First Philippine Industrial Corporation vs. Court of Appeals

A pipeline concessionaire engaged in transporting petroleum products is a common carrier exempt from local business tax on gross receipts under Section 133(j) of the Local Government Code. The Court held that the definition of a common carrier under Article 1732 of the Civil Code makes no distinction based on the means of transportation or the limited nature of a carrier's clientele, and the legislative intent behind Section 133(j) is to prevent duplicative taxation of common carriers already subject to the national common carrier's tax.

Petitioner First Philippine Industrial Corporation (FPIC) is a grantee of a pipeline concession under Republic Act No. 387, as amended, authorizing it to contract, install, and operate oil pipelines. The original concession was granted in 1967 and renewed by the Energy Regulatory Board in 1992. In January 1995, FPIC applied for a mayor's permit with the Office of the Mayor of Batangas City. Before the permit could be issued, the respondent City Treasurer required FPIC to pay a local business tax based on its gross receipts for the fiscal year 1993 pursuant to the Local Government Code. The City Treasurer assessed a business tax amounting to P956,076.04, based on gross receipts of P181,681,151.00 for products pumped at GPS-1. To avoid hampering its operations, FPIC paid the first quarter of 1993 under protest in the amount of P239,019.01.

• Nature of the Action: A petition for review on certiorari assailing the Court of Appeals' decision affirming the RTC's dismissal of FPIC's complaint for a business tax refund.
• The Assessment: FPIC applied for a mayor's permit with Batangas City. Respondent City Treasurer assessed a business tax of P956,076.04 based on FPIC's gross receipts from transporting petroleum products for the fiscal year 1993, pursuant to Section 143(e) of the Local Government Code (tax on contractors and independent contractors).
• Protest and Payment: FPIC paid P239,019.01 for the first quarter under protest. FPIC asserted it was exempt under Section 133(j) of the Local Government Code as a transportation contractor and common carrier. It further argued that transportation contractors were excluded from the definition of "contractors" under Section 131(h) and that the assessment was an invalid revenue-raising measure rather than a commensurate regulatory fee.
• Denial by City Treasurer: The City Treasurer denied the protest, ruling that FPIC was not engaged in a transportation business and could not claim the exemption.
• Lower Court Rulings: The RTC dismissed FPIC's complaint, holding that FPIC was a contractor or special carrier extending services to a specific customer, not a common carrier. The RTC applied the principle that tax exemptions are strictly construed against the taxpayer. The Court of Appeals affirmed the RTC decision.

• Petitioner maintained that it is a common carrier and a transportation contractor exempt from local business tax under Section 133(j) of the Local Government Code.
• Petitioner argued that transportation contractors are not included in the enumeration of "contractors" under Section 131(h) of the Local Government Code; thus, the City lacked the authority to levy a tax on transportation contractors under Section 143(e).
• Petitioner contended that the assessment could not be justified as a regulatory fee under Section 147 because the amount was disproportionate to the cost of regulation, inspection, and licensing, rendering it a revenue-raising measure.
• Petitioner asserted that the Court of Appeals erred in holding that it was not a common carrier and that the exemption was unclear under the law.

• Respondent countered that petitioner was not exempt from taxes under Section 133(j) because the exemption applies only to "transportation contractors and persons engaged in the transportation by hire and common carriers by air, land and water."
• Respondent argued that pipelines are not included in the term "common carrier," which refers solely to ordinary carriers such as trucks, trains, and ships.
• Respondent posited that the term "common carrier" under the Local Government Code pertains to the mode or manner by which a product is delivered to its destination, implying the use of moving vehicles or vessels.

• Procedural Issues: N/A
• Substantive Issues:
  • Whether a pipeline concessionaire transporting petroleum products qualifies as a "common carrier" or "transportation contractor" under Article 1732 of the Civil Code and Section 133(j) of the Local Government Code.
  • Whether a pipeline concessionaire is exempt from the local business tax on gross receipts under Section 133(j) of the Local Government Code.

• Procedural: N/A
• Substantive:
  • The Court ruled that FPIC is a common carrier. Under Article 1732 of the Civil Code, a common carrier is defined as one engaged in the business of carrying goods by land, water, or air for compensation, offering services to the public. This definition makes no distinction as to the means of transportation, provided it is by land, water, or air, nor does it distinguish based on the breadth of clientele. The fact that FPIC serves a limited clientele does not exclude it from the definition of a common carrier. Furthermore, the Petroleum Act (Republic Act No. 387) expressly classifies pipeline concessionaires as common carriers (Article 86) and public utilities (Article 7). The Bureau of Internal Revenue has likewise recognized pipeline concessionaires as common carriers.
  • The Court ruled that FPIC is exempt from the local business tax. Because FPIC is a common carrier, it falls squarely under the exemption provided in Section 133(j) of the Local Government Code, which prohibits local government units from levying taxes on the gross receipts of transportation contractors and common carriers. The legislative intent behind this exemption, as revealed in the House of Representatives deliberations, is to prevent duplicative taxation. Common carriers already pay a three percent common carrier's tax under the National Internal Revenue Code. Imposing a local business tax on FPIC's gross receipts would defeat this statutory purpose.

• Definition and Scope of Common Carriers (Art. 1732, Civil Code) — A common carrier is any person, corporation, firm, or association engaged in the business of carrying or transporting passengers or goods by land, water, or air for compensation, offering services to the public. The concept makes no distinction between principal or ancillary business activities, regular or scheduled services versus occasional or unscheduled services, or a general public clientele versus a narrow segment of the population. The Court applied this doctrine to hold that a pipeline operator with a limited clientele remains a common carrier because Article 1732 deliberately refrains from making such distinctions.
• Statutory Construction of Tax Exemptions vis-à-vis Legislative Intent — While tax exemptions are strictly construed against the taxpayer, the exemption for common carriers under Section 133(j) of the Local Government Code is clear and unequivocal. The legislative intent is to prevent duplicative taxation of common carriers already subject to the national common carrier's tax. The Court applied this principle to override the lower courts' strict construction against the taxpayer, holding that the statutory purpose of avoiding double taxation must prevail.

• "The fact that petitioner has a limited clientele does not exclude it from the definition of a common carrier. In De Guzman vs. Court of Appeals we ruled that: x x x Neither does Article 1732 distinguish between a carrier offering its services to the 'general public,' i.e., the general community or population, and one who offers services or solicits business only from a narrow segment of the general population. We think that Article 1877 deliberately refrained from making such distinctions."
• "It is clear that the legislative intent in excluding from the taxing power of the local government unit the imposition of business tax against common carriers is to prevent a duplication of the so-called 'common carrier's tax.'"

• De Guzman vs. Court of Appeals, 168 SCRA 617 (1988) — Followed. The Court relied on this case to establish that Article 1732 of the Civil Code makes no distinction between carriers serving the general public and those serving a narrow segment, thereby supporting the conclusion that a pipeline operator with limited clientele is still a common carrier.

• Article 1732, Civil Code — Defines a common carrier as any person, corporation, firm, or association engaged in the business of carrying or transporting passengers or goods by land, water, or air, for compensation, offering their services to the public. Applied to determine that FPIC is a common carrier regardless of its limited clientele or mode of transportation.
• Section 133(j), Republic Act No. 7160 (Local Government Code of 1991) — Prohibits local government units from levying taxes on the gross receipts of transportation contractors and persons engaged in the transportation of passengers or freight by hire and common carriers by air, land, or water. Applied to grant FPIC an exemption from the local business tax imposed by Batangas City.
• Article 86, Republic Act No. 387 (Petroleum Act of the Philippines) — Declares a pipeline concessionaire as a common carrier obligated to utilize remaining transportation capacity pro rata for petroleum offered by others for transport. Applied to confirm FPIC's status as a common carrier under statute.
• Article 7, Republic Act No. 387 (Petroleum Act of the Philippines) — Declares everything relating to the transportation by special methods of petroleum as a public utility. Applied to reinforce FPIC's nature as a public service entity.

Bellosillo, Puno, and Mendoza, JJ.