Smart vs Municipality of Malvar Batangas

 G.R. No. 204429               February 18, 2014

SMART COMMUNICATIONS, INC., Petitioner,

vs.

MUNICIPALITY OF MALVAR, BATANGAS, Respondent.

FACTS:

Smart, in the course of its business, constructed a telecommunications tower within the territorial jurisdiction of the Municipality of Malvar Batangas. 

On 30 July 2003, the Municipality passed Ordinance No. 18, series of 2003, entitled "An Ordinance Regulating the Establishment of Special Projects."

On 24 August 2004, Smart received from the Office of the Mayor of the Municipality an assessment letter with a schedule of payment for the total amount of ₱389,950.00 for Smart’s telecommunications tower. 

Due to the alleged arrears in the payment of the assessment, the Municipality also caused the posting of a closure notice on the telecommunications tower.

Smart filed a protest, claiming lack of due process in the issuance of the assessment and closure notice. In the same protest, Smart challenged the validity of Ordinance No. 18 on which the assessment was based. The Municipality denied Smart’s protest.

Smart filed with RTC an "Appeal/Petition" assailing the validity of Ordinance No. 18. RTC rendered a Decision partly granting Smart’s Appeal/Petition. The trial court confined its resolution of the case to the validity of the assessment, and did not rule on the legality of Ordinance No. 18. The trial court held that the assessment covering the period from 2001 to July 2003 was void since Ordinance No. 18 was approved only on 30 July 2003. However, the trial court declared valid the assessment starting 1 October 2003. The trial court denied the motion for reconsideration.

Thus, Smart filed a petition for review with the CTA First Division. CTA First Division denied the petition for review as well as the motion for reconsideration.

Smart filed a petition for review with the CTA En Banc, which affirmed the CTA First Division’s decision and resolution. The CTA En Banc denied the motion for reconsideration.

Hence, this petition.

ISSUES:

(1) Whether fees imposed under Ordinance No. 18 are taxes.

(2) Whether the [CTA En Banc Decision and Resolution] should be reversed and set aside for being contrary to law and jurisprudence considering that the CTA En Banc should have exercised its jurisdiction and declared the Ordinance as illegal.

RULING:

(1) No, the fees imposed in Ordinance No. 18 are not taxes.

In this case, the Municipality issued Ordinance No. 18, which is entitled "An Ordinance Regulating the Establishment of Special Projects," to regulate the "placing, stringing, attaching, installing, repair and construction of all gas mains, electric, telegraph and telephone wires, conduits, meters and other apparatus, and provide for the correction, condemnation or removal of the same when found to be dangerous, defective or otherwise hazardous to the welfare of the inhabitant[s]." It was also envisioned to address the foreseen "environmental depredation" to be brought about by these "special projects" to the Municipality. Pursuant to these objectives, the Municipality imposed fees on various structures, which included telecommunications towers.

As clearly stated in its whereas clauses, the primary purpose of Ordinance No. 18 is to regulate the "placing, stringing, attaching, installing, repair and construction of all gas mains, electric, telegraph and telephone wires, conduits, meters and other apparatus" listed therein, which included Smart’s telecommunications tower. Clearly, the purpose of the assailed Ordinance is to regulate the enumerated activities particularly related to the construction and maintenance of various structures. The fees in Ordinance No. 18 are not impositions on the building or structure itself; rather, they are impositions on the activity subject of government regulation, such as the installation and construction of the structures.

Since the main purpose of Ordinance No. 18 is to regulate certain construction activities of the identified special projects, which included "cell sites" or telecommunications towers, the fees imposed in Ordinance No. 18 are primarily regulatory in nature, and not primarily revenue-raising. While the fees may contribute to the revenues of the Municipality, this effect is merely incidental. 

Moreover, in Progressive Development Corporation v. Quezon City, the Court declared that "if the generating of revenue is the primary purpose and regulation is merely incidental, the imposition is a tax; but if regulation is the primary purpose, the fact that incidentally revenue is also obtained does not make the imposition a tax."

(2) No, Jurisdiction is conferred by law. Republic Act No. 1125, as amended by Republic Act No. 9282, created the Court of Tax Appeals. Section 7, paragraph (a), sub-paragraph (3)15 of the law vests the CTA with the exclusive appellate jurisdiction over "decisions, orders or resolutions of the Regional Trial Courts in local tax cases originally decided or resolved by them in the exercise of their original or appellate jurisdiction."

The question now is whether the trial court resolved a local tax case in order to fall within the ambit of the CTA’s appellate jurisdiction This question, in turn, depends ultimately on whether the fees imposed under Ordinance No. 18 are in fact taxes.

Therefore, considering that the fees in Ordinance No. 18 are not in the nature of local taxes, and Smart is questioning the constitutionality of the ordinance, the CTA correctly dismissed the petition for lack of jurisdiction. Likewise, Section 187 of the LGC, which outlines the procedure for questioning the constitutionality of a tax ordinance, is inapplicable, rendering unnecessary the resolution of the issue on non-exhaustion of administrative remedies.