UNILEVER PHILIPPINES INC. v. TREASURER OF THE CITY OF MANILA

REPUBLIC OF THE PHILiPPINES Court of Tax Appeals QUEZON CITY SECOND DIVISION UNILEVER PHILlJ?PINES, C.T.A. AC NO. 25 INC., Petitioner, (RTC Civil Case No. 03- 107304) -versus- M em b e rs: CASTANEDA, JR., C hairperson UY, and PALANCA-ENRJQU EZ, JJ. THE TREASURER OF THE Promulgated: CITY OF .MANILA, JUN.' 1 8 200i . Respondent. X -.~�------------------------------------------------------------------~ ~~----------- X DECISION CASTANEDA, JR. , f.: Section' i43(h) of the Loca l Government Code (LGC) exp licitly prohibits doubl e taxation imposed und er S~ctions 14 and 2 1 of the Mani Ia Revenue Code since l the ta xpayer is taxed twice by tl~ e::ame govemm ent en tity for the same purpose. Jk---

C.T.A . AC NO. : 2 (RTC Civil Case No. 03 -107304) DECISION THE CASE This is an appeal by Unilever Philippines, Inc. (hereafter " petitioner") from the Decision, dated May 12, 2006, rendered by the Regional Trial Court of Manila, Branch 47 (hereafter the " lower court"), in Civji Case No. 03-107304, enti tled "Unilever Philippines, Inc. vs. The Treasurer of the City of l'vlan il a", the dispos itive portion of which reads as follows: " WHEREFORE, in view of the forego ing, the petitioner's claim for refund is di sallowed and thi s petition is DISMI SSED for lack of merit. SO ORDERED." and the Order dated Jul y 27, 2006, denying petitioner's " Motion For Reconsideration", the dispos iti ve portion of whi ch reads: " WFIEREFORE, the Motion for Reconsideration fil ed by the Petiti oner is DENI ED. SO ORDERED." .THE FACTS The facts of the case, as cuJied from the records, are as follows: ' Petiti oner is a domestic 'corporation dul y organi zed under the laws of the Republic of the Philippines, with principal office address at 1351 United Nations Avenue, Manila, represented b"y its counse l, Sigu ion Reyna Monteci ll o Ongs iako Law Offices, with office address at the 41h and 6111 Floors, Citibank Center, 8741 Paseo de Roxas, Makati City. Responden t Treasu rer of th e City of Mani Ia (hereafte r "respondent") is tasked with the impl ementation or the Manila Revenue Code (hereafter " MRC"), as well as the collection and assessment of business taxes, license fe es and permit fees wi thin the

C.T.A . AC NO. . 3 .(RTC Civil Case No. 03 -107304) DEC ISION City, represented by the City Legal Ofticer, with ortice address at the 2"~ Floor, Manila City Hall, Tan Avenue, Manil a. On Jul y 19, 200 I, petiti oner paid business taxes corresponding to the third quarter of 200 I, collected from it by the City of Manila pursuant to Sections 14 and 2 1 ofthe MRC. In a Letter dated October 4, 200 I, petitioner filed with the Office of the City Treasurer a claim for reflmcl of the business taxes assessed and co llected on it on the basis of Section 2 1. However, sa id claim for refund was denied. On July 18, 2003 , petitioner filed a Petit ion for Refund with the lower court, seeking refund of business taxes for the third quarter of 200 I in the amount of P8,773 ,943.99 on the ground that the enforcement of Section 2 J of the MRC constitutes double taxation in view of the paym ent already made by the petitioner under Section 14 ofthe same Code. In her answer, respond ent City Treasurer all eged by way of affirmative defenses that it is totall y inconsistent for petitioner to admit the regularity and constituti onality of Section 2 1 of the MRC and its ame ndatory ordinances, and at the same time questi on the enforcement of Section 21 as it allegedly constitutes direct doub le taxation. Issues hav in g been joined, the case was set for pre-trial. During the scheduled p~~-trial , the parti es stipul ated that there is on ly one iss ue: "whether or not the 'j petitioner is entitled to a refund of taxes paid", and agreed to dispense with trial and moved that they be allowed to tile their simultaneo us memoranda in support of their respective positi ons, which the lower court granted. Both parties having fil ed their respective memoranda, the case was deemed submitted for decis ion based on the fo ll ow ing issue: "The only issue in this case is whether or not the imposition upon, and collection of taxes from the petiti oner, on the ~ : u<!

C.T.A . AC NO.2 4 (RTC Civi l Case No . 03-1 07304) DECISION basis of Sections 14 and 21 of th e Revenue Code of the City of Mani Ia constitutes double laxa tion prohibited by law which will t.:ntitk the petitioner to a refund of taxes paid on the basis of Section 2 1." On May 12, 2006, the lower court rendered the assai led decision, di smiss ing petitioner's petition for lack of merit. On June 26, 2006, petitioner fil ed a Motion for Reconsideration, which was denied in the Order dated July 27, 2006. On September 08, 2006, petitioner fil ed the in stant Petition For Rev iew raising the sole issue: ISSUE WH ETHER OR NOT THE ENFO RCEMENT OF SECTION 2 1 OF THE REVENUE CODE OF THE CITY OF MAN ILA AGAINST PETITION ER CONSTITUTES DOUBLE TAXATION PROHIBITED BY LAW IN VI EW OF TAXES CO LL ECTE D BY THE CITY AND PAID BY PETITIONER UNDER SECTION 14 OF THE RE VENU E CODE, THUS THE TAXES CO LLECTED BY RES POND ENT BEING CLA IMED IN THE PROCEEDINGS BEFORE THE CO URT A QUO IN THE AMOUNT OF P8,773,943.99 SHO ULD BE IMMED IATELY REFUNDED. Pursuant to Our September 25, 2006 Reso luti on, respondent filed her comment on November 02, 2006. On Dece mber 2 I, 20 06, We granted both parties thirty (30) days from notice to file their simultaneous memoranda. On March 12, 2007, the petitioner filed its " Memorandum", while respondent failed to file the same despite notice. On April 04, 2007, the case was deemed submitted for decision. Petitioner Unilever Philippines, Inc.'s Theory Claiming that the decis ion of the lower court is erroneous and not in accord with law and jurisprudence, petiti oner contends that although Section 2 1 of the MRC is not in itself invalid, its enforcement against petitioner constitutes double taxation

C.T.A. AC NO.2 5 (RTC Civil Case No. 03- 107304) DEC ISION prohibited by law since it already pays businet>s ta xes under Section 14 thereof. Section 14 imposes business tax on manufacturers of goods, among others. Petitioner is a manufacturer paying loca l taxes, pursuant to Section 14. "Manufactu ring" as defined in Section 13 l(o) of the Local Government Code of 1991 (hereafter " LGC") includes the sale of the manufactured goods. Since the business taxes under Secti on 14 we re already paid for the sa le ofinenu fact ured goods, the same sa le of the manufactured goods can no longer be subj ect to business tax under Secti on 21. Petiti oner further argues' that the tax co llec ted by Section 2 1 is not a tax on the end~'users, but a tax on manufacttrrers. It is a tax on the sa le of the goods or services. It i # is a sales tax expressly prohibited by Section 133 of the LGC. Petitioner further asserts that the basis for holding that the tax imposed by Section 21 is a tax on the end-users and not 0 11 the bu siness is Section 2 1 itse lf which reads: "The tax sha ll be payable by the person paying for the serv ices rendered and shall be paid to the person renderin g the services who is req uired to coll ect and pay the tax within twenty (20) days after the end of eae~h quarter", refers to the immediately � preceding paragraph regarding overseas dispatch and overseas messaging transm ission, which petitioner is not engaged in . � Respondent City Treasurer of Manila's Theory On the other hand, respondent counter-argues that the tax imposed on petitioner under Section 2 1 of the MRC is in the concept of indirect tax upon end-users of the goods and services of the business, not the establishment itse lf, fo r in the language of Section 2 1, they are spec ifically levied on: �'business subject to exc ise, va lue added or percentage tax under the NIRC"; that it represents additional amo unts added by petitioner to the basic prices of its goods or services which are paid by the end-users to .�~..� .:.vu

C.T.A. AC NO. ::. 6 (RTC Civil Case No . 03- 107304) DEC ISION the business establishments; that Section 2 1 is ac tually not a tax on the business of petiti oner but on th e end -users, wh ereas und~r s~ct i on l4 (m anufac turer's tax) th e tax is specifica lly lev ied on the business of petitioner being a manufacturer; that the tax imposed under Section 2 1 has already been co llected by petiti oner (the payor) from the end-users (the payee), the same having been added by petitioner to the bas ic prices of its goods or servi ces; that petiti oner is a withholding agen t of the City Governm ent of Manila charged to rem it to the latter the taxes collec ted under Section 2 1; that ass umin g arguendo that Secti on 2 1 is a sa les tax, the City of Man ila is not per se pro hibited to impose the same as it is authori zed under Section 143 , in conjunction with the residual power conferred upon it by Section 186 of the LGC; that the only limitation, if indeed . there exists, is that the rate of tax mu st not be more than 2% of the gross sales. Section 21, therefore, considering that it imposes on ly 50% of I% on petitioner's gross sa les or rece ipts, is outs ide of the limitati ons provided for by Section 143(h) of the LGC; that Sections 14 and 2 1 obviously, pertain to different tax obj ects . ln other wo rds, respondent contends that the imposition under Sect ions 14 and 2 1 o f the MRC is not of the same kind and character. We rule fo r the petitioner. Under the Constitution, it is Congress that provide::;� the guidelines and limitations on the power to tax o(loca/ government units Under Section 5, Arti cle X, "LOCAL GOVERNMENT", of the 1987 Constitution of the Republic of the Philippines, Congress provides for the guidelines and limitations on the power to tax of loca l government units. The aforementioned section provides: : v �,�

C.T.A . AC NO . :. 7 (RTC C ivil Case No. 03-107304) DECISION Sec. 5. Each loca l government unit shall have the power to create its own sou rces or rc:venues a nd to levy taxes, fees , and charges subject to such guidelines and lim ita ti ons as the Congress may provide, co nsisten t with the bas ic po li cy of loca l auton omy. Such taxes, fees; and charges sha ll accrue exclusively to the local governmems. (Underscoring ours.) In other words, Congress is empowered to defin e, delineate and delimit the power of loca l government units like the City of Manila to enact ta x measures consistent with the basic poli cy of loca l autonomy . Congress pro vides both the guidelines and limitations on the power to tax of all loca l government units pursuant to the aforequoted section of the Constitution. Pursuant to th e Com�titutional ,. mandate, Congress enacted "The Local Govemment Code of 1991" setting forth guidelines and limitations on the taxing power o(local govemment units In accordance with Section 5 of Article X of the Philippine Constitution, Congress enacted "The Local Government Code of 1991 " (hereafter "LGC"), which set forth guide lines and limitations on the power to tax of local government units li ke the. City of Manila. Under the aforesaid law, the power to tax of loca l governm ent units is strictly defined and de lineated. Section 143(11) ofthe LGC prohibits double taxation bv local govemment units Paragraph (h), Secti on 143 of the LGC, ex plicitly provides that taxes therein may no longer be imposed on businesses already subjected to tax under paragraphs (a) to (g) of the said section. Taxation of petitioner under both Sections 14 and 2 1 of the Manila Revenue Code (MRC) is ex press ly prohibited under Sec ti on 143(h) of the LGC. : II .�1

C.T.A. AC NO . :. 8 (RTC Civil Case No. 03 - 107304) DEC ISION Secti o n 14 of the MRC provid es in pe rtin ent part: SEC. 14 . Tux on Manufacturers, Assembl<!rs and other Processors - There is hereby imposed a graduated tax on manufac turers, assembl ers, repackers, processo rs, brewers, di stillers, rectifiers and co mpounders of liquors, distill ed spirits, and wines or manufacturers of any artic le of comme rce of whatever ki nd or nature, in acco rdance wi th the fo ll owing schedul e. With gross sa les or rece ipts for the Amount of Tax preceding ca len dar year in the amount o f: XXX The a bove provision imposes a perce ntage tax o n manufacturers, assemblers, re packe rs, processo rs, brewers, di st ill ers, rectifie rs and com po und e rs of liquo rs, distille d s pirits, a nd w ines, or manufacture rs of a ny art ic le of com me rce o f whatever kind or nature with the gross sa les o r rece ipts fo r the precedin g ca le nda r year in the schedule provided the re in . On the o th er hand, Section ,2 1 o f th e MR C , as a me nde d by C ity Ordinance N os. 7807, 7988 and 80 ll , prov id es: Section 2 1. - Tax on Busi nesses Sub jec t to the Excise, Value Added or Percentage Taxes und er the NIRC - On any of the fo llowing businesses and articles of co mmerce subject to th e exc ise, value added or percentage taxes under the National Internal Revenue Code hereinafter refe rred to as the NIRC, as amended, a tax of fifty percent (50%) of one percent ( I%) per annum on the gross sa les or rece ipts of the preceding ca lendar yea r is hereby im posed: A) On persons who se ll goods and serv ices in the co urse of trade or business; and those who import goods whether for business o r otherwise, as prov ided for in Sec ti ons I00 to I03 of the NIRC as admini stered and determined by th e Bureau of Interna l Reven ue pursuant to the pertin ent provisions of the sa id code. B) On the gross receipts of keepers of ga rages, cars for rent or hire driven by the lessee, tran sportation contrac tors, persons who transport passengers or freight for hire, and common carri ers by land , a ir or water, except owners of bancas and owners of an ima l-drawn two-wheel vehicle. . C) On the amount paid on every overseas di spatch, message or conversa tion transmitted from the Philippines by telephone, te legraph, (� telew riter exchange, wireless and o ther comm uni ca ti on equipme nt servi ces, except amou nts paid by the government, its po litical su bdivis ions or instrumenta lities; diplomatic services; public international organiza tions or any of their agen cies based in the Philippines; and news services.

C.T.A. AC NO.::. 9 (RTC Civil Case No. 03- 107304) DEC ISION The tax shall be payable by the person paying for the services rendered and shall be pa id to th e perso n rendering the services who is rcqt1ired Lo coll ec t and pay the tax within twenty (20) days after the end of each quarter. D) Excisable goods subject to VAT ( I ) Disti lleds pirits (2) Wines (3) To bacco products (other than cigarettes, ciga rs and chew ing tobacco) (4) Tobacco specially prepa red J'or chew in g (5) Fireworks (6) Cinematograph ic films (7) Saccharine (8) Coal and coke (9) Fermen ted liq uor, brewers' wholesa le price, excluding the ad valorem tax ( I 0) Automobi les, manufacturers or importers selli ng price ( II ) Non-essenti al goods based on who lesale price, net of excise tax and VAT (a) Jewelry, whether real and imita tion, pearls, precious and semi -precious stones and imita tions thereof; goods made of, or ornamented, moun ted or fitted with precious metals or imi tati ons thereof or ivory (not inc luding surgical and dental instru ments, sil ver-plated wares, frames or mountings for spec tac les or eyeglasses and denta l go ld or go ld alloys and other precious meta ls used in ti lling, mounting or fittin g of the teeth.) (b) Perfumes and to ilet wa ters. (c) Yachts and other vesse ls in tended fo r pleas ure sports. ( 12) Mineral products, based on actual market va lu e of the ann ual gTOsS output at the time of removal. E) Excisable gt>ods not subjec t to VAT. ( I) Naptha when used as raw materials for production of petro-chemi cal products. (2) Asphalt x x x (Underscoringours.) ;� ' Both Sections 14 and 21 of the MRC are based on Section 143 and 15 1 of the LGC, �� which provide in perti nent part: ��.�� Sec. 143. Tax ai1 Business. - The mun icipa lity may impose taxes on the foll owing businesse..st (a) On manu fac turers, assemblers, repackers, processors, brewers, di still ers, rectiJi ers and compo unders of liquors, di stilled spirits, and wines or rMm.ifacturers of any article of commerce of whatever kind or natu re, in accordance with the following schedule: ., '.: I

C.T.A. AC NO.2.� 10 (RTC Civil Case No. 03-107304) DECISION With gross sales or receipts for the Amou nt of Tax precedin g calenuar yea r in the amoun t of: Per Ann um XXX (b) On wholesalers, distributors, or dealers in any artic le of com merce of whatever kind or nature in accordance with the following schedu le: XXX (c) On exporters, and on manufacturers, millers, producers, wholesalers, distributors, dealers or retailers of essential commoditi es enumerated hereunder at a rate not exceeding one-half ( 1/2) of the rates prescribed under subsections (a), (b) and (d) of thi s Sections : XXX (d) On retailers, XXX (e) On contractors and other independent contractors, in accordance with the fo llow ing schedule: XXX (f) On banks and other financia l institutions, at a rate not exceed ing fifty percent (50%) of one percent ( 1%) on the gross receipts of the preceding calend ar year derived from interest, comm issions and discounts from lending activities, income from financial leasing, di vidends, rentals on property and profit from exc hange or sa le of property, insurance premium. (g) On peddl ers engaged in the sale of any merchandise or article of comm erce, at a rate not exceeding Fifty pesos (PSO.OO) per peddler annually. (h) On any business, not otherwise specified in the preceding paragrap hs, wh ich the sanggunian concerned may deem proper to tax: Provided, That on any business subj ect to the excise, value-added or perce ntage tax under the National Internal Revenue Code, as amended, the rate of tax shall not exceed two percent (2%) of gross sa les or receipts of the preced ing ca lendar yea r. The sanggunian concerned may prescribe a schedu le of grad uated rates but in no case to exceed the rates prescribed herein. (Underscoring ours.) SEC. 151. Scope of Taxing Powers. - Except as otherw ise provided in thi s Code, the city, may levy the taxes, fees , and charges which the province or municipality may impose: x x x j I1

C.T.A. AC NO. 2 11 (RTC Civi l Case No. 03 -107304) DEC ISION The rates of taxes� that the city may levy may exceed the maximum rates allowed for the province or municipality by not more than fifty percent (50%) except the rates of professional and amusement taxes. . The clear te nor of paragraph (h), Section 14 3 of the LGC, is to prohibit double taxati on of businesses taxed under paragraphs (a) to (g) thereof. It a llows the impos ition of new business taxes on ly in c.ases ''not otherwise specified in the precedin g paragraphs (a) to (g). Section 14 of..the MRC is spec ifica ll y based on Section l43(a) of � the LGC while Section 21 of the MRC is specifica lly based on Section 143(h) of the LGC. This is not a case of first impression. In a number of occasions involving interpretations of the LGC vis-a-vis the MRC, this Court has ruled that businesses taxed , under Section 14, 18 and 24 of the MRC can no longer be taxed under Section 21 t)1ereof inasmuch as businesses taxed pursuant to paragraphs (a) to (g), Section 143 of the LGC can no longer be taxed under paragraph (h) . v In International Container Terminal Services v. The City of Manila, et a/., CTA AC No. II , May 17, 2006, the Second Division of this Court held that a contractor already taxed under Section 18 of thel MRC in accordance with Section 143(e) of the LGC may no longer be taxed under Section 21 of the MRC in view of the prohibition on double taxation by Section 143(h) of the LGC. More in poirit, .the First Division of this Court in the case of Swedish Match '��� f� Philippines, Inc. v. The Treasurer of the City of Manila, CTA AC No. 15, July 2 1, "''�' 2006, held that a manMacturer taxed under Section 14 of the MRC in accordance with Section 143(a) of the LGC may not be taxed under Section 2 1 of the MRC in view of the prohibi tion on do uble taxation by Section 143(h) of the LGC . To the same effect is the recent decisi on of the Second Division of thi s Court in ;tr-- a case invo.~ving the same parties in this case, Liberty M. Toledo, in her capacity as The

C.T.A. AC NO. L. 12 (RTC Civil Case No. 03- 107304) DECISlON 11�easurer ofLh e Cily oflvfanila v. Unilever Philippines, i nc., CTA AC No. 2 1, May I0, 2007, where our esteemed co ll e~g ue Hun. Olga Palanca-Enriqu ez registered her di sse nt. In the latest case of Zarcon Developmenl Corporation v. The City Treasure of the City of Manila, CTA AC No. 24, May 16, 2007, the Fi rst Di vision of thi s Court rul ed that a rea l estate lessor taxed under Section 24 of the MRC may no longer be taxed under Sec ti on 2 1 thereo f in view of the express prohibition under Section 143 (h) ofthe LGC as the same constitutes obnox ious dou bl e taxa ti on. Prohibited double tax ation clearlv exists in this instance Clea rl y, th ere is pro hibited double taxa ti on Ill thi s case where the City of Manila imposes taxes on the manu facturing business of th e petitioner under both Sections 14 and 2 1 of the MRC in vio lation of Secti on 143(h) of the LG C, which limits local governm ent units like the City of Man ila from impos ing taxes twice on manufacturers like petitioner, among others. In this rega rd , our Supreme Court has defin ed double taxation as fo llows: Double taxation means tax ing the same property twice when it should be taxed only once; that is, "x x x tax ing the same person twice by the same jurisdi cti on for the same thing. ll is obnox ious when the taxpayer is taxed twice, when it shoul d be but once. Otherwise descri bed as ''di rect dupli cate taxa tion," the two taxes must be imposed on the same subject matter, for the same purpose, by the same tax ing authority, within the same jurisd iction, during the same tax ing peri od; and they must be of the same kind or character. Commissioner of internal Revenue v. Solidhank Corporation, G.R. No. 148 19 1, November 25, 2003, 416 SCRA 436, 462-463 (c itati ons omitted). Petitioner is being taxed twice under Sections 14 and 2 1 of the MRC by the City of Manil a fo r the same peri od on its sales as manufac turer.

C.T.A . AC NO. 2 13 (RTC Civil Case No. 03- 107304) DECISION Respondent posits that there is 'no prohibited doub le taxall oll i11as much as Section 14 taxes petitioner as manufacturer wh ile Section 2 1 is a tax on cuusumers, which it collects fl�om petitioner manufacturer as withholding age nt. It argues that there are differe nt taxpayers and that the taxes imposed are of di fferent kin d and character. It should be noted that both Secti on 14 and Se~ ti on 2 1 tax the sa les of the petitioner notwithstanding the respondent 's poseur that Section 2 1 is a tax on the end consumer and that the petitioner is merely a withholding agent. Section 2{ ofthe MRC il� c/earlv fi business tax Section 21 of the MRC spec ifica ll y provides for the impos iti on of"a tax of fifty percent (50%) of one percent (I%) per an num on the gross sa les or rece ipts" on "businesses and articles of commerce subj ect to excise, va lue added or percentage taxes under the Nati onal Interna l Reven ue Code" (N IRC) . The title of the aforementioned section, "Tax on Businesses Subje�ct to the Exc ise, Va lue Added or Percentage Taxes under the NIRC", clearly expresses that what is being imposed is a business tax. Purported ly, thi s is under authority of Section 143(h) in conjunction with Section 151 o r the LGC, which all ows cities to impose taxes on "any business, not otherwise spec ified in the preceding paragraphs" subject to the limitation that "on any business subject to excise, value added or percentage taxes 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. " Both Sections 14 & 21 ofthe MRC impose sales tax on manufacturers

C.T.A. AC NO.2 14 (RTC Civil Case No. 03- 107304) D EC ISION Bo th Sectio ns 14 and 2 1 of th e tvli{C subj ec t pe tit ioner to bus iness tax based on its sal es as a manufacturer. Section 14 o f th e MRC imposes a tax on ma nufacturers based on gross sa les for th e preceding year in acco rda nce w ith th e sc hedu le fo und there in. A sa les tax on m a nufacturers is thus im posed unde r the aforesa id secti on. It does so unde r a uth ority of Secti o n 143(a) of th e LGC, w hi ch a ll ows th e impos ition of " Tax on Bus iness" or business tax on ma nufac turers, like peti tioner, a mong o the rs. On the othe r hand , Secti o n 2 1 s ubj ec ts " businesses a nd artic les o f commerce to subj ec t to the exc ise, va lue added or percentage taxes und er th e Na ti o na l Interna l Re venue Code, as am end ed," to a percen tage �' tax o f fifty percent (5 0%) of one percent (I %) per a nnum o n th e gross sa les or receip ts of th e preced ing calendar yea r". It thu s imposes a sa les tax on businesses -s u ~j ec t to exc ise, va lu e-add ed tax or percentage taxes under the Nati ona l Interna l Revenue Code (herea fter "NIRC"). It does so unde r a utho rity o f Secti on l 43(h) of th e LGC, w hi ch a ll ows the impos itio n of "Tax on Business" or bus iness tax, but on ly "(o)n any bus in ess, no t otherw ise specified in the precedin g paragraphs, whi ch the sa ngguni a n co ncerned may deem proper to tax." Both sa les taxes imposed und er Sec tions 14 a nd 2 1 of the MR C a re paya ble by manufac turers like the pe titi oner in thi s case . T hi s is in direct co ntraventi on o f paragraph (h) of Section 143of the LGC whi ch pro hi bits th e imposi ti o n of taxes on manufacturers a lready taxed und er paragraph (a) thereof. Secti o n 13l(o) of the LGC defi nes lhe term ��manufacture r" as fo ll ows: (o) "Manufacturer" includes every person who, by phys ical or chemical process, alters the exterior tex ture: or form or inner substance of any raw materi al or manu fac tured or partially manufactured product in such manner as to prepare it for special use or uses to which it co uld not have been put in its ori gi nal conditi on, or who by any such process alters the quality of any such raw ma terial or manufac tured or partially ru!inufacturecl products so as to reduce it to marketable shape or prepare it for any 'of the use of industry,

C.T.A. AC NO.2 15 (RTC Civil Case No. 03-107304) DECISION or who by any such process combines any s uch raw material or manufactured or partially manufactured products of the smne or of di iTeren t kinds a nd in such manner that the finished products of such process or man ufacture can be put to a spec ia l use or uses to which such raw materia l or rnan ufact ured or partially manufactured products in th eir original cond ition could not hav e been put, and who in addition alters such raw material or manufactured or partially manufactured products, or combines the same to produce such fini shed products for the purpose of their sale or di stribution to others and not for hi s own use or consumpti on. (Underscoring ours.) �. Article 220(o), Part One (General Prov isions), Rule XXX (Local Government Taxation), of the Rules arid Regulat ions Implementing the Local Government Code of 1991 (hereafter " IRR"), replicates the aforementioned definition of the term " manufacturer." .� In the case of Swedish Match Philippines, inc. v. The Treasurer of the City of Manila, supra, which is directly in point, this Co urt held : Purs uant to th e above definition, a manufacturer is any person that changes or modifies any product to take the form of another, either to prepare it for spec ial uses or to transform it to some marketable shape, fo r the purpose of se lling or dis tributing them to others for a fee . In thi s case, petitioner is being taxed under Section 14 as a man ufacturer of goods, and additionally taxed under Section 2 1(a) on its business of selling manufactured goods. This is a clear case of double taxati on. Double taxation or direct duplicate taxation in its "obnox ious" form means, the taxi ng twice of the same tax ing au thority, within the sa me taxing jurisdi ction or district, for the same purpose and the same period, of the same property in the sa me territory. 15 All these elements ex ist in thi s case. (Citing in Footnote 15 - De Leon and De Leon, Jr., Th e Fundam entals of Taxation, 2004 Edition, page 49) Based on the aforementioned definition , a manltfacturer is any person who alters, modifies or combines any product to make a fini shed product "for the purpose of their sa~~ or di stribution to others." Petiti oner is being taxed on its sales as manufacturer under both Sections 14 and 2 l(a) of the MRC, which is a clear case of �. �.. "obnoxiou~' double taxation . .�. ~

I. C.T.A . AC NO . 2 16 (RTC Civ il Case No . 03- 107304) DEC ISION It should be noted that nianufac LUrer::; like petitioner are ::; ubject to the value- ~ added tax (Y AT) or percentage lax under Sections I05, I06 and 116, respectively, of the 1997 NIRC, as amended by~epubli c Act No. 933 7, (form erl y, Secti ons 99, 100 f and 11 2, respectively, of the l9.'J.? NJRC, as amended by Exec uti ve Order No. 273, which adopted the VAT effective January I, 1988). Hence, when the petiti oner is subjected to both the business tax on manufacturers under Section 14 of the MRC and the business tax under Section 2 1 on those subj ect to exc ise tax, value-added tax (V AT) or percentage tax und er th e NLRC, there is a clear vi olation of Secti on t43 (h) of the LGC which prohibits the impos ition of business taxes therein on those already s.ubj ect to tax under paragraphs (a) to (g) of Section 14 3 of the LGC. Under the LGC's implementing mles, cities map not impose taxes already imposed Arti cle 23 7, Part Four "Cities", Rule XX X on " Loca l Government Taxation", of the Rules and Regulati ons Implementing the Loca l Governm ent Code of 199 t �� (hereafter " IRR"), provides: Part Four. Cities ART. 237. S cope of Tax ing and Other Revenue-Raising Powers of Cities. - The city may: (a) Levy a nd collect any o f the taxes, fees, charges a nd other im pos iti ons tha t th e prov ince anJ th e m uni cipa lity may impose. The ra tes o f taxes that th e city may le vy may exceed the max imum ra tes a ll owed for the prov ince or mu n icipa lity by not mo re than fifty percent (50%) exce pt the rates or profess ional a nd amusement taxes; and (b) Levy a nd co llect a pe rcentage tax on any bus iness not o therwi se specified under paragraphs (a) to (g) , Arli cle 233 of this Rule, at ra tes not exceeding three percent (3 %) of the gross sales or receipts of the preceding calendar yea r. (Underscoring ours.)

.. C.T. A. AC N O.2: 17 (RTC Civil Case N o. 03 - 1073 04) D EC IS ION Art ic le 23 7(b) of the IRR prov ides that cities may only co llect percentage taxes on businesses not otherwise spec ified under paragraphs (a) to (g) of Article 233 of the IRR. Section 21 ofth e MRC cannot be a tax on the end-user and petitioner is not merelv a withholding agent .. ~ ' Likewise, there is no varru1ty to res ponden t's contention that Section 2 1 of the �# . MRC is a tax on end�-users and th at the petitioner is mere ly des ignated as withholding agent under the second paragraph in Section 2 1(C) . A cursory readin g o f Section 2 1 of the MRC reveals that it is onl y the tax on "every overseas di spatch, message or conversation transmitted from the Philippines" covered under Section 2 1(C) that "shall be payabl e by the person renderin g the serv ices rendered and shall be paid to the person renderin g the services who is required to collect and pay the tax x x x." In a case invo lving the same parti es herein but with positions reverse, petitioner in thi s case being respondent in that case and vice-versa, Liberty M. To ledo, in her capacity as The Treasurer ofthe City ofMunila v. Unilever Philippines, i nc., supra, thi s Court held: Petitioner argues that there is no doub le taxation in impos ing taxes based on Sections 14 and 2 1 of the Manila Revenue Code, as amended, since there is no taxa tion on the same property or obj ect by the same taxing authority . Petitioner claims that Section 14 refers to a tax imposed on business establishments, whil e Section 21 refers to a tax imposed on end-users; and that the second paragraph in Section 2 1 (C) statin g th at "the tax shall be p ayable by the p erson paying Ja r the services rendered and shall be paid tv the person rende ring the services who is required to collect and pay the tax within twenty (2 0) days aj ier the end of each quarter " also app lies to paragraph (A) therein which imposes taxes on ''p ersons who sell goods and services in the course of trade or business; and those who import goods whether f or business or otherwise, x x x ". Correspond ingly, petitioner maintains that respondent is ;merely its \Vithholding age nt under Secti on 2 1. :.t o

C.T.A. AC NO.2. 18 (RTC Civil Case No. 03-107304) DECISION We find petitioner' s arguments untenable. Se~tion 2 1 of th e Manila H.c:venue Code in its enLire ty reads: "Section 21. Tax on Business Subject to the Excise, Value-Added or Percen tage Taxes Under the N!RC. - On any of the following businesses and articles of comm erce subj ect to the excise, value-add ed or percentage tax es under the National Internal Reven ue Code here inafter referred to as NIRC, as amended, a tax of fifty percent (50%) of one percent (I%) per annum on the gross sales or receipts of the preceding ca lendar is hereby imposed: A) On persons who sell goods and services in th e course of trade of business, and those who import goods whether for business or otherwise, as provided for in section s 100 to 103 of the NlRC as administered and determin ed by the Bureau of Interna l Revenue pursuant to the pertinent provi sions of the sa id code. B) On the gross receipts of keepers of ga rages, cars for rent or hire driven by the lessee, transportation contractors, persons who tJ�ansport passengers or freight for hire, and common carriers land , air or water, except owners of bancas and owners of animal-drawn two-whee l vehicle. C) On the amount paid on every overseas di spatch, message or conversa tion transmitted from the Philippines by telephone, telegraph, telewriter exchange, wireless and other communication equ ipmen t services, excep t amounts paid by the governmen t, its pol it ical subdivis ions or instrumentalities; dipl omati c services; pub lic international organizations or any of their agencies based in the Philippines; and news services. The tax shall be payable by the person paying for the services rendered and shall be paid to the person rendering the se rvices who is required to co llect and pay the tax wi thin twen ty (20) days after the end of each quarter. D) Exc isable goods subj ect to VAT ( I) Distill ed spirits (2) Wines (3) Tobacco products (other than cigarettes, cigar and chewi ng tobacco) (4) Tobacco specially prepared tor chewing (5) Fireworks (6) Cinematographic film (7) Saccharine (8) Coal <fl1d Coke (9) Fermented liq uor, brewer's wholesale price, exc luding tl)e wl valorem tax (I O)Automobiles, manufacturers or importers selling price (II )Non-essential goods based on the wholesale price, net of excise tax and VAT '�

C.T.A. AC NO. 2. 19 (RTC Civil Case Nu. 03-107304) DECISION (a) Jewelry, whether real or Imitation, pearls, precious and sem i-precious ston es and tmttati on thereof; goods mad e ot~ or ornamented, moumed or filled with precious metals or imitation thereo f or ivory (not including surgica l and dental instruments. si lver-p lated wares, fi�ames or mountings for spectac les of eyeglasses, and dental go ld or go ld all oys and other precious metals used in fillin g, mounting or filling of tee th.) (b) Perfum es and toilet wa ters. (c) Yacht and other vesse ls intended for pleasure or sports. i� ( 12)Mineral products, based on actual market value of the annual gross output the time of removal E) Excisable goods not subject to VAT ( l) Nap tha when used as raw materi al for production of petrochemical products (2) Asphalt" (Underscoring supplied) Applying the rule on statu tory cons truction whi ch states: "ad proximum antecedens jiat relatio nisi impeJiatur sentencia (relative words refer to the nearest antecedent, unless it be prevented by the context)", We find that the subj ect qualil)'ing proviso stating that ..the tax shall be paya ble by the person pay ing for the se rvices rendered payable to the person rendering th e services", refers only to the immediately preceding paragraph of the sa me subsection (C) of Section 2 1 whkh refers to "overseas dispatch, message or conversation transm itted from the Philippines by te lephone, telegraph, telewriter exchange, wire less and other comm uni cation equipment services", being the nearest antecedent thereto, and not to the other paragraphs of the same provision such as paragraph (A). Moreover, a similar provision found under Section 120 of the National Internal Revenue Code of 1997 (NlRC) supports the finding that th e subject proviso qualifies only paragraph (C), of Section 2 1 of the Mcmil a Revenue Code, as amended, (refers to a tax imposed on every overseas dispatch, message or conversation transm itted fi�om th e Philippines by telephone, telegraph, telewriter exchange, wireless and other comm unica tion equipm ent servi ces), to wit: "SEC. 120. Tax. on Overseas Dispatch, lvlessage or Conversation Originatingji-om the Philippines. - (A) Persons Liable. - There shall be collected upon every overseas dispatch, message or conversa ti on transmitted from the Philippines by telephone, telegraph, telewriter exchange, wire less and other communication equipment services, a tax of ten percent ( I0%) on the amo unt paid for such services. The tax imposed in this Section shall be payable by the person paying for the services rendered and

C.T.A. AC NO.2 20 (RTC Civil Case No. 03 - 107304) DECISION shall be paid to the person rendering the services who is required to co llect and pay the ta>-. withi n twenty (20) days a lter the end of each q uarter. " In ascertaining the intention of the lawmaker, co urts are permitted to look into prior laws on the sa me subj ect and to investigate the anteceden ts of the statute invo lved. This rul e is especially app licabl e in th e interpretation of codes, re vised, or compi led statutes, for the prior laws which have been codified, compi led, or revised will show the legislative hi story that will clarify the intent of the law or shed li gh t on the mean ing and scope of the codified or rev ised statute. (Agpalo, Ruben, Statutmy Construction, 5'11 Edition, 2003, p. 98) T he court a quo aptly observed on pages 13- 14 of its assa iled Decision as follows: "The portion therefore quoted by the respondent cou ld only have been referring to the imm ediately preceding paragraph C, and not to the first paragraph , paragraph A, under which the petiti oner was assessed Section 2 1 taxes. The alternative scenario could not ha ve been possible because, as stated by the petitioner in its Memorandum , it is not in vo lved in the business of overseas di spatch and overseas messaging transm iss ion. This is further bolstered by the fact that a similar tax on businesses conducting overseas di spatch and messaging transmission is imposed by th e Nationa l Revenue Code. Thi s Co urt is referr ing to Section [ 120] of thereof which provides: x x x" Having established that the subj ect proviso indeed does not qualify paragraph (A) of Section 21, the tax imposed under the same provision is not a tax on end-users but a tax on the business of manufacturing. In short , respondent is not a withholding agent of petiti oner. Moreover, as previous ly noted, Seclion 2 1 o f the MRC is a tax on business or a sa les tax . It is not a tax on purchases since purchases is o bvi o us ly not a bu s iness activ ity . Sec tion 2 1 s pec ifi ca ll y provid es fur the impos iti o n of taxes "(o)n any of th e fo ll owing bu s inesses and artic les o f co mmerce s ubj ec t to the exc ise, va lu e-added or percentage taxes under the Nat ional Internal Reven ue Code, " which are c le ar ly taxes on sales, not purchases. In this regard, Sec tion 14 3 of the LGC, which is the lega l bas is for Section 21 of th e MRC, imposes tax on bu siness based on sa les. In Swedish Match Philippines, Inc. v. The Treasurer of the City of lvfa11ifa, supra, th is Cou rt a lready rul ed: 1 ~ ,l ; .&. ...

C.T.A . A C N O.2:' 21 (RTC C ivil Case No . 03- 107304) DEC ISION Respondent nonetheless argues that no doub le taxation exists beca use Sec tion 14 is a tax on the manufacturers, assemble rs, and other processo rs while Section 2 1 is a tax on the end-users or on the persons pay ing for the goods or services and not on the business il::ic:lf and the se ll er of the goods is a mere withho lding agen t of the City of Man il a. Thi s argument is untenable. Section 2 1 clearly reads that a tax is imposed on the business subjec t to excise, va lue-add ed or percentage tax. Simply put, Sec tion 2 1 is a bus iness tax on persons who se ll goods and servi ces in their trade or bus iness, and those who import goods whether fo r business or otherwise. To adopt the view of the respond ent tha t the end-users are the persons subj ect to tax under Sec tion 2 1, would mean that the ac ti vity that is being taxed is th e purchase of goods or the '�purchasing power" of the buyer, but the same is no t a business ac ti vity. A ss umin g argue ndo tha t Sec tio n 2 J of the M RC is in dee d a tax o n e nd - users and tha t th e pe titi on er is constituted a me re w ithh o lding age nt, Secti o n 2 J of the MRC wo uld be ill ega l. T he powe r o f loca l government un its li ke the C ity of M anil a to impose taxes is gove rned a nd s ubj ect to li m ita ti ons by the Loca l Governm e nt Code of 1991 (LGC). Sec ti o n 12 8 o f the LGC prov id es: SEC. 128. Scope. - The prov isions he rei n sha ll govern the exercise by prov inces, cities, munic ipalities, and barangays of their tax ing and o ther revenue- raising powers. Secti o n 129 of the LGC prov id es: SEC. 129. Power to Create Sources of Revenue. - Each local governm ent unit shall exer:cisc its power to create its o wn so urces of revenue and to levy taxes, fees, and charges subj ec t to the prov isions herein , consistent with the basic po licy of local autonomy. Such taxes, fees, and charges sha ll accrue exc lusive ly to the loca l governmen t units. (Underscoring ours.) T he LGC does no t a utho ri ze loca l governmen t un its to impose taxes o n e nd - users o r purc hase taxes o r fo r tha t ma tte r, to a ppoin t man da tory w ithho lding agents fo r purposes of tax co ll ec tio n. In the a bsence o f s uc h a uthor ity, there is no lega l basis fo r the impos iti o n of a ny tax o n e nd-users o r tax on purc hases. T here is a lso no lega l bas is ~ ...i. ~. '') (_

C.T.A. AC NO.2: 22 (RTC Civil Case No . 03 - 107304) DEC ISION for w ns titutin g th e pe titi o ner he re as w ithho ldi ng agen t lo r purposes of co llec ting s uc h tax o n purchases. Section 186 oftlte LGC is not a valid bm;isfor the imposition o(lax on the end-user There is no va lid ity to respo nd e nt 's con te nti o n that the re is lega l authority unde r Section 186 of the LGC for the impos iti o n of tax o n the e nd-u ser under Section 2 1 of the MRC. Sec ti o n 186 o f the LGC d oes not qualify Sect io n 143 the reo f. In the aforecited case of Liberty M To ledo, in her capacity as The Treasurer of the City of Manila v. Unilever Philippines, inc., thi s Co urt he ld : According to petiti oner, when the co urt a q uo rul ed th at a tax payer already taxed under Section l 43(a) to (g) of the LGC can no longer be taxed under Section 143(h) of the same Code, the latter fa iled to take into accoun t Section 186 the rea t~ which provides: " SEC. 186. Power To Levy Other Taxes, Fees or Charges. - Local government units may exercise the power to levy taxes, fees or charges on any base or subj ect not otherwise spec ifically enumerated herein or taxed und er the provisions of the Natio nal Internal Revenue Code, as amended , or other applicable laws: Provided, That the taxes, fees, or charges shall not be unju st, excess ive, oppress ive, confiscatory or contrary to declared national policy: Provided, further, That the ordinance levy ing s uch taxes, fees or charges shall not be enacted wi thout any pri or public hearing conducted for th e purpose." Petiti oner further subm its that the power of Loca l Governmen t Units (LGU s) to levy taxes, fees- or charges is not li mited to those spec ifica lly enumerated under Section 143 of the LG C, but also ex tends to any o ther tax , base or subj ect pro vided that the conditions set forth under Secti on 186 of the �: sa me code are complied with; and that the on ly li mita tion for the impos ition 1 � of tax under Sec tion 2 1 of the M RC is provided under Section 143 of the LGC, namely, that the rate to be imposed on any business s ubject to the exc ise, value-added or percentage tax under the Na ti onal Interna l Revenue Code (NIRC) of 1997 shall not hceed 2% of gross sa les o r receip ts of the preceding calendar year: We find petiti oner's in terpretation erro neo us and We disagree with its contention that Section 143 of lhe LG C shou ld be qua li fied by Section 186 � /'

C.T.A. AC NO. 25 23 (RTC C ivil Case No. 03- 107304) D ECISION of the same Code. An analysis o r both pro vis ions shows that Sec ti on 186 gra111s th e genera l power of LG Us to levy taxes, fees or charges subject to the limita ti ons provideJ therein, while Section 143 gran ts municipalities (cities are included under Section 151) the pow er to levy taxes on certain businesses likewise subject to the limit-ations prov ided therein . In other words, Section 186 is a general provi s ion while Section 143 is a spec ia l provision. Re lative the reto, We quote a principle in statutory construction, wh ich provides th at: "W here there is a parti cu lar or spec ial provi sio n and a general provision in the same sta tute and the latter in its most comprehensive sense �wou ld overru le the former, the particular or specia l provision must be operative a nd the ge nera l provision must be taken to affect only the other parts of the sta tute to which it may properly app ly. In o ther words, the particular o r special provision is construed as an exception to the general provision. In this way, all the provisions are given e fTec t. "9 Following the fo regoing principle, Section 143 of the LGC (a specia l or particular provision) should be construed as� an exception to Sec ti on 186 of the same Code (a genera l provision), not vice-versa . (Footnote 9 - Agpa lo, Rub en, Statu tory Constructi on, 5 1 Editi on, 2003) h Moreover, Section 186 of the LGC express ly provides that: "Loca l government units may exerc ise the power to levy taxes, fees or c ha rges on any base or subj ec t not otherwi se spec ifica ll y en um erated herein or taxed under th e provisions of the Nationa l Intern al Revenue Code, as amended, or ot her app li cab le laws x x x." (Underscoring ours.) Section 2 1 of the MRC express ly imposes "(o)n any of the foll owing businesses subj ec t to the excise, value-added or percen tage taxes und er the National Internal Revenue Code he reafter referred to as NIRC, as ame nded, a tax of fifty percent (50%) of one percen t ( I%) Section 143 of the MRC does not merely limit the tax rate but also limits the imposition o{tax to businesses not a/readv taxed Respondent 's argument that paragraph (g), Section 143 of the LGC only lim its the imposition of tax to a rate "sh~ll not exceed two percent (2%) of gross sa les or

C.T.A. AC NO. 25 24 (RTC Civil Case No. 03 -107304) DEC ISION rece ipts of the preced ing caiendar yea r" is untenab le in view or the express pro vision that in the said secti on that the tax may onl y be imposed on "any business, not otherwise specified in the precedin g paragraphs," namely, paragraphs (a) to (g) of the aforesaid Section 143. The petitioner-manufacturer in this case has already been taxed under paragraph (a) of Section 143 in relation to Section 14 of the MRC; hence, to subj ect it to tax under Section 2 1 ofthe MRC wou ld be in direct vio lation of the clear prohibition on double taxa tion under paragraph (h), Section 143 of the LGC. When the law speaks in clear and categorica l language, there is no reason for interpretati on or construction but on ly for application. Land Bank ofthe Philippines vs. Co urt ofAppeals, et a/. & Depw;tmenl ofAgrarian Reform vs. Court ojAppeals et a!., G.R. Nos. 1187 I2 & 118745, respecti ve ly, Jul y 5, 1996 (258 SC RA 404). The LGC provides for a strict interpretation against the imposition o(anv tax bv local govemment units As prev iously mentioned, it is abundant ly clear that Sectio n 143(h) of the LG C express ly prohibits double taxation under Sections 14 and 2 1 of the MR C. However, ass uming arguendo that there is doubt, Section 5(b) of the LGC resolves any dou bt on the impos ition of tax by loca l government units strictly against such local government units and liberally in fav or of the taxpayer. Section 5(b) of the � LGC provides: Sec. 5. Rules of fnterpretation. - In the interpretation of the provisions of this Code, the foll ow ing rul es shall app ly: XXX (b) In case of doubt, any ta x ordinance or revenue measure shall be construed strictly aga inst the local government unit enactin g it, and liberally in favor of the taxRf!yer. Any tax exempti on, incentive or relief granted by any

C.T.A. AC NO. 25 25 (RTC C ivil Case No . 03 - 107304) DEC ISION loca l governm ent unit pursuant to the provi sions of this Code shall be construed strictly aga in st the person claiming it. (Underscoring ours.) The above quoted Section 5(b) of the LG C is reprod uced verbatim in Article 5(e) of the IRR. Based on the foregoing considerati ons, respondent obv iously cannot impose sales tax under Section 2 1 of the MRC on petiti oner since petitioner is already subj ect to sa les ta x under Section 14 of the MRC pursuan t to the prohibition on double taxa tion under Section 143(h) of the LGC. WHEREFORE, premi ses considered, the instant petition IS hereby GRANTED. The appealed Deci sion dated May 12, 2006 and Ord er dated Jul y 27, 2006 of the RTC of Manil a, Branch 47, in Civ il Case No. 03- 107304 are hereby REVERSED. Accordingly, responden t is hereby ORDERED to REFUND the petitioner the amo unt of Eight Milli on Seven Hu ndred Seventy Th ree Thousand Nine Hundred Forty Three and 99/ 100 pesos (P 8,773 .943 .99) rep resenting business taxes erroneously paid under Section 2 1 or the Manila Revenue Code. SO ORDERED. g~~- -- �ilz, G . ~~~ Q. - t31JA.NiTo C. CASTANEDA;.ffl.' Associate Justice WE CONCUR: (w ith Dissenting Op ini on) ' OLGA PALANCA-ENRIQUEZ EAR;~~.~UstiYce Assoc iate Justice

C.T.A. AC NO. 25 26 (RrfC Civil Case No . 03- .107304) L DEC ISION ,,_' A'(::-fESTATION 1 a tLes t that the co nc lus iOll S in the a bove Decis io n were reac hed in consulta ti on befo re the case was ass ign ed to 'the wri ter of the op inio n of the Co urt 's Division . a ... ~<2 . ~~'L tfUANITO C. CASTANEDA;'JR'.' . Associate Justice Chairperson, Second Division CERTIFlCATJON Purs uant to Article VIII , Sec tion 13 of the Co nst itutio n, and the Division Chairperso n 's A ttestation, it is he re by certifi ed th a t th e conc lu s ions in th e above Dec is ion were reac hed in consu ltati on before the case was assigned to the writer of the opinio n of the Co urt. ~~.c~ ERNESTO D. ACOSTA Presiding Justi ce