San Miguel Corporation v. Municipal Council
REITERATIONFacts
The Antecedents: The Municipality of Mandaue enacted Ordinance No. 23, series of 1966, as amended by Ordinance No. 25, series of 1967, imposing a graduated quarterly fixed tax on proprietors or operators of breweries, based on the gross value or actual market value at the time of removal of manufactured articles from their factories. San Miguel Corporation (SMC), a brewery with a plant in Mandaue, paid these taxes under protest, calculating them based on the number of cases of beer removed from the factory multiplied by the prevailing market price per case. Procedural History: SMC filed an action in the Court of First Instance of Cebu seeking the annulment of the ordinance, contending it was beyond the municipality's power to enact. The CFI upheld the ordinance's validity. The Petition: SMC elevated the case to the Supreme Court via a petition for writ of certiorari, arguing that the ordinance imposed a tax based on sales, which is prohibited for municipalities under Republic Act No. 2264.
Issue(s)
Whether Ordinance No. 23, as amended, of the Municipality of Mandaue, imposing a graduated quarterly fixed tax based on the gross value or actual market value at the time of removal of manufactured articles, constitutes a prohibited tax on sales. Whether the conversion of Mandaue into a city rendered the appeal moot.
Ruling
The Supreme Court reversed the decision of the Court of First Instance, declaring Ordinance No. 23, series of 1966, as amended by Ordinance No. 25, series of 1967, of the Municipality of Mandaue, Cebu, null and void. The Court ordered the refund of taxes paid by Petitioner under the said ordinance, with legal interest.
Ratio Decidendi
On the issue of whether the ordinance constitutes a prohibited tax on sales: The Court held that the ordinance, by basing the tax on the "gross value in money or actual market value" at the time of removal of manufactured articles, effectively imposed a tax on sales. The Court reasoned that "gross value in money" and "actual market value" in tax statutes are understood to mean "gross selling price." Although the tax was imposed at the time of removal from the factory, this was deemed inconsequential because the nature of SMC's business compelled it to sell the manufactured beer. The Court noted the direct correlation between the tax amount and the volume of sales, citing the graduated schedule where an excess over a certain value incurred a tax measured by a percentage of sales. This demonstrated a clear intent to impose a tax based on sales, which is prohibited for municipalities under Section 2 of Republic Act No. 2264. The Court reiterated the principle that municipal corporations must not transcend the limitations imposed by the statute under which they exercise their taxing power. On the issue of mootness due to Mandaue's conversion into a city: The Court rejected the respondents' claim that the appeal had become moot. Citing previous rulings in City of Naga v. Court of Appeals and Laoag Producers' Cooperative Marketing Association, Inc. v. Municipality of Laoag, the Court held that the legality of an ordinance is determined by the power of the municipality at the time of its enactment. Since the Municipality of Mandaue lacked the authority to enact the ordinance when it was passed, the subsequent conversion into a city did not cure the original infirmity. The Court found no provision in the law that granted a curative effect to ordinances that were beyond the municipality's statutory authority at the time of their passage.
Main Doctrine
An ordinance imposing 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 their factories is considered a tax on sales, and therefore beyond the authority of a municipality to enact under Republic Act No. 2264, which prohibits municipalities from imposing any percentage tax on sales or other taxes in any form based thereon.