Title
Allied Thread Co., Inc. vs. City Mayor of Manila
Case
G.R. No. L-40296
Decision Date
Nov 21, 1984
A manufacturer challenged Manila's business tax ordinance, arguing non-compliance with deadlines, publication, and taxability. The Supreme Court upheld the ordinance, ruling it valid, properly published, and applicable to the manufacturer due to its business activities in Manila.
business tax
sales broker
excise tax

Case Summary (G.R. No. L-40296)

Factual Background

Allied Thread Co., Inc. manufactured sewing thread and yarn and maintained a factory and principal office in Pasig, Rizal. To sell its products in Manila and elsewhere, it employed the services of Ker & Company, Ltd., a sales broker that earned commissions on sales made for Allied Thread. The City of Manila enacted Ordinance No. 7516, imposing annual business taxes on manufacturers, importers, and producers doing business in Manila on a graduated basis, with provisions allocating sales recorded in principal offices and branch or sales offices for collection purposes.

Ordinance Provisions and Amendments

Ordinance No. 7516, as amended by Ordinance Nos. 7544, 7545, and 7556, imposed a business tax on manufacturers, importers, or producers “doing business in the City of Manila.” The ordinance contained collection rules: sales recorded by a branch or sales office in Manila accrued to Manila; where no branch existed, sales recorded in the principal office were apportioned sixty percent to the City of Manila if the principal office was in Manila, with forty percent deemed made in the factory and taxable where the factory was located. If factories were in multiple localities, the forty percent allocation was to be apportioned among the localities proportionally to production volumes.

Procedural History

On July 22, 1974, Allied Thread Co., Inc. and Ker & Company, Ltd. filed a petition for declaratory relief in the Court of First Instance of Manila challenging the validity and enforceability of Ordinance No. 7516 as amended. The CFI, presided by Judge Lorenzo Relova, upheld the ordinance and adjudged Allied Thread taxable thereunder. Petitioners thereafter sought relief in the Supreme Court.

Petitioners’ Contentions

Petitioners argued that Ordinance No. 7516, as amended, was invalid for two primary reasons. First, they contended the ordinance and its subsequent amendments failed to meet the deadline mandated by Sec. 54 of P.D. No. 426, as clarified by Local Tax Regulation No. 1-74, which they read to require that any local tax ordinance intended to take effect on July 1, 1974 must be enacted by the local chief executive not later than June 15, 1974. Second, they contended the ordinance was not properly published in a newspaper of general circulation as required by Sec. 43 of the Local Tax Code. Allied Thread additionally asserted that it was not subject to the ordinance because it did not operate or maintain a branch or office in the City of Manila; its principal office and factory were in Pasig, Rizal.

Respondents’ Contentions

Respondents maintained that Ordinance No. 7516 was valid and had taken effect on July 1, 1974 in accordance with Sec. 42 of the Local Tax Code because the Municipal Board enacted the ordinance on June 12, 1974 and the Mayor approved it on June 15, 1974. They further argued that the subsequent amendments did not invalidate the basic ordinance nor alter its date of effectivity. On publication, respondents asserted that copies of the ordinance and its amendments were posted in public buildings, government offices, and other conspicuous places pursuant to the alternative mode of notice provided in Sec. 43 of the Local Tax Code.

Issues Presented

The principal issues were whether Ordinance No. 7516, as amended, was validly enacted and effective as of July 1, 1974 in light of P.D. No. 426 and Local Tax Regulation No. 1-74; whether the publication requirement of Sec. 43 of the Local Tax Code had been satisfied; and whether Allied Thread Co., Inc. was subject to the ordinance despite having its principal office and factory in Pasig because it sold products in Manila through a sales broker.

Ruling and Disposition

The Court dismissed the petition for lack of merit and affirmed the CFI judgment upholding the validity and enforceability of Ordinance No. 7516, as amended. The Court ordered costs against the petitioners. The opinion noted concurrence by Fernando, C.J., Makasiar, Aquino, Concepcion Jr., Melencio-Herrera, Plana, Escolin, Gutierrez, Jr., de la Fuente, and Cuevas, JJ.; Teehankee and Relova, JJ., took no part.

Effectivity and Amendments Analysis

The Court found that Ordinance No. 7516 was enacted on June 12, 1974 and approved by the Mayor on June 15, 1974, and that under Sec. 42 of the Local Tax Code it became effective on July 1, 1974. The Court held that compliance with the June 15 deadline required by Sec. 54 of P.D. No. 426 and Local Tax Regulation No. 1-74 was met. The Court further held that the subsequent amendments to the ordinance did not invalidate the original ordinance or change its effective date, and that permitting amendments to operate would otherwise unduly restrict the Municipal Board’s power to amend ordinances as exigencies required.

Publication Requirement and Substantial Compliance

Addressing the publication challenge under Sec. 43 of the Local Tax Code, the Court explained that the statute affords two modes of notice: publication in a newspaper of general circulation, or posting copies in the local legislative hall or premises and two other conspicuous places within the jurisdiction. The Court concluded that respondents had complied with the second mode by posting copies in public buildings and offices and that such posting constituted substantial compliance with the law on publication.

Taxability and Legal Characterization of the Tax

The Court characterized the ordinance’s imposition as a business tax in the nature of an excise upon the performance of an act or the engaging in an occupation. The Court explained that the

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