education Fund (SEF) is
granted exemptions to persons from the payment of real property tax by the LGC does not even authorized by law, Republic Act No. 5447; and
make any distinction as to whether the exempt person is a governmental entity or not. As
Sections 193 and 234 of the Code both state, the withdrawal applies to “all persons, including c) [T]he collection of penalty interest for delinquent taxes is not only authorized by law but is
29
GOCCs,” thus encompassing the two classes of persons recognized under our laws, natural likewise [sanctioned] by respondent City’s ordinance.
persons and juridical persons. The Court of Appeals likewise held that respondent City has a valid and existing local tax
ordinance, Ordinance No. 44, or the Omnibus Tax Ordinance of Lapu-Lapu City, which provided
x x x x for the imposition of real property tax. The relevant provision reads:chanRoblesvirtualLawlibrary

The question of whether or not petitioner MCIAA is an instrumentality or a GOCC has already
been lengthily but soundly, cogently and lucidly answered in the [1996 MCIAA] case x x x.
x x x x
Based on the foregoing, the claim of the majority of the Supreme Court in the [2006 MIAA] case
that MIAA (and also petitioner MCIAA) is not a government-owned or controlled corporation but
an instrumentality based on Section 2(10) of the Administrative Code of 1987 appears to be
unsound. In the [2006 MIAA] case, the majority justifies MIAA’s purported exemption on Section
133(o) of the Local Government Code which places agencies and instrumentalities: as generally
exempt from the taxation powers of the LGUs. It further went on to hold that “By express
mandate of the Local Government Code, local governments cannot impose any kind of tax on
26
national government instrumentalities like the MIAA.” x x x. (Citations omitted.)
The Court of Appeals further cited Justice Tinga’s dissent in the 2006 MIAAcase as well as
27
provisions from petitioner MCIAA’s charter to show that petitioner is a GOCC. The Court of
Appeals wrote:chanRoblesvirtualLawlibrary
These cited provisions establish the fitness of the petitioner MCIAA to be the subject of legal
relations. Under its charter, it has the power to acquire, possess and incur obligations. It also
has the power to contract in its own name and to acquire title to movable or immovable property.
More importantly, it may likewise exercise powers of a corporation under the Corporation Code.
Moreover, based on its own allegation, it even recognized itself as a GOCC when it alleged in its
petition for prohibition filed before the lower court that it “is a body corporate organized and
existing under Republic Act No. 6958 x x x.”
Chapter 5 – Tax on Real Property Ownership
Section 25. RATE OF TAX. - A rate of one and one-half (1 ½) percentum shall be collected from
owners, executors or administrators of any real estate lying within the territorial jurisdiction of the
30
City of Lapu-Lapu, based on the assessed value as shown in the latest revision.
The Court of Appeals found that even if Ordinance No. 44 was enacted prior to the effectivity of
the LGC, it remained in force and effect, citing Section 529 of the LGC and Article 278 of the
31
LGC’s Implementing Rules and Regulations. chanrobleslaw
As regards the Special Education Fund, the Court of Appeals held that respondent City can still
collect the additional 1% tax on real property even without an ordinance to this effect, as this is
authorized by Republic Act No. 5447, as amended by Presidential Decree No. 464 (the Real
Property Tax Code), which does not require an enabling tax ordinance. The Court of Appeals
affirmed the RTC’s ruling that Republic Act No. 5447 was still in force and effect notwithstanding
the passing of the LGC, as the latter only partially repealed the former law. What Section 534 of
the LGC repealed was Section 3 a(3) and b(2) of Republic Act No. 5447, and not the entire law
32
that created the Special Education Fund. The repealed provisions referred to allocation of
taxes on Virginia type cigarettes and duties on imported leaf tobacco and the percentage
remittances to the taxing authority concerned. The Court of Appeals, citing The Commission on
33
Audit of the Province of Cebu v. Province of Cebu, held that “[t]he failure to add a specific
repealing clause particularly mentioning the statute to be repealed indicates that the intent was
not to repeal any existing law on the matter, unless an irreconcilable inconsistency and
34
repugnancy exists in the terms of the new and the old laws.” The Court of Appeals quoted the
RTC’s discussion on this issue, which we reproduce below:chanRoblesvirtualLawlibrary

We also find to be not meritorious the assertion of petitioner MCIAA that the respondent city can
no longer challenge the tax-exempt character of the properties since it is estopped from doing so
when respondent City of Lapu-Lapu, through its former mayor, Ernest H. Weigel, Jr., had long
ago conceded that petitioner’s properties are exempt from real property tax.
It is not denied by the respondent city that it considered, through its former mayor, Ernest H.
It may be observed that there is no requirement in RA 7160 that an ordinance be enacted to
enable the collection of the additional 1% tax. This is so since R.A. 5447 is still in force and
effect, and the declared policy of the government in enacting the law, which is to contribute to
the financial support of the goals of education as provided in the Constitution, necessitates the
continued and uninterrupted collection of the tax. Considering that this is a tax of far-reaching
importance, to require the passage of an ordinance in order that the tax may be collected would
be to place the collection of the tax at the option of the local legislature. This would run counter All loans contracted by the Authority under this section, together with all interests and other
35
to the declared policy of the government when the SEF was created and the tax imposed. sums payable in respect thereof, shall constitute a charge upon all the revenues and assets of
Regarding the penalty interest, the Court of Appeals found that Section 30 of Ordinance No. 44 the Authority and shall rank equally with one another, but shall have priority over any other claim
of respondent City provided for a penalty surcharge of 25% of the tax due for a given year. Said or charge on the revenue and assets of the Authority: Provided, That this provision shall not be
provision reads:chanRoblesvirtualLawlibrary construed as a prohibition or restriction on the power of the Authority to create pledges,
mortgages and other voluntary liens or encumbrances on any asset or property of the Authority.
Section 30. – PENALTY FOR FAILURE TO PAY TAX. – Failure to pay the tax provided for
under this Chapter within the time fixed in Section 27, shall subject the taxpayer to a surcharge The payment of the loans or other indebtedness of the Authority may be guaranteed by the
36
of twenty-five percent (25%), without interest. National Government subject to the approval of the President of the
The Court of Appeals however declared that after the effectivity of the Local Government Code, Philippines.chanroblesvirtuallawlibrary
the respondent City could only collect penalty surcharge up to the extent of 72%, covering a The Court of Appeals concluded that “it is clear that petitioner MCIAA is denied by its charter the
37
period of three years or 36 months, for the entire delinquent property. This was lower than the absolute right to dispose of its property to any person or entity except to the national government
38
25% per annum surcharge imposed by Ordinance No. 44. The Court of Appeals affirmed the and it is not empowered to obtain loans or encumber its property without the approval of the
41
findings of the RTC in the decision quoted below:chanRoblesvirtualLawlibrary President.” The questioned Decision contained the following
conclusion:chanRoblesvirtualLawlibrary
The tax collected under Ordinance No. 44 is within the rates prescribed by RA 7160, though the
25% penalty collected is higher than the 2% allowed under Sec. 255 of the said law which With the advent of RA 7160, the Local Government Code, the power to tax is no longer vested
provides:ChanRoblesVirtualawlibrary exclusively on Congress. LGUs, through its local legislative bodies, are now given direct
authority to levy taxes, fees and other charges pursuant to Article X, Section 5 of the 1987
x x x x Constitution. And one of the most significant provisions of the LGC is the removal of the blanket
inclusion of instrumentalities and agencies of the national government from the coverage of local
This difference does not however detract from the essential enforceability and effectivity of taxation. The express withdrawal by the Code of previously granted exemptions from realty
Ordinance No. 44 pursuant to Section 529 of RA No. 7160 and Article 278 of the Implementing taxes applied to instrumentalities and government-owned or controlled corporations (GOCCs)
Rules and Regulations. The outcome of this disparity is simply that respondent City can only such as the petitioner Mactan-Cebu International Airport Authority. Thus, petitioner MCIAA
collect an interest of 2% per month on the unpaid tax. Consequently, respondent city will have to became a taxable person in view of the withdrawal of the realty tax exemption that it previously
39
[recompute] the petitioner’s tax liability. enjoyed under Section 14 of RA No. 6958 of its charter. As expressed and categorically held in
It is worthy to note that the Court of Appeals nevertheless held that even if it is clear that the Mactan case, the removal and withdrawal of tax exemptions previously enjoyed by persons,
respondent City has the power to impose real property taxes over petitioner, “it is also natural or juridical, are consistent with the State policy to ensure autonomy to local governments
evident and categorical that, under Republic Act No. 6958, the properties of petitioner and the objective of the Local Government Code that they enjoy genuine and meaningful local
MCIAA may not be conveyed or transferred to any person or entity except to the national autonomy to enable them to attain their fullest development as self-reliant communities and
40
government.” The relevant provisions of the said law are quoted make them effective partners in the attainment of national goals.
below:chanRoblesvirtualLawlibrary
However, in the case at bench, petitioner MCIAA’s charter expressly bars the alienation or
Section 4. Functions, Powers and Duties. – The Authority shall have the following functions, mortgage of its property to any person or entity except to the national government. Therefore,
powers and duties:ChanRoblesVirtualawlibrary while petitioner MCIAA is a taxable person for purposes of real property taxation, respondent
City of Lapu-Lapu is prohibited from seizing, selling and owning these properties by and through
42
x x x x a public auction in order to satisfy petitioner MCIAA’s tax liability. (Citations omitted.)
In the questioned Resolution that affirmed its questioned Decision, the Court of Appeals denied
(e) To acquire, purchase, own, administer, lease, mortgage, sell or otherwise dispose of any petitioner’s motion for reconsideration based on the following
land, building, airport facility, or property of whatever kind and nature, whether movable or grounds:chanRoblesvirtualLawlibrary
immovable, or any interest therein: Provided, That any asset located in the Mactan International
Airport important to national security shall not be subject to alienation or mortgage by the First, the MCIAA case remains the controlling law on the matter as the same is the
Authority nor to transfer to any entity other than the National Government[.] established precedent; not the MIAAcase but the MCIAA case since the former, as keenly
pointed out by the respondent City of Lapu-Lapu, has not yet attained finality as there is
Section 13. Borrowing Power. – The Authority may, in accordance with Section 21, Article XII still yet a pending motion for reconsideration filed with the Supreme Court in the
of the Constitution and other existing laws, rules and regulations on local or foreign borrowing, aforesaid case.
raise funds, either from local or international sources, by way of loans, credit or securities, and
other borrowing instruments with the power to create pledges, mortgages and other voluntary Second, and more importantly, the ruling of the Supreme Court in the MIAA case cannot
liens or encumbrances on any of its assets or properties, subject to the prior approval of the be similarly invoked in the case at bench. The said case cannot be considered as the “law
President of the Philippines. of the case.” The “law of the case” doctrine has been defined as that principle under which
determinations of questions of law will generally be held to govern a case throughout all its
subsequent stages where such determination has already been made on a prior appeal to a ANY APPROPRIATE ORDINANCE.
court of last resort. It is merely a rule of procedure and does not go to the power of the court,
and will not be adhered to where its application will result in an unjust decision. It relates entirely
to questions of law, and is confined in its operation to subsequent proceedings in the same case. IV
According to said doctrine, whatever has been irrevocably established constitutes the law of the
case only as to the same parties in the same case and not to different parties in an entirely RESPONDENT CITY OF LAPU-LAPU CANNOT IMPOSE AN ADDITIONAL 1% TAX FOR THE
different case. Besides, pending resolution of the aforesaid motion for reconsideration in the SPECIAL EDUCATION FUND IN THE ABSENCE OF ANY CORRESPONDING ORDINANCE.
MIAA case, the latter case has not irrevocably established anything.

Thus, after a thorough and judicious review of the allegations in petitioner’s motion for V
reconsideration, this Court resolves to deny the same as the matters raised therein had already
been exhaustively discussed in the decision sought to be reconsidered, and that no new matters RESPONDENT CITY OF LAPU-LAPU CANNOT IMPOSE ANY INTEREST SANS ANY
43 46
were raised which would warrant the modification, much less reversal, thereof. (Emphasis ORDINANCE MANDATING ITS IMPOSITION.
added, citations omitted.) Petitioner claims the following similarities with MIAA:

PETITIONER’S THEORY
1. MCIAA belongs to the same class and performs identical functions as MIAA;
Petitioner is before us now claiming that this Court, in the 2006 MIAA case, had expressly
declared that petitioner, while vested with corporate powers, is not considered a government- 2. MCIAA is a public utility like MIAA;
owned or controlled corporation, but is a government instrumentality like the Manila International
Airport Authority (MIAA), Philippine Ports Authority (PPA), University of the Philippines, 3. MIAA was organized to operate the international and domestic airport in Paranaque
and Bangko Sentral ng Pilipinas (BSP). Petitioner alleges that as a government instrumentality, City for public use, while MCIAA was organized to operate the international and
all its airport lands and buildings are exempt from real estate taxes imposed by respondent domestic airport in Mactan for public use.
44
City. chanrobleslaw
4. Both are attached agencies of the Department of Transportation and
47
Petitioner alleges that Republic Act No. 6958 placed “a limitation on petitioner’s administration of Communications.
its assets and properties” as it provides under Section 4(e) that “any asset in the international
airport important to national security cannot be alienated or mortgaged by petitioner or Petitioner compares its charter (Republic Act No. 6958) with that of MIAA (Executive Order No.
45
transferred to any entity other than the National Government.” chanrobleslaw 903).

Thus, petitioner claims that the Court of Appeals (Cebu City) gravely erred in disregarding the Section 3 of Executive Order No. 903 provides:chanRoblesvirtualLawlibrary
following:chanRoblesvirtualLawlibrary
Sec. 3. Creation of the Manila International Airport Authority. There is hereby established a body
I corporate to be known as the Manila International Airport Authority which shall be attached to
the Ministry of Transportation and Communications. The principal office of the Authority shall be
PETITIONER IS A GOVERNMENT INSTRUMENTALITY AS EXPRESSLY DECLARED BY THE located at the New Manila International Airport. The Authority may establish such offices,
HONORABLE COURT IN THE MIAACASE. AS SUCH, IT IS EXEMPT FROM PAYING REAL branches, agencies or subsidiaries as it may deem proper and necessary; x x
ESTATE TAXES IMPOSED BY RESPONDENT CITY OF LAPU-LAPU. x.chanroblesvirtuallawlibrary
Section 2 of Republic Act No. 6958 reads:chanRoblesvirtualLawlibrary

II Section 2. Creation of the Mactan-Cebu International Airport Authority. – There is hereby

established a body corporate to be known as the Mactan-Cebu International Airport Authority
THE PROPERTIES OF PETITIONER CONSISTING OF THE AIRPORT TERMINAL BUILDING, which shall be attached to the Department of Transportation and Communications. The principal
AIRFIELD, RUNWAY, TAXIWAY, INCLUDING THE LOTS ON WHICH THEY ARE SITUATED, office of the Authority shall be located at the MactanInternational Airport, Province of Cebu.
ARE EXEMPT FROM REAL PROPERTY TAXES.
The Authority may have such branches, agencies or subsidiaries as it may deem proper and
necessary.chanroblesvirtuallawlibrary
III As to MIAA’s purposes and objectives, Section 4 of Executive Order No. 903
reads:chanRoblesvirtualLawlibrary
RESPONDENT CITY OF LAPU-LAPU CANNOT IMPOSE REAL PROPERTY TAX WITHOUT
Sec. 4. Purposes and Objectives. The Authority shall have the following purposes and
objectives:ChanRoblesVirtualawlibrary (e) To adopt and use a corporate seal;

(a) To help encourage and promote international and domestic air traffic in the Philippines as a (f) To succeed by its corporate name;
means of making the Philippines a center of international trade and tourism and accelerating the
development of the means of transportation and communications in the country;
(g) To adopt its by-laws, and to amend or repeal the same from time to time;
(b) To formulate and adopt for application in the Airport internationally acceptable standards of
airport accommodation and service; and (h) To execute or enter into contracts of any kind or nature;

(c) To upgrade and provide safe, efficient, and reliable airport facilities for international and (i) To acquire, purchase, own, administer, lease, mortgage, sell or otherwise dispose of any
domestic air travel.chanroblesvirtuallawlibrary land, building, airport facility, or property of whatever kind and nature, whether movable
Petitioner claims that the above purposes and objectives are analogous to those enumerated in or immovable, or any interest therein;
its charter, specifically Section 3 of Republic Act No. 6958, which
reads:chanRoblesvirtualLawlibrary
(j) To exercise the power of eminent domain in the pursuit of its purposes and objectives;

Section 3. Primary Purposes and Objectives. – The Authority shall principally undertake the
economical, efficient and effective control, management and supervision of (k) To levy, and collect dues, charges, fees or assessments for the use of the Airport
the Mactan International Airport in the Province of Cebu and the Lahug Airport in Cebu City, premises, works, appliances, facilities or concessions or for any service provided by the
hereinafter collectively referred to as the airports, and such other airports as may be established Authority, subject to the approval of the Minister of Transportation and Communications
in the Province of Cebu. In addition, it shall have the following in consultation with the Minister of Finance, and subject further to the provisions of Batas
objectives:ChanRoblesVirtualawlibrary Pambansa Blg. 325 where applicable;

(a) To encourage, promote and develop international and domestic air traffic in the central
Visayas and Mindanao regions as a means of making the regions centers of international trade
and tourism, and accelerating the development of the means of transportation and
communications in the country; and
(b) To upgrade the services and facilities of the airports and to formulate internationally
acceptable standards of airport accommodation and service.chanroblesvirtuallawlibrary
The powers, functions and duties of MIAA under Section 5 of Executive Order No. 903
are:ChanRoblesVirtualawlibrary
Sec. 5. Functions, Powers and Duties. The Authority shall have the following functions, powers
and duties:chanRoblesvirtualLawlibrary
(a) To formulate, in coordination with the Bureau of Air Transportation and other appropriate
government agencies, a comprehensive and integrated policy and program for the
Airport and to implement, review and update such policy and program periodically;
(b) To control, supervise, construct, maintain, operate and provide such facilities or services
as shall be necessary for the efficient functioning of the Airport;
(c) To promulgate rules and regulations governing the planning, development, maintenance,
operation and improvement of the Airport, and to control and/or supervise as may be
necessary the construction of any structure or the rendition of any services within the
Airport;
(d) To sue and be sued in its corporate name;
(l) To invest its idle funds, as it may deem proper, in government securities and other
evidences of indebtedness of the government;
(m) To provide services, whether on its own or otherwise, within the Airport and the
approaches thereof, which shall include but shall not be limited to, the following:
(1) Aircraft movement and allocation of parking areas of aircraft on the ground;
(2) Loading or unloading of aircrafts;
(3) Passenger handling and other services directed towards the care, convenience
and security of passengers, visitors and other airport users; and
(4) Sorting, weighing, measuring, warehousing or handling of baggage and goods.
(n) To perform such other acts and transact such other business, directly or indirectly
necessary, incidental or conducive to the attainment of the purposes and objectives of
the Authority, including the adoption of necessary measures to remedy congestion in the
Airport; and
(o) To exercise all the powers of a corporation under the Corporation Law, insofar as these
powers are not inconsistent with the provisions of this Executive Order.
Petitioner claims that MCIAA has related functions, powers and duties under Section 4 of
Republic Act No. 6958, as shown in the provision quoted below:chanRoblesvirtualLawlibrary
Section 4. Functions, Powers and Duties. – The Authority shall have the following functions, assistance of law enforcement agencies, including request for deputization as may be required.
powers and duties:ChanRoblesVirtualawlibrary x x x.chanroblesvirtuallawlibrary
Petitioner pointed out other similarities in the two charters, such as:ChanRoblesVirtualawlibrary
(a) To formulate a comprehensive and integrated development policy and program for the
airports and to implement, review and update such policy and program periodically; 1. Both MCIAA and MIAA are covered by the Civil Service Law, rules and regulations (Section
15, Executive Order No. 903; Section 12, Republic Act No. 6958);
(b) To control, supervise, construct, maintain, operate and provide such facilities or services as
shall be necessary for the efficient functioning of the airports; 2. Both charters contain a proviso on tax exemptions (Section 21, Executive Order No. 903;
Section 14, Republic Act No. 6958);
(c) To promulgate rules and regulations governing the planning, development, maintenance,
operation and improvement of the airports, and to control and supervise the construction of any 3. Both MCIAA and MIAA are required to submit to the President an annual report generally
structure or the rendition of any service within the airports; dealing with their activities and operations (Section 14, Executive Order No. 903; Section 11,
Republic Act No. 6958); and
(d) To exercise all the powers of a corporation under the Corporation Code of the Philippines,
insofar as those powers are not inconsistent with the provisions of this Act; 4. Both have borrowing power subject to the approval of the President (Section 16, Executive
48
Order No. 903; Section 13, Republic Act No. 6958). chanrobleslaw
(e) To acquire, purchase, own, administer, lease, mortgage, sell or otherwise dispose of any
land, building, airport facility, or property of whatever kind and nature, whether movable or Petitioner suggests that it is because of its similarity with MIAA that this Court, in the
immovable, or any interest therein: Provided, That any asset located in the Mactan International 2006 MIAA case, placed it in the same class as MIAA and considered it as a government
Airport important to national security shall not be subject to alienation or mortgage by the instrumentality.
Authority nor to transfer to any entity other than the National Government;
Petitioner submits that since it is also a government instrumentality like MIAA, the following
(f) To exercise the power of eminent domain in the pursuit of its purposes and objectives; conclusion arrived by the Court in the 2006 MIAA case is also applicable to
petitioner:chanRoblesvirtualLawlibrary
(g) To levy and collect dues, charges, fees or assessments for the use of airport premises,
works, appliances, facilities or concessions, or for any service provided by the Authority; Under Section 2(10) and (13) of the Introductory Provisions of the Administrative Code,
which governs the legal relation and status of government units, agencies and offices
(h) To retain and appropriate dues, fees and charges collected by the Authority relative to the within the entire government machinery, MIAA is a government instrumentality and not a
use of airport premises for such measures as may be necessary to make the Authority more government-owned or controlled corporation. Under Section 133(o) of the Local
effective and efficient in the discharge of its assigned tasks; Government Code, MIAA as a government instrumentality is not a taxable person
because it is not subject to “[t]axes, fees or charges of any kind” by local governments.
(i) To invest its idle funds, as it may deem proper, in government securities and other evidences The only exception is when MIAA leases its real property to a “taxable person” as
of indebtedness; and provided in Section 234(a) of the Local Government Code, in which case the specific real
property leased becomes subject to real estate tax. Thus, only portions of the Airport
(j) To provide services, whether on its own or otherwise, within the airports and the approaches Lands and Buildings leased to taxable persons like private parties are subject to real
thereof as may be necessary or in connection with the maintenance and operation of the airports estate tax by the City of Parañaque.
and their facilities.chanroblesvirtuallawlibrary
Petitioner claims that like MIAA, it has police authority within its premises, as shown in their Under Article 420 of the Civil Code, the Airport Lands and Buildings of MIAA, being
respective charters quoted below:chanRoblesvirtualLawlibrary devoted to public use, are properties of public dominion and thus owned by the State or
the Republic of the Philippines. Article 420 specifically mentions “ports x x x constructed by
EO 903, Sec. 6. Police Authority. — The Authority shall have the power to exercise such police the State,” which includes public airports and seaports, as properties of public dominion and
authority as may be necessary within its premises to carry out its functions and attain its owned by the Republic. As properties of public dominion owned by the Republic, there is
purposes and objectives, without prejudice to the exercise of functions within the same premises no doubt whatsoever that the Airport Lands and Buildings are expressly exempt from real
by the Ministry of National Defense through the Aviation Security Command (AVSECOM) as estate tax under Section 234(a) of the Local Government Code. This Court has also
provided in LOI 961: Provided, That the Authority may request the assistance of law repeatedly ruled that properties of public dominion are not subject to execution or
49
enforcement agencies, including request for deputization as may be required. x x x. foreclosure sale. (Emphases added.)
Petitioner insists that its properties consisting of the airport terminal building, airfield, runway,
R.A. No. 6958, Section 5. Police Authority. – The Authority shall have the power to exercise taxiway and the lots on which they are situated are not subject to real property tax because they
50
such police authority as may be necessary within its premises or areas of operation to carry out are actually, solely and exclusively used for public purposes. They are indispensable to the
its functions and attain its purposes and objectives: Provided, That the Authority may request the operation of the Mactan International Airport and by their very nature, these properties are
exempt from tax. Said properties belong to the State and are merely held by petitioner in trust.
 54
As earlier mentioned, petitioner claims that these properties are important to national security Petitioner filed its Memorandum on June 17, 2009.
and cannot be alienated, mortgaged, or transferred to any entity except the National
Government. RESPONDENTS’ THEORY

55
Petitioner prays that judgment be rendered:chanRoblesvirtualLawlibrary In their Comment, respondents point out that petitioner partially moved for a reconsideration of
the questioned Decision only as to the issue of whether petitioner is a GOCC or not. Thus,
a) Declaring petitioner exempt from paying real property taxes as it is a government respondents declare that the other portions of the questioned decision had already attained
instrumentality; finality and ought not to be placed in issue in this petition for certiorari. Thus, respondents
discussed the other issues raised by petitioner with reservation as to this objection.

b) Declaring respondent City of Lapu-Lapu as bereft of any authority to levy and collect the Respondents summarized the issues and the grounds relied upon as
basic real property tax, the additional tax for the SEF and the penalty interest for its failure follows:chanRoblesvirtualLawlibrary
to pass the corresponding tax ordinances; and
STATEMENT OF THE ISSUES
c) Declaring, in the alternative, the airport lands and buildings of petitioner as exempt from
51
real property taxes as they are used solely and exclusively for public purpose. WHETHER OR NOT PETITIONER IS A GOVERNMENT INSTRUMENTALITY EXEMPT FROM
In its Consolidated Reply filed through the OSG, petitioner claims that the 2006 MIAA ruling has PAYING REAL PROPERTY TAXES
overturned the 1996 MCIAA ruling. Petitioner cites Justice Dante O. Tinga’s dissent in the MIAA
ruling, as follows:chanRoblesvirtualLawlibrary WHETHER OR NOT RESPONDENT CITY CAN [IMPOSE] REALTY TAX, SPECIAL
EDUCATION FUND AND PENALTY INTEREST
[The] ineluctable conclusion is that the majority rejects the rationale and ruling in Mactan. The
majority provides for a wildly different interpretation of Section 133, 193 and 234 of the Local WHETHER OR NOT THE AIRPORT TERMINAL BUILDING, AIRFIELD, RUNWAY, TAXIWAY
Government Code than that employed by the Court in Mactan. Moreover, the parties INCLUDING THE LOTS ON WHICH THEY ARE SITUATED ARE EXEMPT FROM REALTY
in Mactan and in this case are similarly situated, as can be obviously deducted from the fact that TAXES
both petitioners are airport authorities operating under similarly worded charters. And the fact
that the majority cites doctrines contrapuntal to the Local Government Code as
in Bascoand Maceda evinces an intent to go against the Court’s jurisprudential trend adopting GROUNDS RELIED UPON
the philosophy of expanded local government rule under the Local Government Code.
1. PETITIONER IS A GOCC HENCE NOT EXEMPT FROM REALTY TAXES
x x x The majority is obviously inconsistent with Mactan and there is no way these two rulings
can stand together. Following basic principles in statutory construction, Mactan will be deemed 2. TERMINAL BUILDING, RUNWAY, TAXIWAY ARE NOT EXEMPT FROM REALTY
as giving way to this new ruling. TAXES

x x x x 3. ESTOPPEL DOES NOT LIE AGAINST GOVERNMENT

There is no way the majority can be justified unless Mactan is overturned. The MCIAA and the 4. CITY CAN COLLECT REALTY TAX AND INTEREST
MIAA are similarly situated. They are both, as will be demonstrated, GOCCs, commonly
engaged in the business of operating an airport. They are the owners of airport properties they 5. CITY CAN COLLECT SEF
respectively maintain and hold title over these properties in their name. These entities are both
owned by the State, and denied by their respective charters the absolute right to dispose of their 6. MCIAA HAS NOT SHOWN ANY IRREPARABLE INJURY WARRANTING
properties without prior approval elsewhere. Both of them are not empowered to obtain loans or INJUNCTIVE RELIEF
52
encumber their properties without prior approval the prior approval of the President. (Citations
56
omitted.) 7. MCIAA HAS NOT COMPLIED WITH PROVISION OF THE LGC
Petitioner likewise claims that the enactment of Ordinance No. 070-2007 is an admission on
respondent City’s part that it must have a tax measure to be able to impose a tax or special
Respondents claim that “the mere mention of MCIAA in the MIAA v. [Court of Appeals] case
assessment. Petitioner avers that assuming that it is a non-exempt entity or that its airport lands 57
does not make it the controlling case on the matter.” Respondents further claim that the
and buildings are not exempt, it was only upon the effectivity of Ordinance No. 070-2007 on
1996 MCIAA case where this Court held that petitioner is a GOCC is the controlling
January 1, 2008 that respondent City could properly impose the basic real property tax, the
53 jurisprudence. Respondents point out that petitioner and MIAA are two very different entities.
additional tax for the SEF, and the interest in case of nonpayment. chanrobleslaw
Respondents argue that petitioner is a GOCC contrary to its assertions, based on its Charter
and on DOJ Opinion No. 50.
 a. Respondents contend that the petition only questions the denial of the writ of
Respondents contend that if petitioner is not a GOCC but an instrumentality of the government, preliminary injunction by the RTC and the Court of Appeals. Petitioner failed to show
still the following statement in the 1996 MCIAA case applies:chanRoblesvirtualLawlibrary irreparable injury.

Besides, nothing can prevent Congress from decreeing that even instrumentalities or agencies b. Comparing the alleged damage that may be caused petitioner and the direct affront
of the Government performing governmental functions may be subject to tax. Where it is done and challenge against the power to tax, which is an attribute of sovereignty, it is but
58
precisely to fulfill a constitutional mandate and national policy, no one can doubt its wisdom. appropriate that injunctive relief should be denied.
Respondents argue that MCIAA properties such as the terminal building, taxiway and runway
are not exempt from real property taxation. As discussed in the 1996 MCIAA case, Section 234 2. Petitioner did not comply with LGC provisions on payment under protest.
of the LGC omitted GOCCs such as MCIAA from entities enjoying tax exemptions. Said decision
also provides that the transfer of ownership of the land to petitioner was absolute and petitioner
59
cannot evade payment of taxes. chanrobleslaw
a. Petitioner should have protested the tax imposition as provided in Article 285 of the
62
Even if the following issues were not raised by petitioner in its motion for reconsideration of the IRR of Republic Act No. 7160. Section 252 of Republic Act No. 7160 requires that
63
questioned Decision, and thus the ruling pertaining to these issues in the questioned decision the taxpayer’s protest can only be entertained if the tax is first paid under protest.
had become final, respondents still discussed its side over its objections as to the propriety of
64
bringing these up before this Court. Respondents submitted their Memorandum on June 30, 2009, wherein they allege that the
1996 MCIAA case is still good law, as shown by the following cases wherein it was quoted:
1. Estoppel does not lie against the government.

2. Respondent City can collect realty taxes and interest. 1. National Power Corporation v. Local Board of Assessment Appeals of Batangas [545
Phil. 92 (2007)];

a. Based on the Local Government Code (Sections 232, 233, 255) and its IRR (Sections 2. Mactan-Cebu International Airport Authority v. Urgello [549 Phil. 302 (2007)];
241, 247).
3. Quezon City v. ABS-CBN Broadcasting Corporation [588 Phil. 785 (2008)]; and
b. The City of Lapu-Lapu passed in 1980 Ordinance No. 44, or the Omnibus Tax
Ordinance, wherein the imposition of real property tax was made. This Ordinance was 4. The City of Iloilo v. Smart Communications, Inc. [599 Phil. 492 (2009)].
in force and effect by virtue of Article 278 of the IRR of Republic Act No.
60
7160. chanrobleslaw Respondents assert that the constant reference to the 1996 MCIAA case “could hardly mean
that the doctrine has breathed its last” and that the 1996 MCIAA case stands as precedent and
c. Ordinance No. 070-2007, known as the Revised Lapu-Lapu City Revenue Code, is controlling on petitioner
65
MCIAA. chanrobleslaw
imposed real property taxes, special education fund and further provided for the
payment of interest and surcharges. Thus, the issue is passé and is moot and Respondents allege that the issue for consideration is whether it is proper for petitioner to raise
academic. the issue of whether it is not liable to pay real property taxes, special education fund (SEF),
66
interests and/or surcharges. Respondents argue that the Court of Appeals was correct in
3. Respondent City can collect Special Education Fund. declaring petitioner liable for realty taxes, etc., on the terminal building, taxiway, and runway.
Respondent City relies on the following grounds:chanRoblesvirtualLawlibrary

a. The LGC does not require the enactment of an ordinance for the collection of the SEF.
1. The case of MCIAA v. Marcos, et al., is controlling on petitioner MCIAA;
b. Congress did not entirely repeal the SEF law, hence, its levy, imposition and collection
need not be covered by ordinance. Besides, the City has enacted the Revenue Code 2. MCIAA is a corporation;
61
containing provisions for the levy and collection of the SEF.
3. Section 133 in relation to Sections 232 and 234 of the Local Government Code of
Furthermore, respondents aver that:ChanRoblesVirtualawlibrary 1991 authorizes the collection of real property taxes (etc.) from MCIAA;

1. Collection of taxes is beyond the ambit of injunction. 4. Terminal Building, Runway & Taxiway are not of the Public Dominion and are not
exempt from realty taxes, special education fund and interest;
 5. Respondent City can collect realty tax, interest/surcharge, and Special Education In the 2006 MIAA case, the issue before the Court was “whether the Airport Lands and Buildings
73
Fund from MCIAA; [and] of MIAA are exempt from real estate tax under existing laws.” We quote the extensive
discussion of the Court that led to its finding that MIAA’s lands and buildings were exempt from
67
6. Estoppel does not lie against the government. real estate tax imposed by local governments:chanRoblesvirtualLawlibrary

THIS COURT’S RULING First, MIAA is not a government-owned or controlled corporation but an instrumentality of the
National Government and thus exempt from local taxation. Second, the real properties of MIAA
The petition has merit. The petitioner is an instrumentality of the government; thus, its properties are owned by the Republic of the Philippines and thus exempt from real estate tax.
actually, solely and exclusively used for public purposes, consisting of the airport terminal
building, airfield, runway, taxiway and the lots on which they are situated, are not subject to real 1. MIAA is Not a Government-Owned or Controlled Corporation
property tax and respondent City is not justified in collecting taxes from petitioner over said
properties. x x x x

DISCUSSION There is no dispute that a government-owned or controlled corporation is not exempt from real
estate tax. However, MIAA is not a government-owned or controlled corporation. Section 2(13)
The Court of Appeals (Cebu City) erred in declaring that the 1996 MCIAAcase still controls and of the Introductory Provisions of the Administrative Code of 1987 defines a government-owned
that petitioner is a GOCC. The 2006 MIAA case governs. or controlled corporation as follows:chanRoblesvirtualLawlibrary

The Court of Appeals’ reliance on the 1996 MCIAA case is misplaced and its staunch refusal to SEC. 2. General Terms Defined. - x x x
apply the 2006 MIAA case is patently erroneous. The Court of Appeals, finding for respondents,
refused to apply the ruling in the 2006 MIAA case on the premise that the same had not yet (13) Government-owned or controlled corporation refers to any agency organized as a stock or
reached finality, and that as far as MCIAA is concerned, the 1996 MCIAA case is still good non-stock corporation, vested with functions relating to public needs whether governmental or
68
law. chanrobleslaw proprietary in nature, and owned by the Government directly or through its instrumentalities
either wholly, or, where applicable as in the case of stock corporations, to the extent of at least
While it is true, as respondents allege, that the 1996 MCIAA case was cited in a long line of fifty-one (51) percent of its capital stock: x x x.chanroblesvirtuallawlibrary
69
cases, still, in 2006, the Court en banc decided a case that in effect reversed the A government-owned or controlled corporation must be “organized as a stock or non-stock
1996 Mactan ruling. The 2006 MIAA case had, since the promulgation of the questioned corporation.” MIAA is not organized as a stock or non-stock corporation. MIAA is not a stock
Decision and Resolution, reached finality and had in fact been either affirmed or cited in corporation because it has no capital stock divided into shares. MIAA has no stockholders or
70
numerous cases by the Court. The decision became final and executory on November 3, voting shares. x x x
71
2006. Furthermore, the 2006 MIAA case was decided by the Court en banc while the
1996 MCIAA case was decided by a Division. Hence, the 1996 MCIAA case should be read in x x x x
light of the subsequent and unequivocal ruling in the 2006 MIAA case.
Clearly, under its Charter, MIAA does not have capital stock that is divided into shares.
To recall, in the 2006 MIAA case, we held that MIAA’s airport lands and buildings are exempt
from real estate tax imposed by local governments; that it is not a GOCC but an instrumentality Section 3 of the Corporation Code defines a stock corporation as one whose “capital stock is
of the national government, with its real properties being owned by the Republic of the divided into shares and x x x authorized to distribute to the holders of such shares dividends x x
Philippines, and these are exempt from real estate tax. Specifically referring to petitioner, we x.” MIAA has capital but it is not divided into shares of stock. MIAA has no stockholders or voting
stated as follows:chanRoblesvirtualLawlibrary shares. Hence, MIAA is not a stock corporation.

Many government instrumentalities are vested with corporate powers but they do not
become stock or non-stock corporations, which is a necessary condition before an
agency or instrumentality is deemed a government-owned or controlled corporation.
Examples are the Mactan International Airport Authority, the Philippine Ports Authority, the
University of the Philippines and Bangko Sentral ng Pilipinas. All these government
instrumentalities exercise corporate powers but they are not organized as stock or non-stock
corporations as required by Section 2(13) of the Introductory Provisions of the Administrative
Code. These government instrumentalities are sometimes loosely called government
corporate entities. However, they are not government-owned or controlled corporations in the
strict sense as understood under the Administrative Code, which is the governing law defining
72
the legal relationship and status of government entities. (Emphases ours.)
MIAA is also not a non-stock corporation because it has no members. Section 87 of the
Corporation Code defines a non-stock corporation as “one where no part of its income is
distributable as dividends to its members, trustees or officers.” A non-stock corporation must
have members. Even if we assume that the Government is considered as the sole member of
MIAA, this will not make MIAA a non-stock corporation. Non-stock corporations cannot distribute
any part of their income to their members. Section 11 of the MIAA Charter mandates MIAA to
remit 20% of its annual gross operating income to the National Treasury. This prevents MIAA
from qualifying as a non-stock corporation.
Section 88 of the Corporation Code provides that non-stock corporations are “organized for
charitable, religious, educational, professional, cultural, recreational, fraternal, literary, scientific,
social, civil service, or similar purposes, like trade, industry, agriculture and like chambers.”
MIAA is not organized for any of these purposes. MIAA, a public utility, is organized to operate A government instrumentality like MIAA falls under Section 133(o) of the Local Government
an international and domestic airport for public use. Code, which states:chanRoblesvirtualLawlibrary

Since MIAA is neither a stock nor a non-stock corporation, MIAA does not qualify as a SEC. 133. Common Limitations on the Taxing Powers of Local Government Units. - Unless
government-owned or controlled corporation. What then is the legal status of MIAA within otherwise provided herein, the exercise of the taxing powers of provinces, cities, municipalities,
the National Government? and barangays shall not extend to the levy of the following:ChanRoblesVirtualawlibrary

MIAA is a government instrumentality vested with corporate powers to perform efficiently x x x x

its governmental functions. MIAA is like any other government instrumentality, the only
difference is that MIAA is vested with corporate powers. Section 2(10) of the Introductory
Provisions of the Administrative Code defines a government “instrumentality” as
follows:chanRoblesvirtualLawlibrary
SEC. 2. General Terms Defined. - x x x
(10) Instrumentality refers to any 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. x x x.chanroblesvirtuallawlibrary
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 non-stock corporation, it remains a government instrumentality
exercising not only governmental but also corporate powers. Thus, MIAA exercises the
governmental powers of eminent domain, police authority and the levying of fees and
charges. At the same time, MIAA exercises “all the powers of a corporation under the
Corporation Law, insofar as these powers are not inconsistent with the provisions of this
Executive Order.”
Likewise, when the law makes a government instrumentality operationally autonomous, the
instrumentality remains part of the National Government machinery although not integrated with
the department framework. The MIAA Charter expressly states that transforming MIAA into a
“separate and autonomous body” will make its operation more “financially viable.”
Many government instrumentalities are vested with corporate powers but they do not
become stock or non-stock corporations, which is a necessary condition before an
agency or instrumentality is deemed a government-owned or controlled corporation.
Examples are the Mactan International Airport Authority, the Philippine Ports Authority, the
University of the Philippines and Bangko Sentral ng Pilipinas. All these government
instrumentalities exercise corporate powers but they are not organized as stock or non-
stock corporations as required by Section 2(13) of the Introductory Provisions of the
Administrative Code. These government instrumentalities are sometimes loosely called
government corporate entities. However, they are not government-owned or controlled
corporations in the strict sense as understood under the Administrative Code, which is
the governing law defining the legal relationship and status of government
74
entities. (Emphases ours, citations omitted.)
The Court in the 2006 MIAA case went on to discuss the limitation on the taxing power of the
local governments as against the national government or its
instrumentality:chanRoblesvirtualLawlibrary
(o) Taxes, fees or charges of any kind on the National Government, its agencies and
instrumentalities and local government units. x x x.chanroblesvirtuallawlibrary
Section 133(o) recognizes the basic principle that local governments cannot tax the national
government, which historically merely delegated to local governments the power to tax. While
the 1987 Constitution now includes taxation as one of the powers of local governments, local
governments may only exercise such power “subject to such guidelines and limitations as the
Congress may provide.”
When local governments invoke the power to tax on national government
instrumentalities, such power is construed strictly against local governments. The rule is
that a tax is never presumed and there must be clear language in the law imposing the tax. Any
doubt whether a person, article or activity is taxable is resolved against taxation. This rule
applies with greater force when local governments seek to tax national government
instrumentalities.
Another rule is that a tax exemption is strictly construed against the taxpayer claiming the
exemption. However, when Congress grants an exemption to a national government
instrumentality from local taxation, such exemption is construed liberally in favor of the national
government instrumentality. x x x.
x x x x
There is, moreover, no point in national and local governments taxing each other, unless
a sound and compelling policy requires such transfer of public funds from one
government pocket to another.
There is also no reason for local governments to tax national government
instrumentalities for rendering essential public services to inhabitants of local
governments. The only exception is when the legislature clearly intended to tax government
instrumentalities for the delivery of essential public services for sound and compelling policy
considerations. There must be express language in the law empowering local governments to
tax national government instrumentalities. Any doubt whether such power exists is resolved
against local governments.
Thus, Section 133 of the Local Government Code states that “unless otherwise provided” in the
75
Code, local governments cannot tax national government instrumentalities. x x x. (Emphases
ours, citations omitted.)
The Court emphasized that the airport lands and buildings of MIAA are owned by the Republic
and belong to the public domain. The Court said:chanRoblesvirtualLawlibrary

The Airport Lands and Buildings of MIAA are property of public dominion and therefore owned
by the State or the Republic of the Philippines. x x x.
 encumbrances, foreclosures and auction sale. This will happen if the City of Parañaque can
x x x x foreclose and compel the auction sale of the 600-hectare runway of the MIAA for non-payment
of real estate tax.
No one can dispute that properties of public dominion mentioned in Article 420 of the Civil Code,
like “roads, canals, rivers, torrents, ports and bridges constructed by the State,” are owned by Before MIAA can encumber the Airport Lands and Buildings, the President must first withdraw
the State. The term “ports” includes seaports and airports. The MIAA Airport Lands and from public use the Airport Lands and Buildings. x x x.
Buildings constitute a “port” constructed by the State. Under Article 420 of the Civil Code, the
MIAA Airport Lands and Buildings are properties of public dominion and thus owned by the State x x x x
or the Republic of the Philippines.
Thus, unless the President issues a proclamation withdrawing the Airport Lands and
The Airport Lands and Buildings are devoted to public use because they are used by the Buildings from public use, these properties remain properties of public dominion and are
public for international and domestic travel and transportation. The fact that the MIAA inalienable. Since the Airport Lands and Buildings are inalienable in their present status
collects terminal fees and other charges from the public does not remove the character of as properties of public dominion, they are not subject to levy on execution or foreclosure
the Airport Lands and Buildings as properties for public use. x x x. sale. As long as the Airport Lands and Buildings are reserved for public use, their
ownership remains with the State or the Republic of the Philippines.
x x x x
The authority of the President to reserve lands of the public domain for public use, and to
The terminal fees MIAA charges to passengers, as well as the landing fees MIAA charges to withdraw such public use, is reiterated in Section 14, Chapter 4, Title I, Book III of the
airlines, constitute the bulk of the income that maintains the operations of MIAA. The collection Administrative Code of 1987, which states:chanRoblesvirtualLawlibrary
of such fees does not change the character of MIAA as an airport for public use. Such fees are
often termed user’s tax. This means taxing those among the public who actually use a public SEC. 14. Power to Reserve Lands of the Public and Private Domain of the Government. - (1)
facility instead of taxing all the public including those who never use the particular public facility. The President shall have the power to reserve for settlement or public use, and for specific
A user’s tax is more equitable - a principle of taxation mandated in the 1987 Constitution. public purposes, any of the lands of the public domain, the use of which is not otherwise directed
by law. The reserved land shall thereafter remain subject to the specific public purpose indicated
The Airport Lands and Buildings of MIAA x x x are properties of public dominion because until otherwise provided by law or proclamation;
they are intended for public use. As properties of public dominion, they indisputably x x x x
76
belong to the State or the Republic of the Philippines. (Emphases supplied, citations
omitted.) There is no question, therefore, that unless the Airport Lands and Buildings are withdrawn by
The Court also held in the 2006 MIAA case that airport lands and buildings are outside the law or presidential proclamation from public use, they are properties of public dominion, owned
77
commerce of man. by the Republic and outside the commerce of man.
Thus, the Court held that MIAA is “merely holding title to the Airport Lands and Buildings in trust
As properties of public dominion, the Airport Lands and Buildings are outside the commerce of for the Republic. [Under] Section 48, Chapter 12, Book I of the Administrative Code [which]
man. The Court has ruled repeatedly that properties of public dominion are outside the allows instrumentalities like MIAA to hold title to real properties owned by the
78
commerce of man. As early as 1915, this Court already ruled in Municipality of Cavite v. Republic.” chanrobleslaw
Rojas that properties devoted to public use are outside the commerce of man,
thus:ChanRoblesVirtualawlibrary The Court in the 2006 MIAA case cited Section 234(a) of the Local Government Code and held
that said provision exempts from real estate tax any “[r]eal property owned by the Republic of
79
x x x x the Philippines.” The Court emphasized, however, that “portions of the Airport Lands and
Buildings that MIAA leases to private entities are not exempt from real estate tax.” The Court
The Civil Code, Article 1271, prescribes that everything which is not outside the commerce of further held:chanRoblesvirtualLawlibrary
man may be the object of a contract, x x x.
This exemption should be read in relation with Section 133(o) of the same Code, which prohibits
x x x x local governments from imposing “[t]axes, fees or charges of any kind on the National
Government, its agencies and instrumentalities x x x.” The real properties owned by the
The Court has also ruled that property of public dominion, being outside the commerce of man, Republic are titled either in the name of the Republic itself or in the name of agencies or
cannot be the subject of an auction sale. instrumentalities of the National Government. The Administrative Code allows real property
owned by the Republic to be titled in the name of agencies or instrumentalities of the national
Properties of public dominion, being for public use, are not subject to levy, encumbrance government. Such real properties remain owned by the Republic and continue to be exempt
or disposition through public or private sale. Any encumbrance, levy on execution or from real estate tax.
auction sale of any property of public dominion is void for being contrary to public policy.
Essential public services will stop if properties of public dominion are subject to The Republic may grant the beneficial use of its real property to an agency or instrumentality of
the national government. This happens when title of the real property is transferred to an agency
or instrumentality even as the Republic remains the owner of the real property. Such
arrangement does not result in the loss of the tax exemption. Section 234(a) of the Local
Government Code states that real property owned by the Republic loses its tax exemption only if
the “beneficial use thereof has been granted, for consideration or otherwise, to a taxable
person.” MIAA, as a government instrumentality, is not a taxable person under Section 133(o) of
the Local Government Code. Thus, even if we assume that the Republic has granted to MIAA
the beneficial use of the Airport Lands and Buildings, such fact does not make these real
properties subject to real estate tax.
However, portions of the Airport Lands and Buildings that MIAA leases to private entities are not
exempt from real estate tax. For example, the land area occupied by hangars that MIAA leases
to private corporations is subject to real estate tax. In such a case, MIAA has granted the
beneficial use of such land area for a consideration to a taxable person and therefore such land
80
area is subject to real estate tax. x x x.
Significantly, the Court reiterated the above ruling and applied the same reasoning in Manila
81
International Airport Authority v. City of Pasay, thus:chanRoblesvirtualLawlibrary
The only difference between the 2006 MIAA case and this case is that the 2006 MIAA case
involved airport lands and buildings located in Parañaque City while this case involved
airport lands and buildings located in Pasay City. The 2006 MIAA case and this case raised
the same threshold issue: whether the local government can impose real property tax on the
airport lands, consisting mostly of the runways, as well as the airport buildings, of MIAA. x x x.
x x x x
The definition of “instrumentality” under Section 2(10) of the Introductory Provisions of the
Administrative Code of 1987 uses the phrase “includes x x x government-owned or controlled
corporations” which means that a government “instrumentality” may or may not be a
“government-owned or controlled corporation.” Obviously, the term government “instrumentality”
is broader than the term “government-owned or controlled corporation.” x x x.
x x x x
The fact that two terms have separate definitions means that while a government
“instrumentality” may include a “government-owned or controlled corporation,” there may be a
government “instrumentality” that will not qualify as a “government-owned or controlled
corporation.”
A close scrutiny of the definition of “government-owned or controlled corporation” in Section
2(13) will show that MIAA would not fall under such definition. MIAA is a government
“instrumentality” that does not qualify as a “government-owned or controlled
corporation.” x x x.
x x x x
Thus, MIAA is not a government-owned or controlled corporation but a government
instrumentality which is exempt from any kind of tax from the local governments. Indeed, the
exercise of the taxing power of local government units is subject to the limitations enumerated in
Section 133 of the Local Government Code. Under Section 133(o) of the Local Government
Code, local government units have no power to tax instrumentalities of the national government
like the MIAA. Hence, MIAA is not liable to pay real property tax for the NAIA Pasay properties.
Furthermore, the airport lands and buildings of MIAA are properties of public dominion intended
for public use, and as such are exempt from real property tax under Section 234(a) of the Local
Government Code. However, under the same provision, if MIAA leases its real property to a
taxable person, the specific property leased becomes subject to real property tax. In this case,
only those portions of the NAIA Pasay properties which are leased to taxable persons like
private parties are subject to real property tax by the City of Pasay. (Emphases added, citations
omitted.)
The Court not only mentioned petitioner MCIAA as similarly situated as MIAA. It also mentioned
several other government instrumentalities, among which was the Philippine Fisheries
Development Authority. Thus, applying the 2006 MIAA ruling, the Court, in Philippine Fisheries
82
Development Authority v. Court of Appeals, held:chanRoblesvirtualLawlibrary
On the basis of the parameters set in the MIAA case, the Authority should be classified as an
instrumentality of the national government. As such, it is generally exempt from payment of real
property tax, except those portions which have been leased to private entities.
In the MIAA case, petitioner Philippine Fisheries Development Authority was cited as among the
instrumentalities of the national government. x x x.
x x x x
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 non-stock
corporation, it remains a government instrumentality exercising not only governmental but also
corporate powers.
Thus, the Authority which is tasked with the special public function to carry out the government’s
policy “to promote the development of the country’s fishing industry and improve the efficiency in
handling, preserving, marketing, and distribution of fish and other aquatic products,” exercises
the governmental powers of eminent domain, and the power to levy fees and charges. At the
same time, the Authority exercises “the general corporate powers conferred by laws upon
private and government-owned or controlled corporations.”
x x x x
In light of the foregoing, the Authority should be classified as an instrumentality of the national
government which is liable to pay taxes only with respect to the portions of the property, the
beneficial use of which were vested in private entities. When local governments invoke the
power to tax on national government instrumentalities, such power is construed strictly against
local governments. The rule is that a tax is never presumed and there must be clear language in
the law imposing the tax. Any doubt whether a person, article or activity is taxable is resolved
against taxation. This rule applies with greater force when local governments seek to tax x x x x
national government instrumentalities.
While perhaps not of governing sway in all fours inasmuch as what were involved
Thus, the real property tax assessments issued by the City of Iloilo should be upheld only with in Manila International Airport Authority, e.g., airfields and runways, are properties of the
respect to the portions leased to private persons. In case the Authority fails to pay the real public dominion and, hence, outside the commerce of man, the rationale underpinning
property taxes due thereon, said portions cannot be sold at public auction to satisfy the tax the disposition in that case is squarely applicable to GSIS, both MIAA and GSIS being
delinquency. x x x. similarly situated. First, while created under CA 186 as a non-stock corporation, a status that
has remained unchanged even when it operated under PD 1146 and RA 8291, GSIS is not, in
x x x x the context of the aforequoted Sec. 193 of the LGC, a GOCC following the teaching of Manila
International Airport Authority, for, like MIAA, GSIS’s capital is not divided into unit shares. Also,
In sum, the Court finds that the Authority is an instrumentality of the national government, hence, GSIS has no members to speak of. And by members, the reference is to those who, under Sec.
it is liable to pay real property taxes assessed by the City of Iloilo on the IFPC only with respect 87 of the Corporation Code, make up the non-stock corporation, and not to the compulsory
to those portions which are leased to private entities. Notwithstanding said tax delinquency on members of the system who are government employees. Its management is entrusted to a
the leased portions of the IFPC, the latter or any part thereof, being a property of public domain, Board of Trustees whose members are appointed by the President.
cannot be sold at public auction. This means that the City of Iloilo has to satisfy the tax
delinquency through means other than the sale at public auction of the IFPC. (Citations omitted.) Second, the subject properties under GSIS’s name are likewise owned by the Republic. The
Another government instrumentality specifically mentioned in the 2006 MIAA case was the GSIS is but a mere trustee of the subject properties which have either been ceded to it by the
83
Philippine Ports Authority (PPA). Hence, in Curata v. Philippine Ports Authority, the Court held Government or acquired for the enhancement of the system. This particular property
that the PPA is similarly situated as MIAA, and ruled in this wise:chanRoblesvirtualLawlibrary arrangement is clearly shown by the fact that the disposal or conveyance of said subject
properties are either done by or through the authority of the President of the Philippines. x x x.
This Court’s disquisition in Manila International Airport Authority v. Court of Appeals – ruling that (Emphasis added, citations omitted.)
MIAA is not a government-owned and/or controlled corporation (GOCC), but an instrumentality All the more do we find that petitioner MCIAA, with its many similarities to the MIAA, should be
of the National Government and thus exempt from local taxation, and that its real properties are classified as a government instrumentality, as its properties are being used for public purposes,
owned by the Republic of the Philippines –– is instructive. x x x. These findings are squarely and should be exempt from real estate taxes. This is not to derogate in any way the delegated
applicable to PPA, as it is similarly situated as MIAA. First, PPA is likewise not a GOCC for not authority of local government units to collect realty taxes, but to uphold the fundamental
having shares of stocks or members. Second, the docks, piers and buildings it administers are doctrines of uniformity in taxation and equal protection of the laws, by applying all the
likewise owned by the Republic and, thus, outside the commerce of man. Third, PPA is a mere jurisprudence that have exempted from said taxes similar authorities, agencies, and
trustee of these properties. Hence, like MIAA, PPA is clearly a government instrumentality, an instrumentalities, whether covered by the 2006 MIAA ruling or not.
agency of the government vested with corporate powers to perform efficiently its governmental
functions. To reiterate, petitioner MCIAA is vested with corporate powers but it is not a stock or non-stock
corporation, which is a necessary condition before an agency or instrumentality is deemed a
Therefore, an undeniable conclusion is that the funds of PPA partake of government funds, and government-owned or controlled corporation. Like MIAA, petitioner MCIAA has capital under its
such may not be garnished absent an allocation by its Board or by statutory grant. If the PPA charter but it is not divided into shares of stock. It also has no stockholders or voting shares.
funds cannot be garnished and its properties, being government properties, cannot be levied via Republic Act No. 6958 provides:chanRoblesvirtualLawlibrary
a writ of execution pursuant to a final judgment, then the trial court likewise cannot grant
discretionary execution pending appeal, as it would run afoul of the established jurisprudence Section 9. Capital. – The [Mactan-Cebu International Airport] Authority shall have an authorized
that government properties are exempt from execution. What cannot be done directly cannot be capital stock equal to and consisting of:ChanRoblesVirtualawlibrary
done indirectly. (Citations omitted.)
In Government Service Insurance System v. City Treasurer and City Assessor of the City of (a) The value of fixed assets (including airport facilities, runways and equipment) and such other
84
Manila the Court found that the GSIS was also a government instrumentality and not a GOCC, properties, movable and immovable, currently administered by or belonging to the airports as
applying the 2006 MIAA case even though the GSIS was not among those specifically valued on the date of the effectivity of this Act;
mentioned by the Court as similarly situated as MIAA. The Court
said:chanRoblesvirtualLawlibrary (b) The value of such real estate owned and/or administered by the airports; and

GSIS an instrumentality of the National Government (c) Government contribution in such amount as may be deemed an appropriate initial balance.
Such initial amount, as approved by the President of the Philippines, which shall be more or less
Apart from the foregoing consideration, the Court’s fairly recent ruling in Manila International equivalent to six (6) months working capital requirement of the Authority, is hereby authorized to
Airport Authority v. Court of Appeals, a case likewise involving real estate tax assessments by a be appropriated in the General Appropriations Act of the year following its enactment into
Metro Manila city on the real properties administered by MIAA, argues for the non-tax liability of law.chanroblesvirtuallawlibrary
GSIS for real estate taxes. x x x.
Thereafter, the government contribution to the capital of the Authority shall be provided for in the
General Appropriations Act. Under Article 420 of the Civil Code, the Airport Lands and Buildings of MIAA, being devoted to
public use, are properties of public dominion and thus owned by the State or the Republic of the
Like in MIAA, the airport lands and buildings of MCIAA are properties of public dominion Philippines. Article 420 specifically mentions “ports x x x constructed by the State,” which
because they are intended for public use. As properties of public dominion, they indisputably includes public airports and seaports, as properties of public dominion and owned by the
belong to the State or the Republic of the Philippines, and are outside the commerce of man. Republic. As properties of public dominion owned by the Republic, there is no doubt whatsoever
This, unless petitioner leases its real property to a taxable person, the specific property leased that the Airport Lands and Buildings are expressly exempt from real estate tax under Section
becomes subject to real property tax; in which case, only those portions of petitioner’s properties 234(a) of the Local Government Code. This Court has also repeatedly ruled that properties
85
which are leased to taxable persons like private parties are subject to real property tax by the of public dominion are not subject to execution or foreclosure sale. (Emphases added.)
City of Lapu-Lapu. WHEREFORE, we hereby GRANT the petition. We REVERSE and SET
ASIDE the Decision dated October 8, 2007 and the Resolution dated February 12, 2008 of
We hereby adopt and apply to petitioner MCIAA the findings and conclusions of the Court in the the Court of Appeals (Cebu City) in CA-G.R. SP No. 01360. Accordingly, we DECLARE:
2006 MIAA case, and we quote:chanRoblesvirtualLawlibrary

To summarize, MIAA is not a government-owned or controlled corporation under Section 2(13)
of the Introductory Provisions of the Administrative Code because it is not organized as a stock
or non-stock corporation. Neither is MIAA a government-owned or controlled corporation under
Section 16, Article XII of the 1987 Constitution because MIAA is not required to meet the test of
economic viability. MIAA is a government instrumentality vested with corporate powers and
performing essential public services pursuant to Section 2(10) of the Introductory Provisions of
the Administrative Code. As a government instrumentality, MIAA is not subject to any kind of tax
by local governments under Section 133(o) of the Local Government Code. The exception to the
exemption in Section 234(a) does not apply to MIAA because MIAA is not a taxable entity under
the Local Government Code. Such exception applies only if the beneficial use of real property
owned by the Republic is given to a taxable entity.
Finally, the Airport Lands and Buildings of MIAA are properties devoted to public use and thus
are properties of public dominion. Properties of public dominion are owned by the State or the
Republic. x x x.
1. Petitioner’s properties that are actually, solely and exclusively used for public purpose,
consisting of the airport terminal building, airfield, runway, taxiway and the lots on
which they are situated, EXEMPT from real property tax imposed by the City of Lapu-
Lapu.
2. VOID all the real property tax assessments, including the additional tax for the special
education fund and the penalty interest, as well as the final notices of real property tax
delinquencies, issued by the City of Lapu-Lapu on petitioner’s properties, except the
assessment covering the portions that petitioner has leased to private parties.
3. NULL and VOID the sale in public auction of 27 of petitioner’s properties and the
eventual forfeiture and purchase of the said properties by respondent City of Lapu-
Lapu. We likewise declare VOIDthe corresponding Certificates of Sale of Delinquent
Property issued to respondent City of Lapu-Lapu.

x x x x SO ORDERED.cralawlawlibrary
CITY ASSESSOR OF CEBU G.R. No. 152904
The term “ports x x x constructed by the State” includes airports and seaports. The Airport CITY,
Lands and Buildings of MIAA are intended for public use, and at the very least intended Petitioner,
for public service. Whether intended for public use or public service, the Airport Lands Present:
and Buildings are properties of public dominion. As properties of public dominion, the QUISUMBING, J., Chairperson,
Airport Lands and Buildings are owned by the Republic and thus exempt from real estate - versus - CARPIO,
tax under Section 234(a) of the Local Government Code. CARPIO MORALES,
TINGA, and
4. Conclusion VELASCO, JR., JJ.
ASSOCIATION OF BENEVOLA Promulgated:
Under Section 2(10) and (13) of the Introductory Provisions of the Administrative Code, which DE CEBU, INC.,
governs the legal relation and status of government units, agencies and offices within the entire Respondent. June 8, 2007
government machinery, MIAA is a government instrumentality and not a government-owned or x-----------------------------------------------------------------------------------------x
controlled corporation. Under Section 133(o) of the Local Government Code, MIAA as a
government instrumentality is not a taxable person because it is not subject to “[t]axes, fees or DECISION
charges of any kind” by local governments. The only exception is when MIAA leases its real
property to a “taxable person” as provided in Section 234(a) of the Local Government Code, in VELASCO, JR., J.:
which case the specific real property leased becomes subject to real estate tax. Thus, only
portions of the Airport Lands and Buildings leased to taxable persons like private parties Is a medical arts center built by a hospital to house its doctors a separate commercial
are subject to real estate tax by the City of Parañaque. establishment or an appurtenant to the hospital? This is the core issue to be resolved in the
instant petition where petitioner insists on a 35% assessment rate on the building which he
considers commercial in nature contrary to respondents position that it is a special real property
entitled to a 10% assessment rate for purposes of realty tax.
The Case
[1]
This Petition for Review on Certiorari under Rule 45 assails the October 31, 2001
[2]
Decision of the Court of Appeals (CA) in CA-G.R. SP No. 62548, which affirmed the January
[3] [4]
24, 2000 Decision and October 25, 2000 Resolution of the Central Board of Assessment
[5]
Appeals (CBAA); and the March 11, 2002 Resolution of the same court denying petitioners
[6]
Motion for Reconsideration. The CBAA upheld the February 10, 1999 Decision of the Local
Board of Assessment Appeals (LBAA), which overturned the 35% assessment rate of
respondent Cebu City Assessor and ruled that petitioner is entitled to a 10% assessment.
The Facts
Respondent Association of Benevola de Cebu, Inc. is a non-stock, non-profit
organization organized under the laws of the Republic of the Philippines and is the owner of
Chong Hua Hospital (CHH) in Cebu City. In the late 1990s, respondent constructed the CHH
[7]
Medical Arts Center (CHHMAC). Thereafter, an April 17, 1998 Certificate of Occupancy was
issued to the center with a classification of Commercial [Clinic].
Petitioner City Assessor of Cebu City assessed the CHHMAC building under Tax
Declaration (TD) No. 97 GR-04-024-02529 as commercial with a market value of PhP
28,060,520 and an assessed value of PhP 9,821,180 at the assessment level of 35% for
commercial buildings, and not at the 10% special assessment currently imposed for CHH and its
other separate buildingsthe CHHs Dietary and Records Departments.
Thus, respondent filed its September 15, 1998 letter-petition with the Cebu City LBAA
for reconsideration, asserting that CHHMAC is part of CHH and ought to be imposed the same
special assessment level of 10% with that of CHH. On September 25, 1998, respondent formally
filed its appeal with the LBAA which was docketed as Case No. 4406, TD No. 97 GR-04-024-
02529 entitled Association Benevola de Cebu, Inc. v. City Assessor.
In the September 30, 1998 Order, the LBAA directed petitioner to conduct an ocular
inspection of the subject property and to submit a report on the scheduled date of hearing. In
the October 7, 1998 hearing, the parties were required to submit their respective position
papers.
In its position paper, petitioner argued that CHHMAC is a newly constructed five-
storey building situated about 100 meters away from CHH and, based on actual inspection, was
ascertained that it is not a part of the CHH building but a separate building which is actually used
as commercial clinic/room spaces for renting out to physicians and, thus, classified as
commercial. Petitioner contended that in turn the medical specialists in CHHMAC charge
consultation fees for patients who consult for diagnosis and relief of bodily ailment together with
the ancillary (or support) services which include the areas of anesthesia, radiology, pathology,
and more. Petitioner concluded the foregoing set up to be ultimately geared for commercial
purposes, and thus having the proper classification as commercial under Building Permit No.
B01-9750087 pursuant to Section 10 of the Local Assessment Regulations No. 1-92 issued by
the Department of Finance (DOF).
On the other hand, respondent contended in its position paper that CHHMAC building
is actually, directly, and exclusively part of CHH and should have a special assessment level of
10% as provided under City Tax Ordinance LXX. Respondent asserted that the CHHMAC
building is similarly situated as the buildings of CHH, housing its Dietary and Records
Departments, are completely separate from the main CHH building and are imposed the 10%
special assessment level. In fine, respondent argued that the CHHMAC, though not actually
indispensable, is nonetheless incidental and reasonably necessary to CHHs operations.
The Ruling of the Local Board of Assessment Appeals
[8]
On February 10, 1999, the LBAA rendered a Decision, the dispositive portion of
which reads:
WHEREFORE, premises considered, the appealed decision
imposing a thirty five (35) percent assessment level of TD No. 97
GR-04-024-02529 on the Chong Hua Hospital Medical Arts building
is reversed and set aside and other [sic] one issued declaring that
the building is entitled to a ten (10) percent assessment level.
In reversing the ruling of petitioner City Assessor of Cebu City, the LBAA reasoned
that it is of public knowledge that hospitals have plenty of spaces leased out to medical
practitioners, which is both an accepted and desirable fact; thus, respondents claim is not
disputed that such is a must for a tertiary hospital like CHH. The LBAA held that it is
inconsequential that a separate building was constructed for that purpose pointing out that
departments or services of other institutions and establishments are also not always housed in
the same building.
Thus, the LBAA pointed to the fact that respondents Dietary and Records
Departments which are housed in separate buildings were similarly imposed with CHH the
special assessment level of 10%, ratiocinating in turn that there is no reason therefore why a
higher level would be imposed for CHHMAC as it is similarly situated with the Dietary and
Records Departments of the CHH.
The Ruling of the Central Board of Assessment Appeals
[9]
Aggrieved, petitioner filed its March 15, 1999 Notice of Appeal and March 16,
[10]
1999 Appeal Memorandum before the CBAA Visayas Field Office which docketed the appeal
as CBAA Case No. V-15, In Re: LBAA Case No. 4406, TD No. 97 GR-04-024-02529
entitled City Assessor of Cebu City v. Local Board of Assessment Appeals of Cebu City and
[11]
Associacion Benevola de Cebu, Inc. On June 3, 1999, respondent filed its Answer to
petitioners appeal.
[12]
Subsequently, on January 24, 2000, the CBAA rendered a Decision affirming in
toto the LBAA Decision and resolved the issue of whether the subject building of CHHMAC is
part and parcel of CHH. It agreed with the above disquisition of the LBAA that it is a matter of
public knowledge that hospitals lease out spaces to its accredited medical practitioners, and in
particular it is of public knowledge that before the CHHMAC was constructed, the accredited
doctors of CHH were housed in the main hospital building of CHH. Moreover, citing Herrera v.
 [13]
Quezon City Board of Assessment Appeals later applied in Abra Valley College, Inc. v.
[14]
Aquino, the CBAA held that the fact that the subject building is detached from the main
hospital building is of no consequence as the exemption in favor of property used exclusively for
charitable or educational purposes is not only limited to property actually indispensable to the
hospital, but also extends to facilities which are incidental and reasonably necessary for the
accomplishment of such purposes.
[15]
Through its October 25, 2000 Resolution, the CBAA denied petitioners Motion for
[16]
Reconsideration.
The Ruling of the Court of Appeals
[17]
Not satisfied, petitioner brought before the CA a petition for review under Rule 43 of
the Rules of Court, docketed as CA-G.R. SP No. 62548, ascribing error on the CBAA in
[18]
dismissing his appeal and in affirming the February 10, 1999 Decision of the LBAA.
[19]
On October 31, 2001, the appellate court rendered the assailed Decision which
affirmed the January 24, 2000 Decision of the CBAA. It agreed with the CBAA that CHHMAC is
[20]
part and parcel of CHH in line with the ruling in Herrera on what the term appurtenant thereto
means. Thus, the CA held that the facilities and utilities of CHHMAC are undoubtedly necessary
and indispensable for the CHH to achieve its ultimate purpose.
The CA likewise ruled that the fact that rentals are paid by CHH accredited doctors
and medical specialists for spaces in CHHMAC has no bearing on its classification as a hospital
since CHHMAC serves also as a place for medical check-up, diagnosis, treatment, and care for
its patients as well as a specialized out-patient department of CHH where treatment and
diagnosis are done by accredited medical specialists in their respective fields of anesthesia,
radiology, pathology, and more.
The appellate court also applied Secs. 215 and 216 of the Local Government Code
(Republic Act No. 7160) which classify lands, buildings, and improvements actually, directly, and
exclusively used for hospitals as special cases of real property and not as commercial. Thus,
CHHMAC being an integral part of CHH is not commercial but special and should be imposed
the 10% special assessment, the same as CHH, instead of the 35% for commercial
establishments.
Lastly, the CA pointed out that courts generally will not interfere in matters which are
addressed to the sound discretion of the government agencies entrusted with the regulation of
activities under their special technical knowledge and trainingtheir findings and conclusions are
accorded not only respect but even finality.
[21]
Through the assailed March 11, 2002 Resolution, the CA denied petitioners Motion
for Reconsideration.
The Issues
Hence, before us is the instant petition with the solitary issue, as follows:
WHETHER OR NOT THERE IS SERIOUS ERROR BY THE
COURT OF APPEALS IN AFFIRMING THE DECISION OF THE
CENTRAL BOARD OF ASSESSMENT APPEALS THAT THE NEW
BUILDING CHONG HUA HOSPITAL AND MEDICAL ARTS
CENTER (CHHMAC) IS AN ESSENTIAL PART OF THE OLD
BUILDING KNOWN AS CHONG HUA HOSPITAL. IN THE
NEGATIVE, WHETHER OR NOT THE NEW BUILDING IS LIABLE
TO PAY THE 35% ASSESSMENT LEVEL. AND WHETHER OR
NOT THE COURT OF APPEALS COULD INTERFERE WITH THE
FINDINGS OF THE CENTRAL BOARD OF ASSESSMENT
APPEALS, A GOVERNMENT AGENCY HAVING SPECIAL
TECHNICAL KNOWLEDGE AND TRAINING ON THE MATTER
[22]
SUBJECT OF THE PRESENT CASE.
The Courts Ruling
The petition is devoid of merit.
It is petitioners strong belief that the subject building, CHHMAC, which is built on a
rented land and situated about 100 meters from the main building of CHH, is not an extension
nor an integral part of CHH and thus should not enjoy the 10% special assessment. Petitioner
anchors the classification of CHHMAC as commercial, first, on Sec. 10 of Local Assessment
Regulations No. 1-92 issued by the DOF, which provides:
SEC. 10. Actual use of Real Property as basis of Assessment.Real
Property shall be classified, valued and assessed on the basis of its
actual use regardless of where located, whoever owns it, and
whoever uses it. (Sec. 217, R.A. 7160)
A. Actual use refers to the purpose for which the property is
principally or predominantly utilized by the person in possession of
the property. (Sec. 199 (b), R.A. 7160)
Secondly, the result of the inspection on subject building by the City Assessors
inspection team shows that CHHMAC is a commercial establishment based on the following: (1)
CHHMAC is exclusively intended for lease to doctors; (2) there are neither operating rooms nor
beds for patients; and (3) the doctors renting the spaces earn income from the patients who avail
themselves of their services. Thus, petitioner argues that CHHMAC is principally and actually
used for lease to doctors, and respondent as owner of CHHMAC derives rental income from it;
hence, CHHMAC was built and is intended for profit and functions commercially.
Moreover, petitioner asserts that CHHMAC is not part of the CHH main building as it is
exclusively used as private clinics of physicians who pay rental fees to petitioner.And while the
private clinics might be considered facilities, they are not incidental to nor reasonably necessary
for the accomplishment of the hospitals purposes as CHH can still function and accomplish its
purpose without the existence of CHHMAC. In addition, petitioner contends that the Abra Valley
[23]
College, Inc. ruling is not applicable to the instant case for schools, the subject matter in said
case, are already entitled to special assessment. Besides, petitioner points CHHMAC is not
among the facilities mentioned in said case. Further, petitioner argues that CHHMAC is not in
the same category as nurses homes and housing facilities for the hospital staff as these are
clearly not for profit, that is, not commercial, and are clearly incidental and reasonably necessary
for the hospitals purposes.
 We are not persuaded.
A careful review of the records compels us to affirm the assailed CA Decision as we
find no reversible error for us to reverse or alter it.
Chong Hua Hospital Medical Arts Center is an integral part of Chong Hua Hospital
We so hold that CHHMAC is an integral part of CHH.
It is undisputed that the doctors and medical specialists holding clinics in CHHMAC
are those duly accredited by CHH, that is, they are consultants of the hospital and the ones who
can treat CHHs patients confined in it. This fact alone takes away CHHMAC from being
categorized as commercial since a tertiary hospital like CHH is required by law to have a pool of
physicians who comprises the required medical departments in various medical fields. As aptly
pointed out by respondent:
Chong Hua Hospital is a duly licensed tertiary hospital and is
covered by Dept. of Health (DOH) Adm. Order No. 68-A and the
1989 Revised Rules and Regulations governing the registration,
licensure and operation of hospitals in the Philippines.Under Sec. 6,
sub-sec. 6.3, it is mandated by law, that respondent appellee in
order to retain its classification as a TERTIARY HOSPITAL, must be
fully departmentalized and equipped with the service capabilities
needed to support certified medical specialists and other licensed
physicians rendering services in the field of medicine, pediatrics,
obstetrics and gynecology, surgery, and their sub-specialties, ICCU
and ancillary services which is precisely the function of the Chong
[24]
Hua Hospital Medical Arts Center.
Sec. 6.3, Administrative Order No. (AO) 68-A, Series of 1989, Revised Rules and
Regulations Governing the Registration, Licensure and Operation of Hospitals in
the Philippines pertinently provides:
Tertiary Hospital is fully departmentalized and equipped with the
service capabilities needed to support certified medical specialists
and other licensed physicians rendering services in the field of
Medicine, Pediatrics, Obstetrics and Gynecology, Surgery, their
subspecialties and ancillary services. (Emphasis supplied.)
Moreover, AO 68-A likewise provides what clinic service and medical ancillary service
are, thus:
11.3.2 Clinical ServiceThe medical services to patients shall be
performed by the medical staff appointed by the governing body of
the institution. x x x
11.3.3 Medical Ancillary ServiceThese are support services which
include Anesthesia Department, Pathology Department, Radiology
Department, Out-Patient Department (OPD), Emergency Service,
Dental, Pharmacy, Medical Records and Medical Social Services.
Based on these provisions, these physicians holding offices or clinics in CHHMAC,
duly appointed or accredited by CHH, precisely fulfill and carry out their roles in the hospitals
services for its patients through the CHHMAC. The fact that they are holding office in a separate
building, like at CHHMAC, does not take away the essence and nature of their services vis--vis
the over-all operation of the hospital and the benefits to the hospitals patients. Given what the
law requires, it is clear that CHHMAC is an integral part of CHH.
These accredited physicians normally hold offices within the premises of the hospital;
in which case there is no question as to the conduct of their business in the ambit of diagnosis,
treatment and/or confinement of patients. This was the case before 1998 and before CHHMAC
was built. Verily, their transfer to a more spacious and, perhaps, convenient place and location
for the benefit of the hospitals patients does not remove them from being an integral part of the
overall operation of the hospital.
Conversely, it would have been different if CHHMAC was also open for non-accredited
physicians, that is, any medical practitioner, for then respondent would be running a commercial
building for lease only to doctors which would indeed subject the CHHMAC to the commercial
level of 35% assessment.
Moreover, the CHHMAC, being hundred meters away from the CHH main building,
does not denigrate from its being an integral part of the latter. As aptly applied by the CBAA,
the Herrera ruling on what constitutes property exempt from taxation is indeed applicable in the
instant case, thus:
Moreover, the exemption in favor of property used exclusively for
charitable or educational purposes is not limited to property actually
indispensable therefore (Cooley on Taxation, Vol. 2, p. 1430), but
extends to facilities which are incidental to and reasonably
necessary for the accomplishment of said purposes, such as, in the
case of hospitals, a school for training nurses, a nurses home,
property use to provide housing facilities for interns, resident
doctors, superintendents, and other members of the hospital staff,
and recreational facilities for student nurses, interns and residents
(84 C.J.S., 621), such as athletic fields, including a farm used for
the inmates of the institution (Cooley on Taxation, Vol. 2, p.
[25]
1430).
Verily, being an integral part of CHH, CHHMAC should be under the same special
assessment level of as that of the former.
The CHHMAC facility is definitely incidental to and reasonably necessary for the
operations of Chong Hua Hospital
 Given our discussion above, the CHHMAC facility, while seemingly not indispensable
to the operations of CHH, is definitely incidental to and reasonably necessary for the operations
of the hospital. Considering the legal requirements and the ramifications of the medical and
clinical operations that have been transferred to the CHHMAC from the CHH main building in
light of the accredited physicians transfer of offices in 1998 after the CHHMAC building was
finished, it cannot be gainsaid that the services done in CHHMAC are indispensable and
essential to the hospitals operation.
For one, as found by the appellate court, the CHHMAC facility is primarily used by the
hospitals accredited physicians to perform medical check-up, diagnosis, treatment, and care of
patients. For another, it also serves as a specialized outpatient department of the hospital.
Indubitably, the operation of the hospital is not only for confinement and surgical
operations where hospital beds and operating theaters are required. Generally, confinement is
required in emergency cases and where a patient necessitates close monitoring. The usual
course is that patients have to be diagnosed, and then treatment and follow-up consultations
follow or are required. Other cases may necessitate surgical operations or other medical
intervention and confinement. Thus, the more the patients, the more important task of diagnosis,
treatment, and care that may or may not require eventual confinement or medical operation in
the CHHMAC.
Thus, the importance of CHHMAC in the operation of CHH cannot be over-
emphasized nor disputed. Clearly, it plays a key role and provides critical support to hospital
operations.
residential, agricultural, commercial, industrial, mineral, timberland
or special.
xxxx
SEC. 216. Special Classes of Real Property.All lands, buildings,
and other improvements thereon actually, directly and
exclusively used for hospitals, cultural or scientific purposes, and
those owned and used by local water districts, and government-
owned or controlled corporations rendering essential public services
in the supply and distribution of water and/or generation and
transmission of electric power shall be classified as
special. (Emphasis supplied.)
Thus, applying the above provisos in line with City Tax Ordinance LXX of Cebu City,
the 10% special assessment should be imposed for the CHHMAC building which should be
classified as special.
WHEREFORE, the petition is DENIED for lack of merit and the October 31,
2001 Decision and March 11, 2002 Resolution of the CA are hereby AFFIRMED. No
pronouncement as to costs.
SO ORDERED.

Charging rentals for the offices used by its accredited physicians cannot be equated to a ANGELES UNIVERSITY FOUNDATION, G.R. No. 189999
commercial venture Petitioner,
Present:

Finally, respondents charge of rentals for the offices and clinics its accredited - versus - LEONARDO-DE CASTRO,J.,
*

physicians occupy cannot be equated to a commercial venture, which is mainly for profit. Acting Chairperson,
BERSAMIN,
Respondents explanation on this point is well taken. First, CHHMAC is only for its CITY OF ANGELES, JULIET G. VILLARAMA, JR.,
consultants or accredited doctors and medical specialists. Second, the charging of rentals is a QUINSAAT, in her capacity as
**
PEREZ, and
practical necessity: (1) to recoup the investment cost of the building, (2) to cover the rentals for PERLAS-BERNABE, JJ.
***

the lot CHHMAC is built on, and (3) to maintain the CHHMAC building and its facilities. Third, as Treasurer of Angeles City and ENGR. DONATO
correctly pointed out by respondent, it pays the proper taxes for its rental income. And, fourth, if N. DIZON, in his capacity as Acting Angeles Promulgated:
there is indeed any net income from the lease income of CHHMAC, such does not inure to any City Building Official,
private or individual person as it will be used for respondents other charitable projects. Respondents. June 27, 2012
x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x
Given the foregoing arguments, we fail to see any reason why the CHHMAC building
should be classified as commercial and be imposed the commercial level of 35% as it is not DECISION
operated primarily for profit but as an integral part of CHH. The CHHMAC, with operations being
devoted for the benefit of the CHHs patients, should be accorded the 10% special assessment. VILLARAMA, JR., J.:
In this regard, we point with approbation the appellate courts application of Sec. 216 in
relation with Sec. 215 of the Local Government Code on the proper classification of the subject
Before us is a petition for review on certiorari under Rule 45 of the 1997 Rules of Civil
CHHMAC building as special and not commercial. Secs. 215 and 216 pertinently provide: [1]
Procedure, as amended, which seeks to reverse and set aside the Decision dated July 28,
[2]
2009 and Resolution dated October 12, 2009 of the Court of Appeals (CA) in CA-G.R. CV No.
SEC. 215. Classes of Real Property for Assessment Purposes.For [3]
90591. The CA reversed the Decision dated September 21, 2007 of the Regional Trial Court of
purposes of assessment, real property shall be classified as
Angeles City, Branch 57 in Civil Case No. 12995 declaring petitioner exempt from the payment
of building permit and other fees and ordering respondents to refund the same with interest at Building Permit and Electrical Fee P 217,475.20
the legal rate. Locational Clearance Fee 283,741.64
Fire Code Fee 144,690.00
Total - P 645,906.84
The factual antecedents:
School Building (renovation)
Petitioner Angeles University Foundation (AUF) is an educational institution
Building Permit and Electrical Fee P 37,857.20
established on May 25, 1962 and was converted into a non-stock, non-profit education
[4] Locational Clearance Fee 6,000.57
foundation under the provisions of Republic Act (R.A.) No. 6055 on December 4, 1975.
Fire Code Fee 5,967.74
Total - P 49,825.51
Sometime in August 2005, petitioner filed with the Office of the City Building Official an
application for a building permit for the construction of an 11-storey building of the Angeles
University Foundation Medical Center in its main campus located at MacArthur Highway, Petitioner likewise paid the following sums as required by the City Assessors Office:
Angeles City, Pampanga. Said office issued a Building Permit Fee Assessment in the amount
of P126,839.20. An Order of Payment was also issued by the City Planning and Development Real Property Tax Basic Fee P 86,531.10
Office, Zoning Administration Unit requiring petitioner to pay the sum of P238,741.64 as SEF 43,274.54
[5]
Locational Clearance Fee. Locational Clearance Fee 1,125.00
[10]
Total P130,930.64
In separate letters dated November 15, 2005 addressed to respondents City [GRAND TOTAL - P 826,662.99]
Treasurer Juliet G. Quinsaat and Acting City Building Official Donato N. Dizon, petitioner claimed
that it is exempt from the payment of the building permit and locational clearance fees, citing
legal opinions rendered by the Department of Justice (DOJ). Petitioner also reminded the
By reason of the above payments, petitioner was issued the corresponding Building Permit,
respondents that they have previously issued building permits acknowledging such exemption
Wiring Permit, Electrical Permit and Sanitary Building Permit. On June 9, 2006, petitioner
from payment of building permit fees on the construction of petitioners 4-storey AUF Information
formally requested the respondents to refund the fees it paid under protest.Under letters dated
Technology Center building and the AUF Professional Schools building on July 27, 2000 and [11]
[6] June 15, 2006 and August 7, 2006, respondent City Treasurer denied the claim for refund.
March 15, 2004, respectively.

Respondent City Treasurer referred the matter to the Bureau of Local Government
Finance (BLGF) of the Department of Finance, which in turn endorsed the query to the DOJ. Then
Justice Secretary Raul M. Gonzalez, in his letter-reply dated December 6, 2005, cited previous
issuances of his office (Opinion No. 157, s. 1981 and Opinion No. 147, s. 1982) declaring petitioner
st
to be exempt from the payment of building permit fees.Under the 1 Indorsement dated January 6,
2006, BLGF reiterated the aforesaid opinion of the DOJ stating further that xxx the Department of
[7]
Finance, thru this Bureau, has no authority to review the resolution or the decision of the DOJ.
Petitioner wrote the respondents reiterating its request to reverse the disputed
assessments and invoking the DOJ legal opinions which have been affirmed by Secretary
Gonzalez. Despite petitioners plea, however, respondents refused to issue the building permits for
the construction of the AUF Medical Center in the main campus and renovation of a school building
located at Marisol Village. Petitioner then appealed the matter to City Mayor Carmelo F. Lazatin but
[8]
no written response was received by petitioner.
[9]
Consequently, petitioner paid under protest the following:
Medical Center (new construction)
[12]
On August 31, 2006, petitioner filed a Complaint before the trial court seeking the refund
of P826,662.99 plus interest at the rate of 12% per annum, and also praying for the award of
attorneys fees in the amount of P300,000.00 and litigation expenses.
[13]
In its Answer, respondents asserted that the claim of petitioner cannot be granted because its
structures are not among those mentioned in Sec. 209 of the National Building Code as
exempted from the building permit fee. Respondents argued that R.A. No. 6055 should be
considered repealed on the basis of Sec. 2104 of the National Building Code. Since the disputed
assessments are regulatory in nature, they are not taxes from which petitioner is exempt. As to
the real property taxes imposed on petitioners property located in Marisol Village, respondents
pointed out that said premises will be used as a school dormitory which cannot be considered as
a use exclusively for educational activities.
Petitioner countered that the subject building permit are being collected on the basis of Art. 244
of the Implementing Rules and Regulations of the Local Government Code, which impositions
are really taxes considering that they are provided under the chapter on Local Government
Taxation in reference to the revenue raising power of local government units (LGUs). Moreover,
[14]
petitioner contended that, as held in Philippine Airlines, Inc. v. Edu, fees may be regarded as
taxes depending on the purpose of its exaction. In any case, petitioner pointed out that the Local
Government Code of 1991provides in Sec. 193 that non-stock and non-profit educational
institutions like petitioner retained the tax exemptions or incentives which have been granted to THE COURT OF APPEALS COMMITTED REVERSIBLE ERROR AND
them. Under Sec. 8 of R.A. No. 6055 and applicable jurisprudence and DOJ rulings, petitioner is DECIDED A QUESTION OF SUBSTANCE IN A WAY NOT IN
[15]
clearly exempt from the payment of building permit fees. ACCORDANCE WITH LAW AND THE APPLICABLE DECISIONS OF THE
HONORABLE COURT AND HAS DEPARTED FROM THE ACCEPTED
AND USUAL COURSE OF JUDICIAL PROCEEDINGS NECESSITATING
On September 21, 2007, the trial court rendered judgment in favor of the petitioner and against THE HONORABLE COURTS EXERCISE OF ITS POWER OF
[16]
the respondents. The dispositive portion of the trial courts decision reads: SUPERVISION CONSIDERING THAT:

WHEREFORE, premises considered, judgment is rendered as I. IN REVERSING THE TRIAL COURTS DECISION DATED 21
follows: SEPTEMBER 2007, THE COURT OF APPEALS EFFECTIVELY
WITHDREW THE PRIVILEGE OF EXEMPTION GRANTED TO
a. Plaintiff is exempt from the payment of building NON-STOCK, NON-PROFIT EDUCATIONAL FOUNDATIONS BY
permit and other fees Ordering the Defendants to refund the total VIRTUE OF RA 6055 WHICH WITHDRAWAL IS BEYOND THE
amount of Eight Hundred Twenty Six Thousand Six Hundred Sixty AUTHORITY OF THE COURT OF APPEALS TO DO.
Two Pesos and 99/100 Centavos (P826,662.99) plus legal
interest thereon at the rate of twelve percent (12%) per annum A. INDEED, RA 6055 REMAINS VALID AND IS IN FULL FORCE
commencing on the date of extra-judicial demand or June 14, AND EFFECT. HENCE, THE COURT OF APPEALS
2006, until the aforesaid amount is fully paid. ERRED WHEN IT RULED IN THE QUESTIONED
DECISION THAT NON-STOCK, NON-PROFIT
b. Finding the Defendants liable for attorneys fees in EDUCATIONAL FOUNDATIONS ARE NOT EXEMPT.
the amount of Seventy Thousand Pesos (Php70,000.00), plus
litigation expenses. B. THE COURT OF APPEALS APPLICATION OF THE PRINCIPLE
OF EJUSDEM GENERIS IN RULING IN THE
c. Ordering the Defendants to pay the costs of the suit. QUESTIONED DECISION THAT THE TERM OTHER
CHARGES IMPOSED BY THE GOVERNMENT UNDER
[17] SECTION 8 OF RA 6055 DOES NOT INCLUDE BUILDING
SO ORDERED.
PERMIT AND OTHER RELATED FEES AND/OR
CHARGES IS BASED ON ITS ERRONEOUS AND
UNWARRANTED ASSUMPTION THAT THE TAXES,
Respondents appealed to the CA which reversed the trial court, holding that while petitioner is a IMPORT DUTIES AND ASSESSMENTS AS PART OF THE
tax-free entity, it is not exempt from the payment of regulatory fees. The CA noted that under R.A. PRIVILEGE OF EXEMPTION GRANTED TO NON-STOCK,
No. 6055, petitioner was granted exemption only from income tax derived from its educational NON-PROFIT EDUCATIONAL FOUNDATIONS ARE
activities and real property used exclusively for educational purposes. Regardless of the repealing LIMITED TO COLLECTIONS FOR REVENUE PURPOSES.
clause in the National Building Code, the CA held that petitioner is still not exempt because a
building permit cannot be considered as the other charges mentioned in Sec. 8 of R.A. No. 6055 C. EVEN ASSUMING THAT THE BUILDING PERMIT AND OTHER
which refers to impositions in the nature of tax, import duties, assessments and other collections for RELATED FEES AND/OR CHARGES ARE NOT
revenue purposes, following the ejusdem generisrule. The CA further stated that petitioner has not INCLUDED IN THE TERM OTHER CHARGES IMPOSED
shown that the fees collected were excessive and more than the cost of surveillance, inspection BY THE GOVERNMENT UNDER SECTION 8 OF RA 6055,
and regulation. And while petitioner may be exempt from the payment of real property tax, ITS IMPOSITION IS GENERALLY A TAX MEASURE AND
petitioner in this case merely alleged that the subject property is to be used actually, directly and THEREFORE, STILL COVERED UNDER THE PRIVILEGE
exclusively for educational purposes, declaring merely that such premises is intended to house the OF EXEMPTION.
sports and other facilities of the university but by reason of the occupancy of informal settlers on the
area, it cannot yet utilize the same for its intended use. Thus, the CA concluded that petitioner is
II. THE COURT OF APPEALS DENIAL OF PETITIONER AUFS
not entitled to the refund of building permit and related fees, as well as real property tax it paid
EXEMPTION FROM REAL PROPERTY TAXES CONTAINED IN
under protest.
ITS QUESTIONED DECISION AND QUESTIONED RESOLUTION
[18]
IS CONTRARY TO APPLICABLE LAW AND JURISPRUDENCE.
Petitioner filed a motion for reconsideration which was denied by the CA.

Petitioner stresses that the tax exemption granted to educational stock corporations which have
Hence, this petition raising the following grounds: converted into non-profit foundations was broadened to include any other charges imposed by
the Government as one of the incentives for such conversion. These incentives necessarily
included exemption from payment of building permit and related fees as otherwise there would
have been no incentives for educational foundations if the privilege were only limited to
exemption from taxation, which is already provided under the Constitution.
Petitioner further contends that this Court has consistently held in several cases that
the primary purpose of the exaction determines its nature. Thus, a charge of a fixed sum which
bears no relation to the cost of inspection and which is payable into the general revenue of the
state is a tax rather than an exercise of the police power. The standard set by law in the
determination of the amount that may be imposed as license fees is such that is commensurate
with the cost of regulation, inspection and licensing.But in this case, the amount representing the
building permit and related fees and/or charges is such an exorbitant amount as to warrant a
valid imposition; such amount exceeds the probable cost of regulation. Even with the alleged
criteria submitted by the respondents (e.g., character of occupancy or use of building/structure,
cost of construction, floor area and height), and the construction by petitioner of an 11-storey
building, the costs of inspection will not amount to P645,906.84, presumably for the salary of
inspectors or employees, the expenses of transportation for inspection and the preparation and
reproduction of documents. Petitioner thus concludes that the disputed fees are substantially
and mainly for purposes of revenue rather than regulation, so that even these fees cannot be
deemed charges mentioned in Sec. 8 of R.A. No. 6055, they should properly be treated as tax
from which petitioner is exempt.
In their Comment, respondents maintain that petitioner is not exempt from the payment of
building permit and related fees since the only exemptions provided in the National Building
Code are public buildings and traditional indigenous family dwellings. Inclusio unius est exclusio
alterius. Because the law did not include petitioners buildings from those structures exempt from
the payment of building permit fee, it is therefore subject to the regulatory fees imposed under
the National Building Code.
Respondents assert that the CA correctly distinguished a building permit fee from those other
charges mentioned in Sec. 8 of R.A. No. 6055. As stated by petitioner itself, charges refer to
pecuniary liability, as rents, and fees against persons or property.Respondents point out that a
building permit is classified under the term fee. A fee is generally imposed to cover the cost of
regulation as activity or privilege and is essentially derived from the exercise of police power; on
the other hand, impositions for services rendered by the local government units or for
conveniences furnished, are referred to as service charges.
Respondents also disagreed with petitioners contention that the fees imposed and collected are
exorbitant and exceeded the probable expenses of regulation. These fees are based on
computations and assessments made by the responsible officials of the City Engineers Office in
accordance with the Schedule of Fees and criteria provided in the National Building Code. The
bases of assessment cited by petitioner (e.g. salary of employees, expenses of transportation
and preparation and reproduction of documents) refer to charges and fees on business and
occupation under Sec. 147 of the Local Government Code, which do not apply to building permit
fees. The parameters set by the National Building Code can be considered as complying with
the reasonable cost of regulation in the assessment and collection of building permit
fees. Respondents likewise contend that the presumption of regularity in the performance of
official duty applies in this case. Petitioner should have presented evidence to prove its
allegations that the amounts collected are exorbitant or unreasonable.
For resolution are the following issues: (1) whether petitioner is exempt from the payment of
building permit and related fees imposed under the National Building Code; and (2) whether the
parcel of land owned by petitioner which has been assessed for real property tax is likewise
exempt.
R.A. No. 6055 granted tax exemptions to educational institutions like petitioner which converted
to non-stock, non-profit educational foundations. Section 8 of said law provides:
SECTION 8. The Foundation shall be exempt from the payment
of all taxes, import duties, assessments, and other charges imposed by
the Government onall income derived from or property, real or personal,
used exclusively for the educational activities of the
Foundation.(Emphasis supplied.)
On February 19, 1977, Presidential Decree (P.D.) No. 1096 was issued adopting the National Building
Code of the Philippines. The said Code requires every person, firm or corporation, including any
agency or instrumentality of the government to obtain a building permit for any construction, alteration
[19]
or repair of any building or structure. Building permit refers to a document issued by the Building
Official x x x to an owner/applicant to proceed with the construction, installation, addition, alteration,
renovation, conversion, repair, moving, demolition or other work activity of a
specific project/building/structure or portions thereof after the accompanying principal plans,
specifications and other pertinent documents with the duly notarized application are found
satisfactory and substantially conforming with the National Building Code of the Philippines x x x
[20]
and its Implementing Rules and Regulations (IRR). Building permit fees refers to the basic
permit fee and other charges imposed under the National Building Code.
Exempted from the payment of building permit fees are: (1) public buildings and (2) traditional
[21]
indigenous family dwellings. Not being expressly included in the enumeration of structures to
which the building permit fees do not apply, petitioners claim for exemption rests solely on its
interpretation of the term other charges imposed by the National Government in the tax
exemption clause of R.A. No. 6055.
A charge is broadly defined as the price of, or rate for, something, while the word fee
pertains to a charge fixed by law for services of public officers or for use of a privilege under
[22]
control of government. As used in the Local Government Code of 1991 (R.A. No.
7160), charges refers to pecuniary liability, as rents or fees against persons or property,
while fee means a charge fixed by law or ordinance for the regulation or inspection of a business
[23]
or activity.
That charges in its ordinary meaning appears to be a general term which could cover
a specific fee does not support petitioners position that building permit fees are among those
other charges from which it was expressly exempted. Note that the other charges mentioned in
Sec. 8 of R.A. No. 6055 is qualified by the words imposed by the Government on all x x x
property used exclusively for the educational activities of the foundation. Building permit fees are Since building permit fees are not charges on property, they are not impositions from
not impositions on property but on the activity subject of government regulation. While it may be which petitioner is exempt.
argued that the fees relate to particular properties, i.e., buildings and structures, they are actually
imposed on certain activities the owner may conduct either to build such structures or to repair,
alter, renovate or demolish the same. This is evident from the following provisions of As to petitioners argument that the building permit fees collected by respondents are
the National Building Code: in reality taxes because the primary purpose is to raise revenues for the local government unit,
the same does not hold water.
Section 102. Declaration of Policy
A charge of a fixed sum which bears no relation at all to the cost of inspection and
[26]
It is hereby declared to be the policy of the State to safeguard life, health, regulation may be held to be a tax rather than an exercise of the police power. In this case,
property, and public welfare, consistent with theprinciples of sound the Secretary of Public Works and Highways who is mandated to prescribe and fix the amount of
environmental management and control; and tothis end, make it the fees and other charges that the Building Official shall collect in connection with the performance
purpose of this Code to provide for allbuildings and structures, a framework [27]
of regulatory functions, has promulgated and issued the Implementing Rules and
of minimum standards and requirements to regulate and controltheir [28]
Regulations which provide for the bases of assessment of such fees, as follows:
location, site, design quality of materials, construction, use, occupancy, and 1. Character of occupancy or use of building
maintenance. 2. Cost of construction 10,000/sq.m (A,B,C,D,E,G,H,I), 8,000 (F), 6,000
(J)
Section 103. Scope and Application 3. Floor area
4. Height
(a) The provisions of this Code shall apply to the design,location,
sitting, construction, alteration, repair,conversion, use, occupancy,
maintenance, moving, demolitionof, and addition to public and private Petitioner failed to demonstrate that the above bases of assessment were arbitrarily
buildings andstructures, except traditional indigenous family dwellingsas determined or unrelated to the activity being regulated. Neither has petitioner adduced evidence
defined herein. to show that the rates of building permit fees imposed and collected by the respondents were
unreasonable or in excess of the cost of regulation and inspection.
xxxx
[29]
In Chevron Philippines, Inc. v. Bases Conversion Development Authority, this Court
Section 301. Building Permits explained:

No person, firm or corporation, including any agency In distinguishing tax and regulation as a form of police power, the
orinstrumentality of the government shall erect, construct, alter, repair, determining factor is the purpose of the implemented measure. If the
move, convert or demolish any building or structure or causethe same to be purpose is primarily to raise revenue, then it will be deemed a tax even
done without first obtaining a building permittherefor from the Building though the measure results in some form of regulation. On the other hand, if
Official assigned in the place where thesubject building is located or the the purpose is primarily to regulate, then it is deemed a regulation and
building work is to be done. (Italics supplied.) an exercise of the police power of the state, even though incidentally,
revenue is generated. Thus, in Gerochi v. Department of Energy, the Court
stated:
That a building permit fee is a regulatory imposition is highlighted by the fact that in
processing an application for a building permit, the Building Official shall see to it that the applicant The conservative and pivotal distinction
satisfies and conforms with approved standard requirements on zoning and land use, lines and between these two (2) powers rests in the purpose for
grades, structural design, sanitary and sewerage, environmental health, electrical and mechanical which the charge is made. If generation of revenue is
[24]
safety as well as with other rules and regulations implementing the National Building Code. Thus, the primary purpose and regulation is merely incidental,
ancillary permits such as electrical permit, sanitary permit and zoning clearance must also be secured the imposition is a tax; but if regulation is the primary
and the corresponding fees paid before a building permit may be issued. And as can be gleaned from purpose, the fact that revenue is incidentally raised
[30]
the implementing rules and regulations of the National Building Code, clearances from various does not make the imposition a tax. (Emphasis
government authorities exercising and enforcing regulatory functions affecting buildings/structures, like supplied.)
[25]
local government units, may be further required before a building permit may be issued.
 Concededly, in the case of building permit fees imposed by the National Government
under the National Building Code, revenue is incidentally generated for the benefit of local
government units. Thus:
Section 208. Fees
Every Building Official shall keep a permanent record and
accurate account of all fees and other charges fixed and authorized by the
Secretary to be collected and received under this Code.
Subject to existing budgetary, accounting and auditing rules and
regulations, the Building Official is hereby authorized to retain not more than
twenty percent of his collection for the operating expenses of his office.
The remaining eighty percent shall be deposited with the
provincial, city or municipal treasurer and shall accrue to the General Fund
of the province, city or municipality concerned.
Petitioners reliance on Sec. 193 of the Local Government Code of 1991 is likewise
misplaced. Said provision states:
SECTION 193. Withdrawal of Tax Exemption Privileges. -- Unless
otherwise provided in this Code, tax exemptions or incentives granted to, or
presently enjoyed by all persons, whether natural or juridical, including
government-owned or controlled corporations, except local water districts,
cooperatives duly registered under R.A. No. 6938, non-stock and non-
profit hospitals and educational institutions, are hereby withdrawn upon
the effectivity of this Code. (Emphasis supplied.)
Considering that exemption from payment of regulatory fees was not among those incentives
granted to petitioner under R.A. No. 6055, there is no such incentive that is retained under
the Local Government Code of 1991. Consequently, no reversible error was committed by the
CA in ruling that petitioner is liable to pay the subject building permit and related fees.
Now, on petitioners claim that it is exempted from the payment of real property tax assessed
against its real property presently occupied by informal settlers.
Section 28(3), Article VI of the 1987 Constitution provides:
xxxx
(3) Charitable institutions, churches and parsonages or convents
appurtenant thereto, mosques, non-profit cemeteries, and all lands,
buildings, and improvements, actually, directly and exclusively used for
religious, charitable or educational purposesshall be exempt from taxation.
x x x x (Emphasis supplied.)
Section 234(b) of the Local Government Code of 1991 implements the foregoing
constitutional provision by declaring that --
SECTION 234. Exemptions from Real Property Tax. The following
are exempted from payment of the real property tax:
xxxx
(b) Charitable institutions, churches, parsonages or convents
appurtenant thereto, mosques, non-profit or religious cemeteries and all
lands, buildings, and improvements actually, directly, and exclusively
used for religious, charitable or educational purposes;
x x x x (Emphasis supplied.)
[31]
In Lung Center of the Philippines v. Quezon City, this Court held that only portions of the
hospital actually, directly and exclusively used for charitable purposes are exempt from real
property taxes, while those portions leased to private entities and individuals are not exempt
from such taxes. We explained the condition for the tax exemption privilege of charitable and
educational institutions, as follows:
Under the 1973 and 1987 Constitutions and Rep. Act No. 7160 in
order to be entitled to the exemption, the petitioner is burdened to prove, by
clear and unequivocal proof, that (a) it is a charitable institution; and (b) its
real properties are ACTUALLY, DIRECTLY and EXCLUSIVELY used for
charitable purposes. Exclusive is defined as possessed and enjoyed to
the exclusion of others; debarred from participation or enjoyment; and
exclusively is defined, in a manner to exclude; as enjoying a privilege
exclusively. If real property is used for one or more commercial purposes, it
is not exclusively used for the exempted purposes but is subject to taxation.
The words dominant use or principal use cannot be substituted for the
words used exclusively without doing violence to the Constitutions and the
law. Solely is synonymous with exclusively.
What is meant by actual, direct and exclusive use of the
property for charitable purposes is the direct and immediate and
actual application of the property itself to the purposes for which the
charitable institution is organized. It is not the use of the income from the
real property that is determinative of whether the property is used for tax-
[32]
exempt purposes. (Emphasis and underscoring supplied.)
Petitioner failed to discharge its burden to prove that its real property is actually, directly and
exclusively used for educational purposes. While there is no allegation or proof that petitioner
leases the land to its present occupants, still there is no compliance with the constitutional and
statutory requirement that said real property is actually, directly and exclusively used for
educational purposes. The respondents correctly assessed the land for real property taxes for

the taxable period during which the land is not being devoted solely to petitioners educational
activities. Accordingly, the CA did not err in ruling that petitioner is likewise not entitled to a
refund of the real property tax it paid under protest.
WHEREFORE, the petition is DENIED. The Decision dated July 28, 2009 and Resolution dated
October 12, 2009 of the Court of Appeals in CA-G.R. CV No. 90591 are AFFIRMED.
[2]
Transit System-LRTS Phase I (EDSA MRT III). The DOTC shall operate the same but
ownership of the EDSA MRT III shall remain with Metro Rail during the Revenue and
[3]
Construction periods. At the end of the Revenue Period, Metro Rail shall transfer to DOTC its
[4]
title to and all of its rights and interests therein, in exchange for US$1.00.
On even date, Metro Rail then assigned all its rights and obligations under the BLT
Agreement to Metro Rail Transit Corporation (MRTC), a domestic corporation.

In an agreement dated 15 July 2000, Metro Rail turned over the EDSA MRT III System to the
No pronouncement as to costs. DOTC for its operation.
[5]

SO ORDERED. In a joint resolution dated 5 April 2001, the City Assessors of Mandaluyong City, Quezon
City, Makati City and Pasay City fixed the current and market value of EDSA MRT III at US$655
REPUBLIC OF THE PHILIPPINES(DEPARTMENT G.R. No. 184879
Million or P32.75 Billion, and which will be divided proportionately according to distance
OF TRANSPORTATION AND [6]
traversed among these cities.
COMMUNICATIONS), Present:
Petitioner, CORONA, C.J.,
On 4 June 2001, the Office of the City Assessor of Mandaluyong issued Tax Declaration No. D-
Chairperson
013-06267 in the name of MRTC, fixing the market value of the railways, train cars, three (3)
VELASCO, JR.,
stations and miscellaneous expenses at P5,974,365,000.00 and the assessed value
NACHURA,* [7]
at P4,779,492,000.00. Subsequently on 18 June 2001, the said Office of the City Assessor of
-versus- DEL CASTILLO, and
Mandaluyong City demanded payment of real property taxes due under the aforesaid tax
PEREZ, JJ. [8]
declaration.

CITY OF MANDALUYONG, Promulgated:
Respondent.
February 23, 2011
x----------------------------------------------------------------------------------------x
RESOLUTION
PEREZ, J.:
The subject of this petition for review on certiorari is the writ of possession issued in favor of
respondent City of Mandaluyong by the Regional Trial Court (RTC Branch 213), Branch
213, Mandaluyong City of real properties forming part of the EDSA Metro Rail Transit (MRT) III.
Petitioner Republic of the Philippines (Republic) is represented in this suit by the Department of
Transportation and Communications (DOTC), which is the primary policy, planning,
programming, regulating and administrative entity of the executive branch of the government in
the promotion, development, and regulation of dependable and coordinated networks of
transportation and communications systems, as well as in the fast, safe, efficient, and reliable
postal, transportation and communications services; while respondent City Government of
Mandaluyong is a local government unit tasked, among others, with meeting the priority needs
[1]
and service requirements of its constituents in Mandaluyong City.
The material facts and events leading to this controversy are as follows:
On 8 August 1997, the DOTC entered into a Revised and Restated Agreement to Build, Lease
and Transfer a Light Rail System for EDSA (BLT) with Metro Rail Transit Corporation Limited
(Metro Rail), a foreign corporation. Under the BLT Agreement, Metro Rail shall be responsible
for the design, construction, equipping, completion, testing, and commissioning of the Light Rail
The computation of real property tax of MRTC was pegged at P317,250,730.23 from the taxable
[9]
year 2000 until August 2001. Two (2) years later or on August 2003, another demand was
made on MRTC placing the deficiency real estate tax due to the City
[10]
of Mandaluyong at P769,784,981.52.
Initially, a Notice of Delinquency dated 24 June 2005 was sent to MRTC wherein the assessed
[11]
deficiency real property tax amounted to P12,843,928.79, however the City Treasurer of
Mandaluyong issued another Notice of Delinquency on 7 September 2005rectifying the 24 June
[12]
2005 notice by increasing the deficiency real property tax to P1,306,617,522.96.
On the same date, the City Treasurer issued and served a Warrant of Levy upon MRTC with the
corresponding Notices of Levy upon the City Assessor and the Registrar of Deeds of
[13]
Mandaluyong City.
On 5 December 2005, petitioner Republic filed a case for Declaration of Nullity of Real Property
Tax Assessment and Warrant of Levy with a prayer for a Temporary Restraining Order (TRO)
and Writ of Preliminary Injunction before the Regional Trial Court (RTC Branch 208), Branch
208, Mandaluyong City, docketed as Civil Case No. MC05-2882.
Petitioner Republic alleged that since Metro Rail had transferred to the DOTC the actual use,
possession and operation of the EDSA MRT III System, Metro Rail or MRTC does not have
actual or beneficial use and possession of the EDSA MRT III properties as to subject it to
payment of real estate taxes. On the other hand, notwithstanding the transfer to DOTC of the
actual use, possession and operation of the EDSA MRT III, petitionerRepublic is not liable
because local government units are legally proscribed from imposing taxes of any kind on it
under Section 133(o) of Republic Act No. 7160.Likewise, under Section 234 of the same law,
[14]
petitioner is exempted from payment of real property tax.
MRTC filed a complaint-in-intervention and sought to declare the nullity of the real property tax
assessments.
 The posting and publication of the Notice of Auction were made on 26 February
[15]
2006 and 5 March 2006.
On 22 March 2006, the RTC Branch 208, through Presiding Judge Esteban A. Tacla,
[16]
Jr., denied both petitioner Republics and MRTCs applications for TRO.
Consequently, on 24 March 2006, a public auction was conducted. For lack of bidders, the real
properties were forfeited in favor of the City of Mandaluyong for the price
[17]
of P1,483,700,100.18.
On 15 September 2006, the RTC Branch 208 issued an order denying petitioner and MRTCs
application for issuance of a writ of preliminary injunction. A motion for reconsideration was filed
but it was eventually denied on 9 March 2007. The issue on the validity of tax assessment
however is pending before that court.
Petitioner Republic filed a petition for certiorari before the Court of Appeals challenging the
denial of both the TRO and injunction by RTC Branch 208.
Meanwhile, respondent manifested before the Court of Appeals that due to the failure
of MRTC to exercise the right of redemption, the City Treasurer of Mandaluyong executed a
Final Deed of Sale in favor of the purchaser in the auction sale. Subsequently, Tax Declaration
No. D-013-06267 in MRTCs name was cancelled and Tax Declaration No. D-013-10636 was
[18]
issued in its place.
On 11 April 2008, respondent filed an ex parte petition praying for the issuance of a
writ of possession before RTC Branch 213 of Mandaluyong and docketed as LRC Case No. MC-
[19]
08-460. Petitioner Republic countered that the instant petition does not fall within the cases
when a writ of possession may be issued. Moreover, petitioner argued that the pendency of Civil
Case No. MC05-2882 assailing the validity of the tax assessment and the subsequent auction
[20]
sale of the properties pre-empts the issuance of said writ.
On 30 July 2008, the RTC Branch 213, through Judge Carlos A. Valenzuela, granted
[21]
the petition for the issuance of a writ of possession. A subsequent motion for reconsideration
[22]
filed by petitioner was denied for lack of merit.
While MRTC appealed said order to the Court of Appeals, petitioner Republic filed the
instant case raising a question of law, i.e. the propriety of the issuance of a writ of
possession. To support its main thesis that the RTC Branch 213 erred in issuing a writ of
possession, petitioner claims that since EDSA MRT properties are beneficially owned by DOTC,
it should not have been assessed for payment of real property taxes. Being a governmental
entity, it is exempt from payment of real property tax under Section 234 of the Local Government
Code. Therefore, no tax delinquency exist authorizing respondent to sell the subject properties
through public auction. It then follows that respondent has no legal right to a writ of
[23]
possession.
Petitioner Republic then asserts that the auction sale conducted by respondent cannot
be likened to an extrajudicial foreclosure sale of a real estate mortgage under Act No. 3135 as a
justification for the issuance of a writ of possession. Petitioner Republicreasons that the EDSA
MRT properties were not put up as a collateral or security for a loan or indebtedness which was
secured from respondent, nor was there any mortgage contract voluntarily entered into by
[24]
petitioner or even by MRTC.
Finally, petitioner Republic adds that all requisites of litis pendencia exist in CA-G.R.
SP No. 98334, which is a case for denial of injunction and TRO and in the present case,
concerning the issuance of a writ of possession because there is identity of parties, rights
asserted and reliefs prayer for. Respondent seeks to acquire possession over the EDSA MRT III
properties on the basis of its tax assessments and auction sale, which petitioner Republic seeks
to permanently enjoin respondent from enjoying when it initiated Civil Case No. MC05-2882. The
pendency of CA-G.R. SP No. 98334 before the Court of Appeals, assailing the Orders denying
respondents prayer for a TRO and injunction should have pre-empted the issuance of the writ of
[25]
possession by reason of litis pendencia.
In a Resolution dated 10 November 2008, this Court directed the parties to maintain
the status quo and enjoined the enforcement and implementation of the Order and Writ of
[26]
Possession dated 22 October 2008.
Respondent filed its comment refuting the allegations of petitioner. Respondent does not contest
petitioners immunity from local taxes. In fact, it has assessed MRTC, and not petitioner, for real
property tax. Respondent defends the RTCs issuance of a writ of possession after it was
established that there was a valid foreclosure sale of MRTCs properties for non-payment of real
property taxes and after the title had been consolidated in respondents name. Respondent also
avers that the subject public auction sale is an execution sale within the purview of Section 33,
Rule 39 of the Rules of Court, thus a writ of possession was validly issued. Respondent
[27]
subscribes to this Courts ruling in Ong v. Court of Appeals which clarified that there is no
forum shopping where a petition for the issuance of a writ of possession is filed despite the
[28]
pendency of an action for annulment of mortgage and foreclosure sale.
This case is, ultimately, between a local governments power to tax and the national
governments privilege of tax exemption. That issue needs full hearing and deliberation, as
indeed, the issue pends before the RTC, at first instance. Such trial of facts and issues must
proceed. It should not be pre-empted by the present petition that deals with precisely the herein
respondents intended end result.
[29]
A writ of possession is a mere incident in the transfer of title. In the instant case, it
stemmed from the exercise of alleged ownership by respondent over EDSA MRT III properties
by virtue of a tax delinquency sale. The issue of whether the auction sale should be enjoined is
still pending before the Court of Appeals. Pending determination, it is premature for respondent
to have conducted the auction sale and caused the transfer of title over the real properties to its
name. The denial by the RTC to issue an injunction or TRO does not automatically give
respondent the liberty to proceed with the actions sought to be enjoined, especially so in this
case where a certiorari petition assailing the denial is still being deliberated in the Court of
Appeals. All the more it is premature for the RTC to issue a writ of possession where the
ownership of the subject properties is derived from an auction sale, the validity of which is still
being threshed out in the Court of Appeals. The RTC should have held in abeyance the issuance
of a writ of possession.At this juncture, the writ issued is premature and has no force and effect.
WHEREFORE, the petition is GRANTED. The Decision and Order dated 30 July 2008and 6
October 2008, respectively of RTC Branch 213 of Mandaluyong City in LRC Case No. M-08-460
are hereby VACATED and SET ASIDE. The status quo Order dated 10 November
2008 is MAINTAINED. The Court of Appeals is ORDERED to resolve CA-G.R. SP No. 98334
with deliberate dispatch.
 SO ORDERED. Upon Pasigs petition to correct the location stated in TCT Nos. 532250, 598424, and
STA. LUCIA REALTY & DEVELOPMENT, INC., G.R. No. 166838 599131, the Land Registration Court, on June 9, 1995, ordered the amendment of the TCTs to
Petitioner, read that the lots with respect to TCT No. 39112 were located in Barrio Tatlong Kawayan, Pasig
[7]
Present: City.

[8]
- versus - VELASCO, JR .,
* On January 31, 1994, Cainta filed a petition for the settlement of its land boundary
Acting Chairperson, dispute with Pasig before the RTC, Branch 74 of Antipolo City (Antipolo RTC). This case,
LEONARDO-DE CASTRO, docketed as Civil Case No. 94-3006, is still pending up to this date.
**
CITY OF PASIG, BERSAMIN,
[9]
Respondent, DEL CASTILLO, and On November 28, 1995, Pasig filed a Complaint, docketed as Civil Case No. 65420,
PEREZ, JJ. against Sta. Lucia for the collection of real estate taxes, including penalties and interests, on the
MUNICIPALITY OF CAINTA, PROVINCE OF RIZAL, Promulgated: lots covered by TCT Nos. 532250, 598424, 599131, 92869, 92870 and 38457, including the
Intervenor. improvements thereon (the subject properties).
June 15, 2011
Sta. Lucia, in its Answer, alleged that it had been religiously paying its real estate
taxes to Cainta, just like what its predecessors-in-interest did, by virtue of the demands and
assessments made and the Tax Declarations issued by Cainta on the claim that the subject
properties were within its territorial jurisdiction. Sta. Lucia further argued that since 1913, the real
[10]
estate taxes for the lots covered by the above TCTs had been paid to Cainta.

x----------------------------------------------------x
Cainta was allowed to file its own Answer-in-Intervention when it moved to intervene
on the ground that its interest would be greatly affected by the outcome of the case. It averred
that it had been collecting the real property taxes on the subject properties even before Sta.
Lucia acquired them. Cainta further asseverated that the establishment of the boundary
[11]
monuments would show that the subject properties are within its metes and bounds.

DECISION Sta. Lucia and Cainta thereafter moved for the suspension of the proceedings, and
claimed that the pending petition in the Antipolo RTC, for the settlement of boundary dispute
[12]
between Cainta and Pasig, presented a prejudicial question to the resolution of the case.
LEONARDO-DE CASTRO, J.:
The RTC denied this in an Order dated December 4, 1996 for lack of merit.Holding
[1] [2]
For review is the June 30, 2004 Decision and the January 27, 2005 Resolution of [13]
that the TCTs were conclusive evidence as to its ownership and location, the RTC, on August
the Court of Appeals in CA-G.R. CV No. 69603, which affirmed with modification the August 10, 10, 1998, rendered a Decision in favor of Pasig:
[3] [4]
1998 Decision and October 9, 1998 Order of the Regional Trial Court (RTC) of Pasig City,
Branch 157, in Civil Case No. 65420. WHEREFORE, in view of the foregoing, judgment is hereby rendered in
favor of [Pasig], ordering Sta. Lucia Realty and Development, Inc. to pay
Petitioner Sta. Lucia Realty & Development, Inc. (Sta. Lucia) is the registered owner of [Pasig]:
several parcels of land with Transfer Certificates of Title (TCT) Nos. 39112, 39110 and 38457,
all of which indicated that the lots were located in Barrio Tatlong Kawayan, Municipality of 1) P273,349.14 representing unpaid real estate taxes and
[5]
Pasig (Pasig). penalties as of 1996, plus interest of 2% per month until fully
paid;
The parcel of land covered by TCT No. 39112 was consolidated with that covered by
TCT No. 518403, which was situated in Barrio Tatlong Kawayan, Municipality of Cainta, 2) P50,000.00 as and by way of attorneys fees; and
Province of Rizal (Cainta). The two combined lots were subsequently partitioned into three, for
which TCT Nos. 532250, 598424, and 599131, now all bearing the Cainta address, were issued. 3) The costs of suit.

TCT No. 39110 was also divided into two lots, becoming TCT Nos. 92869 and 92870.
The lot covered by TCT No. 38457 was not segregated, but a commercial building
[6]
owned by Sta. Lucia East Commercial Center, Inc., a separate corporation, was built on it.
Judgment is likewise rendered against the intervenor Municipality
of Cainta, Rizal, ordering it to refund to Sta. Lucia Realty and Development,
Inc. the realty tax payments improperly collected and received by the former
from the latter in the aggregate amount ofP358, 403.68.
[14]

After Sta. Lucia and Cainta filed their Notices of Appeal, Pasig, on September 11,
1998, filed a Motion for Reconsideration of the RTCs August 10, 1998 Decision.
[15]
The RTC, on October 9, 1998, granted Pasigs motion in an Order and modified its earlier
decision to include the realty taxes due on the improvements on the subject lots:
WHEREFORE, premises considered, the plaintiffs motion for
reconsideration is hereby granted. Accordingly, the Decision, dated August
10, 1998 is hereby modified in that the defendant is hereby ordered to pay
plaintiff the amount of P5,627,757.07 representing the unpaid taxes and
penalties on the improvements on the subject parcels of land whereon real
[16]
estate taxes are adjudged as due for the year 1996.
Accordingly, Sta. Lucia filed an Amended Notice of Appeal to include the RTCs
October 9, 1998 Order in its protest.
On October 16, 1998, Pasig filed a Motion for Execution Pending Appeal, to which
both Sta. Lucia and Cainta filed several oppositions, on the assertion that there were no good
[17]
reasons to warrant the execution pending appeal.
On April 15, 1999, the RTC ordered the issuance of a Writ of Execution against Sta.
Lucia.
On May 21, 1999, Sta. Lucia filed a Petition for Certiorari under Rule 65 of the Rules
of Court with the Court of Appeals to assail the RTCs order granting the execution.Docketed
as CA-G.R. SP No. 52874, the petition was raffled to the First Division of the Court of Appeals,
which on September 22, 2000, ruled in favor of Sta. Lucia, to wit:
WHEREFORE, in view of the foregoing, the instant petition is hereby GIVEN
DUE COURSE and GRANTED by this Court. The assailed Order dated
April 15, 1999 in Civil Case No. 65420 granting the motion for execution
pending appeal and ordering the issuance of a writ of execution pending
[18]
appeal is hereby SET ASIDE and declared NULL and VOID.
The Court of Appeals added that the boundary dispute case presented a prejudicial
question which must be decided before x x x Pasig can collect the realty taxes due over the
[19]
subject properties.
Pasig sought to have this decision reversed in a Petition for Certiorari filed before this
[20]
Court on November 29, 2000, but this was denied on June 25, 2001 for being filed out of time.
Meanwhile, the appeal filed by Sta. Lucia and Cainta was raffled to the (former)
Seventh Division of the Court of Appeals and docketed as CA-G.R. CV No. 69603. On June 30,
2004, the Court of Appeals rendered its Decision, wherein it agreed with the RTCs judgment:
WHEREFORE, the appealed Decision is hereby AFFIRMED with
the MODIFICATION that the award of P50,000.00 attorneys fees
[21]
is DELETED.
In affirming the RTC, the Court of Appeals declared that there was no proper legal
[22]
basis to suspend the proceedings. Elucidating on the legal meaning of a prejudicial question,
[23]
it held that there can be no prejudicial question when the cases involved are both civil. The
Court of Appeals further held that the elements of litis pendentia and forum shopping, as alleged
by Cainta to be present, were not met.
Sta. Lucia and Cainta filed separate Motions for Reconsideration, which the Court of
Appeals denied in a Resolution dated January 27, 2005.
Undaunted, Sta. Lucia and Cainta filed separate Petitions for Certiorari with this
Court. Caintas petition, docketed as G.R. No. 166856 was denied on April 13, 2005 for Caintas
failure to show any reversible error. Sta. Lucias own petition is the one subject of this
[24]
decision.
In praying for the reversal of the June 30, 2004 judgment of the Court of Appeals, Sta.
Lucia assigned the following errors:
ASSIGNMENT OF ERRORS
I
THE HONORABLE COURT OF APPEALS ERRED IN AFFIRMING [WITH
MODIFICATION] THE DECISION OF THE REGIONAL TRIAL COURT IN
PASIG CITY
II.
THE HONORABLE COURT OF APPEALS ERRED IN NOT SUSPENDING
THE CASE IN VIEW OF THE PENDENCY OF THE BOUNDARY DISPUTE
WHICH WILL FINALLY DETERMINE THE SITUS OF THE SUBJECT
PROPERTIES
III.
THE HONORABLE COURT OF APPEALS ERRED IN NOT HOLDING
THAT THE PAYMENT OF REALTY TAXES THROUGH THE
MUNICIPALITY OF CAINTA WAS VALID PAYMENT OF REALTY TAXES
IV.
THE HONORABLE COURT OF APPEALS ERRED IN NOT HOLDING
THAT IN THE MEANTIME THAT THE BOUNDARY DISPUTE CASE IN
ANTIPOLO CITY REGIONAL TRIAL COURT IS BEING FINALLY
RESOLVED, THE PETITIONER STA. LUCIA SHOULD BE PAYING THE
REALTY TAXES ON THE SUBJECT PROPERTIES THROUGH THE
[25]
INTERVENOR CAINTA TO PRESERVE THE STATUS QUO.
Pasig, countering each error, claims that the lower courts correctly decided the case
considering that the TCTs are clear on their faces that the subject properties are situated in its
territorial jurisdiction. Pasig contends that the principles of litis pendentia, forum shopping,
and res judicata are all inapplicable, due to the absence of their requisite elements. Pasig
maintains that the boundary dispute case before the Antipolo RTC is independent of the
complaint for collection of realty taxes which was filed before the Pasig RTC. It avers that the
doctrine of prejudicial question, which has a definite meaning in law, cannot be invoked where
the two cases involved are both civil. Thus, Pasig argues, since there is no legal ground to
preclude the simultaneous hearing of both cases, the suspension of the proceedings in the
Pasig RTC is baseless.
Cainta also filed its own comment reiterating its legal authority over the subject
properties, which fall within its territorial jurisdiction. Cainta claims that while it has been
collecting the realty taxes over the subject properties since way back 1913, Pasig only covered
the same for real property tax purposes in 1990, 1992, and 1993. Cainta also insists that there is
a discrepancy between the locational entries and the technical descriptions in the TCTs, which
further supports the need to await the settlement of the boundary dispute case it initiated.
The errors presented before this Court can be narrowed down into two basic issues:
1) Whether the RTC and the CA were correct in deciding Pasigs Complaint
without waiting for the resolution of the boundary dispute case between
Pasig and Cainta; and
2) Whether Sta. Lucia should continue paying its real property taxes to
Cainta, as it alleged to have always done, or to Pasig, as the location
stated in Sta. Lucias TCTs.
We agree with the First Division of the Court of Appeals in CA-G.R. SP No. 52874 that
the resolution of the boundary dispute between Pasig and Cainta would determine which local
[26]
government unit is entitled to collect realty taxes from Sta. Lucia.
The Local Government Unit entitled
To Collect Real Property Taxes
The Former Seventh Division of the Court of Appeals held that the resolution of the
complaint lodged before the Pasig RTC did not necessitate the assessment of the parties
evidence on the metes and bounds of their respective territories. It cited our ruling in Odsigue v.
[27]
Court of Appeals wherein we said that a certificate of title is conclusive evidence of both its
[28]
ownership and location. The Court of Appeals even referred to specific provisions of the 1991
Local Government Code and Act. No. 496 to support its ruling that Pasig had the right to collect
the realty taxes on the subject properties as the titles of the subject properties show on their
[29]
faces that they are situated in Pasig.
Under Presidential Decree No. 464 or the Real Property Tax Code, the authority to
collect real property taxes is vested in the locality where the property is situated:
Sec. 5. Appraisal of Real Property. All real property, whether
taxable or exempt, shall be appraised at the current and fair market value
prevailing in the locality where the property is situated.
xxxx
Sec. 57. Collection of tax to be the responsibility of
treasurers. The collection of the real property tax and all penalties accruing
thereto, and the enforcement of the remedies provided for in this Code or
any applicable laws, shall be the responsibility of the treasurer of the
province, city or municipality where the property is situated. (Emphases
ours.)
This requisite was reiterated in Republic Act No. 7160, also known as the 1991 the
Local Government Code, to wit:
Section 201. Appraisal of Real Property. All real property,
whether taxable or exempt, shall be appraised at the current and fair market
value prevailing in the locality where the property is situated. The
Department of Finance shall promulgate the necessary rules and
regulations for the classification, appraisal, and assessment of real property
pursuant to the provisions of this Code.
Section 233. Rates of Levy. A province or city or a municipality
within the Metropolitan Manila Area shall fix a uniform rate of basic real
property tax applicable to their respective localities as follows: x x
x. (Emphases ours.)
The only import of these provisions is that, while a local government unit is authorized
under several laws to collect real estate tax on properties falling under its territorial jurisdiction, it
is imperative to first show that these properties are unquestionably within its
geographical boundaries.
Accentuating on the importance of delineating territorial boundaries, this Court,
[30]
in Mariano, Jr. v. Commission on Elections said:
The importance of drawing with precise strokes the territorial
boundaries of a local unit of government cannot be overemphasized. The
boundaries must be clear for they define the limits of the territorial
jurisdiction of a local government unit. It can legitimately exercise
powers of government only within the limits of its territorial
jurisdiction. Beyond these limits, its acts are ultra vires. Needless to
state, any uncertainty in the boundaries of local government units will sow
costly conflicts in the exercise of governmental powers which ultimately will
prejudice the people's welfare. This is the evil sought to be avoided by the
Local Government Code in requiring that the land area of a local
government unit must be spelled out in metes and bounds, with technical
[31]
descriptions. (Emphasis ours.)
The significance of accurately defining a local government units boundaries was
[32]
stressed in City of Pasig v. Commission on Elections, which involved the consolidated
petitions filed by the parties herein, Pasig and Cainta, against two decisions of the Commission
on Elections (COMELEC) with respect to the plebiscites scheduled by Pasig for the ratification of
its creation of two new Barangays. Ruling on the contradictory reliefs sought by Pasig and
Cainta, this Court affirmed the COMELEC decision to hold in abeyance the plebiscite to ratify the
creation of Barangay Karangalan; but set aside the COMELECs other decision, and nullified the
plebiscite that ratified the creation of Barangay Napico in Pasig, until the boundary dispute
before the Antipolo RTC had been resolved. The aforementioned case held as follows:
1. The Petition of the City of Pasig in G.R. No. 125646 is DISMISSED for
lack of merit; while
2. The Petition of the Municipality of Cainta in G.R. No. 128663 is
GRANTED. The COMELEC Order in UND No. 97-002, dated March
21, 1997, is SET ASIDE and the plebiscite held on March 15, 1997 to
ratify the creation of Barangay Napico in the City of Pasig is declared
null and void. Plebiscite on the same is ordered held in abeyance until
after the courts settle with finality the boundary dispute between the
City of Pasig and the Municipality of Cainta, in Civil Case No. 94-
[33]
3006.
Clearly therefore, the local government unit entitled to collect real property taxes from
Sta. Lucia must undoubtedly show that the subject properties are situated within its territorial
jurisdiction; otherwise, it would be acting beyond the powers vested to it by law.
Certificates of Title as
Conclusive Evidence of Location
While we fully agree that a certificate of title is conclusive as to its ownership and
location, this does not preclude the filing of an action for the very purpose of attacking the
[34]
statements therein. In De Pedro v. Romasan Development Corporation, we proclaimed that:
We agree with the petitioners that, generally, a certificate of title
shall be conclusive as to all matters contained therein and conclusive
evidence of the ownership of the land referred to therein. However, it bears
stressing that while certificates of title are indefeasible, unassailable and
binding against the whole world, including the government itself, they do not
create or vest title. They merely confirm or record title already existing and
vested. They cannot be used to protect a usurper from the true owner, nor
can they be used as a shield for the commission of fraud; neither do they
[35]
permit one to enrich himself at the expense of other.
[36]
In Pioneer Insurance and Surety Corporation v. Heirs of Vicente Coronado, we set
aside the lower courts ruling that the property subject of the case was not situated in the location
stated and described in the TCT, for lack of adequate basis. Our decision was in line with the
doctrine that the TCT is conclusive evidence of ownership and location. However, we refused to
simply uphold the veracity of the disputed TCT, and instead, we remanded the case back to the
trial court for the determination of the exact location of the property seeing that it was the issue
[37]
in the complaint filed before it.
[38]
In City Government of Tagaytay v. Guerrero, this Court reprimanded the City of
Tagaytay for levying taxes on a property that was outside its territorial jurisdiction, viz:
In this case, it is basic that before the City of Tagaytay may levy a
certain property for sale due to tax delinquency, the subject property should
be under its territorial jurisdiction. The city officials are expected to know
such basic principle of law. The failure of the city officials of Tagaytay to
verify if the property is within its jurisdiction before levying taxes on
[39]
the same constitutes gross negligence. (Emphasis ours.)
Although it is true that Pasig is the locality stated in the TCTs of the subject properties,
both Sta. Lucia and Cainta aver that the metes and bounds of the subject properties, as they are
[40]
described in the TCTs, reveal that they are within Caintas boundaries. This only means that
there may be a conflict between the location as stated and the location as technically described
in the TCTs. Mere reliance therefore on the face of the TCTs will not suffice as they can only be
conclusive evidence of the subject properties locations if both the stated and described locations
point to the same area.
The Antipolo RTC, wherein the boundary dispute case between Pasig and Cainta is
pending, would be able to best determine once and for all the precise metes and bounds of both
Pasigs and Caintas respective territorial jurisdictions. The resolution of this dispute would
necessarily ascertain the extent and reach of each local governments authority, a prerequisite in
the proper exercise of their powers, one of which is the power of taxation. This was the
[41]
conclusion reached by this Court in City of Pasig v. Commission on Elections, and by the First
Division of the Court of Appeals in CA-G.R. SP No. 52874. We do not see any reason why we
cannot adhere to the same logic and reasoning in this case.
The Prejudicial Question Debate
It would be unfair to hold Sta. Lucia liable again for real property taxes it already paid
simply because Pasig cannot wait for its boundary dispute with Cainta to be decided. Pasig has
consistently argued that the boundary dispute case is not a prejudicial question that would entail
the suspension of its collection case against Sta. Lucia. This was also its argument in City of
[42]
Pasig v. Commission on Elections, when it sought to nullify the COMELECs ruling to hold in
abeyance (until the settlement of the boundary dispute case), the plebiscite that will ratify its
creation of Barangay Karangalan. We agreed with the COMELEC therein that the boundary
dispute case presented a prejudicial question and explained our statement in this wise:
To begin with, we agree with the position of the COMELEC that
Civil Case No. 94-3006 involving the boundary dispute between the
Municipality of Cainta and the City of Pasig presents a prejudicial
question which must first be decided before plebiscites for the creation of
the proposed barangays may be held.
The City of Pasig argues that there is no prejudicial question
since the same contemplates a civil and criminal action and does not come
into play where both cases are civil, as in the instant case. While this may
be the general rule, this Court has held in Vidad v. RTC of Negros
Oriental, Br. 42, that, in the interest of good order, we can very well
suspend action on one case pending the final outcome of another case
closely interrelated or linked to the first.
 In the case at bar, while the City of Pasig vigorously claims that
the areas covered by the proposed Barangays Karangalan and Napico are
within its territory, it can not deny that portions of the same area are
included in the boundary dispute case pending before the Regional Trial
Court of Antipolo. Surely, whether the areas in controversy shall be decided
as within the territorial jurisdiction of the Municipality of Cainta or the City of
Pasig has material bearing to the creation of the proposed Barangays
Karangalan and Napico. Indeed, a requisite for the creation of a barangay is
for its territorial jurisdiction to be properly identified by metes and bounds or
by more or less permanent natural boundaries. Precisely because territorial
jurisdiction is an issue raised in the pending civil case, until and unless such
issue is resolved with finality, to define the territorial jurisdiction of the
proposed barangays would only be an exercise in futility. Not only that, we
would be paving the way for potentially ultra vires acts of such barangays. x
[43]
x x. (Emphases ours.)
It is obvious from the foregoing, that the term prejudicial question, as appearing in the
cases involving the parties herein, had been used loosely. Its usage had been more in reference
to its ordinary meaning, than to its strict legal meaning under the Rules of
[44]
Court. Nevertheless, even without the impact of the connotation derived from the term, our
own Rules of Court state that a trial court may control its own proceedings according to its sound
discretion:
POWERS AND DUTIES OF COURTS AND JUDICIAL OFFICERS
Rule 135
SEC. 5. Inherent powers of courts. Every court shall have power:
xxxx
(g) To amend and control its process and orders so as to make them
comformable to law and justice.
proceedings must be stayed, it must be done in order to avoid multiplicity of
suits and prevent vexatious litigations, conflicting judgments, confusion
between litigants and courts. It bears stressing that whether or not the RTC
would suspend the proceedings in the SECOND CASE is submitted to its
[45]
sound discretion.
In light of the foregoing, we hold that the Pasig RTC should have held in abeyance the
proceedings in Civil Case No. 65420, in view of the fact that the outcome of the boundary
dispute case before the Antipolo RTC will undeniably affect both Pasigs and Caintas rights. In
fact, the only reason Pasig had to file a tax collection case against Sta. Lucia was not that Sta.
Lucia refused to pay, but that Sta. Lucia had already paid, albeit to another local government
unit. Evidently, had the territorial boundaries of the contending local government units herein
been delineated with accuracy, then there would be no controversy at all.
In the meantime, to avoid further animosity, Sta. Lucia is directed to deposit
the succeeding real property taxes due on the subject properties, in an escrow account with the
Land Bank of the Philippines.
WHEREFORE, the instant petition is GRANTED. The June 30, 2004 Decision and the
January 27, 2005 Resolution of the Court of Appeals in CA-G.R. CV No. 69603 are SET
ASIDE. The City of Pasig and the Municipality of Cainta are both directed to await the judgment
in their boundary dispute case (Civil Case No. 94-3006), pending before Branch 74 of the
Regional Trial Court in Antipolo City, to determine which local government unit is entitled to
exercise its powers, including the collection of real property taxes, on the properties subject of
the dispute. In the meantime, Sta. Lucia Realty and Development, Inc. is directed to deposit the
succeeding real property taxes due on the lots and improvements covered by TCT Nos. 532250,
598424, 599131, 92869, 92870 and 38457 in an escrow account with the Land Bank of the
Philippines.
SO ORDERED.

-cutiegirlaurs-
Furthermore, we have acknowledged and affirmed this inherent power in our own
decisions, to wit:

The court in which an action is pending may, in the exercise of a

sound discretion, upon proper application for a stay of that action, hold the
action in abeyance to abide the outcome of another pending in another
court, especially where the parties and the issues are the same, for there is
power inherent in every court to control the disposition of causes (sic) on its
dockets with economy of time and effort for itself, for counsel, and for

taxrev full text

litigants. Where the rights of parties to the second action cannot be properly
determined until the questions raised in the first action are settled the
second action should be stayed.

The power to stay proceedings is incidental to the power inherent

in every court to control the disposition of the cases on its dockets,
considering its time and effort, that of counsel and the litigants. But if