Uniliver Philippines, Inc. vs. The Treasurer of the City of Manila

DECISION

ACOSTA, PJ. :

Before Us JS an upp~a l by Petition for Review from the Decision of the Regional Trial Court of Man ila dated May 25, 2007, dismissing petnioner's Petition for Refund, and the August 31, 2007 Order denying petitioner's Motion for Reconsideration.

Petitioner, Unilever Philippines, Inc., is a domestic corporation duly organized under the laws of the Phili ppines with principal office address at 135 1 United Nations A venue, Manila.

Respondent is the I reasurer of the City of Manila (City), and is being sued in such capacity, tasked WJt!J Lhc implementation of the Manila Revenue Code, as amended, as well as the colkction and assessment of business taxes, license tees, and

C.T.A. A.C. No. 41 permit fees within the Uty.

Respondent may be served with summons and other court processes through the City Legal Ofticer of Manila at Manila City Hall. On January 20, 2UOJ, pdi tioner paid taxes under both Sections 14 and 2 1 of the Manila Revenue Code (fviRC), as amended, corresponding to the first quarter of 2003.

Section 14 of

th~ lVI RC, as amended, tmposes tax on manufacturers, assemblers and other pro ces~ors, while Section 21 thereof deals with tax on business subject to the excise, valu~-aJded or percentage taxes under the National Internal Revenue Code (NIRC) of llJlJ7.

On January 5, 20lb, petitioner filed a letter' claiming lo r the refund of Pl3,724,446.00, reprcscnti11g business taxes paid under Section 2 1 or the MRC, as amended.2 Petitioner asserts that it is not questioning the validity or Section 21 of the said MRC; nonetheless, being taxed under both Sections 14 and 2 1 of the same Code constitutes double taxation prohibited by law.

For failure of respondent to act on petitioner's claim for refund, petitioner filed a Petition for Ref'und beliJre the Regional Trial Court (RTC) of Manila on January 19, 2005. 3 On th ~ other hand, respondent filed her Answer on May 17, 2005.4 During the pre-trial con ference, it was agreed upon that the sole issue to be resolved by the RTC is whether petitioner is entitled to a refund or business taxes paid under Section 21 of the fvl P ', as amended, for the first quarter of 200.J . The fact of payment, the claim for reJund, the denial of the claim, and the capacity of petitioner to sue and be sued were all admitted.5

C.T.A. A.C. No. 41

On May 25, 200 7, ll1e RTC rendered a Decision dismissing petitioner's claim for refund. The Decision partly reads as follows:

"It is evident that the enforcement of Section 2 1 of Manila's Revenue Code against Unilevcr does not constitute double taxation in view of the taxes collected by the City of Manila under Section 14 of the same Code. Scc.:tion 2 1 is not a tax on the business per se; rather, it is a tax on persons avwling or the goods and services of the business. Upon cardul examination of the Revenue Code of Manila, it will be deduced that Section 2 1 imposes indirect tax upon end users of the goods and service:, of the manufacturing business of Unilever. The tax under Section 2 ts in the concept of an indirect tax in view of the modifying paragraph ·the tax shall be payable by the person paying for the services rendered and shall be paid to the person rendering the services rendered and shall be paid to the person rendering the services who is required to col kcL and pay the tax within twenty (20) days aJler the end of each qu<t¹ ter. '

XXX

XXX

XXX

The tax imposed upon plaintiffunder Section 14 is a tax on the manufacturing business. It is a direct tax which is demanded from plaintiff, burdem:d to pay the same, in contrast to Section 21 which is in the concept of an indirect tax.

XXX

XXX

XXX

In short, there is no double taxation, si nce there is an absence on the element oftax1ng twice on the same activity or subject mauer." Petitioner filed a Motion for Reconsideration on January 19, 2007 but was denied by the RTC in an Order dated August 31, 2007. 6 Hence, the instant Petition for Review being filed on October I 0, 2007 praying that We:

1. Give due course to the Petition;

2. After due consideration, render judgment reversing and setting aside the May 25, Decision and the August 31, 2007 Order or the Regional Trial 'oun ami:

6 Annex "B" of the Petition tor Revww .

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C.T.A. A.C. No. 41

(a.) U.:dw111g Lllilt petitioner is not liable lor bus m ~ s s taxes under Section 21 of the MRC having alrew..ly paid business taxes under Section 14 thereof; and (b.) Rdt111dmg to petitioner taxes paid thereunder Cor the first quarter of the year 2003 in the amount of p 13, 72 -~ , 446. 00.

The instant Petition raised the sole ground:

The enforcement of Section 21 of the City of Manila's Revenue Code agai 1st petitioner constitutes double < xation prohibited by law in view of taxes collected by the City and paid by petitioner undet· Sectio 4 of the Revenue Code. Thus, U e taxes collected by respondet t being claimed in the proceedings a <JUO in the amount of P13,72..t,446.00 should be immediately refunded. In a Resolution d a t~d November 14, 2007, respondent was ordered to file a Comment to the instant Peti tion fo r Review. However, respondent failed to file the same. On January 15, 200H, the instant Petition for Review was given due course sans respondent's Comment. Tht: parties were likewise ordered to file their respective Memoranda.

Respondent and petitioner filed their Memoranda on February 2 1, 2008 and February 22,2008 7, respectively.

The case was submilted for Decision in a Resolution dated March 17, 2008. Petitioner maintains that Section 14 of the MRC, as amended, takes root in Section 143(a) of the Local Govermnent Code of 1991 (LGC), and Section 2 1 of the MRC, as amended, finds basis in Section 143(h) of the LGC. It claims that the City may impose taxes on business subject to the excise, value-added and percentage taxes, as allowed in Section 143(h) or the LGC. But the City cannot impose the same tax on a business already subject to taxes under Section 143(a) of the LGC. This is clearly expressed in Section 143(h) in the proviso, "not otherwise specified in the preceding 7 Posted on February 18, 2008.

C.T.A. A.C. No. 41 paragraphs." Applied to tl1~ 1\tii<.C, as amended, the City camwt enlorce Section 21 over businesses already subJ~cl to business taxes under Section 14. Petitioner further av(;rs that it is a manufacturer paying local ta>..es pursuant to Section 14, thus, the same sale of manufactured goods can no longer be subject to business tax tmder Sectiu11 21.

Doing so constitutes a direct double taxation prohibited by law, as it violates the uniformity rule in taxation and equal protection. For her part, respondent argues in her Memorandum that there is no direct double taxation. On the busis or the phrase "the tax shall be payable by the person paying for the services 1 enJered and shall be paid to the person rendering the services who is required to r.:ollet.:l and pay the taxes xxxx" found in Section 21 of the MRC, as amended, the tax in1posecl is in the concept of indirect tax upon end-users of the goods and services of the business, not the establishment itself. The tax imposed under Section 21 has alreaJy been collected by petitioner (the payor) from the end users (the payee) the sat 1c having been added by petitioner to the basic prices of its goods or services. And, petitioner is merely a withholding agent, charged with the obligation to remit the tax collected to the City.

Respondent continues tl1at Section 14, on the other hand, im poses tax on the business itself. Thereiore, there are in esse two (²) objects of taxation in the dual facet of petitioner's business operations. There is no taxation on the same property or object by the same taxing aut! ority, and the imposition under Sectiot s 14 and 21 are not of the same kind and dwracter, to infringe upon the constitutional injunction against double taxation.

We find the insLant Peltlion for Review meri torious.

Foremo~l, the power of the City of Manila to impose business tax finds basis in Section 143 of the LGC in relation to Section 15] 0 r Llle same Code, viz:

"SECTION 151. Scope of Taxing Powers. -

Except as

otherwise provided in this Code, the city, may levy taxes, fees, and charges which the prov11tcc or municipality may impose: xxx . fl ::- J. ~ ,)

C.T.A. A.C. No. 41

SEC'llUN I -'1:\. Tax on Uusiness. - The municipallly may impose taxes on the tollowing businesses:

(a) On mWil!/uc.:t urers, assemblers, repackers, proce . ..,-sors, brewers, distillers, ret:t!fiers, and compounders of liquors, distilled spirits, and wine::, ur 11/alll!/acturers of any article of commerce of whatever kind or Jumtre, 111 accordance with the following schedule:

XXX

XXX

XXX

(b) On wholesalers, distributors, or dealers in any article of commerce of whatt::ver ki11d or nature in accordance with the lollowing schedule:

XXX

XXX

XXX

(c) On exponers, and on manufacturers, millers, producers, wholesalers, distnbulors, dealers or retailers of essential commodities enwnerated hereunder at a rate not exceeding one-half (I /2) o f" the rates prescribed under subsections (a), (b) and (d) of this Section:

XXX

XXX

XXX

(d) On reta1lets;

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XXX

(e) On contractors and other independent contractors, m accordance with the Jollowing schedule;

XXX

XXX

XXX

(f) On banks ami other Jinancial institutions, at a ra te not exceeding fifty percent (50%) of one percent (1 %) on the gross receipts of the preceding calendar year derived from interest, commissions and discoun ts from lending activities, income ii·om financial leasing, diviJends, rentals on property, insurance premium.

(g) On peddlers engaged in the sale of any merchandise or article of commerce, at a rate not exceeding Fifty pesos (PSO.<lO) per peddler annually.

(h) On any business, not otherwise ::,pecified in the preceding paragraphs, which the sanggunian concerned may deem proper to tax: Provided, That 011 uny business su~jec t to the excise, value-added or percentage Lax t111der the National internal Revenue Code, as amended, the rate uj tux shall not exceed two percent (2%) uf gross sales or receipts 1~/ the pre~.:eding calendar year .

.10 6

C.T.A. A.C. No. 41

The swtggwlWll concerned may pn.:scribe a ~clh~dule or graduated tax rates L>ut in no case to exceed the rates prescribed herein." (Emphasis supplied.)

The aforequoteJ ~ed iun 143 enumerates the entities subject to business tax. Sub-section (h) is unclcrsluud to be a ''catch-all" provision as indicated on the phrase "any business." The pltra::>e, howe er, is qualified by the proviso "11ol otherwise specified in the preceding paragraphs." It means that any business nol mentioned in the preceding paragraphs, thai is, sub-sections ·'a" to "g", can be taxed under sub- section (h). Verily, the intent is to authorize Local Governments to impose business tax under either one of the sub-sections but not under both or all, ultimately to avoid taxing the same entity lor the ~a me business tax. The provision is clear and leaves no room for more interpretation.

It should be applied as it is, pursuant to the longstanding rule in statutory construction that if a statute is clear, plain, and free from ambiguity, it must be given its literal meaning and applied without allempted interpretation. 8 On the basis of Sections 15 1 and 143 of the LGC, the Mani Ia Revenue Code (MRC) was enacted and became effective on July 1, 1993. The MRC was later on amended on September 30, I <J9J through Ordinance No. 7807.9 The following are the pertinent provisions, pari I y quoted:

"Section 1.-J.. 1'a.,-..: on Mamifacturers, Assemblers and Other Processors.

- 'l here is hereby imposed a graduated tax on manufacturers, assel11blers, repackers, processors, brewers, distillers, rectifiers and compounders of liquors, distilled spirits, and wines or manufacturers of any article of commerce of whatever kind or nature, in accordance with the lullowing schedule: xxx Section 21.

'J'ux on Business Subject to the Lxcise, T'ufue- Added or Percenwge 1 axes Under !he NJRC. - On any of the following businesses and articles of commerce subject to the excise, value-added or percentage taxes under the National Internal Reven ue Code hereinafter relet reu to as NIRC, as amended, a tax of fifty percent (50%) of one percent (l %) per annum on the gross sales or receipts of the precedmg calendar is hereby imposed:

8 Huertas vs. Gonzalez, G.R. No. 1)2443, 1-'cbruary 14,2005 9 Further amendments were inlr\.>du\:cd by Ordinance No. 7988. However, Ordinance Nos. 7988 was declared null and void by the ~upr erne Court in the case of Coca-Cola Bottlers !'hils. vs. City of Manila, 493 SCRA 279 (2006).

£~ ; n ·1

C.T.A. A.C. No. 41

A)

Un persons who sell goods and services in th~ course of trade of bu::.H1ess, and those who import goods whether tor business or ulllerw ise, as provided for in sections 100 to 103 of the Nll C as administered and determined by the Bureau of Internal Revenue pursuant to the pertinent provisions of the said code.

B)

On the gross receipts of keepers of garages, cars lor rent or hire dn vert l)y the lessee, transportation contractor!'>, persons who lran::.pun passengers or freight for hire, and common caniers land, air or water, except owners of bancas and owners of animal-drawn two-wheel vehicle.

C)

On the amount paid on every overseas dispatch, message 01 conversation transmitted from the Philippines by telephone, t~legraph, telewriter exchange, wireless and other communication eq uipment services, except amounts paid by the govenUlwut, ib pulitical subdivisions or instrumL:n ahties; diplomatic servrces; public international organizations or any or their agenci(.;s baseJ in the Philippines; and news services. The tax shall be payable by the person paying lor the services rendered and shall be paid to the person rendering the services whu is required to collect and pay the tax within twenty (20) days a!'ter the end of each quarter."

A reading of the above shows, that Sections 14 and 21 are based trom Section 143(a) and (h) of the LGC, rL:spectively. Being so, Sections 14 and 2 I should be interpreted in relation to Section 143 of the LGC.

For the assumption is that whenever a law is enacted, the lawmakers has in mind the previous statutes relating to the same subject matter, and 111 the absence of express repeal or amendment, the new statute is enacted in accord with the legislative policy embodied in those prior statutes. 10 Appropriately, the rntcnt behind Section 143 of taxing a subject entity of business tax once should likewise be applied in understanding and applying Sections 14 and 21 of the MRC, as amended. ln other words, a subject entity held liable under Section 14 ofthe MRC, as alllt:IH.kd, is debarred from being taxed under Section 21 of the same Code and vice-versa.

we orona vs. Court of Appeals . £' ......

C.T.A. A.C. No. 41

Petitioner is bL:Illg llldd~ liable or bu~i ness tax under s ·ction 14 as a manufacturer. A "nwnujixturer" is deilned in Section 131(o) of the LGC as that which "includes eve1y person ll1ho, by physical or chemical process, alters the exterior texture or form or til Iter substance of any raw material or mum!fuctured or partially manufactured product in such manner as to prepare it for special use or uses to which it would not huw been put in its original condition, or ·who by tmy process, alters the quality of any such mw material or mcmt!factured or partially manufactured products so as to redw.:e If to u marketable shape or prepare it for any of' the use in the industry, or who by any process, combines any such raw material or manufactured or partially llllllll!/actured products with other materials or products of the same or different kinds uml in such manner that the finished products of such process or manufacture cwt be put to a .special use or uses to ·which such raw material or mamifauured or partially manufactured products in their original condition could not have bet!n put ancl who in addition, alters such mw material or manufactured or partwfly tJUIIIt!factured products or combines the same to produce such finished products }or the purpose of their sale or distribution to others and not for his own use or consumptto11." Simpl·y put, a manufacturer sells its goods for a fee. Petitioner is again taxed under Section 21 (A) of the MRC, as amended, for being a business subject to '"excise, value-added, and percentage tax" which sells goods in the course of trade or business.

Apparently, petitioner is being taxed twice of the same business tax for selling its goods in the course or its business. Such form of taxation is contrary to the policy of Section 143 of the LGC and consequently, to that of Sections 14 and 21 of the MRC, as amended.

Moreover, the phrase "on any business subject to excise, value-added or percentage tax under the Nutumal internal Revenue Code" in Section 143(h) of the LGC merely qualifies or l11nits the rate of lax to be imposed on businesses already subject to excise, value-uddt:d or percentage tax under the NIRC of 1997, and does not authorize Local Governments to impose business tax upon an entity already

C.T.A. A.C. No. 41 subject to the same ta.'. u 11 Ill(.; mere ground that such entity is subJI.!ct to ''excise, value-added or p erceJlluJ:;r..: tu.A wuler the National internal Revenue Code." The next question to tote is whether there is a case of double taxation, and in case there is, whether it is a prohibited double taxation. The answer is in the alfirmative. Double taxation is defined as taxing the same property twice when it should be taxed but once. It has also been defined as taxing the same person twice by the same jurisdiction over the same thing. 11 In general, it is not forbiddt.:n by our fundamental law, since We have no adopted as part thereof the injunction against double taxation found in the Constitution of the United States. Double taxation becon es 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. 12 Explicated in another way, double taxation in its obnoxious or prohibited sense is described as ''direu duplicate taxation," the two taxes must be imposed on the same subject matter, lor the same purpose, by the same taxing authority, within the same jurisdiction, during the same laxing period; and they must be the same kind or character.

13 It is direct dupl icate taxation that is not allowed in our jurisdiction for being violative of the equal protection clause. 14 Based on the foregoing, double taxation JS prohibited when the fo llowing elements are present:

a.

Being taxed twice when it should be taxed only once;

b. both taxes are imposed on the same property or subject matter;

c. for the same purpose;

d. by the same state, liovernment, or taxing authority;

e. within the same jurisdiction or taxing district; f.

during the same the same taxing period; and

g. covering the same ki nd or character of tax. 11 Victorias Milling Co. vs. Mun icipality of Victorias, Negros Occidental, L-2 11 83, September 27, 1968 12 Pepsi-Cola Bottling Co. vs. Muuicipality of Tanauan, Leyte, 69 SCRA 460 13 Commissioner of Internal Revenue vs. Solidbank Corp., G.R. No. 14819, November 25, 2003 14 Constitutional Law by Justice b c~gun i Cruz, 1998 Edition, page 90 t kt___

C.T.A. A.C. No. 41

Applying the aloreclleu d~ mition and doctrines, petitioner Is being taxed under Sections 14 and 2 1(A) of the MRC, as amended, for the same ki nd of tax, that is, business tax; by the 'ity of Manila, being the same taxing authori ty; within the same taxing district of the City of Manila; for the same period of the 1irst quarter of 2003; and for the same reason of regulating busi ness within the City. This is a clear example of direct duplicate taxation.

In addition, We lind erroneous, respondent's argument that there is no double taxation on the ground that Section 21 of the MRC, as amended, is not a direct tax on the petitioner but to its customers in view of the modifying proviso therein, which state that "the tax shall be payable by the person paying for the services rendered and shall be paid to the person re11dering the services who is required tv ~:olleu and pay the tax within twenty (20) duys i(/ier end ofeach quarter." Consequently, Section 14 of the MRC, as amended, being a direct tax on the business, and Section 2 1 of the same Code, an indirect tax, there are two taxes of different kinds or characters. Under the doctrine ol last antecedent, qualifYing words restricl vr modifY only the words or phrases tv 111hidz they are immediately associated. They do nut qualifY words or phrases which are di.•;twztly or remotely located. 15 In line with this doctri11e, We construe that the plu·ase: '·the tax shall be payable by the person jJ(iylilg jar the services rendered and shall be paid to the person rendering the servi~:es who is required to cvllect and pay the tax within twenty

(20) days after end ofeudz quarter" of Section 2 1 of the MRC, as amended, applies only to subparagraph (C), being the paragraph to which the subject qualifying/modifying phrase are immediately associated. The doctrine or last a1ttecedent _is subject to the exception 1ha1, where the intention of the law is tv apply the phrase to all antecedents embraced in the provision, the same should be made extensive to the whole. 16 The exception, however, failed to apply in this case. A perusal of Section 21 reveals that there is no ::Statutory Construction by Ruben Agpalo, 5'h Ed., 2003, page 232 Supra, page 234 .

..

,fl

C.T.A. A.C. No. 41 legislative intent to appl y ll! ~ qualirying phrase to the whole provision. Thus, it is incoherent for respondent to ~xtend the applicability of the qualiJying plu·ase under Section 21(C) to subparagraph (A) in order to justify a plain case or direct duplicate taxation.

Furthermore, rl:::,ptmdent' s interpretation of Section 21 o t' the MRC, as amended, that what is betng taxed is not the business itself but the ''purchasing power" of the person paying for the services finds no basis in law. Sc:ction 21 is beyond doubt a business tax on entities subject to excise, value-added or percentage tax, and not on the "pun.:IIustJJg power" of the buyer, which is not a business pursuit. This is patent from a reading of Section 21. Also, it is worthwhile to reiterate that Section 21 is merely rooted on Section 143(h) of the LGC, and Section 143(h) is clear that it is a tax on the business itself Likewise, it is signi licant to stress at this juncture, that the NIRC of 1997 contains a counterpart provision, to wit:

"SEC.

120. Tax on Overseas Dispatch, Message or Conversation Origi• ati tg from the Philippines.- (A) Persons Liable. - There shall be collected upon every overseas dispatch, 1 1essage, or conversation transmit1ed fi·om the Philippines by telephone, telegraph, telewriter exchange, wireless and other communication equipment services, a tax of ten percent (1 U%) on the amount paid Jor such services. The tax imposed in this Section shall be payable by the person paying for the services rendered and shall be paid to the person rendering the services who is required to collect and pay the lax within twenty (20) days after the end of each quarter.

(B) Excmplitms. - The tax imposed by this Section shall not apply to:

(I) Gov enu1l~Ill xxx

(2) Diplomatic Services xxx

(³) International Urganizations xxx

(⁴) News ~crvtces xxx." The similarities between Section 120 of the NIRC of 1997, and Section 2l(C) ofthe MRC, as amended, an~ utunistakable. Both sections deals with tax on overseas . .

C.T.A. A.C. No. 41 dispatch, message or cunv ~r::. at1un transmitted {i·om the Philippines by telephone, telegraph, telewriter exchull g~, wireless and other communication e4uipment services; both exempted similar entiti~s from the tax, and both taxes are payable by the end users.

It is a well established rule that a statute should be so construed not only to be consistent with itself but ulso to harmonize with other laws on the same subject matter, as to form a complde, coherent and intelligent system. The rule is expressed in the maxim, inle!pretun: et cvncorcJare leges legibus est optimus interpretandi modus, or every statute must be so construed and harmonized with other statutes as to form a unifom1 system ol j wlsprudence. 17 Stated differently, every statute should be so construed in such way that will harmonize it with existing laws. To interpret and do it in such a way as to harmonize laws with laws is the best method of interpretation. 18 Guided by the abovunentioned rule, it is appropriate to comprehend that the phrase "the tax shall be puyuble hy the person paying for the services rendered and shall be paid to the person re11dering services who is required to cof!ect and pay the tax within twenty (20) duys (!/fer the end of each quarter" applies only to Section 21 (C) of the MRC, as amenckd, just so to harmonize the said section with Section 120 of the NIRC of 1997.

For all the foregoing, since petitioner is already taxed under Section 14 of the MRC, as amended, it should no longer be held liable for the same lax under Section 21(A) thereof.

WHEREFORE, the instant Petition for Review is hereby <..;RANTED and the appealed Decision duted May 25, 2007, and the Order dated August 31, 2007 are REVERSED.

17 Supra, page 268 18 Sps. Antonio and Lorenc i1a Alglllcl vs. LGU of The City of Manila, et al, G.R. No. 150135, October 30,2006 1 •)

C.T.A. A.C. No. 41

Accordingly, re::,po~tdcnl, I reasurcr of tlw City or ivlwula, is hereby ORDERED TO REFUND to petitioner, Unilever Philippines, Jnc., the total amount of P13,724,446.00 repre::,enLing petitioner's erroneously paid local business taxes for the first quarter of taxabk year 2003.

CERTIFICATION

Q~ \o. ~ ERNES'l 0 D. ACOSTA

Presidmg Justice

CAESAR A. CASANOVA

Associate Justice

Pursuant to Section 13, Article Vlll of the Constitution, it is hereby ce1iified that the conclusions in tht: above Decision were reached in consultation before the case was assigned to the wnter ol the opinion of the Court's Division. r ~~ .c~ ERNESTO L>. A COST A

Presiding Justice

Court of Tax Appeals

Library

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