PEPSI COLA BOTTLING VS.

MUNICIPALITY OF TANAUAN

Facts:
Pepsi-Cola commenced a complaint with preliminary injunction before the CFI Leyte for the
court to declare RA 2264 or Local Autonomy Act unconstitutional as an undue delegation of taxing
authority, as well as Ordinances 23 and 27, series of 1962 of Tanauan Leyte, null and void.
The parties entered into a stipulation of facts and the material portions of which state that (1)
both ordinances embrace the same subject matter and the production tax rates imposed therein are
practically the same, and (2) the acting Municipal Treasurer of Tanauan sought to enforce compliance
of the provisions of said Ordinances.
Ordinance 23 levies and collects “from soft drinks producers and manufacturers a tai of 1/16
of a centavo for every bottle of soft drinks corked. On the other hand, Ordinance 27levies and collects
ön soft drinks produced or manufactured within the territorial jurisdiction of the municipality a tax of
one centavo on each gallon.
The tax imposed in both Ordinances is denominated as “municipal production tax.”

Actions of the Court:

CFI: DISMISSED
CA: (Pepsi-Cola appealed) but was elevated before SC

Issues:
1. Is section 2, RA 2264, an undue delegation of power, confiscatory and oppressive?
No
Legislative powers may be delegated to local governments in respect of matters of
local concern. By necessary implication, the legislative power to create municipal corporations
for purposes of local self-government carries with it the power to confer on such local
governmental agencies the power to tax. Under the new constitution, local governments are
granted the autonomous authority to create their own sources of revenue and to levy taxes.
Withal, it cannot be said that Sec2 of RA 2264 emanated from beyond the sphere of the
legislative power to enact and vest in local governments the power of local taxation.
When it is said that the taxing power may be delegated, it means that there may be
delegated such measure of power to impose and collect taxes as the legislature may deem
expedient. Thus, municipalities may be permitted to tax subjects which for reasons of public
policy of the State has not deemed wise to tax for more general purposes. This is not to say
though that the constitutional injunction against deprivation of property without due process of
law may be passed over under the guise of the taxing power, except when the taking of the
property is in the lawful exercise of the taxing power, as when (1) the tax is for a public purpose;
(2) the rule on uniformity of taxation is observed; (3) either the person or property taxed is
 within the jurisdiction of the government levying the tax; and (4) in the assessment and
collection of certain kinds of taxes notice and opportunity for hearing are provided.
2. Do Ordinances Nos. 23 and 27 constitute double taxation and impose percentage or specific
taxes?

No.
As earlier quoted, Ordinance No. 23, which was approved on September 25, 1962,
levies or collects from soft drinks producers or manufacturers a tax of one-sixteen (1/16) of a
centavo for .every bottle corked, irrespective of the volume contents of the bottle used. When
it was discovered that the producer or manufacturer could increase the volume contents of the
bottle and still pay the same tax rate, the Municipality of Tanauan enacted Ordinance No. 27,
approved on October 28, 1962, imposing a tax of one centavo (P0.01) on each gallon (128
fluid ounces, U.S.) of volume capacity. The difference between the two ordinances clearly lies
in the tax rate of the soft drinks produced: in Ordinance No. 23, it was 1/16 of a centavo for
every bottle corked; in Ordinance No. 27, it is one centavo (P0.01) on each gallon (128 fluid
ounces, U.S.) of volume capacity. The intention of the Municipal Council of Tanauan in
enacting Ordinance No. 27 is thus clear: it was intended as a plain substitute for the prior
Ordinance No. 23, and operates as a repeal of the latter, even without words to that effect.

The taxing authority conferred on local governments under Section 2, Republic Act No.
2264, is broad enough as to extend to almost "everything, accepting those which are
mentioned therein." As long as the text levied under the authority of a city or municipal
ordinance is not within the exceptions and limitations in the law, the same comes within the
ambit of the general rule. The limitation applies, particularly, to the prohibition against
municipalities and municipal districts to impose "any percentage tax or other taxes in any
form based thereon nor impose taxes on articles subject to specific tax except gasoline, under
the provisions of the National Internal Revenue Code." Ordinance No. 27 does not partake of
the nature of a percentage tax on sales, or other taxes in any form based thereon. The tax is
levied on the produce (whether sold or not) and not on the sales. Nor can the tax levied be
treated as a specific tax. Soft drink is not one of those specified.

3. Are Ordinances Nos. 23 and 27 unjust and unfair?

No.
Municipal corporations are allowed much discretion in determining the rates of
imposable taxes. Unless the amount is so excessive as to be prohibitive, courts will go slow in
writing off an ordinance as unreasonable.
PETRON CORP. VS. MAYOR TOBIAS TIANGCO

Facts:
Petron maintains a depot or bulk plant at the Navotas Fishport Complex in Navotas. Through
that depot, it has engaged in the selling of diesel fuels to vessels used in commercial fishing in and
around Manila Bay. On 1 March 2002, Petron received a letter from the office of Navotas Mayor,
respondent Toby Tiangco, wherein the corporation was assessed taxes "relative to the figures
covering sale of diesel declared by your Navotas Terminal from 1997 to 2001." The stated total amount
due was P6,259,087.62, a figure derived from the gross sales of the depot during the years in question.

Petron duly filed with Navotas a letter-protest to the notice of assessment. It argued that it was
exempt from local business taxes in view of Art. 232(h) of the Implementing Rules (IRR) of the Code,
as well as a ruling of the Bureau of Local Government Finance of the Department of Finance dated 31
July 1995, the latter stating that sales of petroleum fuels are not subject to local taxation. The letter-
protest was denied by the Navotas Municipal Treasurer and was followed by a letter from the Mayor
requiring that Petron pay the assessed amount within five (5) days from receipt thereof, with a threat
of closure of Petron’s operations within Navotas should there be no payment. Petron, through counsel,
replied to the Mayor by another letter posing objections to the threat of closure. The Mayor did not
respond to this last letter.

Petron filed with the Malabon RTC a Complaint for Cancellation of Assessment for Deficiency
Taxes with Prayer for the Issuance of a Temporary Restraining Order (TRO) and/or Preliminary
Injunction. The quested TRO was not issued by the Malabon RTC upon manifestation of respondents
that they would not proceed with the closure of Petron’s Navotas bulk plant until after the RTC shall
have decided the case on the merits. However, while the case was pending decision, respondents
refused to issue a business permit to Petron, thus prompting Petron to file a Supplemental Complaint
with Prayer for Preliminary Mandatory Injunction against respondents.

Issue:
1. Is the challenged tax on sale of the diesel fuels an excise tax on an article enumerated under
the NIRC, thusly prohibited under Section 133(h) of the Code?

No

Petron’s argument that the "business taxes" on its sale of diesel fuels partakes of an
excise tax because an excise tax is a tax upon the performance, carrying on, or the exercise
of an activity.
There is no doubt that among the excise taxes on articles enumerated under the NIRC
are those levied on petroleum products, per Section 148 of the NIRC. The proffered definition
of an excise tax as "a tax upon the performance, carrying on, or exercise of some right,
privilege, activity, calling or occupation. The two latest codes categorize two different kinds of
excise taxes: "specific tax" which is imposed and based on weight or volume capacity or any
other physical unit of measurement; and "ad valorem tax" which is imposed and based on the
selling price or other specified value of the goods. In other words, the meaning of "excise tax"
has undergone a transformation to its current signification which is a tax on certain specified
goods or articles.
 It may be said that starting in 1986 excise taxes in this jurisdiction refer exclusively to
specific or ad valorem taxes imposed under the NIRC. Thus, excise taxes, as imposed under
the NIRC, do not pertain to "the performance, carrying on, or exercise of an activity," at least
not to the extent of equating excise with business taxes.

2. Is the challenged tax prohibited by Section 133(h) under the proviso, "taxes, fees or charges
on petroleum products"?

Yes

The power of a municipality to impose business taxes derives from Section 143 of the
Code that specifically enumerates several types of business on which it may impose taxes.
Furthermore, it is supplemented by Section 143(h) which authorizes the sanggunian to impose
taxes on any other businesses not otherwise specified under Section 143 which
the sanggunian concerned may deem proper to tax. Such policy is also echoed in Section 5(a)
of the Code, which states that "[a]ny provision on a power of a local government unit shall be
liberally interpreted in its favor, and in case of doubt, any question thereon shall be resolved
in favor of devolution of powers and of the lower local government unit." But somewhat
conversely, Section 5(b) then proceeds to assert that "[i]n case of doubt, any tax ordinance or
revenue measure shall be construed strictly against the local government unit enacting it, and
liberally in favor of the taxpayer."
Congress has the constitutional authority to impose limitations on the power to tax of
local government units. To cite one, local government units are disallowed from levying
business taxes on "business enterprises certified to by the Board of Investments as pioneer or
non-pioneer for a period of six (6) and (4) four years, respectively from the date of registration."
Respondents assert that the phrase "taxes, fees or charges on petroleum products" pertains
to the imposition of direct or excise taxes on petroleum products, and not business taxes
We can concede that a tax on a business is distinct from a tax on the article itself, or
for that matter, that a business tax is distinct from an excise tax. However, such distinction is
immaterial insofar as the latter part of Section 133(h) is concerned, for the phrase "taxes, fees
or charges on petroleum products" does not qualify the kind of taxes, fees or charges that
could withstand the absolute prohibition imposed by the provision.
The language of Section 133(h) makes plain that the prohibition with respect to
petroleum products extends not only to excise taxes thereon, but all "taxes, fees and charges."