Pepsi-Cola Bottling Company of the Philippines, Inc. vs. Municipality of Tanauan, Leyte

The power of taxation is an inherent attribute of sovereignty that may be delegated to municipal corporations for matters of local concern without violating the separation of powers doctrine, provided the delegation adheres to constitutional limitations including due process, public purpose, and uniformity; a municipal tax of one centavo per gallon on soft drink production is a valid production tax, not a prohibited percentage or specific tax, and does not constitute unconstitutional double taxation or oppression where the rate is not prohibitive.

The case arose from a challenge to the exercise of delegated taxing authority by the Municipality of Tanauan, Leyte under the Local Autonomy Act of 1959 (Republic Act No. 2264), which expanded the fiscal autonomy of local governments. The dispute centered on whether the State could validly delegate its inherent power of taxation to municipalities, and whether municipal ordinances imposing taxes on soft drink production violated constitutional limitations against undue delegation, double taxation, and oppression, or statutory prohibitions against levying percentage taxes on sales or specific taxes reserved to the national government.

• Pepsi-Cola Bottling Company of the Philippines, Inc. operated a soft drink bottling plant within the Municipality of Tanauan, Leyte.
• Municipal Ordinance No. 23, approved on September 25, 1962, levied a tax of one-sixteenth (1/16) of a centavo for every bottle of soft drink corked, requiring producers to submit monthly reports of total bottles produced.
• Municipal Ordinance No. 27, approved on October 28, 1962, levied a tax of one centavo (P0.01) on each gallon (128 fluid ounces, U.S.) of volume capacity on all soft drinks produced or manufactured, requiring monthly reports of total gallons produced.
• Ordinance No. 27 was enacted upon discovery that manufacturers could increase bottle volume contents while paying the same fixed tax rate under Ordinance No. 23, and was intended as a substitute for the earlier ordinance.
• On January 17, 1963, the Acting Municipal Treasurer of Tanauan sought to enforce compliance with Ordinance No. 27 through a letter addressed to the bottling plant manager.
• The plaintiff-appellant admitted in its brief that defendants-appellees were only seeking to enforce Ordinance No. 27, and the Provincial Fiscal admitted that Section 7 of Ordinance No. 27 clearly repealed Ordinance No. 23 due to inconsistency.
• The tax imposed under Ordinance No. 27 was equivalent to approximately 1-1/2 centavos per case of 24 regular bottles or per case of 12 family-size bottles.

• Section 2 of Republic Act No. 2264 constitutes an undue delegation of the legislative power of taxation, is confiscatory and oppressive, and violates the constitutional principle of separation of powers by granting plenary taxing authority to municipalities.
• Ordinances Nos. 23 and 27 constitute double taxation because they cover the same subject matter (soft drink production) and impose practically identical tax rates, thereby violating constitutional guarantees against arbitrary taxation.
• The ordinances impose prohibited percentage taxes on sales or specific taxes under the National Internal Revenue Code, which municipalities are expressly barred from levying under the limitations of the Local Autonomy Act.
• The tax imposed is unjust, unfair, and oppressive to the business of soft drink manufacturing, rendering the ordinance confiscatory in nature.

• Section 2 of RA 2264 is a valid delegation of the inherent power of taxation to municipal corporations for purposes of local self-government, sanctioned by constitutional provisions on local autonomy and immemorial practice.
• Ordinance No. 27 operates as a repeal of Ordinance No. 23 by substitution, eliminating any claim of double taxation; even if both ordinances existed simultaneously, double taxation is not prohibited by the Philippine Constitution when imposed by different governmental entities (State and municipality) for different purposes.
• The tax is a valid municipal production tax levied on the produce itself (whether sold or not), not a percentage tax on sales (which requires a set ratio between tax and sales volume) nor a specific tax (which applies only to articles expressly enumerated in the National Internal Revenue Code).
• The tax rate of one centavo per gallon is reasonable, uniform, and not prohibitive, falling within the wide discretion granted to municipalities in determining tax rates under the constitutional policy of according the widest possible autonomy to local governments.

• Procedural Issues: N/A
• Substantive Issues: (1) Whether Section 2 of Republic Act No. 2264 is an unconstitutional and undue delegation of the power of taxation that is confiscatory and oppressive; (2) Whether Ordinances Nos. 23 and 27 constitute double taxation and impose prohibited percentage or specific taxes; (3) Whether Ordinance No. 27 is unjust and unfair.

• Procedural: N/A
• Substantive: The Supreme Court upheld the constitutionality of Section 2 of Republic Act No. 2264, ruling that taxation is an inherent attribute of sovereignty that may be delegated to local governments for matters of local concern as an exception to the separation of powers doctrine, and that the plenary delegation is valid provided it adheres to constitutional limitations including public purpose, uniformity of taxation, territorial jurisdiction, and due process. The Court held that Ordinance No. 27 validly repealed Ordinance No. 23 by substitution, rendering the double taxation argument moot; even if both ordinances were enforced, double taxation is not forbidden by the Constitution where one tax is imposed by the State and another by the municipality. The Court further ruled that the tax is a valid production tax, not a prohibited percentage tax on sales (as it is levied on production volume without a set ratio to sales) nor a specific tax (as soft drinks are not enumerated in the National Internal Revenue Code). Finally, the Court held that the tax rate is not unjust, unfair, or confiscatory, as municipalities possess wide discretion in fixing tax rates unless the amount is so excessive as to be prohibitive, which this was not.

• Inherent Power of Taxation — Taxation is an essential and inherent attribute of sovereignty belonging to every independent government without express conferment by the people; while purely legislative and generally non-delegable under the separation of powers, it may be delegated to municipal corporations for local self-government as an exception.
• Delegation of Taxing Power to Local Governments — The State may delegate such measure of power to impose and collect taxes as the legislature deems expedient, allowing municipalities to tax subjects the State has not taxed for general purposes, subject to inherent constitutional limitations including due process, public purpose, uniformity, and territorial jurisdiction.
• Double Taxation — Not prohibited by the Philippine Constitution; it becomes obnoxious only where the taxpayer is taxed twice for the benefit of the same governmental entity or by the same jurisdiction for the same purpose, but not when one tax is imposed by the State and another by the city or municipality.
• Due Process in Taxation — Requires that the tax be for a public purpose, that uniformity of taxation be observed, that the person or property taxed be within the jurisdiction of the levying government, and that notice and opportunity for hearing be provided; it does not require judicial inquiry into the amount of tax or the manner of apportionment.
• Expressio Unius Est Exclusio Alterius and Exceptio Firmat Regulam in Casibus Non Excepti — The enumeration of specific taxes that municipalities cannot impose (percentage taxes on sales, specific taxes except gasoline) implies that all other taxes are permitted, and the exceptions strengthen the general rule allowing municipal taxation in cases not excepted.

• "The power of taxation is an essential and inherent attribute of sovereignty, belonging as a matter of right to every independent government, without being expressly conferred by the people."
• "Double taxation, in general, is not forbidden by our fundamental law, since We have not adopted as part thereof the injunction against double taxation found in the Constitution of the United States and some states of the Union."
• "Municipal corporations are allowed much discretion in determining the rates of imposable taxes. This is in line with the constitutional policy of according the widest possible autonomy to local governments in matters of local taxation."
• "Unless the amount is so excessive as to be prohibitive, courts will go slow in writing off an ordinance as unreasonable."

• Pepsi-Cola Bottling Co. of the Phil., Inc. v. City of Butuan — Controlling precedent cited for the doctrine that double taxation is not forbidden by the Philippine Constitution and for upholding the validity of municipal taxing power under the Local Autonomy Act.
• City of Baguio v. De Leon — Cited by Justice Fernando in his concurring opinion as the preferred doctrinal basis for holding that double taxation is not violative of due process, quoting Justice Holmes regarding the Fourteenth Amendment.
• Golden Ribbon Lumber Co. v. City of Butuan — Cited in the concurring opinion to illustrate the traditional doctrine of strict construction of municipal taxing power under the 1935 Constitution.
• Tan v. Municipality of Pagbilao — Cited in the concurring opinion for the proposition that taxation is an attribute of sovereignty which municipal corporations do not inherently enjoy but must be conferred by statute.

• Section 2, Republic Act No. 2264 (Local Autonomy Act) — The central provision challenged, granting municipalities authority to levy taxes, licenses, and fees subject to specified exceptions including prohibitions on percentage taxes on sales and specific taxes except gasoline.
• Section 5, Article XI, 1973 Constitution — Provision granting each local government unit the power to create its own sources of revenue and to levy taxes, cited to support the constitutional basis for local fiscal autonomy.
• Sections 123-148, National Internal Revenue Code — Cited to enumerate articles subject to specific taxes (distilled spirits, wines, tobacco, matches, fuels, etc.), establishing that soft drinks are not among the enumerated items and thus the tax is not a prohibited specific tax.
• Section 31, Judiciary Act of 1948 — Basis for the certification of the case from the Court of Appeals to the Supreme Court as involving pure questions of law.

• Fernando, J. — Concurred in the result while emphasizing the shift in constitutional framework from the 1935 Constitution (which required strict construction of delegated municipal taxing power) to the 1973 Constitution (which explicitly grants local autonomy in taxation); expressed preference for relying on City of Baguio v. De Leon regarding the doctrine on double taxation; noted that while doctrines from the 1935 Charter era supported the decision, the new constitutional article on local autonomy provided the stronger contemporary basis for upholding municipal taxing power.