Case # 2

Title
Pepsi-Cola Bottling Co. of the Philippines, Inc. v. Municipality of Tanauan
Case
G.R. No. L-31156
Ponente
MARTIN, J :
Decision Date
1976-02-27

The Philippine Jurisprudence case involves the constitutionality of a local tax imposed on soft
drink producers and manufacturers, with the Supreme Court ultimately upholding the validity of
the tax and the delegation of taxing authority to municipalities.

Facts:
Pepsi-Cola Bottling Company of the Philippines, Inc. filed a complaint with preliminary injunction
before the Court of First Instance of Leyte to declare Section 2 of R.A. No. 2264 (known as the
Local Autonomy Act) unconstitutional and to declare Municipal Ordinance No. 23 and Municipal
Ordinance No. 27 null and void. Municipal Ordinance No. 23 levies and collects a tax of 1/16 of a
centavo for every bottle of soft drinks corked, while Municipal Ordinance No. 27 levies and
collects a tax of one centavo on each gallon of volume capacity of soft drinks produced or
manufactured within the municipality. The trial court dismissed the complaint and upheld the
constitutionality of Section 2 of R.A. No. 2264 and the validity of Municipal Ordinance No. 27. The
case was appealed to the Court of Appeals and was certified to the Supreme Court as involving a
pure question of law.
Issue:
1. Is Section 2 of R.A. No. 2264 an undue delegation of power, confiscatory, and oppressive?
2. Do Municipal Ordinance No. 23 and Municipal Ordinance No. 27 constitute double
taxation and impose percentage or specific taxes?
3. Are Municipal Ordinance No. 23 and Municipal Ordinance No. 27 unjust and unfair?
Ruling:
The Supreme Court upheld the validity of the delegation of power to tax to Municipal
Corporations under Section 2 of R.A. No. 2264 and the validity of Municipal Ordinance No. 27,
which repealed Municipal Ordinance No. 23.
Ratio:
1. The power of taxation is an essential and inherent attribute of sovereignty, belonging as a
matter of right to every independent government. It is a power that is purely legislative
and cannot be delegated by the central legislative body to the executive or judicial
 department without infringing upon the theory of separation of powers. However, this
theory does not apply to municipal corporations, which can be delegated legislative
powers in respect of matters of local concern. The legislative power to create political
corporations for the purpose of local self-government carries with it the power to confer
on such local government agencies the power to tax.
2. The taxing authority conferred on local governments under Section 2 of R.A. No. 2264 is
broad enough to extend to almost everything, except those which are specifically
mentioned. Municipalities are empowered to impose not only municipal license taxes
upon persons engaged in any business or occupation but also to levy just and uniform
taxes for public purposes.
3. Municipalities and municipal districts are prohibited from imposing any percentage tax on
sales or other taxes in any form based thereon, or imposing taxes on articles subject to
specific tax, except gasoline, under the provisions of the National Internal Revenue Code.
A municipal ordinance that prescribes a set ratio between the amount of the tax and the
volume of sales of the taxpayer imposes a sales tax and is null and void for being outside
the power of the municipality to enact.
4. Under the New Constitution, local governments are granted autonomous authority to
create their own sources of revenue and to levy taxes. Section 5, Article XI provides that
each local government unit shall have the power to create its sources of revenue and to
levy taxes, subject to such limitations as may be provided by law. Section 2 of R.A. No.
2264 is within the sphere of the legislative power to enact and vest in local governments
the power of local taxation.
5. The plenary nature of the delegated power of local governments under Section 2 of R.A.
No. 2264 would not invalidate the law as confiscatory and oppressive. In delegating the
authority, the State is not limited to the measure of that which is exercised by itself.
Municipalities may be permitted to tax subjects which the State has not deemed wise to
tax for more general purposes.
6. Constitutional injunction against deprivation of property without due process of law may
not be passed over under the guise of the taxing power, except when the taking of the
property is in the lawful exercise of the taxing power. Due process is usually violated where
the tax imposed is for a private purpose, a tax is imposed on property outside the State,
or arbitrary or oppressive methods are used in assessing and collecting taxes. However,
due process does not require that the property subject to the tax or the amount of tax to
be raised should be determined by judicial inquiry, and a notice and hearing as to the
amount of tax and the manner in which it shall be apportioned are generally not necessary
to due process of law.
7. The delegated authority under Section 2 of the Local Autonomy Act cannot be declared
unconstitutional on the theory of double taxation. Double taxation becomes obnoxious
 only where the taxpayer is taxed twice for the benefit of the same governmental entity or
by the same jurisdiction for the same purpose, but not in a case where one tax is imposed
by the State and the other by the city or municipality.
8. The imposition of a tax of one centavo on each gallon of volume capacity on all soft drinks
produced or manufactured does not partake of the nature of a percentage tax on sales or
other taxes in any form based thereon. The tax is levied on the produce and not on the
sales. The volume capacity of the taxpayer's production of soft drinks is considered solely
for purposes of determining the tax rate on the products, but there is no set ratio between
the volume of sales and the amount of tax.
9. The tax of one centavo on each gallon of volume capacity on all soft drinks produced or
manufactured is not unjust and unfair. An increase in the tax alone would not support the
claim that the tax is oppressive, unjust, and confiscatory. Municipal corporations are
allowed much discretion in determining the rates of imposable taxes. Unless the amount
is so excessive as to be prohibitive, courts will go slow in writing off an ordinance as
unreasonable.
10. Municipalities are empowered to impose not only municipal license taxes upon persons
engaged in any business or occupation but also to levy for public purposes, just and
uniform taxes. The municipal license tax imposed on manufacturers, producers,
importers, and dealers of soft drinks and/or mineral waters is within the power of the
municipality.