G.R. No. L-30159 March 31, 1987
MUNICIPALITY OF SAN FERNANDO, LA UNION, represented by Mayor LORENZO L. DACANAY, plaintiff-appellee, vs. MAYOR TIMOTEO STA. ROMANA, MUNICIPAL TREASURER and their authorized Agents of Luna, La Union and the MUNICIPALITY OF LUNA, LA UNION, defendants-appellants.

FACTS

The Municipality of San Fernando, La Union, needed sand and gravel for a cement road construction project. Its source was within the territorial jurisdiction of the adjacent Municipality of Luna. When San Fernando sent trucks to haul these materials from Barrio Nalvo Norte in Luna, the latter municipality demanded payment of fees per truckload under its Municipal Ordinance No. 1. San Fernando filed a complaint for injunction before the Court of First Instance of La Union, arguing the fees were unreasonable and that it had secured a gratuitous permit from the Bureau of Mines. It sought to enjoin Luna from preventing the hauling and from collecting the fees.
The Municipality of Luna defended the ordinance as a valid exercise of its taxing and police powers under the General Welfare Clause. It contended that San Fernando, by improving its roads to potentially generate higher future municipal revenues, was performing a proprietary function and thus fell under the ordinance as an entity “engaged in any business.” The trial court issued a preliminary injunction and, after treating the matter as a pure question of law, made the injunction permanent, ordering Luna not to prevent San Fernando from getting the materials.

ISSUE

The main issue is whether the Municipality of Luna had the legal authority to enact Ordinance No. 1 and impose the contested license fees on the hauling of sand and gravel from its territory.

RULING

The Supreme Court affirmed the trial court’s order, ruling that the Municipality of Luna lacked the authority to impose the fees. The legal logic hinges on the applicable tax jurisdiction as defined by Presidential Decree No. 231, the Local Tax Code, which was in force at the time of the decision. The Code explicitly grants the province, not the municipality, the power to levy and collect fees on materials like sand and gravel extracted from public waters and lands within its jurisdiction. Specifically, Section 10 authorizes the province to impose such a tax, while Section 22 prohibits a municipality from levying any tax or fee that the province is authorized to levy. Therefore, Ordinance No. 1 of Luna was ultra vires, as it encroached upon a revenue source reserved by law for the provincial government. The Court clarified that while San Fernando could not extract materials without paying applicable taxes, the proper entity to impose such a charge was the Province of La Union, potentially with a revenue share for the municipality, not the Municipality of Luna acting unilaterally. The defense that San Fernando was engaged in a proprietary function was rendered immaterial by this overriding statutory allocation of taxing power.