Batangas City, Ma.

Teresa Geron vs Pilipinas Shell Petroleum Corp, GR 187631,

July 8, 2015,

Facts: Petitioner Batangas City is a local government unit (LGU) with the capacity to sue
and be sued under its Charter and Section 22(a)(2) of the Local Government Code (LGC)
of 1991. Respondent Pilipinas Shell Petroleum Corporation operates an oil refinery and
depot in Tabagao, Batangas City, which manufactures and produces petroleum products
that are distributed nationwide.

In 2002, Respondent company was only paying an amount of P98, 964.71 inclusive of
P1,180.34 for Mayors Permit fees and other charges. Petitioner, sent a notice of
assessment to respondent demanding the payment of P92,373,720.50 and
P312,656,253.04 for business taxes for manufacture and distribution of petroleum
products as well as an assessment P4,299,851.00 for Mayors Permit fee based on its
gross sales in Tabago refinery. The assessments made by the petitioner were allegedly
in pursuant to Section 134 of the LGC and Section 23 of the Batangas Tax Code.

Respondent filed a protest contending that it is not liable for the payment of local business
taxes for the manufacture and distribution of petroleum products and the amount imposed
as a fee for Mayors Permit were arbitrary and unreasonable. The Regional Trial Court of
Batangas denied their protest. The Court of Tax Appeals grant their petition stating that
respondent company is not liable.

Issue: Whether or not an LGU is empowered under the LGC to impose business taxes
on persons or entities engaged in the business of manufacturing and distribution of
petroleum products?

Held: No, the inherent power of the State to tax is not encompassing for LGUs because
Section 5, Article X of the 1987 Constitution states that LGUs power to levy taxes is
subject to limitations as the Congress may provide. Consequently, Section 133 of the
LGC provides for the Common Limitations on the Taxing power of LGC, Section 133(h)
clearly specifies the two kinds of taxes which cannot be imposed by LGUs: (1) excise
taxes on articles enumerated under the NIRC, as amended; and (2) taxes, fees or charges
on petroleum products. Hence, although LGUs are empowered to create its own sources
of revenues and to levy taxes, the same is not absolute for the law explicitly provides for
limitations.