3 Important NPC Cases in Taxation

7/25/2019 3 Important NPC Cases in Taxation

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Republic of the Philippines

SUPREME COURT

Manila

THIRD DIVISION

G.R. No. 168557 February 16, 2007

FELS ENERGY, INC., Petitioner,

vs.

THE PROVINCE OF BATANGAS and

THE OFFICE OF THE PROVINCIAL ASSESSOR OF BATANGAS, Respondents.

x----------------------------------------------------x

G.R. No. 170628 February 16, 2007

NATIONAL POWER CORPORATION, Petitioner,

vs.

LOCAL BOARD OF ASSESSMENT APPEALS OF BATANGAS, LAURO C. ANDAYA, in his

capacity as the Assessor of the Province of Batangas, and the PROVINCE OF BATANGAS

represented by its Provincial Assessor, Respondents.

D E C I S I O N

CALLEJO, SR., J.:


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Before us are two consolidated cases docketed as G.R. No. 168557 and G.R. No. 170628,

which were filed by petitioners FELS Energy, Inc. (FELS) and National Power Corporation

(NPC), respectively. The first is a petition for review on certiorari assailing the August 25, 2004

Decision1 of the Court of Appeals (CA) in CA-G.R. SP No. 67490 and its Resolution2 datedJune 20, 2005; the second, also a petition for review on certiorari, challenges the February 9,

2005 Decision3 and November 23, 2005 Resolution4 of the CA in CA-G.R. SP No. 67491. Both

petitions were dismissed on the ground of prescription.

The pertinent facts are as follows:

On January 18, 1993, NPC entered into a lease contract with Polar Energy, Inc. over 3x30 MW

diesel engine power barges moored at Balayan Bay in Calaca, Batangas. The contract,denominated as an Energy Conversion Agreement5 (Agreement), was for a period of five years.

Article 10 reads:

10.1 RESPONSIBILITY. NAPOCOR shall be responsible for the payment of (a) all taxes, import

duties, fees, charges and other levies imposed by the National Government of the Republic of

the Philippines or any agency or instrumentality thereof to which POLAR may be or become

subject to or in relation to the performance of their obligations under this agreement (other

than (i) taxes imposed or calculated on the basis of the net income of POLAR and Personal

Income Taxes of its employees and (ii) construction permit fees, environmental permit feesand other similar fees and charges) and (b) all real estate taxes and assessments, rates and

other charges in respect of the Power Barges.6

Subsequently, Polar Energy, Inc. assigned its rights under the Agreement to FELS. The NPC

initially opposed the assignment of rights, citing paragraph 17.2 of Article 17 of the Agreement.

On August 7, 1995, FELS received an assessment of real property taxes on the power barges

from Provincial Assessor Lauro C. Andaya of Batangas City. The assessed tax, which likewise

covered those due for 1994, amounted to P56,184,088.40 per annum. FELS referred the matter

to NPC, reminding it of its obligation under the Agreement to pay all real estate taxes. It then

gave NPC the full power and authority to represent it in any conference regarding the real

property assessment of the Provincial Assessor.


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In a letter7 dated September 7, 1995, NPC sought reconsideration of the Provincial Assessors

decision to assess real property taxes on the power barges. However, the motion was denied

on September 22, 1995, and the Provincial Assessor advised NPC to pay the assessment.8

This prompted NPC to file a petition with the Local Board of Assessment Appeals (LBAA) for

the setting aside of the assessment and the declaration of the barges as non-taxable items; it

also prayed that should LBAA find the barges to be taxable, the Provincial Assessor bedirected to make the necessary corrections.9

In its Answer to the petition, the Provincial Assessor averred that the barges were real property

for purposes of taxation under Section 199(c) of Republic Act (R.A.) No. 7160.

Before the case was decided by the LBAA, NPC filed a Manifestation, informing the LBAA that

the Department of Finance (DOF) had rendered an opinion10 dated May 20, 1996, where it is

clearly stated that power barges are not real property subject to real property assessment.

On August 26, 1996, the LBAA rendered a Resolution11 denying the petition. The fallo reads:

WHEREFORE, the Petition is DENIED. FELS is hereby ordered to pay the real estate tax in the

amount of P56,184,088.40, for the year 1994.

SO ORDERED.12

The LBAA ruled that the power plant facilities, while they may be classified as movable or

personal property, are nevertheless considered real property for taxation purposes because

they are installed at a specific location with a character of permanency. The LBAA also pointed

out that the owner of the bargesFELS, a private corporationis the one being taxed, not NPC.

A mere agreement making NPC responsible for the payment of all real estate taxes and

assessments will not justify the exemption of FELS; such a privilege can only be granted to

NPC and cannot be extended to FELS. Finally, the LBAA also ruled that the petition was filedout of time.

Aggrieved, FELS appealed the LBAAs ruling to the Central Board of Assessment Appeals

(CBAA).


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On August 28, 1996, the Provincial Treasurer of Batangas City issued a Notice of Levy and

Warrant by Distraint13 over the power barges, seeking to collect real property taxes amounting

to P232,602,125.91 as of July 31, 1996. The notice and warrant was officially served to FELS

on November 8, 1996. It then filed a Motion to Lift Levy dated November 14, 1996, praying thatthe Provincial Assessor be further restrained by the CBAA from enforcing the disputed

assessment during the pendency of the appeal.

On November 15, 1996, the CBAA issued an Order14 lifting the levy and distraint on the

properties of FELS in order not to preempt and render ineffectual, nugatory and illusory any

resolution or judgment which the Board would issue.

Meantime, the NPC filed a Motion for Intervention15 dated August 7, 1998 in the proceedingsbefore the CBAA. This was approved by the CBAA in an Order16 dated September 22, 1998.

During the pendency of the case, both FELS and NPC filed several motions to admit bond to

guarantee the payment of real property taxes assessed by the Provincial Assessor (in the

event that the judgment be unfavorable to them). The bonds were duly approved by the CBAA.

On April 6, 2000, the CBAA rendered a Decision17 finding the power barges exempt from real

property tax. The dispositive portion reads:

WHEREFORE, the Resolution of the Local Board of Assessment Appeals of the Province of

Batangas is hereby reversed. Respondent-appellee Provincial Assessor of the Province of

Batangas is hereby ordered to drop subject property under ARP/Tax Declaration No. 018-

00958 from the List of Taxable Properties in the Assessment Roll. The Provincial Treasurer of

Batangas is hereby directed to act accordingly.

SO ORDERED.18

Ruling in favor of FELS and NPC, the CBAA reasoned that the power barges belong to NPC;

since they are actually, directly and exclusively used by it, the power barges are covered by the

exemptions under Section 234(c) of R.A. No. 7160.19 As to the other jurisdictional issue, the


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CBAA ruled that prescription did not preclude the NPC from pursuing its claim for tax

exemption in accordance with Section 206 of R.A. No. 7160. The Provincial Assessor filed a

motion for reconsideration, which was opposed by FELS and NPC.

In a complete volte face, the CBAA issued a Resolution20 on July 31, 2001 reversing its earlier

decision. The fallo of the resolution reads:

WHEREFORE, premises considered, it is the resolution of this Board that:

(a) The decision of the Board dated 6 April 2000 is hereby reversed.

(b) The petition of FELS, as well as the intervention of NPC, is dismissed.

(c) The resolution of the Local Board of Assessment Appeals of Batangas is hereby affirmed,

(d) The real property tax assessment on FELS by the Provincial Assessor of Batangas is

likewise hereby affirmed.

SO ORDERED.21

FELS and NPC filed separate motions for reconsideration, which were timely opposed by the

Provincial Assessor. The CBAA denied the said motions in a Resolution22 dated October 19,

2001.

Dissatisfied, FELS filed a petition for review before the CA docketed as CA-G.R. SP No. 67490.Meanwhile, NPC filed a separate petition, docketed as CA-G.R. SP No. 67491.

On January 17, 2002, NPC filed a Manifestation/Motion for Consolidation in CA-G.R. SP No.

67490 praying for the consolidation of its petition with CA-G.R. SP No. 67491. In a

Resolution23 dated February 12, 2002, the appellate court directed NPC to re-file its motion for


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consolidation with CA-G.R. SP No. 67491, since it is the ponente of the latter petition who

should resolve the request for reconsideration.

NPC failed to comply with the aforesaid resolution. On August 25, 2004, the Twelfth Division of

the appellate court rendered judgment in CA-G.R. SP No. 67490 denying the petition on the

ground of prescription. The decretal portion of the decision reads:

WHEREFORE, the petition for review is DENIED for lack of merit and the assailed Resolutions

dated July 31, 2001 and October 19, 2001 of the Central Board of Assessment Appeals are

AFFIRMED.

SO ORDERED.24

On September 20, 2004, FELS timely filed a motion for reconsideration seeking the reversal of

the appellate courts decision in CA-G.R. SP No. 67490.

Thereafter, NPC filed a petition for review dated October 19, 2004 before this Court, docketed

as G.R. No. 165113, assailing the appellate courts decision in CA-G.R. SP No. 67490. The

petition was, however, denied in this Courts Resolution25 of November 8, 2004, for NPCs

failure to sufficiently show that the CA committed any reversible error in the challengeddecision. NPC filed a motion for reconsideration, which the Court denied with finality in a

Resolution26 dated January 19, 2005.

Meantime, the appellate court dismissed the petition in CA-G.R. SP No. 67491. It held that the

right to question the assessment of the Provincial Assessor had already prescribed upon the

failure of FELS to appeal the disputed assessment to the LBAA within the period prescribed by

law. Since FELS had lost the right to question the assessment, the right of the Provincial

Government to collect the tax was already absolute.

NPC filed a motion for reconsideration dated March 8, 2005, seeking reconsideration of the

February 5, 2005 ruling of the CA in CA-G.R. SP No. 67491. The motion was denied in a

Resolution27 dated November 23, 2005.


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The motion for reconsideration filed by FELS in CA-G.R. SP No. 67490 had been earlier denied

for lack of merit in a Resolution28 dated June 20, 2005.

On August 3, 2005, FELS filed the petition docketed as G.R. No. 168557 before this Court,

raising the following issues:

A.

Whether power barges, which are floating and movable, are personal properties and therefore,

not subject to real property tax.

B.

Assuming that the subject power barges are real properties, whether they are exempt from real

estate tax under Section 234 of the Local Government Code ("LGC").

C.

Assuming arguendo that the subject power barges are subject to real estate tax, whether or

not it should be NPC which should be made to pay the same under the law.

D.

Assuming arguendo that the subject power barges are real properties, whether or not the same

is subject to depreciation just like any other personal properties.

E.


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Whether the right of the petitioner to question the patently null and void real property tax

assessment on the petitioners personal properties is imprescriptible.29

On January 13, 2006, NPC filed its own petition for review before this Court (G.R. No. 170628),

indicating the following errors committed by the CA:

I

THE COURT OF APPEALS GRAVELY ERRED IN HOLDING THAT THE APPEAL TO THE LBAA

WAS FILED OUT OF TIME.

II

THE COURT OF APPEALS GRAVELY ERRED IN NOT HOLDING THAT THE POWER BARGES

ARE NOT SUBJECT TO REAL PROPERTY TAXES.

III

THE COURT OF APPEALS GRAVELY ERRED IN NOT HOLDING THAT THE ASSESSMENT ON

THE POWER BARGES WAS NOT MADE IN ACCORDANCE WITH LAW.30

Considering that the factual antecedents of both cases are similar, the Court ordered the

consolidation of the two cases in a Resolution31 dated March 8, 2006.1awphi1.net

In an earlier Resolution dated February 1, 2006, the Court had required the parties to submittheir respective Memoranda within 30 days from notice. Almost a year passed but the parties

had not submitted their respective memoranda. Considering that taxesthe lifeblood of our

economyare involved in the present controversy, the Court was prompted to dispense with

the said pleadings, with the end view of advancing the interests of justice and avoiding further

delay.


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In both petitions, FELS and NPC maintain that the appeal before the LBAA was not time-barred.

FELS argues that when NPC moved to have the assessment reconsidered on September 7,

1995, the running of the period to file an appeal with the LBAA was tolled. For its part, NPC

posits that the 60-day period for appealing to the LBAA should be reckoned from its receipt of

the denial of its motion for reconsideration.

Petitioners contentions are bereft of merit.

Section 226 of R.A. No. 7160, otherwise known as the Local Government Code of 1991,

provides:

SECTION 226. Local Board of Assessment Appeals. Any owner or person having legalinterest in the property who is not satisfied with the action of the provincial, city or municipal

assessor in the assessment of his property may, within sixty (60) days from the date of receipt

of the written notice of assessment, appeal to the Board of Assessment Appeals of the

province or city by filing a petition under oath in the form prescribed for the purpose, together

with copies of the tax declarations and such affidavits or documents submitted in support of

the appeal.

We note that the notice of assessment which the Provincial Assessor sent to FELS on August

7, 1995, contained the following statement:

If you are not satisfied with this assessment, you may, within sixty (60) days from the date of

receipt hereof, appeal to the Board of Assessment Appeals of the province by filing a petition

under oath on the form prescribed for the purpose, together with copies of ARP/Tax

Declaration and such affidavits or documents submitted in support of the appeal.32

Instead of appealing to the Board of Assessment Appeals (as stated in the notice), NPC opted

to file a motion for reconsideration of the Provincial Assessors decision, a remedy notsanctioned by law.

The remedy of appeal to the LBAA is available from an adverse ruling or action of the

provincial, city or municipal assessor in the assessment of the property. It follows then that

the determination made by the respondent Provincial Assessor with regard to the taxability of


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the subject real properties falls within its power to assess properties for taxation purposes

subject to appeal before the LBAA.33

We fully agree with the rationalization of the CA in both CA-G.R. SP No. 67490 and CA-G.R. SP

No. 67491. The two divisions of the appellate court cited the case of Callanta v. Office of the

Ombudsman,34 where we ruled that under Section 226 of R.A. No 7160,35 the last action of

the local assessor on a particular assessment shall be the notice of assessment; it is this last

action which gives the owner of the property the right to appeal to the LBAA. The procedure

likewise does not permit the property owner the remedy of filing a motion for reconsideration

before the local assessor. The pertinent holding of the Court in Callanta is as follows:

x x x [T]he same Code is equally clear that the aggrieved owners should have brought their

appeals before the LBAA. Unfortunately, despite the advice to this effect contained in their

respective notices of assessment, the owners chose to bring their requests for a

review/readjustment before the city assessor, a remedy not sanctioned by the law. To allow

this procedure would indeed invite corruption in the system of appraisal and assessment. It

conveniently courts a graft-prone situation where values of real property may be initially set

unreasonably high, and then subsequently reduced upon the request of a property owner. In

the latter instance, allusions of a possible covert, illicit trade-off cannot be avoided, and in fact

can conveniently take place. Such occasion for mischief must be prevented and excised from

our system.36

For its part, the appellate court declared in CA-G.R. SP No. 67491:

x x x. The Court announces: Henceforth, whenever the local assessor sends a notice to the

owner or lawful possessor of real property of its revised assessed value, the former shall no

longer have any jurisdiction to entertain any request for a review or readjustment. The

appropriate forum where the aggrieved party may bring his appeal is the LBAA as provided by

law. It follows ineluctably that the 60-day period for making the appeal to the LBAA runs

without interruption. This is what We held in SP 67490 and reaffirm today in SP 67491.37

To reiterate, if the taxpayer fails to appeal in due course, the right of the local government to

collect the taxes due with respect to the taxpayers property becomes absolute upon the

expiration of the period to appeal.38 It also bears stressing that the taxpayers failure to

question the assessment in the LBAA renders the assessment of the local assessor final,

executory and demandable, thus, precluding the taxpayer from questioning the correctness of

the assessment, or from invoking any defense that would reopen the question of its liability on


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the merits.39

In fine, the LBAA acted correctly when it dismissed the petitioners appeal for having been filed

out of time; the CBAA and the appellate court were likewise correct in affirming the dismissal.

Elementary is the rule that the perfection of an appeal within the period therefor is both

mandatory and jurisdictional, and failure in this regard renders the decision final and

executory.40

In the Comment filed by the Provincial Assessor, it is asserted that the instant petition is

barred by res judicata; that the final and executory judgment in G.R. No. 165113 (where there

was a final determination on the issue of prescription), effectively precludes the claims herein;

and that the filing of the instant petition after an adverse judgment in G.R. No. 165113

constitutes forum shopping.

FELS maintains that the argument of the Provincial Assessor is completely misplaced since it

was not a party to the erroneous petition which the NPC filed in G.R. No. 165113. It avers that

it did not participate in the aforesaid proceeding, and the Supreme Court never acquired

jurisdiction over it. As to the issue of forum shopping, petitioner claims that no forum

shopping could have been committed since the elements of litis pendentia or res judicata are

not present.

We do not agree.

Res judicata pervades every organized system of jurisprudence and is founded upon two

grounds embodied in various maxims of common law, namely: (1) public policy and necessity,

which makes it to the interest of the

State that there should be an end to litigation republicae ut sit litium; and (2) the hardship on

the individual of being vexed twice for the same cause nemo debet bis vexari et eademcausa. A conflicting doctrine would subject the public peace and quiet to the will and

dereliction of individuals and prefer the regalement of the litigious disposition on the part of

suitors to the preservation of the public tranquility and happiness.41 As we ruled in Heirs of

Trinidad De Leon Vda. de Roxas v. Court of Appeals:42


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x x x An existing final judgment or decree rendered upon the merits, without fraud or

collusion, by a court of competent jurisdiction acting upon a matter within its authority is

conclusive on the rights of the parties and their privies. This ruling holds in all other actions or

suits, in the same or any other judicial tribunal of concurrent jurisdiction, touching on the

points or matters in issue in the first suit.

x x x

Courts will simply refuse to reopen what has been decided. They will not allow the same

parties or their privies to litigate anew a question once it has been considered and decided

with finality. Litigations must end and terminate sometime and somewhere. The effective and

efficient administration of justice requires that once a judgment has become final, the

prevailing party should not be deprived of the fruits of the verdict by subsequent suits on the

same issues filed by the same parties.

This is in accordance with the doctrine of res judicata which has the following elements: (1)

the former judgment must be final; (2) the court which rendered it had jurisdiction over the

subject matter and the parties; (3) the judgment must be on the merits; and (4) there must be

between the first and the second actions, identity of parties, subject matter and causes of

action. The application of the doctrine of res judicata does not require absolute identity of

parties but merely substantial identity of parties. There is substantial identity of parties when

there is community of interest or privity of interest between a party in the first and a party in

the second case even if the first case did not implead the latter.43

To recall, FELS gave NPC the full power and authority to represent it in any proceeding

regarding real property assessment. Therefore, when petitioner NPC filed its petition for review

docketed as G.R. No. 165113, it did so not only on its behalf but also on behalf of FELS.

Moreover, the assailed decision in the earlier petition for review filed in this Court was the

decision of the appellate court in CA-G.R. SP No. 67490, in which FELS was the petitioner.

Thus, the decision in G.R. No. 165116 is binding on petitioner FELS under the principle of

privity of interest. In fine, FELS and NPC are substantially "identical parties" as to warrant the

application of res judicata. FELSs argument that it is not bound by the erroneous petition filed

by NPC is thus unavailing.

On the issue of forum shopping, we rule for the Provincial Assessor. Forum shopping exists

when, as a result of an adverse judgment in one forum, a party seeks another and possibly

favorable judgment in another forum other than by appeal or special civil action or certiorari.


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There is also forum shopping when a party institutes two or more actions or proceedings

grounded on the same cause, on the gamble that one or the other court would make a

favorable disposition.44

Petitioner FELS alleges that there is no forum shopping since the elements of res judicata are

not present in the cases at bar; however, as already discussed, res judicata may be properly

applied herein. Petitioners engaged in forum shopping when they filed G.R. Nos. 168557 and

170628 after the petition for review in G.R. No. 165116. Indeed, petitioners went from one

court to another trying to get a favorable decision from one of the tribunals which allowed

them to pursue their cases.

It must be stressed that an important factor in determining the existence of forum shopping is

the vexation caused to the courts and the parties-litigants by the filing of similar cases to claim

substantially the same reliefs.45 The rationale against forum shopping is that a party should

not be allowed to pursue simultaneous remedies in two different fora. Filing multiple petitions

or complaints constitutes abuse of court processes, which tends to degrade the

administration of justice, wreaks havoc upon orderly judicial procedure, and adds to the

congestion of the heavily burdened dockets of the courts.46

Thus, there is forum shopping when there exist: (a) identity of parties, or at least such parties

as represent the same interests in both actions, (b) identity of rights asserted and relief prayed

for, the relief being founded on the same facts, and (c) the identity of the two preceding

particulars is such that any judgment rendered in the pending case, regardless of which party

is successful, would amount to res judicata in the other.47

Having found that the elements of res judicata and forum shopping are present in the

consolidated cases, a discussion of the other issues is no longer necessary. Nevertheless, for

the peace and contentment of petitioners, we shall shed light on the merits of the case.

As found by the appellate court, the CBAA and LBAA power barges are real property and arethus subject to real property tax. This is also the inevitable conclusion, considering that G.R.

No. 165113 was dismissed for failure to sufficiently show any reversible error. Tax

assessments by tax examiners are presumed correct and made in good faith, with the

taxpayer having the burden of proving otherwise.48 Besides, factual findings of administrative

bodies, which have acquired expertise in their field, are generally binding and conclusive upon

the Court; we will not assume to interfere with the sensible exercise of the judgment of men

especially trained in appraising property. Where the judicial mind is left in doubt, it is a sound


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policy to leave the assessment undisturbed.49 We find no reason to depart from this rule in

this case.

In Consolidated Edison Company of New York, Inc., et al. v. The City of New York, et al.,50 a

power company brought an action to review property tax assessment. On the citys motion to

dismiss, the Supreme Court of New York held that the barges on which were mounted gas

turbine power plants designated to generate electrical power, the fuel oil barges which

supplied fuel oil to the power plant barges, and the accessory equipment mounted on the

barges were subject to real property taxation.

Moreover, Article 415 (9) of the New Civil Code provides that "[d]ocks and structures which,

though floating, are intended by their nature and object to remain at a fixed place on a river,

lake, or coast" are considered immovable property. Thus, power barges are categorized as

immovable property by destination, being in the nature of machinery and other implements

intended by the owner for an industry or work which may be carried on in a building or on a

piece of land and which tend directly to meet the needs of said industry or work.51

Petitioners maintain nevertheless that the power barges are exempt from real estate tax under

Section 234 (c) of R.A. No. 7160 because they are actually, directly and exclusively used by

petitioner NPC, a government- owned and controlled corporation engaged in the supply,

generation, and transmission of electric power.

We affirm the findings of the LBAA and CBAA that the owner of the taxable properties is

petitioner FELS, which in fine, is the entity being taxed by the local government. As stipulated

under Section 2.11, Article 2 of the Agreement:

OWNERSHIP OF POWER BARGES. POLAR shall own the Power Barges and all the fixtures,

fittings, machinery and equipment on the Site used in connection with the Power Barges which

have been supplied by it at its own cost. POLAR shall operate, manage and maintain the Power

Barges for the purpose of converting Fuel of NAPOCOR into electricity.52

It follows then that FELS cannot escape liability from the payment of realty taxes by invoking

its exemption in Section 234 (c) of R.A. No. 7160, which reads:


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SECTION 234. Exemptions from Real Property Tax. The following are exempted from

payment of the real property tax:

x x x

(c) All machineries and equipment that are actually, directly and exclusively used by local

water districts and government-owned or controlled corporations engaged in the supply and

distribution of water and/or generation and transmission of electric power; x x x

Indeed, the law states that the machinery must be actually, directly and exclusively used by the

government owned or controlled corporation; nevertheless, petitioner FELS still cannot find

solace in this provision because Section 5.5, Article 5 of the Agreement provides:

OPERATION. POLAR undertakes that until the end of the Lease Period, subject to the supply of

the necessary Fuel pursuant to Article 6 and to the other provisions hereof, it will operate the

Power Barges to convert such Fuel into electricity in accordance with Part A of Article 7.53

It is a basic rule that obligations arising from a contract have the force of law between the

parties. Not being contrary to law, morals, good customs, public order or public policy, the

parties to the contract are bound by its terms and conditions.54

Time and again, the Supreme Court has stated that taxation is the rule and exemption is the

exception.55 The law does not look with favor on tax exemptions and the entity that would

seek to be thus privileged must justify it by words too plain to be mistaken and too categorical

to be misinterpreted.56 Thus, applying the rule of strict construction of laws granting tax

exemptions, and the rule that doubts should be resolved in favor of provincial corporations, we

hold that FELS is considered a taxable entity.

The mere undertaking of petitioner NPC under Section 10.1 of the Agreement, that it shall be

responsible for the payment of all real estate taxes and assessments, does not justify the

exemption. The privilege granted to petitioner NPC cannot be extended to FELS. The covenant

is between FELS and NPC and does not bind a third person not privy thereto, in this case, the

Province of Batangas.


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It must be pointed out that the protracted and circuitous litigation has seriously resulted in the

local governments deprivation of revenues. The power to tax is an incident of sovereignty and

is unlimited in its magnitude, acknowledging in its very nature no perimeter so that security

against its abuse is to be found only in the responsibility of the legislature which imposes thetax on the constituency who are to pay for it.57 The right of local government units to collect

taxes due must always be upheld to avoid severe tax erosion. This consideration is consistent

with the State policy to guarantee the autonomy of local governments58 and the objective of

the Local Government Code that they enjoy genuine and meaningful local autonomy to

empower them to achieve their fullest development as self-reliant communities and make

them effective partners in the attainment of national goals.59

In conclusion, we reiterate that the power to tax is the most potent instrument to raise the

needed revenues to finance and support myriad activities of the local government units for thedelivery of basic services essential to the promotion of the general welfare and the

enhancement of peace, progress, and prosperity of the people.60

WHEREFORE, the Petitions are DENIED and the assailed Decisions and Resolutions

AFFIRMED.

SO ORDERED.

ROMEO J. CALLEJO, SR.

Associate Justice

WE CONCUR:

CONSUELO YNARES-SANTIAGO

Associate Justice MA. ALICIA AUSTRIA-MARTINEZ

Asscociate Justice

MINITA V. CHICO-NAZARIO


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Associate Justice

A T T E S T A T I O N

I attest that the conclusions in the above Decision had been reached in consultation before the

case was assigned to the writer of the opinion of the Courts Division.

CONSUELO YNARES-SANTIAGO

Associate Justice

Chairperson

C E R T I F I C A T I O N

Pursuant to Section 13, Article VIII of the Constitution and the Division Chairpersons

Attestation, it is hereby certified that the conclusions in the above decision were reached in

consultation before the case was assigned to the writer of the opinion of the Courts Division.

REYNATO S. PUNO

Chief Justice

Footnotes

1 Penned by Associate Justice Marina L. Buzon, with Associate Justices Mario L. Guaria III

and Santiago Javier Ranada (retired), concurring; rollo (G.R. No. 168557), pp. 103-116.

2 Penned by Associate Justice Marina L. Buzon, with Associate Justices Mario L. Guaria III

and Santiago Javier Ranada; concurring; id. at 118-120.


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3 Penned by Associate Justice Mario L. Guaria III, with Associate Justices Marina L. Buzon

and Santiago Javier Ranada; concurring; rollo (G.R. No. 170628), pp. 59-64.

4 Penned by Associate Justice Mario L. Guaria III, with Associate Justices Marina L. Buzon

and Santiago Javier Ranada; concurring; id. at 65.

5 Rollo (G.R. No. 168557), pp. 121-245.

6 Id. at 155.

7 Id. at 249-250.

8 Id. at 253-255.

9 Rollo (G.R. No. 168557), pp. 256-267.

10 Id. at 286-288.

11 Id. at 289-294.

12 Id. at 294.

13 Rollo (G.R. No. 170628), pp. 122-124.

14 Id. at 129.


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15 Rollo (G.R. No. 168557), pp. 364-369.

16 Id. at 370-372.

17 Id. at 383-394.

18 Id. at 394.

19 Otherwise known as the "Local Government Code of 1991."

20 Rollo (G.R. No. 168557), pp. 425-431.

21 Id. at 430-431.

22 Id. at 478.

23 CA Rollo (CA-G.R. SP No. 67490), p. 422.

24 Rollo (G.R. No. 168557), pp. 49-50.

25 Id. at 605.

26 Id. at 606.

27 Rollo (G.R. No. 170628), p. 65.


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28 Rollo (G.R. No. 168557), pp. 23-25.

29 Id. at 61.

30 Rollo (G.R. No. 170628), pp. 18-19.

31 Rollo (G.R. No. 168557), p. 637.

32 Id. at 246 (Italics supplied).

33 Systems Plus Computer College of Caloocan City v. Local Government of Caloocan City,

455 Phil. 956, 962-963 (2003).

34 G.R. Nos. 115253-74, January 30, 1998, 285 SCRA 648.

35 Formerly Section 30 of The Real Property Tax Code.

36 Callanta v. Office of the Ombudsman, supra note 33, at 661-662.

37 Rollo (G.R. No. 170628), pp. 62-63.

38 Manila Electric Company v. Barlis, G. R. No. 114231, June 29, 2004, 433 SCRA 11, 32.

39 Id. at 32-33.

40 See Borja Estate v. Ballad, G.R. No. 152550, June 8, 2005, 459 SCRA 657, 668, 670.


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41 Cruz v. Court of Appeals, G.R. No. 164797, February 13, 2006, 482 SCRA 379, 395, citing

Heirs of the Late Faustina Adalid v. Court of Appeals, 459 SCRA 27, 41 (2005).

42 G.R. No. 138660, February 5, 2004, 422 SCRA 101.

43 Id. at 116.

44 Municipality of Taguig v. Court of Appeals, G.R. No. 142619, September 13, 2005, 469

SCRA 588, 594-595.

45 Foronda v. Guerrero, Adm. Case No. 5469, August 10, 2004, 436 SCRA 9, 23.

46 Wee v. Galvez, G.R. No. 147394, August 11, 2004, 436 SCRA 96, 108-109.

47 Hongkong and Shanghai Banking Corporation Limited v. Catalan, G.R. Nos. 159590 and

159591, October 18, 2004, 440 SCRA 498, 513-514.

48 Commissioner of Internal Revenue v. Hantex Trading Co., Inc., G.R. No. 136975, March 31,

2005, 454 SCRA 301, 329.

49 Cagayan Robina Sugar Milling Co. v. Court of Appeals, 396 Phil. 830, 840 (2000).

50 80 Misc.2d 1065 (1975).

51 J. Vitug, civil law volume ii, property, ownership, and its modifications, 3-4 (2003).

52 Rollo (G.R. No. 168557), p. 135.


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53 Id. at 142. (Emphasis supplied)

54 L & L Lawrence Footwear, Inc. v. PCI Leasing and Finance Corporation, G.R. No. 160531,August 30, 2005, 468 SCRA 393, 402.

55 Commissioner of Internal Revenue v. Philippine Long Distance Telephone Company, G.R.

No. 140230, December 15, 2005, 478 SCRA 61, 74.

56 Republic v. City of Kidapawan, G.R. No. 166651, December 9, 2005, 477 SCRA 324, 335,

citing Sea-Land Service, Inc. v. Court of Appeals, 357 SCRA 441, 444 (2001).

57 Mactan Cebu International Airport Authority v. Marcos, G.R. No. 120082, September 11,

1996, 261 SCRA 667, 679.

58 CONSTITUTION, Section 25, Article II, and Section 2, Article X.

59 Republic Act No. 7160, Section 2(a).

60 Mactan Cebu International Airport Authority v. Marcos, supra note 56, at 690.

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SUPREME COURT

Manila

SECOND DIVISION

G.R. No. 152675 April 28, 2004

BATANGAS POWER CORPORATION, petitioner,

vs.

BATANGAS CITY and NATIONAL POWER CORPORATION, respondents.

x - - - - - - - - - - - - - - - - - - - - x

G.R. No. 152771 April 28, 2004

NATIONAL POWER CORPORATION, petitioner,

vs.

HON. RICARDO R. ROSARIO, in his capacity as Presiding Judge, RTC, Br. 66, Makati City;

BATANGAS CITY GOVERNMENT; ATTY. TEODULFO DEGUITO, in his capacity as Chief Legal

Officer, Batangas City; and BENJAMIN PARGAS, in his capacity as City Treasurer, Batangas

City, respondents.

DECISION

PUNO, J.:


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Before us are two (2) consolidated petitions for review under Rule 45 of the Rules of Civil

Procedure, seeking to set aside the rulings of the Regional Trial Court of Makati in its February

27, 2002 Decision in Civil Case No. 00-205.

The facts show that in the early 1990s, the country suffered from a crippling power crisis.

Power outages lasted 8-12 hours daily and power generation was badly needed. Addressing

the problem, the government, through the National Power Corporation (NPC), sought to attract

investors in power plant operations by providing them with incentives, one of which was

through the NPCs assumption of payment of their taxes in the Build Operate and Transfer

(BOT) Agreement.

On June 29, 1992, Enron Power Development Corporation (Enron) and petitioner NPC entered

into a Fast Track BOT Project. Enron agreed to supply a power station to NPC and transfer its

plant to the latter after ten (10) years of operation. Section 11.02 of the BOT Agreement

provided that NPC shall be responsible for the payment of all taxes that may be imposed on

the power station, except income taxes and permit fees. Subsequently, Enron assigned its

obligation under the BOT Agreement to petitioner Batangas Power Corporation (BPC).

On September 13, 1992, BPC registered itself with the Board of Investments (BOI) as a pioneer

enterprise. On September 23, 1992, the BOI issued a certificate of registration1 to BPC as a

pioneer enterprise entitled to a tax holiday for a period of six (6) years. The construction of the

power station in respondent Batangas City was then completed. BPC operated the station.

On October 12, 1998, Batangas City (the city, for brevity), thru its legal officer Teodulfo A.

Deguito, sent a letter to BPC demanding payment of business taxes and penalties,

commencing from the year 1994 as provided under Ordinance XI or the 1992 Batangas City

Tax Code.2 BPC refused to pay, citing its tax-exempt status as a pioneer enterprise for six (6)

years under Section 133 (g) of the Local Government Code (LGC).3

On April 15, 1999, city treasurer Benjamin S. Pargas modified the citys tax claim4 anddemanded payment of business taxes from BPC only for the years 1998-1999. He

acknowledged that BPC enjoyed a 6-year tax holiday as a pioneer industry but its tax

exemption period expired on September 22, 1998, six (6) years after its registration with the

BOI on September 23, 1992. The city treasurer held that thereafter BPC became liable to pay

its business taxes.


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BPC still refused to pay the tax. It insisted that its 6-year tax holiday commenced from the date

of its commercial operation on July 16, 1993, not from the date of its BOI registration in

September 1992.5 It furnished the city with a BOI letter6 wherein BOI designated July 16, 1993

as the start of BPCs income tax holiday as BPC was not able to immediately operate due to

force majeure. BPC claimed that the local tax holiday is concurrent with the income tax holiday.

In the alternative, BPC asserted that the city should collect the tax from the NPC as the latterassumed responsibility for its payment under their BOT Agreement.

The matter was not put to rest. The city legal officer insisted7 that BPCs tax holiday has

already expired, while the city argued that it directed its tax claim to BPC as it is the entity

doing business in the city and hence liable to pay the taxes. The city alleged that it was not

privy to NPCs assumption of BPCs tax payment under their BOT Agreement as the only

parties thereto were NPC and BPC.

BPC adamantly refused to pay the tax claims and reiterated its position.8 The city was likewise

unyielding on its stand.9 On August 26, 1999, the NPC intervened.10 While admitting

assumption of BPCs tax obligations under their BOT Agreement, NPC refused to pay BPCs

business tax as it allegedly constituted an indirect tax on NPC which is a tax-exempt

corporation under its Charter.11

In view of the deadlock, BPC filed a petition for declaratory relief12 with the Makati Regional

Trial Court (RTC) against Batangas City and NPC, praying for a ruling that it was not bound to

pay the business taxes imposed on it by the city. It alleged that under the BOT Agreement, NPC

is responsible for the payment of such taxes but as NPC is exempt from taxes, both the BPC

and NPC are not liable for its payment. NPC and Batangas City filed their respective answers.

On February 23, 2000, while the case was still pending, the city refused to issue a permit to

BPC for the operation of its business unless it paid the assessed business taxes amounting to

close to P29M.

In view of this supervening event, BPC, whose principal office is in Makati City, filed a

supplemental petition13 with the Makati RTC to convert its original petition into an action for

injunction to enjoin the city from withholding the issuance of its business permit and closing

its power plant. The city opposed on the grounds of lack of jurisdiction and lack of cause of

action.14 The Supplemental Petition was nonetheless admitted by the Makati RTC.


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On February 27, 2002, the Makati RTC dismissed the petition for injunction. It held that: (1)

BPC is liable to pay business taxes to the city; (2) NPCs tax exemption was withdrawn with the

passage of R.A. No. 7160 (The Local Government Code); and, (3) the 6-year tax holiday

granted to pioneer business enterprises starts on the date of registration with the BOI as

provided in Section 133 (g) of R.A. No. 7160, and not on the date of its actual business

operations.15

BPC and NPC filed with this Court a petition for review on certiorari16 assailing the Makati RTC

decision. The petitions were consolidated as they impugn the same decision, involve the same

parties and raise related issues.17

In G.R. No. 152771, the NPC contends:

I

RESPONDENT COURT ACTED WITH GRAVE ABUSE OF DISCRETION AMOUNTING TO LACK

OR EXCESS OF JURISDICTION WHEN IT ARBITRARILY AND CAPRICIOUSLY RULED THAT

PETITIONER NPC HAS LOST ITS TAX EXEMPTION PRIVILEGE BECAUSE SECTION 193 OF R.A.

7160 (LOCAL GOVERNMENT CODE) HAS WITHDRAWN SUCH PRIVILEGE DESPITE THE

SETTLED JURISPRUDENCE THAT THE ENACTMENT OF A LEGISLATION, WHICH IS A

GENERAL LAW, CANNOT REPEAL A SPECIAL LAW AND THAT SECTION 13 OF R.A. 6395(NPC LAW) WAS NOT SPECIFICALLY MENTIONED IN THE REPEALING CLAUSE IN SECTION

534 OF R.A. 7160, AMONG OTHERS.

II


OR EXCESS OF JURISDICTION WHEN IT ARBITRARILY AND CAPRICIOUSLY OMITTED THE

CLEAR PROVISION OF SECTION 133, PARAGRAPH (O) OF R.A. 7160 WHICH EXEMPTS"NATIONAL GOVERNMENT, ITS AGENCIES AND INSTRUMENTALITIES" FROM THE

IMPOSITION OF "TAXES, FEES OR CHARGES OF ANY KIND."

III


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OR EXCESS OF JURISDICTION WHEN IT ERRONEOUSLY AND CAPRICIOUSLY ADMITTED

BPCs SUPPLEMENTAL PETITION FOR INJUNCTION NOTWITHSTANDING THAT IT HAD NO

JURISDICTION OVER THE PARTY (CITY GOVERNMENT OF BATANGAS) SOUGHT TO BEENJOINED.

In G.R. No. 152675, BPC also contends that the trial court erred: 1) in holding it liable for

payment of business taxes even if it is undisputed that NPC has already assumed payment

thereof; and, 2) in ruling that BPCs 6-year tax holiday commenced on the date of its

registration with the BOI as a pioneer enterprise.

The issues for resolution are:

1. whether BPCs 6-year tax holiday commenced on the date of its BOI registration as a pioneer

enterprise or on the date of its actual commercial operation as certified by the BOI;

2. whether the trial court had jurisdiction over the petition for injunction against Batangas City;

and,

3. whether NPCs tax exemption privileges under its Charter were withdrawn by Section 193 of

the Local Government Code (LGC).

We find no merit in the petition.

On the first issue, petitioners BPC and NPC contend that contrary to the impugned decision,

BPCs 6-year tax holiday should commence on the date of its actual commercial operations ascertified to by the BOI, not on the date of its BOI registration.

We disagree. Sec. 133 (g) of the LGC, which proscribes local government units (LGUs) from

levying taxes on BOI-certified pioneer enterprises for a period of six years from the date of

registration, applies specifically to taxes imposed by the local government, like the business


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tax imposed by Batangas City on BPC in the case at bar. Reliance of BPC on the provision of

Executive Order No. 226,18 specifically Section 1, Article 39, Title III, is clearly misplaced as

the six-year tax holiday provided therein which commences from the date of commercial

operation refers to income taxes imposed by the national government on BOI-registered

pioneer firms. Clearly, it is the provision of the Local Government Code that should apply to the

tax claim of Batangas City against the BPC. The 6-year tax exemption of BPC should thuscommence from the date of BPCs registration with the BOI on July 16, 1993 and end on July

15, 1999.

Anent the second issue, the records disclose that petitioner NPC did not oppose BPCs

conversion of the petition for declaratory relief to a petition for injunction or raise the issue of

the alleged lack of jurisdiction of the Makati RTC over the petition for injunction before said

court. Hence, NPC is estopped from raising said issue before us. The fundamental rule is that

a party cannot be allowed to participate in a judicial proceeding, submit the case for decision,

accept the judgment only if it is favorable to him but attack the jurisdiction of the court when itis adverse.19

Finally, on the third issue, petitioners insist that NPCs exemption from all taxes under its

Charter had not been repealed by the LGC. They argue that NPCs Charter is a special law

which cannot be impliedly repealed by a general and later legislation like the LGC. They

likewise anchor their claim of tax-exemption on Section 133 (o) of the LGC which exempts

government instrumentalities, such as the NPC, from taxes imposed by local government units

(LGUs), citing in support thereof the case of Basco v. PAGCOR.20

We find no merit in these contentions. The effect of the LGC on the tax exemption privileges of

the NPC has already been extensively discussed and settled in the recent case of National

Power Corporation v. City of Cabanatuan.21 In said case, this Court recognized the removal of

the blanket exclusion of government instrumentalities from local taxation as one of the most

significant provisions of the 1991 LGC. Specifically, we stressed that Section 193 of the

LGC,22 an express and general repeal of all statutes granting exemptions from local taxes,

withdrew the sweeping tax privileges previously enjoyed by the NPC under its Charter. We

explained the rationale for this provision, thus:

In recent years, the increasing social challenges of the times expanded the scope of state

activity, and taxation has become a tool to realize social justice and the equitable distribution

of wealth, economic progress and the protection of local industries as well as public welfare

and similar objectives. Taxation assumes even greater significance with the ratification of the

1987 Constitution. Thenceforth, the power to tax is no longer vested exclusively on Congress;


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local legislative bodies are now given direct authority to levy taxes, fees and other charges

pursuant to Article X, section 5 of the 1987 Constitution, viz:

Section 5.- Each Local Government unit shall have the power to create its own sources of

revenue, to levy taxes, fees and charges subject to such guidelines and limitations as the

Congress may provide, consistent with the basic policy of local autonomy. Such taxes, fees

and charges shall accrue exclusively to the Local Governments.

This paradigm shift results from the realization that genuine development can be achieved

only by strengthening local autonomy and promoting decentralization of governance. For a

long time, the countrys highly centralized government structure has bred a culture of

dependence among local government leaders upon the national leadership. It has also

"dampened the spirit of initiative, innovation and imaginative resilience in matters of local

development on the part of local government leaders. The only way to shatter this culture of

dependence is to give the LGUs a wider role in the delivery of basic services, and confer them

sufficient powers to generate their own sources for the purpose. To achieve this goal, x x x the

1987 Constitution mandates Congress to enact a local government code that will, consistent

with the basic policy of local autonomy, set the guidelines and limitations to this grant of

taxing powers x x x."

To recall, prior to the enactment of the x x x Local Government Code x x x, various measures

have been enacted to promote local autonomy. x x x Despite these initiatives, however, the

shackles of dependence on the national government remained. Local government units were

faced with the same problems that hamper their capabilities to participate effectively in the

national development efforts, among which are: (a) inadequate tax base, (b) lack of fiscal

control over external sources of income, (c) limited authority to prioritize and approve

development projects, (d) heavy dependence on external sources of income, and (e) limited

supervisory control over personnel of national line agencies.

Considered as the most revolutionary piece of legislation on local autonomy, the LGC

effectively deals with the fiscal constraints faced by LGUs. It widens the tax base of LGUs to

include taxes which were prohibited by previous laws x x x.

Neither can the NPC successfully rely on the Basco case23 as this was decided prior to the

effectivity of the LGC, when there was still no law empowering local government units to tax

instrumentalities of the national government.


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Consequently, when NPC assumed the tax liabilities of the BPC under their 1992 BOT

Agreement, the LGC which removed NPCs tax exemption privileges had already been in effect

for six (6) months. Thus, while BPC remains to be the entity doing business in said city, it is the

NPC that is ultimately liable to pay said taxes under the provisions of both the 1992 BOTAgreement and the 1991 Local Government Code.

IN VIEW WHEREOF, the petitions are DISMISSED. No costs.

SO ORDERED.

Quisumbing, Austria-Martinez, Callejo, Sr., and Tinga, JJ., concur.

Footnotes

1 G.R. No. 152771 Rollo, p. 66.

2 In the amount of P34, 551, 543.96; G.R. No. 152675 Rollo, p. 60.

3 Republic Act No. 7160 which took effect on January 1, 1992; See letter of BPC President

Miguel T. Gaffud, Jr.; G.R. No. 152675 Rollo, p. 61.

4 Amount of business tax assessed was lowered to P28, 689, 732.41 as of July 1999, based

on the gross receipt of every preceding year; G.R. No. 152675 Rollo, p. 62.

5 See BPC Letter, G.R. No. 152675 Rollo, p. 63.


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6 G.R. No. 152771 Rollo, p. 67; BOI cited Article 7 (14) of Executive Order 226 to support its

decision to designate a later date.

7 G.R. No. 152675 Rollo, p. 64.

8 BPC Letter, dated July 21, 1999; G.R. No. 152675 Rollo, pp. 65-66.

9 See Letter of City Legal Officer; G.R. No. 152675 Rollo, p. 67.

10 See Letter of NPC OIC Comie P. Doromal, G.R. No. 152675 Rollo, pp. 68-70.

11 Under Section 13, Republic Act No. 6395, as amended.

12 Docketed as Civil Case No. 00-205 and raffled to RTC Branch 66, Makati City, presided by

public respondent Judge Ricardo R. Rosario; G.R. No. 152771 Rollo, pp. 58-65.

13 G.R. No. 152771 Rollo, pp. 89-94.

14 G.R. No. 152771 Rollo, pp. 97-99.

15 Decision, id., pp. 49-57.

16 Docketed as G.R. No. 152675.

17 October 2, 2002 Resolution, G.R. No. 152771 Rollo, p. 130.

18 Otherwise known as the 1987 Omnibus Investment Code, as amended in 1995 by Republic


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Act No. 7918.

19 Roxas vs. Court of Appeals, 391 SCRA 351 (2002).

20 197 SCRA 51 (1991).

21 Promulgated April 9, 2003, G.R. No. 149110.

22 "Sec. 193. Withdrawal of Tax Exemption Privileges. - Unless otherwise provided in this Code,

tax exemptions or incentives granted to, or presently enjoyed by all persons, whether natural or

juridical, including government-owned or controlled corporations, except local water districts,cooperatives duly registered under R.A. No. 6938, non-stock and non-profit hospitals and

educational institutions, are hereby withdrawn upon the effectivity of this Code."

Section 534, the repealing clause of the LGC, also states that all general and special laws, acts,

city charters, decrees, executive orders, proclamations and administrative regulations or parts

thereof inconsistent with the provisions of this Code are repealed or modified accordingly.

23 Supra.

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SUPREME COURT

Manila

SECOND DIVISION

G.R. No. 171470 January 30, 2009

NATIONAL POWER CORPORATION, Petitioner,

vs.

CENTRAL BOARD OF ASSESSMENT APPEALS (CBAA), LOCAL BOARD OF ASSESSMENT

APPEALS (LBAA) OF LA UNION, PROVINCIAL TREASURER, LA UNION and MUNICIPAL

ASSESSOR OF BAUANG, LA UNION, Respondents.

D E C I S I O N

BRION, J.:

What are the real property tax implications of a Build-Operate-Transfer (BOT) agreement

between a government-owned and controlled corporation (GOCC) that enjoys tax exemption

and a private corporation? Specifically, under the terms of the BOT Areement, can the GOCC be

deemed the actual, direct, and exclusive user of machineries and equipment for tax exemption

purposes? If not, can it pass on its tax-exempt status to its BOT partner, a private corporation,

through the BOT agreement?

The National Power Corporation (NAPOCOR) claims in this case that the machineries and

equipment used in a project covered by a BOT agreement, to which it is a party, should be

accorded the tax-exempt status it enjoys. The Local Board of Assessment Appeals of the

Province of La Union (LBAA), the Central Board of Assessment Appeals (CBAA) and the Court

of Tax Appeals (CTA) were one in rejecting NAPOCORs claim.


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The present petition for review on certiorari filed under Rule 45 of the Rules of Court by

NAPOCOR challenges this uniform ruling and seeks the reversal of the CTAs Decision dated

February 13, 2006 in the consolidated cases of NAPOCOR v. CBAA, et al.1 and Bauang Private

Power Corp. v. Sangguniang Panlalawigan ng La Union, et al.,2 and of the denial of the motion

for reconsideration that followed.

THE ANTECEDENTS

On January 11, 1993, First Private Power Corporation (FPPC) entered into a BOT agreement

with NAPOCOR for the construction of the 215 Megawatt Bauang Diesel Power Plant in

Payocpoc, Bauang, La Union. The BOT Agreement provided, via an Accession Undertaking, for

the creation of the Bauang Private Power Corporation (BPPC) that will own, manage and

operate the power plant/station, and assume and perform FPPCs obligations under the BOT

agreement. For a fee,3 BPPC will convert NAPOCORs supplied diesel fuel into electricity and

deliver the product to NAPOCOR.

The pertinent provisions of the BOT agreement, as they relate to the submitted issues in the

present case, read:

2.03 NAPOCOR shall make available the Site to CONTRACTOR for the purpose of building and

operating the Power Station at no cost to CONTRACTOR for the period commencing on theEffective Date and ending on the Transfer Date and NAPOCOR shall be responsible for the

payment of all real estate taxes and assessments, rates, and other charges in respect of the

Site and the buildings and improvements thereon.

x x x x

2.08 From the date hereof until the Transfer Date, CONTRACTOR shall, directly or indirectly,

own the Power Station and all the fixtures, fittings, machinery, and equipment on the Site orused in connection with the Power Station which have been supplied by it or at its cost and it

shall operate and manage the Power Station for the purpose of converting fuel of NAPOCOR

into electricity.

2.09 Until the Transfer Date, NAPOCOR shall, at its own cost, supply and deliver all Fuel for the


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Power Station and shall take all electricity generated by the Power Station at the request of

NAPOCOR which shall pay to CONTRACTOR fees as provided in Clause 11.

x x x x

2.11 On the Transfer Date, the Power Station shall be transferred by the CONTRACTOR to

NAPOCOR without payment of any compensation.

The Officer-in-Charge of the Municipal Assessors Office of Bauang, La Union initially issued

Declaration of Real Property Nos. 25016 and 25022 to 25029 declaring BPPCs machineries

and equipment as tax-exempt. On the initiative of the Bauang Vice Mayor, the municipality

questioned before the Regional Director of the Bureau of Local Government Finance (BLGF)the declared tax exemption; later, the issue was elevated to the Deputy Executive Director and

Officer-in-Charge of the BLGF, Department of Finance, who ruled that BPPCs machineries and

equipments are subject to real property tax and directed the Assessors Office to take

appropriate action.

The Provincial/Municipal Assessors thereupon issued Revised Tax Declaration Nos. 30026 to

30033 and 30337, and cancelled the earlier issued Declarations of Real Property. The

Municipal Assessor of Bauang then issued a Notice of Assessment and Tax Bill to BPPC

assessing/taxing the machineries and equipments in the total sum of P288,582,848.00 for the1995-1998 period, sans interest of two percent (2%) on the unpaid amounts. BPPCs Vice-

President and Plant Manager received the Notice of Assessment and Tax Bill on August 7,

1998.

On October 5, 1998, NAPOCOR filed a petition (styled In Re Petition to Declare Exempt the

Revised and Retroactive to 1995 Tax Declaration Nos. 30026 to 30033 and 30037) with the

LBAA. The petition asked that, retroactive to 1995, the machineries covered by the tax

declarations be exempt from real property tax under Section 234(c) of Republic Act No. 7160

(the Local Government Code or LGC); and, that these properties be dropped from theassessment roll pursuant to Section 206 of the LGC. Section 234(c) of the LGC provides: 4

Section 234. Exemptions from Real Property Tax. The following are exempted from the

payment of real property tax:


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x x x x

(c) All machineries and equipment that are actually, directly and exclusively used by local

water districts and government-owned or controlled corporations engaged in the supply and

distribution of water and/or generation and transmission of electric power;

x x x x.

The LBAA denied NAPOCORs petition for exemption in a Decision dated October 26, 2001. It

ruled that the exemption provided by Section 234(c) of the LGC applies only when a

government-owned or controlled corporation like NAPOCOR owns and/or actually uses

machineries and equipment for the generation and transmission of electric power; in this case,NAPOCOR does not own and does not even actually and directly use the machineries. It is the

BPPC, a non-government entity, which owns, maintains, and operates the machineries and

equipment; using these, it generates electricity and then sells this to NAPOCOR. Additionally, it

ruled that the liability for the payment of the real estate taxes is determined by law and not by

the agreement of the parties; hence, the provision in the BOT Agreement whereby NAPOCOR

assumed responsibility for the payment of all real estate taxes and assessments, rates, and

other charges, in relation with the site, buildings, and improvements in the BOT project, is an

arrangement between the parties that cannot be the basis in identifying who is liable to the

government for the real estate tax.

NAPOCOR appealed the LBAA ruling to the CBAA. BPPC moved to intervene on the ground that

it has a direct interest in the outcome of the litigation.5 The CBAA subsequently dismissed the

appeal based on its finding that the BPPC, and not NAPOCOR, is the actual, direct and

exclusive user of the equipment and machineries; thus, the exemption under Section 234(c)

does not apply. The CBAA ruled:

Sec. 234 (c), R.A. 7160 (supra), is clear and unambiguous: "there is no room for construction."

(citations omitted)

x x x x

Actual use, according to Sec. 199 (b) of R.A. 7160, "refers to the purpose for which the


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property is principally or predominantly utilized by the person in possession thereof." In Velez

v. Locsin, 55 SCRA 152: "The word use means to employ for the attainment of some purpose

or end." In the "Operation of the Power Station" (Clause 8.01 of the BOT Agreement),

CONTRACTOR shall, at its own cost, be responsible for the management, operation,

maintenance and repair of the Power Station during the Co-operation period x x x." Said Co-

operation period is fifteen (15) years, after which the Power Station will be turned over ortransferred to NAPOCOR. Does this determine when NAPOCOR should take over the actual,

direct and exclusive use of the Power Station? That is fifteen (15) years therefrom?

It has been established that BPPC manufactures or generates the power which is sold to

NAPOCOR and NAPOCOR distributes said power to the consumers. In other words, the

relationship between BPPC and NAPOCOR is one of manufacturer or seller and exclusive

distributor or buyer. The general perception is that the exclusive distributor or buyer of goods

has nothing to do with the manufacturing thereof but as exclusive distributor the latter has the

right to acquire all the goods to be sold to the exclusion of all others.

In terms of the definitions under Sec. 199 (b) and that offered by Respondents-Appelless

(supra), the machineries and equipment are principally or predominantly utilized by BPPC. In

terms of the Velez vs. Locsin case (supra), BPPC employs the machineries and equipment to

attain its purpose of generating power to be sold to NAPOCOR and collect payment therefrom

to compensate for its investment. The BOT Agreement is not a contract for nothing.

The following definitions are given by Blacks Law Dictionary, Third Edition:

"Actually is opposed to seemingly, pretendedly, or feignedly, as actually engaged in farming

means really, truly in fact."

"Directly. In a direct way without anything intervening; not by secondary, but by direct means."

"Exclusively. Apart from all others; without admission of others to participation; in a manner to

exclude."

Indeed BPPC does not use said machineries and equipment pretendedly or feignedly but truly

and factually hence, "actually." BPPC uses them without anything intervening hence, directly.


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BPPC uses the same machineries and equipment apart from all others hence, exclusively. This

is the fact against the fact there is no argument. This same fact will also deny NAPOCORs

claim to a ten (10%) assessment level provided for under Sec. 218 of R.A. 7160 (supra) as to

the requirement thereto is simply the same as that in realty tax exemption. The BPPC is a

private entity, not a Government Owned or Controlled Corporation (GOCC), hence, not entitled

to a 10% assessment level.

NAPOCOR then filed with the CTA a petition for review, docketed as CTA E.B. No. 51, to

challenge the CBAA decision. BPPC filed its own petition for review of the CBAA decision with

the CTA which was docketed as CTA E.B. No. 58. The two petitions were subsequently

consolidated.

THE APPEALED CTA RULING

The CTA rendered on February 13, 2006 a decision dismissing the consolidated petitions. It

ruled on two issues: (1) whether BPPC seasonably filed its protest against the assessment;

and (2) whether the machineries and equipments are actually, directly, and exclusively used by

NAPOCOR in the generation and transmission of electric power, and are therefore not subject

to tax.

On the first issue, the CTA applied Section 226 of the LGC which provides the remedy from anassessment as follows:

SEC. 226. Local Board of Assessment Appeals. Any owner or person having legal interest in

the property who is not satisfied with the action of the provincial, city or municipal assessor in

the assessment of his property may, within sixty (60) days from the date of receipt of the

written notice of assessment, appeal to the Board of Assessment Appeals in the province or

city by filing a petition under oath in the form prescribed for the purpose, together with copies

of tax declarations and such affidavits or documents submitted in support of the appeal.

It found that BPPC never filed an appeal to contest or question the assessment; instead, it was

NAPOCOR that filed the purported appeal a petition for exemption of the machineries and

equipment. The CTA, however, said that NAPOCOR is not the proper party, and the purported

appeal did not substantially comply with the requisites of the law.


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According to the CTA, NAPOCOR is not the registered owner of the machineries and

equipment. These are registered in BPPCs name as further confirmed by Section 2.08 of the

BOT Agreement.6 Thus, the CTA declared that until the transfer date of the power station,

NAPOCOR does not own any of the machineries and equipment, and therefore has no legal

right, title, or interest over these properties. Thus, the CTA concluded that NAPOCOR has no

cause of action and no legal personality to question the assessment. As the respondent localgovernment units claim, NAPOCOR is an interloper in the issue of BPPCs real estate tax

liabilities.

The CTA additionally found that BPPCs subsequent attempt to question the assessment via a

motion for intervention with the CBAA failed to follow the correct process prescribed by the

Rules Governing Appeals to the CBAA;7 its appeal was not accompanied by an appeal bond.

Also, the CTA found NAPOCORs petition to be an inappropriate remedy, as it is not the appeal

contemplated by law; NAPOCOR was in fact asserting an exemption on the basis of the

provisions of the BOT Agreement. An exemption is an evidentiary matter for the assessors, not

for the LBAA, to decide pursuant to Section 206 of the LGC;8 NAPOCOR cannot simply bypass

the authority granted to concerned administrative agencies, as these available administrative

remedies must first be exhausted.

On the more substantive second issue, the CTA saw it clear from the BOT Agreement that

BPPC owns and uses the machineries and equipment in the power station, thus directly

addressing and disproving NAPOCORs "actual, direct, and exclusive use" argument. It noted

that under the BOT Agreement, NAPOCOR shall have a right over the machineries and

equipments only after their transfer at the end of the 15-year co-operation period. "By the

nature of the agreement and work of BPPC, the [machineries] are actually, directly, and

exclusively used by it in the conversion of bunker fuel to electricity for [NAPOCOR] for a fee,"

the CTA said.

Section 234(c) of the LGC, according to the CTA, is clear. The exemption under the law does

not apply because BPPC is not a GOCC it is an independent power corporation currently

operating and maintaining the power plant pursuant to the BOT Agreement. The BOT

agreement cannot likewise be the basis for the claimed exemption; tax exemption cannot be

agreed upon by mere contract between the parties (BPPC and NAPOCOR), as it must be

expressly granted by the Constitution, statute, or franchise. A tax exemption, if and when

granted, is also not transferrable, as it is a personal privilege and it must be strictly construed,

the CTA said in closing.


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THE SEPARATE APPEALS

Thereupon, NAPOCOR and BPPC sought separate reviews of the CTA decision with us.

G.R. No. 173811

BPPC filed on September 11, 2006 its petition separately from NAPOCOR. The BPPC petition

was docketed as G.R. No. 173811 and was raffled to the First Division of the Court.

The First Division denied BPPCs petition in its Resolution dated October 4, 2006 on the

reasoning that BPPC failed to sufficiently show that the CTA committed any reversible error in

the challenged decision and resolution as to warrant the exercise of the Courts discretionary

appellate jurisdiction.

BPPC moved to reconsider the denial of its petition, but the Third Division (after the Courts

reorganization) denied the motion for reconsideration with finality after finding no substantial

arguments to warrant reconsideration. The resolution denying BPPCs petition for review had

become final and executory and was thus recorded in the Book of Entries of Judgment on April3, 2007.

G.R. No. 171470 The Present Case

The NAPOCOR petition now pending with us was filed on April 6, 2006 and was docketed as

G.R. No. 171470. We required the respondents to comment on the petition in our Resolution of

May 3, 2006. The respondents filed the required comments. NAPOCOR subsequently filed its

Reply.

NAPOCOR cited the following as grounds for its petition:

I.


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THE CTA ERRED ON A QUESTION OF LAW IN NOT RULING THAT PETITIONER IS THE

ACTUAL, DIRECT, AND EXCLUSIVE USER OF THE BAUANG DIESEL POWER PLANT.

II.

THE CTA ERRED ON A QUESTION OF LAW IN DISREGARDING THAT THE REAL PROPERTY

TAX EXEMPTION IS RETAINED UNDER R.A. NO. 7160.

III.

THE CTA ERRED ON A QUESTION OF LAW IN RULING THAT PETITIONER MUST BE ENGAGED

IN BOTH GENERATION AND TRANSMISSION OF POWER BEFORE THE EXEMPTION UNDER

SECTION 234(C) OF R.A. NO. 7160 CAN APPLY.

IV.

THE CTA ERRED ON A QUESTION OF LAW IN NOT CONSTRUING THE EXEMPTIONS UNDERR.A. NO. 7160 IN HARMONY WITH PETITIONERS CHARTER AND THE BOT LAW.

V.

ASSUMING THE 215 MW BAUANG DIESEL POWER PLANT IS TAXABLE, THE SAME SHOULD

BE CLASSIFIED AS "SPECIAL" FOR REAL PROEPRTY TAX PURPOSES SUBJECT TO A 10%

ASSESSMENT LEVEL, AND NOT AS COMMERCIAL/INDUSTRIAL PROPERTIES SUBJECT TO

AN 80% ASSESSMENT RATE.

In the interim and in light of the sale at public auction of the machineries and equipments,

NAPOCOR filed a Supplemental Petition based on the following grounds:


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I.

THE CTA ERRED ON A QUESTION OF LAW IN DISMISSING PETITIONERS APPEAL BECAUSE

THE LATTER IS A GOVERNMENT INSTRUMENTALITY WHOSE FOREIGN AND DOMESTIC

INDEBTEDNESS ARE GUARANTEED BY THE NATIONAL GOVERNMENT, IS THE BENEFICIAL

OWNER OF THE SUBJECT POWER PLANT AND [IS] THUS EXEMPT FROM THE PAYMENT OF

REAL PROPERTY TAXES.

II.

THE CTA ERRED ON A QUESTION OF LAW IN DISMISSING PETITIONERS APPEAL BECAUSE

THIS LED TO THE SALE OF THE BAUANG POWER PLANT TO THE PROVINCIALGOVERNMENT OF LA UNION, THUS SERIOUSLY VIOLATING PETITIONERS STATUTORY

MANDATE TO CARRY OUT THE TOTAL ELECTRIFICATION OF THE COUNTRY.

To support its claim that it is entitled to tax exemption as the actual, direct, and exclusive user

of the machineries and equipment, NAPOCOR argues that:

a. the BOT agreement is a financing agreement where it (NAPOCOR) is the beneficial owner

and the actual, direct, and exclusive user of the power plant, while BPPC is the lender/creditorthat retains the plants legal ownership until it is fully paid; the power plant is a NAPOCOR

project and BPPC is just the financier-contractor, and any BPPC activity is made on

NAPOCORs behalf as a contractor for NAPOCOR; in this way, NAPOCOR takes advantage of

BPPCs financial resources and technical expertise to secure a continuous supply of electric

power.

b. its payment of energy fees, fixed operating fees, and other infrastructure fees to BPPC is not

inconsistent with its (NAPOCORs) beneficial ownership and actual, direct, and exclusive use

of the power plant, since the collection of the fees is the repayment scheme prescribed bySection 69 of Republic Act No. 6957,10 as amended by Republic Act No. 7718 (BOT Law, as

amended); its amortizations over the 15-year co-operation period constitute full payment for

the power plant that would warrant the transfer of ownership without payment of additional

compensation; finally, that Republic Act No. 9136 or the Electric Power Industry Reform Act of

2001 has booked the power plant as NAPOCORs asset for privatization purposes.


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c. its tax exemption should apply to a BOT project, citing the conditions that gave rise to the

BOT law and its own mandate to provide electricity nationwide; BOT projects are really

government projects where the private sector participates to provide the heavy initial financial

requirements; and that Congress specifically considered NAPOCORs situation in granting tax

exemption to machineries and equipment used in power generation and distribution.

d. in the interpretation of Section 234(c) of the LGC, related statutes must be considered and

the task of the courts is to harmonize all these laws, if possible; specifically, Section 234(c) of

the LGC was enacted to clarify or restore NAPOCORs real property tax exemption so that

NAPOCOR can perform its public function of supplying electricity to the entire country at

affordable rates, while the BOT law was enacted, among others, to authorize NAPOCOR to

enter into BOT contracts with the private sector so that NAPOCOR can carry out its mandate;

the tax exemption under Section 234(c) of the LGC must be given effect as the only legal and

cogent way of harmonizing it with NAPOCORs Charter and the BOT law.

NAPOCOR concludes that the CTAs ruling clearly defeats the spirit behind its creation, the

enactment of the BOT Law, and the tax exemption provision under the LGC.

THE COURTS RULING

We find the petition devoid of merit. Like the Courts First Division (later, Third Division) in G.R.No. 173811, we find that NAPOCOR failed to sufficiently show that the CTA committed any

reversible error in its ruling.

NAPOCORs basis for its claimed exemption Section 234(c) of the LGC is clear and not at

all ambiguous in its terms. Exempt from real property taxation are: (a) all machineries and

equipment; (b) [that are] actually, directly, and exclusively used by; (c) [local water districts and]

government-owned or controlled corporations engaged in the [supply and distribution of

water and/or] generation and transmission of electric power.

We note, in the first place, that the present case is not the first occasion where NAPOCOR

claimed real property tax exemption for a contract partner under Sec. 234 (c) of the LGC. In

FELS Energy, Inc. v. The Province of Batangas11 (that was consolidated with NAPOCOR v.

Local Board of Assessment Appeals of Batangas, et al.),12 the Province of Batangas assessed

real property taxes against FELS Energy, Inc. the owner of a barge used in generating


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electricity under an agreement with NAPOCOR. Their agreement provided that NAPOCOR shall

pay all of FELS real estate taxes and assessments. We concluded in that case that we could

not recognize the tax exemption claimed, since NAPOCOR was not the actual, direct and

exclusive user of the barge as required by Sec. 234 (c). In making this ruling, we cited the

required standard of construction applicable to tax exemptions and said:

Time and again, the Supreme Court has stated that taxation is the rule and exemption is the

exception. The law does not look with favor on tax exemptions and the entity that would seek

to be thus privileged must justify it by words too plain to be mistaken and too categorical to be

misinterpreted. Thus, applying the rule of strict construction of laws granting tax exemptions,

and the rule that doubts should be resolved in favor of provincial corporations, we hold that

FELS is considered a taxable entity.

The mere undertaking of petitioner NPC under Section 10.1 of the Agreement, that it shall be

responsible for the payment of all real estate taxes and assessments, does not justify the

exemption. The privilege granted to petitioner NPC cannot be extended to FELS. The covenant

is between FELS and NPC and does not bind a third person not privy thereto, in this case, the

Province of Batangas.

We also recognized this strictissimi juris standard in NAPOCOR v. City of Cabanatuan.13

Under this standard, the claimant must show beyond doubt, with clear and convincing

evidence, the factual basis for the claim. Thus, the real issue in a tax exemption case such as

the present case is whether NAPOCOR was able to convincingly show the factual basis for its

claimed exception.

The records show that NAPOCOR, no less, admits BPPCs ownership of the machineries and

equipment in the power plant.14 Likewise, the provisions of the BOT agreement cited above

clearly show BPPCs ownership. Thus, ownership is not a disputed issue.

Rather than ownership, NAPOCORs use of the machineries and equipment is the critical issue,since its claim under Sec. 234(c) of the LGC is premised on actual, direct and exclusive use. To

support this claim, NAPOCOR characterizes the BOT Agreement as a mere financing

agreement where BPPC is the financier, while it (NAPOCOR) is the actual user of the properties.

As in the fact of ownership, NAPOCORs assertion is belied by the documented arrangements


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between the contracting parties, viewed particularly from the prism of the BOT law.

The underlying concept behind a BOT agreement is defined and described in the BOT law as

follows:

Build-operate-and-transfer A contractual arrangement whereby the project proponent

undertakes the construction, including financing, of a given infrastructure facility, and the

operation and maintenance thereof. The project proponent operates the facility over a fixed

term during which it is allowed to charge facility users appropriate tolls, fees, rentals, and

charges not exceeding those proposed in its bid or as negotiated and incorporated in the

contract to enable the project proponent to recover its investment, and operating and

maintenance expenses in the project. The project proponent transfers the facility to the

government agency or local government unit concerned at the end of the fixed term which

shall not exceed fifty (50) years x x x x.

Under this concept, it is the project proponent who constructs the project at its own cost and

subsequently operates and manages it. The proponent secures the return on its investments

from those using the projects facilities through appropriate tolls, fees, rentals, and charges not

exceeding those proposed in its bid or as negotiated. At the end of the fixed term agreed upon,

the project proponent transfers the ownership of the facility to the government agency. Thus,

the government is able to put up projects and provide immediate services without the burden

of the heavy expenditures that a project start up requires.

A reading of the provisions of the parties BOT Agreement shows that it fully conforms to this

concept. By its express terms, BPPC has complete ownership both legal and beneficial of

the project, including the machineries and equipment used, subject only to the transfer of

these properties without cost to NAPOCOR after the lapse of the period agreed upon. As

agreed upon, BPPC provided the funds for the construction of the power plant, including the

machineries and equipment needed for power generation; thereafter, it actually operated and

still operates the power plant, uses its machineries and equipment, and receives payment for

these activities and the electricity generated under a defined compensation scheme. Notably,

BPPC as owner-user is responsible for any defect in the machineries and equipment.15

As envisioned in the BOT law, the parties agreement assumes that within the agreed BOT

period, BPPC the investorprivate corporation shall recover its investment and earn profits

through the agreed compensation scheme; thereafter, it shall transfer the whole project,

including machineries and equipment, to NAPOCOR without additional cost or compensation.


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The latter, for its part, derives benefit from the project through the fulfillment of its mandate of

delivering electricity to consumers at the soonest possible time, without immediately

shouldering the huge financial requirements that the project would entail if it were to

undertake the project on its own. Its obligation, in exchange, is to shoulder specific operating

costs under a compensation scheme that includes the purchase of all the electricity that BPPC

generates.

That some kind of "financing" arrangement is contemplated in the sense that the private

sector proponent shall initially shoulder the heavy cost of constructing the projects buildings

and structures and of purchasing the needed machineries and equipment is undeniable. The

arrangement, however, goes beyond the simple provision of funds, since the private sector

proponent not only constructs and buys the necessary assets to put up the project, but

operates and manages it as well during an agreed period that would allow it to recover its

basic costs and earn profits. In other words, the private sector proponent goes into business

for itself, assuming risks and incurring costs for its account. If it receives support from thegovernment at all during the agreed period, these are pre-agreed items of assistance geared to

ensure that the BOT agreements objectives both for the project proponent and for the

government are achieved. In this sense, a BOT arrangement is sui generis and is different

from the usual financing arrangements where funds are advanced to a borrower who uses the

funds to establish a project that it owns, subject only to a collateral security arrangement to

gu

Documents

3 Important NPC Cases in Taxation