New Vision Satellite Network, Inc. vs. The Provincial Government of Cagayan

A Certificate of Authority issued by the National Telecommunications Commission to operate a CATV system qualifies as an administrative franchise for purposes of local franchise tax under Section 137 of the Local Government Code, and the mandatory administrative remedy of appeal to the Secretary of Justice under Section 187 of the same Code must be exhausted before a judicial challenge to a tax ordinance may be entertained.

New Vision Satellite Network, Inc. is a corporation holding a Certificate of Authority from the National Telecommunications Commission to operate and maintain a Cable Television System in the municipalities of Ballesteros and Abulug, Province of Cagayan. On December 19, 2013, the Sangguniang Panlalawigan enacted Provincial Ordinance No. 2013-8-008, the Provincial Revenue Code of Cagayan, which imposed a franchise tax on CATV operators under Section 57(e) and an annual permit fee on businesses enjoying a franchise under Section 108(c). Acting on these provisions, the Provincial Treasurer sent a demand letter and a final demand to New Vision for unpaid franchise taxes and fees covering 2001 to 2014.

• The Provincial Revenue Code: On December 19, 2013, the Sangguniang Panlalawigan of Cagayan enacted Provincial Ordinance No. 2013-8-008, revising the Provincial Revenue Code of 2005. Section 57(e) thereof imposed a franchise tax on Community Antenna Television (CATV) systems based on gross receipts obtained within the province. Section 108(c) imposed an annual fee for the issuance of a Governor’s permit on businesses enjoying a franchise.
• Demand for Payment: By virtue of these provisions, Provincial Treasurer Emilia Iringan sent a demand letter dated August 20, 2014 to New Vision for unpaid franchise taxes and fees from 2001 to 2014 totaling P360,094.00. After New Vision did not comply, a Final Demand was sent on January 22, 2015.
• Petition before the RTC: On February 9, 2015, New Vision filed a Petition for Certiorari and Prohibition with Application for Temporary Restraining Order before the RTC of Ballesteros, Cagayan, Branch 33. It sought to declare Sections 57(e) and 108(c) of the Provincial Revenue Code null and void as ultra vires acts. New Vision contended that its Certificate of Authority from the NTC was not a legislative franchise, that franchise tax and permit fees applied only to recipients of a legislative franchise, and that the imposition was unjust, excessive, oppressive, and confiscatory.
• RTC and CA Dismissals: The RTC dismissed the petition on November 24, 2015 for failure to exhaust administrative remedies, as New Vision did not file a protest with the local treasurer under Section 195 of the Local Government Code, and directed payment. The RTC denied reconsideration. The CA affirmed, holding that New Vision should have appealed to the Secretary of Justice under Section 187 of the Local Government Code. The CA denied the subsequent motion for reconsideration.

• Exhaustion of Administrative Remedies: Petitioner argued that it substantially complied with the doctrine by holding dialogues with the Office of the Provincial Governor and Provincial Vice Governor to discuss a review and evaluation of the old Provincial Ordinance No. 2005-07, and that the issue involved a pure question of law warranting direct recourse to the courts.
• Nature of NTC Certificate of Authority: Petitioner maintained that its NTC Certificate of Authority is not a legislative franchise, and that franchise tax and annual permit fees under the Provincial Revenue Code apply only to holders of a legislative franchise. The Certificate of Authority is merely a license or personal privilege that does not render petitioner liable for local franchise tax.

• Exhaustion of Administrative Remedies: Respondent countered that the mandatory remedy under Section 187 of the Local Government Code—appeal to the Secretary of Justice within thirty days from the effectivity of the tax ordinance—was not availed of, and informal dialogues cannot substitute for the statutory appeal. The subject of dispute was the new Provincial Ordinance No. 2013-8-008, not the old ordinance.
• Nature of NTC Certificate of Authority: Respondent argued that the Certificate of Authority to operate and maintain a CATV system is a franchise because it is a privilege granted by the government to a private corporation to conduct that business within the province’s territorial jurisdiction, thus subjecting petitioner to local franchise tax and the corresponding permit fee.

• Exhaustion of Administrative Remedies: Whether petitioner failed to exhaust administrative remedies under Section 187 of the Local Government Code by not appealing the tax ordinance to the Secretary of Justice before filing a petition in court.
• Nature of NTC Certificate of Authority: Whether the Certificate of Authority issued by the NTC for the operation of a CATV system constitutes a franchise, thereby subjecting petitioner to local franchise tax under Section 137 of the Local Government Code and Sections 57(e) and 108(c) of the Cagayan Provincial Revenue Code.

• Exhaustion of Administrative Remedies: The failure to exhaust administrative remedies was fatal. Section 187 of the Local Government Code mandates that any question on the constitutionality or legality of a tax ordinance be raised on appeal to the Secretary of Justice within thirty days from the ordinance’s effectivity, with a decision to be rendered within sixty days; only after the decision or the lapse of the sixty-day period without action may the aggrieved party file appropriate proceedings in court. Petitioner did not file such an appeal. The dialogue with provincial officials concerning the old ordinance did not constitute compliance with the mandatory remedy prescribed for the new Provincial Ordinance No. 2013-8-008. Accordingly, the RTC and CA properly dismissed the petition.
• Nature of NTC Certificate of Authority: The NTC Certificate of Authority to operate a CATV system is an administrative franchise subject to local franchise tax. The jurisprudential elements of a franchise are: (i) a special privilege to do certain acts; (ii) not belonging to citizens generally as a matter of common right; (iii) issued by the government; (iv) a grant or privilege from the sovereign power; (v) legislative in nature; and (vi) subject to regulation by the State through its administrative agencies. The Certificate of Authority satisfied all six elements. It was held to be a special or secondary franchise—conferring a right to operate a CATV system beyond the corporation’s primary franchise to exist—rather than a mere general business permit. The absence of a legislative franchise did not preclude characterization as a franchise because an administrative franchise, issued by an administrative agency pursuant to delegated legislative power, is still a franchise. To distinguish an administrative franchise from an ordinary secondary license or permit, the Court established three indicators: (a) the industry involves natural monopoly characteristics, prohibitive fixed costs, economies of scale, network effects, and the use of scarce resources such that the first entrant enjoys near-monopoly status and the most efficient number of operators is one or only a few; (b) the business activity is charged with public use and its infrastructure disturbs or limits the use of public and private properties on a communal or societal level; and (c) the operator is delegated the sovereign power of eminent domain. The CATV system met all three indicators. The installation of wires and cables necessitates excavation and use of roads and public properties on a massive scale, granting the first entrant a decisive advantage and making the market naturally oligopolistic. The service is charged with public use. Most critically, Section 3 of Executive Order No. 205 expressly authorizes the CATV grantee to “exercise the right of eminent domain for the efficient maintenance and operation” of the system, a delegation of an inherent sovereign power that unmistakably characterizes the Certificate of Authority as a franchise. Consequently, the NTC Certificate of Authority is an administrative franchise within the meaning of Section 137 of the Local Government Code and Section 57(e) of the Provincial Revenue Code, and petitioner is liable for local franchise tax. Petitioner is likewise liable for the annual permit fee under Section 108(c).

• Exhaustion of Administrative Remedies under Section 187, Local Government Code — Any question on the constitutionality or legality of a tax ordinance or revenue measure must be appealed to the Secretary of Justice within thirty days from the effectivity of the ordinance. The Secretary must decide within sixty days. Only upon receipt of the decision, or after the lapse of the sixty-day period without action, may the aggrieved party resort to a court of competent jurisdiction within thirty days. Compliance with these periods is mandatory and jurisdictional; direct judicial action is premature absent such compliance.
• Definition of a Franchise — A franchise is a special privilege emanating from the sovereign power of the state, conferred by government on an individual or corporation to do certain acts that do not belong to citizens generally as a matter of common right; it is legislative in nature and subject to regulation by the state through its administrative agencies by virtue of the police power.
• Primary/General Franchise vs. Secondary/Special Franchise — A primary or general franchise refers to the right to exist as a corporation (e.g., through articles of incorporation or a special charter). A secondary or special franchise refers to the rights or privileges conferred upon an existing corporation to engage in specific business activities, such as the right to use public streets to lay pipes, erect poles, or string wires. For purposes of franchise tax under Section 137 of the Local Government Code, the term “franchise” refers only to a secondary or special franchise that is exercised within the territory of the taxing province.
• Legislative Franchise vs. Administrative Franchise — A legislative franchise is granted directly by Congress. An administrative franchise is granted by an administrative agency to which Congress has delegated the power to issue such authorization under the principle of subordinate legislation. Both are true franchises; the latter remains legislative in nature, albeit in delegated form, and is equally subject to local franchise tax.
• Franchise vs. Mere License or Permit — A franchise is a vested right protected by the Constitution, whereas a license is a mere personal privilege, revocable at will, that confers no vested right or estate and is neither transferable nor vendible. A franchise is subject to franchise tax; a mere license or permit is not.
• Framework for Distinguishing an Administrative Franchise from a Secondary License or Permit — Not every special regulatory permit issued by an administrative agency qualifies as an administrative franchise. The following indicators point to an administrative franchise: (1) the industry is a natural monopoly or exhibits high fixed costs, economies of scale, network effects, and reliance on scarce resources such that the first entrant enjoys dominant market power; (2) the activity is charged with public use and its necessary infrastructure disturbs or restricts public or private property on a communal or societal scale; and (3) the operator is delegated the sovereign power of eminent domain. The presence of all three indicators, especially the delegation of eminent domain, is a strong marker that the grant is a franchise.

• “Prior resort to the Secretary of Justice in questioning the constitutionality or legality of tax ordinances or revenue measures is mandatory.” — This encapsulates the strict requirement that Section 187 of the Local Government Code must be complied with before judicial intervention is sought.
• “The delegation of the authority to exercise the sovereign power of eminent domain is unmistakably a grant of franchise.” — This excerpt underscores the decisive criterion that separates an administrative franchise from a mere secondary license.
• “An administrative franchise is still essentially a franchise, although issued by an administrative agency pursuant to a delegated legislative power from Congress. Hence, it is still subject to local franchise tax.” — This passage clarifies that Congress’s delegation of the franchising power does not alter the nature of the grant.

• Reyes v. Court of Appeals, 378 Phil. 232 (1999) — Relied upon as controlling authority that the appeal to the Secretary of Justice under Section 187 of the Local Government Code is mandatory and that the prescribed periods must be strictly followed.
• National Power Corp. v. City of Cabanatuan, 449 Phil. 233 (2003) — Applied to distinguish primary from secondary franchises and to interpret the scope of franchise tax under Section 137 of the Local Government Code; held that a franchise tax is a tax on the exercise of a secondary or special franchise, not on corporate existence.
• Francisco, Jr. v. Toll Regulatory Board, 648 Phil. 54 (2010) — Cited for the doctrine that an administrative agency vested by law with the power to grant a franchise may issue an administrative franchise without the need for a separate legislative franchise, consistent with the principle of subordinate legislation.
• ABS-CBN Corp. v. NTC, G.R. No. 252119, August 25, 2020 — Referenced for the definition of a franchise and the enumeration of industries typically requiring a franchise.
• Associated Communications & Wireless Services v. NTC, 445 Phil. 621 (2003) — Cited for the definition of a franchise as a grant or privilege from the sovereign power subject to regulation by the state through its administrative agencies.
• Albano v. Hon. Reyes, 256 Phil. 718 (1989) — Recognized that Congress may delegate the power to grant franchises for certain classes of public utilities to administrative agencies.

• Section 187, Republic Act No. 7160 (Local Government Code of 1991) — Prescribes the mandatory procedure for raising questions on the constitutionality or legality of tax ordinances: appeal to the Secretary of Justice within thirty days from effectivity, decision within sixty days, and judicial recourse within thirty days from the decision or the lapse of the sixty-day period. Applied to bar petitioner’s direct resort to the RTC.
• Section 137, Local Government Code — Authorizes provinces to impose a tax on businesses enjoying a franchise at a rate not exceeding 50% of 1% of gross annual receipts. Read with Section 131(m), which defines “franchise,” to cover the NTC Certificate of Authority as an administrative franchise.
• Section 131(m), Local Government Code — Defines “franchise” as a right or privilege affected with public interest conferred by the government on private persons or corporations. Construed in harmony with jurisprudence to refer to a secondary or special franchise.
• Article 226, Implementing Rules and Regulations (Administrative Order No. 270) of the Local Government Code — Implements the franchise tax provision, specifically excluding holders of certificates of public convenience for public utility vehicles but not CATV operators, reinforcing the taxability of the latter.
• Section 1, Executive Order No. 205, Series of 1987 — Provides that operation of a CATV system requires only a Certificate of Authority from the NTC, not a legislative franchise. Read with Section 3 (eminent domain power) and Section 5 (national franchise tax) of the same E.O., which together supported the conclusion that the Certificate of Authority is a franchise.
• Section 6, Article XVIII, 1987 Constitution — Served as the constitutional basis for the legislative powers exercised by the President in issuing E.O. No. 205 before the first Congress was convened.

Leonen, Hernando, Inting, and Gaerlan, JJ., concurred. (Justice Gaerlan designated as additional member per Special Order No. 2833-A.)