NATIONAL POWER
CORPORATION,
Petitioner, -
versus - Respondents. |
G.R.
No. 171586
Present: Quisumbing, J., Chairperson,
CARPIO-MORALES, *CHICO-NAZARIO, **LEONARDO-DE
CASTRO, and Brion,
JJ. Promulgated: July
15, 2009 |
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D E C I S I O N
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BRION, J.: |
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We resolve in this petition for review on certiorari the question of whether the
National Power Corporation (NPC), as a government-owned and controlled
corporation, can claim tax exemption under Section 234 of the Local Government
Code (LGC) for the taxes due from the Mirant Pagbilao Corporation (Mirant)[1] whose tax liabilities the
NPC has contractually assumed.
BACKGROUND FACTS
The NPC is a government-owned and controlled corporation
mandated by law to undertake,
among others, the production of electricity from nuclear, geothermal, and other
sources, and the transmission of electric power on a nationwide basis.[2] To pursue this mandate, the NPC entered into
an Energy Conversion Agreement (ECA) with Mirant on
Among
the obligations undertaken by the NPC under the ECA was the payment of all
taxes that the government may impose on Mirant; Article 11.1 of the ECA[4]
specifically provides:
11.1 RESPONSIBILITY. [NPC] 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 [Mirant] may at any time be or become subject
in 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
Mirant] and (ii) construction permit fees, environmental permit fees and other
similar fees and charges), and (b) all
real estate taxes and assessments, rates and other charges in respect of the
Site, the buildings and improvements thereon and the Power Station. [Emphasis
supplied.]
In a letter dated P1,538,076,000.00
for the period of 1997 to 2000. The
To protect its interests, the NPC filed a petition before the Local Board
of Assessment Appeals (LBAA) entitled “In Re: Petition to Declare Exempt from Payment of Property Tax on
Machineries and Equipment Used for Generation and Transmission of Power, under Section
234(c) of RA 7160 [LGC], located at Pagbilao, Quezon xxx”[5]
on April 14, 2000. The NPC objected to the assessment against Mirant on the claim that
it (the NPC) is entitled to the tax exemptions provided in Section 234,
paragraphs (c) and (e) of the LGC. These
provisions state:
Section 234. Exemptions from Real Property Tax. – The
following are exempted from payment for the real property tax:
xxx xxx xxx
(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;
xxx xxx xxx
(e) Machinery and equipment used for pollution control and environmental
protection.
Except as provided herein, any exemption from payment
of real property tax previously granted to, or presently enjoyed by, all
persons, whether natural or juridical, including government-owned or
–controlled corporations are hereby withdrawn upon the effectivity of the Code.
Assuming
that it cannot claim the exemptions stated in these provisions, the NPC alternatively
asserted that it is entitled to:
a. the lower assessment level of 10% under Section 218(d)
of the LGC for government-owned and controlled corporations engaged in the
generation and transmission of electric power, instead of the 80% assessment
level for commercial properties as imposed in the assessment letter; and
b. an allowance for depreciation of the subject machineries
under Section 225 of the LGC.
The LBAA dismissed the NPC’s petition on the
The NPC appealed the denial of its petition with the Central Board of
Assessment Appeals (CBAA). Although
it noted the incompleteness of the LBAA decision for failing to state the
factual basis of its ruling, the CBAA nevertheless affirmed, in its decision of
Before the CTA, the NPC claimed it was procedurally erroneous for the
CBAA to exercise jurisdiction over its appeal because the LBAA issued a sin perjuicio[7]
decision, that is, the LBAA pronounced a judgment without any finding of fact. It argued that the CBAA should have remanded
the case to the LBAA. On substantive
issues, the NPC asserted the same grounds it relied upon to support its claimed
tax exemptions.
The CTA en banc resolved to dismiss the NPC’s petition on
THE PETITION
The NPC contends that the CTA en
banc erred in ruling that the NPC is estopped from questioning the LBAA’s sin perjuicio judgment; the LBAA
decision, it posits, cannot serve as an appealable decision that would vest the
CBAA with appellate jurisdiction; a sin
perjuicio decision, by its nature, is null and void.
The NPC likewise assails the CTA en banc ruling that the NPC was not the
proper party to protest the real property tax assessment, as it did not have the
requisite “legal interest.” The NPC claims
that it has legal interest because of its beneficial ownership of the power plant
and its machineries; what Mirant holds is merely a naked title. Under the terms of the ECA, the NPC also
claims that it possesses all the attributes of ownership, namely, the rights to
enjoy, to dispose of, and to recover against the holder and possessor of the
thing owned. That it will acquire and
fully own the power plant after the lapse of 25 years further underscores its
“legal interest” in protesting the assessment.
The NPC’s assertion of beneficial
ownership of the power plant also supports its claim for tax exemptions under
Section 234(c) of the LGC. The NPC
alleges that it has the right to control and supervise the entire output and
operation of the power plant. This
arrangement, to the NPC, proves that it is the entity actually, directly, and
exclusively using the subject machineries.
Mirant’s possession of the power plant is irrelevant since all of Mirant
activities relating to power generation are undertaken for and in behalf of
the NPC. Additionally, all the
electricity Mirant generates is utilized by the NPC in supplying the power
needs of the country; Mirant therefore operates the power plant for the
exclusive and direct benefit of the NPC.
Lastly, the NPC posits that the machineries taxed by the local
government include anti-pollution devices which should have been excluded from
the assessment under Section 234(e) of the LGC.
Assuming that the NPC is liable to pay
the assessed real property tax, it asserts that a reassessment is necessary as
it is entitled to depreciation allowance on the machineries and to the lower
10% assessment level under Sections 225 and 218(d) of the LGC, respectively. This position is complemented by its prayer to
have the case remanded to the LBAA for the proper determination of its tax
liabilities.
THE COURT’S RULING
This case is not one of first impression. We have previously ruled against the NPC’s
claimed exemptions under the LGC in the cases of FELS Energy, Inc. v.
Province of Batangas[8]
and NPC v. CBAA.[9] Based on the principles we declared in those
cases, as well as the defects we found in the NPC’s tax assessment protest, we conclude that the petition lacks merit.
The NPC is estopped from
questioning the CBAA’s jurisdiction
The assailed CTA en banc decision brushed aside the NPC’s sin perjuicio arguments by declaring
that:
The court finds merit in [NPC’s] claim that the Order
of the LBAA of the
However, on appeal before the CBAA, [NPC] assigned several errors, both
in fact and in law, pertaining to the LBAA’s decision. Thus, petitioner is bound
by the appellate jurisdiction of the CBAA under the principle of equitable
estoppel. In this regard, [NPC] is in no
position to question the appellate jurisdiction of the CBAA as it is the same
party which sought its jurisdiction and participated in the proceedings therein.[10] [Emphasis supplied.]
We agree that the NPC can no longer divest
the CBAA of the power to decide the appeal after invoking and submitting itself
to the board’s jurisdiction. We note
that even the NPC itself found nothing objectionable in the LBAA’s sin perjuicio decision when it filed its
appeal before the CBAA; the NPC did not cite this ground as basis for its
appeal. What it cited were grounds that
went into the merits of its case. In fact, its appeal contained no prayer for
the remand of the case to the LBAA.
A basic jurisdictional rule, essentially based on fairness, is that a
party cannot invoke a court’s jurisdiction to secure affirmative relief and,
after failing to obtain the requested relief, repudiate or question that same
jurisdiction.[11]
Moreover, a remand would be unnecessary,
as we find the CBAA’s and the CTA en banc’s denial of NPC’s claims
entirely in accord with the law and with jurisprudence.
The entity liable for tax has
the right to protest the assessment
Before we
resolve the question of the NPC's entitlement to tax exemption, we find it
necessary to determine first whether the NPC initiated a valid protest against the
assessment. A taxpayer's failure to
question the assessment before 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 the merits.[12]
Section 226
of the LGC lists down the two entities vested with the personality to contest
an assessment: the owner and the person with legal interest in the
property.
A person
legally burdened with the obligation to pay for the tax imposed on a property has
legal interest in the property and the personality to protest a tax assessment
on the property. This is the logical and
legal conclusion when Section 226, on the rules governing an assessment protest,
is placed side by side with Section 250 on the payment of real property tax;
both provisions refer to the same parties who may protest and pay the tax:
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SECTION 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 of the province or city xxx. |
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SECTION 250. Payment of Real Property
Taxes in Instalments. - The owner of the real property or the person
having legal interest therein may pay the basic real property tax xxx due
thereon without interest in four (4) equal instalments xxx. |
The liability for taxes generally rests
on the owner of the real property at the time the tax accrues. This is a necessary consequence that proceeds
from the fact of ownership.[13] However, personal liability for realty taxes may also expressly
rest on the entity with the beneficial use of the real property, such as the
tax on property owned by the government but leased to private persons or
entities, or when the tax assessment is
made on the basis of the actual use of the property.[14]
In either case, the unpaid realty tax
attaches to the property[15] but is directly
chargeable against the taxable person who has actual and beneficial use and possession of the property regardless
of whether or not that person is the owner.[16]
In the
present case, the NPC, contrary to its claims, is neither the owner nor the
possessor/user of the subject machineries.
The ECA’s
terms regarding the power plant’s machineries clearly vest their ownership with
Mirant. Article 2.12 of the ECA[17]
states:
2.12
OWNERSHIP OF POWER STATION. From the
Effective Date until the Transfer Date [that is, the day following the last day
of the 25-year period], [Mirant] shall,
directly or indirectly, own the Power Station and all the fixtures, fittings,
machinery and equipment on the Site or used in connection with the Power
Station which have been supplied by it or at its cost. [Mirant] shall operate,
manage, and maintain the Power Station for the purpose of converting fuel of
[NPC] into electricity. [Emphasis supplied.]
The NPC
contends that it should nevertheless be regarded as the beneficial owner of the
plant, since it will acquire ownership thereof at the end of 25 years. The NPC also asserts, by quoting portions of
the ECA, that it has the right to control and supervise the construction and
operation of the plant, and that Mirant has retained only naked title to
it. These contentions, unfortunately,
are not sufficient to vest the NPC the personality to protest the assessment.
In Carińo v. Ofilado,[18]
we declared that legal interest should
be an interest that is actual and material, direct and immediate, not simply
contingent or expectant. The concept
of the directness and immediacy involved is no different from that required in
motions for intervention under Rule 19 of the Rules of Court that allow one who
is not a party to the case to participate because of his or her direct and immediate interest, characterized
by either gain or loss from the judgment that the court may render.[19] In the present case, the NPC’s ownership of
the plant will happen only after the lapse of the 25-year period; until
such time arrives, the NPC's claim of ownership is merely contingent, i.e., dependent on whether the plant and
its machineries exist at that time.
Prior to this event, the NPC’s real interest is only in the continued
operation of the plant for the generation of electricity. This interest has not been shown to be
adversely affected by the realty taxes imposed and is an interest that NPC can
protect, not by claiming an exemption that is not due to Mirant, but by paying
the taxes it (NPC) has assumed for Mirant under the ECA.
To show that
Mirant only retains a naked title, the NPC has selectively cited provisions of
the ECA to make it appear that it has the sole authority over the power plant
and its operations. Contrary to these
assertions, however, a complete reading of the ECA shows that Mirant has more
substantial powers in the control and supervision of the power plant's
construction and operations.
Under
Articles 2.1 and 3.1 of the ECA, Mirant is responsible for the design,
construction, equipping, testing, and commissioning of the power plant. Article 5.1 on the operation of the power plant
states that Mirant shall be responsible for the power plant’s management,
operation, maintenance, and repair until the Transfer Date. This is reiterated in Article 5.3 where
Mirant undertakes to operate the power plant to convert fuel into electricity.
While the
NPC asserts that it has the power to authorize the closure of the power plant
without any veto on the part of Mirant, the full text of Article 8.5 of the ECA
shows that Mirant is possessed with similar powers to terminate the agreement:
8.5
BUYOUT. If the circumstances set out in
Article 7.18, Article 9.4, Article 14.4 or Article 28.4 arise or if, not
earlier than 20 years after the Completion Date, [the NPC] gives not less than
90 days notice to [Mirant] that it wishes to close the power station, or if
[the NPC] has failed to ensure the due payment of any sum due hereunder within
three months of its due date then, upon [Mirant] giving to [the NPC] not less
than 90 days notice requiring [the NPC] to buy out [Mirant] or, as the case
may be, [the NPC] giving not less than 90 days notice requiring [Mirant] to
sell out to [NPC], [NPC] shall purchase all [Mirant's] right, title, and
interest in and to the Power Station and thereupon all [Mirant's] obligations
hereunder shall cease. [Emphasis
supplied.]
On liability
for taxes, the NPC indeed assumed responsibility for the taxes due on the power
plant and its machineries,[20]
specifically, “all real estate taxes and assessments, rates and other charges
in respect of the site, the buildings and improvements thereon and the [power plant].”
At first blush, this contractual provision would appear to make the NPC liable
and give it standing to protest the assessment. The tax liability we refer to
above, however, is the liability arising from law that the local
government unit can rightfully and successfully enforce, not the contractual liability that is enforceable between the
parties to a contract as discussed below. By law, the tax liability rests on Mirant
based on its ownership, use, and possession of the plant and its
machineries.
In Testate of Concordia Lim v. City of Manila,[21] we had occasion to rule that:
In [Baguio v. Busuego[22]],
the assumption by the vendee of the
liability for real estate taxes prospectively due was in harmony with the tax
policy that the user of the property bears the tax. In [the
present case], the interpretation that
the [vendee] assumed a liability for overdue real estate taxes for the periods
prior to the contract of sale is incongruent with the said policy because there
was no immediate transfer of possession
of the properties previous to full payment of the repurchase price.
xxxx
To impose the real property tax on the estate
which was neither the owner nor the beneficial user of the property during the
designated periods would not only be contrary to law but also unjust.
For a fuller
appreciation of this ruling, the
Using the
By our above
conclusion, we do not thereby pass upon the validity of the contractual
stipulation between the NPC and Mirant on the assumption of liability that the
NPC undertook. All we declare is that the
stipulation is entirely between the NPC and Mirant, and does not bind third
persons who are not privy to the contract between these parties. We say this pursuant to the principle of
relativity of contracts under Article 1311 of the Civil Code which postulates that
contracts take effect only between the parties, their assigns and heirs. Quite
obviously, there is no privity between the respondent local government units
and the NPC, even though both are public corporations. The tax due will not come from one pocket and
go to another pocket of the same governmental entity. An LGU is independent and
autonomous in its taxing powers and this is clearly reflected in Section 130 of
the LGC which states:
SECTION 130. Fundamental Principles. - The
following fundamental principles shall govern the exercise of the taxing and
other revenue-raising powers of local government units:
xxx
(d) The revenue
collected pursuant to the provisions of this Code shall inure solely to the
benefit of, and be subject to disposition by, the local government unit levying the tax, fee, charge or other imposition
unless otherwise specifically provided herein; xxx. [Emphasis supplied.]
An
exception to the rule on relativity of contracts is provided under the same Article
1311 as follows:
If
the contract should contain some stipulation in favor of a third person, he may
demand its fulfilment provided he communicated his acceptance to the obligor
before its revocation. A mere incidental
benefit or interest of a person is not sufficient. The
contracting parties must have clearly and deliberately conferred a favor upon a
third person.
[Emphasis supplied.]
The NPC’s assumption of tax
liability under Article 11.1 of the ECA does not appear, however, to be in any
way for the benefit of the
To reiterate, only the parties to the ECA agreement can exact and demand
the enforcement of the rights and obligations it established – only Mirant can
demand compliance from the NPC for the payment of the real property tax the NPC
assumed to pay. The local government
units (the
The test of exemption is the nature
of the use,
not ownership, of the subject machineries
At any rate, the NPC’s claim of tax exemptions is completely without
merit. To successfully claim exemption
under Section 234(c) of the LGC, the claimant must prove two elements:
a. the machineries and equipment are actually,
directly, and exclusively used by local water districts and government-owned
or controlled corporations; and
b. the local water districts and government-owned and
controlled corporations claiming exemption must be engaged in the supply and
distribution of water and/or the generation and transmission of electric power.
As applied to the present case, the government-owned or controlled
corporation claiming exemption must be the entity actually, directly, and
exclusively using the real properties, and the use must be devoted to the
generation and transmission of electric power.
Neither the NPC nor Mirant satisfies both requirements. Although the plant’s machineries are devoted
to the generation of electric power, by the NPC’s own admission and as
previously pointed out, Mirant – a private corporation – uses and operates
them. That Mirant operates the
machineries solely in compliance with the will of the NPC only underscores the
fact that NPC does not actually,
directly, and exclusively use them.
The machineries must be actually, directly, and exclusively used by the
government-owned or controlled corporation for the exemption under Section 234(c)
to apply.[26]
Nor will NPC find solace in its claim
that it utilizes all the power plant’s generated electricity in supplying the
power needs of its customers. Based on
the clear wording of the law, it is the machineries that are exempted from the
payment of real property tax, not the water or electricity that these
machineries generate and distribute.[27]
Even the NPC’s claim of beneficial ownership is unavailing. The test of
exemption is the use, not the ownership of the machineries devoted to
generation and transmission of electric power.[28] The nature of the NPC’s ownership of these
machineries only finds materiality in resolving the NPC’s claim of legal
interest in protesting the tax assessment on Mirant. As we discussed above, this claim is inexistent
for tax protest purposes.
Lastly, from the points of view of essential fairness and the integrity
of our tax system, we find it essentially wrong to allow the NPC to assume in
its BOT contracts the liability of the other contracting party for taxes that the
government can impose on that other party, and at the same time allow NPC to
turn around and say that no taxes should be collected because the NPC is
tax-exempt as a government-owned and controlled corporation. We cannot be a party to this kind of
arrangement; for us to allow it without congressional authority is to intrude
into the realm of policy and to debase the tax system that the Legislature
established. We will then also be grossly
unfair to the people of the
WHEREFORE, we DENY the National Power Corporation’s
petition for review on certiorari,
and AFFIRM the decision of the Court
of Tax Appeals en banc dated
SO
ORDERED.
ARTURO D. BRION
Associate Justice
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WE
CONCUR: LEONARDO A.
QUISUMBING
Associate Justice Chairperson |
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CONCHITA CARPIO MORALES Associate
Justice |
MINITA V. CHICO-NAZARIO Associate Justice |
TERESITA
J. LEONARDO-DE CASTRO
Associate
Justice
ATTESTATION
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 Court’s Division.
LEONARDO
A. QUISUMBING
Associate Justice
Chairperson
CERTIFICATION
REYNATO
S. PUNO
Chief
Justice
* Designated
additional Member of the Second Division effective
** Designated additional Member of the Second Division
effective
[1] Previously known as Southern Energy Quezon, Inc., and before
that, Hopewell Energy International Limited.
[2] Republic Act No. 6395.
[3] Rollo, p. 5.
[4]
[5] Docketed as LBAA Case
No. 2-2000.
[6] Rollo, p. 166.
[7] A sin perjuicio decision is a judgment without statement of facts in
support of its conclusion (Director of Lands v. Sanz, 45 Phil. 119
[1923]).
[8] G.R. No. 168557,
[9] G.R. No. 171470,
[10] Rollo, pp. 48-49.
[11] De
[12] Supra note 8.
[13]
See
[14] Republic v. Kidapawan, G.R. No. 166651,
December 9, 2005, 477 SCRA 324, citing Vitug and Acosta, Tax Law and
Jurisprudence (2000 ed.), p. 490.
[15] LGC, Section 257 which states:
SECTION 257. Local Government Lien. – The basic real property tax and any other tax levied under this Title [Title II – Real Property Taxation] constitute a lien on the property subject to tax, superior to all liens, charges, or encumbrances in favor of any person irrespective of the owner or possessor thereof, enforceable by administrative or judicial action, and may only be extinguished upon payment of the tax and the related interests and expenses.
[16] See Testate of Concordia Lim v.
[17] Rollo, p. 65.
[18] G.R. No. 102836,
[19] See RULES OF COURT, Rule 19, Section 1; and Alfelor v. Halasan, G.R. No. 165987, March 31, 2006, 486 SCRA 451, 461, citing Nordic Asia Ltd. v. Court of Appeals, 451 Phil. 482, 492-493 (2003).
[20] Under Article 11.1 of
the ECA.
[21] Supra note 16.
[22] Supra note 13.
[23] The lower court, in
the Lim case, found the contractual
obligation to include assumption of liability for all taxes. The Court,
however, declared that what was actually assumed by the vendee was the
liability for taxes and other expenses "relative to the execution and/or
implementation" of the Deed of Absolute Sale "including among others,
documentation, documentary and science stamps, expenses for registration and
transfer of titles x x x," which did not necessarily include real property
tax.
[24] Republic Act No. 7718, as amended.
[25] SEC. 1. Declaration of Policy. - It is the declared policy of the State to recognize the indispensable role of the private sector as the main engine for national growth and development and provide the most appropriate incentives to mobilize private resources for the purpose of financing the construction, operation and maintenance of infrastructure and development projects normally financed and undertaken by the Government. Such incentives, aside from financial incentives as provided by law, shall include providing a climate of minimum government regulations and procedures and specific government undertakings in support of the private sector. [Emphasis supplied.]
[26] Supra note 8.
[27] See Department of Agrarian
Reform v. Department of Education, Culture and Sports, G.R. No. 158228,
[28]