Title
City of Manila vs. Inter-Island Gas Service, Inc.
Case
G.R. No. L-8799
Decision Date
Aug 31, 1956
The City of Manila sued Inter-Island Gas for unpaid municipal taxes on LPG sales under Ordinance No. 1925. The Supreme Court ruled the tax valid, affirming the lower court's decision, rejecting claims of double taxation, and ordering payment of the deficiency.
taxation
double taxation
presidential approval
A

Case Summary (G.R. No. L-8799)

Factual Background

The City of Manila instituted an action to collect a sum of money allegedly due as deficiency municipal tax from the defendant for liquefied flammable gas. The case turned on the meaning of section 1, Group 2 of Ordinance No. 1925, as amended by Ordinance No. 3364, which required the payment to the City Treasurer of quarterly license fees based on gross sales or receipts for enumerated businesses or occupations. Group 2, as framed in the ordinance, covered “Retail dealers in new (not yet used) merchandise” who were “not yet subject to the payment of any municipal tax,” giving illustrative examples such as retail dealers in general merchandise and those exclusively engaged in the sale of various categories of goods including electrical supplies, sporting goods, office equipment and materials, rice, textile including knitted wares, hardwares including glasswares, cooking utensils, and construction materials, among others.

Under the parties’ stipulations, the defendant sold cooking appliances and liquefied petroleum gas in cylinders in stated amounts for each quarter from the fourth quarter of 1949 through the fourth quarter of 1951. The defendant paid the prescribed amounts allegedly due under the ordinance based on its sales of cooking appliances only. The City computed the deficiency claim of P11,250.00 as corresponding to the first, second, third and fourth quarters of 1951, and the first quarter of 1952, using a stipulated quarterly rate of P1,250.00. The parties further stipulated that the defendant paid prescribed fees under Ordinance No. 3259 covering the same quarters.

Trial Court Proceedings

After the case was submitted for decision, the Court of First Instance of Manila rendered judgment for the City. The trial court held that the City had the right to impose tax on liquefied flammable gas under Ordinance No. 1925, as amended by Ordinance No. 3364. It ordered the defendant to pay the City the sum of P8,361 as deficiency tax due from the year 1952, inclusive, together with P50 surcharge, and to pay the costs.

Grounds of Appeal and the Parties’ Contentions

On appeal, the defendant assigned several errors. First, it argued that Ordinance No. 1925 as amended did not clearly provide that it applied to the sale of liquefied flammable gas. Second, it contended that, assuming liquefied flammable gas was included, the ordinance’s provisions were within the Municipal Board’s legislative powers, though this assignment was framed more as a continuing challenge to the ordinance’s claimed coverage. Third, it argued that if liquefied flammable gas was covered, the tax imposed was in the nature of a percentage tax; hence, the complaint allegedly failed to state a cause of action because the ordinance purportedly had not been previously approved by the President. Fourth, it argued that applying the ordinance to the defendant’s business constituted double taxation, which it asserted was unconstitutional and void. Finally, it challenged the monetary award ordering payment of the City’s deficiency tax claim and costs.

The City, for its part, maintained that the ordinance properly imposed the quarterly license fees on retail dealers in new merchandise, and that liquefied flammable gas fell within that concept for purposes of Group 2.

Statutory Authority and the Meaning of “Merchandise”

The defendant relied on provisions of the Revised Charter of Manila (Republic Act No. 409), particularly section 18(m) authorizing the City to “tax, fix the license fee, and regulate the storage and sale of petroleum or any of the products thereof and of all other highly combustible or explosive materials,” and section 18(o) authorizing it to “tax and fix the license fee on dealers in general merchandise.” It argued that liquefied flammable gas should be understood as falling under section 18(m) and thus allegedly should be excluded from the connotation of the word “merchandise” used in section 18(o).

The Court rejected the approach as not decisive. Even if section 18(m) suggested Congressional intent to include liquefied flammable gas within the subject of Manila’s regulatory and taxing authority, the Court found no necessary consequence that the Municipal Board used “merchandise” in Ordinance No. 1925 in the restricted manner attributed by the defendant. The Court emphasized that the authority of Manila to tax dealers in liquefied flammable gas was conceded. The remaining issue was therefore one of construction: whether the term “merchandise” in the ordinance had a restrictive meaning such as that claimed by the defendant, or whether it carried its ordinary commercial sense.

In construing the term, the Court referred to the ordinary meaning of “merchandise” as “objects of commerce,” “goods,” “wares,” “commodities,” and items ordinarily bought and sold in trade. The Court held that liquefied gas could be and was being bought and sold in trade, and therefore constituted merchandise under the ordinary usage of the term. It further declined to adopt the defendant’s proposed restrictive reading, not only because the ordinary sense better aligned with the language, but also because the ordinance’s classification did not track the classifications suggested by the charter provision. The Court observed that although “merchandise” appeared in section 18(o) of the charter, the ordinance’s Group 2 placed “merchandise” dealers alongside listed categories such as electrical supplies, sporting goods, textiles, hardwares including glasswares, and cooking utensils, which the charter contained in a different paragraph. The Court also noted that Group 2 described “retail dealers in new (not yet used) merchandise” and included examples, but the list was not treated as exhaustive. The wording itself indicated that the group taxed dealers in all “new (not yet used) merchandise” that were not yet subject to any municipal tax.

Accordingly, the Court held that liquefied flammable gas was a “new object of commerce,” and dealers in it had not yet been subject to municipal tax at the time of the passage of the ordinance. Thus, liquefied flammable gas fell within Group 2.

Nature of the Tax: Not a Percentage Tax

Under the third assignment, the defendant claimed that the tax under the ordinance was a percentage tax. The Court examined the schedule of taxes under Group 2 and noted the structure of the quarterly license fees. It characterized the charge as not a percentage tax because it was not based on a fixed ratio between the taxpayer’s gross income and the burden imposed. The Court described the schedule as a graduated tax, with the quart

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