SECOND DIVISION

[C.T.A. AC NO. 30. September 5, 2008.]

KEPCO ILIJAN CORPORATION, petitioner, vs. THE CITY OF MAKATI, respondent.
DECISION
UY, J p:
Before this Court is a Petition for Review filed on May 4, 2007 pursuant to Rule 8, Section 4 (a) of the
Revised Rules of the Court of Tax Appeals, seeking the reversal of the Decision dated November 24,
2006, and the Order dated March 22, 2007, both rendered by Branch 143 of the Regional Trial Court
of the City of Makati in Civil Case No. 05-437, entitled "Kepco Ilijan Corporation vs. The City of Makati"
dismissing the appeal filed in said case, and denying the motion for reconsideration of said dismissal,
respectively. IAEcaH
THE FACTS
As culled from the records of the case, the facts are as follows:
Petitioner, Kepco Ilijan Corporation, is a domestic corporation duly organized and existing under and
by virtue of the laws of the Republic of the Philippines, with principal place of business at the 18th
Floor Citibank Tower, 8741 Paseo de Roxas, Salcedo Village, Makati City. On the other hand,
respondent City of Makati, is being sued in its capacity as the local government unit which classified
petitioner as a "contractor" for purposes of local business tax.
On November 5, 1997, petitioner entered into an Energy Conversion Agreement (ECA) with the
National Power Corporation (NAPOCOR), whereby the latter shall build, operate and maintain the
1200 MW Ilijan Natural Gas Power Plant. 1 aEcDTC
On February 18, 2004, petitioner was issued a Mayor's Permit by respondent classifying it as "SEO" or
special contractor for local business tax purposes. Petitioner then requested that its classification be
changed from "contractor" to that of a "manufacturer" since its classification as a "contractor" is
allegedly not in accordance with the definition of said word under existing laws and relevant
Department of Finance circulars. Due to the fact however that it was still under Income Tax Holiday
(ITH) then, and as a consequence of which, no tax collection or assessment could then be imposed by
the respondent up to February 28, 2004, petitioner still sought to have its classification reconsidered
through a series of written communications and appropriate meetings with officers of the respondent.
Upon the expiration of its ITH, petitioner requested for a computation of its local business taxes
normally due on January 2005 from the respondent.
On January 18, 2005, respondent issued the requested computation classifying petitioner as a
"contractor" and not a "manufacturer" and assessed petitioner for the amount of P3,358,711.75,
representing its local business tax. Despite its objections, petitioner paid the said assessment; but
subsequently filed its protest on March 18, 2005. On April 14, 2005, the City of Makati issued its
Resolution denying petitioner's protest. SEcTHA
In view of the said denial, petitioner filed its Appeal with Branch 143 of the Regional Trial Court of the
City of Makati on May 18, 2005, in accordance with Section 195 of the Local Government Code (LGC)
of 1991. 2 Petitioner submits that the nature of its business activity is more of a "manufacturer" rather
than a "contractor" as defined under the Makati City Tax Code and Local Finance Circular No. 3-95. It
averred that the process of converting natural gas into electricity is more of the role of a
"manufacturer" rather than a "contractor"; and that it was not even a "sub-contractor" under the current
definition as provided under the Department of Finance (DOF) Circular 3-95.
Dispensing with the need to present any documentary or testimonial evidence, the Court a quo issued
the Order dated August 22, 2005 requiring the parties to submit their respective memorandum there
being no factual issues involved in said case. 3 TCaEAD
On November 24, 2006, the assailed Decision dismissing petitioner's appeal for lack of merit was
rendered. The lower court found that petitioner was properly classified as a "contractor" and not as a
"manufacturer", pursuant to Section 131 (h) of the LGC of 1991; that the terms enumerated in
petitioner's Articles of Incorporation which is to "build, operate, maintain and manage a power plant",
are services embodied under the definition of a "contractor" — which includes persons whose activity
consists essentially of sale of all kinds of services for a fee; that there was insufficiency of evidence to
support petitioner's claim that it should fall under the classification of "manufacturer". Thus, the
presumption of the correctness of the assessment made by the City of Makati was applied by the
lower court.
Petitioner's Motion for Reconsideration filed on December 27, 2006 4 was likewise denied for lack of
merit in the Order dated March 22, 2007. 5 The lower court maintained its stand on classifying
petitioner as a "contractor" as it undeniably provides services to NAPOCOR for a fee. It further held
that as shown by evidence, the service petitioner rendered was to operate the power station principally
for NAPOCOR; which included all the necessary commissioning and testing of the power station,
guarantee tests, and conversion of fuel to electricity; while NAPOCOR, in turn, was required to
reimburse the generator for the natural gas used and paid for during the other tests of the power
station prior to the completion date. cSCADE
Dissatisfied, petitioner filed the instant Petition for Review on May 4, 2007. 6 Respondent filed its
Comment on June 15, 2007, 7 arguing that the lower court did not err or commit grave abuse of
discretion amounting to lack of or in excess of its jurisdiction when it classified petitioner as a
"contractor" and not as a "manufacturer" for the settlement of its local taxes. A Reply was filed by
petitioner on June 27, 2007 8 maintaining its stand that it should be classified as a "manufacturer"
based on prevailing jurisprudence on the matter.
On July 16, 2007, petitioner filed a "Motion for Consolidation" of the instant case with the case entitled
Kepco Philippines Corporation vs. The City of Makati, docketed as C.T.A. AC No. 23 also assigned to
the Second Division of this Court. 9 However, in the Resolution dated October 19, 2007, 10 this Court
denied said motion on the ground that a Decision has already been rendered in the aforementioned
case on August 24, 2007 and considered the instant case submitted for decision considering that both
parties have already filed their respective Memorandum. SDIACc
Hence, this Decision.
THE ISSUES
The sole issue for this Court's consideration is whether or not petitioner, in the process of selling
electricity, is a "contractor" or a "manufacturer", as defined under the Local Government Code and
Makati City Tax Code.
PETITIONER'S ARGUMENTS
Petitioner assigns two errors allegedly committed by the Court a quo, to wit: (I) that the Honorable
Court allegedly erred and committed grave abuse of discretion amounting to lack of jurisdiction when it
classified the petitioner as a contractor and not as a manufacturer, without taking into consideration
the nature of its business activity; and (II) that in the absence of a trial on the merits, the Honorable
Court erred when it ruled that petitioner failed to present sufficient evidence to prove it is a
manufacturer.
According to petitioner, for purposes of taxation, jurisprudence has already laid down the guidelines as
to how to determine whether an entity is a manufacturer or contractor. In the case of Concrete
Aggregates Inc. vs. Court of Tax Appeals, 11 a "manufacturer" is implied as follows: HAICET
"As aptly pointed out by the Solicitor General, petitioner's raw materials are processed under a
prescribed formula and thereby changed by means of machinery into a finished product, altering their
quality, transforming them into marketable state or preparing them for any of the specific uses of
industry. Thus, the raw materials become a distinct class of merchandise or 'finished products for the
purpose of their sales or distribution to others and not for his own use or consumption.' Evidently,
without the above process, the raw materials or aggregates could not, in their original form, perform
the uses of the finished product.
In a case involving the making of ready-mixed concrete, it was held that concrete is a product resulting
from a combination of sand or gravel or broken bits of limestones with water and cement, a
combination which requires the use of skill and most generally of machinery. Concrete in forms
designed for use and supplied to others for buildings, bridges and other structures is a distinct article
of commerce and the making of them would be manufacturing by the corporation doing so."
Further, in the case of Bermejo vs. CIR, 12 the Supreme Court held that: ADHaTC
"The process is a chemical or physical process altering the exterior texture and inner substance of the
firewood in such manner as to prepare it for special uses to which firewood may not be dedicated.
Wherefore, in making charcoal for the market, plaintiff became a manufacturer within the meaning of
the law."
Petitioner likewise submits that in the case of Oriental Kapok Industries vs. CIR, 13 it was held that:
"Where the taxpayer buys unhusked kapok, removes the skin, airs and feeds it into a machine called
'separator' thus, altering the exterior texture or form of the raw, unhusked kapok pods and also the
quality of the kapok fiber itself, reducing it to marketable shape or preparing it for any of the uses of
the industry, the taxpayer is a manufacturer as defined by the Tax Code."
According to petitioner, the raw materials used by petitioner are either the natural gas sourced from
the Malampaya fields located in the area of the Province of Palawan or the diesel fuel purchased by
petitioner from NAPOCOR. These raw materials are then converted into electricity by using the
combined cycle generating equipment located at the Ilijan Power Plant. Once the natural gas is
converted into electricity, the petitioner will sell the same to NAPOCOR, to the energy spot market
trading, and to other customers or traders. DISTcH
Petitioner avers that while natural gas and diesel fuel are sources of energy, it is also without doubt
that, in its original state, these raw materials cannot provide electricity or energy. It is at this stage that
petitioner, through the use of its turbine generator equipment and applying specific engineering
methods, converts the potential energy found in natural gas into actual energy and thereafter
produces a commodity commonly known as electricity. Accordingly, this is the very essence of
petitioner's business.
Moreover, petitioner argues that the terms "build, operate, maintain and manage" are mere incidental
activities to the true nature of petitioner's business. Petitioner, for it to sell the electricity it generates,
has to perform such activities in order to convert natural gas to energy. Apart from the fact that
petitioner did not secure a contractor's license which is required under the Contractor's Licensing Law,
it did not build, operate or manage any other power plant in the Philippines. According to petitioner, if it
was indeed its intention to be a "contractor", it would not have limited itself to operating only one
power plant. Petitioner maintains that these activities are not the basis of its income. TIaCHA
The basic distinction between a "manufacturer" and a "contractor", therefore, should allegedly be
based on the end-product of the business and how this is achieved. A "manufacturer" sells a
commodity, while a "contractor" sells service. Devoid of any technical details, natural gas is a raw
material which enables petitioner to produce and convert them into electricity. Without the process of
alteration which petitioner undertakes, any type of raw material alone cannot be used as electricity or
transformed into energy. The operation and maintenance of the plant is merely an incident to its main
line of business activity — that is to sell electricity. Thus, petitioner submits that its local business tax
classification should be as a "manufacturer", based on the type of business it is engaged in.
Furthermore, petitioner asserts that the Electric Power Industry Reform Act (EPIRA) of 2001 14 has
recognized that generation companies are more of a "manufacturer" than a "contractor". This is
considering that Section 31 of the EPIRA has now mandated generation companies to sell their
electricity to the spot market (WESM) and eventually to qualified end-users upon the implementation
of the open-access scheme. In other words, the WESM allows the suppliers and buyers to trade
electricity as a commodity. Hence, the significance of the establishment of the WESM is that our laws
recognize the sale by generation companies of their manufactured electricity as a commodity and not
just any type of service. IDSaTE
Finally, petitioner claims that when the lower court dispensed with the presentation of evidence by
petitioner, it invariably prejudiced the right of petitioner to effectively prove that, by the very nature of
its business activity, it is a "manufacturer".
RESPONDENT'S ARGUMENTS
Respondent, for its part, maintains that the lower court did not commit any grave abuse of discretion
when it classified petitioner as a "contractor" and not as a "manufacturer". Respondent avers that
there could not have been grave abuse of discretion in this case considering that the decisions have
been supported by citations of law and jurisprudence decided by the Highest Tribunal. A reading of the
Decision and Order rendered by the lower court discloses that the said court examined clearly the
evidence presented and the details and matters raised by the parties. In fact, the findings of the lower
court are fully supported by facts and evidence presented by petitioner itself. cHAaCE
Likewise, respondent points out that Section 131 (h) of the LGC of 1991 expressly defines a
"contractor" as "includes persons, natural or juridical, not subject to professional tax under Section 139
of this Code, whose activity consists essentially of the sale of all kinds of services for a fee, regardless
of whether or not the performance of the service calls for the exercise or use of the physical or mental
faculties of such contractor of his employees."
Respondent adds that, on the other hand, Section 131 (o) of the same Code defines a "manufacturer"
as "includes every person who, by physical or chemical process, alters the exterior texture or form or
inner substance of any raw material or manufactured or partially manufactured product in such
manner as to prepare it for special use or uses to which it could not have been put in its original
condition, or who by any such process, alters the quality of any such raw material or manufactured or
partially manufactured products so as to reduce it to marketable shape or prepare it for any of the use
of industry, or who by any such process, combines any such raw material or manufactured or partially
manufactured products with other materials or products of the same or of different kinds and in such
manner that the finished products or such process or manufacture can be put to a special use or uses
to which such raw material or manufactured or partially manufactured products in their original
condition could not have been put, and who in addition, alters such raw material or manufactured or
partially manufactured products, or combines the same to produce such finished products for the
purpose of their sale or distribution to others and not for his own use or consumption." ECaScD
From the foregoing definitions then, it is allegedly clear that herein petitioner is a "contractor" and not a
"manufacturer", contrary to what petitioner asserts. Accordingly, petitioner is covered under Section
131 (h) of the LGC of 1991 and is liable to pay the assessed taxes.
THE COURT'S RULING
In order for this Court to determine the true nature of petitioner's business activity, the Court will first
look into the nature of the conversion of fuel into electricity; whether such act of converting the natural
gas or the diesel fuel, through the use of its turbine generator equipment and applying specific
engineering methods, into electricity is sufficient to classify petitioner as a "manufacturer". CSaIAc
Petitioner does not dispute the fact that the primary purpose for its incorporation is to build, operate,
maintain and manage the 1200 MW Combined-Cycle Ilijan Power Plant for the conversion of fuel into
electricity; and that it was established for the sole purpose of operating a power station principally for
NAPOCOR which includes all necessary commissioning and testing of the power station and operate
it in a manner that will allow tests, for conversion of fuel into electricity for NAPOCOR.
As found by the lower court, which factual findings this Court will not disturb in the absence of proof
that the same are erroneously made, petitioner operates the power station principally for NAPOCOR,
and in return, NAPOCOR is required to reimburse herein petitioner for the natural gas used and paid
for during the other tests of the power station prior to the completion date; and that all electricity
supplied whether before or after the completion date, would be owned by NAPOCOR.
In other words, NAPOCOR is obligated to supply and shoulder the cost of the fuel requirements of the
power plant used by petitioner in converting the natural gas or diesel fuel into electricity. NAPOCOR
then pays the "fees" for the conversion of such fuel. As defined under Black's Law Dictionary, a "fee" is
a recompense for an official or professional service or a charge or emolument or compensation for a
particular act or service. It is a fixed charge or perquisite charged as recompense for labor; reward,
compensation, or wage given to a person for performance of services or something done or to be
done. 15 cASEDC
There is thus no argument that these activities of petitioner come in the form of services. In the
process of performing these services, the question that arises is whether petitioner, in the course of
performing said services, does it as a "contractor" or as a "manufacturer"?
For a clearer understanding of what is a contractor and a manufacturer, We look into the definitions
thereof as provided in Sections 131 (h) and (o) of the LGC of 1991, 16 to wit:
"SEC. 131. Definition of Terms. — When used in this Title, the term:
xxx xxx xxx
(h) 'Contractor' includes persons, natural or juridical, not subject to professional tax under Section
139 of this Code, whose activity consists essentially of the sale of all kinds of services for a fee,
regardless of whether or not the performance of the service calls for the exercise or use of the
physical or mental faculties of such contractor or his employees. HTCISE
As used in this Section, the term 'contractor' shall include general engineering, general building, and
specialty contractors as defined under applicable laws; filling, demolition and salvage works
contractors; proprietors or operators of mine drilling apparatus; proprietors or operators of dockyards;
persons engaged in the installation of water system, and gas or electric light, heat or power;
proprietors or operators of smelting plants; engraving, plating and plastic lamination establishments;
proprietors or operators of establishments for repairing, repainting, upholstering, washing or greasing
of vehicles, heavy equipment, vulcanizing, recapping and battery charging; proprietors or operators of
furniture shops and establishments for planing or surfacing and recutting of lumber, and sawmills
under contract to saw, or cut logs belonging to others; proprietors or operators of dry-cleaning or
dyeing establishments, steam laundries and laundries using washing machines; proprietors or owners
of shops for the repair of any kind of mechanical and electrical devices, instruments, apparatus, or
furniture and shoe repairing by machine or any mechanical contrivance; proprietors or operators of
establishments or lots for parking purposes; proprietors or operators of tailor shops, dress shops,
milliners and hatters, beauty parlors, barbershops, massage clinics, sauna, Turkish and Swedish
baths, slenderizing and building saloons and similar establishments; photographic studios; funeral
parlors; proprietors or operators of hotels, motels and lodging houses; proprietors or operators of
arrastre and stevedoring, warehousing, or forwarding establishments; master plumbers; smiths, and
house or sign painters; printers, bookbinders, lithographers; publishers except those engaged in the
publication or printing of any newspaper, magazine, review or bulletin which appears at regular
intervals with fixed prices for subscription and sale and which is not devoted principally to the
publication of advertisements; business agents, private detective or watchman agencies, commercial
and immigration brokers, and cinematographic film owners, lessors and distributors." (Emphasis Ours)
cHAIES
xxx xxx xxx
"(o) 'Manufacturer' includes every person who, by physical or chemical process, alters the exterior
texture or form or inner substance of any raw material or manufactured or partially manufactured
product in such manner as to prepare it for special use or uses to which it could not have been put in
its original condition, or who by any such process alters the quality of any raw material or
manufactured or partially manufactured products so as to reduce it to marketable shape or prepare it
for any of the use of the industry, or who by any such process, combines any such raw materials or
manufactured or partially manufactured products with other materials or products of the same or of
different kinds and in such manner that the finished products of such process or manufacture can be
put to a special use or uses to which such raw material or manufactured or partially manufactured
products in their original condition could not have been put, and who in addition, alters such raw
material or manufactured or partially manufactured products, or combines the same to produce such
finished products for the purpose of their sale or distribution to others and not for his own use or
consumption." CDTSEI
Based on the foregoing definition, petitioner's act of converting the natural gas or diesel fuel into
electricity definitely falls under Section 131 (h) of the LGC of 1991. The Court finds petitioner's
assertion, that it is a "manufacturer" mainly because of the alleged alteration of the fuel through
processing, to be self-serving. If indeed petitioner is a "manufacturer" as it argues it to be,
considerations as regards the supplier of raw materials/fuels needed to generate electricity, and
ownership of the electricity thus generated by the power plant for transmission, and sale to end-users
should be taken into account. It is quite unusual that NAPOCOR supplies the fuel needed by petitioner
to generate fuel, as well as, receives all the electricity generated, and still conclude that petitioner is a
"manufacturer". The fact that petitioner merely operates, maintains, and manages the power plant for
the conversion of fuel supplied by NAPOCOR for the eventual transmission of electricity only to
NAPOCOR show that the same all come in the nature of the rendition of service for a fee. All these
lead to the conclusion that petitioner is a "contractor" as defined under the LGC of 1991. ATcaEH
On the same vein, the Court finds no merit in petitioner's argument that the Electric Power Industry
Reform Act of 2001 has recognized that generation companies are more of a "manufacturer" than a
"contractor". It may be that Section 31 of the EPIRA has now mandated generation companies to sell
their electricity to the spot market (WESM) and eventually to qualified end-users upon the
implementation of the open-access scheme; such act does not necessarily assume that the WESM
allows the suppliers and buyers to trade electricity as a commodity. As earlier discussed, petitioner
renders "service" by operating, maintaining, and managing the power plant for the conversion of fuel
supplied by NAPOCOR for the eventual transmission of electricity only to NAPOCOR. Hence, this
Court affirms the ruling of the lower court that petitioner is a "contractor" rather than a "manufacturer".
HCTaAS
WHEREFORE, finding no reversible error in the assailed Decision and Order dated November 24,
2006 and March 22, 2007, respectively, rendered by Branch 143 of the Regional Trial Court of Makati
City in Civil Case No. 05-437, the instant Petition for Review is hereby DISMISSED for lack of merit.
Accordingly, said assailed Decision and Order are hereby AFFIRMED.
SO ORDERED.
(SGD.) ERLINDA P. UY
Associate Justice
Juanito C. Castañeda, Jr. and Olga Palanca-Enriquez, JJ., concur.
Footnotes
1. Decision, Civil Case No. 05-437; Docket, p. 20.
2. Appeal, Kepco Ilijan Corporation vs. City of Makati, Civil Case No. 05-437; Docket, pp. 26-35.
cDTaSH
3. Docket, p. 36.
4. Docket, pp. 37-45.
5. Docket, pp. 17-19.
6. Docket, pp. 1-15.
7. Docket, pp. 48-55.
8. Docket, pp. 56-61. HCaDET
9. Docket, pp. 64-66.
10. Docket, p. 91.
11. G.R. No. 55793, May 18, 1990.
12. 87 Phil. 96 (1950).
13. G.R. No. L-17837, January 31, 1963.
14. Republic Act No. 9136.
15. Black's Law Dictionary, 6th Edition, p. 614.
16. Republic Act No. 7160. ITCcAD

FIRST DIVISION
[C.T.A. AC NO. 40. May 29, 2008.]
HONEST SERVICE PROVIDERS, INC. represented by its Accountant MELINDA BEJASA,
petitioner, vs. CITY OF MAKATI and CITY TREASURER NELIA A. BARLIS, respondents.
DECISION
ACOSTA, P.J p:
This is an appeal by Petition for Review from the Decision of the Regional Trial Court (RTC) of Makati
City, Branch 57, dismissing for lack of merit, petitioner's appeal of the assessment for deficiency
business taxes, fees and charges issued by respondents; and the Order denying petitioner's Motion
for Reconsideration. CAacTH
The facts of the case, culled from the records, follow:
Honest Service Providers, Inc. (petitioner) is a domestic corporation duly created and existing under
the laws of the Republic of the Philippines with principal office at 7/F Vernida Condominium, 120
Amorsolo Street, Legazpi Village, 1229 Makati City. Petitioner is engaged in providing janitorial and
messengerial services to clients within Metro Manila and nationwide.
Petitioner has been faithfully securing its yearly business permit and paying its local taxes due to
respondent City of Makati. In January of 2005, when petitioner applied for a renewal of their business
permit, the amount due was P817,248.48 which was far different from the previous years' business tax
of around P50,000.00. Hence, petitioner was not able to renew its business permit. EAcCHI
Due to the above assessment, petitioner's Accountant and Vice President visited the office of
respondent City Treasurer, and they were informed that an examiner will be sent to petitioner's office
for the verification of the records. Thereafter, a Letter of Authority No. LA-2006-001 was issued,
authorizing Revenue Examiner Felito A. Manrique to verify the records of petitioner. But instead of
conducting an actual examination or verification of records, the Revenue Examiner requested copies
of petitioner's Audited Financial Statements for years 2002 up to 2005.
On February 27, 2006, petitioner received a copy of the Notice of Assessment dated February 22,
2006 demanding payment of P2,415,509.42 representing deficiency city business taxes, fees and
charges for taxable period 2003-2005.
On April 11, 2006, petitioner responded with a written protest requesting for a reconsideration of the
assessment, and raising the following arguments: cda
"a. The assessment is oppressive/confiscatory and, therefore, violative of the right to due process
of the taxpayer;
b. The assessment is null and void because the basis of the assessment was not stated in the
assessment;
c. The assessment of the City of Makati failed to consider the taxes paid by the taxpayer; and
d. The assessment failed to consider the direct costs representing reimbursements of salaries
and contributions to the Government Agencies and taxes paid."
On April 12, 2006, respondents denied petitioner's request for reconsideration, and the latter was
given thirty (30) days from receipt thereof to pay the deficiency taxes, charges and fees or to elevate
or appeal the Notice of Assessment to a court of competent jurisdiction. Petitioner received
respondents' denial on April 18, 2006. HTDCAS
Consequently, petitioner appealed and filed its complaint before the Makati City Regional Trial Court
(RTC) on May 18, 2006. Its complaint was docketed as Civil Case No. 06-410. On November 3, 2006,
the RTC rendered its Decision dismissing petitioner's Appeal for lack of merit. The Decision partly
reads:
"And as can be obviously inferred from the very definition of the term 'gross sales or receipts', the
same includes compensation or service fee, plus the amount charged or materials supplied with the
services. Thus, clearly, the contention of plaintiff that the 'salaries and wages of the janitors and
messengers' and costs of 'cleaning material used for the clients' should not be included in the
computation of gross receipts is misplaced.
xxx xxx xxx
The Court, therefore, finds the subject assessments to be valid. The assailed assessments against
plaintiff were the results of the examinations undertaken by the Makati City Revenue Examiners under
Letters of Authority issued by the City Treasurer. Contrary to the erroneous allegations of the plaintiff,
the said assessments are true and correct based on the secured financial documents of the former.
ESaITA
xxx xxx xxx
Likewise, it must be emphasized that defendant City of Makati has never deviated from its mandate by
law which may cause oppression and violation of the rights of any taxpayer, as the plaintiff so claims.
The demand for deficiency taxes was just simply that plaintiff was found to have understated its gross
sales or receipts as reflected in the Official Receipts of the Mayor's business permits for the taxable
years covered; hence, the subject assessment."
Petitioner filed a Motion for Reconsideration of the Decision but was denied in an Order dated July 10,
2007.
Hence, the instant Petition for Review filed on August 30, 2007, with the following supporting grounds,
to quote:
I. The Trial Court erred in holding that the salaries and wages of janitors and messengers and
the janitorial cleaning materials used and charged to the clients at cost without any element of profit to
petitioner, being direct expenses, are part of gross receipts; cTEICD
II. The Trial Court erred in holding that payments from clients outside the City should be taxed by
the City considering that it did not perform services to the petitioner, its employees and clients who
were assigned/located outside its jurisdiction;
III. The Trial Court erred in not holding that the Notice of Assessment was null and void for failure
to state the basis of the assessment and for lack of actual examination of the petitioner's
books/records;
IV. The Trial Court erred in not holding that the assessment was arbitrary, unreasonable, unfair,
baseless, hastily made resulting to its being oppressive or confiscatory and, therefore, violative of
plaintiffs substantive rights and to due process under the present pro-God and pro-people constitution.
In a Resolution dated September 20, 2007, respondents were required to file a Comment. In
compliance thereto, respondents filed their Comment on October 15, 2007, which was posted on
October 5, 2007.
On January 7, 2008, the instant case was submitted for decision after considering the parties'
Memoranda. aSEDHC
On the first ground relied upon by petitioner; a review of the Notice of Assessment sent to petitioner as
well as its attached worksheet shows that petitioner is being assessed of tax as a service contractor.
The applicable provisions herein are Section 143 (e) of the Local Government Code (LGC) of 1991 in
relation to its Section 151, and Sec. 3A.02 (f) of the Makati Revenue Code, covering contractor's tax.
The pertinent portions of the provisions are quoted hereunder:
SEC. 143. Tax on Business. — The municipality may impose taxes on the following businesses:
xxx xxx xxx
(e) On contractors and other independent contractors, in accordance with the following schedule:
DCISAE
With gross receipts for
the preceding calendar year Amount of Tax
in the amount of: Per Annum
xxx xxx xxx
ARTICLE III
CITIES
SEC. 151. Scope of Taxing Powers. — Except as otherwise provided in this Code, the city, may
levy the taxes, fees, and charges which the province or municipality may impose: Provided, however,
That the taxes, fees and charges levied and collected by highly urbanized and independent
component cities shall accrue to them and distributed in accordance with the provisions of this code.
The rates of taxes that the city may levy may exceed the maximum rates allowed for the province or
municipality by not more than fifty percent (50%) except the rates of professional and amusement
taxes.
SEC. 3A.02. Imposition of Tax. — There is hereby levied an annual tax on the following businesses
at rates prescribed therefore: aASDTE
xxx xxx xxx
(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; . . . janitorial services. . .
xxx xxx xxx
With gross sales or receipts for Amount of Tax
the preceding calendar year Per Annum
in the amount of:
xxx xxx xxx
Apparently, contractors are subject to business tax and the amount thereof is based on the business'
gross sales or receipts of the preceding calendar year.
Contractor is referred in the Local Government Code of 1991 as to include persons, natural or
juridical, not subject to professional tax under Section 139 of this Code whose activity consists
essentially of the sale of all kinds of services for a fee regardless of whether or not the performance of
the service calls for the exercise or use of the physical or mental faculties of such contractor or his
employees. 1 The definition includes any person whether natural or juridical as long as the activity of
such person consists essentially of the sale of services for a fee. CDAEHS
Since petitioner is engaged in the business of providing janitorial and messengerial services to its
clients in consideration of a service fee; therefore, it is engaged in rendering services for a fee, which
is well within the scope of the above definition. Accordingly, petitioner is subject to a contractor's tax
based on its gross sales or receipts.
Being relevant, this Court has to touch on the definition of gross sales or receipts to determine its
exact meaning. The Local Government Code of 1991 defines gross receipts or sales as follows:
"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 with the services and
deposits or advance payments actually or constructively received during the taxable year 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) paid by the taxpayer." 2 (Emphasis
supplied) ISTHED
The definition is clear and unambiguous. Gross Sales or Receipts include the total amount of money
representing the service fee, undiminished by costs or expenses and excluding discounts if
determinable at the time of sales, sales return, excise tax, and value-added tax (VAT). In other words,
"gross receipts" refer to the total, as opposed to the net. These are, therefore, the total receipts before
any deduction for the expenses of management. 3
In fact, in China Banking Corporation v. Court of Appeals, 4 the Court defined the term in this wise:
"As commonly understood, the term 'gross receipts' means the entire receipts without any deduction.
Deducting any amount from the gross receipts changes the result, and the meaning, to net receipts.
Any deduction from gross receipts is inconsistent with a law that mandates a tax on gross receipts,
unless the law itself makes an exception. As explained by the Supreme Court of Pennsylvania in
Commonwealth of Pennsylvania v. Koppers Company, Inc., highly refined and technical tax concepts
have been developed by the accountant and legal technician primarily because of the impact of
federal income tax legislation. However, this in no way should affect or control the normal usage of
words in the construction of our statutes; and we see nothing that would require us not to include the
proceeds here in question in the gross receipts allocation unless statutorily such inclusion is
prohibited. Under the ordinary basic methods of handling accounts, the term gross receipts, in the
absence of any statutory definition of the term, must be taken to include the whole total gross receipts
without any deductions, . . ." (Emphasis supplied) CIAHDT
However, petitioner posits that the payment for salaries and wages of the janitors and messengers
employed by petitioner and the cleaning materials used in the client's premises should not be included
in the computation of gross receipts being direct costs without a single centavo forming as income of
petitioner. Petitioner detailed that out of the amount it bills to its clients, it receives a minimal amount of
supervision and services fees equivalent to not more than seven percent (7%) mark up which in turn
goes to the salaries and wages of its administrative officers and employees. More than ninety-three
percent (93%) of the amount goes to the salaries and wages of the janitors and messengers and the
cleaning materials used.
This Court disagrees. It suffices to answer the above contention by referring to the explicit definition of
the law. As earlier noted, gross sales or receipts include the total receipts without deductions. The
sample contracts 5 attached to the instant Petition shows that the contract price/service fee billed by
petitioner to its clients is the total amount it receives although such amount includes the cleaning
materials, and the salaries and wages of the janitors and messengers assigned to a specific client. In
corroboration hereto, a portion of one of the contracts entered into by petitioner is quoted as follows:
IDETCA
For and in consideration of the janitorial services to be rendered by the SERVICE AGENCY to the
client, the latter shall pay the SERVICE AGENCY the sum of TEN THOUSAND SEVEN HUNDRED
SIXTEEN AND 59/100 (P10,716.58) PESOS, per month for each janitor on the basis of six (6) working
days a week including legal and holidays specified in the Labor Code of the Philippines which amount
will cover the daily wage, 13th month pay, five (5) days incentive leave, employer's contribution for
SSS, Medicare, employees' compensation and Pag-Ibig as provided by the said labor Code. . . .
(Emphasis supplied)
Logically, petitioner's gross sales or receipts is the contract price/service fee received from clients
despite the fact that such amount includes the salaries and wages of the janitors and messengers as
well as the amount of cleaning materials used or that petitioner derived no income therefrom.
Long established is the rule that if a statute is clear, plain and free from ambiguity, it must be given
literal meaning and applied without attempted interpretation. 6 Hence, court may not engraft into the
law qualifications not contemplated, and a meaning that does not appear nor is intended or reflected in
the very language of the statute, cannot be placed therein by construction. 7 SacTCA
With respect to the second ground, petitioner contends that its business operations are not only in
respondents' jurisdiction. Its clients are mostly scattered within Metro Manila and some are even
scattered nationwide and it would not be fair for respondents to collect tax on payments received from
clients outside of Makati. In order to show that only 197 of its employed personnel are working or
assigned to clients located in the City of Makati and all others are scattered and assigned to clients
holding office outside the said city, petitioner attached its list of personnel and three contracts of
petitioner with clients outside of Makati.
Respondents, however, disagrees to petitioner's contentions and argues that such claim is absurd
since petitioner cannot at least show that it paid taxes in favor of a Local Government Unit outside
Makati City for said services rendered for a fee.
Again, petitioner's theory is unacceptable. Pertinent hereto is Section 150 of the Local Government
Code of 1991. which clearly provides for the situs of the contractor's tax and is set forth below:
cIHDaE
"SEC. 150. Situs of the Tax. — (a) For purposes of collection of the taxes under Section 143 of this
Code, manufacturers, assemblers, repackers, brewers, distillers, rectifiers and compounders of liquor .
. . contractors, banks and other financial institutions, and other business, maintaining or operating
branch or sales outlet elsewhere shall records the sale in the branch or sales outlet making the sale or
transaction, and the tax thereon shall accrue and shall be paid to the municipality where such branch
or sales outlet is located. In cases where there is no such branch or sales outlet in the city or
municipality where the sale or transaction is made, the sale shall be duly recorded in the principal
office and the taxes due shall accrue and shall be paid to such city or municipality."(Emphasis
supplied)
It was clear from the records that petitioner has no sales outlet or branch in any city or municipality
other than Makati. For that reason, the last paragraph of the above-quoted provision is applicable, that
is, taxes due on petitioner's transactions in cities or municipalities where it has no branches or sales
outlet shall be recorded in its principal place of business and all taxes due thereon shall be paid to the
city or municipality where its principal place of business is located. Considering that petitioner's
principal place of business is in Makati, then, the taxes due on transactions with clients outside of
Makati, still, has to be paid in Makati. CacEID
On the ground that the issuance of the Notice of Assessment was a patent violation of its right to due
process of law, petitioner maintains that due process and equity demand that assessments for alleged
deficiencies should be duly supported by legal bases. Mere statement of the figures is not sufficient.
The legal provisions applied should be clearly stated for the validity of the assessment. Petitioner
claims that it was not given the chance to controvert the findings of the examiner prior to the issuance
of the table assessment without legal and factual bases. Hence the assessment should be considered
null and void for failure to state the factual and legal basis.
Contrarily, a careful scrutiny of the Notice of Assessment and the worksheet attached thereto shows
that due process was satisfied. For easy reference, the Notice of Assessment and the attached
worksheet is reproduced below: CHIScD
"NOTICE OF ASSESSMENT
Sir/Madam:
The result of the examination under Letter of Authority LA-2006 Nos. 001 conducted pursuant to
Section 171 of the Local Government Code of 1991, reveals that you are liable to pay the correct city
business taxes, fees and charges, reassessed or computed as follows:
Deficiency Taxes, Fees and Charges - P2,415,509.42
===========
(Covering Taxable Period: 2003-2005)
which you may further verify from the attached assessment worksheet prepared and reassessed by
FELITO A. MANRIQUE Revenue Examiner/Deputy who conducted the examination.
The above mentioned assessment shall become final and executory within sixty (60) days from receipt
hereof, unless a tax protest is filed assailing its validity or propriety as the case maybe, we remain.
TaISEH
Very truly yours,
Nelia A. Barlis
OIC, City Treasurer"
2% MONTHLY
INCOME TAX INTEREST
Per 25% TOTAL
Year PARTICULARS AUDITED DEFICIENCY Surcharge
TAX DUE
F/S DECLARED DUE PAID (Overpayment) RATE
AMOUNT (CREDIT)
SERVICE
CONTRACTOR 57,218,486.005,000,000.00 353,638,65 29,500.00
324,138.65 81,034.66 72% 233,379.83 638,553.14
2003 Mayor' Permit 4,000.00 4,000.00
SERVICE
CONTRACTOR 82,901,488.005,000,000.00 546,261.16 29,500.00
516,761.16 129,190.29 52% 268,715.80 914,667.25
2004 Mayor's Permit 4,000.00 4,000.00
SERVICE
CONTRACTOR 90,715,412.005,000,000.00 604,865.59 41,277.99
563,587.60 140,896.90 28% 157,804.53 862,289.03
2005 Mayor's Permit 4,000.00 4,000.00 ––––––––––
––––––––– ––––––––– ––––––––––
1,404,87.41 351,121.85 659,900.16
2,415,509.42
========== ========= =========
===========
NOTE: F/S ending January 31
Section 195 of the Local Government Code of 1991 mandates that when the local treasurer or his duly
authorized representative finds that correct taxes, fee, or charges have not been paid, he shall issue a
notice of assessment stating the nature of tax, fee, or charge, the amount of deficiency, the
surcharges, interests and penalties. This section is akin to Section 228 of the 1997 National Internal
Revenue Code in as much that the underlying reason for both provisions is the basic constitutional
mandate that no person shall be deprived of his property without due process of law. IcaHCS
The essence of due process is the opportunity to be heard or as applied in this case, the opportunity
to argue one's claim and one's defenses. Due process does not require that the Notice of Assessment
is fully detailed. What matters most is for the taxpayer to be informed of the assessment in such a way
that it can present his case.
Respondents' Notice of Assessment is not a mere statement of figures. Rather it informed petitioner
that the assessment was for business tax, and the amount thereof. Actually, the attached worksheet
contains a more detailed information on the assessment showing specifics, such as; the nature of the
tax being collected, tax base, tax due, deficiency or overpayment, surcharges, interests due, and the
total tax due. Clearly, there was prima facie compliance with the requirements of Section 195 of the
Local Government Code of 1991. Petitioner was not left in confusion as to the legal and factual basis
of the assessment.
Further, petitioner's statement that the Notice of Assessment is invalid for failure to state the applicable
legal provisions is misplaced. Well worth noting at this point is the pronouncement of the Supreme
Court in the case of Yamane vs. BA Lepanto Condominium Corporation, 8 to wit: cSEaDA
"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." (Emphasis supplied)
From the clear language of the ruling above, Section 195 does not expressly require that the Notice
must specifically cite the provision of the ordinance; but requires that it state, among others, the nature
of the tax. As already discussed, although the Notice itself merely states that the assessment was for
business tax, the same was sufficiently explained by the attached worksheet when it supplemented
under the heading Particulars that petitioner is being taxed as Service Contractor. Hence, petitioner is
substantially informed of the legal basis of the assessment, that it is being taxed in accordance with
SEC. 3A.02 of the Makati Revenue Code. Plausibly, there was no denial of due process. aIcETS
Finally, petitioner asserts that the taxing and other revenue-raising powers of local government should
be governed by the following principle, among others: Taxes, fees, charges and other impositions shall
(a) be equitable and based as far as practicable on the taxpayer's ability to pay; (b) be levied and
collected only for public purpose; (c) not be unjust, excessive, oppressive or confiscatory; and (d) not
be contrary to law, public policy, national economic policy, or in restraint of trade. The taxes, charges
and fees, which may be imposed by respondents should be guided by these principles and must not
be unjust, excessive, oppressive or confiscatory and not in restraint of trade. More importantly, it
should be based on the taxpayer's ability to pay. In view thereof, the assessment which was not
supported by legal and factual bases should be cancelled and withdrawn.
Respondents counters that the subject assessments are not oppressive and confiscatory. It never
deviated from its mandate by law. The demand for deficiency taxes was simply that petitioner was
found to have understated its gross sales or receipts as reflected in the Official Receipts of the
Mayor's/business permits for the taxable years covered and as also supported by the figures found in
its own Financial Statements; hence, the subject assessment. AECacS
It appears that petitioner is challenging the assessment as excessive and confiscatory for being
without factual and legal basis. This brings to fore the presumption in favor of the correctness of
assessments. In the same wise, it is said that even an assessment based on estimate is prima facie
valid and lawful where it does not appear to have been arrived at arbitrarily or capriciously. The burden
of proof is upon the complaining party to show clearly that the assessment is erroneous. Failure to
present proof of error in the assessment will justify the judicial affirmance of said assessment. 9
The amount being assessed against petitioner is the result of the differences of its gross sales or
receipts per financial statements compared to what it declared in the Mayor's Permit. In the absence
of contradicting evidence, such assessment is presumed correct. The burden to prove, otherwise, lies
upon petitioner which in this case, petitioner failed to discharge. The records lay bare of any evidence
that would prove that the assessment of respondents is indeed excessive and confiscatory except
from the allegations of petitioner.
WHEREFORE, finding no reversible error in the assailed Decision promulgated on November 3, 2006
and the Order dated July 10, 2007, the instant Petition for Review is hereby DISMISSED for lack of
merit. ITADaE
SO ORDERED.
(SGD.) ERNESTO D. ACOSTA
Presiding Justice
Lovell R. Bautista and Caesar A. Casanova, JJ., concur.
Footnotes
1. Section 131 (h). cIDHSC
2. Section 131 (n).
3. CIR vs. Solidbank Corporation, G.R. No. 148191, November 25, 2003.
4. 403 SCRA 647-649.
5. Annex "K", "L", and "M".
6. De Jesus vs. COA; G.R. No. 149154, June 10, 2003.
7. Statutory Construction by Ruben Agpalo; Fifth Edition, 2003, pages 62 and 63.
8. G.R. No. 154993, October 25, 2005.
 9. Marcos II vs. Court of Appeals, G.R. No. 120880, June 5, 1997. cAEDTa

EN BANC
[C.T.A. EB CASE NO. 350. January 22, 2009.]
(C.T.A. AC No. 10)
BATANGAS CITY, MARIA TERESA GERON In her capacity as City Treasurer of Batangas City
and TEODULFO A. DEGUITO In his capacity as City Legal Officer of Batangas City, petitioners,
vs. PILIPINAS SHELL PETROLEUM CORPORATION, respondent.
DECISION
CASANOVA, J p:
This is an appeal, by way of Amended Petition for Review, 1 filed by the petitioners-Batangas City et
al., (BATANGAS CITY) from the Amended Decision 2 (Assailed Amended Decision) of the Court of Tax
Appeals Second Division (CTA Second Division) dated July 31, 2007 in CTA AC No. 10 entitled,
"PILIPINAS SHELL PETROLEUM CORPORATION, petitioner vs. BATANGAS CITY, BENJAMIN E.
PARGAS in his capacity as CITY TREASURER and TEODULFO A. DEGUITO in his capacity as CITY
LEGAL OFFICER OF BATANGAS CITY, respondents," and from the Resolution 3 (Assailed
Resolution) dated November 21, 2007 denying the Motion for Reconsideration 4 of BATANGAS CITY.
HACaSc
The facts of the case, as culled from the records, 5 are as follows:
"Petitioner, Pilipinas Shell Petroleum Corporation (PSPC), operates an oil refinery and depot in
Tabangao, Batangas City, which manufactures and produces petroleum products that are distributed
nationwide.
On the other hand, respondent Batangas City is a local government unit (LGU) with the capacity to
sue and be sued under its Charter and Section 22(a)(2) of the Local Government Code (LGC) of 1991.
Respondents Teodulfo A. Deguito and Benjamin E. Pargas are the City Legal Officer and City
Treasurer, respectively, of Batangas City.
During the years that the PSPC was operating, particularly in 2002, it was only paying the amount of
P98,964.71 for fees and other charges which include the amount of P1,180.34 as Mayor's Permit Fee.
On February 20, 2002, respondent, Batangas City, through its City Legal Officer, sent a notice of
assessment to petitioner demanding the payment of P92,373,720.50 and P312,656,253.04 as
business taxes for its manufacture and distribution of petroleum products. In addition, PSPC was also
required and assessed to pay the amount of P4,299,851.00 as Mayor's Permit Fee based on the
gross sales of its Tabangao Refinery. The assessment was pursuant to Section 143(h) of the Local
Government Code of 1991 and Section 23 of its Batangas City Tax Code of 2002. EICSDT
On the belief that respondents have no authority to impose the subject taxes and fees, petitioner filed
its protest on April 17, 2002 contending among others that it is not liable for the payment of the local
business tax either as manufacturer or distributor of petroleum products. It further argued that the
Mayor's Permit Fees are exorbitant, confiscatory, arbitrary, unreasonable and not commensurate with
the cost of issuing a license.
On May 13, 2002, respondents denied petitioner's protest and declared that under Section 14 of the
Batangas City Tax Code of 2002, they are empowered to withhold the issuance of the Mayor's Permit
for failure of petitioner to pay the business taxes on its manufacture and distribution of petroleum
products.
Aggrieved by the decision of respondents, on June 17, 2002, petitioner then filed a Petition for Review
under Section 195 of the Local Government Code of 1991 before the Regional Trial Court (RTC) of
Batangas City appealing the denial by respondent of its protest.
In its Petition for Review, petitioner maintained that respondents have no authority to impose the said
taxes and fees, and argued that the levy of local business taxes on the business of manufacturing and
distributing gasoline and other petroleum products is contrary to law and against declared national
policy. Assuming however that respondents have the power to levy local business taxes on the
business of manufacturing and distributing gasoline and other petroleum products, the computation of
petitioner's tax liability is erroneous. Also, the Mayor's Permit Fees levied by respondents were
challenged for being unreasonable and confiscatory. cAEDTa
In his Answer, respondent contended that the City of Batangas can legally impose the taxes on the
business of manufacturing and distribution of petroleum products, including the Mayor's Permit Fees
upon petitioner.
After the preliminary conference, trial and presentation of witnesses, both parties were directed to
submit their respective Memorandum. The lower court then summarized the issues raised during the
course of the trial and presented in petitioner's Memorandum, thus:
a. Whether the Batangas City Tax Code of 2002 imposing business taxes in the form of distributor
and manufacturer on Pilipinas Shell Petroleum Corporation contravenes the law, public policy and
pertinent rules and regulations; and
b. Whether or not the business tax and mayor's permit fee imposed by the Batangas City Tax
Code based on the gross receipts are excessive, oppressive and unreasonable.
The lower court deemed the issue of estoppel, raised by respondent, inapplicable and declared that
petitioner merely exercised its right to the remedy provided for under Section 195 of the Local
Government Code of 1991. EIDaAH
During the pendency of the case, petitioner paid under protest the Mayor's Permit Fees for the year
2003 amounting to P774,840.50 as manufacturer and P3,525,010.50 as distributor. When petitioner
applied for the issuance of the Mayor's Permit in 2004, it offered the amount of P150,000.00 as
compromise Mayor's Permit Fee without prejudice to the outcome of the case then pending, which
was rejected by respondent.
In the assailed Decision of RTC Branch II of Batangas City, penned by Judge Mario V. Lopez,
petitioner's appeal was partially granted and the said court a quo declared that:
'WHEREFORE, in view of the foregoing premises, this Court hereby renders judgment as follows:
1. The taxes on the privilege of engaging in the business of manufacturing, distribution or dealing
in petroleum products in the amount of P92,373,750.50 and P312,656,253.04, respectively, imposed
by Batangas City on Pilipinas Shell, is VALID.
2. Declaring the Mayor's Permit Fee in the amount of P4,299,851.00 based on gross
receipts/sales as grossly excessive and unreasonable considering the aforesaid business taxes.
EcSCHD
ACCORDINGLY, THE PETITIONER, PILIPINAS SHELL PETROLEUM CORPORATION (PSPC), IS
HEREBY ORDERED TO PAY THE AMOUNT OF PHP405,030,003.54 AS TAX ON ITS BUSINESS OF
ENGAGING IN THE MANUFACTURE AND DISTRIBUTION OF PETROLEUM PRODUCTS, WHILE
THE ASSESSMENT OF PHP4,299,851.00 AS MAYOR'S PERMIT FEE IS HEREBY ORDERED
REVOKED WITHOUT PREJUDICE TO ITS MODIFICATION BY THE RESPONDENTS, BATANGAS
CITY, ET AL.
SO ORDERED.'
Unsatisfied with the Decision of the lower court, petitioner filed a 'Motion for Partial Reconsideration'
which raised the following grounds:
1. This Honorable Court committed a reversible error in interpreting Section 133(h) of the Local
Government Code to mean that excise taxes may be imposed only on articles or products and not on
the privilege of performing an act, engaging in an occupation or enjoying a privilege. ACaEcH
2. Assuming arguendo that Batangas City is legally empowered to impose and collect business
taxes from PSPC, this Honorable Court committed reversible error in ordering PSPC to pay the
amounts of Php92,373,720.60 and Php312,656,253.04 and thereby effectively deprive PSPC of the
right to question the correct amount of its tax liability.
3. This Honorable Court committed a reversible error in holding that PSPC may be subjected to
both manufacturer's and distributor's taxes.
4. This Honorable Court committed a reversible error in holding that the principle on strict
interpretation of exemption from taxation is the paramount rule applicable in this case.
5. This Honorable Court committed reversible error in declaring Article 232(h) of the Implementing
Rules and Regulations of the LGC void.
Before the issues could be resolved, petitioner filed a 'Manifestation and Motion for Partial Execution'
to which respondents filed a 'Counter-Manifestation and Opposition to the Motion for Partial Execution
of Decision'. On February 2, 2005, petitioner filed another 'Manifestation and Motion' praying for the
refund of the Mayor's Permit Fees it paid for the taxable year 2003 in the amount of P4,299,851.00.
cEDIAa
In the Resolution of the lower court, petitioner's Motions were denied for lack of merit.
Hence, this 'Petition for Review with Extremely Urgent Application for a Temporary Restraining Order
and/or a Writ of Preliminary Injunction' filed on April 27, 2005.
Respondent filed its 'Comment' on July 6, 2005.
Petitioner filed its 'Reply (to Respondent's June 31, * 2005 Comments on the Petition for Review)' on
August 3, 2005.
Considering the urgency of the resolution of petitioner's Application for the Issuance of a Writ of
Preliminary Injunction, on August 11, 2005, this Court granted the said application and ordered
respondent to hold in abeyance the collection of the questioned manufacturer and distributor's taxes in
the amounts of P92,373,720.50 and P312,656,253.04, respectively, conditioned upon the filing by
petitioner of a surety bond in the amount of P500,000,000.00 taken from a bonding company duly
accredited by the Supreme Court.
On August 30, 2005, petitioner filed its 'Compliance' with the Court's Resolution of August 11, 2005,
submitted the required surety bond issued by Malayan Insurance Co., Inc. However, in a Resolution
dated September 13, 2005, this Court resolved to disapprove petitioner's surety bond for failure of
petitioner to submit a Certificate containing the specimen signatures of the agents authorized to
transact business with the Court as required under the Guidelines on Corporate Surety Bonds issued
by the Supreme Court. ICacDE
A 'Motion for Reconsideration' was filed by petitioner on October 7, 2005. Finding merit in petitioner's
manifestations, this Court, through a Resolution dated February 20, 2006, granted the said Motion,
thus lifted and set aside the earlier Resolution of September 13, 2005.
Upon the parties' filing of their Memoranda, this case was submitted for decision on July 5, 2006."
After going over the arguments raised by both parties in their respective pleadings, the CTA Second
Division promulgated on June 21, 2007 a Decision 6 with Justice Olga Palanca-Enriquez dissenting. 7
On July 13, 2007, PSPC filed a "Motion for Clarification" 8 praying for a re-computation of the amount
of Mayor's Permit Fee to be refunded by BATANGAS CITY to PSPC. On July 31, 2007, the CTA
Second Division promulgated the Assailed Amended Decision 9 with Justice Olga Palanca-Enriquez
maintaining her dissenting opinion, the dispositive portion of which reads as follows:
"WHEREFORE, premises considered, the judgment/order of the RTC Branch II of Batangas City is
hereby MODIFIED. As to the business taxes on the manufacture and distribution of petroleum
products, We find the petitioner not liable for the same. As to the mayor's permit, We find that it is
excessive. Accordingly, the respondent is hereby a) declared legally proscribed from imposing
business taxes on the manufacture and distribution of petroleum products; and b) to refund in the form
of tax credit the excessive mayor's permit in the amount of THREE MILLION EIGHT HUNDRED
SEVENTY THOUSAND EIGHT HUNDRED SIXTY PESOS (P3,870,860.00). SaTAED
SO ORDERED."
Not satisfied with the above decision, BATANGAS CITY posted a "Motion for Reconsideration" 10 on
July 30, 2007. On August 1, 2007, BATANGAS CITY posted a "Manifestation" 11 which was noted by
the CTA Second Division in a Resolution 12 dated August 31, 2007. PSPC filed a "Motion for Time (To
File Petitioner's Comment on Respondent's Motion for Reconsideration dated July 30, 2007)" 13 on
September 14, 2007. The CTA Second Division granted the said motion in a Resolution 14
promulgated on September 18, 2007. In compliance with the said Resolution, PSPC filed an
"Opposition (To Respondent's Motion for Reconsideration dated July 30, 2007)" 15 on September 24,
2007.
In the Assailed Resolution 16 dated November 21, 2007, the CTA Second Division denied BATANGAS
CITY's Motion for Reconsideration for lack of merit. In the said Resolution, the CTA Second Division
found no valid or cogent reason to deviate from its findings and conclusions reached in the Decision
dated June 21, 2007 and as amended on July 31, 2007.
On December 26, 2007, BATANGAS CITY filed a Petition for Review 17 with the CTA En Banc,
praying that the Assailed Decision rendered by the CTA Second Division be reversed and that PSPC
be declared liable to pay the business taxes imposed by the City of Batangas. On January 28, 2008,
the CTA En Banc promulgated a Resolution 18 directing Atty. Teodulfo A. Deguito to rectify the formal
and procedural flaws made by the petitioner in its Petition for Review. In compliance with the said
Resolution, BATANGAS CITY filed a "Manifestation/Compliance" 19 on February 21, 2008. Attached
therewith is an Amended Petition for Review. 20 EcICDT
Petitioner-BATANGAS CITY raised the following issues: 21
1. The 2nd Division of the Court of Tax Appeals incorrectly construed a clear provision of law,
specifically Section 133(h) of the Local Government Code of 1991, as an express limitation on the
power of local government units to impose taxes on the business of manufacture and distribution of
petroleum products.
2. The 2nd Division of the Court of Tax Appeals erred when it disregarded the doctrine enunciated
in the case of Philippine Petroleum Corporation vs. Municipality of Pililla, Rizal (198 SCRA 89) that a
tax on business is distinct from a tax on the article itself.
3. The 2nd Division of the Court of Tax Appeals erred when it gave precedence to Article 232(h)
of the implementing rules and regulations (IRR) of the Local Government Code of 1991 (LGC of 1991
for brevity) over Section 143(h) of the Local Government Code when it is very clear that said
regulation cannot prevail over the substantive law which it is tasked to implement.
4. The 2nd Division of the Court of Tax Appeals erred when it gave great weight and credence on
the incorrect interpretations given by the Department of Justice and the Department of Finance on the
alleged exemption provided under Section 133(h) of LGC of 1991. AacCIT
The CTA En Banc promulgated a Resolution 22 on March 5, 2008 noting the
Manifestation/Compliance filed by the petitioner and accordingly admitting the Amended Petition for
Review. In addition, the CTA En Banc ordered the respondent-PSPC to file a Comment on the said
Amended Petition for Review, within ten (10) days from receipt of the said Resolution. On March 19,
2008, respondent-PSPC filed a "Motion for Time (To File Comment on the Amended Petition for
Review dated February 20, 2008)". 23 Said motion was granted by the CTA En Banc in a Resolution
24 dated March 25, 2008. In compliance with the said Resolution, respondent-PSPC posted a
Comment 25 on April 14, 2008.
On July 30, 2008, respondent-PSPC filed an "Urgent Motion for Clarification" 26 seeking clarification
as to whether or not there is still a need to renew the surety bond it filed with the CTA Second Division
considering that the CTA Second Division promulgated an Amended Decision which is favorable to
PSPC.
On August 22, 2008, a "Supplemental Urgent Motion for Clarification" 27 was filed by respondent-
PSPC informing the Court that its surety bond is set to expire on the same date. Thus, respondent-
PSPC reiterated the reliefs it sought in its Urgent Motion for Clarification and in addition, prayed that
the Court orders the cancellation and the release of Malayan Insurance Company Inc. Bond MICO No.
2005-02942. In a Resolution 28 promulgated on August 26, 2008, the CTA En Banc ordered the
respondent-PSPC to renew its surety bond. On November 25, 2008, respondent-PSPC filed a
Compliance with the August 26, 2008 Resolution of the CTA En Banc. The said Compliance is hereby
NOTED. CEASaT
After a careful and thorough evaluation and consideration of the records of the case, the CTA En Banc
finds no new matters which have not yet been considered and passed upon by the CTA Second
Division in its assailed Decision and Resolution.
As aptly discussed by the CTA Second Division in the Decision, 29 as amended, and We quote, to wit:
"We grant the petition.
Petitioner is Not Subject
to the Business Taxes on the
Manufacture and Distribution
of Petroleum Products.
The court a quo is not correct in ruling that petitioner is subject to the business taxes on the
manufacture and distribution of petroleum products.
The mandate to impose taxes granted to local government units (LGUs), in furtherance of the state
policy on local autonomy, is categorical and long-established in the 1987 Philippine Constitution and
the Local Government Code (LGC). DTIaHE
However, such power to impose tax is not all-encompassing. It is subject to limitations as explicitly
stated in Section 5 of the 1987 Constitution, as follows:
SEC. 5. Each local government unit shall have the power to create its own sources of revenues
and to levy taxes, fees, and charges subject to such guidelines and limitations as the Congress may
provide, consistent with the basic policy of local autonomy. Such taxes, fees, and charges shall accrue
exclusively to the local governments. (Emphasis Supplied)
The "Common Limitations on the Taxing Powers of Local Government Units" provided by Congress is
found under Section 133 of the LGC.
Pertinent to this case is paragraph (h) of this provision of law which 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: cTEICD
xxx xxx xxx
(h) Excise taxes on articles enumerated under the National Internal Revenue Code, as amended,
and taxes, fees or charges on petroleum products; (Emphasis Supplied)
xxx xxx xxx
Based on the opening phrase "Unless otherwise provided herein", it is clear that the enumerated
limitations are absolute, unless exceptions are specifically provided.
A reading of Section 133(h) reveals that there are two subject matters included in this section because
of the word "and" which connects them. The following subject matters are covered: 1) Excise taxes on
articles enumerated under the National Internal Revenue Code, as amended; and 2) taxes, fees, and
charges on petroleum products. Although petroleum products are subject to excise tax, it was taken
out of that context by putting it after the word "and". Clearly, this is to emphasize the point that it was
excluded in Section 143(h) of the LGC which allows the imposition of business taxes on any business
subject to the excise, value-added or percentage tax under the National Internal Revenue Code, as
amended. cSCTEH
Moreover, there is no qualification as to what "taxes, fees, or charges" to be imposed on the petroleum
products. It is a well recognized rule that where the law does not distinguish, courts should not
distinguish. Ubi lex non distinguit nec nos distinguere debemos.
In other words, as long as the subject matter of the taxing powers of the LGUs is the petroleum
products per se or even the activity or privilege related to the petroleum products e.g., manufacturing
and distribution of the said products, it is covered by the said limitation and thus, no levy can be
imposed. Thus, We agree with petitioner that this second limitation does not only refer to taxes,
charges or fees on the petroleum products per se, but to any business or transaction dealing with
petroleum products.
Section 143(h) of the LGC is hereunder quoted for easy reference:
'Sec. 143. TAX ON BUSINESS. — The municipality may impose taxes on the following
businesses:
xxx xxx xxx
(h) On any business, not otherwise specified in the preceding paragraphs, which the sanggunian
concerned may deem proper to tax: Provided, That on any business subject to the excise, value-
added or percentage tax under the National Internal Revenue Code, as amended, the rate of tax shall
not exceed two percent (2%) of gross sales or receipts of the preceding calendar year. HIETAc
The sanggunian concerned may prescribe a schedule of graduated tax rates but in no case to exceed
the rates prescribed herein.' (Emphasis Supplied)
Because of the express limitation of Section 133(h), the above-quoted provision cannot be used as
basis for the imposition of business taxes on manufacturing and distributing petroleum products.
Hence, the argument that the LGC has vested LGUs the authority to collect business taxes on
manufacturers and distributors of any article of commerce of whatever kind or nature is not applicable
in this case. 'Petroleum products' should not be interpreted to be included in 'any article of kind and
nature'.
It is elementary in statutory construction that when the law speaks in clear and categorical language,
there is no reason for interpretation or construction but only for application. Applying the law, this Court
finds petitioner not liable to the business taxes on the manufacturing and distribution of petroleum
products.
This is also in line with the Resolution of the Department of Justice (Re: Declaration of Ordinance No.
7794 as Illegal and Unconstitutional), quoted hereunder: AEIcTD
'. . . Sections 143(h) and 151 abovequoted cannot be used in derogation on the clear exemption of
petroleum products under Section 133(h). The presumption always is that the law enacted by the
legislature is complete by itself, that the legislature did perform its function well, and that it is intended
to impart such meaning as will render the law operative and effective (People vs. Martin, G.R. No.
38019, May 16, 1980, 98 SCRA 591 (1980); Asturias Sugar Central, Inc. vs. Commissioner of
Customs, G.R. No. 19337, September 30, 1969, 29 SCRA 617 (1969). The legislature in enacting the
Local Government Code of 1991, cannot be assumed to have inserted in the law a meaningless
provision, one that government units can at their option freely ignore.
The intent to exclude petroleum products is further made evident in the implementing regulations.
Article 232 thereof states:
Art. 232. Tax on Business. —
The Municipality may impose tax on the following businesses: cEITCA
(h) On any business, not otherwise specified in the preceding paragraphs which the sanggunian
concerned may deem proper to tax provided that on any business subject to the excise tax, VAT, or
percentage tax under the NIRC, as amended, the rate of tax shall not exceed two percent (2%) of
gross sales or receipts of the preceding calendar year and 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 in this Article.
(Emphasis Supplied)
The implementing regulations of the Local Government Code have the force and effect of law (Art. 7,
New Civil Code) and unless declared to be illegal, cannot be disregarded. . . .' (Emphasis Supplied)
In its Opinion of October 25, 1993 on this point, the Department of Finance (DOF) has ruled that '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'. AcTHCE
Hence, petitioner is correct in saying that Article 232(h) of the Implementing Rules and Regulations
(IRR) of the LGC, which was formulated and drafted by the Oversight Committee, is in harmony with
Section 133(h) of the LGC, the law it intended to implement. Likewise, the argument on the 'existing
national policy' as enunciated in Section 2 of Republic Act No. 6173 is affirmed.
The ruling of the Supreme Court in the case entitled Philippine Petroleum Corporation vs. Municipality
of Pililia, Rizal does not apply here. Under the old Local Tax Code, the law applicable in the case of
Pililia, the following are the common limitations on the taxing powers of local governments:
SEC. 5. Common limitations on the taxing powers of local governments. — The exercise of the
taxing powers of provinces, cities, municipalities and barrios shall not extend to the imposition of the
following:
(a) Documentary stamp tax;
(b) Taxes on forest products and forest concessions; EDISaA
(c) Taxes on estates, inheritance, gifts, legacies and other acquisitions mortis causa, except as
otherwise provided in this Code;
(d) Taxes on income of any kind whatsoever;
(e) Taxes or fees for the registration of motor vehicles and for the issuance of all kinds of licenses
or permits for the driving thereof;
(f) Customs duties, registration fees of vessels except as otherwise provided in this Code, 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 concerned at rates not
exceeding those fixed by the Tariff and Customs Code;
(g) Taxes of any kind on banks and insurance companies;
(h) Taxes on premiums paid by owners of property who obtain insurance directly with foreign
insurance companies; EHSIcT
(i) Export taxes, fees, or other levies on Philippine finished, manufactured or processed products,
and products of Philippine cottage industries;
(j) Taxes and other impositions upon goods carried into or out of, or passing through, the territorial
jurisdictions of local governments in the guise of unreasonable charges for wharfage, use of bridges,
or otherwise, or other taxes in any form whatever upon such goods or merchandise;
(k) Taxes or fees on agricultural products when sold by the farmer or producer thereof, whether in
their original form or not; and
(l) Percentage tax on sales, except as otherwise provided in this Code.
Petroleum products are not expressly covered by the common limitations on the taxing powers of local
governments under the old Local Tax Code. On the other hand, such exemption was categorically
stated under Sec. 133 of the 1991 LGC. Hence, the Pililia ruling is not applicable. aCSEcA
Based on the foregoing discussions, petitioner is clearly not subject to the business taxes on the
manufacturing and distribution of petroleum products.
Mayor's Permit Was Grossly
Excessive and Unreasonable
We agree with the findings of the lower court that Mayor's Permit fees paid under protest was grossly
excessive and unreasonable.
The mayor's permit is imposed in the exercise of police power primarily for purposes of regulation.
Being such, it must be reasonable and commensurate with the cost regulation, inspection and
licensing of a business or occupation or practice of a profession or calling. Pertinent to this is Section
147 of the LGC which is quoted hereunder:
SEC. 147. Fees and Charges. — The municipality may impose and collect such reasonable fees
and charges on business and occupation and, except as reserved to the province in Section 139 of
this Code, on the practice of any profession or calling, commensurate with the cost of regulation,
inspection and licensing before any person may engage in such business or occupation, or practice
such profession or calling. (Emphasis Supplied) DIEAHc
Article 233 of IRR provides for a clear limit on what reasonable fees and charges should be. This
provision complements with Section 147 of the LGC. It reads, as follows:
ART. 233. Fees and Charges. — The municipality may impose and collect such reasonable fees
and charges on business and occupations and, except as reserved to the province in Article 229 of
this Rule, on the practice of any profession or calling before any person may engage in such business
or occupation, or practice such profession or calling provided that such fees or charges shall only be
commensurate to the cost of issuing the license or permit and the expenses incurred in the conduct of
the necessary inspection or surveillance.
No such fee or charge shall be based on capital investment or gross sales or receipts of the person or
business liable therefor. (Emphasis Supplied)
Based on the above-quoted provision, for fees and charges to be reasonable: fees and charges
should be proportionate/equal to the cost of issuing the license or permit and the expenses incurred in
the conduct of the necessary inspection or surveillance. The last paragraph of Article 233 merely
affirms the basis of the reasonableness of the fees and charge by saying that no fee/charge shall be
based on capital investment or gross receipts of the person or business. IDTSaC
In this case, the mayor's permit being imposed is based on the gross receipt of the preceding calendar
year although in a graduated scale. This is in clear violation of Section 147 of the LGC, as
implemented by Article 233 of IRR.
The finality of the Decision of the lower court as regards the issue of the Mayor's Permit Fees was only
insofar as the lower court found that the said payment made was excessive and unreasonable.
If petitioner would read carefully into the Decision of the lower court, the judgment about the
revocation of the assessment of the Mayor's Permit Fees for the taxable year 2002 was 'without
prejudice to its modification by the respondents, Batangas City, et al.'
This portion of the lower court's Decision was interpreted by the respondent in its 'Memorandum' filed
on June 28, 2006 in this manner, 'This means that the Respondent City of Batangas is permitted to
keep the payment provided that the provision of the Batangas City Tax Code on the matter is modified.
In this regard, the City of Batangas has decided to comply with the mandate of the court and is
presently modifying the tax code.' However, until now, no such modification was manifested to the
Court. ESTCDA
Since, respondents failed to modify the computation of the mayor's permit fee and based on justice
and equity, petitioner should be refunded with the mayor's permit fees ordered revoked by the court a
quo.
The details of the additional amount of P4,299,851.00 mayor's permit fees are as follows:
Manufacturer Distributor
Mayor's Permit Fee P704,305.00 P3,166,555.00
License Fee 70,535.50
Prot. Fee Res/Bus 25,000.00
Fire Insp. Fee 1,000.00
Occ./Prof Tax
San Permit & San Insp. Fee 12,000.00
Fire Code Fee 320,455.00
———————
Total Amount P774,840.50 P3,525,010.50
=========
The amount to be refunded is not the full amount of P4,299,851.00 but the excessive mayor's permit
for manufacturing and distributing in the amount of P704,305.00 and P3,166,555.00, respectively or in
the total amount of P3,870,860.00. CHEDAc
Court cannot rule on
whether or not closure/
suspension of operation
of Tabangao Refinery
of PSPC Tabangao would
serve the welfare of the
consuming public
This Court has already ruled that petitioner is not subject to the business taxes on the manufacturing
and distribution of petroleum products pursuant to explicit provisions of law. Hence, We see no reason
to dwell on the fourth issue because the wisdom of the law is being invoked.
The Court is not in the position nor is it inclined to rule on this issue considering that wisdom of the law
is limited to the legislature. On the other hand, the primary duty of the court is to apply the law."
Further, in the recent case of Petron Corporation vs. Tiangco, et al., G.R. No. 158881, April 16, 2008,
the Supreme Court held that, TaISDA
"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, . . . . 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."
In sum, the CTA En Banc finds no cogent justification to disturb the findings and conclusion spelled out
in the assailed July 31, 2007 Amended Decision and November 21, 2007 Resolution of the CTA
Second Division. What the instant petition seeks is for the CTA En Banc to view and appreciate the
evidence in their own perspective of things, which unfortunately had already been considered and
passed upon.
WHEREFORE, the instant Petition for Review is hereby DENIED DUE COURSE and DISMISSED for
lack of merit. Accordingly, the July 31, 2007 Amended Decision and November 21, 2007 Resolution of
the CTA Second Division in CTA AC Case No. 10 entitled, "PILIPINAS SHELL PETROLEUM
CORPORATION, petitioner vs. BATANGAS CITY, BENJAMIN E. PARGAS in his capacity as CITY
TREASURER and TEODULFO A. DEGUITO in his capacity as CITY LEGAL OFFICER OF
BATANGAS CITY, respondents" are hereby AFFIRMED in toto. acEHCD
SO ORDERED.
(SGD.) CAESAR A. CASANOVA
Associate Justice
Ernesto D. Acosta, P.J., Juanito C. Castañeda, Jr., Lovell R. Bautista and Erlinda P. Uy, JJ., concur.
Olga Palanca-Enriquez, J., see attached separate concurring opinion.
Separate Opinions
PALANCA-ENRIQUEZ, J., concurring:
In view of the recent ruling of the Supreme Court in the case of Petron Corporation vs. Tiangco, 551
SCRA 484, promulgated on April 16, 2008, which clarified and finally put to rest the issue regarding
the authority of local government units to impose taxes on petroleum products, I concur with the
majority to DENY DUE COURSE and to DISMISS the instant Petition for Review.
Footnotes
1. CTA EB Rollo, pp. 308-334. ISHCcT
2. Annex "14", CTA EB Rollo, pp. 288-292.
3. Annex "15", CTA EB Rollo, pp. 293-300.
4. Annex "13", CTA EB Rollo, pp. 276-284.
5. Annex "11", Decision, CTA EB Rollo, pp. 233-259.
6. Ibid.
7. CTA Second Division Rollo, pp. 260-275.
8. CTA Second Division Rollo, pp. 278-283.
9. Supra, note 2. HTacDS
10. CTA Second Division Rollo, pp. 292-299.
11. CTA Second Division Rollo, pp. 304-305.
12. CTA Second Division Rollo, p. 309.
13. CTA Second Division Rollo, pp. 310-311.
14. CTA Second Division Rollo, p. 314.
15. CTA Second Division Rollo, pp. 315-342.
16. Supra, note 3.
17. CTA EB Rollo, pp. 3-26. ASHECD
18. CTA EB Rollo, pp. 302-304.
19. CTA EB Rollo, pp. 305-307.
20. Supra, note 1.
21. Ibid, pp. 317.
22. CTA EB Rollo, pp. 377-378.
23. CTA EB Rollo, pp. 379-381.
24. CTA EB Rollo, p. 384.
25. CTA EB Rollo, pp. 387-453.
26. CTA EB Rollo, pp. 581-584.
27. CTA EB Rollo, pp. 586-588.
28. CTA EB Rollo, pp. 591-593. SEAHcT
29. Supra, note 6, pp. 249-23717-25.

EN BANC
[C.T.A. EB CASE NO. 349. November 11, 2008.]
(C.T.A. AC NO. 19)
LINBERG PHILIPPINES, INC., petitioner, vs. CITY OF MAKATI and NELIA A. BARLIS, in her
capacity as the TREASURER OF THE CITY OF MAKATI, respondents.
DECISION
UY, J p:
Petitioner seeks a review of the Decision dated June 28, 2007 and Resolution dated November 28,
2007, both rendered by the First Division of this Court 1 (Court in Division) in C.T.A. AC Case No. 19
entitled "Linberg Philippines, Inc., petitioner, vs. City of Makati and Nelia A. Barlis, respondents",
pursuant to Section 18 of Republic Act No. 1125, as amended by Republic Act No. 9282. The
dispositive portions thereof read as follows: IDCcEa
Decision promulgated on June 28, 2007:
"In view of the foregoing, the Petition for Review is PARTIALLY GRANTED and the tax due against
petitioner is hereby reduced to the amount of Nine Hundred Ninety Three Thousand Nine Hundred
One Pesos 29/100 (P993,901.29), representing unpaid deficiency tax as contractor for the years,
2000, 2001, 2002, including surcharges and interest provided under Section 168 if the Local
Government Code computed as follows:
2000 2001 2002 Totals
–––––––––––– –––––––––––– –––––––––––– ––––––––––––
Total Service
Revenue 212,738,652.00 300,844,703.00 364,410,627.00 877,993,982.00
Allocation 30% 30% 30% 30%
–––––––––––– –––––––––––– –––––––––––– –––––––––––
–
Taxable Base 63,821,595.6090,253,410.90109,323,188.10 263,398,194.60
–––––––––––– –––––––––––– –––––––––––– –––––––––––
–
Tax Due
P50m 299,500.00 299,500.00 299,500.00 898,500.00
Over P50m x
75% of 1% 103,661.97 301,900.58 444,923.91 850,486.46
–––––––––––– –––––––––––– –––––––––––– –––––––––––
–
Total Tax Due 403,161.97 601,400.58 744,423.91 1,748,986.46
Less: Tax Payment 348,523.36 451,267.07 486,916.36 1,286,706.79
–––––––––––– –––––––––––– –––––––––––– –––––––––––
–
Tax Deficiency 54,638.61 150,133.51 257,507.55 462,279.67
Add:
Surcharge (25%) 13,659.65 37,533.38 64,376.89 115,569.92
–––––––––––– –––––––––––– –––––––––––– –––––––––––
–
Total 68,298.26 187,666.89 321,884.44 577,849.59
Add:
Interest
(2% for 36 mos.) 49,174.75 135,120.16 231,756.80 416,051.70
–––––––––––– –––––––––––– –––––––––––– –––––––––––
–
Total Tax
Deficiency 117,473.01 322,787.05 553,641.23 993,901.29
============================================
SO ORDERED." 2
Resolution promulgated on November 28, 2007:
"WHEREFORE, the Motion for Reconsideration is hereby DENIED for lack of merit. ScaATD
SO ORDERED." 3
THE FACTS
The facts, as found by the Court in Division, are undisputed.
Petitioner is a duly organized corporation, existing under Philippine laws, with principal office at Suite
20-D, Rufino Pacific Tower, corner Herrera Street, Ayala Avenue, Makati City. It is engaged in the
business of financing the construction and operation of power plants primarily through "Build-Operate-
Transfer" (BOT) agreements with its customers.
Respondent City of Makati is a public corporation created and existing pursuant to law. It may be
served with notices and other court processes through the Office of the City Mayor at the Makati City
Hall, City of Makati, Metro Manila. Co-respondent Nelia A. Barlis is the incumbent Treasurer of the City
of Makati and is impleaded in her official capacity. She may be served with notices and other
processes of this Honorable Court through the Office of the City Treasurer, Makati City Hall, City of
Makati, Metro Manila. cEASTa
On March 7, 2003 petitioner received the questioned Notice of Assessment 4 for deficiency business
taxes plus surcharges and interests covering the taxable years 2000, 2001 and 2002 in the aggregate
amount of Php8,714,744.53. The alleged deficiency business taxes arose from respondent's
reclassification of petitioner's business from a "holding or investment" company to a "contractor". Not
in agreement with the questioned assessment, petitioner on May 6, 2003 filed a Letter Protest dated
May 5, 2003, 5 but this was denied by respondent City Treasurer in a Letter dated May 19, 2003, 6
and received by petitioner on June 4, 2003.
On July 3, 2003, petitioner assailed the denial of the protest before the Regional Trial Court (RTC) of
Makati City docketed as Civil Case No. 03-754 entitled Linberg Philippine, Inc. v. City of Makati and
Luz R. Yamane, in her capacity as the Treasurer of Makati by way of "Appeal with prayer for
Prohibition and Preliminary Injunction" 7 pursuant to Section 195 of the Local Government Code.
In a Decision dated August 30, 2005, said case was dismissed for lack of merit. The Motion for
Reconsideration of said Decision was likewise denied on October 28, 2005. 8 Dissatisfied, petitioner
appealed the said denial before this Court on December 19, 2005, docketed as C.T.A. AC No. 19. 9
TIEHSA
On June 28, 2007, 10 the Court in Division rendered the subject assailed Decision partially granting
the petition and reducing the deficiency taxes of petitioner. Thereafter, a Motion for Reconsideration of
the aforesaid Decision was filed by petitioner on July 24, 2007, but the same was denied in the
assailed Resolution dated November 28, 2007 of the Court in Division. 11
Hence, this recourse before the Court En Banc praying that: (a) the assailed Decision and Resolution
dated June 28, 2007 and November 28, 2007, respectively, be reconsidered; (b) petitioner be declared
as not liable to pay alleged deficiency business tax plus surcharge and interest in the amount of Nine
Hundred Ninety Three Thousand Nine Hundred One and 29/100 Pesos (Php993,901.29) for the years
2000, 2001 and 2002; (c) respondents City of Makati and City Treasurer be enjoined from further
collecting business taxes from petitioner; (d) the outstanding Notice of Assessment be withdrawn and
cancelled; and (e) in the alternative, if the Assessment is not cancelled, the City Treasurer be ordered
to deduct the uncollected sales from the tax base for the years 2000, 2001 and 2002 upon
presentation of proof by petitioner.
Respondents filed their Comment to the instant petition on February 29, 2008 12 and this case as
deemed submitted for decision in the Resolution dated March 24, 2008. 13 HTacDS
Hence, this Decision.
THE ISSUES
Petitioner raises the following grounds in support of the instant petition for the Court En Banc's
consideration:
A. Respondent Makati City does not have jurisdiction to tax petitioner;
B. It is not legally incumbent upon petitioner to show that it had paid business taxes in the
different localities where its branch offices are located;
C. Uncollected sales should be deducted from the tax base;
D. Petitioner is not a contractor;
E. Petitioner acted in good faith in representing itself to be a financing/holding company.
cTADCH
Based on the foregoing grounds, the sole issue for the Court En Banc's resolution is whether or not
the Court in Division committed errors of fact or law that would warrant a reversal or modification of its
assailed Decision and Resolution. 14
Petitioner's Arguments
Petitioner submits that upholding the taxing jurisdiction of respondent Makati City on thirty percent
(30%) of sales made in the locality where petitioner has a branch office is contrary to the situs rules
under Section 150 of the Local Government Code and Article 243 of its Implementing Rules and
Regulations (IRR). The Court in Division allegedly assumed that petitioner and its customers
negotiated and planned the construction of the power plants in Makati City, and that its sales are
recorded in Makati City because its sales invoices are reviewed and approved in its principal office in
Makati. However, petitioner contends that these are merely assumptions that are not supported by
evidence. If petitioner is classified as a contractor, as respondent Makati City maintains, all if not
substantially all, of the controlling or operative acts that constitute petitioner's sale of services, must be
done in Makati City. IHEaAc
Further, petitioner argues that Section 150 of the Local Government Code and Article 243 of the IRR
of said Code clearly provide that if a sale made in a locality where the taxpayer maintains a branch or
sales office, the tax thereon shall accrue and be paid to the city or municipality where such branch or
sales office is located. It is only in a case when there is no branch office in the locality where the sale
transaction is made, that the sale shall allegedly be duly recorded in the principal office, and the taxes
due thereon shall be allocated between the principal office and the factory, project office, plant or
plantation using the 30-70 formula prescribed in Section 150.
Petitioner stresses that it is not a contractor because it does not perform services to its customers for
a fee, as it merely finances the construction of the power plants for its customers through BOT
arrangements. Petitioner's business cannot allegedly be described as essentially the sale of services,
but is more of a business of a financing company. Contrary to the conclusions by the Court in Division,
petitioner points out that it is of no consequence that it causes the construction, and/or
manages/operates the power plants, because the fact remains that it advances the necessary capital
for the construction of the power plant, and transfers the ownership thereof, after the agreed BOT
period, to its customer in exchange for a nominal fee, in some instances, even without the payment of
any fee; and that transfer of ownership, undoubtedly proves that it merely finances the purchase of the
power plant by its customer, and that it does not sell services for a fee. ASEcHI
Respondents' Counter-arguments
Respondents counter-argue that the existence of petitioner's principal office in Makati City, and the
admission thereof, constitutes prima facie evidence that it is conducting business in said territorial
jurisdiction, and therefore, respondent Makati City has jurisdiction to tax petitioner. Although petitioner
has been insistent, contradicting itself at times, that it has not been doing business in Makati City but
only in its branch offices, it is necessarily obligated to prove its claim that indeed, the offices
maintained outside the City of Makati are branch offices as defined by law, and that, it has been
paying its due taxes thereat, otherwise, such bare and naked argument, allegedly stays as it is, bare
and naked.
According to respondents, uncollected sales should be deducted from the tax base; that the Court in
Division noted the definition of gross sales or receipts, which specifically mention that exclusions from
the computation only enumerate the following: discounts, if determinable at the time of sales, sales
return, excise tax and VAT. Uncollected sales is not allegedly included in the said definition, hence, it
could not be deducted from the tax base. SAEHaC
Petitioner's nature of business allegedly falls squarely under the definition of a "contractor" under
Sections 3A.01 (q) and 3A.02 (f) of the Makati Revenue Code, 15 as well as, under Section 131 of the
Local Government Code. Furthermore, the documents presented by petitioner, such as its Amended
Articles of Incorporation, Statements of Income and Returned Earnings for the Years ended December
31, 1999 and 1998, Statements of Cash Flows for the years ended December 31, 1999 and 1998 and
Notes to Financial Statements, show that it is engaged in the sale of services and it serves as an
independent contractor.
Lastly, respondents maintain that petitioner was never in good faith in representing itself to be a
financing/holding company, and that the Court in Division aptly declared that petitioner cannot rightfully
claim good faith having made the representation itself as a holding company during the initial
application of its business permit; and that for its willful neglect to file a correct return for the proper
evaluation of the taxing authority, the taxpayer should pay a deficiency tax, and if payment has been
made before the discovery, a surcharge of the amount of such tax is proper to be collected.
THE COURT EN BANC'S RULING
Petitioner's arguments are devoid of merit. cCaEDA
A careful and closer look at the arguments set forth by petitioner in the instant petition for review would
readily reveal that the grounds relied upon and the matters raised herein, are mere restatements of
petitioner's previous arguments raised before the Court in Division, which had already been
exhaustively discussed and passed upon by it in the assailed Decision and Resolution.
At the outset, petitioner questions the jurisdiction of respondent City of Makati to tax its business. The
Court in Division settled this issue by pronouncing that the City of Makati, where petitioner's principal
office is found, has the power to tax its business, but as much as only thirty (30%) percent of
petitioner's gross sales/receipts.
We note that aside from petitioner's admission that its principal office is in Makati City, 16 the Court in
Division found that its principal office is in charge of reviewing and approving the correctness of the
invoices issued by the branch offices. Such activities done in the principal office is evident of business
transactions which should necessarily be recorded. This, petitioner failed to refute as it did not adduce
evidence to prove that there are no recorded sales or business transactions in its office in Makati City,
and its alleged payments of its business taxes to the municipalities where it has its branch offices were
also not proven. TCaEIc
It bears emphasizing that petitioner cannot merely deny the fact that it is covered by the taxing
jurisdiction of Makati City without adducing evidence to prove otherwise. Even if it raised mere
questions of law in its petition, petitioner should have strengthened its claim by credibly presenting all
its evidence at the trial court level in order to secure a favorable resolution of the questions that were
raised in its petition.
Petitioner's business involves financing the construction and operation of private power plants through
a Built-Operate-Transfer (BOT) arrangements with its customers. Admittedly, under the BOT
arrangement, petitioner advances the necessary capital by employing and paying for the services of a
contractor which will build the power plant. These transactions, prior to the completion of the power
plants and branch offices of petitioner, are considered as activities of doing business, which are
necessarily taxable in its principal office, considering that all the documents and deals were arranged
in its principal office in Makati City.
In this regard, petitioner is correct in invoking the applicability of Section 150 of the Local Government
Code for purposes of determining the situs of tax in the instant case. However, We would like to stress
the importance of the relevant portion of said provision, to wit: IDEHCa
"Section 150. Situs of the Tax. — (a) . . . . In cases where there is no such branch or sales outlet in
the city or municipality where the sale or transaction is made, the sale shall be duly recorded in the
principal office and the taxes due shall accrue and shall be paid to such city or municipality."
We reiterate that in the ordinary course of business, particularly in the nature of a BOT business, prior
to the building and construction of any power plant at any locality, the usual negotiations thereon, until
the full completion of the contract of BOT, is usually done in the principal office. Naturally, this
transaction is taxable as it is an exercise of a business. Although the power plants, which are subject
of petitioner's contract of BOT, are situated at different localities, still the act of financing the
construction and operation thereof, are considered as "doing business" which appears to have been
performed at petitioner's principal office in Makati City. It is therefore clear that respondent City of
Makati has jurisdiction to tax petitioner.
Moving on to the issue regarding the uncollected sales as part of the tax base, We agree with the
Court in Division that such amount should be deducted from the tax base. However, as found by the
Court in Division, petitioner failed to prove which part of the tax base was uncollected and which part
should be deducted. As petitioner was remiss in presenting sufficient evidence to establish its case
during trial, it cannot be made to correct its negligence before the Court En Banc, as it should have
been watchful of the proceedings at the trial court, much more, of the outcome of the same. aESTAI
Anent the nature of petitioner's business, We maintain that petitioner is a contractor, and not a
financing or holding company. Contractor is referred to in the Local Government Code of 1991 as to
include persons, natural or juridical, not subject to professional tax under Section 139 of this Code
whose activity consists essentially of the sale of all kinds of services for a fee regardless of whether or
not the performance of the service calls for the exercise or use of the physical or mental faculties of
such contractor or his employees. 17 The same definition is likewise provided now under Section
3A.01 (t) of the Revised Makati Revenue Code. 18
In other words, the term "contractor" includes any person whether natural or juridical as long as the
activity of such person consists essentially of the sale of services for a fee. In the case at bench,
petitioner is definitely engaged in such sale of services. EaHIDC
In addition, the fact that petitioner is a contractor, and not a financing or holding company, is further
bolstered by petitioner's Amended Articles of Incorporation which provides, that petitioner's primary
purpose is "[t]o carry on the business of managing and operating power plants, including, but not
limited to, the acquisition by purchase, exchange, assignment, importation or otherwise, and to sell,
assign, transfer, exchange, mortgage, pledge, traffic or otherwise to enjoy and dispose of machineries,
equipment and buildings, and generally perform, preserve, improve or enhance the value of any such
machineries, equipment and buildings to the extent permitted by law". 19 Based on the
aforementioned primary purpose of petitioner, it is readily apparent that the business it is supposed to
carry on, fall within the ambit of performing some form or kind of service.
Moreover, as found by the Court in Division, the nature of petitioner's operations as described in its
financial statements, can be categorized as a contractor based on the Makati Revenue Code, the
provisions of which are applicable to petitioner. Further, it is worth pointing out that even in the case of
Tatad vs. Garcia 20 cited by petitioner, it was expressly mentioned therein that under the BOT
arrangement (which petitioner is engaged in), there is not only the financing of the project that is
involved, but also the construction, maintenance and operation thereof. Thus, petitioner is undeniably
not only engaged in financing or investment activities, but also in the sale of services which readily
classifies it as a contractor. AaEcHC
Finally, on the issue regarding the imposition of surcharge and penalties, We find that the same to be
in accordance with law.
Section 168 of the Local Government Code of 1991, categorically provides:
"SEC. 168. Surcharges and Penalties on Unpaid Taxes, Fees, or Charges. — The sanggunian may
impose a surcharge not exceeding twenty-five percent (25%) of the amount of taxes, fees or charges
not paid on time and an interest at the rate not exceeding two percent (2%) per month of the unpaid
taxes, fees or charges including surcharges, until such amount is fully paid but in no case shall the
total interest on the unpaid amount or portion thereof exceed thirty-six (36) months."
Clearly, under the authority granted in the foregoing provision, respondent City of Makati can impose
surcharges for late payments of and interests on unpaid taxes, and penalties thereto, as provided in
Sections 3B.04, 3B.05, and 3B.06, respectively, of City Ordinance No. 2004-A-025 otherwise known
as the Revised Makati Revenue Code (formerly under Sections 3A.09 and 3A.10 of the Makati
Revenue Code). 21 IEDHAT
Consequently, upon discovery by the local government that petitioner misrepresented itself and
caused a different tax rate to be applied to it, there is legal basis to impose surcharge and penalties.
Even granting for the sake of argument that it was respondent who classified petitioner as a holding or
investment company, still, it was petitioner who submitted certain documents which misled or caused
respondent to believe that petitioner was engaged in an investment business. Petitioner's failure to
cause the correction of such classification is a sign of bad faith on its part because such classification
appears to be more beneficial to it with regard to tax liabilities.
In the light of the foregoing discussions, the Court En Banc finds no reversible error committed by the
Court in Division that would merit a reversal of its assailed Decision and Resolution dated June 28,
2007 and November 28, 2007, respectively.
WHEREFORE, premises considered, the instant petition is hereby DENIED DUE COURSE, and,
accordingly, DISMISSED for lack of merit. HTSaEC
SO ORDERED.
(SGD.) ERLINDA P. UY
Associate Justice
Ernesto D. Acosta, P.J., Juanito C. Castañeda, Jr., Lovell R. Bautista, Caesar A. Cassanova and Olga
Palanca-Enriquez, JJ., concur.
Footnotes
1. Ponencia of Presiding Justice Ernesto D. Acosta, concurred by Associate Justice Lovell R.
Bautista and Associate Justice Caesar A. Cassanova.
2. Docket, pp. 41-59. DacASC
 3. Docket, pp. 60-62.
4. Annex "C", Petition for Review; Docket; p. 63.
5. Annex "E", Petition for Review; Docket; pp. 65-71.
6. Annex "F", Petition for Review; Docket, pp. 72-73.
7. Annex "G", Petition for Review; Docket, p. 74.
8. Annex "C", Petition for Review, Docket, p. 150.
9. Annex "N", Petition for Review; Docket, pp. 151-184. acHETI
10. Annex "A", Petition for Review, Docket pp. 41-59.
11. Annex "B", Petition for Review; Docket, pp. 60-62.
12. Docket, pp. 565-574.
13. Docket, p. 576.
14. Section 10 of Rule 43 of the 1997 Rules of Civil Procedure, in relation with Section 4 (b) of the
Revised Rules of the Court of Tax Appeals.
15. Referring to Municipal Ordinance No. 072-92, otherwise known as the Makati Revenue Code.
CSAaDE
16. Paragraph 2.1, Petition for Review, p. 3, Docket, p. 10.
17. Section131 (h) of the Local Government Code of 1991.
18. City Ordinance No. 2004-A-025, otherwise known as "An Ordinance Adopting The Revised
Makati Revenue Code" [formerly under section 3A.01 (q) of Municipal Ordinance No. 072-92,
otherwise known as the Makati Revenue Code]. ITECSH
19. Assailed Decision, p. 10 (adopting the factual findings of the Regional Trial Court of Makati City
in Civil Case No. 03-754, entitled "Lindberg Philippines, Inc. vs. The City of Makati and Luz R.
Yamane, in her capacity as the Treasurer of Makati"); Docket, p. 50.
20. 243 SCRA 436. aSDCIE
21. Municipal Ordinance No. 072-92.

EN BANC
[C.T.A. EB CASE NO. 280. March 12, 2008.]
(C.T.A. AC No. 18)
THE CITY OF LAS PIÑAS, represented by RIZAL Y. DEL ROSARIO, in his capacity as CITY
TREASURER, petitioner, vs. SEALED AIR (PHILIPPINES) INC., respondent.
DECISION
CASTAÑEDA, JR., J p:
This is a Petition for Review filed before the Court of Tax Appeals En Banc assailing the Decision
dated November 13, 2006 and the Resolution dated March 9, 2007 issued by the First Division of this
Court in the case entitled, "Sealed Air (Philippines), Inc. vs. The City of Las Piñas and Mr. Rizal Y. Del
Rosario, in his capacity as Treasurer of the City of Las Piñas"; docketed as CTA A.C. No. 18. The
assailed Decision SET ASIDE the decision and order is issued by the Hon. Raul Bautista Villanueva of
RTC Branch 255 of Las Piñas City dated June 28, 2005 and October 6, 2005, respectively. In the
same assailed Decision, the First Division DECLARED WITHOUT FORCE AND EFFECT the
assessments dated August 1, 2003 and September 8, 2003 issued by the respondent City Treasurer
of Las Piñas. DAHCaI
The Resolution dated March 9, 2007 denied the respondent's (herein petitioner) Motion for
Reconsideration for lack of merit.
THE FACTS
The facts of the case as found by the Court in Division are as follows:
Petitioner Sealed Air (Philippines) Inc. (formerly Cryovac Philippines Inc.), is a domestic corporation
with principal office at Don Mariano Lim Industrial Complex, Alabang-Zapote Road, Las Piñas City.
Respondent City of Las Piñas is the local government unit exercising local tax jurisdiction over the
petitioner. Respondent Rizal Y. Del Rosario is the Treasurer of Las Piñas City and is being impleaded
in this Petition for Review as such.
On August 4, 2003, petitioner received a letter dated August 1, 2003 from the respondent City
Treasurer requiring the former to settle the assessment made on the alleged local business tax
deficiencies in the total amount of P5,499,323.25, inclusive of penalties and interests, covering the
taxable period 1999-2003.
Petitioner received a follow-up assessment letter dated September 8, 2003 on September 9, 2003.
Considering that the first assessment letter sent by the respondent City Treasurer was received by the
petitioner on August 4, 2003, the latter had until October 3, 2003 within which to file its written protest
to contest the said assessment pursuant to section 195 of the LGC. cAEaSC
It appears from the respondent City Treasurer's letters that the assessment made was based on the
petitioner's alleged failure to pay the correct amount of business taxes during the covered period.
Notwithstanding the fact that petitioner was regularly paying the relevant local business taxes, a
discrepancy arose due to the alleged erroneous classification of the petitioner.
According to the City Treasurer, the business tax classification of the petitioner should be that of
"retailer" which is being taxed under Article VIII, Section 31 (d), of the Revenue Code of Las Piñas at
the rate of One Percent (1%) on gross receipts exceeding P400,000.00. Petitioner was classified as a
"wholesaler" prior to the issuance of the protested assessment and the tax reclassification had given
rise to the alleged tax deficiencies of the petitioner.
In view of petitioner's assessment for local business tax deficiency, Sealed Air disputed the said
assessment as the same is without any legal or factual basis- it being based on the wrongful
assumption on the nature and kind of petitioner's business activities. Thus, petitioner filed its letter-
protest dated September 24, 2003 with the respondent City Treasurer on September 30, 2003.
Without admitting the validity of the subject assessment, petitioner showed that the deficiency tax due
should be P3,625,078.25 based on a patent summation error committed in computing the alleged tax
due. TAECaD
In support of its protest, petitioner averred that it is a wholesaler and not a retailer, as in fact not
allowed by law to engage in retail trade business and it has never been involved in any transaction
involving retail trade. Also, its sales activities were purely made on a wholesale basis. Thus, as far as
the petitioner was concerned, the tax deficiency assessment for local business tax covering the period
2000-2003 should be withdrawn. On the tax deficiency for 1999, the petitioner argued that the City of
Las Piñas has no jurisdiction to collect taxes on the gross income generated by Sealed Air in 1998
considering that it has started business operations in Las Piñas only in January 1999.
However, the respondent City Treasurer was not convinced with the petitioner's arguments and
proceeded to deny the protest. Petitioner filed an Appeal with the RTC of Las Piñas, entitled "Cryovac
Philippines, Inc. vs. THE CITY OF LAS PIÑAS AND MR. RIZAL Y. DEL ROSARIO, in his capacity as
Treasurer of the City of Las Piñas." The said case was raffled to branch 255 and docketed as Civil
case No. 03-0269.
After trial on the merits, a Decision dated June 28, 2005 was promulgated by Honorable Presiding
Judge Raul Bautista Villanueva, which is quoted hereunder for reference, to wit:
"WHEREFORE, premises considered, judgment is hereby rendered as follows: aEAIDH
1. DISMISSING the Appeal dated 18 November 2003 filed by the appellant Cryovac Philippines,
Inc., for utter lack of merit;
2. DECLARING the appellant Cryovac as a retailer and subject to business taxes under Sec. 31
(d) of the Revenue Code of the City of Las Piñas;
3. FINDING the said appellant liable for tax deficiencies due to the appellees City of Las Piñas
and City Treasurer Rizal del Rosario and to immediately pay the same in an amount to be re-
computed covering the period 1999 up to 2003; and
4. REQUIRING the above appellant to subsequently pay business taxes due from it as a
"retailer", not as a "distributor".
No pronouncement as to costs.
SO ORDERED."
Petitioner filed a Motion for reconsideration dated July 29, 2005 seeking reconsideration of the above-
quoted Decision. On October 6, 2005, the court a quo denied the said motion for lack of merit.
aICcHA
Hence, this Petition for Review filed with the Court of Tax Appeals docketed as A.C. Case No. 18
entitled, "Cryovac Philippines, Inc. vs. The City of Las Piñas and Mr. Rizal Y. Del Rosario, in his
capacity as a Treasurer of the City of Las Piñas", wherein petitioner raised the sole issue:
WHETHER OR NOT PETITIONER SHOULD BE CLASSIFIED AS RETAILER SINCE THE
PETITIONER IS IN TRUTH AND IN FACT A WHOLESALER.
Acting on the Petition, the First Division of this Court issued a Decision on November 13, 2006 which
is now the subject of appeal. The dispositive portion of the said Decision reads, as follows:
IN VIEW OF THE FOREGOING, the instant Petition for Review is hereby GRANTED. Accordingly, the
28 June 2005 Decision and 6 October 2005 Order both issued by the Hon. Raul Bautista Villanueva of
RTC Br. 255, Las Piñas City, are hereby SET ASIDE. In addition, the 01 August 2003 and 08
September 2003 assessments issued by the respondent City Treasurer of Las Piñas are hereby
DECLARED WITHOUT FORCE and EFFECT.
SO ORDERED. IADCES
The respondent (herein petitioner) filed a Motion for Reconsideration of the Decision dated November
13 2006 against the petitioner (herein respondent). In a Resolution dated March 9, 2007, the First
Division denied the Motion for lack of merit.
Hence, this Petition for Review En Banc.
In a Resolution dated May 7, 2007, the Court En Banc ordered the respondent to file its comment on
the petition to which the latter complied on June 18, 2007.
THE ISSUES
I.
Whether or not the Respondent should be classified as a wholesaler or retailer in accordance with the
provision of the Local Government Code of 1991 and the Revenue Code of the City of Las Piñas.
II.
Whether or not the acts of Respondent put it within the purview of the definition of a retailer; and as
such, is liable to pay Petitioner for tax deficiencies in the amount of Three Million Six Hundred Twenty-
five thousand Seventy-Eight pesos and Twenty-five centavos (Php3,625,078.25). EaCDAT
PETITIONER'S ARGUMENTS
Petitioner avers that the provisions of the Local Government Code (LGC) of 1991 (Republic Act No.
7160) and the Revenue Code of the City of Las Piñas (City Ordinance No. 104-92), particularly
Section 131 (w) and Section 3 (w), respectively, classify Sealed Air as a retailer. What "retail" merely
entails is that a commodity is bought for the consumption of the purchaser. By themselves, said terms
are understood in their common meaning, thus, there is no reason to resort to a peculiar definition of
the term "Retail."
RESPONDENT'S COMMENT
Respondent reiterates that it is a wholesaler in accordance with the applicable laws. (LGC of 1991,
Revenue Code of the City of Las Piñas) and prevailing jurisprudence citing the cases of Marsman &
Co., Inc. vs. First Coconut Central Co., Inc. G.R. No. L-39841, June 20, 1988 162 SCRA 206, Cornelio
Balmaceda vs. Union Carbide Phils. Inc. G.R. No. L-30442, September 30, 1983 124 SCRA 893, B.F.
Goodrich Philippines, Inc. vs. Teofilo Reyes Sr. G.R. No. L-30067 April 19, 1983 121 SCRA 363, and
Mobil Oil Phils., Inc. vs. Teofilo Reyes Sr. G.R. No. L-29013 August 31, 1983 124 SCRA 373, and
therefore, respondent must be taxed as a wholesaler.
COURT'S RULING
We find the petition without merit. ECSaAc
To sum up the arguments raised by the petitioner, its ultimate tenor is for the Court to decide merely
on the definitions provided by LGC of 1991 and the Revenue Code of the City of Las Piñas without
resorting to other laws and jurisprudence.
We quote hereunder the relevant provisions of LGC of 1991 defining the terms "retail" and
"wholesaler", to wit:
"SEC. 131. Definition of Terms. — When used in this Title, the term:
xxx xxx xxx
(w) "Retail" means a sale where the purchaser buys the commodity for his own consumption,
irrespective of the quantity of the commodity sold;
xxx xxx xxx
(z) "Wholesale" means a sale where the purchaser buys or imports the commodities for resale to
persons other than the end user regardless of the quantity of the transaction.
xxx xxx xxx"
Meanwhile, Section 3 Chapter I of City Ordinance No. 104-92, An Ordinance Approving the Revenue
Code of the City of Las Piñas provides: SHIETa
"SEC. 3. Definition of terms. —
xxx xxx xxx
w) "Retail" — means a sale where the purchaser buys the commodity for his own consumption,
irrespective of the quantity of the commodity sold;
xxx xxx xxx
z) "Wholesale" — means a sale where the purchaser buys or imports the commodities for resale
to persons other than the end user regardless of the quantity of the transaction.
xxx xxx xxx"
If We are to determine the correct classification of the respondent on the basis alone of the above-
quoted definitions, the petitioner's contention is still without leg to stand on.
We agree with the petitioner that if the sale is made to a consumer or end-user for his own personal
consumption and not for the purpose of resale, the sale should be classified as retail, but if the sale is
made for the purpose of reselling, the same must be considered to have been made at wholesale.
aEcTDI
A closer analysis of these definitions will clearly place the respondent in the category of wholesaler.
The products of the respondent, i.e. packaging materials, are sold to its clients (Jollibee Foods
Corporation, Jaka Foods, Swift Foods, Monterey Farms, The Purefoods-Hormel Co. Inc. to name a
few) to serve as container for the latters' own finished food products. It is only when these finished
food products are sold to the ultimate "end-user" that the production and distribution chain can be said
to have been completed. The chain starts from the respondent selling the packaging materials to its
clients who in turn shall now use these packaging materials as containers for their products. The final
link in the chain is when the finished food products are transferred from the respondent's clients'
hands (i.e. Jollibee Foods Corporation, etc.) to its ultimate consumer for the latter's personal
consumption.
The packaging materials become part of the finished food product being sold by the respondent's
clients. The finished food product cannot be said to have been completed its production stage without
it being packed using the respondent's packaging materials. In effect, these packaging materials are
being resold to the general public as part of the cost of the finished product of the respondent's clients.
As clearly discussed in the ruling of the First Division in its Decision, to wit: ASHICc
"In the sale of food products to the end-users/consumers, manufacturing and industrial companies
incorporate and/or add the cost of all raw materials and expenses incurred in order to produce the
products. Necessarily, the petitioner's clients included the cost of the packaging materials in their
selling price so as to compensate the cost or expense they incurred in the production and
manufacturing of their food products."
Accordingly, the clients of the respondent are not the end-users of the packaging materials. Thus,
respondent cannot be considered as retailer within the definition provided above.
Petitioner avers that the definition in the above laws intended businesses covered by such definition to
be classified and taxed as such. This allows a broader spectrum of business to be taxed within its
definition, which are neither contrary or in conflict with the present retail laws.
Looking at our retail laws, the sales by the respondent to its clients will still not fall within the definition
of "Retail Trade". Under the Rules and Regulations Implementing Republic Act No. 8762, An Act
Liberalizing The Retail Trade Business, Amending Republic Act No. 1180, "Retail Trade" has been
defined as follows:
"Section 1. For purposes of this Rules and Regulations: SEIcAD
(a) "Retail Trade" shall mean any act, occupation or calling of habitually selling direct to the
general public merchandise, commodities or goods for consumption.
xxx xxx xxx
The same implementing rule enumerates the sales not considered as retail, to wit.
Sec. 2. Sales Not Considered As Retail. — The following sales are not considered as retail:
xxx xxx xxx
(e) Sales to industrial and commercial users or consumers who use the products bought by them
to render service to the general public and/or produce or manufacture of goods which are in turn sold
by them; or . . ."
Based on the above implementing rule, the sales made by the respondent to its industrial and
commercial users (i.e. Jollibee Foods Corporation, etc.) are not considered as retail. If We are to
sustain the petitioner's argument, then, the rule should have included the sales of the respondent to its
clients as retail sales. DACTSa
Meanwhile, petitioner argues that the First Division erred in applying the case of Marsman & Co., Inc.
vs. First Coconut Central Co., Inc. G.R. No. 39841, June 20, 1988, to the case at bar because the said
jurisprudence (Marsman, 1988) is much older than the statute (LGC of 1991). There already being a
law defining the term "retail", the Court did not have to resort to jurisprudence.
The Court is not convinced with the petitioner's argument.
Judicial decisions applying or interpreting the laws or the Constitution shall form a part of the legal
system of the Philippines. 1 Supreme Court decisions assume the same authority as valid statutes. 2
Besides, Marsman Case has not been modified by the Supreme Court and remains a good case law.
Further, in statutory construction, when particular words and phrases have acquired a settled meaning
thru judicial interpretation and are used in a subsequent statute upon the same or analogous subject,
they should be interpreted in the latter as in the former. 3
The First Division of this Court in applying the case of Marsman stresses three (3) elements that
should be present to be engaged in retail, to wit: DaAISH
(a) That the seller should be habitually engaged in selling;
(b) The sale must be direct to the general public; and
(c) The object of the sale is limited to merchandise, commodities or goods for consumption.
As to the first element, it is undisputed that respondent habitually engaged in selling packaging
materials. However, petitioner is not convinced on the findings of the First Division that the second
element is lacking. It mentions the case of Balmaceda vs. Union Carbide Philippines Inc. (September
30, 1983) in explaining the term "General Public". It argues that having a limited clientele does not
take it away from the ambit of general public as long as there is actually no prohibition to the general
public in making similar purchases. Hence, the general public can avail of the services and products of
respondent Sealed Air if the need arises.
The Court disagrees with the petitioner's contention.
There may have been no prohibition to the general public in availing the packaging products from the
respondent, however, it is the latter that is prohibited from engaging in retail trade. Pursuant to
Republic Act No. 8762, Liberalizing the Retail Trade Business, Repealing Republic Act 1180, unless
the respondent complies with the minimum capitalization requirement, it cannot engage in retail trade
business. Thus, respondent's products are not readily available to whoever, desires to avail them for
their own consumption. AaECSH
Further, as pointed out by the respondent, the sales process between the respondent and its clientele
involve the following, to wit: (1) sending of purchase orders by the customer to the respondent; (2)
preparation of sales invoices and delivery receipts by the respondent; and (3) actual delivery of the
packaging materials by the respondent to the customers. In contrast to the sale to the general public,
there is no necessity of action from the purchaser to initiate the sale; no purchase order is required.
Retails items sold are available in the shelves/racks of retail stores. The only action required from the
purchase is to choose the item he/she intends to buy from the display of items.
Meanwhile, on the third element, petitioner contends that the First Division erred in classifying
respondent's products as producer goods because the same packaging materials are not raw
materials or tools used to produce or manufacture food products.
We do not agree.
The packaging materials form an important part in the production of goods being sold to the general
public. This issue has been correctly discussed by the First Division in its Decision, to wit:
"As earlier discussed, they are elements utilized in the production and manufacturing process of the
food products, and as such, they are considered as intermediate or auxiliary goods. They do not
pertain to final and end use which is the direct satisfaction of human personal wants and needs.
Although not raw materials in the production food and non-food products, the packaging materials are
essential tools in the production and manufacturing of food products being sold to the general public."
ETHaDC
WHEREFORE, in light of the foregoing laws and jurisprudence, the Petition for Review En Banc is
DISMISSED for lack of merit. Accordingly, the Decision dated November 13, 2006 and Resolution
dated March 9, 2007 are AFFIRMED.
SO ORDERED.
(SGD.) JUANITO C. CASTAÑEDA, JR.
Associate Justice
Ernesto D. Acosta, P.J., Lovell R. Bautista, Erlinda P. Uy, Caesar A. Casanova and Olga Palanca-
Enriquez, JJ., concur.
Footnotes
1. Article 8 of the Civil Code of the Philippines.
2. Floresca vs. Philex Mining Corporation, 136 SCRA 141 [1985]. CIAcSa
3. Ruperto G. Martin, Statutory Construction, Revised Edition (1972), p. 151.

SECOND DIVISION
[C.T.A. AC CASE NO. 35. October 31, 2008.]
(Civil Case No. 03-108175)
MS. LIBERTY M. TOLEDO, in her official capacity as the City Treasurer of Manila and the City of
Manila, petitioners, vs. METRO MANILA SHOPPING MECCA CORP., SHOEMART INC., SM
PRIME HOLDINGS INC., STAR APPLIANCES CENTER, SUPERVALUE, INC., ACE HARDWARE
PHILIPPINES, INC., HEALTH AND BEAUTY, INC., JOLLIMART PHILS., CORP., AND SURPLUS
MARKETING CORPORATION, respondents.
DECISION
CASTAÑEDA, JR., J p:
Before this Court is a Petition for Review praying for the reversal and setting aside of the Decision
dated December 7, 2006 and the Order dated April 17, 2007 rendered by Branch 47 of the Regional
Trial Court (RTC) of Manila in Civil Case No. 03-108175, entitled "Metro Manila Shopping Mecca
Corp., Shoemart, Inc., SM Prime Holdings, Inc., Star Appliances Center, Supervalue, Inc., Ace
Hardware Philippines, Inc., Health and Beauty, Inc., Jollimart Phils. Corp., and Surplus Marketing
Corporation vs. MS. LIBERTY TOLEDO, in her official capacity as the City Treasurer of Manila and the
City of Manila". AcSEHT
Petitioner Liberty M. Toledo is the duly appointed City Treasurer of the City of Manila, empowered to
perform the duties of said office including, among others, the collection of all local taxes, fees, and
charges, and the power to decide, approve or grant refunds or tax credits of erroneously or
excessively paid taxes; while petitioner City of Manila is a local government unit.
Respondents are domestic corporations organized and existing under and by virtue of the laws of the
Republic of the Philippines, and doing business in the City of Manila. 1
During the taxable period ending October 2001, the Business Permits and Licenses Division of
petitioner City of Manila assessed respondents for their alleged fourth (4th) quarter local business
taxes pursuant to Section 21 (Tax on Business Subject to the Excise Tax, Value-Added Tax or
Percentage Taxes under the National Internal Revenue Code) of City Ordinance No. 7794, as
amended by City Ordinance Nos. 7807, 7988 and 8011, otherwise known as the Revenue Code of the
City of Manila (Revenue Code of Manila), as follows: aTcESI
1. Metro Manila Shopping Mecca Corp. P1,203,361.44
2. Shoemart, Inc. 2,902,041.70
3. SM Prime Holdings, Inc. 310,398.44
4. Star Appliances Center 397,282.22
5. Supervalue, Inc. 153,428.69
6. Ace Hardware Philippines, Inc. 53,800.85
7. Health and Beauty, Inc. 23,256.39
8. Jollimart Phils. Corp. 25,574.05
9. Surplus Marketing Corp. P35,137.48
––––––––––––
TOTALP5,104,281.26 2
===========
Respondents accordingly paid the above-mentioned assessments on October 20, 2001. However,
independently of the amounts collected under Section 21 (Tax on Business subject to the Excise,
Value-Added or Percentage Taxes under the NIRC) of the Revenue Code of Manila, petitioner City
Treasurer assessed respondents of local taxes imposed upon retailers, wholesalers, exporters and
importers pursuant to Section 15 (Tax on Wholesalers, Distributors, or Dealers), Section 17 (Tax on
Retailers) and such other applicable provisions of the Revenue Code of Manila. 3 caTESD
On October 20, 2003, respondents filed a judicial action denominated as "Petition" praying for the
issuance of a writ of temporary restraining order against the petitioners; the declaration of Section 21
of the Revenue Code of Manila as unconstitutional; and the refund of the amount of P5,104,281.26.
The case was docketed as Civil Case No. 03-108175, entitled "Metro Manila Shopping Mecca Corp.,
Shoemart, Inc., SM Prime Holdings, Inc., Star Appliances Center, Supervalue, Inc., Ace Hardware
Philippines, Inc., Health and Beauty, Inc., Jollimart Phils. Corp., and Surplus Marketing Corporation vs.
Ms. Liberty Toledo, in her official capacity as the City Treasurer of Manila and the City of Manila". 4
On November 14, 2003, respondents as plaintiffs filed an Amended Complaint seeking the issuance of
the writs of temporary restraining order and preliminary injunction for the petitioners as defendants to
cease and desist from collecting local business taxes based on Section 21 of the Revenue Code of
Manila; and the refund of P5,104,281.26, plus interest. 5
On December 16, 2003, petitioners filed their Answer refuting the material allegations of the Amended
Complaint. ECaTAI
During the pre-trial conference, the parties stipulated the following issues:
1. Whether or not the assessment upon plaintiffs under Section 21 of the Revenue Code of
Manila as amended is illegal and unconstitutional and consequently
2. Whether or not the plaintiffs are entitled to a tax credit/tax refund in the amount of Five Million
One Hundred Four Thousand Two Hundred Eighty One and 26/100 Pesos (P5,104,281.26). 6
On December 7, 2006, the Regional Trial Court ("RTC") Branch 47 of Manila rendered the assailed
Decision, the dispositive portion of which reads:
WHEREFORE, premises considered, judgment is rendered:
(1) Declaring the assessments made upon the plaintiffs for the 4th Quarter local business taxes
pursuant to Section 21 of the Revenue Code of the City of Manila in the total amount of P5,104,281.26
null and void; ACIEaH
(2) Ordering the defendants to refund to the plaintiffs as follows:
a) Metro Manila Shopping Mecca Corp. P1,203,361.44
b) Shoemart, Inc. 2,902,041.70
c) SM Prime Holdings, Inc. 310,398.44
d) Star Appliances Center 397,282.22
e) Supervalue, Inc. 153,428.69
f) Ace Hardware Philippines, Inc. 53,800.85
g) Health and Beauty, Inc. 23,256.39
h) Jollimart Phils. Corp. 25,574.05
i) Surplus Marketing Corp. 35,137.48
––––––––––––
TOTALP5,104,281.26
===========
OR ALTERNATIVELY, to issue tax credits to the said plaintiffs for the said amount.
SO ORDERED. 7
On January 17, 2007, petitioners filed a Motion for Reconsideration which was eventually denied by
the RTC through its Order dated April 17, 2007, the pertinent portions of which state: AScTaD
After a careful study of the defendants' motion for reconsideration and the Comment/Opposition filed
by the plaintiffs thereto, the court finds that the motion does not raise substantial matters or cogent
reasons which would warrant a reversal of the court's decision dated December 7, 2006.
WHEREFORE, premises considered, the Motion for Reconsideration filed by the defendants is
DENIED for lack of merit.
SO ORDERED. 8
Petitioners received a copy of the Order on April 27, 2007 and had thirty (30) days within which to
appeal to this Court. On May 5, 2007 and June 9, 2007, petitioners twice moved to extend the filing of
a petition for review. They likewise filed a Manifestation on June 28, 2007, alleging the filing of their
Petition for Review by registered mail on June 26, 2007. In a Resolution dated July 6, 2007, this Court
granted the Motions, noted the Manifestation, and admitted the Petition for Review. 9 DCASEc
Respondents filed their Comment on September 10, 2007. Thereafter, petitioners filed their Reply on
September 26, 2007; and respondents their Rejoinder on November 8, 2007. 10
In compliance with Resolution dated October 19, 2007, petitioners and respondents filed their
respective Memorandum on January 23, 2008 and January 7, 2008, respectively. Hence, on January
29, 2008, the case was submitted for decision. 11
Petitioners raised the following assigned errors in their Petition for Review:
i. The Honorable Court a quo gravely erred in entertaining the case despite the fact that it has no
jurisdiction over the case.
ii. The Honorable Court a quo gravely erred in its failure to dismiss the case despite failure of
plaintiffs to observe a condition sine qua non before resort to court may be had.
iii. The Honorable Court a quo gravely erred in its failure to dismiss the case for plaintiffs' failure to
state cause of action. CIDaTc
iv. The Honorable Court a quo gravely erred in its failure to dismiss the case despite violation by
plaintiffs of Section 4, Rule 8 of the 1997 Rules of Court.
v. The Honorable Court a quo gravely erred in its failure to dismiss the case despite the fact that
the claim of plaintiffs is barred by statute of limitations.
vi. The Honorable Court a quo gravely erred in applying the case of Coca-Cola Bottlers
Philippines, Inc. vs. City of Manila, Liberty M. Toledo, City Treasurer, and Joseph Santiago, Chief,
Licensing Division of Manila, docketed as G.R. No. 156252, (June) 27, 2006. 12 HCEcAa
In their Comment, respondents countered:
6. First, Petitioners asserted that RTC of Manila-Branch 47 did not acquire jurisdiction of the case
for the alleged failure of Respondents to state cause of action. Respondents allegedly failed to
observe the procedure in Section 187, LGC which requires that any revenue measure may be raised
on appeal to the Secretary of Finance within thirty (30) days from its effectivity. This issue has long
been settled by the Court. Section 187, LGC is inapplicable in this case considering that this is a claim
for refund of taxes paid under Section 21, (RCM), as amended. Respondents did not attack the
constitutionality of the Section 21 tax, they merely claimed that the imposition of taxes under Section
21, RCM, as amended, in addition to taxes under Sections 15 and 17, RCM, (a) violates the City's
taxing powers under the LGC; and (b) constitutes illegal double taxation. Therefore, an appeal to the
Secretary of Justice is not necessary in this case. ECTIcS
7. Second, Petitioners also alleged that while the Court admittedly acquired jurisdiction over the
claims of Respondents Metro Manila Shopping Mecca Corp. and SM Prime Holdings, Inc., the Court
could not have acquired jurisdiction over the rest of the Respondents due to a purported violation on
the rules of joinder of causes of action. While this argument deserves scant consideration due to
Petitioners' failure to provide any basis therefore, it does not hurt Respondents' case to point out that
the parties in this case stipulated that Respondents are corporations organized and existing under and
by virtue of Philippine laws and are all doing business in the City of Manila. The factual findings of the
RTC of Manila-Branch 47 and the stipulations of the parties are more telling, in that they confirmed
that the cause of action of the Respondents all arose from the same assessment made by Petitioners
of business taxes for the 4th quarter of 2001. Even assuming that Petitioners' vague assertions may
have some semblance of merit, Section 6, Rule 2, 1997 Revised Rules of Court is explicit that
misjoinder of causes of action is not a ground for dismissal of action. ECcaDT
8. Third, Petitioners alleged that Respondents' claim for refund was barred by the statute of
limitations. Petitioners took note of Respondents' filing of an Amended Complaint on November 14,
2003, which was allegedly beyond the two-year prescriptive period provided under Section 196, LGC.
Petitioners must remember that if the amendment merely supplements, amplifies or corrects the facts
alleged in the original complaint without constituting a new cause of action, the amendment relates
back to the date of the filing of the original complaint for purposes of applying the statute of limitations.
Both the Complaint and the Amended Complaint essentially prayed for the refund of P5,104,281.26
representing Respondents' erroneously paid business taxes for 2001. Thus, Respondents' claim for
refund could not have prescribed since the Amended Complaint merely supplements and amplifies the
original Complaint filed on October 20, 2003, which undoubtedly was filed within the two-year
prescriptive period.
9. In any case, these matters pertaining to the factual antecedents of the Respondents'
administrative claim for refund are undisputed and deemed admitted when they were not denied by
Petitioners upon Respondents' request for admission of these facts — HATEDC
xxx xxx xxx
10. Finally, Petitioners averred that the RTC of Manila-Branch 47 should have dismissed
Respondents' claim for refund for allegedly violating Section 4, Rule 8, 1997 Revised Rules of Court
regarding the legal capacity of Ms. Cecilia R. Patricio, Respondents' then Senior Assistant Vice
President-Tax Division, to sue on behalf of Respondents. Petitioners insisted that Respondents failed
to state the capacity of Ms. Patricio to file the case. The argument deserves little consideration given
that Ms. Patricio was duly authorized by Respondents to file the judicial claim for refund. Both the
Complaint and the Amended Complaint contained the duly signed verification and certification of Ms.
Patricio.
11. In any event, the Supreme Court has consistently held that the requirement regarding
certification and verification of a pleading is formal, not jurisdictional. Such requirement is simply a
condition affecting the form of the pleading, non-compliance with which does not necessarily render
the pleading fatally defective. The verification is intended to assure that the allegations therein have
been prepared in good faith or are true and correct, not mere speculations. Its absence does not
divest the trial court of jurisdiction. On the other hand, the certification of non-forum shopping is rooted
in the principle that a party-litigant shall not be allowed to pursue simultaneous remedies in different
fora, as this practice is detrimental to orderly judicial procedure. This requirement under Administrative
Circular No. 04-94, which came before the 1997 Rules of Court, is deemed mandatory but not
jurisdictional, as jurisdiction over the subject or nature of the action is conferred by law. As the
Supreme Court has ruled in a very recent case, a verification signed by an officer who was understood
to be in a position to attest to the truthfulness and correctness of the petition even if he has not shown
to have been duly authorized to sign was found acceptable. The records of the case would show that
Ms. Patricio, who was then Respondents' Senior Assistant Vice President-Tax Division, was in the
same position to have known the correctness of the contents of the Complaint and the Amended
Complaint. cTCaEA
xxx xxx xxx
13. Lastly, the granting of a refund or tax credit for overpaid taxes is founded on the well-
entrenched civil law principle of quasi-contracts, particularly, solutio indebiti. Pursuant to the
fundamental principle of solutio indebiti, the Petitioner City of Manila "received something when 'there
(was) no right to demand it', and thus the obligation to return arises." 13
The foregoing assigned errors and counter arguments can be summarized as follows:
1. Whether or not compliance with Section 187 of Republic Act (R.A.) No. 7160 14 is necessary
before seeking judicial recourse.
2. Whether or not there was a misjoinder of causes of action.
3. Whether or not the RTC erred when it failed to dismiss the case despite the fact that
respondents' claim was allegedly barred by the statute of limitations.
4. Whether or not the RTC erred when it failed to dismiss the case despite the alleged failure of
the respondents to comply with Section 4, Rule 8 of the 1997 Rules of Civil Procedure. DcTSHa
5. Whether or not the Supreme Court's ruling in the case of Coca-Cola Bottlers Philippines, Inc.
vs. City of Manila, et al., is applicable to the present case.
Before proceeding with the rest of the issues, the Court deems it necessary to resolve the third issue
on whether or not respondents' claim is barred by the statute of limitations.
THE ASSESSMENTS OF LOCAL BUSINESS
TAXES FOR THE FOURTH (4th) QUARTER
OF YEAR 2001 UNDER SECTION 21, ARE
FINAL AND COLLECTIBLE, AND
THEREFORE, VALID
Petitioners contend that the RTC did not acquire jurisdiction due to respondents' failure to file the
Amended Complaint within the prescribed period, including the failure to file a written claim for refund
or credit, in violation of R.A. No. 7160. HTCIcE
We agree with the petitioners' argument.
Sections 195 and 196 of R.A. No. 7160 pertaining to the remedies available to taxpayers in cases of
assessment and refund claim are hereunder quoted for ready reference, to wit:
Section 195. Protest of Assessment. — When the local treasurer or his duly authorized
representative finds that correct taxes, fees, or charges have not been paid, he shall issue a notice of
assessment stating the nature of the tax, fee, or charge, the amount of deficiency, the surcharges,
interests and penalties. Within sixty (60) days from the receipt of the notice of assessment, the
taxpayer may file a written protest with the local treasurer contesting the assessment; otherwise, the
assessment shall become final and executory. The local treasurer shall decide the protest within sixty
(60) days from the time of its filing. If the local treasurer finds the protest to be wholly or partly
meritorious, he shall issue a notice 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 (60)-day period prescribed herein within which to appeal with
the court of competent jurisdiction otherwise the assessment becomes conclusive and unappealable.
CITcSH
Section 196. Claim for Refund or Tax Credit. — No case or proceeding shall be maintained in any
court for the recovery of any tax, fee, or charge erroneously or illegally collected until a written claim
for refund or credit has been filed with the local treasurer. No case or proceeding shall be entertained
in any court after the expiration of two (2) years from the date of the payment of such tax, fee, or
charge, or from the date the taxpayer is entitled to a refund or credit.
At the outset, it must be pointed out that the nature, applicable statutory provisions and requirements
of an assessment and a claim for refund differ. In local taxation, Section 195 of R.A. No. 7160 provides
for the remedies available to taxpayers in case of assessment; while Section 196 of the same Code
refers to the requirements for refund.
Based on the facts of the case and the records of the lower court, the Office of the City Treasurer
issued assessments of deficiency local business taxes covering the fourth (4th) quarter of year 2001
against respondents, which the latter paid and protested. 15 For purposes of clarity, hereunder is a
reproduction of the pertinent portions of the respondents' letter protest: CSTDEH
October 19, 2001
OFFICE OF THE CITY TREASURER
City of Manila
Attention: MS. LIBERTY M. TOLEDO
City Treasurer
Gentlemen:
In behalf of SM Group of Companies (names of which are listed on Annex A), we would like to formally
notify your office that the payments of our business license and other taxes under pertinent provisions
of Tax Ordinance No. 7988 of the City of Manila, including Section 21 thereof were all made under
protest. HSaIDc
Notwithstanding the 2nd opinion filed by the City Legal Officer of Manila in his 2nd Indorsement dated
December 29, 2000, we still maintain our position on the unconstitutionality of Tax Ordinance No. 7988
of the City of Manila due to its failure to comply with the requirements mandated by the Local
Government Code of 1991 as stated in Department of Justice Resolution dated August 17, 2000 in the
case of "The Coca Cola Bottlers Phils., Inc. versus The City Mayor and The City Council of Manila".
aDECHI
In this regard, may we again respectfully request that our protest for payment be properly noted in all
copies of the official receipts.
We trust that you will give this matter your preferential attention. Thank you.
Very truly yours,
SM GROUP OF COMPANIES
(SGD.) CECILIA R. PATRICIO
AVP, Corporate tax Division 16
In a letter dated October 25, 2001, petitioner Liberty M. Toledo denied respondents' protest which
reads: AECIaD
October 25, 2001
MS. CECILIA R. PATRICIO
AVP, Corporate Tax Division
SM Group of Companies
Rm. 331 Makati Stock Exchange
Ayala Avenue, Makati City
Madam:
Mabuhay!
This pertains to your letter dated October 19, 2001, notifying this Office that the payments of your
business license and other taxes under pertinent provisions of Tax Ordinance No. 7988, including
Section 21 thereof were all made under protest.
Furthermore, you requested that the protest for payment be properly noted in the copies of the official
receipts.
Regretfully, this Office vehemently reiterates its position DENYING your protest. The Court, to date,
has not rendered a final judicial declaration as to the assailed provision of the Local Tax Code. Hence,
we are under obligation to enforce and collect the revenue imposed therein. cSCTID
We hope that the foregoing clarifies our position.
Very truly yours,
(SGD.) LIBERTY M. TOLEDO
City Treasurer 17
Records indicate that although respondents filed a protest on the assessments on October 19, 2001,
the Petition filed before the RTC was filed beyond the reglementary period. Section 195 of R.A. No.
7160 categorically states that "the taxpayer shall have thirty (30) days from the receipt of the denial of
the protest or from the lapse of the sixty (60)-day period prescribed herein within which to appeal with
the court of competent jurisdiction otherwise the assessment becomes conclusive and unappealable".
The denial of the protest was received by respondents on November 22, 2001; however, they failed to
contest the same before a court of competent jurisdiction within the allowable period, viz., thirty (30)
days from receipt of the denial of the protest. In fact, respondents only filed their Petition and the
Amended Complaint on October 20, 2003 and November 14, 2003, respectively. It took them almost
two (2) years from the date of receipt of the denial of the protest on November 22, 2001 to seek
judicial recourse; way more than the legally prescribed thirty (30) day period. HIACEa
Accordingly, the subject assessments became conclusive and unappealable when respondents failed
to question the same before a competent court within thirty (30) days from receipt of the denial of their
protest.
RESPONDENTS' CLAIM FOR REFUND
CANNOT PROSPER
The amount of P5,104,281.26 representing the alleged amount of erroneously paid local business
taxes plus interest covering the fourth (4th) quarter of year 2001, cannot be refunded.
Based on Section 196 of R.A. No. 7160, there are two requisites for a refund claim or tax credit of
local taxes, namely: (1) a written claim for refund or credit must be filed with the local treasurer before
filing an action for refund with the appropriate court; (2) the refund claim or tax credit must be filed
before the court within two (2) years from the date of payment of the tax, fee or charge. IScaAE
Although the respondents satisfied the second requisite as prescribed in Section 196 of R.A. No.
7160, they had failed to file a written claim for refund or credit with the petitioner local treasurer, in
violation of the same provision. Compliance with the two requisites is mandatory.
Should respondents' letter of protest dated October 19, 2001 be treated as a written claim for refund?
In the case of China Banking Corporation vs. City Treasurer of Manila, 18 this Court declared that a
written protest cannot be considered as a written claim for refund, and ruled that:
The above letter speaks for itself. The wordings of the letter are explicit and unequivocal that petitioner
merely notified the respondent that it is paying under protest the amount of P330,649.78 representing
the alleged local government tax and that they are presently instituting the appropriate legal actions to
effect refund of any erroneous/excessive payment made. It is not the written claim for refund as
contemplated under Section 196 of the Local Government Code. SCaDAE
As prescribed under Section 196 of the Local Government Code, the appropriate legal action is to file
a written claim for refund. Petitioner did not attempt to seek administrative relief, which was both
available and sufficient. Nothing in the records convinces us that the petitioner ever thought of
pursuing the available administrative remedy, which is to file a written claim for refund.
Having failed to comply with the requirements prescribed by Section 196, the complaint for refund was
prematurely filed for failure to exhaust administrative remedies. Where the enabling statute indicates a
procedure for administrative review, and provides a system of administrative appeal, or
reconsideration, the courts, for reason of law, comity, and convenience, will not entertain a case
unless the available 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 . . . . (Emphasis
supplied). 19 TDAcCa
The afore-quoted case squarely applies in the instant case. Respondents' letter dated October 19,
2001 disputing petitioners' assessments of local business taxes for the fourth (4th) quarter of year
2001, is merely a protest-letter, and should not be treated as a written claim for refund. In said letter,
respondents did not categorically request for the refund of the amount they paid as local business
taxes. Hence, respondents failed to comply with the requirements of Section 196 of R.A. No. 7160.
There being no written claim for refund or credit filed with the petitioner local treasurer, the RTC did
not acquire jurisdiction over respondents' refund claim. Thus, the RTC's decision granting
respondents' claim for refund is void. A void judgment for want of jurisdiction is no judgment at all. 20
Moreover, respondents' Exhibits "C" to "K" 21 show that they paid local business taxes under Section
21 of the Revenue Code of the City of Manila. 22 No other evidence was presented to prove that they
paid local taxes under Sections 15 and 17 under the same Revenue Code; and how much they
actually paid to petitioner City of Manila under the said Sections. Thus, the RTC erred in ordering
petitioners to refund the local business taxes paid by respondents considering that there was no
sufficient evidence showing that they are entitled to their respective claims for refund or tax credit.
IaCHTS
The Court sees no cogent reason to resolve the other issues for being moot.
WHEREFORE, premises considered, the instant Petition for Review is hereby GRANTED. The
assailed Decision dated December 7, 2006 and the Order dated April 17, 2007 rendered by the
Regional Trial Court, Branch 47, Manila in Civil Case No. 03-108175, are REVERSED and SET
ASIDE.
SO ORDERED.
(SGD.) JUANITO C. CASTAÑEDA, JR.
Associate Justice
Erlinda P. Uy and Olga Palanca-Enriquez, JJ., concur.
Footnotes
1. Docket, p. 41 (Joint Stipulation of Facts and Issues).
2. Ibid. ScAIaT
3. Ibid.
4. Docket, pp. 56-65.
5. Docket, pp. 79-87.
6. (Docket, p. 41 (Joint Stipulation of Facts and Issues).
 7. Docket, p. 44.
8. Docket, p. 46.
9. Docket, pp. 158-159.
10. Docket, pp. 221, 261, 272 & 276.
11. Docket, pp. 297, 357 & 439.
12. Docket, pp. 25-26. HCETDS
13. Docket, pp. 240-244.
14. Also known as the 1991 Local Government Code which took effect on January 1, 1992.
15. Exhibits "A", "C" to "K". See RTC Records, pp. 374-377 and pp. 381-403.
16. RTC Records, p. 374.
17. Exhibit B, RTC Records, p. 378.
18. C.T.A EB No. 182, July 27, 2006.
19. Ibid.
20. Galicia vs. Manliquez Vda. De Mindo, G.R. No. 155785, April 13, 2007, 521 SCRA 85 citing the
case of Metropolitan Bank and Trust Company vs. Alejo, G.R. No. No. 141970, September 10, 2001,
364 SCRA 812. ADCIca
21. RTC Records, pp. 381-403.
22. Tax on Business Subject to the Excise, Value-Added or Percentage Taxes under the NIRC.

EN BANC
[C.T.A. EB CASE NO. 386. February 12, 2009.]
(C.T.A. AC No. 22)
ALABANG SUPERMARKET CORPORATION, petitioner, vs. CITY GOVERNMENT OF
MUNTINLUPA, REPRESENTED BY MAYOR JAIME R. FRESNEDI, THE CITY TREASURER OF
MUNTINLUPA, AND THE SANGGUNIANG PANLUNGSOD OF MUNTINLUPA CITY, respondent.
DECISION
UY, J p:
This is a Petition for Review filed before the Court of Tax Appeals En Banc on May 13, 2008 seeking a
review of the Decision 1 and Resolution dated December 12, 2007 and April 4, 2008, respectively,
rendered by the First Division of this Court (Court in Division), in the CTA AC No. 22 entitled "Alabang
Supermarket Corporation vs. The City Government of Muntinlupa, represented by Mayor Jaime R.
Fresnedi, The City Treasurer of Muntinlupa, and the Sangguniang Panlungsod of Muntinlupa City".
The dispositive portions thereof read as follows: aETADI
Decision promulgated on December 12, 2007:
"WHEREFORE, in view of the foregoing, this instant Petition for Review is PARTIALLY GRANTED.
Accordingly, this case is REMANDED back to the lower court for the proper recomputation of
petitioner's business tax liability covering the period from January 2, 1999 to December 15, 2000 only,
taking into consideration Section 191 of the LGC. Any excess on the amount already paid by petitioner
shall then be refunded by way of a tax credit. Furthermore, respondents are likewise ORDERED to
DESIST from further collecting the 3% fixed business taxes pursuant to Section 2 of Ordinance No.
98-015.
SO ORDERED." 2
Resolution promulgated on April 4, 2008:
"In view of the foregoing, both Motions are hereby DENIED for lack of merit. The assailed Decision is
upheld in toto.
SO ORDERED." 3 IaDcTC
THE FACTS
The facts, 4 as found by the Court in Division, are as follows:
Petitioner, Alabang Supermarket Corporation, is a domestic corporation duly organized and existing
under Philippine Laws. It operates the Alabang branch of the Makati Supermarket, a distributor and
dealer of, among others, liquor, beer, wine, distilled spirits, cigarettes and tobacco products.
On the other hand, respondents City Treasurer of Muntinlupa, herein represented by Ms. Nelia A.
Barlis; The City Government of Muntinlupa, herein represented by Mayor Jaime R. Fresnedi; and the
Sangguniang Panglungsod of Muntinlupa, are the government offices which enacted and are tasked
to implement the assailed Ordinance No. 98-015.
Pursuant to Section 5 (b), Article I, Chapter I of Title II of Ordinance No. 93-35, otherwise known as the
Revenue Code of the City of Muntinlupa, petitioner pays the graduated business tax on its gross sales
of liquor, beer, wine, distilled spirits, cigarettes and tobacco products. Such provision of the Revenue
Code implements Section 143 (b) of the Local Government Code (LGC) of 1991. TcSaHC
On December 1, 1998, the City Government of Muntinlupa, through the approval of its City Mayor,
enacted City Ordinance No. 98-015, or the "Kautusan na Inaamyendahan ang Ordinansa Bilang 93-35
o Muntinlupa Revenue Code sa Pamamagitan ng Pagpapataw ng Buwis sa Pangangalakal (Business
Tax) sa mga Produktong Alak (liquor, beer, wines, distilled spirits, etc.) at Sigarilyo/Tabako o anumang
Kauri Nito", which imposes a three percent (3%) business tax on the sale and distribution of alcoholic
beverages and tobacco products.
In this regard, for the periods covering January 2, 1999 to September 15, 2002, petitioner allegedly
paid the total amount of Three Million Six Hundred Ninety Six Thousand Five Hundred Fifty Seven and
06/100 Pesos (P3,696,557.06) in compliance with the aforementioned ordinance.
Aggrieved by the alleged erroneous collections made by respondents, petitioner, through its external
auditor, wrote a letter to the Bureau of Local Government Finance (BLGF) of the Department of
Finance seeking clarification on whether or not the City of Muntinlupa can legally impose the 3%
business tax on gross receipts of wholesalers and retailers from their sale of liquor, beer, wine, distilled
spirits, cigarette and tobacco products under City Ordinance No. 98-015 to which the BLGF issued its
ruling in favor of petitioner. ETAICc
In light of the ruling of the BLGF, petitioner wrote a letter dated March 20, 2001 addressed to the City
Treasurer of Muntinlupa seeking the refund/tax credit of the amount of P1,630,047.57 representing the
3% business taxes paid on its gross sales of liquor, beer, wine distilled spirits, cigarettes and tobacco
products for the period covering January 1999 to December 2000.
Subsequently, on March 21, 2001, petitioner filed its Complaint with the Regional Trial Court of
Muntinlupa seeking the refund or issuance of a tax credit certificate of the same amount and covering
the same period.
On January 6, 2003, petitioner filed with the same lower court a Supplemental Complaint with an
application for the issuance of a temporary restraining order and/or a writ of preliminary injunction.
Petitioner likewise sought the declaration of nullity of Section 2 of the Muntinlupa City Ordinance No.
98-015, as well as, a claim for the refund of the amount of P2,066,509.19 representing the payments
made for the period from December 16, 2000 to December 15, 2002, in addition to the amount in the
original Complaint thereby making a total of P3,637,552.06 allegedly erroneously paid business taxes
for the period covering January 1999 to December 15, 2002; and for the payment of not less than
P250,000.00 as litigation expenses, attorney's fees and cost of suit. cDCaHA
In the Order dated August 25, 2003, the Regional Trial Court (RTC) of Muntinlupa, Branch 256, denied
petitioner's application for the issuance of the temporary restraining order for lack of merit, and
subsequently set the case for pre-trial on November 14, 2003 wherein the parties were required to
submit their respective pre-trial briefs. On said date, a pre-trial conference was held. As the
respondents never denied the payment of taxes made by petitioner under the assailed Ordinance No.
98-105, and fully aware that the only issue in said case was purely legal in light of the admission by
the respondents of the documentary exhibits attached to petitioner's Complaint and Supplemental
Complaint, the RTC dispensed with the presentation of witnesses and documentary evidence and
simply required the parties to file their respective memoranda. 5
After the parties submitted their respective memoranda, the RTC rendered its Decision dismissing
petitioner's Complaint and Supplemental Complaint, the dispositive portion of which reads as follows:
"WHEREFORE, in view of the foregoing, judgment is hereby rendered in favor of the defendant and as
against the plaintiff. Accordingly, the instant complaint is hereby DISMISSED for lack of merit.
TCaADS
SO ORDERED.
Muntinlupa, March 6, 2006." 6
The RTC disallowed petitioner's claim for refund on the ground that Ordinance No. 98-015 was
enacted and approved with the end purpose of applying its proceeds to support the existence of the
local government and as an aid to pursue its governmental objectives and therefore, the public
purpose character of the imposition was then justified; and that it was not shown, or there was failure
of showing that the questioned imposition was oppressive, excessive nor prohibitive.
Aggrieved by the denial of its claim for refund, petitioner filed its Petition for Review with the Court in
Division of the Court of Tax Appeals on April 11, 2006.
On December 12, 2007, the Court in Division promulgated the herein assailed Decision partially
granting petitioner's claim for refund. However, due to the absence of any evidence or document to
show or compute for the exact amount of business taxes that petitioner is liable to pay, the Court in
Division remanded the case to the lower court for the proper determination of petitioner's business tax
liability covering the period from January 2, 1999 to December 15, 2000 only, taking into consideration
Section 191 of the LGC. Any excess on the amount already paid was ordered to be refunded by way
of a tax credit. ITEcAD
Furthermore, the Court in Division held that Section 2 of Ordinance No. 98-015 whereby the City of
Muntinlupa collects from petitioner the 3% fixed business tax rate based on its gross sales or receipts
of liquor and other distilled products and cigarette products as a wholesaler and retailer, is excessive
and beyond the taxing power of respondent, pursuant to Section 191 of the LGC. However, a portion
of petitioner's claim in the amount of P2,066,509.19 representing the 3% business taxes paid for the
period of December 16, 2000 to December 15, 2002 was denied on the ground that records are
wanting of any written administrative claim for refund filed with the local treasurer for said amount
which formed part of petitioner's Supplemental Complaint.
In the same manner, the Court in Division, in the assailed Resolution 7 dated April 4, 2008 found no
cogent reason to either modify or alter the assailed Decision, and correspondingly denied petitioner's
Motion for Partial Reconsideration filed on January 3, 2008, and respondents' Motion for
Reconsideration filed on January 7, 2008 — with Comment/Opposition by petitioner filed on January
21, 2008. AEITDH
Hence, this recourse before the Court En Banc praying that the assailed Decision and Resolution
dated December 12, 2007 and April 4, 2008, respectively, be partially reversed/modified and judgment
be rendered granting petitioner's claim for refund, by way of tax credit, of business taxes paid during
the period covering December 16, 2000 to December 15, 2002 and all other business taxes illegally
and unlawfully collected by the respondents on account of the subject invalid ordinance.
On July 17, 2008, in compliance with the Court's Resolution dated May 27, 2008, 8 respondent filed
out of time, 9 its Comment to the Petition 10 in relation to petitioner's Petition for Review.
In a Resolution dated July 18, 2008, 11 the Court, in the paramount interest of substantial justice,
albeit being filed out of time, admitted respondent's Comment and petitioner was informed that it may
file its reply thereto within five (5) days from receipt of the Resolution.
Petitioner filed its Reply [To Respondent's Comment to the Petition] on August 4, 2008 raising the
additional prayer that it be given a period of two (2) years FROM DATE OF FINALITY of the instant
Decision within which to pursue its claim for refund (as stated in Section 196 of the LCG and as ruled
in the Allied Bank case). 12 cETDIA
In the Resolution dated August 12, 2008, 13 the instant case was deemed submitted for resolution.
Hence, this Decision.
THE ISSUE
The sole issue raised for the Court En Banc's consideration is whether the Court in Division correctly
denied petitioner's claim for refund of business taxes paid after December 15, 2000 simply on the
basis of lack of an administrative claim for refund with the local treasurer notwithstanding the fact that
the subject tax ordinance was declared excessive and contrary to law.
Petitioner's Arguments
Petitioner submits that the partial denial of its claim for refund of business taxes paid under
respondent's illegal tax ordinance is unfair and contrary to law. It stresses that although Section 196 of
the LGC requires the filing of a written claim for refund with the local treasurer prior to the filing of a
judicial claim for refund within two (2)-year period stated therein, it should be noted that, however, that
the same provision does not state that the two (2)-year period shall automatically commence
exclusively from the date of the payment of the tax claimed to be refunded but instead, "from the date
the taxpayer is entitled to refund or credit". CDHAcI
As such, petitioner alleges that, at the very least, the anticipated finality of this Court's judicial
pronouncement that respondents' tax ordinance is excessive and contrary to law should be
considered as a supervening cause entitling a taxpayer to a tax refund from which the date to file a
claim for refund should be reckoned from. Thus, it opined that it could not be adjudged to have failed
to file an administrative claim for refund since the two (2)-year period from the finality of this Court's
declaration that the respondents' tax ordinance is illegal thus entitling petitioner to a refund has yet to
lapse.
Further, petitioner insists that its argument finds jurisprudential support in the recent case of ALLIED
BANKING CORPORATION vs. THE QUEZON CITY GOVERNMENT, et al. 14 (Allied Bank case)
whereby petitioner alleges that the Honorable Supreme Court after ruling that the local ordinance is
null and void for being ultra vires and contrary to law thus acquiring no legal effect and conferring no
rights from its inception held, in its September 15, 2006 Decision, that the refund may be pursued
within two (2) years from the finality of the Court's decision nullifying the ordinance, that is within two
(2) years from the finality of the said Decision. CaHcET
Petitioner reiterates that the reason why it opted not to file an administrative case for refund with the
local treasurer for business taxes paid after December 15, 2000 is due to the fact that it has already a
pending case in court assailing Section 2 of Ordinance No. 98-105. Thus, it deemed it wise to simply
file a supplemental complaint to the earlier complaint filed so that the same could be resolved at once.
Moreover, petitioner reasoned that to file an administrative claim for refund would be a useless
exercise since the local treasurer would deny it anyway, considering the fact that the City Government
of Muntinlupa is continuously collecting business taxes under the assailed Ordinance No. 98-105.
In addition, petitioner argues that respondents never raised or pleaded as a defense and/or issue the
alleged failure of the petitioner to file an administrative claim for refund for the business taxes it paid
during the period from December 16, 2000 to December 15, 2002, therefore, the same defense and/or
issue is already deemed waived; that the same issue should not have been considered by the Court in
Division at a very late stage of the case without violating its fundamental right to due process and fair
play as it is doctrinally well-settled that courts do not have the authority to rule on appeal matters not
raised by the parties in their pleadings and during trial. DSEaHT
In its Reply 15 (To Respondent's Comment to the Petition), petitioner points out that the Court in
Division's ruling declaring the ordinance subject of this case as excessive and contrary to law and
therefore void, has long attained its finality considering that the respondents failed to file the
appropriate appeal on the same. Thus, petitioner stresses that the present petition pertains only to the
partial denial of claim for refund solely on the basis of the lack of administrative claim for refund with
the local treasurer within two (2) years from the payment of the tax sought to be refunded.
Respondent's Counter-Arguments
Respondent on the other hand forward the argument that Section 196 of the LGC is explicit that it is
necessary for the claimant of refund of any tax, fee or charge to file its claim with the local treasurer
within two (2) years from the payment of the tax, fee or charge and no case shall be entertained in any
court absent this written claim being shown or proven. Such period is set in the law to accomplish the
intention of the legislature to give the taxpayer the time to question a tax imposed by the government
at the earliest opportune time for it is basic in taxation that taxes collected is the lifeblood of the
government. HEacDA
It further argues that the interpretation of petitioner of the phrase "from the date the taxpayer becomes
entitled to a refund or credit" to mean that it has been given the right to file for a refund after the court
declared the tax law or ordinance as null and void without a timely claim for refund is bereft of utter
merit, whimsical and arbitrary.
Respondent stresses that the reliance of petitioner in the Allied Bank case doctrine is misplaced and is
not even squarely applicable in the present case for the reason that in that case, Allied Bank filed a
claim for refund with the City Treasurer prior to the declaration of nullity of the provision imposing the
real estate tax in the Quezon City tax ordinance while in the present case, petitioner did not file any
claim for refund for the period December 16, 2000 to December 15, 2002 when it was able to file a
timely administrative claim for the period covering January 2, 1999 to December 15, 2000. Moreover,
petitioner admitted the fact that it did not file any claim for refund for the reason that it presupposes
that it is futile to file a claim for refund since it will likewise be denied by the city treasurer.
Respondent maintains that the subject tax ordinance is valid for records show that petitioner is a
"distributor/dealer" and likewise a "retailer" of non-essential liquor, beer, wines, distilled spirits,
cigarettes and tobacco products, hence, Section 143 (b) nor any other sub-paragraph of Section 143
of the LGC is not the applicable provision. cIDHSC
Not being covered under any of the subparagraphs of the said section, Article 237 of the Rules and
Regulations Implementing (IRR) the LGC, in relation to Section 151 of the LGC allegedly comes into
play, which grants cities, such as herein respondent LGU, the authority to levy and assess a
percentage tax at a rate not exceeding 3% of the gross sales or receipts. Thus, respondent submits
that it was well within the authority of respondent LGU, through the Sangguniang Panglungsod, to
enact Ordinance No. 98-015 providing for a percentage tax of 3% on the gross sales or receipts of
dealers/wholesalers or retailers of non-essential wines, liquor and tobacco products.
Respondent further argues that even assuming, for the sake of argument, that Article 237 of the IRR of
the LGC, in relation to Section 151 of the LGC is inapplicable to the case at bar, as petitioner-
corporation argued in all its pleadings, the imposition of the subject percentage tax still finds statutory
basis in Section 143 (h) of the LGC, in relation to Section 151 of the same code since the imposition of
3% business tax is still within the fifty percent (50%) maximum increase from the 2% percentage tax
allowed by law. EHSADc
THE COURT EN BANC'S RULING
We find the petition to be bereft of merit.
A careful study of the arguments set forth by petitioner and respondent in the instant petition for
review, and its annexes, would readily reveal that the grounds relied upon and the matters raised
herein are mere restatements of their previous arguments raised before the Court in Division that had
already been thoroughly discussed and passed upon in the assailed Decision and Resolution
promulgated on December 12, 2007 and April 4, 2008, respectively.
As such, We reiterate the ruling made by the Court in Division, in relation to the applicability of the
Allied Bank case, in its Resolution disposing of both parties' Motions for Reconsideration, to wit:
"The Allied Banking Corporation case cited by petitioner cannot be made to apply to the case at bar,
for the following reasons:
First, the Supreme Court explained that the doctrine pronounced in that Allied Banking Corporation
case applies only to the determination of real estate tax payable by owners or administrators of real
property, thus, pro hac vice. aTAEHc
Second, even granting for the sake of argument that there was no such pronouncement, the facts in
the said case are not on all fours with the case at bar. In the case cited by petitioner, prior to the filing
before the trial court of the petition for declaration of nullity of the proviso imposing the tax, Allied
Banking Corporation filed a claim for refund with the City Treasurer. In the Allied Banking Case, the
Supreme Court held that the trial court correctly dismissed therein petitioner's action for failure to
exhaust administrative remedies; that considering the presence of factual issues still wanting to be
threshed out at the administrative level, there is no actual case calling for judicial review. Further, in
the Allied Banking case, the factual issues raised were set aside for failure to exhaust administrative
remedies. The Supreme Court explained that the only crucial legal query in that case was 'the validity
of the proviso fixing the appraised value of [a] property at the stated consideration at which the
property was last sold'. The non-filing of an administrative claim was not an issue in that case. Clearly,
nothing in the case cited by petitioner allows taxpayers to dispense with the exhaustion of
administrative remedies. IDAaCc
The Court would like to state for emphasis that in the case at bar, no administrative claim for refund
has been filed by petitioner on the portion denied by this Court." 16
Relative thereto, We find that the Court in Division appropriately denied petitioner's claim for refund
pertaining to the period from December 16, 2000 to December 2002, due to petitioner's failure to file
an administrative claim for refund before the City Government of Muntinlupa as required under Section
196 of the LGC prior to judicial recourse. Said provision reads thus:
"Section 196. Claim for Refund of Tax Credit. — No case or proceeding shall be maintained in any
court for the recovery of any tax, fee, or charge erroneously or illegally collected until a written claim
for refund or credit has been filed with the local treasurer. No case or proceeding shall be entertained
in any court after the expiration of two (2) years from the date of the payment of such tax, fee, or
charge, or from the date the taxpayer is entitled to a refund or credit." (Emphasis Ours)
Clearly from the above quoted provision, no case or proceeding may be entertained by any courts
absent showing that petitioner has a written claim for refund of erroneous or excessive payment of any
tax, fee or charge filed with the local treasurer prior to its filing before any court. SEDIaH
Moreover, it should be noted that two reckoning periods are provided by law for the filing of a case or
proceeding, that is from the date of payment of the tax, and from the date the taxpayer becomes
entitled to the refund. However, petitioner's interpretation of the phrase "from the date the taxpayer
becomes entitled to the refund" is not in consonance with the intent of the law since Section 196
should not be read in isolation, but in relation with other provisions of the LGC. As exhaustively
discussed by the Court in Division in its Resolution dated April 4, 2008, it held that:
"Section 187 of the Local Government Code dictates the procedure for questioning the
constitutionality or legality of tax ordinances. It provides in part that: 'any question on the
constitutionality or legality of tax ordinances or revenue measures may be raised on appeal within
thirty (30) days from the effectivity thereof to the Secretary of Justice who shall render a decision
within sixty (60) days from the date of the receipt of the appeal'. It further provides that 'such appeal
shall not have the effect of suspending the effectivity of the ordinance and the accrual and payment of
the tax, fee or charge levied therein.
A reading of Section 187 of the Local Government Code would show that the law intends that
questions on the legality or constitutionality of an ordinance or tax measure be threshed out the
soonest possible time. It should be raised within thirty (30) days from approval and such appeal should
be resolved within sixty (60) days from receipt thereof. Section 187 states that any appeal on the
legality or constitutionality of the ordinance does not suspend its effectivity. Thus, before any final
declaration of its nullity, taxes accrue and should be paid accordingly. EcAHDT
In the same vein, the reckoning periods for the filing of a claim for refund in Section 196 of the Local
Government Code should be interpreted so as to accomplish the evident purpose, viz., the settlement
of the rights of the taxpayer vis-à-vis the government, at the earliest opportunity. The phrase "from the
date the taxpayer becomes entitled to a refund or credit" in Section 196 should not be interpreted to
mean the finality of the decision of a court declaring the tax measure void, even without a timely claim
for refund. Otherwise, claims for refund will be filed even after several years from payment of the tax
due, merely because the tax ordinance was declared void. And the filing of administrative and judicial
claims for refund shall be endless. This interpretation would give the taxpayer, who was not able to
question the legality or constitutionality of the tax measure within the period provided in Section 187,
the right to instead file a claim for refund with the court under Section 196, absent the filing of a timely
administrative claim. In effect, the prescriptive periods provided by law would be rendered naught and
meaningless.
This could not have been the intention of lawmakers. A taxpayer who believes that he has paid a tax
imposed under a void ordinance should timely exhaust administrative remedies before resorting to the
filing of a judicial claim or timely question its constitutionality and legality. Petitioner's failure to file the
appropriate administrative claim for refund for the period December 16, 2000 to September 2002,
cannot be countenanced. More so, since it has been able to file a timely administrative claim for the
3% business tax it paid covering January 2, 1999 to December 15, 2000. It is clearly aware of the
requirements for the filing of an administrative claim set forth by law. Its manifest error cannot be cured
at this point." 17 IAEcaH
On the argument raised pertaining to the validity of Section 2 of Ordinance No. 98-015, respondent
insists that it was well within the authority of respondent LGU, through the Sangguniang Panglungsod,
to enact Ordinance No. 98-015 providing for a percentage tax of 3% on the gross sales or receipts of
dealers/wholesalers or retailers of non-essential wines, liquor and tobacco products under Article 237
of the IRR of the LGC or, if not, under Section 143 (h) of the LGC both in relation to Section 151 of the
LGC.
The above mentioned provisions of the LGC are hereunder quoted for easy reference:
SEC. 143. Tax on Business. — The municipality may impose taxes on the following businesses:
(a) ...
(h) On any business, not otherwise specified in the preceding paragraphs, which the sanggunian
concerned may deem proper to tax: Provided, That on any business subject to the excise, value-
added or percentage tax under the National Internal Revenue Code, as amended, the rate of tax shall
not exceed two percent (2%) of gross sales or receipts of the preceding calendar year.
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.
AHCETa
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.
As thoroughly discussed by the Court in Division, We emphasize that respondent cannot base the
adjustments on the business tax rates on the 2% tax rate provided for under Section 143 (h) of the
LGC.
It should be noted that petitioner has already been taxed as a distributor and dealer of liquor, beer,
wine, distilled spirits, cigarettes and tobacco products by the respondents, based on the graduated
rates provided for under Section 5 (b) of the Revenue Code of Muntinlupa City based on Section 143
(b) of the LGC that taxes "any article of commerce of whatever kind and nature", which is broad
enough as to include products of petitioner. When the law evidently does not distinguish the articles of
commerce subject to the business tax, thus, respondents should not have done so.
In addition, a general provision that provides for the scope and extent of the city's taxing power like the
above quoted Section 151 of the LGC cannot be made to apply. On the contrary, the proper provision
in cases of amendment/increase of tax rates is:
SEC. 191. Authority of Local Government Units to Adjust Rates of Tax Ordinances. — Local
government units shall have the authority to adjust the tax rates as prescribed herein not oftener than
once every five (5) years, but in no case shall such adjustment exceed ten percent (10%) of the rates
fixed under this Code. EDACSa
Based on the foregoing, the imposition of an amended/increased rate of business taxes to a fixed rate
of 3%, which is more than 10% of the allowable increase as indicated in Section 191 of the LGC,
provided under Section 2 of Ordinance No. 98-015, is excessive and contrary to law.
WHEREFORE, in view of the foregoing, the instant Petition for Review is hereby DENIED for lack of
merit. The assailed Decision and Resolution of the Court in Division dated December 12, 2007 and
April 4, 2008, respectively, are hereby AFFIRMED.
SO ORDERED.
(SGD.) ERLINDA P. UY
Associate Justice
Ernesto D. Acosta, P.J., Juanito C. Castañeda, Jr., Lovell R. Bautista, Caesar A. Casanova and Olga
Palanca-Enriquez, JJ., concur.
Footnotes
1. Ponencia of Presiding Justice Ernesto D. Acosta concurred by Associate Justice Lovell R.
Bautista, and Associate Justice Caesar A. Casanova.
2. Docket, pp. 46-47; Decision pp. 15-16. DHcEAa
3. Docket p. 58; Resolution p. 11.
4. Docket, pp. ; Decision, pp. . *
5. Petition for Review, Paragraph 26, p. 8, Docket, p. 16.
6. RTC Decision, Civil Case No. 01-096, Docket, pp. 154-158.
7. Docket pp. 48-59.
8. Docket, pp. 287-288.
9. Respondent received a copy of the Court's Resolution requiring it to file Comment within ten
(10) days from receipt on June 16, 2008. A Motion for Extension of Time to File Comment was filed on
June 23, 2008 praying that it be granted an extension of fifteen (15) days, or until July 11, 2008, in
order to comply with the Court's Resolution, however, Comment was filed only six (6) days late.
DACIHc
10. Docket, pp. 293-301.
11. Docket, pp. 302-303.
12. Petitioner's Reply dated July 31, 2008, Docket, pp. 305-312, at p. 310.
13. Docket, pp. 315-316.
14. G.R. No. 154126, October 11, 2005 and September 15, 2006.
15. Docket, pp. 305-312. SHcDAI
16. Docket, p. 55; Resolution, p. 8.
17. Docket, pp. 56-57; Resolution, pp. 11-12.

EN BANC
[C.T.A. EB CASE NO. 156. February 22, 2007.]
(C.T.A. AC NO. 4)
CALIFORNIA MANUFACTURING COMPANY, INC., petitioner, vs. THE CITY OF LAS PIÑAS, and
the HON. RIZAL Y. DEL ROSARIO, CITY TREASURER, respondents.
DECISION
BAUTISTA, J p:
The Case
Before Us is a Petition for Review pursuant to Section 18 of Republic Act No. 1125 as amended by
Section 11 of Republic Act No. 9282 and Section 4(b), Rule 8 of the Revised Rules of the Court of Tax
Appeals, to appeal the Decision rendered by the First Division of the Court ("Court in Division") on
September 28, 2005 in C.T.A. AC No. 4 entitled California Manufacturing Company, Inc. v. The City of
Las Piñas, and Hon. Rizal Y. Del Rosario, City Treasurer, and the subsequent Resolution dated
December 20, 2005 denying petitioner's Motion for Reconsideration.
C.T.A. AC No. 4 is an appeal to the Court in Division pursuant to Section 11 of R.A. 1125 as amended
by R.A. 9282, from the Orders issued by the Regional Trial Court of Las Piñas City, Branch 202 (the
"lower court"), in Civil Case No. LP-03-0234 entitled California Manufacturing Company, Inc. v. The
City of Las Piñas, and Hon. Rizal Y. Del Rosario, City Treasurer. The lower court dismissed the
Petition for Review filed by petitioner to question the assessment for local business taxes issued by
the respondents. STaCIA
Antecedent Facts
As culled from the records by the Court in Division, the material antecedents are as follows:
"Petitioner is a corporation duly organized and existing under the laws of the Republic of the
Philippines with principal place of business at Km. 18 East Service Road, South Superhighway,
Parañaque City. On the other hand, respondent City of Las Piñas is a local government unit created
by law and respondent Hon. Rizal Y. Del Rosario is the duly appointed City Treasurer of Las Piñas
City, empowered to perform the duties of said office, including, inter alia, the collection of all local
taxes, fees and charges, and the power to decide, approve and grant refunds or tax credits of
erroneously or excessively paid taxes. Both are holding office at the City Hall of Las Piñas.
Petitioner is engaged in the business of manufacturing and selling various food products, such as
pasta, peanut butter, pickles, sinigang powder, hot pot, spaghetti meat sauce, Knorr cubesTM, chinese
soups and cream soups. It operates a manufacturing plant in Las Piñas City. CacEIS
In a letter dated June 9, 2003, respondent City Treasurer Rizal Y. Del Rosario, informed petitioner that
it had local business tax deficiency on non-essential commodities and deficiency real property tax in
the total amount of P73,045,634.47.
Upon receipt of the notice of assessment for deficiency business and real property taxes, petitioner's
financial accountant, Mr. Norman Raquel, attended a conference on June 23, 2003 with respondent
City Treasurer and the examiners of the City of Las Piñas. During the conference, petitioner personally
served a letter dated June 23, 2003 to respondent City Treasurer requesting ample time to consider
the validity of the assessment and asking for specific rulings and ordinances supporting the claim.
Respondent City Treasurer issued a reply also dated June 23, 2003, informing petitioner that its
request to consider the validity of the assessment has been granted and gave petitioner only up to
July 15, 2003 to settle the tax deficiency.
In a letter dated August 27, 2003, respondent City Treasurer noted that petitioner has not yet settled
its tax deficiency, and thus gave petitioner five (5) days from the receipt of such letter to settle its tax
obligation.
Petitioner filed on September 1, 2003, what it calls a supplemental protest against the assessment for
deficiency local business tax. And on September 12, 2003, petitioner received a letter dated
September 10, 2003 from respondents denying the protest.
On October 16, 2003, petitioner filed a petition before the Regional Trial Court ("RTC" for brevity)
protesting the assessment for deficiency local business taxes, penalties and interest for the period
1999 up to the taxable quarter ending June 30, 2003 in the total amount of P15,283,815.79 and
seeking the cancellation of the said assessment.
On October 27, 2003, herein respondents filed a Motion to Dismiss anchored on the following: first,
petitioner has no legal capacity to sue since the person who signed the verification on the petition is
not an authorized officer; and second, the RTC has no jurisdiction because the assessment has
attained finality due to the lack of timely protest.
Petitioner, on November 7, 2003, filed an "Omnibus Motion to Strike-Off Defendants' Motion to
Dismiss and Declare Defendants In Default." Petitioner claimed that under the law, Atty. Rañola has no
legal capacity to represent the respondents. As a consequence, petitioner concluded that the Motion
to Dismiss filed by Atty. Rañola is a scrap of paper not entitled to any official imprimatur which should
be stricken off the records. An Opposition Ad Cautelam (To Motion to Dismiss) was filed also by
petitioner on the same date, arguing that respondent's ground for dismissal has no basis in law and in
fact as it has legal capacity to sue because the person who signed the Verification and Affidavit of
Non-Forum Shopping is duly authorized by the corporation, as evidenced by the Secretary's
Certificate. Likewise, petitioner contended that the court a quo has jurisdiction over the petition there
being a timely protest filed since respondent City Treasurer's letter of June 9, 2003 was not an
assessment. DTAIaH
On March 4, 2004, the trial court granted the Motion to Dismiss filed by herein respondents through
Atty. Prudencio A. Rañola, Jr., on the ground that it had no jurisdiction over the subject matter.
Pertinent portion of the said order is hereunder reproduced for easy reference:
"Under the said law, a taxpayer may contest an assessment by a local treasurer or his duly authorized
representative within sixty (60) days after the notice of assessment is given him by filing a written
protest with the local treasurer. It can be gleaned from the records that the City Treasurer made a
letter on June 9, 2003 assessing that petitioner CMC, Inc. had a tax deficiency in the total amount of
Seventy Three Million Forty Five Thousand Six Hundred Thirty Four Pesos and 47/100
(P73,045,634.47) for taxable years 1999 to 2003. This notice of assessment for deficiency tax was
actually received by petitioner CMC, Inc. on June 10, 2003. Given the above-cited provision, petitioner
should have filed the protest before the deadline, which is August 9, 2003 or sixty (60) days from the
notice of assessment. Since the letter protesting the assessment was filed on September 1 and 2,
2003 or approximately eighty three (83) days after the assessment, it is the conclusion of this Court
that the protest was filed way beyond the reglementary period of 60 days as provided for by Section
195 of the Local Government Code. Hence, the assessment became final and executory." (Emphasis
and underscoring supplied)
On May 13, 2004, petitioner filed an Omnibus Motion praying for the reconsideration of the Order
dated March 4, 2004 and for the issuance of another Order striking out respondents' Motion to
Dismiss and declaring respondents in default or in the alternative, denying respondents' Motion to
Dismiss for lack of merit and the petition given due course; or in the alternative, schedule a hearing for
the introduction of petitioner's evidence to prove the 60-day period to file protest against the
assessment is fully complied with.
In the Omnibus Motion, petitioner reiterated its claim that under the law, Atty. Rañola has no legal
capacity to represent respondents because he is not the City Legal Officer and is not a member of the
City Legal Office and thus, the Motion to Dismiss filed by Atty. Rañola is a scrap of paper, not entitled
to any official imprimatur and should be stricken off the records citing Ramos v. Court of Appeals.
According to petitioner, the useless scrap of paper did not stop the running of the 15-day reglementary
period for tendering their responsive pleading and respondents should be declared in default.
Petitioner further argued that the June 9, 2003 letter of the respondents was not an assessment
because it is bereft of any statement as to the nature of the tax, fee or charge, the amount of
deficiency, the surcharge or interests and penalties. And that assuming arguendo that the City
Treasurer's June 9, 2003 letter was an assessment, it follows that petitioner's request for ample time
partook of the nature of a preliminary protest that tolled the running of the 60-day period to file a
protest. That, if the respondents considered the assessment to be final and unappealable, it would
have been natural for the respondents to cite such ground in the denial of the protest.
An Opposition to Petitioner's Omnibus Motion was filed by respondent on May 17, 2004 contending
that the case of Ramos vs. Court of Appeals (supra), relied upon by the petitioner, does not apply
because respondent City is not represented by a private law firm but a Tax Consultant who happens to
be a member of the bar and handles the case pro-bono, hence, the city is "not burdened with
additional expenses." Respondents also cited the case of Mariveles Shipyard Corporation vs. Court of
Appeals where it was held that in case of corporations, the physical act of signing may be performed
on behalf of the corporate entity only by specifically authorized individual for the simple reason that
corporations, as artificial persons cannot personally do the task themselves.
On June 30, 2004 petitioner filed its "Reply To Opposition to Petitioner's Omnibus Motion" stating that:
First, the Order dated March 4, 2004 failed to resolve petitioner's Omnibus Motion dated November 5,
2003 contrary to procedural norm for the orderly and necessary disposition of all matters pending for
consideration. CIcEHS
Second, the authority of Atty. Rañola under City Resolution No. 1456-02 issued by the City Council of
Las Piñas should be taken in consonance with the provisions of Republic Act No. 7160 and that the
legal and statutory provision specifically prohibits representation of a local government unit by a
private lawyer whether by a law firm or a single practitioner for fee or gratis et amore. Assuming that
there is no prohibition against the city government from engaging the services of a lawyer other than
the city legal officer, Atty. Rañola can only represent the respondents if the latter were parties adverse
to the provincial government or against another component city or municipality.
Third, respondents' reliance on Mariveles Shipyard v. Court of Appeals (supra) is misplaced since the
facts of the said case are not in four square with the instant case.
Fourth, the letter issued by respondents dated June 9, 2003 is, under the law, not a proper
assessment, since it failed to clearly state the nature of the tax, fee or charge, the amount of
deficiency, the surcharges, interests and penalties. Petitioner filed a preliminary protest on June 23,
2004 which together with the exhaustive protest, tolled the running of the prescriptive period.
Fifth, respondents' subsequent actions indicated their acknowledgement that their assessment was
erroneous and without basis. Due to the erroneous assessment, the respondents issued new notices
of realty tax which petitioner paid and settled. Therefore, it is unjust for respondent's error to be
condoned by the court a quo by upholding the same erroneous assessment as final and
unappealable.
On August 6, 2004, the Omnibus Motion was denied for want of merit. The Regional Trial Court ruled
that:
I. Petitioner has legal capacity to sue since the authority of the person who signed the verification
and affidavit of non-forum shopping was sufficiently shown by a Corporate Resolution dated October
9, 2003 and attested to by a Secretary's Certificate.
II. That there is no law prohibiting the city government from engaging the services of a lawyer
other than the city legal officer and that Atty. Rañola was authorized to act as counsel for the city, as
embodied in a City Council Resolution. Thus, the motion to dismiss is no longer a mere scrap of
paper.
III. It is affirming its pronouncement that it has no jurisdiction over the subject matter because the
assessment has become final due to the lack of a timely protest."
Hence, on September 28, 2004, petitioner lodged a Petition for Review before the Court in Division
assailing the Orders issued by the lower court dated March 4, 2004 and August 6, 2004. The
respondents filed their Comments and Motion for Execution pending appeal on November 4, 2004.
The Ruling of the Court in Division
On September 28, 2005, the Court in Division rendered its Decision, the dispositive portion of which is
quoted hereunder:
"WHEREFORE, the Petition for Review is hereby DISMISSED for lack of merit. The assailed Orders of
March 4, 2004 and August 6, 2004 of the Regional Trial Court of Las Piñas City, Branch 202 are
hereby AFFIRMED.
SO ORDERED."
Dissatisfied, petitioner filed a Motion for Reconsideration on October 25, 2005 which was denied by
the Court in Division in its Resolution dated December 20, 2005. THaDAE
The Issues
Hence, this instant petition which hinges on the asseveration that the Court in Division erred in
sustaining the dismissal of Civil Case No. LP-03-0234. The specific issues presented by petitioner
may be reformulated in this wise:
1. Whether the respondents should have been declared in default for failure to file a valid answer
or other responsive pleading within the period prescribed under the 1997 Rules of Civil Procedure;
2. Whether petitioner's protest was timely filed, thus, the lower court has jurisdiction over the
case; and
3. Whether the ruling on deficiency real property tax assessment was proper.
The Ruling of the Court En Banc
The Petition is bereft of merit.
First Issue: Authority of Private Counsel to Represent Respondents
On the first issue, petitioner argues that Atty. Prudencio A. Rañola Jr., the counsel for respondents,
who is a private practitioner, lacks authority to represent the said parties as the Local Government
Code prescribes that only the City Legal Officer or a member of the City Legal Office can do so. Thus,
the Motion to Dismiss signed by Atty. Rañola and filed with the lower court, should be treated as an
unsigned pleading or a mere scrap of paper that did not toll the running of the 15-day period to file
respondents' Answer. Hence, the lower court should have declared respondents in default for having
failed to file an Answer pursuant to Section 3, Rule 9 of the 1997 Rules of Civil Procedure.
Consequently, petitioner prays that this case be reinstated and remanded to the lower court by the
Court En Banc for the ex parte reception of petitioner's evidence, including the question of the
timeliness of the protest.
Petitioner's arguments are partly meritorious.
Under Section 481, Article 11, Title V, Book II of the Local Government Code, the appointment of a
legal officer is mandatory for provincial and city governments. The legal officer, the chief legal counsel
of the local government unit, shall take charge of the office of legal services. Generally, the city legal
officer is mandated under the same Section to represent the local government unit and any official
thereof, in his official capacity, who are parties in civil actions and special proceedings. The same
section specifies the functions of the legal officer, and one of them being that he shall:
(i) Represent the local government unit in all civil actions and special proceedings wherein the
local government unit or any official thereof, in his official capacity, is a party: Provided, That, in
actions or proceedings where a component or municipality is party adverse to the provincial
government or to another component city or municipality, a special legal officer may be employed to
represent the adverse party."
The only instance provided in the aforequoted law wherein a special legal officer may be employed is
in actions or proceedings where a component or municipality is a party adverse to the provincial
government or to another component city or municipality. The Supreme Court, however, has ruled on
the representation of a local government unit by a private attorney. In Municipality of Bocaue v.
Severino Manotok and Maria Manotok 1 and succeeding cases, it was held that only when the
provincial fiscal is disqualified may the municipal council be authorized to hire the services of a special
attorney. This was reiterated in De Guia v. The Auditor General and The Provincial Auditor of Northern
Samar. 2 In Julio D. Enriquez, Sr. v. Hon. Pedro M. Gimenez, 3 the High Tribunal enumerated the
instances when the provincial public prosecutor is disqualified from representing a particular
municipality in which case a special counsel may be employed, i.e., when the original jurisdiction of a
case involving the municipality lies with the Supreme Court, when the municipality is a party adverse
to the provincial government or to some other municipality in the same province, and when in a case
involving the municipality, the provincial prosecutor, his spouse, or his child is involved as a creditor,
heir, legatee, or otherwise. SECcAI
When local government officials are sued in their official capacity, the exceptions are different. The
Supreme Court has laid down the rule that in resolving whether a local government official may secure
the services of private counsel in an action filed against him in his official capacity, the nature of the
action and the relief sought are to be considered. 4 In one case, the High Court approved the
representation by private counsel of a provincial governor sued in his official capacity, where the
complaint contained other allegations and a prayer for moral damages, which, if due from the
defendants, must be satisfied by them in their private capacity. 5 In another case, the High Tribunal
declared that where rigid adherence to the law on representation would deprive a party of his right to
redress for a valid grievance, the hiring of private counsel would be proper. 6
In the case at bar, there is no reason for Us to apply any of the foregoing exceptions. This is not a
case involving the City of Las Piñas against any government agencies, national or any provincial
government as adverse parties. Neither is any personal liability being attributed to the respondent City
Treasurer in this case, as evidenced by the prayer of the petition. Hence, respondents should have
been represented by the city legal officer and not by a private lawyer regardless of the terms of his
engagement or whether he is appointed through a resolution of the city council.
Be that as it may, We agree with the ruling of the Court in Division that it will not affect nor invalidate
the entire proceedings of this case as records clearly show that the assessment already became final
and unappealable. This brings to fore the second issue.
Second Issue: Timeliness of the Filing of Petitioner's Protest
Petitioner asserts that in the context of the discussions and correspondences between the parties,
petitioner protested the June 9, 2003 assessment on June 23, 2003, in its initial response to the
respondent City Treasurer. The same was filed with the intent of filing a more exhaustive protest due
to the fact that it was only on June 23, 2003 that petitioner learned of the details and legal basis for
respondents' assessment. Thus, it is the position of petitioner that the Court in Division erred in
considering the supplemental protest filed on September 1, 2003 as the original protest that was
allegedly filed beyond sixty (60) day reglementary period provided in Section 195 of the LGC.
In their Memorandum, Respondents see the matter differently. They contend that petitioner's June 23,
2003 letter does not reveal any objection or dispute that could have convinced the respondent City
Treasurer to issue a notice canceling wholly or partly the assessment. The said letter can never be
mistaken for a "protest" of the assessment as it did not contain any substantiation of facts and laws
that would clearly indicate a protest. The protest of petitioner was only filed on September 1, 2003
which was beyond the 60-day reglementary period prescribed by law, counted from June 9, 2003.
Consequently, the lower court had no jurisdiction over the subject matter of the case because the
assessment notice had already became final, executory and unappealable. Thus, the lower court
properly dismissed motu propio the petition for review for want of jurisdiction. aETAHD
We agree with the respondents.
Being the bone of contention, the exact language of the controversial June 23, 2003 letter of petitioner
is quoted below:
"June 23, 2003
RIZAL Y. DEL ROSARIO
City Treasurer
City of Las Piñas
Dear Mr. Del Rosario:
In reference to your letter dated June 9, 2003, we would like to request ample time to carefully
consider the validity involved in the determination of the aforesaid liabilities. We also hope that you
can give us specific rulings or ordinances supporting your claim.
Thank you very much.
Very truly yours,
 (signed)
NORMAN T. RAQUEL
Financial Accountant"
As correctly pointed out by the respondents, the afore-quoted letter cannot be considered as a protest
on the assessment since it does not contain any objection or dispute that could have convinced the
respondent City Treasurer to issue a notice canceling wholly or partly the assessment. We also agree
with the pronouncement of the Court in Division in this wise:
"Thus, petitioner merely requested for ample time to consider the validity of the assessment and asked
for specific rulings and ordinances which became the basis of the assessment. However, specific
rulings or ordinances are not required to make an assessment valid. The Supreme Court ruled that the
contest or dispute should be substantiated and a mere letter of a taxpayer for a reconsideration of an
assessment or a letter devoid of any substantiation of facts or law cannot be considered as one that
validly disputes an assessment. Thus, such letter could not have tolled the running of the period to file
a protest." (Emphasis supplied)
Petitioner cites Bank of the Philippine Islands v. Commissioner of Internal Revenue 7 and
Commissioner of Internal Revenue v. Wyeth Suaco Laboratories, Inc. et. al. 8 as authorities for its
argument that the filing of a protest and later, a more substantial protest is neither unheard of nor
prohibited. Moreover, petitioner avers that in the said cases, the Supreme Court and the Court of Tax
Appeals categorically stated that even without the words "reconsideration" or "reinvestigation," the
letters of the petitioners therein could be taken as requests for reconsideration or reinvestigation if the
intent to do so is manifest. Petitioner further argues that while the Wyeth Suaco case and BPI case
involve a national tax under the 1997 Tax Code, the principle enunciated by the Supreme Court may
be applied by analogy to petitioner's June 23, 2003 letter and September 1, 2003 letter in the instant
case. HAIDcE
We disagree.
By analogy also, We will cite a recent ruling of the Supreme Court 9 on the two (2) types of protest
filed with the BIR, to wit:
"PROTEST TO ASSESSMENT
SEC. 6. Protest. — The taxpayer may protest administratively an assessment by filing a written
request for reconsideration or reinvestigation. . .
xxx xxx xxx
For the purpose of the protest herein —
(a) Request for reconsideration. — refers to a plea for a re-evaluation of an assessment on the
basis of existing records without need of additional evidence. It may involve both a question of fact or
of law or both.
(b) Request for reinvestigation. — refers to a plea for re-evaluation of an assessment on the basis
of newly-discovered or additional evidence that a taxpayer intends to present in the reinvestigation. It
may also involve a question of fact or law or both."
In both types of protest, there must be a plea for re-evaluation of an assessment and both kinds must
involve either a question of fact or law or both. In the Wyeth Suaco case cited by petitioner, the
taxpayer was assessed for failing to remit withholding taxes on royalties and dividend declarations, as
well as, for deficiency sales tax. The BIR issued two assessments, dated 16 December 1974 and 17
December 1974. Wyeth Suaco, through its tax consultant, SGV & Co., sent to the BIR two letters,
dated 17 January 1975 and 08 February 1975, protesting the assessments and requesting their
cancellation or withdrawal on the ground that said assessments lacked factual or legal basis.
Based on the foregoing discussion, We find that the June 23, 2003 letter of petitioner did not
specifically request for either a reconsideration or reinvestigation. There was no plea for re-evaluation
of the assessment and no question of fact or law. Neither was there any request for the cancellation or
withdrawal of the assessment on the ground that said assessment lacked factual or legal basis. A
close review of the contents thereof would reveal that it merely asked for "ample time to carefully
consider the validity involved in the determination of the aforesaid liabilities." ACTISD
Thus, as correctly ruled by the Court in Division, the said letter did not toll the running of the period to
file a protest provided under Section 195 of the Local Government Code in relation to Section 226 of
the same Code, which state:
"SEC. 195. Protest of Assessment. — When the local treasurer or his duly authorized
representative finds that correct taxes, fees, or charges have not been paid, he shall issue a notice of
assessment stating the nature of the tax, fee or charge, the amount of deficiency, the surcharges,
interests and penalties. Within 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. . . .
SEC. 226. Local Board of Assessment Appeals. — Any owner or person having legal interest in the
property who is not satisfied with the action of the provincial, city or municipal assessor in the
assessment of his property may, within sixty (60) days from the date of receipt of the written notice of
assessment, appeal to the Board of Assessment Appeals of the province or city by filing a petition
under oath in the form prescribed for the purpose, together with copies of tax declarations and such
affidavits or documents submitted in support of the appeal." (Emphasis supplied)
The foregoing legal provisions explicitly mandate that within sixty (60) days from receipt of the
assessment, the aggrieved taxpayer may file a protest with the local treasurer, in case of local tax
assessments and with the Local Board of Assessment Appeals, in case of real property tax
assessments. Consequently, failure to file the protest within the prescribed period will deprive the
lower court of its jurisdiction. It is hornbook knowledge that the court can motu propio dismiss a case
which is beyond its jurisdiction pursuant to Section 1, Rule 9 of the Rules of Court. Whenever it
appears that the court lacks jurisdiction over the subject matter, the action shall be dismissed. This
defense may be interposed at any time, during appeal or even after final judgment. Such is
understandable, as this type of jurisdiction is conferred by law and not within the courts, let alone the
parties, to themselves determine or conveniently set aside. 10
In the instant case, the Court in Division found that the respondent City Treasurer wrote a letter on
June 9, 2003 which was received by petitioner on the following day, assessing petitioner local
business tax and real property tax deficiency in the aggregate amount of P73,045,634.47. Hence,
petitioner had sixty (60) days from June 10, 2003 or until August 9, 2003 within which to protest the
said assessment. Petitioner filed its protest on the local business tax assessment only on September
1, 2003 or eighty three (83) days from the date of receipt of the said assessment notice. Indubitably, it
was beyond the period allowed by law. Thus, We agree with the ruling of the Court in Division that the
lower court was correct in dismissing the petition for review filed by petitioner for want of jurisdiction as
the lack of a timely protest made the assessment final and executory.
Third Issue: Ruling on the Deficiency Real Property Tax Assessment
Petitioner argues that the Court in Division erred when it affirmed the ruling of the lower court affirming
the assessment in totality considering that the petition for review before the lower court only contested
the validity of the assessment for alleged deficiency local business taxes. Petitioner avers that the
Court in Division should have, at most, regarded the lower court's pronouncement as a mere obiter
dictum because the matter of the alleged real property tax assessment has not been pleaded nor
alleged nor prayed in the said petition. cCTIaS
We are not persuaded and We quote with approval the disquisition made by the Court in Division on
this matter, to wit:
"Indeed, the petition for review filed before the lower court prayed only for the cancellation and
withdrawal of deficiency local business tax amounting to P15,283,815.79 covering the period 1999-
2003. Nonetheless, it does not mean that the lower court erred when it issued an obiter on the alleged
real property tax assessment. Because contrary to petitioner's claim, petitioner made allegations
relative to the real property assessment and its protest thereto. In paragraph 17 of its petition for
review, petitioner alleged that it filed a protest on the real property tax assessment with the City
Treasurer on September 2, 2003 and in fact attached thereto said protest. Petitioner also alleged
therein that the respondent City Treasurer addressed both protests of petitioner in a letter dated
September 10, 2003 denying both the protests on deficiency business tax and real property tax in the
total amount of P73,045,634,47. Likewise, in paragraph 9 thereof, petitioner admitted that in a letter
dated June 9, 2003 received by petitioner on June 10, 2003, the respondent City Treasurer informed
petitioner that it had a tax deficiency in the total amount of P73,045,634.47 for the taxable years 1999-
2003.
Thus, on the above allegations/admissions of petitioner itself, the counting of the sixty (60)-day period
should be reckoned from June 10, 2003. The filing of its protest on the real property tax assessment
with the City Treasurer on September 2, 2003 was definitely beyond the period allowed by law.
Moreover, the appeal should be with the Local Board of Assessment Appeals. SEAHID
xxx xxx xxx"
(Emphasis supplied)
On petitioner's claim that it duly paid its real property taxes pursuant to respondents' February 4, 2004
notices or reminders on petitioner's real properties, We agree with the Court in Division that said
notices or reminders do not alter the fact that the assessment against petitioner in the total amount of
P73,045,634.47 already became final, executory and demandable. Moreover, We find no reason to
disturb the following findings of the Court in Division:
"The payments made by petitioner merely cover its tax liabilities as shown on the said February 4,
2004 notices. There is no showing that the amounts indicated on the new notices are for the same
properties covered by the prior final assessment. There is also no proof that the respondents made a
mistake in its previous assessment nor is there an indication that respondent amended and altered its
previous real property tax assessment to roughly about only Seven Million Pesos (PhP7,000,000.00)
as covered by the new notices dated February 4, 2004 from the final assessment on deficiency real
property tax in the total amount of Fifty Seven Million Seven Hundred Eighty One Thousand Eight
Hundred Eighteen Pesos & 68/100 (PhP57,781,818.68)." (Emphasis Supplied)
WHEREFORE, finding no reversible error committed by the Court in Division, the instant petition is
hereby DISMISSED. Accordingly, the assailed Decision promulgated on September 28, 2005 and
Resolution dated December 20, 2005 are hereby AFFIRMED. EaScHT
SO ORDERED.
Ernesto D. Acosta, P.J., Juanito C. Castañeda, Jr., Erlinda P. Uy and Caesar A. Casanova, JJ., concur.
Olga Palanca-Enriquez, J., is on leave.
Footnotes
1. 93 Phil. 173 (1953).
2. 44 SCRA 169 (1972).
3. 107 Phil. 932 (1960).
4. Edgardo Mancenido for himself and Other Teachers of Camarines Norte High School v. Court
of Appeals, et. al., G.R. No. 118605, April 12, 2000 citing Alinsug v. RTC, Br. 58, San Carlos City,
Negros Occidental, 225 SCRA 559 (1993).
5. Aparecio Albuera, etc., et al v. Bernardo Torres, et al., 102 Phil. 211 (1957).
6. Province of Cebu v. Honorable Intermediate Appellate Court, G.R. No. 72841, January 29,
1987, 147 SCRA 447.
7. C.T.A. Case No. 6593, August 31, 2004.
8. G.R. No. 76281, September 30, 1991.
9. Bank of the Philippine Islands v. Commissioner of Internal Revenue, G.R. No. 139736, October
17, 2005.
10. Metromedia Times Corporation and/or Robina Gokongwei-Pe v. Johnny Pastorin, G.R. No.
154295, July 29, 2005 citing De Rossi v. NLRC, 373 Phil. 17 (1999).