tax cases law

7/29/2019 tax cases law

1/48

NATIONAL POWER CORPORATION,petitioner, vs. CITY OF CABANATUAN, respondent.

D E C I S I O N

PUNO,J.:

This is a petition for review of the Decision and the Resolution of the Court of Appeals dated March 12,2001 and July 10, 2001, respectively, finding petitioner National Power Corporation (NPC) liable to payfranchise tax to respondent City of Cabanatuan.

Petitioner is a government-owned and controlled corporation created under Commonwealth Act No. 120,as amended. It is tasked to undertake the development of hydroelectric generations of power and the

production of electricity from nuclear, geothermal and other sources, as well as, the transmission ofelectric power on a nationwide basis. Concomitant to its mandated duty, petitioner has, among others, the

power to construct, operate and maintain power plants, auxiliary plants, power stations and substations forthe purpose of developing hydraulic power and supplying such power to the inhabitants.

For many years now, petitioner sells electric power to the residents of Cabanatuan City, posting a grossincome of P107,814,187.96 in 1992. Pursuant to section 37 of Ordinance No. 165-92, the respondentassessed the petitioner a franchise tax amounting to P808,606.41, representing 75% of 1% of the lattersgross receipts for the preceding year.

Petitioner, whose capital stock was subscribed and paid wholly by the Philippine Government, refused topay the tax assessment. It argued that the respondent has no authority to impose tax on governmententities. Petitioner also contended that as a non-profit organization, it is exempted from the payment of allforms of taxes, charges, duties or fees in accordance with sec. 13 of Rep. Act No. 6395, as amended, viz:

Sec.13. Non-profit Character of the Corporation; Exemption from all Taxes, Duties, Fees, Imposts andOther Charges by Government and Governmental Instrumentalities.- The Corporation shall be non-profitand shall devote all its return from its capital investment, as well as excess revenues from its operation, forexpansion. To enable the Corporation to pay its indebtedness and obligations and in furtherance andeffective implementation of the policy enunciated in Section one of this Act, the Corporation is herebyexempt:

(a) From the payment of all taxes, duties, fees, imposts, charges, costs and service fees in any court oradministrative proceedings in which it may be a party, restrictions and duties to the Republic of thePhilippines, its provinces, cities, municipalities and other government agencies and instrumentalities;

(b) From all income taxes, franchise taxes and realty taxes to be paid to the National Government, itsprovinces, cities, municipalities and other government agencies and instrumentalities;

(c) From all import duties, compensating taxes and advanced sales tax, and wharfage fees on import offoreign goods required for its operations and projects; and

(d) From all taxes, duties, fees, imposts, and all other cha rges imposed by the Republic of the Philippines,its provinces, cities, municipalities and other government agencies and instrumentalities, on all petroleum

products used by the Corporation in the generation, transmission, utilization, and sale of electricpower.

The respondent filed a collection suit in the Regional Trial Court of Cabanatuan City, demanding thatpetitioner pay the a ssessed tax due, plus a surcharge equivalent to 25% of the amount of tax, and 2%

monthly interest. Respondent alleged that petitioners exemption from local taxes has been repealed bysection 193 of Rep. Act No. 7160, which reads a s follows:

Sec. 193. Withdrawal of Tax Exemption Privileges.- Unless otherwise provided in this Code, taxexemptions 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 dulyregistered under R.A. No. 6938, non-stock and non-profit hospitals and educational institutions, arehereby withdrawn upon the effectivity of this Code.

On January 25, 1996, the trial court issued an Order dismissing the case. It ruled that the tax exemptionprivileges granted to petitioner subsist despite the passage of Rep. Act No. 7160 for the following reasons:(1) Rep. Act No. 6395 is a particular law and it may not be repealed by Rep. Act No. 7160 which is ageneral law; (2) section 193 of Rep. Act No. 7160 is in the nature of an implied repeal which is not

favored;and (3) local governments have no power to tax instrumentalities of the national government.Pertinent portion of the Order reads:

The question of whether a particular law has been repealed or not by a subsequent law is a matter oflegislative intent. The lawmakers may expressly repeal a law by incorporating therein repealing provisionswhich expressly and specifically cite(s) the particular law or laws, and portions thereof, that are intendedto be repealed. A declaration in a statute, usually in its repealing clause, that a particular and specific law,identified by its number or title is repealed is an express repeal; all others are implied repeal. Sec. 193 ofR.A. No. 7160 is an implied repealing clause because it fails to identify the act or acts that are intended to

be repealed. It is a well-settled rule of statutory construction that repeals of statutes by implication are notfavored. The presumption is against inconsistency and repugnancy for the legislative is presumed to knowthe existing laws on the subject and not to have enacted inconsistent or conflicting statutes. It is also awell-settled rule that, generally, general law does not r epeal a special law unless it clearly appears that thelegislative has intended by the latter general act to modify or repeal the earlier special law. Thus, despitethe passage of R.A. No. 7160 from which the questioned Ordinance No. 165-92 was based, the tax

exemption privileges of defendant NPC remain.

Another point going against plaintiff in this case is the ruling of the Supreme Court in the case of Bascovs. Philippine Amusement and Gaming Corporation, 197 SCRA 52, where it was held that:

Local governments have no power to tax instrumentalities of the National Government. PAGCOR is agovernment owned or controlled corporation with an original charter, PD 1869. All of its shares of stocksare owned by the National Government. xxx Being an instrumentality of the government, PAGCORshould be and actually is exempt from local taxes. Otherwise, its operation might be burdened, impeded orsubjected to control by mere local government.

Like PAGCOR, NPC, being a government owned and controlled corporation with an original charter andits shares of stocks owned by the National Government, is beyond the taxing power of the Local

Government. Corollary to this, it should be noted here that in the NPC Charters declaration of Policy,Congress declared that: xxx (2) the total electrification of the Philippines through the development ofpower from all services to meet the needs of industrial development and dispersal and needs of ruralelectrification are primary objectives of the nations which shall be pursued coordinately and supported byall instrumentalities and agencies of the governmen t, including its financial institutions. (underscoringsupplied). To allow plaintiff to subject defendant to its tax-ordinance would be to impede the avowed goalof this government instrumentality.

Unlike the State, a city or municipality has no inherent power of taxation. Its taxing power is limited tothat which is provided for in its charter or other statute. Any grant of taxing power is to be construedstrictly, with doubts resolved against its existence.

From the existing law and the rulings of the Supreme Court itself, it is very clear that the plaintiff couldnot impose the subject tax on the d efendant.


2/48

On appeal, the Court of Appeals reversed the trial courts Order on the ground that section 193, in relationto sections 137 and 151 of the LGC, expressly withdrew the exemptions granted to the petitioner. Itordered the petitioner to pay the respondent city government the following: (a) the sum of P808,606.41representing the franchise tax due based on gross receipts for the year 1992, (b) the tax due every yearthereafter based in the gross receipts earned by NPC, (c) in all cases, to pay a surcharge of 25% of the taxdue and unpaid, and (d) the sum of P 10,000.00 as litigation expense.

On April 4, 2001, the petitioner filed a Motion for Reconsideration on the Court of Appeals Decision.This was denied by the appellate court, viz:

The Court finds no merit in NPCs motion for reconsideration. Its arguments reiterated therein that thetaxing power of the province under Art. 137 (sic) of the Local Government Code refers merely to private

persons or corporations in which category it (NPC) does not belong, and that the LGC (RA 7160) which isa general law may not impliedly repeal the NPC Charter which is a special lawfinds the answer inSection 193 of the LGC to the effect that tax exemptions or incentives granted to, or presently enjoyed byall persons, whether natural or juridical, including government-owned or controlled corporations exceptlocal water districts xxx are hereby withdrawn. The repeal is direct and unequivocal, not implied.

IN VIEW WHEREOF, the motion for reconsideration is hereby DENIED.

SO ORDERED.

In this petition for review, petitioner raises the following issues:

A. THE COURT OF APPEALS GRAVELY ERRED IN HOLDING THAT NPC, A PUBLIC NON -PROFIT CORPORATION, IS LIABLE TO PAY A FRANCHISE TAX AS IT FAILED TO CONSIDERTHAT SECTION 137 OF THE LOCAL GOVERNMENT CODE IN RELATION TO SECTION 131APPLIES ONLY TO PRIVATE PERSONS OR CORPORATIONS ENJOYING A FRANCHISE.

B. THE COURT OF APPEALS GRAVELY ERRED IN HOLDING THAT NPCS EXEMPTION FROM

ALL FORMS OF TAXES HAS BEEN REPEALED BY THE PROVISION OF THE LOCALGOVERNMENT CODE AS THE ENACTMENT OF A LATER LEGISLATION, WHICH IS AGENERAL LAW, CANNOT BE CONSTRUED TO HAVE REPEALED A SPECIAL LAW.

C. THE COURT OF APPEALS GRAVELY ERRED IN NOT CONSIDERING THAT AN EXERCISEOF POLICE POWER THROUGH TAX EXEMPTION SHOULD PREVAIL OVER THE LOCALGOVERNMENT CODE.

It is beyond dispute that the respondent city government has the authority to issue Ordinance No. 165-92and impose an annual tax on businesses enjoying a franchise, pursuant to section 151 in relation tosection 137 of the LGC, viz:

Sec. 137. Franchise Tax.-Notwithstanding any exemption granted by any law or other special law,the province may impose a tax on businesses enjoying a franchise, at a rate not exceeding fifty percent(50%) of one percent (1%) of the gross annual receipts for the preceding calendar year based on theincoming receipt, or realized, within its territorial jurisdiction.

In the case of a newly started business, the tax shall not exceed one-twentieth (1/20) of one percent (1%)of the capital investment. In the succeeding calendar year, regardless of when the business started tooperate, the tax shall be based on the gross receipts for the preceding calendar year, or any fraction

thereof, asprovided herein. (emphasis supplied)

xxx

Sec. 151. Scope of Taxing Powers.- Except as otherwise provided in this Code, the city, may levy thetaxes, fees, and charges which the province or municipality may impose: Provided, however, That thetaxes, fees and charges levied and collected by highly urbanized and independent component cities shallaccrue to them and distributed in accordance with the provisions of this Code.

The rates of taxes that the city may levy may exceed the maximum rates allowed for the province ormunicipality by not more than fifty percent (50%) except the rates of professional and amusement taxes.

Petitioner, however, submits that it is not liable to pay an annual franchise tax to the respondent citygovernment. It contends that sections 137 and 151 of the LGC in relation to section 131, limit the taxing

power of the respondent city government to private entities that are engaged in trade or occupation forprofit.

Section 131 (m) of the LGC defines a franchiseas a right or privilege, affected with public interestwhich is conferred upon private persons or corporations, under such terms and conditions as thegovernment and its political subdivisions may impose in the interest of the public welfare, security andsafety. From the phraseology of this provision, the petitioner claims that the word private modifies the

terms persons and corporations. Hence, when the LGC uses the term franchise, petitioner submitsthat it should refer specifically to franchises gran ted to private natural persons and to private corporations.Ergo, its charter should not be considered a franchise for the purpose of imposing the franchise tax in

question.

On the other hand, section 131 (d) of the LGC defines business as trade or commercial activityregularly engaged in as means of livelihood or with a view to profit. Petitioner claims that it is notengaged in an activity for profit, in as much as its charter specifically provides that it is a non-profitorganization. In any case, petitioner argues that the accumulation of profit is merely incidental to itsoperation; all these profits are required by law to be channeled for expansion and improvement of itsfacilities and services.

Petitioner also alleges that it is an instrumentality of the National Government, and as such, may not betaxed by the respondent city government. It cites the doctrine in Basco vs. Philippine Amusement andGaming Corporation where this Court held that local governments have no power to taxinstrumentalities of the National Government, viz:

Local governments have no power to tax instrumentalities of the National Government.

PAGCOR has a dual role, to operate and regulate gambling casinos. The latter role is governmental, whichplaces it in the category of an agency or instrumentality of the Government. Being an instrumentality ofthe Government, PAGCOR should be and actually is exempt from local taxes. Otherwise, its operationmight be burdened, impeded or subjected to control by a mere local government.

The states have no power by taxation or otherwise, to retard, impede, burden or in any manner control theoperation of constitutional laws enacted by Congress to carry into execution the powers vested in thefederal government. (MC Culloch v. Maryland, 4 Wheat 316, 4 L Ed. 579)

This doctrine emanates from the supremacy of the National Government over local governments.

Justice Holmes, speaking for the Supreme Court, made reference to the entire absence of power on the

part of the States to touch, in that way (taxation) at least, the instrumentalities of the United States(Johnson v. Maryland, 254 US 51) and it can be agreed that no state or political subdivision can regulate


3/48

a federal instrumentality in such a way as to prevent it from consummating its federal responsibilities, or

even seriously burden it from accomplishment of them. (Antieau, Modern Constitutional Law, Vol. 2, p.140, italics supplied)

Otherwise, mere creatures of the State can defeat National policies thru extermination of what localauthorities may perceive to be undesirable activities or enterprise using the power to tax as a toolregulation ( U.S. v. Sanchez, 340 US 42).

The power to tax which was called by Justice Marshall as the power to destroy (Mc Culloch v.

Maryland, supra) cannot be allowed to defeat an instrumentality or creation of the very entity which hasthe inherent power to wield it.

Petitioner contends that section 193 of Rep. Act No. 7160, withdrawing the tax privileges of government-owned or controlled corporations, is in the nature of an implied repeal. A special law, its charter cannot beamended or modified impliedly by the local government code which is a general law. Consequently,

petitioner claims that its exemption from all taxes, fees or charges under its charter subsists despite thepassage of the LGC, viz:

It is a well-settled rule of statutory construction that repeals of statutes by implication are not favored andas much as possible, effect must be given to all enactments of the legislature. Moreover, it has to beconceded that the charter of the NPC constitutes a special law. Republic Act No. 7160, is a general law. Itis a basic rule in statutory construction that the enactment of a later legislation which is a general lawcannot be construed to have repealed a special law. Where there is a conflict between a general law and aspecial statute, the special statute should prevail since it evinces the legislative intent more clearly th an the

general statute.

Finally, petitioner submits that the charter of the NPC, being a valid exercise of police power, shouldprevail over the LGC. It alleges that the power of the local government to impose franchise tax issubordinate to petitioners exemption from taxation; police power being the most pervasive, the leastlimitable and most demanding of all powers, including the power of taxation.

The petition is without merit.

Taxes are the lifeblood of the government, for without taxes, the government can neither exist nor endure.A principal attribute of sovereignty, the exercise of taxing power derives its source from the veryexistence of the state whose social contract with its citizens obliges it to promote public interest andcommon good.The theory behind the exercise of the power to tax emanates from necessity; without taxes,

government cannot fulfill its mandate of promoting the general welfare and well-being of the people.

In recent years, the increasing social challenges of the times expanded the scope of state activity, andtaxation 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. Taxationassumes even greater significance with the ratification of the 1987 Constitution. Thenceforth, the power totax is no longer vested exclusively on Congress; local legislative bodies are now given direct authority tolevy taxes, fees and other charges pursuant toArticle 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, tolevy 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 exclusivelyto the Local Governments.

This paradigm shift results from the realization that genuine development can be achieved only bystrengthening local autonomy and promoting decentralization of governance. For a long time, the

countrys highly centralized government structure has bred a culture of dependence among localgovernment leaders upon the national leadership. It has also dampened the spirit of initiative, innovationand imaginative resilience in matters of local development on the part of local government leaders. Theonly way to shatter this culture of dependence is to give the LGUs a wider role in the delivery of basicservices, and confer them sufficient powers to generate their own sources for the purpose. To achieve thisgoal, section 3 of Article X of the 1987 Constitution mandates Congress to enact a local government codethat will, consistent with the basic policy of local autonomy , set the guidelines and limitations to thisgrant of taxing powers, viz:

Section 3. The Congress shall enact a local government code which shall provide for a more responsive

and accountable local government structure instituted through a system of decentralization with effectivemechanisms of recall, initiative, and referendum, allocate among the different local government units their

powers, responsibilities, and resources, and provide for the qualifications, election, appointment andremoval, term, salaries, powers and functions and duties of local officials, and all other matters r elating tothe organization and operation of the local units.

To recall, prior to the enactment of the Rep. Act No. 7160, also known as the Local Government Code of1991 (LGC), various measures have been enacted to promote local autonomy. These include the BarrioCharter of 1959, the Local Autonomy Act of 1959, the Decentralization Act of 1967 and the LocalGovernment Code of 1983. Despite these initiatives, however, the shackles of dependence on the nationalgovernment remained. Local government units were faced with the same problems that hamper theircapabilities to participate effectively in the national d evelopment efforts, among which are: (a) inadequatetax base, (b) lack of fiscal control over external sources of income, (c) limited authority to prioritize andapprove development projects, (d) heavy dependence on external sources of income, and (e) limitedsupervisory control over personnel of national line agencies.

Considered as the most revolutionary piece of legislation on local autonomy, the LGC effectively dealswith the fiscal constraints faced by LGUs. It widens the tax base of LGUs to include taxes which were

prohibited by previous laws such as the imposition of taxes on forest products, forest concessionaires,mineral products, mining operations, and the like. The LGC likewise provides enough flexibility toimpose tax rates in accordance with their needs and capabilities. It does not prescribe graduated fixed rates

but merely specifies the minimum and maximum tax rates and leaves the determination of the actual ratesto the respectivesanggunian.

One of the most significant provisions of the LGC is the removal of the blanket exclusion ofinstrumentalities and agencies of the national government from the coverage of local taxation. Although asa general rule, LGUs cannot impose taxes, fees or charges of any kind on the National Government, itsagencies and instrumentalities, this rule now admits an exception, i.e., when specific provisions of theLGC authorize the LGUs to impose taxes, fees or charges on the aforementioned entities, viz:

Section 133. Common Limitations on the Taxing Powers of the Local Government Units.- Unlessotherwise provided herein, the exercise of the taxing powers of provinces, cities, municipalities, and

barangays shall not extend to the levy of the following:

xxx

(o) Taxes, fees, or cha rges of any kind on the National Government, its agencies and instrumentalities, andlocal government units. (emphasis supplied)

In view of the afore-quoted provision of the LGC, the doctrine in Basco vs. Philippine Amusement andGaming Corporation relied upon by the petitioner to support its claim no longer applies. To emphasize,the Basco case was decided prior to the effectivity of the LGC, when no law empowering the local

government units to tax instrumentalities of the National Government was in effect. However, as thisCourt ruled in the case of Mactan Cebu International Airport Authority (MCIAA) vs. Marcos,


4/48

nothing prevents Congress from decreeing that even instrumentalities or agencies of the governmentperforming governmental functions may be subject to tax. In enacting the LGC, Congress exercised itsprerogative to tax instrumentalities and agencies of government as it sees fit. Thus, after reviewing thespecific provisions of the LGC, this Court held that MCIAA, although an instrumentality of the nationalgovernment, was subject to real property tax, viz:

Thus, reading together sections 133, 232, and 234 of the LGC, we conclude that as a general rule, a s laid

down in section 133, the taxing power of local governments cannot extend to the levy of inter alia, taxes,fees and charges of any kind on the national government, its agencies and instrumentalities, and localgovernment units; however, pursuant to section 232, provinces, cities and municipalities in the

Metropolitan Manila Area may impose the real property tax except on, inter alia, real property owned bythe Republic of the Philippines or any of its political subdivisions except when the beneficial use thereofhas been granted for consideration or otherwise, to a taxable person as provided in the item (a) of the first

paragraph of section 12.

In the case at bar, section 151 in relation to section 137 of the LGC clearly authorizes the respondent citygovernment to impose on the petitioner the franchise tax in question.

In its general signification, a franchise is a privilege conferred by government authority, which does notbelong to citizens of the country generally as a matter of common right. In its specific sense, a franchis emay refer to a general or primary franchise, or to a special or secondary franchise. The former relates tothe right to exist as a corporation, by virtue of duly approved articles of incorporation, or a charter

pursuant to a special law creating the corporation. The right under a primary or general franchise is vestedin the individuals who compose the corporation and not in the corporation itself. On the other hand, the

latter refers to the right or privileges conferred upon an existing corporation such as the right to use thestreets of a municipality to lay pipes of tracks, erect poles or string wires. The rights under a secondary orspecial franchise are vested in the corporation and may ordinarily be conveyed or mortgaged under ageneral power granted to a corporation to dispose of its property, except such special or secondaryfranchises as are charged with a public use.

In section 131 (m) of the LGC, Congress unmistakably defined a franchise in the sense of a secondary orspecial franchise. This is to avoid any confusion when the word franchise is used in the context oftaxation. As commonly used, a franchise taxis a tax on the privilege of transacting business in the stateand exercising corporate franchises granted by the state. It is not levied on the corporation simply forexisting as a corporation, upon its property or its income, but on its exercise of the rights or privilegesgranted to it by the government. Hence, a corporation need not pay franchise tax from the time it ceased todo business and exercise its franchise. It is within this context that the phrase tax on businessesenjoying a franchise in section 137 of the LGC should be interpreted and understood. Verily, to

determine whether the petitioner is covered by the franchise tax in question, the following requisites

should concur: (1) that petitioner has a franchise in the sense of a secondary or special franchise; and (2)that it is exercising its rights or privileges under this franchise within the territory of the respondent citygovernment.

Petitioner fulfills the first requisite. Commonwealth Act No. 120, as amended by Rep. Act No. 7395,constitutes petitioners primary and secondary franchises. It serves as the petitioners charter, defining itscomposition, capitalization, the appointment and the specific duties of its corporate officers, and itscorporate life span. As its secondary franchise, Commonwealth Act No. 120, as amended, vests the

petitioner the following powers which are not available to ordinary corporations, viz:

xxx

(e) To conduct investigations and surveys for the development of water power in any part of the

Philippines;

(f) To take water from any public stream, river, creek, lake, spring or waterfall in the Philippines, for thepurposes specified in this Act; to intercept and divert the flow of waters from lands of riparian owners andfrom persons owning or interested in waters which are or may be necessary for said purposes, upon

payment of just compensation therefor; to alter, straighten, obstruct or increase the flow of water instreams or water channels intersecting or connecting therewith or contiguous to its works or any partthereof: Provided, That just compensation shall be paid to any person or persons whose property is,directly or indirectly, adversely affected or damaged thereby;

(g) To construct, operate and maintain power plants, auxiliary plants, dams, reservoirs, pipes, mains,transmission lines, power stations and substations, and other works for the purpose of developing

hydraulic power from any river, creek, lake, spring and waterfall in the Philippines and supplying suchpower to the inhabitants thereof; to acquire, construct, install, maintain, operate, and improve gas, oil, orsteam engines, and/or other prime movers, generators and machinery in plants and/or auxiliary plants forthe production of electric power; to establish, develop, operate, maintain and administer power andlighting systems for the transmission and utilization of its power generation; to sell electric power in bulkto (1) industrial enterprises, (2) city, municipal or provincial systems and other government institutions,(3) electric cooperatives, (4) franchise h olders, and (5) real estate subdivisions xxx;

(h) To acquire, promote, hold, transfer, sell, lease, rent, mortgage, encumber and otherwise dispose ofproperty incident to, or necessary, convenient or proper to carry out the purposes for which theCorporation was created: Provided, That in case a right of way is necessary for its transmission lines,easement of right of way shall only be sought: Provided, however, That in case the property itself shall beacquired by purchase, the cost thereof shall be the fair market value at the time of the taking of such

property;

(i) To construct works across, or otherwise, any stream, watercourse, canal, ditch, flume, street, avenue,highway or railway of private and public ownership, as the location of said works may require xxx;

(j) To exercise the right of eminent domain for the purpose of this Act in the manner provided by law forinstituting condemnation proceedings by the national, provincial and municipal governments;

xxx

(m) To cooperate with, and to coordinate its operations with those of the National ElectrificationAdministration and public service entities;

(n) To exercise complete jurisdiction and control over watersheds surrounding the reservoirs of plants

and/or projects constructed or proposed to be constructed by the Corporation. Upon determination by theCorporation of the areas required for watersheds for a specific project, the Bureau of Forestry, theReforestation Administration and the Bureau of Lands shall, upon written advice by the Corporation,forthwith surrender jurisdiction to the Corporation of all areas embraced within the watersheds, subject toexisting private rights, the needs of waterworks systems, and the requirements of domestic water supply;

(o) In the prosecution and maintenance of its projects, the Corporation shall adopt measures to preventenvironmental pollution and promote the conservation, development and maximum utilization of naturalresources xxx

With these powers, petitioner eventually had the monopoly in the generation and distribution ofelectricity. This monopoly was strengthened with the issuance of Pres. Decree No. 40, nationalizing theelectric power industry. Although Exec. Order No. 215 thereafter allowed private sector participation inthe generation of electricity, the transmission of electricity remains the monopoly of the petitioner.


5/48

Petitioner also fulfills the second requisite. It is operating within the respondent city governmentsterritorial jurisdiction pursuant to the powers granted to it by Commonwealth Act No. 120, as amended.From its operations in the City of Cabanatuan, petitioner realized a gross income of P107,814,187.96 in1992. Fulfilling both requisites, petitioner is, and ought to be, subject of the franchise tax in question.

Petitioner, however, insists that it is excluded from the coverage of the franchise tax simply because itsstocks are wholly owned by the National Government, and its charter characterized it as a non -profitorganization.

These contentions must necessarily fail.

To stress, a franchise tax is imposed based not on the ownership but on the exercise by the corporation ofa privilege to do business. The taxable entity is the corporation which exercises the franchise, and not theindividual stockholders. By virtue of its charter, petitioner was created as a separate and distinct entityfrom the National Government. It can sue and be sued under its own n ame, and can exercise all the powersof a corporation under the Corporation Code.

To be sure, the ownership by the National Government of its entire capital stock does not necessarilyimply that petitioner is not engaged in business. Section 2 of Pres. Decree No. 2029 classifiesgovernment-owned or controlled corporations (GOCCs) into those performing governmental functionsand those performing proprietary functions, viz:

A government-owned or controlled corporation is a stock or a non-stock corporation, whether

performing governmental or proprietary functions, which is directly chartered by special law or iforganized under the general corporation law is owned or controlled by the government directly, orindirectly through a parent corporation or subsidiary corporation, to the extent of at least a majority of itsoutstanding voting capital stock xxx. (emphases supplied)

Governmental functions are those pertaining to the administration of government, and as such, are treatedas absolute obligation on the part of the state to perform while proprietary functions are those that areundertaken only by way of advancing the general interest of society, and are merely optional on thegovernment. Included in the class of GOCCs performing proprietary functions are business-like entitiessuch as the National Steel Corporation (NSC), the National Development Corporation (NDC), the SocialSecurity System (SSS), the Government Service Insurance System (GSIS), and the National WaterSewerage Authority (NAWASA), among others.

Petitioner was created to undertake the development of hydroelectric generation of power and the

production of electricity from nuclear, geothermal and other sources, as well as the transmission of electricpower on a nationwide basis. Pursuant to this mandate, petitioner generates p ower and sells electricity inbulk. Certainly, these activities do not partake of the sovereign functions of the government. They arepurely private and commercial undertakings, albeit imbued with public interest. The public interestinvolved in its activities, however, does not distract from the true nature of the petitioner as a commercialenterprise, in the same league with similar public utilities like telephone and telegraph companies, railroadcompanies, water supply and irrigation companies, gas, coal or light companies, power plants, ice plantamong others; all of which are declared by this Court as ministrant or proprietary functions of governmentaimed at advancing the general interest of society.

A closer reading of its charter reveals that even the legislature treats the character of the petitioners

enterprise as a business,although it limits petitioners profits to twelve percent (12%), viz:

(n) When essential to the proper administration of its corporate affairs or necessary for the proper

transaction of its business or to carry out the purposes for which it was organized, to contractindebtedness and issue bonds subject to approval of the President upon recommendation of the Secretaryof Finance;

(o) To exercise such powers and do such things as may be reasonably necessary to carry out the businessand purposes for which it was organized, or which, from time to time, may be declared by the Board to

be necessary, useful, incidental or auxiliary to accomplish the said purpose xxx.(emphases supplied)

It is worthy to note that all other private franchise holders receiving at least sixty percent (60%) of itselectricity requirement from the petitioner are likewise imposed the cap of twelve percent (12%) on

profits. The main difference is that the petitioner is mandated to devote all its returns from its capital

investment, as well as excess revenues from its operation, for expansion while other franchise holdershave the option to distribute their profits to its stockholders by declaring dividends. We do not see whythis fact can be a source of difference in tax treatment. In both instances, the taxable entity is the

corporation, which exercises the franchise, and not the individual stockholders.

We also do not find merit in the petitioners contention that its tax exemptions under its charter subsist

despite the passage of the LGC.

As a rule, tax exemptions are construed strongly against the c laimant. Exemptions must be shown to existclearly and categorically, and supported by clear legal provisions. In the case at bar, the petitioners solerefuge is section 13 of Rep. Act No. 6395 exempting from, among others, all income taxes, franchise

taxes and realty taxes to be paid to the National Government, its provinces, cities, municipalities and othergovernment agencies and instrumentalities. However, section 193 of the LGC withdrew, subject tolimited exceptions, the sweeping tax privileges previously enjoyed by private and public corporations.Contrary to the contention of petitioner, section 193 of the LGC is an express, albeit general, repeal of allstatutes granting tax exemptions from local taxes. It reads:

Sec. 193. Withdrawal of Tax Exemption Privileges.- Unless otherwise provided in this Code, taxexemptions or incentives granted to, or presently enjoyed by all persons, whether natural orjuridical, 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 educationalinstitutions, are hereby withdrawn upon the effectivity of this Code. (emphases supplied)

It is a basic precept of statutory construction that the express mention of one person, thing, act, orconsequence excludes all others as expressed in the familiar maxim expressio unius est exclusio alterius.

Not being a local water district, a cooperative registered under R.A. No. 6938, or a non-stock and non-profit hospital or educational institution, petitioner clearly does not belong to the exception. It is thereforeincumbent upon the petitioner to point to some provisions of the LGC that expressly grant it exemptionfrom local taxes.

But this would be an exercise in futility. Section 137 of the LGC clearly states that the LGUs can impose

franchise tax notwithstanding any exemption granted by any law or other special law. Thisparticular provision of the LGC does not admit any exception. In City Government of San Pablo,Laguna v. Reyes,MERALCOs exemption from the payment of franchise taxes was brought as an issue

before this Court. The same issue was involved in the subsequent case ofManila Electric Company v.Province of Laguna. Ruling in favor of the local government in both instances, we ruled that thefranchise tax in question is imposable despite any exemption enjoyed by MERALCO under special laws,viz:

It is our view that petitioners correctly rely on provisions of Sections 137 and 193 of the LGC to supporttheir position that MERALCOs tax exemption has been withdrawn. The explicit language of section 137which authorizes the province to impose fran chise tax notwithstanding any exemption granted by any lawor other special law is all-encompassing and clear. The franchise tax is imposable despite anyexemption enjoyed under special laws .

Section 193 buttresses the withdrawal of extant tax exemption privileges. By stating that unlessotherwise provided in this Code, tax exemptions or incentives granted to or presently enjoyed by all
http://sc.judiciary.gov.ph/jurisprudence/2003/apr2003/..%5C..%5C1999%5Cmay99%5C131359.htmhttp://sc.judiciary.gov.ph/jurisprudence/2003/apr2003/..%5C..%5C1999%5Cmay99%5C131359.htmhttp://sc.judiciary.gov.ph/jurisprudence/2003/apr2003/..%5C..%5C1999%5Cmay99%5C131359.htmhttp://sc.judiciary.gov.ph/jurisprudence/2003/apr2003/..%5C..%5C1999%5Cmay99%5C131359.htmhttp://sc.judiciary.gov.ph/jurisprudence/2003/apr2003/..%5C..%5C1999%5Cmay99%5C131359.htmhttp://sc.judiciary.gov.ph/jurisprudence/2003/apr2003/..%5C..%5C1999%5Cmay99%5C131359.htm


6/48

persons, whether natural or juridical, inc luding government-owned or controlled corporations except (1)local water districts, (2) cooperatives duly registered under R.A. 6938, (3) non-stock and non-profithospitals and educational institutions, are withdrawn upon the effectivity of this code, the obvious importis to limit the exemptions to the three enumerated entities. It is a basic precept of statutory constructionthat the express mention of one person, thing, act, or consequence excludes all others as expressed in thefamiliar maxim expressio unius est exclusio alterius. In the absence of any provision of the Code to thecontrary, and we find no other provision in point, any existing tax exemption or incentive enjoyed byMERALCO under existing law was clearly intended to be withdrawn.

Reading together sections 137 and 193 of the LGC, we conclude that under the LGC the local

government unit may now impose a local tax at a rate not exceeding 50% of 1% of the gross annualreceipts for the preceding calendar based on the incoming receipts realized within its territorial

jurisdiction. The legislative purpose to withdraw tax privileges enjoyed under existing law or

charter is clearly manifested by the language used on (sic)Sections 137 and 193 categorically

withdrawing such exemption subject only to the exceptions enumerated. Since it would be not only

tedious and impractical to attempt to enumerate all the existing statutes providing for special tax

exemptions or privileges, the LGC provided for an express, albeit general, withdrawal of suchexemptions or privileges. No more unequivocal language could have been used . (emphases supplied).

It is worth mentioning that section 192 of the LGC empowers the LGUs, through ordinances dulyapproved, to grant tax exemptions, initiatives or reliefs. But in enacting section 37 of Ordinance No. 165-92 which imposes an annual franchise tax notwithstanding any exemption granted by law or other speciallaw, the respondent city government clearly did not intend to exempt the petitioner from the coveragethereof.

Doubtless, the power to tax is the most effective instrument to raise needed revenues to finance andsupport myriad activities of the local government units for the delivery of basic services essential to the

promotion of the general welfare and the enhancement of peace, progress, and prosperity of the people. Asthis Court observed in the Mactan case, the original reasons for the withdrawal of tax exemption

privileges granted to government-owned or controlled corporations and all other units of government werethat such privilege resulted in serious tax base erosion and distortions in the tax treatment of similarlysituated enterprises. With the added burden of devolution, it is even more imperative for governmententities to share in the requirements of development, fiscal or otherwise, by paying taxes or other chargesdue from them.

IN VIEW WHEREOF, theinstant petition is DENIED and the assailed Decision and Resolution of theCourt of Appeals dated March 12, 2001 and July 10, 2001, respectively, are hereby AFFIRMED.

SO ORDERED.

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.:

Before us are two consolidated cases docketed as G.R. No. 168557 and G.R. No. 170628, which werefiled by petitioners FELS Energy, Inc. (FELS) and National Power Corporation (NPC), respectively. Thefirst is a petition for review on certiorari assailing the August 25, 2004 Decisio n1of the Court of Appeals(CA) in CA-G.R. SP No. 67490 and its Resolution2dated June 20, 2005; the second, also a petition forreview on certiorari, challenges the February 9, 2005 Decision3and November 23, 2005 Resolution4of theCA in CA-G.R. SP No. 67491. Both petitions were dismissed on the ground of p rescription.

The pertinent facts are as follows:

On January 18, 1993, NPC entered into a lease contract with Polar Energy, Inc. over 3x30 MW dieselengine power barges moored at Balayan Bay in Calaca, Batangas. The contract, denominated as an EnergyConversion 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 orany 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 ca lculated on thebasis of the net income of POLAR and Personal Income Taxes of its employees and (ii) constructionpermit fees, environmental permit fees and other similar fees and charges) and (b) all real estate taxes andassessments, 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 initiallyopposed 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 fromProvincial Assessor Lauro C. Andaya of Batangas City. The assessed tax, which likewise covered thosedue 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 andauthority to represent it in any conference regarding the real property assessment of the ProvincialAssessor.

In a letter7dated September 7, 1995, NPC sought reconsideration of the Provincial Assessors decision toassess 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 .8This prompted NPC to file a petitionwith the Local Board of Assessment Appeals (LBAA) for the setting aside of the assessment and thedeclaration of the barges as non-taxable items; it also prayed that should LBAA find the barges to betaxable, the Provincial Assessor be directed to make the necessary corrections.9

In its Answer to the petition, the Provincial Assessor averred that the barges were real property forpurposes of taxation under Section 199(c) of Republic Act (R.A.) No. 7160.
http://www.lawphil.net/judjuris/juri2007/feb2007/gr_168557_2007.html#fnt1http://www.lawphil.net/judjuris/juri2007/feb2007/gr_168557_2007.html#fnt1http://www.lawphil.net/judjuris/juri2007/feb2007/gr_168557_2007.html#fnt1http://www.lawphil.net/judjuris/juri2007/feb2007/gr_168557_2007.html#fnt2http://www.lawphil.net/judjuris/juri2007/feb2007/gr_168557_2007.html#fnt2http://www.lawphil.net/judjuris/juri2007/feb2007/gr_168557_2007.html#fnt2http://www.lawphil.net/judjuris/juri2007/feb2007/gr_168557_2007.html#fnt3http://www.lawphil.net/judjuris/juri2007/feb2007/gr_168557_2007.html#fnt3http://www.lawphil.net/judjuris/juri2007/feb2007/gr_168557_2007.html#fnt3http://www.lawphil.net/judjuris/juri2007/feb2007/gr_168557_2007.html#fnt4http://www.lawphil.net/judjuris/juri2007/feb2007/gr_168557_2007.html#fnt4http://www.lawphil.net/judjuris/juri2007/feb2007/gr_168557_2007.html#fnt4http://www.lawphil.net/judjuris/juri2007/feb2007/gr_168557_2007.html#fnt5http://www.lawphil.net/judjuris/juri2007/feb2007/gr_168557_2007.html#fnt5http://www.lawphil.net/judjuris/juri2007/feb2007/gr_168557_2007.html#fnt5http://www.lawphil.net/judjuris/juri2007/feb2007/gr_168557_2007.html#fnt6http://www.lawphil.net/judjuris/juri2007/feb2007/gr_168557_2007.html#fnt6http://www.lawphil.net/judjuris/juri2007/feb2007/gr_168557_2007.html#fnt6http://www.lawphil.net/judjuris/juri2007/feb2007/gr_168557_2007.html#fnt7http://www.lawphil.net/judjuris/juri2007/feb2007/gr_168557_2007.html#fnt7http://www.lawphil.net/judjuris/juri2007/feb2007/gr_168557_2007.html#fnt7http://www.lawphil.net/judjuris/juri2007/feb2007/gr_168557_2007.html#fnt8http://www.lawphil.net/judjuris/juri2007/feb2007/gr_168557_2007.html#fnt8http://www.lawphil.net/judjuris/juri2007/feb2007/gr_168557_2007.html#fnt8http://www.lawphil.net/judjuris/juri2007/feb2007/gr_168557_2007.html#fnt9http://www.lawphil.net/judjuris/juri2007/feb2007/gr_168557_2007.html#fnt9http://www.lawphil.net/judjuris/juri2007/feb2007/gr_168557_2007.html#fnt9http://www.lawphil.net/judjuris/juri2007/feb2007/gr_168557_2007.html#fnt9http://www.lawphil.net/judjuris/juri2007/feb2007/gr_168557_2007.html#fnt8http://www.lawphil.net/judjuris/juri2007/feb2007/gr_168557_2007.html#fnt7http://www.lawphil.net/judjuris/juri2007/feb2007/gr_168557_2007.html#fnt6http://www.lawphil.net/judjuris/juri2007/feb2007/gr_168557_2007.html#fnt5http://www.lawphil.net/judjuris/juri2007/feb2007/gr_168557_2007.html#fnt4http://www.lawphil.net/judjuris/juri2007/feb2007/gr_168557_2007.html#fnt3http://www.lawphil.net/judjuris/juri2007/feb2007/gr_168557_2007.html#fnt2http://www.lawphil.net/judjuris/juri2007/feb2007/gr_168557_2007.html#fnt1


7/48

Before the case was decided by the LBAA, NPC filed a Manifestation, informing the LBAA that theDepartment of Finance (DOF) had rendered an opinion10dated May 20, 1996, where it is clearly statedthat power barges are not rea l property subject to real property assessment.

On August 26, 1996, the LBAA rendered a Resolution11denying the petition. The fallo reads:

WHEREFORE, the Petition is DENIED. FELS is hereby ordered to pay the real estate tax in the amountof 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 personalproperty, are nevertheless considered real property for taxation purposes because they are installed at aspecific 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 NPCresponsible for the payment of all real estate taxes and assessments will not justify the exemption ofFELS; such a privilege can only be granted to NPC and cannot be extended to FELS. Finally, the LBAAalso ruled that the petition was filed out of time.

Aggrieved, FELS appealed the LBAAs ruling to the Central Board of Assessment Appeals (CBAA).

On August 28, 1996, the Provincial Treasurer of Batangas City issued a Notice of Levy and Warrant byDistraint13over 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 fileda Motion to Lift Levy dated November 14, 1996, praying that the 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 Orde r14 lifting the levy and distraint on the properties ofFELS in order not to preempt and render ineffectual, nugatory and illusory any resolution or judgmentwhich the Board would issue.

Meantime, the NPC filed a Motion for Intervention15dated August 7, 1998 in the proceedings before theCBAA. This was approved by the CBAA in an Order16dated September 22, 1998.

During the pendency of the case, both FELS and NPC filed several motions to admit bond to guarantee thepayment of real p roperty taxes assessed by the Provincial Assessor (in th e event that the judgment be

unfavorable to them). The bonds were duly approved by the CBAA.

On April 6, 2000, the CBAA rendered a Decision17finding the power barges exempt from real propertytax. The dispositive portion reads:

WHEREFORE, the Resolution of the Local Board of Assessment Appeals of the Province of Batangas ishereby reversed. Respondent-appellee Provincial Assessor of the Province of Batangas is hereby orderedto drop subject property under ARP/Tax Declaration No. 018 -00958 from the List of Taxable Properties inthe 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 underSection 234(c) of R.A. No. 7160.19As to the other jurisdictional issue, the CBAA ruled that prescription

did not preclude the NPC from pursuing its claim for tax exemption in accordance with Section 206 ofR.A. No. 7160. The Provincial Assessor filed a motion for reconsideration, which was opposed by FELSand NPC.

In a complete volte face, the CBAA issued a Resolution20on 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 a ffirmed,

(d) The real property tax assessment on FELS by the Provincial Assessor of Batangas islikewise hereby affirmed.

SO ORDERED.21

FELS and NPC filed separate motions for reconsideration, which were timely opposed by the ProvincialAssessor. The CBAA denied the said motions in a Resolution22dated 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. 67490praying for the consolidation of its petition with CA-G.R. SP No. 67491. In a Resolution23dated February12, 2002, the appellate court directed NPC to re-file its motion for 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 theappellate 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 datedJuly 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 theappellate 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 Resolution25of November 8, 2004, for NPCs failure to sufficiently show that theCA committed any reversible error in the challenged decision. NPC filed a motion for reconsideration,which the Court denied with finality in a Resolution26dated January 19, 2005.
http://www.lawphil.net/judjuris/juri2007/feb2007/gr_168557_2007.html#fnt10http://www.lawphil.net/judjuris/juri2007/feb2007/gr_168557_2007.html#fnt10http://www.lawphil.net/judjuris/juri2007/feb2007/gr_168557_2007.html#fnt10http://www.lawphil.net/judjuris/juri2007/feb2007/gr_168557_2007.html#fnt11http://www.lawphil.net/judjuris/juri2007/feb2007/gr_168557_2007.html#fnt11http://www.lawphil.net/judjuris/juri2007/feb2007/gr_168557_2007.html#fnt11http://www.lawphil.net/judjuris/juri2007/feb2007/gr_168557_2007.html#fnt12http://www.lawphil.net/judjuris/juri2007/feb2007/gr_168557_2007.html#fnt12http://www.lawphil.net/judjuris/juri2007/feb2007/gr_168557_2007.html#fnt12http://www.lawphil.net/judjuris/juri2007/feb2007/gr_168557_2007.html#fnt13http://www.lawphil.net/judjuris/juri2007/feb2007/gr_168557_2007.html#fnt13http://www.lawphil.net/judjuris/juri2007/feb2007/gr_168557_2007.html#fnt13http://www.lawphil.net/judjuris/juri2007/feb2007/gr_168557_2007.html#fnt14http://www.lawphil.net/judjuris/juri2007/feb2007/gr_168557_2007.html#fnt14http://www.lawphil.net/judjuris/juri2007/feb2007/gr_168557_2007.html#fnt14http://www.lawphil.net/judjuris/juri2007/feb2007/gr_168557_2007.html#fnt15http://www.lawphil.net/judjuris/juri2007/feb2007/gr_168557_2007.html#fnt15http://www.lawphil.net/judjuris/juri2007/feb2007/gr_168557_2007.html#fnt15http://www.lawphil.net/judjuris/juri2007/feb2007/gr_168557_2007.html#fnt16http://www.lawphil.net/judjuris/juri2007/feb2007/gr_168557_2007.html#fnt16http://www.lawphil.net/judjuris/juri2007/feb2007/gr_168557_2007.html#fnt16http://www.lawphil.net/judjuris/juri2007/feb2007/gr_168557_2007.html#fnt17http://www.lawphil.net/judjuris/juri2007/feb2007/gr_168557_2007.html#fnt17http://www.lawphil.net/judjuris/juri2007/feb2007/gr_168557_2007.html#fnt17http://www.lawphil.net/judjuris/juri2007/feb2007/gr_168557_2007.html#fnt18http://www.lawphil.net/judjuris/juri2007/feb2007/gr_168557_2007.html#fnt18http://www.lawphil.net/judjuris/juri2007/feb2007/gr_168557_2007.html#fnt18http://www.lawphil.net/judjuris/juri2007/feb2007/gr_168557_2007.html#fnt19http://www.lawphil.net/judjuris/juri2007/feb2007/gr_168557_2007.html#fnt19http://www.lawphil.net/judjuris/juri2007/feb2007/gr_168557_2007.html#fnt19http://www.lawphil.net/judjuris/juri2007/feb2007/gr_168557_2007.html#fnt20http://www.lawphil.net/judjuris/juri2007/feb2007/gr_168557_2007.html#fnt20http://www.lawphil.net/judjuris/juri2007/feb2007/gr_168557_2007.html#fnt20http://www.lawphil.net/judjuris/juri2007/feb2007/gr_168557_2007.html#fnt21http://www.lawphil.net/judjuris/juri2007/feb2007/gr_168557_2007.html#fnt21http://www.lawphil.net/judjuris/juri2007/feb2007/gr_168557_2007.html#fnt21http://www.lawphil.net/judjuris/juri2007/feb2007/gr_168557_2007.html#fnt22http://www.lawphil.net/judjuris/juri2007/feb2007/gr_168557_2007.html#fnt22http://www.lawphil.net/judjuris/juri2007/feb2007/gr_168557_2007.html#fnt22http://www.lawphil.net/judjuris/juri2007/feb2007/gr_168557_2007.html#fnt23http://www.lawphil.net/judjuris/juri2007/feb2007/gr_168557_2007.html#fnt23http://www.lawphil.net/judjuris/juri2007/feb2007/gr_168557_2007.html#fnt23http://www.lawphil.net/judjuris/juri2007/feb2007/gr_168557_2007.html#fnt24http://www.lawphil.net/judjuris/juri2007/feb2007/gr_168557_2007.html#fnt24http://www.lawphil.net/judjuris/juri2007/feb2007/gr_168557_2007.html#fnt24http://www.lawphil.net/judjuris/juri2007/feb2007/gr_168557_2007.html#fnt25http://www.lawphil.net/judjuris/juri2007/feb2007/gr_168557_2007.html#fnt25http://www.lawphil.net/judjuris/juri2007/feb2007/gr_168557_2007.html#fnt25http://www.lawphil.net/judjuris/juri2007/feb2007/gr_168557_2007.html#fnt26http://www.lawphil.net/judjuris/juri2007/feb2007/gr_168557_2007.html#fnt26http://www.lawphil.net/judjuris/juri2007/feb2007/gr_168557_2007.html#fnt26http://www.lawphil.net/judjuris/juri2007/feb2007/gr_168557_2007.html#fnt26http://www.lawphil.net/judjuris/juri2007/feb2007/gr_168557_2007.html#fnt25http://www.lawphil.net/judjuris/juri2007/feb2007/gr_168557_2007.html#fnt24http://www.lawphil.net/judjuris/juri2007/feb2007/gr_168557_2007.html#fnt23http://www.lawphil.net/judjuris/juri2007/feb2007/gr_168557_2007.html#fnt22http://www.lawphil.net/judjuris/juri2007/feb2007/gr_168557_2007.html#fnt21http://www.lawphil.net/judjuris/juri2007/feb2007/gr_168557_2007.html#fnt20http://www.lawphil.net/judjuris/juri2007/feb2007/gr_168557_2007.html#fnt19http://www.lawphil.net/judjuris/juri2007/feb2007/gr_168557_2007.html#fnt18http://www.lawphil.net/judjuris/juri2007/feb2007/gr_168557_2007.html#fnt17http://www.lawphil.net/judjuris/juri2007/feb2007/gr_168557_2007.html#fnt16http://www.lawphil.net/judjuris/juri2007/feb2007/gr_168557_2007.html#fnt15http://www.lawphil.net/judjuris/juri2007/feb2007/gr_168557_2007.html#fnt14http://www.lawphil.net/judjuris/juri2007/feb2007/gr_168557_2007.html#fnt13http://www.lawphil.net/judjuris/juri2007/feb2007/gr_168557_2007.html#fnt12http://www.lawphil.net/judjuris/juri2007/feb2007/gr_168557_2007.html#fnt11http://www.lawphil.net/judjuris/juri2007/feb2007/gr_168557_2007.html#fnt10


8/48

Meantime, the appellate court dismissed the petition in CA-G.R. SP No. 67491. It held that the right toquestion the assessment of the Provincial Assessor had already prescribed upon the failure of FELS toappeal the disputed assessment to the LBAA within the period prescribed by law. Since FELS had lost theright to question the assessment, the right of the Provincial Government to collect the tax was alreadyabsolute.

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.

The motion for reconsideration filed by FELS in CA-G.R. SP No. 67490 had been earlier denied for lackof merit in a Resolution28dated June 20, 2005.

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

A.

Whether power barges, which are floating and movable, are personal properties and therefore, not subjectto real property tax.

B.

Assuming that the subject power barges are real properties, whether they are exempt from real estate taxunder 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 beNPC 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 todepreciation just like any other personal properties.

E.

Whether the right of the petitioner to question the patently null and void real property tax assessment onthe 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 LBAAWAS FILED OUT OF TIME.

II

THE COURT OF APPEALS GRAVELY ERRED IN NOT HOLDING THAT THE POWER BARGESARE NOT SUBJECT TO REAL PROPERTY TAXES.

III

THE COURT OF APPEALS GRAVELY ERRED IN NOT HOLDING THAT THE ASSESSMENT ONTHE 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 ofthe two cases in a Resolution31dated March 8, 2006.1awphi1.net

In an earlier Resolution dated February 1, 2006, the Court had required the parties to submit theirrespective Memoranda within 30 days from notice. Almost a year passed but the parties had not submittedtheir 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 ofadvancing the interests of justice and avoiding further delay.

In both petitions, FELS and NPC maintain that the appeal before the LBAA was not time-barred. FELSargues that when NPC moved to have the assessment reconsidered on September 7, 1995, the running ofthe period to file an appeal with the LBAA was tolled. For its part, NPC posits that the 60-day period forappealing 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 legal interest in theproperty who is not satisfied with the action of the provincial, city or municipal assessor in the assessmentof 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 theform prescribed for the purpose, together with copies of the tax declarations and such affidavits ordocuments 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 receipthereof, appeal to the Board of Assessment Appeals of the province by filing a petition under oath on theform prescribed for the purpose, together with copies of ARP/Tax Declaration and such affidavits ordocuments 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 amotion for reconsideration of the Provincial Assessors decision, a remedy not sanctioned by law.

The remedy of appeal to the LBAA is available from an adverse ruling or action of the provincial, city ormunicipal assessor in the assessment of the property. It follows then that the determination made by therespondent Provincial Assessor with regard to the taxability of the subject real properties falls within its

power to assess properties for taxation purposes subject to appeal before the LBAA.

33
http://www.lawphil.net/judjuris/juri2007/feb2007/gr_168557_2007.html#fnt27http://www.lawphil.net/judjuris/juri2007/feb2007/gr_168557_2007.html#fnt27http://www.lawphil.net/judjuris/juri2007/feb2007/gr_168557_2007.html#fnt27http://www.lawphil.net/judjuris/juri2007/feb2007/gr_168557_2007.html#fnt28http://www.lawphil.net/judjuris/juri2007/feb2007/gr_168557_2007.html#fnt28http://www.lawphil.net/judjuris/juri2007/feb2007/gr_168557_2007.html#fnt28http://www.lawphil.net/judjuris/juri2007/feb2007/gr_168557_2007.html#fnt29http://www.lawphil.net/judjuris/juri2007/feb2007/gr_168557_2007.html#fnt29http://www.lawphil.net/judjuris/juri2007/feb2007/gr_168557_2007.html#fnt29http://www.lawphil.net/judjuris/juri2007/feb2007/gr_168557_2007.html#fnt30http://www.lawphil.net/judjuris/juri2007/feb2007/gr_168557_2007.html#fnt30http://www.lawphil.net/judjuris/juri2007/feb2007/gr_168557_2007.html#fnt30http://www.lawphil.net/judjuris/juri2007/feb2007/gr_168557_2007.html#fnt31http://www.lawphil.net/judjuris/juri2007/feb2007/gr_168557_2007.html#fnt31http://www.lawphil.net/judjuris/juri2007/feb2007/gr_168557_2007.html#fnt31http://www.lawphil.net/judjuris/juri2007/feb2007/gr_168557_2007.html#fnt32http://www.lawphil.net/judjuris/juri2007/feb2007/gr_168557_2007.html#fnt32http://www.lawphil.net/judjuris/juri2007/feb2007/gr_168557_2007.html#fnt32http://www.lawphil.net/judjuris/juri2007/feb2007/gr_168557_2007.html#fnt33http://www.lawphil.net/judjuris/juri2007/feb2007/gr_168557_2007.html#fnt33http://www.lawphil.net/judjuris/juri2007/feb2007/gr_168557_2007.html#fnt33http://www.lawphil.net/judjuris/juri2007/feb2007/gr_168557_2007.html#fnt33http://www.lawphil.net/judjuris/juri2007/feb2007/gr_168557_2007.html#fnt32http://www.lawphil.net/judjuris/juri2007/feb2007/gr_168557_2007.html#fnt31http://www.lawphil.net/judjuris/juri2007/feb2007/gr_168557_2007.html#fnt30http://www.lawphil.net/judjuris/juri2007/feb2007/gr_168557_2007.html#fnt29http://www.lawphil.net/judjuris/juri2007/feb2007/gr_168557_2007.html#fnt28http://www.lawphil.net/judjuris/juri2007/feb2007/gr_168557_2007.html#fnt27


9/48

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,34where 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 theproperty the right to appeal to the LBAA. The procedure likewise does not permit the property owner theremedy of filing a motion for reconsideration before the local assessor. The pertinent holding of the Courtin Callanta is as follows:

x x x [T]he same Code is equally clear that the aggrieved owners should have brought their appeals beforethe 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, aremedy not sanctioned by the law. To allow this procedure would indeed invite corruption in the system ofappraisal 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. Inthe latter instance, allusions of a possible covert, illicit trade-off cannot be avoided, and in fact canconveniently 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 lawfulpossessor of real property of its revised assessed value, the former shall no longer have any jurisdiction toentertain 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 makingthe 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 thetaxes due with respect to the taxpayers property becomes absolute upon the expiration of the period toappeal.38It also bears stressing that the taxpayers failure to question the assessment in the LBAA rendersthe assessment of the local assessor final, executory and demandable, thus, precluding the taxpayer fromquestioning the correctness of the assessment, or from invoking any defense that would reopen thequestion of its liability on the merits.39

In fine, the LBAA acted correctly when it dismissed the petitioners appeal for having been filed out oftime; the CBAA and the appellate court were likewise correct in affirming the dismissal. Elementary is therule that the perfection of an appeal within the period therefor is both mandatory and jurisdictional, andfailure in this regard renders the d ecision final and executory.40

In the Comment filed by the Provincial Assessor, it is asserted that the instant petition is barred by resjudicata; that the final and executory judgment in G.R. No. 165113 (where there was a final determinationon 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 aparty to the erroneous petition which the NPC filed in G.R. No. 165113. It avers that it did not participatein the aforesaid proceeding, and the Supreme Court never acquired jurisdiction over it. As to the issue offorum shopping, petitioner claims that no forum shopping could have been committed since the elementsof 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 groundsembodied in various maxims of common law, namely: (1) public policy and necessity, which makes it tothe interest of the

State that there should be an end to litigation republicae ut sit litium; and (2) the hardship on theindividual of being vexed twice for the same causenemo debet bis vexari et eadem causa. A conflictingdoctrine would subject the public peace and quiet to the will and dereliction of individuals and prefer theregalement of the litigious disposition on the part of suitors to the preservation of the public tranquilityand happiness.41As we ruled in Heirs of Trinidad De Leon Vda. de Roxas v. Court of Appeals:42

x x x An existing final judgment or decree rendered upon the merits, without fraud or collusion, by acourt of competent jurisdiction acting upon a matter within its authorityis 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 judicialtribunal 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 theirprivies to litigate anew a question once it has been considered and decided with finality. Litigations mustend and terminate sometime and somewhere. The effective and efficient administration of justice requiresthat once a judgment has become final, the prevailing party should not be deprived of the fruits of theverdict by subsequent suits on the same issues filed b y the same parties.

This is in accordance with the doctrine of res judicata which has the following elements: (1) the formerjudgment must be final; (2) the court which rendered it had jurisdiction over the subject matter and theparties; (3) the judgment must be on the merits; and (4) there must be between the first and the secondactions, 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 pa rties. There is

substantial identity of parties when there is community of interest or privity of interest between a party inthe 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 realproperty 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 theearlier 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 petitionerFELS 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 aresult 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. There is also forum shopping whena party institutes two or more actions or proceedings grounded on the same cause, on the gamble that oneor 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 presentin the cases at bar; however, as already discussed, res judicata may be properly applied herein. Petitionersengaged in forum shopping when they filed G.R. Nos. 168557 and 170628 after the petition for review inG.R. No. 165116. Indeed, petitioners went from one court to another trying to get a favorable decisionfrom one of the tribunals which a llowed them to pursue their cases.

It must be stressed that an important factor in determining the existence of forum shopping is the vexationcaused to the courts and the parties-litigants by the filing of similar cases to claim substantially the samereliefs.45 The rationale against forum shopping is that a party should not be allowed to pursuesimultaneous 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 judicialprocedure, and adds to the congestion of the heavily burdened dockets of the courts.46
http://www.lawphil.net/judjuris/juri2007/feb2007/gr_168557_2007.html#fnt34http://www.lawphil.net/judjuris/juri2007/feb2007/gr_168557_2007.html#fnt34http://www.lawphil.net/judjuris/juri2007/feb2007/gr_168557_2007.html#fnt34http://www.lawphil.net/judjuris/juri2007/feb2007/gr_168557_2007.html#fnt35http://www.lawphil.net/judjuris/juri2007/feb2007/gr_168557_2007.html#fnt35http://www.lawphil.net/judjuris/juri2007/feb2007/gr_168557_2007.html#fnt35http://www.lawphil.net/judjuris/juri2007/feb2007/gr_168557_2007.html#fnt36http://www.lawphil.net/judjuris/juri2007/feb2007/gr_168557_2007.html#fnt36http://www.lawphil.net/judjuris/juri2007/feb2007/gr_168557_2007.html#fnt36http://www.lawphil.net/judjuris/juri2007/feb2007/gr_168557_2007.html#fnt37http://www.lawphil.net/judjuris/juri2007/feb2007/gr_168557_2007.html#fnt37http://www.lawphil.net/judjuris/juri2007/feb2007/gr_168557_2007.html#fnt37http://www.lawphil.net/judjuris/juri2007/feb2007/gr_168557_2007.html#fnt38http://www.lawphil.net/judjuris/juri2007/feb2007/gr_168557_2007.html#fnt38http://www.lawphil.net/judjuris/juri2007/feb2007/gr_168557_2007.html#fnt38http://www.lawphil.net/judjuris/juri2007/feb2007/gr_168557_2007.html#fnt39http://www.lawphil.net/judjuris/juri2007/feb2007/gr_168557_2007.html#fnt39http://www.lawphil.net/judjuris/juri2007/feb2007/gr_168557_2007.html#fnt39http://www.lawphil.net/judjuris/juri2007/feb2007/gr_168557_2007.html#fnt40http://www.lawphil.net/judjuris/juri2007/feb2007/gr_168557_2007.html#fnt40http://www.lawphil.net/judjuris/juri2007/feb2007/gr_168557_2007.html#fnt40http://www.lawphil.net/judjuris/juri2007/feb2007/gr_168557_2007.html#fnt41http://www.lawphil.net/judjuris/juri2007/feb2007/gr_168557_2007.html#fnt41http://www.lawphil.net/judjuris/juri2007/feb2007/gr_168557_2007.html#fnt41http://www.lawphil.net/judjuris/juri2007/feb2007/gr_168557_2007.html#fnt42http://www.lawphil.net/judjuris/juri2007/feb2007/gr_168557_2007.html#fnt42http://www.lawphil.net/judjuris/juri2007/feb2007/gr_168557_2007.html#fnt42http://www.lawphil.net/judjuris/juri2007/feb2007/gr_168557_2007.html#fnt43http://www.lawphil.net/judjuris/juri2007/feb2007/gr_168557_2007.html#fnt43http://www.lawphil.net/judjuris/juri2007/feb2007/gr_168557_2007.html#fnt43http://www.lawphil.net/judjuris/juri2007/feb2007/gr_168557_2007.html#fnt44http://www.lawphil.net/judjuris/juri2007/feb2007/gr_168557_2007.html#fnt44http://www.lawphil.net/judjuris/juri2007/feb2007/gr_168557_2007.html#fnt44http://www.lawphil.net/judjuris/juri2007/feb2007/gr_168557_2007.html#fnt45http://www.lawphil.net/judjuris/juri2007/feb2007/gr_168557_2007.html#fnt45http://www.lawphil.net/judjuris/juri2007/feb2007/gr_168557_2007.html#fnt45http://www.lawphil.net/judjuris/juri2007/feb2007/gr_168557_2007.html#fnt46http://www.lawphil.net/judjuris/juri2007/feb2007/gr_168557_2007.html#fnt46http://www.lawphil.net/judjuris/juri2007/feb2007/gr_168557_2007.html#fnt46http://www.lawphil.net/judjuris/juri2007/feb2007/gr_168557_2007.html#fnt46http://www.lawphil.net/judjuris/juri2007/feb2007/gr_168557_2007.html#fnt45http://www.lawphil.net/judjuris/juri2007/feb2007/gr_168557_2007.html#fnt44http://www.lawphil.net/judjuris/juri2007/feb2007/gr_168557_2007.html#fnt43http://www.lawphil.net/judjuris/juri2007/feb2007/gr_168557_2007.html#fnt42http://www.lawphil.net/judjuris/juri2007/feb2007/gr_168557_2007.html#fnt41http://www.lawphil.net/judjuris/juri2007/feb2007/gr_168557_2007.html#fnt40http://www.lawphil.net/judjuris/juri2007/feb2007/gr_168557_2007.html#fnt39http://www.lawphil.net/judjuris/juri2007/feb2007/gr_168557_2007.html#fnt38http://www.lawphil.net/judjuris/juri2007/feb2007/gr_168557_2007.html#fnt37http://www.lawphil.net/judjuris/juri2007/feb2007/gr_168557_2007.html#fnt36http://www.lawphil.net/judjuris/juri2007/feb2007/gr_168557_2007.html#fnt35http://www.lawphil.net/judjuris/juri2007/feb2007/gr_168557_2007.html#fnt34


10/48

Thus, there is forum shopping when there exist: (a) identity of parties, or at least such parties as representthe same interests in both actions, (b) identity of rights asserted and relief prayed for, the relief beingfounded on the same facts, and (c) the identity of the two preceding particulars is such that any judgmentrendered in the pending case, regardless of which party is successful, would amount to res judicata in theother.47

Having found that the elements of res judicata and forum shopping a re present in the consolidated cases, adiscussion 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 are thus subjectto real property tax. This is also the inevitable conclusion, considering that G.R. No. 165113 wasdismissed 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.48Besides, factual findings of administrative bodies, which have acquired expertise in their field, aregenerally binding and conclusive upon the Court; we will not assume to interfere with the sensibleexercise of the judgment of men especially trained in appraising property. Where the judicial mind is leftin doubt, it is a sound policy to leave the assessment undisturbed.49We find no reason to depart from thisrule in this case.

In Consolidated Edison Company of New York, Inc., et al. v. The City of New York, et al. ,50a powercompany 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 plantsdesignated 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, thoughfloating, are intended by their nature and object to remain at a fixed place on a river, lake, or coast" areconsidered immovable property. Thus, power barges are categorized as immovable property bydestination, being in the nature of machinery and other implements intended by the owner for an industryor work which may be carried on in a building or on a piece of land and which tend directly to meet theneeds 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, agovernment- owned and controlled corporation engaged in the supply, generation, and transmission ofelectric power.

We affirm the findings of the LBAA and CBAA that the owner of the taxable properties is petitionerFELS, 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 ofconverting Fuel of NAPOCOR into electricity.52

It follows then that FELS cannot escape liability from the payment of realty taxes by invoking itsexemption in Section 234 (c) of R.A. No. 7160, which reads:

SECTION 234. Exemptions from Real Property Tax.The following are exempted from payment of thereal property tax:

x x x

(c) All machineries and equipment that are actually, directly and exclusively used by local water districtsand government-owned or controlled corporations engaged in the supply and distribution of water and/orgeneration and transmission of electric power; x x x

Indeed, the law states that the machinery must be actually, directly and exclusively used by thegovernment owned or controlled corporation; nevertheless, petitioner FELS still c annot 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 thenecessary Fuel pursuant to Article 6 and to the other provisions hereof, it will operate the Power Barges toconvert 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. Notbeing contrary to law, morals, good customs, public order or public policy, the parties to the contract arebound by its terms and conditions.54

Time and again, the Supreme Court has stated that taxation is the rule and exemption is the exception.55The law does not look with favor on tax exemptions and the entity that would seek to be thus privilegedmust justify it by words too plain to be mistaken and too categorical to be misinterpreted.56Thus, applyingthe rule of strict construction of laws granting tax exemptions, and the ru le that doubts should be resolvedin 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 responsiblefor the payment of all real estate taxes and assessments, does not justify the exemption. The privilegegranted to petitioner NPC cannot be extended to FELS. The covenant is between FELS and NPC and doesnot bind a third person not privy thereto, in this case, the Province of Batangas.

It must be pointed out that the protracted and circuitous litigation has seriously resulted in the localgovernments 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 befound only in the responsibility of the legislature which imposes the tax on the constituency who are to

pay for it.57The right of local government units to collect taxes due must always be up held to avoid severetax erosion. This consideration is consistent with the State policy to guarantee the autonomy of localgovernments58and the objective of the Local Government Code that they enjoy genuine and meaningfullocal 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 revenuesto finance and support myriad activities of the local government units for the delivery of basic servicesessential to the promotion of the general welfare and the enhancement of peace, progress, and prosperityof the people.60

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

SO ORDERED.

The Case
http://www.lawphil.net/judjuris/juri2007/feb2007/gr_168557_2007.html#fnt47http://www.lawphil.net/judjuris/juri2007/feb2007/gr_168557_2007.html#fnt47http://www.lawphil.net/judjuris/juri2007/feb2007/gr_168557_2007.html#fnt47http://www.lawphil.net/judjuris/juri2007/feb2007/gr_168557_2007.html#fnt48http://www.lawphil.net/judjuris/juri2007/feb2007/gr_168557_2007.html#fnt48http://www.lawphil.net/judjuris/juri2007/feb2007/gr_168557_2007.html#fnt48http://www.lawphil.net/judjuris/juri2007/feb2007/gr_168557_2007.html#fnt49http://www.lawphil.net/judjuris/juri2007/feb2007/gr_168557_2007.html#fnt49http://www.lawphil.net/judjuris/juri2007/feb2007/gr_168557_2007.html#fnt49http://www.lawphil.net/judjuris/juri2007/feb2007/gr_168557_20

tax cases law

Documents