First Philippine Industrial v. CA (Case Digest. G.R. No. 125948)



FACTS: FPIC is a grantee of a pipeline concession under Republic Act No. 387, as amended, to contract, install and operate oil pipelines. The original pipeline concession was granted in 1967[1] and renewed by the Energy Regulatory Board in 1992.[2]

In January 1995, FPIC applied for a mayor's permit with the Office of the Mayor of Batangas City. However, before the mayor's permit could be issued, the respondent City Treasurer required FPIC to pay a local tax based on its gross receipts for the fiscal year 1993 pursuant to the LGC.[3] The respondent City Treasurer assessed a business tax on the FPIC amounting to P956,076.04 payable in four installments based on the gross receipts for products pumped at GPS-1 for the fiscal year 1993 which amounted to P181,681,151.00. In order not to hamper its operations, FPIC paid the tax under protest in the amount of P239,019.01 for the first quarter of 1993.

On January 20, 1994, FPIC filed a letter-protest[4] addressed to the respondent City Treasurer, alleging exemption under Section 133 (j) of the LGC. City Treasurer denied the protest contending that FPIC cannot be considered engaged in transportation business, thus it cannot claim.[5]
"Section 133. Common Limitations on the Taxing Powers of Local Government Units. - Unless otherwise provided herein, the exercise of the taxing powers of provinces, cities, municipalities, and barangays shall not extend to the levy of the following: xxx

(j) Taxes on the gross receipts of transportation contractors and persons engaged in the transportation of passengers or freight by hire and common carriers by air, land or water, except as provided in this Code."
On June 15, 1994, FPIC filed with the Regional Trial Court of Batangas City a complaint[6] for tax refund with prayer for a writ of preliminary injunction against respondents City of Batangas and City Treasurer.Respondents argued that FPIC cannot be exempt from taxes under Section 133 (j) of the LGC as said exemption applies only to "transportation contractors and persons engaged in the transportation by hire and common carriers by air, land and water." Respondents assert that pipelines are not included in the term "common carrier" which refers solely to ordinary carriers such as trucks, trains, ships and the like. Respondents further posit that the term "common carrier" under the said code pertains to the mode or manner by which a product is delivered to its destination.[8]

On October 3, 1994, RTC ruled against FPIC. CA ruled against FPIC. Affirmed RTC. MR denied.


  1. What is a common carrier?
  2. Is FPIC, an oil pipeline operator, a common carrier?
  3. Does Section 133 (j) of the LGC only refer to common carriers via land, water and air AND via motor vehicle?
  4. Does the law recognize pipeline operators as common carriers?
  5. Why are common carriers exempt from local business tax?

HELD: There is merit in the petition. WHEREFORE, the petition is hereby GRANTED. The decision of the respondent Court of Appeals dated November 29, 1995 in CA-G.R. SP No. 36801 is REVERSED and SET ASIDE.

ISSUE [1]: A "common carrier" may be defined, broadly, as one who holds himself out to the public as engaged in the business of transporting persons or property from place to place, for compensation, offering his services to the public generally.

Article 1732 of the Civil Code defines a "common carrier" as "any person, corporation, firm or association engaged in the business of carrying or transporting passengers or goods or both, by land, water, or air, for compensation, offering their services to the public."

The test for determining whether a party is a common carrier of goods is:
1. He must be engaged in the business of carrying goods for others as a public employment, and must hold himself out as ready to engage in the transportation of goods for person generally as a business and not as a casual occupation;

2. He must undertake to carry goods of the kind to which his business is confined;

3. He must undertake to carry by the method by which his business is conducted and over his established roads; and

4. The transportation must be for hire.[15]
ISSUE [2]: Based on the above definitions and requirements, there is no doubt that FPIC is a common carrier. It is engaged in the business of transporting or carrying goods, i.e. petroleum products, for hire as a public employment. It undertakes to carry for all persons indifferently, that is, to all persons who choose to employ its services, and transports the goods by land and for compensation. The fact that FPIC has a limited clientele does not exclude it from the definition of a common carrier.

ISSUE [3]: Also, respondent's argument that the term "common carrier" as used in Section 133 (j) of the LGC refers only to common carriers transporting goods and passengers through moving vehicles or vessels either by land, sea or water, is erroneous.

As correctly pointed out by FPIC, the definition of "common carriers" in the Civil Code makes no distinction as to the means of transporting, as long as it is by land, water or air. It does not provide that the transportation of the passengers or goods should be by motor vehicle. In fact, in the United States, oil pipe line operators are considered common carriers.[17]

ISSUE [4]: Under the Petroleum Act of the Philippines (Republic Act 387), FPIC is considered a "common carrier." (Article 86)

Republic Act 387 also regards petroleum operation as a public utility. (Article 7)

The Bureau of Internal Revenue likewise considers the FPIC a "common carrier." (BIR Ruling No. 069-83)

ISSUE [5]: The legislative intent is to exclude from the taxing power of the local government unit the imposition of business tax against common carriers is to prevent a duplication of the so-called "common carrier's tax."

FPIC is already paying three (3%) percent common carrier's tax on its gross sales/earnings under the National Internal Revenue Code.[19] To tax FPIC again on its gross receipts in its transportation of petroleum business would defeat the purpose of the LGC.


[1] Rollo, pp. 90-94.

[2] Decision of the Energy Regulatory Board in ERB Case No. 92-94, renewing the Pipeline Concession of FPIC First Philippine Industrial Corporation, formerly known as Meralco Securities Industrial Corporation , (Rollo, pp. 95-100).

[3] Sec. 143. Tax on Business. The municipality may impose taxes on the following business:

xxx xxx xxx

(e) On contractors and other independent contractors, in accordance with the following schedule:

With gross receipts for the preceding Amount of Tax Per Annum

Calendar year in the amount:

x x x x x x

P2,000,000.00 or more at a rate not exceeding fifty

Percent (50%) of one (1%)

[4] Letter Protest dated January 20, 1994, Rollo, pp. 110-111.

[5] Letter of respondent City Treasurer, Rollo, p. 112.

[6] Complaint, Annex "C", Rollo, pp. 51-56.

[7] Rollo, pp. 51-57.

[8] Answer, Annex "J", Rollo, pp. 122-127.

[9] RTC Decision, Rollo, pp. 58-62.

[10] Rollo, p. 84.

[11] CA-G.R. SP No.36801; Penned by Justice Jose C. De la Rama and concurred in by Justice Jaime M. Lantin and Justice Eduardo G. Montenegro; Rollo, pp. 33-47.

[12] Rollo, p. 49.

[13] Resolution dated November 11, 1996 excerpts of which are hereunder quoted:

"The petition is unmeritorious.

"As correctly ruled by respondent appellate court, FPIC is not a common carrier as it is not offering its services to the public.

"Art. 1732 of the Civil Code defines Common Carriers as: persons, corporations, firms or association engaged in the business of carrying or transporting passengers or goods or both, by land, water, or air, for compensation, offering their services to the public.

"We sustain the view that FPIC is a special carrier. Based on the facts on hand, it appears that FPIC is not offering its services to the public.

"We agree with the findings of the appellate court that the claim for exemption from taxation must be strictly construed against the taxpayer. The present understanding of the concept of "common carriers" does not include carriers of petroleum using pipelines. It is highly unconventional to say that the business of transporting petroleum through pipelines involves "common carrier" business. The LGC intended to give exemptions from local taxation to common carriers transporting goods and passengers through moving vehicles or vessels and not through pipelines. The term common carrier under Section 133 (j) of the LGC must be given its simple and ordinary or generally accepted meaning which would definitely not include operators of pipelines."

[14] G.R. No. 125948 (First Philippine Industrial Corporation vs. Court of Appeals, et. al.)- Considering the grounds of the motion for reconsideration, dated December 23, 1996, filed by counsel for FPIC, of the resolution of November 11, 1996 which denied the petition for review on certiorari, the Court Resolved:

(a) to GRANT the motion for reconsideration and to REINSTATE the petition; and

(b) to require respondent to COMMENT on the petition, within ten (10) days from notice.

[15] Agbayani, Commercial Laws of the Phil., 1983 Ed., Vol. 4, p. 5.

[16] 168 SCRA 617-618 [1998].

[17] Giffin v. Pipe Lines, 172 Pa. 580, 33 Alt. 578; Producer Transp. Co. v. Railroad Commission, 241 US 228, 64 L ed 239, 40 S Ct 131.

[18] Journal and Record of the House of Representatives, Fourth Regular Session, Volume 2, pp. 87-89, September 6, 1990; Underscoring Ours.

[19] Annex "D" of Petition, Rollo, pp. 101-109.