G.R. No.

118900             February 27, 2003

JARDINE DAVIES INSURANCE BROKERS, INC., petitioner,

DECISION

CALLEJO, SR., J.:

Pursuant to Republic Act No. 7160, otherwise known as the Local Government Code of 1991, the then
Sangguniang Bayan of Makati enacted Municipal Ordinance No. 92-072, otherwise known as the Makati Revenue
Code, which provides, inter alia, for the schedule of real estate, business and franchise taxes in the Municipality of
Makati at rates higher than those in the Metro Manila Revenue Code.

On May 10, 1993, the Philippine Racing Club, Inc. ("PRCI" for brevity), a taxpayer of Makati, appealed to the
Department of Justice ("DOJ" for brevity) for the nullification of said ordinance, alleging that it was approved without
previous public hearings, in violation of the Local Government Code and Article 276 of its Implementing Rules, and
that some of the ordinance’s provisions were unconstitutional:

(2) "The ‘in-lieu-of-all-taxes’ clause of the franchise of the Philippine Racing Club, Inc. exempts it from
payment of the real property tax, annual business tax and other new taxes imposed by the ordinance here in
question. To withdraw the exemption would impair the obligation of contract in violation of its constitutional
right as franchise holder.

(3) "The imposition of the franchise tax is not within the scope of the taxing powers of the Municipality of
Makati (Sections 134, 137 and 142 of Republic Act No. 7160 and Articles 223, 226 and 231 of Rule XXX of
the Implementing Rules and Regulations of the Local Government Code of 1991). and

(4) "The Municipality of Makati already shares 5 of the 25% franchise tax provided for in Section 8 of the
franchise of the Philippine Racing Club, Inc. To allow the said municipality to impose another franchise tax
and to base the tax on the gross annual receipts, as it does in the ordinance, would certainly be unjust,
excessive, oppressive or confiscatory (Section 130 of Republic Act No. 7160 and Article 219 of Rule XXX of
the Implementing Rules and Regulations). 1

Although required by the DOJ to comment on the appeal, respondent Makati failed to do so.

On July 5, 1993, the DOJ came out with a resolution declaring "null and void and without legal effect" the said
2 

ordinance for having been enacted in contravention of Section 187 of the Local Government Code of 1991 and its
implementing rules and regulations. 3

On August 19, 1993, respondent Makati sought a reconsideration of the ruling of the DOJ. Pending resolution of its
motion, said respondent filed a petition ad cautelam with the Regional Trial Court (RTC) of Makati, entitled Hon.
4 

Jejomar C. Binay and the Municipality of Makati, Petitioners, v. Hon. Franklin M. Drilon, Department of Justice and
Philippine Racing Club, Inc., Respondents, and docketed as Case No. 93-2844. The case was raffled to Branch 148
of the Makati RTC. Respondent Makati alleged, inter alia, that public hearings were conducted before the approval
of the ordinance and hence the ordinance was valid. It prayed that after due proceedings judgment be rendered in
its favor, thus:

WHEREFORE, petitioners respectfully pray that this Honorable Court promulgate judgment:

(a) declaring null and void the DOJ Decision dated July 5, 1993; and

(b) allowing the full implementation of Makati Municipal Ordinance No. 92-072.
Petitioners pray for such further or other reliefs as this Honorable Court may deem just and equitable. 5

In the meantime, respondent Makati continued to implement the ordinance. Petitioner Jardine Davies Insurance
Brokers, Inc., a duly-organized corporation with principal place of business at No. 222 Sen. Gil J. Puyat Avenue,
Makati, Metro Manila, was assessed and billed by Makati the amount of P63,822.47 for taxes, fees and charges
under the ordinance for the second quarter of 1993. It was again billed by respondent Makati the same amount for
the third quarter of 1993 and the same amount for the fourth quarter of 1993. Petitioner did not protest the
assessment for its quarterly business taxes for the second, third and fourth quarters of 1993 based on said
ordinance effective April 1, 1993. Petitioner, in fact, paid the said amounts on April 26, 1993 (for the second
quarter), July 12, 1993 (for the third quarter) and October 19, 1993 (for the fourth quarter), respectively, without any
protest. Respondent Makati issued the corresponding receipts in favor of petitioner. 6

On January 30, 1994, petitioner wrote the municipal treasurer of Makati requesting that respondent Makati compute
its business tax liabilities in accordance with the Metro Manila Revenue Code and not under the ordinance
considering that said ordinance was already declared by the DOJ null and void. Petitioner likewise requested that
respondent Makati credit the overpayment in the total amount of P27,854.91 for the second to fourth quarters of
1993 against its 1994 liabilities for 1994, or in the alternative, for Makati to refund the said amount to petitioner.

In a Letter dated February 4, 1994, respondent Makati, through Maximo L. Paulino Jr., Acting Chief of its Municipal
7 

License Division, denied the request of petitioner for tax credit/refund. Respondent Makati insisted that the
questioned ordinance code was valid and enforceable pending the final outcome of its petition ad cautelam with the
Regional Trial Court of Makati.

In the meantime, on October 26, 1993, the RTC rendered judgment in Case No. 93-2844 granting the petition of
Makati and declaring the ordinance valid. On November 9, 1993, the DOJ issued a memorandum to the Chief State
Counsel directing the latter to refrain from accepting any appeal or to act on pending appeals on the
validity/constitutionality of the ordinance until the same shall have been finally resolved by courts of competent
jurisdiction.

When informed of the denial by respondent Makati of its letter-request, petitioner filed a complaint on March 7, 1994
with the RTC of Makati against respondents Makati and its Acting Municipal Treasurer. The case was raffled to
Branch 150 of said court. Petitioner alleged in its complaint that in view of the resolution of the DOJ declaring the
Makati Revenue Code "null and void and without legal effect," the provisions of the Metro Manila Revenue Code
continued to remain in full force and effect; however, petitioner was assessed and billed by respondent Makati for
taxes, fees and charges for second, third and fourth quarters for 1993 beginning on April 4, 1993 up to October 14,
1994 at rates fixed in the ordinance despite the nullity thereof. Petitioner prayed that after due proceedings
judgment be rendered as follows:

1. Declaring as NULL AND VOID Municipal Ordinance No. 92-072, (Makati Revenue Code) of the
Municipality of Makati and ordering Defendants to refund or issue as tax credit in favor of Plaintiff the sum of
P27,854.91 plus interest.

2. Assuming without admitting that the Municipal Ordinance No. 92-072 (Makati Revenue Code) is valid,
declaring that the rates imposed by said ordinance accrue only on July 1, 1993 and ordering Defendants to
refund or issue as tax credit in favor of Plaintiff the sum of P9,284.97.
8

On May 18, 1994, respondents Makati and its Acting Municipal Treasurer filed a motion to dismiss the complaint on
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the ground of prematurity. They argued that petitioner’s cause of action was predicated on the appealed resolution
of the DOJ, and unless and until nullified by final judgment of a competent court, the ordinance remained in full force
and effect.

On May 26, 1994, petitioner opposed the motion to dismiss of respondents, contending that its complaint was not
predicated solely on the invalidity and unconstitutionality of the ordinance but also on its claim that the ordinance
took effect only in July 1, 1993 but Makati applied the ordinance effective April 1, 1993. Petitioner further averred
that under Section 166 of the Local Government Code, new taxes, fees or charges or charges provided for in the
ordinance shall accrue on the first day of the quarter following the effectivity of the new ordinance. Hence, assuming
that the tax ordinance was valid, the same should have been enforced only from the "first (1st) day of the quarter
following next the effectivity of the ordinance imposing such new levies or rates" as provided for in Section 166 of
the Local Government Code.

On August 29, 1994, the RTC issued an order granting the motion to dismiss of respondent and ordering the
dismissal of the complaint. The trial court ruled that plaintiff’s cause of action, if any, had prescribed. Citing Sections
187 and 195 of the Local Government Code of 1991, the trial court ratiocinated that petitioner failed to file an
opposition or protest to the written notice of assessment of Makati for taxes, fees and charges at rates provided for
in the ordinance within 60 days from the notice of said assessment as required by Section 195 of the Local
Government Code. Hence, petitioner was barred from demanding a refund of its payment or that it be credited for
said amounts.

Petitioner received a copy of said order on October 7, 1994. On October 13, 1994, petitioner filed with the trial court
a motion for reconsideration of the order of dismissal, arguing that the trial court erred in applying Section 195 of
10 

the Local Government Code of 1991 as its complaint did not involve an assessment for deficiency taxes but one for
refund/tax credit. Petitioner further claimed that it was never served with any notice of assessment from respondents
and hence there was no need for petitioner to protest. Petitioner argued that what was applicable was Section 196
of the Local Government Code in conjunction with Article 286 of its Implementing Rules and Regulations, both of
which simply require the filing of a written claim for refund or tax credit within two years from the date of payment.

On December 28, 1994, the trial court issued an order denying the motion for reconsideration of petitioner, a copy
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of which was served on petitioner on February 13, 1995. The trial court declared that Section 195 of the Local
Government Code covers all kinds of assessments and not merely deficiency assessments for taxes, fees or
charges. The trial court further ruled that the issue of the validity and constitutionality of the ordinance was still
pending resolution by Branch 148 of the RTC in Civil Case No. 93-2844 and until declared null and void, otherwise
by final judgment, the ordinance remained valid.

Petitioner filed on February 20, 1995 a petition for review on certiorari under Rule 45 of the Rules of Court,
contending that:

RESPONDENT JUDGE ERRED IN HOLDING THAT THE INSTANT CASE IS NOT A CLAIM FOR REFUND
UNDER SECTION 196 OF THE LGC IN RELATION TO ARTICLE 286 OF ITS IMPLEMENTING RULES, BUT A
DEFICIENCY ASSESSMENT THAT HAS TO BE PROTESTED UNDER SECTION 195 OF THE SAME CODE.

RESPONDENT JUDGE ERRED IN DISMISSING THE CASE ON THE GROUND OF PENDENCY OF ANOTHER
ACTION CONTESTING THE LEGALITY OR CONSTITUTIONALITY OF THE MAKATI REVENUE CODE IS STILL
BEING DETERMINED IN BRANCH 148 OF THE REGIONAL TRIAL COURT OF MAKATI. 12

Anent the first assignment of errors, petitioner avers that its action in the RTC was one for a refund of its
overpayments governed by Article 196 of the Local Government Code implemented by Article 286 of the
Implementing Rules and Regulations of the Code and not one involving an assessment for deficiency taxes
governed by Section 195 of the said Code. Petitioner contends that it was not mandated to first file a protest with
respondents before instituting its action for a refund of its overpayments or for it to be credited for said
overpayments. For its part, respondent Makati avers that petitioner was proscribed from filing its complaint with the
RTC and for a refund of its alleged overpayment, petitioner having paid without any protest the taxes due to
respondent Makati under the ordinance. It is further asserted by respondent Makati that until declared null and void
by a competent court, the ordinance was valid and should be enforced.

The petition has no merit.

The Court agrees with petitioner that as a general precept, a taxpayer may file a complaint assailing the validity of
the ordinance and praying for a refund of its perceived overpayments without first filing a protest to the payment of
taxes due under the ordinance. This was our ruling in Ty v. Judge Trampe: 13

. . . Hence, if a taxpayer disputes the reasonableness of an increase in a real estate tax assessment, he is required
to "first pay the tax" under protest. Otherwise, the city or municipal treasurer will not act on his protest. In the case at
bench, however, the petitioners are questioning the very authority and power of the assessor, acting solely and
independently, to impose the assessment and of the treasurer to collect the tax. These are not questions merely of
amounts of the increase in the tax but attacks on the very validity of any increase.

In this case, petitioner, relying on the resolution of the Secretary of Justice in The Philippine Racing Club, Inc. v.
Municipality of Makati case, posited in its complaint that the ordinance which was the basis of respondent Makati for
the collection of taxes from petitioner was null and void. However, the Court agrees with the contention of
respondents that petitioner was proscribed from filing its complaint with the RTC of Makati for the reason that
petitioner failed to appeal to the Secretary of Justice within 30 days from the effectivity date of the ordinance as
mandated by Section 187 of the Local Government Code which reads:

Sec. 187-Procedure for Approval and Effectivity of Tax Ordinances and Revenue Measures; Mandatory Public
Hearings.- The procedure for approval of local tax ordinances and revenue measures shall be in accordance with
the provisions of this Code: Provided, That public hearings shall be conducted for the purpose prior to the
enactment thereof: Provided further, That any question on the constitutionality or legality of tax ordinances or
revenue measures may be raised on appeal within thirty (30) days from the effectivity thereof to the Secretary of
Justice who shall render a decision within sixty (60) days from the date of receipt of the appeal: Provided,
however, That such appeal shall not have the effect of suspending the effectivity of the ordinance and the accrual
and payment of the tax, fee, or charge levied therein: Provided, finally, That within thirty (30) days after receipt of
the decision or the lapse of the sixty-day period without the Secretary of Justice acting upon the appeal, the
aggrieved party may file appropriate proceedings with a court of competent jurisdiction.

In Reyes v. Court of Appeals, we ruled that failure of a taxpayer to interpose the requisite appeal to the Secretary of
14 

Justice is fatal to its complaint for a refund:

Clearly, the law requires that the dissatisfied taxpayer who questions the validity or legality of a tax ordinance must
file his appeal to the Secretary of Justice, within 30 days from effectivity thereof. In case the Secretary decides the
appeal, a period also of 30 days is allowed for an aggrieved party to go to court. But if the Secretary does not act
thereon, after the lapse of 60 days, a party could already proceed to seek relief in court. These three separate
periods are clearly given for compliance as a prerequisite before seeking redress in a competent court. Such
statutory periods are set to prevent delays as well as enhance the orderly and speedy discharge of judicial
functions. For this reason the courts construe these provisions of statutes as mandatory.

A municipal tax ordinance empowers a local government unit to impose taxes. The power to tax is the most effective
instrument to raise needed revenues to finance and support the myriad activities of local government units for the
delivery of basic services essential to the promotion of the general welfare and enhancement of peace, progress,
and prosperity of the people. Consequently, any delay in implementing tax measures would be to the detriment of
the public. It is for this reason that protests over tax ordinances are required to be done within certain time frames.
In the instant case, it is our view that the failure of petitioners to appeal to the Secretary of Justice within 30 days as
required by Sec. 187 of R.A. 7160 is fatal to their cause.

Moreover, petitioner even paid without any protest the amounts of taxes assessed by respondents Makati and
Acting Treasurer as provided for in the ordinance. Evidently, the complaint of petitioner with the Regional Trial Court
was merely an afterthought.

In view of our foregoing disquisitions, the Court no longer deems it necessary to resolve other issues posed by
petitioner.

IN LIGHT OF ALL THE FOREGOING, the petition is DENIED. The order of the Regional Trial Court dismissing the
complaint of petitioner is AFFIRMED.

SO ORDERED.

Bellosillo, (Chairman), Mendoza, Quisumbing and Austria-Martinez, JJ., concur.