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G.R. No.

112497 August 4, 1994


HON. FRANKLIN M. DRILON, in his capacity as SECRETARY OF JUSTICE, petitioner,
vs.
MAYOR ALFREDO S. LIM, VICE-MAYOR JOSE L. ATIENZA, CITY TREASURER ANTHONY ACEVEDO,
SANGGUNIANG PANGLUNSOD AND THE CITY OF MANILA, respondents.
The City Legal Officer for petitioner.
Angara, Abello, Concepcion, Regala & Cruz for Caltex (Phils.).
Joseph Lopez for Sangguniang Panglunsod of Manila.
L.A. Maglaya for Petron Corporation.

CRUZ, J.:
The principal issue in this case is the constitutionality of Section 187 of the Local Government Code
reading as follows:
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.
Pursuant thereto, the Secretary of Justice had, on appeal to him of four oil companies and a taxpayer,
declared Ordinance No. 7794, otherwise known as the Manila Revenue Code, null and void for noncompliance with the prescribed procedure in the enactment of tax ordinances and for containing certain
provisions contrary to law and public policy. 1
In a petition for certiorari filed by the City of Manila, the Regional Trial Court of Manila revoked the
Secretary's resolution and sustained the ordinance, holding inter alia that the procedural requirements had
been observed. More importantly, it declared Section 187 of the Local Government Code as
unconstitutional because of its vesture in the Secretary of Justice of the power of control over local
governments in violation of the policy of local autonomy mandated in the Constitution and of the specific
provision therein conferring on the President of the Philippines only the power of supervision over local
governments. 2
The present petition would have us reverse that decision. The Secretary argues that the annulled Section
187 is constitutional and that the procedural requirements for the enactment of tax ordinances as specified
in the Local Government Code had indeed not been observed.

Parenthetically, this petition was originally dismissed by the Court for non-compliance with Circular 1-88,
the Solicitor General having failed to submit a certified true copy of the challenged decision. 3 However, on
motion for reconsideration with the required certified true copy of the decision attached, the petition was
reinstated in view of the importance of the issues raised therein.
We stress at the outset that the lower court had jurisdiction to consider the constitutionality of Section 187,
this authority being embraced in the general definition of the judicial power to determine what are the
valid and binding laws by the criterion of their conformity to the fundamental law. Specifically, BP 129
vests in the regional trial courts jurisdiction over all civil cases in which the subject of the litigation is
incapable of pecuniary estimation,4 even as the accused in a criminal action has the right to question in his
defense the constitutionality of a law he is charged with violating and of the proceedings taken against
him, particularly as they contravene the Bill of Rights. Moreover, Article X, Section 5(2), of the Constitution
vests in the Supreme Court appellate jurisdiction over final judgments and orders of lower courts in all
cases in which the constitutionality or validity of any treaty, international or executive agreement, law,
presidential decree, proclamation, order, instruction, ordinance, or regulation is in question.
In the exercise of this jurisdiction, lower courts are advised to act with the utmost circumspection, bearing
in mind the consequences of a declaration of unconstitutionality upon the stability of laws, no less than on
the doctrine of separation of powers. As the questioned act is usually the handiwork of the legislative or
the executive departments, or both, it will be prudent for such courts, if only out of a becoming modesty,
to defer to the higher judgment of this Court in the consideration of its validity, which is better determined
after a thorough deliberation by a collegiate body and with the concurrence of the majority of those who
participated in its discussion. 5
It is also emphasized that every court, including this Court, is charged with the duty of a purposeful
hesitation before declaring a law unconstitutional, on the theory that the measure was first carefully
studied by the executive and the legislative departments and determined by them to be in accordance
with the fundamental law before it was finally approved. To doubt is to sustain. The presumption of
constitutionality can be overcome only by the clearest showing that there was indeed an infraction of the
Constitution, and only when such a conclusion is reached by the required majority may the Court
pronounce, in the discharge of the duty it cannot escape, that the challenged act must be struck down.
In the case before us, Judge Rodolfo C. Palattao declared Section 187 of the Local Government Code
unconstitutional insofar as it empowered the Secretary of Justice to review tax ordinances and,
inferentially, to annul them. He cited the familiar distinction between control and supervision, the first
being "the power of an officer to alter or modify or set aside what a subordinate officer had done in the
performance of his duties and to substitute the judgment of the former for the latter," while the second is
"the power of a superior officer to see to it that lower officers perform their functions in accordance with
law." 6 His conclusion was that the challenged section gave to the Secretary the power of control and not of
supervision only as vested by the Constitution in the President of the Philippines. This was, in his view, a
violation not only of Article X, specifically Section 4 thereof, 7 and of Section 5 on the taxing powers of local
governments, 8 and the policy of local autonomy in general.
We do not share that view. The lower court was rather hasty in invalidating the provision.
Section 187 authorizes the Secretary of Justice to review only the constitutionality or legality of the tax
ordinance and, if warranted, to revoke it on either or both of these grounds. When he alters or modifies or
sets aside a tax ordinance, he is not also permitted to substitute his own judgment for the judgment of the
local government that enacted the measure. Secretary Drilon did set aside the Manila Revenue Code, but
he did not replace it with his own version of what the Code should be. He did not pronounce the ordinance
unwise or unreasonable as a basis for its annulment. He did not say that in his judgment it was a bad law.
What he found only was that it was illegal. All he did in reviewing the said measure was determine if the
petitioners were performing their functions in accordance with law, that is, with the prescribed procedure

for the enactment of tax ordinances and the grant of powers to the city government under the Local
Government Code. As we see it, that was an act not of control but of mere supervision.
An officer in control lays down the rules in the doing of an act. If they are not followed, he may, in his
discretion, order the act undone or re-done by his subordinate or he may even decide to do it himself.
Supervision does not cover such authority. The supervisor or superintendent merely sees to it that the
rules are followed, but he himself does not lay down such rules, nor does he have the discretion to modify
or replace them. If the rules are not observed, he may order the work done or re-done but only to conform
to the prescribed rules. He may not prescribe his own manner for the doing of the act. He has no judgment
on this matter except to see to it that the rules are followed. In the opinion of the Court, Secretary Drilon
did precisely this, and no more nor less than this, and so performed an act not of control but of mere
supervision.
The case of Taule v. Santos 9 cited in the decision has no application here because the jurisdiction claimed
by the Secretary of Local Governments over election contests in the Katipunan ng Mga Barangay was held
to belong to the Commission on Elections by constitutional provision. The conflict was over jurisdiction, not
supervision or control.
Significantly, a rule similar to Section 187 appeared in the Local Autonomy Act, which provided in its
Section 2 as follows:
A tax ordinance shall go into effect on the fifteenth day after its passage, unless the
ordinance shall provide otherwise: Provided, however, That the Secretary of Finance shall
have authority to suspend the effectivity of any ordinance within one hundred and twenty
days after receipt by him of a copy thereof, if, in his opinion, the tax or fee therein levied or
imposed is unjust, excessive, oppressive, or confiscatory, or when it is contrary to declared
national economy policy, and when the said Secretary exercises this authority the effectivity
of such ordinance shall be suspended, either in part or as a whole, for a period of thirty days
within which period the local legislative body may either modify the tax ordinance to meet
the objections thereto, or file an appeal with a court of competent jurisdiction; otherwise, the
tax ordinance or the part or parts thereof declared suspended, shall be considered as
revoked. Thereafter, the local legislative body may not reimpose the same tax or fee until
such time as the grounds for the suspension thereof shall have ceased to exist.
That section allowed the Secretary of Finance to suspend the effectivity of a tax ordinance if, in his opinion,
the tax or fee levied was unjust, excessive, oppressive or confiscatory. Determination of these flaws would
involve the exercise of judgment or discretion and not merely an examination of whether or not the
requirements or limitations of the law had been observed; hence, it would smack of control rather than
mere supervision. That power was never questioned before this Court but, at any rate, the Secretary of
Justice is not given the same latitude under Section 187. All he is permitted to do is ascertain the
constitutionality or legality of the tax measure, without the right to declare that, in his opinion, it is unjust,
excessive, oppressive or confiscatory. He has no discretion on this matter. In fact, Secretary Drilon set
aside the Manila Revenue Code only on two grounds, to with, the inclusion therein of certain ultra
vires provisions and non-compliance with the prescribed procedure in its enactment. These grounds
affected the legality, not the wisdom or reasonableness, of the tax measure.
The issue of non-compliance with the prescribed procedure in the enactment of the Manila Revenue Code
is another matter.
In his resolution, Secretary Drilon declared that there were no written notices of public hearings on the
proposed Manila Revenue Code that were sent to interested parties as required by Art. 276(b) of the
Implementing Rules of the Local Government Code nor were copies of the proposed ordinance published in
three successive issues of a newspaper of general circulation pursuant to Art. 276(a). No minutes were

submitted to show that the obligatory public hearings had been held. Neither were copies of the measure
as approved posted in prominent places in the city in accordance with Sec. 511(a) of the Local Government
Code. Finally, the Manila Revenue Code was not translated into Pilipino or Tagalog and disseminated
among the people for their information and guidance, conformably to Sec. 59(b) of the Code.
Judge Palattao found otherwise. He declared that all the procedural requirements had been observed in the
enactment of the Manila Revenue Code and that the City of Manila had not been able to prove such
compliance before the Secretary only because he had given it only five days within which to gather and
present to him all the evidence (consisting of 25 exhibits) later submitted to the trial court.
To get to the bottom of this question, the Court acceded to the motion of the respondents and called for
the elevation to it of the said exhibits. We have carefully examined every one of these exhibits and agree
with the trial court that the procedural requirements have indeed been observed. Notices of the public
hearings were sent to interested parties as evidenced by Exhibits G-1 to 17. The minutes of the hearings
are found in Exhibits M, M-1, M-2, and M-3. Exhibits B and C show that the proposed ordinances were
published in the Balita and the Manila Standard on April 21 and 25, 1993, respectively, and the approved
ordinance was published in the July 3, 4, 5, 1993 issues of the Manila Standard and in the July 6, 1993
issue of Balita, as shown by Exhibits Q, Q-1, Q-2, and Q-3.
The only exceptions are the posting of the ordinance as approved but this omission does not affect its
validity, considering that its publication in three successive issues of a newspaper of general circulation
will satisfy due process. It has also not been shown that the text of the ordinance has been translated and
disseminated, but this requirement applies to the approval of local development plans and public
investment programs of the local government unit and not to tax ordinances.
We make no ruling on the substantive provisions of the Manila Revenue Code as their validity has not been
raised in issue in the present petition.
WHEREFORE, the judgment is hereby rendered REVERSING the challenged decision of the Regional Trial
Court insofar as it declared Section 187 of the Local Government Code unconstitutional but AFFIRMING its
finding that the procedural requirements in the enactment of the Manila Revenue Code have been
observed. No pronouncement as to costs.
SO ORDERED.
Narvasa, C.J., Feliciano, Padilla, Bidin, Regalado, Davide, Jr., Romero, Bellosillo, Melo, Quiason,
Puno, Vitug, Kapunan and Mendoza, JJ., concur.
CITY OF MANILA, HON. ALFREDO S. LIM, AS MAYOR OF THE CITY OF MANILA, AND ANTHONY Y.
ACEVEDO, CITY TREASURER, Petitioners, v. HON. ANGEL VALERA COLET, AS PRESIDING JUDGE,
REGIONAL TRIAL COURT OF MANILA (BR. 43), AND MALAYSIAN AIRLINE SYSTEM,Respondents.
[G.R. NO. 121613]
MAERSK-FILIPINAS, INC., AMERICAN PRESIDENT LINES, LTD., FLAGSHIP TANKERS CORP., CORE
INDO MARITIME CORP., AND CORE MARITIME CORP., Petitioners, v. CITY OF MANILA, MAYOR
ALFREDO LIM, VICE MAYOR LITO ATIENZA,1 SANGGUNIANG PANLUNGSOD AND CITY TREASURER
ANTHONY ACEVEDO, Respondents.
[G.R. NO. 121675]
EASTERN SHIPPING LINES, INC., Petitioner, v. CITY COUNCIL OF MANILA, THE MAYOR OF MANILA
AND THE CITY OF MANILA, Respondents.
[G.R. NO. 121704]

WILLIAM LINES, INC., NEGROS NAVIGATION CO., INC., LORENZO SHIPPING CORPORATION,
CARLOS A. GOTHONG LINES, INC., ABOITIZ SHIPPING CORPORATION, ABOITIZ AIR TRANSPORT
CORPORATION, ABOITIZ HAULERS, INC., AND SOLID SHIPPING LINES
CORPORATION, Petitioners, v. REGIONAL TRIAL COURT OF MANILA, BRANCH 32, CITY OF MANILA,
MAYOR ALFREDO LIM, VICE MAYOR LITO ATIENZA, SANGGUNIANG PANLUNGSOD, AND CITY
TREASURER ANTHONY ACEVEDO, Respondents.
[G.R. NOS. 121720-28]
PNOC SHIPPING AND TRANSPORT CORPORATION, Petitioner, v. HON. JUAN T. NABONG, JR.,
PRESIDING JUDGE, REGIONAL TRIAL COURT OF MANILA, BRANCH 32; THE CITY OF MANILA;
MAYOR ALFREDO LIM; VICE MAYOR LITO ATIENZA; SANGGUNIANG PANLUNGSOD, AND CITY
TREASURER ANTHONY ACEVEDO, Respondents.
[G.R. NOS. 121847-55]
MAERSK-FILIPINAS, INC., AMERICAN PRESIDENT LINES, SEA-LAND SERVICES, INC., OVERSEAS
FREIGHTERS SHIPPING, INC., DONGNAMA SHIPPING CO., LTD., FLAGSHIP TANKERS, CORE INDO
MARITIME CORP., CORE MARITIME CORP., AND EASTERN SHIPPING LINES,
INC., Petitioners, v. CITY OF MANILA, HON. MAYOR ALFREDO S. LIM, HON. VICE MAYOR LITO
ATIENZA, JR., SANGGUNIANG PANLUNGSOD NG MAYNILA, AND CITY TREASURER ANTHONY Y.
ACEBEDO AND THEIR AGENTS OR REPRESENTATIVES, AND HON. JUDGE JUAN C. NABONG, JR.,
BRANCH 32, REGIONAL TRIAL COURT OF MANILA, RESPONDENTS, WILLIAM LINES, INC.,
NEGROS NAVIGATION CO., INC., LORENZO SHIPPING CORPORATION, CARLOS A. GOTHONG
LINES, INC., ABOITIZ SHIPPING CORPORATION, ABOITIZ AIR TRANSPORT CORPORATION,
ABOITIZ HAULERS, INC., SOLID SHIPPING LINES CORPORATION AND PNOC SHIPPING &
TRANSPORT CORPORATION, Intervenors.
[G.R. NO. 122333]
COSCO CONTAINER LINES AND HEUNG-A SHIPPING CO., LTD., BOTH REPRESENTED BY THEIR
RESIDENT AGENT, WALLEM PHILIPPINES SHIPPING, INC.; DSR SENATOR LINES, COMPANIA SUD
AMERICANA DE VAPORES S.A., AND ARIMURA SANGYO COMPANY, LTD., ALL REPRESENTED BY
THEIR RESIDENT AGENT, C.F. SHARP SHIPPING AGENCIES, INCORPORATED; PACIFIC
INTERNATIONAL LINES (PTE) LTD. AND PACIFIC EAGLE LINES (PTE) LTD., BOTH REPRESENTED BY
THEIR RESIDENT AGENT, TMS SHIP AGENCIES, INC.; COMPAGNIE MARITIME D AFFRETEMENT
(CMA), REPRESENTED BY ITS RESIDENT AGENT, INCHCAPE SHIPPING SERVICES; EVERETT
ORIENT LINES, INC., REPRESENTED BY ITS RESIDENT AGENT, EVERETT STEAMSHIP
CORPORATION; YANGMING MARINE TRANSPORT CORP., REPRESENTED BY ITS RESIDENT AGENT,
SKY INTERNATIONAL, INC.; NIPON YUSEN KAISHA, REPRESENTED BY ITS RESIDENT AGENT, FILJAPAN SHIPPING CORPORATION; HYUNDAI MERCHANT MARINE CO. LTD., REPRESENTED BY ITS
RESIDENT AGENT, CITADEL LINES; MALAYSIAN INTERNATIONAL SHIPPING CORPORATION
BERHAD, REPRESENTED BY ITS RESIDENT AGENT, ROYAL CARGO AGENCIES, INC.; BOLT ORIENT
LINE, REPRESENTED BY ITS RESIDENT AGENT, FILSOV SHIPPING COMPANY, INC.; MITSUI-O.S.K.
LINES, LTD., REPRESENTED BY ITS RESIDENT AGENT, MAGSAYSAY AGENCIES, INC.; PHILS.,
MICRONESIA & ORIENT NAVIGATION CO. (PMSO LINE), REPRESENTED BY ITS RESIDENT AGENT,
VAN TRANSPORT COMPANY, INC.; LLOYD TRIESTINO DI NAVIGAZIONE S.P.A.N. AND COMPAGNIE
GENERALE MARITIME, BOTH REPRESENTED BY THEIR RESIDENT AGENT, F.E. ZUELLIG (M), INC.;
AND MADRIGAL-WAN HAI LINES, Petitioners, v. CITY OF MANILA, MAYOR ALFREDO LIM, VICE
MAYOR LITO ATIENZA, SANGGUNIANG PANLUNGSOD AND CITY TREASURER ANTHONY Y.
ACEBEDO, Respondents.
[G.R. NO. 122335]
SULPICIO LINES, INC., Petitioner, v. REGIONAL TRIAL COURT OF MANILA, BRANCH 32, CITY OF
MANILA MAYOR ALFREDO LIM, VICE MAYOR LITO ATIENZA, SANGGUNIANG PANLUNGSOD AND
CITY TREASURER ANTHONY ACEVEDO, Respondents.
[G.R. NO. 122349]

ASSOCIATION OF INTERNATIONAL SHIPPING LINES, INC., IN ITS OWN BEHALF AND IN


REPRESENTATION OF ITS MEMBERS, Petitioner, v. CITY OF MANILA, MAYOR ALFREDO LIM, VICE
MAYOR LITO ATIENZA, SANGGUNIANG PANLUNGSOD AND CITY TREASURER ANTHONY
ACEVEDO, Respondents.
[G.R. NO. 124855]
DONGNAMA SHIPPING CO., LTD. AND KYOWA SHIPPING LTD. HEREIN REPRESENTED BY SKY
INTERNATIONAL, INC., Petitioners, v. COURT OF APPEALS, CITY OF MANILA MAYOR ALFREDO LIM,
VICE MAYOR LITO ATIENZA, CITY COUNCIL OF MANILA, AND CITY TREASURER ANTHONY
ACEVEDO, Respondents.
DECISION
LEONARDO-DE CASTRO, J.:
Before the Court are 10 consolidated Petitions, the issue at the crux of which is the constitutionality and/or
validity of Section 21(B) of Ordinance No. 7794 of the City of Manila, otherwise known as the Revenue
Code of the City of Manila (Manila Revenue Code), as amended by Ordinance No.
7807.2chanRoblesvirtualLawlibrary
I
ANTECEDENT FACTS
The Manila Revenue Code was enacted on June 22, 1993 by the City Council of Manila and approved on
June 29, 1993 by then Manila Mayor Alfredo S. Lim (Lim). Section 21(B) of said Code originally
provided:chanroblesvirtuallawlibrary
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 the excise, value-added or
percentage taxes under the National Internal Revenue Code, hereinafter referred to as NIRC, as amended,
a tax of three percent (3%) per annum on the gross sales or receipts of the preceding calendar year is
hereby imposed:
xxxx
B) On the gross receipts of keepers of garages, cars for rent or hire driven by the lessee, transportation
contractors, persons who transport passenger or freight for hire, and common carriers by land, air or
water, except owners of bancas and owners of animal-drawn two-wheel vehicle.
Shortly thereafter, Ordinance No. 7807 was enacted by the City Council of Manila on September 27, 1993
and approved by Mayor Lim on September 29, 1993, already amending several provisions of the Manila
Revenue Code. Section 21 of the Manila Revenue Code, as amended, imposed a lower tax rate on the
businesses that fell under it, and paragraph (B) thereof read as follows:chanroblesvirtuallawlibrary
Section 21. Tax on Business Subject to the Excise, Value-Added or Percentage Taxes Under the NIRC On
any of the following businesses and articles of commerce subject to the 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:
xxxx
B) On the gross receipts of keepers of garages, cars for rent or hire driven by the lessee, transportation
contractors, persons who transport passenger or freight for hire, and common carriers by land, air or
water, except owners of bancas and owners of animal-drawn two-wheel vehicle.
The City of Manila, through its City Treasurer, began imposing and collecting the business tax under
Section 21(B) of the Manila Revenue Code, as amended, beginning January 1994.
G.R. No. 120051
Malaysian Airline System (MAS) is a foreign corporation organized and existing under the laws of Malaysia.

It is licensed to engage in business in the Philippines by the Securities and Exchange Commission (SEC),
particularly in the airline business which involves the transportation of passengers and cargo for hire. Its
principal office and place of business in the Philippines is located in the City of Manila.
As MAS was renewing its business permit for 1994, it was assessed by the City Treasurer of Manila on
January 17, 1994 for the following taxes and fees:chanroblesvirtuallawlibrary
Mayors permit and regulatory fees
Municipal license tax or business tax
Total

10,307.50
1,100,000.00
P 1,110,307.503

MAS, believing that it was exempt from the municipal license tax or business tax, tendered, via Far East
Bank and Trust Company (FEBTC) Check No. 06564 dated January 19, 1994, only the amount of P10,307.50
for the mayors permit and regulatory fees. The City Treasurer of Manila refused to accept FEBTC Check
No. 06564.
Consequently, on January 20, 1994, MAS instituted Civil Case No. 94-69052, to consign with the trial court
the amount of P10,307.50 for mayors permit and regulatory fees; to challenge the assessment against it
by the City Treasurer of Manila in the amount of P1,100,000.00 for municipal license tax or business tax;
and to have Section 21(B) of the Manila Revenue Code, as amended, on which said assessment for
municipal license tax or business tax was based, be declared invalid or null and void. Civil Case No. 9469052 was assigned to the Regional Trial Court (RTC) of Manila, Branch 43.
On April 3, 1995, RTC-Branch 43 rendered a Decision4 in favor of MAS. The dispositive portion of said
Decision reads:chanroblesvirtuallawlibrary
WHEREFORE, the foregoing disquisitions considered, judgment is hereby rendered in favor of the plaintiff
against the defendants:ChanRoblesVirtualawlibrary
1. Declaring the consignation valid and made in accordance with law;
2. Ordering defendants to issue to plaintiff the mayors permit or permit to operate for 1994, the
necessary certificates and official receipts evidencing payment of [plaintiffs] liabilities for mayors
permit fee and other regulatory fees for 1994; and,
3. Declaring Section 21(B) of Ordinance No. 7794, as amended by Ordinance No. 7807, of the City of
Manila as invalid or null and void insofar as it imposes a business tax on transportation contractors,
persons engaged in the transportation of passengers or freight by hire and common carriers by air,
land or water, or that plaintiff is exempt from the tax imposed by said section 21(B).
4. Declaring plaintiffs obligation to the defendant City of Manila for mayors permit fee and other
regulatory fees for 1994 as having been paid and extinguished without any liability for surcharges,
interests or any additional amount whatsoever.
Not having been proven, the prayer for the payment of attorneys fees is denied.
No pronouncement as to costs.5
The City of Manila, Mayor Lim, and City Treasurer Anthony Y. Acevedo (Acevedo) filed with the Court a
Petition for Review on Certiorari,6 assailing the Decision dated April 3, 1995 of RTC-Branch 43 in Civil Case
No. 94-69052 based on pure questions of law. They assigned the following errors on the part of RTCBranch 43:chanroblesvirtuallawlibrary
4.1. That the trial court erred in declaring Section 21(B) of [the Manila Revenue Code, as amended,] as
invalid or null and void.
4.2. That the trial court erred in declaring the consignation valid and made in accordance with law. 7
The City of Manila, Mayor Lim, and City Treasurer Acevedo prayed in their Petition that the Court (1)
reverse and set aside the assailed RTC Decision; and (2) affirm the constitutionality and validity of Section
21(B) of the Manila Revenue Code, as amended. The Petition was docketed as G.R. No. 120051.

MAS filed its Comment,8 to which the City of Manila, Mayor Lim, and City Treasurer Acevedo filed their
Reply.9chanRoblesvirtualLawlibrary
G.R. No. 121613
Because they were assessed and/or compelled to pay business taxes pursuant to Section 21(B) of the
Manila Revenue Code, as amended, before they were issued their business permits for 1994, several
corporations, with principal offices in Manila and operating as transportation contractors, persons who
transport passenger or freight for hire, and common carriers by land, air or water, filed their respective
petitions before the Manila RTC against the City of Manila, Mayor Lim, Vice Mayor Lito Atienza (Atienza),
the City Council of Manila/Sangguniang Panlungsod ng Maynila, and City Treasurer Acevedo. Said petitions
were separately docketed and raffled to different RTC Branches, to wit:chanroblesvirtuallawlibrary
Civil Case No.

Petitioner

RTC-Branch No.

94-68861

Maersk Filipinas, Inc. (Maersk)

32

94-68862

American President Lines, Ltd. (APL)

33

94-68863

Sea-Land Services, Inc. (Sea-Land)

34

94-68919

Overseas Freighters Shipping, Inc. (OFSI)

55

94-68936

Dongnama Shipping Co., Ltd. (Dongnama) and Kyowa


Shipping, Ltd. (Kyowa)

47

94-68939

Flagship Tankers Corp. (Flagship Tankers)

21

94-68940

Core Indo Maritime Corp. (CIMC)

21

94-68941

Core Maritime Corp. (CMC)

21

94-6902810

Eastern Shipping Lines, Inc. (Eastern Shipping)

All of the aforementioned cases were later consolidated before RTC-Branch 32.
Several more corporations with principal offices in Manila and engaged in the same line of business as the
above-named petitioner corporations filed petitions/complaints-in-intervention in the pending cases,
namely: William Lines, Inc. (William Lines); Negros Navigation Co., Inc. (Negros Navigation); Lorenzo
Shipping Corp. (Lorenzo Shipping); Carlos A. Gothong Lines, Inc. (Gothong Lines); Aboitiz Shipping Corp.,
Aboitiz Air Transport Corp., and Aboitiz Haulers, Inc. (collectively referred to as the Aboitiz Group); Solid
Shipping Lines Corp. (Solid Shipping); and PNOC Shipping & Transport Corp. (PSTC).
Petitioner and intervenor corporations essentially sought the (1) declaration of Section 21(B) of the Manila
Revenue Code, as amended, as void/invalid for being contrary to the Constitution and the Local
Government Code (LGC) of 1991; (2) refund of the business taxes that the petitioner and intervenor
corporations paid under protest; and (3) the issuance of a temporary restraining order (TRO), writ of
preliminary injunction, writ of prohibition, and/or writ of permanent injunction to enjoin the implementation
of Section 21(B) of the Manila Revenue Code, as amended.
RTC-Branch 32 issued a TRO11 on January 14, 1994 in favor of petitioners Maersk, APL, Flagship Tankers,
CIMC, and CMC. The TRO was effective for 20 days and ordered respondent City of Manila and local
officials to cease and desist from implementing Section 21(B) of the Manila Revenue Code, as amended,
while the prayer for a writ of preliminary injunction was scheduled for presentation of evidence. On
February 3, 1992, after hearing, RTC-Branch 32 issued an Order granting the prayer of petitioners Maersk,
APL, Flagship Tankers, CIMC, CMC, and OFSI for the issuance of a Writ of Preliminary Injunction, 12 with the
condition that each of said petitioner corporations should post an injunction bond in the amount of
P50,000.00. The Writ of Preliminary Injunction enjoined respondent City of Manila and local officials from:
(1) imposing, enforcing, assessing, and collecting the taxes under Section 21(B) of the Manila Revenue
Code, as amended; and (2) denying to petitioners Maersk, APL, Flagship Tankers, CIMC, CMC, and OFSI
their business permits and licenses for 1994. In another Order dated April 22, 1994, RTC-Branch 32
granted the prayer of intervenor corporations for the issuance of a similar Writ of Preliminary Injunction.

In its Decision13 dated August 28, 1995 in Civil Case Nos. 94-68861, 94-68862, 94-68863, 94-68919, 9468936, 94-68939, 94-68940, 94-68941, and 94-69028, RTC-Branch 32 upheld the power of the respondent
City of Manila, as a local government unit (LGU), to levy the business tax under Section 21(B) of the Manila
Revenue Code, as amended, consistent with the basic policy of local autonomy. Ultimately, RTC-Branch 32
decreed:chanroblesvirtuallawlibrary
WHEREFORE, the petitions, the supplemental petitions, and the petitions or complaints in intervention in
all these cases are DISMISSED.
All temporary restraining orders are cancelled, all writs of preliminary injunction are recalled and dissolved,
and the injunction bonds cancelled.14
Maersk, APL, Flagship Tankers, CIMC, and CMC (collectively referred to herein as Maersk, et al.,), filed a
direct appeal before the Court. Initially, Maersk, et al.,, filed a motion for extension of time to file their
petition for review on certiorari. Upon filing of said motion, they were assessed docket and legal fees in
the amount of P420.00, which they fully paid. The motion for extension of time was granted by the Court
in a Resolution15 dated October 4, 1995. Within the extended period, Maersk,et al.,, filed their Petition for
Review on Certiorari with prayer for issuance of a writ of preliminary injunction and TRO, 16 docketed as G.R.
No. 121613, naming RTC-Branch 32, the City of Manila, Mayor Lim, Vice Mayor Atienza, the Sangguniang
Panlungsod ng Maynila, and City Treasurer Acevedo, as respondents. Maersk, et al.,, submitted for
resolution by the Court a lone question of law, viz.:chanroblesvirtuallawlibrary
Whether or not Section 21(B) of Ordinance No. 7794, otherwise known as the Revenue Code of the City of
Manila, as amended by Section 1(G) of Ordinance No. 7807, is valid and constitutional. 17
Meanwhile, Maersk, et al.,, also filed with RTC-Branch 32 a Motion to Stay or Restore Writ of Preliminary
Injunction, presenting a Memorandum issued by City Treasurer Acevedo already ordering the collection of
the business tax under Section 21(B) of the Manila Revenue Code, as amended. In an Order18 dated
October 16, 1995, RTC-Branch 32 granted the Motion of Maersk, et al.,, after finding the same to be
meritorious and in conformity with Rule 39, Section 4 of the Rules of Court, on the condition that
Maersk, et al.,, would increase their injunction bond from P50,000.00 each to P800,000.00 each, or for a
total of P4,000,000.00. With this latest development, Maersk, et al.,, filed with the Court a Supplemental
Petition and Motion praying for the confirmation of the RTC Order dated October 16, 1995 restoring the
Writ of Preliminary Injunction and deletion of the name of RTC-Branch 32 from the caption of the Petition in
G.R. No. 121613 as the trial court is not a necessary party.
On October 23, 1995 though, the Court issued a Resolution 19 in G.R. No. 121613 in which it resolved as
follows:chanroblesvirtuallawlibrary
On the basis of the foregoing, the Court RESOLVED to DISMISS the petition for review on certiorari for noncompliance with the above-mentioned requirement no. 1, [Maersk,et al.,,] having failed to remit the
amount of P202.00 as payment for the balance of the prescribed legal fees.
Accordingly, the supplemental petition and motion of [Maersk, et al.,.,] dated October 17, 1995 praying
that the lower courts order restoring the Writ of Preliminary Injunction be confirmed and that the Regional
Trial Court of Manila, Branch 32, be deleted from the caption of the petition for not being a necessary party
is NOTED WITHOUT ACTION.
Maersk, et al.,, filed a Motion for Reconsideration20 of the foregoing Resolution dated October 23, 1995 of
the Court. Maersk, et al.,, argued that the dismissal of their Petition by minute resolution would deprive
them of their property rights on mere technical grounds. Maersk, et al.,, had no intention of not paying the
amount of P202.00, which consisted of sheriffs fee of P200.00 and clerks commission of P2.00, charged in
connection with their prayer for the issuance of a preliminary injunction and TRO. While Maersk, et al.,, did
include such a prayer in their Petition, the same had already become moot and academic after RTC-Branch
32 issued the Order dated October 16, 1995 restoring and reinstating the Writ of Preliminary Injunction in
favor of Maersk, et al., In their Supplemental Petition and Motion in G.R. No. 121613, Maersk, et al.,, was
then only seeking the confirmation by the Court of the Order dated October 16, 1995 of RTC-Branch 32
and, in effect, withdrawing their prayer for the issuance of a writ of preliminary injunction and TRO by the
Court. Besides, Maersk, et al.,, submitted that the sheriffs fee of P200.00 and clerks commission of P2.00
were not part of the legal fees required for perfecting an appeal from the decision of the Court of

Appeals or the RTC. The sheriffs fee and clerks commission would merely be deposited with the Court,
which implied that said amounts would be refunded to Maersk, et al.,, in case the Court decided not to
issue the TRO prayed for. In fact, when Maersk, et al.,, filed their motion for extension of time to file their
petition for review on certiorari, they fully paid the docket and legal fees as computed by the cashier of the
Court; and when they actually filed their Petition for Review on Certiorari with prayer for issuance of a writ
of preliminary injunction and TRO, they were not assessed and required to pay additional legal fees. In any
event, Maersk, et al.,, had already deposited with the Cashiers Office of the Court the amount of P202.00.
Maersk, et al.,, asserted that their case is meritorious and that dismissal is discretionary for the appellate
court and discretion must be exercised wisely and prudently, never capriciously, with a view to substantial
justice. Consequently, Maersk, et al.,, prayed that the Court reconsider its Resolution dated October 23,
1995 and give due course to and squarely resolve their Petition and Supplemental Petition and Motion in
G.R. No. 121613.
Counsel for Maersk, et al.,, subsequently submitted a joint Memorandum21 for the petitioners in G.R. Nos.
121613, 122333, and 122349.
G.R. No. 121675
Eastern Shipping was the petitioner in Civil Case No. 94-69028, which was consolidated with Civil Case
Nos. 94-68861, 94-68862, 94-68863, 94-68919, 94-68936, 94-68939, 94-68940, and 94-68941, before
RTC-Branch 32.
Since the Decision dated August 28, 1995 of RTC-Branch 32 in the consolidated cases was contrary to its
interest, Eastern Shipping appealed the same before the Court through a Petition for Review
onCertiorari with Prayer for Preliminary Injunction and/or Temporary Restraining Order, 22 with the City
Council of Manila, the Mayor of Manila, and the City of Manila, as respondents. In its Petition, docketed as
G.R. No. 121675, Eastern Shipping raised pure questions of law and argued two fundamental
issues:chanroblesvirtuallawlibrary
I.

WHETHER OR NOT SECTION 21 OF [THE MANILA REVENUE CODE, AS AMENDED,] IS VALID AND
CONSTITUTIONAL.

II.

IN THE REMOTE POSSIBILITY THAT THE QUESTIONED ORDINANCE IS DECLARED VALID AND
CONSTITUTIONAL, WHETHER OR NOT [EASTERN SHIPPING] IS LIABLE TO PAY THE BUSINESS TAX
BASED ON GROSS RECEIPTS DERIVED FROM INCOMING FREIGHTS ONLY OR OUTGOING FREIGHTS
ONLY OR BOTH.23

The Office of the City Legal Officer, on behalf of the City of Manila, Mayor Lim, Vice Mayor Atienza, the City
Council of Manila/Sangguniang Panlungsod ng Maynila, and City Treasurer Acevedo, filed a joint
Comment24 on the Petitions in G.R. Nos. 121675, 121720-28, and 121847-55. Eastern Shipping later on
filed its Memorandum.25chanRoblesvirtualLawlibrary
G.R. No. 121704
William Lines, Negros Navigation, Lorenzo Shipping, Gothong Lines, the Aboitiz Group, and Solid Shipping
(collectively referred to herein as William Lines, et al.,) are duly organized domestic corporations
principally engaged in the business of operating domestic shipping vessels for the transportation of
cargoes and passengers, except Aboitiz Air Transport Corp., which is engaged in the transportation of
cargoes by air, and Aboitiz Haulers, Inc. which is engaged in the business of domestic freight and hauling
by land. William Lines, et al.,, all have principal addresses in Manila.
William Lines, et al.,, paid under protest to the City of Manila the business taxes assessed against them for
the first quarter of 1994, based on Section 21(B) of the Manila Revenue Code, as amended. They were
intervenors in Civil Case Nos. 94-68861, 94-68862, 94-68863, 94-68919, 94-68936, 94-68939, 94-68940,
94-68941, and 94-69028, before RTC-Branch 32.
William Lines, et al.,, challenged the Decision dated August 28, 1995 rendered by RTC-Branch 32 in said
civil cases through a Petition for Review on Certiorari with Prayer for Issuance of a Preliminary Injunction
and for a Temporary Restraining Order,26 docketed as G.R. No. 121704. They identified as respondents the
City of Manila, Mayor Lim, Vice Mayor Atienza, City Treasurer Acevedo, the Sangguniang Panlungsod ng
Maynila, and RTC-Branch 32 Presiding Judge Juan C. Nabong, Jr. (Nabong). William Lines, et al.,, assigned
three major errors purportedly committed by RTC-Branch 32:chanroblesvirtuallawlibrary

A. The RTC erred in failing to declare the aforecited Section 21(B) of [the Manila Revenue Code, as
amended, as] ultra vires and therefore null and void because such sections violate the Provisions of the
LGC x x x.
xxxx
B. The RTC erred in holding that Sec. 143(h) which is an omnibus grant of power couched in general terms
is the exception referred or adverted to in Section 133(j) of the LGC.
C. The RTC erred in holding that there are only four basic requirements for a valid exercise of the power of
the City of Manila to levy tax. 27
In their Memorandum,28 William Lines, et al.,, focused their discussion on the following
issues:chanroblesvirtuallawlibrary
I.

IS COMPLIANCE WITH THE GUIDELINES AND LIMITATIONS SET FORTH IN BOOK II TITLE I OF THE
LOCAL GOVERNMENT [CODE] (LGC) NECESSARY FOR THE VALIDITY OF SEC. 21(B) OF [THE MANILA
REVENUE CODE, AS AMENDED]?

II.

DID SEC. 21(B) OF [THE MANILA REVENUE CODE, AS AMENDED] VIOLATE SUCH GUIDELINES AND
LIMITATIONS OF THE LGC?

III.

IS SEC. 21(B) OF [THE MANILA REVENUE CODE, AS AMENDED,] INVALID, ULTRA VIRES AND
UNLAWFUL?29

G.R. Nos. 121720-28


PSTC is a government owned and controlled corporation engaged in the business of shipping, tinkering,
lighterage, barging, towing, transport, and shipment of goods, chattels, petroleum and other products,
marine, and maritime commerce in general.
Pursuant to Section 21(B) of the Manila Revenue Code, as amended, PSTC was assessed by the City of
Manila for business tax in the amount of P2,233,994.35, representing 50% of 1% of the gross receipts
earned by PSTC in the year 1993 which amounted to P446,798,871.87. The total amount of business tax
due was payable in four equal parts every quarter of 1994. PSTC paid under protest on January 19, 1994
the business tax for the first quarter of 1994 in the amount of P558,498.59, and on April 20, 1994 the
business tax for the second quarter of 1994 in the amount of P558,498.59, evidenced by Municipal License
Receipt Nos. 003483 and 0057675, respectively. PSTC claimed it had no other recourse but to pay to the
City of Manila the assessed local business tax, considering the latter had threatened to cancel its license to
operate if said taxes were not paid. PSTC, by way of letters dated February 21, 1994 and April 27, 1994,
filed protests or claims for refund with the City Treasurer of Manila, but the letters were not acted upon.
PSTC intervened in Civil Case Nos. 94-68861, 94-68862, 94-68863, 94-68919, 94-68936, 94-68939, 9468940, 94-68941, and 94-69028 before RTC-Branch 32.
Unsatisfied with the Decision dated August 28, 1995 rendered by RTC-Branch 32 in the said civil cases,
PSTC filed with the Court a Petition for Review on Certiorari with Prayer for Temporary Restraining Order
and/or Preliminary Injunction,30 against Presiding Judge Nabong of RTC-Branch 32, the City of Manila, Mayor
Lim, Vice Mayor Atienza, City Treasurer Acevedo, and the Sangguniang Panlungsod ng Maynila. In its
Petition, docketed as G.R. No. 121720-28, PSTC maintained that RTC-Branch 32 erred
thus:chanroblesvirtuallawlibrary
I
IN FAILING TO REALIZE AND CONSIDER THAT THE RESPONDENT CITY OF MANILA, A MERE MUNICIPAL
CORPORATION, HAS NO INHERENT POWER OF TAXATION.cralawred
II
EVEN ASSUMING ARGUENDO THAT SUCH POWER IS CATEGORICALLY GRANTED BY STATUTE, THE SAME IS
SUBJECT TO SUCH GUIDELINES AND LIMITATIONS PROVIDED BY CONGRESS UNDER SECTION 133 OF THE

LOCAL GOVERNMENT CODE OF 1991 AND, AS TO WHICH, NONE WAS GIVEN TO RESPONDENT CITY OF
MANILA.cralawred
III
IN FAILING TO REALIZE AND CONSIDER THAT AN ORDINANCE WHICH AMENDS, ENLARGES OR LIMITS THE
PROVISIONS OF A STATUTE CONSTITUTES AN UNCONSTITUTIONAL AND ILLEGAL DEROGATION OF
LEGISLATIVE POWER, HENCE, THE ORDINANCE IS INVALID AND VOID AB-INITIO.
IV
IN FAILING TO REALIZE AND CONSIDER THAT THE RESPONDENT CITY OF MANILAS [REVENUE CODE, AS
AMENDED, PARTICULARLY SECTION 21(B) THEREOF] WHICH IMPOSES 50% OF 1% OF THE GROSS SALES OR
RECEIPT OF THE NEXT PRECEDING YEAR, ON TOP OF THE NATIONAL INTERNAL REVENUE TAXES ALREADY
IMPOSED UNDER THE NATIONAL INTERNAL REVENUE CODE, IS UNREASONABLE, UNJUST, UNFAIR OR
OPPRESSIVE, CONFISCATORY, AND CONTRAVENES THE CONSTITUTION OR STATUTE, HENCE, THE
ORDINANCE IS INVALID AND NULL AND VOID AB-INITIO.cralawred
V
IN FAILING TO REALIZE AND CONSIDER THAT THE TAX IMPOSED UNDER SECTION 21(B) OF [THE MANILA
REVENUE CODE, AS AMENDED,] PARTAKES THE NATURE OF A SALES TAX OR A PERCENTAGE TAX BEYOND
THE TAXING POWER OF THE RESPONDENT CITY OF MANILA TO IMPOSE, HENCE, UNENFORCEABLE BY
RESPONDENT CITY OFFICIALS.cralawred
VI
IN FAILING TO REALIZE AND CONSIDER THAT [PSTC] IS SPECIFICALLY EXEMPTED FROM LOCAL
GOVERNMENT TAXES IMPOSED UNDER THE LOCAL GOVERNMENT CODE OF 1991, PURSUANT TO SECTION
115 OF THE NATIONAL INTERNAL REVENUE CODE, AS AMENDED BY REPUBLIC ACT 7761. 31
As mentioned previously, the Office of the City Legal Officer, on behalf of the City of Manila, Mayor Lim,
Vice Mayor Atienza, the City Council of Manila/Sangguniang Panlungsod ng Maynila, and City Treasurer
Acevedo, filed a joint Comment on the Petitions in G.R. Nos. 121675, 121720-28, and 121847-55.
PSTC filed its Memorandum,32 summing up its issues and arguments, to wit:chanroblesvirtuallawlibrary
ISSUES SUBMITTED FOR RESOLUTION

1. WHETHER OR NOT SECTION 21(B) OF [THE MANILA REVENUE CODE, AS AMENDED,] IS VALID AND
CONSTITUTIONAL.
2. IN THE NEGATIVE[,] WHETHER OR NOT RESPONDENTS CAN BE COMPELLED TO REFUND THE TAXES
WRONGFULLY AND ERRONEOUSLY COLLECTED UNDER THE ASSAILED ORDINANCE.cralawred
ARGUMENTS IN SUPPORT OF THE MEMORANDUM
I. THE ASSAILED ORDINANCE IS A CLEAR USURPATION OF LEGISLATIVE POWER, HENCE,
UNCONSTITUTIONAL AND VOID AB-INITIO.
II. THE ASSAILED ORDINANCE IN ITSELF IS UNJUST, UNFAIR, OR EXCESSIVE, CONFISCATORY AND IN
RESTRAINT OF TRADE AND IN EFFECT CONSTITUTES AN UNLAWFUL TAKING OF PROPERTY WITHOUT DUE
PROCESS OF LAW.33
G.R. Nos. 121847-55
OFSI is a domestic corporation engaged in business as a transportation contractor. It also represents, as a
general agent in the Philippines, ZIM Israel Navigation Co., Ltd. and Gold Star Line, Hong Kong, which are
engaged in the transport by common carrier of export/import goods to and from the Philippines. Its offices

are located in Intramuros, Manila.


OFSI questioned the legality of Section 21(B) of the Manila Revenue Code, as amended, in a Petition for
Declaratory Relief with Prayer for Preliminary Injunction and/or Temporary Restraining Order, which was
docketed as Civil Case No. 94-68919 and originally raffled to RTC-Branch 55. Civil Case No. 94-68919 was
eventually consolidated with Civil Case Nos. 94-68861, 94-68862, 94-68863, 94-68936, 94-68939, 9468940, 94-68941, and 94-69028 before RTC-Branch 32. During the pendency of said civil cases, OFSI paid
under protest on January 20, 1994 the business tax for the first quarter of 1994 amounting to
P181,928.97. Pursuant to Section 196 of the Local Government Code (LGC), OFSI wrote the City Treasurer
of Manila a letter dated March 1, 1994 claiming refund of the business tax it had paid. The letter was
received by the City Treasurers Office of Manila on March 3, 1994. The City Treasurers Office of Manila
had seven days from receipt of the letter to refund the amount paid, but more than two months had
passed and OFSI received no response from the City Treasurer. To avoid multiplicity of suits, OFSI filed a
Supplemental Petition in Civil Case No. 94-68919 to incorporate its claim for refund of the business tax it
had paid for the first quarter of 1994.
Aggrieved by the Decision dated August 28, 1995 of RTC-Branch 32 in Civil Case Nos. 94-68861, 94-68862,
94-68863, 94-68919, 94-68936, 94-68939, 94-68940, 94-68941, and 94-69028, OFSI sought recourse from
the Court by filing a Petition for Review by Certiorari with Prayer for the Issuance of a Preliminary Injunction
and/or Temporary Restraining Order,34 naming as respondents the City of Manila, Mayor Lim, Vice Mayor
Atienza, the City Council of Manila, City Treasurer Acevedo, and Presiding Judge Nabong of RTC-Branch 32.
The Petition of OFSI, docketed as G.R. Nos. 121847-55, presented for consideration and resolution of the
Court the following:chanroblesvirtuallawlibrary
Assignment of Errors
THE RESPONDENT HONORABLE JUDGE ERRED IN HIS FINDING THAT SECTION 21(B) OF [THE MANILA
REVENUE CODE, AS AMENDED,] IS VALID AND CONSTITUTIONAL.cralawred
Legal Issues Involved In This Petition
WHETHER OR NOT SECTION 21(B) OF [THE MANILA REVENUE CODE, AS AMENDED,] IS VALID AND
CONSTITUTIONAL.
WHETHER OR NOT A WRIT OF PRELIMINARY INJUNCTION AND/OR TEMPORARY RESTRAINING ORDER MAY BE
ISSUED BY THE HONORABLE COURT.35
In a subsequent Manifestation,36 OFSI informed the Court that RTC-Branch 32 issued an Order dated
October 26, 1995 granting its Motion to Restore Injunction Pending Appeal; reinstating and restoring the
Writ of Preliminary Injunction lifted on August 28, 1995; and requiring OFSI to post a bond in the increased
amount of P300,000.00.
A joint Comment on the Petitions in G.R. Nos. 121675, 121720-28, and 121847-55 was filed by the Office of
the City Legal Officer, on behalf of the City of Manila, Mayor Lim, Vice Mayor Atienza, the City Council of
Manila/Sangguniang Panlungsod ng Maynila, and City Treasurer Acevedo.
The Reply37 of OFSI was the last pleading filed in G.R. Nos. 121847-55.
G.R. No. 122333
After RTC-Branch 32 rendered its Decision in Civil Case Nos. 94-68861, 94-68862, 94-68863, 94-68919, 9468936, 94-68939, 94-68940, 94-68941, and 94-69028 on August 28, 1995, upholding the constitutionality
and validity of Section 21(B) of the Manila Revenue Code, as amended, and lifting the Writs of Preliminary
Injunction issued in said cases, the City of Manila and its officials resumed the enforcement of the local
business tax in question. City Treasurer Acevedo issued a Memorandum dated September 7, 1995,
instructing Oscar S. Dizon, Acting Chief, License Division, City Treasurers Office of Manila, to prepare the
complete staff work for the collection of the unpaid taxes, plus interests imposed by Section 21(B) of the
Manila Revenue Code, as amended, against shipping companies and other common carriers.
A Petition for Prohibition with Temporary Restraining Order and/or Preliminary Injunction 38 was jointly filed
before the Court by several foreign and domestic corporations doing business in Manila as shipping

companies and/or common carriers, namely: Cosco Container Lines (Cosco) and Heung-A Shipping Co.,
LTD., both represented by their resident agent, Wallem Philippines Shipping, Inc.; DSR Senator Lines,
Compania Sud Americana de Vapores S.A., and Arimura Sangyo Company, Ltd., all represented by their
resident agent, C.F. Sharp Shipping Agencies, Inc.; Pacific International Lines (PTE) Ltd. and Pacific Eagle
Lines (PTE) Ltd., both represented by their resident agent, TMS Ship Agencies, Inc.; Compagnie Maritime D
Affretement (CMA), represented by its resident Agent, Inchcape Shipping Services; Everett Orient Lines,
Inc., represented by it resident agent, Everett Steamship Corporation; Yangming Marine Transport Corp.,
represented by its resident agent, Sky International, Inc.; Nipon Yusen Kaisha, represented by its resident
agent, Fil-Japan Shipping Corporation; Hyundai Merchant Marine Co., Ltd., represented by its resident
agent, Citadel Lines; Malaysian International Shipping Corporation Berhad, represented by its resident
agent, Royal Cargo Agencies, Inc.; Bolt Orient Line, represented by its resident agent, FILSOV Shipping
Company, Inc.; Mitsui-O.S.K. Lines, Ltd., represented by its resident agent, Magsaysay Agencies, Inc.;
Phils., Micronesia & Orient Navigation Co. (PMSO Line), represented by its resident agent, Van Transport
Company, Inc.; Lloyd Triestino di Navigazione S.P.A.N. and Compagnie Generale Maritime, both represented
by their resident agent, F.E. Zuellig (M), Inc.; and Madrigal-Wan Hai Lines (collectively referred to herein as
Cosco, et al.,).
The Petition of Cosco, et al.,, was docketed as G.R. No. 122333. In their Petition, Cosco, et al.,, presented
for resolution of the Court the principal issue of whether or not Section 21(B) of the Manila Revenue Code,
as amended, is constitutional. Cosco, et al.,, posited that Section 21(B) of the Manila Revenue Code, as
amended, is unconstitutional and void ab initio because it was enacted by the Sangguniang Panlungsod ng
Maynila, which was presided over by Vice Mayor Atienza, approved by Mayor Lim, and implemented and
enforced by City Treasurer Acevedo, ultra vires and in violation of constitutional and statutory limitations
on the taxing power of LGUs. Hence, Cosco, et al.,, prayed for the issuance of a writ of prohibition to
restrain, enjoin, and prohibit respondents City of Manila, Mayor Lim, Vice Mayor Atienza, Sangguniang
Panlungsod, and City Treasurer Acevedo, from enforcing Section 21(B) of the Manila Revenue Code, as
amended.
A joint Memorandum was filed on behalf of the petitioners in G.R. Nos. 121613, 122333, and 122349.
G.R. No. 122335
Sulpicio Lines, Inc. (Sulpicio Lines) is a domestic corporation, holding office in North Harbor, Manila, whose
principal business is the operation of domestic shipping vessels for the transportation of cargoes and
passengers.
Sulpicio Lines and Gothong Lines jointly filed a complaint for declaratory relief with prayer for the issuance
of a writ of preliminary injunction, which was docketed as Civil Case No. 94-69141 and raffled to RTCBranch 44. Sulpicio Lines and Gothong Lines asked the trial court to determine the validity of Section
21(B) of the Manila Revenue Code, as amended, as well as the rights and duties of said shipping
companies thereunder. However, after being informed that Maersk already filed a similar case, i.e., Civil
Case No. 94-68861 before RTC-Branch 32, Gothong Lines decided to withdraw as complainant in Civil Case
No. 94-69141 and simply intervene in Civil Case No. 94-68861. As a result, Sulpicio Lines became the sole
complainant in Civil Case No. 94-69141. Sulpicio Lines then filed a Motion to Consolidate Civil Case No. 9469141 with Civil Case No. 94-68861 which was granted.
On August 28, 1995, RTC-Branch 32 rendered a Decision in Civil Case Nos. 94-68861, 94-68862, 94-68863,
94-68919, 94-68936, 94-68939, 94-68940, 94-68941, and 94-69028. Civil Case No. 94-69141 was not
included in the caption of the Decision, although the complaint of Sulpicio Lines was mentioned in the body
of the same Decision.
Sulpicio Lines did not formally receive a copy of the aforementioned Decision dated August 28, 1995 of
RTC-Branch 32 and was merely informed of the same by the petitioners/intervenors in the other civil
cases. This prompted Sulpicio Lines to file with RTC-Branch 32 a Motion for Clarificatory Order seeking to
verify if said Decision included and was binding on Sulpicio Lines. Acting on the Motion of Sulpicio Lines,
RTC-Branch 32 issued an Order39 on October 16, 1995, which reads:chanroblesvirtuallawlibrary
Although Civil Case No. 94-64191 is not included in the caption of the above Decision, the Decision against
all the petitioners, intervenors, most specifically against intervenor Carlos A. Gothong Lines, Inc. is binding
and enforceable against Sulpicio Lines, Inc. because Civil Case No. 94-64191 had been consolidated with
Civil Case No. 94-68861.

WHEREFORE, the Decision and the dispositive portion of the Decision rendered on August 28, 1995, shall
apply to and binds Sulpicio Lines, Inc. x x x.
After Sulpicio Lines confirmed that the Decision dated August 28, 1995 of RTC-Branch 32 in Civil Case Nos.
94-68861, 94-68862, 94-68863, 94-68919, 94-68936, 94-68939, 94-68940, 94-68941, and 94-69028, was
also applicable to and binding upon it, it filed with the Court a Petition for Review onCertiorari with Prayer
for Issuance of a Preliminary Injunction and for a Temporary Restraining Order, 40 against the City of Manila,
Mayor Lim, Vice Mayor Atienza, City Treasurer Acevedo, the Sangguniang Panlungsod ng Maynila, and
Presiding Judge Nabong of RTC-Branch 32. The appeal of Sulpicio Lines was docketed as G.R. No. 122335.
The assignment of errors in the Petition of Sulpicio Lines was the same as that in the Petition of William
Lines, et al.,, in G.R. No. 121704, viz.:chanroblesvirtuallawlibrary
A. The RTC erred in failing to declare that the aforecited Section 21(B) of [the Manila Revenue Code, as
amended, as] ultra vires and therefore null and void because such sections of the Ordinances of the City of
Manila violate the Provisions of the LGC x x x
xxxx
B. The RTC erred in holding that Sec. 143(h) which is an omnibus grant of power couched in general terms
is the exception referred or adverted to in Section 133(j) of the LGC.
C. The RTC erred in holding that there are only four basic requirements for a valid exercise of the power of
the City of Manila to levy tax.41
On January 31, 1996, the Court issued a Resolution 42 referring the Petition of Sulpicio Lines in G.R. No.
122335 to the Court of Appeals for proper determination and disposition pursuant to Section 9, paragraph
3 of Batas Pambansa Blg. 129, which granted the Court of Appeals exclusive appellate jurisdiction over all
final judgments, decisions, resolutions, orders or awards of Regional Trial Courts and quasi-judicial
agencies, instrumentalities, boards or commission.
At the Court of Appeals, the Petition of Sulpicio Lines was docketed as CA-G.R. SP No. 39973. In a
Resolution43 dated April 12, 1996, the appellate court directed the respondents City of Manila, Mayor Lim,
Vice Mayor Atienza, City Treasurer Acevedo, the Sangguniang Panlungsod ng Maynila, and Presiding Judge
Nabong of RTC-Branch 32, to file their Comments.
In the meantime, Sulpicio Lines filed with the Court in G.R. No. 122335 a Motion for Reconsideration of the
Resolution dated January 31, 1996 and for Consolidation.44 Sulpicio Lines prayed that the Resolution dated
January 31, 1996 of the Court in G.R. No. 122335 be withdrawn; that the rollo of G.R. No. 122335 be
transmitted back to the Court; and that G.R. No. 122335 be consolidated with the other cases pending
before the Court en banc questioning the Decision dated August 28, 1995 of RTC-Branch 32 which upheld
the constitutionality and validity of Section 21(B) of the Manila Revenue Code, as amended.
After several copies of its Resolutions were returned unserved on the respondents in G.R. Nos. 122335,
122349, and 124855, the Court issued a Resolution45 on December 2, 1997 dispensing with the filing of a
Comment by the respondents in the three cases.
G.R. No. 122349
The Association of International Shipping Lines, Inc. (AISL) is a non-stock domestic corporation the
members of which are mostly foreign corporations duly licensed to do business in the Philippines,
specifically: American Transport Lines, Inc., represented by its resident agent, Anchor International
Shipping Agency, Inc.; Australian National Line, Fleet Trans International, and United Arab Shipping Co., all
represented by their resident agent, Jardine Davies Transport; Dongnama Shipping Co., Ltd., represented
by its resident agent, Uni-Ship Incorporated; Hanjin Shipping Company, Ltd., represented by its resident
agent, MOF Company, Inc.; Hapag-Lloyd A/G, represented by its resident agent, Hapag-Lloyd Phils., Inc.;
Kawasaki Kisen Kaisha, represented by its resident agent, Transmar Agencies, Inc.; Knutsen Line,
represented by its resident agent, AWB Trade International; Kyowa Line, represented by its resident agent,
Sky International, Inc.; Neptune Orient Line, represented by its resident agent, Overseas Agency Services,
Inc.; Orient Overseas Container Line, represented by its resident agent, OOCL (Philippines), Inc.; P&O
Containers, Ltd., P&O Swire Containers and WILH Wilhelmsen Line A/S, all represented by their resident

agent, Soriamont Steamship Agencies; Regional Container Lines (Pte) Ltd., represented by its resident
agent, South China Lines Phils., Inc.; Senator Line Bremen Germany, represented by its resident agent, C.F.
Sharp & Company; Tokyo Senpaku Kaisha, Ltd., represented by its resident agent, Fil-Japan Shipping
Corporation; Uniglory Line, represented by its resident agent, Don Tim Shipping Corporation; Wan Hai
Lines, Ltd., represented by its resident agent, Eastern Shipping Agencies, Inc.; Westwind Line, represented
by its resident agent, Westwind Shipping Corporation; Zim Israel Navigation Co., Ltd., represented by its
resident agent, Overseas Freighters Shipping, Inc.; Eastern Shipping Lines, Inc.; Nedlloyd Lines, Inc.;
Philippine President Lines, Ltd.; and Sea-Land Service, Inc.
After RTC-Branch 32 rendered its Decision dated August 28, 1995 in Civil Case Nos. 94-68861, 94-68862,
94-68863, 94-68919, 94-68936, 94-68939, 94-68940, 94-68941, and 94-69028, upholding the
constitutionality and validity of Section 21(B) of the Manila Revenue Code, as amended; and City Treasurer
Acevedo issued the Memorandum dated September 7, 1995 ordering the collection of the business tax
under the questioned provision of the local tax ordinance, AISL, for itself and on behalf and for the benefit
of its above-named members, filed before the Court a Petition for Prohibition with Temporary Restraining
Order and/or Preliminary Injunction46 against the City of Manila, Mayor Lim, Vice Mayor Atienza, City
Treasurer Acevedo, and the Sangguniang Panlungsod ng Maynila. The Petition of AISL, docketed as G.R.
No. 122349, was substantially similar to the Petition of Cosco, et al.,, in G.R. No. 122333.
In its Resolution dated December 2, 1997, the Court dispensed with the filing of a Comment by the
respondents in G.R. Nos. 122335, 122349, and 124855.
The only other pleading in G.R. No. 122349 is a joint Memorandum filed on behalf of the petitioners in G.R.
Nos. 121613, 122333, and 122349.
G.R. No. 124855
Dongnama and Kyowa are foreign corporations, organized and existing under the laws of the Republic of
Korea and Japan, respectively. Both shipping companies are doing business in the Philippines through their
resident agent, Sky International, Inc. (Sky International), with office in Binondo, Manila.
Dongnama and Kyowa, through Sky International, lodged a petition to declare unconstitutional Section
21(B) of the Manila Revenue Code, as amended, with prayer for a writ of preliminary injunction and TRO,
docketed as Civil Case No. 94-68936 and initially raffled to RTC-Branch 47, but later consolidated with Civil
Case Nos. 94-68861, 94-68862, 94-68863, 94-68919, 94-68939, 94-68940, 94-68941, and 94-69028 before
RTC-Branch 32. On August 28, 1995, RTC-Branch 32 rendered its Decision in the consolidated civil cases
upholding the constitutionality and validity of Section 21(B) of the Manila Revenue Code, as amended.
Dongnama and Kyowa then filed with the Court a Petition for Certiorari with Urgent Prayer for Restraining
Order, seeking the annulment or modification of the foregoing Decision of RTC-Branch 32. The Petition was
docketed as G.R. No. 122120. Instead of consolidating G.R. No. 122120 with the other pending cases that
challenge the constitutionality and validity of Section 21(B) of the Manila Revenue Code, as amended, the
Court issued a Resolution dated October 23, 1995 referring the Petition in G.R. No. 122120 to the Court of
Appeals for the following reason:chanroblesvirtuallawlibrary
Considering that under Section 19 (sic), paragraph (1) of Batas Pambansa Blg. 129, the Court of Appeals
now exercises original jurisdiction to issue writs of mandamus, prohibitions, certiorari, habeas corpus, and
quo warranto, and auxiliary writs or processes, whether or not in aid of its appellate jurisdiction, the Court
resolved to REFER this case to the Court of Appeals, for disposition. 47
The Petition for Certiorari of Dongnama and Kyowa was docketed as CA-G.R. SP No. 39188 before the Court
of Appeals. The Court of Appeals rendered its Decision48 in CA-G.R. SP No. 39188 on March 29, 1996,
finding no merit in the Petition of Dongnama and Kyowa as RTC-Branch 32 did not act with grave abuse of
discretion when it ruled in its Decision dated August 28, 1995 that Section 21(B) of the Manila Revenue
Code, as amended, is valid and in clear conformity with the law and the Constitution. In the end, the
appellate court adjudged:chanroblesvirtuallawlibrary
WHEREFORE, IN VIEW OF THE FOREGOING, the instant petition is hereby DENIED for lack of merit. 49
Dongnama and Kyowa went back before the Court by way of Petition for Review on Certiorari under Rule

65 of the Rules of Court, docketed as G.R. No. 124355, based on a lone assignment of
error:chanroblesvirtuallawlibrary
RESPONDENT COURT OF APPEALS GRAVELY ABUSED ITS DISCRETION IN ASSUMING JURISDICTION OVER
SUPREME COURT G.R. NO. 122120 ENTITLED DONGNAMA SHIPPING CO. LTD., AND KYOWA SHIPPING LTD.
HEREIN REPRESENTED BY SKY INTERNATIONAL INC. VS. HON. JUDGE JUAN C. NABONG JR., CITY OF MANILA,
MAYOR ALFREDO LIM, VICE MAYOR LITO ATIENZA, CITY COUNCIL OF MANILA, AND CITY TREASURER
ANTHONY ACEVEDO WHEN IN FACT AS PER SUPREME COURTS RESOLUTION DATED 23 OCTOBER 1995 IN
RELATION [TO] SECTION 9, PARAGRAPH (1) BATAS PAMBANSA BLG. 129, THE ORIGINAL JURISDICTION
PERTAINING TO THE COURT OF APPEALS REFERS TO THE ISSUANCE OF WRIT OF CERTIORARI, AMONG
OTHERS AND NOT TO PETITION FOR CERTIORARI ON THE GROUND OF GRAVE ABUSE OF DISCRETION
WHICH THE HON. SUPREME COURT HAS EXCLUSIVE JURISDICTION.50
Dongnama and Kyowa specifically prayed:chanroblesvirtuallawlibrary
1. That this petition be given due course;
2. That the Decision dated 29 March 1996 be annulled and set aside pending the resolution of the same to
be decided together with other related cases by this Court;
3. That respondents Court of Appeals jurisdiction over the instant case be limited to the issue on the
propriety of the prayer for preliminary injunction and restraining order in relation to the assailed Decision
dated 28 August 1995 by RTC-Manila, Branch 32.51
The Court, in a Resolution dated December 2, 1997, dispensed with the filing of a Comment by the
respondents in G.R. Nos. 122335, 122349, and 124855.
Dongnama and Kyowa eventually filed a Memorandum.52chanRoblesvirtualLawlibrary
Consolidation of the 10 Petitions
The foregoing 10 cases were consolidated at different times and stages. 53chanRoblesvirtualLawlibrary
On December 2, 1997, the Court issued a Resolution54 giving due course to the Petitions and requiring the
parties to simultaneously file their Memoranda within 20 days from notice.
Among the parties to the 10 Petitions, Maersk, et al.,; Eastern Shipping; William Lines, et al.,; PSTC;
Cosco, et al.,; AISL; and Dongnama and Kyowa (petitioners in G.R. Nos. 121613, 121675, 121704, 12172028, 122333, 122349, and 124855, respectively) complied with the Resolution dated December 2, 1997 and
submitted their Memoranda.
In a Resolution55 dated April 23, 2002, the Court resolved to consider the cases submitted for deliberation.
The Court issued a Resolution56 on July 5, 2011 requiring the parties to the 10 cases to move in the
premises.
A copy of the Resolution dated July 5, 2011 was served upon and received by Atty. Renato G. Dela Cruz
(Dela Cruz), City Legal Officer of Manila, on behalf of the City of Manila, Mayor Lim, Vice Mayor Atienza, the
City Council of Manila/Sangguniang Panlungsod ng Maynila, and City Treasurer Acevedo, the petitioners in
G.R. No. 120051 and respondents in the other nine cases.
Atty. Dela Cruz filed a Manifestation57 informing the Court that despite exerting effort, he could no longer
locate the records for the 10 cases. The former lawyers who handled the cases had long ceased to be
connected with the City of Manila and both were already deceased. Thus, Atty. Dela Cruz prayed that he
be furnished copies of the petitions and pleadings in the cases and be given a fresh period of 10 days from
receipt thereof to submit his compliance with the Resolution dated July 5, 2011. The Court granted Atty.
Cruzs prayer in a Resolution58 dated April 24, 2012. Atty. Dela Cruz once more moved for an extension of
time to comply with the Resolution dated July 5, 2011, which the Court granted in a Resolution 59 dated
November 20, 2012.
In a Resolution60 dated July 16, 2013, the Court took notice that Atty. Dela Cruz failed to comply with the

Resolution dated July 5, 2011 within the extended period which expired on November 8, 2012. Resultantly,
the Court resolved to require Atty. Dela Cruz to (a) show cause why he should not be disciplinarily dealt
with or held in contempt for such failure; and (b) comply with the Resolution dated July 5, 2011, both within
10 days from notice.
Atty. Sitro G. Tajonera (Tajonera) of the Office of the City Legal Officer of Manila filed a Manifestation and
Motion for Leave to Withdraw Petition in G.R. No. 12005161 dated August 12, 2013. Atty. Tajonera moved
for the withdrawal of the Petition in G.R. No. 120051 on the ground that the issues therein had been
rendered moot and academic by the Decisions of the Court in Coca-Cola Bottlers Philippines, Inc. v. City of
Manila62 and City of Manila v. Coca-Cola Bottlers Philippines, Inc.63 (Coca-Cola cases), which declared with
finality the unconstitutionality of Section 21 of the Manila Revenue Code, as amended.
Atty. Dela Cruz likewise filed a Compliance with the Courts Show Cause Resolution dated July 16, 2013.
According to Atty. Dela Cruz, he already resigned as City Legal Officer of Manila effective May 31, 2013.
Still, Atty. Dela Cruz explained:chanroblesvirtuallawlibrary
c. Due to the multifarious duties that undersigned attended to and the many legal problems that
confronted the Mayor whom he had to assist in resolving them, he inadvertently overlooked the deadline
set for submission of his compliance of the Courts directive which in fact lapsed without him having been
reminded by Atty. Karen Peralta of the unfulfilled obligation to this Honorable Court.
d. For this, he acknowledges that he was remiss in his duty to the Court and in delegating it to another.
[e.] Undersigned begs the Courts clemency on his inability to submit the pleading required of him and his
fault in relying on his subordinate-lawyer to assist him in complying with the Courts directive.
[f.] Undersigned assures the Court that henceforth, he shall not commit the same mistake or any neglect of
duty or lack of respect to the Court.64
II
ARGUMENTS OF THE PARTIES
There is only one vital issue in all the 10 cases: Whether or not Section 21(B) of the Manila Revenue Code,
as amended, was in conformity with the Constitution and the laws and, therefore, valid.
There are two fundamental and opposing positions on the issue. Presented below are summaries of the
arguments in support of each.
Section 21(B) of the Manila Revenue
Code, as amended, was constitutional
and valid.
The City of Manila, Mayor Lim, Vice Mayor Atienza, the Sangguniang Panlungsod ng Maynila, and City
Treasurer Acevedo argued that Section 21(B) was constitutional and valid. RTC-Branch 32, in its Decision
dated August 28, 1995 in Civil Case Nos. 94-68861, 94-68862, 94-68863, 94-68919, 94-68936, 94-68939,
94-68940, 94-68941, and 94-69028, and the Court of Appeals, in its Decision dated March 29, 1996 in CAG.R. SP No. 39188, adopted the same position.
The 1987 Constitution granted LGUs the power to create their own sources of revenue and to levy taxes,
fees, and charges subject to the guidelines and limitations provided by Congress, consistent with the policy
of local autonomy. This grant was reiterated in Section 129 of the LGC and the scope of tax powers of a
city such as Manila is described in Section 151 also of the LGC. Hence, the Constitution and Congress,
through the LGC, expressly granted LGUs the general power to tax.
The enactment of Section 21(B) of the Manila Revenue Code, as amended, is statutorily ingrained. It is
based on the exempting clause at the beginning of Section 133, in conjunction with Section 143(h), of the
LGC. The relevant provisions of the Code are reproduced below:chanroblesvirtuallawlibrary
SEC. 133. Common Limitations on the Taxing Powers of Local Government Units. Unless otherwise
provided herein, the exercise of the taxing powers of provinces, cities, municipalities, and barangays
shall not extend to the levy of the following:

xxxx
(j) Taxes on the gross receipts of transportation contractors and persons engaged in the transportation of
passengers or freight by hire and common carriers by air, land or water, except as provided in this Code;
SEC. 143. Tax on Business. The municipality may impose taxes on the following businesses:
xxxx
(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, valueadded 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.
The sanggunian concerned may prescribe a schedule of graduated tax rates but in no case to exceed the
rates prescribed herein. (Emphases supplied.)
Inasmuch as transportation contractors, persons who transport passenger or freight for hire, and common
carriers by land, air or water, are engaged in business subject to excise, value added, or percentage tax
under the National Internal Revenue Code (NIRC), as amended, then the City of Manila could lawfully levy
local business tax under Section 21(B) of the Manila Revenue Code, as amended. It is irrelevant which of
Sections 133(j) and 143(h) of the LGC is the special or general provision since there is an exempting clause
in Section 133, that is, Unless otherwise provided herein, which means that even if the businesses
enumerated therein are exempted from the levy of local tax, if there is a provision to the contrary, such as
Section 143(h), the Sanggunian concerned could still impose the local tax. As an alternative argument,
Section 133(j) of the LGC is the general provision on the limitations on the taxing power of the LGUs, while
Section 143(h) of the LGC is the specific provision on the businesses which the LGUs could tax; and per the
rules of statutory construction, the latter prevails over the former. To rule otherwise and adopt the
construction put forward by the opposing parties would render Section 143(h) of the LGC a hollow
decorative provision with no subject to tax.
Moreover, the business tax imposed by Section 21(B) of the Manila Revenue Code, as amended, complied
with the limitations and conditions in the LGC for a valid local tax: (1) The rate of tax did not exceed 2% of
gross sales or receipts of the preceding calendar year; (2) The tax is consistent with the basic policy of
local autonomy; (3) The tax is not unjust, excessive, oppressive, confiscatory, or contrary to declared
national policy; and (4) That a prior public hearing was conducted for the purpose of enacting the Manila
Revenue Code, as amended.
Section 21(B) of the Manila Revenue Code, as amended, also enjoyed the presumption of constitutionality
and validity. This presumption can only be overridden by overwhelming evidence to the contrary. In Drilon
v. Lim,65 the Court already declared the Manila Revenue Code as valid given that the procedural
requirements for the enactment of the same had been observed.
Lastly, taxes are the lifeblood of the nation. Tax exemptions are construed strictly against the taxpayer,
and the burden is upon the person claiming exemption from the tax to show a clear grant of exemption by
organic law or statute.
Section 21(B) of the Manila Revenue
Code, as amended, was null and void
for being contrary to the Constitution
and the LGC.
On the other end of the spectrum, MAS; Maersk, et al.,; Eastern Shipping; William Lines, et al.,; PSTC; OFSI;
Cosco, et al.,; Sulpicio Lines; AISL; and Dongnama and Kyowa, asserted that Section 21(B) of the Manila
Revenue Code, as amended, was null and void because it violated the Constitution and the LGC. It was the
position affirmed by RTC-Branch 43 in its Decision dated April 3, 1995 in Civil Case No. 94-69052.
Under the Philippine system of government, the power of taxation, while inherent in the State in view of its
sovereign prerogatives, is not inherent in municipal corporations or LGUs. LGUs may exercise the power
only if and to the extent that it is delegated to them. One of the common limitations on the power to tax

of LGUs is Section 133(j) of the LGC, carried over from the Local Tax Code of 1973.
Section 133(j) expressly states that the taxing powers of the LGUs shall not extend to the transportation
business. Section 133(j) of the LGC is a special provision, which prevails over Section 143(h) of the same
Code, a general provision. This interpretation would give effect to both Sections 133(j) and 143(h) of the
LGC, and contrary to the assertion of the City of Manila and its public officials, would not render Section
143(h) useless, meaningless, and nugatory. There are other businesses which the LGUs may tax under
Section 143(h). Besides, in case of any doubt, any tax ordinance or revenue measure shall be construed
strictly against the LGU enacting it and liberally in favor of the taxpayer, for taxes, being burdens, are not
to be presumed beyond what the applicable statute expressly and clearly declares.
In addition, although Section 21(B) of the Manila Revenue Code, as amended, imposed what was
denominated as a business tax, in reality it was a percentage or sales tax. Business tax is imposed on
the privilege of doing business, though it may be computed as a percentage of gross sales. For business
tax, there is no set ratio between volume of sales and the amount of tax. Cities and municipalities are
given the power to impose business tax under Section 143(h) of the LGC. In contrast, percentage or sales
tax is based on gross sales or receipts. The percentage bears a direct relationship to the sales or receipts
generated by a business, without regard for the extent of operation or size of the business. Cities and
municipalities may validly impose a tax on business, but consonant with the limitations on local taxation,
they may not impose percentage or sales tax on top of what is already imposed in the NIRC. Section 21(B)
of the Manila Revenue Code, as amended, imposing on transportation contractors, persons who transport
passenger or freight for hire, and common carriers by land, air or water, a tax of 50% of 1% of the gross
sales or receipts from the preceding year on top of the national taxes already imposed by the NIRC was
unjust, unfair, excessive, confiscatory, and in restraint of economic trade.
And finally, Section 21(B) of the Manila Revenue Code, as amended, violated the rule on uniformity in
taxation. Uniformity in taxation should not be construed in a pure geographical sense, i.e., that the
questioned tax was imposed with the same force and effect on all businesses located in Manila. Shipping
companies should be differentiated from other businesses. Aside from the risks and responsibilities the
shipping companies shoulder, their services are not confined within the territorial limits of Manila alone but
extend to other parts of the world. It is not uniformity for the shipping companies to be classed and taxed
under the same category with other common carriers domiciled and plying Manila territory 24 hours a day.
III
RULING OF THE COURT
Resolution of pending incidents in
several cases.
Before delving into the merits of the 10 cases, there are pending incidents in three cases that first need to
be addressed:
(1) G.R. No. 120051: The City Legal Officer of Manila, as counsel for the City of Manila, Mayor Lim, and
City Treasurer Acevedo, petitioners in G.R. No. 120051, filed a Manifestation and Motion for Leave to
Withdraw Petition in G.R. No. 120051, on the ground that the issues therein had been rendered moot and
academic by the Decisions of the Court in the Coca-Cola cases, which declared with finality the
unconstitutionality of Section 21 of the Manila Revenue Code, as amended.
The Court resolves to deny the motion to withdraw.
There already had been an exchange of pleadings between the parties in G.R. No. 120051, i.e.,Petition,
Comment, and Reply. In a Resolution dated December 2, 1997, the Court also already considered G.R. No.
120051 and all the other nine consolidated cases submitted for deliberation. At this stage, the decision to
grant or not to grant the motion to withdraw is fully within the discretion of the
Court.66chanRoblesvirtualLawlibrary
The Court denies the motion to withdraw because the assertion by the City Legal Officer of Manila that
the Coca-Cola cases already rendered the issues in G.R. No. 120051 moot and academic is erroneous. The
Court did not declare in the Coca-Cola cases that Section 21 of the Manila Revenue Code, as amended,
was unconstitutional. What the Court held in the two Coca-Cola cases was that Ordinance Nos. 7988 and
8011 (approved by then Mayor Atienza on February 25, 2000 and February 22, 2001, respectively),

amending Section 21 of the Manila Revenue Code, were null and void for (a) failure to comply with the
publication requirement for tax ordinances under Section 188 of the LGC; and (b) deletion of an exempting
proviso found in Section 143(h) of the LGC and the prior Section 21 of the Manila Revenue Code, which
opened the door to the double taxation of Coca-Cola. Section 21 of the Manila Revenue Code, as it was
amended by Ordinance No. 7807, and more specifically, paragraph (B) thereof, was not the subject of a
constitutional review by the Court in the Coca-Cola cases.
As for Atty. Dela Cruzs Compliance with the Courts Show Cause Resolution, the Court finds the same
satisfactory, although he is reminded to be more conscientious of his duties as legal counsel in the future,
despite the heavy volume of his work load.
(2) G.R. No. 121613: In a Resolution dated October 23, 1995, the Court dismissed the Petition of
Maersk, et al.,, for the latters failure to deposit sheriffs fee and clerks commission in the total amount of
P202.00; and in light of said dismissal, noted without action the Supplemental Petition and Motion of
Maersk, et al.,, praying for the confirmation of the Writ of Preliminary Injunction restored by RTC-Branch 32
and deletion of RTC-Branch 32 from the caption of G.R. No. 121613 for not being a necessary party. In
their pending Motion for Reconsideration of the Resolution dated October 23, 1995, Maersk, et al.,, prayed
that the Court give due course to and squarely resolve their Petition and Supplemental Petition and Motion.
The Court resolves to grant the Motion for Reconsideration of Maersk, et al., It sets aside the Resolution
dated October 23, 1995; reinstates the Petition of Maersk, et al.,, in G.R. No. 121613; and gives due course
to the Petition and Supplemental Petition and Motion of Maersk, et al.,, in the said case.
Of particular relevance to the plight of Maersk, et al.,, herein is the following discussion of the Court
in Ayala Land, Inc. v. Carpo67:chanroblesvirtuallawlibrary
To be sure, the remedy of appeal is a purely statutory right and one who seeks to avail thereof must
comply with the statute or rule. For this reason, payment of the full amount of the appellate court docket
and other lawful fees within the reglementary period is mandatory and jurisdictional. However, as we have
ruled in Aranas v. Endona, the strict application of the jurisdictional nature of the above rule on payment of
appellate docket fees may be mitigated under exceptional circumstances to better serve the interest of
justice. As early as 1946, in the case of Segovia v. Barrios, we ruled that where an appellant in good faith
paid less than the correct amount for the docket fee because that was the amount he was required to pay
by the clerk of court, and he promptly paid the balance, it is error to dismiss his appeal because
every citizen has the right to assume and trust that a public officer charged by law with certain duties
knows his duties and performs them in accordance with law. To penalize such citizen for relying upon said
officer in all good faith is repugnant to justice.
The ruling in Segovia was applied by this Court in subsequent cases where an appellants right to appeal
was threatened by the mistake of public officers in computing the correct amount of docket fee.
Respondents draw attention to Rule 41, 4 of the 1997 Rules of Civil Procedure which provides that the
appellate court docket and other lawful fees must be paid in full to the clerk of the court which rendered
the judgment or final order appealed from within the period for taking the appeal. They argue that this
Rule has overruled the decision in Segovia.
This contention is untenable. Rule 41, 4 must be read in relation to Rule 50, 1(c) which provides
that:ChanRoblesVirtualawlibrary
An appeal may be dismissed by the Court of Appeals, on its own motion or on that of the appellee, on the
following grounds:
xxxx
(c) Failure of the appellant to pay the docket and other lawful fees as provided in Section 4 of Rule 41.
xxxx
With the exception of 1(b), which refers to the failure to file notice of appeal or the record on appeal
within the period prescribed by these Rules, the grounds enumerated in Rule 50, 1 are merely directory
and not mandatory. This is plain from the use of the permissive may in the text of the statute. Despite
the jurisdictional nature of the rule on payment of docket fee, therefore, the appellate court still has the
discretion to relax the rule in meritorious cases. The ruling in Segovia is still good law which the appellate
court, in the exercise of its discretion, must apply in circumstances such as that in the present case where

an appellant was, from the start, ready and willing to pay the correct amount of docket fee, but was unable
to do so due to the error of an officer of the court in computing the correct amount. To hold otherwise
would be unjust and unwarranted. (Citations omitted.)
The Court notes that Revised Circular No. 1-88, effective July 1, 1991, which was cited in the Resolution
dated October 23, 1995 as basis for the dismissal of the Petition of Maersk, et al.,, also used the word
may in the first paragraph thereof:chanroblesvirtuallawlibrary
(1) Payment of docketing and other fees. Section 1 of Rule 45 requires that petitions for review be filed
and the required fees paid within the prescribed period. Unless exempted by law or rule, such fees must be
fully paid in accordance with this Circular; otherwise, the Court may deny the petition outright. The same
rule shall govern petitions under Rule 65. (Emphasis supplied.)
Hence, denial of the petition for review outright for failure to pay docketing and other fees within the
prescribed period was also directory and not mandatory upon the Court under Revised Circular No. 1-88.
In the exercise of its discretion, the Court determines that there was meritorious reason why Maersk,et al.,,
paid docket and other legal fees within the prescribed period, but short of the P202.00 for sheriffs fee and
clerks commission. Maersk, et al.,, were already assessed and required to pay the docket and legal fees
when they filed their Motion for Extension of Time to File Petition for Review onCertiorari. The Motion did
not yet indicate that the intended Petition would include a prayer for a TRO, so the receiving clerk did not
assess Maersk, et al.,, for sheriffs fee and clerks commission. When Maersk, et al.,, actually filed their
Petition with prayer for the issuance of a writ of preliminary injunction and TRO, they were no longer
assessed additional fees by the receiving clerk. Maersk, et al.,, found out about the deficiency in their
legal fees upon their receipt of the Resolution dated October 23, 1995 already dismissing their Petition and
noting without action their Supplemental Petition and Motion. Maersk, et al.,, immediately filed a Motion
for Reconsideration of said Resolution, and also deposited their balance of P202.00 with the Court.
Given the circumstances, Maersk, et al.,, cannot be faulted for their failure to pay the required legal fees
for such failure was clearly not a dilatory tactic nor intended to circumvent the Rules of Court. On the
contrary, the subsequent payment by Maersk, et al.,, of the P202.00 deficiency even before the Court had
passed upon their Motion for Reconsideration was indicative of their good faith and willingness to comply
with the Rules.68chanRoblesvirtualLawlibrary
Acting on the Supplemental Petition and Motion of Maersk, et al.,, the Court further resolves to NOTE
WITHOUT ACTION the prayer to confirm the Writ of Preliminary Injunction restored by RTC-Branch 32 in
light of the present judgment, and to GRANT the prayer to delete RTC-Branch 32 from the caption of the
case as it was not a necessary party.
(3) G.R. No. 122335: In a Resolution dated January 31, 1996, the Court referred the Petition of Sulpicio
Lines to the Court of Appeals. There is a pending Motion for Reconsideration of the Resolution dated
January 31, 1996 filed by Sulpicio Lines seeking the withdrawal of the Resolution dated January 31, 1996
and transmittal of the rollo of G.R. No. 122335 from the Court of Appeals back to the Court.
The Court resolves to grant the Motion for Reconsideration of Sulpicio Lines. It sets aside the Resolution
dated January 31, 1996 and gives due course to the Petition of Sulpicio Lines in G.R. No. 122335.
The Petition for Review on Certiorari of Sulpicio Lines, filed under Rule 42 of the old Rules of Court, should
not have been referred to the Court of Appeals. It is true that under Section 9, paragraph (3) of Batas
Pambansa Blg. 129, the Court of Appeals has (e)xclusive appellate jurisdiction over all final judgments,
resolutions, orders or awards of Regional Trial Courts x x x. However, Rule 42 of the old Rules of
Court, then in effect, allowed an appeal straight from the RTC (formerly called Court of First Instance) to
the Supreme Court when the appeal raised pure questions of law:chanroblesvirtuallawlibrary
RULE 42
APPEAL FROM COURTS OF FIRST INSTANCE
TO SUPREME COURT
Section 1. Procedure. The procedure of appeal to the Supreme Court from Courts of First Instance shall be
governed by the same rules governing appeals to the Court of Appeals, except as hereinafter provided.

Section 2. Appeals on pure question of law. Where the appellant states in his notice of appeal or record
on appeal that he will raise only questions of law, no other question shall be allowed, and the evidence
need not be elevated.
A cursory reading of the Petition for Review on Certiorari of Sulpicio Lines would readily reveal that it
appealed the Decision dated August 28, 1995 of RTC-Branch 32 in Civil Case Nos. 94-68861, 94-68862, 9468863, 94-68919, 94-68936, 94-68939, 94-68940, 94-68941, and 94-69028 based only on questions of
law. The Petition did not raise any question of fact and did not require the presentation or elevation of
evidence.
In G.R. No. 124855, Dongnama and Kyowa questioned the Resolution dated October 23, 1995, which
similarly referred their original Petition for Certiorari, docketed as G.R. No. 122120, to the Court of Appeals,
where it was docketed as CA-G.R. SP No. 39188. The Resolution dated October 23, 1995 cited as basis for
the referral Section 9, paragraph (1) of Batas Pambansa Blg. 129 which gave the Court of Appeals
[o]riginal jurisdiction to issue writs of mandamus, prohibition, certiorari, habeas corpus, and quo
warranto, and auxiliary writs or processes, whether or not in aid of its appellate jurisdiction. The Court,
however, will no longer address the propriety of the referral of the original Petition of Dongnama and
Kyowa to the Court of Appeals since said issue has become moot and academic after the appellate court
rendered its Decision in CA-G.R. SP No. 39188 on March 29, 1996. The Court will simply treat the Petition
in G.R. No. 124855 as an appeal of the Decision dated March 29, 1996 of the Court of Appeals in CA-G.R.
SP No. 39188.
Ruling on the merits of the 10 Petitions.
The Court rules in favor of MAS; Maersk, et al.,; Eastern Shipping; William Lines, et al.,; PSTC; OFSI;
Cosco, et al.,; Sulpicio Lines; AISL; and Dongnama and Kyowa. Section 21(B) of the Manila Revenue Code,
as amended, was null and void for being beyond the power of the City of Manila and its public officials to
enact, approve, and implement under the LGC.
It is already well-settled that although the power to tax is inherent in the State, the same is not true for the
LGUs to whom the power must be delegated by Congress and must be exercised within the guidelines and
limitations that Congress may provide. The Court expounded in Pelizloy Realty Corporation v. The Province
of Benguet69 that:chanroblesvirtuallawlibrary
The power to tax is an attribute of sovereignty, and as such, inheres in the State. Such, however, is not
true for provinces, cities, municipalities and barangays as they are not the sovereign; rather, they are
mere territorial and political subdivisions of the Republic of the Philippines.
The rule governing the taxing power of provinces, cities, municipalities and barangaysis summarized
in Icard v. City Council of Baguio:ChanRoblesVirtualawlibrary
It is settled that a municipal corporation unlike a sovereign state is clothed with no inherent power of
taxation. The charter or statute must plainly show an intent to confer that power or the municipality,
cannot assume it. And the power when granted is to be construed in strictissimi juris. Any doubt or
ambiguity arising out of the term used in granting that power must be resolved against the municipality.
Inferences, implications, deductions all these have no place in the interpretation of the taxing power of
a municipal corporation.
Therefore, the power of a province to tax is limited to the extent that such power is delegated to it either
by the Constitution or by statute. Section 5, Article X of the 1987 Constitution is clear on this
point:ChanRoblesVirtualawlibrary
Section 5. Each local government unit shall have the power to create its own sources of revenues and to
levy taxes, fees and charges subject to such guidelines and limitations as the Congress may provide,
consistent with the basic policy of local autonomy. Such taxes, fees, and charges shall accrue exclusively to
the local governments.
Per Section 5, Article X of the 1987 Constitution, the power to tax is no longer vested exclusively on
Congress; local legislative bodies are now given direct authority to levy taxes, fees and other charges.
Nevertheless, such authority is subject to such guidelines and limitations as the Congress may provide.
In conformity with Section 3, Article X of the 1987 Constitution, Congress enacted Republic Act No. 7160,
otherwise known as the Local Government Code of 1991. Book II of the LGC governs local taxation and

fiscal matters.
Relevant provisions of Book II of the LGC establish the parameters of the taxing powers of LGUs found
below.
First, Section 130 provides for the following fundamental principles governing the taxing powers of LGUs:
1. Taxation shall be uniform in each LGU.
2. Taxes, fees, charges and other impositions shall:
a. be equitable and based as far as practicable on the taxpayers ability to pay;
b. be levied and collected only for public purposes;
c. not be unjust, excessive, oppressive, or confiscatory;
d. not be contrary to law, public policy, national economic policy, or in the restraint of trade.
3. The collection of local taxes, fees, charges and other impositions shall in no case be let to any
private person.
4. The revenue collected pursuant to the provisions of the LGC shall inure solely to the benefit of, and
be subject to the disposition by, the LGU levying the tax, fee, charge or other imposition unless
otherwise specifically provided by the LGC.
5. Each LGU shall, as far as practicable, evolve a progressive system of taxation.
Second, Section 133 provides for the common limitations on the taxing powers of LGUs. x x x.
(Underscoring and citations omitted.)
Among the common limitations on the taxing power of LGUs is Section 133(j) of the LGC, which states that
[u]nless otherwise provided herein, the taxing power of LGUs shall not extend to [t]axes on the gross
receipts of transportation contractors and persons engaged in the transportation of passengers or freight
by hire and common carriers by air, land or water, except as provided in this Code[.]
Section 133(j) of the LGC clearly and unambiguously proscribes LGUs from imposing any tax on the gross
receipts of transportation contractors, persons engaged in the transportation of passengers or freight by
hire, and common carriers by air, land, or water. Yet, confusion arose from the phrase unless otherwise
provided herein, found at the beginning of the said provision. The City of Manila and its public officials
insisted that said clause recognized the power of the municipality or city, under Section 143(h) of the LGC,
to impose tax on any business subject to the excise, value-added or percentage tax under the National
Internal Revenue Code, as amended. And it was pursuant to Section 143(h) of the LGC that the City of
Manila and its public officials enacted, approved, and implemented Section 21(B) of the Manila Revenue
Code, as amended.
The Court is not convinced. Section 133(j) of the LGC prevails over Section 143(h) of the same Code, and
Section 21(B) of the Manila Revenue Code, as amended, was manifestly in contravention of the former.
First, Section 133(j) of the LGC is a specific provision that explicitly withholds from any LGU, i.e.,whether
the province, city, municipality, or barangay, the power to tax the gross receipts of transportation
contractors, persons engaged in the transportation of passengers or freight by hire, and common carriers
by air, land, or water.
In contrast, Section 143 of the LGC defines the general power of the municipality (as well as the city, if
read in relation to Section 15170 of the same Code) to tax businesses within its jurisdiction. While
paragraphs (a) to (g) thereof identify the particular businesses and fix the imposable tax rates for each,
paragraph (h) is apparently the catch-all provision allowing the municipality to impose tax on any
business, not otherwise specified in the preceding paragraphs, which the sanggunian concerned may
deem proper to tax[.]
The succeeding proviso of Section 143(h) of the LGC, viz., 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[,] is not a
specific grant of power to the municipality or city to impose business tax on the gross sales or receipts of
such a business. Rather, the proviso only fixes a maximum rate of imposable business tax in case the
business taxed under Section 143(h) of the LGC happens to be subject to excise, value added, or
percentage tax under the NIRC.
The omnibus grant of power to municipalities and cities under Section 143(h) of the LGC cannot overcome
the specific exception/exemption in Section 133(j) of the same Code. This is in accord with the rule on
statutory construction that specific provisions must prevail over general ones. 71 A special and specific
provision prevails over a general provision irrespective of their relative positions in the statute. Generalia
specialibus non derogant. Where there is in the same statute a particular enactment and also a general
one which in its most comprehensive sense would include what is embraced in the former, the particular
enactment must be operative, and the general enactment must be taken to affect only such cases within
its general language as are not within the provisions of the particular
enactment.72chanRoblesvirtualLawlibrary
In the case at bar, the sanggunian of the municipality or city cannot enact an ordinance imposing business
tax on the gross receipts of transportation contractors, persons engaged in the transportation of
passengers or freight by hire, and common carriers by air, land, or water, when said sanggunian was
already specifically prohibited from doing so. Any exception to the express prohibition under Section 133(j)
of the LGC should be just as specific and unambiguous.
Second, the construction adopted by the Court gives effect to both Sections 133(j) and 143(h) of the LGC.
In construing a law, care should be taken that every part thereof be given effect and a construction that
could render a provision inoperative should be avoided, and inconsistent provisions should be reconciled
whenever possible as parts of a harmonious whole.73chanRoblesvirtualLawlibrary
As pointed out by William Lines, et al.,, in their Petition, despite the prohibition against LGUs imposing tax
on the gross receipts of transportation contractors, persons engaged in the transportation of passengers or
freight by hire, and common carriers by air, land, or water, under Section 133(j) of the LGC, there are still
other multiple businesses subject to excise, value added, or percentage tax under the NIRC, which the
municipalities and cities can still tax pursuant to Section 143(h) of the LGC, such
as:ChanRoblesVirtualawlibrary
1)

Hotels and motels under Sec. 113 of the NIRC;

2)

Caterers, taxed under Sec. 114 of the NIRC;

3)

Dealers in securities, taxed under Sec. 116 of the NIRC;

4)

Franchise holders, taxed under Sec. 117 of the NIRC;

5)

Senders of overseas dispatch, message or communication originating in the Philippines, taxed under
Sec. 118 of the NIRC;

6)

Banks and non-bank financial intermediaries, taxed under Sec. 119 of the NIRC;

7)

Finance companies, taxed under Sec. 120 of the NIRC;

8)

Agents of foreign insurance companies, taxed under Sec. 122 of the NIRC;

9)

Amusement places, taxed under Sec. 123 of the NIRC;

10)

Winners in horse races, taxed under Sec. 124 of the NIRC; and

11)

Those who sell, barter, or exchange shares of stocks, taxed under Sec. 124-A of the NIRC. 74

Thus, Section 143(h) of the LGC would not be a hollow decorative provision with no subject to tax. On
the contrary, it would be Section 133(j) of the LGC which would become inoperative should the Court
accept the construction proffered by the City of Manila and its public officials, because then, there would
be no instance at all when the gross receipts of the transportation contractors, persons engaged in the
transportation of passengers or freight by hire, and common carriers by air, land, or water, would not be
subject to tax by the LGUs.
Third, Section 5(b) of the LGC itself, on Rules of Interpretation, provides:chanroblesvirtuallawlibrary

SEC. 5. Rules of Interpretation. In the interpretation of the provisions of this Code, the following rules
shall apply:
xxxx
(b) In case of doubt, any tax ordinance or revenue measure shall be construed strictly against the local
government unit enacting it, and liberally in favor of the taxpayer. Any tax exemption, incentive or relief
granted by any local government unit pursuant to the provisions of this Code shall be construed strictly
against the person claiming it[.]
The Court strictly construes Section 21(B) of the Manila Revenue Code, as amended, against the City of
Manila and its public officials and liberally in favor of the transportation contractors, persons engaged in
the transportation of passengers or freight by hire, and common carriers by air, land, or water. Strictly
assessed against the guidelines and limitations set forth in the LGC, Section 21(B) of the Manila Revenue
Code, as amended, was enacted ultra vires.
And fourth, the construction adopted by the Court is in accordance with the consistent intention of the
laws to withhold from the LGUs the power to tax transportation contractors, persons engaged in the
transportation of passengers or freight by hire, and common carriers by air, land, or water.
Even prior to Section 133(j) of the LGC, Section 5(e) of Presidential Decree No. 231, otherwise known as
The Local Tax Code, as amended, already limited the taxing powers of LGUs as
follows:chanroblesvirtuallawlibrary
SEC. 5. Common limitations on the taxing powers of local government. The exercise of the taxing powers
of provinces, cities, municipalities and barrios shall not extend to the imposition of the following:
xxxx
(e) Taxes on the business of transportation contractors and persons engaged in the transportation of
passengers or freight by hire and common carries by air, land or water except as otherwise provided in this
Code, and taxes or fees for the registration of motor vehicles and for the issuance of all kinds of licenses or
permits for the driving thereof;
The Court, in First Philippine Industrial Corp. v. Court of Appeals,75 expounded on the lawmakers reason for
exempting the gross receipts of common carriers from the taxing powers of the
LGUs:chanroblesvirtuallawlibrary
From the foregoing disquisition, there is no doubt that petitioner is a common carrier and, therefore,
exempt from the business tax as provided for in Section 133 (j), of the Local Government Code x x x
xxxx
The deliberations conducted in the House of Representatives on the Local Government Code of 1991 are
illuminating:ChanRoblesVirtualawlibrary
MR. AQUINO (A). Thank you, Mr. Speaker.
Mr. Speaker, we would like to proceed to page 95, line 1. It states: SEC. 121 (now Sec. 131). Common
Limitations on the Taxing Powers of Local Government Units. . . .
MR. AQUINO (A.). Thank you Mr. Speaker.
Still on page 95, subparagraph 5, on taxes on the business of transportation. This appears to be one of
those being deemed to be exempted from the taxing powers of the local government units. May we know
the reason why the transportation business is being excluded from the taxing powers of the local
government units?
MR. JAVIER (E.). Mr. Speaker, there is an exception contained in Section 121 (now Sec. 131), line 16,
paragraph 5. It states that local government units may not impose taxes on the business of transportation,
except as otherwise provided in this code.

Now, Mr. Speaker, if the Gentleman would care to go to page 98 of Book II, one can see there that
provinces have the power to impose a tax on business enjoying a franchise at the rate of not more than
one-half of 1 percent of the gross annual receipts. So, transportation contractors who are enjoying a
franchise would be subject to tax by the province. That is the exception, Mr. Speaker.
What we want to guard against here, Mr. Speaker is the imposition of taxes by local government units on
the carrier business. Local government units may impose taxes on top of what is already being imposed by
the National Internal Revenue Code which is the so-called common carriers tax. We do not want a
duplication of this tax, so we just provided for an exception under Section 125 (now Section 137) that a
province may impose this tax at a specific rate.
MR. AQUINO (A.). Thank you for that clarification, Mr. Speaker. . . .
It is clear that the legislative intent in excluding from the taxing power of the local government unit the
imposition of business tax against common carriers is to prevent a duplication of the so-called common
carriers tax.
Petitioner is already paying three (3%) percent common carrier's tax on its gross sales/earnings under the
National Internal Revenue Code. To tax petitioner again on its gross receipts in its transportation of
petroleum business would defeat the purpose of the Local Government Code. (Citations omitted.)
Consistent with the foregoing legislative intent, Republic Act No. 7716, more popularly known as the
Expanded Value-Added Tax (E-VAT) Law, which took effect after the LGC on May 28, 1994, expressly
amended the NIRC of 1977 and added to Section 115 of the latter on Percentage tax on carriers and
keepers of garages, the following proscription: The gross receipts of common carriers derived from their
incoming and outgoing freight shall not be subjected to the local taxes imposed under Republic Act No.
7160, otherwise known as the Local Government Code of 1991.
IV
DISPOSITIVE PORTION
WHEREFORE, in view of the foregoing, the Court hereby RESOLVES:
1. In G.R. No. 120051: (a) to DENY the Motion to Withdraw the Petition filed by the Office of the City Legal
Officer on behalf of the City of Manila, Mayor Atienza, and City Treasurer Acevedo; and (b)
toDECLARE as SATISFACTORY the Compliance submitted by Atty. Dela Cruz;
2. In G.R. No. 121613: (a) to GRANT the Motion for Reconsideration of Maersk, et al.,; (b) to SET
ASIDE the Resolution dated October 23, 1995; (c) to REINSTATE the Petition of Maersk, et al.,; (d) to GIVE
DUE COURSE to the Petition and the Supplemental Petition and Motion of Maersk, et al.,; (e) as regards the
Supplemental Petition and Motion of Maersk, et al.,, to NOTE WITHOUT ACTION the prayer to confirm the
Writ of Preliminary Injunction restored by RTC-Branch 32 in light of the present judgment, and
to GRANT the prayer to delete RTC-Branch 32 from the caption of the case for not being a necessary
party; and
3. In G.R. No. 122335: (a) to GRANT the Motion for Reconsideration of Sulpicio Lines; (b) to SET
ASIDE the Resolution dated January 31, 1996; and (c) to GIVE DUE COURSE to the Petition of Sulpicio
Lines.
Furthermore, the Court hereby DECIDES:
1. To DECLARE Section 21(B) of the Manila Revenue Code, as amended, null and void for being in
violation of the guidelines and limitations on the taxing powers of the LGUs under the LGC;
2. In G.R. No. 120051: (a) to DENY the Petition of the City of Manila, Mayor Lim, and City Treasurer
Acevedo; and (b) to AFFIRM the Decision dated April 3, 1995 of RTC-Branch 43 in Civil Case No. 94-69052;
and
3. In G.R. Nos. 121613, 121675, 121704, 121720-28, 121847-55, 122333, 122335, 122349, and 124855:
(a) to GRANT the Petitions of Maersk, et al.,; Eastern Shipping; William Lines, et al.,; PSTC; OFSI; Cosco, et
al.,; Sulpicio Lines; AISL; and Dongnama and Kyowa, respectively; (b) to REVERSE and SET ASIDE the

Decision dated August 28, 1995 of RTC-Branch 32 in Civil Case Nos. 94-68861, 94-68862, 94-68863, 9468919, 94-68936, 94-68939, 94-68940, 94-68941, and 94-69028, and the Decision dated March 29, 1996
of the Court of Appeals in CA-G.R. SP No. 39188; (c) to ORDER the City of Manila to refund to Maersk, et
al.,; Eastern Shipping; William Lines, et al.,; PSTC; OFSI; Cosco, et al.,; Sulpicio Lines; AISL; and Dongnama
and Kyowa the business taxes assessed and collected against said corporations under Section 21(B) of the
Manila Revenue Code, as amended; and (d) to MAKE PERMANENT the Writs of Preliminary Injunction
restored by RTC-Branch 32 during the pendency of the Petitions at bar.
SO ORDERED.cralawlawlibrary
Sereno, CJ., Carpio, Velasco, Jr., Peralta, Del Castillo, Villarama, Jr., Mendoza, Reyes, Perlas-Bernabe,
and Leonen, JJ., concur.
Brion, J., on leave.
Bersamin Perez, and Jardeleza, JJ., on official leave.
[G.R. No. 131359. May 5, 1999]
MANILA ELECTRIC COMPANY, petitioner vs. PROVINCE OF LAGUNA and BENITO R. BALAZO, in
his capacity as Provincial Treasurer of Laguna,respondents.
DECISION
VITUG, J.:
On various dates, certain municipalities of the Province of Laguna including, Bian, Sta Rosa, San Pedro,
Luisiana, Calauan and Cabuyao, by virtue of existing laws then in effect, issued resolutions through their
respective municipal councils granting franchise in favor of petitioner Manila Electric Company (MERALCO)
for the supply of electric light, heat and power within their concerned areas. On 19 January 1983,
MERALCO was likewise granted a franchise by the National Electrification Administration to operate an
electric light and power service in the Municipality of Calamba, Laguna.
On 12 September 1991, Republic Act No. 7160, otherwise known as the Local Government Code of
1991, was enacted to take effect on 01 January 1992 enjoining local government units to create their own
sources of revenue and to levy taxes, fees and charges, subject to the limitations expressed therein,
consistent with the basic policy of local autonomy. Pursuant to the provisions of the Code, respondent
province enacted Laguna Provincial Ordinance No. 01-92, effective 01 January 1993, providing, in part, as
follows:
Sec. 2.09. Franchise Tax. There is hereby imposed a tax on businesses enjoying a franchise, at a rate of
fifty percent (50%) of one percent (1%) of the gross annual receipts, which shall include both cash sales
and sales on account realized during the preceding calendar year within this province, including the
territorial limits on any city located in the province[1]
On the basis of the above ordinance, respondent Provincial Treasurer sent a demand letter to
MERALCO for the corresponding tax payment. Petitioner MERALCO paid the tax, which then amounted to
P19,520,628.42, under protest. A formal claim for refund was thereafter sent by MERALCO to the Provincial
Treasurer of Laguna claiming that the franchise tax it had paid and continued to pay to the National
Government pursuant to P.D. 551 already included the franchise tax imposed by the Provincial Tax
Ordinance. MERALCO contended that the imposition of a franchise tax under Section 2.09 of Laguna
Provincial Ordinance No. 01-92, insofar as it concerned MERALCO, contravened the provisions of Section 1
of P.D. 551 which read:
Any provision of law or local ordinance to the contrary notwithstanding, the franchise tax payable by all
grantees of franchises to generate, distribute and sell electric current for light, heat and power shall be two

per cent (2%) of their gross receipts received from the sale of electric current and from transactions
incident to the generation, distribution and sale of electric current.
Such franchise tax shall be payable to the Commissioner of Internal Revenue or his duly authorized
representative on or before the twentieth day of the month following the end of each calendar quarter or
month, as may be provided in the respective franchise or pertinent municipal regulation and shall, any
provision of the Local Tax Code or any other law to the contrary notwithstanding, be in lieu of all taxes and
assessments of whatever nature imposed by any national or local authority on earnings, receipts, income
and privilege of generation, distribution and sale of electric current.
On 28 August 1995, the claim for refund of petitioner was denied in a letter signed by Governor Jose D.
Lina. In denying the claim, respondents relied on a more recent law, i.e., Republic Act No. 7160 or the Local
Government Code of 1991, than the old decree invoked by petitioner.
On 14 February 1996, petitioner MERALCO filed with the Regional Trial Court of Sta Cruz, Laguna, a
complaint for refund, with a prayer for the issuance of a writ of preliminary injunction and/or temporary
restraining order, against the Province of Laguna and also Benito R. Balazo in his capacity as the Provincial
Treasurer of Laguna. Aside from the amount of P19,520,628.42 for which petitioner MERALCO had priority
made a formal request for refund, petitioner thereafter likewise made additional payments under protest
on various dates totaling P27,669,566.91.
The trial court, in its assailed decision of 30 September 1997, dismissed the complaint and concluded:
WHEREFORE, IN THE LIGHT OF ALL THE FOREGOING CONSIDERATIONS, JUDGMENT is hereby rendered in
favor of the defendants and against the plaintiff, by:
1. Ordering the dismissal of the Complaint; and
2. Declaring Laguna Provincial Tax Ordinance No. 01-92 as valid, binding, reasonable and enforceable. [2]
In the instant petition, MERALCO assails the above ruling and brings up the following issues; viz:
1. Whether the imposition of a franchise tax under Section 2.09 of Laguna Provincial Ordinance No. 0192, insofar as petitioner is concerned, is violative of the non-impairment clause of the Constitution and
Section 1 of Presidential Decree No. 551.
2. Whether Republic Act. No. 7160, otherwise known as the Local Government Code of 1991, has repealed,
amended or modified Presidential Decree No. 551.
3. Whether the doctrine of exhaustion of administrative remedies is applicable in this case. [3]
The petition lacks merit.
Prefatorily, it might be well to recall that local governments do not have the inherent power to
tax except to the extent that such power might be delegated to them either by the basic law or by
statute.Presently, under Article X of the 1987 Constitution, a general delegation of that power has been
given in favor of local government units. Thus:
[4]

Sec. 3. The Congress shall enact a local government code which shall provide for a more responsive and
accountable local government structure instituted through a system of decentralization with effective
mechanisms of recall, initiative, and referendum, allocate among the different local government units their
powers, responsibilities, and resources, and provide for the qualifications, election, appointment and

removal, term, salaries, powers and functions, and duties of local officials, and all other matters relating to
the organization and operation of the local units.
xxxxxxxxx
Sec. 5. Each local government shall have the power to create its own sources of revenues and to levy
taxes, fees, and charges subject to such guidelines and limitations as the Congress may provide,
consistent with the basic policy of local autonomy. Such taxes, fees and charges shall accrue exclusively to
the local governments.
The 1987 Constitution has a counterpart provision in the 1973 Constitution which did come out with a
similar delegation of revenue making powers to local governments. [5]
Under the regime of the 1935 Constitution no similar delegation of tax powers was provided, and local
government units instead derived their tax powers under a limited statutory authority. Whereas, then, the
delegation of tax powers granted at that time by statute to local governments was confined and defined
(outside of which the power was deemed withheld), the present constitutional rule (starting with the 1973
Constitution), however, would broadly confer such tax powers subject only to specific exceptions that the
law might prescribe.
Under the now prevailing Constitution, where there is neither a grant nor a prohibition by statute,
the tax power must be deemed to exist although Congress may provide statutory limitations and
guidelines. The basic rationale for the current rule is to safeguard the viability and self-sufficiency of local
government units by directly granting them general and broad tax powers. Nevertheless, the fundamental
law did not intend the delegation to be absolute and unconditional; the constitutional objective obviously is
to ensure that, while the local government units are being strengthened and made more autonomous,
[6]
the legislature must still see to it that (a) the taxpayer will not be over-burdened or saddled with multiple
and unreasonable impositions; (b) each local government unit will have its fair share of available
resources; (c) the resources of the national government will not be unduly disturbed; and (d) local taxation
will be fair, uniform, and just.
The Local Government Code of 1991 has incorporated and adopted, by and large the provisions of the
now repealed Local Tax Code, which had been in effect since 01 July 1973, promulgated into law by
Presidential Decree No. 231[7] pursuant to the then provisions of Section 2, Article XI, of the 1973
Constitution. The 1991 Code explicitly authorizes provincial governments, notwithstanding any exemption
granted by any law or other special law, x x x (to) impose a tax on businesses enjoying a franchise . Section
137 thereof provides:
Sec. 137. Franchise Tax Notwithstanding any exemption granted by any law or other special law, the
province may impose a tax on businesses enjoying a franchise, at a rate not exceeding fifty percent (50%)
of one percent (1%) of the gross annual receipts for the preceding calendar year based on the incoming
receipt, or realized, within its territorial jurisdiction. In the case of a newly started business, the tax shall
not exceed one-twentieth (1/20) of one percent (1%) of the capital investment. In the succeeding calendar
year, regardless of when the business started to operate, the tax shall be based on the gross receipts for
the preceding calendar year, or any fraction thereof, as provided herein. (Underscoring supplied for
emphasis)
Indicative of the legislative intent to carry out the Constitutional mandate of vesting broad tax powers
to local government units, the Local Government Code has effectively withdrawn under Section 193
thereof, tax exemptions or incentives theretofore enjoyed by certain entities. This law states:
Section 193 Withdrawal of Tax Exemption Privileges Unless otherwise provided in this Code, tax
exemptions or incentives granted to, or presently enjoyed by all persons, whether natural or juridical,

including government-owned or controlled corporations, except local water districts, cooperatives duly
registered under R.A. No. 6938, non-stock and non-profit hospitals and educational institutions, are hereby
withdrawn upon the effectivity of this Code. (Underscoring supplied for emphasis)
The Code, in addition, contains a general repealing clause in its Section 534; thus:
Section 534. Repealing Clause. x x x.
(f) All general and special laws, acts, city charters, decrees, executive orders, proclamations and
administrative regulations, or part or parts thereof which are inconsistent with any of the provisions of this
Code are hereby repealed or modified accordingly. (Underscoring supplied for emphasis)[8]
To exemplify, in Mactan Cebu International Airport Authority vs. Marcos,[9] the Court upheld the
withdrawal of the real estate tax exemption previously enjoyed by Mactan Cebu International Airport
Authority. The Court ratiocinated:
x x x These policy considerations are consistent with the State policy to ensure autonomy to local
governments and the objective of the LGC that they enjoy genuine and meaningful local autonomy to
enable them to attain their fullest development as self-reliant communities and make them effective
partners in the attainment of national goals. The power to tax is the most effective instrument to raise
needed revenues to finance and support myriad activities of local government units for the delivery of
basic service essential to the promotion of the general welfare and the enhancement of peace, progress,
and prosperity of the people. It may also be relevant to recall that the original reasons for the withdrawal
of tax exemption privileges granted to government-owned and controlled corporations and all other units
of government were that such privilege resulted in serious tax base erosion and distortions in the tax
treatment of similarly situated enterprises, and there was a need for these entities to share in the
requirements of development, fiscal or otherwise, by paying the taxes and other charges due from them. [10]
Petitioner in its complaint before the Regional Trial Court cited the ruling of this Court in Province of
Misamis Oriental vs. Cagayan Electric Power and Light Company, Inc.;[11] thus:
In an earlier case, the phrase shall be in lieu of all taxes and at any time levied, established by, or
collected by any authority found in the franchise of the Visayan Electric Company was held to exempt the
company from payment of the 5% tax on corporate franchise provided in Section 259 of the Internal
Revenue Code (Visayan Electric Co. vs. David, 49 O.G. [No. 4] 1385)
Similarly, we ruled that the provision: shall be in lieu of all taxes of every name and nature in the franchise
of the Manila Railroad (Subsection 12, Section 1, Act No. 1510) exempts the Manila Railroad from payment
of internal revenue tax for its importations of coal and oil under Act No. 2432 and the Amendatory Acts of
the Philippine Legislature (Manila Railroad vs. Rafferty, 40 Phil. 224).
The same phrase found in the franchise of the Philippine Railway Co. (Sec. 13, Act No. 1497) justified the
exemption of the Philippine Railway Company from payment of the tax on its corporate franchise under
Section 259 of the Internal Revenue Code, as amended by R.A. No. 39 (Philippine Railway Co vs. Collector
of Internal Revenue, 91 Phil. 35).
Those magic words, shall be in lieu of all taxes also excused the Cotabato Light and Ice Plant Company
from the payment of the tax imposed by Ordinance No. 7 of the City of Cotabato (Cotabato Light and
Power Co. vs. City of Cotabato, 32 SCRA 231).
So was the exemption upheld in favor of the Carcar Electric and Ice Plant Company when it was required to
pay the corporate franchise tax under Section 259 of the Internal Revenue Code as amended by R.A. No.
39 (Carcar Electric & Ice Plant vs. Collector of Internal Revenue, 53 O.G. [No. 4] 1068). This Court pointed

out that such exemption is part of the inducement for the acceptance of the franchise and the rendition of
public service by the grantee.[12]
In the recent case of the City Government of San Pablo, etc., et al. vs. Hon. Bienvenido V. Reyes, et al.,
the Court has held that the phrase in lieu of all taxes have to give way to the peremptory language of
the Local Government Code specifically providing for the withdrawal of such exemptions, privileges, and
that upon the effectivity of the Local Government Code all exemptions except only as provided therein can
no longer be invoked by MERALCO to disclaim liability for the local tax. In fine, the Court has viewed its
previous rulings as laying stress more on the legislative intent of the amendatory law whether
the tax exemption privilege is to be withdrawn or not rather than on whether the law can
withdraw, without violating the Constitution, the tax exemption or not.
[13]

While the Court has, not too infrequently, referred to tax exemptions contained in special franchises as
being in the nature of contracts and a part of the inducement for carrying on the franchise, these
exemptions, nevertheless, are far from being strictly contractual in nature. Contractual tax exemptions,
in the real sense of the term and where the non-impairment clause of the Constitution can
rightly be invoked, are those agreed to by the taxing authority in contracts, such as those
contained in government bonds or debentures, lawfully entered into by them under enabling
laws in which the government, acting in its private capacity, sheds its cloak of authority and
waives its governmental immunity. Truly, tax exemptions of this kind may not be revoked without
impairing the obligations of contracts. [14] These contractual tax exemptions, however, are not to be
confused with tax exemptions granted under franchises. A franchise partakes the nature of a grant which
is beyond the purview of the non-impairment clause of the Constitution. [15] Indeed, Article XII, Section 11,
of the 1987 Constitution, like its precursor provisions in the 1935 and the 1973 Constitutions, is explicit
that no franchise for the operation of a public utility shall be granted except under the condition that such
privilege shall be subject to amendment, alteration or repeal by Congress as and when the common good
so requires.
WHEREFORE, the instant petition is hereby DISMISSED. No costs.
SO ORDERED.
Romero, Panganiban, Purisima, and Gonzaga-Reyes, JJ., concur.
G.R. No. 149110

April 9, 2003

NATIONAL POWER CORPORATION, petitioner,


vs.
CITY OF CABANATUAN, respondent.
PUNO, J.:
This is a petition for review1 of the Decision2 and the Resolution3 of the Court of Appeals dated March 12,
2001 and July 10, 2001, respectively, finding petitioner National Power Corporation (NPC) liable to pay
franchise tax to respondent City of Cabanatuan.
Petitioner is a government-owned and controlled corporation created under Commonwealth Act No. 120, as
amended.4 It is tasked to undertake the "development of hydroelectric generations of power and the
production of electricity from nuclear, geothermal and other sources, as well as, the transmission of
electric power on a nationwide basis."5 Concomitant to its mandated duty, petitioner has, among others,
the power to construct, operate and maintain power plants, auxiliary plants, power stations and
substations for the purpose of developing hydraulic power and supplying such power to the inhabitants. 6

For many years now, petitioner sells electric power to the residents of Cabanatuan City, posting a gross
income of P107,814,187.96 in 1992.7 Pursuant to section 37 of Ordinance No. 165-92,8 the respondent
assessed the petitioner a franchise tax amounting to P808,606.41, representing 75% of 1% of the latter's
gross receipts for the preceding year. 9
Petitioner, whose capital stock was subscribed and paid wholly by the Philippine Government, 10 refused to
pay the tax assessment. It argued that the respondent has no authority to impose tax on government
entities. Petitioner also contended that as a non-profit organization, it is exempted from the payment of all
forms of taxes, charges, duties or fees11 in accordance with sec. 13 of Rep. Act No. 6395, as amended, viz:
"Sec.13. Non-profit Character of the Corporation; Exemption from all Taxes, Duties, Fees, Imposts
and Other Charges by Government and Governmental Instrumentalities.- The Corporation shall be
non-profit and shall devote all its return from its capital investment, as well as excess revenues
from its operation, for expansion. To enable the Corporation to pay its indebtedness and obligations
and in furtherance and effective implementation of the policy enunciated in Section one of this Act,
the Corporation is hereby exempt:
(a) From the payment of all taxes, duties, fees, imposts, charges, costs and service fees in any court
or administrative proceedings in which it may be a party, restrictions and duties to the Republic of
the Philippines, its provinces, cities, municipalities and other government agencies and
instrumentalities;
(b) From all income taxes, franchise taxes and realty taxes to be paid to the National Government,
its provinces, cities, municipalities and other government agencies and instrumentalities;
(c) From all import duties, compensating taxes and advanced sales tax, and wharfage fees on
import of foreign goods required for its operations and projects; and
(d) From all taxes, duties, fees, imposts, and all other charges imposed by the Republic of the
Philippines, its provinces, cities, municipalities and other government agencies and
instrumentalities, on all petroleum products used by the Corporation in the generation,
transmission, utilization, and sale of electric power." 12
The respondent filed a collection suit in the Regional Trial Court of Cabanatuan City, demanding that
petitioner pay the assessed tax due, plus a surcharge equivalent to 25% of the amount of tax, and 2%
monthly interest.13Respondent alleged that petitioner's exemption from local taxes has been repealed by
section 193 of Rep. Act No. 7160,14 which reads as follows:
"Sec. 193. Withdrawal of Tax Exemption Privileges.- Unless otherwise provided in this Code, tax
exemptions or incentives granted to, or presently enjoyed by all persons, whether natural or
juridical, including government owned or controlled corporations, except local water districts,
cooperatives duly registered under R.A. No. 6938, non-stock and non-profit hospitals and
educational institutions, are hereby withdrawn upon the effectivity of this Code."
On January 25, 1996, the trial court issued an Order 15 dismissing the case. It ruled that the tax exemption
privileges granted to petitioner subsist despite the passage of Rep. Act No. 7160 for the following reasons:
(1) Rep. Act No. 6395 is a particular law and it may not be repealed by Rep. Act No. 7160 which is a
general law; (2) section 193 of Rep. Act No. 7160 is in the nature of an implied repeal which is not favored;
and (3) local governments have no power to tax instrumentalities of the national government. Pertinent
portion of the Order reads:
"The question of whether a particular law has been repealed or not by a subsequent law is a matter
of legislative intent. The lawmakers may expressly repeal a law by incorporating therein repealing

provisions which expressly and specifically cite(s) the particular law or laws, and portions thereof,
that are intended to be repealed. A declaration in a statute, usually in its repealing clause, that a
particular and specific law, identified by its number or title is repealed is an express repeal; all
others are implied repeal. Sec. 193 of R.A. No. 7160 is an implied repealing clause because it fails to
identify the act or acts that are intended to be repealed. It is a well-settled rule of statutory
construction that repeals of statutes by implication are not favored. The presumption is against
inconsistency and repugnancy for the legislative is presumed to know the existing laws on the
subject and not to have enacted inconsistent or conflicting statutes. It is also a well-settled rule
that, generally, general law does not repeal a special law unless it clearly appears that the
legislative has intended by the latter general act to modify or repeal the earlier special law. Thus,
despite the passage of R.A. No. 7160 from which the questioned Ordinance No. 165-92 was based,
the tax exemption privileges of defendant NPC remain.
Another point going against plaintiff in this case is the ruling of the Supreme Court in the case
of Basco vs. Philippine Amusement and Gaming Corporation, 197 SCRA 52, where it was held that:
'Local governments have no power to tax instrumentalities of the National Government.
PAGCOR is a government owned or controlled corporation with an original charter, PD 1869.
All of its shares of stocks are owned by the National Government. xxx Being an
instrumentality of the government, PAGCOR should be and actually is exempt from local
taxes. Otherwise, its operation might be burdened, impeded or subjected to control by mere
local government.'
Like PAGCOR, NPC, being a government owned and controlled corporation with an original charter
and its shares of stocks owned by the National Government, is beyond the taxing power of the Local
Government. Corollary to this, it should be noted here that in the NPC Charter's declaration of
Policy, Congress declared that: 'xxx (2) the total electrification of the Philippines through the
development of power from all services to meet the needs of industrial development and dispersal
and needs of rural electrification are primary objectives of the nations which shall be
pursued coordinately and supported by all instrumentalities and agencies of the
government, including its financial institutions.' (underscoring supplied). To allow plaintiff to subject
defendant to its tax-ordinance would be to impede the avowed goal of this government
instrumentality.
Unlike the State, a city or municipality has no inherent power of taxation. Its taxing power is limited
to that which is provided for in its charter or other statute. Any grant of taxing power is to be
construed strictly, with doubts resolved against its existence.
From the existing law and the rulings of the Supreme Court itself, it is very clear that the plaintiff
could not impose the subject tax on the defendant." 16
On appeal, the Court of Appeals reversed the trial court's Order17 on the ground that section 193, in
relation to sections 137 and 151 of the LGC, expressly withdrew the exemptions granted to the
petitioner.18 It ordered the petitioner to pay the respondent city government the following: (a) the sum of
P808,606.41 representing the franchise tax due based on gross receipts for the year 1992, (b) the tax due
every year thereafter based in the gross receipts earned by NPC, (c) in all cases, to pay a surcharge of 25%
of the tax due and unpaid, and (d) the sum of P 10,000.00 as litigation expense. 19
On April 4, 2001, the petitioner filed a Motion for Reconsideration on the Court of Appeal's Decision. This
was denied by the appellate court, viz:
"The Court finds no merit in NPC's motion for reconsideration. Its arguments reiterated therein that
the taxing power of the province under Art. 137 (sic) of the Local Government Code refers merely to

private persons or corporations in which category it (NPC) does not belong, and that the LGC (RA
7160) which is a general law may not impliedly repeal the NPC Charter which is a special lawfinds
the answer in Section 193 of the LGC to the effect that 'tax exemptions or incentives granted to, or
presently enjoyed by all persons, whether natural or juridical, including government-owned or
controlled corporations except local water districts xxx are hereby withdrawn.' The repeal is direct
and unequivocal, not implied.
IN VIEW WHEREOF, the motion for reconsideration is hereby DENIED.
SO ORDERED."20
In this petition for review, petitioner raises the following issues:
"A. THE COURT OF APPEALS GRAVELY ERRED IN HOLDING THAT NPC, A PUBLIC NON-PROFIT
CORPORATION, IS LIABLE TO PAY A FRANCHISE TAX AS IT FAILED TO CONSIDER THAT SECTION 137
OF THE LOCAL GOVERNMENT CODE IN RELATION TO SECTION 131 APPLIES ONLY TO PRIVATE
PERSONS OR CORPORATIONS ENJOYING A FRANCHISE.
B. THE COURT OF APPEALS GRAVELY ERRED IN HOLDING THAT NPC'S EXEMPTION FROM ALL FORMS
OF TAXES HAS BEEN REPEALED BY THE PROVISION OF THE LOCAL GOVERNMENT CODE AS THE
ENACTMENT OF A LATER LEGISLATION, WHICH IS A GENERAL LAW, CANNOT BE CONSTRUED TO
HAVE REPEALED A SPECIAL LAW.
C. THE COURT OF APPEALS GRAVELY ERRED IN NOT CONSIDERING THAT AN EXERCISE OF POLICE
POWER THROUGH TAX EXEMPTION SHOULD PREVAIL OVER THE LOCAL GOVERNMENT CODE." 21
It is beyond dispute that the respondent city government has the authority to issue Ordinance No. 165-92
and impose an annual tax on "businesses enjoying a franchise," pursuant to section 151 in relation to
section 137 of the LGC, viz:
"Sec. 137. Franchise Tax. - Notwithstanding any exemption granted by any law or other special law,
the province may impose a tax on businesses enjoying a franchise, at a rate not exceeding fifty
percent (50%) of one percent (1%) of the gross annual receipts for the preceding calendar year
based on the incoming receipt, or realized, within its territorial jurisdiction.
In the case of a newly started business, the tax shall not exceed one-twentieth (1/20) of one
percent (1%) of the capital investment. In the succeeding calendar year, regardless of when the
business started to operate, the tax shall be based on the gross receipts for the preceding calendar
year, or any fraction thereof, as provided herein." (emphasis supplied)
x

Sec. 151. Scope of Taxing Powers.- Except as otherwise provided in this Code, the city, may levy the
taxes, fees, and charges which the province or municipality may impose: Provided, however, That
the taxes, fees and charges levied and collected by highly urbanized and independent component
cities shall accrue to them and distributed in accordance with the provisions of this Code.
The rates of taxes that the city may levy may exceed the maximum rates allowed for the province
or municipality by not more than fifty percent (50%) except the rates of professional and
amusement taxes."
Petitioner, however, submits that it is not liable to pay an annual franchise tax to the respondent city
government. It contends that sections 137 and 151 of the LGC in relation to section 131, limit the taxing

power of the respondent city government to private entities that are engaged in trade or occupation for
profit.22
Section 131 (m) of the LGC defines a "franchise" as "a right or privilege, affected with public interest which
is conferred upon private persons or corporations, under such terms and conditions as the government and
its political subdivisions may impose in the interest of the public welfare, security and safety." From the
phraseology of this provision, the petitioner claims that the word "private" modifies the terms "persons"
and "corporations." Hence, when the LGC uses the term "franchise," petitioner submits that it should refer
specifically to franchises granted to private natural persons and to private corporations. 23 Ergo, its charter
should not be considered a "franchise" for the purpose of imposing the franchise tax in question.
On the other hand, section 131 (d) of the LGC defines "business" as "trade or commercial activity regularly
engaged in as means of livelihood or with a view to profit." Petitioner claims that it is not engaged in an
activity for profit, in as much as its charter specifically provides that it is a "non-profit organization." In any
case, petitioner argues that the accumulation of profit is merely incidental to its operation; all these profits
are required by law to be channeled for expansion and improvement of its facilities and services. 24
Petitioner also alleges that it is an instrumentality of the National Government, 25 and as such, may not be
taxed by the respondent city government. It cites the doctrine in Basco vs. Philippine Amusement and
Gaming Corporation26 where this Court held that local governments have no power to tax instrumentalities
of the National Government, viz:
"Local governments have no power to tax instrumentalities of the National Government.
PAGCOR has a dual role, to operate and regulate gambling casinos. The latter role is governmental,
which places it in the category of an agency or instrumentality of the Government. Being an
instrumentality of the Government, PAGCOR should be and actually is exempt from local taxes.
Otherwise, its operation might be burdened, impeded or subjected to control by a mere local
government.
'The states have no power by taxation or otherwise, to retard, impede, burden or in any
manner control the operation of constitutional laws enacted by Congress to carry into
execution the powers vested in the federal government. (MC Culloch v. Maryland, 4 Wheat
316, 4 L Ed. 579)'
This doctrine emanates from the 'supremacy' of the National Government over local governments.
'Justice Holmes, speaking for the Supreme Court, made reference to the entire absence of
power on the part of the States to touch, in that way (taxation) at least, the instrumentalities
of the United States (Johnson v. Maryland, 254 US 51) and it can be agreed that no state or
political subdivision can regulate a federal instrumentality in such a way as to prevent it
from consummating its federal responsibilities, or even seriously burden it from
accomplishment of them.' (Antieau, Modern Constitutional Law, Vol. 2, p. 140, italics
supplied)
Otherwise, mere creatures of the State can defeat National policies thru extermination of what local
authorities may perceive to be undesirable activities or enterprise using the power to tax as ' a tool
regulation' (U.S. v. Sanchez, 340 US 42).
The power to tax which was called by Justice Marshall as the 'power to destroy' (Mc Culloch v.
Maryland,supra) cannot be allowed to defeat an instrumentality or creation of the very entity which
has the inherent power to wield it."27

Petitioner contends that section 193 of Rep. Act No. 7160, withdrawing the tax privileges of governmentowned or controlled corporations, is in the nature of an implied repeal. A special law, its charter cannot be
amended or modified impliedly by the local government code which is a general law. Consequently,
petitioner claims that its exemption from all taxes, fees or charges under its charter subsists despite the
passage of the LGC, viz:
"It is a well-settled rule of statutory construction that repeals of statutes by implication are not
favored and as much as possible, effect must be given to all enactments of the legislature.
Moreover, it has to be conceded that the charter of the NPC constitutes a special law. Republic Act
No. 7160, is a general law. It is a basic rule in statutory construction that the enactment of a later
legislation which is a general law cannot be construed to have repealed a special law. Where there
is a conflict between a general law and a special statute, the special statute should prevail since it
evinces the legislative intent more clearly than the general statute." 28
Finally, petitioner submits that the charter of the NPC, being a valid exercise of police power, should prevail
over the LGC. It alleges that the power of the local government to impose franchise tax is subordinate to
petitioner's exemption from taxation; "police power being the most pervasive, the least limitable and most
demanding of all powers, including the power of taxation." 29
The petition is without merit.
Taxes are the lifeblood of the government,30 for without taxes, the government can neither exist nor
endure. A principal attribute of sovereignty,31 the exercise of taxing power derives its source from the very
existence of the state whose social contract with its citizens obliges it to promote public interest and
common good. The theory behind the exercise of the power to tax emanates from necessity; 32 without
taxes, government cannot fulfill its mandate of promoting the general welfare and well-being of the
people.
In recent years, the increasing social challenges of the times expanded the scope of state activity, and
taxation has become a tool to realize social justice and the equitable distribution of wealth, economic
progress and the protection of local industries as well as public welfare and similar objectives. 33 Taxation
assumes even greater significance with the ratification of the 1987 Constitution. Thenceforth, the power to
tax is no longer vested exclusively on Congress; local legislative bodies are now given direct authority to
levy taxes, fees and other charges34 pursuant to Article X, section 5 of the 1987 Constitution, viz:
"Section 5.- Each Local Government unit shall have the power to create its own sources of revenue,
to levy taxes, fees and charges subject to such guidelines and limitations as the Congress may
provide, consistent with the basic policy of local autonomy. Such taxes, fees and charges shall
accrue exclusively to the Local Governments."
This paradigm shift results from the realization that genuine development can be achieved only by
strengthening local autonomy and promoting decentralization of governance. For a long time, the country's
highly centralized government structure has bred a culture of dependence among local government
leaders upon the national leadership. It has also "dampened the spirit of initiative, innovation and
imaginative resilience in matters of local development on the part of local government leaders." 35 The only
way to shatter this culture of dependence is to give the LGUs a wider role in the delivery of basic services,
and confer them sufficient powers to generate their own sources for the purpose. To achieve this goal,
section 3 of Article X of the 1987 Constitution mandates Congress to enact a local government code that
will, consistent with the basic policy of local autonomy, set the guidelines and limitations to this grant of
taxing powers, viz:
"Section 3. The Congress shall enact a local government code which shall provide for a more
responsive and accountable local government structure instituted through a system of

decentralization with effective mechanisms of recall, initiative, and referendum, allocate among the
different local government units their powers, responsibilities, and resources, and provide for the
qualifications, election, appointment and removal, term, salaries, powers and functions and duties
of local officials, and all other matters relating to the organization and operation of the local units."
To recall, prior to the enactment of the Rep. Act No. 7160, 36 also known as the Local Government Code of
1991 (LGC), various measures have been enacted to promote local autonomy. These include the Barrio
Charter of 1959,37 the Local Autonomy Act of 1959,38 the Decentralization Act of 196739 and the Local
Government Code of 1983.40 Despite these initiatives, however, the shackles of dependence on the
national government remained. Local government units were faced with the same problems that hamper
their capabilities to participate effectively in the national development efforts, among which are: (a)
inadequate tax base, (b) lack of fiscal control over external sources of income, (c) limited authority to
prioritize and approve development projects, (d) heavy dependence on external sources of income, and (e)
limited supervisory control over personnel of national line agencies. 41
Considered as the most revolutionary piece of legislation on local autonomy, 42 the LGC effectively deals
with the fiscal constraints faced by LGUs. It widens the tax base of LGUs to include taxes which were
prohibited by previous laws such as the imposition of taxes on forest products, forest concessionaires,
mineral products, mining operations, and the like. The LGC likewise provides enough flexibility to impose
tax rates in accordance with their needs and capabilities. It does not prescribe graduated fixed rates but
merely specifies the minimum and maximum tax rates and leaves the determination of the actual rates to
the respective sanggunian.43
One of the most significant provisions of the LGC is the removal of the blanket exclusion of
instrumentalities and agencies of the national government from the coverage of local taxation. Although as
a general rule, LGUs cannot impose taxes, fees or charges of any kind on the National Government, its
agencies and instrumentalities, this rule now admits an exception, i.e., when specific provisions of the LGC
authorize the LGUs to impose taxes, fees or charges on the aforementioned entities, viz:
"Section 133. Common Limitations on the Taxing Powers of the Local Government Units.- Unless
otherwise provided herein, the exercise of the taxing powers of provinces, cities, municipalities,
and barangays shall not extend to the levy of the following:
x

(o) Taxes, fees, or charges of any kind on the National Government, its agencies and
instrumentalities, and local government units." (emphasis supplied)
In view of the afore-quoted provision of the LGC, the doctrine in Basco vs. Philippine Amusement and
Gaming Corporation44 relied upon by the petitioner to support its claim no longer applies. To emphasize,
the Basco case was decided prior to the effectivity of the LGC, when no law empowering the local
government units to tax instrumentalities of the National Government was in effect. However, as this Court
ruled in the case of Mactan Cebu International Airport Authority (MCIAA) vs. Marcos,45 nothing prevents
Congress from decreeing that even instrumentalities or agencies of the government performing
governmental functions may be subject to tax.46 In enacting the LGC, Congress exercised its prerogative to
tax instrumentalities and agencies of government as it sees fit. Thus, after reviewing the specific
provisions of the LGC, this Court held that MCIAA, although an instrumentality of the national government,
was subject to real property tax, viz:
"Thus, reading together sections 133, 232, and 234 of the LGC, we conclude that as a general rule,
as laid down in section 133, the taxing power of local governments cannot extend to the levy
of inter alia, 'taxes, fees and charges of any kind on the national government, its agencies and
instrumentalities, and local government units'; however, pursuant to section 232, provinces, cities

and municipalities in the Metropolitan Manila Area may impose the real property tax except
on, inter alia, 'real property owned by the Republic of the Philippines or any of its political
subdivisions except when the beneficial use thereof has been granted for consideration or
otherwise, to a taxable person as provided in the item (a) of the first paragraph of section 12.'" 47
In the case at bar, section 151 in relation to section 137 of the LGC clearly authorizes the respondent city
government to impose on the petitioner the franchise tax in question.
In its general signification, a franchise is a privilege conferred by government authority, which does not
belong to citizens of the country generally as a matter of common right. 48 In its specific sense, a franchise
may refer to a general or primary franchise, or to a special or secondary franchise. The former relates to
the right to exist as a corporation, by virtue of duly approved articles of incorporation, or a charter
pursuant to a special law creating the corporation.49 The right under a primary or general franchise is
vested in the individuals who compose the corporation and not in the corporation itself. 50 On the other
hand, the latter refers to the right or privileges conferred upon an existing corporation such as the right to
use the streets of a municipality to lay pipes of tracks, erect poles or string wires. 51 The rights under a
secondary or special franchise are vested in the corporation and may ordinarily be conveyed or mortgaged
under a general power granted to a corporation to dispose of its property, except such special or
secondary franchises as are charged with a public use.52
In section 131 (m) of the LGC, Congress unmistakably defined a franchise in the sense of a secondary or
special franchise. This is to avoid any confusion when the word franchise is used in the context of taxation.
As commonly used, a franchise tax is "a tax on the privilege of transacting business in the state and
exercising corporate franchises granted by the state."53 It is not levied on the corporation simply for
existing as a corporation, upon its property54 or its income,55 but on its exercise of the rights or privileges
granted to it by the government. Hence, a corporation need not pay franchise tax from the time it ceased
to do business and exercise its franchise.56 It is within this context that the phrase "tax on businesses
enjoying a franchise" in section 137 of the LGC should be interpreted and understood. Verily, to determine
whether the petitioner is covered by the franchise tax in question, the following requisites should concur:
(1) that petitioner has a "franchise" in the sense of a secondary or special franchise; and (2) that it is
exercising its rights or privileges under this franchise within the territory of the respondent city
government.
Petitioner fulfills the first requisite. Commonwealth Act No. 120, as amended by Rep. Act No. 7395,
constitutes petitioner's primary and secondary franchises. It serves as the petitioner's charter, defining its
composition, capitalization, the appointment and the specific duties of its corporate officers, and its
corporate life span.57 As its secondary franchise, Commonwealth Act No. 120, as amended, vests the
petitioner the following powers which are not available to ordinary corporations, viz:
"x x x
(e) To conduct investigations and surveys for the development of water power in any part of the
Philippines;
(f) To take water from any public stream, river, creek, lake, spring or waterfall in the Philippines, for
the purposes specified in this Act; to intercept and divert the flow of waters from lands of riparian
owners and from persons owning or interested in waters which are or may be necessary for said
purposes, upon payment of just compensation therefor; to alter, straighten, obstruct or increase the
flow of water in streams or water channels intersecting or connecting therewith or contiguous to its
works or any part thereof: Provided, That just compensation shall be paid to any person or persons
whose property is, directly or indirectly, adversely affected or damaged thereby;

(g) To construct, operate and maintain power plants, auxiliary plants, dams, reservoirs, pipes,
mains, transmission lines, power stations and substations, and other works for the purpose of
developing hydraulic power from any river, creek, lake, spring and waterfall in the Philippines and
supplying such power to the inhabitants thereof; to acquire, construct, install, maintain, operate,
and improve gas, oil, or steam engines, and/or other prime movers, generators and machinery in
plants and/or auxiliary plants for the production of electric power; to establish, develop, operate,
maintain and administer power and lighting systems for the transmission and utilization of its
power generation; to sell electric power in bulk to (1) industrial enterprises, (2) city, municipal or
provincial systems and other government institutions, (3) electric cooperatives, (4) franchise
holders, and (5) real estate subdivisions x x x;
(h) To acquire, promote, hold, transfer, sell, lease, rent, mortgage, encumber and otherwise dispose
of property incident to, or necessary, convenient or proper to carry out the purposes for which the
Corporation was created: Provided, That in case a right of way is necessary for its transmission
lines, easement of right of way shall only be sought: Provided, however, That in case the property
itself shall be acquired by purchase, the cost thereof shall be the fair market value at the time of
the taking of such property;
(i) To construct works across, or otherwise, any stream, watercourse, canal, ditch, flume, street,
avenue, highway or railway of private and public ownership, as the location of said works may
require xxx;
(j) To exercise the right of eminent domain for the purpose of this Act in the manner provided by law
for instituting condemnation proceedings by the national, provincial and municipal governments;
x

(m) To cooperate with, and to coordinate its operations with those of the National Electrification
Administration and public service entities;
(n) To exercise complete jurisdiction and control over watersheds surrounding the reservoirs of
plants and/or projects constructed or proposed to be constructed by the Corporation. Upon
determination by the Corporation of the areas required for watersheds for a specific project, the
Bureau of Forestry, the Reforestation Administration and the Bureau of Lands shall, upon written
advice by the Corporation, forthwith surrender jurisdiction to the Corporation of all areas embraced
within the watersheds, subject to existing private rights, the needs of waterworks systems, and the
requirements of domestic water supply;
(o) In the prosecution and maintenance of its projects, the Corporation shall adopt measures to
prevent environmental pollution and promote the conservation, development and maximum
utilization of natural resources xxx "58
With these powers, petitioner eventually had the monopoly in the generation and distribution of electricity.
This monopoly was strengthened with the issuance of Pres. Decree No. 40, 59 nationalizing the electric
power industry. Although Exec. Order No. 21560 thereafter allowed private sector participation in the
generation of electricity, the transmission of electricity remains the monopoly of the petitioner.
Petitioner also fulfills the second requisite. It is operating within the respondent city government's
territorial jurisdiction pursuant to the powers granted to it by Commonwealth Act No. 120, as amended.
From its operations in the City of Cabanatuan, petitioner realized a gross income of P107,814,187.96 in
1992. Fulfilling both requisites, petitioner is, and ought to be, subject of the franchise tax in question.

Petitioner, however, insists that it is excluded from the coverage of the franchise tax simply because its
stocks are wholly owned by the National Government, and its charter characterized it as a "non-profit"
organization.
These contentions must necessarily fail.
To stress, a franchise tax is imposed based not on the ownership but on the exercise by the corporation of
a privilege to do business. The taxable entity is the corporation which exercises the franchise, and not the
individual stockholders. By virtue of its charter, petitioner was created as a separate and distinct entity
from the National Government. It can sue and be sued under its own name, 61 and can exercise all the
powers of a corporation under the Corporation Code.62
To be sure, the ownership by the National Government of its entire capital stock does not necessarily imply
that petitioner is not engaged in business. Section 2 of Pres. Decree No. 2029 63 classifies governmentowned or controlled corporations (GOCCs) into those performing governmental functions and those
performing proprietary functions, viz:
"A government-owned or controlled corporation is a stock or a non-stock corporation, whether
performing governmental or proprietary functions, which is directly chartered by special law or if
organized under the general corporation law is owned or controlled by the government directly, or
indirectly through a parent corporation or subsidiary corporation, to the extent of at least a majority
of its outstanding voting capital stock x x x." (emphases supplied)
Governmental functions are those pertaining to the administration of government, and as such, are treated
as absolute obligation on the part of the state to perform while proprietary functions are those that are
undertaken only by way of advancing the general interest of society, and are merely optional on the
government.64 Included in the class of GOCCs performing proprietary functions are "business-like" entities
such as the National Steel Corporation (NSC), the National Development Corporation (NDC), the Social
Security System (SSS), the Government Service Insurance System (GSIS), and the National Water
Sewerage Authority (NAWASA),65 among others.
Petitioner was created to "undertake the development of hydroelectric generation of power and the
production of electricity from nuclear, geothermal and other sources, as well as the transmission of electric
power on a nationwide basis."66 Pursuant to this mandate, petitioner generates power and sells electricity
in bulk. Certainly, these activities do not partake of the sovereign functions of the government. They are
purely private and commercial undertakings, albeit imbued with public interest. The public interest
involved in its activities, however, does not distract from the true nature of the petitioner as a commercial
enterprise, in the same league with similar public utilities like telephone and telegraph companies, railroad
companies, water supply and irrigation companies, gas, coal or light companies, power plants, ice plant
among others; all of which are declared by this Court as ministrant or proprietary functions of government
aimed at advancing the general interest of society.67
A closer reading of its charter reveals that even the legislature treats the character of the petitioner's
enterprise as a "business," although it limits petitioner's profits to twelve percent (12%), viz:68
"(n) When essential to the proper administration of its corporate affairs or necessary for the proper
transaction of its business or to carry out the purposes for which it was organized, to contract
indebtedness and issue bonds subject to approval of the President upon recommendation of the
Secretary of Finance;
(o) To exercise such powers and do such things as may be reasonably necessary to carry out
the business and purposes for which it was organized, or which, from time to time, may be declared

by the Board to be necessary, useful, incidental or auxiliary to accomplish the said purpose
xxx."(emphases supplied)
It is worthy to note that all other private franchise holders receiving at least sixty percent (60%) of its
electricity requirement from the petitioner are likewise imposed the cap of twelve percent (12%) on
profits.69 The main difference is that the petitioner is mandated to devote "all its returns from its capital
investment, as well as excess revenues from its operation, for expansion" 70 while other franchise holders
have the option to distribute their profits to its stockholders by declaring dividends. We do not see why this
fact can be a source of difference in tax treatment. In both instances, the taxable entity is the corporation,
which exercises the franchise, and not the individual stockholders.
We also do not find merit in the petitioner's contention that its tax exemptions under its charter subsist
despite the passage of the LGC.
As a rule, tax exemptions are construed strongly against the claimant. Exemptions must be shown to exist
clearly and categorically, and supported by clear legal provisions. 71 In the case at bar, the petitioner's sole
refuge is section 13 of Rep. Act No. 6395 exempting from, among others, "all income taxes, franchise taxes
and realty taxes to be paid to the National Government, its provinces, cities, municipalities and other
government agencies and instrumentalities." However, section 193 of the LGC withdrew, subject to limited
exceptions, the sweeping tax privileges previously enjoyed by private and public corporations. Contrary to
the contention of petitioner, section 193 of the LGC is an express, albeit general, repeal of all statutes
granting tax exemptions from local taxes.72 It reads:
"Sec. 193. Withdrawal of Tax Exemption Privileges.- Unless otherwise provided in this Code, tax
exemptions or incentives granted to, or presently enjoyed by all persons, whether natural or
juridical, including government-owned or controlled corporations, except local water districts,
cooperatives duly registered under R.A. No. 6938, non-stock and non-profit hospitals and
educational institutions, are hereby withdrawn upon the effectivity of this Code." (emphases
supplied)
It is a basic precept of statutory construction that the express mention of one person, thing, act, or
consequence excludes all others as expressed in the familiar maxim expressio unius est exclusio
alterius.73 Not being a local water district, a cooperative registered under R.A. No. 6938, or a non-stock and
non-profit hospital or educational institution, petitioner clearly does not belong to the exception. It is
therefore incumbent upon the petitioner to point to some provisions of the LGC that expressly grant it
exemption from local taxes.
But this would be an exercise in futility. Section 137 of the LGC clearly states that the LGUs can impose
franchise tax "notwithstanding any exemption granted by any law or other special law." This particular
provision of the LGC does not admit any exception. In City Government of San Pablo, Laguna v.
Reyes,74 MERALCO's exemption from the payment of franchise taxes was brought as an issue before this
Court. The same issue was involved in the subsequent case of Manila Electric Company v. Province of
Laguna.75 Ruling in favor of the local government in both instances, we ruled that the franchise tax in
question is imposable despite any exemption enjoyed by MERALCO under special laws, viz:
"It is our view that petitioners correctly rely on provisions of Sections 137 and 193 of the LGC to
support their position that MERALCO's tax exemption has been withdrawn. The explicit language of
section 137 which authorizes the province to impose franchise tax 'notwithstanding any exemption
granted by any law or other special law' is all-encompassing and clear. The franchise tax is
imposable despite any exemption enjoyed under special laws.
Section 193 buttresses the withdrawal of extant tax exemption privileges. By stating that unless
otherwise provided in this Code, tax exemptions or incentives granted to or presently enjoyed by all

persons, whether natural or juridical, including government-owned or controlled corporations


except (1) local water districts, (2) cooperatives duly registered under R.A. 6938, (3) non-stock and
non-profit hospitals and educational institutions, are withdrawn upon the effectivity of this code, the
obvious import is to limit the exemptions to the three enumerated entities. It is a basic precept of
statutory construction that the express mention of one person, thing, act, or consequence excludes
all others as expressed in the familiar maxim expressio unius est exclusio alterius. In the absence of
any provision of the Code to the contrary, and we find no other provision in point, any existing tax
exemption or incentive enjoyed by MERALCO under existing law was clearly intended to be
withdrawn.
Reading together sections 137 and 193 of the LGC, we conclude that under the LGC the local
government unit may now impose a local tax at a rate not exceeding 50% of 1% of the gross
annual receipts for the preceding calendar based on the incoming receipts realized within its
territorial jurisdiction. The legislative purpose to withdraw tax privileges enjoyed under existing law
or charter is clearly manifested by the language used on (sic) Sections 137 and 193 categorically
withdrawing such exemption subject only to the exceptions enumerated. Since it would be not only
tedious and impractical to attempt to enumerate all the existing statutes providing for special tax
exemptions or privileges, the LGC provided for an express, albeit general, withdrawal of such
exemptions or privileges. No more unequivocal language could have been used." 76 (emphases
supplied).
It is worth mentioning that section 192 of the LGC empowers the LGUs, through ordinances duly approved,
to grant tax exemptions, initiatives or reliefs.77 But in enacting section 37 of Ordinance No. 165-92 which
imposes an annual franchise tax "notwithstanding any exemption granted by law or other special law," the
respondent city government clearly did not intend to exempt the petitioner from the coverage thereof.
Doubtless, the power to tax is the most effective instrument to raise needed revenues to finance and
support myriad activities of the local government units for the delivery of basic services essential to the
promotion of the general welfare and the enhancement of peace, progress, and prosperity of the people.
As this Court observed in the Mactan case, "the original reasons for the withdrawal of tax exemption
privileges granted to government-owned or controlled corporations and all other units of government were
that such privilege resulted in serious tax base erosion and distortions in the tax treatment of similarly
situated enterprises."78 With the added burden of devolution, it is even more imperative for government
entities to share in the requirements of development, fiscal or otherwise, by paying taxes or other charges
due from them.
IN VIEW WHEREOF, the instant petition is DENIED and the assailed Decision and Resolution of the Court of
Appeals dated March 12, 2001 and July 10, 2001, respectively, are hereby AFFIRMED.
SO ORDERED.
Panganiban, Sandoval-Gutierrez, Corona, and Carpio-Morales, JJ., concur.
G.R. No. 166408

October 6, 2008

QUEZON CITY and THE CITY TREASURER OF QUEZON CITY, petitioners,


vs.
ABS-CBN BROADCASTING CORPORATION, respondent.
DECISION
REYES, R.T., J.:
CLAIMS for tax exemption must be based on language in law too plain to be mistaken. It cannot be made
out of inference or implication.

The principle is relevant in this petition for review on certiorari of the Decision1 of the Court of Appeals (CA)
and that2 of the Regional Trial Court (RTC) ordering the refund and declaring invalid the imposition and
collection of local franchise tax by the City Treasurer of Quezon City on ABS-CBN Broadcasting Corporation
(ABS-CBN).
The Facts
Petitioner City Government of Quezon City is a local government unit duly organized and existing by virtue
of Republic Act (R.A.) No. 537, otherwise known as the Revised Charter of Quezon City. Petitioner City
Treasurer of Quezon City is primarily responsible for the imposition and collection of taxes within the
territorial jurisdiction of Quezon City.
Under Section 31, Article 13 of the Quezon City Revenue Code of 1993, 3 a franchise tax was imposed on
businesses operating within its jurisdiction. The provision states:
Section 31. Imposition of Tax. - Any provision of special laws or grant of tax exemption to the
contrary notwithstanding, any person, corporation, partnership or association enjoying a franchise
whether issued by the national government or local government and, doing business in Quezon
City, shall pay a franchise tax at the rate of ten percent (10%) of one percent (1%) for 1993-1994,
twenty percent (20%) of one percent (1%) for 1995, and thirty percent (30%) of one percent (1%)
for 1996 and the succeeding years thereafter, of gross receipts and sales derived from the
operation of the business in Quezon City during the preceding calendar year.
On May 3, 1995, ABS-CBN was granted the franchise to install and operate radio and television
broadcasting stations in the Philippines under R.A. No. 7966. 4 Section 8 of R.A. No. 7966 provides the tax
liabilities of ABS-CBN which reads:
Section 8. Tax Provisions. - The grantee, its successors or assigns, shall be liable to pay the same
taxes on their real estate, buildings and personal property, exclusive of this franchise, as other
persons or corporations are now hereafter may be required by law to pay. In addition thereto, the
grantee, its successors or assigns, shall pay a franchise tax equivalent to three percent (3%)
of all gross receipts of the radio/television business transacted under this franchise by
the grantee, its successors or assigns, and the said percentage tax shall be in lieu of all
taxes on this franchise or earnings thereof; Provided that the grantee, its successors or
assigns shall continue to be liable for income taxes under Title II of the National Internal Revenue
Code pursuant to Section 2 of Executive No. 72 unless the latter enactment is amended or
repealed, in which case the amendment or repeal shall be applicable thereto. (Emphasis added)
ABS-CBN had been paying local franchise tax imposed by Quezon City. However, in view of the above
provision in R.A. No. 9766 that it "shall pay a franchise tax x x x in lieu of all taxes," the corporation
developed the opinion that it is not liable to pay the local franchise tax imposed by Quezon City.
Consequently, ABS-CBN paid under protest the local franchise tax imposed by Quezon City on the dates, in
the amounts and under the official receipts as follows:
O.R. No.

Date

Amount Paid

2464274

7/18/1995

P 1,489,977.28

2484651

10/20/1995

1,489,977.28

2536134

1/22/1996

2,880,975.65

8354906

1/23/1997

8,621,470.83

48756

1/23/1997

2,731,135.81

67352

4/3/1997

2,731,135.81
P19,944,672.665

Total

On January 29, 1997, ABS-CBN filed a written claim for refund for local franchise tax paid to Quezon City
for 1996 and for the first quarter of 1997 in the total amount of Fourteen Million Two Hundred Thirty-Three
Thousand Five Hundred Eighty-Two and 29/100 centavos (P14,233,582.29) broken down as follows:
O.R. No.
2536134

Date
1-22-96

Amount Paid
P 2,880,975.65

8354906

1-23-97

8,621,470.83

0048756

1-23-97

2,731,135.81
P14,233,582.296

Total

In a letter dated March 3, 1997 to the Quezon City Treasurer, ABS-CBN reiterated its claim for refund of
local franchise taxes paid.
On June 25, 1997, for failure to obtain any response from the Quezon City Treasurer, ABS-CBN filed a
complaint before the RTC in Quezon City seeking the declaration of nullity of the imposition of local
franchise tax by the City Government of Quezon City for being unconstitutional. It likewise prayed for the
refund of local franchise tax in the amount of Nineteen Million Nine Hundred Forty-Four Thousand Six
Hundred Seventy-Two and 66/100 centavos (P19,944,672.66) broken down as follows:
O.R. No.

Date

Amount Paid

2464274

7-18-95

P 1,489,977.28

2484651

10-20-95

1,489,977.28

2536134

1-22-96

2,880,975.65

8354906

1-23-97

8,621,470.83

0048756

1-23-97

2,731,135.81

0067352

4-03-97

2,731,135.81

Total

P19,944,672.667

Quezon City argued that the "in lieu of all taxes" provision in R.A. No. 9766 could not have been intended
to prevail over a constitutional mandate which ensures the viability and self-sufficiency of local
government units. Further, that taxes collectible by and payable to the local government were distinct from
taxes collectible by and payable to the national government, considering that the Constitution specifically
declared that the taxes imposed by local government units "shall accrue exclusively to the local
governments." Lastly, the City contended that the exemption claimed by ABS-CBN under R.A. No. 7966
was withdrawn by Congress when the Local Government Code (LGC) was passed. 8 Section 193 of the LGC
provides:
Section 193. Withdrawal of Tax Exemption Privileges. - Unless otherwise provided in this Code, tax
exemptions or incentives granted to, or presently enjoyed by all persons, whether
natural or juridical, including government-owned or -controlled corporations, except local
water districts, cooperatives duly registered under R.A. 6938, non-stock and non-profit hospitals
and educational institutions, are hereby withdrawn upon the effectivity of this Code. (Emphasis
added)
On August 13, 1997, ABS-CBN filed a supplemental complaint adding to its claim for refund the local
franchise tax paid for the third quarter of 1997 in the amount of Two Million Seven Hundred Thirty-One
Thousand One Hundred Thirty-Five and 81/100 centavos (P2,731,135.81) and of other amounts of local
franchise tax as may have been and will be paid by ABS-CBN until the resolution of the case.
Quezon City insisted that the claim for refund must fail because of the absence of a prior written claim for
it.
RTC and CA Dispositions
On January 20, 1999, the RTC rendered judgment declaring as invalid the imposition on and collection from
ABS-CBN of local franchise tax paid pursuant to Quezon City Ordinance No. SP-91, S-93, after the
enactment of R.A. No. 7966, and ordered the refund of all payments made. The dispositive portion of the
RTC decision reads:
WHEREFORE, judgment is hereby rendered declaring the imposition on and collection from plaintiff
ABS-CBN BROADCASTING CORPORATION of local franchise taxes pursuant to Quezon City Ordinance
No. SP-91, S-93 after the enactment of Republic Act No. 7966 to be invalid, and, accordingly, the
Court hereby orders the defendants to refund all its payments made after the effectivity of its
legislative franchise on May 3, 1995.

SO ORDERED.9
In its decision, the RTC ruled that the "in lieu of all taxes" provision contained in Section 8 of R.A. No. 7966
absolutely excused ABS-CBN from the payment of local franchise tax imposed under Quezon City
Ordinance No. SP-91, S-93. The intent of the legislature to excuse ABS-CBN from payment of local franchise
tax could be discerned from the usage of the "in lieu of all taxes" provision and from the absence of any
qualification except income taxes. Had Congress intended to exclude taxes imposed from the exemption, it
would have expressly mentioned so in a fashion similar to the proviso on income taxes.
The RTC also based its ruling on the 1990 case of Province of Misamis Oriental v. Cagayan Electric Power
and Light Company, Inc. (CEPALCO).10 In said case, the exemption of respondent electric company
CEPALCO from payment of provincial franchise tax was upheld on the ground that the franchise of
CEPALCO was a special law, while the Local Tax Code, on which the provincial ordinance imposing the local
franchise tax was based, was a general law. Further, it was held that whenever there is a conflict between
two laws, one special and particular and the other general, the special law must be taken as intended to
constitute an exception to the general act.
The RTC noted that the legislative franchise of ABS-CBN was granted years after the effectivity of the LGC.
Thus, it was unavoidable to conclude that Section 8 of R.A. No. 7966 was an exception since the legislature
ought to be presumed to have enacted it with the knowledge and awareness of the existence and prior
enactment of Section 13711 of the LGC.
In addition, the RTC, again citing the case of Province of Misamis Oriental v. Cagayan Electric Power and
Light Company, Inc. (CEPALCO),12 ruled that the imposition of the local franchise tax was an impairment of
ABS-CBN's contract with the government. The imposition of another franchise on the corporation by the
local authority would constitute an impairment of the former's charter, which is in the nature of a private
contract between it and the government.
As to the amounts to be refunded, the RTC rejected Quezon City's position that a written claim for refund
pursuant to Section 196 of the LGC was a condition sine qua non before filing the case in court. The RTC
ruled that although Fourteen Million Two Hundred Thirty-Three Thousand Five Hundred Eighty-Two and
29/100 centavos (P14,233,582.29) was the only amount stated in the letter to the Quezon City Treasurer
claiming refund, ABS-CBN should nonetheless be also refunded of all payments made after the effectivity
of R.A. No. 7966. The inaction of the City Treasurer on the claim for refund of ABS-CBN legally rendered any
further claims for refund on the part of plaintiff absurd and futile in relation to the succeeding payments.
The City of Quezon and its Treasurer filed a motion for reconsideration which was subsequently denied by
the RTC. Thus, appeal was made to the CA. On September 1, 2004, the CA dismissed the petition of
Quezon City and its Treasurer. According to the appellate court, the issues raised were purely legal
questions cognizable only by the Supreme Court. The CA ratiocinated:
For another, the issues which appellants submit for this Court's consideration are more of legal
query necessitating a legal opinion rather than a call for adjudication on the matter in dispute.
xxxx
The first issue has earlier been categorized in Province of Misamis Oriental v. Cagayan Electric and
Power Co., Inc. to be a legal one. There is no more argument to this.
The next issue although it may need the reexamination of the pertinent provisions of the local
franchise and the legislative franchise given to appellee, also needs no evaluation of facts. It
suffices that there may be a conflict which may need to be reconciled, without regard to the factual
backdrop of the case.
The last issue deals with a legal question, because whether or not there is a prior written claim for
refund is no longer in dispute. Rather, the question revolves on whether the said requirement may
be dispensed with, which obviously is not a factual issue.13
On September 23, 2004, petitioner moved for reconsideration. The motion was, however, denied by the CA
in its Resolution dated December 16, 2004. Hence, the present recourse.
Issues
Petitioner submits the following issues for resolution:
I.

Whether or not the phrase "in lieu of all taxes" indicated in the franchise of the respondent appellee
(Section 8 of RA 7966) serves to exempt it from the payment of the local franchise tax imposed by
the petitioners-appellants.
II.
Whether or not the petitioners-appellants raised factual and legal issues before the Honorable Court of
Appeals.14
Our Ruling
The second issue, being procedural in nature, shall be dealt with immediately. But there are other resultant
issues linked to the first.
I. The dismissal by the CA of petitioners' appeal is in order because it raised purely legal
issues, namely:
1) Whether appellee, whose franchise expressly provides that its payment of franchise tax shall be
in lieu of all taxes in this franchise or earnings thereof, is absolutely excused from paying the
franchise tax imposed by appellants;
2) Whether appellants' imposition of local franchise tax is a violation of appellee's legislative
franchise; and
3) Whether one can do away with the requirement on prior written claim for refund. 15
Obviously, these are purely legal questions, cognizable by this Court, to the exclusion of all other courts.
There is a question of law when the doubt or difference arises as to what the law is pertaining to a certain
state of facts.16
Section 2, Rule 50 of the Rules of Court provides that an appeal taken to the CA under Rule 41 raising only
questions of law is erroneous and shall be dismissed, issues of pure law not being within its
jurisdiction.17Consequently, the dismissal by the CA of petitioners' appeal was in order.
In the recent case of Sevilleno v. Carilo,18 this Court ruled that the dismissal of the appeal of petitioner was
valid, considering the issues raised there were pure questions of law, viz.:
Petitioners interposed an appeal to the Court of Appeals but it was dismissed for being the wrong
mode of appeal. The appellate court held that since the issue being raised is whether the RTC has
jurisdiction over the subject matter of the case, which is a question of law, the appeal should have
been elevated to the Supreme Court under Rule 45 of the 1997 Rules of Civil Procedure, as
amended. Section 2, Rule 41 of the same Rules which governs appeals from judgments and final
orders of the RTC to the Court of Appeals, provides:
SEC. 2. Modes of appeal. (a) Ordinary appeal. - The appeal to the Court of Appeals in cases decided by the Regional
Trial Court in the exercise of its original jurisdiction shall be taken by filing a notice of appeal
with the court which rendered the judgment or final order appealed from and serving a copy
thereof upon the adverse party. No record on appeal shall be required except in special
proceedings and other cases of multiple or separate appeals where the law or these Rules so
require. In such cases, the record on appeal shall be filed and served in like manner.
(b) Petition for review. - The appeal to the Court of Appeals in cases decided by the Regional
Trial Court in the exercise of its appellate jurisdiction shall be by petition for review in
accordance with Rule 42.
(c) Appeal by certiorari. - In all cases where only questions of law are raised or involved, the
appeal shall be to the Supreme Court by petition for review on certiorari in accordance with
Rule 45.
In Macawili Gold Mining and Development Co., Inc. v. Court of Appeals, we summarized the rule on
appeals as follows:
(1) In all cases decided by the RTC in the exercise of its original jurisdiction, appeal may be
made to the Court of Appeals by mere notice of appeal where the appellant raises questions
of fact or mixed questions of fact and law;
(2) In all cases decided by the RTC in the exercise of its original jurisdiction where the
appellant raises only questions of law, the appeal must be taken to the Supreme Court on a
petition for review on certiorari under Rule 45;

(3) All appeals from judgments rendered by the RTC in the exercise of its appellate
jurisdiction, regardless of whether the appellant raises questions of fact, questions of law, or
mixed questions of fact and law, shall be brought to the Court of Appeals by filing a petition
for review under Rule 42.
It is not disputed that the issue brought by petitioners to the Court of Appeals involves the
jurisdiction of the RTC over the subject matter of the case. We have a long standing rule that a
court's jurisdiction over the subject matter of an action is conferred only by the Constitution or by
statute. Otherwise put, jurisdiction of a court over the subject matter of the action is a matter of
law. Consequently, issues which deal with the jurisdiction of a court over the subject matter of a
case are pure questions of law. As petitioners' appeal solely involves a question of law, they should
have directly taken their appeal to this Court by filing a petition for review on certiorari under Rule
45, not an ordinary appeal with the Court of Appeals under Rule 41. Clearly, the appellate court did
not err in holding that petitioners pursued the wrong mode of appeal.
Indeed, the Court of Appeals did not err in dismissing petitioners' appeal. Section 2, Rule 50 of the
same Rules provides that an appeal from the RTC to the Court of Appeals raising only questions of
law shall be dismissed; and that an appeal erroneously taken to the Court of Appeals shall be
dismissed outright, x x x.19 (Emphasis added)
However, to serve the demands of substantial justice and equity, the Court opts to relax procedural rules
and rule upon on the merits of the case. In Ong Lim Sing Jr. v. FEB Leasing and Finance Corporation,20 this
Court stated:
Courts have the prerogative to relax procedural rules of even the most mandatory character,
mindful of the duty to reconcile both the need to speedily put an end to litigation and the parties'
right to due process. In numerous cases, this Court has allowed liberal construction of the rules
when to do so would serve the demands of substantial justice and equity. In Aguam v. Court of
Appeals, the Court explained:
"The court has the discretion to dismiss or not to dismiss an appellant's appeal. It is a power
conferred on the court, not a duty. The "discretion must be a sound one, to be exercised in
accordance with the tenets of justice and fair play, having in mind the circumstances
obtaining in each case." Technicalities, however, must be avoided. The law abhors
technicalities that impede the cause of justice. The court's primary duty is to render or
dispense justice. "A litigation is not a game of technicalities." "Lawsuits unlike duels are not
to be won by a rapier's thrust. Technicality, when it deserts its proper office as an aid to
justice and becomes its great hindrance and chief enemy, deserves scant consideration from
courts." Litigations must be decided on their merits and not on technicality. Every party
litigant must be afforded the amplest opportunity for the proper and just determination of
his cause, free from the unacceptable plea of technicalities. Thus, dismissal of appeals
purely on technical grounds is frowned upon where the policy of the court is to encourage
hearings of appeals on their merits and the rules of procedure ought not to be applied in a
very rigid, technical sense; rules of procedure are used only to help secure, not override
substantial justice. It is a far better and more prudent course of action for the court to
excuse a technical lapse and afford the parties a review of the case on appeal to attain the
ends of justice rather than dispose of the case on technicality and cause a grave injustice to
the parties, giving a false impression of speedy disposal of cases while actually resulting in
more delay, if not a miscarriage of justice.21
II. The "in lieu of all taxes" provision in its franchise does not exempt ABS-CBN from payment
of local franchise tax.
A. The present controversy essentially boils down to a dispute between the inherent taxing power of
Congress and the delegated authority to tax of local governments under the 1987 Constitution and
effected under the LGC of 1991.
The power of the local government of Quezon City to impose franchise tax is based on Section 151 in
relation to Section 137 of the LGC, to wit:
Section 137. Franchise Tax. - Notwithstanding any exemption granted by any law or other special
law, the province may impose a tax on businesses enjoying a franchise, at the rate not exceeding
fifty percent (50%) of one percent (1%) of the gross annual receipts for the preceding calendar year
based on the incoming receipt, or realized within its territorial jurisdiction. x x x
xxxx

Section 151. Scope of Taxing Powers. - Except as otherwise provided in this Code, the city may levy
the taxes, fees and charges which the province or municipality may impose: Provided, however,
That the taxes, fees and charges levied and collected by highly urbanized and 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. (Emphasis supplied)
Such taxing power by the local government, however, is limited in the sense that Congress can enact
legislation granting exemptions. This principle was upheld in City Government of Quezon City, et al. v.
Bayan Telecommunications, Inc.22 Said this Court:
This thus raises the question of whether or not the City's Revenue Code pursuant to which the city
treasurer of Quezon City levied real property taxes against Bayantel's real properties located within
the City effectively withdrew the tax exemption enjoyed by Bayantel under its franchise, as
amended.
Bayantel answers the poser in the negative arguing that once again it is only "liable to pay the
same taxes, as any other persons or corporations on all its real or personal properties, exclusive of
its franchise."
Bayantel's posture is well-taken. While the system of local government taxation has changed with
the onset of the 1987 Constitution, the power of local government units to tax is still limited. As we
explained in Mactan Cebu International Airport Authority:
"The power to tax is primarily vested in the Congress; however, in our jurisdiction, it may be
exercised by local legislative bodies, no longer merely be virtue of a valid delegation as
before, but pursuant to direct authority conferred by Section 5, Article X of the Constitution.
Under the latter, the exercise of the power may be subject to such guidelines and limitations
as the Congress may provide which, however, must be consistent with the basic policy of
local autonomy. x x x"
Clearly then, while a new slant on the subject of local taxation now prevails in the sense that the
former doctrine of local government units' delegated power to tax had been effectively modified
with Article X, Section 5 of the 1987 Constitution now in place, the basic doctrine on local taxation
remains essentially the same. For as the Court stressed in Mactan, "the power to tax is [still]
primarily vested in the Congress."
This new perspective is best articulated by Fr. Joaquin G. Bernas, S.J., himself a Commissioner of the
1986 Constitutional Commission which crafted the 1987 Constitution, thus:
"What is the effect of Section 5 on the fiscal position of municipal corporations? Section 5
does not change the doctrine that municipal corporations do not possess inherent powers of
taxation. What it does is to confer municipal corporations a general power to levy taxes and
otherwise create sources of revenue. They no longer have to wait for a statutory grant of
these powers. The power of the legislative authority relative to the fiscal powers of local
governments has been reduced to the authority to impose limitations on municipal powers.
Moreover, these limitations must be "consistent with the basic policy of local autonomy." The
important legal effect of Section 5 is thus to reverse the principle that doubts are resolved
against municipal corporations. Henceforth, in interpreting statutory provisions on municipal
fiscal powers, doubts will be resolved in favor of municipal corporations. It is understood,
however, that taxes imposed by local government must be for a public purpose, uniform
within a locality, must not be confiscatory, and must be within the jurisdiction of the local
unit to pass."
In net effect, the controversy presently before the Court involves, at bottom, a clash between the
inherent taxing power of the legislature, which necessarily includes the power to exempt, and the
local government's delegated power to tax under the aegis of the 1987 Constitution.
Now to go back to the Quezon City Revenue Code which imposed real estate taxes on all real
properties within the city's territory and removed exemptions theretofore "previously granted to, or
presently enjoyed by all persons, whether natural or juridical [x x x]" there can really be no dispute
that the power of the Quezon City Government to tax is limited by Section 232 of the LGC which
expressly provides that "a province or city or municipality within the Metropolitan Manila Area may
levy an annual ad valorem tax on real property such as land, building, machinery, and other
improvement not hereinafter specifically exempted." Under this law, the Legislature highlighted its

power to thereafter exempt certain realties from the taxing power of local government units. An
interpretation denying Congress such power to exempt would reduce the phrase "not hereinafter
specifically exempted" as a pure jargon, without meaning whatsoever. Needless to state, such
absurd situation is unacceptable.
For sure, in Philippine Long Distance Telephone Company, Inc. (PLDT) vs. City of Davao, this Court
has upheld the power of Congress to grant exemptions over the power of local government units to
impose taxes. There, the Court wrote:
"Indeed, the grant of taxing powers to local government units under the Constitution and
the LGC does not affect the power of Congress to grant exemptions to certain persons,
pursuant to a declared national policy. The legal effect of the constitutional grant to local
governments simply means that in interpreting statutory provisions on municipal taxing
powers, doubts must be resolved in favor of municipal corporations." 23 (Emphasis supplied)
In the case under review, the Philippine Congress enacted R.A. No. 7966 on March 30, 1995, subsequent to
the effectivity of the LGC on January 1, 1992. Under it, ABS-CBN was granted the franchise to install and
operate radio and television broadcasting stations in the Philippines. Likewise, Section 8 imposed on ABSCBN the duty of paying 3% franchise tax. It bears stressing, however, that payment of the percentage
franchise tax shall be "in lieu of all taxes" on the said franchise. 24
Congress has the inherent power to tax, which includes the power to grant tax exemptions. On the other
hand, the power of Quezon City to tax is prescribed by Section 151 in relation to Section 137 of the LGC
which expressly provides that notwithstanding any exemption granted by any law or other special law, the
City may impose a franchise tax. It must be noted that Section 137 of the LGC does not prohibit grant of
future exemptions. As earlier discussed, this Court in City Government of Quezon City v. Bayan
Telecommunications, Inc.25sustained the power of Congress to grant tax exemptions over and above the
power of the local government's delegated power to tax.
B. The more pertinent issue now to consider is whether or not by passing R.A. No. 7966, which contains the
"in lieu of all taxes" provision, Congress intended to exempt ABS-CBN from local franchise tax.
Petitioners argue that the "in lieu of all taxes" provision in ABS-CBN's franchise does not expressly exempt
it from payment of local franchise tax. They contend that a tax exemption cannot be created by mere
implication and that one who claims tax exemptions must be able to justify his claim by clearest grant of
organic law or statute.
Taxes are what civilized people pay for civilized society. They are the lifeblood of the nation. Thus, statutes
granting tax exemptions are construed stricissimi juris against the taxpayer and liberally in favor of the
taxing authority. A claim of tax exemption must be clearly shown and based on language in law too plain to
be mistaken. Otherwise stated, taxation is the rule, exemption is the exception. 26 The burden of proof rests
upon the party claiming the exemption to prove that it is in fact covered by the exemption so claimed. 27
The basis for the rule on strict construction to statutory provisions granting tax exemptions or deductions
is to minimize differential treatment and foster impartiality, fairness and equality of treatment among
taxpayers.28 He who claims an exemption from his share of common burden must justify his claim that the
legislature intended to exempt him by unmistakable terms. For exemptions from taxation are not favored
in law, nor are they presumed. They must be expressed in the clearest and most unambiguous language
and not left to mere implications. It has been held that "exemptions are never presumed, the burden is on
the claimant to establish clearly his right to exemption and cannot be made out of inference or
implications but must be laid beyond reasonable doubt. In other words, since taxation is the rule and
exemption the exception, the intention to make an exemption ought to be expressed in clear and
unambiguous terms.29
Section 8 of R.A. No. 7966 imposes on ABS-CBN a franchise tax equivalent to three (3) percent of all gross
receipts of the radio/television business transacted under the franchise and the franchise tax shall be "in
lieu of all taxes" on the franchise or earnings thereof.
The "in lieu of all taxes" provision in the franchise of ABS-CBN does not expressly provide what kind of
taxes ABS-CBN is exempted from. It is not clear whether the exemption would include both local, whether
municipal, city or provincial, and national tax. What is clear is that ABS-CBN shall be liable to pay three (3)
percent franchise tax and income taxes under Title II of the NIRC. But whether the "in lieu of all taxes
provision" would include exemption from local tax is not unequivocal.
As adverted to earlier, the right to exemption from local franchise tax must be clearly established and
cannot be made out of inference or implications but must be laid beyond reasonable doubt. Verily, the
uncertainty in the "in lieu of all taxes" provision should be construed against ABS-CBN. ABS-CBN has the

burden to prove that it is in fact covered by the exemption so claimed. ABS-CBN miserably failed in this
regard.
ABS-CBN cites the cases Carcar Electric & Ice Plant v. Collector of Internal Revenue,30 Manila Railroad v.
Rafferty,31 Philippine Railway Co. v. Collector of Internal Revenue,32 and Visayan Electric Co. v. David33 to
support its claim that that the "in lieu of all taxes" clause includes exemption from all taxes.
However, a review of the foregoing case law reveals that the grantees' respective franchises expressly
exempt them from municipal and provincial taxes. Said the Court in Manila Railroad v. Rafferty:34
On the 7th day of July 1906, by an Act of the Philippine Legislature, a special charter was granted to
the Manila Railroad Company. Subsection 12 of Section 1 of said Act (No. 1510) provides that:
"In consideration of the premises and of the granting of this concession or franchise, there
shall be paid by the grantee to the Philippine Government, annually, for the period of thirty
(30) years from the date hereof, an amount equal to one-half (1/2) of one per cent of the
gross earnings of the grantee in respect of the lines covered hereby for the preceding year;
after said period of thirty (30) years, and for the fifty (50) years thereafter, the amount so to
be paid annually shall be an amount equal to one and one-half (1 1/2) per cent of such gross
earnings for the preceding year; and after such period of eighty (80) years, the percentage
and amount so to be paid annually by the grantee shall be fixed by the Philippine
Government.
Such annual payments, when promptly and fully made by the grantee, shall be in lieu of all
taxes of every name and nature - municipal, provincial or central - upon its capital stock,
franchises, right of way, earnings, and all other property owned or operated by the grantee
under this concession or franchise."35 (Underscoring supplied)
In the case under review, ABS-CBN's franchise did not embody an exemption similar to those in Carcar,
Manila Railroad, Philippine Railway, and Visayan Electric. Too, the franchise failed to specify the taxing
authority from whose jurisdiction the taxing power is withheld, whether municipal, provincial, or national.
In fine, since ABS-CBN failed to justify its claim for exemption from local franchise tax, by a grant
expressed in terms "too plain to be mistaken" its claim for exemption for local franchise tax must fail.
C. The "in lieu of all taxes" clause in the franchise of ABS-CBN has become functus officio with the abolition
of the franchise tax on broadcasting companies with yearly gross receipts exceeding Ten Million Pesos.
In its decision dated January 20, 1999, the RTC held that pursuant to the "in lieu of all taxes" provision
contained in Section 8 of R.A. No. 7966, ABS-CBN is exempt from the payment of the local franchise tax.
The RTC further pronounced that ABS-CBN shall instead be liable to pay a franchise tax of 3% of all gross
receipts in lieu of all other taxes.
On this score, the RTC ruling is flawed. In keeping with the laws that have been passed since the grant of
ABS-CBN's franchise, the corporation should now be subject to VAT, instead of the 3% franchise tax.
At the time of the enactment of its franchise on May 3, 1995, ABS-CBN was subject to 3% franchise tax
under Section 117(b) of the 1977 National Internal Revenue Code (NIRC), as amended, viz.:
SECTION 117. Tax on franchises. - Any provision of general or special laws to the contrary
notwithstanding, there shall be levied, assessed and collected in respect to all franchise, upon the
gross receipts from the business covered by the law granting the franchise, a tax in accordance
with the schedule prescribed hereunder:
(a) On electric utilities, city gas, and water supplies Two (2%) percent
(b) On telephone and/or telegraph systems, radio and/or broadcasting stations
Three (3%) percent
(c) On other franchises Five (5%) percent. (Emphasis supplied)
On January 1, 1996, R.A. No. 7716, otherwise known as the Expanded Value Added Tax Law, 36 took effect
and subjected to VAT those services rendered by radio and/or broadcasting stations. Section 3 of R.A. No.
7716 provides:
Section 3. Section 102 of the National Internal Revenue Code, as amended is hereby further
amended to read as follows:
SEC. 102. Value-added tax on sale of services and use or lease of properties. - (a) Rate and
base of tax. - There shall be levied, assessed and collected, as value-added tax equivalent to

10% of gross receipts derived from the sale or exchange of services, including the use or
lease of properties.
The phrase "sale or exchange of services" means the performance of all kinds of services in
the Philippines, for others for a fee, remuneration or consideration, including those
performed or rendered by construction and service contractors; x x x services of franchise
grantees of telephone and telegraph, radio and television broadcasting and all other
franchise grantees except those under Section 117 of this Code; x x x (Emphasis supplied)
Notably, under the same law, "telephone and/or telegraph systems, broadcasting stations and other
franchise grantees" were omitted from the list of entities subject to franchise tax. The impression was that
these entities were subject to 10% VAT but not to franchise tax. Only the franchise tax on "electric, gas and
water utilities" remained. Section 12 of R.A. No. 7716 provides:
Section 12. Section 117 of the National Internal Revenue Code, as amended, is hereby further
amended to read as follows:
SEC. 117. Tax on Franchises. - Any provision of general or special law to the contrary
notwithstanding there shall be levied, assessed and collected in respect to all franchises on
electric, gas and water utilities a tax of two percent (2%) on the gross receipts derived from
the business covered by the law granting the franchise. (Emphasis added)
Subsequently, R.A. No. 824137 took effect on January 1, 199738 containing more amendments to the NIRC.
Radio and/or television companies whose annual gross receipts do not exceed P10,000,000.00 were
granted the option to choose between paying 3% national franchise tax or 10% VAT. Section 9 of R.A. No.
8241 provides:
SECTION 9. Section 12 of Republic Act No. 7716 is hereby amended to read as follows:
"Sec. 12. Section 117 of the National Internal Revenue Code, as amended, is hereby further
amended to read as follows:
"Sec. 117. Tax on franchise. - Any provision of general or special law to the contrary,
notwithstanding, there shall be levied, assessed and collected in respect to all franchises on
radio and/or television broadcasting companies whose annual gross receipts of the
preceding year does not exceed Ten million pesos (P10,000,000.00), subject to Section
107(d) of this Code, a tax of three percent (3%) and on electric, gas and water utilities, a tax
of two percent (2%) on the gross receipts derived from the business covered by the law
granting the franchise: Provided, however, That radio and television broadcasting
companies referred to in this section, shall have an option to be registered as a value-added
tax payer and pay the tax due thereon: Provided, further, That once the option is exercised,
it shall not be revoked. (Emphasis supplied)
On the other hand, radio and/or television companies with yearly gross
receipts exceeding P10,000,000.00 were subject to 10% VAT, pursuant to Section 102 of the NIRC.
On January 1, 1998, R.A. No. 842439 was passed confirming the 10% VAT liability of radio and/or television
companies with yearly gross receipts exceeding P10,000,000.00.
R.A. No. 9337 was subsequently enacted and became effective on July 1, 2005. The said law further
amended the NIRC by increasing the rate of VAT to 12%. The effectivity of the imposition of the 12% VAT
was later moved from January 1, 2006 to February 1, 2006.
In consonance with the above survey of pertinent laws on the matter, ABS-CBN is subject to the payment
of VAT. It does not have the option to choose between the payment of franchise tax or VAT since it is a
broadcasting company with yearly gross receipts exceeding Ten Million Pesos (P10,000,000.00).
VAT is a percentage tax imposed on any person whether or not a franchise grantee, who in the course of
trade or business, sells, barters, exchanges, leases, goods or properties, renders services. It is also levied
on every importation of goods whether or not in the course of trade or business. The tax base of the VAT is
limited only to the value added to such goods, properties, or services by the seller, transferor or lessor.
Further, the VAT is an indirect tax and can be passed on to the buyer.
The franchise tax, on the other hand, is a percentage tax imposed only on franchise holders. It is imposed
under Section 119 of the Tax Code and is a direct liability of the franchise grantee.
The clause "in lieu of all taxes" does not pertain to VAT or any other tax. It cannot apply when what is paid
is a tax other than a franchise tax. Since the franchise tax on the broadcasting companies with yearly

gross receipts exceeding ten million pesos has been abolished, the "in lieu of all taxes" clause has now
become functus officio, rendered inoperative.
In sum, ABS-CBN's claims for exemption must fail on twin grounds. First, the "in lieu of all taxes" clause in
its franchise failed to specify the taxes the company is sought to be exempted from. Neither did it
particularize the jurisdiction from which the taxing power is withheld. Second, the clause has
become functus officio because as the law now stands, ABS-CBN is no longer subject to a franchise tax. It
is now liable for VAT.
WHEREFORE, the petition is GRANTED and the appealed Decision REVERSED AND SET ASIDE. The
petition in the trial court for refund of local franchise tax is DISMISSED.
SO ORDERED.
FIRST DIVISION

COCA-COLA
INC.,

BOTTLERS

PHILIPPINES,

Petitioner,

G.R. No. 156252


Present:
PANGANIBAN, CJ

- versus -

Chairperson,
YNARES-SANTIAGO,
AUSTRIA-MARTINEZ,
CALLEJO, SR., and

CITY
OF MANILA, LIBERTY M.TOLEDO City
Treasurer
and
JOSEPH SANTIAGO Chief,
Licensing
Division,

CHICO-NAZARIO, JJ.
Promulgated:

Respondents.
June 27, 2006
x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x

DECISION

CHICO-NAZARIO, J.:

Before Us is a Petition for Review on Certiorari under Rule 45 of the 1997 Rules of Civil Procedure,
assailing the Order[1] of the Regional Trial Court (RTC) of Manila, Branch 21, dated 8 May 2002, dismissing
petitioners Petition for Injunction, and the Order [2] dated 5 December 2002, denying petitioners Motion for
Reconsideration.

Petitioner Coca-Cola Bottlers Philippines, Inc. is a corporation engaged in the business of


manufacturing and selling beverages and maintains a sales office located in the City of Manila.
On 25 February 2000, the City Mayor of Manila approved Tax Ordinance No. 7988, otherwise known
as Revised Revenue Code of the City of Manila repealing Tax Ordinance No. 7794 entitled, Revenue Code of
the City of Manila. Tax Ordinance No. 7988 amended certain sections of Tax Ordinance No. 7794 by
increasing the tax rates applicable to certain establishments operating within the territorial jurisdiction of
the City of Manila, including herein petitioner.
Aggrieved by said tax ordinance, petitioner filed a Petition [3] before the Department of Justice (DOJ),
against the City of Manila and its Sangguniang Panlungsod, invoking Section 187 [4] of the Local
Government Code of 1991 (Republic Act No. 7160). Said Petition questions the constitutionality or legality
of Section 21 of Tax Ordinance No. 7988. According to petitioner:
Section 21 of the Old Revenue Code of the City of Manila (Ordinance No. 7794, as amended)
was reproduced verbatim as Section 21 under the new Ordinance except for the last
paragraph thereof which reads: PROVIDED, that all registered businesses in the City of
Manila that are already paying the aforementioned tax shall be exempted from payment
thereof, which was deleted; that said deletion would, in effect, impose additional business
tax on businesses, including herein petitioner, that are already subject to business tax under
the other sections, specifically Sec. 14, of the New Revenue Code of the City of Manila,
which imposition, petitioner claims, is beyond or exceeds the limitation on the taxing power
of the City of Manila under Sec. 143 (h) of the LGC of 1991; and that deletion is a palpable
and manifest violation of the Local Government Code of 1991, and the clear mandate of
Article X, Sec. 5 of the 1987 Constitution, hence Section 21 is illegal and unconstitutional.
On 17 August 2000, then DOJ Secretary Artemio G. Tuquero issued a Resolution declaring Tax
Ordinance No. 7988 null and void and without legal effect, the pertinent portions of which read:
After a judicious scrutiny of the records of this case, in the light of the pertinent
provisions of the Local Government Code of 1991, this Department finds for the petitioner.
The Local Government Code of 1991 provides:
Section 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 or local circulations the same may be posted in at least
two (2) conspicuous and publicly accessible places. (R.A. No. 7160) (stress
supplied)
Upon the other hand, the Rules and Regulations Implementing the Local Government Code
of 1991, insofar as pertinent, mandates:
Art. 277. Publication of Tax Ordinances and Revenue Measures. (a)
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
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.
If the tax ordinances or revenue measure contains penal provisions as
authorized under Art. 279 of this Rule, the gist of such tax ordinance or
revenue measure shall be published in a newspaper of general circulation
within the province, posting of such ordinance or measure shall be made in
accessible and conspicuous public places in all municipalities and cities of the
province to which the sanggunian enacting the ordinance or revenue measure
belongs.
xxx xxx xxx.
(emphasis ours)
It is clear from the above-quoted provisions of R.A. No. 7160 and its implementing
rules that the requirement of publication is MANDATORY and leaves no choice. The use of
the word shall in both provisions is imperative, operating to impose a duty that may be
enforced (Soco v. Militante, 123 SCRA 160, 167; Modern Coach Corp. v. Faver 173 SE 2d 497,
499).
Its essence is simply to inform the people and the entities who may likely be affected,
of the existence of the tax measure. It bears emphasis, that, strict observance of the said
procedural requirement is the only safeguard against any unjust and unreasonable exercise
of the taxing powers by ensuring that the taxpayers are notified through publication of the
existence of the measure, and are therefore able to voice out their views or objections to the
said measure. For, after all, taxes are obligatory exactions or enforced contributions corollary
to taking of property.
xxxx
In the case at bar, respondents, by its failure to file their comments and present
documentary evidence to show that the mandatory requirement of law on publication,
among other things, has been met, may be deemed to have waived its right to controvert or
dispute the documentary evidence submitted by petitioner which indubitably show that
subject tax ordinance was published only once, i.e., on the May 22, 2000 issue of the
Philippine Post. Clearly, therefore, herein respondents failed to satisfy the requirement that
said ordinance shall be published for three (3) consecutive days as required by law.
xxxx
In view of the foregoing, we find it unnecessary to pass upon the other issues raised
by the petitioner.
WHEREFORE, premises considered, Tax Ordinance No. 7988 of the City of Manila is
hereby declared NULL and VOID and WITHOUT LEGAL EFFECT for having been enacted in
contravention of the provisions of the Local Government Code of 1991 and its implementing
rules and regulations.[5]

The City of Manila failed to file a Motion for Reconsideration nor lodge an appeal of said Resolution,
thus, said Resolution of the DOJ Secretary declaring Tax Ordinance No. 7988 null and void has lapsed into
finality.
On 16 November 2000, Atty. Leonardo A. Aurelio wrote the Bureau of Local Government Finance
(BLGF) requesting in behalf of his client, Singer Sewing Machine Company, an opinion on whether the
Office of the City Treasurer of Manila has the right to enforce Tax Ordinance No. 7988 despite the
Resolution, dated 17 August 2000, of the DOJ Secretary. Acting on said letter, the BLGF Executive Director
issued an Indorsement on 20 November 2000 ordering the City Treasurer of Manila to cease and desist
from enforcing Tax Ordinance No. 7988. According to the BLGF:
In the attached Resolution dated August 17, 2000 of the Department of Justice, it is
stated that x x x Ordinance No. 7988 of the City of Manila is hereby declared NULL AND VOID
AND WITHOUT LEGAL EFFECT for having been enacted in contravention of the provisions of
the Local Government Code of 1991 and its implementing rules and regulations.
xxxx
In view thereof, that Office is hereby instructed to cease and desist from
implementing the aforementioned Manila Tax Ordinance No. 7988, inviting attention to
Section 190 of the Local Government Code (LGC) of 1991, quoted hereunder:
Section 190. Attempt to Enforce Void or Suspended Tax Ordinances and
Revenue Measures.- The enforcement of any tax ordinance or revenue
measures after due notice of the disapproval or suspension thereof shall be
sufficient ground to administrative disciplinary action against the local officials
and employees responsible therefore.
Be guided accordingly.[6]

Despite the Resolution of the DOJ declaring Tax Ordinance No. 7988 null and void and the directive
of the BLGF that respondents cease and desist from enforcing said tax ordinance, respondents continued
to assess petitioner business tax for the year 2001 based on the tax rates prescribed under Tax Ordinance
No. 7988. Thus, petitioner filed a Complaint with the RTC of Manila, Branch 21, on 17 January 2001, praying
that respondents be enjoined from implementing the aforementioned tax ordinance.
On 28 November 2001, the RTC of Manila, Branch 21, rendered a Decision in favor of petitioner,
the decretal portion of which states:
The defendants did not follow the procedure in the enactment of Tax Ordinance No.
7988. The Court agrees with plaintiffs contention that the ordinance should first be published
for three (3) consecutive days in a newspaper of local circulation aside from the posting of
the same in at least four (4) conspicuous public places.
xxxx
WHEREFORE, premises considered, judgment is hereby rendered declaring the
injunction permanent. Defendants are enjoined from implementing Tax Ordinance No. 7988.
The bond posted by the plaintiff is hereby CANCELLED.[7]

During the pendency of the said case, the City Mayor of Manila approved on 22 February 2001 Tax
Ordinance No. 8011 entitled, An Ordinance Amending Certain Sections of Ordinance No. 7988. Said tax
ordinance was again challenged by petitioner before the DOJ through a Petition questioning the legality of
the aforementioned tax ordinance on the grounds that (1) said tax ordinance amends a tax ordinance
previously declared null and void and without legal effect by the DOJ; and (2) said tax ordinance was
likewise not published upon its approval in accordance with Section 188 of the Local Government Code of
1991.
On 5 July 2001, then DOJ Secretary Hernando Perez issued a Resolution declaring Tax Ordinance No.
8011 null and void and legally not existing. According to the DOJ Secretary:
After a careful examination/evaluation of the records of this case and applying the
pertinent provisions of the Local Government Code of 1991, this Department finds the
instant petition of Coca-Cola Bottlers, Philippines, Inc. meritorious.
It bears stress, at the outset, that the subject ordinance was passed and approved by
the respondents principally to amend Ordinance No. 7988 which was earlier nullified by this
Department in its Resolution Dated August 17, 2000, also at the instance of the herein
petitioner. x x x
xxxx
x x x [T]he only logical conclusion, therefore, is that Ordinance No. 8011, subject herein, is
also null and void, it being a mere amendatory ordinance of Ordinance No. 7988 which, as
earlier stated, had been nullified by this Department. An invalid or unconstitutional law or
ordinance does not, in legal contemplation, exist (Manila Motors Co., Inc. vs. Flores, 99 Phil.
738). Where a statute which has been amended is invalid, nothing, in effect, has been
amended. As held in People vs. Lim, 108 Phil. 1091:
If an order or law sought to be amended is invalid, then it does not
legally exist. There would be no occasion or need to amend it; x x x (at p.
1097)
Instead of amending Ordinance No. 7988, herein respondent should have enacted
another tax measure which strictly complies with the requirements of law, both procedural
and substantive. The passage of the assailed ordinance did not have the effect of curing the
defects of Ordinance No. 7988 which, any way, does not legally exist.
xxxx
WHEREFORE, premises considered, Tax Ordinance No. 8011 is hereby declared NULL
and VOID and LEGALLY NOT EXISTING.[8]

Respondents Motion for Reconsideration of the Resolution of the DOJ was subsequently denied in a
Resolution,[9] dated 12 March 2002.

The City of Manila appealed the DOJ Resolution, dated 12 March 2002, denying its Motion for
Reconsideration of the Resolution nullifying Tax Ordinance No. 8011 before the RTC of Manila, Branch 17,
but the same was dismissed for lack of jurisdiction in an Order, dated 2 December 2002. According to the
trial court:
From whatever angle the recourse of herein petitioners was viewed, either from the
standpoint of Section 1, Rule 43, or Section 1 and the last sentence of the second paragraph
of Section 4, Rule 65 of the 1997 Rules of Civil Procedure, the conclusion was inevitable that
petitioners remedial measure from dispositions of the Secretary of Justice should have been
ventilated before the next judicial plane. x x x
Accordingly, by reason of the foregoing premises, Civil Case No. 02-103372 for
Certiorari is DISMISSED.
Consequently, respondents appealed the foregoing Order, dated 2 December 2002, via a Petition
for Review on Certiorari to the Supreme Court docketed as G.R. No. 157490. However, said appeal was
dismissed in our Resolution, dated 23 June 2003, the dispositive of which reads:
Pursuant to Rule 45 and other related provisions of the 1997 Rules of Civil Procedure
as amended governing appeals by certiorari to the Supreme Court, only petitions which are
accompanied by or which comply strictly with the requirements specified therein shall be
entertained. On the basis thereof, the Court resolves to DENY the instant petition for review
on certiorari of the orders of the Regional Trial Court, Manila, Branch 17 dated December 2,
2002 and March 7, 2003 for the late filing as the petition was filed beyond
the reglementary period of fifteen (15) days fixed in Sec. 2, Rule 45 in relation to Sec. 5(a),
Rule 56.
The omnibus motion of petitioners for reconsideration of the resolution of April 23,
2003 which denied the motion for an extension of time to file a petition is DENIED for lack
of merit.
Respondents Motion for Reconsideration was subsequently denied in a Resolution, dated 11 August
2003, in which the Court resolved as follows:
Acting on the motion of petitioners for reconsideration of the resolution of June 23,
2003 which denied the petition for review on certiorari and considering that there is no
compelling reason to warrant a modification of this Courts resolution, the Court resolves
to DENY reconsideration with FINALITY.

Meanwhile, on the basis of the enactment of Tax Ordinance No. 8011, the City of Manila filed a
Motion for Reconsideration with the RTC of Manila, Branch 21, of its Decision, dated 28 November 2001,
which the court a quo granted in the herein assailed Order dated 8 May 2002, the full text of which reads:
Considering that Ordinance No. 7988 (Amended Revenue Code of the City of Manila)
has already been amended by Ordinance No. 8011 entitled An Ordinance Amending Certain
Sections of Ordinance No. 7988 approved by the City Mayor of Manila on February 22, 2001,
let the above-entitled case be as it is hereby DISMISSED. Without pronouncement as to
costs.[10]

Petitioners Motion for Reconsideration of the abovequoted Order was denied by the trial court in the
second challenged Order, dated 5 December 2002; hence the instant Petition.
The case at bar revolves around the sole pivotal issue of whether or not Tax Ordinance No. 7988 is
null and void and of no legal effect. However, respondents, in their Comment and Memorandum, raise the
procedural issue of whether or not the instant Petition has complied with the requirements of the 1997
Rules on Civil Procedure; thus, the Court resolves to first pass upon this issue before tackling the
substantial matters involved in this case.
Respondents insist that the instant Petition raises questions of fact that are proscribed under Rule
45 of the 1997 Rules of Civil Procedure which states that Petitions forCertiorari before the Supreme Court
shall raise only questions of law. We do not agree. There is a question of fact when doubt or controversy
arises as to the truth or falsity of the alleged facts, when there is no dispute as to fact, the question of
whether or not the conclusion drawn therefrom is correct is a question of law. [11] A thorough reading of the
Petition will reveal that petitioner does not present an issue in which we are called to rule on the truth or
falsity of any fact alleged in the case. Furthermore, the resolution of whether or not the court a quo erred
in dismissing petitioners case in light of the enactment of Tax Ordinance No. 8011, allegedly amending Tax
Ordinance No. 7988, does not necessitate an incursion into the facts attending the case.
Contrarily, it is respondents who actually raise questions of fact before us. While accusing petitioner
of raising questions of fact, respondents, in the same breath, proceeded to allege that the RTC of Manila,
Branch 21, in its Decision, dated 28 November 2001, failed to take into account the evidence presented by
respondents allegedly proving that Tax Ordinance No. 7988 was published for four times in a newspaper of
general circulation in accordance with the requirements of law. A determination of whether or not the trial
court erred in concluding that Tax Ordinance No. 7988 was indeed published for four times in a newspaper
of general circulation would clearly involve a calibration of the probative value of the evidence presented
by respondents to prove such allegation. Therefore, said issue is a question of fact which this Court, not
being a trier of facts, will decline to pass upon.
Respondents also point out that the Petition was not properly verified and certified because
Nelson Empalmado, the Vice President for Tax and Financial Services of Coca-Cola Bottlers Philippines, Inc.
who verified the subject Petition was not duly authorized to file said Petition. Respondents assert that
nowhere in the attached Secretarys Certificate can it be found the authority of Nelson Empalmado to
institute the instant Petition. Thus, there being a lack of proper verification, respondents contend that the
Petition must be treated as a mere scrap of paper, which has no legal effect as declared in Section 4, Rule
7 of the 1997 Rules of Civil Procedure.
An inspection of the Secretarys Certificate attached to the petition will show that
Nelson Empalmado is not among those designated as representative to prosecute claims in behalf of CocaCola Bottlers Philippines, Inc. However, it would seem that the authority of Mr. Empalmado to file the
instant Petition emanated from a Special Power of Attorney signed by Ramon V. Lapez, Jr., Associate Legal
Counsel/Assistant Corporate Secretary of Coca-Cola Bottlers Philippines, Inc. and one of those named in
the Secretarys Certificate as authorized to file a Petition in behalf of the corporation. A careful perusal of
said Secretarys Certificate will further reveal that the persons authorized therein to represent petitioner
corporation in any suit are also empowered to designate and appoint any individual as attorney-in-fact of
the corporation for the prosecution of any suit.Accordingly, by virtue of the Special Power of Attorney
executed by Ramon V. Lapez, Jr. authorizing Nelson Emplamado to file a Petition before the Supreme Court,
the instant Petition has been properly verified, in accordance with the 1997 Rules of Civil Procedure.
Having disposed of the procedural issues raised by respondents, We now come to the pivotal issue
in this petition.
It is undisputed from the facts of the case that Tax Ordinance No. 7988 has already been declared
by the DOJ Secretary, in its Order, dated 17 August 2000, as null and void and without legal effect due to

respondents failure to satisfy the requirement that said ordinance be published for three consecutive days
as required by law. Neither is there quibbling on the fact that the said Order of the DOJ was never appealed
by the City of Manila, thus, it had attained finality after the lapse of the period to appeal.
Furthermore, the RTC of Manila, Branch 21, in its Decision dated 28 November 2001, reiterated the
findings of the DOJ Secretary that respondents failed to follow the procedure in the enactment of tax
measures as mandated by Section 188 of the Local Government Code of 1991, in that they failed to
publish Tax Ordinance No. 7988 for three consecutive days in a newspaper of local circulation. From the
foregoing, it is evident that Tax Ordinance No. 7988 is null and void as said ordinance was published only
for one day in the 22 May 2000 issue of the Philippine Post in contravention of the unmistakable directive
of the Local Government Code of 1991.
Despite the nullity of Tax Ordinance No. 7988, the court a quo, in the assailed Order, dated 8 May
2002, went on to dismiss petitioners case on the force of the enactment of Tax Ordinance No. 8011,
amending Tax Ordinance No. 7988. Significantly, said amending ordinance was likewise declared null and
void by the DOJ Secretary in a Resolution, dated 5 July 2001, elucidating that [I]nstead of amending
Ordinance No. 7988, [herein] respondent should have enacted another tax measure which strictly
complies with the requirements of law, both procedural and substantive. The passage of the assailed
ordinance did not have the effect of curing the defects of Ordinance No. 7988 which, any way,
does not legally exist. Said Resolution of the DOJ Secretary had, as well, attained finality by virtue of the
dismissal with finality by this Court of respondents Petition for Review on Certiorari in G.R. No. 157490
assailing the dismissal by the RTC of Manila, Branch 17, of its appeal due to lack of jurisdiction in its Order,
dated 11 August 2003.
Based on the foregoing, this Court must reverse the Order of the RTC of Manila, Branch 21,
dismissing petitioners case as there is no basis in law for such dismissal. The amending law, having been
declared as null and void, in legal contemplation, therefore, does not exist. Furthermore, even if Tax
Ordinance No. 8011 was not declared null and void, the trial court should not have dismissed the case on
the reason that said tax ordinance had already amended Tax Ordinance No. 7988. As held by this Court in
the case ofPeople v. Lim,[12] if an order or law sought to be amended is invalid, then it does not legally
exist, there should be no occasion or need to amend it.[13]
WHEREFORE, premises considered, the instant Petition is hereby GRANTED. The Orders of the RTC
of
Manila,
Branch
21,
dated 8
May
2002 and 5
December
2002,
respectively,
are
hereby REVERSED and SET ASIDE.
SO ORDERED.
G.R. No. 143867

March 25, 2003

PHILIPPINE LONG DISTANCE TELEPHONE COMPANY, INC., petitioner,


vs.
CITY OF DAVAO and ADELAIDA B. BARCELONA, in her capacity as the City Treasurer of
Davao,respondents.
RESOLUTION
MENDOZA, J.:
Petitioner seeks a reconsideration of the decision of the Second Division in this case. Because the decision
bears directly on issues involved in other cases brought by petitioner before other Divisions of the Court,
the motion for reconsideration was referred to the Court en banc for resolution.1 The parties were heard in
oral arguments by the Court en banc on January 21, 2003 and were later granted time to submit their
memoranda. Upon the filing of the last memorandum by the City of Davao on February 10, 2003, the
motion was deemed submitted for resolution.
To provide perspective, it will be helpful to restate the basic facts.
Petitioner PLDT paid a franchise tax equal to three percent (3%) of its gross receipts. The franchise tax was
paid "in lieu of all taxes on this franchise or earnings thereof" pursuant to R.A. No. 7082 amending its

charter, Act. No. 3436. The exemption from "all taxes on this franchise or earnings thereof" was
subsequently withdrawn by R.A. No. 7160 (Local Government Code of 1991), which at the same time gave
local government units the power to tax businesses enjoying a franchise on the basis of income received or
earned by them within their territorial jurisdiction. The Local Government Code (LGC) took effect on
January 1, 1992.
The pertinent provisions of the LGC state:
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. . . .
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.
Pursuant to these provisions, the City of Davao enacted Ordinance No. 519, Series of 1992, which in
pertinent part provides:
Notwithstanding any exemption granted by any law or other special law, there is hereby imposed a
tax on businesses enjoying a franchise, at a rate of Seventy-five percent (75%) of one percent (1%)
of the gross annual receipts for the preceding calendar year based on the income or receipts
realized within the territorial jurisdiction of Davao City.
Subsequently, Congress granted in favor of Globe Mackay Cable and Radio Corp. (Globe) 2 and Smart
Information Technologies, Inc. (Smart)3 franchises which contained "in lieu of all taxes" provisos. In 1995, it
enacted R.A. No. 7925 (Public Telecommunications Policy of the Philippines), 23 of which provides that
"Any advantage, favor, privilege, exemption, or immunity granted under existing franchises, or may
hereafter be granted, shall ipso facto become part of previously granted telecommunications franchises
and shall be accorded immediately and unconditionally to the grantees of such franchises." The law took
effect on March 16, 1995.
In January 1999, when PLDT applied for a mayors permit to operate its Davao Metro Exchange, it was
required to pay the local franchise tax for the first to the fourth quarter of 1999 which then had amounted
to P3,681,985.72. PLDT challenged the power of the city government to collect the local franchise tax and
demanded a refund of what it had paid as local franchise tax for the year 1997 and for the first to the third
quarters of 1998. For this reason, it filed a petition in the Regional Trial Court of Davao. However, its
petition was dismissed and its claim for exemption under R.A. No. 7925 was denied. The trial court ruled
that the LGC had withdrawn tax exemptions previously enjoyed by persons and entities and authorized
local government units to impose a tax on businesses enjoying franchises within their territorial
jurisdictions, notwithstanding the grant of tax exemption to them. Petitioner, therefore, brought this
appeal.
In its decision of August 22, 2001, this Court, through its Second Division, held that R.A. No. 7925, 23
cannot be so interpreted as granting petitioner exemption from local taxes because the word "exemption,"
taking into consideration the context of the law, does not mean "tax exemption." Hence this motion for
reconsideration.
The question is whether, by virtue of R.A. No. 7925, 23, PLDT is again entitled to exemption from the
payment of local franchise tax in view of the grant of tax exemption to Globe and Smart.
Petitioner contends that because their existing franchises contain "in lieu of all taxes" clauses, the same
grant of tax exemption must be deemed to have become ipso facto part of its previously granted
telecommunications franchise. But the rule is that tax exemptions should be granted only by clear and
unequivocal provision of law "expressed in a language too plain to be mistaken." 4 If, as PLDT contends, the
word "exemption" in R.A. No. 7925 means "tax exemption" and assuming for the nonce that the charters of
Globe and of Smart grant tax exemptions, then this runabout way of granting tax exemption to PLDT is not
a direct, "clear and unequivocal" way of communicating the legislative intent.
But the best refutation of PLDTs claim that R.A. No. 7925, 23 grants tax exemption is the fact that after
its enactment on March 16, 1995, Congress granted several franchises containing both an "equality
clause" similar to 23 and an "in lieu of all taxes" clause. If the equality clause automatically extends the
tax exemption of franchises with "in lieu of all taxes" clauses, there would be no need in the same statute
for the "in lieu of all taxes" clause in order to extend its tax exemption to other franchises not containing

such clause. For example, the franchise of Island Country Telecommunications, Inc., granted under R.A. No.
7939 and which took effect on March 22, 1995, contains the following provisions:
Sec. 8. Equality Clause. If any subsequent franchise for telecommunications service is awarded
or granted by the Congress of the Philippines with terms, privileges and conditions more favorable
and beneficial than those contained in this Act, then the same privileges or advantages shall ipso
facto accrue to the herein grantee and be deemed part of this Act.
Sec. 10. Tax Provisions. The grantee shall be liable to pay the same taxes on their real estate,
buildings and personal property exclusive of this franchise, as other persons or telecommunications
entities are now or hereafter may be required by law to pay. In addition hereto, the grantee, its
successors or assigns, shall pay a franchise tax equivalent to three percent (3%) of all gross
receipts transacted under this franchise, and the said percentage shall be in lieu of all taxes on this
franchise or earnings thereof; Provided, That the grantee shall continue to be liable for income
taxes payable under Title II of the National Internal Revenue Code. The grantee shall file the return
with and pay the taxes due thereon to the Commissioner of Internal Revenue or his duly authorized
representatives in accordance with the National Revenue Code and the return shall be subject to
audit by the Bureau of Internal Revenue. (Emphasis added)
Similar provisions ("in lieu of all taxes" and equality clauses) are also found in the franchises of Cruz
Telephone Company, Inc.,5 Isla Cellular Communications, Inc.,6 and Islatel Corporation.7
We shall now turn to the other points raised in the motion for reconsideration of PLDT.
First. Petitioner contends that the legislative intent to promote the development of the telecommunications
industry is evident in the use of words as "development," "growth," and "financial viability," and that the
way to achieve this purpose is to grant tax exemption or exclusion to franchises belonging in this industry.
Furthermore, by using the words "advantage," "favor," "privilege," "exemption," and "immunity" and the
terms "ipso facto," "immediately," and "unconditionally," Congress intended to automatically extend
whatever tax exemption or tax exclusion has been granted to the holder of a franchise enacted after the
LGC to the holder of a franchise enacted prior thereto, such as PLDT.
The contention is untenable. The thrust of the law is to promote the gradual deregulation of entry, pricing,
and operations of all public telecommunications entities and thus to level the playing field in the
telecommunications industry. An intent to grant tax exemption cannot even be discerned from the law. The
records of Congress are bereft of any discussion or even mention of tax exemption. To the contrary, what
the Chairman of the Committee on Transportation, Rep. Jerome V. Paras, mentioned in his sponsorship of
H.B. No. 14028, which became R.A. No. 7925, were "equal access clauses" in interconnection agreements,
not tax exemptions. He said:
There is also a need to promote a level playing field in the telecommunications industry. New
entities must be granted protection against dominant carriers through the encouragement
of equitable access charges and equal access clauses in interconnection agreements and the strict
policing of predatory pricing by dominant carriers. Equal access should be granted to all operators
connecting into the interexchange network. There should be no discrimination against any carrier in
terms of priorities and/or quality of service.8
Nor does the term "exemption" in 23 of R.A. No. 7925 mean tax exemption. The term refers to exemption
from certain regulations and requirements imposed by the National Telecommunications Commission
(NTC). For instance, R.A. No. 7925, 17 provides: "The Commission shall exempt any specific
telecommunications service from its rate or tariff regulations if the service has sufficient competition to
ensure fair and reasonable rates or tariffs." Another exemption granted by the law in line with its policy of
deregulation is the exemption from the requirement of securing permits from the NTC every time a
telecommunications company imports equipment.9
Second. PLDT says that the policy of the law is to promote healthy competition in the telecommunications
industry.10 According to PLDT, the LGC did not repeal the "in lieu of all taxes" provision in its franchise but
only excluded from it local taxes, such as the local franchise tax. However, some franchises, like those of
Globe and Smart, which contain "in lieu of all taxes" provisions were subsequently granted by Congress,
with the result that the holders of franchises granted prior to January 1, 1992, when the LGC took effect,
had to pay local franchise tax in view of the withdrawal of their local tax exemption. It is argued that it is
this disparate situation which R.A. No. 7925, 23 seeks to rectify.
One can speak of healthy competition only between equals. For this reason, the law seeks to break up
monopoly in the telecommunications industry by gradually dismantling the barriers to entry and granting
to new telecommunications entities protection against dominant carriers through equitable access charges

and equal access clauses in interconnection agreements and through the strict policing of predatory
pricing by dominant carriers.11 Interconnection among carriers is made mandatory to prevent a dominant
carrier from delaying the establishment of connection with a new entrant and to deter the former from
imposing excessive access charges.12
That is also the reason there are franchises13 granted by Congress after the effectivity of R.A. No. 7925
which do not contain the "in lieu of all taxes" clause, just as there are franchises, also granted after March
16, 1995, which contain such exemption from other taxes.14 If, by virtue of 23, the tax exemption granted
under existing franchises or thereafter granted is deemed applicable to previously granted franchises (i.e.,
franchises granted before the effectivity of R.A. No. 7925 on March 16, 1995), then those franchises
granted after March 16, 1995, which do not contain the "in lieu of all taxes" clause, are not entitled to tax
exemption. The "in lieu of all taxes" provision in the franchises of Globe and Smart, which are relatively
new entrants in the telecommunications industry, cannot thus be deemed applicable to PLDT, which had
virtual monopoly in the telephone service in the country for a long time, 15 without defeating the very policy
of leveling the playing field of which PLDT speaks.
Third. Petitioner argues that the rule of strict construction of tax exemptions does not apply to this case
because the "in lieu of all taxes" provision in its franchise is more a tax exclusion than a tax exemption.
Rather, the applicable rule should be that tax laws are to be construed most strongly against the
government and in favor of the taxpayer.
This is contrary to the uniform course of decisions 16 of this Court which consider "in lieu of all taxes"
provisions as granting tax exemptions. As such, it is a privilege to which the rule that tax exemptions must
be interpreted strictly against the taxpayer and in favor of the taxing authority applies. Along with the
police power and eminent domain, taxation is one of the three necessary attributes of sovereignty.
Consequently, statutes in derogation of sovereignty, such as those containing exemption from taxation,
should be strictly construed in favor of the state. A state cannot be stripped of this most essential power
by doubtful words and of this highest attribute of sovereignty by ambiguous language. 17
Indeed, both in their nature and in their effect there is no difference between tax exemption and tax
exclusion. Exemption is an immunity or privilege; it is freedom from a charge or burden to which others are
subjected.18Exclusion, on the other hand, is the removal of otherwise taxable items from the reach of
taxation, e.g., exclusions from gross income and allowable deductions. 19 Exclusion is thus also an immunity
or privilege which frees a taxpayer from a charge to which others are subjected. Consequently, the rule
that tax exemption should be applied in strictissimi juris against the taxpayer and liberally in favor of the
government applies equally to tax exclusions. To construe otherwise the "in lieu of all taxes" provision
invoked is to be inconsistent with the theory that R.A. No. 7925, 23 grants tax exemption because of a
similar grant to Globe and Smart.
Petitioner cites Cagayan Electric Power & Light Co., Inc. v. Commissioner of Internal Revenue 20 in support
of its argument that a "tax exemption" is restored by a subsequent law re-enacting the "tax exemption." It
contends that by virtue of R.A. No. 7925, its tax exemption or exclusion was restored by the grant of tax
exemptions to Globe and Smart. Cagayan Electric Power & Light Co., Inc., however, is not in point. For
there, the re-enactment of the exemption was made in an amendment to the charter of Cagayan Electric
Power and Light Co.
Indeed, petitioners justification for its claim of tax exemption rests on a strained interpretation of R.A. No.
7925, 23. For petitioners claim for exemption is not based on an amendment to its charter but on a
circuitous reasoning involving inquiry into the grant of tax exemption to other telecommunications
companies and the lack of such grant to others,21 when Congress could more clearly and directly have
granted tax exemption to all franchise holders or amend the charter of PLDT to again exempt it from tax if
this had been its purpose.
The fact is that after petitioners tax exemption by R.A. No. 7082 had been withdrawn by the LGC, 22 no
amendment to re-enact its previous tax exemption has been made by Congress. Considering that the
taxing power of local government units under R.A. No. 7160 is clear and is ordained by the Constitution,
petitioner has the heavy burden of justifying its claim by a clear grant of exemption. 23
Tax exemptions should be granted only by clear and unequivocal provision of law on the basis of language
too plain to be mistaken.24 They cannot be extended by mere implication or inference. Thus, it was held
in Home Insurance & Trust Co. v. Tennessee25 that a law giving a corporation all the "powers, rights
reservations, restrictions, and liabilities" of another company does not give an exemption from taxation
which the latter may possess. In Rochester R. Co. v. Rochester,26 the U.S. Supreme Court, after reviewing
cases involving the effect of the transfer to one company of the powers and privileges of another in
conferring a tax exemption possessed by the latter, held that a statute authorizing or directing the grant or

transfer of the "privileges" of a corporation which enjoys immunity from taxation or regulation should not
be interpreted as including that immunity. Thus:
We think it is now the rule, notwithstanding earlier decisions and dicta to the contrary, that a
statute authorizing or directing the grant or transfer of the "privileges" of a corporation which
enjoys immunity from taxation or regulation should not be interpreted as including that immunity.
We, therefore, conclude that the words "the estate, property, rights, privileges, and franchises" did
not embrace within their meaning the immunity from the burden of paving enjoyed by the Brighton
Railroad Company. Nor is there anything in this, or any other statute, which tends to show that the
legislature used the words with any larger meaning than they would have standing alone. The
meaning is not enlarged, as faintly suggested, by the expression in the statute that they are to be
held by the successor "fully and entirely, and without change and diminution," words of
unnecessary emphasis, without which all included in "estate, property, rights, privileges, and
franchises" would pass, and with which nothing more could pass. On the contrary, it appears, as
clearly as it did in the Phoenix Fire Insurance Company Case, that the legislature intended to use
the words "rights, franchises, and privileges" in the restricted sense. . . . 27
Fourth. It is next contended that, in any event, a special law prevails over a general law and that the
franchise of petitioner giving it tax exemption, being a special law, should prevail over the LGC, giving local
governments taxing power, as the latter is a general law. Petitioner further argues that as between two
laws on the same subject matter which are irreconcilably inconsistent, that which is passed later prevails
as it is the latest expression of legislative will.
This proposition flies in the face of settled jurisprudence. In City Government of San Pablo, Laguna v.
Reyes,28this Court held that the phrase "in lieu of all taxes" found in special franchises should give way to
the peremptory language of 193 of the LGC specifically providing for the withdrawal of such exemption
privileges. Thus, the rule that a special law must prevail over the provisions of a later general law does not
apply as the legislative purpose to withdraw tax privileges enjoyed under existing laws or charters is
apparent from the express provisions of 137 and 193 of the LGC.
As to the alleged inconsistency between the LGC and R.A. No. 7925, this Court has already explained in the
decision under reconsideration that no inconsistency exists and that the rule that the later law is the latest
expression of the legislature does not apply. The matter need not be further discussed.
In any case, it is contended, the ruling of the Bureau of Local Government Finance (BLGF) that petitioners
exemption from local taxes has been restored is a contemporaneous construction of 23 and, as such, it is
entitled to great weight.
The ruling of the BLGF has been considered in this case. But unlike the Court of Tax Appeals, which is a
special court created for the purpose of reviewing tax cases, the BLGF was created merely to provide
consultative services and technical assistance to local governments and the general public on local
taxation and other related matters.29 Thus, the rule that the "Court will not set aside conclusions rendered
by the CTA, which is, by the very nature of its function, dedicated exclusively to the study and
consideration of tax problems and has necessarily developed an expertise on the subject, unless there has
been an abuse or improvident exercise of authority" 30cannot apply in the case of BLGF.
WHEREFORE, the motion for reconsideration is DENIED and this denial is final.
SO ORDERED.
Davide, Jr., C.J., Quisumbing, Corona, Carpio-Morales, Callejo, Sr., and Azcuna, JJ., concur.
Bellosillo, Ynares-Santiago, Sandoval-Gutierrez, and Austria-Martinez, JJ., join the dissent of J. Puno.
Puno, J., please see dissent.
Vitug, J., I concur; a statute effectively limiting the constitutionally-delegated tax powers of LGUs can only
be done in a clear and express manner.
Panganiban, J., no part. Same reason given in original decision.
Carpio, J., see separate opinion.

Dissenting Opinion
PUNO, J.:
The sole issue in the case at bar is whether petitioner Philippine Long Distance Telephone Company, Inc.
(PLDT) is liable to pay the franchise tax imposed by the City of Davao. The issue can be resolved only by

untangling the different laws dealing with local government and the telecommunications industry. It is thus
necessary to first lay down these laws.
On January 1, 1992, the Local Government Code took effect. The Code pertinently provides:
"Sec. 137. Franchise Tax.- Notwithstanding any exemption granted by any law or other special law,
the province may impose a tax on business enjoying a franchise, at a rate not exceeding fifty
percent (50%) of one percent (1%) of the gross annual receipts for the preceding calendar year
based on the incoming receipt, or realized, within its territorial jurisdiction. . .
Sec. 193. Withdrawal of Tax Exemption Privileges.- Unless otherwise provided in this Code, tax
exemptionsor 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."
In accord with this Code, the City of Davao enacted Ordinance No. 519, Series of 1992. It provides:
"Notwithstanding any exemption granted by any law or other special law, there is hereby imposed
a tax on business enjoying a franchise, at a rate of seventy-five percent (75%) of one percent (1%)
of the gross annual receipts for the preceding calendar year based on the income or receipts
realized within the territorial jurisdiction of Davao City."
On March 19, 1992, Congress enacted Republic Act No. 7229 entitled "An Act approving the merger
between Globe Mackay Cable and Radio Corporation and Clavecilla Radio System and the consequent
transfer of the franchise of Clavecilla Radio System granted under Republic Act No. 402, as amended,
to Globe Mackay Cable and Radio Corporation, extending the life of said franchise and repealing certain
sections of RA No. 402, as amended." Section 3 thereof provides:
"Sec. 3. Section 9 of the same Act is hereby amended to read as follows:
Sec. 9. . .
(b) The grantee shall further pay to the Treasurer of the Philippines each year after the audit and
approval of the accounts as prescribed in this Act, one and one-half per centum of all gross receipts
from business transacted under this franchise by the said grantee in the Philippines, in lieu of any
and all taxes of any kind, nature or description levied, established or collected by any authority
whatsoever, municipal, provincial or national from which the grantee is hereby expressly exempted,
effective from the date of the approval of R.A. No.1618. . ."
Section 5 provides:
"Sec. 5. Section twenty of the same Act is hereby amended to read as follows:
Sec. 20. This franchise shall not be interpreted to mean an exclusive grant of the privileges herein
provided for, however, in the event of any competing individual, partnership, or corporation,
receiving from the Congress of the Philippines a similar permit or franchise more favorable than
those herein granted or tending to place the herein grantee at any disadvantage, then such term or
terms, shall ipso facto become part of the terms hereof, and shall operate equally in favor of the
grantee as in the case of said competing individual, partnership or corporation."
On March 27, 1992, Congress enacted Republic Act No. 7294 entitled "An Act granting Smart Information
Technologies, Inc. (SMART) a franchise to establish, maintain, lease and operate integrated
telecommunications/computer/electronic services, and stations throughout the Philippines for public
domestic and international communications, and for other purposes." Section 9 of the Act provides:
"Section 9. Tax provisions.- The grantee, its successors or assigns shall be liable to pay the same
taxes on their real estate buildings and personal property, exclusive of this franchise, as other
persons or corporations which are now or hereafter may be required by law to pay. In addition
thereto, the grantee, its successors or assigns shall pay a franchise tax equivalent to three percent
(3%) of all gross receipts of the business transacted under this franchise by the grantee, its
successors or assigns and the said percentage shall be in lieu of all taxes on this franchise or
earnings thereof. . ."
On March 16, 1995, Republic Act No. 7925 entitled "Public Telecommunications Policy" was enacted.
Section 23 of the Act states:
"Section 23. Equality of Treatment in the Telecommunications Industry.- Any advantage, favor,
privilege, exemption, or immunity granted under existing franchise, or may hereafter be granted,

shall ipso factobecome part of previously granted telecommunications franchises and shall be
accorded immediately and unconditionally to the grantees of such franchises: Provided, however,
that the foregoing shall neither apply to nor affect provisions of telecommunications franchises
concerning territory covered by the franchise, the life span of the franchise, or the type of service
authorized by the franchise."
It also appears that after 1995, Congress enacted laws granting franchises to other telecommunications
companies. Some of these franchises contain the "in lieu of all taxes" clause as well as the "equality
clause." The others, however, did not.1
On the basis of these laws, petitioner PLDT wrote to the City Treasurer of Davao protesting the assessment
of the local franchise tax amounting to P3,681,985.75 for the year 1999. It likewise claimed exemption
from the payment of said franchise tax on the basis of the opinion of the Bureau of Local Government
Finance (BLGF). The opinion holds that petitioner is exempt from payment of franchise and business taxes
imposable by local government units upon the effectivity of Republic Act No. 7925 on March 16, 1995. The
protest was denied by the City Treasurer of Davao. Petitioner challenged the denial in Branch 13 of the RTC
of Davao but was unsuccessful. The trial court ruled that the Local Government Code had withdrawn the
tax exemption previously granted to petitioner PLDT.
Petitioner thus filed a petition for review on certiorari with this Court. On August 22, 2001, the Second
Division of this Court denied the petition. It held: (1) petitioners claim of tax exemption is based on
strained inferences; (b) the claim would result in absurd consequences; (c) the word "exemption" in RA No,
7925, sec. 23 does not mean "tax exemption"; and (d) there can be no reliance on the alleged expertise of
the BLGF for the issue involves the interpretation of a law.
Petitioner contends in its Motion for Reconsideration, viz:
"A. THE ABSURD CONSEQUENCES REFERRED TO BY THE COURT AS ALLEGEDLY RESULTING FROM
PETITIONERS POSITION(,) HAVE NO BASIS IN FACT AND IN LAW; IN ANY CASE, FOR THE COURT TO
SAY THAT PETITIONERS POSITION WOULD RESULT IN ABSURD CONSEQUENCES, IS TO QUESTION,
UNDER THE GUISE OF INTERPRETATION, THE WISDOM OF THE POLICY BEHIND REPUBLIC ACT NO.
7925.
B. THE PROVISIONS OF SECTION 23 OF REPUBLIC ACT NO. 7925 ARE CLEAR AND NEED NO
INTERPRETATION; ASSUMING THERE IS A NECESSITY FOR INTERPRETATION, THE RULING OF THE
BUREAU OF LOCAL GOVERNMENT FINANCE, WHICH IS A CONTEMPORANEOUS CONSTRUCTION OF
SECTION 23 AND IS THEREFORE ENTITLED TO GREAT WEIGHT, SHOULD BE CONSIDERED BY THE
COURT.
C. SECTION 23 OF REPUBLIC ACT NO. 7925 CLEARLY GRANTS A TAX EXEMPTION OR TAX EXCLUSION
TO PETITIONER.
D. THE AUTHORITIES ON STRICT CONSTRUCTION CITED BY THE COURT HAVE NO APPLICATION IN
THIS CASE.
E. THE IN LIEU OF ALL TAXES PROVISION IN PETITIONERS FRANCHISE WAS DEEMED RESTORED
WITH REGARD TO LOCAL TAXES BY SECTION 23 OF REPUBLIC ACT NO. 7925 IN RELATION TO THE
FRANCHISES OF GLOBE TELECOM, INC. AND SMART COMMUNICATIONS, INC.
F. THE COURT FAILED TO CONSIDER THE OTHER ARGUMENTS OF PETITIONER."
Petitioners Motion for Reconsideration was elevated to the Court en banc considering its significance and
as similar cases are pending decision in its other divisions.
The majority will now deny petitioners motion for reconsideration. It holds that section 23 of Republic Act
No. 7925 mandating equality of treatment in the telecommunications industry and relied upon by the
petitioner is not "clear and unequivocal." Again, I quote section 23, viz:
"Sec. 23. Equality of Treatment in the Telecommunications Industry - Any advantage, favor,
privilege, exemption, or immunity granted under existing franchise or may hereafter be granted,
shall ipso factobecome part of previously granted telecommunications franchise and shall be
accorded immediately andunconditionally to the grantees of such franchises . . ."
I cannot understand what is unclear in section 23. Favor, privilege, exemption and immunity are ordinary
words without any mystic meaning. The provision states without any flourish that if any favor, privilege,
exemption or immunity is granted in the franchise of any telecommunications company, it will be deemed
granted to other telecommunications companies with prior franchises. The grant is unequivocal for the

provision directs that it is "ipso facto," and should be "immediately and unconditionally." The language of
the law cannot be more limpid, indeed, the work of a worthy wordsmith.
Next, the majority holds that "x x x the best refutation of PLDTs claim that RA No. 7925, section 23 grants
tax exemption is the fact that after its enactment on March 16, 1995, Congress granted several franchises
containing both an equality clause similar to section 23 and an in lieu of all taxes clause." 2 It cites the
laws granting franchises to the Island Country Telecommunications, Inc., Cruz Telephone Company, Inc.,
ISLA Cellular Communications, Inc., and Islatel Corporation. 3
I agree that all these subsequent laws should be considered and not only the laws granting exemptions to
Smart and Globe. With due respect, however, I have great difficulty following the flow of the logic of the
majority. To my mind, the reiteration of the "equality clause" as well as the "in lieu of all taxes clause" in
the telecommunications franchises granted by Congress after March 16, 1995 fortifies the claim for
exemption of the petitioner. The reiteration of the clauses shows that Congress never wavered in its
touchstone policy of equalizing the status of our companies in the telecommunications industry. To be sure,
Congress need not reiterate the "equality clause" and the "in lieu of all taxes clause" in these subsequent
telecommunications franchises for without it, Republic Act No. 7925, section 23 could still be availed of by
them. The reiteration is simply a stubborn stress on the importance of equality in the entire
telecommunications industry but the majority inexplicably reads it as denying the rule of equality to the
petitioner. By treating alikes as unalike, the majority is violating the equal protection clause of the
Constitution.
Further to its stance that the law is vague, the majority parleys the proposition that "an intent to grant tax
exemption cannot even be discerned from the law." It quotes the sponsorship speech of Rep. Jerome B.
Paras of H.B. No. 14028, viz:4
"There is also a need to promote a level playing field in the telecommunications industry. New
entities must be granted protection against dominant carriers through the encouragement of
equitable access charges and equal access clauses in interconnection agreements and the strict
policing of predatory pricing by dominant carriers. Equal access should be granted to all operators
connecting into the inter-exchange network. There should he no discrimination against any carrier
in terms of priorities and/or equality of service."
Again, I do not see how this one-paragraph observation of Congressman Paras can serve as a crutch to
support the majority ruling. Congressman Paras merely clarified that the aim of the law is to promote a
level playing field in the telecommunications industry. And, doubtless, one way of leveling the playing field
is by granting equal access to all operators connecting into the inter-exchange network. But this is not
all that has to be done to level the playing field. There are other acts and practices that distort the playing
field in the telecommunications industry and they were addressed by Congress. One destructive practice
that can really dislevel the playing field is the imposition of discriminatory tax. Precisely to eliminate these
practices, Congress enacted section 23 decreeing for equality of treatment of all companies in the
telecommunications industry. By one sweep, it did away with the grant of unequal favors to
telecommunication companies, which is anathema to fair competition in deregulated industries.
More untenable is the majority ruling that "exemption" in section 23 does not refer to tax exemption but
"exemptions from certain regulations and requirements imposed by the National Telecommunications
Commission" like for instance, exemption from securing permits for every import equipment. The ruling is
not based on any clear cut provision of law but is a mere surmise. It is all too easy for the law to define
exemption as the majority interprets it but the law did not. I submit that the majority reading of the word
"exemption" collides with the basic rule in statutory construction that the meaning of a word should be
understood in light of the cluster of words to which it is associated. The word "exemption" is clustered with
the words "advantage, favor, privilege and immunity." Its most natural meaning is that it refers, to and at
least includes, tax exemption.
Petitioner has also called our attention to what would result from the majority decision under
reconsideration - "x x x the result is that while the holders of franchise granted prior to January 1, 1992
when the LGC took effect, had to pay local franchise tax in view of the withdrawal of their local tax
exemption, those whose franchises were granted after January 1, 1992, because of the in lieu of all taxes
provisions contained therein, were exempted from such local tax." 5 The disparate treatment, petitioner
contends, will not promote healthy competition in the telecommunications industry. The majority, however,
dismisses petitioners fear by holding:
"One can speak of healthy competition only between equals. For this reason, the law seeks to break
up monopoly in the telecommunications industry by gradually dismantling the barriers to entry and
granting to new telecommunications entities protection against dominant carriers through equitable

access charges and equal access clauses in interconnection agreements and through the strict
policing of predatory pricing by dominant carriers. Interconnection among carriers is made
mandatory to prevent a dominant carrier from delaying the establishment of connection with a new
entrant and to deter the former from imposing excessive access charges.
"That is also the reason there are franchises granted by Congress after the effectivity of R.A. No.
7925 which do not contain the in lieu of all taxes clause, just as there are franchises, also granted
after March 16, 1995, which contain such exemption from other taxes. If, by virtue of section 23,
the tax exemption granted under existing franchises or thereafter granted is deemed applicable to
previously granted franchises (i.e., franchises granted before the effectivity of R.A. No. 7925 on
March 16, 1995), then those franchises granted after March 16, 1995, which do not contain the in
lieu of all taxes clause, are not entitled to tax exemption. The in lieu of all taxes provision in the
Franchises of Globe and Smart, which are relatively new entrants in the telecommunications
industry, cannot thus be deemed applicable to PLDT, which had virtual monopoly in the telephone
service in the country for a long time, without defeating the very policy of leveling the playing field
of which PLDT speaks."6
Again, I am unable to agree with the majority. With due respect, the majority fails to grasp the processes of
deregulation followed in the telecommunications industry. The key move to take before deregulating is to
break up the monopoly or oligopoly in control of the industry. For with a monopoly or oligopoly enjoying a
stranglehold on the industry, the market forces cannot have a free play and prices in the industry will be
dictated by the lucre of commerce. For this reason. petitioner PLDTs monopoly had to be broken. Among
others, the law made interconnection among carriers mandatory and provided for equitable access
charges and equal access clauses in interconnection agreements. With this provision, the law busted the
biggest barrier to the effective entry of new players in the telecommunications industry. The next step in
deregulation is to level the playing field. The mechanism for leveling the playing field is installed in section
23 of the law which requires equality of treatment in the telecommunications industry. In no uncertain
terms, it orders that "any advantage, favor, privilege, exemption, or immunity granted under existing
franchise, or may hereafter be granted, shall ipso facto become part of previously granted
telecommunications franchises and shall be accorded immediately and unconditionally to the grantees of
such franchises xxx." A level playing field is indispensable to prevent predatory pricing on the part of any
player in the industry. Without a level playing field, competition will be unfair and prices in the industry will
not be determined by market forces but by unregulated greed. Inexplicably, the majority would deny to
petitioner PLDT the right to a level playing field. Its reasons are tenuous to say the least. Its prime reason
is that petitioner PLDT had enjoyed virtual monopoly in the telephone service in the country for a long
time.7 The monopoly status of petitioner PLDT is past and should be viewed in its propel historical
perspective. In the early years of our economic history, monopolies in certain industries had to be allowed.
They have to be entertained in industries which are high-risk, capital intensive and indispensable to
economic growth. No company will risk venture capital in these industries unless they are accorded
favored treatment, usually a monopoly status, for a certain time. Even then, administrative mechanisms
were put in place to regulate their activities especially their pricing policies to protect the interest of the
consuming public. Indeed, a great part of the United States would still be a wilderness if it did not allow
monopolies in its railroad and telecommunications industries. We adopted this proven strategy and allowed
monopolies in some of our industries like electric power, transportation and telecommunications. It is in
line with this strategy that Congress granted to petitioner PLDT a monopoly status for a certain time. No
company would then invest in our telecommunications industry but petitioner PLDT did, assumed the risk
and undeniably played a vital role in our economic development which cannot be dismissed as
insignificant. For this reason, our Constitution does not ban monopolies as evil per se for they are not.
It appears that a misappreciation of the past dominant role of petitioner PLDT in our telecommunications
industry has poisoned the position of the majority. The majority thinks that if it orders equal tax treatment
to petitioner vis--vis the other companies in the telecommunications industry, there will be inequality
because there is no parity between them in terms of resources. Following this thought, the majority again
surmises that the strategy of Congress to achieve equality in the industry is to grant exemptions on a case
to case basis. Thus, it holds that "that is xxx the reason there are franchises granted by Congress after the
effectivity of R.A. No. 7925 which do not contain the in lieu of all taxes clause, just as there are franchises,
also granted after March 16, 1995, which contain such exemption from other taxes." 8 Footnote no. 13 of
the majority decision cites a list of telecommunications companies whose franchises do not contain the "in
lieu of all taxes" clause while footnote no. 14 cites the companies whose franchises contain the said
clause. A cursory glance at the companies in footnote no. 13 will, however, show that they are not the
giant-type which will explain why their franchises do not contain the "in lieu of all taxes" clause. Similarly,
there appears in footnote no. 14 big companies yet their franchises contain the aforesaid clause.
Significantly, the majority does not cite the legislative proceedings of the laws granting these franchises to

support its ruling that the grant or non-grant of the "in lieu of all taxes" clause in the franchises of the
companies involved is part of the strategy of Congress to equalize them and level the playing field in the
telecommunications industry. The ruling is an ex-cathedra pronouncement unsupported by any footnote.
Again, I submit the view that section 23 granted equal tax treatment to all telecommunications companies
and to stress again, this was done only after breaking up the monopoly in the industry. Today, petitioner
PLDT no longer controls the industry and there is no reason to treat it unequally from other companies. The
inclusion of the "in lieu of all taxes" clause in some franchises simply reiterates section 23 of Republic Act
No. 7925. The non-inclusion of the clause in other franchises does not mean its non-grant for the
exemption can be claimed under section 23 of Republic Act 7925 which still stands for it has not been
repealed by any subsequent law. By insisting that petitioner cannot claim its tax exemption because of its
prior dominant status, the majority is substituting its own concept of equality from that of section 23, and
it is restructuring the level playing field designed by the legislature. It is not our business to construct the
law hut to construe it for we are not another chamber of Congress.
I vote to grant the Motion for Reconsideration.

Separate Opinion
Carpio, J.:
I concur in the result of the ponencia of Justice Vicente V. Mendoza that petitioner Philippine Long Distance
Telephone Company, Inc. (PLDT) is subject to the local franchise tax imposed by the City of Davao.
My concurrence is based on two grounds. First, the "in lieu of all taxes" clause was not re-enacted in the
franchise of Globe Mackay Cable and Radio Corporation (Globe) when Congress adopted Republic Act No.
7229 approving the merger of Globe and Clavecilla Radio System (Clavecilla). Second, the "in lieu of all
taxes" clause in the franchise of Smart Communications, Inc. (Smart) has become functus officio with the
abolition of the franchise tax on telecommunications companies. Moreover, this clause applies only to
national internal revenue taxes and not to local taxes.
PLDT claims that the "in lieu of all taxes" clause in the franchises of Globe and Smart applies to PLDT by
virtue of the equality clause1 in Republic Act No. 7925. However, if the "in lieu of all taxes" clauses in the
franchises of Globe and Smart are no longer in effect, then PLDTs claim to tax exemption will necessarily
fail even if the equality clause applies to tax exemptions. I find that Globes existing franchise has no "in
lieu of all taxes" clause. I also find that the abolition of the franchise tax on telecommunications companies
and its replacement by the value-added tax (VAT) effective January 1, 1996 has rendered ineffective the "in
lieu of all taxes" clause in the franchise of Smart.
On June 19, 1965, Republic Act No. 4540 amended the franchise of Clavecilla and inserted the following "in
lieu of all taxes" clause in Section 9 (b) of its franchise:
"The grantee shall further pay to the Treasurer of the Philippines each year after the audit and
approval of the accounts as prescribed in this Act, one and one-half per centum of all gross receipts
from business transacted under this franchise by the said grantee in the Philippines, in lieu of any
and all taxes of any kind, nature or description levied, established or collected by an authority
whatsoever, municipal, provincial or national, from which the grantee is hereby expressly
exempted, effective from the date of the approval of Republic Act Numbered Sixteen Hundred
Eighteen."
On the other hand, the franchise of Globe contained no "in lieu of all taxes" clause.
The Local Government Code of 1991,2 which took effect on January 1, 1992, repealed Section 9(b) of
Clavecillas franchise with respect to local taxes. Sections 137, 151, and 193 of the Local Government Code
of 1991 provide that
"Section 137. Franchise Tax. Notwithstanding any exemption granted by any law or other special
law, the province may impose a tax on businesses enjoying a franchise, at the rate not exceeding
fifty percent (50%) of one percent (1%) of the gross annual receipts for the preceding calendar year
based on the incoming receipt, or realized, within its territorial jurisdiction.
In the case of a newly started business, the tax shall not exceed one-twentieth (1/20) of one
percent (1%) of the capital investment. In the succeeding calendar year, regardless of when the
business started to operate, the tax shall be based on the gross receipts for the preceding calendar
year, or any fraction thereon, as provided herein."

"Section 151. Scope of Taxing Powers. - Except as otherwise provided in this Code, the city may
levy the taxes, fees, and charges which the province or municipality may impose: Provided,
however, That the taxes, fees and charges levied and collected by highly urbanized and
independent component cities shall accrue to them and distributed in accordance with the
provisions of this Code.
The rates of taxes that the city may levy may exceed the maximum rates allowed for the province
or municipality by not more than fifty percent (50%) except the rates of professional and
amusement taxes."
"Section 193. Withdrawal of Tax Exemption Privileges. - Unless otherwise provided in this Code, tax
exemptions or incentives granted to, or presently enjoyed by all persons, whether natural or
juridical, including government-owned or controlled corporations, except local water districts,
cooperatives duly registered under RA No. 6938, non-stock and non-profit hospitals and educational
institutions, are hereby withdrawn upon the effectivity of this Code."
Thus, from January 1, 1992 up to the enactment on March 19, 1992 of RA No. 7229, Clavecilla did not
enjoy, with respect to local taxes, the tax exemption under its "in lieu of all taxes" clause. The only
question is whether RA No. 7229 re-enacted Section 9 (b) of Clavecillas old franchise to restore its "in lieu
of all taxes" clause, at least with respect to local taxes.
The answer is a categorical no for two reasons. First, there is no language in RA No. 7229, express or even
implied, re-enacting Section 9 (b) of Clavecillas old franchise with respect to local taxes. RA No. 7229
merely approved the merger of Globe and Clavecilla, and transferred the then existing franchise3 of
Clavecilla to the surviving corporation, Globe. When Congress approved RA No. 7229, Clavecillas then
existing franchise did not contain the "in lieu of all taxes" clause with respect to local taxes. Logically, the
transfer of Clavecillas franchise to Globe did not transfer the "in lieu of all taxes" clause since Clavecillas
franchise no longer had such clause with respect to local taxes.
Second, RA No. 7229 expressly provides that original provisions of the franchise of Clavecilla under
Republic Act No. 402, as amended, which have not been repealed, shall continue in full force and effect.
The clear intent of the law is that provisions in Clavecillas franchise which had already been repealed as of
the enactment of RA No. 7229 shall remain repealed and shall not be re-enacted with the passage of RA
No. 7229. Thus, Section 11 of RA No. 7229 states
"All other provisions of Republic Act No. 402, as amended by Republic Act Nos. 1618 and 4540, and
other provisions of Batas Pambansa Blg. 95 which are not inconsistent with the provisions of this
Act and are still unrepealed shall continue to be in full force and effect." (Emphasis supplied)
Clearly, Congress did not intend to re-enact any of the provisions in the franchise of Clavecilla that had
already been repealed by prior laws.
Tax exemptions must be clear and unequivocal. A taxpayer claiming a tax exemption must point to a
specific provision of law conferring on the taxpayer, in clear and plain terms, exemption from a common
burden. Any doubt whether a tax exemption exists is resolved against the taxpayer. Tax exemptions cannot
arise by mere implication, much less by an implied re-enactment of a repealed tax exemption clause. In
the instant case, there is even no implied re-enactment of Section 9 (b) of Clavecillas old franchise since
Section 11 of RA No. 7229 expressly states that only unrepealed provisions of Clavecillas franchise shall
continue in force and effect. Measured against these well-recognized principles of taxation, PLDTs claim to
tax exemption based on the franchise of Globe must necessarily fail.
PLDT also relies on Smarts franchise which PLDT claims contains the "in lieu of all taxes" clause. PLDT
points to Section 9 of Republic Act No. 7294, Smarts franchise, which states "Tax provisions. - The grantee, its successors or assigns shall be liable to pay the same taxes on
their real estate, buildings and personal property, exclusive of this franchise, as other persons or
corporations which are now or hereafter may be required by law to pay. In addition thereto, the
grantee, its successors or assigns shall pay a franchise tax equivalent to three percent (3%) of all
gross receipts of the business transacted under this franchise by the grantee, its successors or
assigns and the said percentage shall be in lieu of all taxes on this franchise or earnings thereof:
Provided, that the grantee, its successors or assigns shall continue to be liable for income taxes
payable under Title II of the National Internal Revenue Code pursuant to Section 2 of Executive
Order No. 72 unless the latter enactment is amended or repealed, in which case the amendment or
repeal shall be applicable thereto.
The grantee shall file the return with and pay the tax due thereon to the commissioner of internal
Revenue or his duly authorized representative in accordance with the National Internal Revenue

Code and the return shall be subject to audit by the Bureau of Internal Revenue." (Emphasis
supplied)
RA No. 7294 took effect on May 27, 1992, after the effectivity of the Local Government Code of 1991. Thus,
the withdrawal of tax exemptions in the Local Government Code cannot apply to Smart, Applying the
equality clause in Section 23 of RA No. 7925. PLDT claims that the "in lieu of all taxes" clause in Smarts
franchise should also benefit PLDT.
PLDTs reliance on the "in lieu of all taxes" clause in Smarts franchise is misplaced for two reasons. First,
Republic Act No. 7716 abolished the franchise tax on telecommunications companies effective January 1,
1996. To replace the 3 percent franchise tax in Section 227 (now Section 119) of the National Internal
Revenue Code, RA No. 7716 imposed a 10 percent VAT on telecommunications companies under Section
102 (now Section 108) of the Tax Code. As explained by PLDT, "presently, the telecommunications
companies do not anymore pay a franchise tax of varying percentages and instead pay a uniform VAT of
10%."4 The franchise tax in Section 119 of the Tax Code still exists but is now applicable only to "electric,
gas and water utilities" and no longer to telecommunications companies.
The franchise tax is imposed only on franchise holders, while the VAT is imposed on all sellers of goods and
services, whether or not they hold franchises. The franchise tax is now imposed in Section 119 of the Tax
Code, while the VAT on telecommunications companies is imposed in Section 108 of the Tax Code. The Tax
Code defines the VAT as an indirect tax which can be passed on to the buyer. The Tax Code precludes
payment of a "VAT on the VAT" by excluding the VAT in computing the gross receipts. This is not the case of
the franchise tax. Certainly, the franchise tax is a different tax from the VAT.
Smarts franchise states that the 3 percent "franchise tax" shall be "in lieu of all taxes." Clearly, it is
the franchise tax that shall be in lieu of all taxes referred to in Section 9, and not the VAT or any other tax.
Following the rule on strict interpretation of tax exemptions, the "in lieu of all taxes" clause cannot apply
when what is paid is a tax other than the franchise tax. Since the franchise tax on telecommunications
companies has been abolished, the "in lieu of all taxes" clause has now become functus officio, rendered
inoperative for lack of a franchise tax. Revenue Memorandum Circular No. 5-96 issued by the
Commissioner of Internal Revenue stating that the VAT shall be "in lieu of all taxes" since it merely
replaced the franchise tax is void for lack of a legal basis.
Second, the "in lieu of all taxes" clause in Smarts franchise refers only to taxes, other than income tax,
imposed under the National Internal Revenue Code. The "in lieu of all taxes" clause does not apply to local
taxes. The proviso in the first paragraph of Section 9 of Smarts franchise states that the grantee shall
"continue to be liable for income taxes payable under Title II of the National Internal Revenue Code." Also,
the second paragraph of Section 9 speaks of tax returns filed and taxes paid to the "Commissioner of
Internal Revenue or his duly authorized representative in accordance with the National Internal Revenue
Code." Moreover, the same paragraph declares that the tax returns "shall be subject to audit by the
Bureau of Internal Revenue." Nothing is mentioned in Section 9 about local taxes. The clear intent is for the
"in lieu of all taxes" clause to apply only to taxes under the National Internal Revenue Code and not to local
taxes. Even with respect to national internal revenue taxes, the "in lieu of all taxes" clause does not apply
to income tax.
If Congress intended the "in lieu of all taxes" clause in Smarts franchise to also apply to local taxes,
Congress would have expressly mentioned the exemption from municipal and provincial taxes. Congress
could have used the language in Section 9 (b) of Clavecillas old franchise, as follows:
"x x x in lieu of any and all taxes of any kind, nature or description levied, established or collected
by any authority whatsoever, municipal, provincial or national, from which the grantee is hereby
expressly exempted, x x x." (Emphasis supplied)
However, Congress did not expressly exempt Smart from local taxes. Congress used the "in lieu of all
taxes" clause only in reference to national internal revenue taxes. The only interpretation, under the rule
on strict construction of tax exemptions, is that the "in lieu of all taxes" clause in Smarts franchise refers
only to national and not to local taxes.
PLDT cites Philippine Railway Co. v. Nolting5 to support its claim6 that the "in lieu of all taxes" clause
includes exemption from local taxes. However, in Philippine Railway the franchise of the railway company
expressly exempted it from municipal and provincial taxes, as follows:
"Such annual payments, when promptly and fully made by the grantee, shall be in lieu of all taxes
of every name and nature -municipal, provincial or central - upon its capital stock, franchises, right
of way, earnings, and all other property owned or operated by the grantee, under this concession or
franchise." (Emphasis supplied)

If anything, Philippine Railway shows the need to avoid ambiguity by specifying the taxing authority municipal, provincial or national - from whose jurisdiction the taxing power is withheld to create the tax
exemption. This is not the case in Smarts franchise, where the "in lieu of all taxes" clause refers only to
national internal revenue taxes.
The existing legislative policy is clearly against the revival of the "in lieu of all taxes" clause in franchises of
telecommunications companies. After the VAT on telecommunications companies took effect on January 1,
1996, Congress never again included the "in lieu of all taxes" clause in any telecommunications franchise it
subsequently approved. Also, from September 2000 to July 2001, all the fourteen telecommunications
franchises7approved by Congress uniformly and expressly state that the franchisee shall be subject to all
taxes under the National Internal Revenue Code, except the specific tax. The following is substantially the
uniform tax provision in these fourteen franchises:
"Tax Provisions. - The grantee, its successors or assigns, shall be subject to the payment of all
taxes, duties, fees, or charges and other impositions under the National Internal Revenue Code of
1997, as amended, 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 telecommunications entities shall likewise be extended to the grantee." 8 (Emphasis supplied)
Thus, after the imposition of the VAT on telecommunications companies, Congress refused to grant any tax
exemption to telecommunications companies that sought new franchises from Congress, except the
exemption from specific tax. More importantly, the uniform tax provision in these new franchises expressly
states that the franchisee shall pay not only all taxes, except specific tax, under the National Internal
Revenue Code, but also all taxes under "other applicable laws." One of the "other applicable laws" is the
Local Government Code of 1991, which empowers local governments to impose a franchise tax on
telecommunications companies. This, to reiterate, is the existing legislative policy.
Lastly, although it has no bearing on the instant case, I find that the equality clause in Section 23 of RA No.
7925 applies to tax exemptions. This Section provides as follows:
"Equality of Treatment in the Telecommunications Industry. -Any advantage, favor, privilege,
exemption, or immunity granted under existing franchises, or may hereafter be granted, shall ipso
facto become part of previously granted telecommunications franchises and shall be accorded
immediately and unconditionally to the grantees of such franchises: Provided, however, That the
foregoing shall neither apply to nor affect provisions of telecommunications franchises concerning
territory covered by the franchise, the life span of the franchise, or the type of service authorized
by the franchise."
The legislative intent behind Section 23 is unquestionably to level the playing field among all competing
companies in the telecommunications industry. If one telecommunications company enjoys a tax
advantage over its competitors, while enjoying equal treatment with its competitors in all other aspects
like interconnection, fee sharing and the like, then there obviously will be no level playing field. A tax
exemption granted to one telecommunications company, but not to others, will sooner than later kill all its
competitors and result in a monopoly. This obviously is not the meaning of "equality of treatment."
Besides, a tax exemption granted to one or more, but not to all, telecommunications companies similarly
situated will violate the constitutional rule on uniformity of taxation. 9 It will deny equal protection of the
law to those similarly situated but to whom the tax exemption is denied. A tax exemption granted to one or
some telecommunications companies, but not to all, can only be constitutionally justified if there is a
reasonable basis for classifying some companies exempt and others not exempt. RA No. 7925, which
prescribes the state policy on public telecommunications, does not allow any classification or
discrimination in the grant of any "advantage, favor, privilege, exemption, or immunity." This is precisely to
observe, as far as taxation is concerned, the rule of uniformity and thus significantly level the playing field.
The law mandates "equality of treatment" to promote a "healthy competitive environment." 10 If this
manifest state policy is to have any meaning, Section 23 must include tax exemption.
Under Section 23, a tax exemption in a franchise granted after the effectivity of RA No. 7925 is deemed
automatically written in all prior franchises, whether the prior franchises were granted before or after the
effectivity of RA No. 7925. Section 23 states that a tax exemption in a new franchise "shall ipso
facto become part of previously granted telecommunications franchises." There is no limitation whatsoever
that only franchises issued prior to the effectivity of RA No. 7925 can benefit from Section 23. To interpret
such limitation in Section 23 is to negate the legislative intent in Section 23. Such a limitation will result in
unfair advantage to new franchisees, grossly distort market forces and prevent the level playing field that
Section 23 seeks to create.

That Section 23 uses the word "exemption" and not the term "tax exemption" does not exclude exemption
from tax, which by far is the most important exemption in a telecommunications franchise. If the word
"exemption" is inadequate to embrace tax exemption, then it will be inadequate to embrace any kind of
exemption. To have any significance, the law will have to spell out each kind of exemption before or after
the word "exemption," like "exemption from reportorial requirements," "exemption from monitoring
requirements" and the like. This will render the word "exemption" in Section 23 meaningless because at
present this word stands alone. Certainly, we must avoid an interpretation that will effectively erase the
word "exemption" from Section 23.
The reiteration in individual franchises of rights or privileges already guaranteed in RA No. 7925 does not
nullify or deny such guarantees in RA No. 7925. The right to a fair and reasonable interconnection is
expressly mandated in RA No. 7925.11 The same right is expressly reiterated in 2112 of the 23 franchises
approved by Congress after the effectivity of RA No. 7925 up to July 31, 2001. The reiteration does not
mean that the same right never existed in RA No. 7925, thus requiring the right to be expressly stated in
the individual franchises. No such inference can be drawn. Where a general law is enacted to regulate an
industry, it is common for individual franchises subsequently granted to restate the rights and privileges
already mentioned in the general law. This is the situation in 17 franchises 13 granted after the effectivity of
RA No. 7925 up to July 31, 2001, all of which reiterate the equality clause found in Section 23 of RA No.
7925.
In view of the foregoing, I vote to deny the motion for reconsideration for lack of merit.
THIRD DIVISION

EVELYN ONGSUCO
SALAYA,

and

ANTONIA
G. R . N o. 1 82 06 5

Petitioners,

Present:
- versus -

QUISUMBING,* J.,
HON. MARIANO M. MALONES, both
in his private and official capacity
as Mayor of the Municipality of
Maasin, Iloilo,
Re s pon de nt.

CARPIO,
Chairperson,
CHICO-NAZARIO,
PERALTA, and
ABAD,** JJ.
Promulgated:
October 27, 2009

x-------------------------------------------------x
DECISION

CHICO-NAZARIO, J.:

This is a Petition for Review on Certiorari under Rule 45 of the Rules of Court, assailing the Decision [1] dated
28 November 2006, rendered by the Court of Appeals in CA-G.R. SP No. 86182, which affirmed the
Decision[2] dated 15 July 2003, of the Regional Trial Court (RTC), Branch 39, of Iloilo City, in Civil Case No.
25843, dismissing the special civil action for Mandamus/Prohibition with Prayer for Issuance of a Temporary
Restraining Order and/or Writ of Preliminary Injunction, filed by petitioners Evelyn Ongsuco and Antonia
Salaya against respondent Mayor Mariano Malones of the Municipality of Maasin, Iloilo.
Petitioners are stall holders at the Maasin Public Market, which had just been newly renovated. In a
letter[3] dated 6 August 1998, the Office of the Municipal Mayor informed petitioners of a meeting
scheduled on 11 August 1998 concerning the municipal public market. Revenue measures were discussed
during the said meeting, including the increase in the rentals for the market stalls and the imposition of
goodwill fees in the amount of P20,000.00,[4] payable every month.
On 17 August 1998, the Sangguniang Bayan of Maasin approved Municipal Ordinance No. 98-01,
entitled The Municipal Revised Revenue Code. The Code contained a provision for increased rentals for the
stalls and the imposition of goodwill fees in the amount of P20,000.00 and P15,000.00 for stalls located on
the first and second floors of the municipal public market, respectively. The same Code authorized
respondent to enter into lease contracts over the said market stalls, [5] and incorporated a standard
contract of lease for the stall holders at the municipal public market.
Only a month later, on 18 September 1998, the Sangguniang Bayan of Maasin approved Resolution
No. 68, series of 1998,[6] moving to have the meeting dated 11 August 1998 declared inoperative as a
public hearing, because majority of the persons affected by the imposition of the goodwill fee failed to
agree to the said measure. However, Resolution No. 68, series of 1998, of the Sangguniang Bayan of
Maasin was vetoed by respondent on 30 September 1998.[7]
After Municipal Ordinance No. 98-01 was approved on 17 August 1998, another purported public
hearing was held on 22 January 1999.[8]
On 9 June 1999, respondent wrote a letter to petitioners informing them that they were occupying
stalls in the newly renovated municipal public market without any lease contract, as a consequence of
which, the stalls were considered vacant and open for qualified and interested applicants. [9]
This prompted petitioners, together with other similarly situated stall holders at the municipal
public market,[10] to file before the RTC on 25 June 1999 a Petition forProhibition/Mandamus, with Prayer for
Issuance of Temporary Restraining Order and/or Writ of Preliminary Injunction, [11] against respondent. The
Petition was docketed as Civil Case No. 25843.
Petitioners alleged that they were bona fide occupants of the stalls at the municipal public market,
who had been religiously paying the monthly rentals for the stalls they occupied.
Petitioners argued that public hearing was mandatory in the imposition of goodwill fees. Section
186 of the Local Government Code of 1991 provides that an ordinance levying taxes, fees, or charges shall
not be enacted without any prior hearing conducted for the purpose. Municipal Ordinance No. 98-01,
imposing goodwill fees, is invalid on the ground that the conferences held on 11 August 1998 and 22
January 1999 could not be considered public hearings. According to Article 277(b)(3) of the Implementing
Rules and Regulations of the Local Government Code:

(3) The notice or notices shall specify the date or dates and venue of the public
hearing or hearings. The initial public hearing shall be held not earlier than ten (10)
days from the sending out of the notice or notices, or the last day of publication, or date of
posting thereof, whichever is later. (Emphasis ours.)

The letter from the Office of the Municipal Mayor was sent to stall holders on 6 August 1998, informing the
latter of the meeting to be held, as was in fact held, on 11 August 1998, only five days after notice.[12]
Hence, petitioners prayed that respondent be enjoined from imposing the goodwill fees pending the
determination of the reasonableness thereof, and from barring petitioners from occupying the stalls at the
municipal public market and continuing with the operation of their businesses.
Respondent, in answer, maintained that Municipal Ordinance No. 98-01 is valid. He reasoned that
Municipal Ordinance No. 98-01 imposed goodwill fees to raise income to pay for the loan obtained by
the Municipality of Maasin for the renovation of its public market. Said ordinance is not per se a tax or
revenue measure, but involves the operation and management of an economic enterprise of
the Municipality of Maasin as a local government unit; thus, there was no mandatory requirement to hold a
public hearing for the enactment thereof. And, even granting that a public hearing was required,
respondent insisted that public hearings take place on 11 August 1998 and 22 January 1999.
Respondent further averred that petitioners were illegally occupying the market stalls, and the only
way petitioners could legitimize their occupancy of said market stalls would be to execute lease contracts
with the Municipality of Maasin. While respondent admitted that petitioners had been paying rentals for
their market stalls in the amount ofP45.00 per month prior to the renovation of the municipal public
market, respondent asserted that no rentals were paid or collected from petitioners ever since the
renovation began.
Respondent sought from the RTC an award for moral damages in the amount of not less
than P500,000.00, for the social humiliation and hurt feelings he suffered by reason of the unjustified filing
by petitioners of Civil Case No. 25843; and an order for petitioners to vacate the renovated market stalls
and pay reasonable rentals from the date they began to occupy said stalls until they vacate the same. [13]
The RTC subsequently rendered a Decision[14] on 15 July 2003 dismissing the Petition in Civil Case
No. 25843.
The RTC found that petitioners could not avail themselves of the remedy of mandamus or
prohibition. It reasoned that mandamus would not lie in this case where petitioners failed to show a clear
legal right to the use of the market stalls without paying the goodwill fees imposed by the municipal
government. Prohibition likewise would not apply to the present case where respondents acts, sought to be
enjoined, did not involve the exercise of judicial or quasi-judicial functions.
The RTC also dismissed the Petition in Civil Case No. 25843 on the ground of non-exhaustion of
administrative remedies. Petitioners failure to question the legality of Municipal Ordinance No. 98-01
before the Secretary of Justice, as provided under Section 187 of the Local Government Code, [15] rendered
the Petition raising the very same issue before the RTC premature.
The dispositive part of the RTC Decision dated 15 July 2003 reads:

WHEREFORE, in view of all the foregoing, and finding the petition without merit, the
same is, as it is hereby ordered, dismissed. [16]

On 12 August 2003, petitioners and their co-plaintiffs filed a Motion for Reconsideration. [17] The RTC
denied petitioners Motion for Reconsideration in a Resolution dated 18 June 2004.[18]
While Civil Case No. 25843 was pending, respondent filed before the 12 th Municipal Circuit Trial
Court (MCTC) of Cabatuan-Maasin, Iloilo City a case in behalf of theMunicipality of Maasin against
petitioner Evelyn Ongsuco, entitled Municipality of Maasin v. Ongsuco, a Complaint for Unlawful Detainer
with Damages, docketed as MCTC Civil Case No. 257. On 18 June 2002, the MCTC decided in favor of
the Municipality of Maasin and ordered petitioner Ongsuco to vacate the market stalls she occupied, Stall
No. 1-03 and Stall No. 1-04, and to pay monthly rentals in the amount of P350.00 for each stall from
October 2001 until she vacates the said market stalls. [19] On appeal, Branch 36 of the RTC of
Maasin, Iloilo City, promulgated a Decision, dated 29 April 2003, in a case docketed as Civil Case No. 0227229 affirming the decision of the MCTC. A Writ of Execution was issued by the MCTC on 8 December
2003.[20]
Petitioners, in their appeal before the Court of Appeals, docketed as CA-G.R. SP No. 86182,
challenged the dismissal of their Petition for Prohibition/Mandamus docketed as Civil Case No. 25843 by
the RTC. Petitioners explained that they did appeal the enactment of Municipal Ordinance No. 98-01 before
the Department of Justice, but their appeal was not acted upon because of their failure to attach a copy of
said municipal ordinance. Petitioners claimed that one of their fellow stall holders, Ritchelle Mondejar,
wrote a letter to the Officer-in-Charge (OIC), Municipal Treasurer of Maasin, requesting a copy of Municipal
Ordinance No. 98-01, but received no reply.[21]
In its Decision dated 28 November 2006 in CA-G.R. SP No. 86182, the Court of Appeals again ruled
in respondents favor.
The Court of Appeals declared that the goodwill fee was a form of revenue measure, which
the Municipality of Maasin was empowered to impose under Section 186 of the Local Government
Code. Petitioners failed to establish any grave abuse of discretion committed by respondent in enforcing
goodwill fees.
The Court of Appeals additionally held that even if respondent acted in grave abuse of discretion,
petitioners resort to a petition for prohibition was improper, since respondents acts in question herein did
not involve the exercise of judicial, quasi-judicial, or ministerial functions, as required under Section 2, Rule
65 of the Rules of Court.Also, the filing by petitioners of the Petition for Prohibition/Mandamus before the
RTC was premature, as they failed to exhaust administrative remedies prior thereto. The appellate court
did not give any weight to petitioners assertion that they filed an appeal challenging the legality of
Municipal Ordinance No. 98-01 before the Secretary of Justice, as no proof was presented to support the
same.
In the end, the Court of Appeals decreed:
WHEREFORE, in view of the foregoing, this Court finds the instant appeal bereft of
merit. The assailed decision dated July 15, 2003 as well as the subsequent resolution
dated 18 June 2004 are hereby AFFIRMED and the instant appeal is hereby DISMISSED. [22]

Petitioners filed a Motion for Reconsideration[23] of the foregoing Decision, but it was denied by the
Court of Appeals in a Resolution[24] dated 8 February 2008.
Hence, the present Petition, where petitioners raise the following issues:
I
WHETHER OR NOT THE PETITIONERS HAVE EXHAUSTED ADMINISTRATIVE REMEDIES BEFORE
FILING THE INSTANT CASE IN COURT;

II
WHETHER OR NOT EXHAUSTION OF ADMINISTRATIVE REMEDIES IS APPLICABLE IN THIS
CASE; AND
III
WHETHER OR NOT THE APPELLEE MARIANO MALONES WHO WAS THEN THE MUNICIPAL
MAYOR OF MAASIN, ILOILO HAS COMMITTED GRAVE ABUSE OF DISCRETION.[25]

After a close scrutiny of the circumstances that gave rise to this case, the Court determines that
there is no need for petitioners to exhaust administrative remedies before resorting to the courts.
The findings of both the RTC and the Court of Appeals that petitioners Petition for
Prohibition/Mandamus in Civil Case No. 25843 was premature is anchored on Section 187 of the Local
Government Code, which reads:
Section 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. (Emphasis ours.)

It is true that the general rule is that before a party is allowed to seek the intervention of the court,
he or she should have availed himself or herself of all the means of administrative processes afforded him
or her. Hence, if resort to a remedy within the administrative machinery can still be made by giving the
administrative officer concerned every opportunity to decide on a matter that comes within his or her
jurisdiction, then such remedy should be exhausted first before the courts judicial power can be
sought. The premature invocation of the intervention of the court is fatal to ones cause of action. The

doctrine of exhaustion of administrative remedies is based on practical and legal reasons.The availment of
administrative remedy entails lesser expenses and provides for a speedier disposition of
controversies. Furthermore, the courts of justice, for reasons of comity and convenience, will shy away
from a dispute until the system of administrative redress has been completed and complied with, so as to
give the administrative agency concerned every opportunity to correct its error and dispose of the
case. However, there are several exceptions to this rule. [26]
The rule on the exhaustion of administrative remedies is intended to preclude a court from
arrogating unto itself the authority to resolve a controversy, the jurisdiction over which is initially lodged
with an administrative body of special competence. Thus, a case where the issue raised is a purely legal
question, well within the competence; and the jurisdiction of the court and not the administrative agency,
would clearly constitute an exception. [27] Resolving questions of law, which involve the interpretation and
application of laws, constitutes essentially an exercise of judicial power that is exclusively allocated to the
Supreme Court and such lower courts the Legislature may establish. [28]
In this case, the parties are not disputing any factual matter on which they still need to present
evidence. The sole issue petitioners raised before the RTC in Civil Case No. 25843 was whether Municipal
Ordinance No. 98-01 was valid and enforceable despite the absence, prior to its enactment, of a public
hearing held in accordance with Article 276 of the Implementing Rules and Regulations of the Local
Government Code. This is undoubtedly a pure question of law, within the competence and jurisdiction of
the RTC to resolve.
Paragraph 2(a) of Section 5, Article VIII of the Constitution, expressly establishes the appellate
jurisdiction of this Court, and impliedly recognizes the original jurisdiction of lower courts over cases
involving the constitutionality or validity of an ordinance:
Section 5. The Supreme Court shall have the following powers:
xxxx
(2) Review, revise, reverse, modify or affirm on appeal or certiorari, as the law or the
Rules of Court may provide, final judgments and orders of lower courts in:
(a) All cases in which the constitutionality or validity of any treaty, international
or
executive
agreement,
law,
presidential
decree,
proclamation,
order,
instruction, ordinance, or regulation is in question. (Emphases ours.)

In J.M. Tuason and Co., Inc. v. Court of Appeals,[29] Ynot v. Intermediate Appellate Court,
and Commissioner of Internal Revenue v. Santos, [31] the Court has affirmed the jurisdiction of the RTC to
resolve questions of constitutionality and validity of laws (deemed to include local ordinances) in the first
instance, without deciding questions which pertain to legislative policy.
[30]

Although not raised in the Petition at bar, the Court is compelled to discuss another procedural issue,
specifically, the declaration by the RTC, and affirmed by the Court of Appeals, that petitioners availed
themselves of the wrong remedy in filing a Petition for Prohibition/Mandamus before the RTC.
Sections 2 and 3, Rule 65 of the Rules of the Rules of Court lay down under what circumstances
petitions for prohibition and mandamus may be filed, to wit:

SEC. 2. Petition for prohibition. When the proceedings of any tribunal, corporation, board,
officer or person, whether exercising judicial, quasi-judicial or ministerial functions, are
without or in excess of its or his jurisdiction, or with grave abuse of discretion amounting to
lack or excess of jurisdiction, and there is no appeal or any other plain, speedy, and
adequate remedy in the ordinary course of law, a person aggrieved thereby may file a
verified petition in the proper court, alleging the facts with certainty and praying that
judgment be rendered commanding the respondent to desist from further proceedings in the
action or matter specified therein, or otherwise granting such incidental reliefs as law and
justice may require.
SEC. 3. Petition for mandamus. When any tribunal, corporation, board, officer or person
unlawfully neglects the performance of an act which the law specifically enjoins as a
duty resulting from an office, trust, or station, or unlawfully excludes another from the
use and enjoyment of a right or office to which such other is entitled , and there is
no other plain, speedy and adequate remedy in the ordinary course of law, the person
aggrieved thereby may file a verified petition in the proper court, alleging the facts with
certainty and praying that judgment be rendered commanding the respondent, immediately
or at some other time to be specified by the court, to do the act required to be done to
protect the rights of the petitioner, and to pay the damages sustained by the petitioner by
reason of the wrongful acts of the respondent. (Emphases ours.)

In a petition for prohibition against any tribunal, corporation, board, or person -- whether exercising
judicial, quasi-judicial, or ministerial functions -- who has acted without or in excess of jurisdiction or with
grave abuse of discretion, the petitioner prays that judgment be rendered, commanding the respondent to
desist from further proceeding in the action or matter specified in the petition. [32] On the other hand, the
remedy of mandamus lies to compel performance of a ministerial duty.[33] The petitioner for such a writ
should have a well-defined, clear and certain legal right to the performance of the act, and it must be the
clear and imperative duty of respondent to do the act required to be done. [34]
In this case, petitioners primary intention is to prevent respondent from implementing Municipal
Ordinance No. 98-01, i.e., by collecting the goodwill fees from petitioners and barring them from occupying
the stalls at the municipal public market. Obviously, the writ petitioners seek is more in the nature of
prohibition (commanding desistance), rather than mandamus (compelling performance).
For a writ of prohibition, the requisites are: (1) the impugned act must be that of a tribunal,
corporation, board, officer, or person, whether exercising judicial, quasi-judicial or ministerial functions;
and (2) there is no plain, speedy, and adequate remedy in the ordinary course of law. [35]
The exercise of judicial function consists of the power to determine what the law is and what the
legal rights of the parties are, and then to adjudicate upon the rights of the parties. The term quasi-judicial
function applies to the action and discretion of public administrative officers or bodies that are required to
investigate facts or ascertain the existence of facts, hold hearings, and draw conclusions from them as a
basis for their official action and to exercise discretion of a judicial nature. In implementing Municipal
Ordinance No. 98-01, respondent is not called upon to adjudicate the rights of contending parties or to
exercise, in any manner, discretion of a judicial nature.
A ministerial function is one that an officer or tribunal performs in the context of a given set of
facts, in a prescribed manner and without regard for the exercise of his or its own judgment, upon the
propriety or impropriety of the act done.[36]
The Court holds that respondent herein is performing a ministerial function.

It bears to emphasize that Municipal Ordinance No. 98-01 enjoys the presumption of validity,
unless declared otherwise. Respondent has the duty to carry out the provisions of the ordinance under
Section 444 of the Local Government Code:
Section 444. The Chief Executive: Powers, Duties, Functions and Compensation. (a)
The Municipal mayor, as the chief executive of the municipal government, shall exercise
such powers and perform such duties and functions as provided by this Code and other laws.
(b) For efficient, effective and economical governance the purpose of which is the
general welfare of the municipality and its inhabitants pursuant to Section 16 of this Code,
the Municipal mayor shall:
xxxx
(2) Enforce all laws and ordinances relative to the governance of the municipality
and the exercise of its corporate powers provided for under Section 22 of this Code,
implement all approved policies, programs, projects, services and activities of the
municipality x x x.
xxxx
(3) Initiate and maximize the generation of resources and revenues, and apply the
same to the implementation of development plans, program objectives sand priorities as
provided for under Section 18 of this Code, particularly those resources and revenues
programmed for agro-industrial development and country-wide growth and progress, and
relative thereto, shall:
xxxx
(iii) Ensure that all taxes and other revenues of the municipality are
collected, and that municipal funds are applied in accordance with law or ordinance to the
payment of expenses and settlement of obligations of the municipality; x x x. (Emphasis
ours.)

Municipal Ordinance No. 98-01 imposes increased rentals and goodwill fees on stall holders at
the renovated municipal public market, leaving respondent, or the municipal treasurer acting as
his alter ego, no discretion on whether or not to collect the said rentals and fees from the stall holders,
or whether or to collect the same in the amounts fixed by the ordinance.
The Court further notes that respondent already deemed petitioners stalls at the municipal public
market vacated. Without such stalls, petitioners would be unable to conduct their businesses, thus,
depriving them of their means of livelihood. It is imperative on petitioners part to have the implementation
of Municipal Ordinance No. 98-01 by respondent stopped the soonest. As this Court has established in its
previous discussion, there is no more need for petitioners to exhaust administrative remedies, considering
that the fundamental issue between them and respondent is one of law, over which the courts have
competence and jurisdiction. There is no other plain, speedy, and adequate remedy for petitioners in the
ordinary course of law, except to seek from the courts the issuance of a writ of prohibition commanding
respondent to desist from continuing to implement what is allegedly an invalid ordinance.

This brings the Court to the substantive issue in this Petition on the validity of Municipal Ordinance
N. 98-01.
Respondent maintains that the imposition of goodwill fees upon stall holders at the municipal public
market is not a revenue measure that requires a prior public hearing.Rentals and other consideration for
occupancy of the stalls at the municipal public market are not matters of taxation.
Respondents argument is specious.
Article 219 of the Local Government Code provides that a local government unit exercising its
power to impose taxes, fees and charges should comply with the requirements set in Rule XXX, entitled
Local Government Taxation:
Article 219. Power to Create Sources of Revenue.Consistent with the basic policy of local
autonomy, each LGU shall exercise its power to create its own sources of revenue and
to levy taxes, fees, or charges, subject to the provisions of this Rule. Such taxes, fees, or
charges shall accrue exclusively to the LGU. (Emphasis ours.)
Article 221(g) of the Local Government Code of 1991 defines charges as:
Article 221. Definition of Terms.
xxxx
(g) Charges refer to pecuniary liability, as rents or fees against persons or property.
(Emphasis ours.)

Evidently, the revenues of a local government unit do not consist of taxes alone, but also other fees
and charges. And rentals and goodwill fees, imposed by Municipal Ordinance No. 98-01 for the occupancy
of the stalls at the municipal public market, fall under the definition of charges.
For the valid enactment of ordinances imposing charges, certain legal requisites must be
met. Section 186 of the Local Government Code identifies such requisites as follows:
Section 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. (Emphasis ours.)

Section 277 of the Implementing Rules and Regulations of the Local Government Code establishes
in detail the procedure for the enactment of such an ordinance, relevant provisions of which are
reproduced below:

Section 277. Publication of Tax Ordinance and Revenue Measures.x x x.


xxxx
(b) The conduct of public hearings shall be governed by the following procedure:
xxxx
(2) In addition to the requirement for publication or posting, the sanggunian
concerned shall cause the sending of written notices of the proposed ordinance, enclosing
a copy thereof, to the interested or affected parties operating or doing business within the
territorial jurisdiction of the LGU concerned.
(3) The notice or notices shall specify the date or dates and venue of the public
hearing or hearings. The initial public hearing shall be held not earlier than ten (10)
days from the sending out of the notice or notices, or the last day of publication, or date of
posting thereof, whichever is later;
xxxx
(c) No tax ordinance or revenue measure shall be enacted or approved in
the absence of a public hearing duly conducted in the manner provided under this
Article. (Emphases ours.)

It is categorical, therefore, that a public hearing be held prior to the enactment of an ordinance
levying taxes, fees, or charges; and that such public hearing be conducted as provided under Section 277
of the Implementing Rules and Regulations of the Local Government Code.
There is no dispute herein that the notices sent to petitioners and other stall holders at the
municipal public market were sent out on 6 August 1998, informing them of the supposed public hearing
to be held on 11 August 1998. Even assuming that petitioners received their notice also on 6 August
1998, the public hearing was already scheduled, and actually conducted, only five days later, on 11
August 1998. This contravenes Article 277(b)(3) of the Implementing Rules and Regulations of the Local
Government Code which requires that the public hearing be held no less than ten days from the time the
notices were sent out, posted, or published.
When the Sangguniang Bayan of Maasin sought to correct this procedural defect through Resolution
No. 68, series of 1998, dated 18 September 1998, respondent vetoed the said resolution. Although
the Sangguniang Bayan may have had the power to override respondents veto,[37] it no longer did so.
The defect in the enactment of Municipal Ordinance No. 98 was not cured when another public
hearing was held on 22 January 1999, after the questioned ordinance was passed by the Sangguniang
Bayan and approved by respondent on 17 August 1998. Section 186 of the Local Government Code
prescribes that the public hearing be held prior to the enactment by a local government unit of an
ordinance levying taxes, fees, and charges.

Since no public hearing had been duly conducted prior to the enactment of Municipal Ordinance No.
98-01, said ordinance is void and cannot be given any effect.Consequently, a void and ineffective
ordinance could not have conferred upon respondent the jurisdiction to order petitioners stalls at the
municipal public market vacant.
IN VIEW OF THE FOREGOING, the instant Petition is GRANTED. The assailed Decision dated 28
November 2006 of the Court of Appeals in CA-G.R. SP No. 86182 is REVERSED and SET ASIDE. Municipal
Ordinance
No.
98-01
is DECLARED void
and
ineffective,
and
a
writ
of
prohibition
is ISSUED commanding the Mayor of theMunicipality of Maasin, Iloilo, to permanently desist from
enforcing the said ordinance. Petitioners are also DECLARED as lawful occupants of the market stalls they
occupied at the time they filed the Petition for Mandamus/Prohibition docketed as Civil Case No. 25843. In
the event that they were deprived of possession of the said market stalls, petitioners are entitled to
recover possession of these stalls.
SO ORDERED.
SECOND DIVISION
LUZ R. YAMANE, in her G.R. No. 154993
capacity as the CITY
TREASURER OF MAKATI Present:
CITY,
Petitioner, PUNO, J.,
Chairman,
AUSTRIA-MARTINEZ,
CALLEJO, SR.,
- versus - TINGA, and
CHICO-NAZARIO, JJ.
BA LEPANTO CONDOMINUM Promulgated:
CORPORATION,
Respondent. October 25, 2005
x-------------------------------------------------------------------x

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 Decision[9] dismissing the appeal for lack of
merit. Accepting the premise laid by the City Treasurer, the RTC acknowledged, in sadly risible language:
Herein appellant, to defray the improvements and beautification of the common areas, collect
[sic] assessments from its members. Its end view is to get appreciate living rules for the unit
owners [sic], to give an impression to outsides [sic] of the quality of service the condominium
offers, so as to allow present owners to command better prices in the event of sale. [10]
With this, the RTC concluded that the activities of the Corporation fell squarely under the definition of
business under Section 13(b) of the Local Government Code, and thus subject to local business taxation. [11]
From this Decision of the RTC, the Corporation filed a Petition for Review under Rule 42 of the Rules of Civil
Procedure with the Court of Appeals. Initially, the petition was dismissed outright [12] on the ground that only
decisions of the RTC brought on appeal from a first level court could be elevated for review under the mode
of review prescribed under Rule 42.[13] However, the Corporation pointed out in its Motion for
Reconsiderationthat under Section 195 of the Local Government Code, the remedy of the taxpayer on the
denial of the protest filed with the local treasurer is to appeal the denial with the court of competent
jurisdiction.[14] Persuaded by this contention, the Court of Appeals reinstated the petition. [15]

On 7 June 2002, the Court of Appeals Special Sixteenth Division rendered the Decision[16] now
assailed before this Court. The appellate court reversed the RTC and declared that the Corporation was not
liable to pay business taxes to the City of Makati. [17] In doing so, the Court of Appeals delved into
jurisprudential definitions of 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 RTCDecision 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 inGarcia 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 quasi-judicial
tribunals or their officers whose decisions may be reviewed by the Court of Appeals in the exercise of its
appellate jurisdiction. However, the basic law of jurisdiction, Batas Pambansa Blg. 129 (B.P. 129),
[27]
ineluctably confers appellate jurisdiction on the Court of Appeals over final rulings of quasi-judicial
agencies, instrumentalities, boards or commission, by explicitly using the phrase appellate jurisdiction.
[28]
The power to create or characterize jurisdiction of courts belongs to the legislature. While the traditional
notion of appellate jurisdiction connotes judicial review over lower court decisions, it has to yield to
statutory redefinitions that clearly expand its breadth to encompass even review of decisions of officers in
the executive branches of government.

Yet significantly, the Local Government Code, or any other statute for that matter, does not
expressly confer appellate jurisdiction on the part of regional trial courts from the denial of a tax protest by
a local treasurer. On the other hand, Section 22 of B.P. 129 expressly delineates the appellate jurisdiction of
the Regional Trial Courts, confining as it does said appellate jurisdiction to cases decided by Metropolitan,
Municipal, and Municipal Circuit 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 operators [40],
real estate dealers, and lessors of real estate[41] 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 faciecompliance 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 acceptance [48], and even is
merely permissible under the Condominium Act. [49] Nonetheless, the condominium corporation has been
resorted to by many condominium projects, such as the Corporation in this case.

In line with the authority of the condominium corporation to manage the condominium project, it
may be authorized, in the deed of restrictions, to make reasonable assessments to meet authorized
expenditures, each condominium unit to be assessed separately for its share of such expenses in
proportion (unless otherwise provided) to its 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 Code[59] is so specifically empowered. Section 36(7) of the Corporation
Code states that every corporation incorporated under the Code has the power and capacity to purchase,
receive, take or grant, hold, convey, sell, lease, pledge, mortgage and otherwise deal with such real and
personal property . . . as the transaction of the lawful business of the corporation may reasonably and
necessarily require . . . . [60] Without this power, corporations, as juridical persons, would be deprived of the
capacity to engage in most meaningful legal relations.
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 corporation[62], the principle of estoppel would preclude the
corporation or its officers and members from invoking the void nature of its undertakings for profit as a
means of acquitting itself of tax liability.
Still, the City Treasurer has not posited the claim that the Corporation is engaged in business
activities beyond the statutory purposes of a condominium corporation. The assessment appears to be
based solely on the 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. 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
andP4,710,242.93, respectively, based on its gross revenues for the years 1999 and 2000. Again,
petitioner filed a Protest on January 21, 2002, reiterating its position that the local business tax should be
based on gross receiptsand not gross revenue.
Respondent denied 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 Decision 4 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 Resolution 6 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.14For 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:

Amount of Tax
Per Annum

xxxx
(Emphasis supplied)
The above provision specifically refers to gross receipts which is defined under Section 131 of the Local
Government Code, as follows:
xxxx
(n) "Gross Sales or Receipts" include the total amount of money or its equivalent representing the
contract price, compensation or service fee, including the amount charged or materials supplied
with the services and the deposits or advance payments actually or constructively received during
the taxable quarter for the services performed or to be performed for another person excluding
discounts if determinable at the time of sales, sales return, excise tax, and value-added tax (VAT);
xxxx
The law is clear. Gross receipts include money or its equivalent actually or constructively received in
consideration of services rendered or articles sold, exchanged or leased, whether actual or constructive.
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 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 actsthe
acquisition of possession by sufficient titleto which the law gives the force of acts of
possession. Respondent argues that only items of income actually received should be
included in its gross receipts. It claims that since the amount had already been withheld at
source, it did not have actual receipt thereof.
We clarify. Article 531 of the Civil Code clearly provides that the acquisition of the right of
possession is through the proper acts and legal formalities established therefor. The
withholding process is one such act. There may not be actual receipt of the income withheld;
however, as provided for in Article 532, possession by any person without any power
whatsoever shall be considered as acquired when ratified by the person in whose name the
act of possession is executed.
In our withholding tax system, possession is acquired by the payor as the withholding agent
of the government, because the taxpayer ratifies the very act of possession for the
government. There is thus constructive receipt. The processes of bookkeeping and
accounting for interest on deposits and yield on deposit substitutes that are subjected to
FWT are indeedfor legal purposestantamount to delivery, receipt or remittance. 19
Revenue Regulations No. 16-2005 dated September 1, 2005 20 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. 144104

June 29, 2004

LUNG CENTER OF THE PHILIPPINES, petitioner,


vs.
QUEZON CITY and CONSTANTINO P. ROSAS, in his capacity as City Assessor of Quezon
City,respondents.
DECISION
CALLEJO, SR., J.:
This is a petition for review on certiorari under Rule 45 of the Rules of Court, as amended, of the
Decision1 dated July 17, 2000 of the Court of Appeals in CA-G.R. SP No. 57014 which affirmed the decision
of the Central Board of Assessment Appeals holding that the lot owned by the petitioner and its hospital
building constructed thereon are subject to assessment for purposes of real property tax.
The Antecedents
The petitioner Lung Center of the Philippines is a non-stock and non-profit entity established on January 16,
1981 by virtue of Presidential Decree No. 1823.2 It is the registered owner of a parcel of land, particularly
described as Lot No. RP-3-B-3A-1-B-1, SWO-04-000495, located at Quezon Avenue corner Elliptical Road,
Central District, Quezon City. The lot has an area of 121,463 square meters and is covered by Transfer
Certificate of Title (TCT) No. 261320 of the Registry of Deeds of Quezon City. Erected in the middle of the
aforesaid lot is a hospital known as the Lung Center of the Philippines. A big space at the ground floor is
being leased to private parties, for canteen and small store spaces, and to medical or professional
practitioners who use the same as their private clinics for their patients whom they charge for their
professional services. Almost one-half of the entire area on the left side of the building along Quezon
Avenue is vacant and idle, while a big portion on the right side, at the corner of Quezon Avenue and
Elliptical Road, is being leased for commercial purposes to a private enterprise known as the Elliptical
Orchids and Garden Center.

The petitioner accepts paying and non-paying patients. It also renders medical services to out-patients,
both paying and non-paying. Aside from its income from paying patients, the petitioner receives annual
subsidies from the government.
On June 7, 1993, both the land and the hospital building of the petitioner were assessed for real property
taxes in the amount of P4,554,860 by the City Assessor of Quezon City.3 Accordingly, Tax Declaration Nos.
C-021-01226 (16-2518) and C-021-01231 (15-2518-A) were issued for the land and the hospital building,
respectively.4 On August 25, 1993, the petitioner filed a Claim for Exemption 5 from real property taxes with
the City Assessor, predicated on its claim that it is a charitable institution. The petitioners request was
denied, and a petition was, thereafter, filed before the Local Board of Assessment Appeals of Quezon City
(QC-LBAA, for brevity) for the reversal of the resolution of the City Assessor. The petitioner alleged that
under Section 28, paragraph 3 of the 1987 Constitution, the property is exempt from real property taxes. It
averred that a minimum of 60% of its hospital beds are exclusively used for charity patients and that the
major thrust of its hospital operation is to serve charity patients. The petitioner contends that it is a
charitable institution and, as such, is exempt from real property taxes. The QC-LBAA rendered judgment
dismissing the petition and holding the petitioner liable for real property taxes. 6
The QC-LBAAs decision was, likewise, affirmed on appeal by the Central Board of Assessment Appeals of
Quezon City (CBAA, for brevity)7 which ruled that the petitioner was not a charitable institution and that its
real properties were not actually, directly and exclusively used for charitable purposes; hence, it was not
entitled to real property tax exemption under the constitution and the law. The petitioner sought relief from
the Court of Appeals, which rendered judgment affirming the decision of the CBAA. 8
Undaunted, the petitioner filed its petition in this Court contending that:
A. THE COURT A QUO ERRED IN DECLARING PETITIONER AS NOT ENTITLED TO REALTY TAX
EXEMPTIONS ON THE GROUND THAT ITS LAND, BUILDING AND IMPROVEMENTS, SUBJECT OF
ASSESSMENT, ARE NOT ACTUALLY, DIRECTLY AND EXCLUSIVELY DEVOTED FOR CHARITABLE
PURPOSES.
B. WHILE PETITIONER IS NOT DECLARED AS REAL PROPERTY TAX EXEMPT UNDER ITS CHARTER, PD
1823, SAID EXEMPTION MAY NEVERTHELESS BE EXTENDED UPON PROPER APPLICATION.
The petitioner avers that it is a charitable institution within the context of Section 28(3), Article VI of the
1987 Constitution. It asserts that its character as a charitable institution is not altered by the fact that it
admits paying patients and renders medical services to them, leases portions of the land to private parties,
and rents out portions of the hospital to private medical practitioners from which it derives income to be
used for operational expenses. The petitioner points out that for the years 1995 to 1999, 100% of its outpatients were charity patients and of the hospitals 282-bed capacity, 60% thereof, or 170 beds, is allotted
to charity patients. It asserts that the fact that it receives subsidies from the government attests to its
character as a charitable institution. It contends that the "exclusivity" required in the Constitution does not
necessarily mean "solely." Hence, even if a portion of its real estate is leased out to private individuals
from whom it derives income, it does not lose its character as a charitable institution, and its exemption
from the payment of real estate taxes on its real property. The petitioner cited our ruling in Herrera v. QCBAA9 to bolster its pose. The petitioner further contends that even if P.D. No. 1823 does not exempt it from
the payment of real estate taxes, it is not precluded from seeking tax exemption under the 1987
Constitution.
In their comment on the petition, the respondents aver that the petitioner is not a charitable entity. The
petitioners real property is not exempt from the payment of real estate taxes under P.D. No. 1823 and
even under the 1987 Constitution because it failed to prove that it is a charitable institution and that the
said property is actually, directly and exclusively used for charitable purposes. The respondents noted that
in a newspaper report, it appears that graft charges were filed with the Sandiganbayan against the director

of the petitioner, its administrative officer, and Zenaida Rivera, the proprietress of the Elliptical Orchids
and Garden Center, for entering into a lease contract over 7,663.13 square meters of the property in 1990
for only P20,000 a month, when the monthly rental should be P357,000 a month as determined by the
Commission on Audit; and that instead of complying with the directive of the COA for the cancellation of
the contract for being grossly prejudicial to the government, the petitioner renewed the same on March 13,
1995 for a monthly rental of only P24,000. They assert that the petitioner uses the subsidies granted by
the government for charity patients and uses the rest of its income from the property for the benefit of
paying patients, among other purposes. They aver that the petitioner failed to adduce substantial evidence
that 100% of its out-patients and 170 beds in the hospital are reserved for indigent patients. The
respondents further assert, thus:
13. That the claims/allegations of the Petitioner LCP do not speak well of its record of service. That
before a patient is admitted for treatment in the Center, first impression is that it is pay-patient and
required to pay a certain amount as deposit. That even if a patient is living below the poverty line,
he is charged with high hospital bills. And, without these bills being first settled, the poor patient
cannot be allowed to leave the hospital or be discharged without first paying the hospital bills or
issue a promissory note guaranteed and indorsed by an influential agency or person known only to
the Center; that even the remains of deceased poor patients suffered the same fate. Moreover,
before a patient is admitted for treatment as free or charity patient, one must undergo a series of
interviews and must submit all the requirements needed by the Center, usually accompanied by
endorsement by an influential agency or person known only to the Center. These facts were heard
and admitted by the Petitioner LCP during the hearings before the Honorable QC-BAA and
Honorable CBAA. These are the reasons of indigent patients, instead of seeking treatment with the
Center, they prefer to be treated at the Quezon Institute. Can such practice by the Center be called
charitable?10
The Issues
The issues for resolution are the following: (a) whether the petitioner is a charitable institution within the
context of Presidential Decree No. 1823 and the 1973 and 1987 Constitutions and Section 234(b) of
Republic Act No. 7160; and (b) whether the real properties of the petitioner are exempt from real property
taxes.
The Courts Ruling
The petition is partially granted.
On the first issue, we hold that the petitioner is a charitable institution within the context of the 1973 and
1987 Constitutions. To determine whether an enterprise is a charitable institution/entity or not, the
elements which should be considered include the statute creating the enterprise, its corporate purposes,
its constitution and by-laws, the methods of administration, the nature of the actual work performed, the
character of the services rendered, the indefiniteness of the beneficiaries, and the use and occupation of
the properties.11
In the legal sense, a charity may be fully defined as a gift, to be applied consistently with existing laws, for
the benefit of an indefinite number of persons, either by bringing their minds and hearts under the
influence of education or religion, by assisting them to establish themselves in life or otherwise lessening
the burden of government.12 It may be applied to almost anything that tend to promote the well-doing and
well-being of social man. It embraces the improvement and promotion of the happiness of man. 13 The word
"charitable" is not restricted to relief of the poor or sick. 14 The test of a charity and a charitable
organization are in law the same. The test whether an enterprise is charitable or not is whether it exists to
carry out a purpose reorganized in law as charitable or whether it is maintained for gain, profit, or private
advantage.

Under P.D. No. 1823, the petitioner is a non-profit and non-stock corporation which, subject to the
provisions of the decree, is to be administered by the Office of the President of the Philippines with the
Ministry of Health and the Ministry of Human Settlements. It was organized for the welfare and benefit of
the Filipino people principally to help combat the high incidence of lung and pulmonary diseases in the
Philippines. The raison detre for the creation of the petitioner is stated in the decree, viz:
Whereas, for decades, respiratory diseases have been a priority concern, having been the leading
cause of illness and death in the Philippines, comprising more than 45% of the total annual deaths
from all causes, thus, exacting a tremendous toll on human resources, which ailments are likely to
increase and degenerate into serious lung diseases on account of unabated pollution,
industrialization and unchecked cigarette smoking in the country;lavvph!l.net
Whereas, the more common lung diseases are, to a great extent, preventable, and curable with
early and adequate medical care, immunization and through prompt and intensive prevention and
health education programs;
Whereas, there is an urgent need to consolidate and reinforce existing programs, strategies and
efforts at preventing, treating and rehabilitating people affected by lung diseases, and to undertake
research and training on the cure and prevention of lung diseases, through a Lung Center which will
house and nurture the above and related activities and provide tertiary-level care for more difficult
and problematical cases;
Whereas, to achieve this purpose, the Government intends to provide material and financial support
towards the establishment and maintenance of a Lung Center for the welfare and benefit of the
Filipino people.15
The purposes for which the petitioner was created are spelled out in its Articles of Incorporation, thus:
SECOND: That the purposes for which such corporation is formed are as follows:
1. To construct, establish, equip, maintain, administer and conduct an integrated medical
institution which shall specialize in the treatment, care, rehabilitation and/or relief of lung
and allied diseases in line with the concern of the government to assist and provide material
and financial support in the establishment and maintenance of a lung center primarily to
benefit the people of the Philippines and in pursuance of the policy of the State to secure the
well-being of the people by providing them specialized health and medical services and by
minimizing the incidence of lung diseases in the country and elsewhere.
2. To promote the noble undertaking of scientific research related to the prevention of lung
or pulmonary ailments and the care of lung patients, including the holding of a series of
relevant congresses, conventions, seminars and conferences;
3. To stimulate and, whenever possible, underwrite scientific researches on the biological,
demographic, social, economic, eugenic and physiological aspects of lung or pulmonary
diseases and their control; and to collect and publish the findings of such research for public
consumption;
4. To facilitate the dissemination of ideas and public acceptance of information on lung
consciousness or awareness, and the development of fact-finding, information and reporting
facilities for and in aid of the general purposes or objects aforesaid, especially in human lung
requirements, general health and physical fitness, and other relevant or related fields;

5. To encourage the training of physicians, nurses, health officers, social workers and
medical and technical personnel in the practical and scientific implementation of services to
lung patients;
6. To assist universities and research institutions in their studies about lung diseases, to
encourage advanced training in matters of the lung and related fields and to support
educational programs of value to general health;
7. To encourage the formation of other organizations on the national, provincial and/or city
and local levels; and to coordinate their various efforts and activities for the purpose of
achieving a more effective programmatic approach on the common problems relative to the
objectives enumerated herein;
8. To seek and obtain assistance in any form from both international and local foundations
and organizations; and to administer grants and funds that may be given to the
organization;
9. To extend, whenever possible and expedient, medical services to the public and, in
general, to promote and protect the health of the masses of our people, which has long been
recognized as an economic asset and a social blessing;
10. To help prevent, relieve and alleviate the lung or pulmonary afflictions and maladies of
the people in any and all walks of life, including those who are poor and needy, all without
regard to or discrimination, because of race, creed, color or political belief of the persons
helped; and to enable them to obtain treatment when such disorders occur;
11. To participate, as circumstances may warrant, in any activity designed and carried on to
promote the general health of the community;
12. To acquire and/or borrow funds and to own all funds or equipment, educational materials
and supplies by purchase, donation, or otherwise and to dispose of and distribute the same
in such manner, and, on such basis as the Center shall, from time to time, deem proper and
best, under the particular circumstances, to serve its general and non-profit purposes and
objectives;lavvphil.net
13. To buy, purchase, acquire, own, lease, hold, sell, exchange, transfer and dispose of
properties, whether real or personal, for purposes herein mentioned; and
14. To do everything necessary, proper, advisable or convenient for the accomplishment of
any of the powers herein set forth and to do every other act and thing incidental thereto or
connected therewith.16
Hence, the medical services of the petitioner are to be rendered to the public in general in any and all
walks of life including those who are poor and the needy without discrimination. After all, any person, the
rich as well as the poor, may fall sick or be injured or wounded and become a subject of charity. 17
As a general principle, a charitable institution does not lose its character as such and its exemption from
taxes simply because it derives income from paying patients, whether out-patient, or confined in the
hospital, or receives subsidies from the government, so long as the money received is devoted or used
altogether to the charitable object which it is intended to achieve; and no money inures to the private
benefit of the persons managing or operating the institution.18 In Congregational Sunday School, etc. v.
Board of Review,19 the State Supreme Court of Illinois held, thus:

[A]n institution does not lose its charitable character, and consequent exemption from taxation,
by reason of the fact that those recipients of its benefits who are able to pay are required to do so,
where no profit is made by the institution and the amounts so received are applied in furthering its
charitable purposes, and those benefits are refused to none on account of inability to pay therefor.
The fundamental ground upon which all exemptions in favor of charitable institutions are based is
the benefit conferred upon the public by them, and a consequent relief, to some extent, of the
burden upon the state to care for and advance the interests of its citizens. 20
As aptly stated by the State Supreme Court of South Dakota in Lutheran Hospital Association of South
Dakota v. Baker:21
[T]he fact that paying patients are taken, the profits derived from attendance upon these
patients being exclusively devoted to the maintenance of the charity, seems rather to enhance the
usefulness of the institution to the poor; for it is a matter of common observation amongst those
who have gone about at all amongst the suffering classes, that the deserving poor can with
difficulty be persuaded to enter an asylum of any kind confined to the reception of objects of
charity; and that their honest pride is much less wounded by being placed in an institution in which
paying patients are also received. The fact of receiving money from some of the patients does not,
we think, at all impair the character of the charity, so long as the money thus received is devoted
altogether to the charitable object which the institution is intended to further. 22
The money received by the petitioner becomes a part of the trust fund and must be devoted to public trust
purposes and cannot be diverted to private profit or benefit.23
Under P.D. No. 1823, the petitioner is entitled to receive donations. The petitioner does not lose its
character as a charitable institution simply because the gift or donation is in the form of subsidies granted
by the government. As held by the State Supreme Court of Utah in Yorgason v. County Board of
Equalization of Salt Lake County:24
Second, the government subsidy payments are provided to the project. Thus, those payments
are like a gift or donation of any other kind except they come from the government. In
both Intermountain Health Care and the present case, the crux is the presence or absence of
material reciprocity. It is entirely irrelevant to this analysis that the government, rather than a
private benefactor, chose to make up the deficit resulting from the exchange between St. Marks
Tower and the tenants by making a contribution to the landlord, just as it would have been
irrelevant in Intermountain Health Care if the patients income supplements had come from private
individuals rather than the government.
Therefore, the fact that subsidization of part of the cost of furnishing such housing is by the
government rather than private charitable contributions does not dictate the denial of a charitable
exemption if the facts otherwise support such an exemption, as they do here. 25
In this case, the petitioner adduced substantial evidence that it spent its income, including the subsidies
from the government for 1991 and 1992 for its patients and for the operation of the hospital. It even
incurred a net loss in 1991 and 1992 from its operations.
Even as we find that the petitioner is a charitable institution, we hold, anent the second issue, that those
portions of its real property that are leased to private entities are not exempt from real property taxes as
these are not actually, directly and exclusively used for charitable purposes.
The settled rule in this jurisdiction is that laws granting exemption from tax are construed strictissimi
juris against the taxpayer and liberally in favor of the taxing power. Taxation is the rule and exemption is
the exception. The effect of an exemption is equivalent to an appropriation. Hence, a claim for exemption

from tax payments must be clearly shown and based on language in the law too plain to be mistaken. 26 As
held in Salvation Army v. Hoehn:27
An intention on the part of the legislature to grant an exemption from the taxing power of the state
will never be implied from language which will admit of any other reasonable construction. Such an
intention must be expressed in clear and unmistakable terms, or must appear by necessary
implication from the language used, for it is a well settled principle that, when a special privilege or
exemption is claimed under a statute, charter or act of incorporation, it is to be construed strictly
against the property owner and in favor of the public. This principle applies with peculiar force to a
claim of exemption from taxation . 28
Section 2 of Presidential Decree No. 1823, relied upon by the petitioner, specifically provides that the
petitioner shall enjoy the tax exemptions and privileges:
SEC. 2. TAX EXEMPTIONS AND PRIVILEGES. Being a non-profit, non-stock corporation organized
primarily to help combat the high incidence of lung and pulmonary diseases in the Philippines, all
donations, contributions, endowments and equipment and supplies to be imported by authorized
entities or persons and by the Board of Trustees of the Lung Center of the Philippines, Inc., for the
actual use and benefit of the Lung Center, shall be exempt from income and gift taxes, the same
further deductible in full for the purpose of determining the maximum deductible amount under
Section 30, paragraph (h), of the National Internal Revenue Code, as amended.
The Lung Center of the Philippines shall be exempt from the payment of taxes, charges and fees
imposed by the Government or any political subdivision or instrumentality thereof with respect to
equipment purchases made by, or for the Lung Center.29
It is plain as day that under the decree, the petitioner does not enjoy any property tax exemption
privileges for its real properties as well as the building constructed thereon. If the intentions were
otherwise, the same should have been among the enumeration of tax exempt privileges under Section 2:
It is a settled rule of statutory construction that the express mention of one person, thing, or
consequence implies the exclusion of all others. The rule is expressed in the familiar
maxim, expressio unius est exclusio alterius.
The rule of expressio unius est exclusio alterius is formulated in a number of ways. One variation of
the rule is the principle that what is expressed puts an end to that which is implied. Expressium
facit cessare tacitum. Thus, where a statute, by its terms, is expressly limited to certain matters, it
may not, by interpretation or construction, be extended to other matters.
...
The rule of expressio unius est exclusio alterius and its variations are canons of restrictive
interpretation. They are based on the rules of logic and the natural workings of the human mind.
They are predicated upon ones own voluntary act and not upon that of others. They proceed from
the premise that the legislature would not have made specified enumeration in a statute had the
intention been not to restrict its meaning and confine its terms to those expressly mentioned. 30
The exemption must not be so enlarged by construction since the reasonable presumption is that the State
has granted in express terms all it intended to grant at all, and that unless the privilege is limited to the
very terms of the statute the favor would be intended beyond what was meant. 31
Section 28(3), Article VI of the 1987 Philippine Constitution provides, thus:

(3) Charitable institutions, churches and parsonages or convents appurtenant thereto, mosques,
non-profit cemeteries, and all lands, buildings, and
improvements, actually, directly and exclusively used for religious, charitable or educational
purposes shall be exempt from taxation.32
The tax exemption under this constitutional provision covers property taxes only.33 As Chief Justice Hilario
G. Davide, Jr., then a member of the 1986 Constitutional Commission, explained: ". . . what is exempted is
not the institution itself . . .; those exempted from real estate taxes are lands, buildings and improvements
actually, directly and exclusively used for religious, charitable or educational purposes." 34
Consequently, the constitutional provision is implemented by Section 234(b) of Republic Act No. 7160
(otherwise known as the Local Government Code of 1991) as follows:
SECTION 234. Exemptions from Real Property Tax. The following are exempted from payment of
the real property tax:
...
(b) Charitable institutions, churches, parsonages or convents appurtenant thereto, mosques,
non-profit or religious cemeteries and all lands, buildings, and
improvements actually, directly, andexclusively used for religious, charitable or educational
purposes.35
We note that under the 1935 Constitution, "... all lands, buildings, and improvements used exclusively for
charitable purposes shall be exempt from taxation."36 However, under the 1973 and the present
Constitutions, for "lands, buildings, and improvements" of the charitable institution to be considered
exempt, the same should not only be "exclusively" used for charitable purposes; it is required that such
property be used "actually" and "directly" for such purposes. 37
In light of the foregoing substantial changes in the Constitution, the petitioner cannot rely on our ruling
in Herrera v. Quezon City Board of Assessment Appeals which was promulgated on September 30, 1961
before the 1973 and 1987 Constitutions took effect.38 As this Court held in Province of Abra v. Hernando:39
Under the 1935 Constitution: "Cemeteries, churches, and parsonages or convents appurtenant
thereto, and all lands, buildings, and improvements used exclusively for religious, charitable, or
educational purposes shall be exempt from taxation." The present Constitution added "charitable
institutions, mosques, and non-profit cemeteries" and required that for the exemption of "lands,
buildings, and improvements," they should not only be "exclusively" but also "actually" and
"directly" used for religious or charitable purposes. The Constitution is worded differently. The
change should not be ignored. It must be duly taken into consideration. Reliance on past decisions
would have sufficed were the words "actually" as well as "directly" not added. There must be proof
therefore of the actual and direct use of the lands, buildings, and improvements for religious or
charitable purposes to be exempt from taxation.
Under the 1973 and 1987 Constitutions and Rep. Act No. 7160 in order to be entitled to the exemption, the
petitioner is burdened to prove, by clear and unequivocal proof, that (a) it is a charitable institution; and
(b) its real properties are ACTUALLY, DIRECTLY and EXCLUSIVELY used for charitable purposes.
"Exclusive" is defined as possessed and enjoyed to the exclusion of others; debarred from participation or
enjoyment; and "exclusively" is defined, "in a manner to exclude; as enjoying a privilege exclusively." 40 If
real property is used for one or more commercial purposes, it is not exclusively used for the exempted
purposes but is subject to taxation.41 The words "dominant use" or "principal use" cannot be substituted for
the words "used exclusively" without doing violence to the Constitutions and the law. 42 Solely is
synonymous with exclusively.43

What is meant by actual, direct and exclusive use of the property for charitable purposes is the direct and
immediate and actual application of the property itself to the purposes for which the charitable institution
is organized. It is not the use of the income from the real property that is determinative of whether the
property is used for tax-exempt purposes.44
The petitioner failed to discharge its burden to prove that the entirety of its real property is actually,
directly and exclusively used for charitable purposes. While portions of the hospital are used for the
treatment of patients and the dispensation of medical services to them, whether paying or non-paying,
other portions thereof are being leased to private individuals for their clinics and a canteen. Further, a
portion of the land is being leased to a private individual for her business enterprise under the business
name "Elliptical Orchids and Garden Center." Indeed, the petitioners evidence shows that it
collected P1,136,483.45 as rentals in 1991 and P1,679,999.28 for 1992 from the said lessees.
Accordingly, we hold that the portions of the land leased to private entities as well as those parts of the
hospital leased to private individuals are not exempt from such taxes. 45 On the other hand, the portions of
the land occupied by the hospital and portions of the hospital used for its patients, whether paying or nonpaying, are exempt from real property taxes.
IN LIGHT OF ALL THE FOREGOING, the petition is PARTIALLY GRANTED. The respondent Quezon City
Assessor is hereby DIRECTED to determine, after due hearing, the precise portions of the land and the
area thereof which are leased to private persons, and to compute the real property taxes due thereon as
provided for by law.
SO ORDERED.
Davide, Jr., Puno, Vitug, Panganiban, Quisumbing, Ynares-Santiago, Sandoval-Gutierrez, Carpio, AustriaMartinez, Corona, Carpio Morales, Azcuna, and Tinga, JJ., concur.
GOVERNMENT SERVICE INSURANCE
SYSTEM,

G.R. No. 186242

Petitioner,

Present:
CORONA, J., Chairperson,

- versus -

VELASCO, JR.,
NACHURA,
PERALTA, and
DEL CASTILLO,* JJ.

CITY TREASURER and CITY ASSESSOR


of the CITY OFMANILA,

Promulgated:

Respondents.
December 23, 2009
x-----------------------------------------------------------------------------------------x

DECISION
VELASCO, JR., J.:
The Case

For review under Rule 45 of the Rules of Court on pure question of law are the November 15, 2007
Decision[1] and January 7, 2009 Order[2] of the Regional Trial Court (RTC), Branch 49 in Manila, in Civil Case
No. 02-104827, a suit to nullify the assessment of real property taxes on certain properties belonging to
petitioner Government Service Insurance System (GSIS).

The Facts

Petitioner GSIS owns or used to own two (2) parcels of land, one located at Katigbak 25 th St.,
Bonifacio Drive, Manila (Katigbak property), and the other, at Concepcion cor. Arroceros Sts., also in Manila
(Concepcion-Arroceros property). Title to the Concepcion-Arroceros property was transferred to this Court
in 2005 pursuant to Proclamation No. 835 [3] dated April 27, 2005. Both the GSIS and the Metropolitan Trial
Court (MeTC) of Manila occupy the Concepcion-Arroceros property, while the Katigbak property was under
lease.

The controversy started when the City Treasurer of Manila addressed a letter [4] dated September 13,
2002 to GSIS President and General Manager Winston F. Garcia informing him of the unpaid real property
taxes due on the aforementioned properties for years 1992 to 2002, broken down as follows: (a) PhP
54,826,599.37 for the Katigbak property; and (b) PhP 48,498,917.01 for the Concepcion-Arroceros property.
The letter warned of the inclusion of the subject properties in the scheduled October 30, 2002 public
auction of all delinquent properties in Manila should the unpaid taxes remain unsettled before that date.

On September 16, 2002, the City Treasurer of Manila issued separate Notices of Realty Tax
Delinquency[5] for the subject properties, with the usual warning of seizure and/or sale. On October 8,
2002, GSIS, through its legal counsel, wrote back emphasizing the GSIS exemption from all kinds of taxes,
including realty taxes, under Republic Act No. (RA) 8291. [6]

Two days after, GSIS filed a petition for certiorari and prohibition[7] with prayer for a restraining and
injunctive relief before the Manila RTC. In it, GSIS prayed for the nullification of the assessments thus made
and that respondents City of Manila officials be permanently enjoined from proceedings against GSIS
property. GSIS would later amend its petition [8] to include the fact that: (a) the Katigbak property, covered
by TCT Nos. 117685 and 119465 in the name of GSIS, has, since November 1991, been leased to and
occupied by the Manila Hotel Corporation (MHC), which has contractually bound itself to pay any realty
taxes that may be imposed on the subject property; and (b) the Concepcion-Arroceros property is partly
occupied by GSIS and partly occupied by the MeTC of Manila.

The Ruling of the RTC

By Decision of November 15, 2007, the RTC dismissed GSIS petition, as follows:

WHEREFORE, in view of the foregoing, judgment is hereby rendered, DISMISSING the


petition
for
lack of
merit,
and
declaring
the
assessment conducted by
the respondents City ofManila on the subject real properties of GSIS as valid pursuant to law.
SO ORDERED.[9]

GSIS sought but was denied reconsideration per the assailed Order dated January 7, 2009.

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

The Issues

1. Whether petitioner is exempt from the payment of real property taxes from 1992 to 2002;
2. Whether petitioner is exempt from the payment of real property taxes on the property it
leased to a taxable entity; and

3. Whether petitioners real properties are exempt from warrants of levy and from tax sale for
non-payment of real property taxes.[10]

The Courts Ruling

The issues raised may be formulated in the following wise: first, whether GSIS under its charter is
exempt from real property taxation; second, assuming that it is so exempt, whether GSIS is liable for real
property taxes for its properties leased to a taxable entity; and third, whether the properties of GSIS are
exempt from levy.
In the main, it is petitioners posture that both its old charter, Presidential Decree No. (PD) 1146, and
present charter, RA 8291 or the GSIS Act of 1997, exempt the agency and its properties from all forms of
taxes and assessments, inclusive of realty tax. Excepting, respondents counter that GSIS may not
successfully resist the citys notices and warrants of levy on the basis of its exemption under RA 8291, real
property taxation being governed by RA 7160 or the Local Government Code of 1991 (LGC, hereinafter).
The petition is meritorious.

First Core Issue: GSIS Exempt from Real Property Tax


Full tax exemption granted through PD 1146

In 1936, Commonwealth Act No. (CA) 186[11] was enacted abolishing the then pension systems
under Act No. 1638, as amended, and establishing the GSIS to manage the pension system, life and
retirement insurance, and other benefits of all government employees. Under what may be considered as
its first charter, the GSIS was set up as a non-stock corporation managed by a board of trustees. Notably,
Section 26 of CA 186 provided exemption from any legal process and liens but only for insurance policies
and their proceeds, thus:
Section 26. Exemption from legal process and liens. No policy of life insurance issued
under this Act, or the proceeds thereof, when paid to any member thereunder, nor any other
benefit granted under this Act, shall be liable to attachment, garnishment, or other process,
or to be seized, taken, appropriated, or applied by any legal or equitable process or
operation of law to pay any debt or liability of such member, or his beneficiary, or any other
person who may have a right thereunder, either before or after payment; nor shall the
proceeds thereof, when not made payable to a named beneficiary, constitute a part of the
estate of the member for payment of his debt. x x x
In 1977, PD 1146,[12] otherwise known as the Revised Government Service Insurance Act of 1977,
was issued, providing for an expanded insurance system for government employees. Sec. 33 of PD 1146
provided for a new tax treatment for GSIS, thus:

Section 33. Exemption from Tax, Legal Process and Lien. It is hereby declared to be
the policy of the State that the actuarial solvency of the funds of the System shall be
preserved and maintained at all times and that the contribution rates necessary to sustain
the benefits under this Act shall be kept as low as possible in order not to burden the
members of the System and/or their employees. Taxes imposed on the System tend to
impair the actuarial solvency of its funds and increase the contribution rate necessary to
sustain the benefits under this Act. Accordingly, notwithstanding any laws to the contrary,
the System, its assets, revenues including all accruals thereto, and benefits paid,
shall be exempt from all taxes, assessments, fees, charges or duties of all
kinds. These exemptions shall continue unless expressly and specifically revoked and any
assessment against the System as of the approval of this Act are hereby considered paid.
The benefits granted under this Act shall not be subject, among others, to
attachment, garnishment, levy or other processes. This, however, shall not apply to
obligations of the member to the System, or to the employer, or when the benefits granted
herein are assigned by the member with the authority of the System. (Emphasis ours.)

A scrutiny of PD 1146 reveals that the non-stock corporate structure of GSIS, as established under
CA 186, remained unchanged. Sec. 34[13] of PD 1146 pertinently provides that the GSIS, as created by CA
186, shall implement the provisions of PD 1146.
RA 7160 lifted GSIS tax exemption

Then came the enactment in 1991 of the LGC or RA 7160, providing the exercise of local
government units (LGUs) of their power to tax, the scope and limitations thereof, [14] and the exemptions
from taxations. Of particular pertinence is the general provision on withdrawal of tax exemption privileges
in Sec. 193 of the LGC, and the special provision on withdrawal of exemption from payment of real
property taxes in the last paragraph of the succeeding Sec. 234, thus:
SEC. 193. Withdrawal of Tax Exemption Privileges. Unless otherwise provided in this
Code, tax exemptions or incentives granted to, or presently enjoyed by all persons, whether
natural or juridical, including government-owned or -controlled corporations, except local
water districts, cooperatives duly registered under R.A. No. 6938, non-stock and non-profit
hospitals and educational institutions, are hereby withdrawn upon the effectivity of this
Code.
SEC. 234. Exemption from Real Property Tax. x x x Except as provided herein, any
exemption from payment of real property tax previously granted to, or presently enjoyed by,
all persons, whether natural or juridical, including all government-owned or controlled
corporation are hereby withdrawn upon the effectivity of this Code.
From the foregoing provisos, there can be no serious doubt about the Congress intention to
withdraw, subject to certain defined exceptions, tax exemptions granted prior to the passage of RA
7160. The question that easily comes to mind then is whether or not the full tax exemption heretofore
granted to GSIS under PD 1146, particular insofar as realty tax is concerned, was deemed withdrawn. We
answer in the affirmative.
In Mactan Cebu International Airport Authority v. Marcos,[15] the Court held that the express
withdrawal by the LGC of previously granted exemptions from realty taxes applied to instrumentalities and
government-owned and controlled corporations (GOCCs), such as the Mactan-Cebu International Airport
Authority. In City of Davao v. RTC, Branch XII, Davao City,[16] the Court, citing Mactan Cebu International

Airport Authority, declared the GSIS liable for real property taxes for the years 1992 to 1994 (contested
real estate tax assessment therein), its previous exemption under PD 1146 being considered withdrawn
with the enactment of the LGC in 1991.
Significantly, the Court, in City of Davao, stated the observation that the GSIS tax-exempt status
withdrawn in 1992 by the LGC was restored in 1997 by RA 8291. [17]
Full tax exemption reenacted through RA 8291

Indeed, almost 20 years to the day after the issuance of the GSIS charter, i.e., PD 1146, it was
further amended and expanded by RA 8291 which took effect on June 24, 1997. [18] Under it, the full tax
exemption privilege of GSIS was restored, the operative provision being Sec. 39 thereof, a virtual
replication of the earlier quoted Sec. 33 of PD 1146. Sec. 39 of RA 8291 reads:
SEC. 39. Exemption from Tax, Legal Process and Lien. It is hereby declared to be the
policy of the State that the actuarial solvency of the funds of the GSIS shall be preserved
and maintained at all times and that contribution rates necessary to sustain the benefits
under this Act shall be kept as low as possible in order not to burden the members of the
GSIS and their employers. Taxes imposed on the GSIS tend to impair the actuarial solvency
of its funds and increase the contribution rate necessary to sustain the benefits of this
Act. Accordingly, notwithstanding, any laws to the contrary, the GSIS, its assets,
revenues including all accruals thereto, and benefits paid, shall be exempt from
all taxes, assessments, fees, charges or duties of all kinds. These exemptions
shall continue unless expressly and specifically revoked and any assessment
against the GSIS as of the approval of this Act are hereby considered
paid. Consequently, all laws, ordinances, regulations, issuances, opinions or jurisprudence
contrary to or in derogation of this provision are hereby deemed repealed, superseded and
rendered ineffective and without legal force and effect.
Moreover, these exemptions shall not be affected by subsequent laws to the
contrary unless this section is expressly, specifically and categorically revoked or
repealed by law and a provision is enacted to substitute or replace the exemption
referred to herein as an essential factor to maintain or protect the solvency of the
fund, notwithstanding and independently of the guaranty of the national government to
secure such solvency or liability.
The funds and/or the properties referred to herein as well as the benefits,
sums or monies corresponding to the benefits under this Act shall be exempt from
attachment, garnishment, execution, levy or other processes issued by the
courts, quasi-judicial agencies or administrative bodies including Commission on
Audit (COA) disallowances and from all financial obligations of the members, including his
pecuniary accountability arising from or caused or occasioned by his exercise or
performance of his official functions or duties, or incurred relative to or in connection with
his position or work except when his monetary liability, contractual or otherwise, is in favor
of the GSIS. (Emphasis ours.)

The foregoing exempting proviso, couched as it were in an encompassing manner, brooks no other
construction but that GSIS is exempt from all forms of taxes. While not determinative of this case, it is to
be noted that prominently added in GSIS present charter is a paragraph precluding any implied repeal of
the tax-exempt clause so as to protect the solvency of GSIS funds. Moreover, an express repeal by a
subsequent law would not suffice to affect the full exemption benefits granted the GSIS, unless the
following conditionalities are met: (1) The repealing clause must expressly, specifically, and
categorically revoke or repeal Sec. 39; and (2) a provision is enacted to substitute or replace
the exemption referred to herein as an essential factor to maintain or protect the solvency of the
fund. These restrictions for a future express repeal, notwithstanding, do not make the proviso an
irrepealable law, for such restrictions do not impinge or limit the carte blanche legislative authority of the

legislature to so amend it. The restrictions merely enhance other provisos in the law ensuring the solvency
of the GSIS fund.
Given the foregoing perspectives, the following may be assumed: (1) Pursuant to Sec. 33 of PD
1146, GSIS enjoyed tax exemption from real estate taxes, among other tax burdens, until January 1, 1992
when the LGC took effect and withdrew exemptions from payment of real estate taxes privileges granted
under PD 1146; (2) RA 8291 restored in 1997 the tax exempt status of GSIS by reenacting under its Sec. 39
what was once Sec. 33 of P.D. 1146; [19] and (3) If any real estate tax is due to the City of Manila, it is,
following City of Davao, only for the interim period, or from 1992 to 1996, to be precise.
Real property taxes assessed and due from GSIS considered paid

While recognizing the exempt status of GSIS owing to the reenactment of the full tax exemption
clause under Sec. 39 of RA 8291 in 1997, the ponencia in City of Davaoappeared to have failed to take
stock of and fully appreciate the all-embracing condoning proviso in the very same Sec. 39 which, for all
intents and purposes, considered as paidany assessment against the GSIS as of the approval of this
Act. If only to stress the point, we hereby reproduce the pertinent portion of said Sec. 39:
SEC. 39. Exemption from Tax, Legal Process and Lien. x x x Taxes imposed on the
GSIS tend to impair the actuarial solvency of its funds and increase the contribution rate
necessary to sustain the benefits of this Act. Accordingly, notwithstanding, any laws to the
contrary, the GSIS, its assets, revenues including all accruals thereto, and benefits
paid, shall be exempt from all taxes, assessments, fees, charges or duties of all
kinds. These
exemptions
shall
continue unless
expressly
and
specifically
revoked and any assessment against the GSIS as of the approval of this Act are
hereby considered paid. Consequently, all laws, ordinances, regulations, issuances,
opinions or jurisprudence contrary to or in derogation of this provision are hereby deemed
repealed, superseded and rendered ineffective and without legal force and effect. (Emphasis
added.)
GSIS an instrumentality of the National Government

Apart from the foregoing consideration, the Courts fairly recent ruling in Manila International Airport
Authority v. Court of Appeals,[20] a case likewise involving real estate tax assessments by a Metro Manila
city on the real properties administered by MIAA, argues for the non-tax liability of GSIS for real estate
taxes. There, the Court held that MIAA does not qualify as a GOCC, not having been organized either as a
stock corporation, its capital not being divided into shares, or as a non-stock corporation because it has no
members. MIAA is rather an instrumentality of the National Government and, hence, outside the purview
of local taxation by force of Sec. 133 of the LGC providing in context that unless otherwise provided,
local governments cannot tax national government instrumentalities. And as the Court pronounced
in Manila International Airport Authority, the airport lands and buildings MIAA administers belong to the
Republic of the Philippines, which makes MIAA a mere trustee of such assets. No less than the
Administrative Code of 1987 recognizes a scenario where a piece of land owned by the Republic is titled in
the name of a department, agency, or instrumentality. The following provision of the said Code suggests as
much:
Sec. 48. Official Authorized to Convey Real Property.Whenever real property of the
Government is authorized by law to be conveyed, the deed of conveyance shall be executed
in behalf of the government by the following: x x x x

(2) For property belonging to the Republic of the Philippines, but titled in the name of
x x x any corporate agency or instrumentality, by the executive head of the agency or
instrumentality.[21]
While perhaps not of governing sway in all fours inasmuch as what were involved in Manila
International Airport Authority, e.g., airfields and runways, are properties of the public dominion and,
hence, outside the commerce of man, the rationale underpinning the disposition in that case is squarely
applicable to GSIS, both MIAA and GSIS being similarly situated. First, while created under CA 186 as a
non-stock corporation, a status that has remained unchanged even when it operated under PD 1146 and
RA 8291, GSIS is not, in the context of the afore quoted Sec. 193 of the LGC, a GOCC following the
teaching of Manila International Airport Authority, for, like MIAA, GSIS capital is not divided into unit shares.
Also, GSIS has no members to speak of. And by members, the reference is to those who, under Sec. 87 of
the Corporation Code, make up the non-stock corporation, and not to the compulsory members of the
system who are government employees. Its management is entrusted to a Board of Trustees whose
members are appointed by the President.
Second, the subject properties under GSISs name are likewise owned by the Republic. The GSIS is
but a mere trustee of the subject properties which have either been ceded to it by the Government or
acquired for the enhancement of the system. This particular property arrangement is clearly shown by the
fact that the disposal or conveyance of said subject properties are either done by or through the authority
of the President of the Philippines. Specifically, in the case of the Concepcion-Arroceros property, it was
transferred, conveyed, and ceded to this Court on April 27, 2005 through a presidential proclamation,
Proclamation No. 835. Pertinently, the text of the proclamation announces that the Concepcion-Arroceros
property was earlier ceded to the GSIS on October 13, 1954 pursuant to Proclamation No. 78 for office
purposes and had since been titled to GSIS which constructed an office building thereon. Thus, the transfer
on April 27, 2005 of the Concepcion-Arroceros property to this Court by the President through Proclamation
No. 835. This illustrates the nature of the government ownership of the subject GSIS properties, as
indubitably shown in the last clause of Presidential Proclamation No. 835:
WHEREAS, by virtue of the Public Land Act (Commonwealth Act No. 141, as
amended), Presidential Decree No. 1455, and the Administrative Code of 1987,
the President is authorized to transfer any government property that is no longer
needed by the agency to which it belongs to other branches or agencies of the
government. (Emphasis ours.)

Third, GSIS manages the funds for the life insurance, retirement, survivorship, and disability
benefits of all government employees and their beneficiaries. This undertaking, to be sure, constitutes an
essential and vital function which the government, through one of its agencies or instrumentalities, ought
to perform if social security services to civil service employees are to be delivered with reasonable
dispatch. It is no wonder, therefore, that the Republic guarantees the fulfillment of the obligations of the
GSIS to its members (government employees and their beneficiaries) when and as they become due. This
guarantee was first formalized under Sec. 24 [22] of CA 186, then Sec. 8 [23] of PD 1146, and finally in Sec.
8[24] of RA 8291.
Second Core Issue: Beneficial Use Doctrine Applicable

The foregoing notwithstanding, the leased Katigbak


to the beneficial use principle under Sec. 234(a) of the LGC.

property shall be

taxable

pursuant

It is true that said Sec. 234(a), quoted below, exempts from real estate taxes real property owned
by the Republic, unless the beneficial use of the property is, for consideration, transferred to a taxable
person.
SEC. 234. Exemptions from Real Property Tax. The following are exempted from
payment of the real property tax:
(a) Real property owned by the Republic of the Philippines or any of its
political subdivisions except when the beneficial use thereof has been granted, for
consideration or otherwise, to a taxable person.
This exemption, however, must be read in relation with Sec. 133(o) of the LGC, which prohibits
LGUs from imposing taxes or fees of any kind on the national government, its agencies, and
instrumentalities:
SEC. 133. Common Limitations on the Taxing Powers of Local Government
Units. Unless otherwise provided herein, the exercise of the taxing powers of
provinces, cities, municipalities, and barangays shall not extend to the levy of the
following:
xxxx
(o) Taxes, fees or charges of any kinds on the National Government, its
agencies and instrumentalities, and local government units. (Emphasis supplied.)

Thus read together, the provisions allow the Republic to grant the beneficial use of its property to
an agency or instrumentality of the national government. Such grant does not necessarily result in the loss
of the tax exemption. The tax exemption the property of the Republic or its instrumentality carries ceases
only if, as stated in Sec. 234(a) of the LGC of 1991, beneficial use thereof has been granted, for a
consideration or otherwise, to a taxable person. GSIS, as a government instrumentality, is not a taxable
juridical person under Sec. 133(o) of the LGC. GSIS, however, lost in a sense that status with respect to the
Katigbak property when it contracted its beneficial use to MHC, doubtless a taxable person. Thus, the real
estate tax assessment of PhP 54,826,599.37 covering 1992 to 2002 over the subject Katigbak property is
valid insofar as said tax delinquency is concerned as assessed over said property.

Taxable entity having beneficial use of leased

property liable for real property taxes thereon

The next query as to which between GSIS, as the owner of the Katigbak property, or MHC, as the
lessee thereof, is liable to pay the accrued real estate tax, need not detain us long. MHC ought to pay.

As we declared in Testate Estate of Concordia T. Lim, the unpaid tax attaches to the property and is
chargeable against the taxable person who had actual or beneficial use and possession of it regardless of
whether or not he is the owner. Of the same tenor is the Courts holding in the subsequent Manila Electric
Company v. Barlis[25] and later inRepublic v. City of Kidapawan.[26] Actual use refers to the purpose for which
the property is principally or predominantly utilized by the person in possession thereof. [27]

Being in possession and having actual use of the Katigbak property since November 1991, MHC is
liable for the realty taxes assessed over the Katigbak property from 1992 to 2002.

The foregoing is not all. As it were, MHC has obligated itself under the GSIS-MHC Contract of Lease
to shoulder such assessment. Stipulation l8 of the contract pertinently reads:

18. By law, the Lessor, [GSIS], is exempt from taxes, assessments and levies. Should
there be any change in the law or the interpretation thereof or any other circumstances
which would subject the Leased Property to any kind of tax, assessment or levy which would
constitute a charge against the Lessor or create a lien against the Leased Property,
the Lessee agrees and obligates itself to shoulder and pay such tax, assessment
or levy as it becomes due.[28] (Emphasis ours.)

As a matter of law and contract, therefore, MHC stands liable to pay the realty taxes due on the
Katigbak property. Considering, however, that MHC has not been impleaded in the instant case, the
remedy of the City of Manila is to serve the realty tax assessment covering the subject Katigbak property
to MHC and to pursue other available remedies in case of nonpayment, for said property cannot be levied
upon as shall be explained below.

Third Core Issue: GSIS Properties Exempt from Levy

In light of the foregoing disquisition, the issue of the propriety of the threatened levy of subject
properties by the City of Manila to answer for the demanded realty tax deficiency is now moot and
academic. A valid tax levy presupposes a corresponding tax liability. Nonetheless, it will not be remiss to
note that it is without doubt that the subject GSIS properties are exempt from any attachment,
garnishment, execution, levy, or other legal processes. This is the clear import of the third paragraph of
Sec. 39, RA 8291, which we quote anew for clarity:
SEC. 39. Exemption from Tax, Legal Process and Lien. x x x.
xxxx
The funds and/or the properties referred to herein as well as the benefits,
sums or monies corresponding to the benefits under this Act shall be exempt from
attachment, garnishment, execution, levy or other processes issued by the
courts, quasi-judicial agencies or administrative bodies including Commission on
Audit (COA) disallowances and from all financial obligations of the members, including his
pecuniary accountability arising from or caused or occasioned by his exercise or
performance of his official functions or duties, or incurred relative to or in connection with
his position or work except when his monetary liability, contractual or otherwise, is in favor
of the GSIS. (Emphasis ours.)

The Court would not be indulging in pure speculative exercise to say that the underlying legislative
intent behind the above exempting proviso cannot be other than to isolate GSIS funds and properties from
legal processes that will either impair the solvency of its fund or hamper its operation that would
ultimately require an increase in the contribution rate necessary to sustain the benefits of the system.
Throughout GSIS life under three different charters, the need to ensure the solvency of GSIS fund has
always been a legislative concern, a concern expressed in the tax-exempting provisions.
Thus, even granting arguendo that GSIS liability for realty taxes attached from 1992, when RA 7160
effectively lifted its tax exemption under PD 1146, to 1996, when RA 8291 restored the tax incentive, the
levy on the subject properties to answer for the assessed realty tax delinquencies cannot still be sustained.
The simple reason: The governing law, RA 8291, in force at the time of the levy prohibits it. And in the final
analysis, the proscription against the levy extends to the leased Katigbak property, the beneficial use
doctrine, notwithstanding.
Summary
In sum, the Court finds that GSIS enjoys under its charter full tax exemption. Moreover, as an
instrumentality of the national government, it is itself not liable to pay real estate taxes assessed by the
City of Manila against its Katigbak and Concepcion-Arroceros properties. Following the beneficial use rule,
however, accrued real property taxes are due from the Katigbak property, leased as it is to a taxable entity.
But the corresponding liability for the payment thereof devolves on the taxable beneficial user. The
Katigbak property cannot in any event be subject of a public auction sale, notwithstanding its realty tax
delinquency. This means that the City of Manila has to satisfy its tax claim by serving the accrued realty
tax assessment on MHC, as the taxable beneficial user of the Katigbak property and, in case of
nonpayment, through means other than the sale at public auction of the leased property.

WHEREFORE, the instant petition is hereby GRANTED. The November 15, 2007 Decision and
January 7, 2009 Order of the Regional Trial Court, Branch 49, Manilaare REVERSED and SET
ASIDE. Accordingly, the real property tax assessments issued by the City of Manila to the Government
Service Insurance System on the subject properties are declared VOID, except that the real property tax
assessment pertaining to the leased Katigbak property shall be valid if served on the Manila Hotel

Corporation, as lessee which has actual and beneficial use thereof. The City of Manila is permanently
restrained from levying on or selling at public auction the subject properties to satisfy the payment of the
real property tax delinquency.
No pronouncement as to costs.
G.R. No. 168557

February 16, 2007

FELS ENERGY, INC., Petitioner,


vs.
THE PROVINCE OF BATANGAS and
THE OFFICE OF THE PROVINCIAL ASSESSOR OF BATANGAS, Respondents.
x----------------------------------------------------x
G.R. No. 170628

February 16, 2007

NATIONAL POWER CORPORATION, Petitioner,


vs.
LOCAL BOARD OF ASSESSMENT APPEALS OF BATANGAS, LAURO C. ANDAYA, in his capacity as
the Assessor of the Province of Batangas, and the PROVINCE OF BATANGAS represented by its
Provincial Assessor, Respondents.
DECISION
CALLEJO, SR., J.:
Before us are two consolidated cases docketed as G.R. No. 168557 and G.R. No. 170628, which were filed
by petitioners FELS Energy, Inc. (FELS) and National Power Corporation (NPC), respectively. The first is a
petition for review on certiorari assailing the August 25, 2004 Decision 1 of the Court of Appeals (CA) in CAG.R. SP No. 67490 and its Resolution2 dated June 20, 2005; the second, also a petition for review on
certiorari, challenges the February 9, 2005 Decision3 and November 23, 2005 Resolution4 of the CA in CAG.R. SP No. 67491. Both petitions were dismissed on the ground of prescription.
The pertinent facts are as follows:
On January 18, 1993, NPC entered into a lease contract with Polar Energy, Inc. over 3x30 MW diesel engine
power barges moored at Balayan Bay in Calaca, Batangas. The contract, denominated as an Energy
Conversion Agreement5 (Agreement), was for a period of five years. Article 10 reads:
10.1 RESPONSIBILITY. NAPOCOR shall be responsible for the payment of (a) all taxes, import duties, fees,
charges and other levies imposed by the National Government of the Republic of the Philippines or any
agency or instrumentality thereof to which POLAR may be or become subject to or in relation to the
performance of their obligations under this agreement (other than (i) taxes imposed or calculated on the
basis of the net income of POLAR and Personal Income Taxes of its employees and (ii) construction permit
fees, environmental permit fees and other similar fees and charges) and (b) all real estate taxes and
assessments, rates and other charges in respect of the Power Barges. 6
Subsequently, Polar Energy, Inc. assigned its rights under the Agreement to FELS. The NPC initially
opposed the assignment of rights, citing paragraph 17.2 of Article 17 of the Agreement.

On August 7, 1995, FELS received an assessment of real property taxes on the power barges from
Provincial Assessor Lauro C. Andaya of Batangas City. The assessed tax, which likewise covered those due
for 1994, amounted to P56,184,088.40 per annum. FELS referred the matter to NPC, reminding it of its
obligation under the Agreement to pay all real estate taxes. It then gave NPC the full power and authority
to represent it in any conference regarding the real property assessment of the Provincial Assessor.
In a letter7 dated September 7, 1995, NPC sought reconsideration of the Provincial Assessors decision to
assess real property taxes on the power barges. However, the motion was denied on September 22, 1995,
and the Provincial Assessor advised NPC to pay the assessment.8 This prompted NPC to file a petition with
the Local Board of Assessment Appeals (LBAA) for the setting aside of the assessment and the declaration
of the barges as non-taxable items; it also prayed that should LBAA find the barges to be taxable, the
Provincial Assessor be directed to make the necessary corrections. 9
In its Answer to the petition, the Provincial Assessor averred that the barges were real property for
purposes of taxation under Section 199(c) of Republic Act (R.A.) No. 7160.
Before the case was decided by the LBAA, NPC filed a Manifestation, informing the LBAA that the
Department of Finance (DOF) had rendered an opinion10 dated May 20, 1996, where it is clearly stated that
power barges are not real property subject to real property assessment.
On August 26, 1996, the LBAA rendered a Resolution 11 denying the petition. The fallo reads:
WHEREFORE, the Petition is DENIED. FELS is hereby ordered to pay the real estate tax in the amount
ofP56,184,088.40, for the year 1994.
SO ORDERED.12
The LBAA ruled that the power plant facilities, while they may be classified as movable or personal
property, are nevertheless considered real property for taxation purposes because they are installed at a
specific location with a character of permanency. The LBAA also pointed out that the owner of the barges
FELS, a private corporationis the one being taxed, not NPC. A mere agreement making NPC responsible
for the payment of all real estate taxes and assessments will not justify the exemption of FELS; such a
privilege can only be granted to NPC and cannot be extended to FELS. Finally, the LBAA also ruled that the
petition was filed out of time.
Aggrieved, FELS appealed the LBAAs ruling to the Central Board of Assessment Appeals (CBAA).
On August 28, 1996, the Provincial Treasurer of Batangas City issued a Notice of Levy and Warrant by
Distraint13over the power barges, seeking to collect real property taxes amounting to P232,602,125.91 as
of July 31, 1996. The notice and warrant was officially served to FELS on November 8, 1996. It then filed a
Motion to Lift Levy dated November 14, 1996, praying that the Provincial Assessor be further restrained by
the CBAA from enforcing the disputed assessment during the pendency of the appeal.
On November 15, 1996, the CBAA issued an Order14 lifting the levy and distraint on the properties of FELS
in order not to preempt and render ineffectual, nugatory and illusory any resolution or judgment which the
Board would issue.
Meantime, the NPC filed a Motion for Intervention15 dated August 7, 1998 in the proceedings before the
CBAA. This was approved by the CBAA in an Order 16 dated September 22, 1998.
During the pendency of the case, both FELS and NPC filed several motions to admit bond to guarantee the
payment of real property taxes assessed by the Provincial Assessor (in the event that the judgment be
unfavorable to them). The bonds were duly approved by the CBAA.

On April 6, 2000, the CBAA rendered a Decision17 finding the power barges exempt from real property tax.
The dispositive portion reads:
WHEREFORE, the Resolution of the Local Board of Assessment Appeals of the Province of Batangas is
hereby reversed. Respondent-appellee Provincial Assessor of the Province of Batangas is hereby ordered to
drop subject property under ARP/Tax Declaration No. 018-00958 from the List of Taxable Properties in the
Assessment Roll. The Provincial Treasurer of Batangas is hereby directed to act accordingly.
SO ORDERED.18
Ruling in favor of FELS and NPC, the CBAA reasoned that the power barges belong to NPC; since they are
actually, directly and exclusively used by it, the power barges are covered by the exemptions under
Section 234(c) of R.A. No. 7160.19 As to the other jurisdictional issue, the CBAA ruled that prescription did
not preclude the NPC from pursuing its claim for tax exemption in accordance with Section 206 of R.A. No.
7160. The Provincial Assessor filed a motion for reconsideration, which was opposed by FELS and NPC.
In a complete volte face, the CBAA issued a Resolution20 on July 31, 2001 reversing its earlier decision. The
fallo of the resolution reads:
WHEREFORE, premises considered, it is the resolution of this Board that:
(a) The decision of the Board dated 6 April 2000 is hereby reversed.
(b) The petition of FELS, as well as the intervention of NPC, is dismissed.
(c) The resolution of the Local Board of Assessment Appeals of Batangas is hereby affirmed,
(d) The real property tax assessment on FELS by the Provincial Assessor of Batangas is likewise
hereby affirmed.
SO ORDERED.21
FELS and NPC filed separate motions for reconsideration, which were timely opposed by the Provincial
Assessor. The CBAA denied the said motions in a Resolution22 dated October 19, 2001.
Dissatisfied, FELS filed a petition for review before the CA docketed as CA-G.R. SP No. 67490. Meanwhile,
NPC filed a separate petition, docketed as CA-G.R. SP No. 67491.
On January 17, 2002, NPC filed a Manifestation/Motion for Consolidation in CA-G.R. SP No. 67490 praying
for the consolidation of its petition with CA-G.R. SP No. 67491. In a Resolution 23 dated February 12, 2002,
the appellate court directed NPC to re-file its motion for consolidation with CA-G.R. SP No. 67491, since it is
the ponente of the latter petition who should resolve the request for reconsideration.
NPC failed to comply with the aforesaid resolution. On August 25, 2004, the Twelfth Division of the
appellate court rendered judgment in CA-G.R. SP No. 67490 denying the petition on the ground of
prescription. The decretal portion of the decision reads:
WHEREFORE, the petition for review is DENIED for lack of merit and the assailed Resolutions dated July 31,
2001 and October 19, 2001 of the Central Board of Assessment Appeals are AFFIRMED.
SO ORDERED.24

On September 20, 2004, FELS timely filed a motion for reconsideration seeking the reversal of the
appellate courts decision in CA-G.R. SP No. 67490.
Thereafter, NPC filed a petition for review dated October 19, 2004 before this Court, docketed as G.R. No.
165113, assailing the appellate courts decision in CA-G.R. SP No. 67490. The petition was, however,
denied in this Courts Resolution25 of November 8, 2004, for NPCs failure to sufficiently show that the CA
committed any reversible error in the challenged decision. NPC filed a motion for reconsideration, which
the Court denied with finality in a Resolution26 dated January 19, 2005.
Meantime, the appellate court dismissed the petition in CA-G.R. SP No. 67491. It held that the right to
question the assessment of the Provincial Assessor had already prescribed upon the failure of FELS to
appeal the disputed assessment to the LBAA within the period prescribed by law. Since FELS had lost the
right to question the assessment, the right of the Provincial Government to collect the tax was already
absolute.
NPC filed a motion for reconsideration dated March 8, 2005, seeking reconsideration of the February 5,
2005 ruling of the CA in CA-G.R. SP No. 67491. The motion was denied in a Resolution 27 dated November
23, 2005.
The motion for reconsideration filed by FELS in CA-G.R. SP No. 67490 had been earlier denied for lack of
merit in a Resolution28 dated June 20, 2005.
On August 3, 2005, FELS filed the petition docketed as G.R. No. 168557 before this Court, raising the
following issues:
A.
Whether power barges, which are floating and movable, are personal properties and therefore, not subject
to real property tax.
B.
Assuming that the subject power barges are real properties, whether they are exempt from real estate tax
under Section 234 of the Local Government Code ("LGC").
C.
Assuming arguendo that the subject power barges are subject to real estate tax, whether or not it should
be NPC which should be made to pay the same under the law.
D.
Assuming arguendo that the subject power barges are real properties, whether or not the same is subject
to depreciation just like any other personal properties.
E.
Whether the right of the petitioner to question the patently null and void real property tax assessment on
the petitioners personal properties is imprescriptible.29
On January 13, 2006, NPC filed its own petition for review before this Court (G.R. No. 170628), indicating
the following errors committed by the CA:

I
THE COURT OF APPEALS GRAVELY ERRED IN HOLDING THAT THE APPEAL TO THE LBAA WAS FILED OUT OF
TIME.
II
THE COURT OF APPEALS GRAVELY ERRED IN NOT HOLDING THAT THE POWER BARGES ARE NOT SUBJECT
TO REAL PROPERTY TAXES.
III
THE COURT OF APPEALS GRAVELY ERRED IN NOT HOLDING THAT THE ASSESSMENT ON THE POWER
BARGES WAS NOT MADE IN ACCORDANCE WITH LAW.30
Considering that the factual antecedents of both cases are similar, the Court ordered the consolidation of
the two cases in a Resolution31 dated March 8, 2006.1awphi1.net
In an earlier Resolution dated February 1, 2006, the Court had required the parties to submit their
respective Memoranda within 30 days from notice. Almost a year passed but the parties had not submitted
their respective memoranda. Considering that taxesthe lifeblood of our economyare involved in the
present controversy, the Court was prompted to dispense with the said pleadings, with the end view of
advancing the interests of justice and avoiding further delay.
In both petitions, FELS and NPC maintain that the appeal before the LBAA was not time-barred. FELS
argues that when NPC moved to have the assessment reconsidered on September 7, 1995, the running of
the period to file an appeal with the LBAA was tolled. For its part, NPC posits that the 60-day period for
appealing to the LBAA should be reckoned from its receipt of the denial of its motion for reconsideration.
Petitioners contentions are bereft of merit.
Section 226 of R.A. No. 7160, otherwise known as the Local Government Code of 1991, provides:
SECTION 226. Local Board of Assessment Appeals. Any owner or person having legal interest in the
property who is not satisfied with the action of the provincial, city or municipal assessor in the assessment
of his property may, within sixty (60) days from the date of receipt of the written notice of assessment,
appeal to the Board of Assessment Appeals of the province or city by filing a petition under oath in the
form prescribed for the purpose, together with copies of the tax declarations and such affidavits or
documents submitted in support of the appeal.
We note that the notice of assessment which the Provincial Assessor sent to FELS on August 7, 1995,
contained the following statement:
If you are not satisfied with this assessment, you may, within sixty (60) days from the date of receipt
hereof, appeal to the Board of Assessment Appeals of the province by filing a petition under oath on the
form prescribed for the purpose, together with copies of ARP/Tax Declaration and such affidavits or
documents submitted in support of the appeal.32
Instead of appealing to the Board of Assessment Appeals (as stated in the notice), NPC opted to file a
motion for reconsideration of the Provincial Assessors decision, a remedy not sanctioned by law.
The remedy of appeal to the LBAA is available from an adverse ruling or action of the provincial, city or
municipal assessor in the assessment of the property. It follows then that the determination made by the

respondent Provincial Assessor with regard to the taxability of the subject real properties falls within its
power to assess properties for taxation purposes subject to appeal before the LBAA. 33
We fully agree with the rationalization of the CA in both CA-G.R. SP No. 67490 and CA-G.R. SP No. 67491.
The two divisions of the appellate court cited the case of Callanta v. Office of the Ombudsman, 34 where we
ruled that under Section 226 of R.A. No 7160,35 the last action of the local assessor on a particular
assessment shall be the notice of assessment; it is this last action which gives the owner of the property
the right to appeal to the LBAA. The procedure likewise does not permit the property owner the remedy of
filing a motion for reconsideration before the local assessor. The pertinent holding of the Court in Callanta
is as follows:
x x x [T]he same Code is equally clear that the aggrieved owners should have brought their appeals before
the LBAA. Unfortunately, despite the advice to this effect contained in their respective notices of
assessment, the owners chose to bring their requests for a review/readjustment before the city assessor, a
remedy not sanctioned by the law. To allow this procedure would indeed invite corruption in the system of
appraisal and assessment. It conveniently courts a graft-prone situation where values of real property may
be initially set unreasonably high, and then subsequently reduced upon the request of a property owner. In
the latter instance, allusions of a possible covert, illicit trade-off cannot be avoided, and in fact can
conveniently take place. Such occasion for mischief must be prevented and excised from our system. 36
For its part, the appellate court declared in CA-G.R. SP No. 67491:
x x x. The Court announces: Henceforth, whenever the local assessor sends a notice to the owner or lawful
possessor of real property of its revised assessed value, the former shall no longer have any jurisdiction to
entertain any request for a review or readjustment. The appropriate forum where the aggrieved party may
bring his appeal is the LBAA as provided by law. It follows ineluctably that the 60-day period for making the
appeal to the LBAA runs without interruption. This is what We held in SP 67490 and reaffirm today in SP
67491.37
To reiterate, if the taxpayer fails to appeal in due course, the right of the local government to collect the
taxes due with respect to the taxpayers property becomes absolute upon the expiration of the period to
appeal.38 It also bears stressing that the taxpayers failure to question the assessment in the LBAA renders
the assessment of the local assessor final, executory and demandable, thus, precluding the taxpayer from
questioning the correctness of the assessment, or from invoking any defense that would reopen the
question of its liability on the merits.39
In fine, the LBAA acted correctly when it dismissed the petitioners appeal for having been filed out of time;
the CBAA and the appellate court were likewise correct in affirming the dismissal. Elementary is the rule
that the perfection of an appeal within the period therefor is both mandatory and jurisdictional, and failure
in this regard renders the decision final and executory.40
In the Comment filed by the Provincial Assessor, it is asserted that the instant petition is barred by res
judicata; that the final and executory judgment in G.R. No. 165113 (where there was a final determination
on the issue of prescription), effectively precludes the claims herein; and that the filing of the instant
petition after an adverse judgment in G.R. No. 165113 constitutes forum shopping.
FELS maintains that the argument of the Provincial Assessor is completely misplaced since it was not a
party to the erroneous petition which the NPC filed in G.R. No. 165113. It avers that it did not participate in
the aforesaid proceeding, and the Supreme Court never acquired jurisdiction over it. As to the issue of
forum shopping, petitioner claims that no forum shopping could have been committed since the elements
of litis pendentia or res judicata are not present.
We do not agree.

Res judicata pervades every organized system of jurisprudence and is founded upon two grounds
embodied in various maxims of common law, namely: (1) public policy and necessity, which makes it to
the interest of the
State that there should be an end to litigation republicae ut sit litium; and (2) the hardship on the
individual of being vexed twice for the same cause nemo debet bis vexari et eadem causa. A conflicting
doctrine would subject the public peace and quiet to the will and dereliction of individuals and prefer the
regalement of the litigious disposition on the part of suitors to the preservation of the public tranquility and
happiness.41 As we ruled in Heirs of Trinidad De Leon Vda. de Roxas v. Court of Appeals: 42
x x x An existing final judgment or decree rendered upon the merits, without fraud or collusion, by a
court of competent jurisdiction acting upon a matter within its authority is conclusive on the rights of the
parties and their privies. This ruling holds in all other actions or suits, in the same or any other judicial
tribunal of concurrent jurisdiction, touching on the points or matters in issue in the first suit.
xxx
Courts will simply refuse to reopen what has been decided. They will not allow the same parties or their
privies to litigate anew a question once it has been considered and decided with finality. Litigations must
end and terminate sometime and somewhere. The effective and efficient administration of justice requires
that once a judgment has become final, the prevailing party should not be deprived of the fruits of the
verdict by subsequent suits on the same issues filed by the same parties.
This is in accordance with the doctrine of res judicata which has the following elements: (1) the former
judgment must be final; (2) the court which rendered it had jurisdiction over the subject matter and the
parties; (3) the judgment must be on the merits; and (4) there must be between the first and the second
actions, identity of parties, subject matter and causes of action. The application of the doctrine of res
judicata does not require absolute identity of parties but merely substantial identity of parties. There is
substantial identity of parties when there is community of interest or privity of interest between a party in
the first and a party in the second case even if the first case did not implead the latter. 43
To recall, FELS gave NPC the full power and authority to represent it in any proceeding regarding real
property assessment. Therefore, when petitioner NPC filed its petition for review docketed as G.R. No.
165113, it did so not only on its behalf but also on behalf of FELS. Moreover, the assailed decision in the
earlier petition for review filed in this Court was the decision of the appellate court in CA-G.R. SP No.
67490, in which FELS was the petitioner. Thus, the decision in G.R. No. 165116 is binding on petitioner
FELS under the principle of privity of interest. In fine, FELS and NPC are substantially "identical parties" as
to warrant the application of res judicata. FELSs argument that it is not bound by the erroneous petition
filed by NPC is thus unavailing.
On the issue of forum shopping, we rule for the Provincial Assessor. Forum shopping exists when, as a
result of an adverse judgment in one forum, a party seeks another and possibly favorable judgment in
another forum other than by appeal or special civil action or certiorari. There is also forum shopping when
a party institutes two or more actions or proceedings grounded on the same cause, on the gamble that one
or the other court would make a favorable disposition.44
Petitioner FELS alleges that there is no forum shopping since the elements of res judicata are not present
in the cases at bar; however, as already discussed, res judicata may be properly applied herein. Petitioners
engaged in forum shopping when they filed G.R. Nos. 168557 and 170628 after the petition for review in
G.R. No. 165116. Indeed, petitioners went from one court to another trying to get a favorable decision from
one of the tribunals which allowed them to pursue their cases.

It must be stressed that an important factor in determining the existence of forum shopping is the vexation
caused to the courts and the parties-litigants by the filing of similar cases to claim substantially the same
reliefs.45 The rationale against forum shopping is that a party should not be allowed to pursue
simultaneous remedies in two different fora. Filing multiple petitions or complaints constitutes abuse of
court processes, which tends to degrade the administration of justice, wreaks havoc upon orderly judicial
procedure, and adds to the congestion of the heavily burdened dockets of the courts. 46
Thus, there is forum shopping when there exist: (a) identity of parties, or at least such parties as represent
the same interests in both actions, (b) identity of rights asserted and relief prayed for, the relief being
founded on the same facts, and (c) the identity of the two preceding particulars is such that any judgment
rendered in the pending case, regardless of which party is successful, would amount to res judicata in the
other.47
Having found that the elements of res judicata and forum shopping are present in the consolidated cases,
a discussion of the other issues is no longer necessary. Nevertheless, for the peace and contentment of
petitioners, we shall shed light on the merits of the case.
As found by the appellate court, the CBAA and LBAA power barges are real property and are thus subject
to real property tax. This is also the inevitable conclusion, considering that G.R. No. 165113 was dismissed
for failure to sufficiently show any reversible error. Tax assessments by tax examiners are presumed
correct and made in good faith, with the taxpayer having the burden of proving otherwise. 48 Besides,
factual findings of administrative bodies, which have acquired expertise in their field, are generally binding
and conclusive upon the Court; we will not assume to interfere with the sensible exercise of the judgment
of men especially trained in appraising property. Where the judicial mind is left in doubt, it is a sound policy
to leave the assessment undisturbed.49 We find no reason to depart from this rule in this case.
In Consolidated Edison Company of New York, Inc., et al. v. The City of New York, et al., 50 a power company
brought an action to review property tax assessment. On the citys motion to dismiss, the Supreme Court
of New York held that the barges on which were mounted gas turbine power plants designated to generate
electrical power, the fuel oil barges which supplied fuel oil to the power plant barges, and the accessory
equipment mounted on the barges were subject to real property taxation.
Moreover, Article 415 (9) of the New Civil Code provides that "[d]ocks and structures which, though
floating, are intended by their nature and object to remain at a fixed place on a river, lake, or coast" are
considered immovable property. Thus, power barges are categorized as immovable property by
destination, being in the nature of machinery and other implements intended by the owner for an industry
or work which may be carried on in a building or on a piece of land and which tend directly to meet the
needs of said industry or work.51
Petitioners maintain nevertheless that the power barges are exempt from real estate tax under Section
234 (c) of R.A. No. 7160 because they are actually, directly and exclusively used by petitioner NPC, a
government- owned and controlled corporation engaged in the supply, generation, and transmission of
electric power.
We affirm the findings of the LBAA and CBAA that the owner of the taxable properties is petitioner FELS,
which in fine, is the entity being taxed by the local government. As stipulated under Section 2.11, Article 2
of the Agreement:
OWNERSHIP OF POWER BARGES. POLAR shall own the Power Barges and all the fixtures, fittings,
machinery and equipment on the Site used in connection with the Power Barges which have been supplied
by it at its own cost. POLAR shall operate, manage and maintain the Power Barges for the purpose of
converting Fuel of NAPOCOR into electricity. 52

It follows then that FELS cannot escape liability from the payment of realty taxes by invoking its exemption
in Section 234 (c) of R.A. No. 7160, which reads:
SECTION 234. Exemptions from Real Property Tax. The following are exempted from payment of the real
property tax:
xxx
(c) All machineries and equipment that are actually, directly and exclusively used by local water districts
and government-owned or controlled corporations engaged in the supply and distribution of water and/or
generation and transmission of electric power; x x x
Indeed, the law states that the machinery must be actually, directly and exclusively used by the
government owned or controlled corporation; nevertheless, petitioner FELS still cannot find solace in this
provision because Section 5.5, Article 5 of the Agreement provides:
OPERATION. POLAR undertakes that until the end of the Lease Period, subject to the supply of the
necessary Fuel pursuant to Article 6 and to the other provisions hereof, it will operate the Power Barges to
convert such Fuel into electricity in accordance with Part A of Article 7. 53
It is a basic rule that obligations arising from a contract have the force of law between the parties. Not
being contrary to law, morals, good customs, public order or public policy, the parties to the contract are
bound by its terms and conditions.54
Time and again, the Supreme Court has stated that taxation is the rule and exemption is the
exception.55 The law does not look with favor on tax exemptions and the entity that would seek to be thus
privileged must justify it by words too plain to be mistaken and too categorical to be
misinterpreted.56 Thus, applying the rule of strict construction of laws granting tax exemptions, and the
rule that doubts should be resolved in favor of provincial corporations, we hold that FELS is considered a
taxable entity.
The mere undertaking of petitioner NPC under Section 10.1 of the Agreement, that it shall be responsible
for the payment of all real estate taxes and assessments, does not justify the exemption. The privilege
granted to petitioner NPC cannot be extended to FELS. The covenant is between FELS and NPC and does
not bind a third person not privy thereto, in this case, the Province of Batangas.
It must be pointed out that the protracted and circuitous litigation has seriously resulted in the local
governments deprivation of revenues. The power to tax is an incident of sovereignty and is unlimited in its
magnitude, acknowledging in its very nature no perimeter so that security against its abuse is to be found
only in the responsibility of the legislature which imposes the tax on the constituency who are to pay for
it.57 The right of local government units to collect taxes due must always be upheld to avoid severe tax
erosion. This consideration is consistent with the State policy to guarantee the autonomy of local
governments58 and the objective of the Local Government Code that they enjoy genuine and meaningful
local autonomy to empower them to achieve their fullest development as self-reliant communities and
make them effective partners in the attainment of national goals.59
In conclusion, we reiterate that the power to tax is the most potent instrument to raise the needed
revenues to finance and support myriad activities of the local government units for the delivery of basic
services essential to the promotion of the general welfare and the enhancement of peace, progress, and
prosperity of the people.60
WHEREFORE, the Petitions are DENIED and the assailed Decisions and Resolutions AFFIRMED.

SO ORDERED.

NATIONAL POWER CORPORATION,

G.R. No. 171470

Petitioner,
Present:
- versus QUISUMBING, J., Chairperson,
CENTRAL BOARD OF ASSESSMENT
APPEALS (CBAA), LOCAL BOARD OF
ASSESSMENT APPEALS (LBAA) OF
LA UNION, PROVINCIAL TREASURER,
LAUNION and MUNICIPAL ASSESSOR
OF BAUANG, LAUNION,

CORONA,*
CARPIO MORALES,
TINGA, and
BRION, JJ.

Respondents.

Promulgated:

January 30, 2009

x ---------------------------------------------------------------------------------------------- x
DECISION

BRION, J.:

What are the real property tax implications of a Build-Operate-Transfer (BOT) agreement between a
government-owned and controlled corporation (GOCC) that enjoys tax exemption and a private
corporation? Specifically, under the terms of the BOT Areement, can the GOCC be deemed the actual,
direct, and exclusive user of machineries and equipment for tax exemption purposes? If not, can it pass on
its tax-exempt status to its BOT partner, a private corporation, through the BOT agreement?

The National Power Corporation (NAPOCOR) claims in this case that the machineries and equipment
used in a project covered by a BOT agreement, to which it is a party, should be accorded the tax-exempt
status it enjoys. The Local Board of Assessment Appeals of the Province of La Union (LBAA), the Central
Board of Assessment Appeals (CBAA) and the Court of Tax Appeals (CTA) were one in rejecting NAPOCORs
claim.

The present petition for review on certiorari filed under Rule 45 of the Rules of Court by NAPOCOR
challenges this uniform ruling and seeks the reversal of the CTAs Decision dated February 13, 2006 in the
consolidated cases of NAPOCOR v. CBAA, et al.[1] and Bauang Private Power Corp. v. Sangguniang
Panlalawigan ng La Union, et al.,[2] and of the denial of the motion for reconsideration that followed.

THE ANTECEDENTS

On January 11, 1993, First Private Power Corporation (FPPC) entered into a BOT agreement with NAPOCOR
for the construction of the 215 Megawatt Bauang Diesel Power Plant in Payocpoc, Bauang, La Union. The
BOT Agreement provided, via an Accession Undertaking, for the creation of the Bauang Private Power
Corporation (BPPC) that willown, manage and operate the power plant/station, and assume and perform
FPPCs obligations under the BOT agreement. For a fee,[3] BPPC will convert NAPOCORs supplied diesel fuel
into electricity and deliver the product to NAPOCOR.
The pertinent provisions of the BOT agreement, as they relate to the submitted issues in the
present case, read:
2.03 NAPOCOR shall make available the Site to CONTRACTOR for the purpose of building
and operating the Power Station at no cost to CONTRACTOR for the period commencing on
the Effective Date and ending on the Transfer Date and NAPOCOR shall be responsible for
the payment of all real estate taxes and assessments, rates, and other charges in respect
of the Site and the buildings and improvements thereon.
xxxx
2.08 From the date hereof until the Transfer Date, CONTRACTOR shall, directly or
indirectly, own the Power Station and all the fixtures, fittings, machinery, and
equipment on the Site or used in connection with the Power Station which have
been supplied by it or at its cost and it shall operate and manage the Power
Station for the purpose of converting fuel of NAPOCOR into electricity.
2.09 Until the Transfer Date, NAPOCOR shall, at its own cost, supply and deliver
all Fuel for the Power Station and shall take all electricity generated by the
Power Station at the request of NAPOCOR which shall pay to CONTRACTOR fees
as provided in Clause 11.
xxxx

2.11 On the Transfer Date, the Power Station shall be transferred by the CONTRACTOR to
NAPOCOR without payment of any compensation.

The Officer-in-Charge of the Municipal Assessors Office of Bauang, La Union initially issued
Declaration of Real Property Nos. 25016 and 25022 to 25029 declaring BPPCs machineries and equipment
as tax-exempt. On the initiative of the Bauang Vice Mayor, the municipality questioned before the Regional
Director of the Bureau of Local Government Finance (BLGF) the declared tax exemption; later, the issue
was elevated to the Deputy Executive Director and Officer-in-Charge of the BLGF, Department of Finance,
who ruled that BPPCs machineries and equipments are subject to real property tax and directed the
Assessors Office to take appropriate action.
The Provincial/Municipal Assessors thereupon issued Revised Tax Declaration Nos. 30026 to 30033 and
30337, and cancelled the earlier issued Declarations of Real Property.The Municipal Assessor of Bauang
then issued a Notice of Assessment and Tax Bill to BPPC assessing/taxing the machineries and equipments
in the total sum ofP288,582,848.00 for the 1995-1998 period, sans interest of two percent (2%) on the
unpaid amounts. BPPCs Vice-President and Plant Manager received the Notice of Assessment and Tax Bill
on August 7, 1998.
On October 5, 1998, NAPOCOR filed a petition (styled In Re Petition to Declare Exempt the Revised and
Retroactive to 1995 Tax Declaration Nos. 30026 to 30033 and 30037)with the LBAA. The petition asked
that, retroactive to 1995, the machineries covered by the tax declarations be exempt from real property
tax under Section 234(c) of Republic Act No. 7160 (the Local Government Code or LGC); and, that these
properties be dropped from the assessment roll pursuant to Section 206 of the LGC. Section 234(c) of the
LGC provides: [4]
Section 234. Exemptions from Real Property Tax. The following are exempted from
the payment of real property tax:
xxxx
(c) All machineries and equipment that are actually, directly and exclusively used by local
water districts and government-owned or controlled corporations engaged in the supply
and distribution of water and/or generation and transmission of electric power;
x x x x.
The LBAA denied NAPOCORs petition for exemption in a Decision dated October 26, 2001. It ruled
that the exemption provided by Section 234(c) of the LGC applies only when a government-owned or
controlled corporation like NAPOCOR owns and/or actually uses machineries and equipment for the
generation and transmission of electric power; in this case, NAPOCOR does not own and does not even
actually and directly use the machineries. It is the BPPC, a non-government entity, which owns, maintains,
and operates the machineries and equipment; using these, it generates electricity and then sells this to
NAPOCOR. Additionally, it ruled that the liability for the payment of the real estate taxes is determined by
law and not by the agreement of the parties; hence, the provision in the BOT Agreement whereby
NAPOCOR assumed responsibility for the payment of all real estate taxes and assessments, rates, and
other charges, in relation with the site, buildings, and improvements in the BOT project, is an arrangement
between the parties that cannot be the basis in identifying who is liable to the government for the real
estate tax.

NAPOCOR appealed the LBAA ruling to the CBAA. BPPC moved to intervene on the ground that it
has a direct interest in the outcome of the litigation. [5] The CBAA subsequently dismissed the appeal based
on its finding that the BPPC, and not NAPOCOR, is the actual, direct and exclusive user of the equipment
and machineries; thus, the exemption under Section 234(c) does not apply. The CBAA ruled:
Sec. 234 (c), R.A. 7160 (supra), is clear and unambiguous: there is no room for
construction. (citations omitted)
xxxx
Actual use, according to Sec. 199 (b) of R.A. 7160, refers to the purpose for which
the property is principally or predominantly utilized by the person in possession thereof. In
Velez v. Locsin, 55 SCRA 152: The word use means to employ for the attainment of some
purpose or end. In the Operation of the Power Station (Clause 8.01 of the BOT Agreement),
CONTRACTOR shall, at its own cost, be responsible for the management, operation,
maintenance and repair of the Power Station during the Co-operation period x x x. Said Cooperation period is fifteen (15) years, after which the Power Station will be turned over or
transferred to NAPOCOR. Does this determine when NAPOCOR should take over the actual,
direct and exclusive use of the Power Station? That is fifteen (15) years therefrom?
It has been established that BPPC manufactures or generates the power which is
sold to NAPOCOR and NAPOCOR distributes said power to the consumers. In other words,
the relationship between BPPC and NAPOCOR is one of manufacturer or seller and exclusive
distributor or buyer. The general perception is that the exclusive distributor or buyer of
goods has nothing to do with the manufacturing thereof but as exclusive distributor the
latter has the right to acquire all the goods to be sold to the exclusion of all others.
In terms of the definitions under Sec. 199 (b) and that offered by RespondentsAppelless (supra), the machineries and equipment are principally or predominantly utilized
by BPPC. In terms of the Velez vs. Locsin case (supra), BPPC employs the machineries and
equipment to attain its purpose of generating power to be sold to NAPOCOR and collect
payment therefrom to compensate for its investment. The BOT Agreement is not a contract
for nothing.
The following definitions are given by Blacks Law Dictionary, Third Edition:
Actually is opposed to seemingly, pretendedly, or feignedly, as actually engaged in
farming means really, truly in fact.
Directly. In a direct way without anything intervening; not by secondary, but by
direct means.
Exclusively. Apart from all others; without admission of others to participation; in a
manner to exclude.
Indeed BPPC does not use said machineries and equipment pretendedly or feignedly
but truly and factually hence, actually. BPPC uses them without anything intervening
hence, directly. BPPC uses the same machineries and equipment apart from all others
hence, exclusively. This is the fact against the fact there is no argument. This same fact will
also deny NAPOCORs claim to a ten (10%) assessment level provided for under Sec. 218 of
R.A. 7160 (supra) as to the requirement thereto is simply the same as that in realty tax

exemption. The BPPC is a private entity, not a Government Owned or Controlled


Corporation (GOCC), hence, not entitled to a 10% assessment level.

NAPOCOR then filed with the CTA a petition for review, docketed as CTA E.B. No. 51, to challenge
the CBAA decision. BPPC filed its own petition for review of the CBAA decision with the CTA which was
docketed as CTA E.B. No. 58. The two petitions were subsequently consolidated.
THE APPEALED CTA RULING
The CTA rendered on February 13, 2006 a decision dismissing the consolidated
petitions. It ruled on two issues: (1) whether BPPC seasonably filed its protest against the assessment;
and (2) whether the machineries and equipments are actually, directly, and exclusively used by NAPOCOR
in the generation and transmission of electric power, and are therefore not subject to tax.
On the first issue, the CTA applied Section 226 of the LGC which provides the remedy from an
assessment as follows:
SEC. 226. Local Board of Assessment Appeals. Any owner or person having legal
interest in the property who is not satisfied with the action of the provincial, city or
municipal assessor in the assessment of his property may, within sixty (60) days from the
date of receipt of the written notice of assessment, appeal to the Board of Assessment
Appeals in the province or city by filing a petition under oath in the form prescribed for the
purpose, together with copies of tax declarations and such affidavits or documents
submitted in support of the appeal.
It found that BPPC never filed an appeal to contest or question the assessment; instead, it was NAPOCOR
that filed the purported appeal a petition for exemption of the machineries and equipment. The CTA,
however, said that NAPOCOR is not the proper party, and the purported appeal did not substantially
comply with the requisites of the law.
According to the CTA, NAPOCOR is not the registered owner of the machineries and equipment. These are
registered in BPPCs name as further confirmed by Section 2.08 of the BOT Agreement. [6] Thus, the CTA
declared that until the transfer date of the power station, NAPOCOR does not own any of the machineries
and equipment, and therefore has no legal right, title, or interest over these properties. Thus, the CTA
concluded that NAPOCOR has no cause of action and no legal personality to question the assessment. As
the respondent local government units claim, NAPOCOR is an interloper in the issue of BPPCs real estate
tax liabilities.
The CTA additionally found that BPPCs subsequent attempt to question the assessment via a
motion for intervention with the CBAA failed to follow the correct process prescribed by the Rules
Governing Appeals to the CBAA;[7] its appeal was not accompanied by an appeal bond.
Also, the CTA found NAPOCORs petition to be an inappropriate remedy, as it is not the appeal
contemplated by law; NAPOCOR was in fact asserting an exemption on the basis of the provisions of the
BOT Agreement. An exemption is an evidentiary matter for the assessors, not for the LBAA, to decide
pursuant to Section 206 of the LGC;[8]NAPOCOR cannot simply bypass the authority granted to concerned
administrative agencies, as these available administrative remedies must first be exhausted.

On the more substantive second issue, the CTA saw it clear from the BOT Agreement that BPPC
owns and uses the machineries and equipment in the power station, thus directly addressing and
disproving NAPOCORs actual, direct, and exclusive use argument. It noted that under the BOT Agreement,
NAPOCOR shall have a right over the machineries and equipments only after their transfer at the end of
the 15-year co-operation period. By the nature of the agreement and work of BPPC, the [machineries] are
actually, directly, and exclusively used by it in the conversion of bunker fuel to electricity for [NAPOCOR]
for a fee, the CTA said.
Section 234(c) of the LGC, according to the CTA, is clear. The exemption under the law does not
apply because BPPC is not a GOCC it is an independent power corporation currently operating and
maintaining the power plant pursuant to the BOT Agreement. The BOT agreement cannot likewise be the
basis for the claimed exemption; tax exemption cannot be agreed upon by mere contract between the
parties (BPPC and NAPOCOR), as it must be expressly granted by the Constitution, statute, or franchise. A
tax exemption, if and when granted, is also not transferrable, as it is a personal privilege and it must be
strictly construed, the CTA said in closing.
THE SEPARATE APPEALS
Thereupon, NAPOCOR and BPPC sought separate reviews of the CTA decision with us.

G.R. No. 173811


BPPC filed on September 11, 2006 its petition separately from NAPOCOR. The BPPC petition was
docketed as G.R. No. 173811 and was raffled to the First Division of the Court.
The First Division denied BPPCs petition in its Resolution dated October 4, 2006 on the reasoning
that BPPC failed to sufficiently show that the CTA committed any reversible error in the challenged decision
and resolution as to warrant the exercise of the Courts discretionary appellate jurisdiction.
BPPC moved to reconsider the denial of its petition, but the Third Division (after the Courts
reorganization) denied the motion for reconsideration with finality after finding no substantial arguments to
warrant reconsideration. The resolution denying BPPCs petition for review had become final and
executory and was thus recorded in the Book of Entries of Judgment on April 3, 2007.
G.R. No. 171470 The Present Case
The NAPOCOR petition now pending with us was filed on April 6, 2006 and was docketed as G.R. No.
171470. We required the respondents to comment on the petition in our Resolution of May 3, 2006. The
respondents filed the required comments. NAPOCOR subsequently filed its Reply.
NAPOCOR cited the following as grounds for its petition:
I.
THE CTA ERRED ON A QUESTION OF LAW IN NOT RULING THAT PETITIONER IS THE
ACTUAL, DIRECT, AND EXCLUSIVE USER OF THE BAUANG DIESEL POWER PLANT.
II.

THE CTA ERRED ON A QUESTION OF LAW IN DISREGARDING THAT THE REAL


PROPERTY TAX EXEMPTION IS RETAINED UNDER R.A. NO. 7160.
III.
THE CTA ERRED ON A QUESTION OF LAW IN RULING THAT PETITIONER MUST BE
ENGAGED IN BOTH GENERATION AND TRANSMISSION OF POWER BEFORE THE
EXEMPTION UNDER SECTION 234(C) OF R.A. NO. 7160 CAN APPLY.

IV.
THE CTA ERRED ON A QUESTION OF LAW IN NOT CONSTRUING THE EXEMPTIONS
UNDER R.A. NO. 7160 IN HARMONY WITH PETITIONERS CHARTER AND THE BOT
LAW.
V.
ASSUMING THE 215 MW BAUANG DIESEL POWER PLANT IS TAXABLE, THE SAME
SHOULD BE CLASSIFIED AS SPECIAL FOR REAL PROEPRTY TAX PURPOSES
SUBJECT TO A 10% ASSESSMENT LEVEL, AND NOT AS COMMERCIAL/INDUSTRIAL
PROPERTIES SUBJECT TO AN 80% ASSESSMENT RATE.
In the interim and in light of the sale at public auction of the machineries and equipments,
NAPOCOR filed a Supplemental Petition based on the following grounds:
I.
THE CTA ERRED ON A QUESTION OF LAW IN DISMISSING PETITIONERS APPEAL
BECAUSE THE LATTER IS A GOVERNMENT INSTRUMENTALITY WHOSE FOREIGN
AND DOMESTIC INDEBTEDNESS ARE GUARANTEED BY THE NATIONAL
GOVERNMENT, IS THE BENEFICIAL OWNER OF THE SUBJECT POWER PLANT AND
[IS] THUS EXEMPT FROM THE PAYMENT OF REAL PROPERTY TAXES.

II.
THE CTA ERRED ON A QUESTION OF LAW IN DISMISSING PETITIONERS APPEAL
BECAUSE THIS LED TO THE SALE OF THE BAUANG POWER PLANT TO THE
PROVINCIAL GOVERNMENT OF LA UNION, THUS SERIOUSLY VIOLATING
PETITIONERS STATUTORY MANDATE TO CARRY OUT THE TOTAL ELECTRIFICATION
OF THE COUNTRY.

To support its claim that it is entitled to tax exemption as the actual, direct, and exclusive user of
the machineries and equipment, NAPOCOR argues that:

a. the BOT agreement is a financing agreement where it (NAPOCOR) is the beneficial owner and the
actual, direct, and exclusive user of the power plant, while BPPC is the lender/creditor that retains the

plants legal ownership until it is fully paid; the power plant is a NAPOCOR project and BPPC is just the
financier-contractor, and any BPPC activity is made on NAPOCORs behalf as a contractor for NAPOCOR; in
this way, NAPOCOR takes advantage of BPPCs financial resources and technical expertise to secure a
continuous supply of electric power.

b. its payment of energy fees, fixed operating fees, and other infrastructure fees to BPPC is not
inconsistent with its (NAPOCORs) beneficial ownership and actual, direct, and exclusive use of the power
plant, since the collection of the fees is the repayment scheme prescribed by Section 6 [9] of Republic Act
No. 6957,[10] as amended by Republic Act No. 7718 (BOT Law, as amended); its amortizations over the 15year co-operation period constitute full payment for the power plant that would warrant the transfer of
ownership without payment of additional compensation; finally, that Republic Act No. 9136 or the Electric
Power Industry Reform Act of 2001 has booked the power plant as NAPOCORs asset for privatization
purposes.

c. its tax exemption should apply to a BOT project, citing the conditions that gave rise to the BOT law and
its own mandate to provide electricity nationwide; BOT projects are really government projects where the
private sector participates to provide the heavy initial financial requirements; and that Congress
specifically considered NAPOCORs situation in granting tax exemption to machineries and equipment used
in power generation and distribution.

d. in the interpretation of Section 234(c) of the LGC, related statutes must be considered and the task of
the courts is to harmonize all these laws, if possible; specifically, Section 234(c) of the LGC was enacted to
clarify or restore NAPOCORs real property tax exemption so that NAPOCOR can perform its public function
of supplying electricity to the entire country at affordable rates, while the BOT law was enacted, among
others, to authorize NAPOCOR to enter into BOT contracts with the private sector so that NAPOCOR can
carry out its mandate; the tax exemption under Section 234(c) of the LGC must be given effect as the only
legal and cogent way of harmonizing it with NAPOCORs Charter and the BOT law.

NAPOCOR concludes that the CTAs ruling clearly defeats the spirit behind its creation, the
enactment of the BOT Law, and the tax exemption provision under the LGC.

THE COURTS RULING

We find the petition devoid of merit. Like the Courts First Division (later, Third Division) in G.R.
No. 173811, we find that NAPOCOR failed to sufficiently show that the CTA committed any reversible error
in its ruling.

NAPOCORs basis for its claimed exemption Section 234(c) of the LGC is clear and not at all ambiguous in
its terms. Exempt from real property taxation are: (a) all machineries and equipment; (b) [that
are] actually, directly, and exclusively used by; (c) [local water districts and] government-owned or
controlled corporations engaged in the [supply and distribution of water and/or] generation and
transmission of electric power.

We note, in the first place, that the present case is not the first occasion where NAPOCOR claimed
real property tax exemption for a contract partner under Sec. 234 (c) of the LGC. In FELS Energy, Inc. v.
The Province of Batangas[11] (that was consolidated with NAPOCOR v. Local Board of Assessment Appeals
of Batangas, et al.),[12] theProvince of Batangas assessed real property taxes against FELS Energy, Inc. the
owner of a barge used in generating electricity under an agreement with NAPOCOR. Their agreement
provided that NAPOCOR shall pay all of FELS real estate taxes and assessments. We concluded in that case
that we could not recognize the tax exemption claimed, since NAPOCOR was not the actual, direct and
exclusive user of the barge as required by Sec. 234 (c). In making this ruling, we cited the required
standard of construction applicable to tax exemptions and said:
Time and again, the Supreme Court has stated that taxation is the rule and exemption is
the exception. The law does not look with favor on tax exemptions and the entity that
would seek to be thus privileged must justify it by words too plain to be mistaken and too
categorical to be misinterpreted. Thus, applying the rule of strict construction of laws
granting tax exemptions, and the rule that doubts should be resolved in favor of provincial
corporations, we hold that FELS is considered a taxable entity.
The mere undertaking of petitioner NPC under Section 10.1 of the Agreement, that it shall
be responsible for the payment of all real estate taxes and assessments, does not justify
the exemption. The privilege granted to petitioner NPC cannot be extended to FELS. The
covenant is between FELS and NPC and does not bind a third person not privy thereto, in
this case, theProvince of Batangas.

We also recognized this strictissimi juris standard in NAPOCOR v. City of Cabanatuan.[13] Under this
standard, the claimant must show beyond doubt, with clear and convincing evidence, the factual basis for
the claim. Thus, the real issue in a tax exemption case such as the present case is whether NAPOCOR was
able to convincingly show the factual basis for its claimed exception.

The records show that NAPOCOR, no less, admits BPPCs ownership of the machineries and
equipment in the power plant.[14] Likewise, the provisions of the BOT agreement cited above clearly show
BPPCs ownership. Thus, ownership is not a disputed issue.

Rather than ownership, NAPOCORs use of the machineries and equipment is the critical issue,
since its claim under Sec. 234(c) of the LGC is premised on actual, direct and exclusive use. To support
this claim, NAPOCOR characterizes the BOT Agreement as a mere financing agreement where BPPC is the
financier, while it (NAPOCOR) is the actual user of the properties.

As in the fact of ownership, NAPOCORs assertion is belied by the documented arrangements


between the contracting parties, viewed particularly from the prism of the BOT law.

The underlying concept behind a BOT agreement is defined and described in the BOT law as
follows:

Build-operate-and-transfer A contractual arrangement whereby the project


proponent undertakes the construction, including financing, of a given infrastructure
facility, and the operation and maintenance thereof. The project proponent operates the
facility over a fixed term during which it is allowed to charge facility users appropriate tolls,
fees, rentals, and charges not exceeding those proposed in its bid or as negotiated and
incorporated in the contract to enable the project proponent to recover its investment, and
operating and maintenance expenses in the project. The project proponent transfers the
facility to the government agency or local government unit concerned at the end of the
fixed term which shall not exceed fifty (50) years x x x x.
Under this concept, it is the project proponent who constructs the project at its own cost and subsequently
operates and manages it. The proponent secures the return on its investments from those using the
projects facilities through appropriate tolls, fees, rentals, and charges not exceeding those proposed in its
bid or as negotiated. At the end of the fixed term agreed upon, the project proponent transfers the
ownership of the facility to the government agency. Thus, the government is able to put up projects and
provide immediate services without the burden of the heavy expenditures that a project start up requires.

A reading of the provisions of the parties BOT Agreement shows that it fully conforms to this
concept. By its express terms, BPPC has complete ownership both legal and beneficial of the project,
including the machineries and equipment used, subject only to the transfer of these properties without
cost to NAPOCOR after the lapse of the period agreed upon. As agreed upon, BPPC provided the funds for
the construction of the power plant, including the machineries and equipment needed for power
generation; thereafter, it actually operated and still operates the power plant, uses its machineries and
equipment, and receives payment for these activities and the electricity generated under a defined
compensation scheme. Notably, BPPC as owner-user is responsible for any defect in the machineries and
equipment.[15]

As envisioned in the BOT law, the parties agreement assumes that within the agreed BOT period,
BPPC the investorprivate corporation shall recover its investment and earn profits through the agreed
compensation scheme; thereafter, it shall transfer the whole project, including machineries and
equipment, to NAPOCOR without additional cost or compensation. The latter, for its part, derives benefit
from the project through the fulfillment of its mandate of delivering electricity to consumers at the
soonest possible time, without immediately shouldering the huge financial requirements that the project
would entail if it were to undertake the project on its own. Its obligation, in exchange, is to shoulder
specific operating costs under a compensation scheme that includes the purchase of all the electricity
that BPPC generates.

That some kind of financing arrangement is contemplated in the sense that the private sector proponent
shall initially shoulder the heavy cost of constructing the projects buildings and structures and of
purchasing the needed machineries and equipment is undeniable. The arrangement, however, goes
beyond the simple provision of funds, since the private sector proponent not only constructs and buys the
necessary assets to put up the project, but operates and manages it as well during an agreed period that
would allow it to recover its basic costs and earn profits. In other words, the private sector proponent
goes into business for itself, assuming risks and incurring costs for its account. If it receives support from
the government at all during the agreed period, these are pre-agreed items of assistance geared to
ensure that the BOT agreements objectives both for the project proponent and for the government are
achieved. In this sense, a BOT arrangement is sui generis and is different from the usual financing
arrangements where funds are advanced to a borrower who uses the funds to establish a project that it
owns, subject only to a collateral security arrangement to guard against the nonpayment of the loan. It is
different, too, from an arrangement where a government agency borrows funds to put a project from a
private sector-lender who is thereafter commissioned to run the project for the government agency. In the
latter case, the government agency is the owner of the project from the beginning, and the lenderoperator is merely its agent in running the project.

If the BOT Agreement under consideration departs at all from the concept of a BOT project as defined by
law, it is only in the way BPPCs cost recovery is achieved; instead of selling to facility users or to the
general public at large, the generated electricity is purchased by NAPOCOR which then resells it to power
distribution companies. This deviation, however, is dictated, more than anything else, by the structure and
usages of the power industry and does not change the BOT nature of the transaction between the parties.

Consistent with the BOT concept and as implemented, BPPC the owner-manager-operator of the
project is the actual user of its machineries and equipment. BPPCs ownership and use of the machineries
and equipment are actual, direct, and immediate, while NAPOCORs is contingent and, at this stage of the
BOT Agreement, not sufficient to support its claim for tax exemption. Thus, the CTA committed no
reversible error in denying NAPOCORs claim for tax exemption.

For these same reasons, we reject NAPOCORs argument that the machineries and equipment must be
subjected to a lower assessment level. NAPOCOR cites as support Section 216 of the LGC which provides:

Section 216. Special Classes of Real Property. - All lands, buildings, and other
improvements thereon actually, directly and exclusively used for hospitals, cultural, or
scientific purposes, and those owned and used by local water districts, and governmentowned or controlled corporations rendering essential public services in the supply and
distribution of water and/or generation and transmission of electric power shall be
classified as special.

in relation with Section 218 (d) of the LGC which provides:


Section 218. Assessment Levels. - The assessment levels to be applied to the fair
market value of real property to determine its assessed value shall be fixed by ordinances
of theSangguniang Panlalawigan, Sangguniang Panlungsod or Sangguniang Bayan of a
municipality within the Metropolitan Manila Area, at the rates not exceeding the following:
xxxx
(d) On Special Classes: The assessment levels for all lands buildings, machineries and other
improvements;
Actual Use

Assessment Level

Cultural

15%

Scientific

15%

Hospital

15%

Local water districts

10%

Government-owned or
controlled corporations
engaged in the supply and
distribution of water
and/or generation and
transmission of electric
power

10%

Since the basis for the application of the claimed differential treatment or assessment level is the same
as the claimed tax exemption, the lower tribunals correctly found that there is no basis to apply the lower
assessment level of 10%.

As our last point, we note that a real concern for NAPOCOR in this case is its assumption under the BOT
agreement of BPPCs real property tax liability (which in itself is a recognition that BPPCs real properties
are not really tax exempt). NAPOCOR argues that if no tax exemption will be recognized, the responsibility
it assumed carries practical implications that are very difficult to ignore. In fact, NAPOCORs supplemental
petition is anchored on these practical implications the alleged detriment to the public interest that will
result if the levy, sale, and transfer of the machineries and equipment were to be completed. NAPOCORs
reference is to the fact that the machineries and equipment have been sold in public auction and the
buyer the respondent Province will consolidate its ownership over these properties on February 1, 2009.

We fully recognize these concerns. However, these considerations are not relevant to our disposition of
the issues in this case. We are faced here with the application of clear provisions of law and settled
jurisprudence to a case that, to our mind, should not be treated differently solely because of non-legal or
practical considerations. Significantly, local government real property taxation also has constitutional

underpinnings,
ignore. In FELS

based

on

Section

of

Article

X of the

Constitution,[16] that

we

cannot

simply

Energy, Inc. v. The Province of Batangas,[17] earlier cited, we said:


The power to tax is an incident of sovereignty and is unlimited in its magnitude,
acknowledging in its very nature no perimeter so that security against its abuse is to be
found only in the responsibility of the legislature which imposes the tax on the constituency
who are to pay for it. The right of local government units to collect taxes due must
always be upheld to avoid severe tax erosion. This consideration is consistent
with the State policy to guarantee the autonomy of local governments and the
objective of the Local Government Code that they enjoy genuine and meaningful
local autonomy to empower them to achieve their fullest development as selfreliant communities and make them effective partners in the attainment of
national goals.
In conclusion, we reiterate that the power to tax is the most potent
instrument to raise the needed revenues to finance and support myriad activities
of the local government units for the delivery of basic services essential to the
promotion of the general welfare and the enhancement of peace, progress, and
prosperity of the people. [Emphasis supplied.]

This ruling reminds us of the other side of the coin in terms of concerns and protection of
interests. La Union, as a local government unit, has no less than its own constitutional interests to protect
in pursuing this case. These are interests that this Court must also be sensitive to and has taken into
account in this Decision.

We close with the observation that our role in addressing the concerns and the interests at stake is
not all-encompassing. The Judiciary can only resolve the current dispute through our reading and
interpretation of the law. The other branches of government which act on policy and which execute these
policies, including NAPOCOR itself and the respondent local government unit, are more in the position to
act in tackling feared practical consequences. This ruling on the law can be their springboard for action.

In light of these conclusions and observations, we need not discuss the other issues raised.

WHEREFORE,
premises
considered, we DENY
NAPOCORs petition
for
lack
merit. We AFFIRM the appealed decision of the Court of Tax Appeals. Costs against NAPOCOR.

SO ORDERED.

of

NATIONAL POWER CORPORATION,

G.R. No. 171586

Petitioner,
Present:
QUISUMBING, J., Chairperson,
-

versus -

CARPIO-MORALES,
*
**

CHICO-NAZARIO,

LEONARDO-DE CASTRO, and


BRION, JJ.

PROVINCE OF QUEZON andMUNICIPALITY


OFPAGBILAO,
Respondents.

Promulgated:
July 15, 2009

x ------------------------------------------------------------------------------------------x

DECISION
BRION, J.:

We resolve in this petition for review on certiorari the question of whether the National Power Corporation
(NPC), as a government-owned and controlled corporation, can claim tax exemption under Section 234 of
the Local Government Code (LGC) for the taxes due from the Mirant Pagbilao Corporation (Mirant)[1] whose
tax liabilities the NPC has contractually assumed.
BACKGROUND FACTS

The NPC is a government-owned and controlled corporation mandated by law to undertake, among others,
the production of electricity from nuclear, geothermal, and other sources, and the transmission of electric
power on a nationwide basis.[2] To pursue this mandate, the NPC entered into an Energy Conversion
Agreement (ECA) with Mirant onNovember 9, 1991. The ECA provided for a build-operate-transfer (BOT)
arrangement between Mirant and the NPC. Mirant will build and finance a coal-fired thermal power plant on
the lots owned by the NPC in Pagbilao, Quezon for the purpose of converting fuel into electricity, and
thereafter, operate and maintain the power plant for a period of 25 years. The NPC, in turn, will supply the
necessary fuel to be converted by Mirant into electric power, take the power generated, and use it to
supply the electric power needs of the country. At the end of the 25-year term, Mirant will transfer the
power plant to the NPC without compensation. According to the NPC, the power plant is currently
operational and is one of the largest sources of electric power in the country. [3]
Among the obligations undertaken by the NPC under the ECA was the payment of all taxes that the
government may impose on Mirant; Article 11.1 of the ECA[4] specifically provides:

11.1 RESPONSIBILITY. [NPC] shall be responsible for the payment of (a) all taxes,
import duties, fees, charges and other levies imposed by the National Government of the
Republic of the Philippines or any agency or instrumentality thereof to which [Mirant] may at
any time be or become subject in or in relation to the performance of their obligations under
this Agreement (other than (i) taxes imposed or calculated on the basis of the net income [of
Mirant] and (ii) construction permit fees, environmental permit fees and other similar fees
and charges), and (b) all real estate taxes and assessments, rates and other
charges in respect of the Site, the buildings and improvements thereon and the
Power Station. [Emphasis supplied.]
In a letter dated March 2, 2000, the Municipality of Pagbilao assessed Mirants real property
taxes on the power plant and its machineries in the total amount ofP1,538,076,000.00 for the period of
1997 to 2000. The Municipality of Pagbilao furnished the NPC a copy of the assessment letter.
To protect its interests, the NPC filed a petition before the Local Board of Assessment Appeals
(LBAA) entitled In Re: Petition to Declare Exempt from Payment of Property Tax on Machineries and
Equipment Used for Generation and Transmission of Power, under Section 234(c) of RA 7160 [LGC], located
at Pagbilao, Quezon xxx[5] on April 14, 2000. The NPC objected to the assessment against Mirant on
the claim that it (the NPC) is entitled to the tax exemptions provided in Section 234, paragraphs (c) and (e)
of the LGC. These provisions state:
Section 234. Exemptions from Real Property Tax. The following are exempted from
payment for the real property tax:
xxx xxx xxx
(c) All machineries and equipment that are actually, directly, and
exclusively used by local water districts and government-owned or controlled
corporations engaged in the supply and distribution of water and/or generation
and transmission of electric power;
xxx xxx xxx
(e) Machinery and equipment used for pollution control and environmental
protection.
Except as provided herein, any exemption from payment of real property tax
previously granted to, or presently enjoyed by, all persons, whether natural or juridical,
including government-owned or controlled corporations are hereby withdrawn upon the
effectivity of the Code.
Assuming that it cannot claim the exemptions stated in these provisions, the NPC alternatively asserted
that it is entitled to:
a.

b.

the lower assessment level of 10% under Section 218(d) of the LGC for government-owned
and controlled corporations engaged in the generation and transmission of electric power,
instead of the 80% assessment level for commercial properties as imposed in the assessment
letter; and
an allowance for depreciation of the subject machineries under Section 225 of the LGC.

The LBAA dismissed the NPCs petition on the Municipality of Pagbilaos motion, through a one-page
Order dated November 13, 2000.[6]
The NPC appealed the denial of its petition with the Central Board of Assessment Appeals
(CBAA). Although it noted the incompleteness of the LBAA decision for failing to state the factual basis of
its ruling, the CBAA nevertheless affirmed, in its decision of August 18, 2003, the denial of the NPCs claim
for exemption. The CBAA likewise denied the NPCs subsequent motion for reconsideration, prompting the
NPC to institute an appeal before the Court of Tax Appeals (CTA).
Before the CTA, the NPC claimed it was procedurally erroneous for the CBAA to exercise jurisdiction
over its appeal because the LBAA issued a sin perjuicio[7] decision, that is, the LBAA pronounced a
judgment without any finding of fact. It argued that the CBAA should have remanded the case to the
LBAA. On substantive issues, the NPC asserted the same grounds it relied upon to support its claimed tax
exemptions.
The CTA en banc resolved to dismiss the NPCs petition on February 21, 2006. From this ruling, the
NPC filed the present petition seeking the reversal of the CTA en bancs decision.
THE PETITION
The NPC contends that the CTA en banc erred in ruling that the NPC is estopped from questioning
the LBAAs sin perjuicio judgment; the LBAA decision, it posits, cannot serve as an appealable decision that
would vest the CBAA with appellate jurisdiction; a sin perjuicio decision, by its nature, is null and void.
The NPC likewise assails the CTA en banc ruling that the NPC was not the proper party to protest the real
property tax assessment, as it did not have the requisite legal interest.The NPC claims that it has legal
interest because of its beneficial ownership of the power plant and its machineries; what Mirant holds is
merely a naked title. Under the terms of the ECA, the NPC also claims that it possesses all the attributes of
ownership, namely, the rights to enjoy, to dispose of, and to recover against the holder and possessor of
the thing owned. That it will acquire and fully own the power plant after the lapse of 25 years further
underscores its legal interest in protesting the assessment.
The NPCs assertion of beneficial ownership of the power plant also supports its claim for tax exemptions
under Section 234(c) of the LGC. The NPC alleges that it has the right to control and supervise the entire
output and operation of the power plant. This arrangement, to the NPC, proves that it is the entity actually,
directly, and exclusively using the subject machineries. Mirants possession of the power plant is irrelevant
since all of Mirant activities relating to power generation are undertaken for and in behalf of the
NPC.Additionally, all the electricity Mirant generates is utilized by the NPC in supplying the power needs of
the country; Mirant therefore operates the power plant for the exclusive and direct benefit of the
NPC. Lastly, the NPC posits that the machineries taxed by the local government include anti-pollution
devices which should have been excluded from the assessment under Section 234(e) of the LGC.
Assuming that the NPC is liable to pay the assessed real property tax, it asserts that a reassessment is
necessary as it is entitled to depreciation allowance on the machineries and to the lower 10% assessment
level under Sections 225 and 218(d) of the LGC, respectively. This position is complemented by its prayer
to have the case remanded to the LBAA for the proper determination of its tax liabilities.
THE COURTS RULING
This case is not one of first impression. We have previously ruled against the NPCs claimed
exemptions under the LGC in the cases of FELS Energy, Inc. v. Province of Batangas [8] and NPC v. CBAA.

[9]

Based on the principles we declared in those cases, as well as the defects we found in the NPCs tax
assessment protest, we conclude that the petition lacks merit.
The NPC is estopped from
questioning the CBAAs jurisdiction
The assailed CTA en banc decision brushed aside the NPCs sin perjuicio arguments by declaring
that:
The court finds merit in [NPCs] claim that the Order of the LBAA of
the Province of Quezon is a sin perjuicio decision. A perusal thereof shows that the
assailed Order does not contain findings of facts in support of the dismissal of the
case. It
merely
stated
a
finding
of
merit
in
the
contention
of
the Municipality of Pagbilao xxx.
However, on appeal before the CBAA, [NPC] assigned several errors, both in
fact and in law, pertaining to the LBAAs decision. Thus, petitioner is bound by the
appellate jurisdiction of the CBAA under the principle of equitable estoppel. In
this regard, [NPC] is in no position to question the appellate jurisdiction of the
CBAA as it is the same party which sought its jurisdiction and participated in the
proceedings therein.[10] [Emphasis supplied.]
We agree that the NPC can no longer divest the CBAA of the power to decide the appeal after invoking and
submitting itself to the boards jurisdiction. We note that even the NPC itself found nothing objectionable in
the LBAAs sin perjuicio decision when it filed its appeal before the CBAA; the NPC did not cite this ground
as basis for its appeal.What it cited were grounds that went into the merits of its case. In fact, its appeal
contained no prayer for the remand of the case to the LBAA.
A basic jurisdictional rule, essentially based on fairness, is that a party cannot invoke a courts
jurisdiction to secure affirmative relief and, after failing to obtain the requested relief, repudiate or
question that same jurisdiction.[11] Moreover, a remand would be unnecessary, as we find the CBAAs and
the CTA en bancs denial of NPCs claims entirely in accord with the law and with jurisprudence.
The entity liable for tax has
the right to protest the assessment

Before we resolve the question of the NPC's entitlement to tax exemption, we find it necessary to
determine first whether the NPC initiated a valid protest against the assessment. A taxpayer's failure to
question the assessment before the LBAA renders the assessment of the local assessor final, executory,
and demandable, thus precluding the taxpayer from questioning the correctness of the assessment, or
from invoking any defense that would reopen the question of its liability on the merits. [12]

Section 226 of the LGC lists down the two entities vested with the personality to contest an
assessment: the owner and the person with legal interest in the property.

A person legally burdened with the obligation to pay for the tax imposed on a property has legal
interest in the property and the personality to protest a tax assessment on the property. This is the logical
and legal conclusion when Section 226, on the rules governing an assessment protest, is placed side by
side with Section 250 on the payment of real property tax; both provisions refer to the same parties who
may protest and pay the tax:

SECTION 226. Local Board of


Assessment Appeals. - Any
owner or person having
legal
interest
in
the
property who is not satisfied
with
the
action
of
the
provincial, city or municipal
assessor in the assessment of
his property may, within sixty
(60) days from the date of
receipt of the written notice of
assessment, appeal to the
Board of Assessment Appeals
of the province or city xxx.

SECTION 250. Payment of Real


Property Taxes in Instalments.
-The owner of the real
property or the person
having
legal
interest
therein may pay the basic real
property tax xxx due thereon
without interest in four (4)
equal instalments xxx.

The liability for taxes generally rests on the owner of the real property at the time the tax
accrues. This is a necessary consequence that proceeds from the fact of ownership. [13] However, personal
liability for realty taxes may also expressly rest on the entity with the beneficial use of the real property,
such as the tax on property owned by the government but leased to private persons or entities, or when
the tax assessment is made on the basis of the actual use of the property. [14] In either case, the unpaid
realty tax attaches to the property [15] but is directly chargeable against the taxable person
who has actual and beneficial use and possession of the property regardless of whether or
not that person is the owner.[16]

In the present case, the NPC, contrary to its claims, is neither the owner nor the possessor/user of
the subject machineries.

The ECAs terms regarding the power plants machineries clearly vest their ownership with
Mirant. Article 2.12 of the ECA[17] states:
2.12 OWNERSHIP OF POWER STATION. From the Effective Date until the Transfer Date [that
is, the day following the last day of the 25-year period], [Mirant] shall, directly or
indirectly, own the Power Station and all the fixtures, fittings, machinery and
equipment on the Site or used in connection with the Power Station which have been
supplied by it or at its cost. [Mirant] shall operate, manage, and maintain the Power Station
for the purpose of converting fuel of [NPC] into electricity. [Emphasis supplied.]
The NPC contends that it should nevertheless be regarded as the beneficial owner of the plant,
since it will acquire ownership thereof at the end of 25 years. The NPC also asserts, by quoting portions of
the ECA, that it has the right to control and supervise the construction and operation of the plant, and that
Mirant has retained only naked title to it.These contentions, unfortunately, are not sufficient to vest the
NPC the personality to protest the assessment.

In Cario v. Ofilado,[18] we declared that legal interest should be an interest that is actual and
material, direct and immediate, not simply contingent or expectant.The concept of the directness
and immediacy involved is no different from that required in motions for intervention under Rule 19 of the
Rules of Court that allow one who is not a party to the case to participate because of his or her direct and
immediate interest, characterized by either gain or loss from the judgment that the court may render. [19] In
the present case, the NPCs ownership of the plant will happen only after the lapse of the 25-year period;
until such time arrives, the NPC's claim of ownership is merely contingent,i.e., dependent on whether the
plant and its machineries exist at that time. Prior to this event, the NPCs real interest is only in the
continued operation of the plant for the generation of electricity. This interest has not been shown to be
adversely affected by the realty taxes imposed and is an interest that NPC can protect, not by claiming an
exemption that is not due to Mirant, but by paying the taxes it (NPC) has assumed for Mirant under the
ECA.
To show that Mirant only retains a naked title, the NPC has selectively cited provisions of the ECA to
make it appear that it has the sole authority over the power plant and its operations. Contrary to these
assertions, however, a complete reading of the ECA shows that Mirant has more substantial powers in the
control and supervision of the power plant's construction and operations.
Under Articles 2.1 and 3.1 of the ECA, Mirant is responsible for the design, construction, equipping,
testing, and commissioning of the power plant. Article 5.1 on the operation of the power plant states that
Mirant shall be responsible for the power plants management, operation, maintenance, and repair until the
Transfer Date. This is reiterated in Article 5.3 where Mirant undertakes to operate the power plant to
convert fuel into electricity.
While the NPC asserts that it has the power to authorize the closure of the power plant without any
veto on the part of Mirant, the full text of Article 8.5 of the ECA shows that Mirant is possessed with similar
powers to terminate the agreement:
8.5 BUYOUT. If the circumstances set out in Article 7.18, Article 9.4, Article 14.4 or Article
28.4 arise or if, not earlier than 20 years after the Completion Date, [the NPC] gives not less
than 90 days notice to [Mirant] that it wishes to close the power station, or if [the NPC] has
failed to ensure the due payment of any sum due hereunder within three months
of its due date then, upon [Mirant] giving to [the NPC] not less than 90 days notice
requiring [the NPC] to buy out [Mirant] or, as the case may be, [the NPC] giving not less
than 90 days notice requiring [Mirant] to sell out to [NPC], [NPC] shall purchase all [Mirant's]
right, title, and interest in and to the Power Station and thereupon all [Mirant's] obligations
hereunder shall cease. [Emphasis supplied.]
On liability for taxes, the NPC indeed assumed responsibility for the taxes due on the power plant
and its machineries,[20] specifically, all real estate taxes and assessments, rates and other charges in
respect of the site, the buildings and improvements thereon and the [power plant]. At first blush, this
contractual provision would appear to make the NPC liable and give it standing to protest the
assessment. The tax liability we refer to above, however, is the liability arising from law that
the local government unit can rightfully and successfully enforce, not the contractual liability
that is enforceable between the parties to a contract as discussed below. By law, the tax liability
rests on Mirant based on its ownership, use, and possession of the plant and its machineries.
In Testate of Concordia Lim v. City of Manila,[21] we had occasion to rule that:
In [Baguio v. Busuego[22]], the assumption by the vendee of the liability for real estate
taxes prospectively due was in harmony with the tax policy that the user of the property
bears the tax. In [the present case], the interpretation that the [vendee] assumed a
liability for overdue real estate taxes for the periods prior to the contract of sale

is incongruent with the said policy because there was no immediate transfer of
possession of the properties previous to full payment of the repurchase price.
xxxx

To impose the real property tax on the estate which was neither the owner nor the
beneficial user of the property during the designated periods would not only be contrary to
law but also unjust.

For a fuller appreciation of this ruling, the Baguio case referred to a contract of sale wherein the
vendee not only assumed liability for the taxes on the property, but also acquired its use and possession,
even though title remained with the vendor pending full payment of the purchase price. Under this
situation, we found the vendee who had assumed liability for the realty taxes and who had been given use
and possession to be liable. Compared with Baguio, the Lim case supposedly involved the same
contractual assumption of tax liabilities, [23] but possession and enjoyment of the property remained with
other persons. Effectively, Lim held that the contractual assumption of the obligation to pay real property
tax, by itself, is not sufficient to make one legally compellable by the government to pay for the taxes due;
the person liable must also have use and possession of the property.

Using the Baguio and Lim situations as guides, and after considering the comparable legal
situations of the parties assuming liability in these cases, we conclude that the NPCs contractual liability
alone cannot be the basis for the enforcement of tax liabilities against it by the local government unit.
In Baguio and Lim, the vendors still retained ownership, and the effectiveness of the tax liabilities assumed
by the vendees turned on the possession and use of the property subject to tax. In other words, the
contractual assumption of liability was supplemented by an interest that the party assuming liability had
on the property taxed; on this basis, the vendee in Baguio was found liable, while the vendee in Lim was
not. In the present case, the NPC is neither the owner, nor the possessor or user of the property taxed. No
interest on its part thus justifies any tax liability on its part other than its voluntary contractual
undertaking. Under this legal situation, only Mirant as the contractual obligor, not the local government
unit, can enforce the tax liability that the NPC contractually assumed; the NPC does not have the legal
interest that the law and jurisprudence require to give it personality to protest the tax imposed by law on
Mirant.

By our above conclusion, we do not thereby pass upon the validity of the contractual stipulation
between the NPC and Mirant on the assumption of liability that the NPC undertook. All we declare is that
the stipulation is entirely between the NPC and Mirant, and does not bind third persons who are not privy
to the contract between these parties.We say this pursuant to the principle of relativity of contracts under
Article 1311 of the Civil Code which postulates that contracts take effect only between the parties, their
assigns and heirs. Quite obviously, there is no privity between the respondent local government units and
the NPC, even though both are public corporations. The tax due will not come from one pocket and go to
another pocket of the same governmental entity. An LGU is independent and autonomous in its taxing
powers and this is clearly reflected in Section 130 of the LGC which states:
SECTION 130. Fundamental Principles. - The following fundamental principles shall govern
the exercise of the taxing and other revenue-raising powers of local government units:

xxx
(d) The revenue collected pursuant to the provisions of this Code shall inure solely
to the benefit of, and be subject to disposition by, the local government
unit levying the tax, fee, charge or other imposition unless otherwise specifically provided
herein; xxx. [Emphasis supplied.]
An exception to the rule on relativity of contracts is provided under the same Article 1311 as follows:
If the contract should contain some stipulation in favor of a third person, he may demand its
fulfilment provided he communicated his acceptance to the obligor before its revocation. A
mere incidental benefit or interest of a person is not sufficient. The contracting parties
must have clearly and deliberately conferred a favor upon a third
person. [Emphasis supplied.]

The NPCs assumption of tax liability under Article 11.1 of the ECA does not appear, however, to be in any
way for the benefit of the Municipality of Pagbilao and the Provinceof Quezon. In fact, if the NPC theory of
the case were to be followed, the NPCs assumption of tax liability will work against the interests of these
LGUs. Besides, based on the objectives of the BOT Law [24] that underlie the parties BOT agreement,[25] the
assumption of taxes clause is an incentive for private corporations to take part and invest in Philippine
industries. Thus, the principle of relativity of contracts applies with full force in the relationship between
Mirant and NPC, on the one hand, and the respondent LGUs, on the other.
To reiterate, only the parties to the ECA agreement can exact and demand the enforcement of the
rights and obligations it established only Mirant can demand compliance from the NPC for the payment of
the real property tax the NPC assumed to pay. The local government units (the Municipality of Pagbilao and
the Province of Quezon), as third parties to the ECA, cannot demand payment from the NPC on the basis of
Article 11.1 of the ECA alone. Corollarily, the local government units can neither be compelled to recognize
the protest of a tax assessment from the NPC, an entity against whom it cannot enforce the tax liability.

The test of exemption is the nature of the use,


not ownership, of the subject machineries

At any rate, the NPCs claim of tax exemptions is completely without merit. To successfully claim
exemption under Section 234(c) of the LGC, the claimant must prove two elements:
a.

the machineries and equipment are actually, directly, and exclusively used by local water
districts and government-owned or controlled corporations; and

b.

the local water districts and government-owned and controlled corporations claiming exemption
must be engaged in the supply and distribution of water and/or the generation and transmission of
electric power.

As applied to the present case, the government-owned or controlled corporation claiming


exemption must be the entity actually, directly, and exclusively using the real properties, and the use must
be devoted to the generation and transmission of electric power. Neither the NPC nor Mirant satisfies both
requirements. Although the plants machineries are devoted to the generation of electric power, by the
NPCs own admission and as previously pointed out, Mirant a private corporation uses and operates

them. That Mirant operates the machineries solely in compliance with the will of the NPC only underscores
the fact that NPC does not actually, directly, and exclusively use them. The machineries must be actually,
directly, and exclusively used by the government-owned or controlled corporation for the exemption under
Section 234(c) to apply.[26]
Nor will NPC find solace in its claim that it utilizes all the power plants generated electricity in supplying
the power needs of its customers. Based on the clear wording of the law, it is the machineries that are
exempted from the payment of real property tax, not the water or electricity that these machineries
generate and distribute.[27]
Even the NPCs claim of beneficial ownership is unavailing. The test of exemption is the use, not the
ownership of the machineries devoted to generation and transmission of electric power. [28] The nature of
the NPCs ownership of these machineries only finds materiality in resolving the NPCs claim of legal interest
in protesting the tax assessment on Mirant. As we discussed above, this claim is inexistent for tax protest
purposes.
Lastly, from the points of view of essential fairness and the integrity of our tax system, we find it
essentially wrong to allow the NPC to assume in its BOT contracts the liability of the other contracting
party for taxes that the government can impose on that other party, and at the same time allow NPC to
turn around and say that no taxes should be collected because the NPC is tax-exempt as a governmentowned and controlled corporation. We cannot be a party to this kind of arrangement; for us to allow it
without congressional authority is to intrude into the realm of policy and to debase the tax system that the
Legislature established. We will then also be grossly unfair to the people of theProvince of Quezon and
the Municipality of Pagbilao who, by law, stand to benefit from the tax provisions of the LGC.
WHEREFORE, we DENY the National Power Corporations petition for review on certiorari,
and AFFIRM the decision of the Court of Tax Appeals en banc datedFebruary 21, 2006. Costs against the
petitioner.
G.R. No. 163072

April 2, 2009

MANILA INTERNATIONAL AIRPORT AUTHORITY, Petitioner,


vs.
CITY OF PASAY, SANGGUNIANG PANGLUNGSOD NG PASAY, CITY MAYOR OF PASAY, CITY
TREASURER OF PASAY, and CITY ASSESSOR OF PASAY, Respondents.
DECISION
CARPIO, J.:
This is a petition for review on certiorari1 of the Decision2 dated 30 October 2002 and the Resolution dated
19 March 2004 of the Court of Appeals in CA-G.R. SP No. 67416.
The Facts
Petitioner Manila International Airport Authority (MIAA) operates and administers the Ninoy Aquino
International Airport (NAIA) Complex under Executive Order No. 903 (EO 903), 3 otherwise known as the
Revised Charter of the Manila International Airport Authority. EO 903 was issued on 21 July 1983 by then
President Ferdinand E. Marcos. Under Sections 34 and 225 of EO 903, approximately 600 hectares of land,
including the runways, the airport tower, and other airport buildings, were transferred to MIAA. The NAIA
Complex is located along the border between Pasay City and Paraaque City.
On 28 August 2001, MIAA received Final Notices of Real Property Tax Delinquency from the City of Pasay
for the taxable years 1992 to 2001. MIAAs real property tax delinquency for its real properties located in
NAIA Complex, Ninoy Aquino Avenue, Pasay City (NAIA Pasay properties) is tabulated as follows:
TAX DECLA-RATION

TAXABLE YEAR

TAX DUE

PENALTY

TOTAL

A7-183-08346

1997-2001

243,522,855.00

123,351,728.18

366,874,583.18

A7-183-05224

1992-2001

113,582,466.00

71,159,414.98

184,741,880.98

A7-191-00843

1992-2001

54,454,800.00

34,115,932.20

88,570,732.20

A7-191-00140

1992-2001

1,632,960.00

1,023,049.44

2,656,009.44

A7-191-00139

1992-2001

6,068,448.00

3,801,882.85

9,870,330.85

A7-183-05409

1992-2001

59,129,520.00

37,044,644.28

96,174,164.28

A7-183-05410

1992-2001

20,619,720.00

12,918,254.58

33,537,974.58

A7-183-05413

1992-2001

7,908,240.00

4,954,512.36

12,862,752.36

A7-183-05412

1992-2001

18,441,981.20

11,553,901.13

29,995,882.33

A7-183-05411

1992-2001

109,946,736.00

68,881,630.13

178,828,366.13

A7-183-05245

1992-2001

7,440,000.00

4,661,160.00

12,101,160.00

P642,747,726.20

P373,466,110.13

P1,016,213,836.33

GRAND TOTAL

On 24 August 2001, the City of Pasay, through its City Treasurer, issued notices of levy and warrants of
levy for the NAIA Pasay properties. MIAA received the notices and warrants of levy on 28 August 2001.
Thereafter, the City Mayor of Pasay threatened to sell at public auction the NAIA Pasay properties if the
delinquent real property taxes remain unpaid.
On 29 October 2001, MIAA filed with the Court of Appeals a petition for prohibition and injunction with
prayer for preliminary injunction or temporary restraining order. The petition sought to enjoin the City of
Pasay from imposing real property taxes on, levying against, and auctioning for public sale the NAIA Pasay
properties.
On 30 October 2002, the Court of Appeals dismissed the petition and upheld the power of the City of Pasay
to impose and collect realty taxes on the NAIA Pasay properties. MIAA filed a motion for reconsideration,
which the Court of Appeals denied. Hence, this petition.
The Court of Appeals Ruling
The Court of Appeals held that Sections 193 and 234 of Republic Act No. 7160 or the Local Government
Code, which took effect on 1 January 1992, withdrew the exemption from payment of real property taxes
granted to natural or juridical persons, including government-owned or controlled corporations, except
local water districts, cooperatives duly registered under Republic Act No. 6938, non-stock and non-profit
hospitals and educational institutions. Since MIAA is a government-owned corporation, it follows that its
tax exemption under Section 21 of EO 903 has been withdrawn upon the effectivity of the Local
Government Code.
The Issue
The issue raised in this petition is whether the NAIA Pasay properties of MIAA are exempt from real
property tax.
The Courts Ruling
The petition is meritorious.
In ruling that MIAA is not exempt from paying real property tax, the Court of Appeals cited Sections 193
and 234 of the Local Government Code which read:
SECTION 193. Withdrawal of Tax Exemption Privileges. Unless otherwise provided in this Code, tax
exemptions or incentives granted to, or presently enjoyed by all persons, whether natural or juridical,
including government-owned or controlled corporations, except local water districts, cooperatives duly
registered under R.A. No. 6938, non-stock and non-profit hospitals and educational institutions, are hereby
withdrawn upon the effectivity of this Code.

SECTION 234. Exemptions from Real Property Tax. The following are exempted from payment of the real
property tax:
(a) Real property owned by the Republic of the Philippines or any of its political subdivisions except
when the beneficial use thereof has been granted, for consideration or otherwise to a taxable
person;
(b) Charitable institutions, churches, parsonages or convents appurtenant thereto, mosques, nonprofit or religious cemeteries and all lands, buildings and improvements actually, directly, and
exclusively used for religious, charitable or educational purposes;
(c) All machineries and equipment that are actually, directly and exclusively used by local water
districts and government owned or controlled corporations engaged in the supply and distribution
of water and/or generation and transmission of electric power;
(d) All real property owned by duly registered cooperatives as provided for under R.A. No. 6938; and
(e) Machinery and equipment used for pollution control and environment protection.
Except as provided herein, any exemption from payment of real property tax previously granted to, or
presently enjoyed by, all persons, whether natural or juridical, including all government-owned or
controlled corporations are hereby withdrawn upon the effectivity of this Code.
The Court of Appeals held that as a government-owned corporation, MIAAs tax exemption under Section
21 of EO 903 has already been withdrawn upon the effectivity of the Local Government Code in 1992.
In Manila International Airport Authority v. Court of Appeals6 (2006 MIAA case), this Court already resolved
the issue of whether the airport lands and buildings of MIAA are exempt from tax under existing laws. The
2006 MIAA case originated from a petition for prohibition and injunction which MIAA filed with the Court of
Appeals, seeking to restrain the City of Paraaque from imposing real property tax on, levying against, and
auctioning for public sale the airport lands and buildings located in Paraaque City. The only difference
between the 2006 MIAA case and this case is that the 2006 MIAA case involved airport lands and buildings
located in Paraaque City while this case involved airport lands and buildings located in Pasay City. The
2006 MIAA case and this case raised the same threshold issue: whether the local government can impose
real property tax on the airport lands, consisting mostly of the runways, as well as the airport buildings, of
MIAA. In the 2006 MIAA case, this Court held:
To summarize, MIAA is not a government-owned or controlled corporation under Section 2(13) of the
Introductory Provisions of the Administrative Code because it is not organized as a stock or non-stock
corporation. Neither is MIAA a government-owned or controlled corporation under Section 16, Article XII of
the 1987 Constitution because MIAA is not required to meet the test of economic viability. MIAA is a
government instrumentality vested with corporate powers and performing essential public services
pursuant to Section 2(10) of the Introductory Provisions of the Administrative Code. As a government
instrumentality, MIAA is not subject to any kind of tax by local governments under Section 133(o) of the
Local Government Code. The exception to the exemption in Section 234(a) does not apply to MIAA because
MIAA is not a taxable entity under the Local Government Code. Such exception applies only if the
beneficial use of real property owned by the Republic is given to a taxable entity.
Finally, the Airport Lands and Buildings of MIAA are properties devoted to public use and thus are
properties of public dominion. Properties of public dominion are owned by the State or the Republic. Article
420 of the Civil Code provides:
Art. 420. The following things are property of public dominion:
(1) Those intended for public use, such as roads, canals, rivers, torrents, ports and
bridgesconstructed by the State, banks, shores, roadsteads, and others of similar character;
(2) Those which belong to the State, without being for public use, and are intended for some
public service or for the development of the national wealth.
The term "ports x x x constructed by the State" includes airports and seaports. The Airport Lands and
Buildings of MIAA are intended for public use, and at the very least intended for public service. Whether
intended for public use or public service, the Airport Lands and Buildings are properties of public dominion.
As properties of public dominion, the Airport Lands and Buildings are owned by the Republic and thus
exempt from real estate tax under Section 234(a) of the Local Government Code. 7 (Emphasis in the
original)
The definition of "instrumentality" under Section 2(10) of the Introductory Provisions of the Administrative
Code of 1987 uses the phrase "includes x x x government-owned or controlled corporations" which means

that a government "instrumentality" may or may not be a "government-owned or controlled corporation."


Obviously, the term government "instrumentality" is broader than the term "government-owned or
controlled corporation." Section 2(10) provides:
SEC. 2. General Terms Defined. x x x
(10) Instrumentality refers to any agency of the national Government, not integrated within the
department framework, vested with special functions or jurisdiction by law, endowed with some if not all
corporate powers, administering special funds, and enjoying operational autonomy, usually through a
charter. This term includes regulatory agencies, chartered institutions and government-owned or controlled
corporations.
The term "government-owned or controlled corporation" has a separate definition under Section 2(13)8 of
the Introductory Provisions of the Administrative Code of 1987:
SEC. 2. General Terms Defined. x x x
(13) Government-owned or controlled corporation refers to any agency organized as a stock or non-stock
corporation, vested with functions relating to public needs whether governmental or proprietary in nature,
and owned by the Government directly or through its instrumentalities either wholly, or, where applicable
as in the case of stock corporations, to the extent of at least fifty-one (51) percent of its capital
stock: Provided, That government-owned or controlled corporations may further be categorized by the
department of Budget, the Civil Service Commission, and the Commission on Audit for the purpose of the
exercise and discharge of their respective powers, functions and responsibilities with respect to such
corporations.
The fact that two terms have separate definitions means that while a government "instrumentality" may
include a "government-owned or controlled corporation," there may be a government "instrumentality"
that will not qualify as a "government-owned or controlled corporation."
A close scrutiny of the definition of "government-owned or controlled corporation" in Section 2(13) will
show that MIAA would not fall under such definition. MIAA is a government "instrumentality" that
does not qualify as a "government-owned or controlled corporation." As explained in the 2006
MIAA case:
A government-owned or controlled corporation must be "organized as a stock or non-stock corporation."
MIAA is not organized as a stock or non-stock corporation. MIAA is not a stock corporation because it has
no capital stock divided into shares. MIAA has no stockholders or voting shares. x x x
Section 3 of the Corporation Code defines a stock corporation as one whose "capital stock is divided into
shares and x x x authorized to distribute to the holders of such shares dividends x x x." MIAA has capital
but it is not divided into shares of stock. MIAA has no stockholders or voting shares. Hence, MIAA is not a
stock corporation.
xxx
MIAA is also not a non-stock corporation because it has no members. Section 87 of the Corporation Code
defines a non-stock corporation as "one where no part of its income is distributable as dividends to its
members, trustees or officers." A non-stock corporation must have members. Even if we assume that the
Government is considered as the sole member of MIAA, this will not make MIAA a non-stock corporation.
Non-stock corporations cannot distribute any part of their income to their members. Section 11 of the MIAA
Charter mandates MIAA to remit 20% of its annual gross operating income to the National Treasury. This
prevents MIAA from qualifying as a non-stock corporation.
Section 88 of the Corporation Code provides that non-stock corporations are "organized for charitable,
religious, educational, professional, cultural, recreational, fraternal, literary, scientific, social, civil service,
or similar purposes, like trade, industry, agriculture and like chambers." MIAA is not organized for any of
these purposes. MIAA, a public utility, is organized to operate an international and domestic airport for
public use.
Since MIAA is neither a stock nor a non-stock corporation, MIAA does not qualify as a government-owned
or controlled corporation. What then is the legal status of MIAA within the National Government?
MIAA is a government instrumentality vested with corporate powers to perform efficiently its governmental
functions. MIAA is like any other government instrumentality, the only difference is that MIAA is vested
with corporate powers. x x x
When the law vests in a government instrumentality corporate powers, the instrumentality does not
become a corporation. Unless the government instrumentality is organized as a stock or non-stock

corporation, it remains a government instrumentality exercising not only governmental but also corporate
powers. Thus, MIAA exercises the governmental powers of eminent domain, police authority and the
levying of fees and charges. At the same time, MIAA exercises "all the powers of a corporation under the
Corporation Law, insofar as these powers are not inconsistent with the provisions of this Executive Order." 9
Thus, MIAA is not a government-owned or controlled corporation but a government instrumentality which
is exempt from any kind of tax from the local governments. Indeed, the exercise of the taxing power of
local government units is subject to the limitations enumerated in Section 133 of the Local Government
Code.10 Under Section 133(o)11 of the Local Government Code, local government units have no power to
tax instrumentalities of the national government like the MIAA. Hence, MIAA is not liable to pay real
property tax for the NAIA Pasay properties.
Furthermore, the airport lands and buildings of MIAA are properties of public dominion intended for public
use, and as such are exempt from real property tax under Section 234(a) of the Local Government Code.
However, under the same provision, if MIAA leases its real property to a taxable person, the specific
property leased becomes subject to real property tax.12 In this case, only those portions of the NAIA Pasay
properties which are leased to taxable persons like private parties are subject to real property tax by the
City of Pasay.
WHEREFORE, we GRANT the petition. We SET ASIDE the Decision dated 30 October 2002 and the
Resolution dated 19 March 2004 of the Court of Appeals in CA-G.R. SP No. 67416. We DECLARE the NAIA
Pasay properties of the Manila International Airport Authority EXEMPT from real property tax imposed by
the City of Pasay. We declare VOID all the real property tax assessments, including the final notices of real
property tax delinquencies, issued by the City of Pasay on the NAIA Pasay properties of the Manila
International Airport Authority, except for the portions that the Manila International Airport Authority has
leased to private parties.
No costs.
SO ORDERED.
ANTONIO T. CARPIO
Associate Justice
WE CONCUR:
REYNATO S. PUNO
Chief Justice
LEONARDO A. QUISUMBING
Associate Justice

CONSUELO YNARES-SANTIAGO
Associate Justice

MA. ALICIA AUSTRIA-MARTINEZ


Associate Justice

RENATO C. CORONA
Associate Justice

CONCHITA CARPIO MORALES


Associate Justice

DANTE O. TINGA
Associate Justice

MINITA V. CHICO-NAZARIO
Associate Justice

PRESBITERO J. VELASCO, JR.


Associate Justice

ANTONIO EDUARDO B. NACHURA


Associate Justice

TERESITA J. LEONARDO-DE CASTRO


Associate Justice

ARTURO D. BRION
Associate Justice

DIOSDADO M. PERALTA
Associate Justice
CERTIFICATION

Pursuant to Section 13, Article VIII of the Constitution, I certify that the conclusions in the above Decision
were reached in consultation before the case was assigned to the writer of the opinion of the Court.

REYNATO S. PUNO
Chief Justice

Footnotes
1

Under Rule 45 of the 1997 Rules of Civil Procedure.

Penned by Associate Justice Ruben T. Reyes (now retired Supreme Court Justice) with Associate
Justices Remedios Salazar-Fernando and Edgardo F. Sundiam, concurring.
3

Providing for a Revision of Executive Order No. 778 Creating the Manila International Airport
Authority, Transferring Existing Assets of the Manila International Airport to the Authority, and
Vesting the Authority with Power to Administer and Operate the Manila International Airport.
4

Section 3 of EO 903 reads:


SEC. 3. Creation of the Manila International Airport Authority. There is hereby established a
body corporate to be known as the Manila International Airport Authority which shall be
attached to the Ministry of Transportation and Communications. The principal office of the
Authority shall be located at the New Manila International Airport. The Authority may
establish such offices, branches, agencies or subsidiaries as it may deem proper and
necessary; Provided, that any subsidiary that may be organized shall have the prior approval
of the President.
The land where the Airport is presently located as well as the surrounding land area of
approximately six hundred hectares, are hereby transferred, conveyed and assigned to the
ownership and administration of the Authority, subject to existing rights, if any. The Bureau
of Lands and other appropriate government agencies shall undertake an actual survey of the
area transferred within one year from the promulgation of this Executive Order and the
corresponding title to be issued in the name of the Authority. Any portion thereof shall not be
disposed through the sale or through any other mode unless specifically approved by the
President of the Philippines.

Section 22 of EO 903 reads:


SEC. 22. Transfer of Existing Facilities and Intangible Assets. All existing public airport
facilities, runways, lands, buildings and other property, movable and immovable, belonging
to the Airport, and all assets, powers, rights, interests and privileges belonging to the Bureau
of Air Transportation relating to airport works or air operations, including all equipment
which are necessary for the operation of crash fire and rescue facilities, are hereby
transferred to the Authority.

G.R. No. 155650, 20 July 2006, 495 SCRA 591.

Id. at 644-645.

Section 2(13) of the Introductory Provisions of the Administrative Code of 1987 reads:
SEC. 2. General Terms Defined. x x x
(13) Government-owned or controlled corporation refers to any agency organized as a stock
or non-stock corporation, vested with functions relating to public needs whether
governmental or proprietary in nature, and owned by the Government directly or through its
instrumentalities either wholly, or, where applicable as in the case of stock corporations, to
the extent of at least fifty-one (51) percent of its capital stock: Provided, That governmentowned or controlled corporations may further be categorized by the department of Budget,
the Civil Service Commission, and the Commission on Audit for the purpose of the exercise
and discharge of their respective powers, functions and responsibilities with respect to such
corporations.

Supra note 6 at 615-618.

10

Philippine Fisheries Development Authority v. Court of Appeals, G.R. No. 150301, 2 October 2007,
534 SCRA 490.
11

Section 133(o) of the Local Government Code reads:

SECTION 133. Common Limitations on the Taxing Powers of the Local Government Units.
Unless otherwise provided herein, the exercise of the taxing powers of provinces, cities,
municipalities, andbarangays shall not extend to the levy of the following:
xxx
(o) Taxes, fees or charges of any kind on the National Government, its agencies and
instrumentalities, and local government units.
12

Manila International Airport Authority v. Court of Appeals, supra note 6.

The Lawphil Project - Arellano Law Foundation

DISSENTING OPINION
YNARES-SANTIAGO, J.:
Indeed, as pointed out by Justice Antonio T. Carpio, the Court has twice reaffirmed the ruling in Manila
International Airport Authority v. Court of Appeals1 in the subsequent cases of Philippine Fisheries
Development Authority v. Court of Appeals2 and Philippine Fisheries Development Authority v. Court of
Appeals.3 However, upon further study of the issues presented in said cases, I agree with Justice Dante O.
Tinga that the Manila International Airport Authority (MIAA) ruling was incorrectly rationalized, particularly
on the unwieldy characterization of MIAA as a species of a government instrumentality. I submit that the
present ponencia of Justice Carpio perpetuates the error which I find imperative for the Court to correct.
Nevertheless, unlike Justice Tingas rationalization, I find that there is no more need to belabor the issue of
whether the MIAA is a government-owned or controlled corporation (GOCC) or a government
instrumentality in order to resolve the issue of whether the airport properties are subject to real property
tax.
Instead, I subscribe to the "simple, direct and painless approach" proposed by Justice Antonio Eduardo B.
Nachura that it is imperative to "fine tune" the Courts ruling in Mactan Cebu International Airport
Authority v. Marcos4 vis--vis that in Manila International Airport Authority v. Court of Appeals; 5 and that
what needs only to be ascertained is whether the airport properties are owned by the Republic; and if
such, then said properties are exempt from real property tax, by applying Section 234 of Republic Act No.
7160 (R.A. No. 7160) or the Local Government Code (LGC).
Pursuant to Section 232 of the LGC, a province or city or municipality within the Metropolitan Manila Area is
vested with the power to levy an annual ad valorem tax on real property such as land, building, machinery,
and other improvement not hereafter specifically exempted. Corollarily, Section 234 thereof provides an
enumeration of certain properties which are exempt from payment of the real property tax, among which
is "real property owned by the Republic of the Philippines or any of its political subdivisions except when
the beneficial use thereof has been granted, for consideration or otherwise, to a taxable person."
Article 420 of the Civil Code enumerates the properties of public dominion, to wit:
Art. 420: The following things are property of public dominion:
(1) Those intended for public use, such as roads, canals, rivers, torrents, ports and bridges
constructed by the State, banks, shores, roadsteads, and others of similar character;
(2) Those which belong to the State, without being for public use, and are intended for some public
service or for the development of the national wealth.
There is no question that the airport and all its installations, facilities and equipment, are intended for
public use and are, thus, properties of public dominion.
Concededly, the Court ruled in Mactan Cebu International Airport Authority v. Marcos 6 that:
The crucial issues then to be addressed are: (a) whether the parcels of land in question belong to the
Republic of the Philippines whose beneficial use has been granted to the petitioner, and (b) whether the
petitioner is a "taxable persons."
Section 15 of [MCIAAs] Charter provides:

Sec. 15. Transfer of Existing Facilities and Intangible Assets. Al existing public airport facilities, runways,
lands, buildings and other properties, movable or immovable, belonging to or presently administered by
the airports, and all assets, powers, rights, interests and privileges relating on airport works or air
operations, including all equipment which are necessary for the operations of air navigation, aerodome
control towers, crash, fire, and rescue facilities are hereby transferred to the Authority: Provided, however,
that the operations control of all equipment necessary for the operation of radio aids to air navigation,
airways communication, the approach control office, and the area control center shall be retained by the
Air Transportation Office. No equipment, however, shall be removed by the Air Transportation Office from
Mactan without the concurrence of the Authority. The Authority may assist in the maintenance of the Air
Transportation Office equipment.
The "airports" referred to are the "Lahug Air Port" in Cebu City and the "Mactan International Airport in the
Province of Cebu," which belonged to the Republic of the Philippines, then under the Air Transportation
Office (ATO).
It may be reasonable to assume that the term "lands" refer to "lands" in Cebu City then administered by
the Lahug Air Port and includes the parcels of land the respondent City of Cebu seeks to levy on for real
property taxes. This section involves a "transfer" of the "lands" among other thins, to the petitioner and
not just the transfer of the beneficial use thereof, with the ownership being retained by the Republic of the
Philippines.
This "transfer" is actually an absolute conveyance of the ownership thereof because the petitioners
authorized capital stock consists of, inter alia, "the value of such real estate owned and/or administered by
the airports." Hence, the petitioner is now the owner of the land in question and the exception in Section
234 of the LGC is inapplicable.
Meanwhile, Executive Order No. 9037 or the Revised Charter of the Manila International Airport Authority,
provides in Section 3 thereof that
xxxx
The land where the Airport is presently located as well as the surrounding land area of approximately six
hundred hectares, are hereby transferred, conveyed and assigned to the ownership and administration of
the Authority, subject to existing rights, if any. The Bureau of Lands and other appropriate government
agencies shall undertake an actual survey of the area transferred within one year from the promulgation of
this Executive Order and the corresponding title to be issued in the name of the Authority. Any portion
thereof shall not be disposed through sale or through any other mode unless specifically approved by the
President of the Philippines.
Regardless of the apparent transfer of title of the said properties to MIAA, I submit that the latter is only
holding the properties for the benefit of the Republic in its capacity as agent thereof. It is to be noted that
despite the conveyance of the title to the said properties to the MIAA, however, the latter could not in any
way dispose of the same through sale or through any other mode unless specifically approved by the
President of the Republic.8Even MIAAs borrowing power is dictated upon by the President. Thus, MIAA
could raise funds, either from local or international sources, by way of loans, credits or securities, and
other borrowing instruments, create pledges, mortgages and other voluntary lines or encumbrances on
any of its assets or properties, only after consultation with the Secretary of Finance and with the approval
of the President. In addition, MIAAs total outstanding indebtedness could exceed its net worth only upon
express authorization by the President. 9
I fully agree with Justice Nachura that "even if MIAA holds the record title over the airport properties, such
holding can only be for the benefit of the Republic, that MIAA exercises an essentially public function."
In sum, the airport and all its installations, facilities and equipment of the MIAA, are properties of public
dominion and should thus be exempted from payment of real property tax, except those properties where
the beneficial use thereof has been granted, for consideration or otherwise, to a taxable person.
ACCORDINGLY, I vote to grant the petition.
CONSUELO YNARES-SANTIAGO
CITY ASSESSOR OF CEBU G.R. No. 152904
CITY,
Petitioner,
Present:

QUISUMBING, J., Chairperson,


- versus - CARPIO,
CARPIO MORALES,
TINGA, and
VELASCO, JR., JJ.
ASSOCIATION OF BENEVOLA Promulgated:
DE CEBU, INC.,
Respondent. June 8, 2007
x-----------------------------------------------------------------------------------------x
DECISION
VELASCO, JR., J.:
Is a medical arts center built by a hospital to house its doctors a separate commercial establishment or an
appurtenant to the hospital? This is the core issue to be resolved in the instant petition where petitioner
insists on a 35% assessment rate on the building which he considers commercial in nature contrary to
respondents position that it is a special real property entitled to a 10% assessment rate for purposes of
realty tax.
The Case
This Petition for Review on Certiorari [1] under Rule 45 assails the October 31, 2001 Decision [2] of the
Court of Appeals (CA) in CA-G.R. SP No. 62548, which affirmed the January 24, 2000 Decision [3] and
October 25, 2000 Resolution[4] of the Central Board of Assessment Appeals (CBAA); and the March 11, 2002
Resolution[5] of the same court denying petitioners Motion for Reconsideration. [6] The CBAA upheld the
February 10, 1999 Decision of the Local Board of Assessment Appeals (LBAA), which overturned the 35%
assessment rate of respondent Cebu City Assessor and ruled that petitioner is entitled to a 10%
assessment.
The Facts
Respondent Association of Benevola de Cebu, Inc. is a non-stock, non-profit organization organized
under the laws of the Republic of the Philippines and is the owner of Chong Hua Hospital (CHH)
in Cebu City. In the late 1990s, respondent constructed the CHH Medical Arts Center (CHHMAC). Thereafter,
an April 17, 1998 Certificate of Occupancy[7] was issued to the center with a classification of Commercial
[Clinic].
Petitioner City Assessor of Cebu City assessed the CHHMAC building under Tax Declaration (TD) No.
97 GR-04-024-02529 as commercial with a market value of PhP 28,060,520 and an assessed value of PhP
9,821,180 at the assessment level of 35% for commercial buildings, and not at the 10% special
assessment currently imposed for CHH and its other separate buildingsthe CHHs Dietary and Records
Departments.
Thus, respondent filed its September 15, 1998 letter-petition with the Cebu City LBAA for
reconsideration, asserting that CHHMAC is part of CHH and ought to be imposed the same special
assessment level of 10% with that of CHH. On September 25, 1998, respondent formally filed its appeal

with the LBAA which was docketed as Case No. 4406, TD No. 97 GR-04-024-02529 entitled Association
Benevola de Cebu, Inc. v. City Assessor.
In the September 30, 1998 Order, the LBAA directed petitioner to conduct an ocular inspection of
the subject property and to submit a report on the scheduled date of hearing. In the October 7,
1998 hearing, the parties were required to submit their respective position papers.
In its position paper, petitioner argued that CHHMAC is a newly constructed five-storey building
situated about 100 meters away from CHH and, based on actual inspection, was ascertained that it is not a
part of the CHH building but a separate building which is actually used as commercial clinic/room spaces
for renting out to physicians and, thus, classified as commercial. Petitioner contended that in turn the
medical specialists in CHHMAC charge consultation fees for patients who consult for diagnosis and relief of
bodily ailment together with the ancillary (or support) services which include the areas of anesthesia,
radiology, pathology, and more. Petitioner concluded the foregoing set up to be ultimately geared for
commercial purposes, and thus having the proper classification as commercial under Building Permit No.
B01-9750087 pursuant to Section 10 of the Local Assessment Regulations No. 1-92 issued by the
Department of Finance (DOF).
On the other hand, respondent contended in its position paper that CHHMAC building is actually,
directly, and exclusively part of CHH and should have a special assessment level of 10% as provided under
City Tax Ordinance LXX. Respondent asserted that the CHHMAC building is similarly situated as the
buildings of CHH, housing its Dietary and Records Departments, are completely separate from the main
CHH building and are imposed the 10% special assessment level. In fine, respondent argued that the
CHHMAC, though not actually indispensable, is nonetheless incidental and reasonably necessary to CHHs
operations.
The Ruling of the Local Board of Assessment Appeals
On February 10, 1999, the LBAA rendered a Decision,[8] the dispositive portion of which reads:
WHEREFORE, premises considered, the appealed decision imposing a thirty five (35)
percent assessment level of TD No. 97 GR-04-024-02529 on the Chong Hua Hospital
Medical Arts building is reversed and set aside and other [sic] one issued declaring
that the building is entitled to a ten (10) percent assessment level.

In reversing the ruling of petitioner City Assessor of Cebu City, the LBAA reasoned that it is of public
knowledge that hospitals have plenty of spaces leased out to medical practitioners, which is both an
accepted and desirable fact; thus, respondents claim is not disputed that such is a must for a tertiary
hospital like CHH. The LBAA held that it is inconsequential that a separate building was constructed for
that purpose pointing out that departments or services of other institutions and establishments are also
not always housed in the same building.
Thus, the LBAA pointed to the fact that respondents Dietary and Records Departments which are
housed in separate buildings were similarly imposed with CHH the special assessment level of 10%,
ratiocinating in turn that there is no reason therefore why a higher level would be imposed for CHHMAC as
it is similarly situated with the Dietary and Records Departments of the CHH.

The Ruling of the Central Board of Assessment Appeals

Aggrieved, petitioner filed its March 15, 1999 Notice of Appeal[9] and March 16, 1999 Appeal
Memorandum[10] before the CBAA Visayas Field Office which docketed the appeal as CBAA Case No. V-15, In
Re: LBAA Case No. 4406, TD No. 97 GR-04-024-02529 entitled City Assessor of Cebu City v. Local Board of
Assessment Appeals of Cebu City and Associacion Benevola de Cebu, Inc. On June 3, 1999, respondent
filed its Answer[11] to petitioners appeal.
Subsequently, on January 24, 2000, the CBAA rendered a Decision [12] affirming in toto the LBAA
Decision and resolved the issue of whether the subject building of CHHMAC is part and parcel of CHH. It
agreed with the above disquisition of the LBAA that it is a matter of public knowledge that hospitals lease
out spaces to its accredited medical practitioners, and in particular it is of public knowledge that before the
CHHMAC was constructed, the accredited doctors of CHH were housed in the main hospital building of
CHH. Moreover, citing Herrera v. Quezon City Board of Assessment Appeals [13] later applied in Abra Valley
College, Inc. v. Aquino,[14] the CBAA held that the fact that the subject building is detached from the main
hospital building is of no consequence as the exemption in favor of property used exclusively for charitable
or educational purposes is not only limited to property actually indispensable to the hospital, but also
extends to facilities which are incidental and reasonably necessary for the accomplishment of such
purposes.

[16]

Through its October 25, 2000 Resolution,[15] the CBAA denied petitioners Motion for Reconsideration.

The Ruling of the Court of Appeals


Not satisfied, petitioner brought before the CA a petition for review [17] under Rule 43 of the Rules of
Court, docketed as CA-G.R. SP No. 62548, ascribing error on the CBAA in dismissing his appeal and in
affirming the February 10, 1999 Decision[18] of the LBAA.
On October 31, 2001, the appellate court rendered the assailed Decision [19] which affirmed
the January 24, 2000 Decision of the CBAA. It agreed with the CBAA that CHHMAC is part and parcel of
CHH in line with the ruling in Herrera[20] on what the term appurtenant thereto means. Thus, the CA held
that the facilities and utilities of CHHMAC are undoubtedly necessary and indispensable for the CHH to
achieve its ultimate purpose.
The CA likewise ruled that the fact that rentals are paid by CHH accredited doctors and medical
specialists for spaces in CHHMAC has no bearing on its classification as a hospital since CHHMAC serves
also as a place for medical check-up, diagnosis, treatment, and care for its patients as well as a specialized
out-patient department of CHH where treatment and diagnosis are done by accredited medical specialists
in their respective fields of anesthesia, radiology, pathology, and more.
The appellate court also applied Secs. 215 and 216 of the Local Government Code (Republic Act No.
7160) which classify lands, buildings, and improvements actually, directly, and exclusively used for
hospitals as special cases of real property and not as commercial. Thus, CHHMAC being an integral part of
CHH is not commercial but special and should be imposed the 10% special assessment, the same as CHH,
instead of the 35% for commercial establishments.
Lastly, the CA pointed out that courts generally will not interfere in matters which are addressed to
the sound discretion of the government agencies entrusted with the regulation of activities under their
special technical knowledge and trainingtheir findings and conclusions are accorded not only respect but
even finality.

Through the
Reconsideration.

assailed March

11,

2002 Resolution,[21] the

CA

denied

petitioners

Motion

for

The Issues
Hence, before us is the instant petition with the solitary issue, as follows:
WHETHER OR NOT THERE IS SERIOUS ERROR BY THE COURT OF APPEALS IN
AFFIRMING THE DECISION OF THE CENTRAL BOARD OF ASSESSMENT APPEALS THAT
THE NEW BUILDING CHONG HUA HOSPITAL AND MEDICAL ARTS CENTER (CHHMAC) IS
AN ESSENTIAL PART OF THE OLD BUILDING KNOWN AS CHONG HUA HOSPITAL. IN THE
NEGATIVE, WHETHER OR NOT THE NEW BUILDING IS LIABLE TO PAY THE 35%
ASSESSMENT LEVEL. AND WHETHER OR NOT THE COURT OF APPEALS COULD
INTERFERE WITH THE FINDINGS OF THE CENTRAL BOARD OF ASSESSMENT APPEALS, A
GOVERNMENT AGENCY HAVING SPECIAL TECHNICAL KNOWLEDGE AND TRAINING ON
THE MATTER SUBJECT OF THE PRESENT CASE.[22]
The Courts Ruling
The petition is devoid of merit.
It is petitioners strong belief that the subject building, CHHMAC, which is built on a rented land and
situated about 100 meters from the main building of CHH, is not an extension nor an integral part of CHH
and thus should not enjoy the 10% special assessment. Petitioner anchors the classification of CHHMAC as
commercial, first, on Sec. 10 of Local Assessment Regulations No. 1-92 issued by the DOF, which provides:
SEC. 10. Actual use of Real Property as basis of Assessment.Real Property shall be
classified, valued and assessed on the basis of its actual use regardless of where
located, whoever owns it, and whoever uses it. (Sec. 217, R.A. 7160)
A. Actual use refers to the purpose for which the property is principally or
predominantly utilized by the person in possession of the property. (Sec. 199 (b), R.A.
7160)

Secondly, the result of the inspection on subject building by the City Assessors inspection team
shows that CHHMAC is a commercial establishment based on the following: (1) CHHMAC is exclusively
intended for lease to doctors; (2) there are neither operating rooms nor beds for patients; and (3) the
doctors renting the spaces earn income from the patients who avail themselves of their services. Thus,
petitioner argues that CHHMAC is principally and actually used for lease to doctors, and respondent as
owner of CHHMAC derives rental income from it; hence, CHHMAC was built and is intended for profit and
functions commercially.
Moreover, petitioner asserts that CHHMAC is not part of the CHH main building as it is exclusively
used as private clinics of physicians who pay rental fees to petitioner.And while the private clinics might be
considered facilities, they are not incidental to nor reasonably necessary for the accomplishment of the
hospitals purposes as CHH can still function and accomplish its purpose without the existence of
CHHMAC. In addition, petitioner contends that the Abra Valley College, Inc.[23] ruling is not applicable to the
instant case for schools, the subject matter in said case, are already entitled to special
assessment. Besides, petitioner points CHHMAC is not among the facilities mentioned in said case. Further,

petitioner argues that CHHMAC is not in the same category as nurses homes and housing facilities for the
hospital staff as these are clearly not for profit, that is, not commercial, and are clearly incidental and
reasonably necessary for the hospitals purposes.
We are not persuaded.
A careful review of the records compels us to affirm the assailed CA Decision as we find no
reversible error for us to reverse or alter it.
Chong Hua Hospital Medical Arts Center is an integral part of Chong Hua Hospital

We so hold that CHHMAC is an integral part of CHH.


It is undisputed that the doctors and medical specialists holding clinics in CHHMAC are those duly
accredited by CHH, that is, they are consultants of the hospital and the ones who can treat CHHs patients
confined in it. This fact alone takes away CHHMAC from being categorized as commercial since a tertiary
hospital like CHH is required by law to have a pool of physicians who comprises the required medical
departments in various medical fields. As aptly pointed out by respondent:
Chong Hua Hospital is a duly licensed tertiary hospital and is covered by Dept. of
Health (DOH) Adm. Order No. 68-A and the 1989 Revised Rules and Regulations
governing the registration, licensure and operation of hospitals in the
Philippines. Under Sec. 6, sub-sec. 6.3, it is mandated by law, that respondent appellee
in order to retain its classification as a TERTIARY HOSPITAL, must be fully
departmentalized and equipped with the service capabilities needed to support
certified medical specialists and other licensed physicians rendering services in the
field of medicine, pediatrics, obstetrics and gynecology, surgery, and their subspecialties, ICCU and ancillary services which is precisely the function of the Chong
Hua Hospital Medical Arts Center.[24]
Sec. 6.3, Administrative Order No. (AO) 68-A, Series of 1989, Revised Rules and Regulations
Governing the Registration, Licensure and Operation of Hospitals in thePhilippines pertinently provides:
Tertiary Hospital is fully departmentalized and equipped with the service
capabilities needed to support certified medical specialists and other licensed
physicians rendering services in the field of Medicine, Pediatrics, Obstetrics and
Gynecology, Surgery, their subspecialties and ancillary services. (Emphasis supplied.)

Moreover, AO 68-A likewise provides what clinic service and medical ancillary service are, thus:

11.3.2 Clinical ServiceThe medical services to patients shall be performed by the


medical staff appointed by the governing body of the institution. x x x

11.3.3 Medical Ancillary ServiceThese are support services which include Anesthesia
Department, Pathology Department, Radiology Department, Out-Patient Department
(OPD), Emergency Service, Dental, Pharmacy, Medical Records and Medical Social
Services.

Based on these provisions, these physicians holding offices or clinics in CHHMAC, duly appointed or
accredited by CHH, precisely fulfill and carry out their roles in the hospitals services for its patients through
the CHHMAC. The fact that they are holding office in a separate building, like at CHHMAC, does not take
away the essence and nature of their services vis--vis the over-all operation of the hospital and the
benefits to the hospitals patients. Given what the law requires, it is clear that CHHMAC is an integral part
of CHH.
These accredited physicians normally hold offices within the premises of the hospital; in which case
there is no question as to the conduct of their business in the ambit of diagnosis, treatment and/or
confinement of patients. This was the case before 1998 and before CHHMAC was built. Verily, their transfer
to a more spacious and, perhaps, convenient place and location for the benefit of the hospitals patients
does not remove them from being an integral part of the overall operation of the hospital.
Conversely, it would have been different if CHHMAC was also open for non-accredited physicians,
that is, any medical practitioner, for then respondent would be running a commercial building for lease
only to doctors which would indeed subject the CHHMAC to the commercial level of 35% assessment.
Moreover, the CHHMAC, being hundred meters away from the CHH main building, does not
denigrate from its being an integral part of the latter. As aptly applied by the CBAA, the Herrera ruling on
what constitutes property exempt from taxation is indeed applicable in the instant case, thus:
Moreover, the exemption in favor of property used exclusively for charitable or
educational purposes is not limited to property actually indispensable therefore
(Cooley on Taxation, Vol. 2, p. 1430), but extends to facilities which are incidental to
and reasonably necessary for the accomplishment of said purposes, such as, in the
case of hospitals, a school for training nurses, a nurses home, property use to provide
housing facilities for interns, resident doctors, superintendents, and other members of
the hospital staff, and recreational facilities for student nurses, interns and residents
(84 C.J.S., 621), such as athletic fields, including a farm used for the inmates of the
institution (Cooley on Taxation, Vol. 2, p. 1430).[25]

Verily, being an integral part of CHH, CHHMAC should be under the same special assessment level
of as that of the former.
The CHHMAC facility is definitely incidental to and reasonably necessary for the operations
of Chong Hua Hospital

Given our discussion above, the CHHMAC facility, while seemingly not indispensable to the
operations of CHH, is definitely incidental to and reasonably necessary for the operations of the
hospital. Considering the legal requirements and the ramifications of the medical and clinical operations
that have been transferred to the CHHMAC from the CHH main building in light of the accredited physicians
transfer of offices in 1998 after the CHHMAC building was finished, it cannot be gainsaid that the services
done in CHHMAC are indispensable and essential to the hospitals operation.

For one, as found by the appellate court, the CHHMAC facility is primarily used by the hospitals
accredited physicians to perform medical check-up, diagnosis, treatment, and care of patients. For
another, it also serves as a specialized outpatient department of the hospital.
Indubitably, the operation of the hospital is not only for confinement and surgical operations where
hospital beds and operating theaters are required. Generally, confinement is required in emergency cases
and where a patient necessitates close monitoring. The usual course is that patients have to be diagnosed,
and then treatment and follow-up consultations follow or are required. Other cases may necessitate
surgical operations or other medical intervention and confinement. Thus, the more the patients, the more
important task of diagnosis, treatment, and care that may or may not require eventual confinement or
medical operation in the CHHMAC.
Thus, the importance of CHHMAC in the operation of CHH cannot be over-emphasized nor
disputed. Clearly, it plays a key role and provides critical support to hospital operations.
Charging rentals for the offices used by its accredited physicians cannot be equated to a
commercial venture

Finally, respondents charge of rentals for the offices and clinics its accredited physicians occupy
cannot be equated to a commercial venture, which is mainly for profit.
Respondents explanation on this point is well taken. First, CHHMAC is only for its consultants or
accredited doctors and medical specialists. Second, the charging of rentals is a practical necessity: (1) to
recoup the investment cost of the building, (2) to cover the rentals for the lot CHHMAC is built on, and (3)
to maintain the CHHMAC building and its facilities. Third, as correctly pointed out by respondent, it pays
the proper taxes for its rental income. And, fourth, if there is indeed any net income from the lease income
of CHHMAC, such does not inure to any private or individual person as it will be used for respondents other
charitable projects.
Given the foregoing arguments, we fail to see any reason why the CHHMAC building should be
classified as commercial and be imposed the commercial level of 35% as it is not operated primarily for
profit but as an integral part of CHH. The CHHMAC, with operations being devoted for the benefit of the
CHHs patients, should be accorded the 10% special assessment.
In this regard, we point with approbation the appellate courts application of Sec. 216 in relation with
Sec. 215 of the Local Government Code on the proper classification of the subject CHHMAC building as
special and not commercial. Secs. 215 and 216 pertinently provide:
SEC. 215. Classes of Real Property for Assessment Purposes.For purposes of
assessment, real property shall be classified as residential, agricultural, commercial,
industrial, mineral, timberland or special.
xxxx
SEC. 216. Special Classes of Real Property.All lands, buildings, and other
improvements thereon actually, directly and exclusively used for hospitals,
cultural or scientific purposes, and those owned and used by local water districts, and
government-owned or controlled corporations rendering essential public services in the

supply and distribution of water and/or generation and transmission of electric


power shall be classified as special. (Emphasis supplied.)

Thus, applying the above provisos in line with City Tax Ordinance LXX of Cebu City, the 10% special
assessment should be imposed for the CHHMAC building which should be classified as special.
WHEREFORE, the petition is DENIED for lack of merit and the October 31, 2001 Decision and
March 11, 2002 Resolution of the CA are hereby AFFIRMED. No pronouncement as to costs.
STA.
LUCIA
REALTY
DEVELOPMENT, INC.,

&

Petitioner,

G.R. No. 166838


Present:
VELASCO, JR .,*

- versus -

Acting Chairperson,
LEONARDO-DE CASTRO,
BERSAMIN,**

CITY OF PASIG,
Respondent,
MUNICIPALITY
OF
PROVINCE OF RIZAL,
Intervenor.

CAINTA,

DEL CASTILLO, and


PEREZ, JJ.
Promulgated:
June 15, 2011

x----------------------------------------------------x

DECISION

LEONARDO-DE CASTRO, J.:


For review is the June 30, 2004 Decision [1] and the January 27, 2005 Resolution[2] of the Court of
Appeals in CA-G.R. CV No. 69603, which affirmed with modification the August 10, 1998 Decision [3] and
October 9, 1998 Order[4] of the Regional Trial Court (RTC) of Pasig City, Branch 157, in Civil Case No. 65420.
Petitioner Sta. Lucia Realty & Development, Inc. (Sta. Lucia) is the registered owner of several
parcels of land with Transfer Certificates of Title (TCT) Nos. 39112, 39110 and 38457, all of which indicated
that the lots were located in Barrio Tatlong Kawayan, Municipality of Pasig[5] (Pasig).
The parcel of land covered by TCT No. 39112 was consolidated with that covered by TCT No.
518403, which was situated in Barrio Tatlong Kawayan, Municipality of Cainta, Province of Rizal
(Cainta). The two combined lots were subsequently partitioned into three, for which TCT Nos. 532250,
598424, and 599131, now all bearing the Cainta address, were issued.
TCT No. 39110 was also divided into two lots, becoming TCT Nos. 92869 and 92870.

The lot covered by TCT No. 38457 was not segregated, but a commercial building owned by Sta.
Lucia East Commercial Center, Inc., a separate corporation, was built on it. [6]
Upon Pasigs petition to correct the location stated in TCT Nos. 532250, 598424, and 599131, the
Land Registration Court, on June 9, 1995, ordered the amendment of the TCTs to read that the lots with
respect to TCT No. 39112 were located in Barrio Tatlong Kawayan, Pasig City.[7]
On January 31, 1994, Cainta filed a petition [8] for the settlement of its land boundary dispute with
Pasig before the RTC, Branch 74 of Antipolo City (Antipolo RTC). This case, docketed as Civil Case No. 943006, is still pending up to this date.
On November 28, 1995, Pasig filed a Complaint, [9] docketed as Civil Case No. 65420, against Sta.
Lucia for the collection of real estate taxes, including penalties and interests, on the lots covered by TCT
Nos. 532250, 598424, 599131, 92869, 92870 and 38457, including the improvements thereon (the subject
properties).
Sta. Lucia, in its Answer, alleged that it had been religiously paying its real estate taxes to Cainta,
just like what its predecessors-in-interest did, by virtue of the demands and assessments made and the Tax
Declarations issued by Cainta on the claim that the subject properties were within its territorial
jurisdiction. Sta. Lucia further argued that since 1913, the real estate taxes for the lots covered by the
above TCTs had been paid to Cainta.[10]
Cainta was allowed to file its own Answer-in-Intervention when it moved to intervene on the ground
that its interest would be greatly affected by the outcome of the case.It averred that it had been collecting
the real property taxes on the subject properties even before Sta. Lucia acquired them. Cainta further
asseverated that the establishment of the boundary monuments would show that the subject properties
are within its metes and bounds.[11]
Sta. Lucia and Cainta thereafter moved for the suspension of the proceedings, and claimed that the
pending petition in the Antipolo RTC, for the settlement of boundary dispute between Cainta and Pasig,
presented a prejudicial question to the resolution of the case. [12]
The RTC denied this in an Order dated December 4, 1996 for lack of merit. Holding that the TCTs
were conclusive evidence as to its ownership and location, [13] the RTC, on August 10, 1998, rendered a
Decision in favor of Pasig:
WHEREFORE, in view of the foregoing, judgment is hereby rendered in favor of [Pasig],
ordering Sta. Lucia Realty and Development, Inc. to pay [Pasig]:

1)

2)

P273,349.14 representing unpaid real estate taxes and penalties as of 1996,


plus interest of 2% per month until fully paid;

P50,000.00 as and by way of attorneys fees; and

3)

The costs of suit.

Judgment is likewise rendered against the intervenor Municipality of Cainta, Rizal,


ordering it to refund to Sta. Lucia Realty and Development, Inc. the realty tax payments
improperly collected and received by the former from the latter in the aggregate amount
of P358, 403.68.[14]

After Sta. Lucia and Cainta filed their Notices of Appeal, Pasig, on September 11, 1998, filed a
Motion for Reconsideration of the RTCs August 10, 1998 Decision.
The RTC, on October 9, 1998, granted Pasigs motion in an Order [15] and modified its earlier decision to
include the realty taxes due on the improvements on the subject lots:
WHEREFORE, premises considered, the plaintiffs motion for reconsideration is hereby
granted. Accordingly, the Decision, dated August 10, 1998 is hereby modified in that the
defendant is hereby ordered to pay plaintiff the amount of P5,627,757.07 representing the
unpaid taxes and penalties on the improvements on the subject parcels of land whereon real
estate taxes are adjudged as due for the year 1996.[16]

Accordingly, Sta. Lucia filed an Amended Notice of Appeal to include the RTCs October 9, 1998
Order in its protest.
On October 16, 1998, Pasig filed a Motion for Execution Pending Appeal, to which both Sta. Lucia
and Cainta filed several oppositions, on the assertion that there were no good reasons to warrant the
execution pending appeal.[17]
On April 15, 1999, the RTC ordered the issuance of a Writ of Execution against Sta. Lucia.
On May 21, 1999, Sta. Lucia filed a Petition for Certiorari under Rule 65 of the Rules of Court with
the Court of Appeals to assail the RTCs order granting the execution.Docketed as CA-G.R. SP No. 52874,
the petition was raffled to the First Division of the Court of Appeals, which on September 22, 2000, ruled in
favor of Sta. Lucia, to wit:
WHEREFORE, in view of the foregoing, the instant petition is hereby GIVEN DUE
COURSE and GRANTED by this Court. The assailed Order dated April 15, 1999 in Civil Case
No. 65420 granting the motion for execution pending appeal and ordering the issuance of a
writ of execution pending appeal is hereby SET ASIDE and declared NULL and VOID.[18]
The Court of Appeals added that the boundary dispute case presented a prejudicial question which
must be decided before x x x Pasig can collect the realty taxes due over the subject properties. [19]
Pasig sought to have this decision reversed in a Petition for Certiorari filed before this Court on
November 29, 2000, but this was denied on June 25, 2001 for being filed out of time. [20]

Meanwhile, the appeal filed by Sta. Lucia and Cainta was raffled to the (former) Seventh Division of
the Court of Appeals and docketed as CA-G.R. CV No. 69603. On June 30, 2004, the Court of Appeals
rendered its Decision, wherein it agreed with the RTCs judgment:
WHEREFORE, the appealed Decision is hereby AFFIRMED with the MODIFICATION that
the award of P50,000.00 attorneys fees is DELETED.[21]
In affirming the RTC, the Court of Appeals declared that there was no proper legal basis to suspend
the proceedings.[22] Elucidating on the legal meaning of a prejudicial question, it held that there can be no
prejudicial question when the cases involved are both civil. [23] The Court of Appeals further held that the
elements of litis pendentia and forum shopping, as alleged by Cainta to be present, were not met.
Sta. Lucia and Cainta filed separate Motions for Reconsideration, which the Court of Appeals denied
in a Resolution dated January 27, 2005.
Undaunted, Sta. Lucia and Cainta filed separate Petitions for Certiorari with this Court. Caintas
petition, docketed as G.R. No. 166856 was denied on April 13, 2005 for Caintas failure to show any
reversible error. Sta. Lucias own petition is the one subject of this decision.[24]
In praying for the reversal of the June 30, 2004 judgment of the Court of Appeals, Sta. Lucia
assigned the following errors:
ASSIGNMENT OF ERRORS
I
THE HONORABLE COURT OF APPEALS ERRED IN AFFIRMING [WITH MODIFICATION] THE
DECISION OF THE REGIONAL TRIAL COURT IN PASIG CITY
II.
THE HONORABLE COURT OF APPEALS ERRED IN NOT SUSPENDING THE CASE IN VIEW OF THE
PENDENCY OF THE BOUNDARY DISPUTE WHICH WILL FINALLY DETERMINE THE SITUS OF THE
SUBJECT PROPERTIES
III.
THE HONORABLE COURT OF APPEALS ERRED IN NOT HOLDING THAT THE PAYMENT OF
REALTY TAXES THROUGH THE MUNICIPALITY OF CAINTA WAS VALID PAYMENT OF REALTY
TAXES
IV.
THE HONORABLE COURT OF APPEALS ERRED IN NOT HOLDING THAT IN THE MEANTIME THAT
THE BOUNDARY DISPUTE CASE IN ANTIPOLO CITY REGIONAL TRIAL COURT IS BEING FINALLY

RESOLVED, THE PETITIONER STA. LUCIA SHOULD BE PAYING THE REALTY TAXES ON THE
SUBJECT PROPERTIES THROUGH THE INTERVENOR CAINTA TO PRESERVE THE STATUS QUO.
[25]

Pasig, countering each error, claims that the lower courts correctly decided the case considering
that the TCTs are clear on their faces that the subject properties are situated in its territorial
jurisdiction. Pasig contends that the principles of litis pendentia, forum shopping, and res judicata are all
inapplicable, due to the absence of their requisite elements. Pasig maintains that the boundary dispute
case before the Antipolo RTC is independent of the complaint for collection of realty taxes which was filed
before the Pasig RTC. It avers that the doctrine of prejudicial question, which has a definite meaning in law,
cannot be invoked where the two cases involved are both civil. Thus, Pasig argues, since there is no legal
ground to preclude the simultaneous hearing of both cases, the suspension of the proceedings in the Pasig
RTC is baseless.
Cainta also filed its own comment reiterating its legal authority over the subject properties, which
fall within its territorial jurisdiction. Cainta claims that while it has been collecting the realty taxes over the
subject properties since way back 1913, Pasig only covered the same for real property tax purposes in
1990, 1992, and 1993. Cainta also insists that there is a discrepancy between the locational entries and
the technical descriptions in the TCTs, which further supports the need to await the settlement of the
boundary dispute case it initiated.
The errors presented before this Court can be narrowed down into two basic issues:
1) Whether the RTC and the CA were correct in deciding Pasigs Complaint without waiting for
the resolution of the boundary dispute case between Pasig and Cainta; and
2) Whether Sta. Lucia should continue paying its real property taxes to Cainta, as it alleged
to have always done, or to Pasig, as the location stated in Sta. Lucias TCTs.
We agree with the First Division of the Court of Appeals in CA-G.R. SP No. 52874 that the resolution
of the boundary dispute between Pasig and Cainta would determine which local government unit is entitled
to collect realty taxes from Sta. Lucia.[26]
The Local Government Unit entitled
To Collect Real Property Taxes
The Former Seventh Division of the Court of Appeals held that the resolution of the complaint
lodged before the Pasig RTC did not necessitate the assessment of the parties evidence on the metes and
bounds of their respective territories. It cited our ruling in Odsigue v. Court of Appeals[27] wherein we said
that a certificate of title is conclusive evidence of both its ownership and location. [28] The Court of Appeals
even referred to specific provisions of the 1991 Local Government Code and Act. No. 496 to support its
ruling that Pasig had the right to collect the realty taxes on the subject properties as the titles of the
subject properties show on their faces that they are situated in Pasig. [29]
Under Presidential Decree No. 464 or the Real Property Tax Code, the authority to collect real
property taxes is vested in the locality where the property is situated:
Sec. 5. Appraisal of Real Property. All real property, whether taxable or exempt, shall
be appraised at the current and fair market value prevailing in the locality where the
property is situated.

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Sec. 57. Collection of tax to be the responsibility of treasurers. The collection of the
real property tax and all penalties accruing thereto, and the enforcement of the remedies
provided for in this Code or any applicable laws, shall be the responsibility of the treasurer of
the province, city or municipality where the property is situated. (Emphases ours.)

This requisite was reiterated in Republic Act No. 7160, also known as the 1991 the Local
Government Code, to wit:
Section 201. Appraisal of Real Property. All real property, whether taxable or
exempt, shall be appraised at the current and fair market value prevailing in the
locality where the property is situated. The Department of Finance shall promulgate the
necessary rules and regulations for the classification, appraisal, and assessment of real
property pursuant to the provisions of this Code.

Section 233. Rates of Levy. A province or city or a municipality within the


Metropolitan Manila Area shall fix a uniform rate of basic real property tax applicable to
their respective localities as follows: x x x. (Emphases ours.)

The only import of these provisions is that, while a local government unit is authorized under
several laws to collect real estate tax on properties falling under its territorial jurisdiction, it is imperative
to first show that these properties are unquestionably within its geographical boundaries.
Accentuating on the importance of delineating territorial boundaries, this Court, in Mariano, Jr. v.
Commission on Elections[30] said:

The importance of drawing with precise strokes the territorial boundaries of a local
unit of government cannot be overemphasized. The boundaries must be clear for they
define the limits of the territorial jurisdiction of a local government unit. It can
legitimately exercise powers of government only within the limits of its territorial
jurisdiction. Beyond these limits, its acts are ultra vires. Needless to state, any
uncertainty in the boundaries of local government units will sow costly conflicts in the
exercise of governmental powers which ultimately will prejudice the people's welfare. This is
the evil sought to be avoided by the Local Government Code in requiring that the land area
of a local government unit must be spelled out in metes and bounds, with technical
descriptions.[31] (Emphasis ours.)

The significance of accurately defining a local government units boundaries was stressed in City of
Pasig v. Commission on Elections,[32] which involved the consolidated petitions filed by the parties herein,
Pasig and Cainta, against two decisions of the Commission on Elections (COMELEC) with respect to the
plebiscites scheduled by Pasig for the ratification of its creation of two new Barangays. Ruling on the
contradictory reliefs sought by Pasig and Cainta, this Court affirmed the COMELEC decision to hold in
abeyance the plebiscite to ratify the creation of Barangay Karangalan; but set aside the COMELECs other
decision, and nullified the plebiscite that ratified the creation ofBarangay Napico in Pasig, until the
boundary dispute before the Antipolo RTC had been resolved. The aforementioned case held as follows:

1.

The Petition of the City of Pasig in G.R. No. 125646 is DISMISSED for lack of merit;
while

2.

The Petition of the Municipality of Cainta in G.R. No. 128663 is GRANTED. The
COMELEC Order in UND No. 97-002, dated March 21, 1997, is SET ASIDE and the
plebiscite held on March 15, 1997 to ratify the creation of Barangay Napico in the City of
Pasig is declared null and void. Plebiscite on the same is ordered held in abeyance until
after the courts settle with finality the boundary dispute between the City of Pasig and
the Municipality of Cainta, in Civil Case No. 94-3006. [33]

Clearly therefore, the local government unit entitled to collect real property taxes from Sta. Lucia
must undoubtedly show that the subject properties are situated within its territorial jurisdiction; otherwise,
it would be acting beyond the powers vested to it by law.
Certificates of Title as
Conclusive Evidence of Location

While we fully agree that a certificate of title is conclusive as to its ownership and location, this
does not preclude the filing of an action for the very purpose of attacking the statements
therein. In De Pedro v. Romasan Development Corporation,[34] we proclaimed that:
We agree with the petitioners that, generally, a certificate of title shall be conclusive
as to all matters contained therein and conclusive evidence of the ownership of the land
referred to therein. However, it bears stressing that while certificates of title are
indefeasible, unassailable and binding against the whole world, including the government
itself, they do not create or vest title. They merely confirm or record title already existing
and vested. They cannot be used to protect a usurper from the true owner, nor can they be
used as a shield for the commission of fraud; neither do they permit one to enrich himself at
the expense of other.[35]

In Pioneer Insurance and Surety Corporation v. Heirs of Vicente Coronado,[36] we set aside the lower
courts ruling that the property subject of the case was not situated in the location stated and described in

the TCT, for lack of adequate basis. Our decision was in line with the doctrine that the TCT is conclusive
evidence of ownership and location.However, we refused to simply uphold the veracity of the disputed
TCT, and instead, we remanded the case back to the trial court for the determination of the exact location
of the property seeing that it was the issue in the complaint filed before it. [37]
In City Government of Tagaytay v. Guerrero,[38] this Court reprimanded the City of Tagaytay for
levying taxes on a property that was outside its territorial jurisdiction,viz:
In this case, it is basic that before the City of Tagaytay may levy a certain property for
sale due to tax delinquency, the subject property should be under its territorial jurisdiction.
The city officials are expected to know such basic principle of law. The failure of the city
officials of Tagaytay to verify if the property is within its jurisdiction before
levying taxes on the same constitutes gross negligence.[39] (Emphasis ours.)

Although it is true that Pasig is the locality stated in the TCTs of the subject properties, both Sta.
Lucia and Cainta aver that the metes and bounds of the subject properties, as they are described in the
TCTs, reveal that they are within Caintas boundaries. [40] This only means that there may be a conflict
between the location as stated and the location as technically described in the TCTs. Mere reliance
therefore on the face of the TCTs will not suffice as they can only be conclusive evidence of the subject
properties locations if both the stated and described locations point to the same area.
The Antipolo RTC, wherein the boundary dispute case between Pasig and Cainta is pending, would
be able to best determine once and for all the precise metes and bounds of both Pasigs and Caintas
respective territorial jurisdictions. The resolution of this dispute would necessarily ascertain the extent and
reach of each local governments authority, a prerequisite in the proper exercise of their powers, one of
which is the power of taxation. This was the conclusion reached by this Court in City of Pasig v.
Commission on Elections,[41] and by the First Division of the Court of Appeals in CA-G.R. SP No. 52874. We
do not see any reason why we cannot adhere to the same logic and reasoning in this case.
The Prejudicial Question Debate
It would be unfair to hold Sta. Lucia liable again for real property taxes it already paid simply
because Pasig cannot wait for its boundary dispute with Cainta to be decided.Pasig has consistently argued
that the boundary dispute case is not a prejudicial question that would entail the suspension of its
collection case against Sta. Lucia. This was also its argument in City of Pasig v. Commission on Elections,
[42]
when it sought to nullify the COMELECs ruling to hold in abeyance (until the settlement of the boundary
dispute case), the plebiscite that will ratify its creation of Barangay Karangalan. We agreed with the
COMELEC therein that the boundary dispute case presented a prejudicial questionand explained our
statement in this wise:

To begin with, we agree with the position of the COMELEC that Civil Case No. 94-3006
involving the boundary dispute between the Municipality of Cainta and the City of Pasig
presents a prejudicial question which must first be decided before plebiscites for the
creation of the proposed barangays may be held.

The City of Pasig argues that there is no prejudicial question since the same
contemplates a civil and criminal action and does not come into play where both cases are
civil, as in the instant case. While this may be the general rule, this Court has held

in Vidad v. RTC of Negros Oriental, Br. 42, that, in the interest of good order, we
can very well suspend action on one case pending the final outcome of another
case closely interrelated or linked to the first.

In the case at bar, while the City of Pasig vigorously claims that the areas covered by
the proposed Barangays Karangalan and Napico are within its territory, it can not deny that
portions of the same area are included in the boundary dispute case pending before the
Regional Trial Court of Antipolo. Surely, whether the areas in controversy shall be decided as
within the territorial jurisdiction of the Municipality of Cainta or the City of Pasig has material
bearing to the creation of the proposed Barangays Karangalan and Napico. Indeed, a
requisite for the creation of abarangay is for its territorial jurisdiction to be properly
identified by metes and bounds or by more or less permanent natural boundaries. Precisely
because territorial jurisdiction is an issue raised in the pending civil case, until and unless
such issue is resolved with finality, to define the territorial jurisdiction of the
proposed barangays would only be an exercise in futility. Not only that, we would be paving
the way for potentially ultra vires acts of such barangays. x x x.[43] (Emphases ours.)

It is obvious from the foregoing, that the term prejudicial question, as appearing in the cases
involving the parties herein, had been used loosely. Its usage had been more in reference to its ordinary
meaning, than to its strict legal meaning under the Rules of Court. [44] Nevertheless, even without the
impact of the connotation derived from the term, our own Rules of Court state that a trial court may
control its own proceedings according to its sound discretion:

POWERS AND DUTIES OF COURTS AND JUDICIAL OFFICERS


Rule 135

SEC. 5. Inherent powers of courts. Every court shall have power:

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(g) To amend and control its process and orders so as to make them comformable to law and
justice.

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

The court in which an action is pending may, in the exercise of a sound discretion,
upon proper application for a stay of that action, hold the action in abeyance to abide the
outcome of another pending in another court, especially where the parties and the issues
are the same, for there is power inherent in every court to control the disposition of causes
(sic) on its dockets with economy of time and effort for itself, for counsel, and for litigants.
Where the rights of parties to the second action cannot be properly determined until the
questions raised in the first action are settled the second action should be stayed.
The power to stay proceedings is incidental to the power inherent in every court to
control the disposition of the cases on its dockets, considering its time and effort, that of
counsel and the litigants. But if proceedings must be stayed, it must be done in order to
avoid multiplicity of suits and prevent vexatious litigations, conflicting judgments, confusion
between litigants and courts. It bears stressing that whether or not the RTC would suspend
the proceedings in the SECOND CASE is submitted to its sound discretion. [45]

In light of the foregoing, we hold that the Pasig RTC should have held in abeyance the proceedings
in Civil Case No. 65420, in view of the fact that the outcome of the boundary dispute case before the
Antipolo RTC will undeniably affect both Pasigs and Caintas rights. In fact, the only reason Pasig had to file
a tax collection case against Sta. Lucia was not that Sta. Lucia refused to pay, but that Sta. Lucia had
already paid, albeit to another local government unit. Evidently, had the territorial boundaries of the
contending local government units herein been delineated with accuracy, then there would be no
controversy at all.
In the meantime, to avoid further animosity, Sta. Lucia is directed to deposit the succeeding real
property taxes due on the subject properties, in an escrow account with the Land Bank of the Philippines.
WHEREFORE, the instant petition is GRANTED. The June 30, 2004 Decision and the January 27,
2005 Resolution of the Court of Appeals in CA-G.R. CV No. 69603 are SET ASIDE. The City of Pasig and the
Municipality of Cainta are both directed to await the judgment in their boundary dispute case (Civil Case
No. 94-3006), pending before Branch 74 of the Regional Trial Court in Antipolo City, to determine which
local government unit is entitled to exercise its powers, including the collection of real property taxes, on
the properties subject of the dispute. In the meantime, Sta. Lucia Realty and Development, Inc. is directed
to deposit the succeeding real property taxes due on the lots and improvements covered by TCT Nos.
532250, 598424, 599131, 92869, 92870 and 38457 in an escrow account with the Land Bank of the
Philippines.