MUNICIPALITIES BUSINESS TAXES

G.R. No. 176667

November 22, 2007

ERICSSON TELECOMMUNICATIONS, INC., petitioner, vs. CITY OF PASIG, represented by its City Mayor, Hon. Vicente P. Eusebio, et al. *, respondents. 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 receipts and not gross revenue. Respondent denied petitioner's protest and gave the latter 30 days within which to appeal the denial. This prompted petitioner to file a petition for review1 with the Regional Trial Court (RTC) of Pasig, Branch 168, praying for the annulment and cancellation of petitioner's 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. In a Decision2 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. SO ORDERED.3 On appeal, the Court of Appeals (CA) rendered its Decision4 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/appellee's complaint WITHOUT PREJUDICE. SO ORDERED.5 The CA sustained respondent's claim that the petition filed with the RTC should have been dismissed due to petitioner's failure to show that Atty. Maria Theresa B. Ramos (Atty. Ramos), petitioner's 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. Its motion for reconsideration having been denied in a Resolution6 dated February 9, 2007, petitioner now comes before the Court via a Petition for Review on Certiorari under Rule 45 of the Rules of Court, on the following grounds: (1) THE COURT OF APPEALS ERRED IN DISMISSING THE CASE FOR LACK OF SHOWING THAT THE SIGNATORY OF THE VERIFICATION/ CERTIFICATION IS NOT SPECIFICALLY AUTHORIZED FOR AND IN BEHALF OF PETITIONER. (2) THE COURT OF APPEALS ERRED IN GIVING DUE COURSE TO RESPONDENT'S APPEAL, CONSIDERING THAT IT HAS NO JURISDICTION OVER THE SAME, THE MATTERS TO BE RESOLVED BEING PURE QUESTIONS OF LAW, JURISDICTION OVER WHICH IS VESTED ONLY WITH THIS HONORABLE COURT. (3) ASSUMING THE COURT OF APPEALS HAS JURISDICTION OVER RESPONDENT'S APPEAL, SAID COURT ERRED IN NOT 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 GOVERNMENT CODE.7 After receipt by the Court of respondent's complaint and petitioner's 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 non-forum shopping.8 In General Milling Corporation v. National Labor Relations Commission,9 the Court deemed as substantial compliance the belated attempt of the petitioner to attach to the motion for reconsideration the board resolution/secretary's certificate, stating that there was no attempt on the part of the petitioner to ignore the prescribed procedural requirements. In Shipside Incorporated v. Court of Appeals,10 the authority of the petitioner's 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 secretary's certificate, as special circumstances or compelling reasons that justify tempering the requirements in regard to the certificate of non-forum shopping.11 There were also cases where there was complete non-compliance with the rule on certification against forum shopping and yet the Court proceeded to decide the case on the merits in order to serve the ends of substantial justice.12 In the present case, petitioner submitted a Secretary's Certificate signed on May 6, 2002, whereby Atty. Ramos was authorized to file a protest at the local government level and to "sign, execute and deliver any and all papers, documents and pleadings relative to the said protest and to do and perform all such acts and things as may be necessary to effect the foregoing."13 Applying the foregoing jurisprudence, the subsequent submission of the Secretary's Certificate and the substantial merits of the petition, which will be shown forthwith, justify a relaxation of the rule. Second, the CA should have dismissed the appeal of respondent as it has no jurisdiction over 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 evaluation of the audited financial statements and other documents in order to determine petitioner's 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 or falsity of the facts alleged.14 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 which case, it is a question of law; otherwise it is a question of fact.15 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 petitioner's audited financial statements or documents, as these are not disputed; rather, petitioner's 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 petitioner's 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 same, to evade further repetition of erroneous interpretation of the law,16 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 latter's 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 calendar year in the amount of: 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. In Commissioner of Internal Revenue v. Bank of Commerce,17 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 Amount of Tax Per Annum

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 taxpayer's 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 Philippine Islands,18 in this wise: Receipt of income may be actual or constructive. We have held that the withholding process results in the taxpayer's constructive receipt of the income withheld, to wit: By analogy, we apply to the receipt of income the rules on actual and constructive possession 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 acts the 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 purposestantamount to delivery, receipt or remittance.19 Revenue Regulations No. 16-2005 dated September 1, 200520 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 Financial Reporting Standards,21 which defines revenue as the gross inflow of economic benefits (cash, receivables, and other assets) arising from the ordinary operating activities of an enterprise (such as sales of goods, sales of services, interest, royalties, and dividends),22 which is measured at the fair value of the consideration received or receivable.23 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 Accounting Standards No. 1).24

In petitioner's 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 taxpayer's right to receive the income, and the amount can be determined with reasonable accuracy; the right to receive income, and not the actual receipt, determines when to include the amount in gross income.25 The imposition of local business tax based on petitioner's gross revenue will inevitably result in the constitutionally proscribed double taxation taxing of the same person twice by the same jurisdiction for the same thing26 inasmuch as petitioner's 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. Thus, respondent committed a palpable error when it assessed petitioner's local business tax based on its gross revenue as reported in its audited financial statements, as Section 143 of the Local Government Code and Section 22(e) of the Pasig Revenue Code clearly provide that the tax should be computed based on gross receipts. WHEREFORE, the petition is GRANTED. The Decision dated November 20, 2006 and Resolution dated February 9, 2007 issued by the Court of Appeals are SET ASIDE, and the Decision dated March 8, 2004 rendered by the Regional Trial Court of Pasig, Branch 168 is REINSTATED. SO ORDERED. Ynares-Santiago, Chairperson, Chico-Nazario, Nachura, Reyes, JJ., concur.

G.R. No. 154993 October 25, 2005 LUZ R. YAMANE, in her capacity as the CITY TREASURER OF MAKATI CITY, Petitioner, vs. BA LEPANTO CONDOMINUM CORPORATION, Respondent. DECISION Tinga, J.: Petitioner City Treasurer of Makati, Luz Yamane (City Treasurer), presents for resolution of this Court two novel questions: one procedural, the other substantive, yet both of obvious significance. The first pertains to the proper mode of judicial review undertaken from decisions of the regional trial courts resolving the denial of tax protests made by local government treasurers, pursuant to the Local Government Code. The second is whether a local government

unit can, under the Local Government Code, impel a condominium corporation to pay business taxes.1 While we agree with the City 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. Respondent BA-Lepanto Condominium Corporation (the "Corporation") is a duly organized condominium corporation constituted in accordance with the Condominium Act,2 which owns and holds title to the common and limited common areas of the BA-Lepanto Condominium (the "Condominium"), situated in Paseo de Roxas, Makati City. Its membership comprises the various unit owners of the Condominium. The Corporation is authorized, under Article V of its Amended By-Laws, to collect regular assessments from its members for operating expenses, capital expenditures on the common areas, and other special assessments as provided for in the Master Deed with Declaration of Restrictions of the Condominium. On 15 December 1998, the Corporation received a Notice of Assessment dated 14 December 1998 signed by the City Treasurer. The Notice of Assessment stated that the Corporation is "liable to pay the correct city business taxes, fees and charges," computed as totaling P1,601,013.77 for the years 1995 to 1997.3 The Notice of Assessment was silent as to the statutory basis of the business taxes assessed. Through counsel, the Corporation responded with a written tax protest dated 12 February 1999, addressed to the City Treasurer. It was evident in the protest that the Corporation was perplexed on the statutory basis of the tax assessment. With due respect, we submit that the Assessment has no basis as the Corporation is not liable for business taxes and surcharges and interest thereon, under the Makati [Revenue] Code or even under the [Local Government] Code. The Makati [Revenue] Code and the [Local Government] Code do not contain any provisions on which the Assessment could be based. One might argue that Sec. 3A.02(m) of the Makati [Revenue] Code imposes business tax on owners or operators of any business not specified in the said code. We submit, however, that this is not applicable to the Corporation as the Corporation is not an owner or operator of any business in the contemplation of the Makati [Revenue] Code and even the [Local Government] Code.4 Proceeding from the premise that its tax liability arose from Section 3A.02(m) of the Makati Revenue Code, the Corporation proceeded to argue that under both the Makati Code and the Local Government Code, "business" is defined as "trade or commercial activity regularly

engaged in as a means of livelihood or with a view to profit." It was submitted that the Corporation, as a condominium corporation, was organized not for profit, but to hold title over the common areas of the Condominium, to manage the Condominium for the unit owners, and to hold title to the parcels of land on which the Condominium was located. Neither was the Corporation authorized, under its articles of incorporation or by-laws to engage in profit-making activities. The assessments it did collect from the unit owners were for capital expenditures and operating expenses.5 The protest was rejected by the City Treasurer in a letter dated 4 March 1999. She insisted that the collection of dues from the unit owners was effected primarily "to sustain and maintain the expenses of the common areas, with the end in view [sic] of getting full appreciative living values [sic] for the individual condominium occupants and to command better marketable [sic] prices for those occupants" who would in the future sell their respective units.6 Thus, she concluded since the "chances of getting higher prices for well-managed common areas of any condominium are better and more effective that condominiums with poor [sic] managed common areas," the corporation activity "is a profit venture making [sic]".7 From the denial of the protest, the Corporation filed an Appeal with the Regional Trial Court (RTC) of Makati.8 On 1 March 2000, the Makati RTC Branch 57 rendered a Decision9 dismissing the appeal for lack of merit. Accepting the premise laid by the City Treasurer, the RTC acknowledged, in sadly risible language: Herein appellant, to defray the improvements and beautification of the common areas, collect [sic] assessments from its members. Its end view is to get appreciate living rules for the unit owners [sic], to give an impression to outsides [sic] of the quality of service the condominium offers, so as to allow present owners to command better prices in the event of sale.10 With this, the RTC concluded that the activities of the Corporation fell squarely under the definition of "business" under Section 13(b) of the Local Government Code, and thus subject to local business taxation.11 From this Decision of the RTC, the Corporation filed a Petition for Review under Rule 42 of the Rules of Civil Procedure with the Court of Appeals. Initially, the petition was dismissed outright12 on the ground that only decisions of the RTC brought on appeal from a first level court could be elevated for review under the mode of review prescribed under Rule 42.13 However, the Corporation pointed out in its Motion for Reconsideration that under Section 195 of the Local Government Code, the remedy of the taxpayer on the denial of the protest filed with the local treasurer is to appeal the denial with the court of competent jurisdiction.14 Persuaded by this contention, the Court of Appeals reinstated the petition.15 On 7 June 2002, the Court of Appeals Special Sixteenth Division rendered the Decision16 now assailed before this Court. The appellate court reversed the RTC and declared that the Corporation was not liable to pay business taxes to the City of Makati.17 In doing so, the Court of Appeals delved into jurisprudential definitions of profit,18 and concluded that the Corporation was not engaged in profit. For one, it was held that the very statutory concept of a condominium

corporation showed that it was not a juridical entity intended to make profit, as its sole purpose was to hold title to the common areas in the condominium and to maintain the condominium.19 The Court of Appeals likewise cited provisions from the 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 condominium.20 Upon denial of her Motion for Reconsideration,21 the City Treasurer elevated the present Petition for Review under Rule 45. It is argued that the Corporation is engaged in business, for the dues collected from the different unit owners is utilized towards the beautification and maintenance of the Condominium, resulting in "full appreciative living values" for the condominium units which would command better market prices should they be sold in the future. The City Treasurer likewise avers that the rationale for business taxes is not on the income received or profit earned by the business, but the privilege to engage in business. The fact that the Corporation is empowered "to acquire, own, hold, enjoy, lease, operate and maintain, and to convey sell, transfer or otherwise dispose of real or personal property" allegedly qualifies "as incident to the fact of [the Corporations] act of engaging in business.22 The City Treasurer also claims that the Corporation had filed the wrong mode of appeal before the Court of Appeals when the latter filed its Petition for Review under Rule 42. It is reasoned that the decision of the Makati RTC was rendered in the exercise of original jurisdiction, it being the first court which took cognizance of the case. Accordingly, with the Corporation having pursued an erroneous mode of appeal, the RTC Decision is deemed to have become final and executory. First, we dispose of the procedural issue, which essentially boils down to whether the RTC, in deciding an appeal taken from a denial of a protest by a local treasurer under Section 195 of the Local Government Code, exercises "original jurisdiction" or "appellate jurisdiction." The question assumes a measure of importance to this petition, for the adoption of the position of the City Treasurer that the mode of review of the decision taken by the RTC is governed by Rule 41 of the Rules of Civil Procedure means that the decision of the RTC would have long become final and executory by reason of the failure of the Corporation to file a notice of appeal.23 There are discernible conflicting views on the issue. The first, as expressed by the Court of Appeals, holds that the RTC, in reviewing denials of protests by local treasurers, exercises appellate jurisdiction. This position is anchored on the language of Section 195 of the Local Government Code which states that the remedy of the taxpayer whose protest is denied by the local treasurer is "to appeal with the court of competent jurisdiction."24 Apparently though, the Local Government Code does not elaborate on how such "appeal" should be undertaken. The other view, as maintained by the City Treasurer, is that the jurisdiction exercised by the RTC is original in character. This is the first time that the position has been presented to the court for adjudication. Still, this argument does find jurisprudential mooring in our ruling in Garcia v. De

Jesus,25 where the Court proffered the following distinction between original jurisdiction and appellate jurisdiction: "Original jurisdiction is the power of the Court to take judicial cognizance of a case instituted for judicial action for the first time under conditions provided by law. Appellate jurisdiction is the authority of a Court higher in rank to re-examine the final order or judgment of a lower Court which tried the case now elevated for judicial review."26 The quoted definitions were taken from the commentaries of the esteemed Justice Florenz Regalado. With the definitions as beacon, the review taken by the RTC over the denial of the protest by the local treasurer would fall within that 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 quasijudicial tribunals or their officers whose decisions may be reviewed by the Court of Appeals in the exercise of its appellate jurisdiction. However, the basic law of jurisdiction, Batas Pambansa Blg. 129 (B.P. 129),27 ineluctably confers appellate jurisdiction on the Court of Appeals over final rulings of quasi-judicial agencies, instrumentalities, boards or commission, by explicitly using the phrase "appellate jurisdiction."28 The power to create or characterize jurisdiction of courts belongs to the legislature. While the traditional notion of appellate jurisdiction connotes judicial review over lower court decisions, it has to yield to statutory redefinitions that clearly expand its breadth to encompass even review of decisions of officers in the executive branches of government. Yet significantly, the Local Government Code, or any other statute for that matter, does not expressly confer appellate jurisdiction on the part of regional trial courts from the denial of a tax protest by a local treasurer. On the other hand, Section 22 of B.P. 129 expressly delineates the appellate jurisdiction of the Regional Trial Courts, confining as it does said appellate jurisdiction to cases decided by Metropolitan, Municipal, and Municipal Circuit Trial Courts. Unlike in the case of the Court of Appeals, B.P. 129 does not confer appellate jurisdiction on Regional Trial Courts over rulings made by non-judicial entities. From these premises, it is evident that the stance of the City Treasurer is correct as a matter of law, and that the proper remedy of the Corporation from the RTC judgment is an ordinary appeal under Rule 41 to the Court of Appeals. However, we make this pronouncement subject to two important qualifications. First, in this particular case there are nonetheless significant reasons for the Court to overlook the procedural error and ultimately uphold the adjudication of the jurisdiction exercised by the Court of Appeals in this case. Second, the doctrinal weight of the pronouncement is confined to cases and controversies that emerged prior to the enactment of Republic Act No. 9282, the law which expanded the jurisdiction of the Court of Tax Appeals (CTA). Republic Act No. 9282 definitively proves in its Section 7(a)(3) that the CTA exercises exclusive appellate jurisdiction to review on appeal decisions, orders or resolutions of the Regional Trial Courts in local tax cases original decided or resolved by them in the exercise of their originally

or appellate jurisdiction. Moreover, the provision also states that the review is triggered "by filing a petition for review under a procedure analogous to that provided for under Rule 42 of the 1997 Rules of Civil Procedure."29 Republic Act No. 9282, however, would not apply to this case simply because it arose prior to the effectivity of that law. To declare otherwise would be to institute a jurisdictional rule derived not from express statutory grant, but from implication. The jurisdiction of a court to take cognizance of a case should be clearly conferred and should not be deemed to exist on mere implications,30 and this settled rule would be needlessly emasculated should we declare that the 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 action and proceeding.31 Indeed, we have repeatedly upheldand utilized ourselvesthe discretion of courts to nonetheless take cognizance of petitions raised on an erroneous mode of appeal and instead treat these petitions in the manner as they should have appropriately been filed.32 The Court of Appeals could very well have treated the 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 when the appeal was taken out of time or when the docket fees were not paid. 33 On the other hand, Section 6, Rule 42 provides that in order that the Court of Appeals may allow due course to the petition for review, it must first make a prima facie finding that the lower court has committed an error that would warrant the reversal or modification of the decision under review.34 There is no similar requirement of a prima facie determination of error in the case of ordinary appeal, which is perfected upon the filing of the notice of appeal in due time.35 Evidently, by employing the Rule 42 mode of review, the Corporation faced a greater risk of having its petition rejected by the Court of Appeals as compared to having filed an ordinary appeal under Rule 41. This was not an error that worked to the prejudice of the City Treasurer. We now proceed to the substantive issue, on whether the City of Makati may collect business taxes on condominium corporations. We begin with an overview of the power of a local government unit to impose business taxes. The power of local government units to impose taxes within its territorial jurisdiction derives from the Constitution itself, which recognizes the power of these units "to create its own sources of revenue and to levy taxes, fees, and charges subject to such guidelines and limitations as the Congress may provide, consistent with the basic policy of local autonomy."36 These guidelines and limitations as provided by Congress are in main contained in the Local Government 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 levied on banks and other financial institutions.37 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 business taxation relevant to this petition may be found.38 Section 143 of the Code specifically enumerates several types of business on which municipalities and cities may impose taxes. These include manufacturers, wholesalers, distributors, dealers of any article of commerce of whatever nature; those engaged in the export or commerce of essential commodities; contractors and other independent 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 Education, Culture and Sports, (DECS), day care centers; etc.39 Other provisions of the Revenue Code likewise subject hotel and restaurant owners and operators40, real estate dealers, and lessors of real estate41 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 of the gross receipts during the preceding year.42 The initial inquiry is what provision of the Makati Revenue Code does the City Treasurer rely on to make the Corporation liable for business taxes. Even at this point, there already stands a problem with the City 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 expressed in its protest, as to the exact legal basis for the tax.43 Reference to the local tax ordinance is vital, for the power of local government units to impose local taxes is exercised through the appropriate ordinance enacted by the sanggunian, and not by the Local Government Code alone.44 What

determines tax liability is the tax ordinance, the Local Government Code being the enabling law for the local legislative body. Moreover, a careful examination of the Revenue Code shows that while Section 3A.02(m) seems designed as a catch-all provision, Section 3A.02(f), which provides for a different 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 profit."45 This definition of "business" takes on importance, since Section 143 allows local government units to impose local taxes on businesses other than those specified under the provision. Moreover, even those business activities specifically named 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 located and in other common areas of the building.46 To enable the orderly administration over these common areas which are jointly owned by the various unit owners, the Condominium Act permits the creation of a condominium corporation, which is specially formed for the purpose of holding title to the common area, in which the holders of separate interests shall automatically be members or shareholders, to the exclusion of others, in proportion to the appurtenant interest of their respective units.47 The necessity of a condominium corporation has not gained widespread acceptance48, and even is merely permissible under the Condominium Act.49 Nonetheless, the condominium corporation has been resorted to by many condominium projects, such as the Corporation in this case. In line with the authority of the condominium corporation to manage the condominium project, it may be authorized, in the deed of restrictions, "to make reasonable assessments to meet authorized expenditures, each condominium unit to be assessed separately for its share of such expenses in proportion (unless otherwise provided) to its owners fractional interest in any common areas."50 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 convenient to the accomplishment of such purpose.51 Further, the same provision prohibits the articles of incorporation or by-laws of the condominium corporation from containing any provisions which are contrary to the provisions of the Condominium Act, the enabling or master deed, or the declaration of restrictions of the condominium project.52 We can elicit from the Condominium Act that a condominium corporation is precluded by statute from engaging in corporate activities other than the holding of the common areas, 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 powers reasonably necessary, incidental or convenient to accomplish the foregoing purposes.53 Obviously, none of these stated corporate purposes are geared towards maintaining a livelihood or the obtention of profit. Even though the Corporation is empowered to levy assessments or dues from the unit owners, these amounts collected are not intended for the incurrence of profit by the Corporation or its members, but to shoulder the multitude of necessary expenses that arise from the maintenance of the Condominium Project. Just as much is confirmed by Section 1, Article V of the Amended By-Laws, which enumerate the particular expenses to be defrayed by the regular assessments collected from the unit owners. These would include the salaries of the employees of the Corporation, and the cost of maintenance and ordinary repairs of the common areas.54 The City Treasurer nonetheless contends that the collection of these assessments and dues are "with the end view of getting full appreciative living values" for the condominium units, and as a result, profit is obtained once these units are sold at higher prices. The Court cites with approval the two counterpoints raised by the Court of Appeals in rejecting this contention. First, if any profit is obtained by the sale of the units, it accrues not to the corporation but to the unit owner. Second, if the unit owner does obtain profit from the sale of the corporation, the owner is already required to pay capital gains tax on the appreciated value of the condominium unit.55 Moreover, the logic on this point of the City Treasurer is baffling. By this rationale, every Makati City car owner may be considered as being engaged in business, since the repairs or improvements on the car may be deemed oriented towards appreciating the value of the car upon

resale. There is an evident distinction between persons who spend on repairs and improvements on their personal and real property for the purpose of increasing its resale value, and those who defray such expenses for the purpose of preserving the property. The vast majority of persons fall under the second category, and it would be highly specious to subject these persons to local business taxes. The profit motive in such cases is hardly the driving factor behind such improvements, if it were contemplated at all. Any profit that would be derived under such circumstances would merely be incidental, if not accidental. Besides, we shudder at the thought of upholding tax liability on the basis of the standard of "full appreciative living values", a phrase that defies statutory explication, commonsensical meaning, the English language, or even definition from Google. The exercise of the power of taxation constitutes a deprivation of property under the due process clause,56 and the taxpayers right to due process is violated when arbitrary or oppressive methods are used in assessing and collecting taxes.57 The fact that the Corporation did not fall within the enumerated classes of taxable businesses under either the Local Government Code or the Makati Revenue Code already forewarns that a clear demonstration is essential on the part of the City Treasurer on why the Corporation should be taxed anyway. "Full appreciative living values" is nothing but blather in search of meaning, and to impose a tax hinged on that standard is both arbitrary and oppressive. The City Treasurer also contends that the fact that the Corporation is engaged in business is evinced by the Articles of Incorporation, which specifically empowers the Corporation "to acquire, own, hold, enjoy, lease, operate and maintain, and to convey, sell, transfer mortgage or otherwise dispose of real or personal property."58 What the City Treasurer fails to add is that every corporation organized under the Corporation Code59 is so specifically empowered. Section 36(7) of the Corporation Code states that every corporation incorporated under the Code has the power and capacity "to purchase, receive, take or grant, hold, convey, sell, lease, pledge, mortgage and otherwise deal with such real and personal property . . . as the transaction of the lawful business of the corporation may reasonably and necessarily require . . . ."60 Without this power, corporations, as juridical persons, would be deprived of the capacity to engage in most meaningful legal relations. 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 of the condominium corporation.61 Such activity would be prohibited under the Condominium Act, but if the fact is established, we see no reason why the condominium corporation may be made liable by the local government unit for business taxes. Even though such activities would be considered as ultra vires, since they are engaged in beyond the legal capacity of the condominium corporation62, 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. 181845

August 4, 2009

THE CITY OF MANILA, LIBERTY M. TOLEDO, in her capacity as THE TREASURER OF MANILA and JOSEPH SANTIAGO, in his capacity as the CHIEF OF THE LICENSE DIVISION OF CITY OF MANILA, petitioners, vs. COCA-COLA BOTTLERS PHILIPPINES, INC., Respondent. DECISION CHICO-NAZARIO, J.: This case is a Petition for Review on Certiorari under Rule 45 of the Revised Rules of Civil Procedure seeking to review and reverse the Decision1 dated 18 January 2008 and Resolution2 dated 18 February 2008 of the Court of Tax Appeals en banc (CTA en banc) in C.T.A. EB No. 307. In its assailed Decision, the CTA en banc dismissed the Petition for Review of herein petitioners City of Manila, Liberty M. Toledo (Toledo), and Joseph Santiago (Santiago); and affirmed the Resolutions dated 24 May 2007,3 8 June 2007,4 and 26 July 2007,5 of the CTA First Division in C.T.A. AC No. 31, which, in turn, dismissed the Petition for Review of petitioners in said case for being filed out of time. In its questioned Resolution, the CTA en banc denied the Motion for Reconsideration of petitioners.

Petitioner City of Manila is a public corporation empowered to collect and assess business taxes, revenue fees, and permit fees, through its officers, petitioners Toledo and Santiago, in their capacities as City Treasurer and Chief of the Licensing Division, respectively. On the other hand, respondent Coca-Cola Bottlers Philippines, Inc. is a corporation engaged in the business of manufacturing and selling beverages, and which maintains a sales office in the City of Manila. The case stemmed from the following facts: Prior to 25 February 2000, respondent had been paying the City of Manila local business tax only under Section 14 of Tax Ordinance No. 7794,6 being expressly exempted from the business tax under Section 21 of the same tax ordinance. Pertinent provisions of Tax Ordinance No. 7794 provide: Section 14. Tax on Manufacturers, Assemblers and Other Processors. There is hereby imposed a graduated tax on manufacturers, assemblers, repackers, processors, brewers, distillers, rectifiers, and compounders of liquors, distilled spirits, and wines or manufacturers of any article of commerce of whatever kind or nature, in accordance with any of the following schedule: xxxx over P6,500,000.00 up to P25,000,000.00 - - - - - - - - - - - - - - - - - - - -- P36,000.00 plus 50% of 1% in excess of P6,500,000.00 xxxx Section 21. Tax on Businesses Subject to the Excise, Value-Added or Percentage Taxes under the NIRC. On any of the following businesses and articles of commerce subject to excise, value-added or percentage taxes under the National Internal Revenue Code hereinafter referred to as NIRC, as amended, a tax of FIFTY PERCENT (50%) of ONE PERCENT (1%) per annum on the gross sales or receipts of the preceding calendar year is hereby imposed: (A) On persons who sell goods and services in the course of trade or business; and those who import goods whether for business or otherwise; as provided for in Sections 100 to 103 of the NIRC as administered and determined by the Bureau of Internal Revenue pursuant to the pertinent provisions of the said Code. 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 No. 7988,7 amending certain sections of Tax Ordinance No. 7794, particularly: (1) Section 14, by increasing the tax rates applicable to certain establishments operating within the territorial jurisdiction of the City of Manila; and (2) Section 21, by deleting the proviso found therein, which stated "that all registered businesses in the City of Manila that are already paying the aforementioned tax shall be exempted from payment thereof." Petitioner City of Manila approved only after a year, on 22 February 2001, another tax ordinance, Tax Ordinance No. 8011, amending Tax Ordinance No. 7988. Tax Ordinances No. 7988 and No. 8011 were later declared by the Court null and void in CocaCola Bottlers Philippines, Inc. v. City of Manila8 (Coca-Cola case) for the following reasons: (1) Tax Ordinance No. 7988 was enacted in contravention of the provisions of the Local Government Code (LGC) of 1991 and its implementing rules and regulations; and (2) Tax Ordinance No. 8011 could not cure the defects of Tax Ordinance No. 7988, which did not legally exist. However, before the Court could declare Tax Ordinance No. 7988 and Tax Ordinance No. 8011 null and void, petitioner City of Manila assessed respondent on the basis of Section 21 of Tax Ordinance No. 7794, as amended by the aforementioned tax ordinances, for deficiency local business taxes, penalties, and interest, in the total amount of P18,583,932.04, for the third and fourth quarters of the year 2000. Respondent filed a protest with petitioner Toledo on the ground that the said assessment amounted to double taxation, as respondent was taxed twice, i.e., under Sections 14 and 21 of Tax Ordinance No. 7794, as amended by Tax Ordinances No. 7988 and No. 8011. Petitioner Toledo did not respond to the protest of respondent. Consequently, respondent filed with the Regional Trial Court (RTC) of Manila, Branch 47, an action for the cancellation of the assessment against respondent for business taxes, which was docketed as Civil Case No. 03-107088. On 14 July 2006, the RTC rendered a Decision9 dismissing Civil Case No. 03-107088. The RTC ruled that the business taxes imposed upon the respondent under Sections 14 and 21 of Tax Ordinance No. 7988, as amended, were not of the same kind or character; therefore, there was no double taxation. The RTC, though, in an Order10 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 Order11 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 [COCACOLA CASE] IS DOCTRINAL AND CONTROLLING IN THE INSTANT CASE. III. WHETHER OR NOT PETITIONER CITY OF MANILA CAN STILL ASSESS TAXES UNDER [SECTIONS] 14 AND 21 OF [TAX ORDINANCE NO. 7794, AS AMENDED]. IV. WHETHER OR NOT THE ENFORCEMENT OF [SECTION] 21 OF THE [TAX ORDINANCE NO. 7794, AS AMENDED] CONSTITUTES DOUBLE TAXATION. Petitioners assert that Section 1, Rule 712 of the Revised Rules of the CTA refers to certain provisions of the Rules of Court, such as Rule 42 of the latter, and makes them applicable to the tax court. Petitioners then cannot be faulted in relying on the provisions of Section 1, Rule 42 13 of the Rules of Court as regards the period for filing a Petition for Review with the CTA in division. Section 1, Rule 42 of the Rules of Court provides for a 15-day period, reckoned from receipt of the adverse decision of the trial court, within which to file a Petition for Review with the Court of Appeals. The same rule allows an additional 15-day period within which to file such a Petition; and, only for the most compelling reasons, another extension period not to exceed 15 days. Petitioners received on 20 April 2007 a copy of the 4 April 2007 Order of the RTC, denying their Motion for Reconsideration of the 16 November 2006 Order of the same court. On 4 May 2007, believing that they only had 15 days to file a Petition for Review with the CTA in division, petitioners moved for a 15-day extension, or until 20 May 2007, within which to file said Petition. Prior to the lapse of their first extension period, or on 18 May 2007, petitioners again moved for a 10-day extension, or until 30 May 2007, within which to file their Petition for Review. Thus, when petitioners filed their Petition for Review with the CTA First Division on 30 May 2007, the same was filed well within the reglementary period for doing so. Petitioners argue in the alternative that even assuming that Section 3(a), Rule 814 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 30day 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 Review is specifically governed by Section 11 of Republic Act No. 9282,15 and Section 3(a), Rule 8 of the Revised Rules of the CTA. Section 11 of Republic Act No. 9282 provides: 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 Review with the CTA within 30 days from receipt of said adverse decision or ruling of the RTC. It is also true that the same provisions are silent as to whether such 30-day period can be extended or not. However, Section 11 of Republic Act No. 9282 does state that the Petition for Review shall be filed with the CTA following the procedure analogous to Rule 42 of the Revised Rules of Civil Procedure. Section 1, Rule 4216 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 Civil Procedure x x x.17 In this case, the CTA First Division did indeed err in finding that petitioners failed to file their Petition for Review in C.T.A. AC No. 31 within the reglementary period. From 20 April 2007, the date petitioners received a copy of the 4 April 2007 Order of the RTC, denying their Motion for Reconsideration of the 16 November 2006 Order, petitioners had 30 days, or until 20 May 2007, within which to file their Petition for Review with the CTA. Hence, the Motion for Extension filed by petitioners on 4 May 2007 grounded on their belief that the reglementary period for filing their Petition for Review with the CTA was to expire on 5 May 2007, thus, compelling them to seek an extension of 15 days, or until 20 May 2007, to file said Petition was unnecessary and superfluous. Even without said Motion for Extension, petitioners could file their Petition for Review until 20 May 2007, as it was still within the 30-day

reglementary period provided for under Section 11 of Republic Act No. 9282; and implemented by Section 3(a), Rule 8 of the Revised Rules of the CTA. The Motion for Extension filed by the petitioners on 18 May 2007, prior to the lapse of the 30day 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. 03107088, 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.1avvphi1 The Court easily infers from the foregoing circumstances that petitioners themselves believed that prior to Tax Ordinance No. 7988 and Tax Ordinance No. 8011, respondent was exempt from the local business tax under Section 21 of Tax Ordinance No. 7794. Hence, petitioners had to wait for the deletion of the exempting proviso in Section 21 of Tax Ordinance No. 7794 by Tax Ordinance No. 7988 and Tax Ordinance No. 8011 before they assessed respondent for the local business tax under said section. Yet, with the pronouncement by this Court in the Coca-Cola case that Tax Ordinance No. 7988 and Tax Ordinance No. 8011 were null and void and without legal effect, then Section 21 of Tax Ordinance No. 7794, as it has been previously worded, with its exempting proviso, is back in effect. Accordingly, respondent should not have been subjected to the local business tax under Section 21 of Tax Ordinance No. 7794 for the third and fourth quarters of 2000, given its exemption therefrom since it was already paying the local business tax under Section 14 of the same ordinance. Petitioners obstinately ignore the exempting proviso in Section 21 of Tax Ordinance No. 7794, to their own detriment. Said exempting proviso was precisely included in said section so as to avoid double taxation. Double taxation means taxing the same property twice when it should be taxed only once; that is, "taxing the same person twice by the same jurisdiction for the same thing." It is obnoxious when the taxpayer is taxed twice, when it should be but once. Otherwise described as "direct duplicate taxation," the two taxes must be imposed on the same subject matter, for the same purpose, by the same taxing authority, within the same jurisdiction, during the same taxing period; and the taxes must be of the same kind or character.18 Using the aforementioned test, the Court finds that there is indeed double taxation if respondent is subjected to the taxes under both Sections 14 and 21 of Tax Ordinance No. 7794, since these are being imposed: (1) on the same subject matter the privilege of doing business in the City of Manila; (2) for the same purpose to make persons conducting business within the City of Manila contribute to city revenues; (3) by the same taxing authority petitioner City of Manila;

(4) within the same taxing jurisdiction within the territorial jurisdiction of the City of Manila; (5) for the same taxing periods per calendar year; and (6) of the same kind or character a local business tax imposed on gross sales or receipts of the business. 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. 191761

November 14, 2012 LIGHT CO., INC., Petitioner,

CAGAYAN ELECTRIC POWER AND vs. CITY OF CAGAYAN DE ORO, Respondent. DECISION CARPIO, J.: The Case

G.R. No. 191761 is a petition for review1 assailing the Decision2 promulgated on 28 May 2009 as well as the Resolution3 promulgated on 24 March 2010 by the Court of Appeals (appellate court) in CA-G.R. CV No. 01105-Min. The appellate court affirmed the 8 January 2007 Decision4 of Branch 18 of the Regional Trial Court of Misamis Oriental (trial court) in Civil Case No. 2005-207. The trial court upheld the validity of the City of Cagayan de Oros Ordinance No. 9503-2005 and denied Cagayan Electric Power and Light Co., Inc.s (CEPALCO) claim of exemption from the said ordinance.

The Facts The appellate court narrated the facts as follows: On January 10, 2005, the Sangguniang Panlungsod of Cagayan de Oro (City Council) passed Ordinance No. 9503-2005 imposing a tax on the lease or rental of electric and/or telecommunication posts, poles or towers by pole owners to other pole users at ten percent (10%) of the annual rental income derived from such lease or rental. The City Council, in a letter dated 15 March 2005, informed appellant Cagayan Electric Power and Light Company, Inc. (CEPALCO), through its President and Chief Operation Manager, Ms. Consuelo G. Tion, of the passage of the subject ordinance. 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 Regional Trial Court of Cagayan de Oro City, Branch 18, on the ground that the tax imposed by the disputed ordinance is in reality a tax on income which appellee City of Cagayan de Oro may not impose, the same being expressly prohibited by Section 133(a) of Republic Act No. 7160 (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 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 the ordinance manifests malice and bad faith of the respondent-appellee towards it. 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 to the 1987 Constitution, the Local Government Code, other applicable provisions of law, and pertinent jurisprudence; (b) non-exemption of CEPALCO because of the express withdrawal of the exemption provided by Section 193 of the LGC; (c) the subject ordinance is legally presumed valid and constitutional; (d) prescription of respondent-appellees action pursuant to Section 187 of the LGC; (e) failure of respondent-appellee to exhaust administrative remedies under the Local Government Code; (f) CEPALCOs action for declaratory relief cannot prosper since no breach or violation of the subject ordinance was yet committed by the City.5 Ordinance No. 9503-2005 reads: ORDINANCE IMPOSING 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 FOR OTHER PURPOSES BE IT ORDAINED by the City Council (Sangguniang Panlungsod) of the City of Cagayan de Oro in session assembled that: 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. UNANIMOUSLY APPROVED.6 Ordinance No. 9503-2005 was unanimously approved by the City Council of Cagayan de Oro on 10 January 2005. The Trial Courts Ruling On 8 January 2007, the trial court rendered its Decision7 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 CEPALCOs 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 CEPALCOs claim that the ordinance is an imposition of income tax prohibited by Section 133(a) of the Local Government Code.8 The trial court reasoned that since CEPALCOs 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 CEPALCOs claim of exemption from tax. The trial court noted that Republic Act (R.A.) Nos. 3247,9 357010 and 6020,11 which previously granted CEPALCOs 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 CEPALCOs 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 courts 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 nonexhaustion of administrative remedy [sic] and by prescription. Hence, the instant petition is DENIED. SO ORDERED.12 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 Courts Ruling

On 28 May 2009, the appellate court rendered its Decision14 and affirmed the trial courts 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 courts 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 CEPALCOs claim of tax exemption rests on a strained interpretation of R.A. No. 9284. In a Resolution15 dated 24 March 2010, the appellate court denied CEPALCOs motion for reconsideration for lack of merit. The resolution also denied CEPALCOs 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 citys 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 CEPALCOs tax exemptions was disregarded.16 In a Resolution dated 6 July 2011,17 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 Courts 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 Secretary of Justice. CEPALCO ignored our ruling in Reyes v. Court of Appeals 18 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, CEPALCOs 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 Oros Power vis-a-vis CEPALCOs Claim of Exemption

to

Create

Sources

of

Revenue

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 133(a)19 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. CEPALCOs act of leasing for a consideration the use of its posts, poles or towers to other pole users falls under the Local Government Codes 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 means of livelihood or with a view to profit." In relation to Section 131(d),20 Section 143(h)21 of the Local Government Code provides that the city may impose taxes, fees, and charges on any business which is not specified in Section 143(a) to (g)22 and which the sanggunian concerned may deem proper to tax. In contrast to the express statutory provisions on the City of Cagayan de Oros power to tax, CEPALCOs claim of tax exemption of the income from its poles relies on a strained interpretation.23 Section 1 of R.A. No. 9284 added Section 9 to R.A. No. 3247, CEPALCOs 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 juridical persons, and granted local government units the power to impose franchise tax,24 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 v. City of Davao25 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 reenactment of a repealed tax exemption clause.

CEPALCOs 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. the Local Government Code 9503-2005s Compliance with

In our Resolution dated 6 July 2011,26 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 Citys 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 taxing authority is all too patent.27 (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 Oros 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 Oros 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--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; x x x x28 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

and municipalities.29 A province may impose a franchise tax at a rate "not exceeding 50% of 1% of the gross annual receipts."30 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 business tax at a rate not exceeding "two percent of gross sales or receipts."31 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 137s "gross annual receipts" with Ordinance No. 9503-2005s "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 CEPALCOs 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 Oros 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 Oros imposition of a tax on the lease of poles falls under Section 143(h), as the lease of poles is CEPALCOs 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.1wphi1 More importantly, because "any person, who in the course of trade or business x x x leases goods or properties x x x shall be subject to the value-added tax,"32 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. ANTONIO Associate Justice WE CONCUR: T. CARPIO

Shell vs Municipality of Sipocot 105 Phil. 1263 The municipality of Sipocot, Camarines Norte, by an ordinance imposed additionalsales tax on the sale of fuels and oils by Shell Co. effected through its delivery trucksoutside the territorial limits of Sipocot. Shell protested contending that the salesshould not be taxed as the transactions are consummated outside the territory of itslocation Sipocot . Where is the situs of the transaction? Held:The Situs of the sale for tax purposes is not the place where the contract of sale is perfected but the place of its consummation. The additional sales tax on salesof petroleum products can not be applied to deliveries outside the municipality of Sipocot since the consummation of sale is determined by the delivery of the thingswhich are the subject matter of the contract.

G.R. No. L-30745 January 18, 1978 PHILIPPINE MATCH CO., LTD., plaintiff-appellant, vs. THE CITY OF CEBU and JESUS E. ZABATE, Acting City Treasurer, defendantsappellees. Pelaez, Pelaez & Pelaez for appellant. Nazario Pacquiao, Metudio P. Belarmino & Ceferino Jomuad for appellees.

AQUINO, J.: This case is about the legality of the tax collected by the City of Cebu on sales of matches stored by the Philippine Match Co., Ltd. in Cebu City but delivered to customers outside of the City.

Ordinance No. 279 of Cebu City (approved by the mayor on March 10, 1960 and also approved by the provincial board) is "an ordinance imposing a quarterly tax on gross sales or receipts of merchants, dealers, importers and manufacturers of any commodity doing business" in Cebu City. It imposes a sales tax of one percent (1%) on the gross sales, receipts or value of commodities sold, bartered, exchanged or manufactured in the city in excess of P2,000 a quarter. Section 9 of the ordinance provides that, for purposes of the tax, "all deliveries of goods or commodities stored in the City of Cebu, or if not stored are sold" in that city, "shall be considered as sales" in the city and shall be taxable. Thus, it would seem that under the tax ordinance sales of matches consummated outside of the city are taxable as long as the matches sold are taken from the company's stock stored in Cebu City. The Philippine Match Co., Ltd., whose principal office is in Manila, is engaged in the manufacture of matches. Its factory is located at Punta, Sta. Ana, Manila. It ships cases or cartons of matches from Manila to its branch office in Cebu City for storage, sale and distribution within the territories and districts under its Cebu branch or the whole VisayasMindanao region. Cebu City itself is just one of the eleven districts under the company's Cebu City branch office. The company does not question the tax on the matches of matches consummated in Cebu City, meaning matches sold and delivered within the city. It assails the legality of the tax which the city treasurer collected on out-of- town deliveries of matches, to wit: (1) sales of matches booked and paid for in Cebu City but shipped directly to customers outside of the city; (2) transfers of matches to newsmen assigned to different agencies outside of the city and (3) shipments of matches to provincial customers pursuant to salesmen's instructions. The company paid under protest to the city t the sum of P12,844.61 as one percent sales tax on those three classes of out-of-town deliveries of matches for the second quarter of 1961 to the second quarter of 1963. In paying the tax the company accomplished the verified forms furnished by the city treasurers office. It submitted a statement indicating the four kinds of transactions enumerated above, the total sales, and a summary of the deliveries to the different agencies, as well as the invoice numbers, names of customers, the value of the sales, the transfers of matches to salesmen outside of Cebu City, and the computation of taxes. Sales of matches booked and paid for in Cebu City but shipped directly to customers outside of the city refer to orders for matches made in the city by the company's customers, by means of personal or phone calls, for which sales invoices are issued, and then the matches are shipped from the bodega in the city, where the matches had been stored, to the place of business or residences of the customers outside of the city, duly covered by bills of lading The matches are used and consumed outside of the city.

Transfers of matches to salesmen assigned to different agencies outside of the city embrace equipments of matches from the branch office in the city to the salesmen (provided with panel cars) assigned within the province of Cebu and in the different districts in the Visayas and Mindanao under the jurisdiction or supervision of the Cebu City branch office. The shipments are covered by bills of lading. No sales invoices whatever are issued. The matches received by the salesmen constitute their direct cash accountability to the company. The salesmen sell the matches within their respective territories. They issue cash sales invoices and remit the proceeds of the sales to the company's Cebu branch office. The value of the unsold matches constitutes their stock liability. The matches are used and consumed outside of the city. Shipments of matches to provincial customers pursuant to newsmens instructions embrace orders, by letter or telegram sent to the branch office by the company's salesmen assigned outside of the city. The matches are shipped from the company's bodega in the city to the customers residing outside of the city. The salesmen issue the sales invoices. The proceeds of the sale, for which the salesmen are accountable are remitted to the branch office. As in the first and seconds of transactions above-mentioned, the matches are consumed and used outside of the city. The company in its letter of April 15, 1961 to the city treasurer sought the refund of the sales tax paid for out-of-town deliveries of matches. It invoked Shell Company of the Philippines, Ltd. vs. Municipality of Sipocot, Camarines Sur, 105 Phil. 1263. In that case sales of oil and petroleum products effected outside the territorial limits of Sipocot, were held not to be subject to the tax imposed by an ordinance of that municipality. The city treasurer denied the request. His stand is that under section 9 of the ordinance all out-oftown deliveries of latches stored in the city are subject to the sales tax imposed by the ordinance. On August 12, 1963 the company filed the complaint herein, praying that the ordinance be d void insofar as it taxed the deliveries of matches outside of Cebu City, that the city be ordered to refund to the company the said sum of P12,844.61 as excess sales tax paid, and that the city treasurer be ordered to pay damages. After hearing, the trial court sustained the tax on the sales of matches booked and paid for in Cebu City although the matches were shipped directly to customers outside of the city. The lower court held that the said sales were consummated in Cebu City because delivery to the carrier in the city is deemed to be a delivery to the customers outside of the city. But the trial court invalidated the tax on transfers of matches to salesmen assigned to different agencies outside of the city and on shipments of matches to provincial customers pursuant to the instructions of the newsmen It ordered the defendants to refund to the plaintiff the sum of P8,923.55 as taxes paid out the said out-of-town deliveries with legal rate of interest from the respective dates of payment. The trial court characterized the tax on the other two transactions as a "storage tax" and not a sales tax. It assumed that the sales were consummated outside of the city and, hence, beyond the city's taxing power.

The city did not appeal from that decision. The company appealed from that portion of the decision upholding the tax on sales of matches to customers outside of the city but which sales were booked and paid for in Cebu City, and also from the dismissal of its claim for damages against the city treasurer. The issue is whether the City of Cebu can tax sales of matches which were perfected and paid for in Cebu City but the matches were delivered to customers outside of the City. We hold that the appeal is devoid of merit bemuse the city can validly tax the sales of matches to customers outside of the city as long as the orders were booked and paid for in the company's branch office in the city. Those matches can be regarded as sold in the city, as contemplated in the ordinance, because the matches were delivered to the carrier in Cebu City. Generally, delivery to the carrier is delivery to the buyer (Art. 1523, Civil Code; Behn, Meyer & Co. vs. Yangco, 38 Phil. 602). A different interpretation would defeat the tax ordinance in question or encourage tax evasion through the simple expedient of arranging for the delivery of the matches at the out. skirts of the city through the purchase were effected and paid for in the company's branch office in the city. The municipal board of Cebu City is empowered "to provide for the levy and collection of taxes for general and purposes in accordance with law" (Sec. 17[a], Commonwealth Act No. 58; Sec. 31[l], Rep. Act No. 3857, Revised Charter of Cebu city). The taxing power validly delegated to cities and municipalities is defined in the Local Autonomy Act, Republic Act No. 2264 (Pepsi-Cola Bottling Co. of the Philippines, Inc. vs. Municipality of Tanauan, Leyte, L-31156, February 27, 1976, 69 SCRA 460), which took effect on June 19, 1959 and which provides: SEC. 2. Taxation. Any provision of law to the contrary notwithstanding, all chartered cities, municipalities and municipal districts shall have authority to impose municipal license taxes or fees upon persons engaged in any occupation or business, or exercising privileges in chartered cities,. municipalities or municipal districts by requiring them to secure licenses at rates fixed by the municipal board or city council of the city, the municipal council of the municipality, or the municipal district council of the municipal district; to collect fees and charges for services rendered by the city, municipality or municipal district; to regulate and impose reasonable fees for services rendered in connection with any business, profession or occupation being conducted within the city, municipality or municipal district and otherwise to levy for public purposes, just and uniform taxes, licenses or fees; Provided, That municipalities and municipal districts shall, in no case, impose any percentage tax on sales or other taxes in any form based thereon nor impose taxes on articles subject to specific tax, except gasoline, under the provisions of the National International Revenue Code;

Provided, however, That no city, municipality or municipal districts may levy or impose any of the following: (here follows an enumeration of internal revenue taxes) xxx xxx xxx * Note that the prohibition against the imposition of percentage taxes (formerly provided for in section 1 of Commonwealth Act No. 472) refers to municipalities and municipal districts but not to chartered cities. (See Local Tax Code, P.D. No. 231. Marinduque Iron Mines Agents, Inc. vs. Municipal Council of Hinabangan Samar, 120 Phil. 413; Ormoc Sugar Co., Inc. vs. Treasurer of Ormoc City, L-23794, February 17, 1968, 22 SCRA 603). Note further that the taxing power of cities, municipalities and municipal districts may be used (1) "upon any person engaged in any occupation or business, or exercising any privilege" therein; (2) for services rendered by those political subdivisions or rendered in connection with any business, profession or occupation being conducted therein, and (3) to levy, for public purposes, just and uniform taxes, licenses or fees (C. N. Hodges vs. Municipal Board of the City of Iloilo, 117 Phil. 164, 167. See sec. 31[251, Revised Charter of Cebu City). Applying that jurisdictional test to the instant case, it is at once obvious that sales of matches to customers outside oil Cebu City, which sales were booked and paid for in the company's branch office in the city, are subject to the city's taxing power. The instant case is easily distinguishable from the Shell Company case where the price of the oil sold was paid outside of the municipality of Sipocot, the entity imposing the tax. On the other hand, the ruling in Municipality of Jose Panganiban, Province of Camarines Norte vs. Shell Company of the Philippines, Ltd., L-18349, July 30, 1966, 17 SCRA 778 that the place of delivery determines the taxable situs of the property to be taxed cannot properly be invoked in this case. Republic Act No. 1435, the law which enabled the Municipality of Jose Panganiban to levy the sales tax involved in that case, specifies that the tax may be levied upon oils "distributed within the limits of the city or municipality", meaning the place where the oils were delivered. That feature of the Jose Panganiban case distinguished it from this case. The sales in the instant case were in the city and the matches sold were stored in the city. The fact that the matches were delivered to customers, whose places of business were outside of the city, would not place those sales beyond the city's taxing power. Those sales formed part of the merchandising business being assigned on by the company in the city. In essence, they are the same as sales of matches fully consummated in the city. Furthermore, because the sellers place of business is in Cebu City, it cannot be sensibly argued that such sales should be considered as transactions subject to the taxing power of the political subdivisions where the customers resided and accepted delivery of the matches sold. The company in its second assignment of error contends that the trial court erred in not ordering defendant acting city treasurer to pay exemplary damages of P20,000 and attorney's fees.

The claim for damages is predicated on articles 19, 20, 21, 27 and 2229 of the Civil Code. It is argued that the city treasurer refused and neglected without just cause to perform his duty and to act with justice and good faith. The company faults the city treasurer for not following the opinion of the city fiscals, as legal adviser of the city, that all out-of-town deliveries of matches are not subject to sales tax because such transactions were effected outside of the city's territorial limits. In reply, it is argued for defendant city treasurer that in enforcing the tax ordinance in question he was simply complying with his duty as collector of taxes (Sec. 50, Revised Charter of Cebu City). Moreover, he had no choice but to enforce the ordinance because according to section 357 of the Revised Manual of Instruction to Treasurer's "a tax ordinance win be enforced in accordance with its provisions" until d illegal or void by a competent court, or otherwise revoked by the council or board from which it originated. Furthermore, the Secretary of Finance had reminded the city treasurer that a tax ordinance approved by the provincial board is operative and must be enforced without prejudice to the right of any affected taxpayer to assail its legality in the judicial forum. The fiscals opinion on the legality of an ordinance is merely advisory and has no binding effect. Article 27 of the Civil Code provides that "any person suffering material or moral lose because a public servant or employee refuses or neglects, without just cause, to perform his official duty may file an action for damages and other relief against the latter, without prejudice to any disciplinary administrative action that may be taken." Article 27 presupposes that the refuse or omission of a public official is attributable to malice or inexcusable negligence. In this case, it cannot be said that the city treasurer acted wilfully or was grossly t in not refunding to the plaintiff the taxes which it paid under protest on out-of-town sales of matches. The record clearly reveals that the city treasurer honestly believed that he was justified under section 9 of the tax ordinance in collecting the sales tax on out-of-town deliveries, considering that the company's branch office was located in Cebu City and that all out-of-town purchase order for matches were filled up by the branch office and the sales were duly reported to it. The city treasurer acted within the scope of his authority and in consonance with his bona fide interpretation of the tax ordinance. The fact that his action was not completely sustained by the courts would not him liable for We have upheld his act of taxing sales of matches booked and paid for in the city. "As a rule, a public officer, whether judicial ,quasi-judicial or executive, is not y liable to one injured in consequence of an act performed within the scope of his official authority, and in the line of his official duty." "Where an officer is invested with discretion and is empowered to exercise his judgment in matters brought before him. he is sometimes called a quasi-judicial officer, and when so acting he is usually given immunity from liability to persons who may be injured as the result or an erroneous or mistaken decision, however erroneous his judgment may be. provided the acts complained of are done within the scope of the officer's authority and

without malice, or corruption." (63 Am Jur 2nd 798, 799 cited in Philippine Racing Club, Inc. vs. Bonifacio, 109 Phil. 233, 240-241). It has been held that an erroneous interpretation of an ordinance does not constitute nor does it amount to bad faith that would entitle an aggrieved party to an award for damages (Cabungcal vs. Cordovan 120 Phil. 667, 572-3). That salutary in addition to moral temperate, liquidated or compensatory damages (Art. 2229, Civil Code). Attorney's fees are being claimed herein as actual damages. We find that it would not be just and equitable to award attorney's fees in this case against the City of Cebu and its (See Art. 2208, Civil Code). WHEREFORE, the trial court's judgment is affirmed. No costs. SO ORDERED.

G.R. No. L-52019 August 19, 1988 ILOILO BOTTLERS, vs. CITY OF ILOILO, defendant-appellant. Efrain B. Trenas for plaintiff-appellee. Diosdado Garingalao for defendant-appellant. INC., plaintiff-appellee,

CORTES, J.: The fundamental issue in this appeal is whether the Iloilo Bottlers, Inc. which had its bottling plant in Pavia, Iloilo, but which sold softdrinks in Iloilo City, is liable under Iloilo City tax Ordinance No. 5, series of 1960, as amended, which imposes a municipal license tax on distributors of soft-drinks. On July 12,1972, Iloilo Bottlers, Inc. filed a complaint docketed as Civil Case No. 9046 with the Court of First Instance of Iloilo praying for the recovery of the sum of P3,329.20, which amount allegedly constituted payments of municipal license taxes under Ordinance No. 5 series of 1960, as amended, that the company paid under protest. On November 15,1972, the parties submitted a partial stipulation of facts, the material portions of which state xxx xxx xxx

2. That plaintiff is engaged in the business of bottling softdrinks under the trade name of Pepsi Cola And 7-up and selling the same to its customers, with a bottling plant situated at Barrio Ungca Municipality of Pavia, Iloilo, Philippines and which is outside the jurisdiction of defendant; 3. That defendant enacted an ordinance on January 11, 1960 known as Ordinance No. 5, Series of 1960 which ordinance was successively amended by Ordinance No. 28, Series of 1960; Ordinance No. 15, Series of 1964; and Ordinance No. 45, Series of 1964; which provides as follows: Section l. Any person, firm or corporation engaged in the distribution, manufacture or bottling of coca-cola, pepsi cola, tru-orange, seven-up and other soft drinks within the jurisdiction of the City of Iloilo, shall pay a municipal license tax of ten (P0.10) centavos for every case of twenty-four bottles; PROVIDED, HOWEVER, that softdrinks sold to the public at not more than five (P0.05) centavos per bottle shall pay a tax of one and one half (P0.015) (centavos) per case of twenty four bottles. Section 1-AFor purposes of this Ordinance, all deliveries and/or dispatches emanating or made at the plant and all goods or stocks taken out of the plant for distribution, sale or exchange irrespective (of) where it would take place shall be covered by the operation of this Ordinance. 4. That prior to September, 1966, Santiago Syjuco Inc., owned and operated a bottling plant at Muelle Loney Street, Iloilo City, which was doing business under the name of Seven-up Bottling Company of the Philippines and bottled the softdrinks Pepsi-Cola and 7-up; however sometime on September 14,1966, Santiago Syjuco, Inc., informed all its employees that it (was) closing its Iloilo Plant due to financial losses and in fact closed the same and later sold the plant to the plaintiff Iloilo Bottlers, Inc. 5. That thereafter, plaintiff operated the said plant by bottling the soft drinks Pepsi-Cola and 7-up; however, sometime in July 1968, plaintiff closed said bottling plant at Muelle Loney, Iloilo City, and transferred its bottling operations to its new plant in Barrio Ungca, Municipality of Pavia, Province of Iloilo, and which is outside the jurisdiction of the City of Iloilo; 6. That from the time of (the) enactment (of the ordinance), the Seven Up Bottling Company of the Philippines under Santiago Syjuco Inc., had been religiously paying the defendant City of Iloilo the above- mentioned municipal license tax due therefrom for bottler because its bottling plant was then still situated at Muelle Loney St., Iloilo City; but the plaintiff stopped paying the municipal license tax (after) October 21, 1968 (when) it transferred its plant to Barrio Ungca Municipality of Pavia, Iloilo which is outside the jurisdiction of the City of Iloilo;

7. That sometime on July 31, 1969, the defendant demanded from the plaintiff the payment of the municipal license tax under the above-mentioned ordinance, a xerox copy of the said letter is attached to the complaint as Annex "A" and made an integral part hereof by reference. 8. That plaintiff explained in a letter to the defendant that it could not anymore be liable to pay the municipal license fee because its bottling plant (was) not anymore inside the City of Iloilo, and that moreover, since it itself (sold) its own products to its (customers) directly, it could not be considered as a distributor in line with the doctrines enunciated by the Supreme Court in the cases of City of Manila vs. Bugsuk Lumber Co., L- 8255, July 11, 1957; Manila Trading & Supply Co., Inc. vs. City of Manila L-1 2156, April 29, 1959; Central Azucarera de Don Pedro vs. City of Manila et al., G.R. No. L7679, September 29,1955; Cebu Portland Cement vs. City of Manila and City Treasurer of Manila, L-1 4229,July 26,1960. A xerox copy of the said letter is attached as Annex "B" to the complaint and made an integral part hereof by reference. As a result of the said letter of the plaintiff, the defendant did not anymore press the plaintiff to pay the said municipal license tax; 9. That sometime on January 25, 1972, the defendant demanded from the plaintiff compliance with the said ordinance for 1972 in view of the fact that it was engaged in distribution of the softdrinks in the City of Iloilo, and it further demanded from the plaintiff payment of back taxes from the time it transferred its bottling plant to the Municipality of Pavia, Iloilo; 10. That the plaintiff demurred to the said demand of the defendant raising as its jurisdiction the reason that its bottling plant is situated outside the City of Iloilo and as bottler could not be considered as distributor under the said ordinance although it sells its product directly to the consumer, in line with the jurisprudence enunciated by the Supreme Court but due to insistence of the defendant, the plaintiff paid on April 20, 1972, the first quarter payment of the municipal licence tax in the sum of P3,329.20, under protest, and thereafter has been paying defendant every quarter under protest; 11. That on June l5, 1972,the defendant informed the plaintiff that it must pay all the taxes due since July, 1968 up to the last quarter of 1971, otherwise it shall be constrained to cancel the operation of the business of the plaintiff, and because of this threat, and so as not to occasion disruption of its business operation, the plaintiff under protest agreed to the payment of the back taxes, on staggered basis, which was acceded to by the defendant; 12. That as computed by the plaintiff the following are its softdrinks sold in Iloilo City since it transferred its bottling plant from the City of Iloilo to Barrio Ungca Pavia, Iloilo in July 1968, to wit: No. of Cases sold

S E V E N U P

1 9 6 8

1 9 6 9

1 9 7 0

1 9 7 1

J u l t o D e c J a n . t o D e c . J a n . t o D e c . J a n . t o D e

3 9, 3 4 0

P E P S I C O L A 4 9 , 0 6 0

T O T A L

T A X D U E

8 8 , 4 0 0

P 8 , 8 4 0

8 1, 2 4 0

8 7 , 6 6 0

1 6 8 , 9 0 0

1 6 , 8 9 0

7 9, 3 8 9

8 9 , 2 1 1

1 6 8 , 6 0 0

1 6 , 6 0 0

8 0, 6 7 0

8 8 , 4 8 0

1 6 9 , 1 5 0

1 6 , 9 1 5

c . T O T A L

2 8 0, 6 3 9

3 1 4 , 4 1 1

5 9 5 , 0 5 0

P 5 9 , 5 0 5

13. That the plaintiff does not maintain any store or commercial establishment in the City of Iloilo from which it distributes its products, but by means of a fleet of delivery trucks, plaintiff distributes its products from its bottling plant at Barrio Ungca Municipality of Pavia, Iloilo, directly to its customers in the different towns of the Province of Iloilo as well as the City of Iloilo; 14. That the plaintiff is already paying the National Government a percentage Tax of 71/t, as manufacturer's sales tax on all the softdrinks it manufactures as follows: O.R. No. 4683995 - January, 1972 Sales P17,222.90 O.R. No. 5614767 - February " " 17,024.81 O.R. No. .5614870 - March " " 17,589.19 O.R. No. 5614891 - April " " 18,726.77 O.R. No. 5614897 - May " " 16,710.99 O.R. No. 5614935 - June " " 14,791.20 O.R. No. 5614967 - July " " 13,952.00 O.R. No. 5614973 - August " " 15,726.16 O.R. No. 56'L4999 - September " " 19,159.54 and is also paying the municipal license tax to the municipality of Pavia, Iloilo in the amount of P l0,000.00 every year, plus a municipal license tax for engaging in its business to the municipality of Pavia in its amount of P2,000.00 every year. xxx xxx xxx

[Rollo, P. 10 (Record on Appeal, pp. 25-31)] On the basis of the above stipulations, the court a quo rendered on January 26, 1973 a decision in favor of Iloilo Bottlers, Inc. declaring the Corporation not liable under the ordinance and directing the City of Iloilo to pay the sum of' P3,329.20. The decision was amended in an Order dated March 15, 1973, so as to include the amounts paid by the company after the filing of the complaint. The City of Iloilo appealed to the Court of Appeals which certified the case to this Court. The tax ordinance imposes a tax on persons, firms, and corporations engaged in the business of: 1. distribution of soft-drinks 2. manufacture of soft-drinks, and 3. bottling of softdrinks within the territorial jurisdiction of the City of Iloilo. There is no question that after it transferred its plant to Pavia, Iloilo province, Iloilo Bottlers, Inc. no longer manufactured/bottled its softdrinks within Iloilo City. Thus, it cannot be taxed as one falling under the second or the third type of business. The resolution of this case therefore hinges on whether the company may be considered engaged in the distribution of softdrinks in Iloilo City, even after it had transferred its bottling plant to Pavia, so as to be within the purview of the ordinance. Iloilo Bottlers, Inc. disclaims liability on two grounds: First, it contends that since it is not engaged in the independent business of distributing soft-drinks, but that its activity of selling is merely an incident to, or is a necessary consequence of its main or principal business of bottling, then it is NOT liable under the city tax ordinance. Second, it claims that only manufacturers or bottlers having their plants inside the territorial jurisdiction of the city are covered by the ordinance. The second ground is manifestly devoid of merit. It is clear from the ordinance that three types of activities are covered: (1) distribution, (2) manufacture and (3) bottling of softdrinks. A person engaged in any or all of these activities is subject to the tax. The first ground, however, merits serious consideration. This Court has always recognized that the right to manufacture implies the right to sell/distribute the manufactured products [See Central Azucarera de Don Pedro v. City of Manila and Sarmiento, 97 Phil. 627 (1955); Caltex (Philippines), Inc. v. City of Manila and Cudiamat, G.R. No. L-22764, July 28, 1969, 28 SCRA 840, 843.] Hence, for tax purposes, a manufacturer does not necessarily become engaged in the separate business of selling simply because it sells the products it manufactures. In certain cases, however, a manufacturer may also be considered as engaged in the separate business of selling its products.

To determine whether an entity engaged in the principal business of manufacturing, is likewise engaged in the separate business of selling, its marketing system or sales operations must be looked into. In several cases [See Central Azucarera de Don Pedro v. City of Manila and Sarmiento, supra; Cebu Portland Cement Co. v. City of Manila and the City Treasurer, 108 Phil. 1063 (1960); Caltex (Philippines), Inc. v. City of Manila and Cudiamat, supra], this Court had occasion to distinguish two marketing systems: Under the first system, the manufacturer enters into sales transactions and invoices the sales at its main office where purchase orders are received and approved before delivery orders are sent to the company's warehouses, where in turn actual deliveries are made. No warehouse sales are made; nor are separate stores maintained where products may be sold independently from the main office. The warehouses only serve as storage sites and delivery points of the products earlier sold at the main office. Under the second system, sales transactions are entered into and perfected at stores or warehouses maintained by the company. Any one who desires to purchase the product may go to the store or warehouse and there purchase the merchandise. The stores and warehouses serve as selling centers. Entities operating under the first system are NOT considered engaged in the separate business of selling or dealing in their products, independent of their manufacturing business. Entities operating under the second system are considered engaged in the separate business of selling. In the case at bar, the company distributed its softdrinks by means of a fleet of delivery trucks which went directly to customers in the different places in lloilo province. Sales transactions with customers were entered into and sales were perfected and consummated by route salesmen. Truck sales were made independently of transactions in the main office. The delivery trucks were not used solely for the purpose of delivering softdrinks previously sold at Pavia. They served as selling units. They were what were called, until recently, "rolling stores". The delivery trucks were therefore much the same as the stores and warehouses under the second marketing system. Iloilo Bottlers, Inc. thus falls under the second category above. That is, the corporation was engaged in the separate business of selling or distributing soft-drinks, independently of its business of bottling them. The tax imposed under Ordinance No. 5 is an excise tax. It is a tax on the privilege of distributing, manufacturing or bottling softdrinks. Being an excise tax, it can be levied by the taxing authority only when the acts, privileges or businesses are done or performed within the jurisdiction of said authority [Commissioner of Internal Revenue v. British Overseas Airways Corp. and Court of Appeals, G.R. Nos. 65773-74, April 30, 1987, 149 SCRA 395, 410.] Specifically, the situs of the act of distributing, bottling or manufacturing softdrinks must be within city limits, before an entity engaged in any of the activities may be taxed in Iloilo City. As stated above, sales were made by Iloilo Bottlers, Inc. in Iloilo City. Thus, We have no option but to declare the company liable under the tax ordinance.

With the foregoing discussion, it becomes unnecessary to discuss the other issues raised by the parties. WHEREFORE, the appealed decision is hereby REVERSED. The complaint in Civil Case No. 9046 is ordered DISMISSED. No Costs.