San Miguel Corporation vs. Municipal Council

A municipality may not impose a graduated license tax on manufacturers measured by the gross value in money or actual market value of articles at the time of removal from the factory, as such a levy is a percentage tax on sales or other tax based thereon prohibited by Section 2 of Republic Act No. 2264. The phrases used denoted selling price, the tax increased as a set ratio of sales, and collection on removal rather than actual sale did not alter its character where the manufacturer necessarily sells what it produces.

San Miguel Corporation is a domestic corporation engaged in manufacturing beer and other products, with a subsidiary plant in Mandaue, Cebu. The Municipality of Mandaue is a local government invoking Republic Act No. 2264, the Local Autonomy Act, as source of authority to impose municipal license taxes. Section 2 of that Act grants plenary taxing power to municipalities and chartered cities subject to two provisos barring, among others, percentage taxes on sales and taxes on articles subject to specific tax.

Ordinance No. 88, which took effect September 25, 1962, imposed municipal license taxes on proprietors or operators of factories, breweries, distilleries, refineries, mills and other manufacturing establishments in Mandaue. It was amended by Ordinance No. 23 effective January 1, 1967 and by Ordinance No. 25 effective January 1, 1968. As amended, Section 1 required proprietors or operators of breweries within Mandaue to pay a graduated quarterly fixed tax based on the gross value in money or actual market value at the time of removal of manufactured articles from factories during the preceding quarter, under a twenty-class schedule ranging from P5.00 per quarter for less than P1,250.00 to P160.00 plus P0.30 for each P1,000.00 or fraction in excess of P37,500.00 for Class 1 of P37,500.00 or over. Section 2 required payment before engaging in business, quarterly on or before the twentieth of January, April, July and October, with taxpayers filing a sworn statement of gross value in money during the preceding quarter as basis for assessment.

Since December 1967 San Miguel Corporation operated a subsidiary manufacturing plant for beer in Mandaue. It paid under protest P309.40 on January 22, 1968 and P5,171.80 as of July 18, 1968, computed on the basis of 70,412 and 2,203.070 cases of beer manufactured and removed from the Mandaue plant, multiplied by P7.60 which was the prevailing market price per case at removal. In practice the assessment was based on the shipping memorandum certified by the Bureau of Internal Revenue storekeeper assigned to the brewery. Claiming adverse effect from an enactment beyond municipal power, San Miguel sued in the Court of First Instance of Cebu for annulment.

The trial court sustained the ordinance. While the case was pending, Mandaue was converted into a city pursuant to Republic Act No. 5519, approved June 21, 1969, which respondents invoked as rendering the controversy moot.

• Meaning of Gross Value and Market Value: Petitioner argued that the phrase gross value in money or actual market value referred to sales or market price of manufactured articles, showing manifest intent to impose a tax based on sales.
• Tax Measured by Gross Receipts: Petitioner maintained that imposing a tax upon the privilege of manufacturing beer measured by gross receipts from sales of beer is the same as imposing a tax upon the product itself.

• Privilege Tax, Not Percentage Tax: Respondents countered that the levy is not a percentage tax or tax on sales of beer but a tax on the privilege to engage in manufacturing beer, with actual market value used merely as basis for classification and graduation.
• Not a Specific Tax: Respondents argued that the ordinance does not impose a specific tax because the tax is on the privilege of manufacturing beer, not on the beer itself.
• Mootness by Cityhood: Respondents maintained that with the conversion of Mandaue into a city on June 21, 1969, the appeal became moot because the prohibition against privilege taxes on sales applies only to municipalities.

• Prohibited Tax Based on Sales: Whether the graduated quarterly tax based on gross value in money or actual market value at removal transcends the prohibition in Section 2 of Republic Act No. 2264 against municipalities imposing any percentage tax on sales or other taxes in any form based thereon.
• Tax on Article Subject to Specific Tax: Whether the challenged ordinance imposes a tax on an article subject to specific tax, likewise prohibited to municipalities.
• Mootness by Conversion to City: Whether conversion of Mandaue into a city under Republic Act No. 5519 renders the question of the ordinance's validity moot.

• Prohibited Tax Based on Sales: Yes. The ordinance imposed a tax based on sales beyond municipal authority, the measure being selling price and bearing a set ratio to sales volume.
• Tax on Article Subject to Specific Tax: Unresolved. Passing upon this additional question was deemed unnecessary after finding the ordinance void as a tax based on sales.
• Mootness by Conversion to City: No. Subsequent cityhood did not remove the original infirmity, legality being tested by municipal power at enactment absent curative provision.

• Prohibited Tax Based on Sales: The grant under Section 2 of the Local Autonomy Act, though plenary, remains subject to its provisos, and an ordinance providing a graduated tax based on gross output or sales violates the ban where peso value from receipts or invoices is the only measuring standard. Technical terms in tax statutes are presumed used in their technical or commercial sense: gross value in money under Sections 184, 185 and 186 of the National Internal Revenue Code means gross selling price, or the total paid by purchaser to vendor, while actual market value means the selling price in ordinary business between a willing seller and willing buyer after efforts to obtain the highest price. The word or was read as expository, with actual market value clarifying gross value in money, so as to give effect to every provision rather than treat language as surplusage. A set ratio existed between tax and sales, notably P160.00 plus P0.30 per P1,000.00 of excess over P37,500.00, making the excess levy a percentage of sales, confirmed by actual computation on cases removed multiplied by P7.60 wholesale price. Imposition at removal rather than sale was immaterial under Laoag Producers' Cooperative Marketing Association, Inc. vs. Municipality of Laoag, since petitioner by the nature of its business must sell what it manufactures.
• Tax on Article Subject to Specific Tax: No analysis was undertaken because invalidity on the sales-tax ground fully disposed of the controversy.
• Mootness by Conversion to City: Reliance was placed on City of Naga vs. Court of Appeals and Laoag Producers' Cooperative Marketing Association, Inc. vs. Municipality of Laoag for the rule that legality depends on power at enactment; lacking authority at that time, the ordinance remained infirm despite Republic Act No. 5519 effective June 21, 1969, which contained no curative provision.

• Limits on delegated municipal tax power — While the grant of taxing power to chartered cities and municipalities under Section 2 of the Local Autonomy Act is plenary, the municipality must not transcend the exceptions and limitations in its provisos. Applied to void the Mandaue graduated manufacturing tax as exceeding the prohibition on percentage taxes on sales.
• Gross value in money as gross selling price — In tax statutes the phrase gross value in money of articles sold, bartered, exchanged or transferred means gross selling price, or the total amount paid by purchaser to obtain the goods, as under Sections 184-186 of the National Internal Revenue Code. Applied to construe the ordinance's base as sales value.
• Actual market value as ordinary selling price — Actual market value for taxation means the price commanded in ordinary business when offered by a willing seller not compelled to sell to a willing buyer under no obligation to purchase, or the price after fair efforts to find the highest bidder. Applied to show the ordinance measured the tax by selling price.
• Or as expository term — The word or is not always disjunctive and may be interpretative of the preceding word, equivalent to that is to say. Applied to read actual market value as clarifying gross value in money, avoiding surplusage and harmonizing the ordinance.
• Tax at removal as tax on sales — A levy imposed at removal from the factory is a tax based on sales where the taxpayer by the nature of its business has no alternative but to sell what it manufactured or accumulated. Applied, following Laoag Producers' Cooperative Marketing Association, Inc. vs. Municipality of Laoag, to treat the Mandaue brewery levy as sales-based despite timing at removal.
• Legality tested at enactment; subsequent cityhood does not cure — The validity of an ordinance depends on municipal power at the time of enactment, and later conversion to a city does not remove the original infirmity absent a curative provision. Applied to reject mootness after Republic Act No. 5519.

• "the municipal corporation should not transcend the limitations imposed by the statute on the basis of which the power to tax is sought to be exercised." — States the controlling limit on delegated tax power under Republic Act No. 2264 and frames the narrow issue of whether the provisos were exceeded.
• "Well settled is the rule that in the absence of legislative intent to the contrary, technical or commercial terms and phrases, when used in tax statutes, are presumed to have been used in their technical sense or in their trade or commercial meaning." — Supplies the interpretive rule used to construe gross value in money and actual market value as selling price.
• "Since the municipality of Mandaue had no authority to enact the said ordinance, the subsequent approval of Republic Act No. 5519 which became effective June 21, 1969, did not remove the original infirmity of the ordinance." — Rejects mootness and holds that later cityhood has no curative effect on an ultra vires municipal ordinance.

• Marinduque Iron Mines, Inc. vs. Municipal Council of Hinabangan, Samar, 11 SCRA 416 — Followed as holding that a graduated municipal tax based on gross output or sales measured by peso value violates the prohibition on percentage taxes on sales.
• Laoag Producers' Cooperative Marketing Association, Inc. vs. Municipality of Laoag, 37 SCRA 594 — Followed both to characterize a levy collected before actual sale as a tax based on sales where the business must sell its stock, and to reject cure by later change in status.
• City of Naga vs. Court of Appeals, 24 SCRA 594 — Followed to reject mootness, establishing that legality is tested by power at enactment.
• Nin Bay Mining Co. vs. Municipality of Roxas, Palawan, 14 SCRA 660 — Cited for the doctrine that the Section 2, Republic Act No. 2264 grant is sufficiently plenary, but subject to its provisos.
• Republic Cement Corporation vs. Commissioner of Internal Revenue, 23 SCRA 967; City of Manila vs. Estrada, 25 Phil. 208, 215; Macondray & Co. vs. Sellner, 33 Phil. 370, 375 — Cited to define actual market value as ordinary selling price for taxation.

• Section 2, Republic Act No. 2264 (Local Autonomy Act) — Provides that municipalities and municipal districts shall in no case impose any percentage tax on sales or other taxes in any form based thereon nor impose taxes on articles subject to specific tax. Applied as the prohibitory standard voiding the Mandaue ordinance.
• Section 1, Ordinance No. 23 (1966) as amended by Ordinance No. 25 (1967), Municipality of Mandaue — Imposes the graduated quarterly fixed tax based on gross value in money or actual market value at removal. Construed as sales-based and declared ultra vires.
• Section 2, Ordinance No. 23, Municipality of Mandaue — Requires quarterly payment and filing of a sworn statement of gross value in money. Noted as vague in text but applied in practice through Bureau of Internal Revenue shipping memoranda and market price per case.
• Sections 184, 185 and 186, National Internal Revenue Code — Use gross value in money as equivalent to gross selling price. Relied upon with General Circular No. 431 and Philippine Acetyline Co. vs. Blaquera to interpret the ordinance's base.
• Republic Act No. 5519 — Converted Mandaue into a city effective June 21, 1969. Held without curative effect on the prior ultra vires ordinance.

Makalintal, Acting C.J., Zaldivar, Castro, Teehankee, Makasiar and Esguerra, JJ., concur. Fernando and Barredo, JJ., took no part.