Mandanas v.

Romulo

Facts:

Petitioner case:

The petitioner now comes to this Court assailing as unconstitutional and void the provisos in the
GAAs relating to the LGSEF. Similarly assailed are the Oversight Committee's Resolutions issued pursuant
thereto. The petitioner submits that the assailed provisos in the GAAs and the OCD resolutions, insofar
as they earmarked the amount of five billion pesos of the IRA of the LGUs for the LGSEF and imposed
conditions for the release thereof, violate the Constitution and the Local Government Code of 1991.

Section 6, Article X of the Constitution is invoked as it mandates that the "just share" of the LGUs
shall be automatically released to them. Sections 18 and 286 of the Local Government Code of 1991,
which enjoin that the "just share" of the LGUs shall be "automatically and directly" released to them
"without need of further action" are, likewise, cited.

To further buttress this argument, the petitioner contends that to vest the Oversight Committee
with the authority to determine the distribution and release of the LGSEF, which is a part of the IRA of
the LGUs, is an anathema to the principle of local autonomy as embodied in the Constitution and the
Local Government Code of 1991.

The Respondents' Arguments:

The respondents, through the Office of the Solicitor General, urge the Court to dismiss the
petition on procedural and substantive grounds. On the latter, the respondents contend that the assailed
provisos in the GAAs and the assailed resolutions issued by the Oversight Committee are not
constitutionally infirm. The respondents advance the view that Section 6, Article X of the Constitution
does not specify that the "just share" of the LGUs shall be determined solely by the Local Government
Code of 1991. Moreover, the phrase "as determined by law" in the same constitutional provision means
that there exists no limitation on the power of Congress to determine what is the "just share" of the
LGUs in the national taxes. In other words, Congress is the arbiter of what should be the "just share" of
the LGUs in the national taxes.

The respondents further theorize that Section 285 of the Local Government Code of 1991, which
provides for the percentage sharing of the IRA among the LGUs, was not intended to be a fixed
determination of their "just share" in the national taxes. Congress may enact other laws, including
appropriations laws such as the GAAs, providing for a different sharing formula. Section 285 of the Local
Government Code of 1991 was merely intended to be the "default share" of the LGUs to do away with
the need to determine annually by law their "just share."

However, the LGUs have no vested right in a permanent or fixed percentage as Congress may
increase or decrease the "just share" of the LGUs in accordance with what it believes is appropriate for
their operation. There is nothing in the Constitution which prohibits Congress from making such
determination through the appropriations laws. If the provisions of a particular statute, the GAA in this
case, are within the constitutional power of the legislature to enact, they should be sustained whether
the courts agree or not in the wisdom of their enactment.
Issue: Whether GAA provision earmarking Php5B, and the OCD resolutions imposing additional
requirements infringe the Constitution and the Local Government Code of 1991.

In Article II of the Constitution, the State has expressly adopted as a policy that:

Section 25. The State shall ensure the autonomy of local governments.

An entire article (Article X) of the Constitution has been devoted to guaranteeing and promoting the
autonomy of LGUs. Section 2 thereof reiterates the State policy in this wise:

Section 2. The territorial and political subdivisions shall enjoy local autonomy.

Consistent with the principle of local autonomy, the Constitution confines the President's power
over the LGUs to one of general supervision. This provision has been interpreted to exclude the power of
control. The distinction between the two powers was enunciated in Drilon v. Lim

An officer in control lays down the rules in the doing of an act. If they are not followed, he may,
in his discretion, order the act undone or re-done by his subordinate or he may even decide to do it
himself. Supervision does not cover such authority. The supervisor or superintendent merely sees to it
that the rules are followed, but he himself does not lay down such rules, nor does he have the discretion
to modify or replace them. If the rules are not observed, he may order the work done or re-done but
only to conform to the prescribed rules. He may not prescribe his own manner for doing the act. He has
no judgment on this matter except to see to it that the rules are followed.

The assailed provisos in the GAAs of 1999, 2000 and 2001 and the OCD resolutions violate the
constitutional precept on local autonomy

Section 6, Article X of the Constitution reads:

Sec. 6. Local government units shall have a just share, as determined by law, in the national taxes which
shall be automatically released to them. When parsed, it would be readily seen that this provision
mandates that:

(1) the LGUs shall have a "just share" in the national taxes;

(2) the "just share" shall be determined by law; and

(3) the "just share" shall be automatically released to the LGUs.

Secetions 18 & 286 provides that the LGU to have a just share in national taxes which shall be
automatically and directly released to them without need of further action.

Section 4 of AO 372 cannot, however, be upheld. A basic feature of local fiscal autonomy is the
automatic release of the shares of LGUs in the National internal revenue. This is mandated by no less
than the Constitution. The Local Government Code specifies further that the release shall be made
directly to the LGU concerned within five (5) days after every quarter of the year and "shall not be
subject to any lien or holdback that may be imposed by the national government for whatever purpose."

Section 4 of AO 372, however, orders the withholding, effective January 1, 1998, of 10 percent of
the LGUs' IRA "pending the assessment and evaluation by the Development Budget Coordinating
Committee of the emerging fiscal situation" in the country. Such withholding clearly contravenes the
Constitution and the law. Although temporary, it is equivalent to a holdback, which means "something
held back or withheld, often temporarily." Hence, the "temporary" nature of the retention by the
national government does not matter. Any retention is prohibited.

To the Court's mind, the entire process involving the distribution and release of the LGSEF is
constitutionally impermissible. The LGSEF is part of the IRA or "just share" of the LGUs in the national
taxes. To subject its distribution and release to the vagaries of the implementing rules and regulations,
including the guidelines and mechanisms unilaterally prescribed by the Oversight Committee from time
to time, as sanctioned by the assailed provisos in the GAAs of 1999, 2000 and 2001 and the OCD
resolutions, makes the release not automatic, a flagrant violation of the constitutional and statutory
mandate that the "just share" of the LGUs "shall be automatically released to them." The LGUs are,
thus, placed at the mercy of the Oversight Committee.

Now, autonomy is either decentralization of administration or decentralization of power. There is

decentralization of administration when the central government delegates administrative powers to
political subdivisions in order to broaden the base of government power and in the process to make local
governments 'more responsive and accountable' and 'ensure their fullest development as self-reliant
communities and make them more effective partners in the pursuit of national development and social
progress.'

At the same time, it relieves the central government of the burden of managing local affairs and
enables it to concentrate on national concerns. The President exercises 'general supervision' over them,
but only to 'ensure that local affairs are administered according to law.' He has no control over their acts
in the sense that he can substitute their judgments with his own.
LEPANTO CONSOLIDATED MINING COMPANY, Petitioner,

vs.

HON. MAURICIO B. AMBANLOC

Facts: The national government issued to petitioner (Lepanto) a mining lease contract covering, among
others, its leased mining claim in the Province of Benguet. Upon inquiry, DENR advised Lepanto that,
under its contract, it did not have to get a permit to extract and use sand and gravel from within the
mining claim for its operational and infrastructure needs. Based on this advice, Lepanto proceeded to
extract and remove sand, gravel, and other earth materials from the mining site.

It also used sand and gravel to construct and maintain concrete structures needed in its mining
operation, such as a tailings dam, access roads, and offices. Its use of quarry resources, readily available
within its mining claim, was more practical and cheaper than having to outsource them.

Respondent Ambanloc, the provincial treasurer of Benguet, sent a demand letter to Lepanto,
asking it to pay the province ₱1,901,893.22 as sand and gravel tax, for the quarry materials that it
extracted from its mining site from 1997 to 2000. Lepanto sent a letter-protest to the provincial
treasurer, but the latter denied the same, insisting on payment.

Lepanto filed a petition with the Regional Trial Court (RTC) of Benguet to question the
assessment. Lepanto argued that the subject tax intended to cover only commercial extractions since the
provincial revenue code referred to "fair market value of the resources," "quantity sold or disposed,"
"amount left in stock," "selling price," and "buyers’ information." The RTC ruled that Lepanto was liable
for the amount assessed. Lepanto appealed the RTC decision to the Court of Tax Appeals (CTA) The
Second Division affirmed the ruling of the RTC with the modification that the interest of 2 percent per
month shall not exceed 36 months.

Issue: whether or not Lepanto is liable for the tax imposed by the Province of Benguet on the sand and
gravel that it extracted from within the area of its mining claim and used exclusively in its mining
operations.

Ruling: Yes. Lepanto is liable for the tax imposed by the Province of Benguet.

The provincial revenue code provides that the subject tax had to be paid prior to the issuance of
the permit to extract sand and gravel. Its Article D, Section 2, enumerates four kinds of permits:
commercial, industrial, special, and gratuitous. Special permits covered only personal use of the
extracted materials and did not allow the permitees to sell materials coming from his concession.

Among applicants for permits, however, only gratuitous permits were exempt from the sand and gravel
tax. It follows that persons who applied for special permits needed to pay the tax, even though they did
not extract materials for commercial purposes. Thus, the tax needed to be paid regardless of the
applicability of the administrative and reportorial requirements of that revenue code.

Two. Lepanto claims that the tax can only be levied against extractions by persons or entities required to
apply for permits to remove quarry resources. Since the mining lease contract with the national
government granted it the right to extract and utilize all mineral deposits from within its mining claim,
Lepanto claims that it did not need to apply for a separate permit from the local government.
But this merely declares that Lepanto’s extraction and use of mineral deposits bears the consent of the
national government, in line with the principle that exploration of natural resources can only be done
under the control and supervision of the State. The contract makes no mention of any exemption from
securing government permits.

Lepanto invokes the Bureau of Mines and Geo-Sciences’ view that the mining company did not require it
to get any of the permits that Mines Administrative Order MRD-27 might require.7 But that Bureau’s
view applied only to permits under MRD-27. The Bureau has no authority to determine the applicability
of local ordinances. Besides, even the Bureau itself states that the exemption from MRD-27 is not
absolute as it shall not apply if the sand and gravel were to be disposed of commercially. An exemption
from the requirements of the provincial government should have a clear basis, whether in law,
ordinance, or even from the contract itself. Unfortunately for Lepanto, it failed to show its entitlement to
such exemption.

Three. Lepanto relies on the principle that when a company is taxed on its main business, it is no longer
taxable for engaging in an activity that is but a part of, incidental to, and necessary to such main
business. Lepanto points out that, since it did not extract and use sand and gravel as independent
activities but as integral parts of its mining operations, it should not be subjected to a separate tax on
the same.

But in the cases where this principle has been applied, the taxes which were stricken down were in the
nature of business taxes. The reasoning behind those cases was that the incidental activity could not be
treated as a business separate and distinct from the main business of the taxpayer. Here the tax is an
excise tax imposed on the privilege of extracting sand and gravel. And it is settled that provincial
governments can levy excise taxes on quarry resources independently from the national government.
Yamane v. BA-Lepanto Condominium

Ruling:

Ostensibly, the notice of assessment, which stands as the first instance the taxpayer is officially
made aware of the pending tax liability, should be sufficiently informative to apprise the taxpayer the
legal basis of the tax. Section 195 of the Local Government Code does not go as far as to expressly
require that the notice of assessment specifically cite the provision of the ordinance involved but it does
require that it state the nature of the tax, fee or charge, the amount of deficiency, surcharges, interests
and penalties.

In this case, the notice of assessment sent to the Corporation did state that the assessment was
for business taxes, as well as the amount of the assessment. There may have been prima facie
compliance with the requirement under Section 195. However, in this case, the Revenue Code provides
multiple provisions on business taxes, and at varying rates. Hence, we could appreciate the Corporation’s
confusion, as expressed in its protest, as to the exact legal basis for the tax.

Reference to the local tax ordinance is vital, for the power of local government units to impose
local taxes is exercised through the appropriate ordinance enacted by the sanggunian, and not by the
Local Government Code alone. What determines tax liability is the tax ordinance, the Local Government
Code being the enabling law for the local legislative body.

Certainly, the City Treasurer has not been helpful in that regard, as she has been silent all
through out as to the exact basis for the tax imposition which she wishes that this Court uphold. Indeed,
there is only one thing that prevents this Court from ruling that there has been a due process violation
on account of the City Treasurer’s failure to disclose on paper the statutory basis of the tax–that the
Corporation itself does not allege injury arising from such failure on the part of the City Treasurer.

We do not know why the Corporation chose not to put this issue into litigation, though we can
ultimately presume that no injury was sustained because the City Treasurer failed to cite the specific
statutory basis of the tax. What is essential though is that the local treasurer be required to explain to
the taxpayer with sufficient particularity the basis of the tax, so as to leave no doubt in the mind of the
taxpayer as to the specific tax involved.

As stated earlier, local tax on businesses is authorized under Section 143 of the Local
Government Code. The word "business" itself is defined under Section 131(d) of the Code as "trade or
commercial activity regularly engaged in as a means of livelihood or with a view to profit."

This definition of "business" takes on importance, since Section 143 allows local government
units to impose local taxes on businesses other than those specified under the provision. Moreover, even
those business activities specifically named in Section 143 are themselves susceptible to broad
interpretation. For example, Section 143(b) authorizes the imposition of business taxes on wholesalers,
distributors, or dealers in any article of commerce of whatever kind or nature.

It is thus imperative that in order that the Corporation may be subjected to business taxes, its
activities must fall within the definition of business as provided in the Local Government Code. And to
hold that they do is to ignore the very statutory nature of a condominium corporation.
 We can elicit from the Condominium Act that a condominium corporation is precluded by
statute from engaging in corporate activities other than the holding of the common areas, the
administration of the condominium project, and other acts necessary, incidental or convenient to the
accomplishment of such purposes. Neither the maintenance of livelihood, nor the procurement of profit,
fall within the scope of permissible corporate purposes of a condominium corporation under the
Condominium Act.