MUNICIPALITY OF OPON (NOW LAPU-LAPU CITY),ET AL., PETITIONERS, VS. CALTEX (PHILIPPINES)INC., RESPONDENT.

Suit lodged in 1956 to recover P37,050.00 in municipal license taxes
paid for the years 1950-1955.  The Cebu court dismissed the complaint.^[1]
The Court of Appeals modified, allowed recovery of P27,900.00.^[2]
Petitioners – defendants below – came to this Court on appeal.

The facts, the Court of Appeals found, are:  “Plaintiff-appellant Caltex
(Philippines) Inc., is a domestic corporation engaged in the business of
importing, distributing and selling gasoline, kerosene and other petroleum
products.  For the purpose of storing its
imported petroleum products it has an establishment called ‘Caltex
Opon Terminal’ located in the Municipality of Opon, Cebu.  In addition, the said ‘Caltex
Opon Terminal’ has a tin can factory whereby
plaintiff-appellant manufactures 5-gallon tin cans for its use in the sale and
distribution of its petroleum products. 
Pursuant, however, to a service agreement dated August 1, 1946 and
entered into between plaintiff-appellant and Tide Water Associated Oil Company
(hereinafter called Tidewater), plaintiff-appellant agreed to arrange, within
its ability to do so, in drum and package factories owned and operated by it,
to manufacture, supply and/or fill cans and drums for Tidewater, provided the
latter reimburses herein plaintiff-appellant for all cost and expense caused
thereby, plus three (3%) per cent of such cost and expense.  From 1950 to 1955, plaintiff-appellant’s tin
can factory at its ‘Caltex Opon
Terminal’ manufactured 8,037,775 tin cans, out of which 6,883,429 were used for
the sale and distribution of its own products and 1,154,346 tin cans were
delivered to Tidewater by virtue of the service agreement abovementioned.  An annual breakdown of the foregoing figures
is provided by Exhibit  ‘I’ and
plaintiff-appellant’s brief, as follows:

Ordinance No. 9, series of 1949, of defendant-appellee Municipality
of Opon, Cebu,
imposes a municipal license tax on in factory on the basis of its maximum
annual output capacity, with a schedule of graduated rates.  Pursuant to this ordinance, defendants-appellees levied and collected from plaintiff-appellant
license taxes based on the production of the tin factory at its ‘Caltex Opon Terminal’ for the
years 1950 to 1955 as follows:

The gist of the decision of the Court of Appeals, speaking
through Presiding Justice Jose P. Bengzon, now
Associate Justice of this Court, is that respondent is entitled to recover
P27,900.00 representing license taxes paid for the manufacture of tin cans used
in the sale and distribution of its own products (P30,750 less P2,850, the
amount paid in 1950, action as to which has prescribed); and that the sum of
P6,300.00, collected as license taxes corresponding to the tin cans respondent
produced for Tidewater was properly collectible.

1. Petitioners’ line of argument is this:  respondent company is liable for the entire
output of the tin can factory because profit is the motivating factor in the
manufacture thereof.  Petitioners’ view
is that the tin cans, whether for its own use or for Tidewater upon the
contract heretofore stated, are taxable. 
Reason therefor, so petitioners point out, is
that the license tax is based on the maximum annual output capacity of the
factory.

Ordinance No. 9 here involved is entitled “An Ordinance
imposing a Municipal License Tax on Tin Factory on the Basis of its Maximum
Annual Output Capacity.” Section 1, in part, provides:  “A municipal license tax on tin
factory” is imposed upon “(a) Tin factory with a maximum output
capacity of 30,000 tins — P150.00.”

Tersely put then, the issue is narrowed down to whether
respondent tin can factory is taxable as a separate business of
respondent.  And this, because
petitioners insist that even the tin cans manufactured for use by respondent
itself should be subjected to municipal tax.

On this point, we are not hampered by lack of precedent.  The reach of petitioner municipality’s
licensing power under this very same Ordinance No. 9 had
already been the subject of a judicial test in Standard Vacuum Oil
Company vs. Antigua,^[3]
96 Phil. 909, 913.  The language there is
expressive.  We said that “when a
person or company is already taxed on its main business, it may not
be further taxed for doing some­thing or engaging in an
activity or work which is merely a part of, incidental to and is
necessary to its main business.”^[4]

The Standard Oil case does not stand alone.  In City of Manila vs.
Fortune Enterprises, Inc.,^[5]
this Court ruled that the business of auto supplies, battery charging and
upholstery is part of the main business of automobile repairing and is,
therefore, not taxable separately.  Mr.
Justice Jose B. L. Reyes, speaking for this Court, wrote down the following guidelines:

“x x x The
foregoing ruling^[6]
brings out the point that where something is done as a mere incident to, or as
a necessary consequence of the principal business, it is not ordinarily
taxed as an independent business in itself; and that what is usually taken as
essential is the main activity in which the taxpayer is engaged.  All the various transactions tending to
better accomplish the principal end in view must be treated as merely inci­dental
to the principal purpose of the business, in the absence of circumstances
evidencing a different intent.”

In the sale and distribution of its products in liquid form,
respondent uses containers.  The
container is a part of the product sold. 
By maintaining its factory for tin cans, respondent is assured of
continuous supply thereof.  Therefore,
the tin cans it manufactures for its own use are not within the coverage of
petitioner municipality’s taxing power under Ordinance No. 9.

Withal, the problem does not end here.  The entire-output-of-factory argument
advanced by petitioners needs further articulation.  For, petitioners insist that respondent’s
factory also serves the needs of another entity – Tidewater.  To be noted here is that of the tin cans
produced for the period 1950-1955, 85.63% were used by respondent; 14.361%
delivered to Tidewater.  Jurisprudential
support is not wanting for the decision of the Court of Appeals establishing a
dividing line between the tin cans manufactured for respondent’s own business
and those for Tidewater.

In Manila Press, Inc. vs. Sarmiento, supra,
this Court separately treated the quarterly license tax liability of
plaintiff therein thus:  The papers,
stationeries and office supplies on which customers’ names were printed were
held subject to the tax on the printing business because, for the
printing jobs performed for its customers, “the principal service was that
of a printer”; but the sales of papers, stationeries and office supplies
“on which no printing work was performed,” were
con­sidered subject to the retail dealers’ tax, for the
taxpayer “merely acted as a retail dealer.”

So it is, that in our case, the distinction made by the Court of
Appeals is not without reason.  For the
tin cans produced for Tidewater, license tax was correctly assessed.  But for those produced by respondent for its
own use, no license tax is due, because the manufacture thereof is
“incidental to” and tends “to
better accomplish
the principal
end in view” – its main business.

2. The second assignment of error – that respondent’s action to recover
taxes paid for the years 1951 to 1953 has also prescribed – offers no novel
question of law.  A rule which has earned
acceptance is that the period for prescription of action to recover municipal
license taxes is six years under Article 1145 (2) of the Civil Code.^[7]
The two-year prescriptive period in Section 306 of the National Internal
Revenue Code relied upon by petitioners finds no application.  For, this codal
provision, as we have said in one case,^[8]
“clearly refers exclusively to claims
for refund of ‘national internal revenue tax’ erroneously or illegally
collected” and not “to a refund
of ‘local or municipal license fees’ illegally collected.”

For the reasons given, the judgment under review is hereby
affirmed.

No costs.

SO ORDERED.

Concepcion, C.J., Reyes, J.B.L., Dizon, Makalintal, Zaldivar, Ruiz Castro, Angeles, and Fernando, JJ., concur.

^[1]
Civil Case R-4473, Court of First Instance of Cebu,
Branch II, entitled “Caltex (Philippines)
Inc., Plaintiff, vs. M.D. Antigua, as Municipal Treasurer of Opon, Cebu,
and The Municipality of Opon, Cebu, Defendants.”

^[2]
CA-G.R. 27330-R.

^[3]
M.D. Antigua, Municipal Treasurer in the Standard Gil case is the
same M.D. Antigua, who, as Municipal Treasurer, is one of the defendants in the
courts below, and a petitioner here.

^[4]
Underscoring supplied.

^[5]
L-14096, July 26, 1960.

^[6]
Referring to the rule set out in Manila Press, Inc. vs. Sarmiento, 99 Phil. 31, 34-35.  See also:  Ah Nam
vs. City of Manila, L-15502,
October 25, 1960.

^[7]
Gonzalo Puyat & Sons vs. City of Manila,
L-17447, April 30, 1963, where we held that the provisions of the Civil Code on
solutio indebiti Articles 2154
and 2155 apply in case of payment of a tax imposed under a city ordinance thru
error or mistake and allowed recovery of taxes paid six years prior to demand therefor.  See:  Wise & Co., Inc. vs. City of
Manila, 101 Phil. 244, 247 and Atkins Kroll & Co. vs. City of
Manila, 103 Phil. 520, 521, where this Court ruled that action for refund of
meat inspection fees collected under a void city ordinance had not yet
prescribed upon the provisions of the Civil Code, without however making a
definite pronouncement which particular provision applies.  See also:  Nazario & Sons vs. Central Bank, L-15225, April
29, 1961 and Belman Compania,
Inc. vs. Central Bank, L-15044, July 14, 1960, where this Court, in view
of the six-year prescriptive period provided in Article 1145 (2), held that the
action for the refund a payments made for a foreign exchange tax had not yet
prescribed.

^[8] Santos
vs. The Municipal Government of Caloocan, Rizal, L-15807, April
22, 1963; emphasis supplied. 
See also:  Visayan Electric
Co. vs. City of Dumaguete,
102 Phil. 566, 570.