Misamis vs Cagayan de Oro (181 SCRA 38)

The Province of Misamis Oriental vs Cagayan Electric Power and Light Company
181 SCRA 38 [GR No. L-45355 January 12, 1990]

Facts: Cagayan Electric Power and Light Company Inc. was granted a franchise on June 17, 1961 under Republic Act No. 3247 to install, operate and maintain an electric light, heat and power system in the City of Cagayan de Oro and its suburbs. Said franchise was amended on June 21, 1963 by RA 3570 which added the municipalities of Tagoloan and Opol to CEPALCO’s sphere of operation, and was further amended on August 4, 1969, by RA 6020 which extended its field of operation to the municipalities of Villanueva and Jasaan. Pursuant thereto, the province of Misamis Oriental enacted provincial revenue ordinance no. 9 whose section 12 reads:

Sec 12 Franchise tax – There shall be levied, collected and paid on businesses enjoying franchise tax of 1/2 of 1% of their gross annual receipts for the preceding calendar year realized within the territorial jurisdiction of the province of Misamis Oriental.

The provincial treasurer of Misamis Oriental demanded payment of the provincial franchise tax from CEPALCO. The company refused to pay, alleging that it is exempt from all taxes except the franchise tax required by RA 6020. Nevertheless, in view of the opinion rendered by the provincial fiscal, upon CEPALCO’s request, upholding the legality of the revenue ordinance, CEPALCO paid under protest on May 27, 1974 the sum of Php4,276.28 and appealed the fiscal’s ruling to the secretary of justice who reversed it and ruled in favor of CEPALCO.

Issue: Whether or not CEPALCO is exempt from the payment of franchise tax.

Held: Yes. RA 3247, 3570 and 6020 are special laws applicable only to CEPALCO, while PD 231 is a general tax law. The presumption is that the special statutes are exceptions to the general law because they pertain to a special charter granted to meet a particular set of conditions and circumstances. The franchise of respondent CEPALCO expressly exempts it from payment of “all taxes of whatever authority” except the 3% tax on its gross income.

This court pointed out that such exemption is part of the inducement for the acceptance of the franchise and the rendition of public service by the grantee. As a charter is in the nature of a private contract, the imposition of another franchise tax on the corporation by the local authority would constitute an impairment of the contract between the government and the corporation.

Local tax regulation no. 3-75 issued by  the secretary of finance on June 26, 1976, has made it crystal clear that the franchise tax provided in the local tax code may only be imposed on companies with franchises that do not contain the exempting clause. Thus it provides:

The franchise tax imposed under local tax ordinance pursuant to section 9 of the local tax code, as amended shall be collected from businesses holding franchise but not from business establishments whose franchise contain the “in lieu of all taxes proviso.”

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