G.R. No. L-21853; February 26, 1968
Municipality of Opon (now Lapu-Lapu City), et al., petitioners, vs. Caltex (Philippines) Inc., respondent.

FACTS

Caltex (Philippines) Inc., a domestic corporation engaged in importing, distributing, and selling petroleum products, operated a “Caltex Opon Terminal” in the Municipality of Opon, Cebu. This terminal included a tin can factory that manufactured 5-gallon tin cans. From 1950 to 1955, the factory produced a total of 8,037,775 tin cans. Of these, 6,883,429 (85.639%) were used for Caltex’s own products, and 1,154,346 (14.361%) were manufactured for and delivered to Tidewater Associated Oil Company pursuant to a service agreement dated August 1, 1946, whereby Caltex would manufacture cans for Tidewater at cost plus a 3% fee. The Municipality of Opon, under its Ordinance No. 9, series of 1949, which imposed a municipal license tax on a tin can factory based on its maximum annual output capacity, levied and collected from Caltex license taxes totaling P37,050.00 for the years 1950-1955. Caltex filed suit in 1956 to recover these taxes. The Court of First Instance of Cebu dismissed the complaint. The Court of Appeals modified the judgment, allowing Caltex to recover P27,900.00 (representing taxes paid for cans used for its own products, minus the prescribed amount for 1950) but upholding the tax collection of P6,300.00 for the cans produced for Tidewater. The Municipality appealed to the Supreme Court.

ISSUE

Whether the municipal license tax under Ordinance No. 9 can be validly imposed on the entire output of Caltex’s tin can factory, including the tin cans manufactured for its own use in its main business.

RULING

The Supreme Court affirmed the judgment of the Court of Appeals. The license tax cannot be imposed on the tin cans manufactured by Caltex for its own use. The manufacture of containers for its own petroleum products is merely incidental to, and a necessary part of, its main business of selling and distributing those products. Following the precedent in Standard Vacuum Oil Company vs. Antigua, when a person or company is already taxed on its main business, it may not be further taxed for an activity that is merely a part of, incidental to, and necessary for that main business. However, the manufacture of tin cans for Tidewater under a service agreement constitutes a separate business activity subject to the municipal license tax. The Court also ruled that the prescriptive period for the action to recover the illegally collected municipal license taxes is six years under Article 1145(2) of the Civil Code, not the two-year period under the National Internal Revenue Code. Therefore, Caltex could recover taxes paid from 1951 to 1955, while recovery for the 1950 tax was barred by prescription.