TAXATION 1 | B2015
CASE DIGESTS
Matalin Coconut Inc. v. Municipal
Council of Malabang
August 13, 1986
Yap, J.
Rañeses, Roberto Miguel O.
SUMMARY: The Municipal Council of Malabang enacted an ordinance
imposing a “police inspection fee” of P.30 per sack of cassava starch or
flour. The said ordinance was challenged by Matalin Coconut, on
account of its being ultra vires and its being unreasonable, oppressive,
and confiscatory. While the SC did not agree with the TC’s finding that
it is a percentage tax that is beyond the scope of the power granted to
the Municipal Council’s to levy under the Local Autonomy Act, it
agreed with the TC’s finding that the tax imposed was unjust,
unreasonable, excessive, and confiscatory.
DOCTRINE: (Implied) The power to regulate as an exercise of police
power does not include the power to impose fees for revenue
purposes.
FACTS: The Municipal Council of Malabang, on the basis of the Local
Autonomy Act, imposed an ordinance making it unlawful for any
person, company or group of persons "to ship out of the Municipality of
Malabang, cassava starch or flour without paying to the Municipal
Treasurer or his authorized representatives the corresponding fee fixed
by (the) ordinance." It imposed a "police inspection fee" of P.30 per sack
of cassava starch or flour, which shall be paid by the shipper before the
same is transported or shipped outside the municipality.
The ordinance was challenged by Matalin Coconut, alleging that not was
it ultra vires, being violative of the Local Autonomy Act, but also
because of its being unreasonable, oppressive and confiscatory. Matalin
prayed for the ordinance to be declared null and void ab initio, and that
the Council be ordered to refund the amounts paid by Matalin, as well
as for a preliminary injunction. The trial court denied the application
for preliminary injunction.
Purakan Plantation, on account of the supposed adverse effects the
ordinance had on their business, was allowed to intervene in the action.
The court a quo, after trial, declared the ordinance null and void, and
ordered the Municipal Treasurer to make the refunds, as well as to
enjoin and prohibit the Council, its agents and its deputies from
collecting taxes on the products belonging to intervenor Purakan. The
TC subsequently issued a writ of preliminary mandatory injunction,
requiring the Municipal Treasurer to deposit with the PNB whatever
amounts the petitioner had already paid or shall pay pursuant to the
ordinance in question up to and until final termination of the case.
Upon motion for reconsideration, the writ was modified, to require the
deposit only of amounts paid from the effectivity of the writ up to and
until the final termination of the suit.
The Municipal Council appealed to the SC. Matalin’s motion to dismiss
was denied, as well as the Council’s motion to dissolve the writ.
ISSUES:
1. WON the TC erred in adjudicating the money claim of the
petitioner in an action for declaratory relief
2. WON the TC erred in declaring the ordinance in question null
and void
RULING:
1. No, the TC may adjudicate the money claims of Matalin in an
action for declaratory relief.
2. No, the tax imposed by the ordinance was indeed null and void.
RATIO:
1. Sec. 6 of Rule 64 of the RoC says that an action for declaratory
relief may be converted into an ordinary action and the parties
are allowed to file such pleadings as may be necessary or
proper if, before the termination of the case, “a breach or
violation of an… ordinance, should take place.” While no breach
occurred, as the petitioner decided to pay “under protest,” such
payment did not affect the case. The action for declaratory
relief was still proper because the applicability of the
ordinance to future transactions still remained to be resolved.
 TAXATION 1 | B2015
CASE DIGESTS

2. Since the enactment of the Local Autonomy Act, a liberal rule

has been followed by this Court in construing municipal
ordinances enacted pursuant to the taxing power granted
under Section 2 of said law. The SC has construed the grant of
power to tax under the mentioned provision as sufficiently
plenary to cover "everything, excepting those which are
mentioned" therein, subject only to the limitation that the tax
so levied is for public purposes, just and uniform.

While the SC agrees with the finding of the TC that the

ordinance in question partakes of the nature of a tax for its
purpose was to raise revenue, it does not agree with the TC’s
finding that it is a percentage tax on sales which is beyond the
scope of the municipality’s authority to levy under the Local
Autonomy Act. It was not a percentage tax for it was a fixed tax.

However, the tax can be stricken down on the basis of its being
unjust and unreasonable. The reasons given for the imposition
of such a fee could not be given credence for (a) the police was
not competent enough to determine whether the starch or
flour was fit for human consumption and (b) that Matalin has
never requested for police protection as it has never been
molested by undesirable elements.

Furthermore, the tax is excessive and confiscatory. Matalin only

realizes a marginal profit of P0.40 per bag. The imposition of a
P.30 tax would, therefore, force the petitioner to close or stop
its cassava flour starch milling business.

DISPOSITIVE: WHEREFORE, petition is dismissed. The decision of the

court a quo is hereby affirmed. No costs.