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THIRD DIVISION

[G.R. No. 173863. September 15, 2010.]

CHEVRON PHILIPPINES, INC. (Formerly CALTEX

PHILIPPINES, INC.), petitioner, vs. BASES CONVERSION

DEVELOPMENT AUTHORITY and CLARKDEVELOPMENT CORPORATION, respondents.

DECISION

VILLARAMA, JR., Jp:

This petition for review on certiorari assails the Decision1dated November 30,2005 of the Court of Appeals (CA) in CA-G.R. SP No. 87117, which affirmed theResolution2dated August 2, 2004 and the Order3dated September 30, 2004 ofthe Office of the President in O.P. Case No. 04-D-170. SaCIDT

The facts follow.

On June 28, 2002, the Board of Directors of respondent Clark Development

Corporation (CDC) issued and approved Policy Guidelines on the Movement ofPetroleum Fuel to and from the Clark Special Economic Zone (CSEZ)4whichprovided, among others, for the following fees and charges:

1.Accreditation Fee

xxx xxx xxx

2.Annual Inspection Fee

xxx xxx xxx

3.Royalty Fees

Suppliers delivering fuel from outside sources shall be assessedthe following royalty fees:

-Php0.50 per literthose delivering Coastal petroleum fuel toCSEZ locators not sanctioned by CDC

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-Php1.00 per literthose bringing-in petroleum fuel (exceptJet A-1) from outside sources

xxx xxx xxx

4.Gate Pass Fee

xxx xxx xxx5

The above policy guidelines were implemented effective July 27, 2002. OnOctober 1, 2002, CDC sent a letter6to herein petitioner Chevron Philippines, Inc.(formerly Caltex Philippines, Inc.), a domestic corporation which has beensupplying fuel to Nanox Philippines, a locator inside the CSEZ since 2001,informing the petitioner that a royalty fee of P0.50 per liter shall be assessed on itsdeliveries to Nanox Philippines effective August 1, 2002. Thereafter, on October21, 2002 a Statement of Account7was sent by CDC billing the petitioner for

royalty fees in the amount of P115,000.00 for its fuel sales from Coastal depot toNanox Philippines from August 1-31 to September 3-21, 2002.

Claiming that nothing in the law authorizes CDC to impose royalty fees or anyfees based on a per unit measurement of any commodity sold within the specialeconomic zone, petitioner sent a letter8dated October 30, 2002 to the Presidentand Chief Executive Officer of CDC, Mr. Emmanuel Y. Angeles, to protest theassessment for royalty fees. Petitioner nevertheless paid the said fees under proteston November 4, 2002. CcTIDH

On August 18, 2003, CDC again wrote a letter9to petitioner regarding the latter'sunsettled royalty fees covering the period of December 2002 to July 2003.Petitioner responded through a letter10dated September 8, 2003 reiterating itscontinuing objection over the assessed royalty fees and requested a refund of theamount paid under protest on November 4, 2002. The letter also asked CDC torevoke the imposition of such royalty fees. The request was denied by CDC in aletter11dated September 29, 2003.

Petitioner elevated its protest before respondent Bases Conversion DevelopmentAuthority (BCDA) arguing that the royalty fees imposed had no reasonable

relation to the probable expenses of regulation and that the imposition on a perunit measurement of fuel sales was for a revenue generating purpose, thus, akin toa "tax". The protest was however denied by BCDA in a letter12dated March 3,2004.

Petitioner appealed to the Office of the President which dismissed13the appealfor lack of merit on August 2, 2004 and denied14petitioner's motion forreconsideration thereof on September 30, 2004.

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Aggrieved, petitioner elevated the case to the CA which likewise dismissed15theappeal for lack of merit on November 30, 2005 and denied16the motion forreconsideration on July 26, 2006.

The CA held that in imposing the challenged royalty fees, respondent CDC was

exercising its right to regulate the flow of fuel into CSEZ, which is bolstered bythe fact that it possesses exclusive right to distribute fuel within CSEZ pursuant toits Joint Venture Agreement (JVA)17with Subic Bay Metropolitan Authority(SBMA) and Coastal Subic Bay Terminal, Inc. (CSBTI) dated April 11, 1996. Theappellate court also found that royalty fees were assessed on fuel delivered, not onthe sale, by petitioner and that the basis of such imposition was petitioner'sdelivery receipts to Nanox Philippines. The fact that revenue is incidentally alsoobtained does not make the imposition a tax as long as the primary purpose ofsuch imposition is regulation.18

Petitioner filed a motion for reconsideration but the CA denied the same in itsResolution19dated July 26, 2006.

Hence, this petition raising the following grounds:

I.THE ISSUE RAISED BEFORE THE COURT A QUO IS AQUESTION OF SUBSTANCE NOT HERETOFOREDETERMINED BY THE HONORABLE SUPREME COURT.

II.THE RULING OF THE COURT OF APPEALS THAT THE CDCHAS THE POWER TO IMPOSE THE QUESTIONED

"ROYALTY FEES" IS CONTRARY TO LAW.

III.THE COURT OF APPEALS WAS MANIFESTLY MISTAKENAND COMMITTED GRAVE ABUSE OF DISCRETION ANDA CLEAR MISUNDERSTANDING OF FACTS WHEN ITRULED CONTRARY TO THE EVIDENCE THAT: (i) THEQUESTIONED "ROYALTY FEE" IS PRIMARILY FORREGULATION; AND (ii) ANY REVENUE EARNEDTHEREFROM IS MERELY INCIDENTAL TO THEPURPOSE OF REGULATION.

IV.THE COURT OF APPEALS FAILED TO GIVE DUE WEIGHTAND CONSIDERATION TO THE EVIDENCE PRESENTEDBY CPI SUCH AS THE LETTERS COMING FROMRESPONDENT CDC ITSELF PROVING THAT THEQUESTIONED ROYALTY FEES ARE IMPOSED ON THEBASIS OF FUEL SALES (NOT DELIVERY OF FUEL) ANDNOT FOR REGULATION BUT PURELY FOR INCOMEGENERATION,I.E., AS PRICE OR CONSIDERATION FOR

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THE RIGHT TO MARKET AND DISTRIBUTE FUEL INSIDE

THE CSEZ.20SECHIA

Petitioner argues that CDC does not have any power to impose royalty fees on saleof fuel inside the CSEZ on the basis of purely income generating functions and its

exclusive right to market and distribute goods inside the CSEZ. Such impositionof royalty fees for revenue generating purposes would amount to a tax, which therespondents have no power to impose. Petitioner stresses that the royalty feeimposed by CDC is not regulatory in nature but a revenue generating measure toincrease its profits and to further enhance its exclusive right to market anddistribute fuel in CSEZ.21

Petitioner would also like this Court to note that the fees imposed, assumingarguendo they are regulatory in nature, are unreasonable and are grossly in excessof regulation costs. It adds that the amount of the fees should be presumed to be

unreasonable and that the burden of proving that the fees are not unreasonable lieswith the respondents.22

On the part of the respondents, they argue that the purpose of the royalty fees is toregulate the flow of fuel to and from the CSEZ. Such being its main purpose, andrevenue (if any) just an incidental product, the imposition cannot be considered atax. It is their position that the regulation is a valid exercise of police power sinceit is aimed at promoting the general welfare of the public. They claim that beingthe administrator of the CSEZ, CDC is responsible for the safe distribution of fuelproducts inside the CSEZ.23

The petition has no merit.

In distinguishing tax and regulation as a form of police power, the determiningfactor is the purpose of the implemented measure. If the purpose is primarily toraise revenue, then it will be deemed a tax even though the measure results insome form of regulation. On the other hand, if the purpose is primarily to regulate,then it is deemed a regulation and an exercise of the police power of the state,even though incidentally, revenue is generated. Thus, in Gerochi v. Department of

Energy,24the Court stated:

The conservative and pivotal distinction between these two (2) powersrests in the purpose for which the charge is made. If generation ofrevenue is the primary purpose and regulation is merely incidental, theimposition is a tax; but if regulation is the primary purpose, the fact thatrevenue is incidentally raised does not make the imposition a tax.

In the case at bar, we hold that the subject royalty fee was imposed primarily forregulatorypurposes, and not for the generation of income or profits as petitioner

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claims. The Policy Guidelines on the Movement of Petroleum Fuel to and from theClark Special Economic Zone25provides: EDcICT

DECLARATION OF POLICY

It is hereby declared the policy of CDC to develop and maintain theClark Special Economic Zone (CSEZ) as a highly secured zone freefrom threats of any kind, which could possibly endanger the lives andproperties of locators, would-be investors, visitors, and employees.

It is also declared the policy of CDC to operate and manage the CSEZ asa separate customs territory ensuring free flow or movement of goods

and capital within, into and exported out of the CSEZ.26(Emphasissupplied.)

From the foregoing, it can be gleaned that the Policy Guidelines was issued, first

and foremost, to ensure the safety, security, and good condition of the petroleumfuel industry within the CSEZ. The questioned royalty fees form part of theregulatory framework to ensure "free flow or movement" of petroleum fuel to andfrom the CSEZ. The fact that respondents have the exclusive right to distribute andmarket petroleum products within CSEZ pursuant to its JVA with SBMA andCSBTI does not diminish the regulatory purpose of the royalty fee for fuelproducts supplied by petitioner to its client at the CSEZ.

As pointed out by the respondents in their Comment, from the time the JVA tookeffect up to the time CDC implemented its Policy Guidelines on the Movement of

Petroleum Fuel to and from the CSEZ, suppliers/distributors were allowed to bringin petroleum products inside CSEZ without any charge at all. But this arrangementclearly negates CDC's mandate under the JVA as exclusive distributor of CSBTI'sfuel products within CSEZ and respondents' ownership of the Subic-ClarkPipeline.27On this score, respondents were justified in charging royalty fees onfuel delivered by outside suppliers.

However, it was erroneous for petitioner to argue that such exclusive right ofrespondent CDC to market and distribute fuel inside CSEZ is the sole basis of theroyalty fees imposed under the Policy Guidelines. Being the administrator ofCSEZ, the responsibility of ensuring the safe, efficient and orderly distribution offuel products within the Zone falls on CDC. Addressing specific concernsdemanded by the nature of goods or products involved is encompassed in therange ofservices which respondent CDC is expected to provide under the law, inpursuance of its general power ofsupervision and controlover the movement ofall supplies and equipment into the CSEZ.

Section 2 of Executive Order No. 8028provides:

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SEC. 2.Powers and Functions of the Clark Development Corporation.The BCDA, as the incorporator and holding company of its Clarksubsidiary, shall determine the powers and functions of the CDC.Pursuant to Section 15 of RA 7227, the CDC shall have the specificpowers of the Export Processing Zone Authority as provided for in

Section 4 of Presidential Decree No. 66 (1972) as amended.IHSTDE

Among those specific powers granted to CDC under Section 4 of PresidentialDecree No. 66 are:

(a)To operate, administer and manage the export processing zoneestablished in the Port of Mariveles, Bataan, and such other exportprocessing zones as may be established under this Decree; to construct,acquire, own, lease, operate and maintain infrastructure facilities, factorybuilding, warehouses, dams, reservoir, water distribution, electric lightand power system, telecommunications and transportation, or such other

facilities and services necessary or useful in the conduct of commerce orin the attainment of the purposes and objectives of this Decree;

xxx xxx xxx

(g)To fix, assess and collect storage charges and fees, including rentalsfor the lease, use or occupancy of lands, buildings, structure,warehouses, facilities and other properties owned and administered bythe Authority; and to fix and collect the fees and charges for theissuance of permits, licenses and the rendering of services notenumerated herein, the provisions of law to the contrary

notwithstanding;

(h)For the due and effective exercise of the powers conferred by law andto the extend (sic) [extent] requisite therefor, to exercise exclusivejurisdiction and sole police authority over all areas owned oradministered by the Authority. For this purpose, the Authority shall have

supervision and control over the bringing in or taking out of the

Zone, including the movement therein, of all cargoes, wares, articles,machineries, equipment, supplies or merchandise of every type anddescription;

xxx xxx xxx (Emphasis supplied.)

In relation to the regulatory purpose of the imposed fees, this Court inProgressiveDevelopment Corporation v. Quezon City,29stated that ". . . the impositionquestioned must relate to an occupation or activity that so engages the publicinterest in health, morals, safety and development as to require regulation for theprotection and promotion of such public interest; the imposition must also bear a

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reasonable relation to the probable expenses of regulation, taking into account notonly the costs of direct regulation but also its incidental consequences as well."

In the case at bar, there can be no doubt that the oil industry is greatly imbued withpublic interest as it vitally affects the general welfare.30In addition, fuel is a

highly combustible product which, if left unchecked, poses a serious threat to lifeand property. Also, the reasonable relation between the royalty fees imposed on a"per liter" basis and the regulation sought to be attained is that the higher thevolume of fuel entering CSEZ, the greater the extent and frequency of supervisionand inspection required to ensure safety, security, and order within the Zone. aEACcS

Respondents submit that increased administrative costs were triggered by securityrisks that have recently emerged, such as terrorist strikes in airlines andmilitary/government facilities. Explaining the regulatory feature of the chargesimposed under the Policy Guidelines, then BCDA President Rufo Colayco in his

letter dated March 3, 2004 addressed to petitioner's Chief Corporate Counsel,stressed:

The need for regulation is more evident in the light of the 9/11 tragedyconsidering that what is being moved from one location to another arehighly combustible fuel products that could cause loss of lives anddamage to properties, hence, a set of guidelines was promulgated on 28June 2002. It must be emphasized also that greater security measuremust be observed in the CSEZ because of the presence of the airportwhich is a vital public infrastructure.

We are therefore constrained to sustain the imposition of the royalty feeson deliveries of CPI's fuel products to Nanox Philippines.31

As to the issue of reasonableness of the amount of the fees, we hold that noevidence was adduced by the petitioner to show that the fees imposed areunreasonable.

Administrative issuances have the force and effect of law.32They benefit fromthe same presumption of validity and constitutionality enjoyed by statutes. Thesetwo precepts place a heavy burden upon any party assailing governmentalregulations.33Petitioner's plain allegations are simply not enough to overcomethe presumption of validity and reasonableness of the subject imposition.

WHEREFORE, the petition is DENIED for lack of merit and the Decision of theCourt of Appeals dated November 30, 2005 in CA-G.R. SP No. 87117 is herebyAFFIRMED.

With costs against the petitioner. THAICD

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SO ORDERED.

Carpio Morales, Peralta, *Bersamin and Sereno, JJ., concur.

Footnotes

1.Rollo, pp. 33-40. Penned by Associate Justice Aurora Santiago-Lagman, withAssociate Justices Ruben T. Reyes (now a retired member of this Court) andRebecca De Guia-Salvador, concurring.

2.CA rollo, pp. 35-37.

3.Id. at 38-40.

4.Id. at 41-50.

5.Id. at 45-46.

6.Id. at 51.

7.Id. at 52.

8.Id. at 53.

9.Id. at 54.

10.Id. at 55.

11.Id. at 56-57.

12.Id. at 61-62.

13.Id. at 35-37.

14.Id. at 38-40.

15.Rollo, p. 40.

16.Id. at 41.

17.Id. at 154-167.

18.Id. at 39.

19.Id. at 41.

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20.Id. at 13-14.

21.Id. at 220-229.

22.Id. at 230-234.

23.Id. at 255-256.

24.G.R. No. 159796, July 17, 2007, 527 SCRA 696, 715, citing ProgressiveDevelopment Corporation v. Quezon City, G.R. No. 36081, April 24, 1989, 172SCRA 629, 635.

25.Rollo, pp. 43-51.

26.Id. at 43.

27.Id. at 139-140.

28.AUTHORIZING THE ESTABLISHMENT OF THE CLARK DEVELOPMENTCORPORATION AS THE IMPLEMENTING ARM OF THE BASESCONVERSION AND DEVELOPMENT AUTHORITY FOR THE CLARKSPECIAL ECONOMIC ZONE, AND DIRECTING ALL HEADS OFDEPARTMENTS, BUREAUS, OFFICES, AGENCIES ANDINSTRUMENTALITIES OF GOVERNMENT TO SUPPORT THEPROGRAM.

29.Supra note 24, at 636.

30.Caltex Philippines, Inc. v. Commission on Audit, G.R. No. 92585, May 8, 1992, 208SCRA 726, 756.

31.CA rollo, p. 61.

32.Mirasol v. Department of Public Works and Highways, G.R. No. 158793, June 8,2006, 490 SCRA 318, 347, citing Eslao v. Commission on Audit, G.R. No.108310, September 1, 1994, 236 SCRA 161, 175.

33.Id. at 347-348, citing JMM Promotion and Management, Inc. v. Court of Appeals,

G.R. No. 120095, August 5, 1996, 260 SCRA 319.

*Designated additional member per Special Order No. 885 dated September 1, 2010.

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THIRD DIVISION

[G.R. No. 170532. April 30, 2009.]

THE PROVINCIAL ASSESSOR OF MARINDUQUE, petitioner, vs. THE

HONORABLE COURT OF APPEALS AND MARCOPPER MINING

CORPORATION, respondents.DECISION

AUSTRIA-MARTINEZ, J p:

The Provincial Assessor of the Province of Marinduque (petitioner) assails by

Petition for Certiorari under Rule 65 of the Rules of Court the May 30, 2005

Decision 1 of the Court of Appeals (CA) which declared the Siltation Dam and

Decant System of Marcopper Mining Corporation (respondent) exempt from real

property tax; and the September 29, 2005 CA Resolution 2 which denied

petitioner's motion for reconsideration. DEcTCa

Petitioner issued against respondent an Assessment Notice, 3 dated March 28,1994, for real property taxes due on the latter's real properties, including its

Siltation Dam and Decant System (subject property) at Barangay Lamese, Sta.

Cruz, Marinduque. The subject property is covered by Tax Declaration No. 05-

35697 dated November 17, 1993, and has a market value of Php36,360,996.19. 4

Respondent paid the tax demanded, 5 but appealed the assessment before the

Local Board of Assessment Appeals (LBAA) on the ground that the subject

property is exempt from real property taxation under Section 234 (e) of Republic

Act (R.A.) No. 7160 6 or the Local Government Code of 1991, which provides:

Sec. 234. Exemptions from Real Property Tax.The following are exemptedfrom payment of the real property tax:

xxx xxx xxx

(e) Machinery and equipment used for pollution control and environmental

protection.

xxx xxx xxx (Emphasis supplied)

Attached to its appeal is an Affidavit issued by its Chief Mining Engineer Ricardo

Esquieres, Jr. (Esquieres), stating that the subject property was constructed to

comply with the condition imposed by the Department of Environment and

Natural Resources (DENR) that respondent prevent run-offs and silt materialsfrom contaminating the Mogpog and Boac Rivers; and describing the subject

property as a specialized combination of essential impervious earth materials with

a special provision for a spillway and a diversion canal. Esquieres explains that the

subject property is intended for the purpose of pollution control, sediment control,

domestic and agricultural water supply and flood control. 7 DCASIT

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Respondent also submitted a May 24, 1994 Certification issued by DENR

Regional Technical Director Carlos J. Magno that the subject property is a

"Siltation Dam structure intended primarily for pollution control of silted materials

. . . ." 8

In a Decision 9 dated November 10, 1995, the LBAA dismissed respondent'sappeal for having been filed out of time. It further held that the subject property is

taxable as an improvement on the principal real property, citing the ruling of the

Court in Benguet Corporation v. Central Board of Assessment Appeals 10 that a

tailings dam is a permanent improvement not exempt from real property taxation.

Respondent appealed 11 to the Central Board of Assessment Appeals (CBAA)

which, in a Decision 12 dated December 21, 1998, held that respondent's appeal

with the LBAA was timely, but the same lacked legal basis because the subject

property was neither a machinery nor an equipment but a permanent improvement,

and therefore not tax exempt under Sec. 234 (e) of R.A. No. 7160. Citing thedefinition of machinery under Sec. 199 of R.A. No. 7160, viz.: TAEcSC

Sec. 199. Definition of Terms.When used in this Title, the term:

xxx xxx xxx

(o) Machinery embraces machines, equipment, mechanical contrivances,

instruments, appliances or apparatus which may or may not be attached,

permanently or temporarily, to the real property. It includes the physical facilities

for production, the installations and appurtenant service facilities, those which are

mobile, self-powered or self-propelled, and those not permanently attached to the

real property which are actually, directly, and exclusively used to meet the needsof the particular industry, business or activity and which by their very nature and

purpose are designed for, or necessary to its manufacturing, mining, logging,

commercial, industrial or agricultural purposes."

the CBAA held that to be considered a "machinery", the subject property must

either be a physical facility for production, or a service facility, or one that is

actually, directly and exclusively used to meet the needs of the particular industry,

business, or activity and which by its very nature and purpose is designed for, or

necessary to a manufacturing, mining, logging, commercial, industrial or

agricultural purpose. The subject property does not produce anything nor operateas auxiliary to a production process; thus, it is neither a physical facility for

production nor a service facility. It is not even necessary to the mining activity of

respondent because its purpose is merely to contain silt and sediments. 13

EHaCID

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Moreover, the CBAA noted that based on an ocular inspection it conducted, the

subject property had not been actually used for pollution control for it had been

out of operation since 1993. 14

Respondent filed a Petition/Motion for Partial Reconsideration, 15 but the CBAA

denied the same in its July 27, 2000 Resolution. 16Respondent appealed 17 to the CA on the sole issue of whether the subject

property is tax exempt under Sec. 234 (e) of R.A. No. 7160. 18

The CA reversed the LBAA and CBAA in its Decision dated May 30, 2005 herein

assailed, the dispositive portion of which reads:

THE FOREGOING DISQUISITIONS CONSIDERED, the instant petition for

review is hereby GRANTED, the assailed Decision and Resolution of the Central

Board of Assessment Appeals, dated December 21, 1998 and July 27, 2000,

respectively are REVERSED and SET ASIDE. The petitioner's siltation dam and

decant system being exempt from real property tax as it is hereby determined, theMunicipal Treasurer of Sta. Cruz, Marinduque, is hereby directed to refund the tax

payments made by petitioner under protest, or in lieu thereof, to credit said

payments in favor of petitioner for any taxes it will be required to pay in the

future. DIEcHa

SO ORDERED. 19

The CA held that the concept of machinery under Section 199 of R.A. No. 7160 is

broad enough to include a "machinery, instrument, apparatus or device consisting

of parts which, functioning together, allows a person to perform a task more

efficiently", such as the subject property. Not only does it function as a machinery,but it is also actually and directly used for the mining business of petitioner. The

CA noted that it was constructed in compliance with a DENR requirement; thus, it

"is part and parcel of [respondent's] mining operations to protect the environment

within which it operates . . . [i]t is a device used for cleaning up after production,

in order to clean the water which must necessarily flow into the Mogpog and Boac

Rivers". 20

Thus, the CA held that the subject property is exempt from real property taxation

under Section 91 of R.A. No. 7942 or the Philippine Mining Act of 1995, 21 viz.:

Sec. 91. Incentives for Pollution Control Devices. Pollution controldevices acquired, constructed or installed by contractors shall not be considered as

improvements on the land or building where they are placed, and shall not be

subject to real property and other taxes or assessments: Provided, however, That

payment of mine wastes and tailings fees is not exempted. (Emphasis supplied)

AaIDHS

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It qualifies as a pollution control device defined under DENR Administrative

Order No. 95-23 as an "infrastructure, machinery, equipment, and/or improvement

used for impounding, treating or neutralizing, precipitating, filtering, conveying

and cleansing mine industrial waste and tailing, as well as eliminating and

reducing hazardous effects of solid particles, chemicals, liquids or other harmfulby-products and gases emitted from any facility utilized in mining operations for

their disposal". 22 The definition "extends to all kinds of pollution control devices

acquired, constructed, or installed on the land or buildings of the mining

corporation". 23

Finally, the CA ruled that, contrary to the view of the CBAA, the non-operational

state of the subject property "does not remove it from the purview of the clear

provisions of R.A. No. 7160 . . . and R.A. No. 7942 . . . [i]n the absence of clear

and convincing evidence that the siltation dam and decant system was inutile to

achieve its purpose prior to being damaged, and continued to be so . . . ." 24Petitioner filed a Motion for Reconsideration 25 but the CA denied it in a

Resolution 26 dated September 29, 2005.

Hence, the present petition, raising two main issues:

I. The propriety of the present action for certiorari under Rule 65 of the Rules

of Court: EHCaDS

i. Whether or not there is available to Petitioner, the remedy of appeal or

other plain, speedy and adequate remedy in the ordinary course of law;

ii. Whether or not a petition for review on certiorari under Rule 45 of the

Rules of Court is the appropriate remedy;iii. Whether or not, if available to the Petitioner, the remedy of appeal or other

plain, speedy and adequate remedy in the ordinary course of law were lost through

the fault of the Petitioner.

II. Whether or not the Respondent court committed grave abuse of discretion

amounting to lack or excess of jurisdiction when it rendered the Decision and its

subsequent Resolution, exempting the siltation dam and decant system of

Respondent Marcopper from the real property tax imposed by the Provincial

Government of Marinduque.

i. Respondent Court of Appeals committed grave abuse of discretionamounting to lack or excess of jurisdiction when it whimsically, arbitrarily and

capriciously disregarded by treating as though non-existent, the established and

undisputed fact that the Siltation Dam Decant System of Respondent Marcopper

was damaged and has not been in operation since 1993 up to, at the very least, the

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ocular inspection conducted by the CBAA in November 1996, if not up to the

present, given the failure of Respondent Marcopper to claim otherwise; cTAaDC

ii. Respondent Court of Appeals committed grave abuse of discretion

amounting to lack or excess of jurisdiction when it whimsically, arbitrarily and

capriciously disregarded, by treating as though non-existent, the established andundisputed fact that Respondent Marcopper does not have a certificate of tax

exemption from the DENR under the provisions of the Philippine Mining Act of

1995 so as to entitle it to exemption from the realty tax imposed by the local

government of Marinduque.

iii. Respondent Court of Appeals committed grave abuse of discretion

amounting to lack or excess of jurisdiction when, inspite of the non-operation

during the relevant years of the Siltation Dam and Decant System, the lack of

certificate of tax exemption therefor and the clear and unambiguous provisions of

the Local Government Code and the Philippine Mining Act of 1995, it declaredthe aforesaid real property as a machinery and equipment or a pollution control

device that is exempt from realty tax. 27 (Emphasis supplied) ScHADI

Petitioner posits that the CA committed not only a reversible error in holding that

the subject property is tax exempt under Sec. 234 (e) of R.A. No. 7160, but also a

grave abuse of discretion in discarding key factual findings of both the LBAA and

the CBAA regarding the nature of the subject property which factual findings

respondent did not even controvert. Petitioner points out that the CBAA found that

the subject property had not been used for pollution control because it had been

out of operation since 1993; 28 and respondent admitted this in its Petition forReview before the CA where it categorically stated that "[w]hat is not denied,

however, which even the barangay resolutions state was that the siltation dam was

damaged in 1993 when a typhoon hit Marinduque. This naturally affected the

environment in the area for which reason Marcopper specifically wanted to repair

the dam". 29 Yet, petitioner argues, the CA completely ignored such undisputed

fact by holding that there is "absence of clear and convincing evidence that the

siltation dam and decant system was inutile to achieve its purpose prior to being

damaged, and continued to be so . . . ." 30

Petitioner further cites the finding of the CBAA that respondent did not obtainfrom the DENR a certification of the tax exempt classification of the subject

properties. This CBAA finding was not controverted by respondent in its

pleadings before the CA; yet, said court completely glossed over this matter and

declared the subject properties tax exempt. 31 aSATHE

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On the other hand, respondent contends that petitioner's mode of appeal from the

CA Decision should have been a Petition for Review on Certiorari under Rule 45

of the Rules of Court filed within fifteen (15) days from October 13, 2005, the day

petitioner received notice of the CA Resolution denying its motion for

reconsideration. That petitioner filed instead a Petition for Certiorari on December12, 2005 the 60th day from receipt of the CA Resolution indicates that it

resorted to a special civil action for certiorari as a substitute for the appeal it had

lost; 32 worse, petitioner raised factual issues which the Court cannot resolve for it

is no trier of facts. 33

The petition has merit.

On the proper mode of appeal

Previously, under Section 36 of Presidential Decree (P.D.) No. 464 or the Real

Property Tax Code, the proper mode of appeal from a decision rendered by the

CBAA was by special civil action for certiorari filed directly with the Court. 34However, with the passage of R.A. No. 7902, 35 granting the CA exclusive

appellate jurisdiction over decisions of boards and commissions, the Court issued

Revised Administrative Circular No. 1-95 36 which provides under paragraphs 1

37 and 5 38 that appeal from a decision of the CBAA shall be by Petition for

Review with the CA. Thus, from the final judgment of the CA, appeal to the Court

on questions of law is by Petition for Review on Certiorari under Rule 45 of the

Rules of Court. 39 The availability of such remedy bars recourse to a special civil

action for certiorari even if one of the grounds invoked is grave abuse of

discretion. 40 ESacHCIndeed, petitioner erred in its mode of appeal by Petition for Certiorari under Rule

65. 41 Nonetheless, in its Resolution 42 of July 5, 2006, the Court gave due course

to the petition for it involves not only the power of taxation of a local government

unit but also its stewardship of the environment. The higher interest of public

welfare dictates that the Court suspend its rules pro hac vice in order to resolve the

merits of the petition. 43

On whether the subject property is exempt

from real property taxation

It should be borne in mind that the protest and appeals filed by respondents beforethe LBAA, CBAA, and CA refer to the Assessment Notice dated March 28, 1994

and effective January 1, 1995. 44 No other assessment notice is under question.

The disputed assessment notice having taken effect on January 1, 1995, its validity

is determined by the provisions of Title II (Real Property Taxation) of R.A. No.

7160, effective January 1, 1992. R.A. No. 7942 has no bearing on the matter, for

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this law came into effect only on April 14, 1995. Hence, reference to R.A. No.

7942 by the CA and the respondent are all out of place.

Title II of R.A. No. 7160 governs the administration, appraisal, assessment, levy

and collection of real property tax. Section 234 thereof grants exemption from real

property taxation based on ownership, character or usage. As the Court explainedin Mactan Cebu International Airport Authority v. Marcos, 45 to wit: aHcACT

Section 234 of the LGC provides for the exemptions from payment of real

property taxes and withdraws previous exemptions therefrom granted to natural

and juridical persons, including government-owned and controlled corporations,

except as provided therein.

xxx xxx xxx

These exemptions are based on the ownership, character, and use of the property.

Thus:

(a) Ownership Exemptions. Exemptions from real property taxes on the basisof ownership are real properties owned by: (i) the Republic, (ii) a province, (iii) a

city, (iv) a municipality, (v) a barangay, and (vi) registered cooperatives.

(b) Character Exemptions. Exempted from real property taxes on the basis of

their character are: (i) charitable institutions, (ii) houses and temples of prayer like

churches, parsonages or convents appurtenant thereto, mosques, and (iii) non-

profit or religious cemeteries. IcSEAH

(c) Usage exemptions. Exempted from real property taxes on the basis of the

actual, direct and exclusive use to which they are devoted are: (i) all lands,

buildings and improvements which are actually directly and exclusively used forreligious, charitable or educational purposes; (ii) all machineries and equipment

actually, directly and exclusively used by local water districts or by government-

owned or controlled corporations engaged in the supply and distribution of water

and/or generation and transmission of electric power; and (iii) all machinery and

equipment used for pollution control and environmental protection.

To help provide a healthy environment in the midst of the modernization of the

country, all machinery and equipment for pollution control and environmental

protection may not be taxed by local governments. (Emphasis supplied)

As held in Mactan, the exemption granted under Sec. 234 (e) of R.A. No. 7160 to"[m]achinery and equipment used for pollution control and environmental

protection" is based on usage. The term usage means direct, immediate and actual

application of the property itself to the exempting purpose. 46 Section 199 of R.A.

No. 7160 defines actual use as "the purpose for which the property is principally

or predominantly utilized by the person in possession thereof". It contemplates

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concrete, as distinguished from mere potential, use. Thus, a claim for exemption

under Sec. 234 (e) of R.A. No. 7160 should be supported by evidence that the

property sought to be exempt is actually, directly and exclusively used for

pollution control and environmental protection. 47 ASTcaE

The records yield no allegation or evidence by respondent that the subject propertywas actually, directly and exclusively used for pollution control and environmental

protection during the period covered by the assessment notice under protest.

Rather, the finding of the CBAA that said property "apparently out of commission

and not apt to its function as would control pollution and protect the environment"

48 stands undisputed; such finding is even admitted by respondent when, to repeat,

in its Petition for Review before the CA, it categorically stated that "[w]hat is not

denied, however, which even the barangay resolutions state was that the siltation

dam was damaged in 1993 when a typhoon hit Marinduque. This naturally

affected the environment in the area for which reason Marcopper specificallywanted to repair the dam". 49

Moreover, Sec. 206 prescribes the evidentiary requirements for exemption from

real property taxation, viz.:

Sec. 206. Proof of Exemption of Real Property from Taxation. Every

person by or for whom real property is declared, who shall claim tax exemption

for such property under this Title shall file with the provincial, city or municipal

assessor within thirty (30) days from the date of the declaration of real property

sufficient documentary evidence in support of such claim including corporate

charters, title of ownership, articles of incorporation, bylaws, contracts, affidavits,certifications and mortgage deeds, and similar documents. If the required evidence

is not submitted within the period herein prescribed, the property shall be listed as

taxable in the assessment roll. However, if the property shall be proven to be tax

exempt, the same shall be dropped from the assessment roll. (Emphasis supplied)

HESCcA

The burden is upon the taxpayer to prove, by clear and convincing evidence, that

his claim for exemption has legal and factual basis. 50

As aptly pointed out by petitioner, there is no allegation nor evidence in

respondent's pleadings that it had complied with the procedural requirement underSec. 206. There is nothing in the records which would indicate that, within 30 days

from its filing of Tax Declaration No. 05-35697 on November 17, 1993, 51

respondent filed with the provincial assessor an application for exemption or any

documentary evidence of the exempt status of the subject property.

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What respondent submitted along with its appeal before the LBAA are Affidavit

of Esquieres, 52 the project design of the subject property, 53 as well as a

Certification 54 dated May 24, 1994 issued by Carlos J. Magno, Regional

Technical Director of DENR Regional Office No. IV.

But far from proving that the subject property is tax exempt, the documentsclassify the subject property as anything but machinery or equipment. DAEICc

The DENR Certification classifies the subject property as a "structure intended

primarily for pollution control of silted materials in order to protect the

environmental degradation of Maguila-guila, Mangamu-Mogpog River system

from getting turbid". 55 That the subject property is a structure is further

underscored by the project design which describes the subject property as a "zoned

earth siltation dam" 56 composed of a clay core consisting of clayey materials or

impervious fill, a random fill made up of heavily to intensely fractured metarock,

and filters comprised of course tailings, river sand deposits and course filtergravels. 57

It is described in greater detail by respondent's Chief Mining Engineer Ricardo

Esquieres, Jr. in an October 11, 1994 Affidavit 58 attached to respondent's appeal

59 before the LBAA, thus:

7. The siltation dam and decant system was constructed sometime in August

1992. It is not only a specialized combination of essential impervious earth

materials which provide adequate strength and detention of turbid streamwater. It

also has special provisions like spillway and diversion canal which also promote

its integrity by providing a safe outlet of the impounded streamwater. Basically,the zoned-earth dam is composed of a clay core, random fill and filter drains.

cAHIaE

1. Clay core impervious central portion of the dam to be inclined with a

width to heat ratio greater than 1.0 and designed to be thick thick enough to

reduce seepage.

2. Random fillrelatively more permeable than the clay core and of greater

strength. Placed at the upstream face of the dam (to serve as armor or ballast

against slope stability).

3. Filters designed to ensure that the dam structure is always in its fulldrained state, thus, relieving any pore pressure that may develop behind the dam.

60

Therefore, by design, composition and function, the subject property is a structure

adhered to the soil, and has neither a mechanical contrivance, instrument, tool,

implement, appliances, apparatus, nor paraphernalia that produces a mechanical

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effect or performs a mechanical work of any kind. 61 It meets none of the

following features of a machinery as described in Section 199 (o) of R.A. No.

7160:

(o) "Machinery" embraces machines, equipment, mechanical contrivances,

instruments, appliances or apparatus which may or may not be attached,permanently or temporarily, to the real property. It includes the physical facilities

for production, the installations and appurtenant service facilities, those which are

mobile, self-powered or self-propelled and those not permanently attached to the

real property which are actually, directly, and exclusively used to meet the needs

of the particular industry, business or activity and which by their very nature and

purpose are designed for, or necessary to its manufacturing, mining, logging,

commercial, industrial or agricultural purposes. HCaIDS

That a structure such as the subject property does not qualify as a machinery or

equipment used for pollution control as contemplated under R.A. No. 7160 isevident from the adoption of an expanded definition of pollution control device in

R.A. No. 7942. Under Section 3 (am) thereof, a pollution control device now also

refers to "infrastructure" or "improvement", and not just to machinery or

equipment. This new concept, however, cannot benefit respondent, for the

assessment notice under review pertains to real property tax assessed prior to the

amendment of Sec. 234 (e) of R.A. No. 7160 by Sec. 91 in relation to Sec. 3 (am)

of R.A. No. 7942. It is settled that tax laws are prospective in application, unless

expressly provided to apply retroactively. 62 R.A. No. 7942 does not provide for

the retroactive application of its provisions.In sum, the CA committed grave abuse of discretion in ignoring irrefutable

evidence that the subject property is not a machinery used for pollution control,

but a structure adhering to the soil and intended for pollution control, but has not

been actually applied for that purpose during the period under assessment.

WHEREFORE, the petition is GRANTED. The Decision dated May 30, 2005 and

Resolution dated September 29, 2005 are REVERSED and SET ASIDE. The

Assessment Notice dated March 28, 1994 is declared VALID under the then

applicable Republic Act No. 7160. CAETcH

No costs.

SO ORDERED.

Ynares-Santiago, Chico-Nazario, Nachura and Peralta, JJ., concur.

Footnotes

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1. Penned by Associate Justice Danilo B. Pine and concurred in by Associate

Justices Rodrigo V. Cosico and Arcangelita Romilla-Lontok; rollo, p. 44.

aEAIDH

2. Id. at 61.

3. CA rollo, p. 53.4. Exhibit "C-2", id. at 54.

5. Id. at 56.

6. Id. at 83. SHTcDE

7. Id. at 45-46.

8. CA rollo, p. 81.

9. Rollo, p. 63.

10. G.R. No. 106041, January 29, 1993, 218 SCRA 271.

11. CA rollo, p. 118.

12. Rollo, p. 73.13. Rollo, pp. 81-82.

14. Id. at 81. acSECT

15. CA rollo, p. 46.

16. Rollo, p. 84.

17. CA rollo, p. 9.

18. Id. at 7.

19. Rollo, p. 59.

20. Rollo, pp. 55-56.

21. Id. at 57. ECSHAD22. Id. at 57-58.

23. Id. at 58.

24. Id.

25. CA rollo, p. 318.

26. Rollo, p. 61.

27. Petitioner's Memorandum, rollo, pp. 503-504. TCASIH

28. Petition, id. at 14.

29. Petition for Review in CA-G.R. No. 60672, CA rollo, p. 21.

30. CA Decision, rollo, p. 58.31. Petition, rollo, pp. 16-17.

32. Memorandum for Respondent, id. at 560-563.

33. Id. at 564.

34. Caltex (Phil.) Inc. v. Central Board of Assessment Appeals, G.R. No. L-

50466, May 3, 1982, 114 SCRA 296, 300. See also Benguet Corporation v.

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Central Board of Assessment Appeals, supra, note 10 at 279 and Sesbreo v.

Central Board of Assessment Appeals, G.R. No. 106588, March 24, 1997, 270

SCRA 360, 369. DSAICa

35. An Act Expanding the Jurisdiction of the Court of Appeals; approved

February 23, 1995.36. Rules Governing Appeals to the Court of Appeals from Judgments or Final

Orders of the Court of Tax Appeals and Quasi-judicial Agencies; effective June 1,

1995.

37. 1. Scope. These rules shall apply to appeals from judgments or final

orders of the Court of Tax Appeals and from awards, judgments, final orders or

resolutions of or authorized by any quasi-judicial agency in the exercise of its

quasi-judicial functions. Among these agencies are the Civil Service Commission,

Central Board of Assessment Appeals, Securities and Exchange Commission,

Land Registration Authority, Social Security Commission, Office of the President,Civil Aeronautics Board, Bureau of Patents, Trademarks and Technology

Transfer, National Electrification Administration, Energy Regulatory Board,

National Telecommunication Commission, Department of Agrarian Reform under

Republic Act 6657, Government Service Insurance System, Employees

Compensation Commission, Agricultural Inventions Board, Insurance

Commission, Philippine Atomic Energy Commission, Board of Investments, and

Construction Industry Arbitration Commission. DTIaHE

38. 5. How appeal taken.Appeal shall be taken by filing a verified petition

for review in seven (7) legible copies with the Court of Appeals, with proof ofservice of a copy thereof on the adverse party and on the court or agency a quo.

The original copy of the petition intended for the Court of Appeals shall be

indicated as such by the petitioner.

39. Macasasa v. Sicad, G.R. No. 146547, June 20, 2006, 491 SCRA 368, 375-

376.

40. Madrigal Transport, Inc. v. Lapanday Holdings Corporation, G.R. No.

156067, August 11, 2004, 436 SCRA 123, 137.

41. See Talento v. Escalada, G.R. No. 180884, June 27, 2008, 556 SCRA 491,

498. cACEHI42. Rollo, p. 492.

43. People v. Zulueta, 89 Phil. 752, 756-757 (1951). See Hydro Resources

Contractors Corp. v. Court of Appeals, G.R. No. 85714, November 29, 1991, 204

SCRA 309, 315. In Sanchez v. Court of Appeals (345 Phil. 155, 179 [1997]), the

Court noted that in "Remedial Law Compendium", Volume One, p. 708, (1997),

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Justice Florenz D. Regalado enumerated the following exceptions.: "(1) where the

appeal does not constitute a speedy and adequate remedy (Salvadades v. Pajarillo,

78 Phil. 77), as where 33 appeals were involved from orders issued in a single

proceeding which will inevitably result in a proliferation of more appeals (PCIB v.

Escolin, G.R. Nos. L-27860 and 27896, Mar. 29, 1974); (2) where the orders werealso issued either in excess of or without jurisdiction (Aguilar v. Tan, G.R. No. L-

23600, June 30, 1970, Cf. Bautista v. Sarmiento, G.R. No. L-45137, September

23, 1985); (3) for certain special consideration, as public welfare or public policy

(See Jose v. Zulueta, G.R. No. 16598, May 31, 1961 and the cases cited therein);

(4) where in criminal actions, the court rejects rebuttal evidence for the

prosecution as, in case of acquittal, there could be no remedy (People v. Abalos,

G.R. No. L-29039, Nov. 28, 1968); (5) where the order is a patent nullity (Marcelo

v. De Guzman, G.R. No. L-29077, June 29, 1982); and (6) where the decision in

the certiorari case will avoid future litigations (St. Peter Memorial Park, Inc. v.Campos, G.R. No. L-38280, Mar. 21, 1975)." SEIacA

44. Sec. 221 of R.A. No. 7160, which provides;

Sec. 221. Date of Effectivity of Assessment or Reassessment. All

assessments or reassessments made after the first (1st) day of January of any year

shall take effect on the first (1st) day of January of the succeeding year: Provided,

however, That the reassessment of real property due to its partial or total

destruction, or to a major change in its actual use, or to any great and sudden

inflation or deflation of real property values, or to the gross illegality of the

assessment when made or to any other abnormal cause, shall be made withinninety (90) days from the date any such cause or causes occurred, and shall take

effect at the beginning of the quarter next following the reassessment (Previously

Section 24 of Presidential Decree No. 464 (PD 464) or the Real Property Tax

Code.) See Province of Nueva Ecija v. Imperial Mining Co., Inc., G.R. No. L-

59463, November 19, 1982, 118 SCRA 632. TEDaAc

45. G.R. No. 120082, September 11, 1996, 261 SCRA 667.

46. Lung Center of the Philippines v. Quezon City, G.R. No. 144104, June 29,

2004, 433 SCRA 119, 137.

47. See Senator Aquilino Pimentel, The Local Government Code Revisited,Manila (2007), p. 444. See also Light Rail Transit Authority v. Central Board of

Assessment Appeals, G.R. No. 127316, October 12, 2000, 342 SCRA 692.

HEAcDC

48. Rollo, p. 81.

49. Petition for Review in CA-G.R. No. 60672, CA rollo, p. 21.

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50. Commissioner of Internal Revenue v. Acesite (Philippines) Hotel

Corporation, G.R. No. 147295, February 16, 2007, 516 SCRA 93, 103. SEHTIc

51. CA rollo, p. 55.

52. Id. at 63-68.

53. Id. at 72-80.54. Id. at 81.

55. Id.

56. Id. at 72. acTDCI

57. Id. at 77-78.

58. Id. at 63.

59. Id. at 61.

60. Id. at 65.

61. See Central Azucarera de La Carlota v. Coscolluela, 44 Phil. 527 (1923).

62. Pansacola v. Commissioner of Internal Revenue, G.R. No. 159991,November 16, 2006, 507 SCRA 81, 92-93; Abello v. Commissioner of Internal

Revenue, G.R. No. 120721, February 23, 2005, 452 SCRA 162, 173. ECTIcS

SECOND DIVISION

[G.R. No. 158881. April 16, 2008.]

PETRON CORPORATION, petitioner, vs. MAYOR TOBIAS

M. TIANGCO, and MUNICIPAL TREASURER MANUEL T.

ENRIQUEZ of the MUNICIPALITY OF NAVOTAS, METROMANILA, respondents.

D E C I S I O N

TINGA, Jp:

The novel but important issue before us is whether a local government unit isempowered under the Local Government Code (the LGC) to impose businesstaxes on persons or entities engaged in the sale of petroleum products.

I.

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The present Petition for Review on Certiorari under Rule 45 filed by petitionerPetron Corporation (Petron) directly assails the Decision of the Regional TrialCourt (RTC) of Malabon, Branch 74, which dismissed petitioner's complaint forcancellation of assessment made by the then municipality (now City) of Navotas(Navotas) for deficiency taxes, and ordering the payment of P10,204,916.17 pesos

in business taxes to Navotas. As the issues raised are pure questions of law, weneed not dwell on the facts at length.

Petron maintains a depot or bulk plant at the Navotas Fishport Complex inNavotas. Through that depot, it has engaged in the selling of diesel fuels to vesselsused in commercial fishing in and around Manila Bay.1On 1 March 2002, Petronreceived a letter from the office of Navotas Mayor, respondent Toby Tiangco,wherein the corporation was assessed taxes "relative to the figures covering sale ofdiesel declared by your Navotas Terminal from 1997 to 2001."2The stated totalamount due was P6,259,087.62, a figure derived from the gross sales of the depot

during the years in question. The computation sheets3that were attached to theletter made reference to Ordinance 92-03, or the New Navotas Revenue Code(Navotas Revenue Code), though such enactment was not cited in the letter itself.HIACac

Petron duly filed with Navotas a letter-protest to the notice of assessment pursuantto Section 195 of the Code. It argued that it was exempt from local business taxesin view of Art. 232 (h) of the Implementing Rules (IRR) of the LGC, as well as aruling of the Bureau of Local Government Finance of the Department of Financedated 31 July 1995, the latter stating that sales of petroleum fuels are not subject tolocal taxation. The letter-protest was denied by the Navotas Municipal Treasurer,

respondent Manuel T. Enriquez, in a letter dated 8 May 2002.4This was followedby a letter from the Mayor dated 15 May 2002, captioned "Final Demand to Pay",requiring that Petron pay the assessed amount within five (5) days from receiptthereof, with a threat of closure of Petron's operations within Navotas should therebe no payment.5Petron, through counsel, replied to the Mayor by another letterposing objections to the threat of closure. The Mayor did not respond to this lastletter.6

Thus, on 20 May 2002, Petron filed with the Malabon RTC a Complaint forCancellation of Assessment for Deficiency Taxes with Prayer for the Issuance of a

Temporary Restraining Order (TRO) and/or Preliminary Injunction. The questedTRO was not issued by the Malabon RTC upon manifestation of respondents thatthey would not proceed with the closure of Petron's Navotas bulk plant until afterthe RTC shall have decided the case on the merits.7However, while the case waspending decision, respondents refused to issue a business permit to Petron, thusprompting Petron to file a Supplemental Complaint with Prayer for PreliminaryMandatory Injunction against respondents.8

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On 5 May 2003, the Malabon RTC rendered its Decision dismissing Petron'scomplaint and ordering the payment of the assessed amount.9Eleven days later,Petron received a Closure Order from the Mayor, directing Petron to cease anddesist from operating the bulk plant. Petron sought a TRO from the Malabon RTC,but this was denied.10Petron also filed a motion for reconsideration of the order

of denial, but this was likewise denied.11

On 4 August 2003, this Court issued a TRO, enjoining the respondents fromclosing Petron's Navotas bulk plant or otherwise interfering in its operations.12

II.

As earlier stated, Petron has opted to assail the RTC Decision directly before thisCourt since the matter at hand involves pure questions of law, a characterizationconceded by the RTC Decision itself. Particularly, the controversy hinges on the

correct interpretation of Section 133 (h) of the LGC, and the applicability ofArticle 232 (h) of the IRR. acCDSH

Section 133 (h) of the LGC reads as follows:

Sec. 133.Common Limitations on the Taxing Powers of Local

Government Units.Unless otherwise provided herein, the exerciseof the taxing powers of provinces, cities, municipalities, and Barangaysshall not extend to the levy of the following:

xxx xxx xxx

(h)Excise taxes on articles enumerated under the National InternalRevenue Code, as amended, and taxes, fees or charges on petroleumproducts;

Evidently, Section 133 prescribes the limitations on the capacity of localgovernment units to exercise their taxing powers otherwise granted to them underthe LGC. Apparently, paragraph (h) of the Section mentions two kinds of taxeswhich cannot be imposed by local government units, namely: "excise taxes onarticles enumerated under the National Internal Revenue Code [(NIRC)], asamended;" and "taxes, fees or charges on petroleum products."

The power of a municipality to impose business taxes is provided for in Section143 of the LGC. Under the provision, a municipality is authorized to imposebusiness taxes on a whole host of business activities. Suffice it to say, unless thereis another provision of law which states otherwise, Section 143, broad in scope asit is, would undoubtedly cover the business of selling diesel fuels, or any otherpetroleum product for that matter.

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Nonetheless, Article 232 of the IRR defines with more particularity the capacity ofa municipality to impose taxes on businesses. The enumeration that follows isgenerally a positive list of businesses which may be subjected to business taxes,and paragraph (h) of Article 232 does allow the imposition of local business taxes"[o]n any business not otherwise specified in the preceding paragraphs which the

sanggunian concerned may deem proper to tax," but subject to this importantqualification, thus:

". . . provided further, that in line with existing national policy, anybusiness engaged in the production, manufacture, refining, distributionor sale of oil, gasoline and other petroleum products shall not be subjectto any local tax imposed on this article.

Notably, the Malabon RTC declared Art. 232 (h) of the IRR void because the LGCpurportedly does not contain a provision prohibiting the imposition of businesstaxes on petroleum products.13This submission warrants close examination aswell.

With all the relevant provisions of law laid out, we address the core issuessubmitted by Petron, namely: first, is the challenged tax on sale of the diesel fuelsan excise tax on an article enumerated under the NIRC, thusly prohibited underSection 133 (h) of the LGC?; second, is the challenged tax prohibited by Section133 (h) under the proviso, "taxes, fees or charges on petroleum products"? and;third, does Art. 232 (h) of the IRR similarly prohibit the imposition of thechallenged tax? ECISAD

III.

As earlier observed, Section 133 (h) provides two kinds of taxes which cannot beimposed by local government units: "excise taxes on articles enumerated" underthe NIRC, as amended; and "taxes, fees or charges on petroleum products." Thereis no doubt that among the excise taxes on articles enumerated under the NIRC arethose levied on petroleum products, per Section 148 of the NIRC.

We first consider Petron's argument that the "business taxes" on its sale of dieselfuels partakes of an excise tax, which if true, could invalidate the challenged tax

solely on the basis of the phrase "excise taxes on articles enumerated under the[NIRC]." To support this argument, it cites Cordero v. Conda,14Allied ThreadCo. Inc. v. City Mayor of Manila,15and Iloilo Bottlers, Inc. v. City of Iloilo,16ashaving explained that "an excise tax is a tax upon the performance, carrying on, orthe exercise of an activity."17Respondents, on the other hand, argue that what theprovision prohibits is the imposition of excise taxes on petroleum products, but notthe imposition of business taxes on the same. They cite Philippine Petroleum

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Corporation v. Municipality of Pililia,18where the Court had noted, "[a] tax onbusiness is distinct from a tax on the article itself."19ScAaHE

Petron's argument is fraught with far-reaching implications, for if it weresustained, it would mean that local government units are barred from imposing

business taxes on any of the articles subject to excise taxes under the NIRC. Thesewould include alcohol products,20tobacco products,21mineral products22automobiles,23and such non-essential goods as jewelry, goods made of preciousmetals, perfumes, and yachts and other vessels intended for pleasure or sports.24

Admittedly, the proffered definition of an excise tax as "a tax upon theperformance, carrying on, or exercise of some right, privilege, activity, calling oroccupation" derives from the compendium American Jurisprudence, popularlyreferred to as Am Jur,25and has been cited in previous decisions of this Court,including those cited by Petron itself. Such a definition would not have been

inconsistent with previous incarnations of our Tax Code, such as the NIRC of1939,26as amended, or the NIRC of 197727because in those laws the term"excise tax" was not used at all. In contrast, the nomenclature used in those priorlaws in referring to taxes imposed on specific articles was "specific tax."28Yetbeginning with the National Internal Revenue Code of 1986, as amended, the term"excise taxes" was used and defined as applicable "to goods manufactured orproduced in the Philippines. . . and to things imported."29This definition wascarried over into the present NIRC of 1997.30Further, these two latest codescategorize two different kinds of excise taxes: "specific tax" which is imposed andbased on weight or volume capacity or any other physical unit of measurement;

and"ad valorem tax"

which is imposed and based on the selling price or otherspecified value of the goods. In other words, the meaning of "excise tax" hasundergone a transformation, morphing from the Am Jurdefinition to its currentsignification which is a tax on certain specified goods or articles.

The change in perspective brought forth by the use of the term "excise tax" in adifferent connotation was not lost on the departed author Jose Nolledo as heaccorded divergent treatments in his 1973 and 1994 commentaries on our tax laws.Writing in 1973, and essentially alluding to the Am Jurdefinition of "excise tax",Nolledo observed:

Are specific taxes, taxes on property or excise taxes

In the case ofMeralco v. Trinidad([G.R.] 16738, 1925) it was held thatspecific taxes are property taxes, a ruling which seems to be erroneous.Specific taxes are truly excise taxes for the fact that the value of theproperty taxed is taken into account will not change the nature of the tax.

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It is correct to say that specific taxes are taxes on the privilege to import,manufacture and remove from storage certain articles specified by law.

31

In contrast, after the tax code was amended to classify specific taxes as a subset of

excise taxes, Nolledo, in his 1994 commentaries, wrote:

1.Excise taxes, as used in the Tax Code, refers to taxes applicable tocertain specified goods or articles manufactured or produced in thePhilippines for domestic sale or consumption or for any other dispositionand to things imported into the Philippines. They are eitherspecific oradvalorem. HICATc

2.Nature of excise taxes.They are imposed directly on certainspecified goods. (infra) They are, therefore, taxes on property. (seeMedina vs. City of Baguio, 91 Phil. 854.)

A tax is not excise where it does not subject directly the produce orgoods to tax but indirectly as an incident to, or in connection with, the

business to be taxed.32

In their 2004 commentaries, De Leon and De Leon restate the Am Jurdefinition ofexcise tax, and observe that the term is "synonymous with 'privilege tax' and [bothterms] are often used interchangeably."33At the same time, they offer a caveatthat "[e]xcise tax, as [defined by Am Jur], is not to be confused with excise taximposed [by the NIRC] on certain specified articles manufactured or produced in,or imported into, the Philippines, 'for domestic sale or consumption or for anyother disposition.'"34

It is evident that Am Juraside, the current definition of an excise tax is that of atax levied on a specific article, rather than one "upon the performance, carrying on,or the exercise of an activity." This current definition was already in place whenthe LGC was enacted in 1991, and we can only presume that it was what theCongress had intended as it specified that local government units could not impose"excise taxes on articles enumerated under the [NIRC]." This prohibition mustpertain to the same kind of excise taxes as imposed by the NIRC, and not thosepreviously defined "excise taxes" which were not integrated or denominated as

such in our present tax law.

It is quite apparent, therefore, that our current body of taxation law does notexplicitly accommodate the traditional definition of excise tax offered by Petron.In fact, absent any statutory adoption of the traditional definition, it may be saidthat starting in 1986 excise taxes in this jurisdiction refer exclusively to specific orad valorem tax