Drilon v. Lim G.R. No. 112497, August 4, 1994 Cruz, J. Facts:
The principal issue in this case is the constitutionality of Section 187 of the Local Government Code 1. The Secretary of Justice (on appeal to him of four oil companies and a taxpayer) declared Ordinance No. 7794 (Manila Revenue Code) null and void for non-compliance with the procedure in the enactment of tax ordinances and for containing certain provisions contrary to law and public policy. The RTC revoked the Secretary’s resolution and sustained the ordinance. It declared Sec 187 of the LGC as unconstitutional because it vests on the Secretary the power of control over LGUs in violation of the policy of local autonomy mandated in the Constitution. The Secretary argues that the annulled Section 187 is constitutional and that the procedural requirements for the enactment of tax ordinances as specified in the Local Government Code had indeed not been observed. (Petition originally dismissed by the Court due to failure to submit certified true copy of the decision, but reinstated it anyway.) Issue:
WON the lower court has jurisdiction to consider the constitutionality of Sec 187 of the LGC Held:
Yes. BP 129 vests in the regional trial courts jurisdiction over all civil cases in which the subject of the litigation is incapable of pecuniary estimation. Moreover, Article X, Section 5(2), of the Constitution vests in the Supreme Court appellate jurisdiction over final judgments and orders of lower courts in all cases in which the constitutionality or validity of any treaty, international or executive agreement, law, presidential decree, proclamation, order, instruction, ordinance, or regulation is in question. 1
Procedure For Approval And Effectivity Of Tax Ordinances And Revenue Measures; Mandatory Public Hearings. The procedure for approval of local tax ordinances and revenue measures shall be in accordance with the provisions of this Code: Provided, That public hearings shall be conducted for the purpose prior to the enactment thereof; Provided, further, That any question on the constitutionality or legality of tax ordinances or revenue measures may be raised on appeal within thirty (30) days from the effectivity thereof to the Secretary of Justice who shall render a decision within sixty (60) days from the date of receipt of the appeal: Provided, however, That such appeal shall not have the effect of suspending the effectivity of the ordinance and the accrual and payment of the tax, fee, or charge levied therein: Provided, finally, That within thirty (30) days after receipt of the decision or the lapse of the sixty-day period without the Secretary of Justice acting upon the appeal, the aggrieved party may file appropriate proceedings with a court of competent jurisdiction.
In the exercise of this jurisdiction, lower courts are advised to act with the utmost circumspection, bearing in mind the consequences of a declaration of unconstitutionality upon the stability of laws, no less than on the doctrine of separation of powers. It is also emphasized that every court, including this Court, is charged with the duty of a purposeful hesitation before declaring a law unconstitutional, on the theory that the measure was first carefully studied by the executive and the legislative departments and determined by them to be in accordance with the fundamental law before it was finally approved. To doubt is to sustain. The presumption of constitutionality can be overcome only by the clearest showing that there was indeed an infraction of the Constitution. Issue:
WON Section 187 of the LGC is unconstitutional
Held: Yes. Section 187 authorizes the Secretary of Justice to review only the constitutionality or legality of the tax ordinance and, if warranted, to revoke it on either or both of these grounds. When he alters or modifies or sets aside a tax ordinance, he is not also permitted to substitute his own judgment for the judgment of the local government that enacted the measure. Secretary Drilon did set aside the Manila Revenue Code, but he did not replace it with his own version of what the Code should be.. What he found only was that it was illegal. All he did in reviewing the said measure was determine if the petitioners were performing their functions in accordance with law, that is, with the prescribed procedure for the enactment of tax ordinances and the grant of powers to the city government under the Local Government Code. As we see it, that was an act not of control but of mere supervision. An officer in control lays down the rules in the doing of an act. If they are not followed, he may, in his discretion, order the act undone or re-done by his subordinate or he may even decide to do it himself. Supervision does not cover such authority. The supervisor or superintendent merely sees to it that the rules are followed, but he himself does not lay down such rules, nor does he have the discretion to modify or replace them. Significantly, a rule similar to Section 187 appeared in the Local Autonomy Act. That section allowed the Secretary of Finance to suspend the effectivity of a tax ordinance if, in his opinion, the tax or fee levied was unjust, excessive, oppressive or confiscatory.
Determination of these flaws would involve the exercise of judgment or discretion and not merely an examination of whether or not the requirements or limitations of the law had been observed; hence, it would smack of control rather than mere supervision. That power was never questioned before this Court but, at any rate, the Secretary of Justice is not given the same latitude under Section 187. All he is permitted to do is ascertain the constitutionality or legality of the tax measure, without the right to declare that, in his opinion, it is unjust, excessive, oppressive or confiscatory. He has no discretion on this matter. In fact, Secretary Drilon set aside the Manila Revenue Code only on two grounds, to with, the inclusion therein of certain ultra vires provisions and noncompliance with the prescribed procedure in its enactment. These grounds affected the legality, not the wisdom or reasonableness, of the tax measure. The issue of non-compliance with the prescribed procedure in the enactment of the Manila Revenue Code is another matter. (allegations: No written notices of public hearing, no publication of the ordinance, no minutes of public hearing, no posting, no translation into Tagalog) Judge Palattao however found that all the procedural requirements had been observed in the enactment of the Manila Revenue Code and that the City of Manila had not been able to prove such compliance before the Secretary only because he had given it only five days within which to gather and present to him all the evidence (consisting of 25 exhibits) later submitted to the trial court. We agree with the trial court that the procedural requirements have indeed been observed. Notices of the public hearings were sent to interested parties as evidenced. The minutes of the hearings are found in Exhibits M, M-1, M-2, and M-3. Exhibits B and C show that the proposed ordinances were published in the Balita and the Manila Standard on April 21 and 25, 1993, respectively, and the approved ordinance was published in the July 3, 4, 5, 1993 issues of the Manila Standard and in the July 6, 1993 issue of Balita, as shown by Exhibits Q, Q-1, Q-2, and Q-3. The only exceptions are the posting of the ordinance as approved but this omission does not affect its validity, considering that its publication in three successive issues of a newspaper of general circulation will satisfy due process. It has also not been shown that the text of the ordinance has been translated and disseminated, but this requirement applies to the approval of local development plans and public investment programs of the local government unit and not to tax ordinances.
G.R. No. 93252 August 5, 1991 RODOLFO T. GANZON, petitioner, vs. THE HONORABLE COURT OF APPEALS and LUIS T. SANTOS, respondents. G.R. No. 93746 August 5,1991 MARY ANN RIVERA ARTIEDA, petitioner, vs. HON. LUIS SANTOS, in his capacity as Secretary of the Department of Local Government, NICANOR M. PATRICIO, in his capacity as Chief, Legal Service of the Department of Local Government and SALVADOR CABALUNA JR., respondents. G.R. No. 95245 August 5,1991 RODOLFO T. GANZON, petitioner, vs. THE HONORABLE COURT OF APPEALS and LUIS T. SANTOS, in his capacity as the Secretary of the Department of Local Government, respondents. Topic: Local Autonomy- Not Self-executing provisions Facts: 0 A series of administrative complaints, ten in number, were filed before the Department of Local Government against Mayor Rodolfo T. Ganzon by various city officials sometime in 1988 on various charges, among them, abuse of authority, oppression, grave misconduct, etc. 1 Finding probable grounds, the Secretary Santos of the Department of Local Government Luis T. Santos issued successive suspensions. 2 Ganzon then instituted an action for prohibition against the secretary in the RTC of Iloilo City where he succeeded in obtaining a writ of preliminary injunction. 3 Ganzon also instituted actions for prohibition before the Court of Appeals but were both dismissed. 4 Thus, this petition for review with the argument that the respondent Secretary is devoid, in any event, of any authority to suspend and remove local officials as the 1987 Constitution no longer allows the President to exercise said power. Issue: 0 W/N the Secretary of Local Government, as the President’s alter ego, can suspend and or remove local officials. Held: 0 Yes
0 SUMMARY OF RATIO: 0 Ganzon is under the impression that the Constitution has left the President mere supervisory powers, which supposedly excludes the power of investigation, and denied her control, which allegedly embraces disciplinary authority. It is a mistaken impression because legally, “supervision” is not incompatible with disciplinary authority. The SC had occasion to discuss the scope and extent of the power of supervision by the President over local government officials in contrast to the power of control given to him over executive officials of our government wherein it was emphasized that the two terms, control and supervision, are two different things which differ one from the other in meaning and extent. “In administration law supervision means overseeing or the power or authority of an officer to see that subordinate officers perform their duties. If the latter fail or neglect to fulfill them the former may take such action or step as prescribed by law to make them perform their duties. Control, on the other hand, means the power of an officer to alter or modify or nullify of set aside what a subordinate officer had done in the performance of his duties and to substitute the judgment of the former for that of the latter.” But from this pronouncement it cannot be reasonably inferred that the power of supervision of the President over local government officials does not include the power of investigation when in his opinion the good of the public service so requires. 1 The Secretary of Local Government, as the alter ego of the president, in suspending Ganzon is exercising a valid power. He however overstepped by imposing a 600 day suspension. 1 It is the petitioners' argument that the 1987 Constitution no longer allows the President, as the 1935 and 1973 Constitutions did, to exercise the power of suspension and/or removal over local officials. According to both petitioners, the Constitution is meant, first, to strengthen self-rule by local government units and second, by deleting the phrase as may be provided by law to strip the President of the power of control over local governments. It is a view, so they contend, that finds support in the debates of the Constitutional Commission. 0 Sec. 4. The President of the Philippines shall exercise general supervision over local governments. Provinces with respect to component cities and municipalities, and cities and municipalities with respect to component barangays shall ensure
that the acts of their component units are within the scope of their prescribed powers and functions. 1 It modifies a counterpart provision appearing in the 1935 Constitution: 0 Sec. 10. The President shall have control of all the executive departments, bureaus, or offices, exercise general supervision over all Local governments as may be provided by law, and take care that the laws be faithfully executed. 2 The issue, as the Court understands it, consists of three questions: (1) Did the 1987 Constitution, in deleting the phrase "as may be provided by law" intend to divest the President of the power to investigate, suspend, discipline, and/or remove local officials? (2) Has the Constitution repealed Sections 62 and 63 of the Local Government Code? (3) What is the significance of the change in the constitutional language?It is the considered opinion of the Court that notwithstanding the change in the constitutional language, the charter did not intend to divest the legislature of its right or the President of her prerogative as conferred by existing legislation to provide administrative sanctions against local officials. It is our opinion that the omission (of "as may be provided by law") signifies nothing more than to underscore local governments' autonomy from congress and to break Congress' "control" over local government affairs. The Constitution did not, however, intend, for the sake of local autonomy, to deprive the legislature of all authority over municipal corporations, in particular, concerning discipline. 3 Autonomy does not, after all, contemplate making ministates out of local government units, as in the federal governments of the United States of America (or Brazil or Germany), although Jefferson is said to have compared municipal corporations euphemistically to "small republics." Autonomy, in the constitutional sense, is subject to the guiding star, though not control, of the legislature, albeit the legislative responsibility under the Constitution and as the "supervision clause" itself suggest-is to wean local government units from over-dependence on the central government. 4 It is noteworthy that under the Charter, "local autonomy" is not instantly self-executing, but subject to, among other things, the passage of a local government code, a local tax law, income distribution legislation, and a national representation law, and measures designed to realize autonomy at the local level. It is also noteworthy that in spite of autonomy, the Constitution places the local government under the general supervision of the Executive. It is noteworthy finally, that the Charter allows Congress to include in the local government code provisions for removal of local officials, which suggest that Congress may exercise removal powers, and as
the existing Local Government Code has done, delegate its exercise to the President 0 Sec. 3. The Congress shall enact a local government code which shall provide for a more responsive and accountable local government structure instituted through a system of decentralization with effective mechanisms of recall, initiative, and referendum, allocate among the different local government units their powers, responsibilities and resources, and provide for the qualifications, election, appointment and removal, term, salaries, powers and functions and duties of local officials, and all other matters relating to the organization and operation of the local units. 5 The deletion of "as may be provided by law" was meant to stress, sub silencio, the objective of the framers to strengthen local autonomy by severing congressional control of its affairs, as observed by the Court of Appeals, like the power of local legislation. The Constitution did nothing more, however, and insofar as existing legislation authorizes the President (through the Secretary of Local Government) to proceed against local officials administratively, the Constitution contains no prohibition. 6 The petitioners are under the impression that the Constitution has left the President mere supervisory powers, which supposedly excludes the power of investigation, and denied her control, which allegedly embraces disciplinary authority. It is a mistaken impression because legally, "supervision" is not incompatible with disciplinary authority 7 "Control" has been defined as "the power of an officer to alter or modify or nullify or set aside what a subordinate officer had done in the performance of his duties and to substitute the judgment of the former for test of the latter." "Supervision" on the other hand means "overseeing or the power or authority of an officer to see that subordinate officers perform their duties. As we held, however, "investigating" is not inconsistent with "overseeing", although it is a lesser power than "altering". The impression is apparently exacerbated by the Court's pronouncements in at least three cases, Lacson v. Roque, Hebron v. Reyes, and Mondano v. Silvosa, and possibly, a fourth one, Pelaez v. Auditor General. In Lacson, this Court said that the President enjoyed no control powers but only supervision "as may be provided by law," a rule we reiterated in Hebron, and Mondano. In Pelaez, we stated that the President "may not . . . suspend an elective official of a regular municipality or take any disciplinary action against him, except on appeal from a decision of the corresponding provincial board." However,neither Lacson nor Hebron nor Mondano ca tegorically banned the Chief Executive from exercising acts of disciplinary authority because she did not exercise
control powers, but because no law allowed her to exercise disciplinary authority. 8 The Court does not believe that the petitioners can rightfully point to the debates of the Constitutional Commission to defeat the President's powers. The Court believes that the deliberations are by themselves inconclusive, because although Commissioner Jose Nolledo would exclude the power of removal from the President, Commissioner Blas Ople would not. 9 The Court is consequently reluctant to say that the new Constitution has repealed the Local Government Code, Batas Blg. 37. As we said, "supervision" and "removal" are not incompatible terms and one may stand with the other notwithstanding the stronger expression of local autonomy under the new Charter. We have indeed held that in spite of the approval of the Charter, Batas Blg. 337 is still in force and effect. 10 As the Constitution itself declares, local autonomy means "a more responsive and accountable local government structure instituted through a system of decentralization." The Constitution as we observed, does nothing more than to break up the monopoly of the national government over the affairs of local governments and as put by political adherents, to "liberate the local governments from the imperialism of Manila." Autonomy, however, is not meant to end the relation of partnership and interdependence between the central administration and local government units, or otherwise, to user in a regime of federalism. The Charter has not taken such a radical step. Local governments, under the Constitution, are subject to regulation, however limited, and for no other purpose than precisely, albeit paradoxically, to enhance self- government. 11 As we observed in one case, decentralization means devolution of national administration but not power to the local levels. Thus: 0 Now, autonomy is either decentralization of administration or decentralization of power. There is decentralization of administration when the central government delegates administrative powers to political subdivisions in order to broaden the base of government power and in the process to make local governments "more responsive and accountable," and "ensure their fullest development as self-reliant communities and make them more effective partners in the pursuit of national development and social progress." At the same time, it relieves the central government of the burden of managing local affairs and enables it to concentrate on national concerns. The President exercises "general supervision" over them, but only to "ensure that local affairs are administered according to law." He has no control over
their acts in the sense that he can substitute their judgments with his own. 1 Decentralization of power, on the other hand, involves an abdication of political power in the favor of local governments units declared to be autonomous, In that case, the autonomous government is free to chart its own destiny and shape its future with minimum intervention from central authorities. According to a constitutional author, decentralization of power amounts to "selfimmolation," since in that event, the autonomous government becomes accountable not to the central authorities but to its constituency 1 Other issues: on Suspension of 60days 0 Held: it was NOT proper 1 Suspension is not a penalty and is not unlike preventive imprisonment in which the accused is held to insure his presence at the trial. In both cases, the accused (the respondent) enjoys a presumption of innocence unless and until found guilty. 2 Suspension finally is temporary and as the Local Government Code provides, it may be imposed for no more than sixty days. As we held, a longer suspension is unjust and unreasonable, and we might add, nothing less than tyranny. Basco v. PAGCOR Facts: PAGCOR was created under PD 1869 to enable the Government to regulate and centralize all games of chance authorized by existing franchise or permitted by law. To attain its objectives (centralize and integrate the right and authority to operate and conduct games of chance, generate additional revenue to fund infrastructure and socio-civic project, expand tourism, minimize evils prevalent in conduct and operation of gambling clubs) PAGCOR is given territorial jurisdiction all over the Philippines. Under its Charter's repealing clause, all laws, decrees, executive orders, rules and regulations, inconsistent therewith, are accordingly repealed, amended or modified. Issues: 0 WON PD 1869 constitutes a waiver of the right of the City of Manila to impose taxes and legal fees. NO 0 The City of Manila, being a mere Municipal corporation has no inherent right to impose taxes. Thus, "the Charter or statute must plainly show an intent to confer that power or the municipality cannot assume it." Its "power to tax" therefore must always yield to a legislative act which is superior having been passed upon by the state itself which has the "inherent power to tax" 1 The Charter of the City of Manila is subject to control by Congress. It should be stressed that "municipal corporations are
mere creatures of Congress" which has the power to "create and abolish municipal corporations" due to its "general legislative powers." Congress, therefore, has the power of control over LGs. And if Congress can grant the City of Manila the power to tax certain matters, it can also provide for exemptions or even take back the power. 2 The City of Manila's power to impose license fees on gambling, has long been revoked. As early as 1975, the power of LGs to regulate gambling thru the grant of "franchise, licenses or permits" was withdrawn by PD 771 and was vested exclusively on the NG. Only the NG has the power to issue "licenses or permits" for the operation of gambling. Necessarily, the power to demand or collect license fees which is a consequence of the issuance of "licenses or permits" is no longer vested in the City of Manila. 3 LGs have no power to tax instrumentalities of the NG. PAGCOR is a government owned or controlled corporation with an original charter, PD 1869. All of its shares of stocks are owned by the NG. In addition to its corporate powers (Sec. 3, Title II, PD 1869) it also exercises regulatory powers. PAGCOR has a dual role, to operate and to regulate gambling casinos. The latter role is governmental, which places it in the category of an agency or instrumentality of the Government. Being an instrumentality of the Government, PAGCOR should be and actually is exempt from local taxes. Otherwise, its operation might be burdened, impeded or subjected to control by a mere LG. 4 The states have no power by taxation or otherwise, to retard, impede, burden or in any manner control the operation of constitutional laws enacted by Congress to carry into execution the powers vested in the federal government.--> "supremacy" of the NG over LGs. 5 Holmes: absence of power on the part of the States to touch, in that way (taxation) at least, the instrumentalities of the United States 6 mere creatures of the State can defeat National policies thru extermination of what local authorities may perceive to be undesirable activities or enterprise using the power to tax as "a tool for regulation" 1 WON the Local Autonomy Clause of the Constitution will be violated by PD 1869. NO. 7 Art x Sec 5, Consti: Each LG unit shall have the power to create its own source of revenue and to levy taxes, fees, and other charges subject to such guidelines and limitation as the congress may provide, consistent with the basic policy on local autonomy. Such taxes, fees and charges shall accrue exclusively to the LG.
8 power of LG to "impose taxes and fees" is subject to "limitations" which Congress may provide by law. Since PD 1869 remains an "operative" law until "amended, repealed or revoked" (Sec. 3, Art. XVIII, 1987 Constitution), its "exemption clause" remains as an exception to the exercise of the power of LGs to impose taxes and fees. It cannot therefore be violative but rather is consistent with the principle of local autonomy. 9 principle of local autonomy under the 1987 Constitution simply means "decentralization." It does not make LGs sovereign within the state or an "imperium in imperio." LG: political subdivision of a nation or state which is constituted by law and has substantial control of local affairs. In a unitary system of government, such as the government under the Philippine Constitution, LGs can only be an intra sovereign subdivision of one sovereign nation, it cannot be an imperium in imperio. LG in such a system can only mean a measure of decentralization of the function of government. Manila Electric Co, Inc. vs Province of Laguna G.R. No. 131359 Subject: Public Corporation Doctrine: Power to generate revenues Facts: MERALCO was granted franchise for the supply of electric light, heat and power by certain municipalities of the Province of Laguna including, Biñan, Sta Rosa, San Pedro, Luisiana, Calauan and Cabuyao. On 19 January 1983, MERALCO was likewise granted a franchise by the National Electrification Administration to operate an electric light and power service in the Municipality of Calamba, Laguna. On 12 September 1991, Republic Act No. 7160, otherwise known as the “Local Government Code of 1991,” was enacted to take effect on 01 January 1992 enjoining local government units to create their own sources of revenue and to levy taxes, fees and charges, subject to the limitations expressed therein, consistent with the basic policy of local autonomy. Pursuant to the provisions of the Code, respondent province enacted Laguna Provincial Ordinance providing for franchise tax at a rate of 50% of 1% of the gross annual receipts. Provincial Treasurer, then sent a demand letter to MERALCO for the corresponding tax payment. Petitioner MERALCO paid the tax, which then amounted to P19,520,628.42, under protest. A formal claim for refund was
thereafter sent by MERALCO to the Provincial Treasurer of Laguna claiming that the franchise tax it had paid and continued to pay to the National Government pursuant to P.D. 551 already included the franchise tax imposed by the Provincial Tax Ordinance. MERALCO contended that the imposition of a franchise tax under Section 2.09 of Laguna Provincial Ordinance No. 01-92, insofar as it concerned MERALCO, contravened the provisions of Section 1 of P.D. 551 which provides “Any provision of law or local ordinance to the contrary notwithstanding, the franchise tax payable by all grantees of franchises to generate, distribute and sell electric current for light, heat and power shall be two per cent (2%) of their gross receipts received from the sale of electric current and from transactions incident to the generation, distribution and sale of electric current… Such franchise tax shall be payable to the Commissioner of Internal Revenue or his duly authorized representative.” On 28 August 1995, the claim for refund of petitioner was denied in a letter signed by Governor Jose D. Lina. In denying the claim, respondents relied on a more recent law, i.e., Republic Act No. 7160 or the Local Government Code of 1991, than the old decree invoked by petitioner. On 14 February 1996, petitioner MERALCO filed with the RTC a complaint for refund against the Province of Laguna and also Benito R. Balazo in his capacity as the Provincial Treasurer of Laguna. RTC dismissed the complaint holding that the power to tax exercised by the province of Laguna was valid. ISSUE: Whether or not the power to tax was validly exercised. HELD: Prefatorily, it might be well to recall that local governments do not have the inherent power to tax except to the extent that such power might be delegated to them either by the basic law or by statute. Presently, under Article X of the 1987 Constitution, a general delegation of that power has been given in favor of local government units. Under the regime of the 1935 Constitution no similar delegation of tax powers was provided, and local government units instead derived their tax powers under a limited statutory authority. Whereas, then, the delegation of tax powers granted at that time by statute to local governments was confined and defined (outside of which the power was deemed withheld), the present constitutional rule (starting with the 1973 Constitution), however, would broadly confer such tax powers subject only to specific exceptions that the law might prescribe.
Under the now prevailing Constitution, where there is neither a grant nor a prohibition by statute, the tax power must be deemed to exist although Congress may provide statutory limitations and guidelines. The basic rationale for the current rule is to safeguard the viability and self-sufficiency of local government units by directly granting them general and broad tax powers. Nevertheless, the fundamental law did not intend the delegation to be absolute and unconditional; the constitutional objective obviously is to ensure that, while the local government units are being strengthened and made more autonomous, the legislature must still see to it that (a) the taxpayer will not be over-burdened or saddled with multiple and unreasonable impositions; (b) each local government unit will have its fair share of available resources; (c) the resources of the national government will not be unduly disturbed; and (d) local taxation will be fair, uniform, and just. The 1991 Code explicitly authorizes provincial governments, notwithstanding “any exemption granted by any law or other special law, x x x (to) impose a tax on businesses enjoying a franchise.” Indicative of the legislative intent to carry out the Constitutional mandate of vesting broad tax powers to local government units, the Local Government Code has effectively withdrawn under Section 193 thereof, tax exemptions or incentives theretofore enjoyed by certain entities. The Code, in addition, contains a general repealing clause in its Section 534 which states that “All general and special laws, acts, city charters, decrees, executive orders, proclamations and administrative regulations, or part or parts thereof which are inconsistent with any of the provisions of this Code are hereby repealed or modified accordingly.” WHEREFORE, the instant petition is hereby DISMISSED. No costs. G.R. No. 155491 July 21, 2009 SMART COMMUNICATIONS, INC., Petitioner, vs. THE CITY OF DAVAO, represented herein by its Mayor Hon. RODRIGO DUTERTE, and the SANGGUNIANG PANLUNSOD OF DAVAO CITY, Respondents. FACTS: 1. On February 18, 2002, Smart filed a special civil action for declaratory relief3 for the ascertainment of its rights and obligations under the Tax Code of the City of Davao (DAVAO). 2. The tax being imposed is a tax on businesses enjoying a franchise, at the rate of seventy-five percent of one percent of the gross annual receipts for the preceding calendar year based on the
income or receipts realized within the territorial jurisdiction of Davao City. 3. Among the objections raised by Smart were: a. The issuance of its franchise under RA No. 7294, which is subsequent to RA 7160 (Local Government Code) shows the clear legislative intent to exempt it from the provisions of RA 7160 b. Sec. 137 of the LGC is meant to apply to exemptions already existing at the time of its effectivity and not to future exemption c. The power of the City of Davao to impose a franchise tax is subject to statutory limitation such as the “in lieu of all taxes” clause found in RA 7294 d. The imposition of franchise tax by the City of Davao would amount to a violation of the constitutional provision against impairment of contract. 4. Davao, however, invoked the power granted by the Constitution to local government units (LGU) to create their own sources of revenue. 5. The RTC held a decision in favor of Davao stating that the ambiguity in RA 7294 regarding “in lieu of all taxes” must be resolved against the taxpayer. Tax exemptions are construed in strictly against the taxpayer and liberally in favor of the taxing authority. 6. The RTC also held that there was no violation of the nonimpairment clause of the Constitution since the power to tax is based not merely on a valid delegation of legislative power but on the direct authority granted to it by the fundamental law. It added that while such power may be subject to restrictions or conditions imposed by Congress, any such legislative limitation must be consistent with the basic policy of local autonomy. ISSUES: Whether Smart is liable to pay the franchise tax imposed by the City of Davao- YES HELD: 1. Smart alleges that the “in lieu of all taxes” clause of its franchise exempts it from all taxes, both local and national, except the national franchise tax (now VAT), income tax and real property tax. The uncertainty in the “in lieu of all taxes” clause in RA No. 7294 on whether Smart is exempted from both local and national franchise tax must be construed strictly against Smart which claims exemption. Smart has the burden of providing that, aside from the imposed 3% franchise tax, Congress intended it to be exempt from all kinds of franchise taxes-whether local or national. Smart, failed in this regard. 2. Tax exemptions can only be given force if they are clear and categorical. If Congress intended Smart to be exempted from municipal and provincial taxes, it could have used the same
language as the Clavecilla franchise which stated: “in lieu of any and all taxes of any kind, nature or description levied, established ot collected by any authority whatsoever, municipal, provincial or national, from which the grantee is hereby expressly exempted. The interpretation of the franchise granted to Smart is that it refers only to national and not to local taxes. 3. Smart also claims that the clause “in lieu of all taxes” is in the nature of a tax exclusion and not a tax exemption. The distinction between the two: Tax Exemption- This means that the taxpayer does not pay any tax at all. An exemption is an immunity or privilege, it is the freedom from a charge or burden to which others are subjected. Tax Exclusion- The removal of otherwise taxable items from the reach of taxation e.g exclusions from gross income and allowable deductions. An exclusion is also an immunity or privilege which frees a taxpayer from a charge to which others are subjected. The rule that a tax exemption should be applied strictly against the taxpayer and liberally in favor of the government applies equally to tax exclusion. Smart pays VAT, income tax and real property tax. Thus, what it enjoys it more accurately a tax exclusion. 4. Smart posits that the franchise of GLOBE contains a provision exempting it from municipal or local franchise tax, and that Smart should like benefit by these. In granting the franchise of GLOBE under RA No. 7925, Congress did not intend it to operate as a blanket tax exemption to all telecommunications entities. GLOBE pays only 1.5% of its gross receipts in lieu of any and all taxes of any kind, nature or description levies, established or collected by any authority whatsoever, municipal, provincial or national. This grant to GLOBE is clear and categorical. No such provision is found in the franchise of Smart, the kind of tax from which it is exempted is not clearly specified. 5. If the contention of Smart is to be followed. The Government will be burdened of having to keep track of all granted telecommunications franchises, lest some companies be treated unequally. It is different if Congress enacts a law specifically granting uniform advantages, favor, privilege, exemption or immunity to all telecommunication entities. 6. Smart likewise claims a violation of the non-impairment clause since the franchise is in the nature of the contract between the government and Smart. Smart’s franchise was granted with the express condition that it is subject to amendment, alteration or repeal. As held in Tolentino vs. Secretary of Finance: “Existing laws are read into contracts in order to fix obligations as between parties, the reservation of essential attributes of sovereign power is also read into contracts as a basic
postulate of the legal order. The policy of protecting contracts against impairment presupposes the maintenance of a government which retains adequate authority to secure the peace and good order of society. In truth, the Contract Clause was never been though as a limitation on the exercise of the State’s power of taxation save only where a tax exemption has been granted for a valid consideration xxx.” Dispositive: Wherefore, the instant petition is denied for lack of merit. Costs against petitioner. Yamane vs Lepanto Facts: Respondent BA-Lepanto Condominium Corporation (the "Corporation") is a duly organized condominium corporation constituted in accordance with the Condominium Act, which owns and holds title to the common and limited common areas of the BALepanto Condominium (the "Condominium"). The Corporation is authorized, under Article V of its Amended By-Laws, to collect regular assessments from its members for operating expenses, capital expenditures on the common areas, and other special assessments as provided for in the Master Deed with Declaration of Restrictions of the Condominium. On 15 December 1998, the Corporation received a Notice of Assessment dated 14 December 1998 signed by the City Treasurer. The Notice of Assessment stated that the Corporation is "liable to pay the correct city business taxes, fees and charges," computed as totaling P1,601,013.77 for the years 1995 to 1997. HYPERLINK "http://www.lawphil.net/judjuris/juri2005/oct2005/gr_154993_2005. html" \l "fnt3" 3 The Notice of Assessment was silent as to the statutory basis of the business taxes assessed. Proceeding from the premise that its tax liability arose from Section 3A.02(m) of the Makati Revenue Code, the Corporation proceeded to argue that under both the Makati Code and the Local Government Code, "business" is defined as "trade or commercial activity regularly engaged in as a means of livelihood or with a view to profit." It was submitted that the Corporation, as a condominium corporation, was organized not for profit, but to hold title over the common areas of the Condominium, to manage the Condominium for the unit owners, and to hold title to the parcels of land on which the Condominium was located. Neither was the Corporation authorized, under its articles of incorporation or by-laws to engage in profit-making activities. The assessments it did collect from the unit owners were for capital expenditures and operating expenses.
From the denial of the protest, the Corporation filed an Appeal with the Regional Trial Court (RTC) of Makati which dismiss the appeal and concluded that the activities of the Corporation fell squarely under the definition of "business" under Section 13(b) of the Local Government Code, and thus subject to local business taxation. The Corporation filed a Petition for Review under Rule 42 of the Rules of Civil Procedure with the Court of Appeals. Initially, the petition was dismissed outright on the ground that only decisions of the RTC brought on appeal from a first level court could be elevated for review under the mode of review prescribed under Rule 42. However, the Corporation pointed out in its Motion for Reconsideration that under Section 195 of the Local Government Code, the remedy of the taxpayer on the denial of the protest filed with the local treasurer is to appeal the denial with the court of competent jurisdiction. Persuaded by this contention, the Court of Appeals reinstated the petition. The appellate court reversed the RTC and declared that the Corporation was not liable to pay business taxes to the City of Makati. Upon denial of her Motion for Reconsideration,http://www.lawphil.net/judjuris/juri2005/oct20 05/gr_154993_2005.html - fnt21 the City Treasurer elevated the present Petition for Review under Rule 45. It is argued that the Corporation is engaged in business, for the dues collected from the different unit owners is utilized towards the beautification and maintenance of the Condominium, resulting in "full appreciative living values" for the condominium units which would command better market prices should they be sold in the future. The City Treasurer likewise avers that the rationale for business taxes is not on the income received or profit earned by the business, but the privilege to engage in business. The City Treasurer also claims that the Corporation had filed the wrong mode of appeal before the Court of Appeals when the latter filed its Petition for Review under Rule 42. It is reasoned that the decision of the Makati RTC was rendered in the exercise of original jurisdiction, it being the first court which took cognizance of the case. Accordingly, with the Corporation having pursued an erroneous mode of appeal, the RTC Decision is deemed to have become final and executory. Issues and Ruling:
Procedural: 0 Procedural: Whether the RTC, in deciding an appeal taken from a denial of a protest by a local treasurer under Section 195 of the Local Government Code, exercises "original jurisdiction" or "appellate jurisdiction? Original There are 2 conflicting views on this issue: 0 Position of CA: RTC, in reviewing denials of protests by local treasurers, exercises appellate jurisdiction. This is anchored on the language of Sec. 195 of the LGC which states that the remedy of the taxpayer whose protest is denied by the local treasurer is “to appeal with the court of competent jurisdiction.” The LGC however does not elaborate on how such “appeal” should be undertaken. 1 Position of City Treasurer: jurisdiction exercised is original in character. Court affirmed the position of the City Treasurer. The LGC does not expressly confer appellate jurisdiction on the part of RTCs from the denial of a tax protest by a local treasurer. On the other hand, Section 22 of BP 129 expressly delineates the appellate jurisdiction of the RTCs, confining appellate jurisdiction to cases decided by Metropolitan, Municipal, and Municipal Circuit Trial Courts. BP 129 does not confer appellate jurisdiction on RTCs over rulings made by non-judicial entities. HOWEVER, this pronouncement is subject to two qualifications. 0 First, in this case there are significant reasons for the Court to overlook the procedural error and ultimately uphold the adjudication of the jurisdiction exercised by the CA. 1 Second, the doctrinal weight of the pronouncement is confined to cases and controversies that emerged prior to the enactment of RA 9282 (effective April 2004), the law which expanded the jurisdiction of the Court of Tax Appeals (CTA). Under RA 9282, the CTA, not CA, exercises exclusive appellate jurisdiction to review on appeal decisions, orders or resolutions of the RTCs in local tax cases whether originally decided or resolved by them in the exercise of their original or appellate jurisdiction. RA 9282 thus would not apply here because the case arose prior to the affectivity of the law. 1 Substantive: Whether the City of Makati may collect business taxes on condominium corporations? No The power of local government units to impose taxes within its territorial jurisdiction derives from the Constitution itself, which recognizes the power of these units "to create its own sources of
revenue 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." Section 143 of the Code specifically enumerates several types of business on which municipalities and cities may impose taxes. These include manufacturers, wholesalers, distributors, dealers of any article of commerce of whatever nature; those engaged in the export or commerce of essential commodities; contractors and other independent contractors; banks and financial institutions; and peddlers engaged in the sale of any merchandise or article of commerce. Moreover, the local sanggunian is also authorized to impose taxes on any other businesses not otherwise specified under Section 143 which the sanggunian concerned may deem proper to tax. At no point has the City Treasurer been candid enough to inform the Corporation, the RTC, the Court of Appeals, or this Court for that matter, as to what exactly is the precise statutory basis under the Makati Revenue Code for the levying of the business tax on petitioner. Nowhere therein is there any citation made by the City Treasurer of any provision of the Revenue Code which would serve as the legal authority for the collection of business taxes from condominiums in Makati. The initial inquiry is what provision of the Makati Revenue Code does the City Treasurer relies on to make the Corporation liable for business taxes. The notice of assessment, which stands as the first instance the taxpayer is officially made aware of the pending tax liability, should be sufficiently informative to apprise the taxpayer the legal basis of the tax. Section 195 of the Local Government Code does not go as far as to expressly require that the notice of assessment specifically cite the provision of the ordinance involved but it does require that it state the nature of the tax, fee or charge, the amount of deficiency, surcharges, interests and penalties. Reference to the local tax ordinance is vital, for the power of local government units to impose local taxes is exercised through the appropriate ordinance enacted by the Sanggunian, and not by the Local Government Code alone. What determines tax liability is the tax ordinance, the Local Government Code being the enabling law for the local legislative body. The creation of the condominium corporation is sanctioned by Republic Act No. 4726. Under the law, to enable the orderly administration over these common areas which are jointly owned by the various unit owners, the Condominium Act permits the creation of a condominium corporation, which is specially formed
for the purpose of holding title to the common area, in which the holders of separate interests shall automatically be members or shareholders, to the exclusion of others, in proportion to the appurtenant interest of their respective units. Even though the Corporation is empowered to levy assessments or dues from the unit owners, these amounts collected are not intended for the incurrence of profit by the Corporation or its members, but to shoulder the multitude of necessary expenses that arise from the maintenance of the Condominium Project. In rejecting the contention of the City Treasurer that the collection of these assessments and dues are "with the end view of getting full appreciative living values" for the condominium units, and as a result, profit is obtained once these units are sold at higher prices, it held that: First, if any profit is obtained by the sale of the units, it accrues not to the corporation but to the unit owner. Second, if the unit owner does obtain profit from the sale of the corporation, the owner is already required to pay capital gains tax on the appreciated value of the condominium unit. Whatever capacity the Corporation may have pursuant to its power to exercise acts of ownership over personal and real property is limited by its stated corporate purposes, which are by themselves further limited by the Condominium Act. A condominium corporation, while enjoying such powers of ownership, is prohibited by law from transacting its properties for the purpose of gainful profit. The Court holds that condominium corporations are generally exempt from local business taxation under the Local Government Code, irrespective of any local ordinance that seeks to declare otherwise. Still, the City Treasurer has not posited the claim that the Corporation is engaged in business activities beyond the statutory purposes of a condominium corporation. The assessment appears to be based solely on the Corporation’s collection of assessments from unit owners, such assessments being utilized to defray the necessary expenses for the Condominium Project and the common areas. There is no contemplation of business, no orientation towards profit in this case. Hence, the assailed tax assessment has no basis under the Local Government Code or the Makati Revenue Code, and the insistence of the city in its collection of the void tax constitutes an attempt at deprivation of property without due process of law.
