Province of Misamis Oriental vs. CEPALCO

A special franchise statute containing an "in-lieu-of-all-taxes" proviso is not repealed by a subsequent general tax law absent an express or manifestly intended repeal, and the franchise grantee remains exempt from the provincial franchise tax imposed under the general law.

The Province of Misamis Oriental, acting through its Provincial Treasurer, sought to collect a provincial franchise tax from Cagayan Electric Power and Light Company, Inc. (CEPALCO), a corporation granted a legislative franchise to install, operate, and maintain an electric light, heat, and power system in Cagayan de Oro City and several adjoining municipalities. CEPALCO's franchise was originally granted under Republic Act No. 3247 (1961), then expanded by R.A. No. 3570 (1963) and R.A. No. 6020 (1969). Each of these special laws contained an identical "in-lieu-of-all-taxes" clause exempting the grantee from all taxes and assessments of whatever authority except the three-percent franchise tax on gross earnings. The dispute arose when the Local Tax Code (P.D. No. 231) was promulgated in 1973, authorizing provinces to impose a franchise tax on businesses enjoying franchises within their territorial jurisdiction.

Cagayan Electric Power and Light Company, Inc. (CEPALCO) was granted a legislative franchise on June 17, 1961 under Republic Act No. 3247 to install, operate, and maintain an electric light, heat, and power system in the City of Cagayan de Oro and its suburbs. The franchise was amended on June 21, 1963 by R.A. No. 3570, which added the municipalities of Tagoloan and Opol to CEPALCO's area of operation, and further amended on August 4, 1969 by R.A. No. 6020, which extended its operations to the municipalities of Villanueva and Jasaan. All three Republic Acts uniformly provided in Section 3 that the grantee shall pay a franchise tax equal to three percent of gross earnings from electric current sold, of which two percent goes to the National Treasury and one percent to the treasuries of the municipalities and city serviced, and that this franchise tax "shall be in lieu of all taxes and assessments of whatever authority upon privileges, earnings, income, franchise, and poles, wires, transformers, and insulators of the grantee," from which the grantee is expressly exempted.

On June 28, 1973, the Local Tax Code (P.D. No. 231) was promulgated. Section 9 thereof authorized provinces to impose a tax on businesses enjoying franchise, based on gross receipts within the province's territorial jurisdiction, at a rate not exceeding one-half of one percent of gross annual receipts for the preceding calendar year. Pursuant to this provision, the Province of Misamis Oriental enacted Provincial Revenue Ordinance No. 19, Section 12 of which levied a franchise tax of one-half of one percent on the gross annual receipts of businesses enjoying franchises within the province.

The Provincial Treasurer of Misamis Oriental demanded payment of the provincial franchise tax from CEPALCO. CEPALCO refused, asserting exemption from all taxes except the franchise tax required by R.A. No. 6020. However, after the Provincial Fiscal rendered an opinion upholding the legality of the Revenue Ordinance, CEPALCO paid under protest on May 27, 1974 the sum of P4,276.28 and appealed the fiscal's ruling to the Secretary of Justice, who reversed the ruling and decided in favor of CEPALCO. The Secretary of Finance subsequently issued Local Tax Regulation No. 3-75 on June 26, 1976, adopting the Secretary of Justice's opinion in full and clarifying that the franchise tax under Section 9 of the Local Tax Code shall be collected only from businesses whose franchises do not contain the "in-lieu-of-all-taxes proviso."

On February 16, 1976, the Province filed a complaint for declaratory relief in the Court of First Instance of Misamis Oriental, praying that the court construe P.D. No. 231 in relation to CEPALCO's franchise and declare the franchise as having been amended by the Local Tax Code. The CFI dismissed the complaint and ordered the Province to return to CEPALCO the P4,276.28 paid under protest. The Province elevated the matter to the Supreme Court by petition for review, assigning as errors the lower court's holdings that CEPALCO's tax exemption was not amended or repealed by P.D. No. 231, that imposing the provincial franchise tax would subvert the purpose of P.D. No. 231, that CEPALCO is exempt from the provincial franchise tax, and that the Province should refund the protested payment.

• Non-repeal by General Law: Petitioner argued that the lower court erred in holding that CEPALCO's tax exemption under Section 3 of R.A. No. 6020 was not amended or repealed by P.D. No. 231.
• Purpose of the Local Tax Code: Petitioner contended that the imposition of the provincial franchise tax on CEPALCO would not subvert the purpose of P.D. No. 231, assigning error in the lower court's contrary holding.
• Taxability of CEPALCO: Petitioner maintained that CEPALCO is not exempt from paying the provincial franchise tax under the Local Tax Code.
• Refund Liability: Petitioner argued that it should not be ordered to refund CEPALCO's tax payment of P4,276.28.

• Implied Repeal of Franchise Exemption: Whether the "in-lieu-of-all-taxes" exemption clause in CEPALCO's franchise under R.A. Nos. 3247, 3570, and 6020 was amended or repealed by Section 9 of the Local Tax Code (P.D. No. 231), a general tax law authorizing provinces to impose a franchise tax.
• Exemption from Provincial Franchise Tax: Whether CEPALCO is exempt from paying the provincial franchise tax imposed under Provincial Revenue Ordinance No. 19 pursuant to P.D. No. 231.

• Implied Repeal of Franchise Exemption: No. P.D. No. 231, being a general tax law, did not expressly or impliedly amend or repeal Section 3 of R.A. No. 6020, a special law, absent any manifest legislative intent to do so.
• Exemption from Provincial Franchise Tax: Yes. CEPALCO's franchise expressly exempts it from "all taxes of whatever authority" except the three-percent tax on gross earnings, and the "in-lieu-of-all-taxes" clause bars the imposition of the provincial franchise tax.

• Implied Repeal of Franchise Exemption: The Court applied the established rule of statutory construction that a special and local statute applicable to a particular case is not repealed by a later general statute, even if the terms of the general act are broad enough to include the cases covered by the special law, unless there is a manifest intent to repeal or alter the special law. Republic Acts Nos. 3247, 3570, and 6020 are special laws applicable only to CEPALCO, while P.D. No. 231 is a general tax law. No provision in P.D. No. 231 expressly or impliedly amends or repeals Section 3 of R.A. No. 6020. The presumption is that the special statutes are exceptions to the general law because they pertain to a special charter granted to meet particular conditions and circumstances. The perceived repugnancy between the two statutes must be very clear before the Court may hold that the prior one has been repealed, since there is no express provision to that effect.

• Exemption from Provincial Franchise Tax: The Court found that the phrase "shall be in lieu of all taxes and assessments of whatever authority" in CEPALCO's franchise constitutes an express exemption from all taxes other than the three-percent franchise tax on gross earnings. This interpretation was supported by a consistent line of precedents upholding identical "in-lieu-of-all-taxes" clauses in various corporate franchises. The Court noted that such exemption forms part of the inducement for the acceptance of the franchise and the rendition of public service by the grantee; because a charter is in the nature of a private contract, imposing another franchise tax by the local authority would constitute an impairment of the contract between the government and the corporation. Local Tax Regulation No. 3-75, issued by the Secretary of Finance, confirmed this interpretation by providing that the franchise tax under Section 9 of the Local Tax Code shall be collected only from businesses whose franchises do not contain the "in-lieu-of-all-taxes proviso." The Court distinguished Manila Electric Company vs. Vera, cited by the petitioner, on the ground that what the government sought to impose on Meralco in that case was a compensating tax on imported poles, wires, transformers, and insulators—not a franchise tax—and Meralco's franchise did not contain the same exempting clause.

• Implied Repeal of Special Laws by General Laws — A special and local statute applicable to a particular case is not repealed by a later statute which is general in its terms, provisions, and application, even if the terms of the general act are broad enough to include the cases in the special law, unless there is manifest intent to repeal or alter the special law. The presumption is that the special statute is an exception to the general law because it pertains to a special charter granted to meet a particular set of conditions and circumstances. The perceived repugnancy between the two statutes must be very clear before repeal may be found, absent an express repealing clause.

• "In-Lieu-of-All-Taxes" Clause in Franchise Statutes — A franchise provision stating that a franchise tax "shall be in lieu of all taxes and assessments of whatever authority" constitutes an express exemption from all other taxes imposed by any authority, including local government units. Such exemption is part of the inducement for the acceptance of the franchise and the rendition of public service by the grantee. Because a charter is in the nature of a private contract, the imposition of another franchise tax by a local authority would constitute an impairment of the contract between the government and the corporation.

• "The rule is that a special and local statute applicable to a particular case is not repealed by a later statute which is general in its terms, provisions and application even if the terms of the general act are broad enough to include the cases in the special law (id.) unless there is manifest intent to repeal or alter the special law." — This passage states the controlling rule of statutory construction governing the relationship between special franchise laws and general tax codes, the ratio decidendi of the case.

• "This Court pointed out that such exemption is part of the inducement for the acceptance of the franchise and the rendition of public service by the grantee. As a charter is in the nature of a private contract, the imposition of another franchise tax on the corporation by the local authority would constitute an impairment of the contract between the government and the corporation." — This passage articulates the contractual nature of a franchise exemption and the impairment-of-contract rationale that protects it from subsequent general taxation, a doctrine frequently cited in franchise tax jurisprudence.

• "The franchise tax imposed under local tax ordinance pursuant to Section 9 of the Local Tax Code, as amended, shall be collected from businesses holding franchise but not from business establishments whose franchise contain the 'in-lieu-of-all-taxes-proviso'." — This quotation reproduces Local Tax Regulation No. 3-75, which the Court cited as executive confirmation that the Local Tax Code's franchise tax provision was never intended to apply to franchise holders with "in-lieu-of-all-taxes" exemptions.

• Manila Railroad Co. vs. Rafferty, 40 Phil. 224 — Controlling precedent on the rule that a special law is not repealed by a later general law absent manifest intent to repeal; also cited for the proposition that the "in-lieu-of-all-taxes" clause in the Manila Railroad's franchise exempted it from internal revenue tax on importations of coal and oil.
• Visayan Electric Co. vs. David, 49 O.G. [No. 4] 1385 — Followed; held that the phrase "shall be in lieu of all taxes and at any time levied, established by, or collected by any authority" in the franchise of the Visayan Electric Company exempted it from the five-percent tax on corporate franchise under the Internal Revenue Code.
• Philippine Railway Co. vs. Collector of Internal Revenue, 91 Phil. 35 — Followed; upheld the same "in-lieu-of-all-taxes" exemption in the Philippine Railway Co.'s franchise against the corporate franchise tax under the Internal Revenue Code.
• Cotabato Light and Power Co. vs. City of Cotabato, 32 SCRA 231 — Followed; the "in-lieu-of-all-taxes" clause excused the Cotabato Light and Ice Plant Company from the tax imposed by a city ordinance.
• Carcar Electric & Ice Plant vs. Collector of Internal Revenue, 53 O.G. [No. 4] 1068 — Followed; exemption upheld in favor of the Carcar Electric and Ice Plant Company against the corporate franchise tax, with the Court articulating the inducement and impairment-of-contract rationale.
• Commissioner of Internal Revenue vs. Lingayen Gulf Electric Power Co., Inc., G.R. No. 23771, August 4, 1988 — Followed; the franchise of the Lingayen Gulf Electric Power Company containing the "in-lieu-of-all-taxes" clause was held to exempt the company from the franchise tax under the National Internal Revenue Code.
• Balanga Power Plant Co. vs. Commissioner of Internal Revenue, G.R. No. L-20499, June 30, 1965; Imus Electric Co. vs. Court of Tax Appeals, G.R. No. L-22421, March 18, 1967; Guagua Electric Light vs. Collector of Internal Revenue, G.R. No. L-23611, April 24, 1967 — Distinguished; these companies were subjected to the corporate franchise tax because their franchises did not contain the "in-lieu-of-all-taxes" clause, illustrating the necessity of the specific exempting language.
• Manila Electric Company vs. Vera, 67 SCRA 351 — Distinguished; cited by the petitioner but found inapplicable because the tax sought to be imposed on Meralco was a compensating tax on imported materials, not a franchise tax, and Meralco's franchise lacked the same exempting clause.

• Section 3, Republic Act No. 3247 (as amended by R.A. Nos. 3570 and 6020) — Provides that CEPALCO shall pay a franchise tax equal to three percent of gross earnings from electric current sold, and that said franchise tax "shall be in lieu of all taxes and assessments of whatever authority upon privileges, earnings, income, franchise, and poles, wires, transformers, and insulators of the grantee," from which the grantee is expressly exempted. The Court held this clause to be a valid and continuing exemption not repealed by the later general tax law.
• Section 9, Presidential Decree No. 231 (Local Tax Code) — Authorizes provinces to impose a tax on businesses enjoying franchise at a rate not exceeding one-half of one percent of gross annual receipts. The Court held this general provision did not repeal or amend the special franchise exemption of CEPALCO because there was no manifest legislative intent to do so.
• Section 12, Provincial Revenue Ordinance No. 19 — Levies a franchise tax of one-half of one percent on the gross annual receipts of businesses enjoying franchises within the Province of Misamis Oriental. The Court held this ordinance could not be applied to CEPALCO because its franchise contained the "in-lieu-of-all-taxes" proviso.
• Local Tax Regulation No. 3-75 — Issued by the Secretary of Finance on June 26, 1976, clarifying that the franchise tax under Section 9 of the Local Tax Code shall be collected only from businesses whose franchises do not contain the "in-lieu-of-all-taxes proviso." The Court cited this regulation as executive confirmation of its interpretation.

Narvasa, Cruz, Gancayco, and Medialdea, JJ., concurred.