City Government of San Pablo, Laguna v.

Reyes

Petition under Rule 45 of the Rules of Court to review the decision of the RTC of San Pablo City which
declared the imposition of the franchise tax under Sec. 20.9 Article D if Ordinance 56 also known as the
Revenue Code of San Pablo as ineffective and void insofar as MERALCO is concerned for violating Act.
3468, RA 2340 and PD 551 and for granting the MERALCO’s claim for refund of the paid franchise tax.

FACTS:

 The Escudero Electric services was granted franchise to maintain and operate electric light and
power system in the city of San Pablo through RA 3648.
 The Escudero franchise was transferred to MERALCO under RA 2340.
 MERALCO, was granted franchise tax exemption through the enactment of PD 551 which states
that:
o Any provision of law or local ordinance to the contrary notwithstanding, the franchise
tax payable by all grantees of franchise to generate, distribute and sell electric current
for light, heat and power shall be two percent (2%) of their gross receipts received from
the sale of electric current and from transactions incident to the generation, distribution
and sale of electric current.
 RA 7160 or the Local Government Code was enacted, and in pursuant to this the Sangguniang
Panglunsod of San Pablo City enacted Ordinance 56 or the Revenue Code of City of San Pablo.
o Under Sec. 20.9 Article D of the ordinance, it imposed a tax on businesses granted with
franchise at a rate of 50% of 1% of the gross annual receipts which shall include both
cash sales and sales on account realized during the preceding calendar year.
 Pursuant to the Ordinance, the city treasure sent MERALCO a letter demanding payment of the
franchise tax, and MERALCO paid under protest the franchise tax amounting to more or less Php
1.8 milllion.
 MERALCO filed an action to declared Ordinance 56 null and void and asked for a refund.
o RTC ruled in favour of MERALCO, rule that the LGC did not expressly or impliedly repeal
the tax exemption/incentive under its charter.
 Petitioners, the City Government of San Pablo filed a petition with this court raising the
following grounds:
o Jdge erred in holding that Act 2468, RA 2340 and PD 551, in so far as they grant tax
incentives, privilieges, and immunities have not been repealed by RA 7160.
o Judge erred in ruling that Sec. 193 RA 7610 has not withdrawn the tax incentives,
privileges, and immunities involved.
o Judge erred in holding that the franchise tax in question constitutes an impairment of
the contract between respondents and
 Petioners: argued that the LGC expressly repealed Act. 3648, RA 2340 and PD 551 purusuant to
the provisions of Sec 137 and 183 of the LGC which gave local governments has the power to
impose a franchise tax.
 ISSUE: W/N the City of San Pablo may impose a local franchise tax pursuant to the LGC upon
MERALCO which pays a tax equal to two percent of its gross receipts in lieu of all taxes and
assessment of whatever nature imposed by any national or local authority – YES

 Sec. 534(f) Repealing clause, provides that all general and special laws, acts, city charters,
decrees, Eos proclamations and admin regulations which are inconsistent with any of the
provision o the Code are repealed or modified accordingly. – NOT AN EXPRESS REPEAL
o Implied Repeal - General law cannot be construed to have repealed a special law by
mere implication unless the intent to repeal or alter is manifest.
 The petitioners correctly relied on the Sec. 137 and 193 of the LGC to support their
argument that MERALCO’s tax exemption has been withdrawn.
 Sec. 137 – gives the local govt the authority to impose franchise tax is all encompassing and
clear.
 Sec. 193 – Under this statute tax exemptions or incentives granted by all persons EXCEPT 1)
local water districts 2) cooperatives duly registered under RA 6938 and 3) non stock and
non-profit hospitals and educational insti, are withdrawn upon the effectivity of this code.
o Limit exemption to those three that is enumerated. “expression unius est exclusion
alterius” – or that the express mention of one person,thing, act or consequences
excludes all others.
 Language of both provision (Sec. 137 and 193) is explicit, all-encompassing and clear.
o Legislative purpose to withdraw tax privileges, clearly not manifested by the
language uses in both sections
o It can be concluded that under the local government unit may now impose a local
tax at a rate not exceeding 50% of 1% of the gross annual receipts.
 “shall be in lieu of all taxes” phrase has been held in various cases to exempt the franchise
holder from payment of tax. Thus, the mentioned phrase have to give way to the
peremptory language of the LGC specifically providing for the withdrawal of such exemption
privileges.

PETITION GRANTED. DECISION OF RTC OF SAN PABLO CITY IS REVERESED AND SET ASIDE