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FIRST PHILIPPINE INDUSTRIAL CORPORATION v. CA

FACTS:

The petitioner is a grantee of a pipeline concession to operate oil pipelines and applied for a mayor's permit in Batangas City. However, before the permit could be issued, the respondent City Treasurer required the petitioner to pay a local tax based on its gross receipts for the fiscal year 1993. The petitioner paid the tax under protest, arguing that it is exempt from paying tax on gross receipts under the Local Government Code and that transportation contractors are not included in the category of contractors subject to the tax.

The respondent City Treasurer denied the protest, stating that the petitioner cannot be considered engaged in the transportation business. In response, the petitioner filed a complaint for tax refund with the Regional Trial Court, alleging that the tax imposition was unlawful and seeking the refund of the tax paid. However, the trial court dismissed the complaint, and this decision was affirmed by the Court of Appeals.

Aggrieved, the petitioner appealed to the Supreme Court, asserting that it is a common carrier or transportation contractor and that the exemption sought is clear under the law.

ISSUES:

  1. Whether the petitioner is a common carrier or transportation contractor.

  2. Whether the exemption sought by the petitioner is clear under the law.

  3. Whether the petitioner, as a pipeline concessionaire engaged in transporting petroleum products, is considered a common carrier and therefore exempt from the business tax imposed by the local government units.

RULING:

  1. The petitioner is a common carrier. A common carrier is defined as a person, corporation, firm, or association engaged in the business of carrying or transporting passengers or goods or both, by land, water, or air, for compensation, offering their services to the public. Based on the definitions and requirements, there is no doubt that the petitioner is a common carrier as it is engaged in the business of transporting goods for hire as a public employment.

  2. The exemption sought by the petitioner is clear under the law. The respondent's argument that the term "common carrier" in the Local Government Code only includes common carriers transporting goods and passengers through moving vehicles or vessels is erroneous. The Civil Code, which defines common carriers, makes no distinction as to the means of transportation as long as it is by land, water, or air. Additionally, under the Petroleum Act of the Philippines, the petitioner is considered a common carrier and petroleum operation is regarded as a public utility.

  3. Yes, the petitioner is considered a common carrier and is exempt from the business tax imposed by the local government units. The Supreme Court held that based on the provision of Section 133(j) of the Local Government Code, taxes on the gross receipts of transportation contractors and persons engaged in the transportation of passengers or freight by hire and common carriers by air, land, or water are exempt from the taxing powers of the local government units. The Court interpreted the legislative intent behind this exemption as the prevention of duplication of the "common carrier's tax" already imposed by the National Internal Revenue Code. Since the petitioner is already paying the common carrier's tax on its gross sales/earnings, to tax it again on its gross receipts in its transportation of petroleum business would defeat the purpose of the Local Government Code.

PRINCIPLES:

  • A common carrier is one who holds himself out to the public as engaged in the business of transporting persons or property from place to place, for compensation, offering his services to the public generally.

  • Article 1732 of the Civil Code defines a common carrier as any person, corporation, firm, or association engaged in the business of carrying or transporting passengers or goods or both, by land, water, or air, for compensation, offering their services to the public.

  • The test for determining whether a party is a common carrier of goods is: (1) he must be engaged in the business of carrying goods for others as a public employment, and must hold himself out as ready to engage in the transportation of goods for persons generally as a business and not as a casual occupation; (2) he must undertake to carry goods of the kind to which his business is confined; (3) he must undertake to carry by the method by which his business is conducted and over his established roads; and (4) the transportation must be for hire.

  • The definition of common carriers in the Civil Code does not provide that the transportation of passengers or goods should be by motor vehicle. It includes all means of transporting goods by land, water, or air.

  • Petroleum operation is considered a public utility under Republic Act 387.

  • The transportation business is deemed exempt from the taxing powers of local government units.

  • The exemption is intended to prevent duplication of the "common carrier's tax" imposed by the National Internal Revenue Code.