City of Manila vs. Colet

A local government unit is absolutely prohibited from imposing any tax on the gross receipts of transportation contractors, persons engaged in the transportation of passengers or freight for hire, and common carriers by air, land, or water because Section 133(j) of the Local Government Code is a specific limitation that prevails over the general grant of power to tax businesses under Section 143(h) of the same Code, consistent with the legislative intent to prevent duplication of the common carrier’s tax already imposed under the National Internal Revenue Code.

The Sangguniang Panlungsod of Manila enacted Ordinance No. 7794, the Revenue Code of the City of Manila (Manila Revenue Code), on June 22, 1993, approved by Mayor Alfredo S. Lim on June 29, 1993. Its original Section 21(B) imposed a 3% per annum tax on the gross receipts of, among others, transportation contractors, persons transporting passengers or freight for hire, and common carriers by land, air, or water. Shortly afterward, Ordinance No. 7807, approved on September 29, 1993, amended the Manila Revenue Code to reduce the rate to 50% of 1% per annum of gross sales or receipts of the preceding calendar year. Beginning January 1994, the City Treasurer of Manila commenced imposing and collecting the business tax under the amended provision against shipping companies, airlines, and other common carriers with principal offices in Manila.

• Nature of the Ordinance: Section 21(B) of the Manila Revenue Code, enacted on June 22, 1993 and amended by Ordinance No. 7807 on September 29, 1993, imposed a tax of 50% of 1% per annum on the gross sales or receipts of the preceding calendar year on "keepers of garages, cars for rent or hire driven by the lessee, transportation contractors, persons who transport passenger or freight for hire, and common carriers by land, air or water, except owners of bancas and owners of animal-drawn two-wheel vehicle."

• The Parties Challenging the Ordinance: The petitioners and intervenors in the consolidated cases were domestic and foreign corporations, including Malaysian Airline System (MAS); Maersk-Filipinas, Inc.; American President Lines, Ltd.; Sea-Land Services, Inc.; Overseas Freighters Shipping, Inc.; Dongnama Shipping Co., Ltd.; Kyowa Shipping, Ltd.; Flagship Tankers Corp.; Core Indo Maritime Corp.; Core Maritime Corp.; Eastern Shipping Lines, Inc.; William Lines, Inc.; Negros Navigation Co., Inc.; Lorenzo Shipping Corporation; Carlos A. Gothong Lines, Inc.; the Aboitiz Group; Solid Shipping Lines Corporation; PNOC Shipping & Transport Corporation (PSTC); Sulpicio Lines, Inc.; Cosco Container Lines; the Association of International Shipping Lines, Inc.; and numerous other foreign shipping lines. All were engaged in the transportation of passengers or freight by air, land, or water and maintained principal offices in Manila.

• Assessment and Collection of the Tax: Beginning January 1994, the City Treasurer of Manila assessed and collected the business tax under Section 21(B) from the petitioner corporations. MAS was assessed ₱1,100,000.00; PSTC was assessed ₱2,233,994.35; OFSI paid ₱181,928.97 for the first quarter of 1994; and William Lines, et al. paid under protest the taxes assessed for the first quarter of 1994. The City of Manila threatened to cancel the business permits and licenses of those that refused to pay.

• Consignation and Initial RTC Rulings: MAS tendered only the amount for mayor’s permit and regulatory fees, refused to pay the business tax, and consigned the permit fees in court while challenging the ordinance. RTC-Branch 43 declared Section 21(B) null and void. Meanwhile, multiple corporations filed their own challenges before different RTC branches, which were consolidated before RTC-Branch 32. RTC-Branch 32 initially issued a Temporary Restraining Order and later Writs of Preliminary Injunction, but in its Decision dated August 28, 1995, upheld the ordinance’s validity and dismissed the petitions.

• Post-RTC Developments: After RTC-Branch 32 lifted the injunctions, City Treasurer Acevedo issued a Memorandum dated September 7, 1995 ordering collection of the unpaid taxes plus interest. RTC-Branch 32 subsequently restored the Writs of Preliminary Injunction upon motion of Maersk, et al., subject to increased injunction bonds.

• Coca-Cola Cases: The City Legal Officer of Manila later sought to withdraw the petition in G.R. No. 120051, arguing that the issues had been rendered moot by the Court’s rulings in Coca-Cola Bottlers Philippines, Inc. v. City of Manila and City of Manila v. Coca-Cola Bottlers Philippines, Inc., which declared Section 21 of the Manila Revenue Code unconstitutional. The Court denied the motion, noting that the Coca-Cola cases invalidated subsequent amendments (Ordinance Nos. 7988 and 8011) on different grounds—failure to comply with publication requirements and deletion of an exempting proviso—and did not rule on the constitutionality of Section 21(B) as amended by Ordinance No. 7807.

The City of Manila, Mayor Lim, Vice Mayor Atienza, the Sangguniang Panlungsod, and City Treasurer Acevedo (as petitioners in G.R. No. 120051 and respondents in the other cases) maintained that Section 21(B) was constitutional and valid. RTC-Branch 32 and the Court of Appeals in CA-G.R. SP No. 39188 adopted the same position.

• Constitutional and Statutory Grant: The 1987 Constitution granted local government units the power to create their own sources of revenue and to levy taxes, fees, and charges, subject to the guidelines and limitations provided by Congress. This grant was reiterated in Sections 129 and 151 of the LGC. The power to tax was expressly delegated by Congress through the LGC.

• Section 143(h) as the Operative Exception: The exempting clause at the beginning of Section 133 of the LGC—"Unless otherwise provided herein"—recognized the power of the municipality or city under Section 143(h) to impose a tax on any business subject to excise, value-added, or percentage tax under the NIRC. Since transportation contractors and common carriers were engaged in businesses subject to such national taxes, the City of Manila lawfully imposed the local business tax under Section 21(B).

• Specific vs. General Provision: Section 133(j) was the general provision on limitations, while Section 143(h) was the specific provision on businesses that LGUs could tax. Under the rules of statutory construction, the specific provision should prevail. Construing otherwise would render Section 143(h) a hollow, decorative provision with no subject to tax.

• Compliance with Limitations: The business tax complied with all LGC conditions: the rate did not exceed 2% of gross sales or receipts; the tax was consistent with local autonomy; it was not unjust, excessive, oppressive, or confiscatory; and a prior public hearing was conducted. The ordinance also enjoyed the presumption of constitutionality and validity, which could only be overcome by overwhelming evidence to the contrary. The Court had already declared the Manila Revenue Code valid in Drilon v. Lim.

• Strict Construction Against Tax Exemptions: Taxes are the lifeblood of the nation, and tax exemptions are construed strictly against the taxpayer. The burden was on those claiming exemption to show a clear grant by organic law or statute.

MAS; Maersk, et al.; Eastern Shipping; William Lines, et al.; PSTC; OFSI; Cosco, et al.; Sulpicio Lines; AISL; and Dongnama and Kyowa (as respondents in G.R. No. 120051 and petitioners in the other cases) asserted that Section 21(B) was null and void for violating the Constitution and the LGC. RTC-Branch 43 adopted this position.

• Delegated Nature of LGU Taxing Power: The power of taxation, while inherent in the State, was not inherent in municipal corporations or LGUs. LGUs could exercise the power only to the extent delegated to them. Section 133(j) of the LGC, carried over from the Local Tax Code of 1973, expressly withheld the power to tax gross receipts of transportation businesses.

• Section 133(j) as a Special Provision: Section 133(j) was a specific prohibition that prevailed over the general "catch-all" provision of Section 143(h). This interpretation gave effect to both provisions, whereas the City’s construction would render Section 133(j) inoperative. There were many other businesses subject to national internal revenue taxes—hotels, caterers, dealers in securities, franchise holders, banks, finance companies, amusement places, etc.—that could be taxed under Section 143(h), so the provision would not be rendered useless.

• Strict Construction Against the Taxing Authority: Under Section 5(b) of the LGC, in case of doubt, any tax ordinance or revenue measure shall be construed strictly against the LGU enacting it and liberally in favor of the taxpayer. Taxes, being burdens, are not to be presumed beyond what the applicable statute expressly and clearly declares.

• Nature of the Tax as a Percentage or Sales Tax: Although denominated a "business tax," Section 21(B) in reality imposed a percentage or sales tax because it was based on gross sales or receipts with a direct ratio to the volume of business. LGUs may impose a tax on the privilege of doing business but may not impose a percentage or sales tax on top of what was already imposed by the NIRC. The additional tax was unjust, unfair, excessive, confiscatory, and in restraint of trade.

• Violation of Uniformity: Shipping companies differed from other businesses because their services extended beyond Manila’s territorial limits and involved greater risks and responsibilities. Taxing them under the same category as businesses confined within Manila violated the principle of uniformity in taxation.

• Validity of the Ordinance: Whether Section 21(B) of the Manila Revenue Code, as amended, was valid and constitutional in light of the limitations on the taxing powers of local government units under the Local Government Code, particularly Sections 133(j) and 143(h).

• Statutory Construction: Whether Section 133(j) of the LGC—prohibiting taxes on the gross receipts of transportation contractors and common carriers—prevailed over Section 143(h)—granting municipalities the power to tax businesses subject to national internal revenue taxes—or whether the latter constituted an exception to the former.

• Validity of the Ordinance: Section 21(B) of the Manila Revenue Code, as amended, was null and void for being beyond the power of the City of Manila to enact, approve, and implement under the LGC. The power to tax is inherent in the State but not in LGUs, to whom it must be delegated by Congress and exercised within the guidelines and limitations Congress may provide. Section 133(j) of the LGC "clearly and unambiguously proscribes LGUs from imposing any tax on the gross receipts of transportation contractors, persons engaged in the transportation of passengers or freight by hire, and common carriers by air, land, or water."

• Statutory Construction: Section 133(j) of the LGC prevailed over Section 143(h) of the same Code. Four independent grounds supported this conclusion:

  First, Section 133(j) is a specific provision that explicitly withholds from any LGU the power to tax the gross receipts of the enumerated businesses, while Section 143(h) is a general "catch-all" provision allowing municipalities to impose tax on any business not otherwise specified. The proviso in Section 143(h)—fixing a maximum rate of 2% for businesses subject to national internal revenue taxes—was "not a specific grant of power" but merely a rate limitation in case a business was otherwise taxable under the general provision. Under the rule generalia specialibus non derogant, the specific enactment must be operative, and the general enactment must be taken to affect only cases not within the particular enactment. Any exception to the express prohibition under Section 133(j) must be "just as specific and unambiguous."

  Second, the Court’s construction gave effect to both provisions. Despite Section 133(j), numerous other businesses subject to excise, value-added, or percentage tax under the NIRC—such as hotels, caterers, dealers in securities, franchise holders, banks, finance companies, amusement places, and others—could still be taxed under Section 143(h). The City’s proffered construction would render Section 133(j) entirely inoperative, as there would then be no instance in which the gross receipts of common carriers would not be subject to local tax.

  Third, Section 5(b) of the LGC itself mandated that in case of doubt, any tax ordinance or revenue measure shall be construed strictly against the LGU enacting it and liberally in favor of the taxpayer. Strictly assessed against the LGC’s guidelines and limitations, Section 21(B) was enacted ultra vires.

  Fourth, the construction was consistent with the consistent legislative intent, traceable from Presidential Decree No. 231 (the Local Tax Code) through the LGC, to withhold from LGUs the power to tax transportation businesses. The deliberations of the House of Representatives showed the intent was "to prevent a duplication of the so-called 'common carrier's tax'" already imposed under the NIRC. Republic Act No. 7716 (the Expanded VAT Law) later reinforced this by expressly providing that "[t]he gross receipts of common carriers derived from their incoming and outgoing freight shall not be subjected to the local taxes imposed under... the Local Government Code of 1991."

• Pending Incidents: The motion to withdraw the petition in G.R. No. 120051 was denied because the Coca-Cola cases did not adjudicate the constitutionality of Section 21(B) as amended by Ordinance No. 7807; they invalidated later amendments on different grounds. The motion for reconsideration in G.R. No. 121613 was granted and the petition reinstated because Maersk, et al. were assessed and paid docket and legal fees as computed by the clerk of court, and the deficiency of ₱202.00 for sheriff’s fee and clerk’s commission resulted from the clerk’s error—a meritorious circumstance under the Segovia doctrine. The motion for reconsideration in G.R. No. 122335 was granted because the referral to the Court of Appeals was erroneous; the petition raised pure questions of law and could properly be taken directly to the Supreme Court under Rule 42 of the old Rules of Court.

• Power of LGUs to Tax Is Delegated, Not Inherent — Municipal corporations, unlike the sovereign State, possess no inherent power of taxation. The power must be plainly conferred by charter or statute, is to be construed in strictissimi juris, and any doubt or ambiguity is resolved against the municipality. Section 5, Article X of the 1987 Constitution makes LGU taxing power "subject to such guidelines and limitations as the Congress may provide."

• Generalia Specialibus Non Derogant — A special and specific provision prevails over a general provision irrespective of their relative positions in the statute. Where a particular enactment and a general one coexist in the same statute, the particular enactment is operative, and the general enactment affects only cases not within the scope of the particular provision.

• Strict Construction of Tax Ordinances Against the LGU — Under Section 5(b) of the LGC, in case of doubt, any tax ordinance or revenue measure shall be construed strictly against the LGU enacting it and liberally in favor of the taxpayer. This reverses the usual presumption in favor of the taxing authority when the statute itself provides a rule of interpretation.

• Prohibition Against Duplicate Taxation of Common Carriers — The LGC withholds from LGUs the power to tax the gross receipts of transportation contractors and common carriers to prevent duplication of the common carrier’s tax already imposed under the NIRC. This legislative policy is reinforced by the E-VAT Law (Republic Act No. 7716), which expressly prohibits local taxes on the gross receipts of common carriers derived from incoming and outgoing freight.

• Relaxation of the Rule on Payment of Docket Fees — While payment of the full amount of appellate docket and other lawful fees within the reglementary period is mandatory and jurisdictional, the strict application of the rule may be mitigated under exceptional circumstances to better serve the interests of justice, such as when an appellant in good faith paid less than the correct amount because that was the amount assessed by the clerk of court and the deficiency was promptly paid.

• "Section 133(j) of the LGC clearly and unambiguously proscribes LGUs from imposing any tax on the gross receipts of transportation contractors, persons engaged in the transportation of passengers or freight by hire, and common carriers by air, land, or water."

• "The omnibus grant of power to municipalities and cities under Section 143(h) of the LGC cannot overcome the specific exception/exemption in Section 133(j) of the same Code. This is in accord with the rule on statutory construction that specific provisions must prevail over general ones. Generalia specialibus non derogant."

• "Any exception to the express prohibition under Section 133(j) of the LGC should be just as specific and unambiguous."

• "It is clear that the legislative intent in excluding from the taxing power of the local government unit the imposition of business tax against common carriers is to prevent a duplication of the so-called 'common carrier's tax.' Petitioner is already paying three (3%) percent common carrier's tax on its gross sales/earnings under the National Internal Revenue Code. To tax petitioner again on its gross receipts in its transportation of petroleum business would defeat the purpose of the Local Government Code."

• "The proviso of Section 143(h) of the LGC... is not a specific grant of power to the municipality or city to impose business tax on the gross sales or receipts of such a business. Rather, the proviso only fixes a maximum rate of imposable business tax in case the business taxed under Section 143(h) of the LGC happens to be subject to excise, value-added, or percentage tax under the NIRC."

• Pelizloy Realty Corporation v. The Province of Benguet, G.R. No. 183137, April 10, 2013 — Cited as controlling authority for the principle that the power to tax is inherent in the State but not in LGUs; the taxing power of LGUs must be delegated by Congress and exercised within prescribed guidelines and limitations.

• First Philippine Industrial Corp. v. Court of Appeals, 360 Phil. 852 (1998) — Followed for its ruling that common carriers are exempt from local business tax under Section 133(j) of the LGC, and for its exposition of the legislative intent to prevent duplication of the common carrier’s tax.

• Drilon v. Lim, G.R. No. 112497, August 4, 1994 — Distinguished; while the Court therein declared the Manila Revenue Code valid in terms of procedural enactment requirements, that ruling did not foreclose a challenge to the substantive validity of specific provisions under the LGC’s limitations.

• Commissioner of Customs v. Court of Tax Appeals, 232 Phil. 641 (1987) — Applied for the rule that generalia specialibus non derogant: a special and specific provision prevails over a general one irrespective of their relative positions in the statute.

• Ayala Land, Inc. v. Carpo, 399 Phil. 327 (2000) / Yambao v. Court of Appeals, 399 Phil. 712 (2000) — Applied in granting Maersk, et al.’s motion for reconsideration; the rule on payment of docket fees may be relaxed under exceptional circumstances, such as when the deficiency resulted from an error by the clerk of court and the appellant acted in good faith.

• Coca-Cola Bottlers Philippines, Inc. v. City of Manila, 526 Phil. 249 (2006) / City of Manila v. Coca-Cola Bottlers Philippines, Inc., 612 Phil. 609 (2009) — Distinguished; these cases invalidated subsequent amendments to Section 21 (Ordinance Nos. 7988 and 8011) on grounds of lack of publication and deletion of an exempting proviso, not on the substantive validity of Section 21(B) under the LGC’s common limitations.

• Section 5, Article X, 1987 Constitution — Provides that each LGU shall have the power to create its own sources of revenue and to levy taxes, fees, and charges, subject to such guidelines and limitations as Congress may provide. Cited as the constitutional basis for delegated, not inherent, LGU taxing power.

• Section 133(j), Local Government Code (R.A. No. 7160) — States that unless otherwise provided in the Code, the taxing powers of LGUs shall not extend to taxes on the gross receipts of transportation contractors and persons engaged in the transportation of passengers or freight by hire and common carriers by air, land, or water. Declared the controlling prohibition that rendered Section 21(B) of the Manila Revenue Code void.

• Section 143(h), Local Government Code — Grants municipalities the power to impose tax on any business not otherwise specified in the preceding paragraphs, with the proviso that for businesses subject to excise, value-added, or percentage tax under the NIRC, the rate shall not exceed 2% of gross sales or receipts. Held to be a general catch-all provision that could not override the specific prohibition in Section 133(j); the proviso fixed only a rate ceiling, not a substantive grant of power to tax otherwise prohibited entities.

• Section 151, Local Government Code — Extends the taxing powers of municipalities to cities. Read in conjunction with Section 143(h) to define the scope of the City of Manila’s general business taxing power.

• Section 5(b), Local Government Code — On Rules of Interpretation: in case of doubt, any tax ordinance or revenue measure shall be construed strictly against the LGU enacting it and liberally in favor of the taxpayer. Applied to resolve any ambiguity in the relationship between Sections 133(j) and 143(h) against the City of Manila.

• Section 115, National Internal Revenue Code (as amended by R.A. No. 7716) — Expressly provides that the gross receipts of common carriers derived from incoming and outgoing freight shall not be subjected to local taxes imposed under the LGC. Cited as subsequent legislation reinforcing the legislative intent to shield common carriers from duplicate local taxation.

• Rule 42, Section 2, Old Rules of Court — Allowed direct appeal from the RTC to the Supreme Court on pure questions of law. Applied in granting Sulpicio Lines’ motion for reconsideration after its petition was erroneously referred to the Court of Appeals.

Chief Justice Maria Lourdes P.A. Sereno, Associate Justice Antonio T. Carpio, Associate Justice Presbitero J. Velasco, Jr., Associate Justice Diosdado M. Peralta, Associate Justice Mariano C. Del Castillo, Associate Justice Martin S. Villarama, Jr., Associate Justice Jose Catral Mendoza, Associate Justice Bienvenido L. Reyes, Associate Justice Estela M. Perlas-Bernabe, and Associate Justice Marvic M.V.F. Leonen. Associate Justice Arturo D. Brion, Associate Justice Lucas P. Bersamin, Associate Justice Jose Portugal Perez, and Associate Justice Francis H. Jardeleza were on official leave or on leave.

N/A — The Decision was unanimous among the participating justices; no dissenting opinions were recorded.