SECOND DIVISION

[G.R. No. 90776. June 3, 1991.]

PHILIPPINE PETROLEUM CORPORATION, petitioner, vs.

MUNICIPALITY OF PILILLA, RIZAL, Represented by MAYOR
NICOMEDES F. PATENIA, respondent.

Quiason, Makalintal, Barot, Torres & Ibarra for petitioner.

SYLLABUS

1. ADMINISTRATIVE LAW; ADMINISTRATIVE REGULATIONS;

MUST BE IN HARMONY WITH THE PROVISIONS OF LAW. — Well-settled is
the rule that administrative regulations must be in harmony with the provisions of the
law. In case of discrepancy between the basic law and an implementing rule or
regulation, the former prevails (Shell Philippines, Inc. v. Central Bank of the
Philippines, 162 SCRA 628 [1988]).

2. TAXATION; TAX; TAX ON BUSINESS; DISTINCT FROM TAX ON

THE ARTICLE ITSELF. — A tax on business is distinct from a tax on the article
itself.

3. ID.; POWER TO TAX; LOCAL GOVERNMENT; ORDAINED BY

THE CONSTITUTION. — The exercise by local governments of the power to tax is
ordained by the present Constitution.

4. ID.; ID.; ID.; ID.; LIMITATION. — Under Section 5, Article X of the

1987 Constitution, only guidelines and limitations that may be established by
Congress can define and limit such power of local governments.

5. ID.; ID.; WAIVER OF TAX MAY NOT BE EXERCISED BY A

MUNICIPAL MAYOR; RATIONALE. — The trial court did not err in holding that
"since the power to tax includes the power to exempt thereof which is essentially a
legislative prerogative, it follows that a municipal mayor who is an executive officer
may not unilaterally withdraw such an expression of a policy thru the enactment of a
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 tax." The waiver partakes of the nature of an exemption. It is an ancient rule that
exemptions from taxation are construed in strictissimi juris against the taxpayer and
liberally in favor of the taxing authority (Esso Standard Eastern, Inc. v. Acting
Commissioner of Customs, 18 SCRA 488 [1966]). Tax exemptions are looked upon
with disfavor (Western Minolco Corp. v. Commissioner of Internal Revenue, 124
SCRA 121 [1983]). Thus, in the absence of a clear and express exemption from the
payment of said fees, the waiver cannot be recognized.

6. ID.; LOCAL TAX CODE; COLLECTION OF LOCAL TAXES;

PRESCRIPTIVE PERIOD PROVIDED BY THE CIVIL CODE. — However, since
the Local Tax Code does not provide the prescriptive period for collection of local
taxes, Article 1143 of the Civil Code applies. Said law provides that an action upon
an obligation created by law prescribes within ten (10) years from the time the right
of action accrues.

DECISION

PARAS, J : p

This is a petition for certiorari seeking to annul and set aside: (a) the March 17,
1989 decision *(1) of the Regional Trial Court, Branch 80, Tanay, Rizal in Civil Case
No. 057-T entitled, "Municipality of Pililla, Rizal, represented by Mayor Nicomedes
F. Patenia vs. Philippine Petroleum Corporation", (PPC for short) upholding the
legality of the taxes, fees and charges being imposed in Pililla under Municipal Tax
Ordinance No. 1 and directing the herein petitioner to pay the amount of said taxes,
fees and charges due the respondent: and (b) the November 2, 1989 resolution of the
same court denying petitioner's motion for reconsideration of the said decision. Cdpr

The undisputed facts of the case are:

Petitioner, Philippine Petroleum Corporation (PPC for short) is a business

enterprise engaged in the manufacture of lubricated oil basestock which is a
petroleum product, with its refinery plant situated at Malaya, Pililla, Rizal, conducting
its business activities within the territorial jurisdiction of the Municipality of Pililla,
Rizal and is in continuous operation up to the present (Rollo, p. 60). PPC owns and
maintains an oil refinery including forty-nine storage tanks for its petroleum products
in Malaya, Pililla, Rizal (Rollo, p. 12).
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 Under Section 142 of the National Internal Revenue Code of 1939,
manufactured oils and other fuels are subject to specific tax.

On June 28, 1973, Presidential Decree No. 231, otherwise known as the Local
Tax Code was issued by former President Ferdinand E. Marcos governing the
exercise by provinces, cities, municipalities and barrios of their taxing and other
revenue-raising powers. Sections 19 and 19 (a) thereof, provide among others, that
the municipality may impose taxes on business, except on those for which fixed taxes
are provided on manufacturers, importers or producers of any article of commerce of
whatever kind or nature, including brewers, distillers, rectifiers, repackers, and
compounders of liquors, distilled spirits and/or wines in accordance with the schedule
listed therein.

The Secretary of Finance issued Provincial Circular No. 26-73 dated December
27, 1973, directed to all provincial, city and municipal treasurers to refrain from
collecting any local tax imposed in old or new tax ordinances in the business of
manufacturing, wholesaling, retailing, or dealing in petroleum products subject to the
specific tax under the National Internal Revenue Code (Rollo, p. 76).

Likewise, Provincial Circular No. 26 A-73 dated January 9, 1973 was issued
by the Secretary of Finance instructing all City Treasurers to refrain from collecting
any local tax imposed in tax ordinances enacted before or after the effectivity of the
Local Tax Code on July 1, 1973, on the businesses of manufacturing, wholesaling,
retailing, or dealing in, petroleum products subject to the specific tax under the
National Internal Revenue Code (Rollo, p. 79).

Respondent Municipality of Pililla, Rizal, through Municipal Council

Resolution No. 25, S-1974 enacted Municipal Tax Ordinance No. 1, S-1974
otherwise known as "The Pililla Tax Code of 1974" on June 14, 1974, which took
effect on July 1, 1974 (Rollo, pp. 181-182). Sections 9 and 10 of the said ordinance
imposed a tax on business, except for those for which fixed taxes are provided in the
Local Tax Code on manufacturers, importers, or producers of any article of commerce
of whatever kind or nature, including brewers, distillers, rectifiers, repackers, and
compounders of liquors, distilled spirits and/or wines in accordance with the schedule
found in the Local Tax Code, as well as mayor's permit, sanitary inspection fee and
storage permit fee for flammable, combustible or explosive substances (Rollo, pp.
183-187), while Section 139 of the disputed ordinance imposed surcharges and
interests on unpaid taxes, fees or charges (Ibid., p. 193).

On March 30, 1974, Presidential Decree No. 426 was issued amending certain
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 provisions of P.D 231 but retaining Sections 19 and 19 (a) with adjusted rates and
22(b).

On April 13, 1974, P.D 436 was promulgated increasing the specific tax on
lubricating oils, gasoline, bunker fuel oil, diesel fuel oil and other similar petroleum
products levied under Sections 142, 144 and 145 of the National Internal Revenue
Code, as amended, and granting provinces, cities and municipalities certain shares in
the specific tax on such products in lieu of local taxes imposed on petroleum
products. cdphil

The questioned Municipal Tax Ordinance No. 1 was reviewed and approved
by the Provincial Treasurer of Rizal on January 13, 1975 (Rollo, p. 143), but was not
implemented and/or enforced by the Municipality of Pililla because of its having been
suspended up to now in view of Provincial Circular Nos. 26-73 and 26 A-73.

Provincial Circular No. 6-77 dated March 13, 1977 was also issued directing
all city and municipal treasurers to refrain from collecting the so-called storage fee on
flammable or combustible materials imposed under the local tax ordinance of their
respective locality, said fee partaking of the nature of a strictly revenue measure or
service charge.

On June 3, 1977, P.D. 1158 otherwise known as the National Internal Revenue
Code of 1977 was enacted, Section 153 of which specifically imposes specific tax on
refined and manufactured mineral oils and motor fuels.

Enforcing the provisions of the above-mentioned ordinance, the respondent

filed a complaint on April 4, 1986 docketed as Civil Case No. 057-T against PPC for
the collection of the business tax from 1979 to 1986; storage permit fees from 1975 to
1986; mayor's permit and sanitary inspection fees from 1975 to 1984 PPC, however,
have already paid the last-named fees starting 1985 (Rollo, p. 74).

After PPC filed its answer, a pre-trial conference was held on August 24, 1988
where the parties thru their respective counsel, after coming up with certain
admissions and stipulations agreed to the submission of the case for decision based on
documentary evidence offered with their respective comments (Rollo, p. 41). prLL

On March 17, 1987, the trial court rendered a decision against the petitioner,
the dispositive part of which reads as follows:

"WHEREFORE, premises considered, this Court hereby renders

judgment in favor of the plaintiffs as against the defendants thereby directing
the defendants to 1) pay the plaintiffs the amount of P5,301,385.00 representing
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 the Tax on Business due from the defendants under Sec. 9 (A) of the Municipal
Tax Ordinance of the plaintiffs for the period from 1979 to 1983 inclusive plus
such amount of tax that may accrue until final determination of case; 2) to pay
storage permit fee in the amount of P3,321,730.00 due from the defendants
under Sec. 10, par. z (13) (b) (1-c) of the Municipal Tax Ordinance of the
plaintiffs for the period from 1975 to 1936 inclusive plus such amount of fee
that may accrue until final determination of case; 3) to pay Mayor's Permit Fee
due from the defendants under Sec. 10, par. (P)(2) of the Municipal Tax
Ordinance of the plaintiffs from 1975 to 1984 inclusive in the amount of
P12,120.00 plus such amount of fee that may accrue until final determination of
the case; and 4) to pay sanitary inspection fee in the amount of P1,010.00 for the
period from 1975 to 1984 plus such amount that may accrue until final
determination of case and 5) to pay the costs of suit. cdasia

SO ORDERED." (Rollo, pp. 49-50)

PPC moved for reconsideration of the decision, but this was denied by the
lower court in a resolution of November 2, 1989, hence, the instant petition.

The Court resolved to give due course to the petition and required both parties
to submit simultaneous memoranda (June 21, 1990 Resolution; Rollo, p. 305).

PPC assigns the following alleged errors:

1. THE RTC ERRED IN ORDERING THE PAYMENT OF THE

BUSINESS TAX UNDER SECTION 9 (A) OF THE TAX ORDINANCE IN
THE LIGHT OF PROVINCIAL CIRCULARS NOS. 26-73 AND 26 A-73;

2. THE RTC ERRED IN HOLDING THAT PETITIONER WAS

LIABLE FOR THE PAYMENT OF STORAGE PERMIT FEE UNDER
SECTION 10 Z (13) (b) (1-c) OF THE TAX ORDINANCE CONSIDERING
THE ISSUANCE OF PROVINCIAL CIRCULAR NO. 6-77;

3. THE RTC ERRED IN FAILING TO HOLD THAT

RESPONDENTS COMPUTATION OF TAX LIABILITY HAS
ABSOLUTELY NO BASIS;

4. THE RTC ERRED IN ORDERING THE PAYMENT OF

MAYOR'S PERMIT AND SANITARY INSPECTION FEES CONSIDERING
THAT THE SAME HAS BEEN VALIDLY AND LEGALLY WAIVED BY
THE MAYOR;

5. THE RTC ERRED IN FAILING TO HOLD THAT THE TAXES

AND DUTIES NOT COLLECTED FROM PETITIONER PRIOR TO THE
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 FIVE (5) YEAR PERIOD FROM THE FILING OF THIS CASE ON APRIL 4,
1986 HAS ALREADY PRESCRIBED.

The crucial issue in this case is whether or not petitioner PPC whose oil
products are subject to specific tax under the NIRC, is still liable to pay (a) tax on
business and (b) storage fees, considering Provincial Circular No. 6-77; and mayor's
permit and sanitary inspection fee unto the respondent Municipality of Pililla, Rizal,
based on Municipal Ordinance No. 1. Cdpr

Petitioner PPC contends that: (a) Provincial Circular No. 26-73 declared as
contrary to national economic policy the imposition of local taxes on the manufacture
of petroleum products as they are already subject to specific tax under the National
Internal Revenue Code; (b) the above declaration covers not only old tax ordinances
but new ones, as well as those which may be enacted in the future; (c) both Provincial
Circulars (PC) 26-73 and 26 A-73 are still effective, hence, unless and until revoked,
any effort on the part of the respondent to collect the suspended tax on business from
the petitioner would be illegal and unauthorized; and (d) Section 2 of P.D. 436
prohibits the imposition of local taxes on petroleum products.

PC No. 26-73 and PC No. 26 A-73 suspended the effectivity of local tax
ordinances imposing a tax on business under Section 19 (a) of the Local Tax Code
(P.D. No. 231), with regard to manufacturers, retailers, wholesalers or dealers in
petroleum products subject to the specific tax under the National Internal Revenue
Code (NIRC), in view of Section 22 (b) of the Code regarding non-imposition by
municipalities of taxes on articles, subject to specific tax under the provisions of the
NIRC.

There is no question that Pililla's Municipal Tax Ordinance No. 1 imposing the
assailed taxes, fees and charges is valid especially Section 9 (A) which according to
the trial court "was lifted in toto and/or is a literal reproduction of Section 19 (a) of
the Local Tax Code as amended by P.D. No. 426." It conforms with the mandate of
said law.

But P.D. No. 426 amending the Local Tax Code is deemed to have repealed
Provincial Circular Nos. 26-73 and 26 A-73 issued by the Secretary of Finance when
Sections 19 and 19 (a), were carried over into P.D. No. 426 and no exemptions were
given to manufacturers, wholesalers, retailers, or dealers in petroleum products. LexLib

Well-settled is the rule that administrative regulations must be in harmony with

the provisions of the law. In case of discrepancy between the basic law and an
implementing rule or regulation, the former prevails (Shell Philippines, Inc. v. Central
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 Bank of the Philippines, 162 SCRA 628 [1988]).As aptly held by the court a quo:

"Necessarily, there could not be any other logical conclusion than that
the framers of P.D. No. 426 really and actually intended to terminate the
effectivity and/or enforceability of Provincial Circulars Nos. 26-73 and 26 A-73
inasmuch as clearly these circulars are in contravention with Sec. 19 (a) of P.D.
426 — the amendatory law to P.D. No. 231. That intention to terminate is very
apparent and in fact it is expressed in clear and unequivocal terms in the
effectivity and repealing clause of P.D. 426 . . . ."

Furthermore, while Section 2 of P.D. 436 prohibits the imposition of local

taxes on petroleum products, said decree did not amend Sections 19 and 19 (a) of P.D.
231 as amended by P.D. 426, wherein the municipality is granted the right to levy
taxes on business of manufacturers, importers, producers of any article of commerce
of whatever kind or nature. A tax on business is distinct from a tax on the article
itself. Thus, if the imposition of tax on business of manufacturers, etc. in petroleum
products contravenes a declared national policy, it should have been expressly stated
in P.D. No. 436. LLphil

The exercise by local governments of the power to tax is ordained by the

present Constitution. To allow the continuous effectivity of the prohibition set forth in
PC No. 26-73 (1) would be tantamount to restricting their power to tax by mere
administrative issuances. Under Section 5, Article X of the 1987 Constitution, only
guidelines and limitations that may be established by Congress can define and limit
such power of local governments. Thus:

"Each local government unit shall have the power to create its own
sources of revenues and to levy taxes, fees, and charges subject to such
guidelines and limitations as the Congress may provide, consistent with the
basic policy of local autonomy . . . ."

Provincial Circular No. 6-77 enjoining all city and municipal treasurers to
refrain from collecting the so-called storage fee on flammable or combustible
materials imposed in the local tax ordinance of their respective locality frees
petitioner PPC from the payment of storage permit fee.

The storage permit fee being imposed by Pililla's tax ordinance is a fee for the
installation and keeping in storage of any flammable, combustible or explosive
substances. Inasmuch as said storage makes use of tanks owned not by the
municipality of Pililla, but by petitioner PPC, same is obviously not a charge for any
service rendered by the municipality as what is envisioned in Section 37 of the same
Code.
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 Section 10 (z) (13) of Pililla's Municipal Tax Ordinance No. 1 prescribing a
permit fee is a permit fee allowed under Section 36 of the amended Code.

As to the authority of the mayor to waive payment of the mayor's permit and
sanitary inspection fees, the trial court did not err in holding that "since the power to
tax includes the power to exempt thereof which is essentially a legislative prerogative,
it follows that a municipal mayor who is an executive officer may not unilaterally
withdraw such an expression of a policy thru the enactment of a tax." The waiver
partakes of the nature of an exemption. It is an ancient rule that exemptions from
taxation are construed in strictissimi juris against the taxpayer and liberally in favor
of the taxing authority (Esso Standard Eastern, Inc. v. Acting Commissioner of
Customs, 18 SCRA 488 [1966]). Tax exemptions are looked upon with disfavor
(Western Minolco Corp. v. Commissioner of Internal Revenue, 124 SCRA 121
[1983]). Thus, in the absence of a clear and express exemption from the payment of
said fees, the waiver cannot be recognized. As already stated, it is the law-making
body, and not an executive like the mayor, who can make an exemption. Under
Section 36 of the Code, a permit fee like the mayor's permit, shall be required before
any individual or juridical entity shall engage in any business or occupation under the
provisions of the Code. LLphil

However, since the Local Tax Code does not provide the prescriptive period
for collection of local taxes, Article 1143 of the Civil Code applies. Said law provides
that an action upon an obligation created by law prescribes within ten (10) years from
the time the right of action accrues. The Municipality of Pililla can therefore enforce
the collection of the tax on business of petitioner PPC due from 1976 to 1986, and
NOT the tax that had accrued prior to 1976.

PREMISES CONSIDERED, with the MODIFICATION that business taxes

accruing PRIOR to 1976 are not to be paid by PPC (because the same have
prescribed) and that storage fees are not also to be paid by PPC (for the storage tanks
are owned by PPC and not by the municipality, and therefore cannot be a charge for
service by the municipality), the assailed DECISION is hereby AFFIRMED.

SO ORDERED.

Melencio-Herrera, Padilla and Regalado, JJ., concur.

Sarmiento, J., is on leave.

Footnotes

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 * Penned by Judge Felipe Almazan.

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 Endnotes

1 (Popup - Popup)
* Penned by Judge Felipe Almazan.

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