Case Summary (G.R. No. L-41383)
Key Dates
– Franchise exemption enacted: Act No. 4271 (and Republic Acts Nos. 2360, 2667).
– Registration fee dispute regulation: 1971.
– Payments under protest: 1971 (P19,529.75).
– Decision of this Court: August 15, 1988.
Applicable Law
– Act No. 4271, § 13 (legislative franchise tax exemption).
– Republic Act No. 4136 (Land Transportation and Traffic Code), § 8.
– Republic Act No. 5431, § 24 (repeal of corporate tax exemptions effective June 27, 1968).
– Presidential Decree No. 1590 (amended franchise, April 9, 1979).
Legal Issue
Whether motor vehicle registration fees are taxes (from which PAL is exempt) or regulatory fees (outside its franchise exemption).
Factual Background
PAL ceased paying registration fees based on a 1956 Justice Department opinion. In 1971, Commissioner Edu’s regulation compelled tax-exempt entities to pay such fees. PAL paid under protest, then sought refund, invoking Calalang v. Lorenzo (1951).
Lower Courts’ Rulings
– Court of First Instance (Rizal): Dismissed complaint, following Republic v. Philippine Rabbit Bus Lines, Inc. (1970).
– Court of Appeals: Certified pure question of law to the Supreme Court.
Conflicting Precedents
– Calalang v. Lorenzo (1951): Registration fees are taxes for general revenue and not merely regulatory.
– Republic v. Philippine Rabbit Bus Lines (1970): Registration fees are regulatory exactions under police power, not taxes.
Statutory Framework and Legislative Intent
– Early motor vehicle laws labeled the charge as “fees” but directed 80 %–100 % of collections to road and bridge funds, indicating revenue-raising purpose.
– Land Transportation Code § 59(b) distinguishes “taxes or fees” for registration, operation, or ownership, suggesting hybrid regulatory-tax character.
– Land Transportation Code § 61 allocates up to 20 % of collections for agency operating expenses, remainder to the Highway Special Fund.
Nature of Registration Fees
The Court finds registration fees to be “regulatory taxes”—exactions serving both revenue and regulatory functions. Their substantial contribution to highway funding confirms their tax nature despite the term “fee.”
Impact of Tax Code Repeal on Exemptions
Republic Act No. 5431 (1968) repealed prior corporate tax exemptions in legislative franchises. Payments of registration fees from June 27, 1968 to April 9, 1979 were properly imposed despite PAL’s franchise exemption.
Subsequent Franchise Amendment
Presidential Decree No. 1590 (1979) a
Case Syllabus (G.R. No. L-41383)
Facts
- Philippine Airlines, Inc. (PAL) is a Philippine corporation engaged in air transportation under legislative Franchise Act No. 4271 (as amended).
- PAL’s franchise imposes a two-percent tax on gross revenues “in lieu of all taxes of any kind,” but expressly requires payment of real-property taxes.
- Since 1956, based on a Justice Department opinion, PAL refrained from paying motor vehicle registration fees.
- In 1971, Commissioner Edu promulgated a regulation requiring tax-exempt entities, including PAL, to pay fees under Section 8 of Republic Act No. 4136 (Land Transportation and Traffic Code).
- PAL paid ₱19,529.75 under protest and demanded a refund, invoking Calalang v. Lorenzo (97 Phil. 212 [1951])—which held registration fees to be taxes exempt under its franchise.
- Edu denied the refund, relying on Republic v. Philippine Rabbit Bus Lines, Inc. (32 SCRA 211 [1970])—which characterized registration fees as regulatory, not taxable, exactions.
Procedural History
- PAL filed a complaint in the Court of First Instance of Rizal (Civil Case No. Q-15862) against Commissioner Edu and Treasurer Carbonell for refund.
- Defendants moved to dismiss for failure to state a cause of action, reiterating the Rabbit Bus ruling.
- The trial court deferred resolution of the motion, held trial on the merits, and dismissed PAL’s complaint citing Rabbit Bus.
- PAL appealed to the Court of Appeals, which, finding a pure question of law, certified the case to the Supreme Court.
Issue
- Are motor vehicle registration fees under the Land Transportation and Traffic Code taxes (from which PAL is exempt) or regulatory fees (not exempt under its franchise)?
- Is PAL entitled to a refund of fees paid in 1971 under protest?
- May PAL’s franchise exemption prevent future imposition of registration and licensing charges?
Statutory and Franchise Provisions
- Republic Act No. 4136, Section 8: Imposition of “registration fees.”
- Republic Act No. 4136, Section 59(b): Requires proof of payment of “taxes or fees … for registration, operation or ownership of any motor vehicle.”
- Republic Act No. 4136, Section 61: Directs deposit of fee proceeds into a spe