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BATANGAS CITY v. PILIPINAS SHELL PETROLEUM CORPORATION

FACTS:

The case involves a dispute between Batangas City, a local government unit (LGU), and Pilipinas Shell Petroleum Corporation regarding the imposition of business taxes on the manufacture and distribution of petroleum products. Batangas City issued a notice of assessment, demanding the payment of business taxes from Pilipinas Shell. In response, Pilipinas Shell filed a protest arguing that it is not liable for the payment of the local business tax and that the Mayor's Permit Fees are excessive. The protest was denied by Batangas City, which insisted on withholding the issuance of the Mayor's Permit for non-payment of the taxes. Pilipinas Shell then filed a petition for review before the Regional Trial Court (RTC) of Batangas City, questioning the authority of Batangas City to impose the taxes and fees.

The RTC upheld the imposition of business taxes but withheld the imposition of the Mayor's Permit Fee. However, Pilipinas Shell filed a motion for partial reconsideration, which was denied. Consequently, Pilipinas Shell filed a petition for review with the Court of Tax Appeals (CTA) Second Division. The CTA Second Division granted the petition and held that Pilipinas Shell is not subject to the business taxes.

The petitioner, Batangas City, filed a motion for clarification regarding the amount to be refunded by Pilipinas Shell. The CTA ruled that the correct amount to be refunded is P3,870,860.00. Batangas City filed a motion for reconsideration, which was denied. Batangas City then appealed to the CTA En Banc, but the decision of the CTA Second Division was affirmed.

ISSUES:

  1. Whether a local government unit (LGU) is empowered under the Local Government Code (LGC) to impose business taxes on persons or entities engaged in the business of manufacturing and distribution of petroleum products.

  2. Whether the word "taxes" in Section 133(h) of the LGC includes business taxes.

  3. Whether there is a distinction between taxes on articles and taxes on business.

  4. Whether Section 133(h) of the LGC is an express limitation on the power of LGUs to impose taxes on the business of manufacturing and distribution of petroleum products.

  5. Whether local government units (LGUs) have the power to impose taxes, fees, or charges on petroleum products.

  6. Whether Section 143(h) of the Local Government Code (LGC), which grants LGUs the power to impose business taxes, can overcome the specific exemption in Section 133(h) of the same Code.

  7. Whether the particular enactment in Article 232(h) of the Implementing Rules and Regulations (IRR) of the Local Government Code (LGC) of 1991 must prevail over the general enactment in the same statute.

  8. Whether the imposition of local tax on businesses engaged in the production, manufacture, refining, distribution or sale of oil, gasoline, and other petroleum products is valid.

RULING:

  1. Yes, the LGU is empowered to impose business taxes on persons or entities engaged in the business of manufacturing and distribution of petroleum products.

  2. No, the word "taxes" in Section 133(h) of the LGC does not include business taxes.

  3. No ruling was made regarding the distinction between taxes on articles and taxes on business.

  4. No, Section 133(h) of the LGC is not an express limitation on the power of LGUs to impose taxes on the business of manufacturing and distribution of petroleum products.

  5. The Court held that LGUs do not have the power to impose taxes, fees, or charges on petroleum products. Section 133(h) of the LGC specifically prohibits LGUs from levying excise taxes on articles enumerated under the National Internal Revenue Code (NIRC), which includes petroleum products. Additionally, this provision also prohibits LGUs from imposing any taxes, fees, or charges on petroleum products. Therefore, even if petroleum products are subject to excise tax, they are specifically excluded from the power granted to LGUs under Section 143(h) of the LGC to impose business taxes.

  6. Yes, the particular enactment in Article 232(h) of the IRR must prevail over the general enactment in the LGC. The principle of Generalia specialibus non derogant applies, which states that where there is a particular enactment and a general one in the same statute, the particular enactment must be operative and the general enactment must be taken to affect only cases not covered by the particular enactment.

  7. No, the imposition of local tax on businesses engaged in the production, manufacture, refining, distribution or sale of oil, gasoline, and other petroleum products is not valid. Article 232 of the IRR specifically excludes these businesses from being subject to any local tax imposed. Thus, any tax imposed on such businesses by the municipality shall be deemed void.

PRINCIPLES:

  • The power to tax is inherent in the State, but not all-encompassing for LGUs, which are subject to limitations as stated in Section 5, Article X of the 1987 Constitution.

  • The power to tax of LGUs is delegated by Congress and must be exercised within the guidelines and limitations provided by Congress.

  • The taxing power of provinces, cities, municipalities, and barangays is summarized as territorial and political subdivisions of the Republic of the Philippines, not the sovereign.

  • Municipal corporations have no inherent power of taxation and can only exercise such power if granted by the charter or statute.

  • The power to tax is no longer vested exclusively on Congress. Local legislative bodies, including LGUs, now have the authority to levy taxes, fees, and other charges, subject to guidelines and limitations provided by Congress.

  • The taxing powers of LGUs must be uniform, equitable, and based on the taxpayer's ability to pay. Taxes, fees, charges, and other impositions must be levied and collected only for public purposes and must not be unjust, excessive, oppressive, or confiscatory.

  • The power of LGUs to impose business taxes is subject to the explicit statutory impediments provided by law. One such limitation is the prohibition on imposing taxes, fees, or charges on petroleum products found in Section 133(h) of the LGC.

  • Specific provisions prevail over general ones in statutory construction. A special and specific provision prevails over a general provision irrespective of their relative positions in the statute.

  • Generalia specialibus non derogant - The particular enactment in a statute must prevail over the general enactment if both are present in the same statute. The particular enactment is operative and the general enactment affects only cases not covered by the particular enactment.

  • Exclusion of petroleum businesses from local tax - Article 232(h) of the IRR of the LGC exempts businesses engaged in the production, manufacture, refining, distribution, or sale of oil, gasoline, and other petroleum products from being subject to any local tax imposed.