REPUBLIC OF THE PHILIPPINES

COURT OF TAX APPEALS

QUEZON CITY

SECOND DIVISION

PILIPINAS SHELL PETROLEUM C.T.A. AC NO. 10

CORPORATION,
Petitioner, Members :

- versus - CASTANEDA, Chairperson

UY, and
PALANCA-ENRIQUEZ,JJ

BAT AN GAS CITY, BENJAMIN E.

PARGAS in his capacity as CITY
TREASURER and TEODULFO A. Promu lg?ted :
DEGUITO in his capacity as CITY JUN 2 1 2007 /
LEGAL OFFICER OF BAT AN GAS ·/
CITY, ~
Respondents.
X- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -- X

DECISION

CASTANEDA, JR., J_:

STATEMENT OF THE CASE

This is a Petition for Review fil ed before this Court on April 27, 2005,

seeki ng t he cancellation of the assessed business taxes on petitioner's

manufacture and distribution of petroleum products for the taxable year 2002

in the amounts of NINETY TWO MILLION THREE HUNDRED SEVENTY

THREE THOUSAND SEVEN HUNDRED TWENTY AND 60/100 PESOS

(P92,373,720.60) and THREE HUNDRED TWELVE MILLION SIX ?v-

·' /l .,
..t.«t C:
 DECISION
CTA A.C. NO. 10
Page 2 of 27

HUNDRED FIFTY SIX THOUSAND TWO HUNDRED FIFTY THREE AND

04/100 PESOS (P312,656,253.04), respectively. It is further prayed

that:

a. Batangas City be declared as legally proscribed from

imposing business taxes on the manufacture and distribution
of petroleum products;

b. The Regional Trial Court of Batangas City, Branch 2, under

Judge Mario V. Lopez, be directed to issue a writ of
execution to execute the assailed Decision, insofar as it
declared the invalidity of the Mayor's Permit Fees based on
the gross receipts of petitioner and ordering respondents to
refund to petitioner the amount of P4,299,851.00;

c. Respondents be permanently enjoined from implementing

Section 23 of the Batangas Revenue Code as against
petitioner; and

d. Section 23 of the Batangas City Tax Code of 2002 be

declared null and void insofar as it imposes taxes on the
manufacture, refining, distribution, marketing and sale of
petroleum products.

STATEMENT OF THE FACTS

The facts as culled from the records of the case are as follows:

Petitioner, Pilipinas Shell Petroleum Corporation (PSPC), operates an oil

refinery and depot in Tabangao, Batangas City, which manufactures and

produces petroleum products that are distributed nationwide.

On the other hand, respondent Batangas City is a local government

unit (LGU) with the capacity to sue and be sued under its Charter and Section

22(a)(2) of the Local Government Code (LGC) of 1991. Respondents

Teodulfo A. Deguito and Benjamin E. Pargas are the City Legal Officer and ~
 DECISION
erA A.C. NO. 10
Page 3 of 27

City Treasurer, respectively, of Batangas City 1.

During the years that the PSPC was operating, particularly in 2002, it

was only paying the amount of P98,964.71 for fees and other charges which

include the amount of P1,180.34 as Mayor's Permit Fee. On February 20,

2002, respondent, Batangas City, through its City Legal Officer, sent a notice

of assessment to petitioner demanding the payment of P92,373,720.50 and

P312,656,253.04 as business taxes for its manufacture and distribution of

petroleum products. In addition, PSPC was also required and assessed to pay

the amount of P4,299,851.00 as Mayor's Permit Fee based on the gross sales

of its Tabangao Refinery 2 . The assessment was pursuant to Section 143(h) of

the Local Government Code of 1991 and Section 23 of its Batangas City Tax

Code of 2002.

On the belief that respondents have no authority to impose the subject

taxes and fees, petitioner filed its protest on April 17, 2002 contending among

others that it is not liable for the payment of the local business tax either as

manufacturer or distributor of petroleum products. It further argued that the

Mayor's Permit Fees are exorbitant, confiscatory, arbitrary, unreasonable and

not commensurate with the cost of issuing a license.

On May 13, 2002, respondents denied petitioner's protest and declared

that under Section 14 of the Batangas City Tax Code of 2002, they are

empowered to withhold the issuance of the Mayor's Permit for failure of

petitioner to pay the business taxes on its manufacture and distribution of ~

Petition for Revi ew, Records, page 6.

Decision, Ann ex "A", Records, pages 73-74 .
 DECISION
CfA A.C. NO. 10
Page 4 of 27

petroleum products.

Aggrieved by the decision of respondents, on June 17, 2002, petitioner

then filed a Petition for Review 3 under Section 195 of the Local Government

Code of 1991 before the Regional Trial Court (RTC) of Batangas City

appealing the denial by respondents of its protest.

In its Petition for Review, petitioner maintained that respondents have

no authority to impose the said taxes and fees, and argued that the levy of

local business taxes on the business of manufacturing and distributing

gasoline and other petroleum products is contrary to law and against declared

national policy. Assuming however that respondents have the power to levy

local business taxes on the business of manufacturing and distributing

gasoline and other petroleum products, the computation of petitioner's tax

liability is erroneous. Also, the Mayor's Permit Fees levied by respondents

were challenged for being unreasonable and confiscatory. 4

In his Answer, respondents contended that the City of Batangas can

legally impose the taxes on the business of manufacturing and distribution of

petroleum products, including the Mayor's Permit Fees upon petitioner.

After the preliminary conference, trial, and presentation of witnesses,

both parties were directed to submit their respective Memorandum . The

lower court then summarized the issues 5 raised during the course of the trial

and presented in petitioner's Memorandum, thus:

a. Whether the Batangas City Tax Code of 2002 imposing

Petition for Review, Annex " F", Records, pages 127- 145.
Decision, Annex " A", Records, page 74 .
Supra, pages 76-77.
 DECISION
CTA A.C. NO. 10
Page 5 of 27

business taxes in the form of distributor and

manufacturer on Pilipinas Shell Petroleum Corporation
contravenes the law, public policy and pertinent rules and
regulations; and

b. Whether or not the business tax and mayor's permit fee

imposed by the Batangas City Tax Code based on the
gross receipts are excessive, oppressive and
unreasonable.

The lower court deemed the issue of estoppel, raised by respondent,

inapplicable and declared that petitioner merely exercised its right to the

remedy provided for under Section 195 of the Local Government Code of

1991 6 .

During the pendency of the case, petitioner paid under protest the

Mayor's Permit Fees for the year 2003 amounting to P774,840.50 as

manufacturer and P3,525,010.50 as distributor. When petitioner applied for

the issuance of the Mayor's Permit in 2004, it offered the amount of

P150,000.00 as compromise Mayor's Permit Fee without prejudice to the

outcome of the case then pending, which was rejected by respondent.

In the assailed Decision of RTC Branch II of Batangas City, penned by

Judge Mario V. Lopez, petitioner's appeal was partially granted and the said

court a quo declared that:

"WHEREFORE, in view of tl1e foregoing premises, this Court hereby

renders judgment as follows:

1. The taxes on the privilege of engaging in the

business of manufacturing, distribution or dealing
in petroleum products in the amount of
P92,373,750.50 and P312,656,253.04,
respectively, imposed by Batangas City on
Pilipinas Shell, is VALID.

Supra, page 77.

DECISION
CfA A.C. NO. 10
Page 6 of 27

2. Declaring the Mayor's Permit Fee in the amount

of P4,299,851.00 based on gross receipts/sales as
grossly excessive and unreasonable considering
the aforesaid business taxes.

ACCORDINGlY, THE PETITIONER, PILIPINAS SHELl PETROlEUM

CORPORATION (PSPC), IS HEREBY ORDERED TO PAY THE AMOUNT OF
PHP405,030,003.54 AS TAX ON ITS BUSINESS OF ENGAGING IN THE
MANUFACTURE AND DISTRIBUTION OF PETROlEUM PRODUCTS, WHilE
THE ASSESSMENT OF PHP4,299,851.00 AS MAYOR'S PERMIT FEE IS
HEREBY ORDERED REVOKED WITHOUT PREJUDICE TO ITS
MODIFICATION BY THE RESPONDENTS, BATANGAS CITY, ET Al.

SO ORDERED."

Unsatisfied with the Decision of the lower court, petitioner filed a

"Motion for Partial Reconsideration" which raised the following grounds :

1. This Honorable Court committed a reversible error in

interpreting Section 133(h) of the Local Government
Code to mean that excise taxes may be imposed only on
articles or products and not on the privilege of
performing an act, engaging in an occupation or enjoying
a privilege.

2. Assuming arguendo that Batangas City is legally

empowered to impose and collect business taxes from
PSPC, this Honorable Court committed reversible error in
ordering PSPC to pay the amounts of Php92,373,720.60
and Php312,656,253.04 and thereby effectively deprive
PSPC of the right to question the correct amount of its
tax liability.

3. This Honorable Court committed a reversible error in

holding that PSPC may be subjected to both
manufacturer's and distributor's taxes.

4. This Honorable Court committed a reversible error in

holding that the principle on strict interpretation of
exemption from taxation is the paramount rule applicable
in this case.

5. This Honorable Court committed reversible error in

declaring Article 232 (h) of the Implementing Rules and a __.-
Regulations of the LGC void. t:' . . . . .-
 DECISION
UA A.C. NO. 10
Page 7 of 27

Before the issues could be resolved, petitioner filed a " Manifestation

and Motion for Partial Execution" to which respondents filed a "Counter-

Manifestation and Opposition to the Motion for Partial Execution of Decision".

On February 2, 2005, petitioner filed another " Manifestation and Motion"

praying for th e refund of the Mayor's Permit Fees it paid for the ta xable year

2003 in the amount of P4,299,851.00.

In th e Resolution of the lower court 7 , petitioner's Motions were denied

for lack of merit.

Hence, this "Petition for Review with Extremely Urgent Application for a

Temporary Restraining Order and/or a Writ of Preliminary Injunction " filed on

April 27, 2005.

Respondent filed its "Comment" on July 6, 2005.

Petitioner filed its " Reply (to Respondents' June 21, 2005 Comments

on the Petition for Review) " on the August 3, 2005.

Consid ering the urgency of the resolution of petitioner's Application for

the Issuance of a Writ of Preliminary Injunction, on August 11, 2005, this

Court granted the said application and ordered respondents to hold in

abeyance the collection of the qu~stioned manufa cturer and distributor's

taxes in the amounts of P92,373, 720.50 and P31 2,656,253 .04, respectively,

conditioned upon the filing by petitioner of a surety bond in the amount of

PSOO,OOO,OOO .OO taken from a bonding company duly accredited by the

Supreme Cou rt. ~

Annex "B", Records, pages 96-117.

DECISION
CTA A.C. NO. 10
Page 8 of 27

On August 30, 2005, petitioner filed its "Compliance" with the Court's

Resolution of August 11, 2005, submitting the required surety bond issued by

Malayan Insurance Co., Inc. However, in a Resolution dated September 13,

2005, this Court resolved to disapprove petitioner's surety bond for failure of

petitioner to submit a Certificate containing the specimen signatures of the

agents authorized to transact business with the Court as required under the

Guidelines on Corporate Surety Bonds issued by the Supreme Court8 .

A "Motion for Reconsideration" was filed by petitioner on October 7,

2005. Finding merit in petitioner's manifestations, this Court, through a

Resolution dated February 20, 2006, granted the said Motion, thus, lifted and

set aside the earlier Resolution of September 13, 2005.

Upon the parties' filing of their Memoranda, this case was submitted

for decision on July 5, 2006 9 .

THE ISSUES

1. Whether or not Respondents, in line with the

existing national policy on petroleum products,
may validly impose and collect from PSPC, taxes
on the business of manufacturing and/or
distribution of petroleum products.

2. Assuming arguendo that Respondents have the

power to impose and collect taxes on the business
of manufacturing and distribution of petroleum
products, whether or not Respondents correctly
assessed PSPC's tax liability in that:

2.a Respondents computed PSPC's tax

liability based on the sales/receipts of
PSPC consummated beyond
Respondent's taxing jurisdiction. ~
------~------------
A.M . No . 04-7-02-SC.
Resolution, July 5, 2006, Records, page 719 .
 DECISION
CfA A.C. NO. 10
Page 9 of 27

2.b Respondents imposed both

manufacturers' and distributors' tax
on PSPC.

3. Whether or not the Mayor's Permit Fees in the

amount of Php4,299,851.00, which the RTC found
to be "grossly excessive and unreasonable" may
already be refunded to PSPC.

4. Whether or not the closure and/or suspension of

the operations of the Tabangao Refinery of PSPC
would serve the welfare of the consuming public
and the interest of the greater number.

THE ARGUMENTS

In their "Comments on the Petition for Review" 10 filed on July 6, 2005,

respondents raised the following arguments, to quote:

1. Petitioners (supposed to be Respondents) does (sic) not

accept the statement of facts stated in the Petition;

2. The Petition should not be given due course for the

following reasons:

a. The Petition for Review did not follow basic rules

of procedure.

b. The Regional Trial Court of Batangas City,

Branch II did not commit any reversible error
when it ruled that:

1. Respondents may validly impose and

collect from Petitioner taxes on the
business of manufacturing and
distribution of petroleum products;

2. Sections 130 and 133 (h) of the Local

Government Code do not exempt
Petitioner from business taxes;

3. The Petitioner is liable to both ~

10
Records, pages 404-431.

A ~ .1
DECISION
CTA A.C. NO. 10
Page 10 of 27

manufacturer's tax and distributor's

tax imposed by the Respondents;

4. The Petitioner, by reason of its plant

in Barangay Ambulong, is liable for
taxes on its business as
manufacturer and distributor in
Batangas City under Section 150 of
the Local Government Code;

5. In denying the motion for partial

execution of the decision for lack of
merit, the reason being that the
principal action is only one for
declaratory relief.

c. Petitioner has no right to a temporary restraining

order or a writ of preliminary injunction.

Petitioner's "Reply (to Respondents' June 21, 2005 Comments on the

Petition for Review)" was filed on the August 3, 2005, interposing the

following objections, to wit:

1. The imposition of and attempts by Respondents to collect

the local business taxes from PSPC is violative of the law
and existing national policy on the petroleum industry;

2. The LGC itself and its IRR provide for the clear and
unequivocal exemption of PSPC from the disputed local
taxes;

3. Respondents have not shown any legal basis or authority

which sanctions a collateral attack upon Article 232(h) for
the purpose of having it declared void;

4. Sections 143(a) and 143(b) of the LGC do not apply to

PSPC;

5. Laws imposing taxes are strictly construed against the

taxing authority;

6. It was clear error for the court a quo to have passed

upon the correctness of the amounts of local business ~
 DECISION
CTA A.C. NO. 10
Page 11 of 27

taxes being collected by Respondents from PSPC when it

was not put at issue by the pa rties; and

7. The Assailed Decision with respect to the issue on

Mayor's Permit Fees has become final and executory and
thus, PSPC is entitled to execution thereof.

On September 1, 2005, respondents filed their "Rejoinder to

Petitioner's Reply dated August 2, 2005" filed through registered mail on

August 22, 2005, highlighting the following points, thus:

1. Petitioner is liable for manufacturer's tax regardless of

whether or not sales transactions are made in its Refinery
in Batangas City;

2. Article 232(h) of the IRR cannot prevail over the

provisions of Section 143(h) of the Local Government
Code;

3. The tax subject of this case is a business tax, not an

excise tax;

4. The issuance of a Mayor's Permit can not be compelled

by the Petitioner; and

5. Rules are made to be followed, not to be broken.

At the outset, petitioner submits that Article 232(h) of the

Implementing Rules and Regulations (IRR) of the LGC, which was formulated

and drafted by the Oversight Committee, 11 clearly provides that local

government units have no power and/or authority to impose local tax on the

production, manufacture, refinery, distribution and sale of petroleum

products. For expediency: ~

11
Sec. 533, Local Government Code of 1991.
DECISION
CfA A.C. NO. 10
Page 12 of 27

"Artic le 232 . Tax on Business xxx

(h) On any business, not otherwise specified in the preceding paragraphs

which the sanggunian concerned may deem proper to tax provided that on
any business subj ect to the excise, value-added or percentage tax under the
NIRC, as amended, the rate of tax shall not exceed two percent (2% ) of
gross sales or receipts of the preceding calendar yea r, and provided further
that in line with the existing national policy, any business engaged
in the production, manufacture, refining, distribution or sale of oil,
gasoline and other petroleum products shall not be subject to any
local t ax imposed under this provision." (Emphasis supplied)

Based on petitioner's brief illustration of how Article 232(h) ca me into

existence, the said Article was formu lated and drafted to give meaning and

substance to Section 133(h) of the Loca l Government Code, which provides:

"Sec. 133 Common limitations on the Taxing Powers of the local

Government Units. - Unless otherwise provided herein, the exercise of the
taxing powers of provinces, cities, municipali ties, and barangays shall not
extend to the levy of the following:

XXX

(h) Excise taxes on article enumerated under the National Internal Revenue
Code, as amended, and taxes, fees or charges on petroleum products; xxx"

Hence, petitioner contends that the lower court's conclusion that the

Oversight Committee "exceeded its authority" in drafting Article 232(h) of the

I RR is without any basis. It is the opinion of petitioner that this conclusion

suggests that the Oversight Committee is totally ignorant of the law.

Petitioner asserts that the lower court conveniently forgot the fact that the

Oversight Committee is comprised of several members of Congress which

enacted the LGC of 1991. Indeed, in the exercise of the power vested on it

by Section 533 of the LGC, the Oversight Committee adopted Article 232(h)

specifica lly to clarify the tax exemption provided under Section 133(h) of the

LGC. In the same vein, the Oversight Committee could not have been

unmindful of the legislative policy and purpose in rega rd to the mandate of r-

 DECISION
CTA A.C. NO. 10
Page 13 of 27

Section 133(h) precisely because several of its members are from the

Legislature which drafted and approved the LGC 12 . The lower court's

disregard of Article 232(h) of the IRR effectively renders the same invalid,

violating the legal principle that the validity of a rule or regulation can only be

assailed through a direct action and not through a collateral attack. 13

Citing the cases of San Miguel Brewery vs. Magno 14 and Lorenzo

Shipping Corporation vs. The Honorable Court of Appeals and

Filipinas Port Services, Inc., 15 petitioner further emphasizes the settled

rule that regulations issued by administrative bodies pursuant to a valid

delegation of legislative power, such as the IRR drafted and enacted by the

Oversight Committee, have the binding force and effect of law. Its provisions

are entitled to great respect, and have in their favor the presumption of

legality. Thus, the implementing rules and regulations enacted pursuant to a

va lid delegation of power have the binding force of law as if enacted by the

Legislature itself16 . More so, petitioner argues that as enunciated in the

consolidated cases of Tatad vs. The Secretary of the Department of

Energy, et al., and Lagman, et al. vs. Executive Secretary, et al. 1 ~ Mr.

Justice Ricardo J . Francisco reminded the judiciary of their role in a

democratic society in this manner ~ "Perhaps it bears reiterating that the

question of validity of every statute is first determined by the legislative

department of the government, and the courts will resolve every presumption ~

12
Memora ndum for the Petitioner, Records, pages 640-641 .
13
Memorandum for the Petitioner, Records, page 64 1.
14
G. R. No. L- 21879, September 29, 1967 (21 SCRA 292) .
15
G.R. No. L79644, May 11 , 1988 (1 61 SCRA 319) .
16
Memorandum fo r the Petitioner, Records, pages 644 -645 .
17
G.R. Nos. 124360 and 127867, November 5, 1997 (281 SCRA 330).
 DECISION
CTA A.C. NO. 10
Page 14 of 27

in favor of its validity. The courts will assume that the validity of the statute

was fully considered by the legislature when adopted. xxx". Therefore,

instead of blatantly disregarding Article 23 2(h) of the IRR, the lower court

should have seen to its harmonization with Sections 133(h) and 143(h) of the

LGC, the laws it is intended to implement.

On the main issue laid down for consideration, petitioner contends that

respondent's imposition of the local business tax upon petitioner contravenes

the declared national policy of the petroleum industry, the Local Government

Code of 1991 and its Implementing Rules and Regulations, and pertinent

rulings of the Department of Justice (DOJ) and of the Department of Finance

(DOF), which all prohibit the imposition of local taxes on the business of

manufacturing and/or distribution of petroleum products and on the products

themselves.18

Quoting the provisions of the Local Government Code of 1991, more

particularly, Section 133(h), petitioner insists that LGU's have no authority to

levy any excise tax on the products enumerated under the National Internal

Revenue Code of 1997, and among the products enumerated under the said

Code are petro leum products. Accordingly, from the definition of the term

"excise tax", there is no doubt that the business tax being levied by

respondents upon petitioner for the privilege of engaging in the business of

manufacturing, distribution or dealing in petroleum products is an excise tax.

Hence, under the first limitation provided for in the said Section of the LGC, ~

18 Memora ndum for Petitioner, Records, page 439.

 DECISION
CTA A. C. NO. 10
Page 15 of 27

respondent Batangas City cannot legally levy the subject taxes on petitioner.

Further, under the second limitation of Section 133(h) of the LGC,

respondent allegedly cannot impose any tax, fees, or charges on petroleum

products. Petitioner reasons that the said limitation cannot be construed as

referring only to petroleum products per se, otherwise the said Section would

be meaningless because most of the taxable events happen when a

transaction, such as manufacturing, distribution, dealing or selling of an

article of commerce or a product, occurs. Thus, this second limitation does

not only refer to taxes, charges or fees on the petroleum products per se, but

to any business or transaction dealing with petroleum products. The

differentiation is more apparent than real, for while the incidence of the tax is

upon the petroleum products, i.e., when they come into existence, what is
actually being taxed is the privilege of manufacturing or producing them .

Petitioner also claims that the "existing national policy" as enunciated

in Section 2 of Republic Act No. 6173 19, which, among others, underscores

the fact that "petroleum and its products" are "vital to national security" and

that "their continued supply at reasonable prices" are "essential to the general

welfare". And to levy a business tax on the manufacture and distribution of

petroleum products runs afoul of the declared national policy on the

petroleum industry. Moreover, petitioner relies on the other provisions of/}<--

19
An Act Declaring a National Policy on the Petroleum Industry Regulating the Activities and
Relations of Persons and Entities engaged therein, Establishing an Oil Industry Commission to
Effectuate the same, Defining its Functions, Powers and Objectives, and other Purposes, April
30, 1971.
 DECISION
CfA A.C. NO. 10
Page 16 of 27

Republic Act Nos. 8479 20 and 7638 21 . To further support its arguments,

petitioner likewise presented the affidavit of Atty. Florecita P. Flores. 22

On the other hand, respondents vehemently argue that Section 129 of

the LGC provides that each LGU shall exercise its power to create its own

source of revenue and to levy taxes, fees and charges subject to the

provisions of the LGC, consistent with the basic policy of local autonomy. A

close examination of Sections 143 and 143(h) clearly shows that the law does

not provide for any exemption, when it states that businesses engaged in the

manufacture and distribution of any article of commerce of whatever kind and

nature and already subject to excise tax, value-added or percentage tax

under the NIRC, as amended, are liable for business taxes thereunder,

subject to the limitation that the same shall not exceed two percent (2%) of

the gross sales or receipt of the preceding calendar year. Yet, when Article

232(h) of the Implementing Rules and Regulations was written to implement

the aforementioned Sections, the Oversight Committee exceeded its authority

and discretion when it granted tax exemptions where none was given.

Despite the lengthy and wordy discussion on the alleged national policy

supposedly exempting petitioner from the payment of business taxes,

petitioner had miserably failed to point to any organic law which clearly and

unequivocally exempts it from local ta xation . ~

20 An Act Deregulating the Downstream Oil Industry, and for Other Purposes.
21 An Act Creating the Department of Energy, Rationalizing the Organization and Functions of
Government Agencies Related to Energy, and for Other Purposes, December 9, 1992.
22 Annex "V", Petition for Review, Records, pages 264-294 .
 DECISION
CTA A.C. NO. 10
Page 17 of 27

THIS COURT'S RULING

We grant the petition .

Petitioner is Not Subject to the

Business Taxes on the Manufacture
and Distribution of Petroleum Products

The court a quo is not correct in ruling that petitioner is subject to the

business taxes on the manufacture and distribution of petroleum products.

The mandate to impose ta xes granted to local government units

(LGUs), in furtherance of the state policy on local autonomy, is categorical

and long-established in the 1987 Philippine Constitution 23 and the Local

Government Code (LGC) .

However, such power to impose tax is not all-encompassing. It is

subject to limitat ions as explicitly stated in Section 5 of the 1987 Constitution,

as follows:

SECTION 5. 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. Such taxes, fees, and cha rges shall accrue
exclusively to the local governments. (Emphasis Supplied)

The "Common Limitations on the Taxing Powers of Local Government

Units" provided by Congress is found under Section 133 of the LGC.

Pertinent to this case is paragraph (h) of this provision of law which

reads, as follows : r
23 Section 25, Article II. The State shall ensure the autonomy of local governments; Section 2,
Article X. The territorial and political subdivisions shall enjoy local autonomy.
 DECISION
CTA A.C. NO . 10
Page 18 of 27

SECTION 133. Common Limitations on the Taxing Powers of Local

Government Units. - Unless otherwise provided herein, the exercise of the
taxing powers of provinces, cities, municipa lities, and barangays shall not extend
to the levy of the following:

XXX XXX XXX

(h) Excise taxes on articles enumerated under the National Internal

Revenue Code, as amended, and taxes, fees or charges on petroleum
products; (Emphasis Supplied)

XXX XXX XXX

Based on the opening phrase "Unless otherwise provided herein", it is

clear that the enumerated limitations are absolute, unless exceptions are

specifically provided.

A reading of Section 133(h) reveals that there are two subject matters

included in this section because of the word "and " which connects them . The

following subject matters are covered: 1) Excise taxes on articles enumerated

under the National Internal Revenue Code, as amended; and 2) taxes, fees,

and charges on petroleum products. Although petroleum products are subject

to excise tax 24 , it was taken out of that context by putting it after the word

"and". Clearly, this is to emphasize the point that it was excluded in Section

143(h) of the LGC which allows the imposition of business taxes on any

business subject to the excise, value-added or percentage tax under the

National Internal Revenue Code, as amended .

Moreover, there is no qualification as to what "taxes, fees, or charges"

to be imposed on the petroleum products. It is a well recognized rule that fr----

24
Section 148, Chapter V, of the National Internal Revenue Code.
 DECISION
CfA A.C. NO. 10
Page 19 of 27

where the law does not distinguish, courts should not distinguish. Ubi lex non

distinguit nee nos distinguere debemos.25

In other words, as long as the subject matter of the taxing powers of

the LGUs is the petroleum products per se or even the activity or privilege

related to the petroleum products e.g. manufacturing and distribution of the

said products, it is covered by the said limitation and thus, no levy can be

imposed. Thus, We agree with petitioner that this second limitation does not

only refer to taxes, charges or fees on the petroleum products per se, but to

any business or transaction dealing with petroleum products.

Section 143(h) of the LGC is hereunder quoted for easy reference:

"Sec. 143. TAX ON BUSINESS. - The municipality may impose taxes on

the following businesses:

XXX XXX XXX

(h) On any business, not otherwise specified in the preceding

paragraphs, which the sanggunian concerned may deem proper to tax: Provided,
That on any business subject to the excise, value-added or percentage tax
under the National Internal Revenue Code, as amended, the rate of tax
shall not exceed two percent (2%) of gross sales or receipts of the
preceding calendar year.

The sanggunian conce rned may prescri be a schedule of graduated tax rates
but in no case to exceed the rates prescribed herein ." (Emphasis Supplied)

Because of the express limitation in Section 133(h), the above-quoted

provision cannot be used as basis for the imposition of business taxes on

manufacturing and distributing petroleum products. ~

25 Philippine British Assurance Co., Inc. vs. Intermediate Appellate Court No.L-72005 May 29,
1987 (150 SCRA 521) citing Co/gate-Palmolive Pl7il., Inc. vs. Gimenez, G.R. No. 14787, January
28, 1961, 1 SCRA 267 ; Ubudan vs. Gil , G.R. No . 21163, May 17, 1972, 45 SCRA 17 ;
Dominador vs. Derahunan, 49 Phil. 452 (1926); Guevarra vs. Inocentes, G.R. No . 25577,
March 15, 1966, 16 SCRA 379 ; Director of Lands vs. Gonzales, G.R. No. 32522, January 28,
1963; Alfato vs. Commission on Elections, G.R. No. 52749, March 31, 1981, 103 SCRA 741 ;
Statutory Construction by Ruben E. Agpalo,1986, pp. 143- 144 .
 DECISION
CfA A.C. NO. 10
Page 20 of 27

Hence, the argument that the LGC has vested LGUs the authority to

collect business taxes on manufacturers and distributors of any article of

commerce of whatever kind or nature 26 is not applicable in this case.

"Petroleum products" should not be interpreted to be included in "any article

of kind and nature".

It is elementary in statutory construction that when the law speaks in

clear and categorical language, there is no reason for interpretation or

construction but only for application Y Applying the law, this Court finds

petitioner not liable to the business taxes on the manufacturing and

distribution of petroleum products.

This is also in line with the Resolution of the Department of Justice

(Re: Declaration of Ordinance No. 7794 as Illegal and Unconstitutional) 28 ,

quoted hereunder:

"xxxx Sections 143(h) and 151 abovequoted cannot be used in

derogation on the clear exemption of petroleum products under Section
133(h). The presumption always is that the law enacted by the legislature is
complete by itself, that the legislature did perform its function well, and that it is
intended to impart such meaning as will render the law operative and effective
(People vs. Martin, G.R. NO. 38019, May 16, 1980, 98 SCRA 591 (1980); Asturias
Sugar Central, Inc. vs. Commissioner of Customs, G.R. No. 19337, September 30,
1969, 29 SCRA 617 (1969). The legislature in enacting the Local Government Code
of 1991, cannot be assumed to have inserted in the law a meaningless provision,
one that government units can at their option freely ignore.

The intent to exclude petroleum products is further made evident in the

implementing regulations. Article 232 thereof states: ~

26
Sec. 143(a) and (b) Local Government Code.

27
Land Bank of the Philippines vs. Court of Appeals & Department of Agrarian Reform vs. Court
of Appeals GR Nos. 118712 & 118745, respectively, July 5, 1996 ( 258 SCRA 404 .)

28
Petron Corporation, Caltex Philippines, Inc., Mobil Philippines, Inc., Pilipinas Shell Petroleum
Corp., Polly M. Cayetano vs. Mayor Alfredo S. Lim, Vice-Mayor Lito Atienza, Sangguniang
Panglungsod, City Treasurer Anthony, City of Manila, September 17, 1993 signed by DOJ
Secretary Franklin M. Drilon, Records, pages 317-318 (Annex X) .
 DECISION
CTA A.C. NO. 10
Page 21 of 27

Art. 232. Tax on Business.-

The municipality may impose tax on the following businesses:

(h) On any business, not otherwise specified in the preceding

parag raphs which the sanggunian concerned may deem proper to tax
provided that on any business subject to the exercise tax, VAT, or
percentage tax under the NIRC, as amended, the rate of tax shall not
exceed two percent (2%) of gross sales or receipts of the preceding
calenda r year and provided further, that in line with existing national
policy, any business engaged in the production, manufacture. refining~
distribution or sale of oil, gasoline, and other Qetroleum products shall not
be sub ·ect to an loca l tax im osed in this Article. ( Emphasis supplied)

The implementing regulations of the local Government Code have

the force and effect of law (Art. 7, New Civil Code) and unless declared to
be illegal, cannot be disregarded. xxx "(Emphasis Supplied)

In its Opinion of October 25, 1993 on this point, the Department of

Finance (DOF) has ruled that "Any business engaged in the production,

manufacture, refining, distribution or sale of oil, gasoline and other petroleum

29
products shall not be subject to any local tax.

Hence, petitioner is correct in saying that Article 232(h) of the

Implementing Rules and Regulations (IRR) of the LGC, which was formulated

and drafted by the Oversight Committee, is in harmony with Section 133(h) of

the LGC, the law it intended to implement. Likewise, the argument on the

"existing national policy" as enunciated in Section 2 of Republic Act No.

6173 30 is affirmed.

The ruling of the Supreme Court in the case entitled Philippine

Petroleum Corporation vs. Municipality of Pililia, Rizal 31 does not

apply here. Under the old Local Tax Code 32 , the law applicable in the case of ~

29 DOF Opinion cited in Alberto C. Agra, "Compendium of Decisions, Rulings, Resolutions and
Opinions on Local Autonomy and Local Government'; 1996 Ed. , page 145.
30
Supra ,Note 19.
31
G.R. No. 90776, June 3, 1991 (198 SCRA 82).
32
Presidential Decree No. 231, June 28, 1973.
.. DECISION
CTA A.C. NO. 10
Page 22 of 27

Pililia, the following are the common limitations on the taxing powers of local

governments:

SECTION 5. Common limitations on the taxing powers of local

governments. - The exercise of the taxing powers of provinces, cities,
municipalities and barrios sha ll not extend to the imposition of the following:
(a) Documentary stamp tax;
(b) Taxes on forest products and forest concessions;
(c) Taxes on estates, inheritance, gifts, legacies and other acquisitions
mortis causa, except as otherwise provided in this Code; SEIDAC
(d) Taxes on income of any kind whatsoever;
(e) Taxes or fees for the registration of motor vehicles and for the issuance
of all kinds of licenses or permits for the driving thereof;
(f) Customs duties, registration fees of vessels except as otherwise
provided in this Code, and wharfage on wharves, tonnage dues, and all other kinds
of customs fees, cha rges and dues, except wharfage on wharves constructed and
maintained by the loca l government concerned at rates not exceeding those fixed
by the Tariff and Customs Code;
(g) Taxes of any kind on banks and insurance companies;
(h)Taxes on premiums paid by owners of property who obtain insurance
directly with foreign insurance companies;
(i) Export taxes, fees, or other levies on Philippine finished, manufactured
or processed products, and products of Philippine cottage industries;
U) Taxes and other impositions upon goods carried into or out of, or
passing through, the territorial juri sdictions of local governments in the guise of
unreasonable charges for wha rfage, use of bridges, or otherwise, or other taxes in
any form whatever upon such goods or merchandise;
(k) Taxes or fees on agricultural products when sold by the farmer or
producer thereof, whether in their original form or not; and
(I) Percentage tax on sales, except as otherwise provided in this Code.

Petroleum products are not expressly covered by the common limitations on

the taxing powers of local governments under the old Local Tax Code. On the

other hand, such exemption was categorically stated under Sec. 133 of the

1991 LGC. Hence, the Pililia ruling is not applicable .

Based on the foregoing discussions, petitioner is clearly not subject to

the business taxes on the manufacturing and distribution of petroleum

products.

Mayor's Permit Was

Grossly Excessive and
Unreasonable

We agree with the findings of the lower court that Mayor's Permit Fees p_-
.. DECISION
CTA A.C. NO. 10
Page 23 of 27

paid under protest was grossly excessive and unreasonable.

The mayor's permit is imposed in the exercise of police power primarily

for purposes of regulation. Being such, it must be reasonable and

commensurate with the cost of regulation, inspection and licensing of a

business or occupation or practice of a profession or ca lling. Pertinent to this

is Section 147 of the LGC which is quoted hereunder:

SEGION 147. Fees and Charges. - The municipality may impose and
collect such reasonable fees and charges on business and occupation and,
except as reserved to the province in Section 139 of this Code, on the practice of
any profession or cal ling, commensurate with the cost of regulation,
inspection and licensing before any person may engage in such business or
occupation, or practice such profession or calling. (Emphasis Supplied)

Article 233 of IRR provides for a clear limit on what reasonable fees

and charges should be. This provision complements with Section 147 of the

LGC. It reads, as follows:

ARTICLE 233. Fees and Charges. - The municipality may impose and
collect such reasonable fees and charges on businesses and occupations and,
except as reserved to the province in Article 229 of this Rule, on the practice of any
profession or calling before any person may engage in such business or occupation,
or practice such profession or calling provided that such fees or charges shall
only be commensurate to the cost of issuing the license or permit and the
expenses incurred in the conduct of the necessary inspection or
surveil Ia nee.

No such fee or charge shall be based on capital investment or

gross sales or receipts of the person or business liable therefor. (Empl7asis
Supplied)

Based on the above-quoted provision, for fees and charges to be

reasonable: fees and charges should be proportionate/equal to the cost of

issuing the license or permit and the expenses incurred in the conduct of the

necessary inspection or surveillance. The last paragraph of Article 233 merely

affirms the basis of the reasonableness of the fees and charges by saying that ?t--
 DECISION
ITA A. C. NO. 10
Page 24 of 27

no fee/charge shall be based on capital investment or gross receipts of the

person or business.

In this case, the mayor's permit being imposed is based on the gross

receipts of the preceding calendar year although in a graduated scale. This is

in clear violation of Section 147 of the LGC, as implemented by Article 233 of

IRR.

The finality of the Decision of the lower court as regards the issue of

the Mayor's Permit Fees was only insofar as the lower court found that the

said payment made was excessive and unreasonable.

If petitioner would read carefully into the Decision of the lower court,

the judgment about the revocation of the assessment of the Mayor's Permit

Fees for the taxable year 2002 was "without prejudice to its modification by

the respondents, Batangas City, et al."

This portion of the lower court's Decision was interpreted by the

respondent in its "Memorandum" filed on June 28, 2006 in this manner, "This

means that the Respondent City of Batangas is permitted to keep the

payment provided that the provision of the Batangas City Tax Code on the

matter is modified. In this regard, the City of Batangas has decided to comply

with the mandate of the court and is presently modifying the tax code."

However, until now, no such modification was manifested to the Court.

Since, respondents failed to modify the computation of the mayor's

permit fee and based on justice and equity, petitioner should be refunded

with the mayor's permit fees ordered revoked by the court a quo.
. '
DECISION
CTA A.C. NO. 10
Page 25 of 27

The details 33 of the additional amount of P4,299,851.00 mayor's

permit fees are as follows:

Manufacturer Distributor

Mayor's Permit Fee P704,305.00 P3,166,555.00

License Fee 70,535.50
Prot. Fee Res/Bus 25,000 .00
Fire Insp. Fee 1,000.00
Occ./Prof.Tax
San Permit & San Insp. Fee 12,000.00
Fire Code Fee 320,455.00
Total Amount P774,840.50 P3,525,010.50

The amount to be refunded is not the full amount of P4,299,851.00 but

the excessive mayor's permit for manufacturing and distributing in the

amount of P704,305.00 and P3,166,555.00, respectively or in the total

amount of P3,870,860.00.

Court cannot rule on whether or not

closure/suspension of operation of
Tabangao Refinery of PSPC Tabangao
would serve the welfare of the consuming
public

This Court has already ruled that petitioner is not subject to the

business taxes on the manufacturing and distribution of petroleum products

pursuant to explicit provisions of law. Hence, We see no reason to dwell on

the fourth issue because the wisdom of the law is being invoked.

The Court is not in the position nor is it inclined to rule on this issue

considering that wisdom of the law is limited to the legislature. On the other ;Tt---

33
Petition for Review, page 10.

ib u
DECISION
GA A.C. NO. 10
Page 26 of 27

hand, the primary duty of the court is to apply the law.

WHEREFORE, premises considered, the judgment/order of the RTC

Branch II of Batangas City is hereby MODIFIED. As to the business taxes on

the manufacture and distribution of petroleum products, We find the

petitioner not liable for the same. As to the mayor's permit, We find that it is

excessive. Accordingly, the respondent is hereby a)declared legally

proscribed from imposing business taxes on the manufacture and

distribution of petroleum products and b) to refund in the form of tax credit

the excessive mayor's permit in the amount of THREE MILLION FIVE

HUNDRED TWENTY FIVE THOUSAND TEN PESOS and FIFTY

CENTAVOS (P3,525,010.50).

SO ORDERED.

..
a~;> ...L G ~~
tiJUANffo C./CASTANEDAytJR.
9.-z .
Associate Justice

WE CONCUR:

E~.UY
(With Dissenting Opinion)
OLGA PALANCA-ENRIQUEZ
:s~stice Associate Justice

ATTESTATION
I attest that the conclusions in the above Decision were reached in
consultation before the case was assigned to the writer of the opinion of the
Court's Division.
~~~ -~~
fuANITO C. CASTANEDA, 11{'._,
Associate Justice
Chairperson, Second Division
DECISION
CfA A.C. NO. 10
Page 27 of 27

CERTIFICATION

Pursuant to Article VIII, Section 13 of the Constitution, and the Division

Chairperson's Attestation, it is hereby certified that the conclusions in the
above Decision were reached in consultation before the case was assigned to
the writer of the opinion of the Court.

\'~~,. D.c.-A-
ERNESTO D. ACOSTA
Presiding Justice
..

REPUBLIC OF THE PHILIPPINES

Court of Tax Appeals
QUEZON CITY

SECOND DIVISION

PILIPINAS SHELL PETROLEUM C.T.A. AC NO. 10

CORPORATION (RTC Civil C ase No. 7109)
Petitioner,
Members:

CASTAI\IJ ~DA, JR., Chairperson

-versus- UY, and
PALANC A-ENRIQUEZ, JJ.

BATANGAS CITY, BENJAMIN

E. P ARGAS in his capacity as Promul gated:
CITY TREASURER and
TEODULFO A. DEGUITO in his
JU'N 2 1 2007
capacity as CITY LEGAL

~
OFFICER OF BATANGAS CITY,
Respondents.

X --------------- ----------------------------------------- ·--------------------------- X

DISSENTING OPI!1 fiON

PALANCA-ENRIQUEZ, J.:

With all due respect to the Majorit~ · 0 1:>inion, after a careful

examination of the pertinent facts of the ca~ ;e, in relation to applicable

laws and jurisprudence, I am constrained to r~ ~gistet my dissent for settled

is the rule that where the provisions of the la w are cl ~ar and unambiguous
~

• h ·I
..

C.T.A. AC NO. l 0 2
(RTC Civil Case No. 71 09)
Dissenting Opinion

there is no room for interpretation. For the first duty of the court is to

apply the law (Villanueva, Jr. vs. Estoque, 346 SCRA 234).

In th e instant case, I found petitioner liable' for business taxes on

the manufacture and distribution of petroleum products, as clearly

provided in Section 143 ofthe Local Government Code ( "LGC'') , to wit:

"SEC. 143. Tax on Business - The municipality may

impo se taxes on the following businesses:

(a) On manufacturers, assembl ers, repackers,

proce ssors, brewers, distillers, rectifiers, a nd compounders
of liq uors, distilled spirits, and wines or m anufacturers of
any a rticle of commerce of whatever kin d or nature, in
accor dance with the following schedule:

XXX XXX

(b) On wholesalers, distributors, or dealers in any

articl c of commerce of whatever kind or nature in
accor dance with the following schedule:

XXX XXX

( h) On any business, not otherwise s 1 ecified in the

precedi ng paragraphs, which the sanggunian c onccrned may
deem pr·oper to tax: Provided, That on any bt tsiness subject
to the ,~xcise , value-added or percentage 1ax t mder the
National Internal Revenue Code, as amended, the rate of tax
shall not , ~x ceed two percent (2%) of gross sa les or receipts
of the prec.cding calendar year. ~

• t ti
..

C.T.A. AC NO. I 0 3
(RTC Civil Case No. 71 09)
Dissenting Opinion

The sanggunian concerned may prescribe a schedule

of graduated tax rates but in no case to exceed the rates
prescribed herein."

Pursuant to the aforesaid provisiOn, it is cl ear that the City of

Batangas is empowered to enact an ordinance imposing business tax on

the manufacturers of any article of commerce of wh atever kind or nature,

on the whol esalers, distributors, or dealers in any a t icle of commerce of

whatever kind or; on any business, not otherwise specified in subsections

(a) to (g) of Section 143 of the LGC, which the sanggunian may deem

proper to tax.

Notwith ~;tanding the foregoing provisiOn, the Majority Opinion

holds that "be ause of the express limitation in Section 133 (h), the

above-quoted p rovi sion cannot be used as basis for the imposition of

business taxes on manufacturing and distributing petroleum products."

In this regard, Section 133 (h) of the LGC is quoted hereunder, for

expediency:

"SEC . 133. Common Limitations on the Taxing

Powers of Local Government Units. - U nles ., otherwise
provided herein, the exercise of the t : \Xing powers of
provinces, cities, municipalities, and ba·1angays shall not
extend to th e levy of the following: ~/
C.T.A. AC NO. 10 4
(RTC Civil Case No. 71 09)
Dissenting Opinion

XXX XXX

(h) Excise taxes on articles enun terated under the

National Internal Revenue Code, as amend··~d, and taxes, fees
or charges on petroleum products;

XXX XXX. "

Construing the aforecited provision, petit ioner contends that there

are two limitations prescribed in the said secti n. First, relying on the

definition of "excise tax", it posits that there is no doubt that the business

tax being levied by respondents upon petit joner is the privilege of

engaging in the business of manufacturing, distribution or dealing in

petroleum products, which is an excise tax. [n sum, it is the petitioner' s

contention that the phrase "Excise taxes on a ctid es enumerated under the

National Internal Revenue Code, as amend d, x.'< X" covers excise taxes

on manufacturing and/or distribution business. S e ·~ond, petitioner asserts

that the last phrase in Section 133 (h), whi( :h reads . "xxx and taxes, fees

or charge~; on petroleum products", cannot · Je constn ted as referring only

to petroleum products p er se, but to any bus iness or transactions dealing

with petro ~: eum products, to which constn tction, th1: Majority Opinion

concurred w ith.

-- .. ·' ~
C.T.A. AC NO. 10 5
(RTC Civil Case No. 71 09)
Dissenting Opinion

However, with all due , c;,pect to the optmon of my esteemed

colleagues, the said construction• of Section 133 (h) of the LGC goes

beyond the literal import of the statute. Basic is the rule in statutory

construction that when the law SJ >eaks in clear and categorical language,

there is no reason for interpre tation or construction, but only for

application (Land Bank of the Philippines vs. Court of Appeals and Department of

Agrarian Reform vs. Court ofAppeals, ~ ?58 SCRA 40 7).

Contrary to the assertion of the petitioner and the Majority

Opinion, Section 133 (h) clearly :speaks for itself. A plain reading of the

subject provision would show that the limitation is not applicable to

business taxes. What is circumscribed by the provision is the imposition

of exci~ ; e taxes upon the articles or products, and not upon the privilege of

manufacturing or distributing the same, which are distinct kinds of taxes.

This pronouncement is clearly 'Norded by the law that warrants no other

meanin g or implication, the loca I government units taxing power shall not

extend to the levy of excise 1taxes on articles enumerated under the

Nationol Internal Revenue Code ("NJRC''), as amended, and taxes, fees

or char ges on petroleum produc ;ts. Simply stated, the limitations under
pL

. .I ;
C.T.A. AC NO. I 0 6
(RTC Civil Case No. 71 09)
Dissenting Opinion

Section 133 (h) apply only when what is being taxed is the article itself

and not the business in which said mticle is manufactured or distributed.

Corollarily, it must be noted that Sections J 29 and 148 of the

NIRC, as amended, specifically impose excise 1axes on petroleum

products, as follows:

"SEC. 129. Goods Subject to Excise T xes. - Excise

taxes apply to goods manufactured or pre Jduced in the
Philippines for domestic sale or consumpti n or for any
other disposition and to things imported. ' rhe excise tax
imposed herein shall be in addition to the value-added tax
imposed under Title IV.

For purposes of this Title, excise taxes herein imposed

and based on weight or volume capacit y or any other
physical unit of measurement shall be referr ed to as 'specific
tax ' and an excise tax herein imposed and based on selling
price or other specified value of the good s} tall be referred to
as ' .ad valorem tax'."

"CHAPTER V
EXCISE TAX ON PETROLEUM PRODUCTS

SEC. 148. Manufactured Oils : md Other Fuels. -

There shall be collected on refined and manufactured
minera l oils and motor fuels, the foll owing excise taxes
which shall attach to the goods hereunder enumerated as
soon as they are in existence as such.

XX.'<. xxx."

. ) ·:
C.T.A. AC NO. 10 7
(RTC Civil Case No. 71 09)
Dissenting Opinion

Pursuant to the aforecited provisions, I agre-e with the findings of

the lower court that the NIRC recognizes the di chotomy of a tax on

business as distinct from a tax on the product itself. The excise taxes

imposed by the NIRC refer to taxes on certa in specified goods,

manufactured or produced locally or imported. It i: not an excise tax on

the privi lege of doing business, but an excise tax I evied on the property.

It is con sidered taxes on the property because the y are imposed directly

on certain specified goods.

It is doctrinally settled that a tax on busine ss is distinct from a tax

on the article itself. In the case of Philippilze Petroleum Corp. vs.

Municipolilty ofPililla, Rizal (198 SCRA 89) , the Supreme Court ruled:

"Furthermore, while Section 2 of I ,.D. 436 prohibits

the imposition of local taxes on petrolettm products, said
deCI!·ee did not amend Sections 19 and 19 (a) ofP.D . 231 as
ame nded by P.D . 426, wherein the muni• ;ipality is granted
the right to levy taxes on business ' lf manufacturers,
importers, producers of any article of com nerce of whatever
kind or nature. A tax on business is dist ·1ct from a tax on
the art icle itself. Thus, if the imposition . f tax on business
of ma nufacturers, etc. in petroleum proc.uc ':s contravenes a
declan ~d national policy, it should have b ~en expressly stated
in P.D. No. 436."

:'I I
C.T.A. AC NO. J 0 8
(RTC Civil Case No. 71 09)
Dissenting Opinion

With all due respect to the Majority Opinior•, it is my modest view

that the above ruling applies to the present case. T he above ruling of the

Supreme Court on the matter is a general principle involving the kind of

taxes that maybe imposed either upon the privileg .e of doing business or

upon the product of the business itself. It has r 1othing to do with the

power or th e limitation of the local government u·1its to impose business

taxes.

As aptly ruled by the lower court:

" The ruling of the Supreme Court in the case of

Philippine Petroleum Corporation vs. Mun cipality of Pililia,
Rizal is still controlling and has not been : :uperseded as yet,
thus :
' A tax on business is distinct fron l a tax on the article
itself. Thus, if no imposition of I ax on business of
manufacturers, etc. in petroleum product. ., contravenes a
declared national policy, it should have een expressly stated
in P.D. No. 436.'

Indeed, the above ruling of the Supr( me Court was

decided when the LGC has not yet b een e1 acted and the
previous laws did not prohibit LGU:~ from im posing excise
taxes on petroleum products. But 1 hen, the ruling of the
Supreme Court on the matter is a gen•. : ral princi pie involving
the kind of taxes that may either be impOS l~d upon the
privilege of doing business or, upc 1n the pro duct of the
business itself. It distinguishes the ' 1ature of the classified
taxes and has nothing to do with the powers of the LGUs to
impose business taxes xxx." ~

• . I '
C.T.A. AC NO. 10 9
(RTC Civil Case No. 71 09)
Dissenting Opinion

Pursuant to the aforequoted ruling and c nnsidering further that

Section 133 (h) of the LGC, in connection w ith the provision of the

NIRC, is explicit in stating that the prohibition in the imposition of taxes,

fees or charges is limited to the petroleum products, local government

units are not prohibited from imposing excise ta x on the exercise of the

privilege in engaging in the manufacturing and/or distribution business of

petroleum products. As such, business taxes, which are traditionally

imposed by the local government units, like in the case of the City of

Batangas, we re not withheld by the LGC .

Consequently, the proposition of the etitioner that "since the

excise tax refers to a tax upon the performanc ~ of an act, enjoyment of a

privilege or en gaging in an occupation, it follows that Batangas City is

legally proscrib-ed from imposing business taxes on the manufacture

and/or distributit m of petroleum products" , is devoid of merit. Such

argument would violate the state policy ens11ring local autonomy (.()ection

25, Article II of the1987 Constitution). It would curtail the local

government units' .1llthority to impose tax es on any business, including

those businesses sub ject to excise tax, as ordained under the provisio~
C.T.A. AC NO. 10 10
(RTC Civil Case No. 7109)
Dissenting Opinion

Section 143 (h) of the LGC. In effect, the said proposition would render

nugatory and inoperative the provision of Section 143 (h); a

denouncement which offends the basic princip le of statutory construction

that "a provision of a statute should be so construed as not to nullify or

render nugatory another provision of the sa1 ne statute (Agpalo, Statutory

Construction, 5th ed. , 256). Interpretatio [zenda est ut res magis valeat quam

pereat. A Ji aw should be interpreted with a v tew to upholding rather than

destroying it (People vs. Derilo, 271 SCRA 666).

Moreover, as between Sections 133 (h) and 143 (h) of the LGC,

Section 143 prevails. Section 143 provid es the specific power of a

city/municipality to impose business taxes. Specifically, Section 143 (h)

empowers the city or municipality to impose a bus: 1ess tax on a business

already subject to excise tax. On the other hand, Section 133 is a general

provision that governs the common limitation s of lc,,cal government units'

authority to tax. It is an elementary rule i1 1 statlttory construction that

where there is in the same statute a parf cular enactment and also a

general one, which in its most comprehem ·ve sen·:;e would include what

is embraced in the former, the particular <:nactm( ~nt must be operative,

C.T.A. AC NO. 10 II
(RTC Civil Case No. 71 09)
Dissenting Opinion

and the general enactment must be taken only i such cases within its

general language as are not within the provi~; ions of the particular

enactment (Manila Railroad Co. vs. Collector of Customs , 52 Phi/951-952).

Hence, there is no doubt that the City of Batangas may impose

business taxes on the manufacture and distribution of petroleum products,

notwithstanding the provision of Section 133 (h) of the LGC.

Petitioner invokes the provision of Art icle 232 (h) of the

Implementing Rules and Regulations ("IRR '') of th e LGC, which states in

part that "xxx any business engaged in the pre 1duction, manufacture,

refining, dis tribution or sale of oil, gasoline and ot her petroleum products

shall not be subject to any local tax imposed in this article". A plain

reading of S ections 133 (h) and 143 of the LGC, the substantive

provisions to be implemented, would show that tl 1e IRR is in conflict with

the said specif ic provisions. The IRR deviated from its purpose to carry

out the provisic ms of the LGC for the achieveme nt of local autonomy.

As correctly pointed out by the lower cou rt:

"It .must be stressed that the functi n of promulgating

rules and 1·egulations should be exercise' i for the purpose of
carrying <- lUt the provisions of the law into effect.
Administraf ive regulations cannot extenc , the law or amend a

~
C.T.A. AC NO. 10 12
(RTC Civil Case No. 7109)
Dissenting Opinion

legislative enactment, for settled is the rule that

administrative regulations must be in hanuony with the
provisions of the law. The Court may disregard
contemporaneous construction where there is no ambiguity
in the law. In this case, the Oversight Committee which was
tasked to issue appropriate Rules and Regulat ions for the
efficient and effective implementation of the LGC, has
exceeded its authority. In granting tax exempti·on, which is
not found in the provisions of Sections 143 of tl1e LGC, the
Oversight Committee subverted the princip le of local
autonomy as defined under the LGC and the Constitution."

In the case ofProvince of Batangas vs. Romulo (429 SCRA 763),

the Supreme Court struck down the Oversight Comrnittee' s Resolution

implementing the release of the Internal Revenue Allotment ("IRA") and

ruled as follows:

"Indeed, the Oversight Committee exerc1smg

discretion, even control, over the distribution an~ d release of a
portion of the IRA, the LGSEF, is an anathema to and
subversive of the principle of local autonomy as embodied in
the Constitution. Moreover, it finds no statutory basis at all
as the Oversight Committee was created merely to formulate
the rules and regulations for the efficient a nd effective
implementation of the Local Government Cod1 ~ of 1991 to
ensure 'compliance with the principles of local mtonomy as
defined under the Constitution xxx".

In the same vein, constricting the local governm en t units ' power to

impose business taxes on businesses engaged i1 1 the production,

manufacture, refining, distribution or sale of oil, ! ~aso line and other

~
C.T.A. AC NO. I 0 13
(RTC Civil Case No. 71 09)
Dissenting Opinion

petroleum products is anathema to and subversive of the principle of local

autonomy. Evidently, Article 232 (h) of the IRJ ? of the LGC cannot

prevail over the literal import of the provisions of Sections 143 and 133

(h) of the LGC.

It cannot be gainsaid by the petitioner tl tat in disregarding the

provision of Article 232 (h) of the IRR of the LGC, the lower court

rendered invalid the IRR, violating the legal pri1 tciple that the validity of

a rule or regulation can only be assailed through. a direct attack.

A re ding of the decision will show th tt the lower court did not

make any declaration of invalidity of the IRR . The lower court merely

disregarded the IRR because it was in COlt fJict with the substantive

provision of the law, which it intends to imr·lem' ~nt. Pertinent portion of

the said dec ision is quoted hereunder:

"The Court is not unmindful th at Artic.1e 232(h) of the

IRR c1dopted by the Oversight Committee to implement the
LGC has incorporated that any b Jsiness er1g::tged in the
production and manufacture of petr1 )leum produd s shall not
be sub_ ject to any local tax. How' ~ver, the said IRR is in
conflict with the specific provisi( m of Section 143, the
substan tive provision which is inte1 tded to be i plemented.
The IR R deviated from its pur pose to carry out the
~~~~~~~ ;. of the LGC for the achievement of I~
C.T.A. AC NO. 10 14
(RTC Civil Case No. 71 09)
Dissenting Opinion

XXX XXX."

Well settled is the rule that a court may disregard an administrative

order, although it was not a direct attack for the purpose, when the same

is in conflict with the governing statute. In the case of China Banking vs.

Court of Appeals, et al. (265 SCRA 341-342), the Supreme Court, ruled:

"With respect to the third issue, we find private

respondent's contention that Administrative Order No. 3 is
the governing rule in foreclosure of mortgages misplaced.
The parties, we note, have stipulated that the provisions of
Act No. 3135 is the controlling law in case of foreclosure.

XXX XXX

Moreover, Administrative Order No. 3 is a directive

for execution judges and clerks of courts which, under its
preliminary paragraphs, is '[i]n line with the responsibility of
an Executive Judge, under Administrative Order No. 6, dated
June 30, 1975, for the management of courts within his
administrative area, included in which is the task of
supervising directly the work of the Clerk of Court, who is
also the Ex-officio Sheriff, and his staff, xxx. Surely, a
petition for foreclosure with the notary public is not within
the contemplation of the aforesaid directive as the same is
not filed with the court. At any rate, Administrative Order
No.3 cannot prevail over Act No. 3135, as amended. It is an
elementary principle in statutory construction that a statute is
superior to an administrative directive and the former cannot
be repealed or amended by the latter."
Accordingly, Article 232 (h) of the IRR of the LGC could

also be validly disregarded for being in conflict with the clear

~
C.T.A. AC NO. 10 15
(RTC Civil Case No. 7109) .
Dissenting Opinion

word ings of the governing provisions, specific; ,dy, Sections 133

(h) and 143 of the LGC.

Finally, petitioner cannot find solace m the provisions of

Republic Act (R.A.) No. 6173, otherwise kn own as "An Act

Declaring a National Policy on the Petroleum Industry Regulating

the Activities and Relations of Persons an1l Entities engaged

therein, Establishing an Oil Industry Commiss:·on to Effectuate the

same, Defining its Functions, Powers and 0 bjectives, and other

Purposes ; R.A. No. 8479, otherwise krtown as "An Act

Deregul r ting the Downstream Oil Indu ~ try, and for Other

Purposes"'; and R.A. No. 7638, otherwisl':: known as "An Act

Creating the Department of Energy, Rationa.·izing the Organization

and Func lions of Government Agencies Rela ted to E11ergy, and for

Other Pu rposes". Nowhere in the said law::; :is there a provision that

directly or indirectly grants tax exemptiom : to petition er, or to any

other businesses engaged in the manufactm e and/or di 'tribution of

petroleum products. As aptly ruled by the lo wer court:

"Apropos the existing nation .d policy, which the

petiti oner also invokes to have beeJl violated, ' his c~
C.T.A. AC NO. 10 16
(RTC Civil Case No. 71 09)
Dissenting Opinion

carefully scanned each and every provisions of R.A. 6173,

R.A. 7638, and R.A. 8479, but found then ·in no specific
state policy that declares an exemption of petroleum
products from business taxes, much less, a prohibition for
the LGUs to impose the same taxes on petro leum products.
What is commonly identified by the said lav ' S is the policy
of the state to conserve the use and suppl·y of energy at
reasonable prices considering the internatio1ml price levels
and collusive practices in the industry. Tr e statutes were
focused towards the continuous supply oJ petroleum and
aversion of predatory pricing that culm inated with the
adoption of liberalization and deregul2 tion of the oil
industry. To repeat, there is nothing from the said laws that
directly or indirectly exempted the petrole urn and petroleum
products from local taxes. It bears empha >is that exemptions
from taxation are not favored; they are construed in
strictissimi juris against the taxpayer and i tberally in favor of
the tax· ng authority. He who claims an c xemption from his
share f the common burden in taxati o; 1 must justify his
claim by showing that the legislature inL'Il 1ed to exempt him
by words too plain to be mistaken. An ex•~mption cannot be
permitted to exist upon vague implicatio n.' ·

Finding no reversible error, I vote to disn · iss the present Petition

For Review and to affirm the appealed Dec · sian ated October 29, 2004

and Order dated February 28, 2005.

~~ ~
OLG~ PALAHCA-ENRIQUEZ
Associate Justice

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