De Lima vs. City of Manila

A decision of the Secretary of Justice under Section 187 of the Local Government Code on the constitutionality or legality of a tax ordinance is an exercise of quasi-judicial power, reviewable exclusively by the Court of Appeals through a petition for review under Rule 43 or, if tainted with grave abuse of discretion, a special civil action for certiorari under Rule 65; the Regional Trial Court has no appellate jurisdiction over such a resolution. Further, under Section 191 of the Local Government Code, a local government unit that has already imposed a business tax in accordance with the Code may adjust the tax rate only once every five years and by not more than ten percent (10%) of the rates fixed under the Code; the allowable increase cannot be accumulated over multiple five-year intervals and imposed in a single adjustment.

The City Council of Manila enacted Ordinance No. 8331, the 2013 Omnibus Revenue Code, on November 26, 2013. Section 104 of the ordinance imposed a percentage tax on retailers’ gross sales: 3% for gross sales over ₱50,000 up to ₱400,000, and 1% for gross sales exceeding ₱400,000. The ordinance was published on December 6–8, 2013, and took effect on December 9, 2013. Several retail business operators questioned the rates before the Secretary of Justice, asserting that the increase from the rates under the previous revenue code (Ordinance No. 7807, enacted in 1993) violated the 10% limit on adjustments under Section 191 of the Local Government Code and Section 5, Article X of the Constitution. The City of Manila maintained that the ordinance was enacted in compliance with procedural requirements and that the rates were within the limits of Section 143(d) of the Local Government Code.

• Enactment of Ordinance No. 8331: On November 26, 2013, the City Council of Manila passed Ordinance No. 8331 (the 2013 Omnibus Revenue Code), approved by the Mayor on December 3, 2013. Section 104 imposed a percentage tax on retailers: 3% on gross sales over ₱50,000 up to ₱400,000, and 1% on gross sales exceeding ₱400,000. The ordinance was published on December 6–8, 2013, and took effect on December 9, 2013.

• Appeal to the Secretary of Justice: On January 6, 2014, five retail business operators—Mandurriao Star, Inc., Metro Manila Shopping Mecca Corporation, SM Mart, Inc., Supervalue, Inc., and Super Shopping Market, Inc.—filed an appeal with the Secretary of Justice. They contended that Section 104 increased the local business tax rates beyond the 10% limit under Section 191 of the Local Government Code because the City had earlier imposed lower rates under Ordinance No. 7807 (1993), and that the rates were unconstitutional and excessive under Sections 130, 186, and 191 of the Code.

• The City’s Position: The City of Manila, through its comment, argued that Ordinance No. 8331 complied with procedural requirements and enjoyed a presumption of validity. It maintained that the retail tax rates were a valid exercise of its power under Section 143(d) and within the limits set by the Local Government Code.

• Secretary’s Resolution of April 7, 2014: The Secretary of Justice declared Section 104 void for being contrary to Section 191 of the Local Government Code. The resolution found that the City had already exercised its taxing power under the LGC when it enacted Ordinance No. 7794 (1993) and its amendment, Ordinance No. 7807. Any further amendment of tax rates, such as that in Ordinance No. 8331, had to comply with the 10% maximum ceiling on increases. The adjustment from the rates in the earlier ordinances to those in Ordinance No. 8331 violated that ceiling.

• Subsequent Proceedings: The City of Manila filed a Motion for Reconsideration on April 24, 2014. Without awaiting its resolution, on May 15, 2014, the City filed a Petition for Review Ad Cautelam before the RTC of Manila, seeking to annul the Secretary’s resolution and to declare Section 104 valid and enforceable. The RTC treated the pleading as a petition for certiorari under Rule 65 and dismissed it for lack of jurisdiction, a ruling the CA later reversed.

• Nature of Power Exercised and Proper Remedy: Petitioner Secretary of Justice argued that certiorari under Rule 65 is not the proper remedy to question her resolution on a tax ordinance because she does not exercise quasi-judicial functions under Section 187 of the Local Government Code; she merely ascertains constitutionality or legality, relying on Drilon v. Mayor Lim.

• Requirement of a Motion for Reconsideration: Petitioner maintained that a motion for reconsideration of the Secretary’s resolution is a prerequisite before a petition for certiorari may be filed with the RTC.

• Forum Shopping: Petitioner contended that the City of Manila committed forum shopping when it filed its Petition for Review Ad Cautelam before the RTC while its motion for reconsideration remained pending before the Secretary, warranting outright dismissal.

• Jurisdiction of the RTC: Respondent City of Manila argued that the RTC had jurisdiction to entertain its petition, as the Local Government Code does not require a prior motion for reconsideration before the Secretary of Justice nor an appeal to the Office of the President before resorting to the courts.

• No Forum Shopping: Respondent asserted that forum shopping did not exist because it disclosed the pending motion for reconsideration in its RTC petition and attached a copy of the motion. The dispute was being pursued through appeal or certiorari from one forum to another, not through identical simultaneous actions.

• Validity of the Ordinance: The City maintained that Ordinance No. 8331 was enacted in compliance with legal requirements and that the retail tax rates were within the limits set by Section 143(d) of the Local Government Code.

• Jurisdiction and Proper Remedy: Whether the RTC has jurisdiction over a petition for certiorari assailing the Secretary of Justice’s resolution declaring a tax ordinance void under Section 187 of the Local Government Code, and whether certiorari under Rule 65 is the correct procedural vehicle.

• Forum Shopping: Whether the City of Manila committed forum shopping by filing a petition before the RTC while its motion for reconsideration remained pending before the Secretary of Justice.

• Validity of the Tax Ordinance under Section 191 of the LGC: Whether Section 104 of Ordinance No. 8331 is valid, or whether it exceeds the 10% limitation on adjustments mandated by Section 191 of the Local Government Code.

• Jurisdiction and Proper Remedy: The RTC lacked jurisdiction over the petition. The Secretary of Justice’s evaluation of an appeal under Section 187 involves an exercise of quasi-judicial power—ascertaining factual circumstances and determining the validity of a tax measure—and thus the decision is appealable to the Court of Appeals either through a petition for review under Rule 43 or, if grave abuse of discretion is alleged, a special civil action for certiorari under Rule 65. Pursuant to Section 4, Rule 65, and the ruling in AMCOW v. GCC Approved Medical Centers Association, the Court of Appeals has exclusive original jurisdiction over petitions for certiorari questioning acts of quasi-judicial agencies. The RTC therefore correctly dismissed the case for lack of jurisdiction, and the CA erred in ordering a remand to the RTC. The appeal to the RTC was timely filed within 30 days from receipt of the Secretary’s resolution, but a motion for reconsideration before the Secretary is not required under Section 187; the provision’s plain language allows the aggrieved party to file appropriate proceedings directly with a court of competent jurisdiction after the decision or lapse of the 60-day period.

• Forum Shopping: No forum shopping occurred. Because a motion for reconsideration is not an available remedy under Section 187, the motion filed by the City was ineffectual and did not give rise to a risk of conflicting rulings. The Secretary of Justice had already lost jurisdiction over the appeal once the resolution was issued; the filing of the motion did not divest the courts of jurisdiction. While disclosure of a pending motion does not cure actual forum shopping, the absence of any genuine parallel proceeding negates the existence of the vice.

• Validity of the Tax Ordinance under Section 191 of the LGC: Section 104 of Ordinance No. 8331 is partially invalid. Applying the two requisites of Section 191 established in Mindanao Shopping Destination Corporation v. Duterte: (1) the City had already imposed a retail tax in accordance with the LGC through Ordinance No. 7807 (1993), which set specific graduated amounts for gross sales brackets; (2) Ordinance No. 8331 adjusted those rates. The reference point for the 10% limit is the rate fixed under the Code itself—Section 143 sets the base rates at 2% for gross sales of ₱400,000 or less, and 1% for gross sales above ₱400,000. Factoring a 10% adjustment, the maximum allowable rates are 2.20% and 1.10%, respectively. The 3% rate imposed by Section 104 on sales between ₱50,000 and ₱400,000 exceeds the 2.20% ceiling and is void. The 1% rate for sales above ₱400,000 remains within the 1.10% limit and is valid. The 20-year interval between ordinances did not allow the accumulation of foregoing increases; the option to raise rates arises every five years but must be exercised within the prevailing 10% cap.

• Quasi-Judicial Nature of the Secretary of Justice’s Power under Section 187, LGC — When the Secretary of Justice evaluates an appeal questioning the constitutionality or legality of a tax ordinance, she exercises quasi-judicial power: she must ascertain facts, apply the standards of the Local Government Code, and adjudicate the rights of contending parties. Her resolution is therefore reviewable by the Court of Appeals via a petition for review under Rule 43 or, if grave abuse of discretion is alleged, a special civil action for certiorari under Rule 65. The RTC has no appellate jurisdiction over such a resolution.

• Exclusive Original Jurisdiction of the Court of Appeals over Quasi-Judicial Agencies — The Court of Appeals possesses exclusive original jurisdiction to entertain petitions for certiorari under Rule 65 questioning the acts of quasi-judicial agencies, regardless of whether the remedy is framed as a Rule 43 appeal or a Rule 65 petition. This derives from Section 4, Rule 65 of the Rules of Court, as clarified in Association of Medical Clinics for Overseas Workers, Inc. (AMCOW) v. GCC Approved Medical Centers Association, Inc.

• Two Requisites for the Application of Section 191, LGC — Section 191 applies when: (1) a tax ordinance already imposes a tax in accordance with the provisions of the LGC; and (2) a second tax ordinance adjusts the tax rate fixed by the first ordinance. The allowed adjustment must not exceed ten percent (10%) of the rates fixed under the Code, not ten percent of the previous ordinance’s rate.

• Non-Accumulation of Adjustment Ceilings — The 10% limit under Section 191 cannot be circumvented by accumulating allowable increases over multiple five-year periods and imposing them in a single adjustment. The option to increase arises every five years but must be exercised based on the prevailing rate, always anchored to the 10% cap on the Code’s base rates.

• Motion for Reconsideration Not Required Under Section 187, LGC — Section 187 of the Local Government Code makes no provision for a motion for reconsideration. The remedy after the Secretary’s decision is to file appropriate proceedings directly with a court of competent jurisdiction. A motion for reconsideration filed with the Secretary is ineffectual and does not toll the period to seek judicial review.

• “Simply, as the revenue measures are the source of funds that give life and support the operations of the local government, it is imperative that any question as to its validity must be resolved with utmost dispatch. Towards this end therefore, the LGC has set limits which the parties must strictly comply with.”

• “The evaluation of the appeal lodged by the retail business operators involves an exercise of quasi-judicial power by the Secretary of Justice. In deciding the same, the Secretary of Justice must ascertain the existence of factual circumstances specifically, whether Section 104 of Ordinance No. 8331 was passed in accordance with the procedure and the limitations set forth by the LGC. And from there make a conclusion as to the validity and applicability of the same to the retail business operators of Manila.”

• “The CA is the court vested with exclusive original jurisdiction to entertain a petition for certiorari under Rule 65 of the Rules of Court questioning the acts of quasi-judicial agencies. The RTC was then correct in dismissing the petition for review ad cautelam, which by its nature is a petition for certiorari, for having been filed before the wrong court.”

• “The option to increase the tax rates under the LGC arises every five (5) years reckoned from the enactment of the ordinance sought to be adjusted. … In the event that the LGU fails to make such adjustment within the five (5)-year period, the option to increase the prevailing ordinance remains open until such right is exercised, at which point, the five (5)-year period of limitation starts to run again. … Foreseeing that the compounding of interest would invite fear that its eventual accumulation would become unduly burdensome, the taxpayers should be reassured of the built-in measures under the LGC to restrict the power of the LGUs in this regard.”

• Hagonoy Market Vendor Association v. Municipality of Hagonoy, 426 Phil. 769 (2002) — Applied to underscore that the timeframes under Section 187 are mandatory, not mere technicalities, because revenue measures must be resolved with dispatch.

• Reyes v. CA, 378 Phil. 232 (1999) — Followed for the interpretation that Section 187 sets three mandatory periods: 30 days to appeal to the Secretary, 30 days to appeal the Secretary’s decision to the courts, or 60 days after which a party may go to court if the Secretary fails to act.

• Mindanao Shopping Destination Corporation, et al. v. Hon. Rodrigo R. Duterte, et al., G.R. No. 211093, June 6, 2017 — Followed in articulating the two requisites for the application of Section 191 and the principle that the initial implementation of the LGC should use the rates under Section 143, and that subsequent adjustments are limited to 10% of those base rates.

• Association of Medical Clinics for Overseas Workers, Inc. (AMCOW) v. GCC Approved Medical Centers Association, Inc., et al., 802 Phil. 116 (2016) — Controlling authority for the rule that the Court of Appeals has exclusive original jurisdiction over certiorari petitions against quasi-judicial agencies.

• Orosa v. Roa, 527 Phil. 347 (2006) — Cited to explain that the DOJ is deliberately excluded from the list of agencies covered by Rule 43 appeals, but distinguished where the Secretary exercises quasi-judicial functions under Section 187.

• Araullo, et al. v. President Aquino III, et al., 737 Phil. 457 (2014) — Relied upon for the expanded reach of certiorari to correct grave abuse of discretion by any branch or instrumentality of government, even those not exercising quasi-judicial functions.

• Section 187, Local Government Code of 1991 — Procedures for approval and effectivity of tax ordinances and revenue measures, including the 30-day period to appeal to the Secretary of Justice and the 30-day period to seek judicial review. Applied to hold the appeal timely and to conclude that no motion for reconsideration is required.

• Section 143, Local Government Code — Tax on business, specifically the rates for retailers: 2% for gross sales of ₱400,000 or less, and 1% for gross sales above ₱400,000. Used as the baseline for computing the 10% maximum adjustment under Section 191.

• Section 151, Local Government Code — Scope of city taxing powers, allowing cities to impose taxes that provinces or municipalities may impose, with rates up to 50% higher except professional and amusement taxes. Cited as the authority for the City’s power to impose the retail tax.

• Section 191, Local Government Code — Authority to adjust tax rates not oftener than once every five years and by no more than 10% of the rates fixed under the Code. Applied to invalidate the portion of the ordinance exceeding the 10% limit.

• Sections 130, 133, and 186, Local Government Code — Fundamental principles, common limitations, and power to levy other taxes. Invoked as general constraints on the taxing power of LGUs, referenced to remind the City of compliance in future adjustments.

• Section 1, Rule 43 and Section 1 and Section 4, Rule 65, Rules of Court — Govern appeals from quasi-judicial agencies and special civil actions for certiorari. Applied to establish that the CA, not the RTC, has exclusive jurisdiction over certiorari directed against quasi-judicial agencies.

• Article VIII, Section 5(2a), 1987 Constitution — Vests RTCs with jurisdiction to resolve the constitutionality of statutes and regulations. Distinguished because the RTC did not exercise original jurisdiction over the constitutionality of the ordinance directly, but rather appellate jurisdiction, which it lacked.

Carpio (Chairperson), Perlas-Bernabe, Caguioa, and J. Reyes, Jr. (designated additional member), concurred.