G.R. No. L-31156 February 27, 1976

PEPSI-COLA BOTTLING COMPANY OF THE PHILIPPINES, INC., plaintiff-appellant, vs.MUNICIPALITY OF TANAUAN, LEYTE, THE MUNICIPAL MAYOR, ET AL., defendant appellees.

MARTIN, J.:

This is an appeal from the decision of the Court of First Instance of Leyte in its Civil Case No. 3294, which was certified to Us by the Court of Appeals on October 6, 1969, as involving only pure questions of law, challenging the power of taxation delegated to municipalities under the Local Autonomy Act (Republic Act No. 2264, as amended, June 19, 1959).

On February 14, 1963, the plaintiff-appellant, Pepsi-Cola Bottling Company of the Philippines, Inc., commenced a complaint with preliminary injunction before the Court of First Instance of Leyte for that court to declare Section 2 of Republic Act No. 2264. 1 otherwise known as the Local Autonomy Act, unconstitutional as an undue delegation of taxing authority as well as to declare Ordinances Nos. 23 and 27, series of 1962, of the municipality of Tanauan, Leyte, null and void.

On July 23, 1963, the parties entered into a Stipulation of Facts, the material portions of which state that, first, both Ordinances Nos. 23 and 27 embrace or cover the same subject matter and the production tax rates imposed therein are practically the same, and second, that on January 17, 1963, the acting Municipal Treasurer of Tanauan, Leyte, as per his letter addressed to the Manager of the Pepsi-Cola Bottling Plant in said municipality, sought to enforce compliance by the latter of the provisions of said Ordinance No. 27, series of 1962.

Municipal Ordinance No. 23, of Tanauan, Leyte, which was approved on September 25, 1962, levies and collects "from soft drinks producers and manufacturers a tai of one-sixteenth (1/16) of a centavo for every bottle of soft drink corked." 2 For the purpose of computing the taxes due, the person, firm, company or corporation producing soft drinks shall submit to the Municipal Treasurer a monthly report, of the total number of bottles produced and corked during the month. 3

On the other hand, Municipal Ordinance No. 27, which was approved on October 28, 1962, levies and collects "on soft drinks produced or manufactured within the territorial jurisdiction of this municipality a tax of ONE CENTAVO (P0.01) on each gallon (128 fluid ounces, U.S.) of volume capacity." 4 For the purpose of computing the taxes due, the person, fun company, partnership, corporation or plant producing soft drinks shall submit to the Municipal Treasurer a monthly report of the total number of gallons produced or manufactured during the month. 5

The tax imposed in both Ordinances Nos. 23 and 27 is denominated as "municipal production tax.'

On October 7, 1963, the Court of First Instance of Leyte rendered judgment "dismissing the complaint and upholding the constitutionality of [Section 2, Republic Act No. 2264] declaring

Ordinance Nos. 23 and 27 legal and constitutional; ordering the plaintiff to pay the taxes due under the oft the said Ordinances; and to pay the costs."

From this judgment, the plaintiff Pepsi-Cola Bottling Company appealed to the Court of Appeals, which, in turn, elevated the case to Us pursuant to Section 31 of the Judiciary Act of 1948, as amended.

There are three capital questions raised in this appeal:

1. — Is Section 2, Republic Act No. 2264 an undue delegation of power, confiscatory and oppressive?

2. — Do Ordinances Nos. 23 and 27 constitute double taxation and impose percentage or specific taxes?

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

1. The power of taxation is an essential and inherent attribute of sovereignty, belonging as a matter of right to every independent government, without being expressly conferred by the people. 6 It is a power that is purely legislative and which the central legislative body cannot delegate either to the executive or judicial department of the government without infringing upon the theory of separation of powers. The exception, however, lies in the case of municipal corporations, to which, said theory does not apply. Legislative powers may be delegated to local governments in respect of matters of local concern. 7 This is sanctioned by immemorial practice. 8 By necessary implication, the legislative power to create political corporations for purposes of local self-government carries with it the power to confer on such local governmental agencies the power to tax. 9 Under the New Constitution, local governments are granted the autonomous authority to create their own sources of revenue and to levy taxes. Section 5, Article XI provides: "Each local government unit shall have the power to create its sources of revenue and to levy taxes, subject to such limitations as may be provided by law." Withal, it cannot be said that Section 2 of Republic Act No. 2264 emanated from beyond the sphere of the legislative power to enact and vest in local governments the power of local taxation.

The plenary nature of the taxing power thus delegated, contrary to plaintiff-appellant's pretense, would not suffice to invalidate the said law as confiscatory and oppressive. In delegating the authority, the State is not limited 6 the exact measure of that which is exercised by itself. When it is said that the taxing power may be delegated to municipalities and the like, it is meant 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 the State has not deemed wise to tax for more general purposes. 10 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. 11 Due process is usually violated where the tax imposed is for a private as distinguished from a public purpose; a tax is imposed on property outside the State, i.e.,

extraterritorial taxation; and arbitrary or oppressive methods are used in assessing and collecting taxes. But, a tax does not violate the due process clause, as applied to a particular taxpayer, although the purpose of the tax will result in an injury rather than a benefit to such taxpayer. Due process does not require that the property subject to the tax or the amount of tax to be raised should be determined by judicial inquiry, and a notice and hearing as to the amount of the tax and the manner in which it shall be apportioned are generally not necessary to due process of law. 12

There is no validity to the assertion that the delegated authority can be declared unconstitutional on the theory of double taxation. It must be observed that the delegating authority specifies the limitations and enumerates the taxes over which local taxation may not be exercised. 13 The reason is that the State has exclusively reserved the same for its own prerogative. Moreover, double taxation, in general, is not forbidden by our fundamental law, since We have not adopted as part thereof the injunction against double taxation found in the Constitution of the United States and some states of the Union.  14 Double taxation becomes obnoxious only where the taxpayer is taxed twice for the benefit of the same governmental entity 15 or by the same jurisdiction for the same purpose, 16 but not in a case where one tax is imposed by the State and the other by the city or municipality. 17

2. The plaintiff-appellant submits that Ordinance No. 23 and 27 constitute double taxation, because these two ordinances cover the same subject matter and impose practically the same tax rate. The thesis proceeds from its assumption that both ordinances are valid and legally enforceable. This is not so. 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. 18 Plaintiff-appellant in its brief admitted that defendants-appellees are only seeking to enforce Ordinance No. 27, series of 1962. Even the stipulation of facts confirms the fact that the Acting Municipal Treasurer of Tanauan, Leyte sought t6 compel compliance by the plaintiff-appellant of the provisions of said Ordinance No. 27, series of 1962. The aforementioned admission shows that only Ordinance No. 27, series of 1962 is being enforced by defendants-appellees. Even the Provincial Fiscal, counsel for defendants-appellees admits in his brief "that Section 7 of Ordinance No. 27, series of 1962 clearly repeals Ordinance No. 23 as the provisions of the latter are inconsistent with the provisions of the former."

That brings Us to the question of whether the remaining Ordinance No. 27 imposes a percentage or a specific tax. Undoubtedly, 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, pursuant to the rules of exclucion attehus and exceptio firmat regulum in cabisus non excepti 19 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." For purposes of this particular limitation, a municipal ordinance which prescribes a set ratio between the amount of the tax and the volume of sale of the taxpayer imposes a sales tax and is null and void for being outside the power of the municipality to enact. 20But, the imposition of "a tax of one centavo (P0.01) on each gallon (128 fluid ounces, U.S.) of volume capacity" on all soft drinks produced or manufactured under 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. The volume capacity of the taxpayer's production of soft drinks is considered solely for purposes of determining the tax rate on the products, but there is not set ratio between the volume of sales and the amount of the tax. 21

Nor can the tax levied be treated as a specific tax. Specific taxes are those imposed on specified articles, such as distilled spirits, wines, fermented liquors, products of tobacco other than cigars and cigarettes, matches firecrackers, manufactured oils and other fuels, coal, bunker fuel oil, diesel fuel oil, cinematographic films, playing cards, saccharine, opium and other habit-forming drugs. 22 Soft drink is not one of those specified.

3. The tax of one (P0.01) on each gallon (128 fluid ounces, U.S.) of volume capacity on all softdrinks, produced or manufactured, or an equivalent of 1-½ centavos per case, 23 cannot be considered unjust and unfair. 24 an increase in the tax alone would not support the claim that the tax is oppressive, unjust and confiscatory. Municipal corporations are allowed much discretion in determining the reates of imposable taxes. 25 This is in line with the constutional policy of according the widest possible autonomy to local governments in matters of local taxation, an aspect that is given expression in the Local Tax Code (PD No. 231, July 1, 1973). 26 Unless the amount is so excessive as to be prohibitive, courts will go slow in writing off an ordinance as unreasonable. 27 Reluctance should not deter compliance with an ordinance such as Ordinance No. 27 if the purpose of the law to further strengthen local autonomy were to be realized. 28

Finally, the municipal license tax of P1,000.00 per corking machine with five but not more than ten crowners or P2,000.00 with ten but not more than twenty crowners imposed on manufacturers, producers, importers and dealers of soft drinks and/or mineral waters under Ordinance No. 54, series of 1964, as amended by Ordinance No. 41, series of 1968, of defendant Municipality, 29 appears not to affect the resolution of the validity of Ordinance No. 27. Municipalities are empowered to impose, not only municipal license taxes upon persons engaged in any business or occupation but also to levy for public purposes, just and uniform taxes. The ordinance in question (Ordinance No. 27) comes within the second power of a municipality.

ACCORDINGLY, the constitutionality of Section 2 of Republic Act No. 2264, otherwise known as the Local Autonomy Act, as amended, is hereby upheld and Municipal Ordinance No. 27 of the Municipality of Tanauan, Leyte, series of 1962, re-pealing Municipal Ordinance No. 23, same series, is hereby declared of valid and legal effect. Costs against petitioner-appellant.

SO ORDERED.

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 Order15 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 law—finds the answer in Section 193 of the LGC to the effect that 'tax exemptions or incentives granted to, or presently enjoyed by all persons, whether natural or juridical, including government-owned or controlled corporations except local water districts xxx are hereby withdrawn.' The repeal is direct and unequivocal, not implied.

IN VIEW WHEREOF, the motion for reconsideration is hereby DENIED.

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       x       x

Sec. 151. Scope of Taxing Powers.- Except as otherwise provided in this Code, the city, may levy the taxes, fees, and charges which the province or municipality may impose: Provided, however, That the taxes, fees and charges levied and collected by highly urbanized and independent component cities shall accrue to them and distributed in accordance with the provisions of this Code.

The rates of taxes that the city may levy may exceed the maximum rates allowed for the province or municipality by not more than fifty percent (50%) except the rates of professional and amusement taxes."

Petitioner, however, submits that it is not liable to pay an annual franchise tax to the respondent city government. It contends that sections 137 and 151 of the LGC in relation to section 131, limit the taxing power of the respondent city government to private entities that are engaged in 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 government-owned or controlled corporations, is in the nature of an implied repeal. A special law, its charter cannot be amended or modified impliedly by the local government code which is a general law. Consequently, petitioner claims that its exemption from all taxes, fees or charges under its charter subsists despite the passage of the LGC, viz:

"It is a well-settled rule of statutory construction that repeals of statutes by implication are not favored and as much as possible, effect must be given to all enactments of the legislature. Moreover, it has to be conceded that the charter of the NPC constitutes a special law. Republic Act No. 7160, is a general law. It is a basic rule in statutory construction that the enactment of a later legislation which is a general law cannot be construed to have repealed a special law. Where there is a conflict between a general law and a special statute, the special statute should prevail since it evinces the legislative intent more clearly than the general statute."28

Finally, petitioner submits that the charter of the NPC, being a valid exercise of police power, should prevail over the LGC. It alleges that the power of the local government to impose franchise tax is subordinate to petitioner's exemption from taxation; "police power being the most pervasive, the least limitable and most demanding of all powers, including the power of taxation."29

The petition is without merit.

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       x       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 property 54 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       x       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. 202963 classifies government-owned or controlled corporations (GOCCs) into those performing governmental functions and those performing proprietary functions, viz:

"A government-owned or controlled corporation is a stock or a non-stock 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. 143076. June 10, 2003]

PHILIPPINE RURAL ELECTRIC COOPERATIVES ASSOCIATION, INC. (PHILRECA); AGUSAN DEL NORTE ELECTRIC COOPERATIVE, INC. (ANECO); ILOILO I ELECTRIC COOPERATIVE, INC. (ILECO I); and ISABELA I ELECTRIC COOPERATIVE, INC. (ISELCO I), petitioners, vs. THE SECRETARY, DEPARTMENT OF INTERIOR AND LOCAL GOVERNMENT, and THE SECRETARY, DEPARTMENT OF FINANCE, respondents.

D E C I S I O N

PUNO, J.:

This is a petition for Prohibition under Rule 65 of the Rules of Court with prayer for the issuance of a temporary restraining order seeking to annul as unconstitutional sections 193 and 234 of R.A. No. 7160 otherwise known as the Local Government Code.

On May 23, 2000, a class suit was filed by petitioners in their own behalf and in behalf of other electric cooperatives organized and existing under P.D. No. 269 who are members of petitioner Philippine Rural Electric Cooperatives Association, Inc. (PHILRECA). Petitioner PHILRECA is an association of 119 electric cooperatives throughout the country. Petitioners Agusan del Norte Electric Cooperative, Inc. (ANECO), Iloilo I Electric Cooperative, Inc. (ILECO I) and Isabela I Electric Cooperative, Inc. (ISELCO I) are non-stock, non-profit electric cooperatives organized and existing under P.D. No. 269, as amended, and registered with the National Electrification Administration (NEA).

Under P.D. No. 269, as amended, or the National Electrification Administration Decree, it is the declared policy of the State to provide the total electrification of the Philippines on an area coverage basis the same being vital to the people and the sound development of the nation.[1] Pursuant to this policy, P.D. No. 269 aims to promote, encourage and assist all public service entities engaged in supplying electric service, particularly electric cooperatives by giving every tenable support and assistance to the electric cooperatives coming within the purview of the law.[2] Accordingly, Section 39 of P.D. No. 269 provides for the following tax incentives to electric cooperatives:

SECTION 39. Assistance to Cooperatives; Exemption from Taxes, Imposts, Duties, Fees; Assistance from the National Power Corporation. Pursuant to the national policy declared in Section 2, the Congress hereby finds and declares that the following assistance to cooperative is necessary and appropriate:

(a) Provided that it operates in conformity with the purposes and provisions of this Decree, cooperatives (1) shall be permanently exempt from paying income taxes, and (2) for a period ending on December 31 of the thirtieth full calendar year after the date of a cooperative's organization or conversion hereunder, or until it shall become completely free of indebtedness incurred by borrowing, whichever event first occurs, shall be exempt from the payment (a) of all National Government, local government and municipal taxes and fees, including franchise, filing, recordation, license or permit fees or taxes and any fees,

charges, or costs involved in any court or administrative proceeding in which it may be a party, and (b) of all duties or imposts on foreign goods acquired for its operations, the period of such exemption for a new cooperative formed by consolidation, as provided for in Section 29, to begin from as of the date of the beginning of such period for the constituent consolidating cooperative which was most recently organized or converted under this Decree: Provided, That the Board of Administrators shall, after consultation with the Bureau of Internal Revenue, promulgate rules and regulations for the proper implementation of the tax exemptions provided for in this Decree.

.[3]

From 1971 to 1978, in order to finance the electrification projects envisioned by P.D. No. 269, as amended, the Philippine Government, acting through the National Economic Council (now National Economic Development Authority) and the NEA, entered into six (6) loan agreements with the government of the United States of America through the United States Agency for International Development (USAID) with electric cooperatives, including petitioners ANECO, ILECO I and ISELCO I, as beneficiaries. The six (6) loan agreements involved a total amount of approximately US$86,000,000.00. These loan agreements are existing until today.

The loan agreements contain similarly worded provisions on the tax application of the loan and any property or commodity acquired through the proceeds of the loan. Thus, Section 6.5 of A.I.D. Loan No. 492-H-027 dated November 15, 1971 provides:

Section 6.5. Taxes and Duties. The Borrower covenants and agrees that this Loan Agreement and the Loan provided for herein shall be free from, and the Principal and interest shall be paid to A.I.D. without deduction for and free from, any taxation or fees imposed under any laws or decrees in effect within the Republic of the Philippines or any such taxes or fees so imposed or payable shall be reimbursed by the Borrower with funds other than those provided under the Loan. To the extent that (a) any contractor, including any consulting firm, any personnel of such contractor financed hereunder, and any property or transactions relating to such contracts and (b) any commodity procurement transactions financed hereunder, are not exempt from identifiable taxes, tariffs, duties and other levies imposed under laws in effect in the country of the Borrower, the Borrower and/or Beneficiary shall pay or reimburse the same with funds other than those provided under the Loan.[4]

Petitioners contend that pursuant to the provisions of P.D. No. 269, as amended, and the above-mentioned provision in the loan agreements, they are exempt from payment of local taxes, including payment of real property tax. With the passage of the Local Government Code, however, they allege that their tax exemptions have been invalidly withdrawn. In particular, petitioners assail Sections 193 and 234 of the Local Government Code on the ground that the said provisions discriminate against them, in violation of the equal protection clause. Further, they submit that the said provisions are unconstitutional because they impair the obligation of contracts between the Philippine Government and the United States Government.

On July 25, 2000 we issued a Temporary Restraining Order.[5]

We note that the instant action was filed directly to this Court, in disregard of the rule on hierarchy of courts. However, we opt to take primary jurisdiction over the present petition and decide the same on its merits in view of the significant constitutional issues raised by the

parties dealing with the tax treatment of cooperatives under existing laws and in the interest of speedy justice and prompt disposition of the matter.

I

There is No Violation of the Equal Protection Clause

The pertinent parts of Sections 193 and 234 of the Local Government Code provide:

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 and 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:

.

(d) All real property owned by duly registered cooperatives as provided for under R.A. No. 6938; and

.

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 and controlled corporations are hereby withdrawn upon effectivity of this Code.[6]

Petitioners argue that the above provisions of the Local Government Code are unconstitutional for violating the equal protection clause. Allegedly, said provisions unduly discriminate against petitioners who are duly registered cooperatives under P.D. No. 269, as amended, and not under R.A. No. 6938 or the Cooperative Code of the Philippines. They stress that cooperatives registered under R.A. No. 6938 are singled out for tax exemption privileges under the Local Government Code. They maintain that electric cooperatives registered with the NEA under P.D. No. 269, as amended, and electric cooperatives registered with the Cooperative Development Authority (CDA) under R.A. No. 6938 are similarly situated for the following reasons: a) petitioners are registered with the NEA which is a government agency like the CDA; b) petitioners, like CDA-registered cooperatives, operate for service to their member-consumers; and c) prior to the enactment of the Local Government Code, petitioners, like CDA-registered cooperatives, were already tax-exempt.[7] Thus, petitioners contend that to grant tax exemptions from local government taxes, including real property tax under Sections 193 and 234 of the Local Government Code only to registered cooperatives under R.A. No. 6938 is a violation of the equal protection clause.

We are not persuaded. The equal protection clause under the Constitution means that no person or class of persons shall be deprived of the same protection of laws which is enjoyed

by other persons or other classes in the same place and in like circumstances. [8] Thus, the guaranty of the equal protection of the laws is not violated by a law based on reasonable classification. Classification, to be reasonable, must (1) rest on substantial distinctions; (2) be germane to the purposes of the law; (3) not be limited to existing conditions only; and (4) apply equally to all members of the same class.[9]

We hold that there is reasonable classification under the Local Government Code to justify the different tax treatment between electric cooperatives covered by P.D. No. 269, as amended, and electric cooperatives under R.A. No. 6938.

First, substantial distinctions exist between cooperatives under P.D. No. 269, as amended, and cooperatives under R.A. No. 6938. These distinctions are manifest in at least two material respects which go into the nature of cooperatives envisioned by R.A. No. 6938 and which characteristics are not present in the type of cooperative associations created under P.D. No. 269, as amended.

a. Capital Contributions by Members

A cooperative under R.A. No. 6938 is defined as:

[A] duly registered association of persons with a common bond of interest, who have voluntarily joined together to achieve a lawful common or social economic end, making equitable contributions to the capital required and accepting a fair share of the risks and benefits of the undertaking in accordance with universally accepted cooperative principles.[10]

The above definition provides for the following elements of a cooperative: a) association of persons; b) common bond of interest; c) voluntary association; d) lawful common social or economic end; e) capital contributions; f) fair share of risks and benefits; g) adherence to cooperative values; and g) registration with the appropriate government authority.[11]

The importance of capital contributions by members of a cooperative under R.A. No. 6938 was emphasized during the Senate deliberations as one of the key factors which distinguished electric cooperatives under P.D. No. 269, as amended, from electric cooperatives under the Cooperative Code. Thus:

Senator Osmea. Will this Code, Mr. President, cover electric cooperatives as they exist in the country today and are administered by the National Electrification Administration?

Senator Aquino. That cannot be answered with a simple yes or no, Mr. President. The answer will depend on what provisions we will eventually come up with. Electric cooperatives as they exist today would not fall under the term cooperative as used in this bill because the concept of a cooperative is that which adheres and practices certain cooperative principles. .

.

Senator Aquino. To begin with, one of the most important requirements, Mr. President, is the principle where members bind themselves to help themselves. It is because of their collectivity that they can have some economic benefits. In this particular case [cooperatives

under P.D. No. 269], the government is the one that funds these so-called electric cooperatives.

.

Senator Aquino. That is why in Article III we have the following definition:

A cooperative is an association of persons with a common bond of interest who have voluntarily joined together to achieve a common social or economic end, making equitable contributions to the capital required.

In this particular case [cooperatives under P.D. No. 269], Mr. President, the members do not make substantial contribution to the capital required. It is the government that puts in the capital, in most cases.

.

Senator Osmea. Under line 6, Mr. President, making equitable contributions to the capital required would exclude electric cooperatives [under P.D. No. 269]. Because the membership does not make equitable contributions.

Senator Aquino. Yes, Mr. President. This is precisely what I mean, that electric cooperatives [under P.D. No. 269] do not qualify in the spirit of cooperatives. That is the reason why they should be eventually assessed whether they intend to comply with the cooperatives or not. Because, if after giving them a second time, they do not comply, then, they should not be classified as cooperatives.

Senator Osmea. Mr. President, the measure of their qualifying as a cooperative would be the requirement that a member of the electric cooperative must contribute a pro rata share of the capital of the cooperative in cash to be a cooperative.[12]

Nowhere in P.D. No. 269, as amended, does it require cooperatives to make equitable contributions to capital. Petitioners themselves admit that to qualify as a member of an electric cooperative under P.D. No. 269, only the payment of a P5.00 membership fee is required which is even refundable the moment the member is no longer interested in getting electric service from the cooperative or will transfer to another place outside the area covered by the cooperative.[13] However, under the Cooperative Code, the articles of cooperation of a cooperative applying for registration must be accompanied with the bonds of the accountable officers and a sworn statement of the treasurer elected by the subscribers showing that at least twenty-five per cent (25%) of the authorized share capital has been subscribed and at least twenty-five per cent (25%) of the total subscription has been paid and in no case shall the paid-up share capital be less than Two thousand pesos (P2,000.00).[14]

b. Extent of Government Control over Cooperatives

Another principle adhered to by the Cooperative Code is the principle of subsidiarity. Pursuant to this principle, the government may only engage in development activities where cooperatives do not posses the capability nor the resources to do so and only upon the request of such cooperatives.[15] Thus, Article 2 of the Cooperative Code provides:

Art. 2. Declaration of Policy. It is the declared policy of the State to foster the creation and growth of cooperatives as a practical vehicle for prompting self-reliance and harnessing people power towards the attainment of economic development and social justice. The State shall encourage the private sector to undertake the actual formation and organization to cooperatives and shall create an atmosphere that is conducive to the growth and development of these cooperatives.

Towards this end, the Government and all its branches, subdivisions, instrumentalities and agencies shall ensure the provision of technical guidance, financial assistance and other services to enable said cooperatives to develop into viable and responsive economic enterprises and thereby bring about a strong cooperative movement that is free from any conditions that might infringe upon the autonomy or organizational integrity of cooperatives.

Further, the State recognizes the principle of subsidiarity under which the cooperative sector will initiate and regulate within its own ranks the promotion and organization, training and research, audit and support services relating to cooperatives with government assistance where necessary.[16]

Accordingly, under the charter of the CDA, or the primary government agency tasked to promote and regulate the institutional development of cooperatives, it is the declared policy of the State that:

[g]overnment assistance to cooperatives shall be free from any restriction and conditionality that may in any manner infringe upon the objectives and character of cooperatives as provided in this Act.The State shall, except as provided in this Act, maintain the policy of noninterference in the management and operation of cooperatives .[17]

In contrast, P.D. No. 269, as amended by P.D. No. 1645, is replete with provisions which grant the NEA, upon the happening of certain events, the power to control and take over the management and operations of cooperatives registered under it. Thus:

a) the NEA Administrator has the power to designate, subject to the confirmation of the Board of Administrators, an Acting General Manager and/or Project Supervisor for a cooperative where vacancies in the said positions occur and/or when the interest of the cooperative or the program so requires, and to prescribe the functions of the said Acting General Manager and/or Project Supervisor, which powers shall not be nullified, altered or diminished by any policy or resolution of the Board of Directors of the cooperative concerned;[18]

b) the NEA is given the power of supervision and control over electric cooperatives and pursuant to such powers, NEA may issue orders, rules and regulations motu propio or upon petition of third parties to conduct referenda and other similar actions in all matters affecting electric cooperatives;[19]

c) No cooperative shall borrow money from any source without the approval of the Board of Administrators of the NEA;[20] and

d) The management of a cooperative shall be vested in its Board, subject to the supervision and control of NEA which shall have the right to be represented and to

participate in all Board meetings and deliberations and to approve all policies and resolutions.[21]

The extent of government control over electric cooperatives covered by P.D. No. 269, as amended, is largely a function of the role of the NEA as a primary source of funds of these electric cooperatives. It is crystal clear that NEA incurred loans from various sources to finance the development and operations of the electric cooperatives. Consequently, amendments to P.D. No. 269 were primarily geared to expand the powers of the NEA over the electric cooperatives to ensure that loans granted to them would be repaid to the government. In contrast, cooperatives under R.A. No. 6938 are envisioned to be self-sufficient and independent organizations with minimal government intervention or regulation.

To be sure, the transitory provisions of R.A. No. 6938 are indicative of the recognition by Congress of the fundamental distinctions between electric cooperatives organized under P.D No. 269, as amended, and cooperatives under the new Cooperative Code. Article 128 of the Cooperative Code provides that all cooperatives registered under previous laws shall be deemed registered with the CDA upon submission of certain requirements within one year. However, cooperatives created under P.D. No. 269, as amended, are given three years within which to qualify and register with the CDA, after which, provisions of P.D. No. 1645 which expand the powers of the NEA over electric cooperatives, would no longer apply.[22]

Second, the classification of tax-exempt entities in the Local Government Code is germane to the purpose of the law. The Constitutional mandate that every local government unit shall enjoy local autonomy, does not mean that the exercise of power by local governments is beyond regulation by Congress. Thus, while each government unit is granted the power to create its own sources of revenue, Congress, in light of its broad power to tax, has the discretion to determine the extent of the taxing powers of local government units consistent with the policy of local autonomy.[23]

Section 193 of the Local Government Code is indicative of the legislative intent to vest broad taxing powers upon local government units and to limit exemptions from local taxation to entities specifically provided therein. Section 193 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 and 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.[24]

The above provision effectively withdraws exemptions from local taxation enjoyed by various entities and organizations upon effectivity of the Local Government Code except for a) local water districts; b) cooperatives duly registered under R.A. No. 6938; and c) non-stock and non-profit hospitals and educational institutions. Further, with respect to real property taxes, the Local Government Code again specifically enumerates entities which are exempt therefrom and withdraws exemptions enjoyed by all other entities upon the effectivity of the code. Thus, Section 234 provides:

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 had 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 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 all government-owned or controlled corporations are hereby withdrawn upon the effectivity of this Code.[25]

In Mactan Cebu International Airport Authority v. Marcos,[26] this Court held that the limited and restrictive nature of the tax exemption privileges under the Local Government Code is consistent with the State policy to ensure autonomy of local governments and the objective of the Local Government Code to grant genuine and meaningful autonomy to enable local government units to attain their fullest development as self-reliant communities and make them effective partners in the attainment of national goals. The obvious intention of the law is to broaden the tax base of local government units to assure them of substantial sources of revenue.

While we understand petitioners predicament brought about by the withdrawal of their local tax exemption privileges under the Local Government Code, it is not the province of this Court to go into the wisdom of legislative enactments. Courts can only interpret laws. The principle of separation of powers prevents them from re-inventing the laws.

Finally, Sections 193 and 234 of the Local Government Code permit reasonable classification as these exemptions are not limited to existing conditions and apply equally to all members of the same class. Exemptions from local taxation, including real property tax, are granted to all cooperatives covered by R.A. No. 6938 and such exemptions exist for as long as the Local Government Code and the provisions therein on local taxation remain good law.

II

There is No Violation of the Non-Impairment Clause

It is ingrained in jurisprudence that the constitutional prohibition on the impairment of the obligation of contracts does not prohibit every change in existing laws. To fall within the prohibition, the change must not only impair the obligation of the existing contract, but the impairment must be substantial.[27] What constitutes substantial impairment was explained by this Court in Clemons v. Nolting:[28]

A law which changes the terms of a legal contract between parties, either in the time or mode of performance, or imposes new conditions, or dispenses with those expressed, or authorizes for its satisfaction something different from that provided in its terms, is law which impairs the obligation of a contract and is therefore null and void.

Moreover, to constitute impairment, the law must affect a change in the rights of the parties with reference to each other and not with respect to non-parties.[29]

Petitioners insist that Sections 193 and 234 of the Local Government Code impair the obligations imposed under the six (6) loan agreements executed by the NEA as borrower and USAID as lender. All six agreements contain similarly worded provisions on the tax treatment of the proceeds of the loan and properties and commodities acquired through the loan. Thus:

Section 6.5. Taxes and Duties. The Borrower covenants and agrees that this Loan Agreement and the Loan provided for herein shall be free from, and the Principal and interest shall be paid to A.I.D. without deduction for and free from, any taxation or fees imposed under any laws or decrees in effect within the Republic of the Philippines or any such taxes or fees so imposed or payable shall be reimbursed by the Borrower with funds other than those provided under the Loan. To the extent that (a) any contractor, including any consulting firm, any personnel of such contractor financed hereunder, and any property or transactions relating to such contracts and (b) any commodity procurement transactions financed hereunder, are not exempt from identifiable taxes, tariffs, duties and other levies imposed under laws in effect in the country of the Borrower, the Borrower and/or Beneficiary shall pay or reimburse the same with funds other than those provided under the Loan.[30]

Petitioners contend that the withdrawal by the Local Government Code of the tax exemptions of cooperatives under P.D. No. 269, as amended, is an impairment of the tax exemptions provided under the loan agreements. Petitioners argue that as beneficiaries of the loan proceeds, pursuant to the above provision, [a]ll the assets of petitioners, such as lands, buildings, distribution lines acquired through the proceeds of the Loan Agreements are tax exempt.[31]

We hold otherwise.

A plain reading of the provision quoted above readily shows that it does not grant any tax exemption in favor of the borrower or the beneficiary either on the proceeds of the loan itself or the properties acquired through the said loan. It simply states that the loan proceeds and the principal and interest of the loan, upon repayment by the borrower, shall be  without deduction of any tax or fee that may be payable under Philippine law as such tax or fee will be absorbed by the borrower with funds other than the loan proceeds. Further, the provision states that with respect to any payment made by the borrower to (1) any contractor or any personnel of such contractor or any property transaction and (2) any commodity transaction using the proceeds of the loan, the tax to be paid, if any, on such transactions shall be absorbed by the borrower and/or beneficiary through funds other than the loan proceeds.

Beyond doubt, the import of the tax provision in the loan agreements cited by petitioners is twofold: (1) the borrower is entitled to receive from and is obliged to pay the lender the principal amount of the loan and the interest thereon in full, without any deduction of the tax component thereof imposed under applicable Philippine law and any tax imposed shall be paid by the borrower with funds other than the loan proceeds and (2) with

respect to payments made to any contractor, its personnel or any property or commodity transaction entered into pursuant to the loan agreement and with the use of the proceeds thereof, taxes payable under the said transactions shall be paid by the borrower and/or beneficiary with the use of funds other than the loan proceeds. The quoted provision does not purport to grant any tax exemption in favor of any party to the contract, including the beneficiaries thereof. The provisions simply shift the tax burden, if any, on the transactions under the loan agreements to the borrower and/or beneficiary of the loan. Thus, the withdrawal by the Local Government Code under Sections 193 and 234 of the tax exemptions previously enjoyed by petitioners does not impair the obligation of the borrower, the lender or the beneficiary under the loan agreements as in fact, no tax exemption is granted therein.

III

Conclusion

Petitioners lament the difficulties they face in complying with the implementing rules and regulations issued by the CDA for the conversion of electric cooperatives under P.D. No. 269, as amended, to cooperatives under R.A. No. 6938. They allege that because of the cumbersome legal and technical requirements imposed by the Omnibus Rules and Regulations on the Registration of Electric Cooperatives under R.A. No. 6938, petitioners cannot register and convert as stock cooperatives under the Cooperative Code.[32]

The Court understands the plight of the petitioners. Their remedy, however, is not judicial. Striking down Sections 193 and 234 of the Local Government Code as unconstitutional or declaring them inapplicable to petitioners is not the proper course of action for them to obtain their previous tax exemptions. The language of the law and the intention of its framers are clear and unequivocal and courts have no other duty except to uphold the law. The task to re-examine the rules and guidelines on the conversion of electric cooperatives to cooperatives under R.A. No. 6938 and provide every assistance available to them should be addressed by the proper authorities of government. This is necessary to encourage the growth and viability of cooperatives as instruments of social justice and economic development.

WHEREFORE, the instant petition is DENIED and the temporary restraining order heretofore issued is LIFTED.

SO ORDERED.

Davide, Jr., C.J., Bellosillo, Vitug, Panganiban, Quisumbing, Ynares-Santiago, Sandoval-Gutierrez, Carpio, Austria-Martinez, Corona, Carpio-Morales, Callejo,

Sr., and Azcuna, JJ.,concur.

[G.R. No. 143867. August 22, 2001]

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.

D E C I S I O N

MENDOZA, J.:

This is a petition for review on certiorari under Rule 45 of the 1997 Rules of Civil Procedure of the resolution,[1] dated June 23, 2000, of the Regional Trial Court, Branch 13, Davao City, affirming the tax assessment of petitioner and the denial of its claim for tax refund by the City Treasurer of Davao.

The facts are as follows:

On January 1999, petitioner Philippine Long Distance Telephone Co., Inc. (PLDT) applied for a Mayors Permit to operate its Davao Metro Exchange. Respondent City of Davao withheld action on the application pending payment by petitioner of the local franchise tax in the amount of P3,681,985.72 for the first to the fourth quarter of 1999.[2] In a letter dated May 31, 1999,[3] petitioner protested the assessment of the local franchise tax and requested a refund of the franchise tax paid by it for the year 1997 and the first to the third quarters of 1998. Petitioner contended that it was exempt from the payment of franchise tax based on an opinion of the Bureau of Local Government Finance (BLGF), dated June 2, 1998, which reads as follows:

PLDT:

Section 12 of RA 7082 provides as follows:

SEC. 12. 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 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 telephone or other telecommunications businesses 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 . . .

It appears that RA 7082 further amending Act No. 3436 which granted to PLDT a franchise to install, operate and maintain a telephone system throughout the Philippine Islands was approved on August 3, 1991. Section 12 of said franchise, likewise, contains the in lieu of all taxes proviso.

In this connection, Section 23 of RA 7925, quoted hereunder, which was approved on March 1, 1995, provides for the equality of treatment in the telecommunications industry:

SEC. 23. Equality of Treatment in the Telecommunications Industry. Any advantage, favor, privilege, exemption, or immunity granted under existing franchises, or may hereafter be granted, shall ipso 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. (Underscoring supplied.)

On the basis of the aforequoted Section 23 of RA 7925, PLDT as a telecommunications franchise holder becomes automatically covered by the tax exemption provisions of RA 7925, which took effect on March 16, 1995.

Accordingly, PLDT shall be exempt from the payment of franchise and business taxes imposable by LGUs under Sections 137 and 143 (sic), respectively, of the LGC, upon the effectivity of RA 7925 on March 16, 1995. However, PLDT shall be liable to pay the franchise and business taxes on its gross receipts realized from January 1, 1992 up to March 15, 1995, during which period PLDT was not enjoying the most favored clause proviso of RA 7025 (sic).[4]

In a letter dated September 27, 1999, respondent Adelaida B. Barcelona, City Treasurer of Davao, denied the protest and claim for tax refund of petitioner,[5] citing the legal opinion of the City Legal Officer of Davao and Art. 10, 1 of Ordinance No. 230, Series of 1991, as amended by Ordinance No. 519, Series of 1992, which 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.[6]

Petitioner received respondent City Treasurers order of denial on October 1, 1999. On November 3, 1999, it filed a petition in the Regional Trial Court of Davao seeking a reversal of respondent City Treasurers denial of petitioners protest and the refund of the franchise tax paid by it for the year 1998 in the amount of P2,580,829.23. The petition was filed pursuant to 195 and 196 of the Local Government Code (R.A. No. 7160). No claim for refund of franchise taxes paid in 1997 was made as the same had already prescribed under 196 of the LGC, which provides that claims for the refund of taxes paid under it must be made within two (2) years from the date of payment of such taxes.[7]

The trial court denied petitioners appeal and affirmed the City Treasurers decision. It ruled that the LGC withdrew all tax exemptions previously enjoyed by all persons and authorized local government units to impose a tax on businesses enjoying a franchise notwithstanding the grant of tax exemption to them. The trial court likewise denied petitioners claim for exemption under R.A. No. 7925 for the following reasons: (1) it is clear from the wording of 193 of the Local Government Code that Congress did not intend to exempt any franchise holder from the payment of local franchise and business taxes; (2) the opinion of the Executive Director of the Bureau of Local Government Finance to the contrary is not binding

on respondents; and (3) petitioner failed to present any proof that Globe and Smart were enjoying local franchise and business tax exemptions.

Hence, this petition for review based on the following grounds:

I. THE LOWER COURT ERRED IN APPLYING SECTION 137 OF THE LOCAL GOVERNMENT CODE, WHICH ALLOWS A CITY TO IMPOSE A FRANCHISE TAX, AND SECTION 193 THEREOF, WHICH PROVIDES FOR WITHDRAWAL OF TAX EXEMPTION PRIVILEGES.

II. THE LOWER COURT ERRED IN NOT HOLDING THAT UNDER PETITIONERS FRANCHISE, AS IMPLICITLY AMENDED AND EXPANDED BY SECTION 23 OF REPUBLIC ACT NO. 7925 (PUBLIC TELECOMMUNICATIONS POLICY ACT), TAKING INTO ACCOUNT THE FRANCHISES OF GLOBE TELECOM, INC. AND SMART COMMUNICATIONS, INC., WHICH WERE ENACTED SUBSEQUENT TO THE LOCAL GOVERNMENT CODE, NO FRANCHISE AND BUSINESS TAXES MAY BE IMPOSED ON PETITIONER BY RESPONDENT CITY.

III. THE LOWER COURT ERRED IN NOT GIVING WEIGHT TO THE RULING OF THE BUREAU OF LOCAL GOVERNMENT FINANCE THAT PETITIONER IS EXEMPT FROM THE PAYMENT OF FRANCHISE AND BUSINESS TAXES, AMONG OTHERS, IMPOSABLE BY LOCAL GOVERNMENT UNITS UNDER THE LOCAL GOVERNMENT CODE.

First. The LGC, which took effect on January 1, 1992, 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.[8]

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. 6938, non-stock and non-profit hospitals and educational institutions, are hereby withdrawn upon the effectivity of this Code.

The trial court held that, under these provisions, all exemptions granted to all persons, whether natural and juridical, including those which in the future might be granted, are withdrawn unless the law granting the exemption expressly states that the exemption also applies to local taxes. We disagree. Sec. 137 does not state that it covers future exemptions. In Philippine Airlines, Inc. v. Edu,[9] where a provision of the Tax Code enacted on June 27, 1968 (R.A. 5431) withdrew the exemption enjoyed by PAL, it was held that a subsequent amendment of PALs franchise, exempting it from all other taxes except that

imposed by its franchise, again entitled PAL to exemption from the date of the enactment of such amendment. The Tax Code provision withdrawing the tax exemption was not construed as prohibiting future grants of exemptions from all taxes.

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.[10]

The question, therefore, is whether, after the withdrawal of its exemption by virtue of 137 of the LGC, petitioner has again become entitled to exemption from local franchise tax. Petitioner answers in the affirmative and points to 23 of R.A. No. 7925, in relation to the franchises of Globe Telecom (Globe) and Smart Communications, Inc. (Smart), which allegedly grant the latter exemption from local franchise taxes.

To begin with, tax exemptions are highly disfavored. The reason for this was explained by this Court in Asiatic Petroleum Co. v. Llanes,[11] in which it was held:

. . . Exemptions from taxation are highly disfavored, so much so that they may almost be said to be odious to the law. He who claims an exemption must be able to point to some positive provision of law creating the right. . . As was said by the Supreme Court of Tennessee in Memphis vs. U. & P. Bank (91 Tenn., 546, 550), The right of taxation is inherent in the State. It is a prerogative essential to the perpetuity of the government; and he who claims an exemption from the common burden must justify his claim by the clearest grant of organic or statute law. Other utterances equally or more emphatic come readily to hand from the highest authority. In Ohio Life Ins. and Trust Co. vs. Debolt (16 Howard, 416), it was said by Chief Justice Taney, that the right of taxation will not be held to have been surrendered, unless the intention to surrender is manifested by words too plain to be mistaken. In the case of the Delaware Railroad Tax (18 Wallace, 206, 226), the Supreme Court of the United States said that the surrender, when claimed, must be shown by clear, unambiguous language, which will admit of no reasonable construction consistent with the reservation of the power. If a doubt arises as to the intent of the legislature, that doubt must be solved in favor of the State.  In Erie Railway Company vs. Commonwealth of Pennsylvania (21 Wallace, 492, 499), Mr. Justice Hunt, speaking of exemptions, observed that a State cannot strip itself of the most essential power of taxation by doubtful words. It cannot, by ambiguous language, be deprived of this highest attribute of sovereignty. In Tennessee vs. Whitworth (117 U. S., 129, 136), it was said: In all cases of this kind the question is as to the intent of the legislature, the presumption always being against any surrender of the taxing power. In Farrington vs. Tennessee and County of Shelby (95 U. S., 679, 686), Mr. Justice Swayne said: . . . When exemption is claimed, it must be shown indubitably to exist. At the outset, every presumption is against it. A well-founded doubt is fatal to the claim. It is only when the terms of the concession are too explicit to admit fairly of any other construction that the proposition can be supported.

The tax exemption must be expressed in the statute in clear language that leaves no doubt of the intention of the legislature to grant such exemption. And, even if it is granted, the exemption must be interpreted in strictissimi juris against the taxpayer and liberally in favor of the taxing authority.[12]

In the present case, petitioner justifies its claim of tax exemption by strained inferences. First, it cites R.A. No. 7925, otherwise known as the Public Telecommunications Policy Act of the Philippines, 23 of which reads:

SEC. 23. Equality of Treatment in the Telecommunications Industry. Any advantage, favor, privilege, exemption, or immunity granted under existing franchises, or may hereafter be granted, shall ipso 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.

Petitioner then claims that Smart and Globe enjoy exemption from the payment of the franchise tax by virtue of their legislative franchises per opinion of the Bureau of Local Government Finance of the Department of Finance. Finally, it argues that because Smart and Globe are exempt from the franchise tax, it follows that it must likewise be exempt from the tax being collected by the City of Davao because the grant of tax exemption to Smart and Globe ipso facto extended the same exemption to it.

The acceptance of petitioners theory would result in absurd consequences. To illustrate: In its franchise, Globe is required to pay a franchise tax of only one and one-half percentum (1%) of all gross receipts from its transactions while Smart is required to pay a tax of three percent (3%) on all gross receipts from business transacted. Petitioners theory would require that, to level the playing field, any advantage, favor, privilege, exemption, or immunity granted to Globe must be extended to all telecommunications companies, including Smart. If, later, Congress again grants a franchise to another telecommunications company imposing, say, one percent (1%) franchise tax, then all other telecommunications franchises will have to be adjusted to level the playing field so to speak. This could not have been the intent of Congress in enacting 23 of Rep. Act 7925. Petitioners theory will leave the Government with the burden of having to keep track of all granted telecommunications franchises, lest some companies be treated unequally. It is different if Congress enacts a law specifically granting uniform advantages, favor, privilege, exemption, or immunity to all telecommunications entities.

The fact is that the term exemption in 23 is too general. A cardinal rule in statutory construction is that legislative intent must be ascertained from a consideration of the statute as a whole and not merely of a particular provision. For, taken in the abstract, a word or phrase might easily convey a meaning which is different from the one actually intended. A general provision may actually have a limited application if read together with other provisions.[13] Hence, a consideration of the law itself in its entirety and the proceedings of both Houses of Congress is in order.[14]

Art. I of Rep. Act No. 7925 contains the general provisions, stating that the Act shall be known as the Public Telecommunications Policy Act of the Philippines, and a definition of terms.[15] Art. II provides for its policies and objectives, which is to foster the improvement and expansion of telecommunications services in the country through: (1) the construction of telecommunications infrastructure and interconnection facilities, having in mind the efficient use of the radio frequency spectrum and extension of basic services to areas not yet served; (2) fair, just, and reasonable rates and tariff charges; (3) stable, transparent, and fair administrative processes; (4) reliance on private enterprise for direct provision of telecommunications services; (5) dispersal of ownership of telecommunications entities in compliance with the constitutional mandate to democratize the ownership of public utilities; (6) encouragement of the establishment of interconnection with other countries to provide access to international communications highways and development of a competitive export-oriented domestic telecommunications manufacturing industry; and (7) development of human resources skills and capabilities to sustain the growth and development of telecommunications.[16]

Art. III provides for its administration. The operational and administrative functions are delegated to the National Telecommunications Commission (NTC), while policy-making, research, and negotiations in international telecommunications matters are left with the Department of Transportation and Communications.[17]

Art. IV classifies the categories of telecommunications entities as: Local Exchange Operator, Inter-Exchange Carrier, International Carrier, Value-Added Service Provider, Mobile Radio Services, and Radio Paging Services.[18] Art. V provides for the use of other services and facilities, such as customer premises equipment, which may be used within the premises of telecommunications subscribers subject only to the requirement that it is type-approved by the NTC, and radio frequency spectrum, the assignment of which shall be subject to periodic review.[19]

Art. VI, entitled Franchise, Rates and Revenue Determination, provides for the requirement to obtain a franchise from Congress and a Certificate of Public Convenience and Necessity from the NTC before a telecommunications entity can begin its operations.  It also provides for the NTCs residual power to regulate the rates or tariffs when ruinous competition results or when a monopoly or a cartel or combination in restraint of free competition exists and the rates or tariffs are distorted or unable to function freely and the public is adversely affected. There is also a provision relating to revenue sharing arrangements between inter-connecting carriers.[20]

Art. VII provides for the rights of telecommunications users.[21]

Art. VIII, entitled Telecommunications Development, where 23 is found, provides for public ownership of telecommunications entities, privatization of existing facilities, and the equality of treatment provision.[22]

Art. IX contains the Final Provisions.[23]

R.A. No. 7925 is thus a legislative enactment designed to set the national policy on telecommunications and provide the structures to implement it to keep up with the technological advances in the industry and the needs of the public. The thrust of the law is to promote gradually the deregulation of the entry, pricing, and operations of all public telecommunications entities and thus promote a level playing field in the telecommunications industry.[24] There is nothing in the language of 23 nor in the proceedings of both the House of Representatives and the Senate in enacting R.A. No. 7925 which shows that it contemplates the grant of tax exemptions to all telecommunications entities, including those whose exemptions had been withdrawn by the LGC.

What this Court said in Asiatic Petroleum Co. v. Llanes[25] applies mutatis mutandis to this case: When exemption is claimed, it must be shown indubitably to exist. At the outset, every presumption is against it. A well-founded doubt is fatal to the claim. It is only when the terms of the concession are too explicit to admit fairly of any other construction that the proposition can be supported. In this case, the word exemption in 23 of R.A. No. 7925 could contemplate exemption from certain regulatory or reporting requirements, bearing in mind the policy of the law. It is noteworthy that, in holding Smart and Globe exempt from local taxes, the BLGF did not base its opinion on 23 but on the fact that the franchises granted to them after the effectivity of the LGC exempted them from the payment of local franchise and business taxes.

Second. In the case of petitioner, the BLGF opined that 23 of R.A. No. 7925 amended the franchise of petitioner and in effect restored its exemptions from local taxes.  Petitioner contends that courts should not set aside conclusions reached by the BLGF because its

function is precisely the study of local tax problems and it has necessarily developed an expertise on the subject.

To be sure, the BLGF is not an administrative agency whose findings on questions of fact are given weight and deference in the courts. The authorities cited by petitioner pertain to the Court of Tax Appeals,[26] a highly specialized court which performs judicial functions as it was created for the review of tax cases.[27] In contrast, the BLGF was created merely to provide consultative services and technical assistance to local governments and the general public on local taxation, real property assessment, and other related matters, among others.[28] The question raised by petitioner is a legal question, to wit, the interpretation of 23 of R.A. No. 7925. There is, therefore, no basis for claiming expertise for the BLGF that administrative agencies are said to possess in their respective fields.

Petitioner likewise argues that the BLGF enjoys the presumption of regularity in the performance of its duty. It does enjoy this presumption, but this has nothing to do with the question in this case. This case does not concern the regularity of performance of the BLGF in the exercise of its duties, but the correctness of its interpretation of a provision of law.

In sum, it does not appear that, in approving 23 of R.A. No. 7925, Congress intended it to operate as a blanket tax exemption to all telecommunications entities. Applying the rule of strict construction of laws granting tax exemptions and the rule that doubts should be resolved in favor of municipal corporations in interpreting statutory provisions on municipal taxing powers, we hold that 23 of R.A. No. 7925 cannot be considered as having amended petitioners franchise so as to entitle it to exemption from the imposition of local franchise taxes. Consequently, we hold that petitioner is liable to pay local franchise taxes in the amount of P3,681,985.72 for the period covering the first to the fourth quarter of 1999 and that it is not entitled to a refund of taxes paid by it for the period covering the first to the third quarter of 1998.

WHEREFORE, the petition for review on certiorari is DENIED and the decision of the Regional Trial Court, Branch 13, Davao City is AFFIRMED.

SO ORDERED.

Bellosillo, (Chairman), Quisumbing, Buena, and De Leon, Jr., JJ., concur.

[G.R. No. 149179. July 15, 2005]

PHILIPPINE LONG DISTANCE TELEPHONE COMPANY, INC., petitioner, vs. CITY OF BACOLOD, FLORENTINO T. GUANCO, in his capacity as the City Treasurer of Bacolod City, and ANTONIO G. LACZI, in his capacity as the City Legal Officer of Bacolod City, respondents.

D E C I S I O N

GARCIA, J.:

In this appeal by way of a petition for review on certiorari under Rule 45 of the Rules of Court, petitioner Philippine Long Distance Telephone Company (PLDT), seeks the reversal and setting aside of the July 23, 2001 decision[1] of the Regional Trial Court at Bacolod City, Branch 42, dismissing its petition in Civil Case No. 99-10786, an action to declare petitioner as exempt from the payment of franchise and business taxes sought to be imposed and collected by the respondent City of Bacolod.

The material facts are not at all disputed:

PLDT is a holder of a legislative franchise under Act No. 3436, as amended, to render local and international telecommunications services. On August 24, 1991, the terms and conditions of its franchise were consolidated under Republic Act No. 7082, [2] Section 12 of which embodies the so-called in-lieu-of-all-taxes clause, whereunder PLDT shall pay a franchise tax equivalent to three percent (3%) of all its gross receipts, which franchise tax shall be in lieu of all taxes. More specifically, the provision pertinently reads:

SEC. 12. xxx 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 telephone or other telecommunications businesses 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. xxx (Italics ours).

Meanwhile, or on January 1, 1992, Republic Act No. 7160, otherwise known as the Local Government Code, took effect. Section 137 of the Code, in relation to Section 151 thereof, grants cities and other local government units the power to impose local franchise tax on businesses enjoying a franchise, thus:

SEC. 137. Franchise Tax. Notwithstanding any exemption granted by any law or other special law, the province may impose a tax on businesses enjoying a franchise, at a rate not exceeding fifty percent (50%) of one percent (1%) of the gross annual receipts for the preceding calendar year based on the incoming receipt, or realized, within its territorial jurisdiction.

xxx xxx xxx

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.

By Section 193 of the same Code, all tax exemption privileges then enjoyed by all persons, whether natural or juridical, save those expressly mentioned therein, were withdrawn, necessarily including those taxes from which PLDT is exempted under the in-lieu-of-all-taxes clause in its charter. We quote Section 193:

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. 6938, non-stock and non-profit hospitals and educational institutions, are hereby withdrawn upon the effectivity of this Code.

Aiming to level the playing field among telecommunication companies, Congress enacted Republic Act No. 7925, otherwise known as the Public Telecommunications Policy Act of the Philippines, which took effect on March 16, 1995. To achieve the legislative intent, Section 23 thereof, also known as the most-favored- treatment clause, provides for an equality of treatment in the telecommunications industry, thus:

SEC. 23. Equality of Treatment in the Telecommunications Industry Any advantage, favor, privilege, exemption, or immunity granted under existing franchises, or may hereafter be granted shall ipso 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 the service authorized by the franchise.

In August 1995, the City of Bacolod, invoking its authority under Section 137, in relation to Section 151 and Section 193, supra, of the Local Government Code, made an assessment on PLDT for the payment of franchise tax due the City.

Complying therewith, PLDT began paying the City franchise tax from the year 1994 until the third quarter of 1998, at which time the total franchise tax it had paid the City already amounted to P2,770,696.37.

On June 2, 1998, the Department of Finance through its Bureau of Local Government Finance (BLGF), issued a ruling to the effect that as of March 16, 1995, the effectivity date of thePublic Telecommunications Policy Act of the Philippines (Rep. Act. No. 7925), PLDT, among other telecommunication companies, became exempt from local franchise tax. Pertinently, the BLGF ruling reads:

It appears that RA 7082 further amending ACT No. 3436 which granted to PLDT a franchise to install, operate and maintain a telephone system throughout the Philippine Islands was approved on August 3, 1991. Section 12 of said franchise, likewise, contains the in lieu of all taxes proviso.

In this connection, Section 23 of RA 7925, quoted hereunder, which was approved on March 1, 1995 provides for the equality of treatment in the telecommunications industry:

xxx xxx xxx

On the basis of the aforequoted Section 23 of RA 7925, PLDT as a telecommunications franchise holder becomes automatically covered by the tax exemption provisions of RA 7925, which took effect on March 16, 1995.

Accordingly, PLDT shall be exempt from the payment of franchise and business taxes imposable by LGUs under Sections 137 and 143, respectively, of the LGC [Local Government Code], upon the effectivity of RA 7925 on March 16, 1995. However, PLDT shall be liable to pay the franchise and business taxes on its gross receipts realized from January 1, 1992 up to March 15, 1995, during which period PLDT was not enjoying the most favored clause proviso of RA 7025 [sic].[3]

Invoking the aforequoted ruling, PLDT then stopped paying local franchise and business taxes to Bacolod City starting the fourth quarter of 1998.

The controversy came to a head-on when, sometime in 1999, PLDT applied for the issuance of a Mayors Permit but the City of Bacolod withheld issuance thereof pending PLDTs payment of its franchise tax liability in the following amounts: (1) P358,258.30 for the fourth quarter of 1998; and (b) P1,424,578.10 for the year 1999, all in the aggregate amount ofP1,782,836.40, excluding surcharges and interest, about which PLDT was duly informed by the City Treasurer via a 5th Indorsement dated March 16, 1999 for PLDTs appropriate action.[4]

In time, PLDT filed a protest[5] with the Office of the City Legal Officer, questioning the assessment and at the same time asking for a refund of the local franchise taxes it paid in 1997 until the third quarter of 1998.

In a reply-letter dated March 26, 1999,[6] City Legal Officer Antonio G. Laczi denied the protest and ordered PLDT to pay the questioned assessment.

Hence, on May 14, 1999, in the Regional Trial Court at Bacolod City, PLDT filed its petition[7] in Civil Case No. 99-10786, therein praying for a judgment declaring it as exempt from the payment of local franchise and business taxes; ordering the respondent City to henceforth cease and desist from assessing and collecting said taxes; directing the City to issue the Mayors Permit for the year 1999; and requiring it to refund the amount of  P2,770,606.37, allegedly representing overpaid franchise taxes for the years 1997 and 1998 with interest until fully paid.

In time, the respondent City filed its Answer/Comment to the petition, [8] basically maintaining that Section 137 of the Local Government Code remains as the operative law despite the enactment of the Public Telecommunications Policy Act of the Philippines (Rep. Act No. 7925), and accordingly prayed for the dismissal of the petition.

In the ensuing pre-trial conference, the parties manifested that they would not present any testimonial evidence, and merely requested for time to file their respective memoranda, to which the trial court acceded.

Eventually, in the herein assailed decision dated July 23, 2001,[9] the trial court dismissed PLDTs petition, thus:

WHEREFORE, premises considered, the petition should be, as it is hereby DISMISSED. No costs.

SO ORDERED.

Therefrom, PLDT came to this Court via the present recourse, imputing the following errors on the part of the trial court:

5.01.a. THE LOWER COURT ERRED IN SUSTAINING RESPONDENTS POSITION THAT SECTION 137 OF THE LOCAL GOVERNMENT CODE, WHICH, IN RELATION TO SECTION 151 THEREOF, ALLOWS RESPONDENT CITY TO IMPOSE THE FRANCHISE TAX, IS APPLICABLE IN THIS CASE.

5.01.b. THE LOWER COURT ERRED IN NOT HOLDING THAT UNDER PETITIONERS FRANCHISE (REPUBLIC ACT NO. 7082), AS AMENDED AND EXPANDED BY SECTION 23 OF REPUBLIC ACT NO. 7925 (PUBLIC TELECOMMUNICATIONS POLICY ACT), TAKING INTO ACCOUNT THE FRANCHISES OF GLOBE TELECOM, INC., (GLOBE) (REPUBLIC ACT NO. 7229) AND SMART COMMUNICATIONS, INC. (SMART) (REPUBLIC ACT NO. 7294), WHICH WERE ENACTED SUBSEQUENT TO THE LOCAL GOVERNMENT CODE, NO FRANCHISE TAXES MAY BE IMPOSED ON PETITIONER BY RESPONDENT CITY.

5.01.c. THE LOWER COURT ERRED IN NOT GIVING WEIGHT TO THE RULING OF THE DEPARTMENT OF FINANCE, THROUGH ITS BUREAU OF LOCAL GOVERNMENT FINANCE, THAT PETITIONER IS EXEMPT FROM THE PAYMENT OF FRANCHISE AND BUSINESS TAXES IMPOSABLE BY LOCAL GOVERNMENT UNITS UNDER THE LOCAL GOVERNMENT CODE.

5.01.d. THE LOWER COURT ERRED IN DISMISSING THE PETITION BELOW.

As we see it, the only question which commends itself for our resolution is, whether or not Section 23 of Rep. Act No. 7925, also called the most-favored-treatment clause, operates to exempt petitioner PLDT from the payment of franchise tax imposed by the respondent City of Bacolod.

Contrary to petitioners claim, the issue thus posed is not one of first impression insofar as this Court is concerned. For sure, this is not the first time for petitioner PLDT to invoke the jurisdiction of this Court on the same question, albeit involving another city.

In PLDT vs. City of Davao,[10] this Court has had the occasion to interpret Section 23 of Rep. Act No. 7925. There, we ruled that Section 23 does not operate to exempt PLDT from the payment of franchise tax imposed upon it by the City of Davao:

In sum, it does not appear that, in approving 23 of R.A. No. 7925, Congress intended it to operate as a blanket tax exemption to all telecommunications entities. Applying the rule of strict construction of laws granting tax exemptions and the rule that doubts should be resolved in favor of municipal corporations in interpreting statutory provisions on municipal taxing powers, we hold that 23 of R.A. No. 7925 cannot be considered as having amended petitioner's franchise so as to entitle it to exemption from the imposition of local franchise

taxes. Consequently, we hold that petitioner is liable to pay local franchise taxes in the amount of P3,681,985.72 for the period covering the first to the fourth quarter of 1999 and that it is not entitled to a refund of taxes paid by it for the period covering the first to the third quarter of 1998.[11]

Explains this Court in the same case:

To begin with, tax exemptions are highly disfavored. The reason for this was explained by this Court in Asiatic Petroleum Co. v. Llanes, in which it was held:

. . . Exemptions from taxation are highly disfavored, so much so that they may almost be said to be odious to the law. He who claims an exemption must be able to point to some positive provision of law creating the right. . . As was said by the Supreme Court of Tennessee in Memphis vs. U. & P. Bank (91 Tenn., 546, 550), The right of taxation is inherent in the State. It is a prerogative essential to the perpetuity of the government; and he who claims an exemption from the common burden must justify his claim by the clearest grant of organic or statute law. Other utterances equally or more emphatic come readily to hand from the highest authority. In Ohio Life Ins. and Trust Co. vs. Debolt (16 Howard, 416), it was said by Chief Justice Taney, that the right of taxation will not be held to have been surrendered, unless the intention to surrender is manifested by words too plain to be mistaken. In the case of the Delaware Railroad Tax (18 Wallace, 206, 226), the Supreme Court of the United States said that the surrender, when claimed, must be shown by clear, unambiguous language, which will admit of no reasonable construction consistent with the reservation of the power. If a doubt arises as to the intent of the legislature, that doubt must be solved in favor of the State. In Erie Railway Company vs. Commonwealth of Pennsylvania (21 Wallace, 492, 499), Mr. Justice Hunt, speaking of exemptions, observed that a State cannot strip itself of the most essential power of taxation by doubtful words. It cannot, by ambiguous language, be deprived of this highest attribute of sovereignty. In Tennessee vs. Whitworth (117 U.S., 129, 136), it was said: In all cases of this kind the question is as to the intent of the legislature, the presumption always being against any surrender of the taxing power. In Farrington vs. Tennessee and County of Shelby (95 U.S., 379, 686), Mr. Justice Swayne said: . . . When exemption is claimed, it must be shown indubitably to exist. At the outset, every presumption is against it. A well-founded doubt is fatal to the claim. It is only when the terms of the concession are too explicit to admit fairly of any other construction that the proposition can be supported.

The tax exemption must be expressed in the statute in clear language that leaves no doubt of the intention of the legislature to grant such exemption. And, even if it is granted, the exemption must be interpreted in strictissimi juris against the taxpayer and liberally in favor of the taxing authority.

xxx xxx xxx

The fact is that the term exemption in 23 is too general. A cardinal rule in statutory construction is that legislative intent must be ascertained from a consideration of the statute as a whole and not merely of a particular provision. For, taken in the abstract, a word or phrase might easily convey a meaning which is different from the one actually intended. A general provision may actually have a limited application if read together with other provisions. Hence, a consideration of the law itself in its entirety and the proceedings of both Houses of Congress is in order.

xxx xxx xxx

R.A. No. 7925 is thus a legislative enactment designed to set the national policy on telecommunications and provide the structures to implement it to keep up with the technological advances in the industry and the needs of the public. The thrust of the law is to promote gradually the deregulation of the entry, pricing, and operations of all public telecommunications entities and thus promote a level playing field in the telecommunications industry. There is nothing in the language of 23 nor in the proceedings of both the House of Representatives and the Senate in enacting R.A. No. 7925 which shows that it contemplates the grant of tax exemptions to all telecommunications entities, including those whose exemptions had been withdrawn by the LGC.

What this Court said in Asiatic Petroleum Co. v. Llanes applies mutatis mutandis to this case: When exemption is claimed, it must be shown indubitably to exist. At the outset, every presumption is against it. A well-founded doubt is fatal to the claim. It is only when the terms of the concession are too explicit to admit fairly of any other construction that the proposition can be supported. In this case, the word exemption in 23 of R.A. No. 7925 could contemplate exemption from certain regulatory or reporting requirements, bearing in mind the policy of the law. It is noteworthy that, in holding Smart and Globe exempt from local taxes, the BLGF did not base its opinion on 23 but on the fact that the franchises granted to them after the effectivity of the LGC exempted them from the payment of local franchise and business taxes.

As in City of Davao, supra, petitioner presently argues that because Smart Communications, Inc. (SMART) and Globe Telecom (GLOBE) under whose respective franchises granted after the effectivity of the Local Government Code, are exempt from franchise tax, it follows that petitioner is likewise exempt from the franchise tax sought to be collected by the City of Bacolod, on the reasoning that the grant of tax exemption to SMART and GLOBE ipso facto applies to PLDT, consistent with the most-favored-treatment clause found in Section 23 of thePublic Telecommunications Policy Act of the Philippines (Rep. Act No. 7925).

Again, there is nothing novel in petitioners contention. In fact, this Court in City of Davao, even adverted to PLDTs argument therein, thus:

Finally, it [PLDT] argues that because Smart and Globe are exempt from the franchise tax, it follows that it must likewise be exempt from the tax being collected by the City of Davao because the grant of tax exemption to Smart and Globe ipso facto extended the same exemption to it.

In rejecting PLDTs contention, this Court ruled in City of Davao as follows:

The acceptance of petitioners theory would result in absurd consequences. To illustrate: In its franchise, Globe is required to pay a franchise tax of only one and one-half percentum (1/2% [sic] ) of all gross receipts from its transactions while Smart is required to pay a tax of three percent (3%) on all gross receipts from business transacted. Petitioners theory would require that, to level the playing field, any advantage, favor, privilege, exemption, or immunity granted to Globe must be extended to all telecommunications companies, including Smart. If, later, Congress again grants a franchise to another telecommunications company imposing, say, one percent (1%) franchise tax, then all other telecommunications franchises will have to be adjusted to level the playing field so to speak. This could not have been the intent of

Congress in enacting Section 23 of Rep. Act 7925. Petitioners theory will leave the Government with the burden of having to keep track of all granted telecommunications franchises, lest some companies be treated unequally. It is different if Congress enacts a law specifically granting uniform advantages, favor, privilege, exemption or immunity to all telecommunications entities.

On PLDTs motion for reconsideration in Davao, the Court added in its en banc Resolution of March 25, 2003,[12] that even as it is a state policy to promote a level playing field in the communications industry, Section 23 of Rep. Act No. 7925 does not refer to tax exemption but only to exemption from certain regulations and requirements imposed by the National Telecommunications Commission:

xxx. 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 services.

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.[13]

In the same en banc Resolution, the Court even rejected PLDTs contention that the in-lieu-of-all-taxes clause does not refer to tax exemption but to tax exclusion and hence, thestrictissimi juris rule does not apply, explaining that these two terms actually mean the same thing, such that 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. Thus:

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. Exclusion, on the other hand, is the removal of otherwise taxable items from the reach of taxation, e.g., exclusions from gross income and allowable deductions. 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.[14]

PLDT likewise argued in said case that the RTC at Davao City erred in not giving weight to the ruling of the BLGF which, according to petitioner, is an administrative agency with technical expertise and mastery over the specialized matters assigned to it. But then again, we held in Davao:

To be sure, the BLGF is not an administrative agency whose findings on questions of fact are given weight and deference in the courts. The authorities cited by petitioner pertain to the Court of Tax Appeals, a highly specialized court which performs judicial functions as it was created for the review of tax cases. In contrast, the BLGF was created merely to provide consultative services and technical assistance to local governments and the general public on local taxation, real property assessment, and other related matters, among others. The question raised by petitioner is a legal question, to wit, the interpretation of 23 of R.A. No. 7925. There is, therefore, no basis for claiming expertise for the BLGF that administrative agencies are said to possess in their respective fields.[15]

We note, quite interestingly, that apart from the particular local government unit involved in the earlier case of PLDT vs. Davao, the arguments presently advanced by petitioner on the issue herein posed are but a mere reiteration if not repetition of the very same arguments it has already raised in Davao. For sure, the errors presently assigned are substantialy the same as those in Davao, all of which have been adequately addressed and passed upon by this Court in its decision therein as well as in its  en banc resolution in that case.

WHEREFORE, the instant petition is DENIED and the assailed decision dated July 23, 2001 of the lower court AFFIRMED.

Costs against petitioner.

SO ORDERED.

Sandoval-Gutierrez, Corona, and Carpio-Morales, JJ., concur.Panganiban, (Chairman), no part, former counsel of the party.

PHILIPPINE LONG DISTANCE TELEPHONE COMPANY, INC.,Petitioner,

  G.R. No. 151899 Present:

    - versus -

    PROVINCE OF LAGUNA and MANUEL E. LEYCANO, JR., in his capacity as the Provincial Treasurer of the Province of Laguna,Respondents.

 PANGANIBAN, J., ChairmanSANDOVAL-GUTIERREZ,CORONA,CARPIO MORALES, andGARCIA, JJ.   Promulgated:  August 16, 2005

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

D E C I S I O N  

GARCIA, J.:  

Twice, this Court has denied the earlier plea of petitioner Philippine Long Distance Company, Inc. (PLDT) to be adjudged exempt from the payment of franchise tax assessed against it by local government units. The first was in the 2001 case of PLDT vs. City of Davao[1] and the second, in the very recent case of PLDT vs. City of Bacolod, et al.[2]. Indeed, no less than the Court en banc, in its Resolution of March 25, 2003[3], denied PLDTs motion for reconsideration inDavao. In both cases, the Court in effect ruled that the desired relief is not legally feasible.

 No less than PLDTs third, albeit this time involving the Province of Laguna, the

instant similar petition for review on certiorari under Rule 45 of the Rules of Court seeks the reversal of the decision dated 28 November 2001[4] of the Regional Trial Court at Laguna, dismissing PLDTs petition in its Civil Case No. SC-3953, an action for refund of franchise tax.

 Except for inconsequential factual details which understandably vary from the first

two (2) PLDT cases, the legal landscape is practically the same: PLDT is a holder of a legislative franchise under Act No. 3436, as amended, to

render local and international telecommunications services. On August 24, 1991, the terms and conditions of its franchise were consolidated under Republic Act No. 7082, [5] Section 12 of which embodies the so-called in-lieu-of-all taxes clause, whereunder PLDT shall pay a franchise tax equivalent to three percent (3%) of all its gross receipts, which franchise tax shall be in lieu of all taxes. More specifically, the provision pertinently reads:

 SEC. 12. xxx 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 telephone or other telecommunications businesses 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: xxx (Italics ours).

  Meanwhile, or on January 1, 1992, Republic Act No. 7160, otherwise known as

the Local Government Code, took effect. Section 137 of the Code, in relation to Section 151 thereof, grants provinces and other local government units the power to impose local franchise tax on businesses enjoying a franchise, thus:

 SEC. 137. Franchise Tax. Notwithstanding any exemption

granted by any law or other special law, the province may impose a tax on businesses enjoying a franchise, at a rate not exceeding fifty percent (50%) of one percent (1%) of the gross annual receipts for the preceding calendar year based on the incoming receipt, or realized, within its territorial jurisdiction.

  

By Section 193 of the same Code, all tax exemption privileges then enjoyed by all persons, whether natural or juridicial, save those expressly mentioned therein, were withdrawn, necessarily including those taxes from which PLDT is exempted under the in-lieu-of-all taxes clause in its charter. We quote Section 193:

 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. 6938, non-stock and non-profit hospitals and educational institutions, are hereby withdrawn upon the effectivity of this Code.

  

 Invoking its authority under Section 137, supra, of the Local Government Code,

the Province of Laguna, through its local legislative assembly, enacted Provincial Ordinance No. 01-92, made effective January 1, 1993, imposing a franchise tax upon all businesses enjoying a franchise, PLDT included.

 On January 28, 1998, PLDT, in compliance with the aforementioned Ordinance,

paid the Province of Laguna its local franchise tax liability for the year 1998 in the amount of One Million Eighty-One Thousand Two Hundred Twelve and 10/100 Pesos (P1,081,212.10).

 Prior thereto, Congress, aiming to level the playing field among telecommunication

companies, enacted Republic Act No. 7925, otherwise known as thePublic Telecommunications Policy Act of the Philippines, which took effect on March 16, 1995. To achieve the legislative intent, Section 23 thereof, also known as the most-favored treatment clause, provides for an equality of treatment in the telecommunications industry, to wit:

 SEC. 23. Equality of Treatment in the Telecommunications

Industry Any advantage, favor, privilege, exemption, or immunity granted under existing franchises, or may hereafter be granted, shall ipso facto become part of previously granted telecommunications 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 the service authorized by the franchise. Then, on June 2, 1998, the Department of Finance, thru its Bureau of Local

Government Finance (BLGF), issued a ruling to the effect that as of March 16, 1995, the effectivity date of the Public Telecommunications Policy Act of the Philippines,[6] PLDT, among other telecommunication companies, became exempt from local franchise tax. Pertinently, the BLGF ruling reads:

 It appears that RA 7082 further amending Act No. 3436 which

granted to PLDT a franchise to install, operate and maintain a telephone system throughout the Philippine Islands was approved on August 3, 1991. Section 12 of said franchise, likewise contains the in lieu of all taxes proviso.

 In this connection, Section 23 of RA 7929, quoted hereunder,

which was approved on March 1, 1995 provides for the equality of treatment in the telecommunications industry:

 xxx xxx xxx

 On the basis of the aforequoted Section 23 of RA 7925, PLDT

as a telecommunications franchise holder becomes automatically covered by the tax exemption provisions of RA 7925, which took effect on March 16, 1995.

 Accordingly, PLDT shall be exempt from the payment of

franchise and business taxes imposable by LGUs under Sections 137 and 143, respectively of the LGC [Local Government Code], upon the effectivity of RA 7925 on March 16, 1995. However, PLDT shall be liable to pay the franchise and business taxes on its gross receipts realized from January 1, 1992 up to March 15, 1995, during which period PLDT was not enjoying the most favored clause provision of RA 7025 [sic].

  

On the basis of the aforequoted ruling, PLDT refused to pay the Province of Laguna its local franchise tax liability for 1999. And, on December 22, 1999, it even filed with the Office of the Provincial Treasurer a written claim for refund of the amount it paid as local franchise tax for 1998.

 With no refund having been made, PLDT instituted with the Regional Trial Court at

Laguna a petition therefor against the Province and its Provincial Treasurer, which petition was thereat docketed as Civil Case No. SC-3953.

 In its decision of November 28, 2001, the trial court denied PLDTs petition, thus: 

WHEREFORE, the petition is denied. Petitioner PLDT is not exempt from paying local franchise and business taxes to the Respondent Province. Refund is denied. For failure to substantiate the claim for exemplary damages and attorneys fees, the same is likewise denied. 

SO ORDERED.

 Hence, this recourse by PLDT, faulting the trial court, as follows: 

5.01.a. THE LOWER COURT ERRED IN NOT HOLDING THAT UNDER PETITIONERS FRANCHISE (REPUBLIC ACT NO.7082), AS AMENDED AND EXPANDED BY SECTION 23 OF REPUBLIC ACT NO. 7925, TAKING INTO ACCOUNT THE FRANCHISES OF GLOBE TELECOM INC., (GLOBE) (REPUBLIC ACT NO. 7229) AND SMART COMMUNICATIONS, INC. (SMART) (REPUBLIC ACT NO.7294), WHICH ARE SPECIAL PROVISIONS AND WERE ENACTED SUBSEQUENT TO THE LOCAL GOVERNMENT CODE, NO FRANCHISE TAXES MAY BE IMPOSED ON PETITIONER BY RESPONDENT PROVINCE. 5.01.b. THE LOWER COURT ERRED IN NOT HOLDING THAT SECTION 137 OF THE LOCAL GOVERNMENT CODE, WHICH ALLOWS RESPONDENT PROVINCE TO IMPOSE THE FRANCHISE TAX, AND SECTION 193 THEREOF, WHICH PROVIDES FOR WITHDRAWAL OF TAX EXEMPTION PRIVILEGES, ARE NOT APPLICABLE IN THIS CASE. 5.01.c. THE LOWER COURT ERRED IN APPLYING PRINCIPLES OF STATUTORY CONSTRUCTION THAT TAX EXEMPTIONS ARE DISFAVORED AND IN HOLDING THAT SECTION 23 OF REPUBLIC ACT NO. 7925 (PUBLIC TELECOMMUNICATIONS POLICY ACT) DOES NOT SUPPORT PETITIONERS POSITION IN THIS CASE. 5.01.d. THE LOWER COURT ERRED IN NOT GIVING WEIGHT TO THE RULING OF THE DEPARTMENT OF FINANCE, THROUGH ITS BUREAU OF LOCAL GOVERNMENT FINANCE, THAT PETITIONER IS EXEMPT FROM THE PAYMENT OF FRANCHISE AND BUSINESS TAXES IMPOSABLE BY LOCAL GOVERNMENT UNITS UNDER THE LOCAL GOVERNMENT CODE. 5.01.e. THE LOWER COURT ERRED IN NOT GRANTING PETITIONERS CLAIM FOR TAX REFUND. 5.01.f. THE LOWER COURT ERRED IN DENYING THE PETITION BELOW.

 We note, quite interestingly, that except for the particular local government units

involved in the earlier case of PLDT vs. City of Davao[7] and the very recent case of PLDT vs. City of Bacolod, et al.,[8] the arguments presently advanced by petitioner on the issues raised herein are but a mere reiteration if not repetition of the very same arguments it has already raised in the two (2) earlier PLDT cases. For sure, the errors presently assigned are substantially the same as those in Davao and in Bacolod, all of which have been adequately addressed and passed upon by this Court in its decisions therein as well as in its en bancResolution in Davao.

 In PLDT vs. City of Davao, and again in PLDT vs. City of Bacolod, et al., this Court

has interpreted Section 23 of Rep. Act No. 7925. There, we ruled that Section 23 does not

operate to exempt PLDT from the payment of franchise tax. We quote what we have said in Davao and reiterated in Bacolod.

 In sum, it does not appear that, in approving 23 of R.A. No.

7925, Congress intended it to operate as a blanket tax exemption to all telecommunications entities. Applying the rule of strict construction of laws granting tax exemptions and the rule that doubts should be resolved in favor of municipal corporations in interpreting statutory provisions on municipal taxing powers, we hold that 23 of R.A. No. 7925 cannot be considered as having amended petitioner's franchise so as to entitle it to exemption from the imposition of local franchise taxes. Consequently, we hold that petitioner is liable to pay local franchise taxes in the amount of P3,681,985.72 for the period covering the first to the fourth quarter of 1999 and that it is not entitled to a refund of taxes paid by it for the period covering the first to the third quarter of 1998.[9]

 The Court explains further: 

To begin with, tax exemptions are highly disfavored. The reason for this was explained by this Court in Asiatic Petroleum Co. v. Llanes, in which it was held:

 . . . Exemptions from taxation are highly disfavored, so much so

that they may almost be said to be odious to the law. He who claims an exemption must be able to point to some positive provision of law creating the right. . . As was said by the Supreme Court of Tennessee in Memphis vs. U. & P. Bank (91 Tenn., 546, 550), The right of taxation is inherent in the State. It is a prerogative essential to the perpetuity of the government; and he who claims an exemption from the common burden must justify his claim by the clearest grant of organic or statute law. Other utterances equally or more emphatic come readily to hand from the highest authority. In Ohio Life Ins. and Trust Co. vs. Debolt (16 Howard, 416), it was said by Chief Justice Taney, that the right of taxation will not be held to have been surrendered, unless the intention to surrender is manifested by words too plain to be mistaken. In the case of the Delaware Railroad Tax (18 Wallace, 206, 226), the Supreme Court of the United States said that the surrender, when claimed, must be shown by clear, unambiguous language, which will admit of no reasonable construction consistent with the reservation of the power. If a doubt arises as to the intent of the legislature, that doubt must be solved in favor of the State. In Erie Railway Company vs. Commonwealth of Pennsylvania (21 Wallace, 492, 499), Mr. Justice Hunt, speaking of exemptions, observed that a State cannot strip itself of the most essential power of taxation by doubtful words. It cannot, by ambiguous language, be deprived of this highest attribute of sovereignty. In Tennessee vs. Whitworth (117 U.S., 129, 136), it was said: In all cases of this kind the question is as to the intent of the legislature, the presumption always being against any surrender of the taxing power. In Farrington vs. Tennessee and County of Shelby (95 U.S., 379, 686), Mr. Justice Swayne said: . . . When exemption is claimed, it must be shown indubitably to exist. At the outset, every presumption is against it. A well-founded doubt is fatal to the claim. It is

only when the terms of the concession are too explicit to admit fairly of any other construction that the proposition can be supported.

 The tax exemption must be expressed in the statute in clear

language that leaves no doubt of the intention of the legislature to grant such exemption. And, even if it is granted, the exemption must be interpreted in strictissimi juris against the taxpayer and liberally in favor of the taxing authority.

 xxx xxx xxx

 The fact is that the term exemption in 23 is too general. A

cardinal rule in statutory construction is that legislative intent must be ascertained from a consideration of the statute as a whole and not merely of a particular provision. For, taken in the abstract, a word or phrase might easily convey a meaning which is different from the one actually intended. A general provision may actually have a limited application if read together with other provisions. Hence, a consideration of the law itself in its entirety and the proceedings of both Houses of Congress is in order.

 xxx xxx xxx

 R.A. No. 7925 is thus a legislative enactment designed to set the

national policy on telecommunications and provide the structures to implement it to keep up with the technological advances in the industry and the needs of the public. The thrust of the law is to promote gradually the deregulation of the entry, pricing, and operations of all public telecommunications entities and thus promote a level playing field in the telecommunications industry. There is nothing in the language of 23 nor in the proceedings of both the House of Representatives and the Senate in enacting R.A. No. 7925 which shows that it contemplates the grant of tax exemptions to all telecommunications entities, including those whose exemptions had been withdrawn by the LGC.

 What this Court said in Asiatic Petroleum Co. v.

Llanes applies mutatis mutandis to this case: When exemption is claimed, it must be shown indubitably to exist. At the outset, every presumption is against it. A well-founded doubt is fatal to the claim. It is only when the terms of the concession are too explicit to admit fairly of any other construction that the proposition can be supported. In this case, the word exemption in 23 of R.A. No. 7925 could contemplate exemption from certain regulatory or reporting requirements, bearing in mind the policy of the law. It is noteworthy that, in holding Smart and Globe exempt from local taxes, the BLGF did not base its opinion on 23 but on the fact that the franchises granted to them after the effectivity of the LGC exempted them from the payment of local franchise and business taxes. As before, PLDT argues that because Smart Communications, Inc. (SMART) and

Globe Telecom (GLOBE) under whose respective franchises granted after the effectivity of the Local Government Code, are exempt from franchise tax, it follows that petitioner is likewise exempt from the franchise tax sought to be collected by the Province of Laguna,  on the reasoning that the grant of tax exemption to SMART and GLOBE ipso facto applies to

PLDT, consistent with the most-favored-treatment clause found in Section 23 of the Public Telecommunications Policy Act of the Philippines (Rep. Act No. 7925).

 Again, there is nothing novel in petitioners contention. For sure, in Davao, this

Court even adverted to PLDTs similar argument therein, thus: 

Finally, it [PLDT] argues that because Smart and Globe are exempt from the franchise tax, it follows that it must likewise be exempt from the tax being collected by the City of Davao because the grant of tax exemption to Smart and Globe ipso facto extended the same exemption to it,  

which argument this Court rejected in said case in the following wise: The acceptance of petitioners theory would result in absurd

consequences. To illustrate: In its franchise, Globe is required to pay a franchise tax of only one and one-half percentum (1/2% [sic] ) of all gross receipts from its transactions while Smart is required to pay a tax of three percent (3%) on all gross receipts from business transacted. Petitioners theory would require that, to level the playing field, any advantage, favor, privilege, exemption, or immunity granted to Globe must be extended to all telecommunications companies, including Smart. If, later, Congress again grants a franchise to another telecommunications company imposing, say, one percent (1%) franchise tax, then all other telecommunications franchises will have to be adjusted to level the playing field so to speak. This could not have been the intent of Congress in enacting Section 23 of Rep. Act 7925. Petitioners theory will leave the Government with the burden of having to keep track of all granted telecommunications franchises, lest some companies be treated unequally. It is different if Congress enacts a law specifically granting uniform advantages, favor, privilege, exemption or immunity to all telecommunications entities. On PLDTs motion for reconsideration in Davao, the Court added in its en

banc Resolution of March 25, 2003,[10] that even as it is a state policy to promote a level playing field in the communications industry, Section 23 of Rep. Act No. 7925 does not refer to tax exemption but only to exemption from certain regulations and requirements imposed by the National Telecommunications Commission:

 xxx. 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 ofequitable 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 services.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.[11]

 PLDTs third assigned error has likewise been squarely addressed in the same en

banc Resolution, when the Court rejected PLDTs contention that the in-lieu-of-all-taxes clause does not refer to tax exemption but to tax exclusion and hence, the strictissimi juris rule does not apply. The en banc explains that these two terms actually mean the same thing, such that 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:

 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. Exclusion, on the other hand, is the removal of otherwise taxable items from the reach of taxation, e.g., exclusions from gross income and allowable deductions. 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 instrictissimi 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.[12]

    As in Davao, PLDT presently faults the trial court for not giving weight to the ruling

of the BLGF which, to petitioners mind, is an administrative agency with technical expertise and mastery over the specialized matters assigned to it. Again, to quote from our ruling in Davao:

  To be sure, the BLGF is not an administrative agency whose

findings on questions of fact are given weight and deference in the courts. The authorities cited by petitioner pertain to the Court of Tax Appeals, a highly specialized court which performs judicial functions as it was created for the review of tax cases. In contrast, the BLGF was created merely to provide consultative services and technical assistance to local governments and the general public on local taxation, real property assessment, and other related matters, among others. The question raised by petitioner is a legal question, to wit, the interpretation of 23 of R.A. No.

7925. There is, therefore, no basis for claiming expertise for the BLGF that administrative agencies are said to possess in their respective fields.[13]

   With the reality that the arguments presently advanced by petitioner are but a mere

reiteration if not a virtual repetition of the very same arguments it has already raised in Davao and in Bacolod, all of which arguments and submissions have been extensively addressed and adequately passed upon by this Court in its decisions in said two (2) PLDT cases, and noting that the instant recourse has not raised any new fresh issue to warrant a second look, it, too, must have to fall.

WHEREFORE, and on the basis of our consistent ruling in PLDT vs. City of Davao and PLDT vs. City of Bacolod, et al., the petition is DENIED and the assailed decision of the trial court AFFIRMED.

 With treble costs against petitioner. SO ORDERED.

[G.R. No. 120082. September 11, 1996]

MACTAN CEBU INTERNATIONAL AIRPORT AUTHORITY, petitioner, vs. HON. FERDINAND J. MARCOS, in his capacity as the Presiding Judge of the Regional Trial Court, Branch 20, Cebu City, THE CITY OF CEBU, represented by its Mayor, HON. TOMAS R. OSMEA, and EUSTAQUIO B. CESA,respondents.

D E C I S I O N

DAVIDE, JR., J.:

For review under Rule 45 of the Rules of Court on a pure question of law are the decision of 22 March 1995[1] of the Regional Trial Court (RTC) of Cebu City, Branch 20, dismissing the petition for declaratory relief in Civil Case No. CEB-16900, entitled Mactan Cebu International Airport Authority vs. City of Cebu, and its order of 4 May 1995[2]denying the motion to reconsider the decision.

We resolved to give due course to this petition for it raises issues dwelling on the scope of the taxing power of local government units and the limits of tax exemption privileges of government-owned and controlled corporations.

The uncontradicted factual antecedents are summarized in the instant petition as follows:

Petitioner Mactan Cebu International Airport Authority (MCIAA) was created by virtue of Republic Act No. 6958, mandated to principally undertake the economical, efficient and effective control, management and supervision of the Mactan International Airport in the Province of Cebu and the Lahug Airport in Cebu City, x x x and such other airports as may be established in the Province of Cebu x x x (Sec. 3, RA 6958). It is also mandated to:

a) encourage, promote and develop international and domestic air traffic in the Central Visayas and Mindanao regions as a means of making the regions centers of international trade and tourism, and accelerating the development of the means of transportation and communication in the country; and,

b) upgrade the services and facilities of the airports and to formulate internationally acceptable standards of airport accommodation and service.

Since the time of its creation, petitioner MCIAA enjoyed the privilege of exemption from payment of realty taxes in accordance with Section 14 of its Charter:

Sec. 14. Tax Exemptions. -- The Authority shall be exempt from realty taxes imposed by the National Government or any of its political subdivisions, agencies and instrumentalities x x x.

On October 11, 1994, however, Mr. Eustaquio B. Cesa, Officer-in-Charge, Office of the Treasurer of the City of Cebu, demanded payment for realty taxes on several parcels of land belonging to the petitioner (Lot Nos. 913-G, 743, 88 SWO, 948-A, 989-A, 474, 109(931), I-M, 918, 919, 913-F, 941, 942, 947, 77 Psd., 746 and 991-A), located at Barrio Apas and Barrio Kasambagan, Lahug, Cebu City, in the total amount of P2,229,078.79.

Petitioner objected to such demand for payment as baseless and unjustified, claiming in its favor the aforecited Section 14 of RA 6958 which exempts it from payment of realty taxes.  It was also asserted that it is an instrumentality of the government performing governmental functions, citing Section 133 of the Local Government Code of 1991 which puts limitations on the taxing powers of local government units:

Section 133. Common Limitations on the Taxing Powers of Local Government Units. -- Unless otherwise provided herein, the exercise of the taxing powers of provinces, cities, municipalities, and barangays shall not extend to the levy of the following:

a) x x x

x x x

o) Taxes, fees or charges of any kind on the National Government, its agencies and instrumentalities, and local government units. (underscoring supplied)

Respondent City refused to cancel and set aside petitioners realty tax account, insisting that the MCIAA is a government-controlled corporation whose tax exemption privilege has been withdrawn by virtue of Sections 193 and 234 of the Local Government Code that took effect on January 1, 1992:

Section 193. Withdrawal of Tax Exemption Privilege. 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. (underscoring supplied)

x x x

Section 234. Exemptions from Real Property Taxes. x x x

(a) x x x

x x x

(e) 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 government-owned or controlled corporations are hereby withdrawn upon the effectivity of this Code.

As the City of Cebu was about to issue a warrant of levy against the properties of petitioner, the latter was compelled to pay its tax account under protest and thereafter filed a Petition for Declaratory Relief with the Regional Trial Court of Cebu, Branch 20, on December 29,

1994. MCIAA basically contended that the taxing powers of local government units do not extend to the levy of taxes or fees of any kind on an instrumentality of the national government. Petitioner insisted that while it is indeed a government-owned corporation, it nonetheless stands on the same footing as an agency or instrumentality of the national government by the very nature of its powers and functions.

Respondent City, however, asserted that MCIAA is not an instrumentality of the government but merely a government-owned corporation performing proprietary functions. As such, all exemptions previously granted to it were deemed withdrawn by operation of law, as provided under Sections 193 and 234 of the Local Government Code when it took effect on January 1, 1992.[3]

The petition for declaratory relief was docketed as Civil Case No. CEB-16900.

In its decision of 22 March 1995,[4] the trial court dismissed the petition in light of its findings, to wit:

A close reading of the New Local Government Code of 1991 or RA 7160 provides the express cancellation and withdrawal of exemption of taxes by government-owned and controlled corporation per Sections after the effectivity of said Code on January 1, 1992, to wit: [proceeds to quote Sections 193 and 234]

Petitioners claimed that its real properties assessed by respondent City Government of Cebu are exempted from paying realty taxes in view of the exemption granted under RA 6958 to pay the same (citing Section 14 of RA 6958).

However, RA 7160 expressly provides that All general and special laws, acts, city charters, decrees [sic], executive orders, proclamations and administrative regulations, or part of parts thereof which are inconsistent with any of the provisions of this Code are hereby repealed or modified accordingly. (/f/, Section 534, RA 7160).

With that repealing clause in RA 7160, it is safe to infer and state that the tax exemption provided for in RA 6958 creating petitioner had been expressly repealed by the provisions of the New Local Government Code of 1991.

So that petitioner in this case has to pay the assessed realty tax of its properties effective after January 1, 1992 until the present.

This Courts ruling finds expression to give impetus and meaning to the overall objectives of the New Local Government Code of 1991, RA 7160. It is hereby declared the policy of the State that the territorial and political subdivisions of the State shall enjoy genuine and meaningful local autonomy to enable them to attain their fullest development as self-reliant communities and make them more effective partners in the attainment of national goals. Toward this end, the State shall provide for a more responsive and accountable local government structure instituted through a system of decentralization whereby local government units shall be given more powers, authority, responsibilities, and resources. The process of decentralization shall proceed from the national government to the local government units. x x x[5]

Its motion for reconsideration having been denied by the trial court in its 4 May 1995 order, the petitioner filed the instant petition based on the following assignment of errors:

I. RESPONDENT JUDGE ERRED IN FAILING TO RULE THAT THE PETITIONER IS VESTED WITH GOVERNMENT POWERS AND FUNCTIONS WHICH PLACE IT IN THE SAME CATEGORY AS AN INSTRUMENTALITY OR AGENCY OF THE GOVERNMENT.

II. RESPONDENT JUDGE ERRED IN RULING THAT PETITIONER IS LIABLE TO PAY REAL PROPERTY TAXES TO THE CITY OF CEBU.

Anent the first assigned error, the petitioner asserts that although it is a government-owned or controlled corporation, it is mandated to perform functions in the same category as an instrumentality of Government. An instrumentality of Government is one created to perform governmental functions primarily to promote certain aspects of the economic life of the people.[6]Considering its task not merely to efficiently operate and manage the Mactan-Cebu International Airport, but more importantly, to carry out the Government policies of promoting and developing the Central Visayas and Mindanao regions as centers of international trade and tourism, and accelerating the development of the means of transportation and communication in the country,[7] and that it is an attached agency of the Department of Transportation and Communication (DOTC),[8] the petitioner may stand in [sic] the same footing as an agency or instrumentality of the national government.  Hence, its tax exemption privilege under Section 14 of its Charter cannot be considered withdrawn with the passage of the Local Government Code of 1991 (hereinafter LGC) because Section 133 thereof specifically states that the `taxing powers of local government units shall not extend to the levy of taxes or fees or charges of any kind on the national government, its agencies and instrumentalities.

As to the second assigned error, the petitioner contends that being an instrumentality of the National Government, respondent City of Cebu has no power nor authority to impose realty taxes upon it in accordance with the aforesaid Section 133 of the LGC, as explained in Basco vs. Philippine Amusement and Gaming Corporation:[9]

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 stock are owned by 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. (McCulloch v. Maryland, 4 Wheat 316, 4 L Ed. 579)

This doctrine emanates from the supremacy of the National Government over local governments.

Justice Holmes, speaking for the Supreme Court, made reference to the entire absence of power on the part of the States to touch, in that way (taxation) at least, the instrumentalities of the United States (Johnson v. Maryland, 254 US 51) and it can be agreed that no state or political subdivision can regulate a federal instrumentality in such a way as to prevent it from consummating its federal responsibilities, or even to seriously burden it in the accomplishment of them. (Antieau, Modern Constitutional Law, Vol. 2, p. 140)

Otherwise, mere creatures of the State can defeat National policies thru extermination of what local authorities may perceive to be undesirable activities or enterprise using the power to tax as a tool for regulation (U.S. v. Sanchez, 340 US 42). The power to tax which was called by Justice Marshall as the power to destroy (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. (underscoring supplied)

It then concludes that the respondent Judge cannot therefore correctly say that the questioned provisions of the Code do not contain any distinction between a government corporation performing governmental functions as against one performing merely proprietary ones such that the exemption privilege withdrawn under the said Code would apply to all government corporations. For it is clear from Section 133, in relation to Section 234, of the LGC that the legislature meant to exclude instrumentalities of the national government from the taxing powers of the local government units.

In its comment, respondent City of Cebu alleges that as a local government unit and a political subdivision, it has the power to impose, levy, assess, and collect taxes within its jurisdiction. Such power is guaranteed by the Constitution[10] and enhanced further by the LGC. While it may be true that under its Charter the petitioner was exempt from the payment of realty taxes,[11] this exemption was withdrawn by Section 234 of the LGC. In response to the petitioners claim that such exemption was not repealed because being an instrumentality of the National Government, Section 133 of the LGC prohibits local government units from imposing taxes, fees, or charges of any kind on it, respondent City of Cebu points out that the petitioner is likewise a government-owned corporation, and Section 234 thereof does not distinguish between government-owned or controlled corporations performing governmental and purely proprietary functions. Respondent City of Cebu urges this Court to apply by analogy its ruling that the Manila International Airport Authority is a government-owned corporation,[12]and to reject the application of Basco because it was promulgated . . . before the enactment and the signing into law of R.A. No. 7160, and was not, therefore, decided in the light of the spirit and intention of the framers of the said law.

As a general rule, the power to tax is an incident of sovereignty and is unlimited in its range, acknowledging in its very nature no limits, 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 it. Nevertheless, effective limitations thereon may be imposed by the people through their Constitutions.[13] Our Constitution, for instance, provides that the rule of taxation shall be uniform and equitable and Congress shall evolve a progressive system of taxation.[14] So potent indeed is the power that it was once opined that the power to tax involves the power to destroy.[15] Verily, taxation is a destructive power which interferes with the personal and property rights of the people and takes from them a portion of their property for the support of the government. Accordingly, tax statutes must be construed strictly against the government and liberally in favor of the taxpayer.[16] But since taxes are what we pay for civilized society,[17] or are the lifeblood of the nation, the law frowns against exemptions from taxation and statutes granting tax exemptions are thus construed strictissimi juris against the taxpayer and liberally in favor of the taxing authority.[18] A claim of exemption from tax

payments must be clearly shown and based on language in the law too plain to be mistaken.[19] Elsewise stated, taxation is the rule, exemption therefrom is the exception.[20] However, if the grantee of the exemption is a political subdivision or instrumentality, the rigid rule of construction does not apply because the practical effect of the exemption is merely to reduce the amount of money that has to be handled by the government in the course of its operations.[21]

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 by virtue of a valid delegation as before, but pursuant to direct authority conferred by Section 5, Article X of the Constitution.[22] 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.

There can be no question that under Section 14 of R.A. No. 6958 the petitioner is exempt from the payment of realty taxes imposed by the National Government or any of its political subdivisions, agencies, and instrumentalities. Nevertheless, since taxation is the rule and exemption therefrom the exception, the exemption may thus be withdrawn at the pleasure of the taxing authority. The only exception to this rule is where the exemption was granted to private parties based on material consideration of a mutual nature, which then becomes contractual and is thus covered by the non-impairment clause of the Constitution.[23]

The LGC, enacted pursuant to Section 3, Article X of the Constitution, provides for the exercise by local government units of their power to tax, the scope thereof or its limitations, and the exemptions from taxation.

Section 133 of the LGC prescribes the common limitations on the taxing powers of local government units as follows:

SEC. 133. Common Limitations on the Taxing Power 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:

(a) Income tax, except when levied on banks and other financial institutions;

(b) Documentary stamp tax;

(c) Taxes on estates, inheritance, gifts, legacies and other acquisitions mortis causa, except as otherwise provided herein;

(d) Customs duties, registration fees of vessel and wharfage on wharves, tonnage dues, and all other kinds of customs fees, charges and dues except wharfage on wharves constructed and maintained by the local government unit concerned;

(e) Taxes, fees and charges and other impositions upon goods carried into or out of, or passing through, the territorial jurisdictions of local government units in the guise of charges for wharfage, tolls for bridges or otherwise, or other taxes, fees or charges in any form whatsoever upon such goods or merchandise;

(f) Taxes, fees or charges on agricultural and aquatic products when sold by marginal farmers or fishermen;

(g) Taxes on business enterprises certified to by the Board of Investments as pioneer or non-pioneer for a period of six (6) and four (4) years, respectively from the date of registration;

(h) Excise taxes on articles enumerated under the National Internal Revenue Code, as amended, and taxes, fees or charges on petroleum products;

(i) Percentage or value-added tax (VAT) on sales, barters or exchanges or similar transactions on goods or services except as otherwise provided herein;

(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;

(k) Taxes on premiums paid by way of reinsurance or retrocession;

(l) Taxes, fees or charges for the registration of motor vehicles and for the issuance of all kinds of licenses or permits for the driving thereof, except, tricycles;

(m) Taxes, fees, or other charges on Philippine products actually exported, except as otherwise provided herein;

(n) Taxes, fees, or charges, on Countryside and Barangay Business Enterprises and cooperatives duly registered under R.A. No. 6810 and Republic Act Numbered Sixty-nine hundred thirty-eight (R.A. No. 6938) otherwise known as the Cooperatives Code of the Philippines respectively; and

(o) TAXES, FEES OR CHARGES OF ANY KIND ON THE NATIONAL GOVERNMENT, ITS AGENCIES AND INSTRUMENTALITIES, AND LOCAL GOVERNMENT UNITS.   (emphasis supplied)

Needless to say, the last item (item o) is pertinent to this case. The taxes, fees or charges referred to are of any kind; hence, they include all of these, unless otherwise provided by the LGC. The term taxes is well understood so as to need no further elaboration, especially in light of the above enumeration. The term fees means charges fixed by law or ordinance for the regulation or inspection of business or activity,[24] while charges are pecuniary liabilities such as rents or fees against persons or property.[25]

Among the taxes enumerated in the LGC is real property tax, which is governed by Section 232. It reads as follows:

SEC. 232. Power to Levy Real Property Tax. A province or city or a municipality within the Metropolitan Manila Area may levy an annual ad valorem tax on real property such as land, building, machinery, and other improvements not hereafter specifically exempted.

Section 234 of the LGC provides for the exemptions from payment of real property taxes and withdraws previous exemptions therefrom granted to natural and juridical persons, including government-owned and controlled corporations, except as provided therein. It provides:

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 had 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 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 all government-owned or controlled corporations are hereby withdrawn upon the effectivity of this Code.

These exemptions are based on the ownership, character, and use of the property. Thus:

(a) Ownership Exemptions. Exemptions from real property taxes on the basis of ownership are real properties owned by: (i) the Republic, (ii) a province, (iii) a city, (iv) a municipality, (v) a barangay, and (vi) registered cooperatives.

(b) Character Exemptions. Exempted from real property taxes on the basis of their character are: (i) charitable institutions, (ii) houses and temples of prayer like churches, parsonages or convents appurtenant thereto, mosques, and (iii) non-profit or religious cemeteries.

(c) Usage exemptions. Exempted from real property taxes on the basis of the actual, direct and exclusive use to which they are devoted are: (i) all lands, buildings and improvements which are actually directly and exclusively used for religious, charitable or educational purposes; (ii) all machineries and equipment actually, directly and exclusively used by local water districts or by government-owned or controlled corporations engaged in the supply and distribution of water and/or generation and transmission of electric power; and (iii) all machinery and equipment used for pollution control and environmental protection.

To help provide a healthy environment in the midst of the modernization of the country, all machinery and equipment for pollution control and environmental protection may not be taxed by local governments.

2. Other Exemptions Withdrawn. All other exemptions previously granted to natural or juridical persons including government-owned or controlled corporations are withdrawn upon the effectivity of the Code.[26]

Section 193 of the LGC is the general provision on withdrawal of tax exemption privileges. It provides:

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. 6938, non-stock and non-profit hospitals and educational institutions, are hereby withdrawn upon the effectivity of this Code.

On the other hand, the LGC authorizes local government units to grant tax exemption privileges. Thus, Section 192 thereof provides:

SEC. 192. Authority to Grant Tax Exemption Privileges.-- Local government units may, through ordinances duly approved, grant tax exemptions, incentives or reliefs under such terms and conditions as they may deem necessary.

The foregoing sections of the LGC speak of: (a) the limitations on the taxing powers of local government units and the exceptions to such limitations; and (b) the rule on tax exemptions and the exceptions thereto. The use of exceptions or provisos in these sections, as shown by the following clauses:

(1) unless otherwise provided herein in the opening paragraph of Section 133;

(2) Unless otherwise provided in this Code in Section 193;

(3) not hereafter specifically exempted in Section 232; and

(4) Except as provided herein in the last paragraph of Section 234

initially hampers a ready understanding of the sections. Note, too, that the aforementioned clause in Section 133 seems to be inaccurately worded. Instead of the clause unless otherwise provided herein, with the herein to mean, of course, the section, it should have used the clause unless otherwise provided in this Code. The former results in absurdity since the section itself enumerates what are beyond the taxing powers of local government units and, where exceptions were intended, the exceptions are explicitly indicated in the next. For instance, in item (a) which excepts income taxes when levied on banks and other financial institutions; item (d) which excepts wharfage on wharves constructed and maintained by the local government unit concerned; and item (1) which excepts taxes, fees and charges for the registration and issuance of licenses or permits for the driving of tricycles. It may also be observed that within the body itself of the section, there are exceptions which can be found only in other parts of the LGC, but the section interchangeably uses therein the clause except as otherwise provided herein as in items (c) and (i), or the clause except as provided in this Code in item (j). These clauses would be obviously unnecessary or mere surplusages if the opening clause of the section were Unless otherwise provided in this Code instead of Unless otherwise provided herein. In any event, even if the latter is used, since under Section 232 local government units have the power to levy real property tax, except those exempted therefrom under Section 234, then Section 232 must be deemed to qualify Section 133.

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 powers of local government units 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 item (a) of the first paragraph of Section 234.

As to tax exemptions or incentives granted to or presently enjoyed by natural or juridical persons, including government-owned and controlled corporations, Section 193 of the LGC prescribes the general rule, viz., they are withdrawn upon the effectivity of the LGC, except those granted to local water districts, cooperatives duly registered under R.A. No. 6938, non-stock and non-profit hospitals and educational institutions, and unless otherwise provided in the LGC. The latter proviso could refer to Section 234 which enumerates the properties exempt from real property tax. But the last paragraph of Section 234 further qualifies the retention of the exemption insofar as real property taxes are concerned by limiting the retention only to those enumerated therein; all others not included in the enumeration lost the privilege upon the effectivity of the LGC. Moreover, even as to real property owned by the Republic of the Philippines or any of its political subdivisions covered by item (a) of the first paragraph of Section 234, the exemption is withdrawn if the beneficial use of such property has been granted to a taxable person for consideration or otherwise.

Since the last paragraph of Section 234 unequivocally withdrew, upon the effectivity of the LGC, exemptions from payment of real property taxes granted to natural or juridical persons, including government-owned or controlled corporations, except as provided in the said section, and the petitioner is, undoubtedly, a government-owned corporation, it necessarily follows that its exemption from such tax granted it in Section 14 of its Charter, R.A. No. 6958, has been withdrawn. Any claim to the contrary can only be justified if the petitioner can seek refuge under any of the exceptions provided in Section 234, but not under Section 133, as it now asserts, since, as shown above, the said section is qualified by Sections 232 and 234.

In short, the petitioner can no longer invoke the general rule in Section 133 that the taxing powers of the local government units cannot extend to the levy of:

(o) taxes, fees or charges of any kind on the National Government, its agencies or instrumentalities, and local government units.

It must show that the parcels of land in question, which are real property, are any one of those enumerated in Section 234, either by virtue of ownership, character, or use of the property.Most likely, it could only be the first, but not under any explicit provision of the said section, for none exists. In light of the petitioners theory that it is an instrumentality of the Government, it could only be within the first item of the first paragraph of the section by expanding the scope of the term Republic of the Philippines to embrace its instrumentalities and agencies. For expediency, we quote:

(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 view does not persuade us. In the first place, the petitioners claim that it is an instrumentality of the Government is based on Section 133(o), which expressly mentions the word instrumentalities; and, in the second place, it fails to consider the fact that the legislature used the phrase National Government, its agencies and instrumentalities in Section 133(o), but only the phrase Republic of the Philippines or any of its political subdivisions in Section 234(a).

The terms Republic of the Philippines and National Government are not interchangeable. The former is broader and synonymous with Government of the Republic of the Philippines which the Administrative Code of 1987 defines as the corporate governmental entity through which the functions of government are exercised throughout the Philippines, including, save as the contrary appears from the context, the various arms through which political authority is made affective in the Philippines, whether pertaining to the autonomous regions, the provincial, city, municipal or barangay subdivisions or other forms of local government.[27] These autonomous regions, provincial, city, municipal or barangay subdivisions are the political subdivisions.[28]

On the other hand, National Government refers to the entire machinery of the central government, as distinguished from the different forms of local governments.[29] The National Government then is composed of the three great departments: the executive, the legislative and the judicial.[30]

An agency of the Government refers to any of the various units of the Government, including a department, bureau, office, instrumentality, or government-owned or controlled corporation, or a local government or a distinct unit therein; [31] while an 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 and controlled corporations.[32]

If Section 234(a) intended to extend the exception therein to the withdrawal of the exemption from payment of real property taxes under the last sentence of the said section to the agencies and instrumentalities of the National Government mentioned in Section 133(o), then it should have restated the wording of the latter. Yet, it did not. Moreover, that Congress did not wish to expand the scope of the exemption in Section 234(a) to include real property owned by other instrumentalities or agencies of the government including government-owned and controlled corporations is further borne out by the fact that the source of this exemption is Section 40(a) of P.D. No. 464, otherwise known as The Real Property Tax Code, which reads:

SEC. 40. Exemptions from Real Property Tax. The exemption shall be as follows:

(a) Real property owned by the Republic of the Philippines or any of its political subdivisions and any government-owned or controlled corporation so exempt by its charter: Provided, however, That this exemption shall not apply to real property of the above-mentioned entities the beneficial use of which has been granted, for consideration or otherwise, to a taxable person.

Note that as reproduced in Section 234(a), the phrase and any government-owned or controlled corporation so exempt by its charter was excluded. The justification for this restricted exemption in Section 234(a) seems obvious: to limit further tax exemption privileges, especially in light of the general provision on withdrawal of tax exemption

privileges in Section 193 and the special provision on withdrawal of exemption from payment of real property taxes in the last paragraph of Section 234. These policy considerations are consistent with the State policy to ensure autonomy to local governments [33] 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.[34] The power to tax is the most effective instrument to raise needed revenues to finance and support myriad activities of local government units for the delivery of basic services essential to the promotion of the general welfare and the enhancement of peace, progress, and prosperity of the people. It may also be relevant to recall that the original reasons for the withdrawal of tax exemption privileges granted to government-owned 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.[35]

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 person.

Section 15 of the petitioners Charter provides:

Sec. 15. Transfer of Existing Facilities and Intangible Assets. All 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, aerodrome 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,[36] which belonged to the Republic of the Philippines, then under the Air Transportation Office (ATO).[37]

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 things, 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.[38] Hence, the petitioner is now the owner of the land in question and the exception in Section 234(c) of the LGC is inapplicable.

Moreover, the petitioner cannot claim that it was never a taxable person under its Charter. It was only exempted from the payment of real property taxes. The grant of the

privilege only in respect of this tax is conclusive proof of the legislative intent to make it a taxable person subject to all taxes, except real property tax.

Finally, even if the petitioner was originally not a taxable person for purposes of real property tax, in light of the foregoing disquisitions, it had already become, even if it be conceded to be an agency or instrumentality of the Government, a taxable person for such purpose in view of the withdrawal in the last paragraph of Section 234 of exemptions from the payment of real property taxes, which, as earlier adverted to, applies to the petitioner.

Accordingly, the position taken by the petitioner is untenable. Reliance on Basco vs. Philippine Amusement and Gaming Corporation[39] is unavailing since it was decided before the effectivity of the LGC. Besides, nothing can prevent Congress from decreeing that even instrumentalities or agencies of the Government performing governmental functions may be subject to tax. Where it is done precisely to fulfill a constitutional mandate and national policy, no one can doubt its wisdom.

WHEREFORE, the instant petition is DENIED. The challenged decision and order of the Regional Trial Court of Cebu, Branch 20, in Civil Case No. CEB-16900 are AFFIRMED.

No pronouncement as to costs.

SO ORDERED.

Narvasa, C.J., (Chairman), Melo, Francisco, and Panganiban, JJ., concur.

G.R. No. 155650             July 20, 2006

MANILA INTERNATIONAL AIRPORT AUTHORITY, petitioner, vs.COURT OF APPEALS, CITY OF PARAÑAQUE, CITY MAYOR OF PARAÑAQUE, SANGGUNIANG PANGLUNGSOD NG PARAÑAQUE, CITY ASSESSOR OF PARAÑAQUE, and CITY TREASURER OF PARAÑAQUE, respondents.

D E C I S I O N

CARPIO, J.:

The Antecedents

Petitioner Manila International Airport Authority (MIAA) operates the Ninoy Aquino International Airport (NAIA) Complex in Parañaque City under Executive Order No. 903, otherwise known as the Revised Charter of the Manila International Airport Authority ("MIAA Charter"). Executive Order No. 903 was issued on 21 July 1983 by then President Ferdinand E. Marcos. Subsequently, Executive Order Nos. 9091 and 2982 amended the MIAA Charter.

As operator of the international airport, MIAA administers the land, improvements and equipment within the NAIA Complex. The MIAA Charter transferred to MIAA approximately 600 hectares of land,3 including the runways and buildings ("Airport Lands and Buildings") then under the Bureau of Air Transportation.4 The MIAA Charter further provides that no portion of the land transferred to MIAA shall be disposed of through sale or any other mode unless specifically approved by the President of the Philippines.5

On 21 March 1997, the Office of the Government Corporate Counsel (OGCC) issued Opinion No. 061. The OGCC opined that the Local Government Code of 1991 withdrew the exemption from real estate tax granted to MIAA under Section 21 of the MIAA Charter. Thus, MIAA negotiated with respondent City of Parañaque to pay the real estate tax imposed by the City. MIAA then paid some of the real estate tax already due.

On 28 June 2001, MIAA received Final Notices of Real Estate Tax Delinquency from the City of Parañaque for the taxable years 1992 to 2001. MIAA's real estate tax delinquency is broken down as follows:

TAX DECLARATION

TAXABLE YEAR TAX DUE PENALTY

E-016-01370 1992-2001 19,558,160.00 11,201,083.20

E-016-01374 1992-2001 111,689,424.90 68,149,479.59

E-016-01375 1992-2001 20,276,058.00 12,371,832.00

E-016-01376 1992-2001 58,144,028.00 35,477,712.00

E-016-01377 1992-2001 18,134,614.65 11,065,188.59

E-016-01378 1992-2001 111,107,950.40 67,794,681.59

E-016-01379 1992-2001 4,322,340.00 2,637,360.00

E-016-01380 1992-2001 7,776,436.00 4,744,944.00

*E-016-013-85 1998-2001 6,444,810.00 2,900,164.50

*E-016-01387 1998-2001 34,876,800.00 5,694,560.00

*E-016-01396 1998-2001 75,240.00 33,858.00

GRAND TOTAL P392,435,861.95 P232,070,863.47

1992-1997 RPT was paid on Dec. 24, 1997 as per O.R.#9476102 for P4,207,028.75

#9476101 for P28,676,480.00

#9476103 for P49,115.006

On 17 July 2001, the City of Parañaque, through its City Treasurer, issued notices of levy and warrants of levy on the Airport Lands and Buildings. The Mayor of the City of Parañaque threatened to sell at public auction the Airport Lands and Buildings should MIAA fail to pay the real estate tax delinquency. MIAA thus sought a clarification of OGCC Opinion No. 061.

On 9 August 2001, the OGCC issued Opinion No. 147 clarifying OGCC Opinion No. 061. The OGCC pointed out that Section 206 of the Local Government Code requires persons exempt from real estate tax to show proof of exemption. The OGCC opined that Section 21 of the MIAA Charter is the proof that MIAA is exempt from real estate tax.

On 1 October 2001, MIAA filed with the Court of Appeals an original petition for prohibition and injunction, with prayer for preliminary injunction or temporary restraining order. The petition sought to restrain the City of Parañaque from imposing real estate tax on, levying against, and auctioning for public sale the Airport Lands and Buildings. The petition was docketed as CA-G.R. SP No. 66878.

On 5 October 2001, the Court of Appeals dismissed the petition because MIAA filed it beyond the 60-day reglementary period. The Court of Appeals also denied on 27 September 2002 MIAA's motion for reconsideration and supplemental motion for reconsideration. Hence, MIAA filed on 5 December 2002 the present petition for review.7

Meanwhile, in January 2003, the City of Parañaque posted notices of auction sale at the Barangay Halls of Barangays Vitalez, Sto. Niño, and Tambo, Parañaque City; in the public market of Barangay La Huerta; and in the main lobby of the Parañaque City Hall. The City of Parañaque published the notices in the 3 and 10 January 2003 issues of the Philippine Daily Inquirer, a newspaper of general circulation in the Philippines. The notices announced the public auction sale of the Airport Lands and Buildings to the highest bidder on 7 February 2003, 10:00 a.m., at the Legislative Session Hall Building of Parañaque City.

A day before the public auction, or on 6 February 2003, at 5:10 p.m., MIAA filed before this Court an Urgent Ex-Parte and Reiteratory Motion for the Issuance of a Temporary Restraining Order. The motion sought to restrain respondents — the City of Parañaque, City Mayor of Parañaque, Sangguniang Panglungsod ng Parañaque, City Treasurer of Parañaque, and the City Assessor of Parañaque ("respondents") — from auctioning the Airport Lands and Buildings.

On 7 February 2003, this Court issued a temporary restraining order (TRO) effective immediately. The Court ordered respondents to cease and desist from selling at public auction the Airport Lands and Buildings. Respondents received the TRO on the same day that the Court issued it. However, respondents received the TRO only at 1:25 p.m. or three hours after the conclusion of the public auction.

On 10 February 2003, this Court issued a Resolution confirming nunc pro tunc the TRO.

On 29 March 2005, the Court heard the parties in oral arguments. In compliance with the directive issued during the hearing, MIAA, respondent City of Parañaque, and the Solicitor General subsequently submitted their respective Memoranda.

MIAA admits that the MIAA Charter has placed the title to the Airport Lands and Buildings in the name of MIAA. However, MIAA points out that it cannot claim ownership over these properties since the real owner of the Airport Lands and Buildings is the Republic of the Philippines. The MIAA Charter mandates MIAA to devote the Airport Lands and Buildings for the benefit of the general public. Since the Airport Lands and Buildings are devoted to public use and public service, the ownership of these properties remains with the State. The Airport Lands and Buildings are thus inalienable and are not subject to real estate tax by local governments.

MIAA also points out that Section 21 of the MIAA Charter specifically exempts MIAA from the payment of real estate tax. MIAA insists that it is also exempt from real estate tax under Section 234 of the Local Government Code because the Airport Lands and Buildings are owned by the Republic. To justify the exemption, MIAA invokes the principle that the government cannot tax itself. MIAA points out that the reason for tax exemption of public property is that its taxation would not inure to any public advantage, since in such a case the tax debtor is also the tax creditor.

Respondents invoke Section 193 of the Local Government Code, which expressly withdrew the tax exemption privileges of "government-owned and-controlled corporations" upon the effectivity of the Local Government Code. Respondents also argue that a basic rule of statutory construction is that the express mention of one person, thing, or act excludes all others. An international airport is not among the exceptions mentioned in Section 193 of the Local Government Code. Thus, respondents assert that MIAA cannot claim that the Airport Lands and Buildings are exempt from real estate tax.

Respondents also cite the ruling of this Court in Mactan International Airport v. Marcos8 where we held that the Local Government Code has withdrawn the exemption from real estate tax granted to international airports. Respondents further argue that since MIAA has already paid some of the real estate tax assessments, it is now estopped from claiming that the Airport Lands and Buildings are exempt from real estate tax.

The Issue

This petition raises the threshold issue of whether the Airport Lands and Buildings of MIAA are exempt from real estate tax under existing laws. If so exempt, then the real estate tax assessments issued by the City of Parañaque, and all proceedings taken pursuant to such assessments, are void. In such event, the other issues raised in this petition become moot.

The Court's Ruling

We rule that MIAA's Airport Lands and Buildings are exempt from real estate tax imposed by local governments.

First, MIAA is not a government-owned or controlled corporation but an instrumentality of the National Government and thus exempt from local taxation. Second, the real properties of MIAA are owned by the Republic of the Philippines and thus exempt from real estate tax.

1. MIAA is Not a Government-Owned or Controlled Corporation

Respondents argue that MIAA, being a government-owned or controlled corporation, is not exempt from real estate tax. Respondents claim that the deletion of the phrase "any government-owned or controlled so exempt by its charter" in Section 234(e) of the Local Government Code withdrew the real estate tax exemption of government-owned or controlled corporations. The deleted phrase appeared in Section 40(a) of the 1974 Real Property Tax Code enumerating the entities exempt from real estate tax.

There is no dispute that a government-owned or controlled corporation is not exempt from real estate tax. However, MIAA is not a government-owned or controlled corporation. Section 2(13) of the Introductory Provisions of the Administrative Code of 1987 defines a government-owned or controlled corporation as follows:

SEC. 2. General Terms Defined. – x x x x

(13) Government-owned or controlled corporation refers to any agency organized as a stock or non-stock corporation, vested with functions relating to public needs whether governmental or proprietary in nature, and owned by the Government directly or through its instrumentalities either wholly, or, where applicable as in the case of stock corporations, to the extent of at least fifty-one (51) percent of its capital stock: x x x. (Emphasis supplied)

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. Section 10 of the MIAA Charter9provides:

SECTION 10. Capital. — The capital of the Authority to be contributed by the National Government shall be increased from Two and One-half Billion (P2,500,000,000.00) Pesos to Ten Billion (P10,000,000,000.00) Pesos to consist of:

(a) The value of fixed assets including airport facilities, runways and equipment and such other properties, movable and immovable[,] which may be contributed by the National Government or transferred by it from any of its agencies, the valuation of which shall be determined jointly with the Department of Budget and Management and the Commission on Audit on the date of such contribution or transfer after making due allowances for depreciation and other deductions taking into account the

loans and other liabilities of the Authority at the time of the takeover of the assets and other properties;

(b) That the amount of P605 million as of December 31, 1986 representing about seventy percentum (70%) of the unremitted share of the National Government from 1983 to 1986 to be remitted to the National Treasury as provided for in Section 11 of E. O. No. 903 as amended, shall be converted into the equity of the National Government in the Authority. Thereafter, the Government contribution to the capital of the Authority shall be provided in the General Appropriations Act.

Clearly, under its Charter, MIAA does not have capital stock that is divided into shares.

Section 3 of the Corporation Code10 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.

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.11 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. Section 2(10) of the Introductory Provisions of the Administrative Code defines a government "instrumentality" as follows:

SEC. 2. General Terms Defined. –– x x x x

(10) Instrumentality refers to any agency of the National Government, not integrated within the department framework, vested with special functions or jurisdiction by law, endowed with some if not all corporate powers, administering special funds, and enjoying operational autonomy, usually through a charter. x x x (Emphasis supplied)

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,12 police authority13 and the levying of fees and charges.14 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."15

Likewise, when the law makes a government instrumentality operationally autonomous, the instrumentality remains part of the National Government machinery although not integrated with the department framework. The MIAA Charter expressly states that transforming MIAA into a "separate and autonomous body"16 will make its operation more "financially viable."17

Many government instrumentalities are vested with corporate powers but they do not become stock or non-stock corporations, which is a necessary condition before an agency or instrumentality is deemed a government-owned or controlled corporation. Examples are the Mactan International Airport Authority, the Philippine Ports Authority, the University of the Philippines and Bangko Sentral ng Pilipinas. All these government instrumentalities exercise corporate powers but they are not organized as stock or non-stock corporations as required by Section 2(13) of the Introductory Provisions of the Administrative Code. These government instrumentalities are sometimes loosely called government corporate entities. However, they are not government-owned or controlled corporations in the strict sense as understood under the Administrative Code, which is the governing law defining the legal relationship and status of government entities.

A government instrumentality like MIAA falls under Section 133(o) of the Local Government Code, which states:

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:

x x x x

(o) Taxes, fees or charges of any kind on the National Government, its agencies and instrumentalities and local government units.(Emphasis and underscoring supplied)

Section 133(o) recognizes the basic principle that local governments cannot tax the national government, which historically merely delegated to local governments the power to tax. While the 1987 Constitution now includes taxation as one of the powers of local governments, local governments may only exercise such power "subject to such guidelines and limitations as the Congress may provide."18

When local governments invoke the power to tax on national government instrumentalities, such power is construed strictly against local governments. The rule is that a tax is never presumed and there must be clear language in the law imposing the tax. Any doubt whether a

person, article or activity is taxable is resolved against taxation. This rule applies with greater force when local governments seek to tax national government instrumentalities.

Another rule is that a tax exemption is strictly construed against the taxpayer claiming the exemption. However, when Congress grants an exemption to a national government instrumentality from local taxation, such exemption is construed liberally in favor of the national government instrumentality. As this Court declared in Maceda v. Macaraig, Jr.:

The reason for the rule does not apply in the case of exemptions running to the benefit of the government itself or its agencies. In such case the practical effect of an exemption is merely to reduce the amount of money that has to be handled by government in the course of its operations. For these reasons, provisions granting exemptions to government agencies may be construed liberally, in favor of non tax-liability of such agencies.19

There is, moreover, no point in national and local governments taxing each other, unless a sound and compelling policy requires such transfer of public funds from one government pocket to another.

There is also no reason for local governments to tax national government instrumentalities for rendering essential public services to inhabitants of local governments. The only exception is when the legislature clearly intended to tax government instrumentalities for the delivery of essential public services for sound and compelling policy considerations . There must be express language in the law empowering local governments to tax national government instrumentalities. Any doubt whether such power exists is resolved against local governments.

Thus, Section 133 of the Local Government Code states that "unless otherwise provided" in the Code, local governments cannot tax national government instrumentalities. As this Court held in Basco v. Philippine Amusements and Gaming Corporation:

The states have no power by taxation or otherwise, to retard, impede, burden or in any manner control the operation of constitutional laws enacted by Congress to carry into execution the powers vested in the federal government. (MC Culloch v. Maryland, 4 Wheat 316, 4 L Ed. 579)

This doctrine emanates from the "supremacy" of the National Government over local governments.

"Justice Holmes, speaking for the Supreme Court, made reference to the entire absence of power on the part of the States to touch, in that way (taxation) at least, the instrumentalities of the United States (Johnson v. Maryland, 254 US 51) and it can be agreed that no state or political subdivision can regulate a federal instrumentality in such a way as to prevent it from consummating its federal responsibilities, or even to seriously burden it in the accomplishment of them." (Antieau, Modern Constitutional Law, Vol. 2, p. 140, emphasis supplied)

Otherwise, mere creatures of the State can defeat National policies thru extermination of what local authorities may perceive to be undesirable activities or

enterprise using the power to tax as "a tool for regulation" (U.S. v. Sanchez, 340 US 42).

The power to tax which was called by Justice Marshall as the "power to destroy" (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. 20

2. Airport Lands and Buildings of MIAA are Owned by the Republic

a. Airport Lands and Buildings are of Public Dominion

The Airport Lands and Buildings of MIAA are property of public dominion and therefore owned by the State or the Republic of the Philippines. The Civil Code provides:

ARTICLE 419. Property is either of public dominion or of private ownership.

ARTICLE 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. (Emphasis supplied)

ARTICLE 421. All other property of the State, which is not of the character stated in the preceding article, is patrimonial property.

ARTICLE 422. Property of public dominion, when no longer intended for public use or for public service, shall form part of the patrimonial property of the State.

No one can dispute that properties of public dominion mentioned in Article 420 of the Civil Code, like "roads, canals, rivers, torrents, ports and bridges constructed by the State," are owned by the State. The term "ports" includes seaports and airports. The MIAA Airport Lands and Buildings constitute a "port" constructed by the State. Under Article 420 of the Civil Code, the MIAA Airport Lands and Buildings are properties of public dominion and thus owned by the State or the Republic of the Philippines.

The Airport Lands and Buildings are devoted to public use because they are used by the public for international and domestic travel and transportation. The fact that the MIAA collects terminal fees and other charges from the public does not remove the character of the Airport Lands and Buildings as properties for public use. The operation by the government of a tollway does not change the character of the road as one for public use. Someone must pay for the maintenance of the road, either the public indirectly through the taxes they pay the government, or only those among the public who actually use the road through the toll fees

they pay upon using the road. The tollway system is even a more efficient and equitable manner of taxing the public for the maintenance of public roads.

The charging of fees to the public does not determine the character of the property whether it is of public dominion or not. Article 420 of the Civil Code defines property of public dominion as one "intended for public use." Even if the government collects toll fees, the road is still "intended for public use" if anyone can use the road under the same terms and conditions as the rest of the public. The charging of fees, the limitation on the kind of vehicles that can use the road, the speed restrictions and other conditions for the use of the road do not affect the public character of the road.

The terminal fees MIAA charges to passengers, as well as the landing fees MIAA charges to airlines, constitute the bulk of the income that maintains the operations of MIAA. The collection of such fees does not change the character of MIAA as an airport for public use. Such fees are often termed user's tax. This means taxing those among the public who actually use a public facility instead of taxing all the public including those who never use the particular public facility. A user's tax is more equitable — a principle of taxation mandated in the 1987 Constitution.21

The Airport Lands and Buildings of MIAA, which its Charter calls the "principal airport of the Philippines for both international and domestic air traffic,"22 are properties of public dominion because they are intended for public use. As properties of public dominion, they indisputably belong to the State or the Republic of the Philippines.

b. Airport Lands and Buildings are Outside the Commerce of Man

The Airport Lands and Buildings of MIAA are devoted to public use and thus are properties of public dominion. As properties of public dominion, the Airport Lands and Buildings are outside the commerce of man. The Court has ruled repeatedly that properties of public dominion are outside the commerce of man. As early as 1915, this Court already ruled in Municipality of Cavite v. Rojas that properties devoted to public use are outside the commerce of man, thus:

According to article 344 of the Civil Code: "Property for public use in provinces and in towns comprises the provincial and town roads, the squares, streets, fountains, and public waters, the promenades, and public works of general service supported by said towns or provinces."

The said Plaza Soledad being a promenade for public use, the municipal council of Cavite could not in 1907 withdraw or exclude from public use a portion thereof in order to lease it for the sole benefit of the defendant Hilaria Rojas. In leasing a portion of said plaza or public place to the defendant for private use the plaintiff municipality exceeded its authority in the exercise of its powers by executing a contract over a thing of which it could not dispose, nor is it empowered so to do.

The Civil Code, article 1271, prescribes that everything which is not outside the commerce of man may be the object of a contract, and plazas and streets are outside of this commerce, as was decided by the supreme court of Spain in its decision of February 12, 1895, which says: "Communal things that cannot be sold because

they are by their very nature outside of commerce are those for public use, such as the plazas, streets, common lands, rivers, fountains, etc." (Emphasis supplied) 23

Again in Espiritu v. Municipal Council, the Court declared that properties of public dominion are outside the commerce of man:

xxx Town plazas are properties of public dominion, to be devoted to public use and to be made available to the public in general. They are outside the commerce of man and cannot be disposed of or even leased by the municipality to private parties. While in case of war or during an emergency, town plazas may be occupied temporarily by private individuals, as was done and as was tolerated by the Municipality of Pozorrubio, when the emergency has ceased, said temporary occupation or use must also cease, and the town officials should see to it that the town plazas should ever be kept open to the public and free from encumbrances or illegal private constructions.24 (Emphasis supplied)

The Court has also ruled that property of public dominion, being outside the commerce of man, cannot be the subject of an auction sale.25

Properties of public dominion, being for public use, are not subject to levy, encumbrance or disposition through public or private sale. Any encumbrance, levy on execution or auction sale of any property of public dominion is void for being contrary to public policy. Essential public services will stop if properties of public dominion are subject to encumbrances, foreclosures and auction sale. This will happen if the City of Parañaque can foreclose and compel the auction sale of the 600-hectare runway of the MIAA for non-payment of real estate tax.

Before MIAA can encumber26 the Airport Lands and Buildings, the President must first withdraw from public use the Airport Lands and Buildings. Sections 83 and 88 of the Public Land Law or Commonwealth Act No. 141, which "remains to this day the existing general law governing the classification and disposition of lands of the public domain other than timber and mineral lands,"27 provide:

SECTION 83. Upon the recommendation of the Secretary of Agriculture and Natural Resources, the President may designate by proclamation any tract or tracts of land of the public domain as reservations for the use of the Republic of the Philippines or of any of its branches, or of the inhabitants thereof, in accordance with regulations prescribed for this purposes, or for quasi-public uses or purposes when the public interest requires it, including reservations for highways, rights of way for railroads, hydraulic power sites, irrigation systems, communal pastures or lequas communales, public parks, public quarries, public fishponds, working men's village and other improvements for the public benefit.

SECTION 88. The tract or tracts of land reserved under the provisions of Section eighty-three shall be non-alienable and shall not be subject to occupation, entry, sale, lease, or other disposition until again declared alienable under the provisions of this Act or by proclamation of the President. (Emphasis and underscoring supplied)

Thus, unless the President issues a proclamation withdrawing the Airport Lands and Buildings from public use, these properties remain properties of public dominion and are inalienable. Since the Airport Lands and Buildings are inalienable in their present status as properties of public dominion, they are not subject to levy on execution or foreclosure sale. As long as the Airport Lands and Buildings are reserved for public use, their ownership remains with the State or the Republic of the Philippines.

The authority of the President to reserve lands of the public domain for public use, and to withdraw such public use, is reiterated in Section 14, Chapter 4, Title I, Book III of the Administrative Code of 1987, which states:

SEC. 14. Power to Reserve Lands of the Public and Private Domain of the Government. — (1) The President shall have the power to reserve for settlement or public use, and for specific public purposes, any of the lands of the public domain, the use of which is not otherwise directed by law. The reserved land shall thereafter remain subject to the specific public purpose indicated until otherwise provided by law or proclamation;

x x x x. (Emphasis supplied)

There is no question, therefore, that unless the Airport Lands and Buildings are withdrawn by law or presidential proclamation from public use, they are properties of public dominion, owned by the Republic and outside the commerce of man.

c. MIAA is a Mere Trustee of the Republic

MIAA is merely holding title to the Airport Lands and Buildings in trust for the Republic. Section 48, Chapter 12, Book I of the Administrative Code allows instrumentalities like MIAA to hold title to real properties owned by the Republic, thus:

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:

(1) For property belonging to and titled in the name of the Republic of the Philippines, by the President, unless the authority therefor is expressly vested by law in another officer.

(2) For property belonging to the Republic of the Philippines but titled in the name of any political subdivision or of any corporate agency or instrumentality, by the executive head of the agency or instrumentality. (Emphasis supplied)

In MIAA's case, its status as a mere trustee of the Airport Lands and Buildings is clearer because even its executive head cannot sign the deed of conveyance on behalf of the Republic. Only the President of the Republic can sign such deed of conveyance.28

d. Transfer to MIAA was Meant to Implement a Reorganization

The MIAA Charter, which is a law, transferred to MIAA the title to the Airport Lands and Buildings from the Bureau of Air Transportation of the Department of Transportation and Communications. The MIAA Charter provides:

SECTION 3. Creation of the Manila International Airport Authority. — x x x x

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. (Emphasis supplied)

SECTION 22. Transfer of Existing Facilities and Intangible Assets. — All existing public airport facilities, runways, lands, buildings and other property , movable or 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. (Emphasis supplied)

SECTION 25. Abolition of the Manila International Airport as a Division in the Bureau of Air Transportation and Transitory Provisions. — The Manila International Airport including the Manila Domestic Airport as a division under the Bureau of Air Transportation is hereby abolished.

x x x x.

The MIAA Charter transferred the Airport Lands and Buildings to MIAA without the Republic receiving cash, promissory notes or even stock since MIAA is not a stock corporation.

The whereas clauses of the MIAA Charter explain the rationale for the transfer of the Airport Lands and Buildings to MIAA, thus:

WHEREAS, the Manila International Airport as the principal airport of the Philippines for both international and domestic air traffic, is required to provide standards of airport accommodation and service comparable with the best airports in the world;

WHEREAS, domestic and other terminals, general aviation and other facilities, have to be upgraded to meet the current and future air traffic and other demands of aviation in Metro Manila;

WHEREAS, a management and organization study has indicated that the objectives of providing high standards of accommodation and service within the context of a financially viable operation, will best be achieved by a separate and autonomous body; and

WHEREAS, under Presidential Decree No. 1416, as amended by Presidential Decree No. 1772, the President of the Philippines is given continuing authority to reorganize the National Government, which authority includes the creation of new entities, agencies and instrumentalities of the Government[.] (Emphasis supplied)

The transfer of the Airport Lands and Buildings from the Bureau of Air Transportation to MIAA was not meant to transfer beneficial ownership of these assets from the Republic to MIAA. The purpose was merely to reorganize a division in the Bureau of Air Transportation into a separate and autonomous body. The Republic remains the beneficial owner of the Airport Lands and Buildings. MIAA itself is owned solely by the Republic. No party claims any ownership rights over MIAA's assets adverse to the Republic.

The MIAA Charter expressly provides that the Airport Lands and Buildings "shall not be disposed through sale or through any other mode unless specifically approved by the President of the Philippines." This only means that the Republic retained the beneficial ownership of the Airport Lands and Buildings because under Article 428 of the Civil Code, only the "owner has the right to x x x dispose of a thing." Since MIAA cannot dispose of the Airport Lands and Buildings, MIAA does not own the Airport Lands and Buildings.

At any time, the President can transfer back to the Republic title to the Airport Lands and Buildings without the Republic paying MIAA any consideration. Under Section 3 of the MIAA Charter, the President is the only one who can authorize the sale or disposition of the Airport Lands and Buildings. This only confirms that the Airport Lands and Buildings belong to the Republic.

e. Real Property Owned by the Republic is Not Taxable

Section 234(a) of the Local Government Code exempts from real estate tax any "[r]eal property owned by the Republic of the Philippines." Section 234(a) provides:

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;

x x x. (Emphasis supplied)

This exemption should be read in relation with Section 133(o) of the same Code, which prohibits local governments from imposing "[t]axes, fees or charges of any kind on the National Government, its agencies andinstrumentalities x x x." The real properties owned by

the Republic are titled either in the name of the Republic itself or in the name of agencies or instrumentalities of the National Government. The Administrative Code allows real property owned by the Republic to be titled in the name of agencies or instrumentalities of the national government. Such real properties remain owned by the Republic and continue to be exempt from real estate tax.

The Republic may grant the beneficial use of its real property to an agency or instrumentality of the national government. This happens when title of the real property is transferred to an agency or instrumentality even as the Republic remains the owner of the real property. Such arrangement does not result in the loss of the tax exemption. Section 234(a) of the Local Government Code states that real property owned by the Republic loses its tax exemption only if the "beneficial use thereof has been granted, for consideration or otherwise, to a taxable person." MIAA, as a government instrumentality, is not a taxable person under Section 133(o) of the Local Government Code. Thus, even if we assume that the Republic has granted to MIAA the beneficial use of the Airport Lands and Buildings, such fact does not make these real properties subject to real estate tax.

However, portions of the Airport Lands and Buildings that MIAA leases to private entities are not exempt from real estate tax. For example, the land area occupied by hangars that MIAA leases to private corporations is subject to real estate tax. In such a case, MIAA has granted the beneficial use of such land area for a consideration to ataxable person and therefore such land area is subject to real estate tax. In Lung Center of the Philippines v. Quezon City, the Court ruled:

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. 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 non-paying, are exempt from real property taxes.29

3. Refutation of Arguments of Minority

The minority asserts that the MIAA is not exempt from real estate tax because Section 193 of the Local Government Code of 1991 withdrew the tax exemption of "all persons, whether natural or juridical" upon the effectivity of the Code. Section 193 provides:

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 effectivity of this Code. (Emphasis supplied)

The minority states that MIAA is indisputably a juridical person. The minority argues that since the Local Government Code withdrew the tax exemption of all juridical persons, then MIAA is not exempt from real estate tax. Thus, the minority declares:

It is evident from the quoted provisions of the Local Government Code that the withdrawn exemptions from realty tax cover not just GOCCs, but all persons.

To repeat, the provisions lay down the explicit proposition that the withdrawal of realty tax exemption applies to all persons. The reference to or the inclusion of GOCCs is only clarificatory or illustrative of the explicit provision.

The term "All persons" encompasses the two classes of persons recognized under our laws, natural and juridical persons. Obviously, MIAA is not a natural person. Thus, the determinative test is not just whether MIAA is a GOCC, but whether MIAA is a juridical person at all. (Emphasis and underscoring in the original)

The minority posits that the "determinative test" whether MIAA is exempt from local taxation is its status — whether MIAA is a juridical person or not. The minority also insists that "Sections 193 and 234 may be examined in isolation from Section 133(o) to ascertain MIAA's claim of exemption."

The argument of the minority is fatally flawed. Section 193 of the Local Government Code expressly withdrew the tax exemption of all juridical persons "[u]nless otherwise provided in this Code." Now, Section 133(o) of the Local Government Code expressly provides otherwise, specifically prohibiting local governments from imposing any kind of tax on national government instrumentalities. Section 133(o) states:

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:

x x x x

(o) Taxes, fees or charges of any kinds on the National Government, its agencies and instrumentalities, and local government units. (Emphasis and underscoring supplied)

By express mandate of the Local Government Code, local governments cannot impose any kind of tax on national government instrumentalities like the MIAA. Local governments are devoid of power to tax the national government, its agencies and instrumentalities. The taxing powers of local governments do not extend to the national government, its agencies and instrumentalities, "[u]nless otherwise provided in this Code" as stated in the saving clause of Section 133. The saving clause refers to Section 234(a) on the exception to the exemption from real estate tax of real property owned by the Republic.

The minority, however, theorizes that unless exempted in Section 193 itself, all juridical persons are subject to tax by local governments. The minority insists that the juridical persons exempt from local taxation are limited to the three classes of entities specifically enumerated as exempt in Section 193. Thus, the minority states:

x x x Under Section 193, the exemption is limited to (a) local water districts; (b) cooperatives duly registered under Republic Act No. 6938; and (c) non-stock and non-profit hospitals and educational institutions. It would be belaboring the obvious why the MIAA does not fall within any of the exempt entities under Section 193. (Emphasis supplied)

The minority's theory directly contradicts and completely negates Section 133(o) of the Local Government Code. This theory will result in gross absurdities. It will make the national government, which itself is a juridical person, subject to tax by local governments since the national government is not included in the enumeration of exempt entities in Section 193. Under this theory, local governments can impose any kind of local tax, and not only real estate tax, on the national government.

Under the minority's theory, many national government instrumentalities with juridical personalities will also be subject to any kind of local tax, and not only real estate tax. Some of the national government instrumentalities vested by law with juridical personalities are: Bangko Sentral ng Pilipinas,30 Philippine Rice Research Institute,31Laguna Lake

Development Authority,32 Fisheries Development Authority,33 Bases Conversion Development Authority,34Philippine Ports Authority,35 Cagayan de Oro Port Authority,36 San Fernando Port Authority,37 Cebu Port Authority,38 and Philippine National Railways.39

The minority's theory violates Section 133(o) of the Local Government Code which expressly prohibits local governments from imposing any kind of tax on national government instrumentalities. Section 133(o) does not distinguish between national government instrumentalities with or without juridical personalities. Where the law does not distinguish, courts should not distinguish. Thus, Section 133(o) applies to all national government instrumentalities, with or without juridical personalities. The determinative test whether MIAA is exempt from local taxation is not whether MIAA is a juridical person, but whether it is a national government instrumentality under Section 133(o) of the Local Government Code. Section 133(o) is the specific provision of law prohibiting local governments from imposing any kind of tax on the national government, its agencies and instrumentalities.

Section 133 of the Local Government Code starts with the saving clause "[u]nless otherwise provided in this Code." This means that unless the Local Government Code grants an express authorization, local governments have no power to tax the national government, its agencies and instrumentalities. Clearly, the rule is local governments have no power to tax the national government, its agencies and instrumentalities. As an exception to this rule, local governments may tax the national government, its agencies and instrumentalities only if the Local Government Code expressly so provides.

The saving clause in Section 133 refers to the exception to the exemption in Section 234(a) of the Code, which makes the national government subject to real estate tax when it gives the beneficial use of its real properties to a taxable entity. Section 234(a) of the Local Government Code provides:

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.

x x x. (Emphasis supplied)

Under Section 234(a), real property owned by the Republic is exempt from real estate tax. The exception to this exemption is when the government gives the beneficial use of the real property to a taxable entity.

The exception to the exemption in Section 234(a) is the only instance when the national government, its agencies and instrumentalities are subject to any kind of tax by local governments. The exception to the exemption applies only to real estate tax and not to any other tax. The justification for the exception to the exemption is that the real property, although owned by the Republic, is not devoted to public use or public service but devoted to the private gain of a taxable person.

The minority also argues that since Section 133 precedes Section 193 and 234 of the Local Government Code, the later provisions prevail over Section 133. Thus, the minority asserts:

x x x Moreover, sequentially Section 133 antecedes Section 193 and 234. Following an accepted rule of construction, in case of conflict the subsequent provisions should prevail. Therefore, MIAA, as a juridical person, is subject to real property taxes, the general exemptions attaching to instrumentalities under Section 133(o) of the Local Government Code being qualified by Sections 193 and 234 of the same law. (Emphasis supplied)

The minority assumes that there is an irreconcilable conflict between Section 133 on one hand, and Sections 193 and 234 on the other. No one has urged that there is such a conflict, much less has any one presenteda persuasive argument that there is such a conflict. The minority's assumption of an irreconcilable conflict in the statutory provisions is an egregious error for two reasons.

First, there is no conflict whatsoever between Sections 133 and 193 because Section 193 expressly admits its subordination to other provisions of the Code when Section 193 states "[u]nless otherwise provided in this Code." By its own words, Section 193 admits the superiority of other provisions of the Local Government Code that limit the exercise of the taxing power in Section 193. When a provision of law grants a power but withholds such power on certain matters, there is no conflict between the grant of power and the withholding of power. The grantee of the power simply cannot exercise the power on matters withheld from its power.

Second, Section 133 is entitled "Common Limitations on the Taxing Powers of Local Government Units." Section 133 limits the grant to local governments of the power to tax, and not merely the exercise of a delegated power to tax. Section 133 states that the taxing powers of local governments "shall not extend to the levy" of any kind of tax on the national government, its agencies and instrumentalities. There is no clearer limitation on the taxing power than this.

Since Section 133 prescribes the "common limitations" on the taxing powers of local governments, Section 133 logically prevails over Section 193 which grants local governments such taxing powers. By their very meaning and purpose, the "common limitations" on the taxing power prevail over the grant or exercise of the taxing power. If the taxing power of local governments in Section 193 prevails over the limitations on such taxing power in Section

133, then local governments can impose any kind of tax on the national government, its agencies and instrumentalities — a gross absurdity.

Local governments have no power to tax the national government, its agencies and instrumentalities, except as otherwise provided in the Local Government Code pursuant to the saving clause in Section 133 stating "[u]nless otherwise provided in this Code." This exception — which is an exception to the exemption of the Republic from real estate tax imposed by local governments — refers to Section 234(a) of the Code. The exception to the exemption in Section 234(a) subjects real property owned by the Republic, whether titled in the name of the national government, its agencies or instrumentalities, to real estate tax if the beneficial use of such property is given to a taxable entity.

The minority also claims that the definition in the Administrative Code of the phrase "government-owned or controlled corporation" is not controlling. The minority points out that Section 2 of the Introductory Provisions of the Administrative Code admits that its definitions are not controlling when it provides:

SEC. 2. General Terms Defined. — Unless the specific words of the text, or the context as a whole, or a particular statute, shall require a different meaning:

x x x x

The minority then concludes that reliance on the Administrative Code definition is "flawed."

The minority's argument is a non sequitur. True, Section 2 of the Administrative Code recognizes that a statute may require a different meaning than that defined in the Administrative Code. However, this does not automatically mean that the definition in the Administrative Code does not apply to the Local Government Code. Section 2 of the Administrative Code clearly states that "unless the specific words x x x of a particular statute shall require a different meaning," the definition in Section 2 of the Administrative Code shall apply. Thus, unless there is specific language in the Local Government Code defining the phrase "government-owned or controlled corporation" differently from the definition in the Administrative Code, the definition in the Administrative Code prevails.

The minority does not point to any provision in the Local Government Code defining the phrase "government-owned or controlled corporation" differently from the definition in the Administrative Code. Indeed, there is none. The Local Government Code is silent on the definition of the phrase "government-owned or controlled corporation." The Administrative Code, however, expressly defines the phrase "government-owned or controlled corporation." The inescapable conclusion is that the Administrative Code definition of the phrase "government-owned or controlled corporation" applies to the Local Government Code.

The third whereas clause of the Administrative Code states that the Code "incorporates in a unified document the major structural, functional and procedural principles and rules of governance." Thus, the Administrative Code is the governing law defining the status and relationship of government departments, bureaus, offices, agencies and instrumentalities. Unless a statute expressly provides for a different status and relationship for a specific government unit or entity, the provisions of the Administrative Code prevail.

The minority also contends that the phrase "government-owned or controlled corporation" should apply only to corporations organized under the Corporation Code, the general incorporation law, and not to corporations created by special charters. The minority sees no reason why government corporations with special charters should have a capital stock. Thus, the minority declares:

I submit that the definition of "government-owned or controlled corporations" under the Administrative Code refer to those corporations owned by the government or its instrumentalities which are created not by legislative enactment, but formed and organized under the Corporation Code through registration with the Securities and Exchange Commission. In short, these are GOCCs without original charters.

x x x x

It might as well be worth pointing out that there is no point in requiring a capital structure for GOCCs whose full ownership is limited by its charter to the State or Republic. Such GOCCs are not empowered to declare dividends or alienate their capital shares.

The contention of the minority is seriously flawed. It is not in accord with the Constitution and existing legislations. It will also result in gross absurdities.

First, the Administrative Code definition of the phrase "government-owned or controlled corporation" does not distinguish between one incorporated under the Corporation Code or under a special charter. Where the law does not distinguish, courts should not distinguish.

Second, Congress has created through special charters several government-owned corporations organized as stock corporations. Prime examples are the Land Bank of the Philippines and the Development Bank of the Philippines. The special charter40 of the Land Bank of the Philippines provides:

SECTION 81. Capital. — The authorized capital stock of the Bank shall be nine billion pesos, divided into seven hundred and eighty million common shares with a par value of ten pesos each, which shall be fully subscribed by the Government, and one hundred and twenty million preferred shares with a par value of ten pesos each, which shall be issued in accordance with the provisions of Sections seventy-seven and eighty-three of this Code. (Emphasis supplied)

Likewise, the special charter41 of the Development Bank of the Philippines provides:

SECTION 7. Authorized Capital Stock – Par value. — The capital stock of the Bank shall be Five Billion Pesos to be divided into Fifty Million common shares with par value of P100 per share. These shares are available for subscription by the National Government. Upon the effectivity of this Charter, the National Government shall subscribe to Twenty-Five Million common shares of stock worth Two Billion Five Hundred Million which shall be deemed paid for by the Government with the net asset values of the Bank remaining after the transfer of assets and liabilities as provided in Section 30 hereof. (Emphasis supplied)

Other government-owned corporations organized as stock corporations under their special charters are the Philippine Crop Insurance Corporation,42 Philippine International Trading Corporation,43 and the Philippine National Bank44 before it was reorganized as a stock corporation under the Corporation Code. All these government-owned corporations organized under special charters as stock corporations are subject to real estate tax on real properties owned by them. To rule that they are not government-owned or controlled corporations because they are not registered with the Securities and Exchange Commission would remove them from the reach of Section 234 of the Local Government Code, thus exempting them from real estate tax.

Third, the government-owned or controlled corporations created through special charters are those that meet the two conditions prescribed in Section 16, Article XII of the Constitution. The first condition is that the government-owned or controlled corporation must be established for the common good. The second condition is that the government-owned or controlled corporation must meet the test of economic viability. Section 16, Article XII of the 1987 Constitution provides:

SEC. 16. The Congress shall not, except by general law, provide for the formation, organization, or regulation of private corporations. Government-owned or controlled corporations may be created or established by special charters in the interest of the common good and subject to the test of economic viability. (Emphasis and underscoring supplied)

The Constitution expressly authorizes the legislature to create "government-owned or controlled corporations" through special charters only if these entities are required to meet the twin conditions of common good and economic viability. In other words, Congress has no power to create government-owned or controlled corporations with special charters unless they are made to comply with the two conditions of common good and economic viability. The test of economic viability applies only to government-owned or controlled corporations that perform economic or commercial activities and need to compete in the market place. Being essentially economic vehicles of the State for the common good — meaning for economic development purposes — these government-owned or controlled corporations with special charters are usually organized as stock corporations just like ordinary private corporations.

In contrast, government instrumentalities vested with corporate powers and performing governmental or public functions need not meet the test of economic viability. These instrumentalities perform essential public services for the common good, services that every modern State must provide its citizens. These instrumentalities need not be economically viable since the government may even subsidize their entire operations. These instrumentalities are not the "government-owned or controlled corporations" referred to in Section 16, Article XII of the 1987 Constitution.

Thus, the Constitution imposes no limitation when the legislature creates government instrumentalities vested with corporate powers but performing essential governmental or public functions. Congress has plenary authority to create government instrumentalities vested with corporate powers provided these instrumentalities perform essential government functions or public services. However, when the legislature creates through special charters corporations that perform economic or commercial activities, such entities — known as

"government-owned or controlled corporations" — must meet the test of economic viability because they compete in the market place.

This is the situation of the Land Bank of the Philippines and the Development Bank of the Philippines and similar government-owned or controlled corporations, which derive their income to meet operating expenses solely from commercial transactions in competition with the private sector. The intent of the Constitution is to prevent the creation of government-owned or controlled corporations that cannot survive on their own in the market place and thus merely drain the public coffers.

Commissioner Blas F. Ople, proponent of the test of economic viability, explained to the Constitutional Commission the purpose of this test, as follows:

MR. OPLE: Madam President, the reason for this concern is really that when the government creates a corporation, there is a sense in which this corporation becomes exempt from the test of economic performance. We know what happened in the past. If a government corporation loses, then it makes its claim upon the taxpayers' money through new equity infusions from the government and what is always invoked is the common good. That is the reason why this year, out of a budget of P115 billion for the entire government, about P28 billion of this will go into equity infusions to support a few government financial institutions. And this is all taxpayers' money which could have been relocated to agrarian reform, to social services like health and education, to augment the salaries of grossly underpaid public employees. And yet this is all going down the drain.

Therefore, when we insert the phrase "ECONOMIC VIABILITY" together with the "common good," this becomes a restraint on future enthusiasts for state capitalism to excuse themselves from the responsibility of meeting the market test so that they become viable. And so, Madam President, I reiterate, for the committee's consideration and I am glad that I am joined in this proposal by Commissioner Foz, the insertion of the standard of "ECONOMIC VIABILITY OR THE ECONOMIC TEST," together with the common good.45

Father Joaquin G. Bernas, a leading member of the Constitutional Commission, explains in his textbook The 1987 Constitution of the Republic of the Philippines: A Commentary:

The second sentence was added by the 1986 Constitutional Commission. The significant addition, however, is the phrase "in the interest of the common good and subject to the test of economic viability." The addition includes the ideas that they must show capacity to function efficiently in business and that they should not go into activities which the private sector can do better. Moreover, economic viability is more than financial viability but also includes capability to make profit and generate benefits not quantifiable in financial terms.46 (Emphasis supplied)

Clearly, the test of economic viability does not apply to government entities vested with corporate powers and performing essential public services. The State is obligated to render essential public services regardless of the economic viability of providing such service. The non-economic viability of rendering such essential public service does not excuse the State from withholding such essential services from the public.

However, government-owned or controlled corporations with special charters, organized essentially for economic or commercial objectives, must meet the test of economic viability. These are the government-owned or controlled corporations that are usually organized under their special charters as stock corporations, like the Land Bank of the Philippines and the Development Bank of the Philippines. These are the government-owned or controlled corporations, along with government-owned or controlled corporations organized under the Corporation Code, that fall under the definition of "government-owned or controlled corporations" in Section 2(10) of the Administrative Code.

The MIAA need not meet the test of economic viability because the legislature did not create MIAA to compete in the market place. MIAA does not compete in the market place because there is no competing international airport operated by the private sector. MIAA performs an essential public service as the primary domestic and international airport of the Philippines. The operation of an international airport requires the presence of personnel from the following government agencies:

1. The Bureau of Immigration and Deportation, to document the arrival and departure of passengers, screening out those without visas or travel documents, or those with hold departure orders;

2. The Bureau of Customs, to collect import duties or enforce the ban on prohibited importations;

3. The quarantine office of the Department of Health, to enforce health measures against the spread of infectious diseases into the country;

4. The Department of Agriculture, to enforce measures against the spread of plant and animal diseases into the country;

5. The Aviation Security Command of the Philippine National Police, to prevent the entry of terrorists and the escape of criminals, as well as to secure the airport premises from terrorist attack or seizure;

6. The Air Traffic Office of the Department of Transportation and Communications, to authorize aircraft to enter or leave Philippine airspace, as well as to land on, or take off from, the airport; and

7. The MIAA, to provide the proper premises — such as runway and buildings — for the government personnel, passengers, and airlines, and to manage the airport operations.

All these agencies of government perform government functions essential to the operation of an international airport.

MIAA performs an essential public service that every modern State must provide its citizens. MIAA derives its revenues principally from the mandatory fees and charges MIAA imposes on passengers and airlines. The terminal fees that MIAA charges every passenger are regulatory or administrative fees47 and not income from commercial transactions.

MIAA falls under the definition of a government instrumentality under Section 2(10) of the Introductory Provisions of the Administrative Code, which provides:

SEC. 2. General Terms Defined. – x x x x

(10) Instrumentality refers to any agency of the National Government, not integrated within the department framework, vested with special functions or jurisdiction by law, endowed with some if not all corporate powers, administering special funds, and enjoying operational autonomy, usually through a charter. x x x (Emphasis supplied)

The fact alone that MIAA is endowed with corporate powers does not make MIAA a government-owned or controlled corporation. Without a change in its capital structure, MIAA remains a government instrumentality under Section 2(10) of the Introductory Provisions of the Administrative Code. More importantly, as long as MIAA renders essential public services, it need not comply with the test of economic viability. Thus, MIAA is outside the scope of the phrase "government-owned or controlled corporations" under Section 16, Article XII of the 1987 Constitution.

The minority belittles the use in the Local Government Code of the phrase "government-owned or controlled corporation" as merely "clarificatory or illustrative." This is fatal. The 1987 Constitution prescribes explicit conditions for the creation of "government-owned or controlled corporations." The Administrative Code defines what constitutes a "government-owned or controlled corporation." To belittle this phrase as "clarificatory or illustrative" is grave error.

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 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. (Emphasis supplied)

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.

4. Conclusion

Under Section 2(10) and (13) of the Introductory Provisions of the Administrative Code, which governs the legal relation and status of government units, agencies and offices within the entire government machinery, MIAA is a government instrumentality and not a government-owned or controlled corporation. Under Section 133(o) of the Local Government Code, MIAA as a government instrumentality is not a taxable person because it is not subject to "[t]axes, fees or charges of any kind" by local governments. The only exception is when MIAA leases its real property to a "taxable person" as provided in Section 234(a) of the Local Government Code, in which case the specific real property leased becomes subject to real estate tax. Thus, only portions of the Airport Lands and Buildings leased to taxable persons like private parties are subject to real estate tax by the City of Parañaque.

Under Article 420 of the Civil Code, the Airport Lands and Buildings of MIAA, being devoted to public use, are properties of public dominion and thus owned by the State or the Republic of the Philippines. Article 420 specifically mentions "ports x x x constructed by the State," which includes public airports and seaports, as properties of public dominion and owned by the Republic. As properties of public dominion owned by the Republic, there is no doubt whatsoever that the Airport Lands and Buildings are expressly exempt from real estate tax under Section 234(a) of the Local Government Code. This Court has also repeatedly ruled that properties of public dominion are not subject to execution or foreclosure sale.

WHEREFORE, we GRANT the petition. We SET ASIDE the assailed Resolutions of the Court of Appeals of 5 October 2001 and 27 September 2002 in CA-G.R. SP No. 66878. We DECLARE the Airport Lands and Buildings of the Manila International Airport Authority EXEMPT from the real estate tax imposed by the City of Parañaque. We declare VOID all the real estate tax assessments, including the final notices of real estate tax delinquencies, issued by the City of Parañaque on the Airport Lands and Buildings of the Manila International Airport Authority, except for the portions that the Manila International Airport Authority has leased to private parties. We also declare VOID the assailed auction sale, and all its effects, of the Airport Lands and Buildings of the Manila International Airport Authority.

No costs.

SO ORDERED.

LUZ R. YAMANE, in her G.R. No. 154993capacity as the CITYTREASURER 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  

D E C I S I O N 

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 theCorporation 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 thiswriting. 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 respectiveunits.[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, thecorporate 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 andcollect 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 thedue 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. 

G.R. No. 156252             June 27, 2006

COCA-COLA BOTTLERS PHILIPPINES, INC., Petitioner, vs.CITY OF MANILA, LIBERTY M. TOLEDO – City Treasurer and JOSEPH SANTIAGO – Chief, Licensing Division, Respondents.

D E C I S I O N

CHICO-NAZARIO, J.:

Before Us is a Petition for Review on Certiorari under Rule 45 of the 1997 Rules of Civil Procedure, assailing the Order1 of the Regional Trial Court (RTC) of Manila, Branch 21, dated 8 May 2002, dismissing petitioner’s Petition for Injunction, and the Order2 dated 5 December 2002, denying petitioner’s 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 Petition3 before the Department of Justice (DOJ), against the City of Manila and its Sangguniang Panlungsod, invoking Section 1874 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.

x x x x

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.

x x x x

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."

x x x x

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 plaintiff’s 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.

x x x x

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

x x x x

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.

x x x x

WHEREFORE, premises considered, Tax Ordinance No. 8011 is hereby declared NULL and VOID and LEGALLY NOT EXISTING.8

Respondent’s Motion for Reconsideration of the Resolution of the DOJ was subsequently denied in a Resolution,9dated 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 Court’s 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

Petitioner’s 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 for Certiorari 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 petitioner’s 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 Secretary’s 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 Secretary’s Certificate attached to the petition will show that Nelson Empalmado is not among those designated as representative to prosecute claims in behalf of Coca-Cola 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 Secretary’s Certificate as authorized to file a Petition in behalf of the corporation. A careful perusal of said Secretary’s 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 petitioner’s 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 petitioner’s 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 of People 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.

MINITA V. CHICO-NAZARIOAssociate Justice

ERICSSON TELECOMMUNI- G.R. NO. 176667CATIONS, INC.,Petitioner,Present: YNARES-SANTIAGO, J.,Chairperson,- versus - AUSTRIA-MARTINEZ,CHICO-NAZARIO,NACHURA, andREYES, JJ. CITY OF PASIG, represented byits City Mayor, Hon. Vicente P.Eusebio, et al.* Promulgated:Respondent. November 22, 2007x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - x  

D E C I S I O N  

AUSTRIA-MARTINEZ, J.: 

 Ericsson Telecommunications, Inc. (petitioner), a corporation with principal office in Pasig City, is engaged in the design, engineering, and marketing of telecommunication facilities/system. In an Assessment Notice dated October 25, 2000 issued by the City Treasurer of Pasig City, petitioner was assessed a business tax deficiency for the years 1998 and 1999 amounting to P9,466,885.00 and P4,993,682.00, respectively, based on its gross revenues as reported in its audited financial statements for the years 1997 and 1998.Petitioner filed a Protest dated December 21, 2000, claiming that the computation of the local business tax should be based on gross receipts and not on gross revenue. The City of Pasig (respondent) issued another Notice of Assessment to petitioner on November 19, 2001, this time based on business tax deficiencies for the years 2000 and 2001, amounting to P4,665,775.51 and P4,710,242.93, respectively, based on its gross revenues for the years 1999 and 2000. Again, petitioner filed a Protest on January 21, 2002, reiterating its position that the local business tax should be based on gross receipts and not gross revenue. Respondent denied petitioners protest and gave the latter 30 days within which to appeal the denial. This prompted petitioner to file a petition for review[1] with the Regional Trial Court (RTC) of Pasig, Branch 168, praying for the annulment and cancellation of petitioners deficiency local business taxes totaling P17,262,205.66. Respondent and its City Treasurer filed a motion to dismiss on the grounds that the court had no jurisdiction over the subject matter and that petitioner had no legal capacity to sue. The RTC denied the motion in an Order dated December 3, 2002 due to respondents failure to include a notice of hearing. Thereafter, the RTC declared respondents in default and allowed petitioner to present evidence ex- parte. 

In a Decision[2] 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, 2000and 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/appellees complaint WITHOUT PREJUDICE.

 SO ORDERED.[5]

 The CA sustained respondents claim that the petition filed with the RTC should

have been dismissed due to petitioners failure to show that Atty. Maria Theresa B. Ramos (Atty. Ramos), petitioners Manager for Tax and Legal Affairs and the person who signed the Verification and Certification of Non-Forum Shopping, was duly authorized by the Board of Directors. 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

RESPONDENTS 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 RESPONDENTS 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 respondents complaint and petitioners reply, the petition is given due course and considered ready for decision without the need of memoranda from the parties. 

The Court grants the petition. 

First, the complaint filed by petitioner with the RTC was erroneously dismissed by the CA for failure of petitioner to show that its Manager for Tax and Legal Affairs, Atty. Ramos, was authorized by the Board of Directors to sign the Verification and Certification of Non-Forum Shopping in behalf of the petitioner corporation. Time and again, the Court, under special circumstances and for compelling reasons, sanctioned substantial compliance with the rule on the submission of verification and certification against 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/secretarys 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 petitioners resident manager to sign the certification against forum shopping was submitted to the CA only after the latter dismissed the petition. The Court considered the merits of the case and the fact that the petitioner subsequently submitted a secretarys certificate, as special circumstances or compelling reasons that justify tempering the requirements in regard to the certificate of non-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 Secretarys 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 Secretarys 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 petitioners tax base. There is a question of law when the doubt or difference is on what the law is on a certain state of facts. On the other hand, there is a question of fact when the doubt or difference is on the truth or falsity of the facts alleged.[14] For a question to be one of law, the same must not involve an examination of the probative value of the evidence presented by the litigants or any of them. The resolution of the issue must rest solely on what the law provides on the given set of circumstances. Once it is clear that the issue invites a review of the evidence presented, the question posed is one of fact. Thus, the test of whether a question is one of law or of fact is not the appellation given to such question by the party raising the same; rather, it is whether the appellate court can determine the issue raised without reviewing or evaluating the evidence, in which case, it is a question of law; otherwise it is a question of fact.[15]

 

There is no dispute as to the veracity of the facts involved in the present case. While there is an issue as to the correct amount of local business tax to be paid by petitioner, its determination will not involve a look into petitioners audited financial statements or documents, as these are not disputed; rather, petitioners correct tax liability will be ascertained through an interpretation of the pertinent tax laws, i.e., whether the local business tax, as imposed by the Pasig City Revenue Code (Ordinance No. 25-92) and the Local Government Code of 1991, should be based on gross receipts, and not on gross revenue which respondent relied on in computing petitioners local business tax deficiency.This, clearly, is a question of law, and beyond the jurisdiction of the CA. 

Section 2(c), Rule 41 of the Rules of Court provides that in all cases where questions of law are raised or involved, the appeal shall be to this Court by petition for review on certiorari under Rule 45.

 Thus, as correctly pointed out by petitioner, the appeal before the CA should have

been dismissed, pursuant to Section 5(f), Rule 56 of the Rules of Court, which provides: 

Sec. 5. Grounds for dismissal of appeal.- The appeal may be dismissed motu proprio or on motion of the respondent on the following grounds:x x x x (f) Error in the choice or mode of appeal. x x x x

 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 latters gross revenue as reported in its financial statements, arguing that gross receipts is synonymous with gross earnings/revenue, which, in turn, includes uncollected earnings. Petitioner, however, contends that only the portion of the revenues which were actually and constructively received should be considered in determining its tax base. Respondent is authorized to levy business taxes under Section 143 in relation to Section 151 of the Local Government Code. 

Insofar as petitioner is concerned, the applicable provision is subsection (e), Section 143 of the same Code covering contractors and other independent contractors, to wit: 

SEC. 143. Tax on Business. - The municipality may impose taxes on the following businesses: 

x x x x (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: x x x x(Emphasis supplied)

  Amount of Tax Per Annum

 The above provision specifically refers to gross receipts which is defined under Section 131 of the Local Government Code, as follows: x x x x 

(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); x x x x

 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 taxpayers gross receipts. Because the amount withheld belongs to the taxpayer, he can transfer its ownership to the government in

payment of his tax liability. The amount withheld indubitably comes from income of the taxpayer, and thus forms part of his gross receipts. (Emphasis supplied)

 Further elaboration was made by the Court in Commissioner of Internal Revenue v. Bank of the Philippine Islands,[18] in this wise: 

Receipt of income may be actual or constructive. We have held that the withholding process results in the taxpayers constructive receipt of the income withheld, to wit: 

By analogy, we apply to the receipt of income the rules on actual and 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 actualreceipt 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 petitioners case, its audited financial statements reflect income or revenue which accrued to it during the taxable period although not yet actually or constructively received or paid. This is because petitioner uses the accrual method of accounting, where income is reportable when all the events have occurred that fix the taxpayers right to receive the income, and the amount can be determined with reasonable accuracy; the right to receive income, and not the actual receipt, determines when to include the amount in gross income.[25]

 The imposition of local business tax based on petitioners gross revenue will inevitably result in the constitutionally proscribed double taxation taxing of the same person twice by the same

jurisdiction for the same thing[26] inasmuch as petitioners revenue or income for a taxable year will definitely include its gross receipts already reported during the previous year and for which local business tax has already been paid. Thus, respondent committed a palpable error when it assessed petitioners 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.

EMERLINDA S. TALENTO, G.R. No. 180884in her capacity as the Provincial

Treasurer of the Province of Bataan,Petitioner, Present:

Ynares-Santiago, J. (Chairperson),- versus - Austria-Martinez,Carpio Morales,*

Chico-Nazario, andReyes, JJ.

HON. REMIGIO M. ESCALADA, JR.,Presiding Judge of the Regional TrialCourt of Bataan, Branch 3, and Promulgated:PETRON CORPORATION,

Respondents. June 27, 2008x ---------------------------------------------------------------------------------------- x 

DECISION YNARES-SANTIAGO, J.:  The instant petition for certiorari under Rule 65 of the Rules of Court assails the November 5, 2007 Order[1] of the Regional Trial Court of Bataan, Branch 3, in Civil Case No. 8801, granting the petition for the issuance of a writ of preliminary injunction filed by private respondent Petron Corporation (Petron) thereby enjoining petitioner Emerlinda S. Talento, Provincial Treasurer of Bataan, and her representatives from proceeding with the public auction of Petrons machineries and pieces of equipment during the pendency of the latters appeal from the revised assessment of its properties. The facts of the case are as follows: 

On June 18, 2007, Petron received from the Provincial Assessors Office of Bataan a notice of revised assessment over its machineries and pieces of equipment in Lamao, Limay, Bataan. Petron was given a period of 60 days within which to file an appeal with the Local Board of Assessment Appeals (LBAA).[2] Based on said revised assessment, petitioner Provincial Treasurer of Bataan issued a notice informing Petron that as of June 30, 2007, its total liability is P1,731,025,403.06,[3] representing deficiency real property tax due from 1994 up to the first and second quarters of 2007. 

On August 17, 2007, Petron filed a petition[4] with the LBAA (docketed as LBAA Case No. 2007-01) contesting the revised assessment on the grounds that the subject assessment pertained to properties that have been previously declared; and that the assessment covered periods of more than 10 years which is not allowed under the Local Government Code (LGC). According to Petron, the possible valid assessment pursuant to Section 222 of the LGC could only be for the years 1997 to 2006. Petron further contended that the fair market value or replacement cost used by petitioner included items which should be properly excluded; that prompt payment of discounts were not considered in determining the fair market value; and that the subject assessment should take effect a year after or on January 1, 2008. In the same petition, Petron sought the approval of a surety bond in the amount of P1,286,057,899.54.[5]

 On August 22, 2007, Petron received from petitioner a final notice of delinquent real

property tax with a warning that the subject properties would be levied and auctioned should Petron fail to settle the revised assessment due.[6]

 Consequently, Petron sent a letter[7] to petitioner stating that in view of the pendency

of its appeal[8] with the LBAA, any action by the Treasurers Office on the subject properties would be premature. However, petitioner replied that only Petrons payment under protest shall bar the collection of the realty taxes due,[9] pursuant to Sections 231 and 252 of the LGC.

 With the issuance of a Warrant of Levy[10] against its machineries and pieces of

equipment, Petron filed on September 24, 2007, an urgent motion to lift the final notice of delinquent real property tax and warrant of levy with the LBAA. It argued that the issuance of the notice and warrant is premature because an appeal has been filed with the LBAA, where it posted a surety bond in the amount of P1,286,057,899.54.[11]

 On October 3, 2007, Petron received a notice of sale of its properties scheduled

on October 17, 2007.[12] Consequently, on October 8, 2007, Petron withdrew its motion to lift the final notice of delinquent real property tax and warrant of levy with the LBAA.[13] On even date, Petron filed with the Regional Trial Court of Bataan the instantcase (docketed as Civil Case No. 8801) for prohibition with prayer for the issuance of a temporary restraining order (TRO) and preliminary injunction.[14]

 On October 15, 2007, the trial court issued a TRO for 20 days enjoining petitioner from proceeding with the public auction of Petrons properties.[15] Petitioner thereafter filed an urgent motion for the immediate dissolution of the TRO, followed by a motion to dismiss Petrons petition for prohibition. 

On November 5, 2007, the trial court issued the assailed Order granting Petrons petition for issuance of writ of preliminary injunction, subject to Petrons posting of a P444,967,503.52 bond in addition to its previously posted surety bond of P1,286,057,899.54, to complete the total amount equivalent to the revised assessment of P1,731,025,403.06. The trial court held that in scheduling the sale of the properties despite the pendency of Petrons appeal and posting of the surety bond with the LBAA, petitioner deprived Petron of the right to appeal. The dispositive portion thereof, reads:

 WHEREFORE, the writ of preliminary injunction prayed for by

plaintiff is hereby GRANTED and ISSUED, enjoining defendant Treasurer, her agents, representatives, or anybody acting in her behalf from proceeding with the scheduled public auction of plaintiffs real properties, or any disposition thereof, pending the determination of the merits of the main action, to be effective upon posting by plaintiff to the Court of an injunction bond in the amount of Four Hundred Forty Four Million Nine Hundred Sixty Seven Thousand Five Hundred Three and 52/100 Pesos (P444,967,503.52) and the approval thereof by the Court.

 Defendants Urgent Motion for the Immediate Dissolution of the Temporary Restraining Order dated October 23, 2007 is hereby DENIED. SO ORDERED.[16]

From the said Order of the trial court, petitioner went directly to this Court via the instant petition for certiorari under Rule 65 of the Rules of Court. 

The question posed in this petition, i.e., whether the collection of taxes may be suspended by reason of the filing of an appeal and posting of a surety bond, is undoubtedly a pure question of law. Section 2(c) of Rule 41 of the Rules of Court provides:

 SEC. 2. Modes of Appeal. (c) Appeal by certiorari. In all cases when only questions of law

are raised or involved, the appeal shall be to the Supreme Court by petition for review on certiorari under Rule 45.(Emphasis supplied)

 Thus, petitioner resorted to the erroneous remedy when she filed a petition for certiorari under Rule 65, when the proper mode should have been a petition for review on certiorari under Rule 45. Moreover, under Section 2, Rule 45 of the same Rules, the period to file a petition for review is 15 days from notice of the order appealed from. In the instant case, petitioner received the questioned order of the trial court on November 6, 2007, hence, she had only up to November 21, 2007 to file the petition. However, the same was filed only on January 4, 2008, or 43 days late. Consequently, petitioners failure to file an appeal within the reglementary period rendered the order of the trial court final and executory.

 The perfection of an appeal in the manner and within the period prescribed by law is

mandatory. Failure to conform to the rules regarding appeal will render the judgment final and executory and beyond the power of the Courts review. Jurisprudence mandates that when a decision becomes final and executory, it becomes valid and binding upon the parties and their successors in interest. Such decision or order can no longer be disturbed or reopened no matter how erroneous it may have been.[17]

 Petitioners resort to a petition under Rule 65 is obviously a play to make up for the loss of the right to file an appeal via a petition under Rule 45. However, a special civil action under Rule 65 can not cure petitioners failure to timely file a petition for review on certiorari  under Rule 45 of the Rules of Court.  Rule 65 is an independent action that cannot be availed of as a substitute for the lost remedy of an ordinary appeal, including that under Rule 45, especially if such loss or lapse was occasioned by ones own neglect or error in the choice of remedies.[18]

 Moreover, even if we assume that a petition under Rule 65 is the proper remedy, the

petition is still dismissible. We note that no motion for reconsideration of the November 5, 2007 order of the

trial court was filed prior to the filing of the instant petition. The settled rule is that a motion for reconsideration is a sine qua non condition for the filing of a petition for certiorari.  The purpose is to grant the public respondent an opportunity to correct any actual or perceived error attributed to it by the re-examination of the legal and factual circumstances of the case. Petitioners failure to file a motion for reconsideration deprived the trial court of the opportunity to rectify an error unwittingly committed or to vindicate itself of an act unfairly imputed.  Besides, a motion for reconsideration under the present circumstances is the plain, speedy and adequate remedy to the adverse judgment of the trial court.[19]

 Petitioner also blatantly disregarded the rule on hierarchy of courts. Although the

Supreme Court, Regional Trial Courts, and the Court of Appeals have concurrent jurisdiction to issue writs of certiorari, prohibition, mandamus, quo warranto, habeas corpus and injunction, such concurrence does not give the petitioner unrestricted freedom of choice of court forum. Recourse should have been made first with the Court of Appeals and not directly to this Court.[20]

 True, litigation is not a game of technicalities. It is equally true, however, that every

case must be presented in accordance with the prescribed procedure to ensure an orderly and

speedy administration of justice.[21] The failure therefore of petitioner to comply with the settled procedural rules justifies the dismissal of the present petition.

 Finally, we find that the trial court correctly granted respondents petition for

issuance of a writ of preliminary injunction. Section 3, Rule 58, of the Rules of Court, provides:

 SEC. 3. Grounds for issuance of preliminary injunction. A

preliminary injunction may be granted by the court when it is established: (a) That the applicant is entitled to the relief demanded, and the

whole or part of such relief consists in restraining the commission or continuance of the acts complained of, or in the performance of an act or acts, either for a limited period or perpetually;

 (b) That the commission, continuance or non-performance of the

act or acts complained of during the litigation would probably work injustice to the applicant; or

 (c) That a party, court, or agency or a person is doing,

threatening, or attempting to do, or is procuring or suffering to be done, some act or acts probably in violation of the rights of the applicant respecting the subject of the action or proceeding, and tending to render the judgment ineffectual. The requisites for the issuance of a writ of preliminary injunction are: (1) the

existence of a clear and unmistakable right that must be protected; and (2) an urgent and paramount necessity for the writ to prevent serious damage.[22]

 The urgency and paramount necessity for the issuance of a writ of injunction

becomes relevant in the instant case considering that what is being enjoined is the sale by public auction of the properties of Petron amounting to at least P1.7 billion and which properties are vital to its business operations. If at all, the repercussions and far-reaching implications of the sale of these properties on the operations of Petron merit the issuance of a writ of preliminary injunction in its favor.

We are not unaware of the doctrine that taxes are the lifeblood of the government, without which it can not properly perform its functions; and that appeal shall not suspend the collection of realty taxes. However, there is an exception to the foregoing rule, i.e., where the taxpayer has shown a clear and unmistakable right to refuse or to hold in abeyance the payment of taxes. In the instant case, we note that respondent contested the revised assessment on the following grounds: that the subject assessment pertained to properties that have been previously declared; that the assessment covered periods of more than 10 years which is not allowed under the LGC; that the fair market value or replacement cost used by petitioner included items which should be properly excluded; that prompt payment of discounts were not considered in determining the fair market value; and that the subject assessment should take effect a year after or on January 1, 2008. To our mind, the resolution of these issues would have a direct bearing on the assessment made by petitioner. Hence, it is necessary that the issues must first be passed upon before the properties of respondent is sold in public auction.

 In addition to the fact that the issues raised by the respondent would have a direct

impact on the validity of the assessment made by the petitioner, we also note that respondent

has posted a surety bond equivalent to the amount of the assessment due.  The Rules of Procedure of the LBAA, particularly Section 7, Rule V thereof, provides:

 Section 7. Effect of Appeal on Collection of Taxes. An appeal

shall not suspend the collection of the corresponding realty taxes on the real property subject of the appeal as assessed by the Provincial, City or Municipal Assessor, without prejudice to the subsequent adjustment depending upon the outcome of the appeal. An appeal may be entertained but the hearing thereof shall be deferred until the corresponding taxes due on the real property subject of the appeal shall have been paid under protest or the petitioner shall have given a surety bond, subject to the following conditions:

 (1) the amount of the bond must not be less than the total realty

taxes and penalties due as assessed by the assessor nor more than double said amount;

 (2) the bond must be accompanied by a certification from the

Insurance Commissioner (a) that the surety is duly authorized to issue such bond; (a) that the surety bond is approved by and registered with said Commission; and (c) that the amount covered by the surety bond is within the writing capacity of the surety company; and

 (3) the amount of the bond in excess of the surety companys

writing capacity, if any, must be covered by Reinsurance Binder, in which case, a certification to this effect must likewise accompany the surety bond.    Corollarily, Section 11 of Republic Act No. 9282,[23] which amended Republic Act

No. 1125 (The Law Creating the Court of Tax Appeals) provides: Section 11. Who may Appeal; Mode of Appeal; Effect of Appeal; - x x x x No appeal taken to the Court of Appeals from the Collector of Internal Revenue x x x shall suspend the payment, levy, distraint, and/or sale of any property for the satisfaction of his tax liability as provided by existing law. Provided, however, That when in the opinion of the Court the collection by the aforementioned government agencies may jeopardize the interest of the Government and/or the taxpayer the Court at any stage of the processing may suspend the collection and require the taxpayer either to deposit the amount claimed or to file a surety bond for not more than double the amount with the Court.  WHEREFORE, in view of all the foregoing, the instant petition is DISMISSED.  PETRON CORPORATION, G.R. No. 158881

Petitioner,

Present: - versus - QUISUMBING, J.,

Chairperson,CARPIO MORALES,TINGA,MAYOR TOBIAS M. TIANGCO, VELASCO, JR, andand MUNICIPAL TREASURER BRION, JJ.MANUEL T. ENRIQUEZ of theMUNICIPALITY OF NAVOTAS,METRO MANILA,Respondents.

Promulgated:April 16, 2008 x----------------------------------------------------------------------------x  

D E C I S I O N TINGA, J.: The novel but important issue before us is whether a local government unit is empowered under the Local Government Code (the LGC) to impose business taxes on persons or entities engaged in the sale of petroleum products.    

I. 

The present Petition for Review on Certiorari under Rule 45 filed by petitioner Petron Corporation (Petron) directly assails the Decision of the Regional Trial Court (RTC) of Malabon, Branch 74, which dismissed petitioners complaint for cancellation of assessment made by the then municipality (now City) of Navotas (Navotas) for deficiency taxes, and ordering the payment of P10,204,916.17 pesos in business taxes to Navotas. As the issues raised are pure questions of law, we need not dwell on the facts at length. Petron maintains a depot or bulk plant at the Navotas Fishport Complex in Navotas. Through that depot, it has engaged in the selling of diesel fuels to vessels used in commercial fishing in and around Manila Bay.[1] 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.[2] 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. The computation sheets[3] that were attached to the letter made reference to Ordinance 92-03, or the New Navotas Revenue Code (Navotas Revenue Code), though such enactment was not cited in the letter itself.  Petron duly filed with Navotas a letter-protest to the notice of assessment pursuant to Section 195 of the Code. It argued that it was exempt from local business taxes in view of Art. 232(h) of the Implementing Rules (IRR) of the Code, as well as a ruling of the Bureau of Local

Government Finance of the Department of Finance dated 31 July 1995, the latter stating that sales of petroleum fuels are not subject to local taxation. The letter-protest was denied by the Navotas Municipal Treasurer, respondent Manuel T. Enriquez, in a letter dated 8 May 2002.[4] This was followed by a letter from the Mayor dated 15 May 2002, captioned Final Demand to Pay, requiring that Petron pay the assessed amount within five (5) days from receipt thereof, with a threat of closure of Petrons operations within Navotas should there be no payment.[5] 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.[6]

 Thus, on 20 May 2002, Petron filed with the Malabon RTC a Complaint for

Cancellation of Assessment for Deficiency Taxes with Prayer for the Issuance of a Temporary Restraining Order (TRO) and/or Preliminary Injunction. The quested TRO was not issued by the Malabon RTC upon manifestation of respondents that they would not proceed with the closure of Petrons Navotas bulk plant until after the RTC shall have decided the case on the merits.[7] 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.[8]

 On 5 May 2003, the Malabon RTC rendered its Decision dismissing Petrons

complaint and ordering the payment of the assessed amount.[9] Eleven days later, Petron received a Closure Order from the Mayor, directing Petron to cease and desist from operating the bulk plant. Petron sought a TRO from the Malabon RTC, but this was denied. [10] Petron also filed a motion for reconsideration of the order of denial, but this was likewise denied.[11]

 On 4 August 2003, this Court issued a TRO, enjoining the respondents from closing

Petrons Navotas bulk plant or otherwise interfering in its operations.[12]

 II. 

As earlier stated, Petron has opted to assail the RTC Decision directly before this Court since the matter at hand involves pure questions of law, a characterization conceded by the RTC Decision itself. Particularly, the controversy hinges on the correct interpretation of Section 133(h) of the LGC, and the applicability of Article 232 (h) of the IRR.

 Section 133(h) of the LGC reads as follows: 

Sec. 133. Common Limitations on the Taxing Powers of Local Government Units. - Unless otherwise provided herein, the exercise of the taxing powers of provinces, cities, municipalities, and Barangays shall not extend to the levy of the following:

 xxx

 (h) Excise taxes on articles enumerated under the National

Internal Revenue Code, as amended, and taxes, fees or charges on petroleum products; Evidently, Section 133 prescribes the limitations on the capacity of local

government units to exercise their taxing powers otherwise granted to them under the LGC. Apparently, paragraph (h) of the Section mentions two kinds of taxes which cannot be imposed by local government units, namely: excise taxes on articles enumerated under the

National Internal Revenue Code [(NIRC)], as amended; and taxes, fees or charges on petroleum products.

 The power of a municipality to impose business taxes is provided for in Section 143

of the LGC. Under the provision, a municipality is authorized to impose business taxes on a whole host of business activities. Suffice it to say, unless there is another provision of law which states otherwise, Section 143, broad in scope as it is, would undoubtedly cover the business of selling diesel fuels, or any other petroleum product for that matter.

    Nonetheless, Article 232 of the IRR defines with more particularity the capacity of a

municipality to impose taxes on businesses. The enumeration that follows is generally a positive list of businesses which may be subjected to business taxes, and paragraph (h) of Article 232 does allow the imposition of local business taxes [o]n any business not otherwise specified in the preceding paragraphs which the sanggunian concerned may deem proper to tax, but subject to this important qualification, thus:

 xxx provided further, that in line with existing national policy,

any business engaged in the production, manufacture, refining, distribution or sale of oil, gasoline and other petroleum products shall not be subject to any local tax imposed on this article.

  Notably, the Malabon RTC declared Art. 232(h) of the IRR void because the Code purportedly does not contain a provision prohibiting the imposition of business taxes on petroleum products.[13] This submission warrants close examination as well. With all the relevant provisions of law laid out, we address the core issues submitted by Petron, namely: first, is the challenged tax on sale of the diesel fuels an excise tax on an article enumerated under the NIRC, thusly prohibited under Section 133(h) of the Code?; second, is the challenged tax prohibited by Section 133(h) under the proviso, taxes, fees or charges on petroleum products? and; third, does Art. 232(h) of the IRR similarly prohibit the imposition of the challenged tax? 

III 

As earlier observed, Section 133(h) provides two kinds of taxes which cannot be imposed by local government units: excise taxes on articles enumerated under the NIRC, as amended; and taxes, fees or charges on petroleum products. There is no doubt that among the excise taxes on articles enumerated under the NIRC are those levied on petroleum products, per Section 148 of the NIRC.

 We first consider Petrons argument that the business taxes on its sale of diesel fuels

partakes of an excise tax, which if true, could invalidate the challenged tax solely on the basis of the phrase excise taxes on articles enumerated under the [NIRC]. To support this argument, it cites Cordero v. Conda,[14] Allied Thread Co. Inc. v. City Mayor ofManila,[15] and Iloilo Bottlers, Inc. v. City of Iloilo,[16] as having explained that an excise tax is a tax upon the performance, carrying on, or the exercise of an activity. [17]Respondents, on the other hand, argue that what the provision prohibits is the imposition of excise taxes on petroleum products, but not the imposition of business taxes on the same. They cite Philippine Petroleum

Corporation v. Municipality of Pililia,[18] where the Court had noted, [a] tax on business is distinct from a tax on the article itself.[19]

 Petrons argument is fraught with far-reaching implications, for if it were sustained, it

would mean that local government units are barred from imposing business taxes on any of the articles subject to excise taxes under the NIRC. These would include alcohol products,[20] tobacco products,[21] mineral products[22] automobiles,[23] and such non-essential goods as jewelry, goods made of precious metals, perfumes, and yachts and other vessels intended for pleasure or sports.[24]

 Admittedly, the proffered definition of an excise tax as a tax upon the performance,

carrying on, or exercise of some right, privilege, activity, calling or occupation derives from the compendium American Jurisprudence, popularly referred to as Am Jur,,[25] and has been cited in previous decisions of this Court, including those cited by Petron itself.Such a definition would not have been inconsistent with previous incarnations of our Tax Code, such as the NIRC of 1939,[26] as amended, or the NIRC of 1977[27] because in those laws the term excise tax was not used at all. In contrast, the nomenclature used in those prior laws in referring to taxes imposed on specific articles was specific tax. [28] Yet beginning with the National Internal Revenue Code of 1986, as amended, the term excise taxes was used and defined as applicable to goods manufactured or produced in the Philippines and to things imported.[29]This definition was carried over into the present NIRC of 1997.[30] Further, these two latest codes categorize two different kinds of excise taxes: specific tax which is imposed and based on weight or volume capacity or any other physical unit of measurement; and ad valorem tax which is imposed and based on the selling price or other specified value of the goods. In other words, the meaning of excise tax has undergone a transformation, morphing from the Am Jur definition to its current signification which is a tax on certain specified goods or articles. 

The change in perspective brought forth by the use of the term excise tax in a different connotation was not lost on the departed author Jose Nolledo as he accorded divergent treatments in his 1973 and 1994 commentaries on our tax laws. Writing in 1973, and essentially alluding to the Am Jur definition of excise tax, Nolledo observed:

 Are specific taxes, taxes on property or excise taxes 

In the case of Meralco v. Trinidad ([G.R.] 16738, 1925) it was held that specific taxes are property taxes, a ruling which seems to be erroneous. Specific taxes are truly excise taxes for the fact that the value of the property taxed is taken into account will not change the nature of the tax. It is correct to say that specific taxes are taxes on the privilege to import, manufacture and remove from storage certain articles specified by law.[31]

 In contrast, after the tax code was amended to classify specific taxes as a subset of

excise taxes, Nolledo, in his 1994 commentaries, wrote: 

1. Excise taxes, as used in the Tax Code, refers to taxes applicable to certain specified goods or articles manufactured or produced in the Philippines for domestic sale or consumption or for any other disposition and to things imported into the Philippines. They are either specific or ad valorem.

 

2. Nature of excise taxes. They are imposed directly on certain specified goods. (infra) They are, therefore, taxes on property. (see Medina vs. City of Baguio, 91 Phil. 854.)

 A tax is not excise where it does not subject directly the produce

or goods to tax but indirectly as an incident to, or in connection with, the business to be taxed.[32]

 In their 2004 commentaries, De Leon and De Leon restate the Am Jur definition of

excise tax, and observe that the term is synonymous with privilege tax and [both terms] are often used interchangeably.[33] At the same time, they offer a caveat that [e]xcise tax, as [defined by Am Jur], is not to be confused with excise tax imposed [by the NIRC] on certain specified articles manufactured or produced in, or imported into, the Philippines, for domestic sale or consumption or for any other disposition.[34]

 It is evident that Am Jur aside, the current definition of an excise tax is that of a tax

levied on a specific article, rather than one upon the performance, carrying on, or the exercise of an activity. This current definition was already in place when the Code was enacted in 1991, and we can only presume that it was what the Congress had intended as it specified that local government units could not impose excise taxes on articles enumerated under the [NIRC]. This prohibition must pertain to the same kind of excise taxes as imposed by the NIRC, and not those previously defined excise taxes which were not integrated or denominated as such in our present tax law.

 It is quite apparent, therefore, that our current body of taxation law does not

explicitly accommodate the traditional definition of excise tax offered by Petron. In fact, absent any statutory adoption of the traditional definition, it may be said that starting in 1986 excise taxes in this jurisdiction refer exclusively to specific or ad valorem taxes imposed under the NIRC. At the very least, it is this concept of excise tax which we can reasonably assume that Congress had in mind and actually adopted when it crafted the Code. The palpable absurdity that ensues should the alternative interpretation prevail all but strengthens this position.

 Thus, Petrons argument concerning excise taxes is founded not on what the NIRC or

the Code actually provides, but on a non-statutory definition sourced from a legal paradigm that is no longer applicable in this jurisdiction. That such definition was referred to again in our 1998 decision in Province of Bulacan v. Court of Appeals[35] is ultimately of little consequence, and so is Petrons reliance on such ruling. The Court therein had correctly nullified, on the basis of Section 133(h) of the Code, a province-imposed tax of 10% of the fair market value in the locality per cubic meter of ordinary stones, sand, gravel, earth and other quarry resources xxx extracted from public lands, because it noted that under Section 151 of the NIRC, all nonmetallic minerals and quarry resources were assessed with excise taxes of two percent (2%) based on the actual market value of the gross output thereof at the time of removal, in case of those locally extracted or produced.[36] Additionally, the Court also observed that the case had emanated from an attempt to impose the said tax on quarry resources from private lands, despite the clear language of the tax ordinance limiting the tax to such resources extracted from public lands.[37] On that score alone, the case could have been correctly decided.

 It is true that the Court had additionally reasoned in Province of Bulacan that [t]he

tax imposed by the Province of Bulacan is an excise tax, being a tax upon the performance, carrying on, or exercise of an activity. As earlier noted, such definition of excise tax however

was not explicitly carried over into the NIRC and was even superseded beginning with the 1986 amendments thereto. To insist on utilizing this definition simply because it had been reiterated in Province of Bulacan, unnecessary as such reiteration may have been to the resolution of that case, would have the unfortunate effect of infusing life into a concept that is diametrically inconsistent with the present state of the law.

 We thus can assert with clear comfort that excise taxes, as imposed under the NIRC,

do not pertain to the performance, carrying on, or exercise of an activity, at least not to the extent of equating excise with business taxes.

  

IV. 

We next consider whether the clause taxes, fees or charges on petroleum products in Section 133(h) precludes local government units from imposing business taxes based on the sale of petroleum products. The power of a municipality to impose business taxes derives from Section 143 of the Code that specifically enumerates several types of business on which it may impose taxes, including manufacturers, wholesalers, distributors, dealers of any article of commerce of whatever nature;[38] those engaged in the export or commerce of essential commodities; [39] retailers;[40] contractors and other independent contractors;[41] banks and financial institutions;[42] and peddlers engaged in the sale of any merchandise or article of commerce. [43] This obviously broad power is further supplemented by paragraph (h) of Section 143 which authorizes the sanggunian to impose taxes on any other businesses not otherwise specified under Section 143 which the sanggunian concerned may deem proper to tax.[44]

 This ability of local government units to impose business or other local taxes is ultimately rooted in the 1987 Constitution. Section 5, Article X assures that [e]ach local government unit shall have the power to create its own sources of revenues and to levy taxes, fees and charges, though the power is subject to such guidelines and limitations as the Congress may provide. There is no doubt that following the 1987 Constitution and the Code, the fiscal autonomy of local government units has received greater affirmation than ever. Previous decisions that have been skeptical of the viability, if not the wisdom of reposing fiscal autonomy to local government units have fallen by the wayside. Respondents cite our declaration in City Government of San Pablo v. Reyes[45] that following the 1987 Constitution the rule thenceforth in interpreting statutory provisions on municipal fiscal powers, doubts will have to be resolved in favor of municipal corporations. [46] 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. [47] And this latter qualification has to be respected as a constitutionally authorized limitation which Congress has seen fit to provide. Evidently, local fiscal autonomy should not necessarily translate into abject deference to the power of local government units to impose taxes. Congress has the constitutional authority to impose limitations on the power to tax of local government units, and Section 133 of the Code is one such limitation. Indeed, the provision is the explicit statutory impediment to the enjoyment of absolute taxing power by local

government units, not to mention the reality that such power is a delegated power. To cite one example, under Section 133(g), local government units are disallowed from levying business taxes on business enterprises certified to by the Board of Investments as pioneer or non-pioneer for a period of six (6) and (4) four years, respectively from the date of registration. Section 133(h) states that local government units shall not extend to the levy of xxx taxes, fees or charges on petroleum products. Respondents assert that the phrase taxes, fees or charges on petroleum products pertains to the imposition of direct or excise taxes on petroleum products, and not business taxes. If the phrase actually pertains to excise taxes, then it would be an exercise in utter redundancy, since the preceding phrase already prohibits the imposition of excise taxes on articles already subject to such taxes under the NIRC, such as petroleum products. There would be no sense on the part of the legislature to twice emphasize in the same sentence that excise taxes on petroleum products are beyond the pale of local government taxation. It appears that this argument of respondents was fashioned on the basis of the pronouncement of the Court in Philippine Petroleum Corporation v. Municipality of Pililla, thus:[48]

 xxx [W]hile Section 2 of P.D. 436 prohibits the imposition of local taxes on petroleum products, said decree did not amend Sections 19 and 19 (a) of P.D. 231 as amended by P.D. 426, wherein the municipality is granted the right to levy taxes on business of manufacturers, importers, producers of any article of commerce of whatever kind or nature. A tax on business is distinct from a tax on the article itself. Thus, if the imposition of tax on business of manufacturers, etc. in petroleum products contravenes a declared national policy, it should have been expressly stated in P.D. No. 436.

 The dicta that [a] tax on a business is distinct from a tax on the article itself might at first blush somehow lend support to respondents position, yet that dicta has not since been reprised by this Court. It is likewise worth observing that Pililla did involve a tax ordinance that imposed business taxes on an enterprise engaged in the manufacture and storage of petroleum products. Significantly, the legal milieu governing Pililla is vastly different from that existing at bar, to the extent that the earlier case could not be presently controlling.    At the time the taxes sought to be collected in Pililla were imposed, there was no national law in place similar to Section 133(h) of the Code that barred local taxes, fees or charges on petroleum products. There were circulars to that effect issued by the Finance Department, yet the Court could not validate such issuances since under the tax laws thenin place no exemptions were given tomanufacturers, wholesalers, retailers, or dealers in petroleum products.[49] In fact, the Court tellingly observed that if the imposition of tax on business of manufacturers, etc. in petroleum products contravenes a declared national policy, it should have been expressly stated in P.D. No. 436.[50] Such expression conspiciously missing in P.D. No. 436 is now found in Section 133(h). In view of the difference in statutory paradigm between this case and Pililla, the latter case is severely diminished as applicable precedent at bar. The Court then was correct in observing

that a mere administrative circular could not prohibit a local tax that is not otherwise barred under a national statute, yet in this case that conflict is not present since the Code explicitly prohibits the imposition of several classes of local taxes, including those on petroleum products. The final and only straw Pililla provides that respondents can still grasp at is the bare statement that [a] tax on a business is distinct from a tax on the article itself, [51] a sentence which could have been omitted from that decision without any effect. We can concede that a tax on a business is distinct from a tax on the article itself, or for that matter, that a business tax is distinct from an excise tax. However, such distinction is immaterial insofar as the latter part of Section 133(h) is concerned, for the phrase taxes, fees or charges on petroleum products does not qualify the kind of taxes, fees or charges that could withstand the absolute prohibition imposed by the provision. It would have been a different matter had Congress, in crafting Section 133(h), barred excise taxes or direct taxes, or any category of taxes only, for then it would be understood that only such specified taxes on petroleum products could not be imposed under the prohibition. The absence of such a qualification leads to the conclusion that all sorts of taxes on petroleum products, including business taxes, are prohibited by Section 133(h). Where the law does not distinguish, we should not distinguish. The language of Section 133(h) makes plain that the prohibition with respect to petroleum products extends not only to excise taxes thereon, but all taxes, fees and charges. The earlier reference in paragraph (h) to excise taxes comprehends a wider range of subjects of taxation: all articles already covered by excise taxation under the NIRC, such as alcohol products, tobacco products, mineral products, automobiles, and such non-essential goods as jewelry, goods made of precious metals, perfumes, and yachts and other vessels intended for pleasure or sports. In contrast, the later reference to taxes, fees and charges pertains only to one class of articles of the many subjects of excise taxes, specifically, petroleum products. While local government units are authorized to burden all such other class of goods with taxes, fees and charges, excepting excise taxes, a specific prohibition is imposed barring the levying of any other type of taxes with respect to petroleum products.

 V.

 We no longer need to dwell on the arguments centering on Article 232 of the IRR. As

earlier stated, the provision explicitly stipulates that in line with existing national policy, any business engaged in the production, manufacture, refining, distribution or sale of oil, gasoline and other petroleum products shall not be subject to any local tax imposed on this article [on business taxes]. The RTC went as far as to declare Article 232 as invalid on the premise that the prohibition was not similarly warranted under the Code.

 Assuming that the Code does not, in fact, prohibit the imposition of business taxes on

petroleum products, we would agree that the IRR could not impose such a prohibition. With our ruling that Section 133(h) does indeed prohibit the imposition of local business taxes on petroleum products, however, the RTC declaration that Article 232 was invalid is, in turn, itself invalid. Even absent Article 232, local government units cannot impose business taxes on petroleum products. If anything, Article 232 merely reiterates what the Code itself already provides, with the additional explanation that such prohibition was in line with existing national policy.

   

VI.

 We have said all that need be said for the resolution of this case, but there is one more line of argument raised by respondents that deserves a remark. Respondents argue, assuming... that the Oversight Committee [that drafted the IRR] can legislate, that the existing national policy referred to in Article 232 had been superseded by Republic Act No. 8180, or the Oil Deregulation Law. Boiled down to its essence, the argument is that since the oil industry is presently deregulated the basis for exempting petroleum products from business taxes no longer exists. Of course, the starting premise for this argument, that the IRR can establish a tax or an exemption, is false and has been flatly rejected by this Court before. [52] The Code itself does not connect its prohibition on taxation of petroleum products with any existing or future national oil policy, so the change in such national policy with the regime of oil deregulation is ultimately of no moment. Still, we can divine the reasoning behind singling out petroleum products, among all other commodities, as beyond the power of local government units to levy local taxes. Why the special concern over petroleum products? The answer is quite evident to all sentient persons. In this age where unfortunately dependence on petroleum as fuel has yet no equally feasible alternative, the cost of petroleum products, though fully controlled by private enterprise, remains an area of public concern. To be blunt about it, there is an inevitable link between the fluctuation of oil prices and the prices of every other commodity. The reality, indeed, is oil is a political commodity. Such fact has received recognition from this Court. [O]il [is] a commodity whose supply and price affect the ebb and flow of the lifeblood of the nation. Its shortage of supply or a slight, upward spiral in its price shakes our economic foundation. Studies show that the areas most impacted by the movement of oil are food manufacture, land transport, trade, electricity and water.[53] [T]he upswing and downswing of our economy materially depend on the oscillation of oil.[54] Fluctuations in the supply and price of oil products have a dramatic effect on economic development and public welfare.[55]

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

   It may very well be that the policy of deregulation, which was not yet in effect at the

time of the enactment of the Local Government Code, has changed the complexion of the issue, for unlike before, oil companies are free at will to increase oil prices, thus mitigating the similarly arbitrary consequences that could develop if petroleum products were subject to local taxes. Still, it cannot be denied that subjecting petroleum products to business taxes apart from the taxes already imposed by Congress in this age of deregulation would lead to the same result had they been so taxed during the era of oil regulation the increase of oil prices. We do not discount the authority of Congress to enact measures that facilitate the increase in oil prices; witness the Oil Deregulation Law and the most recent Expanded VAT Law. Yet these hard choices are presumably made by Congress with the expectation that the negative effects of increased oil prices are offset by the other economic benefits promised by those new laws (i.e., a more vibrant oil industry; increased government revenue).

 The Court defers to the other branches of government in the formulation of oil

policy, but when the choices are made through legislation, the Court expects that the choices are deliberate, considering that the stakes are virtually all-in. Herein, respondents may be bolstered by the constitutional and statutory policy favoring local fiscal autonomy, but it would be utter indolence to reflexively affirm such policy when the inevitable effect is an increase in oil prices. Any prudent adjudication should fully ascertain the mandate of local government units to impose taxes on petroleum products, and such mandate should be cast in so specific terms as to leave no dispute as to the legislative intendment to extend such power in the name of local autonomy. What we have found instead, from the plain letter of the law is an explicit disinclination on the part of the legislature to impart that particular taxing power to local government units.

 While Section 133(h) does not generally bar the imposition of business taxes on

articles burdened by excise taxes under the NIRC, it specifically prohibits local government units from extending the levy of any kind of taxes, fees or charges on petroleum products. Accordingly, the subject tax assessment is ultra vires and void.

 WHEREFORE, the Petition is GRANTED. The Decision of the Regional Trial Court of Malabon City in Civil Case No. 3380-MN is REVERSED and SET ASIDE and the subject assessment fordeficiency taxes on petitioner is ordered CANCELLED. The Temporary Restraining Order dated 4 August 2003 is hereby made PERMANENT. No pronouncement as to costs. SO ORDERED.

ROMULO D. SAN JUAN,Petitioner, 

G.R. No. 174617 Present:

  - versus -    RICARDO L. CASTRO, in his capacity as City Treasurer ofMarikina City,Respondent. 

 QUISUMBING, J., Chairperson,CARPIO,CARPIO MORALES,TINGA, andVELASCO, JR. JJ. Promulgated:December 27, 2007

 

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

D E C I S I O N 

CARPIO MORALES, J.:Romulo D. San Juan (petitioner), registered owner of real properties in Rancho

Estate I, Concepcion II, Marikina City covered by Transfer Certificates of Title Nos. 160435, 236658, and 233877,[1] with the consent of his wife, conveyed on August 24, 2004, by Deed of Assignment,[2] the properties to the Saints and Angels Realty Corporation (SARC), then under the process of incorporation, in exchange for 258,434 shares of stock therein with a total par value of P2,584,340. Two hundred thousand (200,000) of the said shares of stock with a par value of P2,000,000 were placed in San Juans name while the remaining 58,434 shares of stock with a par value of P584,340 were placed in the name of his wife.

On June 24, 2005, the Securities and Exchange Commission approved the Articles of Incorporation of SARC.[3]

 Respondents representative thereafter went to the Office of the Marikina City

Treasurer to pay the transfer tax based on the consideration stated in the Deed of Assignment.[4] Ricardo L. Castro (respondent), the City Treasurer, informed him, however, that the tax due is based on the fair market value of the property.[5]

 Petitioner in writing protested the basis of the tax due in reply to which respondent

wrote: In your letter, you asserted that there is no monetary

consideration involved in the afore-mentioned transfer of the properties inasmuch as what you received as transferor thereof, are shares of stock of said realty company in exchange of the properties transferred.

 In reply, we wish to inform you that in cases of transfer of real

property not involving monetary consideration, it is certain that the fair market value or zonal value of the property is the basis of the tax rate . As provided for under the Local [G]overnment Code, fair market value is defined as the price at which a property may be sold by a seller who is not compelled to sell and bought by the buyer who is not compelled to buy. Hence, the preliminary computation based on the fair market value of the property made by the revenue collector is correct.[6] (Underscoring supplied)

  

Petitioner thus filed before the Regional Trial Court (RTC) of Marikina City a Petition[7] for mandamus and damages against respondent in his capacity as Marikina City Treasurer praying that respondent be compelled to perform a ministerial duty, that is, to accept the payment of transfer tax based on the actual consideration of the transfer/assignment.[8]

  Citing Section 135 of the Local Government Code which provides: 

Sec. 135. Tax on Transfer of Real Property Ownership. (a) The province [or the city pursuant to Section 151 of the Local Government Code] may impose a tax on the sale, donation, barter, or on any other mode of transferring ownership or title of real property at the rate of not more than fifty percent (50%) of the one percent (1%) of the total consideration involved in the acquisition of the property or the fair market value in case the monetary consideration involved in the transfer is not substantial, whichever is higher. The sale, transfer or other disposition of real property pursuant to R.A. 6657 shall be exempt from this tax. (Emphasis supplied),

  petitioner contended: 

It is beyond dispute that under the abovementioned provision of the law, transfer tax is computed on the total consideration involved. The intention of the law is not to automatically apply the whichever is higher rule. Clearly, from a reading of the above-quoted provision, it is only when there is a monetary consideration involved and the monetary consideration is not substantial that the tax rate is based on the higher fair market value   . . . [9] (Emphasis, underscoring, and italics in original)

  In his Comment on petitioners petition before the RTC, respondent stated: 

x x x x [M]onetary   consideration as used in Section 135 of R.A. 7160

does not only pertain to the price or money involved but likewise, as in the case of donations or barters, this refers to the value or monetary equivalent of what is received by the transferor.

 In the case at hand, the monetary consideration involved is the

par value of shares of stocks acquired by the petitioner in exchange for his real properties. As admitted by the petitioner himself, the fair market value of the properties transferred is more than seven million pesos. It is undeniable therefore that the actual consideration for the assignment in the amount of two million five hundred eighty four thousand and three hundred forty pesos (P2,584,340.00) is far less substantial than the aforesaid fair market value. Thus, the City Treasurer is constrained to assess the transfer tax on the higher base.[10]

 x x x x 

The respondent did not refuse to accept payment, it is the petitioner that refuses to pay the correct amount of transfer tax.

x x x x The petitioner did not exhaust the available administrative

remedies. Under the Local Government Code, the petitioner should have filed an appeal on the tax assessment and made a payment under protest pending the resolution thereof. The issues raised in the case therein, being matters of facts and law, the petitioner should have availed of the aforesaid relief before resorting to a court action. x x x

 x x x x The subject of this Petition is the performance of a duty

which is not ministerial in character. Assessment of tax liabilities or obligations and the corresponding duty to collect the same involves a degree of discretion. It is erroneous to assume that the City Treasurer is powerless to ascertain if the payment of the tax obligation is proper or correct.

 x x x x Mandamus cannot lie to compel the City Treasurer to accept as

full compliance a tax payment which in his reasoning and assessment is deficient and incorrect.[11] (Emphasis in the original)

  Finding for respondent, Branch 272 of the Marikina City RTC dismissed the petition

by Decision of August 22, 2006. Hence, the present Petition for Review on Certiorari,[12] petitioner faulting the RTC

with having committed serious errors of law in dismissing the petition for mandamus with damages.[13]

 For mandamus to lie, petitioner must comply with Section 3 of Rule 65 of the Rules

of Court which provides: 

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.

 x x x x (Underscoring supplied) 

 In the case at bar, the condition that there is no other plain, speedy and adequate

remedy in the ordinary course of law is absent. Under Section 195 of the Local Government Code which is quoted immediately

below, a taxpayer who disagrees with a tax assessment made by a local treasurer may file a written protest thereof:[14]

 SECTION 195. Protest of Assessment. When the local treasurer

or his duly authorized representative finds that the correct taxes, fees, or charges have not been paid, he shall issue a notice of assessment stating the nature of the tax, fee, or charge, the amount of deficiency, the surcharges, interests and penalties. Within sixty (60) days from the receipt of the notice of assessment, the taxpayer may file a written protest with the local treasurer contesting the assessment; otherwise, the assessment shall become final and executory. The local treasurer shall decide the protest within sixty (60) days from the time of its filing. If the local treasurer finds the protest to be wholly or partly meritorious, he shall issue a notice cancelling wholly or partially the assessment. However, if the local treasurer finds the assessment to be wholly or partly correct, he shall deny the protest wholly or partly with notice to the taxpayer. The taxpayer shall have thirty (30) days from the receipt of the denial of the protest or from the lapse of the sixty-day (60) period prescribed herein within which to appeal with the court of competent jurisdiction, otherwise the assessment becomes conclusive and   unappealable.  (Emphasis and underscoring supplied)

  That petitioner protested in writing against the assessment of tax due and the basis

thereof is on record as in fact it was on that account that respondent sent him the above-quoted July 15, 2005 letter which operated as a denial of petitioners written protest.

 Petitioner should thus have, following the earlier above-quoted Section 195 of the

Local Government Code, either appealed the assessment before the court of competent jurisdiction[15] or paid the tax and then sought a refund.[16]

 Petitioner did not observe any of these remedies available to him, however. He

instead opted to file a petition for mandamus to compel respondent to accept payment of transfer tax as computed by him.

 Mandamus lies only to compel an officer to perform a ministerial duty (one which

is so clear and specific as to leave no room for the exercise of discretion in its performance) but not a discretionary function (one which by its nature requires the exercise of judgment).[17] Respondents argument that [m]andamus cannot lie to compel the City Treasurer to accept as full compliance a tax payment which in his reasoning and assessment is deficient and incorrect is thus persuasive.

 

WHEREFORE, the petition is DENIED.

SECOND DIVISIONTEODORO BERDIN, VICENTE G.R. No. 135928

ALEGARBES, and ABELARDO DEVERA, in Their Personal Capacities Present:and as Representatives of theTUBIGON MARKET VENDORSASSOCIATION,Petitioners, QUISUMBING,* J.,

Chairperson,CARPIO,**

- versus - CARPIO MORALES,TINGA, and

VELASCO, JR., JJ.HON. EUFRACIO A. MASCARIAS,Municipal Mayor; CRESENCIANA L.BALATAYO, Municipal Treasurer; Promulgated:SAMUEL PURISIMA, INP StationCommander; THE MUNICIPALCOUNCIL and/or MUNICIPALITY July 6, 2007OF TUBIGON, PROVINCE OF BOHOL,Respondents.x-------------------------------------------------------------------------------x 

D E C I S I O N 

TINGA, J.: 

This is a petition[1] filed under Rule 45 seeking to review and set aside the 26 May 1998 Decision[2] of the Court of Appeals in CA-G.R. SP No. 39045 and to annul and set aside the 24 April 1995 Decision[3] of the Regional Trial Court (RTC), Branch 4, Bohol, in Civil Case No. 4577.

 Petitioners Teodoro Berdin, Vicente Alegarbes, and Abelardo de Vera (petitioners),

are the President, Vice President, and Adviser, respectively, of the Tubigon Market Vendors Association (Association), an association of vendors doing business in Tubigon, Bohol. Respondents Eufracio A. Mascarias, Narcisa L. Balatayo, and Lt. Abner Catalla, on the other hand, were, at the time Civil Case No. 4577 was filed, the Municipal Mayor, Treasurer, and the INP Station Commander, respectively, of Tubigon, Bohol. On 14 December 1988, the Sangguniang Bayan of Tubigon enacted Tax Ordinance No. 88-11-36[4] increasing the taxes and fees of the municipality, to take effect on 1 January 1989.Petitioner Berdin, as President of the Association, wrote to respondent Municipal Treasurer requesting a copy of Tax Ordinance No. 88-11-36.[5] The request was followed by the filing of a protest before respondents Municipal Mayor and Municipal Treasurer.[6] The Association also requested the suspension of the implementation of the ordinance pending final determination of its legality by appropriate authorities. Thereafter, on 27 February 1989, petitioners elevated their request for a review and suspension of the ordinance to the Provincial Treasurer of Bohol.[7]

 Acting on petitioners request, Eufronio M. Pizarras, Provincial Treasurer, referred the letter of petitioner Berdin to the Municipal Treasurer on 15 March 1989, and requested the latter official to forward a copy of Tax Ordinance No. 88-11-36 to the Department of Finance (DOF), through the Provincial Treasurer, for review and approval pursuant to Sec. 8 of Executive Order (E.O.) No. 249 dated 25 July 1987.[8]

 Meanwhile, on 29 March 1989, respondent Mayor submitted a corrected copy of Tax Ordinance No. 88-11-36 to Atty. Melchor P. Monreal, Assistant Regional Director, DOF Regional Office No. 7, Cebu City.[9]

 Final Demand Letters were sent to petitioners de Vera and Berdin on 2 June 1989 for payment of outstanding rental fees and municipal business taxes due under the new tax ordinance, with a warning that their stores/establishments will be closed and padlocked.[10] Petitioners wrote the Municipal Treasurer on 13 June 1989 and requested said official to await the resolution of their protest before taking action on the Final Demand Letters.[11] Petitioners also sent a letter to the DOF on 21 August 1989 asking for the suspension of the ordinance pending resolution of their protest in view of the threat of closure of their stores/establishments.[12]

 Thereafter, on 4 September 1989, petitioners filed a Complaint[13] with the RTC of Bohol against respondents Mayor, Treasurer, and INP Station Commander of Tubigon, Bohol, as well as the Municipal Council and/or Municipality of Tubigon, to enjoin respondents from enforcing Tax Ordinance No. 88-11-36, to declare the ordinance a nullity and, in the event said ordinance is found to be invalid, to order respondents to reimburse excess taxes paid by petitioners. The case was docketed as Civil Case No. 4577.[14]

 Tax Ordinance No. 88-11-36 was amended by Tax Ordinance No. 89-10-

49[15] dated 17 October 1989, by specifying that the civil remedies available include the padlocking of the establishment and/or seizure of property and revocation of the permit or license and/or eviction from public property and/or by legal action.[16] The Provincial Treasurer approved Tax Ordinance No. 89-10-49 on 8 January 1990 and held that it was within the power of the municipality to enact the ordinance pursuant to Secs. 60 to 63, Art. 3 of Presidential Decree (P.D.) No. 231, as amended, or the Local Tax Code.[17]

 Even before the Provincial Treasurer approved of Tax Ordinance No. 89-10-49,

petitioners had earlier referred Tax Ordinance No. 89-10-49 to the Provincial Prosecutor for review. The Provincial Prosecutor issued Opinion No. 90-1[18] dated 3 January 1990 and found Tax Ordinance No. 89-10-49 valid except insofar as it provided for the padlocking of establishments as among the civil remedies available against a delinquent taxpayer. Said official wrote the Sangguniang Bayan and suggested an amendment to Tax Ordinance No. 89-10-49 by deleting padlocking of the establishment as among the civil remedies.[19]

 Meanwhile, on 27 December 1989, the Provincial Treasurer suspended some

provisions of Tax Ordinance No. 88-11-36 for failure to conform to the rates prescribed by the Local Tax Code.[20] Thus, the Sangguniang Bayan enacted Municipal Revenue Ordinance No. 90-01-54[21] on 5 January 1990 to amend the suspended provisions of Tax Ordinance No. 88-11-36. The Provincial Treasurer found Municipal Revenue Ordinance No. 90-01-54 to be in conformity with the rates authorized under the Local Tax Code and accordingly lifted the suspension of the provisions of Tax Ordinance No. 88-11-36 that were previously suspended and declared that the same, as amended by Municipal Revenue Ordinance No. 90-01-54, may already be given force and effect.[22]

 Thereafter, on 24 January 1990, the Provincial Treasurer wrote petitioners informing

the latter of his findings that Tax Ordinance Nos. 88-11-36 and 89-10-49 were both in order and in accord with Art. 3 of P.D. No. 231 and further explaining that under Sec. 49 of P.D. No. 231, a public hearing is required only when the local board or council may exercise the power to impose a tax or fee on a tax base or subject similar to those authorized in [the Local

Tax Code] but which may not have been specifically enumerated herein, a fact not present in the case of the questioned ordinances.[23]

 Petitioners wrote the Provincial Treasurer on 31 January 1990 informing the latter

that the Provincial Fiscal already made a contrary ruling on Tax Ordinance No. 89-10-49 and that since the municipality did not appeal the said ruling, the same became final. Petitioners further requested the Provincial Treasurer to transmit all records to the DOF for purposes of appealing the ruling of the Provincial Treasurer and for a review of the questioned ordinances by a higher authority.[24]

 Petitioners elevated the finding of the Provincial Treasurer to the Secretary of

Finance on 31 January 1990. They also requested the suspension of the implementation of Tax Ordinance No. 88-11-36 pending its review by said office.[25] On 30 March 1990, Gregorio A. Barretto, Director III, Bureau of Local Government Finance of the DOF, referred the appeal to the Provincial Treasurer for comment and/or recommendation.[26] The Provincial Treasurer informed the DOF that his office reviewed and approved the ordinance after the rates have been found to be just and reasonable and that, for those rates initially found by him to have exceeded the maximum authorized by law, an amendatory ordinance was enacted to meet the objection.[27]

 Thereafter, the Deputy Director and Officer-in-Charge of the Bureau of Local

Government Finance, by authority of the Secretary of Finance, informed the Provincial Treasurer that their department cannot review Ordinance No. 88-11-36 as requested by petitioners.[28] The Provincial Treasurer transmitted a copy of this letter to petitioners.[29]

Four years later, on 24 April 1995, the RTC rendered a Decision[30] in Civil Case No. 4577, the dispositive portion of which states:

WHEREFORE, judgment is hereby rendered as follows: 1 declaring Municipal Revenue Ordinance No. 88-11-36, series

of 1988, enacted by the Sangguniang Bayan of Tubigon, Bohol as valid and therefore the same can be enforced;

 2 declaring Municipal Ordinance No. 89-10-49 dated October

11, 1989 valid, except insofar as it provides for the padlocking of the establishment as the civil remedies available against a delinquent taxpayer;

 3 denying the prayer for mandamus and reimbursement; 4 dissolving the injunctive order dated May 11, 1990 directing

the defendants to desist from enforcing Municipal Ordinance No. 88-11-36;

 5 granting Final Injunction restraining defendants from

padlocking the business establishments of the plaintiffs, thus making permanent the injunctive order of May 11, 1990 to that effect; and

 6 dismissing defendants counterclaim for insufficiency of

evidence. Costs against the plaintiffs. 

SO ORDERED.[31]

  Petitioners filed a Notice of Appeal with the RTC, [32] which gave due course to the appeal and ordered the transmittal of the case records to the Court of Appeals (CA).[33]

 On 26 May 1998, the Fifth Division of the CA rendered a Decision[34] affirming in toto the decision of the RTC. Their motion for reconsideration having been denied,[35]petitioners now come to this Court via this Petition for Review under Rule 45 of the Rules of Court.

 The issues raised by petitioners in their Memorandum[36] may be summarized as

follows: (1) whether the ordinances are valid and enforceable; (2) whether publication was necessary; and (3) whether there was exhaustion of administrative remedies. The petition is meritorious but only in regard to the need for publication. 

Petitioners adopt a three-level argument with regard to the validity and enforceability of Tax Ordinance No. 88-11-36. First, they assert the ordinance does not exist by virtue of respondent officials delay in furnishing them with a copy of the questioned ordinance. Second, if Tax Ordinance No. 88-11-36 did exist, it was not validly enacted for failure to hold public hearings and to have the same published pursuant to Sec. 43 of the Local Tax Code. Finally, petitioners claim, even if Tax Ordinance No. 88-11-36 was validly enacted, the same contains objectionable provisions which would render it invalid and unenforceable.

 Petitioners misgivings on the existence of Tax Ordinance No. 88-11-36 are baseless.

The reason for the delay was adequately explained and was even attributed to petitioners failure to pay for the cost of reproduction of the ordinance.

The right of the people to information on matters of public concern is recognized under Sec. 7, Art. III of the 1987 Constitution[37] and is subject to such limitations as may be provided by law. Thus, while access to official records may not be prohibited, it certainly may be regulated. The regulation may come either from statutory law and from the inherent power of an officer to control his office and the records under his custody and to exercise some discretion as to the manner in which persons desiring to inspect, examine, or copy the record may exercise their rights.[38] The Municipal Treasurer in the case at bar exercised this discretion by requiring petitioners to pay for the cost of reproduction of Tax Ordinance No. 88-11-36. Such a requirement is reasonable under the circumstances considering that the ordinance is quite voluminous consisting of more than a hundred pages. Petitioners then assail Tax Ordinance No. 88-11-36 and Tax Ordinance No. 90-10-49 for failure to hold public hearings pursuant to Sec. 50 of the Local Tax Code. Respondents, on the other hand, claim that a public hearing was no longer necessary considering that the ordinances in question were merely revisions of an existing tax ordinance and not new enactments.   The pertinent provisions of law on this matter are Secs. 49[39] and 50[40] of the Local Tax Code. 

A perusal of these provisions would yield a conclusion that the local board or council has the power to impose a tax or fee (1) on a tax base or subject specifically enumerated in the Local Tax Code, (2) on a tax base similar to those authorized in the Local Tax Code but which may not have been specifically enumerated therein, and (3) on a tax base

or tax subject which is not similar or comparable to any tax base or subject specifically mentioned or otherwise provided for in the Local Tax Code. Public hearing apparently is not necessary when the tax or fee is imposed on a tax base or subject specifically enumerated in the Local Tax Code.

 The basis for the above distinction is that when a tax base or subject is specifically

enumerated in the Local Tax Code, the existence of the power to tax is beyond question as the same is expressly granted. Even in the determination of the rates of the tax, a public hearing, even if ideal, is not necessary because the law itself provides for a ceiling on such rates. The same does not obtain in a situation where what is about to be taxed is not specifically enumerated in the Local Tax Code because in such a situation, the issues of whether to tax or not and at what rate a tax is to be imposed are crucial. Consequently, a public hearing is necessary and vital.

 A scrutiny of the taxes or fees imposed by Tax Ordinance No. 88-11-36 shows that

some of them belong to the second and third categories of taxes or fees that may be imposed by a municipality that require public hearing. Petitioners are thus correct in saying that a public hearing is necessary for its enactment. With respect to Tax Ordinance No. 89-10-49, however, we hold that no public hearing is necessary as it does not impose any tax or fee. Said ordinance is actually a restatement, with illustrations, of the provisions of the Local Tax Code on civil remedies for the collection of the local taxes and fees imposed by Tax Ordinance No. 88-11-36.

 Although a public hearing is necessary for the enactment of Tax Ordinance No. 88-

11-36, still we uphold its validity in view of petitioners failure to present evidence to show that no public hearing was conducted.[41] Petitioners, as the party asserting a negative allegation, had the burden of proving lack of public hearing.[42] Although theSangguniang Bayan had the control of records or the better means of proof regarding the facts alleged and respondent public officials assumed an uncooperative stance to petitioners request for copies of the Minutes of their deliberation, petitioners are not relieved from this burden.[43] Petitioners could easily have resorted to the various modes of discovery under Rules 23 to 28 of the Rules of Court.[44] Furthermore, petitioners could have compelled the production of these documents through a subpoena duces tecum or they could have required testimony on this issue by officials in custody of the documents through a subpoena ad testificandum. However, petitioners made no such effort.

 Petitioners next claim that the impositions contained in Tax Ordinance No. 88-11-36

exceeded the maximum allowed by the Local Tax Code. In particular, petitioners assert that (1) the taxes imposed by the ordinance are not based on the taxpayers ability to pay; (2) the taxes imposed are unjust, excessive, oppressive, discriminatory and confiscatory; (3) the ordinances are contrary to law, public policy and are in restraint of trade; (4) the ordinances violate the rule of a progressive system of taxation; and (5) the ordinances are contrary to the declared national policy.

 These questions have already been raised in their protest and resolved by the 27

December 1989 findings of the Provincial Treasurer. In fact, said official suspended some of the provisions of Tax Ordinance No. 88-11-36 for failure to comply with the rates prescribed by the Local Tax Code. Furthermore, the subsequent enactment of Municipal Revenue Ordinance No. 90-01-54 and its approval by the Provincial Treasurer corrected this non-compliance with the Local Tax Code. The local legislative bodys modification of Tax Ordinance No. 88-11-36 through Municipal Revenue Ordinance No. 90-01-54 is sanctioned by Sec. 44[45] of the Local Tax Code.

Moreover, as the presumption of regularity of official conduct was not overcome by petitioners, the findings of the Provincial Treasurer must be upheld.

There is likewise no merit in petitioners contention that the Provincial Treasurers finding on the fishery rental fees is flawed. The Local Tax Code provides in Sec. 21 thereof that municipalities, in the exercise of their authority to grant exclusive fishery rights and license individual fishing gears in municipal waters, may levy or fix rentals or fees therefore in accordance with said section and in conjunction with other operative laws and regulations on municipal fisheries. One such operative law is P.D. No. 704[46]which provides for the jurisdiction of the Bureau of Fisheries and Aquatic Resources in Sec. 4. [47] Thus, it was correct for the Provincial Treasurer to rule that the fishery rental fees in Tax Ordinance No. 88-11-36 may be given due course provided that prior approval from the Bureau of Fisheries and Aquatic Resources has been obtained, pursuant to the provisions of P.D. No. 704, as amended. 

Petitioners further fault the Municipal Treasurer for the latters failure to furnish the Provincial Treasurer with a copy of Tax Ordinance No. 88-11-36 after its approval. By not furnishing the latter official with a copy of the tax ordinance, the Municipal Treasurer frustrated a review thereof.

 In this regard, we hold that the submission of Tax Ordinance No. 88-11-36 to the

Assistant Regional Director, DOF Regional Office No. 7, Cebu City complied with the requirement of review pursuant to Secs. 49 and 50 of the Local Tax Code, as said official is the alter ego of the Secretary of Finance, under an expanded application of the doctrine of qualified political agency, where the Presidents power of control is directly exercised by him over the members of the Cabinet who, in turn, and by his authority, control thebureaus and other offices under their respective jurisdictions in the executive department.[48]

 We now resolve the issue of exhaustion of administrative remedies. A perusal of the applicable provisions of the Local Tax Code would show that there

are three administrative remedies available to an aggrieved taxpayer. A tax ordinance may either be (1) reviewed or suspended by the Provincial Treasurer[49] or the Secretary of Finance,[50] (2) the subject of a formal protest with the Secretary of Finance, [51] or (3) questioned as to its legality and referred for opinion to the Provincial Fiscal.[52]

 In the case at bar, petitioners question the validity of Tax Ordinance No. 88-11-36

for the following reasons: (1) no public hearing was conducted; (2) the taxes imposed therein are not based on the taxpayers ability to pay; (3) the taxes imposed are unjust, excessive, oppressive, discriminatory and confiscatory; (4) the ordinances are contrary to law, public policy and are in restraint of trade; (5) the ordinances violate the rule of a progressive system of taxation; and (6) the ordinances are contrary to the declared national policy.

 Of these issues, the first, second, fourth and fifth issues should have been referred

for opinion to the Provincial Fiscal pursuant to Sec. 47[53] of the Local Tax Code, because they are not among those mentioned in Sec. 44[54] of the Local Tax Code. The other remaining issues, on the other hand, are proper subjects of a protest which should have been brought to the Secretary of Finance.

 However, petitioners did not even bring the issues relative to the legality or validity

of Tax Ordinance No. 88-11-36 to the Provincial Fiscal. What they brought for the consideration of the Provincial Fiscal was Tax Ordinance No. 89-10-49. Thus, in Opinion No.

90-1,[55] the Provincial Fiscal found said ordinance valid except insofar as it provided for the padlocking of the establishment as among the civil remedies available against a delinquent taxpayer. The ruling of the Provincial Treasurer declaring Tax Ordinance No. 89-10-49 valid and in order is of no moment because, under Sec. 47, the opinion of the Provincial Fiscal is appealable to the Secretary of Justice.

 With respect to the remaining issues proper for a formal protest, petitioners did not

bring the same to the Secretary of Finance. What they filed instead was a petition with the Municipal Mayor requesting for a suspension of the implementation of the ordinance pending final determination of its legality by appropriate authorities. Petitioners thereafter went to the Provincial Treasurer reiterating their request for a review and suspension of the ordinance. In fact, the first time petitioners wrote the DOF was on 13 June 1989, when they merely requested said official to require the Provincial Treasurer to resolve their protest expeditiously. Obviously, petitioners did not formally protest Tax Ordinance No. 88-11-36 as the same may properly be brought not before the Provincial Treasurer but before the Secretary of Finance. What the Provincial Treasurer merely conducted was a review of Tax Ordinance No. 88-11-36 under Sec. 44 of the Local Tax Code, limiting itself to the issues proper for a review thereof. Thus, said official initially suspended some of the provisions of Tax Ordinance No. 88-11-36 for their failure to comply with the rates prescribed by the Local Tax Code and eventually decided in favor of its validity after the Sangguniang Bayan modified the objectionable provisions thereof via Municipal Revenue Ordinance No. 90-01-54. That what was filed before the Provincial Treasurer was merely a review is evident from the DOFs refusal to review the findings of the Provincial Treasurer, which, it said, was made pursuant to Sec. 44 of the Local Tax Code. 

Even if we were to consider petitioners appeal with the Secretary of Finance as a formal protest, despite its unseasonableness, still, it would be unavailing since they did not offer proof on how and in what manner Tax Ordinance No. 88-11-36 could be invalid. In fact, the Deputy Director and Officer-in-Charge of the Bureau of Local Government Finance, by authority of the Secretary of Finance, noted that petitioners counsel did not state the grounds of his protest as provided under Section 45 of the Local Tax Code, as amended, in relation to Section 44 thereof.[56] Verily, mere allegation that an ordinance is invalid on the grounds enumerated in Sec. 44 of the Local Tax Code will not work to rebut the presumption of the ordinances validity. Clearly, for failure to file a formal protest with the Secretary of Finance, or a legal question with the Provincial Fiscal on Tax Ordinance No. 88-11-36s validity, petitioners cannot be said to have exhausted administrative remedies available to them.

The underlying principle of the rule on exhaustion of administrative remedies rests on the presumption that the administrative agency, if afforded a complete chance to pass upon the matter, will decide the same correctly.[57] There are both legal and practical reasons for the principle. The administrative process is intended to provide less expensive and speedier solutions to disputes. Where the enabling statute indicates a procedure for administrative review and provides a system of administrative appeal or reconsideration, the courtsfor reasons of law, comity, and conveniencewill not entertain a case unless the available administrative remedies have been resorted to and the appropriate authorities have been given an opportunity to act and correct the errors committed in the administrative forum.[58]

 From the above disquisitions, it follows that the validity of the questioned tax

ordinances must be upheld. However, their enforceability is another matter that merits further

deliberation considering the apparent lack of publication or posting of the questioned ordinances.

 Petitioners assert that pursuant to Sec. 43 of the Local Tax Code, certified true

copies of the ordinance should have been published for three (3) days in a newspaper or publication widely circulated within the jurisdiction of the local government, or posted in the local legislative hall or premises and two other conspicuous places within the territorial jurisdiction of the local government within ten (10) days after its approval. 

Provincial Circular No. 22-73 states: All taxes, fees and charges authorized by the Code to be imposed by local governments, may only be collected by the treasurer concerned if an ordinance embodying the same has been duly enacted by the local board or council and approved in accordance with the provisions of the Code. Section 43 of the Code provides that within ten (10) days after their approval, certified true copies of all provincial, city, municipal and barrio ordinance levying or imposing taxes, fees or other charges shall be published for three (3) consecutive days in a newspaper or publication widely circulated within the jurisdiction of the local government, or posted in the local legislative hall or premises and in two other conspicuous places within the territorial jurisdiction of the local government. In either case, copies of all provincial, city, municipal and barrio revenue ordinances shall be furnished the treasurers of the respective component and mother units of a local government for dissemination. While non-compliance with the foregoing provisions of the Code will not render the tax or revenue ordinances null and void, still there must be publication and dissemination as provided in the Code to obviate abuses in the exercise of the taxing powers and preclude protests from the people adversely affected. Such publication and dissemination of tax ordinances will not only be in consonance with the objectives of the Code to secure fair, just and uniform local impositions but will also enhance the efficient collection of valid taxes, fees and other charges. [Emphasis supplied] 

 Thus, it would seem that while lack of publication does not render a tax ordinance

null and void, said requirement must still be complied with in order to obviate abuses in the exercise of the taxing powers and preclude protests from the people adversely affected. Publication is thus a condition precedent to the effectivity and enforceability of an ordinance to inform the public of its contents before rights are affected by the same.

 The records are bereft of any indication that evidence was presented to prove petitioners negative allegation that there was no publication. Neither is there a positive declaration on the part of respondents that there was publication or posting. Even the RTC and the CA decisions are silent on this issue. Consequently, an uncertainty exists on whether the ordinances were indeed published or not. We resolve this uncertainty in favor of petitioners and accordingly

rule that the questioned tax ordinances must be published before the new tax rates imposed therein are to be collected from the affected taxpayers. 

This does not mean however that the municipality is deprived of the income that would have been collected under the subject tax ordinances because taxes may still be collected at the old rates previously imposed.

While we partially grant this petition, we note with disapproval petitioners commission of forum shopping prior to the filing of this petition. Petitioners simultaneously prayed for the same relief of suspension of the ordinance in four different fora. It should be remembered that petitioners initially filed a protest of Tax Ordinance No. 88-11-36 with the Municipal Mayor and the Municipal Treasurer on 11 January 1989. Even as this protest was unresolved, they elevated their request for a review and suspension of the same ordinance to the Provincial Treasurer on 17 February 1989. Again, in view of the threat of closure of their establishment, petitioners sent a letter to the DOF on 21 August 1989 praying for the same relief of suspension of the ordinance. Again, despite the pendency of the various requests, petitioners filed Civil Case No. 4577, again praying for a writ of preliminary injunction to restrain respondents from enforcing the ordinance, a prayer which is essentially a prayer for the suspension of the ordinance.

  WHEREFORE, premises considered, the instant petition is GRANTED IN PART.

The decision of the Court of Appeals in CA-G.R. SP No. 39045 is hereby MODIFIEDin that the Sangguniang Bayan of Tubigon, Bohol is hereby DIRECTED to cause the publication of Tax Ordinance No. 88-11-36, Tax Ordinance No. 89-10-49, and Municipal Revenue Ordinance No. 90-01-54 for three (3) days in a newspaper or publication widely circulated within the jurisdiction of the local government, or their posting in the local legislative hall or premises and two other conspicuous places within the territorial jurisdiction of the local government. In all other respects, the decision of the Court of Appeals in CA-G.R. SP No. 39045 affirming the 26 May 1998 Decision of the Regional Trial Court in Civil Case No. 4577 is hereby AFFIRMED. Costs against petitioners. SO ORDERED.

G.R. No. 180639               June 29, 2010

LEPANTO CONSOLIDATED MINING COMPANY, Petitioner, vs.HON. MAURICIO B. AMBANLOC, in his capacity as the Provincial Treasurer of Benguet, Respondent.

D E C I S I O N

ABAD, J.:

This case is about the liability of a mining corporation for taxes imposed by a province for the extraction of sand and gravel from areas covered by its mining lease with the national government and used exclusively in its mining operations.

The Facts and the Case

The national government issued to petitioner Lepanto Consolidated Mining Company (Lepanto) a mining lease contract covering, among others, its "TIKEM" leased mining claim at Sitio Nayak, Barrio Palasan (Suyoc), Municipality of Mankayan, Benguet. The contract granted Lepanto the right to extract and use for its purposes all mineral deposits within the boundary lines of its mining claim. Upon inquiry, the Mines and Geo-sciences Bureau of the Department of Environment and Natural Resources (DENR) advised Lepanto that, under its contract, it did not have to get a permit to extract and use sand and gravel from within the mining claim for its operational and infrastructure needs. Based on this advice, Lepanto proceeded to extract and remove sand, gravel, and other earth materials from the mining site.

Lepanto used the quarried materials to back-fill stopes—portions of the earth excavated as a result of mining—replacing what had been mined to maintain the integrity of the ground. It also used sand and gravel to construct and maintain concrete structures needed in its mining operation, such as a tailings dam, access roads, and offices. Its use of quarry resources, readily available within its mining claim, was more practical and cheaper than having to outsource them.

Respondent Mauricio Ambanloc, the provincial treasurer of Benguet, sent a demand letter to Lepanto, asking it to pay the province P1,901,893.22 as sand and gravel tax, for the quarry materials that it extracted from its mining site from 1997 to 2000. Lepanto sent a letter-protest to the provincial treasurer, but the latter denied the same, insisting on payment.

Lepanto filed a petition with the Regional Trial Court (RTC) of Benguet to question the assessment.1 The RTC ruled that Lepanto was liable for the amount assessed, with interest at the rate of 2 percent per month from the time the tax should have been paid. Lepanto appealed the RTC decision to the Court of Tax Appeals (CTA) where it was raffled to its Second Division.2 The Second Division affirmed the ruling of the RTC with the modification that the interest of 2 percent per month shall not exceed 36 months.3

Lepanto appealed the decision of the Second Division to the CTA En Banc.4 Three justices of the CTA voted to affirm the decision but three justices dissented. Because the needed vote of

four members could not be obtained, the En Banc dismissed the appeal, resulting in the affirmance of the decision of the Second Division. Lepanto’s motion for reconsideration met the same fate, hence, this appeal.

The Issue Presented

The sole issue presented in this case is whether or not Lepanto is liable for the tax imposed by the Province of Benguet on the sand and gravel that it extracted from within the area of its mining claim and used exclusively in its mining operations.

The Court’s Rulings

One. Lepanto claims that the tax on sand and gravel applied only to commercial extractions. In its case, it extracted these materials for use solely in its mining operations. Lepanto did not supply other users for some profit. Thus, its extractions were not commercial and should not be subject to provincial tax.

The CTA’s Second Division held, however, that sand and gravel taxes may be imposed even on non-commercial extractions. Since Section 138 of the Local Government Code (Republic Act 7160) authorized provinces to impose a tax on the extraction of sand and gravel from public lands, without distinguishing between personal and commercial uses, then the tax should be deemed to cover extractions for both purposes. The provision reads:

Sec. 138. Tax on Sand, Gravel and Other Quarry Resources. – The province may levy and collect not more than ten percent (10%) fair market value in the locality per cubic meter of ordinary stones, sand gravel, earth, and other quarry resources, as defined under the National Internal Revenue Code, as amended, extracted from public lands or from the beds of seas, lakes, rivers, streams, creeks, and other public waters within its territorial jurisdiction.

But the CTA Second Division ruling overlooks the fact that Republic Act 7160 is not the provincial government’s basis for taxing Lepanto’s extraction. It is but the general law that delegates to provinces the power to impose taxes on the extraction of quarry resources. As it happens, the scope and validity of such delegation is not the issue in this case. The question of Lepanto’s liability for tax should be determined based on the revenue measure itself, which in this case, was the Revised Benguet Revenue Code (the revenue code).5 The relevant provisions of this provincial revenue code reads:

Article D. Tax on Sand, Gravel and Other Quarry Resources.

x x x x

SECTION 3. Imposition of Tax. There shall be levied a tax of ten (10) percent of fair market value in the locality per cubic meter of ordinary stones, sand, gravel, earth, and other quarry resources, x x x applied for and expected to be extracted or removed from public lands x x x within the territorial jurisdiction of Benguet Province.

This provision may not apply in case of gratuitous permits for government projects within Benguet Province.

SECTION 4. Conditions for the Issuance of Permit.

x x x x

(g) The permittee shall within ten (10) days after the end of each month submit to the Provincial Treasurer, the Municipal Treasurer and Barangay Treasurer where the materials are extracted, copies of sworn statement stating the quantity in terms of cubic meter and kind of materials extracted or removed by him; the amount of tax or fees paid; the quantity and kind of materials sold or disposed of during the period covered by said report; the selling price per cubic meter; the names and addresses of the buyers; and the quantity and kind of materials left in stock.

x x x x

SECTION 5. Mode, Time and Place of Payment. The tax shall be paid to the Provincial Treasurer or his duly authorized representative before the approval by the Provincial Governor of the permit to extract or remove the materials applied for and before the said materials are extracted or removed. x x x

SECTION 6. Surcharges and Interests. Failure to pay the tax as provided herein shall subject the permittee to a surcharge of Twenty-five (25%) percent of the original amount of tax due plus Two (2%) percent per month of the unpaid amount including the surcharges until such amount is fully paid, but in no case shall the total amount or portion thereof exceed thirty-six (36) months. x x x

Lepanto insists that the subject tax intended to cover only commercial extractions since the provincial revenue code referred to "fair market value of the resources," "quantity sold or disposed," "amount left in stock," "selling price," and "buyers’ information."

Not necessarily. The provincial revenue code provides that the subject tax had to be paid prior to the issuance of the permit to extract sand and gravel. Its Article D, Section 2, enumerates four kinds of permits: commercial, industrial, special, and gratuitous. Special permits covered only personal use of the extracted materials and did not allow the permitees to sell materials coming from his concession.6 Among applicants for permits, however, only gratuitous permits were exempt from the sand and gravel tax. It follows that persons who applied for special permits needed to pay the tax, even though they did not extract materials for commercial purposes. Thus, the tax needed to be paid regardless of the applicability of the administrative and reportorial requirements of that revenue code.

Two. Lepanto claims that the tax can only be levied against extractions by persons or entities required to apply for permits to remove quarry resources. Since the mining lease contract with the national government granted it the right to extract and utilize all mineral deposits from within its mining claim, Lepanto claims that it did not need to apply for a separate permit from the local government. Paragraph 9 of its Mining Lease Contract provides that:

This Lease hereby grants unto the LESSEE, his successors or assigns, the right to extract and utilize for their own benefit all mineral deposits within the boundary lines of the mining claim/s covered by this Lease continued vertically downward.1avvphi1

But this merely declares that Lepanto’s extraction and use of mineral deposits bears the consent of the national government, in line with the principle that exploration of natural resources can only be done under the control and supervision of the State. The contract makes no mention of any exemption from securing government permits.

Lepanto invokes the Bureau of Mines and Geo-Sciences’ view that the mining company did not require it to get any of the permits that Mines Administrative Order MRD-27 might require.7 But that Bureau’s view applied only to permits under MRD-27. The Bureau has no authority to determine the applicability of local ordinances. Besides, even the Bureau itself states that the exemption from MRD-27 is not absolute as it shall not apply if the sand and gravel were to be disposed of commercially. An exemption from the requirements of the provincial government should have a clear basis, whether in law, ordinance, or even from the contract itself. Unfortunately for Lepanto, it failed to show its entitlement to such exemption.

Three. Lepanto relies on the principle that when a company is taxed on its main business, it is no longer taxable for engaging in an activity that is but a part of, incidental to, and necessary to such main business. Lepanto points out that, since it did not extract and use sand and gravel as independent activities but as integral parts of its mining operations, it should not be subjected to a separate tax on the same.

But in the cases where this principle has been applied, the taxes which were stricken down were in the nature of business taxes. The reasoning behind those cases was that the incidental activity could not be treated as a business separate and distinct from the main business of the taxpayer. Here the tax is an excise tax imposed on the privilege of extracting sand and gravel. And it is settled that provincial governments can levy excise taxes on quarry resources independently from the national government.8

WHEREFORE, the Court DENIES the petition and AFFIRMS the decision of the Court of Tax Appeals En Banc in CTA EB 201 dated May 17, 2007.

SO ORDERED.