CASE: City of Cagayan De Oro vs. CEPALCO, G.R. No. 224825, October 17, 2018

 CASE: City of Cagayan De Oro vs. CEPALCO, G.R. No. 224825, October 17, 2018


FACTS: The City of Cagayan de Oro enacted Ordinance No. 9527-2005, imposing an annual Mayor's Permit Fee of P500 on every electric or telecommunications post belonging to public utility companies operating in the city. Petitioner, Cagayan Electric Power & Light Co., Inc. (CEPALCO), a public utility engaged in the distribution of electric power and the owner of an estimated 17,000 utility poles erected within Cagayan de Oro City filed a Declaratory Relief with Damages & Prayer for Temporary Restraining Order & Preliminary Injunction before the Cagayan RTC assailing the ordinance's validity. CEPALCO contended that the imposition, in the guise of police power, was unlawful for violating the fundamental principle that fees, charges, and other impositions shall not be unjust, excessive, oppressive, or confiscatory. The RTC dismissed the case due to CEPALCO's failure to exhaust administrative remedies. It declared that the issue on excessiveness was a question best addressed to the sound discretion of the city council of Cagayan de Oro and CEPALCO neglected to appeal the ordinance to the Secretary of Justice. 


ISSUE/S:

(1) whether or not CEPALCO should have exhausted administrative remedies by challenging the Ordinance before the Secretary of Justice prior to instituting the present action; NO NEED

*what is the nature of the Mayor’s Permit Fee

(2) whether or not the amount of the Mayor's Permit Fee is excessive, unreasonable, and exorbitant. NO, petitioner failed to prove that it is excessive, presumption of constitutionality prevails. 



RULING: 

NO. The Court ruled that ordinances imposing regulatory fees do not need to be challenged before the Secretary of Justice.

Review by the Secretary of Justice is mandatory only when what is being questioned is a tax ordinance or revenue measure. Section 187 does not require the same from parties who assail ordinances imposing regulatory fees. The procedure found in Section 187 must be followed when an ordinance imposes a tax; the institution of an action in court without complying with the requirements of the provision will lead to the dismissal of the case on the ground of non-exhaustion of administrative remedies. However, when an ordinance imposes a fee, direct recourse to the courts may be had without prior protest before the Secretary of Justice. 

In the case, the court treated the Mayor’s Permit Fee as regulatory fees as a valid exercise of police power, hence there was no procedural barrier preventing CEPALCO from instituting the instant petition for declaratory relief before the RTC at the first instance. 

In ruling that that Mayor’s Permit Fee as regulatory fees, the court considers the precedence in the case of Smart Communications, Inc. v. Municipality of Malvar, cursory reading of the whereas clauses makes it is apparent that the purpose of the ordinance is to regulate the construction and maintenance of electric and telecommunications posts erected within Cagayan de Oro City. Nowhere in the text of the ordinance is it shown that it was enacted to raise revenue.


OTHER NOTES: 

1. Unlike the national government, local government units have no inherent power to tax. They merely derive the power from Article X, Section 5 of the 1987 Constitution. Consistent with this provision, the Local Government Code was enacted to give each local government unit the power to create its own sources of revenue and to levy taxes, fees, and charges subject to statutory guidelines and limitations.

2. The term "taxes" has been defined by case law as "the enforced proportional contributions from persons and property levied by the state for the support of government and for all public needs.

While, under the Local Government Code, a "fee" is defined as "any charge fixed by law or ordinance for the regulation or inspection of a business or activity.

3. The purpose of an imposition will determine its nature as either a tax or a fee. 

If the purpose is primarily revenue, or if revenue is at least one of the real and substantial purposes, then the exaction is properly classified as an exercise of the power to tax.

On the other hand, if the purpose is primarily to regulate, then it is deemed an exercise of police power in the form of a fee, even though revenue is incidentally generated. [30] Stated otherwise, if generation of revenue is the primary purpose, the imposition is a tax but, if regulation is the primary purpose, the imposition is properly categorized as a regulatory fee.

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