CITY OF MANILA, ET. AL., v. COSMOS BOTTLING CORPORATION

REPUBLIC OF THE PHILIPPINES COURT OF TAX APPEALS QUEZON CITY THIRD DIVISION CITY OF MANILA and MS. LIBERTY TOLEDO, In her official capacity as the CITY TREASURER OF MANILA, Petitioner, C.T.A. AC No. 61 (RTC Civil Case No. MC06-2975) -versus- Members: Bautista, Chairperson Palanca-Enriquez, Cotangco-Manalastas, JJ COSMOS BOTTLING CORPORATION, Promulgated: Respondent, NOV 0 9 2010 c:;:A~~~ .::t:..2..r~�-. X- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -X DECISION COTANGCO-MANALASTAS, J .: On appeal via Petition for Review is a Decision1 of the Regional Trial Court dated February 11, 2009, ordering petitioner to refund to respondent the amount of local business tax excessively and unlawfully collected in the amount of Pl,044,509.08 for the year 2006. THE FACTS Culled from the records2, the facts are as follows: ~ 1 Rollo, C.T.A. AC No. 61, pp. 33-51. 2 Rollo, pp. 12-15, 33-36, and 54-56.

DECISION Page 2 of 12 C.T.A. AC No. 61 (RTC Civil Case No. MC06-2975) City of Manila, et al. vs. Cosmos Bottling Corporation Petitioner City of Manila is a local government unit organized and existing under Republic Act No . 409 and is represented in this case by his Honor, Alfredo S. Lim, City Mayor of Manila. Petitioner Liberty M. Toledo is of legal age, Filipino and is filing this case in her capacity as the City Treasurer of the City of Manila with office address at the Ground Floor, Manila City Hall, Taft Avenue, Manila. Respondent Cosmos Bottling Corporation is a domestic corporation legally organized and existing under Philippine law with office address at SMPC Building, No. 7 St. Francis Street, Ortigas, Mandaluyong City. To facilitate its payment of business taxes, permit fees, other fees and regulatory charges for the year 2006, respondent submitted its total sales within the City of Manila for the year 2005 pursuant to provisions of the Revenue Code of Manila. Petitioner sent respondent assessments for year 2006 under Statement of Account (SOA) Nos. 01051583 and 01442584 with the following details: Statement of Date of Statement Line/Nature of Period Amount Account of Account Business Assessed Number Full year 0144258 January 13, 2006 Private warehouse Quarter I 34,296.40 0105158 January 14, 2006 Mftr Sales/ 1,227,781.05 Purchasing Office Upon review of the SOAs, respondent found that the assessments were based on Tax Ordinance No. 7988 and Tax Ordinance No. 8011. Respondent filed its letter- protest5 to both SOAs with the petitioners on January 19, 2006. The protest argued that Tax Ordinance Nos. 7988 and 8011 upon which the assessments were based have e::::::..- 3 Rollo, p. 64. 4 Rollo, p. 63 . 5 Rollo, p. 67-70.

DECISION Page 3 of 12 C.T.A. AC No. 61 (RTC Civil Case No. MC06-2975) City of Manila, et al. vs. Cosmos Bottling Corporation been declared null and void by the Department of Justice (DOJ) in its Resolution dated August 17, 2000. Respondent also argued that the collection of local business taxes and fees under the foregoing ordinances constituted double taxation. Respondent tendered payment for its liabilities for business taxes and permits for the first qua1ier of 2006 computed based on the provisions of Tax Ordinance No. 7794, as amended by Tax Ordinance No. 7807, in the amount of P206,663.81. This tender of payment was refused by petitioners. In answer to respondent's letter-protest, petitioners sent a letter6 informing respondent of the following: "Considering that the grounds relied upon in your protest are the same issues raised in the Regional Trial Court, Branch 212, Mandaluyong City, in Civil Case No. MC04-2444 entitled Cosmos Bottling Corporation vs. Liberty M. Toledo and now pending before the Court of Tax Appeals, this Office, much to our regret, cannot act on your protest as any action or pronouncement thereon will be considered subjudice. Rest assured, however, that once a final decision had been issued by the court, this Office shall act immediately in accordance therewith."7 Based on this reply from petitioner, respondent was compelled to pay the taxes and fees assessed in SOA Nos. 0144258 and 0105158 in the amounts of P34,296.40 and P1,227,781.05, respectively, as evidenced by Official Receipt Nos. BAI-0044228 and BAI-004421 9 dated February 4, 2006. On February 27, 2006, respondent filed a claim for refund or tax credit with the Office of the City Treasurer of Manila in the amount of P999,056.14 for illegally and erroneously collected business taxes, fees and other charges for the first quarter of 2006 on the same grounds espoused in their filed letter-protest.d(__ 6 Rollo, p. 71. 7 Ibid. 8 Rollo, p.73. 9 Rollo, p.72.

DECISION Page 4 of 12 C.T.A. AC No. 61 (RTC Civil Case No. MC06-2975) City of Manila, et al. vs. Cosmos Bottling Corporation Respondent later discovered that the petitioners used its 2004 total sales in the City of Manila for computing its 2006 tax liabilities. Based on this information, respondent filed an amended letter-protest 10 on April 3, 2006, and an amended claim for refund 11 on April 7, 2006. Petitioner again replied stating that it cannot act on respondent's claims considering that the same grounds were subject of a pending case m� court. 12 On April 19, 2006, respondent filed its complaint13 with the Regional Trial Court (RTC) of Mandaluyong City, praying for the issuance of a temporary restraining order (TRO) to direct the petitioners "to cease and desist from collecting the local business taxes under Sections 14 to 20 and Section 21 of the Revised Revenue Code of Manila, per amendments of City Ordinance Nos. 7988 and 8011 for the 2"d quarter of 2006 and all subsequent quarters thereafter." 14 Respondent also prayed for the refund of the overpaid taxes amounting to P1,044,509.08. The complaint was later amended to remove the prayer for issuance of a TRO and reiterated respondent's entitlement to refund of the taxes paid in excess of what was legally due. 15 After trial, the RTC rendered judgment, dated February 11, 2009, in favor of respondent (then plaintiff), the dispositive portion of which is quoted below: "Wherefore, premises considered, judgment is hereby rendered in favor of the plaintiff and against the defendants, and declares that plaintiff is not liab le for business taxes under Section 21 of the City of Manila Revenue Code considering that it has already paid business taxes under Section 14 thereof. The defendant City of Manila is hereby directed to refund in favor of the plaintiff the amount of Pl,044,509.08 representing the sum overpaid by the 10 Rollo, pp. 80-85. 11 Rollo, pp. 86-93. 12 Rollo, p. 94. 13 Record, RTC Branch 208, Case No. MC06-2975, Vol. I , pp. 2-13 .~ 14 Ibid. , p. II. 15 Rollo, pp. 53-62.

DECISION Page 5 of 12 C.T.A. AC No . 61 (RTC Civil Case No. MC06-2975) City of Manila, et al. vs. Cosmos Bottling Corporation plaintiff which was excessively and unlawfully assessed and collected by the defendants." 16 Petitioners' motion for reconsideration was denied in the RTC's order17 dated August 25, 2009. Hence, this petition for review. THE ISSUES In its petition 18 the following issues were raised : , (I) The Honorable Court a quo gravely erred in upholding that the respondent is not liable to pay tax under Section 21 after it has paid tax under Section 14 of the Manila Revenue Code as amended. (II) The Honorable Court a quo gravely erred when it considered that assessment and collection of taxes under Section 21 after the respondent has paid taxes under Section 14 constitutes double taxation in a prohibited sense. (III) The Honorable Court a quo gravely erred when it considered that respondent should be assessed on the basis of 2005 gross sales receipts and not 2004 gross sales receipts. (IV) The Honorable Court a quo gravely erred in its failure to consider that the questioned assessment became final and executory when the respondent failed to file an appeal under Section 195 of the 1991 Local Government Code. (V) The Honorable Court a quo gravely erred when it has failed to consider that respondent has failed to exhaust administrative remedies before filing a case in court pursuant to Section 187 of the 1991 Local Government Code. (VI) The Honorable Court a quo gravely erred that the City of Manila may be ordered to cease and desist from assessing, implementing and collection of taxes under Section 41 (sic) and 21 of the Manila Revenue Code, as amended. The foregoing may be distilled into three distinct issues: (a) Whether or not petitioners may collect local taxes under Section 21 of the Manila Revenue Code in addition to the taxes collected under Section 14 of the same Code, a~ amended ; 16 Rollo, p. 51. 17 Rollo, p. 52. 18 Rollo, pp. 12-29.

DECISION Page 6 of 12 C.T.A. AC No. 61 (RTC Civil Case No. MC06-2975) City of Manila, et al. vs. Cosmos Bottling Corporation (b) Whether the amendments under Ordinance No. 7988 and 8011 to the Mani la Revenue Code are valid and enforceable; and (c) Whether or not petitioners may assess respondent for 2006 taxes on the basis of2004 gross sales receipts. THE RULING OF THE COURT The petition is without merit. Businesses taxed under Section14 o[the Revenue Code o{Manila mav no longer be taxed under Section 21 as the same constitutes double taxation The points raised by the parties are not novel and have been settled by this Court in a long line of cases 19 where it was held that: "The foregoing issue is not one of first impression. This Court in fact already ru led in previous cases that the imposition of business taxes under Sections 14 and 21 of the Revenue Code of Manila, as amended, constitutes double taxation, as there would be taxation twice for the same subject or activity, which is the business of manufacturing; by the same public authority and within the same taxing jurisdiction, which is the City of Manila; for the same purpose, which is to generate revenue for the local taxing authority; and in the same year or taxing period."20 19 Un ilever Philippines, Inc. vs. The Treasurer of the City of Manila, C.T.A. AC No. 56, June 2, 2010. Justice Uy listed the following cases in Footnote 8: "Coca-Cola Bottlers Phils., Inc. vs. The City of Manila, et al., C.T.A. AC No. 38, January 22, 2009; The City of Manila, Liberty M Toledo, in her capacity as the Treasurer ofManila and Joseph Santiago, in his capacity as ChiefLicense Division of City of Manila vs. Coca-Cola Bottlers Phils. , C.T.A. AC No. 32, October 24, 2008; The Treasurer of the City ofManila vs. Unilever Phils., Inc., C.T.A. AC No. 47, September 10, 2008; The Treasurer of the City ofManila vs. Unilever Phils., Inc., C.T.A. AC No. 45 , August 13, 2008; Unilever Phils., Inc. vs. The Treasurer ofthe City ofManila, C.T.A. AC No. 41 , June 24, 2008; The Treasurer ofthe City of Manila vs. Unilever Phils., Inc., C.T.A. AC Nos. 46, 48, and 49, May 29, 2008; Unilever Phils., Inc. vs. The Treasurer of the City of Manila, C.T.A AC No. 26, May 26, 2008; The Treasurer of the City of Manila vs. Unilever Phils., Inc., C.T.A. AC No. 33, May 2 1, 2008 ; Ms. Liberty M. Toledo, in her official capacity as the City Treasurer of Manila and the City of Manila vs. Metro Manila Shopping Mecca Corp., and Warehouse Development Corp., C.T.A. AC No. 36, May 9, 2008; The Treasurer of the City of Manila vs. Unilever Phils., Inc. , C.T.A. AC No. 28, November 28, 2007; The Treasurer of the City ofManila vs. A/can Packaging Starpack Corp. (formerly Starpack Phils. Corp), C.T.A. EB No. 261 , July 30, 2007; Unilever Phils., Inc. vs. The Treasurer of the City of Manila, C.T.A. AC No. 25, June 18, 2007; and Swedish Match Phils., Inc. vs. The Treasurer ofthe City ofManila, C.T.A. AC No. 15, July 21 ,2006. 20 Unilever Philippines, Inc. vs. The Treasurer of the City of Manila, C.T.A. AC No. 56, June 2, 20 10. c::z-

DECISION Page 7 of 12 C.T.A. AC No. 61 (RTC Civil Case No. MC06-2975) City of Manila, et al. vs . Cosmos Bottling Corporation The issue of double taxation ansmg from the amendments to the Manila Revenue Code by Tax Ordinance Nos. 7988 and 8077 was also discussed by the Supreme Court as follows: "Emphasis must be given to the fact that prior to the passage of Tax Ordinance No. 7988 and Tax Ordinance No. 8011 by petitioner City of Manila, petitioners subjected and assessed respondent only for the local business tax under Section 14 of Tax Ordinance No. 7794, but never under Section 21 of the same. This was due to the clear and unambiguous proviso in Section 21 of Tax Ordinance No. 7794, which stated that "all registered business in the City of Manila that are already paying the aforementioned tax shall be exempted from payment thereof." The "aforementioned tax" referred to in said proviso refers to local business tax. Stated differently, Section 21 of Tax Ordinance No. 7794 exempts from the payment of the local business tax imposed by said section, businesses that are already paying such tax under other sections of the same tax ordinance. The said proviso, however, was deleted from Section 21 of Tax Ordinance No. 7794 by Tax Ordinances No. 7988 and No. 8011. Following this deletion, petitioners began assessing respondent for the local business tax under Section 21 of Tax Ordinance No. 7794, as amended. The Court easily infers from the foregoing circumstances that petitioners themselves believed that prior to Tax Ordinance No. 7988 and Tax Ordinance No. 8011 , respondent was exempt from the local business tax under Section 21 of Tax Ordinance No. 7794. Hence, petitioners had to wait for the deletion of the exempting proviso in Section 21 of Tax Ordinance No. 7794 by Tax Ordinance No. 7988 and Tax Ordinance No. 8011 before they assessed respondent for the local business tax under said section. xxx xxx xxx. Double taxation means taxing the same property twice when it should be taxed only once; that is, "taxing the same person twice by the same jurisdiction for the same thing." It is obnoxious when the taxpayer is taxed twice, when it should be but once. Otherwise described as "direct duplicate taxation," the two taxes must be imposed on the same subject matter, for the same purpose, by the same taxing authority, within the same jurisdiction, during the same taxing period; and the taxes must be of the same kind or character. Using the aforementioned test, the Court finds that there is indeed double taxation if respondent is subjected to the taxes under both Sections 14 and 21 of Tax Ordinance No. 7794, since these are being imposed: (1) on the same subject matter - the privilege of doing business in the City of Manila; (2) for the same purpose - to make persons conducting business within the City of Manila contribute to city revenues; (3) by the same taxing authority - petitioner City of Manila; (4) within the same taxing jurisdiction - within the territorial jurisdiction of the City of Manila; (5) for the 4----

DECISION Page 8 of 12 C.T.A. AC No. 61 (RTC Civil Case No. MC06-2975) City of Manila, et al. vs. Cosmos Bottling Corporation same taxing periods - per calendar year; and (6) of the same kind or character - a local business tax imposed on gross sales or receipts of the business. The di stinction petitioners attempt to make between the taxes under Sections 14 and 21 of Tax Ordinance No. 7794 is specious. The Court revisits Section 143 of the LGC, the very source of the power of municipalities and cities to impose a local business tax, and to which any local business tax imposed by petitioner City of Manila must conform. It is apparent from a perusal thereof that when a municipality or city has already imposed a business tax on manufacturers, etc. of liquors, distilled spirits, wines, and any other artic le of commerce, pursuant to Section 143(a) of the LGC, said municipality or city may no longer subject the same manufacturers, etc. to a business tax under Section 143(h) of the same Code. Section 143(h) may be imposed on ly on businesses that are subject to excise tax, VAT, or percentage tax under the NIRC, and that are " not otherwise specified in the preceding paragraphs." ln the same way, businesses such as respondent's, already subject to a local business tax under Section 14 of Tax Ordinance No. 7794 [which is based on Section 143(a) of the LGC], can no longer be made liable for business tax under Section 21 of the same Tax Ordinance [which is based on Section 143(h) ofthe LGC] ."21 (Emphasis in the original) Ordinance Nos. 7988 and 8011 have been declared null and void (or failure to publish in accordance with Section 188 o(R.A. No. 7160 The Supreme Court has already ruled that Ordinance Nos. 7988 and 8011 are void and unenforceable. In the case of Coca-Cola Bottlers Philippines, Inc. vs. City ofManila22, the Supreme Court stated: "It is undisputed from the facts of the case that Tax Ordinance No. 7988 has already been declared by the DOJ Secretary, in its Order, dated 17 August 2000, as null and void and without legal effect due to respondents ' failure to satisfY the requirement that said ordinance be published for three consecutive days as required by law. Neither is there quibbling on the fact that the said Order of the DOJ was never appealed by the City of Manila, thus, it had attained finality after the lapse of the period to appeal. Furthermore, the RTC of Manila, Branch 21, in its Decision dated 28 November 2001, reiterated the findings of the DOJ Secretary that respondents failed to follow the procedure in the enactment of tax measures as mandated by Section 188 of the Local 21 The City ofManila, et at. , vs. Coca-Cola Bottlers Philippines, inc., G.R. No. 181845, August 4, 2009. 4--- 22 G.R. No. 156252, June 27, 2006.

DECISION Page 9 of 12 C.T.A. AC No. 61 (RTC Civil Case No. MC06-2975) City of Manila, et al. vs. Cosmos Bottling Corporation Government Code of 1991 , in that they failed to publish Tax Ordinance No. 7988 for three consecutive days in a newspaper of local circulation. From the foregoing, it is evident that Tax Ordinance No. 7988 is null and void as said ordinance was published only for one day in the 22 May 2000 issue of the Philippine Post in contravention ofthe unmistakable directive of the Local Government Code of 1991. Despite the nullity of Tax Ordinance No. 7988, the court a quo, in the assailed Order, dated 8 May 2002, went on to dismiss the petitioner's case on the force of the enactment of Tax Ordinance No. 8011 , amending Tax Ordinance No. 7988. Significantly, said amending ordinance was likewise declared null and void by the DOJ Secretary in a Resolution, dated 5 July 2001, elucidating that "[Ijnstead of amending Ordinance No. 7988, (herein) respondent should have enacted another tax measure which strictly complies with the requirements of law, both procedural and substantive. The passage of the assailed ordinance did not Itave the effect of curing the defects of Ordinance No. 7988 which, any way, does not legally exist." Said Resolution of the DOJ Secretary had, as well, attained finality xxx xxx xxx." (Emphasis in the original) Thus, petitioner cannot validly assess local business tax under said ordinances after the same have been declared null and void and of no legal effect. The 2005 gross sales receipts should have been used in computing the 2006 business taxes and permits The petitioner used respondent's 2004 gross sales receipts as basis for computing the local business tax due, pursuant to the provisions of Section 14 and 21 which imposes the tax on the gross sales or receipts of the "preceding calendar year". The petitioner believes that since the tax due is for year 2005, then the same should be based on the gross receipts of the preceding calendar year, which is 2004?3 This Court does not agree with petitioner's position. The Local Government Code provides for the accrual of tax, as follows: "Sec. 165 . Tax Pel"iod and Manner of Payment. - Unless otherwise provided in this Code, the tax period of all taxes, fees and charges shall be the calendar year. Such taxes, fees and charges may be paid in quarterly installments. 23 Rollo, p. 24-25. ~

DECISION Page 10 of 12 C.T.A. AC No. 61 (RTC Civil Case No. MC06-2975) City of Manila, et al. vs. Cosmos Bottling Corporation Sec. 166. Accmal of Tax. -Unless otherwise provided in this Code, a ll local taxes, fees, and charges shall accrue on the first ( l 51 ) day of January of each year. However, new taxes, fees or charges, or changes in rates thereof, shall accrue on the first (I 51 day of the ) quarter next following the effectivity of the ordinance imposing such new levies or rates." As provided in the LGC, local business tax accrues or accumulates "on the first day of January of each year. " However, for purposes of computing the local business tax, the LGC also provides the tax base which is the "gross sales or receipts for the preceding calendar year". 24 � Thus, in the instant case, respondent's local business tax liability for calendar year 2006 accrued on January 1, 2006. And as required by the LGC, the tax shall be computed on the basis of the gross sales or receipts for year 2005, which was the preceding calendar year. Based on the fore~oing, the respondent' s local business tax should have been computed based on its declared 2005 gross receipts of P465 ,103,496.78 instead of its 2004 gross receipts. Respondent is thus entitled to a refund of local business tax in the amount of P1 ,044,259.08 computed as follows25 : PARTICULARS Otis, Paco Balut, Tondo Total Amount Due 2006 Business Taxes, Permit and 252,605 ,529.78 212,497,967.00 Service Fees and Charges: 465,103 ,496 .78 Gross Sales of Preceding Year (2005) 279 ,000 .00 Business Tax (Sec. 14) 365,103.50 644,103.50 First P 100,000,000 Over P100,000,000 x 10% of 1% Annual Business Tax Combined Quarterly Business Tax 161,025.87 161 ,025 .87 24 Republic Act No. 7160, Section 143. 25 Rollo, p. 92-93 , with corrected amount of Tax on Delivery Vehicle to reflect P750.00 instead of P500.00, in accordance with Section 13 of Tax Ordinance No. 7794 as amended by Tax Ordinance No. / 7807 . ./<'--

DECISION Page II of 12 C.T.A. AC No. 61 (RTC Civil Case No. MC06-2975) City of Manila, et al. vs. Cosmos Bottling Corporation Quarterly Garbage Service Charges 750 .00 750 .00 1,500.00 Tax on Delivery Vehicle 750 .00 750 .00 Business Permit Fee - 3,000 .00 3,000 .00 Manufacturer 100 .00 6,000 .00 Business Permit Fee - Delivery 800 .00 800 .00 Vehicle 9, 120 .00 1,200 .00 100 .00 Sanitary Inspection Fee 17,860.00 2,350.00 Occupational Tax 1,600.00 OCC/PC/HC 7. 50 7.50 10,320.00 Plumbing Inspection Fee 50.00 50 .00 20 ,210 .00 Electrical Inspection Fee 50 .00 50.00 Building Inspection Fee 40 .00 40.00 15 .00 Signboard Inspection Fee 1,000 .00 300 .00 100.00 Business Registration Plate 60 .00 60.00 100.00 Business Registration Sticker 194,613.37 8,607.50 80 .00 Total Amount Due for 2006 1,300 .00 194,613.37 120 .00 2005 Business Taxes, Permit and 203,220.87 Service Fees and Charges: Business Permit Fee - 3,000 .00 3,000 .00 Manufacturer Sanitary Inspection Fee 800 .00 800.00 Garbage Service Charges 3 000.00 3,000 .00 6,800 .00 6,800.00 Sub-Total 3,740 .00 3,740.00 Surcharge/Interest 1,200 .00 1,200 .00 Occupational Tax 2,350.00 2, 350 .00 OCC/PC/HC Plumbing Inspection Fee 7.50 7.50 Electrical Inspection Fee 50 .00 50.00 Building Inspection Fee 50 .00 50.00 Signboard Inspection Fee 40 .00 40.00 Business Registration Plate 300.00 300.00 Business Registration Sticker 60 .00 60.00 Total Amount Due for 2005 14,597.50 14,597.50 Total Amount Due 23,205.00 217,818.37 Payment made under SOA 0144258 (34,296.40) Payment made under SOA 0105158 (1,227,781.05) Amount to be refunded (1,044,259.08) WHEREFORE, finding no merit in the instant Petition for Review, the same is hereby DENIED. The assailed Decision and Order dated February 11 , 2009 and August 25, 2009, respectively of the Regional Trial Court of Mandaluyong City~

DECISION Page 12 of 12 C.T.A. AC No. 61 (RTC Civil Case No. MC06-2975) City of Manila, et al. vs. Cosmos Bottling Corporation Branch 208 in Civil Case No. MC06-2975 are hereby AFFIRMED. Accordingly, respondent is hereby ORDERED to REFUND to petitioner the amount of P1 ,044,259.08, representing excess business taxes collected for the first quarter of year 2006. SO ORDERED. ~~~ r:~--~ AMELIA R. COTANGCO- MANALASTAS Associate Justice COn leavel 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 CERTIFICATION Pursuant to Section 13, Article VIII 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. court ofTax Appeals L 1.brarY ELRPNE"S"T�Oo D. A~COSTA Presiding Justice