City of Manila vs. Columbia Pictures Industries Inc.

DECISION

ACOSTA, Pl.:

This is a Petition for Review brought before this Court pursuant to Republic Act 9282 on April 12, 2007, seeking the reversal of the Decision anJ Order dated November 8, 1006 and March 7, 2007, respectively, rendered by Judge Amor A. Reyes of Branch 2 1 of the Regional Trial Court of Manila in Civil Case No. 02-102663.

The assailed Decision restrained the City of Manila (Manila) from collecting taxes under S...:ction 21 of the Manila R0venue Code and ordered the refund of P4,722,672.68, representing additional business taxes which Columbia Pictures Industries, Inc. (Columbia) paid, under this section for the years 1999, ' l . ' ~...0

CTA AC No. 29

2UUO and 2UO J. The 4u~sliuncd UrdL:r 011 Lilc olil~r l1<..111d d~nicd Manila's i\lluliun for Reconsideration.

TilE FACTS

Petitioner City of Manila, is a local government unit empowered to, among others, implement the City's Revenue Cud~, this power includes the collection and assessment of business taxes, revenue fees, anJ permit fees within the City, with office address at the Ground Floor, Manila City Hall, Tatt Avenue, Manila. Respondent Columbia Pictures Industries, Inc., is a local branch of a foreign corporation duly organized and existing uuJer the laws of Delaware, USA, engaged in the business of distributing cinematographic and television films, with oilice address at i 11 Floor, Times Plaza Building, UN Avenue, corner Tail A venue, Manila.

Columbia has been paying business taxes as a contractor under Section 18 of the Revenue Code of the City of Manila, enacted through Ordinance 7794, as amended by Ordinance No. 7807 (Manila Revenue Code). However, starling 1999, Manila also assessed Columbia additional business taxes imposed under Section 21 of the Manila Revenue Code. lt paid P7,636,657.30 for usual business taxes under Section 18 and P4, 722,6 72.68 as additional business taxes under Section 21, both of the Manila Revenue Code for the years 1999 to 2001. On January 2, 2002, believing that it had erroneously paid the additional business taxes imposed under Section 21, Columbia wrote Manila asking for a refund thereof. However, on January 12, 2002, Manila, through City Treasurer Liberty M. Toledo, denied Columbia's request for refund. This denial prompted the filing of a case on Januaty 18, 2002, asking for a tax refund or issuance of a

CTA AC No. 29 lax l,;l'cdit ct:rlilicate in th!..! aHJuunt of P4,722,6 72.68, plus legal inlerc~t, representing business taxes, allegedly illegally collected by the City of Manila for the years 1999, 2000 and 2001 with the Regional Trial Court (RTC) of Manila. This case was docketed as Civil Case 02- l 02663 and rafned to Branch 21. On November 8, 2006, the RTC rendered a decision, the dispositve portion of which states:

"WHEREfORE, premises considered, the Court hereby orders the DISMISSAL of this petition. The respondent is hereby directed to refund or credit the amount of P4, 722,672.68 representing the business tax paid under Sec. 21 of the Revenue Code for the period 1999, 2000 and 200 l. Without pronouncement as to costs.

(g) thereof, in view of the qualifying proviso thal reads: "On any business not otherwise specified in the preceding paragraphs, which the sanggLmian may deem proper to tax". Columbia maintains that the LGC prohibits a municipality or city fi:om imposing business taxes twice, as this constitutes direct duplicate taxation. On the second issue, Columbia contends that its cause of action m claiming the refund of taxes it paid have not yet expired because what the law requires is the filing of a written claim for refund or credit with the local treasurer and tile filing of such claim in court within 2 years reckoned from the date of payment of the tax.

2 r> n

CTA ACNo. 29

On tile third issue, it avers that the City of Manila waived its riglll to objt:d to the Columbia's supposed lack of capacity to sut:, since tlte issue was raised for the first time in their Memorandum dated July 14, 2006 in the trial court. Moreover, this issue was not included in the enumeration of issues to be resolved by the trial court.

Columbia also claims that the amendmelll by the trial court of its decision is in order. A careful reading of the body of the trial court's decision would show that it granted claim for refund or tax credit. Thus, tht:re is no need to explain the reason for the amendment.

With the filing of this Comment, the case was deemed submitted for decision.

The Court's Ruling

There is nothing novel with the issues presented in this case. And in the case ''The Treasurer of the City of Mwzila vs. All:an Packaging Starpat..:k Corporation (formerly Stwpack Philippines Corporation)", CTA EB No. 26 1, 1 the CTA En Bane already ruled that double taxation in its prohibited form exists in cases of these nature.

fiRST ISSUE whether the City of Manila can validly impose business taxes under Section 21 on businesses already paying taxes under

Section 18 of the Manila Revenue Code

1 July 30, 2007

CTA AC No. 29

Th~..: City of Manila aJmits that the local government's power to tax is a t.kkgateJ power and that its authority to impose local taxes is found in Section 143 of the Local Government Code (LGC).

It also confesses that Section 18 of the Manila Revenue CoJe (MRC) is based on Section 143 (c), while Section 21 of the MRC is from Section 1-U(h). The City only argues that the only limitation proviJeJ under Section 143 (h) of the LGC is that, if the tax is on businesses subject to excise, value-adJect or percentage taxes unJer the National Internal Revenue Code (NlRC), the local government cannot impose taxes in excess of 2% of gross sales or receipts. According to the City of Manila, Section 18 of the MRC is directed to the business of Columbia as a contractor, while Section 21 is imposed on it for being an enterprise subject to excise, value-added or percentage taxes under the NJRC.

Thus, a reading of the applicable Local Government Code provisions is imperative.

''SEC. 151.

SCOPE OF TAXJNG POWERS. -

Except as

otherwise provided in this Code, the City may levy the taxes, fees, and charges which the province or municipality may impose: xxx" "SEC. 143. TAX ON BUSINESS. The municipality may impose taxes on the following business:

(a) On manufacturers, assemblers, rcpackers, processors, brewers, distillers, rectifiers, and compounders of liquors, distilled spirits, and wines or manufacturers of any article of commerce of whatever kind and nature,

XXX

(b) On wholesalers, distributors, or dealers in any article of commerce of whatever kind or nature xxx (c) On exporters, anJ on mauufacturcrs, millers, producers, wholesalers, distributors, dealers or retailers of essential commodities xxx

CTA AC No. 29

(d) On rdall~..:rs, xxx (e) On contractors and other imkpendent contractors, xxx (.I) On banks and other financial iustitutions, xxx (g) On peddlers engaged in the sale of any merchandise or article of commerce, xxx (h) On any business, not othcnvise spcci1icd in the preceding paragraphs, which the sanggunian concen1cd may deem proper to tax: Provided, That on any busiuess subject to excise, value-added or percentage tax under the National Internal Revenue Code, as amended, the rate of tax shall not exceed two percent (2%) of gross sales or receipts of the preceding calendar year.

The sanggw1ian concerned may prescribe a schedule of graduated tax rates but in no case shall exceed the rates prescribed herein." (Emphasis Supplied) Based on the above provisions of the LGC, the City of Manila enacted the Manila Revenue Code, and the following provisions lind application: "Section 18. -Tax on Contractors. - A percentage tax is hereby imposed on contractors and other iHdependent contractors in accordance with the following schedule: xxx" "Section 21. Tax on Business Subject to Excise, Value- Added or Percentage Taxes Under the Nll<..C - On any of the following businesses and articles of commerce subject to excise, value-added or percentage taxes under the Nationallnternal Revenue Code hereinafter referred to as N lRC, as amended, a tax of fiLly (50%) of one (1 %) percent per annum on the gross sales or receipts of the preceding cakndar year is hereby imposed:

A)

On persons who sell goods and services in the course of trade or business; and those who import goods whether for business or otherwise, as provided 1ur in Seclions 100 to 103 of the NIRC as administered and detenuincd by the Bureau of

CTA AC No. 29

Internal Rewnue pursua11l lo the pt.:l tin~nl j.JfOV is ions of the said code."

Indubitably, Section 18 of the Manila Rewnue Code (MlZC) is based on Section 143(e) of the Local Government Code (LGC), while Scction 21 in turn is a variation of Section 143(h), also of the LGC.

Under Section 143(11) of lhi..: LGC, th(! busiuess tax that may be imposed on "any business", comes with the proviso "not otherwise specified in the pret:eding paragraphs". This could only mean that the nJUnicipality, or city, shall only impose the tax in either one of the paragraphs but not both. When the City of Manila imposed both taxes through Sections 18 and 21 of the Manila Revenue Code, the same definitely contradicts the express mandate of Section 143(h) of the Local Government Code.

Section 21 of the MRC reads "on any of the following businesses and articles of commerce subject to excise, value-addcJ or percentage taxes under the National Internal Revenue Code hercinaftcr referred to as NIRC, as amended, a tax of ... is hereby imposed: On persons who sell goods and services in the course of trade or business; anJ those who import goods whether for business or otherwise ... ". It is evident that Sectioi1 21 does not impose indirect taxes on businesses, but added a qualification regarding the lax rate to be imposed on businesses and articles of comlllerce which is subject to excise, VAT or perccnlage lax under the National Internal Revenue Code. In other words, the plu·ase "on any business subject to excise, value-added or pen.:entage tax under the National lntc:rnal Revenue Code" in Section 143(h) of the Local Government Code merely qualifies or limits the rate of tax to be imposed on businesses already subject to excise, value-added or percentage lax

CTAACNo. 29 under thl! National lutemal Rev~..:nue Code aud dues nut autltorizc Lo(;al Governments to impose such taxes.

Thus, under subparagraph (h) of Section 143, a municipality or city may tax any business that is not covered by the enumerations mentioned in subsections

(a) to (g), based in the qualifying provision that reads: "On business, not otherwise specified in the prect.:ding paragraphs (meaning [a] to [g]), which the sanggunian concerned may deem proper to tax" with further qualification on tlte rates of taxes to be imposed on businesses already sul.Jjcct to excise, value-added or percentage tax under the National Internal Revenue Code . Applying the above to the City's Revenue Code, Section 21 cmmot be imposed over businesses already subject to business tax under Section 18, as this clearly constitutes direct double taxation. Sections 1 ~ and 21 are both local taxes, imposed on the same business activity by only one public authority, the City of Manila, enforced withiu the same taxing jurisdiction, for the purpose of raising revenues for the city government and to regulate the conduct of business, which accrue and become due on the same laxing period.

Thus, Columbia correctly argued that when a taxpayer is being taxed under any uf subsections (a) to (g) of Section 143, said taxpayer can no longer be taxed under Section 143 (h), because of this qualifying provision.

SECOND ISSUE

whether the RTC erred in holding that Columbia may question the assessment against it According to Mauila in asserting that Section 21 of the Manila Revenue Code (MRC) constitutes direct duplicale taxation, Columbia is seeking to annul

CTAACNo. 29 the Revc:uu~.: CoJe anJ cullak;rally attacking its validity under the guise of askiug for a refw1d and the nullitication of the assessment; which it can no longer do, lor its failure to observe Section 187 of the LGC.

That constitutional questions will not be entertained by the courts w1less they are specifically raised, iusisteJ upon, and ad~q u a tdy argued, is a settled doctrine.2 However, it must be pointed out that Columbia is not attacking the constitutionality of Section 21 of the MRC but lllerely claims that the imposition of taxes thereunder constitutes double taxation because it is already paying taxes under Section 18 of the same code.

Nevertheless, Tax Ordinance 7988 anJ 8011 , which introduced the amendments to the Manila Revenue Code, has been declared void by the Supreme Court in Cuca-cula Bolllers Philippines vs. City of.Munila, Liberty M Toledo - City Treasurer and Joseph Suntiago - Chief Lh:ensing Division on the ground of failure to comply with publication requirements. 3 Double taxation or Jirect duplicate taxation in its "obnoxious" form means, the taxing twice of the same taxing authority, within the same taxing jurisdiction or district, for the same purpose anJ the same period, of the same property in the same territory.4 All these elements exist in this case. As admitted by the City, Juring the years 1993 to 1998, Columbia has been paying business taxes as imposed unJer Section 18 or the Manila Revenue Code, and during the years 1999 to 2001 additional business taxes were imposed following Section 21 of the same Revenue Code, in lhe amount of P4, 722,672.68. There being payment of taxes w1Jer Section 18 and Section 21 of the MRC, 2 City of lJur,uiu vs. Man· us, 27 SCI&l 3-12 (1 969)

3 493 SCUA 279 (2006)

CTA AC No. 29

!d'U11d or Lh~ additional tax~;s imposed under S~..:diun 21 1s correct 1ur being constitutive or double laxation

THIRD ISSUE

whether Columbia paid under protest, as required under Section 195 of the Local G ov~;rnm cnt Code and corollary to the first three issues is whether the refund granted by the RTC is proper Manila argues that Columbia did not pay unJcr protest and failed to question the assessments within sixty (60) days from receipt thereof: and such failure renJcrs the assessment final, executory aud unappealable as provided in Section 195. This provision reads:

"SEC. 195. PROTEST OF THE ASSESSMENT.- When the local treasurer or his duly authorized representative finds that correct taxes, fees, or charges have not beeu paid, he shall issue a notice of assessment stating the nature of tl1e tax, fee or charge, the amount of deficiency, the surcharges, interests and pena lti~J s. Within sixty (60) days fi-om receipt of the notice of assessment, the taxpayer may lite a written protest with the local treasurer contesting the assessment; otherwise, the assessment shall become iinal and executory. The local treasurer shall decide the protest within sixty (60) days !l·om the time of its filing. If the local treasurer 1inds the protest to be wholly or partly meritorious, he shall issue a notice canceling wholly or partially the assessment. However, if the local treasurer 1inds the assessment to be wholly or partly correct, he shall deny the protest wholly or partly with notice to the taxpayer. The taxpayer shall have thirty days from receipt of Lhe denial of th ~J protest or li-om the lapse of the sixty-day period prescribed herein within which Lo appeal with the court of competent jurisdiction otherwise the assessment becomes conclusive and unappealable."

By the very title of Section I 95 alone, ("Protest of Assessment"), it pertains to protest of the assessment/s issued by the local treusurcr against a taxpayer who has been found not to have paid correct taxes, fees, or charges. In this case,

CTA ACNo. 29 assumiug lur the sake of argument Lhat Columbia did uot obst;rvl: Sl:ction 195, the same should not have a n~ga ti ve repen;ussion on its claim for refund because this provision does not apply. It is Section 196 of the Local Government Code which applies in this case, it slates:

"SEC. 196. CLAlM FOR REFUND OF TAX CREDIT. - No case or proceeding shall be maintained in any court for the recovery of any tax, fee, or charge erroneously or illegally collected until a written claim for refund bas been filed with the local treasurer. No case or proceeding shall be entertained in any court after the expiration of two (2) years from the date of payment of such tax, fee, or charge, or from the date the taxpayer is entitled to a refund or credit." (Emphasis 5'upplied) Columbia filed a written request lor refund of the taxes it paid under Section 2 1 of the Manila Revenue Cotle fur the years 1999 to 2001 on Ja nuary 2, 2002, broken down as fo llows: 5

YEAR

QUARTER

DATE

AMOUNT PAID

1999

ST

01121/99 P457,312.35 1

2ND

04/14/99 457,312.35

3RD

07/14/99 457,3 12.3.5

4Tll

10/ 19/99 457,312.35 2000 1sr

Ol/20/00

361,677.91

2ND

04/ 17/00 361 ,677.91 3'w 07/20/00 361 ,677.9.1

4TH

10/20/00

361 6T

-~ r 2001

} ST

01/22/01 ' I.

361 , 67 7 . ~ .

2ND

04/24/01 361,677.9]

3RD

07/03/01 361 677.9t ' ..

Til

10/02/01 36 1 677.i1_ 4

TOTAL

P-t~ 72 2~672.68 The denial of the claim f01 refunJ on the other hand, was appealed to the Regional Trial Court on January 18, 2002. Counting two years from date of 5 Records, page 2 7 Deci~ion CTA AC No. 29

Page 13 of16

vaym~lll until the comm~ JH.:enH..; lllvi' Lhe claim fu1 n..:li.md in Lllc lZ'l C, the ret'und fur payments made in the 1999 in the amount of P 1,829,249.40 have already prescribed following th~.; ubove-quoted Section 196. Thus, the grant of the refund should be reduced to P2,893,423.28 (P4,722,672.68 - 1,829,249.40 [P457,312.35 x 4 quarters]).

FOURTH ISSUE

whethtr Columbia Pictures had capa~.:ity to sue Manila avers that the Regional Trial Court should have dismissed the case outright for Columbia's failure to prove capacity to sue since Mr. Gcner Salamera, the person who verified and made the certilication on non-forum shopping does not appear to be authorized by any board resolution duly executed prior to the filing of the complaint. However, aside from this bare assertion, Manila failed to show that indeed the complaint before the Regional Trial Court is fatally i1awed. Moreover, applicable Is Section I, Rule 9 of the Rules of Court which provides:

"SECTlON 1.

Defenses and uhjeuions nut pleaded. - Defenses and objections not pleaded either in a motion to dismiss or iu the answer arc deemed waived. However, when it appears from the pleadings or the evidence on record that the court has no jurisdiction over the subject matler, that there is another action pending between the same partil:s for the same cause, or that the action is barred by prior judgment or by stututc of limitations, the court shall dismiss the claim." (~'mphusis Supplie{,O Clearly, the rule is thal all grounds to dismiss lhc case should be pleaded, otherwise they are deemed waived.

The only exceptions thereto are: Jack of

CTA AC No. 29 jurisJidion and lal.:k of caus~ of ucliun whiclt can be wised even for the 1irst tiuw on appeal, all other grounds to dismiss tall under th..: above-mentioned general rule.6 The City of Manila has not shown that it had questioned the alleged lack of capacity to sue of Columbia in a Motion to Dis111iss. In addition, this issue was also not raised in the Answer filed with the RTC. Thus, the City of Manila is estopped from raising this issue in this Court.

The Coutt agrees with Columbia that Manila waived the right to raise the issue of lack of capacity to sue, having mad~ the same ior the first time in their Memorandum in the trial court.

FlFTH ISSUE

whether the correction made by the RTC on the dispositive portion of its decision was correct Manila contends that the RTC committed grave abuse of discretion when it granted Columbia's Motion to Amend Decision without explaining the reason therefor.

Sedivn 5 of Rule 135 ofthe Rules vfCvurt enumerates the inl1erent powers of courts, one of which is to amend and control its processes and orders as to make them conformable to law and justice.

Here, the dispositive portion of the original decision of the RTC issued on November 8, 2006, states:

CTA AC No. 29

"WHEREF01lli, premises considered, the Court herL:by orders the DISMISSAL of this petition. The respomlent is herc:by directed to refund or credit the amount of P4, 722,672.68 representing the business tax paid under Sec. 21 of the Revenue Code for the period 1999, 2000 and 200 l. Without pronouncement as to costs.

111 the Motion for Clarification and/or

Amendment of Decision filed by Columbia.

Accordingly, the instant

Petition

Jor

Review

ts

PARTIALLY

GRANTED.

The Regional Trial Court decision granting the refund and restraining the City of Manila Jl·om further collecting taxes from Columbia under Seclion 21 of the Manila Revenue Code is hereby AFFIRMED WITH MODIFICATION.

CTA AC No. 29

'j l1e City of Manilu is UlW~H . .ED lo rdunJ Columbia the reduced amou11L

of TWO MILLION EiGHT HUNDRED NINETY THREE THOUSAND

FOUR HUNDRED TWENTY THREE PESOS & 28/100 (P2,893,423.28), representing the amount of additional business taxes it had paid under Section 21 of the Manila Reveuue Code for the years 2000 to 2001. The rest of the arnouut claimed is DENIED for having been barred by prescription.

CERTU'ICATION

~~-c~ ERNESTO D. ACOSTA

Presiding Justice

CAESAR A. CASANOVA

Associate Justice

Pursuant to Section 13, Article Vlll of the Constitution, it is hereby certified that the conclusions in the above Decision were reached in consultation before the case was assigned to the writer of the opinion of the Court's Division.

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Library

Presiding Justice