PILIPINAS SHELL PETROLEUM CORPORATION v. BATANGAS CITY, BENJAMIN E. PARGAS IN HIS CAPACITY AS CITY TREASURER AND TEODOLFO A. DUGUITO IN HIS CAPACITY AS LEGAL OFFICER OF BATANGAS CITY.

REPUBLIC OF THE PHILIPPINES COURT OF TAX APPEALS QUEZON CITY SECOND DIVISION PILIPINAS SHELL PETROLEUM C.T.A. AC NO. 10 CORPORAT ION , Members : Pe tit ion er, - versus - CASTANEDA, Chairperson UY, and PALANCA-ENRIQUEZ,JJ BATAN GAS CITY, BENJAMIN E. PARGAS in his capacity as CITY TREASURER and TEODULFO A. Promu lg?ted : DEGUITO in his capacity as CITY JUN 2 1 2007 / LEGAL OFFICER OF BATAN GAS �/ CITY, Res pon de n ts. ~ X - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -- X DECISION CASTANEDA, JR., J_: STATEMENT OF THE CASE This is a Petition for Review fil ed before this Court on April 27, 2005, seeki ng t he cancellation of the assessed business taxes on petitioner's manufacture and distribution of petroleum products for the taxable year 2002 in the amounts of NINETY TWO MILLION THREE HUNDRED SEVENTY THREE THOUSAND SEVEN HUNDRED TWENTY AND 60/100 PESOS ?v- (P92,373,720.60) and THREE HUNDRED TWELVE MILLION SIX �' /l ., ..t.�t C:

DECISION CTA A.C. NO. 10 HUNDRED FIFTY SIX THOUSAND TWO HUNDRED FIFTY THREE AND 04/100 PESOS (P312,656,253.04), respectively. It is further prayed that: a. Batangas City be declared as legally proscribed from imposing business taxes on the manufacture and distribution of petroleum products; b. The Regional Trial Court of Batangas City, Branch 2, under Judge Mario V. Lopez, be directed to issue a writ of execution to execute the assailed Decision, insofar as it declared the invalidity of the Mayor's Permit Fees based on the gross receipts of petitioner and ordering respondents to refund to petitioner the amount of P4,299,851.00; c. Respondents be permanently enjoined from implementing Section 23 of the Batangas Revenue Code as against petitioner; and d. Section 23 of the Batangas City Tax Code of 2002 be declared null and void insofar as it imposes taxes on the manufacture, refining, distribution, marketing and sale of petroleum products. STATEMENT OF THE FACTS The facts as culled from the records of the case are as follows: Petitioner, Pilipinas Shell Petroleum Corporation (PSPC), operates an oil refinery and depot in Tabangao, Batangas City, which manufactures and produces petroleum products that are distributed nationwide. On the other hand, respondent Batangas City is a local government unit (LGU) with the capacity to sue and be sued under its Charter and Section 22(a)(2) of the Local Government Code (LGC) of 1991. Respondents Teodulfo A. Deguito and Benjamin E. Pargas are the City Legal Officer and ~

DECISION erA A.C. NO. 10 City Treasurer, respectively, of Batangas City1. During the years that the PSPC was operating, particularly in 2002, it was only paying the amount of P98,964.71 for fees and other charges which include the amount of P1,180.34 as Mayor's Permit Fee. On February 20, 2002, respondent, Batangas City, through its City Legal Officer, sent a notice of assessment to petitioner demanding the payment of P92,373,720.50 and P312,656,253.04 as business taxes for its manufacture and distribution of petroleum products. In addition, PSPC was also required and assessed to pay the amount of P4,299,851.00 as Mayor's Permit Fee based on the gross sales of its Tabangao Refinery2. The assessment was pursuant to Section 143(h) of the Local Government Code of 1991 and Section 23 of its Batangas City Tax Code of 2002. On the belief that respondents have no authority to impose the subject taxes and fees, petitioner filed its protest on April 17, 2002 contending among others that it is not liable for the payment of the local business tax either as manufacturer or distributor of petroleum products. It further argued that the Mayor's Permit Fees are exorbitant, confiscatory, arbitrary, unreasonable and not commensurate with the cost of issuing a license. On May 13, 2002, respondents denied petitioner's protest and declared that under Section 14 of the Batangas City Tax Code of 2002, they are empowered to withhold the issuance of the Mayor's Permit for failure of petitioner to pay the business taxes on its manufacture and distribution of ~ Petition for Revi ew, Records, page 6. Decision, Ann ex "A", Records, pages 73-74 .

DECISION CfA A.C. NO. 10 petroleum products. Aggrieved by the decision of respondents, on June 17, 2002, petitioner then filed a Petition for Review3 under Section 195 of the Local Government Code of 1991 before the Regional Trial Court (RTC) of Batangas City appealing the denial by respondents of its protest. In its Petition for Review, petitioner maintained that respondents have no authority to impose the said taxes and fees, and argued that the levy of local business taxes on the business of manufacturing and distributing gasoline and other petroleum products is contrary to law and against declared national policy. Assuming however that respondents have the power to levy local business taxes on the business of manufacturing and distributing gasoline and other petroleum products, the computation of petitioner's tax liability is erroneous. Also, the Mayor's Permit Fees levied by respondents were challenged for being unreasonable and confiscatory.4 In his Answer, respondents contended that the City of Batangas can legally impose the taxes on the business of manufacturing and distribution of petroleum products, including the Mayor's Permit Fees upon petitioner. After the preliminary conference, trial, and presentation of witnesses, both parties were directed to submit their respective Memorandum . The lower court then summarized the issues5 raised during the course of the trial and presented in petitioner's Memorandum, thus: a. Whether the Batangas City Tax Code of 2002 imposing Petition for Review, Annex " F", Records, pages 127- 145. Decision, Annex " A", Records, page 74 . Supra, pages 76-77.

DECISION CTA A.C. NO. 10 business taxes in the form of distributor and manufacturer on Pilipinas Shell Petroleum Corporation contravenes the law, public policy and pertinent rules and regulations; and b. Whether or not the business tax and mayor's permit fee imposed by the Batangas City Tax Code based on the gross receipts are excessive, oppressive and unreasonable . The lower court deemed the issue of estoppel, raised by respondent, inapplicable and declared that petitioner merely exercised its right to the remedy provided for under Section 195 of the Local Government Code of 1991 6 . During the pendency of the case, petitioner paid under protest the Mayor's Permit Fees for the year 2003 amounting to P774,840.50 as manufacturer and P3,525,010.50 as distributor. When petitioner applied for the issuance of the Mayor's Permit in 2004, it offered the amount of P150,000.00 as compromise Mayor's Permit Fee without prejudice to the outcome of the case then pending, which was rejected by respondent. In the assailed Decision of RTC Branch II of Batangas City, penned by Judge Mario V. Lopez, petitioner's appeal was partially granted and the said court a quo declared that: "WHEREFORE, in view of tl1e foregoing premises, this Court hereby renders judgment as follows: 1. The taxes on the privilege of engaging in the business of manufacturing, distribution or dealing in petroleum products in the amount of P92,373,750.50 and P312,656,253.04, respectively, imposed by Batangas City on Pilipinas Shell, is VALID. Supra, page 77.

DECISION CfA A.C. NO. 10 2. Declaring the Mayor's Permit Fee in the amount of P4,299,851.00 based on gross receipts/sales as grossly excessive and unreasonable considering the aforesaid business taxes. ACCORDINGlY, THE PETITIONER, PILIPINAS SHELl PETROlEUM CORPORATION (PSPC), IS HEREBY ORDERED TO PAY THE AMOUNT OF PHP405,030,003.54 AS TAX ON ITS BUSINESS OF ENGAGING IN THE MANUFACTURE AND DISTRIBUTION OF PETROlEUM PRODUCTS, WHilE THE ASSESSMENT OF PHP4,299,851.00 AS MAYOR'S PERMIT FEE IS HEREBY ORDERED REVOKED WITHOUT PREJUDICE TO ITS MODIFICATION BY THE RESPONDENTS, BATANGAS CITY, ET Al. SO ORDERED." Unsatisfied with the Decision of the lower court, petitioner filed a "Motion for Partial Reconsideration" which raised the following grounds : 1. This Honorable Court committed a reversible error in interpreting Section 133(h) of the Local Government Code to mean that excise taxes may be imposed only on articles or products and not on the privilege of performing an act, engaging in an occupation or enjoying a privilege. 2. Assuming arguendo that Batangas City is legally empowered to impose and collect business taxes from PSPC, this Honorable Court committed reversible error in ordering PSPC to pay the amounts of Php92,373,720.60 and Php312,656,253.04 and thereby effectively deprive PSPC of the right to question the correct amount of its tax liability. 3. This Honorable Court committed a reversible error in holding that PSPC may be subjected to both manufacturer's and distributor's taxes. 4. This Honorable Court committed a reversible error in holding that the principle on strict interpretation of exemption from taxation is the paramount rule applicable in this case. 5. a __.- This Honorable Court committed reversible error in declaring Article 232 (h) of the Implementing Rules and t:' .....- Regulations of the LGC void.

DECISION UA A.C. NO. 10 Before the issues could be resolved, petitioner filed a " Manifestation and Motion for Partial Execution" to which respondents filed a "Counter- Manifestation and Opposition to the Motion for Partial Execution of Decision". On February 2, 2005, petitioner filed another " Manifestation and Motion" praying for th e refund of the Mayor's Permit Fees it paid for the ta xable year 2003 in the amount of P4,299,851.00. In th e Resolution of the lower court7, petitioner's Motions were denied for lack of merit. Hence, this "Petition for Review with Extremely Urgent Application for a Temporary Restraining Order and/or a Writ of Preliminary Injunction " filed on April 27, 2005. Respondent filed its "Comment" on July 6, 2005. Petitioner filed its " Reply (to Respondents' June 21, 2005 Comments on the Petition for Review) " on the August 3, 2005. Consid ering the urgency of the resolution of petitioner's Application for the Issuance of a Writ of Preliminary Injunction, on August 11, 2005, this Court granted the said application and ordered respondents to hold in abeyance the collection of the qu~stioned manufa cturer and distributor's taxes in the amounts of P92,373, 720.50 and P31 2,656,253 .04, respectively, conditioned upon the filing by petitioner of a surety bond in the amount of PSOO,OOO,OOO .OO taken from a bonding company duly accredited by the Supreme Cou rt. ~ Annex "B", Records, pages 96-117.

DECISION CTA A.C. NO. 10 On August 30, 2005, petitioner filed its "Compliance" with the Court's Resolution of August 11, 2005, submitting the required surety bond issued by Malayan Insurance Co., Inc. However, in a Resolution dated September 13, 2005, this Court resolved to disapprove petitioner's surety bond for failure of petitioner to submit a Certificate containing the specimen signatures of the agents authorized to transact business with the Court as required under the Guidelines on Corporate Surety Bonds issued by the Supreme Court8. A "Motion for Reconsideration" was filed by petitioner on October 7, 2005. Finding merit in petitioner's manifestations, this Court, through a Resolution dated February 20, 2006, granted the said Motion, thus, lifted and set aside the earlier Resolution of September 13, 2005. Upon the parties' filing of their Memoranda, this case was submitted for decision on July 5, 20069. THE ISSUES 1. Whether or not Respondents, in line with the existing national policy on petroleum products, may validly impose and collect from PSPC, taxes on the business of manufacturing and/or distribution of petroleum products. 2. Assuming arguendo that Respondents have the power to impose and collect taxes on the business of manufacturing and distribution of petroleum products, whether or not Respondents correctly assessed PSPC's tax liability in that: 2.a Respondents computed PSPC's tax liability based on the sales/receipts of PSPC consummated beyond ~ Respondent's taxing jurisdiction. ------~------------ A.M . No . 04-7-02-SC. Resolution, July 5, 2006, Records, page 719 .

DECISION CfA A.C. NO. 10 2.b Respondents imposed both manufacturers' and distributors' tax on PSPC. 3. Whether or not the Mayor's Permit Fees in the amount of Php4,299,851.00, which the RTC found to be "grossly excessive and unreasonable" may already be refunded to PSPC. 4. Whether or not the closure and/or suspension of the operations of the Tabangao Refinery of PSPC would serve the welfare of the consuming public and the interest of the greater number. THE ARGUMENTS In their "Comments on the Petition for Review"10 filed on July 6, 2005, respondents raised the following arguments, to quote: 1. Petitioners (supposed to be Respondents) does (sic) not accept the statement of facts stated in the Petition; 2. The Petition should not be given due course for the following reasons: a. The Petition for Review did not follow basic rules of procedure. b. The Regional Trial Court of Batangas City, Branch II did not commit any reversible error when it ruled that: 1. Respondents may validly impose and collect from Petitioner taxes on the business of manufacturing and distribution of petroleum products; 2. Sections 130 and 133 (h) of the Local Government Code do not exempt Petitioner from business taxes; 3. The Petitioner is liable to both ~ 10 Records, pages 404-431. A ~ .1

DECISION CTA A.C. NO. 10 manufacturer's tax and distributor's tax imposed by the Respondents; 4. The Petitioner, by reason of its plant in Barangay Ambulong, is liable for taxes on its business as manufacturer and distributor in Batangas City under Section 150 of the Local Government Code; 5. In denying the motion for partial execution of the decision for lack of merit, the reason being that the principal action is only one for declaratory relief. c. Petitioner has no right to a temporary restraining order or a writ of preliminary injunction. Petitioner's "Reply (to Respondents' June 21, 2005 Comments on the Petition for Review)" was filed on the August 3, 2005, interposing the following objections, to wit: 1. The imposition of and attempts by Respondents to collect the local business taxes from PSPC is violative of the law and existing national policy on the petroleum industry; 2. The LGC itself and its IRR provide for the clear and unequivocal exemption of PSPC from the disputed local taxes; 3. Respondents have not shown any legal basis or authority which sanctions a collateral attack upon Article 232(h) for the purpose of having it declared void; 4. Sections 143(a) and 143(b) of the LGC do not apply to PSPC; 5. Laws imposing taxes are strictly construed against the taxing authority; 6. It was clear error for the court a quo to have passed upon the correctness of the amounts of local business ~

DECISION CTA A.C. NO. 10 taxes being collected by Respondents from PSPC when it was not put at issue by the pa rties; and 7. The Assailed Decision with respect to the issue on Mayor's Permit Fees has become final and executory and thus, PSPC is entitled to execution thereof. On September 1, 2005, respondents filed their "Rejoinder to Petitioner's Reply dated August 2, 2005" filed through registered mail on August 22, 2005, highlighting the following points, thus: 1. Petitioner is liable for manufacturer's tax regardless of whether or not sales transactions are made in its Refinery in Batangas City; 2. Article 232(h) of the IRR cannot prevail over the provisions of Section 143(h) of the Local Government Code; 3. The tax subject of this case is a business tax, not an excise tax; 4. The issuance of a Mayor's Permit can not be compelled by the Petitioner; and 5. Rules are made to be followed, not to be broken. At the outset, petitioner submits that Article 232(h) of the Implementing Rules and Regulations (IRR) of the LGC, which was formulated and drafted by the Oversight Committee, 11 clearly provides that local government units have no power and/or authority to impose local tax on the production, manufacture, refinery, distribution and sale of petroleum products. For expediency: ~ 11 Sec. 533, Local Government Code of 1991.

DECISION CfA A.C. NO. 10 "Artic le 232 . Tax on Business xxx (h) On any business, not otherwise specified in the preceding paragraphs which the sanggunian concerned may deem proper to tax provided that on any business subj ect to the excise, value-added or percentage tax under the NIRC, as amended, the rate of tax shall not exceed two percent (2% ) of gross sales or receipts of the preceding calendar yea r, and provided further that in line with the existing national policy, any business engaged in the production, manufacture, refining, distribution or sale of oil, gasoline and other petroleum products shall not be subject to any local t ax imposed under this provision." (Emphasis supplied) Based on petitioner's brief illustration of how Article 232(h) ca me into existence, the said Article was formu lated and drafted to give meaning and substance to Section 133(h) of the Loca l Government Code, which provides: "Sec. 133 Common limitations on the Taxing Powers of the local Government Units. - Unless otherwise provided herein, the exercise of the taxing powers of provinces, cities, municipali ties, and barangays shall not extend to the levy of the following: XXX (h) Excise taxes on article enumerated under the National Internal Revenue Code, as amended, and taxes, fees or charges on petroleum products; xxx" Hence, petitioner contends that the lower court's conclusion that the Oversight Committee "exceeded its authority" in drafting Article 232(h) of the I RR is without any basis. It is the opinion of petitioner that this conclusion suggests that the Oversight Committee is totally ignorant of the law. Petitioner asserts that the lower court conveniently forgot the fact that the Oversight Committee is comprised of several members of Congress which enacted the LGC of 1991. Indeed, in the exercise of the power vested on it by Section 533 of the LGC, the Oversight Committee adopted Article 232(h) specifica lly to clarify the tax exemption provided under Section 133(h) of the LGC. In the same vein, the Oversight Committee could not have been r - unmindful of the legislative policy and purpose in rega rd to the mandate of

DECISION CTA A.C. NO. 10 Section 133(h) precisely because several of its members are from the Legislature which drafted and approved the LGC12. The lower court's disregard of Article 232(h) of the IRR effectively renders the same invalid, violating the legal principle that the validity of a rule or regulation can only be assailed through a direct action and not through a collateral attack. 13 Citing the cases of San Miguel Brewery vs. Magno 14 and Lorenzo Shipping Corporation vs. The Honorable Court of Appeals and Filipinas Port Services, Inc., 15 petitioner further emphasizes the settled rule that regulations issued by administrative bodies pursuant to a valid delegation of legislative power, such as the IRR drafted and enacted by the Oversight Committee, have the binding force and effect of law. Its provisions are entitled to great respect, and have in their favor the presumption of legality. Thus, the implementing rules and regulations enacted pursuant to a va lid delegation of power have the binding force of law as if enacted by the Legislature itself16. More so, petitioner argues that as enunciated in the consolidated cases of Tatad vs. The Secretary of the Department of Energy, et al., and Lagman, et al. vs. Executive Secretary, et al. 1~ Mr. Justice Ricardo J . Francisco reminded the judiciary of their role in a democratic society in this manner ~ "Perhaps it bears reiterating that the question of validity of every statute is first determined by the legislative department of the government, and the courts will resolve every presumption ~ 12 Memora ndum for the Petitioner, Records, pages 640-641 . 13 Memorandum for the Petitioner, Records, page 64 1. 14 G. R. No. L- 21879, September 29, 1967 (21 SCRA 292) . 15 G.R. No. L79644, May 11 , 1988 (1 61 SCRA 319) . 16 Memorandum fo r the Petitioner, Records, pages 644 -645 . 17 G.R. Nos. 124360 and 127867, November 5, 1997 (281 SCRA 330).

DECISION CTA A.C. NO. 10 in favor of its validity. The courts will assume that the validity of the statute was fully considered by the legislature when adopted. xxx". Therefore, instead of blatantly disregarding Article 23 2(h) of the IRR, the lower court should have seen to its harmonization with Sections 133(h) and 143(h) of the LGC, the laws it is intended to implement. On the main issue laid down for consideration, petitioner contends that respondent's imposition of the local business tax upon petitioner contravenes the declared national policy of the petroleum industry, the Local Government Code of 1991 and its Implementing Rules and Regulations, and pertinent rulings of the Department of Justice (DOJ) and of the Department of Finance (DOF), which all prohibit the imposition of local taxes on the business of manufacturing and/or distribution of petroleum products and on the products themselves .18 Quoting the provisions of the Local Government Code of 1991, more particularly, Section 133(h), petitioner insists that LGU's have no authority to levy any excise tax on the products enumerated under the National Internal Revenue Code of 1997, and among the products enumerated under the said Code are petro leum products. Accordingly, from the definition of the term "excise tax", there is no doubt that the business tax being levied by respondents upon petitioner for the privilege of engaging in the business of manufacturing, distribution or dealing in petroleum products is an excise tax. Hence, under the first limitation provided for in the said Section of the LGC, ~ 18 Memora ndum for Petitioner, Records, page 439.

DECISION CTA A.C. NO. 10 respondent Batangas City cannot legally levy the subject taxes on petitioner. Further, under the second limitation of Section 133(h) of the LGC, respondent allegedly cannot impose any tax, fees, or charges on petroleum products. Petitioner reasons that the said limitation cannot be construed as referring only to petroleum products per se, otherwise the said Section would be meaningless because most of the taxable events happen when a transaction, such as manufacturing, distribution, dealing or selling of an article of commerce or a product, occurs. Thus, this second limitation does not only refer to taxes, charges or fees on the petroleum products per se, but to any business or transaction dealing with petroleum products. The differentiation is more apparent than real, for while the incidence of the tax is upon the petroleum products, i.e., when they come into existence, what is actually being taxed is the privilege of manufacturing or producing them . Petitioner also claims that the "existing national policy" as enunciated in Section 2 of Republic Act No. 6173 19 which, among others, underscores , the fact that "petroleum and its products" are "vital to national security" and that "their continued supply at reasonable prices" are "essential to the general welfare". And to levy a business tax on the manufacture and distribution of petroleum products runs afoul of the declared national policy on the petroleum industry. Moreover, petitioner relies on the other provisions of/}<-- 19 An Act Declaring a National Policy on the Petroleum Industry Regulating the Activities and Relations of Persons and Entities engaged therein, Establishing an Oil Industry Commission to Effectuate the same, Defining its Functions, Powers and Objectives, and other Purposes, April 30, 1971.

DECISION CfA A.C. NO. 10 Republic Act Nos. 847920 and 763821 . To further support its arguments, petitioner likewise presented the affidavit of Atty . Florecita P. Flores. 22 On the other hand, respondents vehemently argue that Section 129 of the LGC provides that each LGU shall exercise its power to create its own source of revenue and to levy taxes, fees and charges subject to the provisions of the LGC, consistent with the basic policy of local autonomy. A close examination of Sections 143 and 143(h) clearly shows that the law does not provide for any exemption, when it states that businesses engaged in the manufacture and distribution of any article of commerce of whatever kind and nature and already subject to excise tax, value-added or percentage tax under the NIRC, as amended, are liable for business taxes thereunder, subject to the limitation that the same shall not exceed two percent (2%) of the gross sales or receipt of the preceding calendar year. Yet, when Article 232(h) of the Implementing Rules and Regulations was written to implement the aforementioned Sections, the Oversight Committee exceeded its authority and discretion when it granted tax exemptions where none was given. Despite the lengthy and wordy discussion on the alleged national policy supposedly exempting petitioner from the payment of business taxes, petitioner had miserably failed to point to any organic law which clearly and unequivocally exempts it from local ta xation . ~ 20 An Act Deregulating the Downstream Oil Industry, and for Other Purposes. 21 An Act Creating the Department of Energy, Rationalizing the Organization and Functions of Government Agencies Related to Energy, and for Other Purposes, December 9, 1992. 22 Annex "V", Petition for Review, Records, pages 264-294 .

DECISION CTA A.C. NO. 10 THIS COURT'S RULING We grant the petition . Petitioner is Not Subject to the Business Taxes on the Manufacture and Distribution ofPetroleum Products The court a quo is not correct in ruling that petitioner is subject to the business taxes on the manufacture and distribution of petroleum products. The mandate to impose ta xes granted to local government units (LGUs), in furtherance of the state policy on local autonomy, is categorical and long-established in the 1987 Philippine Constitution23 and the Local Government Code (LGC) . However, such power to impose tax is not all-encompassing. It is subject to limitat ions as explicitly stated in Section 5 of the 1987 Constitution, as follows: SECTION 5. Each local government unit shall have the power to create its own sources of revenues 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. Such taxes, fees, and cha rges shall accrue exclusively to the loca l governments. (Emphasis Supplied) The "Common Limitations on the Taxing Powers of Local Government Units" provided by Congress is found under Section 133 of the LGC. Pertinent to this case is paragraph (h) of this provision of law which r reads, as follows : 23 Section 25, Article II. The State shall ensure the autonomy of local governments; Section 2, Article X. The territorial and political subdivisions shall enjoy local autonomy.

DECISION CTA A.C. NO . 10 SECTION 133. Common Limitations on the Taxing Powers of Local Government Units. - Unless otherwise provided herein, the exercise of the taxing powers of provinces, cities, municipa lities, and barangays shall not extend to the levy of the following: XXX XXX XXX (h) Excise taxes on articles enumerated under the National Internal Revenue Code, as amended, and taxes, fees or charges on petroleum products; (Emphasis Supplied) XXX XXX XXX Based on the opening phrase "Unless otherwise provided herein", it is clear that the enumerated limitations are absolute, unless exceptions are specifically provided. A reading of Section 133(h) reveals that there are two subject matters included in this section because of the word "and " which connects them . The following subject matters are covered: 1) Excise taxes on articles enumerated under the National Internal Revenue Code, as amended; and 2) taxes, fees, and charges on petroleum products. Although petroleum products are subject to excise tax24, it was taken out of that context by putting it after the word "and". Clearly, this is to emphasize the point that it was excluded in Section 143(h) of the LGC which allows the imposition of business taxes on any business subject to the excise, value-added or percentage tax under the National Internal Revenue Code, as amended . Moreover, there is no qualification as to what "taxes, fees, or charges" fr---- to be imposed on the petroleum products. It is a well recognized rule that 24 Section 148, Chapter V, of the National Internal Revenue Code.

DECISION CfA A.C. NO. 10 where the law does not distinguish, courts should not distinguish. Ubi lex non distinguit nee nos distinguere debemos.25 In other words, as long as the subject matter of the taxing powers of the LGUs is the petroleum products per se or even the activity or privilege related to the petroleum products e.g. manufacturing and distribution of the said products, it is covered by the said limitation and thus, no levy can be imposed. Thus, We agree with petitioner that this second limitation does not only refer to taxes, charges or fees on the petroleum products per se, but to any business or transaction dealing with petroleum products. Section 143(h) of the LGC is hereunder quoted for easy reference: "Sec. 143. TAX ON BUSINESS. - The municipality may impose taxes on the following businesses: XXX XXX XXX (h) On any business, not otherwise specified in the preceding paragraphs, which the sanggunian concerned may deem proper to tax: Provided, That on any business subject to the excise, value-added or percentage tax under the National Internal Revenue Code, as amended, the rate of tax shall not exceed two percent (2%) of gross sales or receipts of the preceding calendar year. The sanggunian conce rned may prescri be a schedule of graduated tax rates but in no case to exceed the rates prescribed herein ." (Emphasis Supplied) Because of the express limitation in Section 133(h), the above-quoted provision cannot be used as basis for the imposition of business taxes on manufacturing and distributing petroleum products. ~ 25 Philippine British Assurance Co., Inc. vs. Intermediate Appellate Court No.L-72005 May 29, 1987 (150 SCRA 521) citing Co/gate-Palmolive Pl7il., Inc. vs. Gimenez, G.R. No. 14787, January 28, 1961, 1 SCRA 267 ; Ubudan vs. Gil , G.R. No . 21163, May 17, 1972, 45 SCRA 17 ; Dominador vs. Derahunan, 49 Phil. 452 (1926); Guevarra vs. Inocentes, G.R. No . 25577, March 15, 1966, 16 SCRA 379 ; Director of Lands vs. Gonzales, G.R. No. 32522, January 28, 1963; Alfato vs. Commission on Elections, G.R. No. 52749, March 31, 1981, 103 SCRA 741 ; Statutory Construction by Ruben E. Agpalo,1986, pp. 143- 144 .

DECISION CfA A.C. NO. 10 Hence, the argument that the LGC has vested LGUs the authority to collect business taxes on manufacturers and distributors of any article of commerce of whatever kind or nature26 is not applicable in this case. "Petroleum products" should not be interpreted to be included in "any article of kind and nature". It is elementary in statutory construction that when the law speaks in clear and categorical language, there is no reason for interpretation or construction but only for application Y Applying the law, this Court finds petitioner not liable to the business taxes on the manufacturing and distribution of petroleum products. This is also in line with the Resolution of the Department of Justice (Re: Declaration of Ordinance No. 7794 as Illegal and Unconstitutional)28, quoted hereunder: "xxxx Sections 143(h) and 151 abovequoted cannot be used in derogation on the clear exemption of petroleum products under Section 133(h). The presumption always is that the law enacted by the legislature is complete by itself, that the legislature did perform its function well, and that it is intended to impart such meaning as will render the law operative and effective (People vs. Martin, G.R. NO. 38019, May 16, 1980, 98 SCRA 591 (1980); Asturias Sugar Central, Inc. vs. Commissioner of Customs, G.R. No. 19337, September 30, 1969, 29 SCRA 617 (1969). The legislature in enacting the Local Government Code of 1991, cannot be assumed to have inserted in the law a meaningless provision, one that government units can at their option freely ignore. The intent to exclude petroleum products is further made evident in the implementing regulations. Article 232 thereof states: ~ 26 Sec. 143(a) and (b) Local Government Code. 27 Land Bank of the Philippines vs. Court ofAppeals & Department ofAgrarian Reform vs. Court ofAppeals GR Nos. 118712 & 118745, respectively, July 5, 1996 ( 258 SCRA 404 .) 28 Petron Corporation, Caltex Philippines, Inc., Mobil Philippines, Inc., Pilipinas Shell Petroleum Corp., Polly M. Cayetano vs. Mayor Alfredo S. Lim, Vice-Mayor Lito Atienza, Sangguniang Panglungsod, City Treasurer Anthony, City of Manila, September 17, 1993 signed by DOJ Secretary Franklin M. Drilon, Records, pages 317-318 (Annex X) .

DECISION CTA A.C. NO. 10 Art. 232. Tax on Business.- The municipality may impose tax on the following businesses: (h) On any business, not otherwise specified in the preceding parag raphs which the sanggunian concerned may deem proper to tax provided that on any business subject to the exercise tax, VAT, or percentage tax under the NIRC, as amended, the rate of tax shall not exceed two percent (2%) of gross sales or receipts of the preceding calenda r year and provided further, that in line with existing national policy, any business engaged in the production, manufacture. refining~ distribution or sale of oil, gasoline, and other Qetroleum products shall not be sub �ect to an loca l tax im osed in this Article. ( Emphasis supplied) The implementing regulations of the local Government Code have the force and effect of law (Art. 7, New Civil Code) and unless declared to be illegal, cannot be disregarded. xxx "(Emphasis Supplied) In its Opinion of October 25, 1993 on this point, the Department of Finance (DOF) has ruled that "Any business engaged in the production, manufacture, refining, distribution or sale of oil, gasoline and other petroleum products shall not be subject to any local tax. 29 Hence, petitioner is correct in saying that Article 232(h) of the Implementing Rules and Regulations (IRR) of the LGC, which was formulated and drafted by the Oversight Committee, is in harmony with Section 133(h) of the LGC, the law it intended to implement. Likewise, the argument on the "existing national policy" as enunciated in Section 2 of Republic Act No. 617330 is affirmed. The ruling of the Supreme Court in the case entitled Philippine Petroleum Corporation vs. Municipality of Pililia, Rizal 31 does not apply here. Under the old Local Tax Code32, the law applicable in the case of ~ 29 DOF Opinion cited in Alberto C. Agra, "Compendium of Decisions, Rulings, Resolutions and Opinions on Local Autonomy and Local Government'; 1996 Ed. , page 145. 30 Supra ,Note 19. 31 G.R. No. 90776, June 3, 1991 (198 SCRA 82). 32 Presidential Decree No. 231, June 28, 1973.

.. DECISION CTA A.C. NO. 10 Pililia, the following are the common limitations on the taxing powers of local governments: SECTION 5. Common limitations on the taxing powers of local governments. - The exercise of the taxing powers of provinces, cities, municipalities and barrios sha ll not extend to the imposition of the following: (a) Documentary stamp tax; (b) Taxes on forest products and forest concessions; (c) Taxes on estates, inheritance, gifts, legacies and other acquisitions mortis causa, except as otherwise provided in this Code; SEIDAC (d) Taxes on income of any kind whatsoever; (e) Taxes or fees for the regi stration of motor vehicles and for the issuance of all kinds of licenses or permits for the driving thereof; (f) Customs duties, registration fees of vessels except as otherwise provided in this Code, and wharfage on wharves, tonnage dues, and all other kinds of customs fees, cha rges and dues, except wharfage on wharves constructed and maintained by the loca l government concerned at rates not exceeding those fixed by the Tariff and Customs Code; (g) Taxes of any kind on banks and insurance companies; (h)Taxes on premiums paid by owners of property who obtain insurance directly with foreign insurance companies; (i) Export taxes, fees, or other levies on Philippine finished, manufactured or processed products, and products of Philippine cottage industries; U) Taxes and other impositions upon goods carried into or out of, or passing through, the territorial juri sdictions of local governments in the guise of unreasonable charges for wha rfage, use of bridges, or otherwise, or other taxes in any form whatever upon such goods or merchandise; (k) Taxes or fees on agricultural products when sold by the farmer or producer thereof, whether in their original form or not; and (I) Percentage tax on sales, except as otherwise provided in this Code. Petroleum products are not expressly covered by the common limitations on the taxing powers of local governments under the old Local Tax Code. On the other hand, such exemption was categorically stated under Sec. 133 of the 1991 LGC. Hence, the Pililia ruling is not applicable . Based on the foregoing discussions, petitioner is clearly not subject to the business taxes on the manufacturing and distribution of petroleum products. Mayor's Permit Was p_- Grossly Excessive and Unreasonable We agree with the findings of the lower court that Mayor's Permit Fees

.. DECISION CTA A.C. NO. 10 paid under protest was grossly excessive and unreasonable. The mayor's permit is imposed in the exercise of police power primarily for purposes of regulation. Being such, it must be reasonable and commensurate with the cost of regulation, inspection and licensing of a business or occupation or practice of a profession or ca lling. Pertinent to this is Section 147 of the LGC which is quoted hereunder: SEGION 147. Fees and Charges. - The municipality may impose and collect such reasonable fees and charges on business and occupation and, except as reserved to the province in Section 139 of this Code, on the practice of any profession or cal ling, commensurate with the cost of regulation, inspection and licensing before any person may engage in such business or occupation, or practice such profession or calling. (Emphasis Supplied) Article 233 of IRR provides for a clear limit on what reasonable fees and charges should be. This provision complements with Section 147 of the LGC. It reads, as follows: ARTICLE 233. Fees and Charges. - The municipality may impose and collect such reasonable fees and charges on businesses and occupations and, except as reserved to the province in Article 229 of this Rule, on the practice of any profession or calling before any person may engage in such business or occupation, or practice such profession or calling provided that such fees or charges shall only be commensurate to the cost of issuing the license or permit and the expenses incurred in the conduct of the necessary inspection or surveil Ia nee. No such fee or charge shall be based on capital investment or gross sales or receipts of the person or business liable therefor. (Empl7asis Supplied) Based on the above-quoted provision, for fees and charges to be reasonable: fees and charges should be proportionate/equal to the cost of issuing the license or permit and the expenses incurred in the conduct of the necessary inspection or surveillance. The last paragraph of Article 233 merely ?t-- affirms the basis of the reasonableness of the fees and charges by saying that

DECISION ITA A. C. NO. 10 no fee/charge shall be based on capital investment or gross receipts of the person or business. In this case, the mayor's permit being imposed is based on the gross receipts of the preceding calendar year although in a graduated scale. This is in clear violation of Section 147 of the LGC, as implemented by Article 233 of IRR. The finality of the Decision of the lower court as regards the issue of the Mayor's Permit Fees was only insofar as the lower court found that the said payment made was excessive and unreasonable. If petitioner would read carefully into the Decision of the lower court, the judgment about the revocation of the assessment of the Mayor's Permit Fees for the taxable year 2002 was "without prejudice to its modification by the respondents, Batangas City, et al." This portion of the lower court's Decision was interpreted by the respondent in its "Memorandum" filed on June 28, 2006 in this manner, "This means that the Respondent City of Batangas is permitted to keep the payment provided that the provision of the Batangas City Tax Code on the matter is modified. In this regard, the City of Batangas has decided to comply with the mandate of the court and is presently modifying the tax code." However, until now, no such modification was manifested to the Court. Since, respondents failed to modify the computation of the mayor's permit fee and based on justice and equity, petitioner should be refunded with the mayor's permit fees ordered revoked by the court a quo.

.' DECISION CTA A.C. NO. 10 The details33 of the additional amount of P4,299,851.00 mayor's permit fees are as follows: Manufacturer Distributor Mayor's Permit Fee P704,305.00 P3,166,555.00 License Fee 70,535.50 25,000 .00 1,000.00 Prot. Fee Res/Bus 12,000.00 Fire Insp. Fee 320,455.00 P3,525,010.50 Occ./Prof.Tax San Permit & San Insp. Fee Fire Code Fee Total Amount P774,840.50 The amount to be refunded is not the full amount of P4,299,851.00 but the excessive mayor's permit for manufacturing and distributing in the amount of P704,305.00 and P3,166,555.00, respectively or in the total amount of P3,870,860.00. Court cannot rule on whether or not closure/suspension ofoperation of Tabangao Refinery ofPSPC Tabangao would serve the welfare of the consuming public This Court has already ruled that petitioner is not subject to the business taxes on the manufacturing and distribution of petroleum products pursuant to explicit provisions of law. Hence, We see no reason to dwell on the fourth issue because the wisdom of the law is being invoked. The Court is not in the position nor is it inclined to rule on this issue ;Tt--- considering that wisdom of the law is limited to the legislature. On the other 33 Petition for Review, page 10. ib u

DECISION GA A.C. NO. 10 hand, the primary duty of the court is to apply the law. WHEREFORE, premises considered, the judgment/order of the RTC Branch II of Batangas City is hereby MODIFIED. As to the business taxes on the manufacture and distribution of petroleum products, We find the petitioner not liable for the same. As to the mayor's permit, We find that it is excessive. Accordingly, the respondent is hereby a)declared legally proscribed from imposing business taxes on the manufacture and distribution of petroleum products and b) to refund in the form of tax credit the excessive mayor's permit in the amount of THREE MILLION FIVE HUNDRED TWENTY FIVE THOUSAND TEN PESOS and FIFTY CENTAVOS (P3,525,010.50). SO ORDERED. .. taiJ~U;>AN.f..fLo G ~~ 9.-z . C. /CASTANEDAytJR. Associate Justice WE CONCUR: (With Dissenting Opinion) E:~s.~UstYice OLGA PALANCA-ENRIQUEZ Associate Justice ATTESTATION I attest that the conclusions in the above Decision were reached in consultation before the case was assigned to the writer of the opinion of the Court's Division. ~~~ -~~ fuANITO C. CASTANEDA, 11{'._, Associate Justice Chairperson, Second Division

DECISION CfA A.C. NO. 10 CERTIFICATION Pursuant to Article VIII, Section 13 of the Constitution, and the Division Chairperson's Attestation, it is hereby certified that the conclusions in the above Decision were reached in consultation before the case was assigned to the writer of the opinion of the Court. \'~~,. D.c.-A- ERNESTO D. ACOSTA Presiding Justice

.. REPUBLIC OF THE PHILIPPINES Court ofTax Appeals QUEZON CITY SECOND DIVISION PILIPINAS SHELL PETROLEUM C.T.A. AC NO. 10 CORPORATION (RTC Civil C ase No. 7109) Petitioner, Members: -versus- CASTAI\IJ ~DA, JR., Chairperson UY, and PALANC A-ENRIQUEZ, JJ. BATANGAS CITY, BENJAMIN E. PARGAS in his capacity as Promul gated: CITY TREASURER and JU'N 2 12007 TEODULFO A. DEGUITO in his ~ capacity as CITY LEGAL OFFICER OF BATANGAS CITY, Respondents. X --------------- ----------------------------------------- �--------------------------- X DISSENTING OPI!1fiON PALANCA-ENRIQUEZ, J.: With all due respect to the Majorit~ � 0 1:>inion, after a careful examination of the pertinent facts of the ca~ ;e, in relation to applicable laws and jurisprudence, I am constrained to r~ ~gistet my dissent for settled is the rule that where the provisions of the la w are cl ~ar and unambiguous ~ � h �I

.. C.T.A. AC NO. l 0 2 (RTC Civil Case No. 71 09) Dissenting Opinion there is no room for interpretation. For the first duty of the court is to apply the law (Villanueva, Jr. vs. Estoque, 346 SCRA 234). In th e instant case, I found petitioner liable' for business taxes on the manufacture and distribution of petroleum products, as clearly provided in Section 143 ofthe Local Government Code ( "LGC'') , to wit: "SEC. 143. Tax on Business - The municipality may impo se taxes on the following businesses: (a) On manufacturers, assembl ers, repackers, proce ssors, brewers, distillers, rectifiers, a nd compounders of liq uors, distilled spirits, and wines or m anufacturers of any a rticle of commerce of whatever kin d or nature, in accor dance with the following schedule: XXX XXX (b) On wholesalers, distributors, or dealers in any articl c of commerce of whatever kind or nature in accor dance with the following schedule: XX X XXX ( h) On any business, not otherwise s 1 ecified in the precedi ng paragraphs, which the sanggunian c onccrned may deem pr�oper to tax: Provided, That on any bt tsiness subject to the ,~xcise, value-added or percentage 1ax t mder the National Internal Revenue Code, as amended, the rate of tax shall not ,~xceed two percent (2%) of gross sa les or receipts ~ of the prec.cding calendar year. � t ti

.. C.T.A. AC NO. I0 3 (RTC Civil Case No. 71 09) Dissenting Opinion The sanggunian concerned may prescribe a schedule of graduated tax rates but in no case to exceed the rates prescribed herein." Pursuant to the aforesaid provisiOn, it is cl ear that the City of Batangas is empowered to enact an ordinance imposing business tax on the manufacturers of any article of commerce of wh atever kind or nature, on the whol esalers, distributors, or dealers in any a t icle of commerce of whatever kind or; on any business, not otherwise specified in subsections (a) to (g) of Section 143 of the LGC, which the sanggunian may deem proper to tax. Notwith ~;tanding the foregoing provisiOn, the Majority Opinion holds that "be ause of the express limitation in Section 133 (h), the above-quoted p rovi sion cannot be used as basis for the imposition of business taxes on manufacturing and distributing petroleum products." In this regard, Section 133 (h) of the LGC is quoted hereunder, for expediency: "SEC . 133. Common Limitations on the Taxing Powers of Local Government Units. - U nles ., otherwise provided herein, the exercise of the t: \Xing powers of provinces, cities, municipalities, and ba�1angays shall not extend to th e levy of the following: ~/

C.T.A. AC NO. 10 4 (RTC Civil Case No. 71 09) Dissenting Opinion XXX XXX (h) Excise taxes on articles enun terated under the National Internal Revenue Code, as amend��~d, and taxes, fees or charges on petroleum products; XXX XXX. " Construing the aforecited provision, petit ioner contends that there are two limitations prescribed in the said secti n. First, relying on the definition of "excise tax", it posits that there is no doubt that the business tax being levied by respondents upon petitjoner is the privilege of engaging in the business of manufacturing, distribution or dealing in petroleum products, which is an excise tax. [n sum, it is the petitioner' s contention that the phrase "Excise taxes on a ctid es enumerated under the National Internal Revenue Code, as amend d, x.'<X" covers excise taxes on manufacturing and/or distribution business. Se �~ond, petitioner asserts that the last phrase in Section 133 (h), whi( :h reads . "xxx and taxes, fees or charge~; on petroleum products", cannot �Je constn ted as referring only to petroleum products p er se, but to any bus iness or transactions dealing with petro ~: eum products, to which constn tction, th1: Majority Opinion concurred w ith. .-- . �' ~

C.T.A. AC NO. 10 5 (RTC Civil Case No. 71 09) Dissenting Opinion However, with all due ,c;,pect to the optmon of my esteemed colleagues, the said construction� of Section 133 (h) of the LGC goes beyond the literal import of the statute. Basic is the rule in statutory construction that when the law SJ >eaks in clear and categorical language, there is no reason for interpre tation or construction, but only for application (Land Bank of the Philippines vs. Court ofAppeals and Department of Agrarian Reform vs. Court ofAppeals, ~ ?58 SCRA 40 7). Contrary to the assertion of the petitioner and the Majority Opinion, Section 133 (h) clearly :speaks for itself. A plain reading of the subject provision would show that the limitation is not applicable to business taxes. What is circumscribed by the provision is the imposition of exci~ ;e taxes upon the articles or products, and not upon the privilege of manufacturing or distributing the same, which are distinct kinds of taxes. This pronouncement is clearly 'Norded by the law that warrants no other meanin g or implication, the loca I government units taxing power shall not extend to the levy of excise 1taxes on articles enumerated under the Nationol Internal Revenue Code ("NJRC''), as amended, and taxes, fees or char ges on petroleum produc ;ts. Simply stated, the limitations under pL . .I ;

C.T.A. AC NO. I0 6 (RTC Civil Case No. 71 09) Dissenting Opinion Section 133 (h) apply only when what is being taxed is the article itself and not the business in which said mticle is manufactured or distributed. Corollarily, it must be noted that Sections J29 and 148 of the NIRC, as amended, specifically impose excise 1axes on petroleum products, as follows: "SEC. 129. Goods Subject to Excise T xes. - Excise taxes apply to goods manufactured or pre Jduced in the Philippines for domestic sale or consumpti n or for any other disposition and to things imported. ' rhe excise tax imposed herein shall be in addition to the value-added tax imposed under Title IV. For purposes of this Title, excise taxes herein imposed and based on weight or volume capacit y or any other physical unit of measurement shall be referr ed to as 'specific tax ' and an excise tax herein imposed and based on selling price or other specified value of the good s} tall be referred to as ' .ad valorem tax'." "CHAPTER V EXCISE TAX ON PETROLEUM PRODUCTS SEC. 148. Manufactured Oils :md Other Fuels. - There shall be collected on refined and manufactured minera l oils and motor fuels, the foll owing excise taxes which shall attach to the goods hereunder enumerated as soon as they are in existence as such. XX.'<. xxx." . ) �:

C.T.A. AC NO. 10 7 (RTC Civil Case No. 71 09) Dissenting Opinion Pursuant to the aforecited provisions, I agre-e with the findings of the lower court that the NIRC recognizes the di chotomy of a tax on business as distinct from a tax on the product itself. The excise taxes imposed by the NIRC refer to taxes on certa in specified goods, manufactured or produced locally or imported. It i: not an excise tax on the privi lege of doing business, but an excise tax I evied on the property. It is con sidered taxes on the property because the y are imposed directly on certain specified goods. It is doctrinally settled that a tax on busine ss is distinct from a tax on the article itself. In the case of Philippilze Petroleum Corp. vs. Municipolilty ofPililla, Rizal (198 SCRA 89) , the Supreme Court ruled: "Furthermore, while Section 2 of I ,.D. 436 prohibits the imposition of local taxes on petrolettm products, said deCI!�ee did not amend Sections 19 and 19 (a) ofP.D . 231 as ame nded by P.D . 426, wherein the muni� ;ipality is granted the right to levy taxes on business ' lf manufacturers, importers, producers of any article of com nerce of whatever kind or nature. A tax on business is dist �1ct from a tax on the art icle itself. Thus, if the imposition .f tax on business of ma nufacturers, etc. in petroleum proc.uc ':s contravenes a declan ~d national policy, it should have b ~en expressly stated in P.D. No. 436." :'I I

C.T.A. AC NO. J0 8 (RTC Civil Case No. 71 09) Dissenting Opinion With all due respect to the Majority Opinior�, it is my modest view that the above ruling applies to the present case. T he above ruling of the Supreme Court on the matter is a general principle involving the kind of taxes that maybe imposed either upon the privileg .e of doing business or upon the product of the business itself. It has r 1othing to do with the power or th e limitation of the local government u�1its to impose business taxes. As aptly ruled by the lower court: " The ruling of the Supreme Court in the case of Philippine Petroleum Corporation vs. Mun cipality of Pililia, Rizal is still controlling and has not been ::uperseded as yet, thus : 'A tax on business is distinct fron l a tax on the article itself. Thus, if no imposition of I ax on business of manufacturers, etc. in petroleum product. ., contravenes a declared national policy, it should have een expressly stated in P.D. No. 436.' Indeed, the above ruling of the Supr( me Court was decided when the LGC has not yet b een e1 acted and the previous laws did not prohibit LGU:~ from im posing excise taxes on petroleum products. But 1hen, the ruling of the Supreme Court on the matter is a gen�.:ral principie involving the kind of taxes that may either be impOS l~d upon the privilege of doing business or, upc 1n the pro duct of the business itself. It distinguishes the ' 1ature of the classified taxes and has nothing to do with the powers of the LGUs to impose business taxes xxx." ~ � .I '

C.T.A. AC NO. 10 9 (RTC Civil Case No. 71 09) Dissenting Opinion Pursuant to the aforequoted ruling and c nnsidering further that Section 133 (h) of the LGC, in connection w ith the provision of the NIRC, is explicit in stating that the prohibition in the imposition of taxes, fees or charges is limited to the petroleum products, local government units are not prohibited from imposing excise ta x on the exercise of the privilege in engaging in the manufacturing and/or distribution business of petroleum products. As such, business taxes, which are traditionally imposed by the local government units, like in the case of the City of Batangas, we re not withheld by the LGC . Consequently, the proposition of the etitioner that "since the excise tax refers to a tax upon the performanc ~ of an act, enjoyment of a privilege or en gaging in an occupation, it follows that Batangas City is legally proscrib-ed from imposing business taxes on the manufacture and/or distributit m of petroleum products" , is devoid of merit. Such argument would violate the state policy ens11ring local autonomy (.()ection 25, Article II of the1987 Constitution). It would curtail the local government units' .1llthority to impose tax es on any business, including those businesses sub ject to excise tax, as ordained under the provisio~

C.T.A. AC NO. 10 10 (RTC Civil Case No. 7109) Dissenting Opinion Section 143 (h) of the LGC. In effect, the said proposition would render nugatory and inoperative the provision of Section 143 (h); a denouncement which offends the basic princip le of statutory construction that "a provision of a statute should be so construed as not to nullify or render nugatory another provision of the sa1 ne statute (Agpalo, Statutory Construction, 5th ed. , 256). Interpretatio [zenda est ut res magis valeat quam pereat. A Ji aw should be interpreted with a v tew to upholding rather than destroying it (People vs. Derilo, 271 SCRA 666). Moreover, as between Sections 133 (h) and 143 (h) of the LGC, Section 143 prevails. Section 143 provid es the specific power of a city/municipality to impose business taxes. Specifically, Section 143 (h) empowers the city or municipality to impose a bus: 1ess tax on a business already subject to excise tax. On the other hand, Section 133 is a general provision that governs the common limitation s of lc,,cal government units' authority to tax. It is an elementary rule i1 1 statlttory construction that where there is in the same statute a parf cular enactment and also a general one, which in its most comprehem �ve sen�:;e would include what is embraced in the former, the particular <:nactm(~nt must be operative,

C.T.A. AC NO. 10 II (RTC Civil Case No. 71 09) Dissenting Opinion and the general enactment must be taken only i such cases within its general language as are not within the provi~; ions of the particular enactment (Manila Railroad Co. vs. Collector ofCustoms , 52 Phi/951-952). Hence, there is no doubt that the City of Batangas may impose business taxes on the manufacture and distribution of petroleum products, notwithstanding the provision of Section 133 (h) ofthe LGC. Petitioner invokes the provision of Art icle 232 (h) of the Implementing Rules and Regulations ("IRR '') ofth e LGC, which states in part that "xxx any business engaged in the pre 1duction, manufacture, refining, dis tribution or sale of oil, gasoline and ot her petroleum products shall not be subject to any local tax imposed in this article". A plain reading of S ections 133 (h) and 143 of the LGC, the substantive provisions to be implemented, would show that tl 1e IRR is in conflict with the said specif ic provisions. The IRR deviated from its purpose to carry out the provisic ms of the LGC for the achieveme nt of local autonomy. As correctly pointed out by the lower cou rt: "It .must be stressed that the functi n of promulgating rules and 1�egulations should be exercise' i for the purpose of carrying <- lUt the provisions of the law into effect. Administraf ive regulations cannot extenc , the law or amend a ~

C.T.A. AC NO. 10 12 (RTC Civil Case No. 7109) Dissenting Opinion legislative enactment, for settled is the rule that administrative regulations must be in hanuony with the provisions of the law. The Court may disregard contemporaneous construction where there is no ambiguity in the law. In this case, the Oversight Committee which was tasked to issue appropriate Rules and Regulat ions for the efficient and effective implementation of the LGC, has exceeded its authority. In granting tax exempti�on, which is not found in the provisions of Sections 143 of tl1e LGC, the Oversight Committee subverted the princip le of local autonomy as defined under the LGC and the Constitution." In the case ofProvince of Batangas vs. Romulo (429 SCRA 763), the Supreme Court struck down the Oversight Comrnittee' s Resolution implementing the release of the Internal Revenue Allotment ("IRA") and ruled as follows: "Indeed, the Oversight Committee exerc1smg discretion, even control, over the distribution an~ d release of a portion of the IRA, the LGSEF, is an anathema to and subversive of the principle of local autonomy as embodied in the Constitution. Moreover, it finds no statutory basis at all as the Oversight Committee was created merely to formulate the rules and regulations for the efficient a nd effective implementation of the Local Government Cod1 ~ of 1991 to ensure 'compliance with the principles of local mtonomy as defined under the Constitution xxx". In the same vein, constricting the local governm en t units ' power to impose business taxes on businesses engaged i1 1 the production, manufacture, refining, distribution or sale of oil, ! ~aso line and other ~

C.T.A. AC NO. I0 13 (RTC Civil Case No. 71 09) Dissenting Opinion petroleum products is anathema to and subversive of the principle of local autonomy. Evidently, Article 232 (h) of the IRJ ? of the LGC cannot prevail over the literal import of the provisions of Sections 143 and 133 (h) ofthe LGC. It cannot be gainsaid by the petitioner tl tat in disregarding the provision of Article 232 (h) of the IRR of the LGC, the lower court rendered invalid the IRR, violating the legal pri1 tciple that the validity of a rule or regulation can only be assailed through. a direct attack. A re ding of the decision will show th tt the lower court did not make any declaration of invalidity of the IRR . The lower court merely disregarded the IRR because it was in COlt fJict with the substantive provision of the law, which it intends to imr�lem' ~nt. Pertinent portion of the said dec ision is quoted hereunder: "The Court is not unmindful th at Artic.1e 232(h) of the IRR c1dopted by the Oversight Committee to implement the LGC has incorporated that any b Jsiness er1g::tged in the production and manufacture of petr1 )leum produd s shall not be sub_ ject to any local tax. How' ~ver, the said IRR is in conflict with the specific provisi( m of Section 143, the substan tive provision which is inte1 tded to be i plemented. The IR R deviated from its pur pose to carry out the ~~~~~~~ ;. of the LGC for the achievement of I~

C.T.A. AC NO. 10 14 (RTC Civil Case No. 71 09) Dissenting Opinion XXX XXX." Well settled is the rule that a court may disregard an administrative order, although it was not a direct attack for the purpose, when the same is in conflict with the governing statute. In the case of China Banking vs. Court ofAppeals, et al. (265 SCRA 341-342), the Supreme Court, ruled: "With respect to the third issue, we find private respondent's contention that Administrative Order No. 3 is the governing rule in foreclosure of mortgages misplaced. The parties, we note, have stipulated that the provisions of Act No. 3135 is the controlling law in case of foreclosure. XXX XXX Moreover, Administrative Order No. 3 is a directive for execution judges and clerks of courts which, under its preliminary paragraphs, is '[i]n line with the responsibility of an Executive Judge, under Administrative Order No. 6, dated June 30, 1975, for the management of courts within his administrative area, included in which is the task of supervising directly the work of the Clerk of Court, who is also the Ex-officio Sheriff, and his staff, xxx. Surely, a petition for foreclosure with the notary public is not within the contemplation of the aforesaid directive as the same is not filed with the court. At any rate, Administrative Order No.3 cannot prevail over Act No. 3135, as amended. It is an elementary principle in statutory construction that a statute is superior to an administrative directive and the former cannot be repealed or amended by the latter." Accordingly, Article 232 (h) of the IRR of the LGC could also be validly disregarded for being in conflict with the clear ~

C.T.A. AC NO. 10 15 (RTC Civil Case No. 7109) . Dissenting Opinion word ings of the governing provisions, specific; ,dy, Sections 133 (h) and 143 ofthe LGC. Finally, petitioner cannot find solace m the provisions of Republic Act (R.A.) No. 6173, otherwise kn own as "An Act Declaring a National Policy on the Petroleum Industry Regulating the Activities and Relations of Persons an1l Entities engaged therein, Establishing an Oil Industry Commiss:�on to Effectuate the same, Defining its Functions, Powers and 0 bjectives, and other Purposes ; R.A. No. 8479, otherwise krtown as "An Act Deregul r ting the Downstream Oil Indu ~ try, and for Other Purposes"'; and R.A. No. 7638, otherwisl':: known as "An Act Creating the Department of Energy, Rationa.�izing the Organization and Func lions of Government Agencies Rela ted to E11ergy, and for Other Pu rposes". Nowhere in the said law::; :is there a provision that directly or indirectly grants tax exemptiom : to petition er, or to any other businesses engaged in the manufactm e and/or di 'tribution of petroleum products. As aptly ruled by the lo wer court: "Apropos the existing nation .d policy, which the petiti oner also invokes to have beeJl violated, ' his c~

C.T.A. AC NO. 10 16 (RTC Civil Case No. 71 09) Dissenting Opinion carefully scanned each and every provisions of R.A. 6173, R.A. 7638, and R.A. 8479, but found then �in no specific state policy that declares an exemption of petroleum products from business taxes, much less, a prohibition for the LGUs to impose the same taxes on petro leum products. What is commonly identified by the said lav ' S is the policy of the state to conserve the use and suppl�y of energy at reasonable prices considering the internatio1ml price levels and collusive practices in the industry. Tr e statutes were focused towards the continuous supply oJ petroleum and aversion of predatory pricing that culm inated with the adoption of liberalization and deregul2 tion of the oil industry. To repeat, there is nothing from the said laws that directly or indirectly exempted the petrole urn and petroleum products from local taxes. It bears empha >is that exemptions from taxation are not favored; they are construed in strictissimi juris against the taxpayer and i tberally in favor of the tax�ng authority. He who claims an c xemption from his share f the common burden in taxati o; 1 must justify his claim by showing that the legislature inL'Il 1ed to exempt him by words too plain to be mistaken. An ex�~mption cannot be permitted to exist upon vague implicatio n.' � Finding no reversible error, I vote to disn � iss the present Petition For Review and to affirm the appealed Dec �sian ated October 29, 2004 and Order dated February 28, 2005. ~ OLG~ ~ PALAHC~ A-ENRIQUEZ Associate Justice Court uf'fax App cai s Library