The Province of Bulacan vs Court of Appeals

299 SCRA 442 [GR No. 126232 November 27, 1998]

Facts: On June 26, 1992, the Sangguniang Panlalawigan passed provincial ordinance no.
3 known as “Ordinance Enacting The Revenue Code Of The Bulacan Province” which was
to take effect on July 1, 1992 Section 21 of the ordinance provides as follows:

Sec 21. Imposition of Tax – There is hereby levied and collected a tax of 10% of the fair
market value in the locality per cubic meter of ordinary stores, sand, gravel, earth and
other quarry resources, such but not limited to marble, granite, volcanic cinders, basalt,
tuff and rock phosphate, extracted from public lands or from beds of seas, lakes, rivers,
streams, creeks and other public waters within its territorial jurisdiction.

Pursuant thereto, the provincial treasurer of Bulacan in a letter dated November 11, 1992,
assessed private respondent Republic Cement Corporation Php2,524,692.13 for
extracting lime stones, shale and silica from several parcels of private land in the province
during the third quarter of 1992 until the second quarter of 1993. Believing that the
province, on the bases of the above-said ordinance, had no authority to impose taxes on
quarry resources extracted from private lands, Republic Cement formally contested the
same on December 23, 1993. The same was, however, denied by the provincial treasurer
on January 17, 1994. Republic Cement, consequently filed a petition for declaratory relief
with the Regional Trial Court (RTC) of Bulacan on February 14, 1993. The province filed
a motion to dismiss Republic Cement’s petition which was granted by the trial court on
May 13, 1993, which ruled that declaratory relief was improper, allegedly because a breach
of the ordinance had been committed by Republic Cement.

Issue: Whether or not provincial ordinance no. 3 is valid to allow the petitioner to impose
taxes on ordinary stones, sand, gravel, earth, and other quarry resources.

Held: No. On the basis of section 134 of Republic Act No. 7169, the local government
code, ruled that a province was empowered to impose taxes only on sand, gravel, and
other quarry resources extracted from public lands, its authority to tax being limited to
by said provision only to those taxes, fees and charges provided in article 1, chapter 2, title
I of Book II of the local government code.

As correctly pointed out by petitioners, section 186 of the same code allows petitioners to
levy taxes other than those specifically enumerated under the code, subject to the
conditions specified therein.

The tax imposed by the province of Bulacan is an excise tax, being a tax upon the
performance, carrying or an excise of an activity. Under section 133 of the local
government code, a province may not, therefore, levy excise taxes on articles already taxed
by the National Internal Revenue Code (NIRC).

The NIRC levies a tax on all quarry resources, regardless of origin, whether extracted from
public or private land. Thus, a province may not ordinarily impose taxes on stones,
sand,gravel, earth and other quarry resources, as the same are already taxed under NIRC.

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The province can, however, impose a tax on stones, sand, gravel, earth and other quarry
resources extracted from public lands because it is expressly empowered to do so under
the local government code. As to stones, sand, gravel, earth and other quarry resources
extracted from private land, however it may not do so, because of the limitation provided
by section 133 of the code in relation to section 151 of the NIRC.

Given the above disquisition, petitioners cannot claim that the appellate court unjustly
deprived them of the power to create their sources of revenue, their assessment of taxes
against Republic Cement being ultra vires, traversing as it does the limitations set by the
local government code.

Furthermore, section 21 of provincial ordinance no. 3 is practically only a reproduction of

section 138 of the local government code. A cursory reading of both could show that both
refer to ordinary sand, gravel, stone, earth and other quarry resources extracted from
public lands. Even if we disregard the limitation set by section 133 of the local government
code, petitioners, may not impose taxes on stone, sand, gravel, earth and other quarry
resources extracted from private lands. Petitioners may not involve the regalian doctrine
to extend coverage of their ordinance to quarry resources extracted from private lands,
for taxes, being burdens, are not to be presumed beyond what the applicable statute
expressly and clearly declares, tax statutes being construed strictissimi juris against the
government.

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LEPANTO CONSOLIDATED MINING COMPANY vs. AMBANLOC- Local
Business Taxation

FACTS:
Lepanto Consolidated Mining had a mining lease contract for a mining claim in
Benguet. They used the sand and gravel mined to construct and maintain concrete
structures needed in its mining operations such as a tailings dam, access roads, and
offices. The provincial treasurer of Benguet then asked Lepanto Consolidated Mining to
pay sand and gravel tax for the quarry materials extracted from the mining site. The
counterargument was that the said tax applied only to commercial extractions and since
Lepanto did not supply other users for some profit, the tax should not apply.
ISSUE:
Is Lepanto liable for the tax imposed by Benguet on the sand and gravel that it extracted
from within the area of its mining claim used exclusively in its mining operations?
HELD:
YES. The CTA erred in applying the provision of the Local Government Code (Section
138) since the basis of Benguet province emanates from the Revised Benguet Revenue
Code itself. This notwithstanding, the provincial revenue measure still did not
distinguish between commercial and non-commercial extractions.

In addition, the Petitioner’s argument that when a company is taxed on its main
business it can no longer be taxable for engaging in an activity that is but part of,
incidental to, and necessary to such main business, was held to be inapplicable. The
Court said that the cases where the above principle has been applied involved business
taxes and thus the incidental activities could not be treated as separate and distinct from
the main business. Here the tax being imposed was an excise tax levied on the privilege
of extracting gravel and sand.

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City of Iriga vs. Camarines Sur III Electric Cooperative, Inc.
Supreme Court (Second Division) G.R. No. 192945 promulgated September
5, 2012

Facts:

Respondent Camarines Sur III Electric Cooperative, Inc. (CASURECO), an electric

cooperative organized under Presidential Decree (PD) No. 269 and registered with the
National Electrification Administration (NEA), is engaged in the business of electric
power distribution to various end-users and consumers within the City of Iriga and the
municipalities of Nabua, Bato, Baao, Buhi, Bula and Balatan of the Province of
Camarines Sur (or the Rinconada area).

Petitioner City of Iriga assessed CASURECO deficiency franchise tax and RPT covering
the periods 1998 to 2003 and 1995 to 2003, respectively. CASURECO refused to pay and
argued that as an electric cooperative provisionally registered with the Cooperative
Development Authority (CDA), it is exempt from the payment of local taxes.

Petitioner filed a collection complaint against CASURECO with the RTC, which ruled
that the city’s right to assess RPT for 1995 - 1999 had already prescribed. The RTC also
ruled that CASURECO is liable for franchise taxes for 2000 – 2003 based on its gross
receipts from Iriga City and the Rinconada area, on the ground that the “situs of
taxation is the place where the privilege is exercised.”

On appeal, the Court of Appeals (CA) reversed the RTC on the ground that CASURECO
is a non-profit entity which does not fall within the purview of businesses enjoying a
franchise.

Issues:

1. Did CASURECO correctly appeal the RTC decision to the CA? NO

2. Is CASURECO liable for franchise tax? YES

Ruling:

1. No. CASURECO should have filed its appeal with the CTA, which has exclusive
jurisdiction to review decisions, orders or resolutions of the RTCs in local tax cases
originally decided or resolved by the RTCs in the exercise of their original or appellate
jurisdiction.

2. Yes. CASURECO is liable for franchise tax.

PD No. 269, which took effect on August 6, 1973, granted exemption from the payment
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of all national and local taxes and fees to electric cooperatives registered with NEA.

RA No. 6939, enacted on March 10, 1990, created and authorized the CDA to register
cooperatives, while RA No. 6938, enacted on the same day, provides that electric
cooperatives registered with NEA under PD No. 269 which opt not to register with the
CDA shall not be entitled to the benefits and privileges under the law.

On January 1, 1992, the LGC took effect and withdrew tax exemptions or incentives
previously enjoyed by all persons, natural and judicial, including GOCCs, except for
certain entities, such as cooperatives duly registered under RA No. 6938.

The provisional registration of CASURECO with the CDA, which granted it exemption
from payment of local taxes, was only until May 4, 1992. Thereafter, CASURECO was no
longer exempt from the payment of local taxes, including the franchise tax.

A franchise tax is “a tax on the privilege of transacting business in the state and
exercising corporate franchises granted by the state.” It is not levied simply for existing
as a corporation upon its property or on its income, but on its exercise of the rights or
privileges granted to it by the government.

To be liable for local franchise tax: 1) one must have a “franchise” in the sense of a
secondary or special franchise; and 2) it must exercise its rights or privileges under this
franchise within the territory of the pertinent LGU.

Both requisites being present, CASURECO is liable to pay franchise tax. Being in the
nature of an excise tax, the situs of taxation is the place where the privilege is exercised.
Hence, CASURECO is liable for franchise tax on all its gross receipts from Iriga City and
the Rinconada area where it operates, regardless of the place where its services or
products are delivered.

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