PEPSI-COLA BOTTLING vs.

CITY OF BUTUAN

Parties: PEPSI-COLA BOTTLING CO. OF THE PHILIPPINES,

INC., plaintiff-appellant,
vs.
CITY OF BUTUAN, MEMBERS OF THE MUNICIPAL BOARD,
THE CITY MAYOR and THE CITY TREASURER, all of the CITY OF
BUTUAN, defendants-appellees.

Nature of the Case:

This is a direct appeal to this Court, from a decision of the Court of

First Instance of Agusan, dismissing plaintiff's complaint. the decision
appealed from is hereby reversed, and another one shall be entered
annulling Ordinance No. 110, as amended by Ordinance No. 122, and
sentencing the City of Butuan to refund to plaintiff herein the amounts
collected from and paid under protest by the latter, with interest
thereon at the legal rate from the date of the promulgation of this
decision, in addition to the costs, and defendants herein are,
accordingly, restrained and prohibited permanently from enforcing
said Ordinance, as amended. It is so ordered.

Facts:

Plaintiff — seeks to recover the sums paid by it to the City of

Butuan — pursuant to its Municipal Ordinance No. 110, as amended
by Municipal Ordinance No. 122, both series of 1960, which plaintiff
assails as null and void, and to prevent the enforcement thereof.

Plaintiff's warehouse in the City of Butuan serves as a storage for

its products the "Pepsi-Cola" soft drinks for sale to customers in the
City of Butuan and all the municipalities in the Province of Agusan.
These "Pepsi-Cola Cola" soft drinks are bottled in Cebu City and
shipped to the Butuan City warehouse of plaintiff for distribution and
sale in the City of Butuan and all municipalities of Agusan.

On August 16, 1960, the City of Butuan enacted Ordinance No.

110 which was subsequently amended by Ordinance No. 122 and
effective November 28, 1960.

The Ordinance No. 110 as amended, imposes a tax on any

person, association, etc., of P0.10 per case of 24 bottles of Pepsi-
Cola and the plaintiff paid under protest the amount of P4,926.63
from August 16 to December 31, 1960 and the amount of P9,250.40
from January 1 to July 30, 1961.

The plaintiff filed the foregoing complaint for the recovery of the total
amount of P14,177.03 paid under protest and those that if may later
on pay until the termination of this case on the ground that Ordinance
No. 110 as amended of the City of Butuan is illegal, that the tax
imposed is excessive and that it is unconstitutional.

Beginning November 21, 1960, the price of Pepsi-Cola per case of

24 bottles was increased to P1.92 which price is uniform throughout
the Philippines. Said increase was made due to the increase in the
production cost of its manufacture.

Petitioner's Contention:

Plaintiff maintains that the disputed ordinance is null and void

because:

(1) it partakes of the nature of an import tax;

(2) it amounts to double taxation;
(3) it is
excessive, oppressive and confiscatory;
(4) it is highly unjust and discriminatory; and
(5) section 2 of Republic Act No. 2264,
upon the authority of which it was enacted, is an unconstitutional
delegation of legislative powers.

Issues:

1) Whether or not Ordinance No. 110 is null and void because it

partakes of the nature of an import tax;

(2) Whether or not Ordinance No. 110 is null and void because it
amounts to double taxation;

(3) Whether or not Ordinance No. 110 is excessive, oppressive and

confiscatory;
(4) Whether or not Ordinance No. 110 is highly unjust and
discriminatory;

5) Whether or not section 2 of Republic Act No. 2264, upon the

authority of which it was enacted, is an unconstitutional delegation of
legislative powers.

Ruling:

1) Yes. As amended by Ordinance No. 122, the tax is imposed only

upon "any agent and/or consignee of any person, association,
partnership, company or corporation engaged in selling soft drinks or
carbonated drinks." The merchants engaged in the sale of soft drink
or carbonated drinks, are not subject to the tax,unless they are
agents and/or consignees of another dealer, who, in the very nature
of things, must be one engaged in business outside the City.
Besides, the tax would not be applicable to such agent and/or
consignee, if less than 1,000 cases of soft drinks are consigned or
shipped to him every month. When we consider, also, that the tax
"shall be based and computed from the cargo manifest or bill of
lading ... showing the number of cases" — not sold — but "received"
by the taxpayer, the intention to limit the application of the ordinance
to soft drinks and carbonated drinks brought into the City from outside
thereof becomes apparent. Viewed from this angle, the tax partakes
of the nature of an import duty, which is beyond defendant's
authority to impose by express provision of law.

2) No. Indeed — independently of whether or not the tax in question,

when considered in relation to the sales tax prescribed by Acts of
Congress, amounts to double taxation, on which we need not and do
not express any opinion - double taxation, in general, is not
forbidden by our fundamental law. We have not adopted, as part
thereof, the injunction against double taxation found in the
Constitution of the United States and of some States of the Union.

3) No.The tax of "P0.10 per case of 24 bottles," of soft drinks or

carbonated drinks — in the production and sale of which plaintiff is
engaged — or less than P0.0042 per bottle, is manifestly too small to
be excessive, oppressive, or confiscatory.
 4) Yes. Even if the burden in question were regarded as a tax on the
sale of said beverages, it would still be invalid, as discriminatory, and
hence, violative of the uniformity required by the Constitution and the
law, since only sales by "agents or consignees" of outside dealers
would be subject to the tax. Sales by local dealers, not acting for or
on behalf of other merchants, regardless of the volume of their sales,
and even if the same exceeded those made by said agents or
consignees of producers or merchants established outside the City of
Butuan, would be exempt from the disputed tax.

It is true that the uniformity essential to the valid exercise of the

power of taxation does not require identity or equality under all
circumstances, or negate the authority to classify the objects of
taxation.
The classification made in the exercise of this authority, to be valid,
must, however, be reasonable and this requirement is not deemed
satisfied unless: (1) it is based upon substantial
distinctions which make real differences; (2) these are
germane to the purpose of the legislation or ordinance;
(3) the classification applies, not only to present conditions, but,
also, to future conditions substantially identical to those of the
present; and (4) the classification
applies equally to all those who belong to the same class.
These conditions are not fully met by the ordinance in question.

5) No.The general principle against delegation of legislative powers,

in consequence of the theory of separation of powers is subject to
one well-established exception, namely: legislative powers may be
delegated to local governments — to which said theory does not
apply— in respect of matters of local concern.

In summary, Ordinance No. 110 is null and void.

The decision appealed from is hereby reversed, and sentencing

the City of Butuan to refund to plaintiff herein the amounts collected
from and paid under protest by the latter, with interest thereon at the
legal rate from the date of the promulgation of this decision, in
addition to the costs, and defendants herein are, accordingly,
restrained and prohibited permanently from enforcing said Ordinance,
as amended.
Republic of the Philippines
SUPREME COURT
Manila

EN BANC

G.R. No. L-22814 August 28, 1968

PEPSI-COLA BOTTLING CO. OF THE PHILIPPINES, INC.,

plaintiff-appellant,
vs.
CITY OF BUTUAN, MEMBERS OF THE MUNICIPAL BOARD,
THE CITY MAYOR and THE CITY TREASURER, all of the CITY
OF BUTUAN, defendants-appellees.

Sabido, Sabido and Associates for plaintiff-appellant.

The City Attorney of Butuan City for defendants-appellees.

CONCEPCION, C.J.:

Direct appeal to this Court, from a decision of the Court of First Instance of
Agusan, dismissing plaintiff's complaint, with costs.

Plaintiff, Pepsi-Cola Bottling Company of the Philippines, is a domestic

corporation with offices and principal place of business in Quezon City. The
defendants are the City of Butuan, its City Mayor, the members of its
municipal board and its City Treasurer. Plaintiff — seeks to recover the
sums paid by it to the City of Butuan — hereinafter referred to as the City
and collected by the latter, pursuant to its Municipal Ordinance No. 110, as
amended by Municipal Ordinance No. 122, both series of 1960, which
plaintiff assails as null and void, and to prevent the enforcement thereof.
Both parties submitted the case for decision in the lower court upon a
stipulation to the effect:

1. That plaintiff's warehouse in the City of Butuan serves as a storage

for its products the "Pepsi-Cola" soft drinks for sale to customers in
the City of Butuan and all the municipalities in the Province of
Agusan. These "Pepsi-Cola Cola" soft drinks are bottled in Cebu City
and shipped to the Butuan City warehouse of plaintiff for distribution
and sale in the City of Butuan and all municipalities of Agusan. .
2. That on August 16, 1960, the City of Butuan enacted Ordinance No.
110 which was subsequently amended by Ordinance No. 122 and
effective November 28, 1960. A copy of Ordinance No. 110, Series of
1960 and Ordinance No. 122 are incorporated herein as Exhibits "A"
and "B", respectively.

3. That Ordinance No. 110 as amended, imposes a tax on any person,

association, etc., of P0.10 per case of 24 bottles of Pepsi-Cola and the
plaintiff paid under protest the amount of P4,926.63 from August 16
to December 31, 1960 and the amount of P9,250.40 from January 1 to
July 30, 1961.

4. That the plaintiff filed the foregoing complaint for the recovery of
the total amount of P14,177.03 paid under protest and those that if
may later on pay until the termination of this case on the ground that
Ordinance No. 110 as amended of the City of Butuan is illegal, that
the tax imposed is excessive and that it is unconstitutional.

5. That pursuant to Ordinance No. 110 as amended, the City Treasurer

of Butuan City, has prepared a form to be accomplished by the
plaintiff for the computation of the tax. A copy of the form is enclosed
herewith as Exhibit "C".

6. That the Profit and Loss Statement of the plaintiff for the period
from January 1, 1961 to July 30, 1961 of its warehouse in Butuan City
is incorporated herein as Exhibits "D" to "D-1" to "D-5". In this Profit
and Loss Statement, the defendants claim that the plaintiff is not
entitled to a depreciation of P3,052.63 but only P1,202.55 in which
case the profit of plaintiff will be increased from P1,254.44 to
P3,104.52. The plaintiff differs only on the claim of depreciation
which the company claims to be P3,052.62. This is in accordance with
the findings of the representative of the undersigned City Attorney
who verified the records of the plaintiff.

7. That beginning November 21, 1960, the price of Pepsi-Cola per

case of 24 bottles was increased to P1.92 which price is uniform
throughout the Philippines. Said increase was made due to the
increase in the production cost of its manufacture.
 8. That the parties reserve the right to submit arguments on the
constitutionality and illegality of Ordinance No. 110, as amended of
the City of Butuan in their respective memoranda.

xxx xxx x x x1äwphï1.ñët

Section 1 of said Ordinance No. 110, as amended, states what products are
"liquors", within the purview thereof. Section 2 provides for the payment by
"any agent and/or consignee" of any dealer "engaged in selling liquors,
imported or local, in the City," of taxes at specified rates. Section 3
prescribes a tax of P0.10 per case of 24 bottles of the soft drinks and
carbonated beverages therein named, and "all other soft drinks or carbonated
drinks." Section 3-A, defines the meaning of the term "consignee or agent"
for purposes of the ordinance. Section 4 provides that said taxes "shall be
paid at the end of every calendar month." Pursuant to Section 5, the taxes
"shall be based and computed from the cargo manifest or bill of lading or
any other record showing the number of cases of soft drinks, liquors or all
other soft drinks or carbonated drinks received within the month." Sections
6, 7 and 8 specify the surcharge to be added for failure to pay the taxes
within the period prescribed and the penalties imposable for "deliberate and
willful refusal to pay the tax mentioned in Sections 2 and 3" or for failure "to
furnish the office of the City Treasurer a copy of the bill of lading or cargo
manifest or record of soft drinks, liquors or carbonated drinks for sale in the
City." Section 9 makes the ordinance applicable to soft drinks, liquors or
carbonated drinks "received outside" but "sold within" the City. Section 10
of the ordinance provides that the revenue derived therefrom "shall be
alloted as follows: 40% for Roads and Bridges Fund; 40% for the General
Fund and 20% for the School Fund."

Plaintiff maintains that the disputed ordinance is null and void because: (1) it
partakes of the nature of an import tax; (2) it amounts to double taxation; (3)
it is excessive, oppressive and confiscatory; (4) it is highly unjust and
discriminatory; and (5) section 2 of Republic Act No. 2264, upon the
authority of which it was enacted, is an unconstitutional delegation of
legislative powers.

The second and last objections are manifestly devoid of merit. Indeed —
independently of whether or not the tax in question, when considered in
relation to the sales tax prescribed by Acts of Congress, amounts to double
taxation, on which we need not and do not express any opinion - double
taxation, in general, is not forbidden by our fundamental law. We have not
adopted, as part thereof, the injunction against double taxation found in the
Constitution of the United States and of some States of the Union.1 Then,
again, the general principle against delegation of legislative powers, in
consequence of the theory of separation of powers 2 is subject to one well-
established exception, namely: legislative powers may be delegated to local
governments — to which said theory does not apply3 — in respect of matters
of local concern.

The third objection is, likewise, untenable. The tax of "P0.10 per case of 24
bottles," of soft drinks or carbonated drinks — in the production and sale of
which plaintiff is engaged — or less than P0.0042 per bottle, is manifestly
too small to be excessive, oppressive, or confiscatory.

The first and the fourth objections merit, however, serious consideration. In
this connection, it is noteworthy that the tax prescribed in section 3 of
Ordinance No. 110, as originally approved, was imposed upon dealers
"engaged in selling" soft drinks or carbonated drinks. Thus, it would seem
that the intent was then to levy a tax upon the sale of said merchandise. As
amended by Ordinance No. 122, the tax is, however, imposed only upon
"any agent and/or consignee of any person, association, partnership,
company or corporation engaged in selling ... soft drinks or carbonated
drinks." And, pursuant to section 3-A, which was inserted by said Ordinance
No. 122:

... — Definition of the Term Consignee or Agent. — For purposes of

this Ordinance, a consignee of agent shall mean any person,
association, partnership, company or corporation who acts in the place
of another by authority from him or one entrusted with the business of
another or to whom is consigned or shipped no less than 1,000 cases
of hard liquors or soft drinks every month for resale, either retail or
wholesale.

As a consequence, merchants engaged in the sale of soft drink or carbonated

drinks, are not subject to the tax, unless they are agents and/or consignees of
another dealer, who, in the very nature of things, must be one engaged in
business outside the City. Besides, the tax would not be applicable to such
agent and/or consignee, if less than 1,000 cases of soft drinks are consigned
or shipped to him every month. When we consider, also, that the tax "shall
be based and computed from the cargo manifest or bill of lading ... showing
the number of cases" — not sold — but "received" by the taxpayer, the
intention to limit the application of the ordinance to soft drinks and
carbonated drinks brought into the City from outside thereof becomes
apparent. Viewed from this angle, the tax partakes of the nature of an import
duty, which is beyond defendant's authority to impose by express provision
of law.4

Even however, if the burden in question were regarded as a tax on the sale of
said beverages, it would still be invalid, as discriminatory, and hence,
violative of the uniformity required by the Constitution and the law therefor,
since only sales by "agents or consignees" of outside dealers would be
subject to the tax. Sales by local dealers, not acting for or on behalf of other
merchants, regardless of the volume of their sales, and even if the same
exceeded those made by said agents or consignees of producers or merchants
established outside the City of Butuan, would be exempt from the disputed
tax.

It is true that the uniformity essential to the valid exercise of the power of
taxation does not require identity or equality under all circumstances, or
negate the authority to classify the objects of taxation.5 The classification
made in the exercise of this authority, to be valid, must, however, be
reasonable6 and this requirement is not deemed satisfied unless: (1) it is
based upon substantial distinctions which make real differences; (2) these
are germane to the purpose of the legislation or ordinance; (3) the
classification applies, not only to present conditions, but, also, to future
conditions substantially identical to those of the present; and (4) the
classification applies equally all those who belong to the same class.7

These conditions are not fully met by the ordinance in question. 8 Indeed, if
its purpose were merely to levy a burden upon the sale of soft drinks or
carbonated beverages, there is no reason why sales thereof by sealers other
than agents or consignees of producers or merchants established outside the
City of Butuan should be exempt from the tax.

WHEREFORE, the decision appealed from is hereby reversed, and another

one shall be entered annulling Ordinance No. 110, as amended by Ordinance
No. 122, and sentencing the City of Butuan to refund to plaintiff herein the
amounts collected from and paid under protest by the latter, with interest
thereon at the legal rate from the date of the promulgation of this decision, in
addition to the costs, and defendants herein are, accordingly, restrained and
prohibited permanently from enforcing said Ordinance, as amended. It is so
ordered.

Reyes, J.B.L., Dizon, Makalintal, Zaldivar, Sanchez, Castro, Angeles and

Fernando, JJ., concur. 1äwphï1.ñët

Footnotes
1
De Villata v. Stanley, 32 Phil. 541; City of Manila v. Inter-Island Gas
Service, 99 Phil. 847, 854; Syjuco v. Municipality of Parañaque, L-
11265, Nov. 27, 1959; City of Bacolod v. Gruet, L-18290, Jan. 31,
1963.
2
U.S. v. Bull, 15 Phil. 7, 27; Kilbourn v. Thompson, 103 U.S. 168, 26
L. ed. 377.
3
State v. City of Mankato, 136 N.W. 264; People v. Provinces, 34 Cal.
520; Stoutenburgh v. Hennick 129 U.S. 141, 32 L. ed. 637.
4
Section 2(i), Republic Act No. 2264; Panaligan v. City of Tacloban,
L- 9319, Sept. 27, 1957, 102 Phil. 1162-1163; East Asiatic Co. v. City
of Davao, L-16253, August 21, 1962. .
5
Tan Tim Kee v. Court of Tax Appeals, L-18080, April 22, 1963; Nin
Bay Mining Co. v. Municipality of Roxas, L-20125, July 20, 1965. .
6
Felwa v. Salas, L-26511, October 29, 1966; Aleja v. GSIS, L-18529,
February 26, 1965; People v. Solon, L-14864, November 23, 1960;
People v. Cayat, 68 Phil. 12; People v. Vera, 65 Phil. 56; Laurel v.
Misa, 42 O.G. 2847.
7
Commissioner of Int. Rev. v. Botelho Shipping Corp., L-21633-34,
June 29, 1967; Ermita-Malate Hotel & Motel Operators Ass'n. v. City
Mayor, L-24693, October 23, 1967; Rafael v. Embroidery & Apparel
Control & Inspection Board, L-19978, September 29, 1967; Meralco
v. Public Utilities Employee Ass'n., 79 Phil. 409. .
8
Viray v. City of Caloocan, L-23118, July 26, 1967; PHILCONSA v.
Gimenez, L-23326, December 18, 1965; Ormoc Sugar Co. v.
Treasurer of Ormoc City, L-23794, February 17, 1968.