Case Summary (G.R. No. 187631)
Factual Background
Respondent operated an oil refinery and depot in Tabangao, Batangas City, manufacturing and distributing petroleum products. In 2001 Batangas City, through its City Legal Officer, issued a notice of assessment demanding payment of P92,373,720.50 and P312,656,253.04 as business taxes for respondent’s manufacture and distribution activities, and P4,299,851.00 as Mayor’s Permit Fee based on gross sales. Respondent protested on April 17, 2002, contending it was not liable for local business taxes on manufacture or distribution of petroleum products and that the Mayor’s Permit Fees were exorbitant and confiscatory. Petitioners denied the protest on May 13, 2002 and asserted authority under the Batangas City Tax Code to withhold issuance of the Mayor’s Permit for nonpayment. Respondent paid certain Mayor’s Permit Fees under protest for 2003 and offered a compromise sum for 2004 which petitioners rejected.
Trial Court Proceedings
Respondent filed a petition for review under Section 195 of the LGC before the Regional Trial Court (RTC) of Batangas City. The RTC rendered judgment on October 29, 2004 holding the business taxes imposed by Batangas City valid and declaring the Mayor’s Permit Fee grossly excessive and unreasonable. The RTC ordered respondent to pay PHP 405,030,003.54 as tax on its business of manufacture and distribution while revoking the P4,299,851.00 Mayor’s Permit Fee without prejudice to modification by petitioners. The RTC denied respondent’s motion for partial reconsideration.
CTA Second Division Proceedings
Respondent elevated the case to the CTA Second Division and sought injunctive relief; the CTA conditionally enjoined collection of the challenged taxes upon respondent’s posting of a PHP 500,000,000.00 surety bond. On June 21, 2007 the CTA Second Division modified the RTC judgment. The CTA found respondent not liable for business taxes on manufacture and distribution of petroleum products by reason of Section 133(h) of the LGC and declared the Mayor’s Permit excessive, ordering a refund in the form of tax credit of an amount directed in the decision. Following a motion for clarification, the CTA amended the refund figure to PHP 3,870,860.00 in an Amended Decision dated July 31, 2007. Petitioners’ motion for reconsideration was denied by the CTA Second Division in a Resolution dated November 21, 2007.
CTA En Banc and Post-Judgment Motions
Petitioners filed a petition for review to the CTA En Banc. On January 22, 2009 the CTA En Banc affirmed the CTA Second Division’s Amended Decision in toto and denied petitioners’ subsequent motion for reconsideration in a Resolution dated April 13, 2009. Petitioners then filed the present Rule 45 petition to the Supreme Court.
Issues Presented
Petitioners advanced assignments of error asserting that the CTA erred in holding that local government units (LGUs) are barred from imposing business taxes on manufacture and distribution of petroleum products. Petitioners argued that the taxing power granted under Section 143(h) of the LGC broadly authorizes LGUs to impose taxes on any business not otherwise specified, including businesses already subject to excise, VAT or percentage tax under the NIRC, subject only to a two percent ceiling; they maintained that the word “taxes” in Section 133(h) does not include business taxes and that a distinction exists between taxes on articles and taxes on business.
Petitioners’ Contentions
Petitioners asserted that the sanggunian’s power under Section 143(h) is expansive and permits taxation of activities involving production, manufacture and distribution when engaged in for profit. They contended that the CTA misconstrued Section 133(h) by treating it as an absolute bar to local business taxation where the LGC already authorized such levy, and that specific limitations in Section 133 should not be read to negate the broad grant in Section 143(h) with respect to business taxes on petroleum-related activities.
Respondent’s Contentions
Respondent maintained that LGUs lacked authority to impose local business taxes on the manufacture and distribution of petroleum products. It argued that such activities are effectively precluded from local taxation by Section 133(h) of the LGC, which prohibits LGUs from imposing “taxes, fees or charges on petroleum products,” and that the Mayor’s Permit Fees assessed were excessive and confiscatory.
Legal Analysis by the Supreme Court
The Court emphasized that while the power to tax inheres in the State, the power of LGUs is derivative and limited by constitutional and statutory constraints, citing Section 5, Article X of the 1987 Constitution and Book II of the LGC. The Court reviewed Section 130 and Section 133 of the LGC and found that Section 133(h) expressly prohibited LGUs from levying “excise taxes on articles enumerated under the National Internal Revenue Code, as amended, and taxes, fees or charges on petroleum products.” The Court construed Section 133(h) to specify two distinct prohibitions: a bar on excise taxes for articles enumerated in the NIRC and a separate, broader bar on “taxes, fees or charges” specifically with respect to petroleum products. The Court held that the omnibus authority in Section 143(h) to impose taxes on businesses not otherwise specified could not override the specific prohibition in Section 133(h). The Court applied the principle that a specific statutory provision prevails over a general one, generalia specialibus non derogant. The Court further examined Article 232(h) of the Implementing Rules and Regulations and found that it concretized the exclusion by expressly stating that businesses engaged in
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Case Syllabus (G.R. No. 187631)
Parties and Procedural Posture
- Batangas City, Maria Teresa Geron in her capacity as City Treasurer, and Teodulfo A. Deguito in his capacity as City Legal Officer were the petitioners before the Supreme Court.
- Pilipinas Shell Petroleum Corporation was the respondent that operated a refinery and depot in Tabagao, Batangas City.
- The case reached the Supreme Court by a Petition for Review on Certiorari under Rule 45, Rules of Court assailing the Court of Tax Appeals En Banc Decision dated January 22, 2009 and Resolution dated April 13, 2009.
- The CTA En Banc had affirmed the CTA Second Division Amended Decision dated July 31, 2007 and Resolution dated November 21, 2007 in CTA AC Case No. 10.
- The underlying action originated from a Petition for Review filed by respondent under Section 195, Local Government Code (LGC) of 1991 with the Regional Trial Court of Batangas City.
Key Factual Allegations
- Batangas City issued a notice of assessment dated February 20, 2001 demanding business taxes of PHP 92,373,720.50 and PHP 312,656,253.04 respectively for respondent’s manufacture and distribution of petroleum products.
- Batangas City also assessed respondent PHP 4,299,851.00 as Mayor’s Permit Fee based on gross sales of its Tabagao Refinery.
- Respondent filed a protest on April 17, 2002 denying liability for the imposed local business taxes and challenging the Mayor’s Permit Fees as exorbitant and confiscatory.
- Respondent paid under protest Mayor’s Permit Fees for 2003 amounting to PHP 774,840.50 as manufacturer and PHP 3,525,010.50 as distributor and later offered PHP 150,000.00 as compromise for 2004 which petitioners rejected.
Lower Court Rulings
- The RTC of Batangas City rendered judgment on October 29, 2004 upholding the validity of the business taxes and ordering respondent to pay PHP 405,030,003.54 while declaring the Mayor’s Permit Fee of PHP 4,299,851.00 grossly excessive and unreasonable.
- The RTC denied respondent’s motion for reconsideration on February 28, 2005.
- The CTA Second Division granted respondent’s application for a writ of preliminary injunction and conditioned the abeyance of collection on respondent’s posting of a PHP 500,000,000.00 surety bond.
- The CTA Second Division in a Decision dated June 21, 2007 found respondent not liable for the business taxes and declared the Mayor’s Permit excessive, ordering refund in tax credit of PHP 3,525,010.50.
- The CTA Second Division amended its decision on July 31, 2007 to correct the refund amount to PHP 3,870,860.00 and denied petitioners’ motion for reconsideration by Resolution dated November 21, 2007.
- The CTA En Banc affirmed the Amended Decision and denied petitioners’ motion for reconsideration on January 22, 2009 and April 13, 2009 respectively.
Issues Presented
- Whether a local government unit is empowered under the LGC to impose local business taxes on persons or entities engaged in the manufacture and distribution of petroleum products.
- Whether the word “taxes” in Section 133(h), LGC excludes local business taxes.
- Whether the distinction between taxes on articles and taxes on business precludes a municipal business tax on petroleum manufacture and distribution.
- Whether Sec