Case Summary (G.R. No. 187631)
Key Dates
February 20, 2001 – Batangas City issues notice of assessment demanding local business taxes (P92,373,720.50 for manufacturing; P312,656,253.04 for distribution) and a Mayor’s Permit Fee of P4,299,851.00
April 17, 2002 – Respondent files protest before Batangas City
June 17, 2002 – Respondent files petition for review with the Regional Trial Court (RTC) of Batangas City
October 29, 2004 – RTC upholds business taxes; revokes Mayor’s Permit Fee as grossly excessive
June 21, 2007 – CTA Second Division finds respondent exempt from business taxes under Section 133(h) of the Local Government Code (LGC) and orders refund of excessive permit fee
July 31, 2007 – CTA Second Division issues amended decision clarifying refund amount (P3,870,860.00)
January 22, 2009 – CTA En Banc affirms the Second Division in toto
April 13, 2009 – CTA En Banc denies petitioners’ motion for reconsideration
July 8, 2015 – Supreme Court denies petition for review
Applicable Law
1987 Philippine Constitution, Article X, Section 5 (local autonomy and taxing power)
Republic Act No. 7160 (Local Government Code of 1991)
• Section 130 (principles governing local taxation)
• Section 133(h) (prohibition on excise taxes on NIRC‐enumerated articles and “taxes, fees or charges on petroleum products”)
• Section 143(h) (general grant of power to impose business taxes, capped at 2% for NIRC‐taxed businesses)
Implementing Rules and Regulations, LGC of 1991, Rule 36, Article 232(h) (exclusion of oil and petroleum products from local business taxes)
Procedural History
• Batangas City’s City Legal Officer issues an assessment in 2001 demanding local business taxes on Shell’s manufacturing and distribution activities and a Mayor’s Permit Fee.
• Shell protests and files suit in the RTC (2002), arguing lack of authority to tax petroleum products and unreasonableness of the permit fee.
• RTC upholds the business tax assessments but revokes the permit fee for being excessive.
• Shell elevates the case to the Court of Tax Appeals (CTA), which:
– Grants a preliminary injunction barring collection (upon surety bond).
– Second Division (June 2007) holds LGUs cannot impose business taxes on petroleum products under Section 133(h) and orders refund of excessive permit fees.
– En Banc (January 2009) affirms the Second Division decision and denies reconsideration (April 2009).
• Batangas City files a petition for review to the Supreme Court.
Issue
Whether a local government unit may impose local business taxes on the manufacture and distribution of petroleum products under the LGC.
Supreme Court’s Legal Analysis
Constitutional Basis
• The 1987 Constitution grants LGUs taxing power subject to congressional guidelines and limitations (Article X, Section 5).Statutory Framework
• Section 143(h) of the LGC broadly authorizes LGUs to tax businesses not otherwise specified, with a 2% cap for activities already subject to national taxes.
• Section 133(h) of the LGC specifically prohibits LGUs from levying “taxes, fees or charges on petroleum products,” in addition to excise taxes on NIRC‐enumer
Case Syllabus (G.R. No. 187631)
Facts
- Batangas City, a local government unit (LGU) with authority under its Charter and Section 22(a)(2) of the Local Government Code (LGC), through its City Legal Officer and City Treasurer, assessed Pilipinas Shell Petroleum Corporation (PSPC) for business taxes and Mayor’s Permit fees.
- PSPC operates an oil refinery and depot in Tabangao, Batangas City, manufacturing and distributing petroleum products nationwide.
- In February 2001, Batangas City served a notice of assessment demanding:
- ₱92,373,720.50 as business tax on manufacturing;
- ₱312,656,253.04 as business tax on distribution;
- ₱4,299,851.00 as Mayor’s Permit Fee, based on gross sales.
- PSPC’s annual permit fees prior to assessment totaled ₱98,964.71 (including ₱1,180.34 Mayor’s Permit).
Procedural History
- April 17, 2002: PSPC protested, claiming lack of authority for local business tax on petroleum manufacture/distribution and alleging fines were excessive and arbitrary.
- May 13, 2002: Petitioners denied the protest, threatening to withhold new permits until taxes paid.
- June 17, 2002: PSPC filed a Petition for Review with the Batangas Regional Trial Court (RTC) under Section 195, LGC.
- June 28, 2002–2004: PSPC paid under protest some Mayor’s Permit fees and offered compromise fees; petitioners rejected compromise.
- October 29, 2004: RTC sustained business tax imposition (₱405,030,003.54) but revoked the ₱4,299,851.00 Mayor’s