Pepsi-Cola Bottling Company vs. Municipality of Tanauan

The Court held that the legislative delegation of taxing power to municipal corporations under the Local Autonomy Act is constitutionally valid and does not violate the non-delegation doctrine or due process. Municipalities possess broad discretion to levy taxes for local public purposes, provided the levy is not a prohibited percentage or specific tax, does not violate statutory exclusions, and is not so excessive as to be confiscatory. Where two municipal ordinances impose practically identical taxes on the same subject, the later ordinance operates as an implied repeal of the former, thereby precluding a claim of double taxation.

The Municipality of Tanauan, Leyte, enacted Municipal Ordinance No. 23 in September 1962, imposing a municipal production tax of one-sixteenth (1/16) of a centavo per bottled soft drink corked within its jurisdiction. Upon discovering that manufacturers could minimize the tax burden by increasing bottle volume, the Municipal Council enacted Ordinance No. 27 in October 1962, which instead levied a tax of one centavo (P0.01) per gallon of soft drink volume capacity. The Acting Municipal Treasurer subsequently demanded compliance with Ordinance No. 27 from the Pepsi-Cola Bottling Company. Pepsi-Cola challenged the statutory authority underlying the municipal tax and the validity of both ordinances, initiating judicial proceedings to enjoin collection and secure a declaration of unconstitutionality.

• Pepsi-Cola Bottling Company of the Philippines, Inc. filed a complaint for declaratory relief and preliminary injunction before the Court of First Instance of Leyte, seeking to declare Section 2 of Republic Act No. 2264 unconstitutional as an undue delegation of legislative power and to nullify Municipal Ordinances Nos. 23 and 27, Series of 1962, of Tanauan, Leyte.
• The parties stipulated that both ordinances addressed identical subject matter and imposed practically equivalent tax rates. Ordinance No. 23 levied a tax of 1/16 of a centavo per bottle corked, while Ordinance No. 27 imposed a tax of P0.01 per gallon of volume capacity. Both were denominated as "municipal production taxes" and required monthly production reports.
• The Acting Municipal Treasurer formally demanded compliance with Ordinance No. 27 in January 1963. Pepsi-Cola contended that the statutory delegation was overly broad, that the concurrent ordinances constituted double taxation, and that the imposed tax was confiscatory and unfair.
• The trial court dismissed the complaint, upheld the constitutionality of the Local Autonomy Act, declared both ordinances legal and constitutional, and ordered Pepsi-Cola to pay the assessed taxes and costs. Pepsi-Cola appealed to the Court of Appeals, which subsequently elevated the case to the Supreme Court pursuant to Section 31 of the Judiciary Act of 1948, as amended, on the ground that it involved pure questions of law.

• Petitioner maintained that Section 2 of Republic Act No. 2264 constitutes an undue delegation of legislative taxing power, violating the separation of powers doctrine and rendering the statute confiscatory and oppressive.
• Petitioner argued that Ordinances Nos. 23 and 27 impose double taxation by levying practically identical taxes on the same subject matter within the same jurisdiction.
• Petitioner contended that the tax imposed under Ordinance No. 27 constitutes an illegal percentage tax on sales or a specific tax, both of which are expressly prohibited to municipalities under the Local Autonomy Act.
• Petitioner asserted that the tax rate is unjust, unfair, and oppressive, thereby violating due process and exceeding municipal discretion.

• Respondents argued that the delegation of taxing power to municipalities under the Local Autonomy Act is a recognized legislative prerogative grounded in local autonomy and historical practice.
• Respondents countered that Ordinance No. 27 was intended as a direct substitute for Ordinance No. 23 and implicitly repealed the earlier measure, thereby eliminating any claim of double taxation.
• Respondents maintained that the levy is a valid production tax based on volume capacity, not a percentage tax on sales or a specific tax enumerated under the National Internal Revenue Code, and thus falls within municipal taxing authority.
• Respondents emphasized that municipal councils possess wide discretion in setting tax rates, and the imposed levy is neither prohibitive nor confiscatory.

• Procedural Issues: Whether the Court of Appeals properly certified the case to the Supreme Court under Section 31 of the Judiciary Act of 1948 as involving pure questions of law.
• Substantive Issues: Whether Section 2 of Republic Act No. 2264 constitutes an undue delegation of taxing power and violates due process by being confiscatory or oppressive; whether Municipal Ordinances Nos. 23 and 27 constitute double taxation or impose prohibited percentage or specific taxes; and whether the tax rate under Ordinance No. 27 is unjust, unfair, or unreasonable.

• Procedural: The Court implicitly affirmed the certification to the Supreme Court, proceeding directly to the resolution of the substantive questions of law without addressing jurisdictional infirmities, thereby treating the appeal as properly elevated under Section 31 of the Judiciary Act of 1948 for pure questions of law.
• Substantive: The Court ruled that the delegation of taxing power to municipalities under Section 2 of Republic Act No. 2264 is constitutionally valid because legislative authority may be delegated to local governments for matters of local concern, and the Constitution recognizes local autonomy. The plenary nature of the delegated power does not render it confiscatory, provided the tax serves a public purpose, observes uniformity, falls within jurisdictional limits, and affords due process where required. The Court found no double taxation because Ordinance No. 27 was enacted as a substitute for Ordinance No. 23 and operates as an implied repeal, leaving only one enforceable levy. The levy constitutes a valid production tax based on volume capacity rather than a prohibited percentage tax on sales or a specific tax under the National Internal Revenue Code, as soft drinks are not among the enumerated articles and the tax applies to production regardless of sales volume. Finally, the tax rate is not unreasonable or confiscatory, as municipalities enjoy broad discretion in rate-setting and courts will not invalidate tax ordinances absent a showing that the levy is prohibitive.

• Delegation of Taxing Power to Local Governments — The legislative power to tax may be delegated to municipal corporations for matters of local concern, notwithstanding the general rule against delegating legislative authority. This delegation is constitutionally permissible because local governments require independent revenue sources to exercise self-governance. The Court applied this doctrine to uphold Section 2 of the Local Autonomy Act, ruling that the broad grant of authority does not violate the non-delegation principle or due process, provided statutory limitations and constitutional safeguards are observed.
• Implied Repeal of Municipal Ordinances — A subsequent municipal ordinance that covers the same subject matter as a prior ordinance and is clearly intended as a substitute operates as an implied repeal, even without express repealing language. The Court applied this principle to Ordinances Nos. 23 and 27, concluding that Ordinance No. 27 superseded the earlier measure, thereby precluding any claim of double taxation.
• Distinction Between Production Tax, Percentage Tax, and Specific Tax — A percentage tax is levied on the volume or value of sales, while a specific tax is imposed on enumerated articles under the National Internal Revenue Code. A production tax based on manufacturing volume, regardless of whether the goods are sold, falls outside these prohibitions. The Court applied this distinction to validate Ordinance No. 27, holding that the per-gallon levy on soft drink production does not constitute a prohibited percentage or specific tax.

• "When it is said that the taxing power may be delegated to municipalities and the like, it is meant that there may be delegated such measure of power to impose and collect taxes as the legislature may deem expedient. Thus, municipalities may be permitted to tax subjects which for reasons of public policy the State has not deemed wise to tax for more general purposes." — The Court invoked this principle to reject the contention that the broad statutory grant constitutes an undue delegation or violates due process, emphasizing legislative discretion in structuring local taxation.
• "The intention of the Municipal Council of Tanauan in enacting Ordinance No. 27 is thus clear: it was intended as a plain substitute for the prior Ordinance No. 23, and operates as a repeal of the latter, even without words to that effect." — The Court relied on this reasoning to dispose of the double taxation claim, establishing that only the subsequent ordinance remains legally operative.

• City of Baguio v. De Leon — Cited in Justice Fernando’s concurring opinion to establish that double taxation is not constitutionally prohibited unless it results in confiscation or violates other constitutional guarantees.
• Pepsi-Cola Bottling Co. of the Phil., Inc. v. City of Butuan — Relied upon to affirm the constitutionality of delegated municipal taxing power and to demonstrate that double taxation between national and local governments does not violate due process.
• Golden Ribbon Lumber Co. v. City of Butuan — Referenced by Justice Fernando to contrast the traditional strict construction of municipal taxing power under the 1935 Constitution with the broader autonomy recognized in subsequent jurisprudence.
• SMB, Inc. v. City of Cebu — Cited to distinguish between percentage taxes on sales and production-based levies, reinforcing that a tax on volume capacity does not equate to a sales tax.
• Victorias Milling Co. v. Municipality of Victorias — Invoked to support the principle that courts will not invalidate municipal tax ordinances unless the imposed rate is so excessive as to be prohibitive.

• Section 2, Republic Act No. 2264 (Local Autonomy Act) — The central statutory provision challenged by the petitioner, which grants municipalities the authority to levy taxes, licenses, and fees for public purposes, subject to enumerated exceptions. The Court upheld its constitutionality as a valid delegation of legislative power.
• Article XI, Section 5, 1973 Constitution (and Article VI, Section 22, 1935 Constitution) — Cited to establish the constitutional foundation for local government autonomy and the power of local units to create their own revenue sources and levy taxes, subject to legislative limitations.
• Section 31, Judiciary Act of 1948, as amended — Provided the procedural basis for the Court of Appeals to certify the case directly to the Supreme Court on the ground that it involved pure questions of law.
• National Internal Revenue Code (Provisions on Specific Taxes) — Referenced to delineate the categories of articles subject to specific taxes. The Court noted that soft drinks are not enumerated, thereby excluding them from the municipal prohibition against imposing specific taxes.

• Justice Fernando — Concurred in the result but expressed reluctance to restate pre-constitutional doctrines on municipal taxation given the explicit grant of taxing power to local governments under the 1973 Constitution. Justice Fernando emphasized that the traditional view requiring strict construction of municipal taxing power has been superseded by constitutional autonomy. He further relied on City of Baguio v. De Leon to affirm that double taxation does not violate the due process clause unless it reaches confiscatory levels, thereby aligning with the majority’s disposition while grounding the rationale in constitutional text rather than statutory implication.