Province of Misamis Oriental v. Cagayan Electric Power and Light Company, Inc.
REITERATIONFacts
The Antecedents: The Province of Misamis Oriental sought to collect a provincial franchise tax from Cagayan Electric Power and Light Company, Inc. (CEPALCO) based on Provincial Revenue Ordinance No. 19, enacted pursuant to Section 9 of the Local Tax Code (P.D. No. 231). CEPALCO, whose franchise (Republic Acts Nos. 3247, 3570, and 6020) expressly provided that the payment of a three percentum (3%) franchise tax on gross earnings shall be in lieu of all taxes and assessments of whatever authority upon privileges, earnings, income, franchise, and poles, wires, transformers, and insulators, refused to pay, asserting its exemption. Procedural History: CEPALCO paid the tax under protest and appealed the Provincial Fiscal's ruling to the Secretary of Justice, who reversed the fiscal's opinion in favor of CEPALCO. The Secretary of Finance adopted this opinion in Local Tax Regulation No. 3-75. The Province then filed a complaint for declaratory relief in the Court of First Instance of Misamis Oriental, praying that P.D. No. 231 be construed to have amended CEPALCO's franchise. The Court of First Instance dismissed the complaint and ordered the Province to refund the tax paid under protest. The Petition: The Province appealed to the Supreme Court, alleging that the lower court erred in holding that CEPALCO's tax exemption was not amended or repealed by P.D. No. 231, that the imposition of the provincial franchise tax would subvert P.D. No. 231's purpose, that CEPALCO is exempt, and that the refund should be made.
Issue(s)
Whether CEPALCO's tax exemption under Section 3 of Republic Act No. 6020 was amended or repealed by P.D. No. 231. Whether the imposition of the provincial franchise tax on CEPALCO would subvert the purpose of P.D. No. 231. Whether CEPALCO is exempt from paying the provincial franchise tax. Whether the Province should refund CEPALCO's tax payment of P4,276.28.
Ruling
The Supreme Court affirmed the decision of the Court of First Instance, denying the petition for review. The Court held that CEPALCO is exempt from the provincial franchise tax.
Ratio Decidendi
On whether CEPALCO's tax exemption was amended or repealed by P.D. No. 231: The Court held that there is no provision in P.D. No. 231 that expressly or impliedly amends or repeals Section 3 of R.A. No. 6020. The rule is that a special and local statute is not repealed by a later statute that is general in its terms, provisions, and application, unless there is a manifest intent to repeal or alter the special law.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. 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 Court reiterated that the perceived repugnancy between the two statutes must be very clear before the prior one can be held repealed by the later, especially in the absence of an express provision. On whether the imposition of the provincial franchise tax would subvert P.D. No. 231's purpose: The Court found no merit in this argument. The primary issue was the interpretation of the existing franchise and the Local Tax Code, not the subversion of the latter's purpose. The Court's focus was on whether the Local Tax Code, despite its general nature, could override the specific exemption granted in CEPALCO's franchise. The Court's analysis centered on the principle of statutory construction regarding special versus general laws and the concept of contractual impairment. On whether CEPALCO is exempt from paying the provincial franchise tax: The Court unequivocally ruled that CEPALCO is exempt. The franchise of respondent CEPALCO expressly exempts it from payment of "all taxes of whatever authority" except the three percentum (3%) tax on its gross earnings. The Court cited numerous precedents where similar "in lieu of all taxes" clauses in franchises were held to exempt the grantees from other taxes, including corporate franchise taxes. These clauses are considered part of the inducement for accepting the franchise and rendering public service. Imposing another franchise tax would constitute an impairment of the contract between the government and the corporation. On whether the Province should refund CEPALCO's tax payment: Since the Court affirmed that CEPALCO is exempt from the provincial franchise tax, the payment made under protest was deemed illegal. Therefore, the Court upheld the lower court's order for the Province to return the sum of P4,276.28 paid by CEPALCO under protest. This aligns with the principle that taxes paid erroneously or illegally may be recovered by the taxpayer.
Main Doctrine
A provincial franchise tax cannot be imposed on a company whose franchise expressly exempts it from all taxes, except the franchise tax stipulated therein, as such imposition would constitute an impairment of the contract between the government and the grantee, and special laws granting franchises are not repealed by general tax laws unless there is a manifest intent to repeal.