G.R. No. L-45355 - Province of Misamis Oriental vs. Cagayan Electric Power and Light Co., Inc.

Cagayan Electric Power and Light Company, Inc. (CEPALCO) was granted a franchise on June 17, 1961 under Republic Act (R.A.) No. 3247 to install, operate, and maintain an electric light, heat, and power system in Cagayan de Oro City and its suburbs.
The franchise was amended on June 21, 1963 by R.A. No. 3570 to include the municipalities of Tagoloan and Opol.
It was further amended on August 4, 1969 by R.A. No. 6020 to extend operations to the municipalities of Villanueva and Jasaan.

The grantee (CEPALCO) shall pay a franchise tax of 3% of gross earnings from electric current sold.
2% of this goes to the National Treasury; 1% goes to the municipalities and city serviced.
The franchise tax shall be "in lieu of all taxes and assessments of whatever authority upon privileges, earnings, income, franchise, and poles, wires, transformers, and insulators of the grantee," expressly exempting the company from other taxes and assessments.

On June 28, 1973, Presidential Decree (P.D.) No. 231, the Local Tax Code, was promulgated, allowing provinces to impose a franchise tax on businesses enjoying franchises of up to one-half of one percent (0.5%) of gross annual receipts within their jurisdiction.
The Province of Misamis Oriental enacted Provincial Revenue Ordinance No. 19 implementing this tax under Section 12, levying a 0.5% franchise tax on businesses’ gross annual receipts realized within the province.

The Provincial Treasurer of Misamis Oriental demanded payment of the provincial franchise tax from CEPALCO, which the company refused on grounds of exemption under its franchise charter.
CEPALCO paid the tax under protest (P4,276.28) following the Provincial Fiscal’s opinion upholding the tax, then appealed.
The Secretary of Justice reversed the Provincial Fiscal’s ruling in favor of CEPALCO.
On June 26, 1976, the Secretary of Finance issued Local Tax Regulation No. 3-75 adopting the opinion of the Secretary of Justice, exempting franchises with "in lieu of all taxes" clause from local franchise taxes.

The Province filed a complaint for declaratory relief in the Court of First Instance (CFI) of Misamis Oriental, asking the court to construe P.D. 231 in relation to CEPALCO's franchise and declare such franchise amended by P.D. 231.
The CFI dismissed the complaint and ordered the Province to refund the amount paid under protest.
The Province appealed to the Supreme Court, alleging:

Whether P.D. No. 231 (the Local Tax Code) repealed or amended the exemption clause in CEPALCO’s franchise securing exemption from all taxes except the 3% franchise tax.

Whether the Province of Misamis Oriental can impose a provincial franchise tax on CEPALCO despite the exemption clause.

Whether the Province is obliged to refund the amount paid under protest by CEPALCO.