G.R. No. L-21516; April 29, 1966
BUTUAN SAWMILL, INC., petitioner-appellee, vs. CITY OF BUTUAN, ET AL., respondents-appellants.

FACTS

Petitioner Butuan Sawmill, Inc. holds a legislative franchise ( Republic Act No. 399 ) to operate an electric light, heat, and power system in Butuan and Cabadbaran, Agusan, and a certificate of public convenience from the Public Service Commission. Respondent City of Butuan enacted several ordinances: Ordinance No. 7 (effective October 1, 1950), as amended by Ordinances Nos. 11, 131, and 148, imposes a 2% tax on the gross sales or receipts of businesses operated in the city, later specifically including “Those engaged in the business of electric light, heat and power.” Ordinance No. 104 makes it unlawful to disconnect electric wires from a consumer without the consumer’s consent, except in cases of fire, clear danger, or upon order by proper authorities. The City argued its taxing power was granted by its charter (Republic Act 523) and enlarged by the Local Autonomy Act (Republic Act 2264), and that the franchise was subject to amendment. Butuan Sawmill contested the ordinances as unconstitutional for impairing its franchise contract, depriving it of property without due process, and being ultra vires.

ISSUE

1. Whether the City of Butuan had the authority to impose the 2% tax on the gross sales or receipts of Butuan Sawmill’s franchised electric business.
2. Whether Ordinance No. 104, prohibiting disconnection of electric service without consumer consent under specified conditions, is a valid exercise of power.

RULING

1. The City of Butuan did NOT have the authority to impose the 2% tax on Butuan Sawmill’s franchised electric business. The franchise, a special law enacted earlier (June 18, 1949), prevails over the city’s general charter (June 15, 1950) under the rule that a special law remains an exception to a general law. Furthermore, the Local Autonomy Act (Republic Act 2264), while allowing cities to tax businesses, specifically prohibits in Section 2(j) the imposition of “Taxes of any kind on … persons paying franchise tax.” Butuan Sawmill, being subject to a franchise tax under the Internal Revenue Code, is thus exempt from such local tax. The exception in Section 2(d) for “electric light, heat and power” from the list of prohibited taxes applies only to utilities not paying a franchise tax, to avoid double taxation and give effect to Section 2(j). The city’s interpretation would nullify this specific prohibition.
2. Ordinance No. 104 is UNCONSTITUTIONAL, arbitrary, unreasonable, and oppressive. It constitutes an unwarranted exercise of police power for the general welfare. By compelling the electric company to continue supplying power to a non-paying consumer, it effectively deprives the company of its property (electricity) without due process of law. The remedy of court action for collection is inadequate, as bills would accumulate during litigation. The ordinance’s purpose, admitted by the city as a protest against allegedly inefficient service, is not a valid exercise of the general welfare clause, as jurisdiction over public services and franchises is specifically vested by law in the Public Service Commission, not the city.
The decision of the Court of First Instance declaring the taxing ordinances unconstitutional and ultra vires as applied to Butuan Sawmill, Inc., and annulling Ordinance No. 104, is affirmed.