Local Government Taxation

MCIAA v. City of Lapu-Lapu

FIRST DIVISION

[G.R. No. 181756. June 15, 2015.]

MACTAN-CEBU INTERNATIONAL AIRPORT AUTHORITY

(MCIAA), petitioner, vs. CITY OF LAPU-LAPU and ELENA T. PACALDO, respondents.

DECISION

LEONARDO-DE CASTRO, J p:

This is a clear opportunity for this Court to clarify the effects of our two previous decisions, issued a decade apart, on the power of local government units to collect real property taxes from airport authorities located within their area, and the nature or the juridical personality of said airport authorities.

Before us is a Petition for Review on Certiorari under Rule 45 of the 1997 Rules of Civil Procedure seeking to reverse and set aside the October 8, 2007 Decision 1 of the Court of Appeals (Cebu City) in CA-G.R. SP No. 01360 and the February 12, 2008 Resolution 2 denying petitioner's motion for reconsideration.

THE FACTS

Petitioner Mactan-Cebu International Airport Authority (MCIAA) was created by Congress on July 31, 1990 under Republic Act No. 6958 3 to "undertake the economical, efficient and effective control, management and supervision of the Mactan International Airport in the Province of Cebu and the Lahug Airport in Cebu City . . . and such other airports as may be established in the Province of Cebu." It is represented in this case by the Office of the Solicitor General.

Respondent City of Lapu-Lapu is a local government unit and political subdivision, created and existing under its own charter with capacity to sue and be sued. Respondent Elena T. Pacaldo was impleaded in her capacity as the City Treasurer of respondent City. aScITE

Upon its creation, petitioner enjoyed exemption from realty taxes under the following provision of Republic Act No. 6958:

Section 14. Tax Exemptions. — The Authority shall be exempt from realty taxes imposed by the National Government or any of its political subdivisions, agencies and instrumentalities: Provided,That no tax exemption herein granted shall extend to any subsidiary which may be organized by the Authority.

On September 11, 1996, however, this Court rendered a decision in Mactan-Cebu International Airport Authority v. Marcos 4 (the 1996 MCIAA case) declaring that upon the effectivity of Republic Act No. 7160 (The Local Government Code of 1991), petitioner was no longer exempt from real estate taxes. The Court held:

Since the last paragraph of Section 234 unequivocally withdrew, upon the effectivity of the LGC, exemptions from payment of real property taxes granted to natural or juridical persons, including government-owned or controlled corporations, except as provided in the said section, and the petitioner is, undoubtedly, a government-owned corporation, it necessarily follows that its exemption from such tax granted it in Section 14 of its Charter, R.A. No. 6958, has been withdrawn. . . . .

On January 7, 1997, respondent City issued to petitioner a Statement of Real Estate Tax assessing the lots comprising the Mactan International Airport in the amount of P162,058,959.52. Petitioner complained that there were discrepancies in said Statement of Real Estate Tax as follows:

(a) [T]he statement included lots and buildings not found in the inventory of petitioner's real properties;

(b) [S]ome of the lots were covered by two separate tax declarations which resulted in double assessment;

(c) [There were] double entries pertaining to the same lots; and

(d) [T]he statement included lots utilized exclusively for governmental purposes. 5

Respondent City amended its billing and sent a new Statement of Real Estate Tax to petitioner in the amount of P151,376,134.66. Petitioner averred that this amount covered real estate taxes on the lots utilized solely and exclusively for public or governmental purposes such as the airfield, runway and taxiway, and the lots on which they are situated. 6

Petitioner paid respondent City the amount of four million pesos (P4,000,000.00) monthly, which was later increased to six million pesos (P6,000,000.00) monthly. As of December 2003, petitioner had paid respondent City a total of P275,728,313.36. 7

Upon request of petitioner's General Manager, the Secretary of the Department of Justice (DOJ) issued Opinion No. 50, Series of 1998, 8 and we quote the pertinent portions of said Opinion below:

You further state that among the real properties deemed transferred to MCIAA are the airfield, runway, taxiway and the lots on which the runway and taxiway are situated, the tax declarations of which were transferred in the name of the MCIAA. In 1997, the City of Lapu-Lapu imposed real estate taxes on these properties invoking the provisions of the Local Government Code.

It is your view that these properties are not subject to real property tax because they are exclusively used for airport purposes. You said that the runway and taxiway are not only used by the commercial airlines but also by the Philippine Air Force and other government agencies. As such and in conjunction with the above interpretation of Section 15 of R.A. No. 6958, you believe that these properties are considered owned by the Republic of the Philippines. Hence, this request for opinion.

1

The query is resolved in the affirmative. The properties used for airport purposes (i.e., airfield, runway, taxiway and the lots on which the runway and taxiway are situated) are owned by the Republic of the Philippines.

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Under the Law on Public Corporations, the legislature has complete control over the property which a municipal corporation has acquired in its public or governmental capacity and which is devoted to public or governmental use. The municipality in dealing with said property is subject to such restrictions and limitations as the legislature may impose. On the other hand, property which a municipal corporation acquired in its private or proprietary capacity, is held by it in the same character as a private individual. Hence, the legislature in dealing with such property, is subject to the constitutional restrictions concerning property (Martin, Public Corporations [1997], p. 30; see also Province of Zamboanga del [Norte] v. City of Zamboanga [131 Phil. 446]). The same may be said of properties transferred to the MCIAA and used for airport purposes, such as those involved herein. Since such properties are of public dominion, they are deemed held by the MCIAA in trust for the Government and can be alienated only as may be provided by law. HEITAD

Based on the foregoing, it is our considered opinion that the properties used for airport purposes, such as the airfield, runway and taxiway and the lots on which the runway and taxiway are located, are owned by the State or by the Republic of the Philippines and are merely held in trust by the MCIAA, notwithstanding that certificates of titles thereto may have been issued in the name of the MCIAA. (Emphases added.)

Based on the above DOJ Opinion, the Department of Finance issued a 2nd Indorsement to the City Treasurer of Lapu-Lapu dated August 3, 1998, 9 which reads:

The distinction as to which among the MCIAA properties are still considered "owned by the State or by the Republic of the Philippines," such as the resolution in the above-cited DOJ Opinion No. 50, for purposes of real property tax exemption is hereby deemed tenable considering that the subject "airfield, runway, taxiway and the lots on which the runway and taxiway are situated" appears to be the subject of real property tax assessment and collection of the city government of Lapu-Lapu, hence, the same are definitely located within the jurisdiction of Lapu-Lapu City. cTDaEH

Moreover, then Undersecretary Antonio P. Belicena of the Department of Finance, in his 1st Indorsement dated May 18, 1998, advanced that "this Department (DOF) interposes no objection to the request of Mactan Cebu International Airport Authority for exemption from payment of real property tax on the property used for airport purposes" mentioned above.

The City Assessor, therefore, is hereby instructed to transfer the assessment of the subject airfield, runway, taxiway and the lots on which the runway and taxiway are situated, from the "Taxable Roll" to the "Exempt Roll" of real properties.

The City Treasurer thereat should be informed on the action taken for his immediate appropriate action. (Emphases added.) aDSIHc

Respondent City Treasurer Elena T. Pacaldo sent petitioner a Statement of Real Property Tax Balances up to the year 2002 reflecting the amount of P246,395,477.20. Petitioner claimed that the statement again included the lots utilized solely and exclusively for public purpose such as the airfield, runway, and taxiway and the lots on which these are built. Respondent Pacaldo then issued Notices of Levy on 18 sets of real properties of petitioner. 10

Petitioner filed a petition for prohibition 11 with the Regional Trial Court (RTC) of Lapu-Lapu City with prayer for the issuance of a temporary restraining order (TRO) and/or a writ of preliminary injunction, docketed as SCA No. 6056-L.

Branch 53 of RTC Lapu-Lapu City then issued a 72-hour TRO. The petition for prohibition sought to enjoin respondent City from issuing a warrant of levy against petitioner's properties and from selling them at public auction for delinquency in realty tax obligations. The petition likewise prayed for a declaration that the airport terminal building, the airfield, runway, taxiway and the lots on which they are situated are exempted from real estate taxes after due hearing. Petitioner based its claim of exemption on DOJ Opinion No. 50.

The RTC issued an Order denying the motion for extension of the TRO. Thus, on December 10, 2003, respondent City auctioned 27 of petitioner's properties. As there was no interested bidder who participated in the auction sale, respondent City forfeited

and purchased said properties. The corresponding Certificates of Sale of Delinquent Property were issued to respondent City. 12

Petitioner claimed before the RTC that it had discovered that respondent City did not pass any ordinance authorizing the collection of real property tax, a tax for the special education fund (SEF), and a penalty interest for its nonpayment. Petitioner argued that without the corresponding tax ordinances, respondent City could not impose and collect real property tax, an additional tax for the SEF, and penalty interest from petitioner. 13

The RTC issued an Order 14 on December 28, 2004 granting petitioner's application for a writ of preliminary injunction. The pertinent portions of the Order are quoted below:

The supervening legal issue has rendered it imperative that the matter of the consolidation of the ownership of the auctioned properties be placed on hold. Furthermore, it is the view of the Court that great prejudice and damage will be suffered by petitioner if it were to lose its dominion over these properties now when the most important legal issue has still to be resolved by the Court. Besides, the respondents and the intervenor have not sufficiently shown cause why petitioner's application should not be granted.

WHEREFORE, the foregoing considered, petitioner's application for a writ of preliminary injunction is granted. Consequently, upon the approval of a bond in the amount of one million pesos (P1,000,000.00), let a writ of preliminary injunction issue enjoining the respondents, the intervenor, their agents or persons acting in [their] behalf, to desist from consolidating and exercising ownership over the properties of the petitioner.

However, upon motion of respondents, the RTC lifted the writ of preliminary injunction in an Order 15 dated December 5, 2005. The RTC reasoned as follows:

The respondent City, in the course of the hearing of its motion, presented to this Court a certified copy of its Ordinance No. 44 (Omnibus Tax Ordinance of the City of Lapu-Lapu), Section 25 whereof authorized the collection of a rate of one and one-half (1 1/2) [per centum] from owners, executors or administrators of any real estate lying within the jurisdiction of the City of Lapu-Lapu, based on the assessed value as shown in the latest revision.

Though this ordinance was enacted prior to the effectivity of Republic Act No. 7160 (Local Government Code of 1991), to the mind of the Court this ordinance is still a valid and effective ordinance in view of Sec. 529 of RA 7160 . . . [and the] Implementing Rules and Regulations of RA 7160 . . . .

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The tax collected under Ordinance No. 44 is within the rates prescribed by RA 7160, though the 25% penalty collected is higher than the 2% interest allowed under Sec. 255 of the said law which provides:

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In case of failure to pay the basic real property tax or any other tax levied under this Title upon the expiration of the periods as provided in Section 250, or when due, as the case may be, shall subject the taxpayer to the payment of interest at the rate of two percent (2%) per month on the unpaid amount or a fraction thereof, until the delinquent tax shall have been fully paid: Provided, however, That in no case shall the total interest on the unpaid tax or portion thereof exceed thirty-six (36) months.

This difference does not however detract from the essential enforceability and effectivity of Ordinance No. 44 pursuant to Section 529 of RA 7160 and Article 278 of the Implementing Rules and Regulations. The outcome of this disparity is simply that respondent City can only collect an interest of 2% per month on the unpaid tax. Consequently, respondent City [has] to recompute the petitioner's tax liability.

It is also the Court's perception that respondent City can still collect the additional 1% tax on real property without an ordinance to this effect. It may be recalled that Republic Act No. 5447 has created the Special Education Fund which is constituted from the proceeds of the additional tax on real property imposed by the law. Respondent City has collected this tax as mandated by this law without any ordinance for the purpose, as there is no need for it. Even when RA 5447 was amended by PD 464 (Real Property Tax Code), respondent City had continued to collect the tax, as it used to.

It is true that RA 7160 has repealed RA 5447, but what has been repealed are only Section 3, a(3) and b(2) which concern the allocation of the additional tax, considering that under RA 7160, the proceeds of the additional 1% tax on real property accrue exclusively to the Special Education Fund. Nevertheless, RA 5447 has not been totally repealed; there is only a partial repeal.

It may be observed that there is no requirement in RA 7160 that an ordinance be enacted to enable the collection of the additional 1% tax. This is so since RA 5447 is still in force and effect, and the declared policy of the government in enacting the law, which is to contribute to the financial support of the goals of education as provided in the Constitution, necessitates the continued and uninterrupted collection of the tax. Considering that this is a tax of far-reaching importance, to require the passage of an ordinance in order that the tax may be collected would be to place the collection of the tax at the option of the local legislature. This would run counter to the declared policy of the government when the SEF was created and the tax imposed.

As regards the allegation of respondents that this Court has no jurisdiction to entertain the instant petition, the Court deems it proper, at this stage of the proceedings, not to treat this issue, as it involves facts which are yet to be established.

. . . [T]he Court's issuance of a writ of preliminary injunction may appear to be a futile gesture in the light of Section 263 of RA 7160. . . . .

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It would seem from the foregoing provisions, that once the taxpayer fails to redeem within the one-year period, ownership fully vests on the local government unit concerned. Thus, when in the present case petitioner failed to redeem the parcels of land acquired by respondent City, the ownership thereof became fully vested on respondent City without the latter having to perform any other acts to perfect its ownership. Corollary thereto, ownership on the part of respondent City has become a fait accompli.

WHEREFORE, in the light of the foregoing considerations, respondents' motion for reconsideration is granted, and the order of this Court dated December 28, 2004 is hereby reconsidered. Consequently, the writ of preliminary injunction issued by this Court is hereby lifted.

Aggrieved, petitioner filed a petition for certiorari 16 with the Court of Appeals (Cebu City), with urgent prayer for the issuance of a TRO and/or writ of preliminary injunction, docketed as CA-G.R. SP No. 01360. The Court of Appeals (Cebu City) issued a TRO 17 on January 5, 2006 and shortly thereafter, issued a writ of preliminary injunction 18 on February 17, 2006. cSaATC

RULING OF THE COURT OF APPEALS

The Court of Appeals (Cebu City) promulgated the questioned Decision on October 8, 2007, holding that petitioner is a government-owned or controlled corporation and its properties are subject to realty tax. The dispositive portion of the questioned Decision reads:

WHEREFORE, in view of the foregoing, judgment is hereby rendered by us as follows:

a. We DECLARE the airport terminal building, the airfield, runway, taxiway and the lots on which they are situated NOT EXEMPT from the real estate tax imposed by the respondent City of Lapu-Lapu;

b. We DECLARE the imposition and collection of the real estate tax, the additional levy for the Special Education Fund and the penalty interest as VALID and LEGAL. However, pursuant to Section 255 of the Local Government Code, respondent city can only collect an interest of 2% per month on the unpaid tax which total interest shall, in no case, exceed thirty-six (36) months;

c. We DECLARE the sale in public auction of the aforesaid properties and the eventual forfeiture and purchase of the subject property by the respondent City of Lapu-Lapu

as NULL and VOID.However, petitioner MCIAA's property is encumbered only by a limited lien possessed by the respondent City of Lapu-Lapu in accord with Section 257 of the Local Government Code. 19

Petitioner filed a Motion for Partial Reconsideration 20 of the questioned Decision covering only the portion of said decision declaring that petitioner is a GOCC and, therefore, not exempt from the realty tax and special education fund imposed by respondent City. Petitioner cited Manila International Airport Authority v. Court of Appeals 21 (the 2006 MIAA case) involving the City of Parañaque and the Manila International Airport Authority. Petitioner claimed that it had been described by this Court as a government instrumentality, and that it followed "as a logical consequence that petitioner is exempt from the taxing powers of respondent City of Lapu-Lapu." 22 Petitioner alleged that the 1996 MCIAA case had been overturned by the Court in the 2006 MIAA case. Petitioner thus prayed that it be declared exempt from paying the realty tax, special education fund, and interest being collected by respondent City.

On February 12, 2008, the Court of Appeals denied petitioner's motion for partial reconsideration in the questioned Resolution.

The Court of Appeals followed and applied the precedent established in the 1996 MCIAA case and refused to apply the 2006 MIAA case. The Court of Appeals wrote in the questioned Decision: "We find that our position is in line with the coherent and cohesive interpretation of the relevant provisions of the Local Government Code on local taxation enunciated in the [1996 MCIAA] case which to our mind is more elegant and rational and provides intellectual clarity than the one provided by the Supreme Court in the [2006] MIAA case." 23

In the questioned Decision, the Court of Appeals held that petitioner's airport terminal building, airfield, runway, taxiway, and the lots on which they are situated are not exempt from real estate tax reasoning as follows: ETHIDa

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Under the Local Government Code (LGC for brevity), enacted pursuant to the constitutional mandate of local autonomy, all natural and juridical persons, including government-owned or controlled corporations (GOCCs), instrumentalities and agencies, are no longer exempt from local taxes even if previously granted an exemption. The only exemptions from local taxes are those specifically provided under the Code itself, or those enacted through subsequent legislation.

Thus, the LGC, enacted pursuant to Section 3, Article X of the Constitution, provides for the exercise by local government units of their power to tax, the scope thereof or its limitations, and the exemptions from local taxation.

Section 133 of the LGC prescribes the common limitations on the taxing powers of local government units. . . . .

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The above-stated provision, however, qualified the exemption of the National Government, its agencies and instrumentalities from local taxation with the phrase "unless otherwise provided herein."

Section 232 of the LGC provides for the power of the local government units (LGUs for brevity) to levy real property tax. . . . .

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Section 234 of the LGC provides for the exemptions from payment of real property taxes and withdraws previous exemptions granted to natural and juridical persons, including government-owned and controlled corporations, except as provided therein. . . . .

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Section 193 of the LGC is the general provision on withdrawal of tax exemption privileges. . . . . 24 (Citations omitted.)

The Court of Appeals went on to state that contrary to the ruling of the Supreme Court in the 2006 MIAA case, it finds and rules that:

a) Section 133 of the LGC is not an absolute prohibition on the power of the LGUs to tax the National Government, its agencies and instrumentalities as the same is qualified by Sections 193, 232 and 234 which "otherwise provided"; and

b) Petitioner MCIAA is a GOCC. 25 (Emphasis ours.)

The Court of Appeals ratiocinated in the following manner:

Pursuant to the explicit provision of Section 193 of the LGC, exemptions previously enjoyed by persons, whether natural or juridical, like the petitioner MCIAA, are deemed withdrawn upon the effectivity of the Code. Further, the last paragraph of Section 234 of the Code also unequivocally withdrew, upon the Code's effectivity, exemptions from payment of real property taxes previously granted to natural or juridical persons, including government-owned or controlled corporations, except as provided in the said section. Petitioner MCIAA, undoubtedly a juridical person, it follows that its exemption from such tax granted under Section 14 of R.A. 6958 has been withdrawn.

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From the [1996 MCIAA] ruling, it is acknowledged that, under Section 133 of the LGC, instrumentalities were generally exempt from all forms of local government taxation, unless otherwise provided in the Code. On the other hand, Section 232 "otherwise

provided" insofar as it allowed local government units to levy an ad valorem real property tax, irrespective of who owned the property. At the same time, the imposition of real property taxes under Section 232 is, in turn, qualified by the phrase "not hereinafter specifically exempted." The exemptions from real property taxes are enumerated in Section 234 of the Code which specifically states that only real properties owned by the Republic of the Philippines or any of its political subdivisions are exempted from the payment of the tax. Clearly, instrumentalities or GOCCs do not fall within the exceptions under Section 234 of the LGC.

Thus, as ruled in the [1996 MCIAA] case, the prohibition on taxing the national government, its agencies and instrumentalities under Section 133 is qualified by Sections 232 and 234, and accordingly, the only relevant exemption now applicable to these bodies is what is now provided under Section 234(a) of the Code. It may be noted that the express withdrawal of previously granted exemptions to persons from the payment of real property tax by the LGC does not even make any distinction as to whether the exempt person is a governmental entity or not. As Sections 193 and 234 of the Code both state, the withdrawal applies to "all persons, including GOCCs," thus encompassing the two classes of persons recognized under our laws, natural persons and juridical persons.

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The question of whether or not petitioner MCIAA is an instrumentality or a GOCC has already been lengthily but soundly, cogently and lucidly answered in the [1996 MCIAA] case . . . .

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Based on the foregoing, the claim of the majority of the Supreme Court in the [2006 MIAA] case that MIAA (and also petitioner MCIAA) is not a government-owned or controlled corporation but an instrumentality based on Section 2(10) of the Administrative Code of 1987 appears to be unsound. In the [2006 MIAA] case, the majority justifies MIAA's purported exemption on Section 133(o) of the Local Government Code which places "agencies and instrumentalities: as generally exempt from the taxation powers of the LGUs. It further went on to hold that "By express mandate of the Local Government Code, local governments cannot impose any kind of tax on national government instrumentalities like the MIAA." . . . . 26 (Citations omitted.)

The Court of Appeals further cited Justice Tinga's dissent in the 2006 MIAA case as well as provisions from petitioner MCIAA's charter to show that petitioner is a GOCC. 27 The Court of Appeals wrote:

These cited provisions establish the fitness of the petitioner MCIAA to be the subject of legal relations. Under its charter, it has the power to acquire, possess and incur

obligations. It also has the power to contract in its own name and to acquire title to movable or immovable property. More importantly, it may likewise exercise powers of a corporation under the Corporation Code. Moreover, based on its own allegation, it even recognized itself as a GOCC when it alleged in its petition for prohibition filed before the lower court that it "is a body corporate organized and existing under Republic Act No. 6958 . . . ."

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We also find to be not meritorious the assertion of petitioner MCIAA that the respondent city can no longer challenge the tax-exempt character of the properties since it is estopped from doing so when respondent City of Lapu-Lapu, through its former mayor, Ernest H. Weigel, Jr., had long ago conceded that petitioner's properties are exempt from real property tax.

It is not denied by the respondent city that it considered, through its former mayor, Ernest H. Weigel, Jr., petitioner's subject properties, specifically the runway and taxiway, as exempt from taxes. However, as astutely pointed out by the respondent city it "can never be in estoppel, particularly in matters involving taxes. It is a well-known rule that erroneous application and enforcement of the law by public officers do not preclude subsequent correct application of the statute, and that the Government is never estopped by mistake or error on the part of its agents." 28 (Citations omitted.) cSEDTC

The Court of Appeals established the following:

a) [R]espondent City was able to prove and establish that it has a valid and existing ordinance for the imposition of realty tax against petitioner MCIAA;

b) [T]he imposition and collection of additional levy of 1% Special Education Fund (SEF) is authorized by law, Republic Act No. 5447; and

c) [T]he collection of penalty interest for delinquent taxes is not only authorized by law but is likewise [sanctioned] by respondent City's ordinance. 29

The Court of Appeals likewise held that respondent City has a valid and existing local tax ordinance, Ordinance No. 44, or the Omnibus Tax Ordinance of Lapu-Lapu City, which provided for the imposition of real property tax. The relevant provision reads:

Chapter 5 — Tax on Real Property Ownership

Section 25. RATE OF TAX. — A rate of one and one-half (1 1/2) percentum shall be collected from owners, executors or administrators of any real estate lying within the territorial jurisdiction of the City of Lapu-Lapu, based on the assessed value as shown in the latest revision. 30

The Court of Appeals found that even if Ordinance No. 44 was enacted prior to the effectivity of the LGC, it remained in force and effect, citing Section 529 of the LGC and Article 278 of the LGC's Implementing Rules and Regulations. 31

As regards the Special Education Fund, the Court of Appeals held that respondent City can still collect the additional 1% tax on real property even without an ordinance to this effect, as this is authorized by Republic Act No. 5447, as amended by Presidential Decree No. 464 (the Real Property Tax Code), which does not require an enabling tax ordinance. The Court of Appeals affirmed the RTC's ruling that Republic Act No. 5447 was still in force and effect notwithstanding the passing of the LGC, as the latter only partially repealed the former law. What Section 534 of the LGC repealed was Section 3 a

(3) and b (2) of Republic Act No. 5447, and not the entire law that created the Special Education Fund. 32 The repealed provisions referred to allocation of taxes on Virginia type cigarettes and duties on imported leaf tobacco and the percentage remittances to the taxing authority concerned. The Court of Appeals, citing The Commission on Audit of the Province of Cebu v. Province of Cebu, 33 held that "[t]he failure to add a specific repealing clause particularly

mentioning the statute to be repealed indicates that the intent was not to repeal any existing law on the matter, unless an irreconcilable inconsistency and repugnancy exists in the terms of the new and the old laws." 34 The Court of Appeals quoted the RTC's discussion on this issue, which we reproduce below:

It may be observed that there is no requirement in RA 7160 that an ordinance be enacted to enable the collection of the additional 1% tax. This is so since R.A. 5447 is still in force and effect, and the declared policy of the government in enacting the law, which is to contribute to the financial support of the goals of education as provided in the Constitution, necessitates the continued and uninterrupted collection of the tax. Considering that this is a tax of far-reaching importance, to require the passage of an ordinance in order that the tax may be collected would be to place the collection of the tax at the option of the local legislature. This would run counter to the declared policy of the government when the SEF was created and the tax imposed. 35

Regarding the penalty interest, the Court of Appeals found that Section 30 of Ordinance No. 44 of respondent City provided for a penalty surcharge of 25% of the tax due for a given year. Said provision reads: AIDSTE

Section 30. PENALTY FOR FAILURE TO PAY TAX. — Failure to pay the tax provided for under this Chapter within the time fixed in Section 27, shall subject the taxpayer to a surcharge of twenty-five percent (25%), without interest. 36

The Court of Appeals however declared that after the effectivity of the Local Government Code, the respondent City could only collect penalty surcharge up to the extent of 72%, covering a period of three years or 36 months, for the entire delinquent property. 37 This was lower than the 25% per annum surcharge imposed by Ordinance No. 44. 38 The Court of Appeals affirmed the findings of the RTC in the decision quoted below:

The tax collected under Ordinance No. 44 is within the rates prescribed by RA 7160, though the 25% penalty collected is higher than the 2% allowed under Sec. 255 of the said law which provides:

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This difference does not however detract from the essential enforceability and effectivity of Ordinance No. 44 pursuant to Section 529 of RA No. 7160 and Article 278 of the Implementing Rules and Regulations. The outcome of this disparity is simply that respondent City can only collect an interest of 2% per month on the unpaid tax. Consequently, respondent city will have to [recompute] the petitioner's tax liability. 39

It is worthy to note that the Court of Appeals nevertheless held that even if it is clear that respondent City has the power to impose real property taxes over petitioner, "it is also evident and categorical that, under Republic Act No. 6958, the properties of petitioner MCIAA may not be conveyed or transferred to any person or entity except to the national government." 40 The relevant provisions of the said law are quoted below:

Section 4. Functions, Powers and Duties. — The Authority shall have the following functions, powers and duties:

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(e) To acquire, purchase, own, administer, lease, mortgage, sell or otherwise dispose of any land, building, airport facility, or property of whatever kind and nature, whether movable or immovable, or any interest therein: Provided, That any asset located in the Mactan International Airport important to national security shall not be subject to alienation or mortgage by the Authority nor to transfer to any entity other than the National Government[.]

Section 13. Borrowing Power. — The Authority may, in accordance with Section 21, Article XII of the Constitution and other existing laws, rules and regulations on local or foreign borrowing, raise funds, either from local or

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international sources, by way of loans, credit or securities, and other borrowing instruments with the power to create pledges, mortgages and other voluntary liens or encumbrances on any of its assets or properties, subject to the prior approval of the President of the Philippines.

All loans contracted by the Authority under this section, together with all interests and other sums payable in respect thereof, shall constitute a charge upon all the revenues and assets of the Authority and shall rank equally with one another, but shall have priority over any other claim or charge on the revenue and assets of the Authority: Provided, That this provision shall not be construed as a prohibition or

restriction on the power of the Authority to create pledges, mortgages and other voluntary liens or encumbrances on any asset or property of the Authority.

The payment of the loans or other indebtedness of the Authority may be guaranteed by the National Government subject to the approval of the President of the Philippines.

The Court of Appeals concluded that "it is clear that petitioner MCIAA is denied by its charter the absolute right to dispose of its property to any person or entity except to the national government and it is not empowered to obtain loans or encumber its property without the approval of the President." 41 The questioned Decision contained the following conclusion:

With the advent of RA 7160, the Local Government Code, the power to tax is no longer vested exclusively on Congress. LGUs, through its local legislative bodies, are now given direct authority to levy taxes, fees and other charges pursuant to Article X, Section 5 of the 1987 Constitution. And one of the most significant provisions of the LGC is the removal of the blanket inclusion of instrumentalities and agencies of the national government from the coverage of local taxation. The express withdrawal by the Code of previously granted exemptions from realty taxes applied to instrumentalities and government-owned or controlled corporations (GOCCs) such as the petitioner Mactan-Cebu International Airport Authority. Thus, petitioner MCIAA became a taxable person in view of the withdrawal of the realty tax exemption that it previously enjoyed under Section 14 of RA No. 6958 of its charter. As expressed and categorically held in the Mactan case, the removal and withdrawal of tax exemptions previously enjoyed by persons, natural or juridical, are consistent with the State policy to ensure autonomy to local governments and the objective of the Local Government Code that they enjoy genuine and meaningful local autonomy to enable them to attain their fullest development as self-reliant communities and make them effective partners in the attainment of national goals.

However, in the case at bench, petitioner MCIAA's charter expressly bars the alienation or mortgage of its property to any person or entity except to the national government. Therefore, while petitioner MCIAA is a taxable person for purposes of real property taxation, respondent City of Lapu-Lapu is prohibited from seizing, selling and owning these properties by and through a public auction in order to satisfy petitioner MCIAA's tax liability. 42 (Citations omitted.)

In the questioned Resolution that affirmed its questioned Decision, the Court of Appeals denied petitioner's motion for reconsideration based on the following grounds:

First, the MCIAA case remains the controlling law on the matter as the same is the established precedent; not the MIAA case but the MCIAA case since the former, as keenly pointed out by the respondent City of Lapu-Lapu, has not yet attained

finality as there is still yet a pending motion for reconsideration filed with the Supreme Court in the aforesaid case.

Second, and more importantly, the ruling of the Supreme Court in the MIAA case cannot be similarly invoked in the case at bench. The said case cannot be considered as the "law of the case." The "law of the case" doctrine has been defined as that principle under which determinations of questions of law will generally be held to govern a case throughout all its subsequent stages where such determination has already been made on a prior appeal to a court of last resort. It is merely a rule of procedure and does not go to the power of the court, and will not be adhered to where its application will result in an unjust decision. It relates entirely to questions of law, and is confined in its operation to subsequent proceedings in the same case. According to said doctrine, whatever has been irrevocably established constitutes the law of the case only as to the same parties in the same case and not to different parties in an entirely different case. Besides, pending resolution of the aforesaid motion for reconsideration in the MIAA case, the latter case has not irrevocably established anything.

Thus, after a thorough and judicious review of the allegations in petitioner's motion for reconsideration, this Court resolves to deny the same as the matters raised therein had already been exhaustively discussed in the decision sought to be reconsidered, and that no new matters were raised which would warrant the modification, much less reversal, thereof. 43 (Emphasis added, citations omitted.) SDAaTC

PETITIONER'S THEORY

Petitioner is before us now claiming that this Court, in the 2006 MIAA case, had expressly declared that petitioner, while vested with corporate powers, is not considered a government-owned or controlled corporation, but is a government instrumentality like the Manila International Airport Authority (MIAA), Philippine Ports Authority (PPA), University of the Philippines, and Bangko Sentral ng Pilipinas (BSP). Petitioner alleges that as a government instrumentality, all its airport lands and buildings are exempt from real estate taxes imposed by respondent City. 44

Petitioner alleges that Republic Act No. 6958 placed "a limitation on petitioner's administration of its assets and properties" as it provides under Section 4 (e) that "any asset in the international airport important to national security cannot be alienated or mortgaged by petitioner or transferred to any entity other than the National Government." 45

Thus, petitioner claims that the Court of Appeals (Cebu City) gravely erred in disregarding the following:

I

PETITIONER IS A GOVERNMENT INSTRUMENTALITY AS EXPRESSLY DECLARED BY THE HONORABLE COURT IN THE MIAA CASE. AS SUCH, IT IS EXEMPT FROM PAYING REAL ESTATE TAXES IMPOSED BY RESPONDENT CITY OF LAPU-LAPU.

II

THE PROPERTIES OF PETITIONER CONSISTING OF THE AIRPORT TERMINAL BUILDING, AIRFIELD, RUNWAY, TAXIWAY, INCLUDING THE LOTS ON WHICH THEY ARE SITUATED, ARE EXEMPT FROM REAL PROPERTY TAXES.

III

RESPONDENT CITY OF LAPU-LAPU CANNOT IMPOSE REAL PROPERTY TAX WITHOUT ANY APPROPRIATE ORDINANCE.

IV

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RESPONDENT CITY OF LAPU-LAPU CANNOT IMPOSE AN ADDITIONAL 1% TAX FOR THE SPECIAL EDUCATION FUND IN THE ABSENCE OF ANY CORRESPONDING ORDINANCE.

V

RESPONDENT CITY OF LAPU-LAPU CANNOT IMPOSE ANY INTEREST SANS ANY ORDINANCE MANDATING ITS IMPOSITION. 46

Petitioner claims the following similarities with MIAA:

1. MCIAA belongs to the same class and performs identical functions as MIAA;

2. MCIAA is a public utility like MIAA;

3. MIAA was organized to operate the international and domestic airport in Parañaque City for public use, while MCIAA was organized to operate the international and domestic airport in Mactan for public use.

4. Both are attached agencies of the Department of Transportation and Communications. 47

Petitioner compares its charter (Republic Act No. 6958) with that of MIAA (Executive Order No. 903).

Section 3 of Executive Order No. 903 provides:

Sec. 3. Creation of the Manila International Airport Authority. — There is hereby established a body corporate to be known as the Manila International Airport Authority which shall be attached to the Ministry of Transportation and Communications. The principal office of the Authority shall be located at the New Manila International Airport. The Authority may establish such offices, branches, agencies or subsidiaries as it may deem proper and necessary; . . . .

Section 2 of Republic Act No. 6958 reads:

Section 2. Creation of the Mactan-Cebu International Airport Authority. — There is hereby established a body corporate to be known as the Mactan-Cebu International Airport Authority which shall be attached to the Department of Transportation and Communications. The principal office of the Authority shall be located at the Mactan International Airport, Province of Cebu.

The Authority may have such branches, agencies or subsidiaries as it may deem proper and necessary.

As to MIAA's purposes and objectives, Section 4 of Executive Order No. 903 reads:

Sec. 4. Purposes and Objectives. — The Authority shall have the following purposes and objectives: AaCTcI

(a) To help encourage and promote international and domestic air traffic in the Philippines as a means of making the Philippines a center of international trade and tourism and accelerating the development of the means of transportation and communications in the country;

(b) To formulate and adopt for application in the Airport internationally acceptable standards of airport accommodation and service; and

(c) To upgrade and provide safe, efficient, and reliable airport facilities for international and domestic air travel.

Petitioner claims that the above purposes and objectives are analogous to those enumerated in its charter, specifically Section 3 of Republic Act No. 6958, which reads:

Section 3. Primary Purposes and Objectives. — The Authority shall principally undertake the economical, efficient and effective control, management and supervision of the Mactan International Airport in the Province of Cebu and the Lahug Airport in Cebu City, hereinafter collectively referred to as the airports, and such other airports as may be established in the Province of Cebu. In addition, it shall have the following objectives:

(a) To encourage, promote and develop international and domestic air traffic in the central Visayas and Mindanao regions as a means of making the regions centers of

international trade and tourism, and accelerating the development of the means of transportation and communications in the country; and

(b) To upgrade the services and facilities of the airports and to formulate internationally acceptable standards of airport accommodation and service.

The powers, functions and duties of MIAA under Section 5 of Executive Order No. 903 are:

Sec. 5. Functions, Powers and Duties. — The Authority shall have the following functions, powers and duties:

(a) To formulate, in coordination with the Bureau of Air Transportation and other appropriate government agencies, a comprehensive and integrated policy and program for the Airport and to implement, review and update such policy and program periodically;

(b) To control, supervise, construct, maintain, operate and provide such facilities or services as shall be necessary for the efficient functioning of the Airport;

(c) To promulgate rules and regulations governing the planning, development, maintenance, operation and improvement of the Airport, and to control and/or supervise as may be necessary the construction of any structure or the rendition of any services within the Airport;

(d) To sue and be sued in its corporate name; acEHCD

(e) To adopt and use a corporate seal;

(f) To succeed by its corporate name;

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(g) To adopt its by-laws, and to amend or repeal the same from time to time;

(h) To execute or enter into contracts of any kind or nature;

(i) To acquire, purchase, own, administer, lease, mortgage, sell or otherwise dispose of any land, building, airport facility, or property of whatever kind and nature, whether movable or immovable, or any interest therein;

(j) To exercise the power of eminent domain in the pursuit of its purposes and objectives;

(k) To levy, and collect dues, charges, fees or assessments for the use of the Airport premises, works, appliances, facilities or concessions or for any service provided by the Authority, subject to the approval of the Minister of Transportation and Communications in consultation with the Minister of Finance, and subject further to the provisions of Batas Pambansa Blg. 325 where applicable;

(l) To invest its idle funds, as it may deem proper, in government securities and other evidences of indebtedness of the government;

(m) To provide services, whether on its own or otherwise, within the Airport and the approaches thereof, which shall include but shall not be limited to, the following:

(1) Aircraft movement and allocation of parking areas of aircraft on the ground;

(2) Loading or unloading of aircrafts;

(3) Passenger handling and other services directed towards the care, convenience and security of passengers, visitors and other airport users; and

(4) Sorting, weighing, measuring, warehousing or handling of baggage and goods.

(n) To perform such other acts and transact such other business, directly or indirectly necessary, incidental or conducive to the attainment of the purposes and objectives of the Authority, including the adoption of necessary measures to remedy congestion in the Airport; and

(o) To exercise all the powers of a corporation under the Corporation Law, insofar as these powers are not inconsistent with the provisions of this Executive Order.

Petitioner claims that MCIAA has related functions, powers and duties under Section 4 of Republic Act No. 6958, as shown in the provision quoted below:

Section 4. Functions, Powers and Duties. — The Authority shall have the following functions, powers and duties:

(a) To formulate a comprehensive and integrated development policy and program for the airports and to implement, review and update such policy and program periodically;

(b) To control, supervise, construct, maintain, operate and provide such facilities or services as shall be necessary for the efficient functioning of the airports;

(c) To promulgate rules and regulations governing the planning, development, maintenance, operation and improvement of the airports, and to control and supervise the construction of any structure or the rendition of any service within the airports;

(d) To exercise all the powers of a corporation under the Corporation Code of the Philippines, insofar as those powers are not inconsistent with the provisions of this Act;

(e) To acquire, purchase, own, administer, lease, mortgage, sell or otherwise dispose of any land, building, airport facility, or property of whatever kind and nature, whether movable or immovable, or any interest therein: Provided, That any asset located in the

Mactan International Airport important to national security shall not be subject to alienation or mortgage by the Authority nor to transfer to any entity other than the National Government;

(f) To exercise the power of eminent domain in the pursuit of its purposes and objectives;

(g) To levy and collect dues, charges, fees or assessments for the use of airport premises, works, appliances, facilities or concessions, or for any service provided by the Authority;

(h) To retain and appropriate dues, fees and charges collected by the Authority relative to the use of airport premises for such measures as may be necessary to make the Authority more effective and efficient in the discharge of its assigned tasks;

(i) To invest its idle funds, as it may deem proper, in government securities and other evidences of indebtedness; and

(j) To provide services, whether on its own or otherwise, within the airports and the approaches thereof as may be necessary or in connection with the maintenance and operation of the airports and their facilities.

Petitioner claims that like MIAA, it has police authority within its premises, as shown in their respective charters quoted below:

EO 903, Sec. 6. Police Authority. — The Authority shall have the power to exercise such police authority as may be necessary within its premises to carry out its functions and attain its purposes and objectives, without prejudice to the exercise of functions within the same premises by the Ministry of National Defense through the Aviation Security Command (AVSECOM) as provided in LOI 961: Provided, That the Authority may request the assistance of law enforcement agencies, including request for deputization as may be required. . . . .

R.A. No. 6958, Section 5. Police Authority. — The Authority shall have the power to exercise such police authority as may be necessary within its premises or areas of operation to carry out its functions and attain its purposes and objectives: Provided, That the Authority may request the assistance of law enforcement agencies, including request for deputization as may be required. . . . .

Petitioner pointed out other similarities in the two charters, such as:

8

1. Both MCIAA and MIAA are covered by the Civil Service Law, rules and regulations (Section 15, Executive Order No. 903; Section 12, Republic Act No. 6958);

2. Both charters contain a proviso on tax exemptions (Section 21, Executive Order No. 903; Section 14, Republic Act No. 6958);

3. Both MCIAA and MIAA are required to submit to the President an annual report generally dealing with their activities and operations (Section 14, Executive Order No. 903; Section 11, Republic Act No. 6958); and

4. Both have borrowing power subject to the approval of the President (Section 16, Executive Order No. 903; Section 13, Republic Act No. 6958). 48

Petitioner suggests that it is because of its similarity with MIAA that this Court, in the 2006 MIAA case, placed it in the same class as MIAA and considered it as a government instrumentality.

Petitioner submits that since it is also a government instrumentality like MIAA, the following conclusion arrived by the Court in the 2006 MIAA case is also applicable to petitioner: SDHTEC

Under Section 2(10) and (13) of the Introductory Provisions of the Administrative Code, which governs the legal relation and status of government units, agencies and offices within the entire government machinery, MIAA is a government instrumentality and not a government-owned or controlled corporation. Under Section 133(o) of the Local Government Code, MIAA as a government instrumentality is not a taxable person because it is not subject to "[t]axes, fees or charges of any kind" by local governments. The only exception is when MIAA leases its real property to a "taxable person" as provided in Section 234(a) of the Local Government Code, in which case the specific real property leased becomes subject to real estate tax. Thus, only portions of the Airport Lands and Buildings leased to taxable persons like private parties are subject to real estate tax by the City of Parañaque.

Under Article 420 of the Civil Code, the Airport Lands and Buildings of MIAA, being devoted to public use, are properties of public dominion and thus owned by the State or the Republic of the Philippines. Article 420 specifically mentions "ports . . .

constructed by the State," which includes public airports and seaports, as properties of public dominion and owned by the Republic. As properties of public dominion owned by the Republic, there is no doubt whatsoever that the Airport Lands and Buildings are expressly exempt from real estate tax under Section 234 (a) of the Local Government Code. This Court has also repeatedly ruled that properties of public dominion are not subject to execution or foreclosure sale. 49 (Emphases added.)

Petitioner insists that its properties consisting of the airport terminal building, airfield, runway, taxiway and the lots on which they are situated are not subject to real property tax because they are actually, solely and exclusively used for public purposes. 50 They are indispensable to the operation of the Mactan International Airport and by their very nature, these properties are exempt from tax. Said properties belong to the State and are

merely held by petitioner in trust. As earlier mentioned, petitioner claims that these properties are important to national security and cannot be alienated, mortgaged, or transferred to any entity except the National Government.

Petitioner prays that judgment be rendered:

a) Declaring petitioner exempt from paying real property taxes as it is a government instrumentality;

b) Declaring respondent City of Lapu-Lapu as bereft of any authority to levy and collect the basic real property tax, the additional tax for the SEF and the penalty interest for its failure to pass the corresponding tax ordinances; and

c) Declaring, in the alternative, the airport lands and buildings of petitioner as exempt from real property taxes as they are used solely and exclusively for public purpose. 51

In its Consolidated Reply filed through the OSG, petitioner claims that the 2006 MIAA ruling has overturned the 1996 MCIAA ruling. Petitioner cites Justice Dante O. Tinga's dissent in the MIAA ruling, as follows: HSAcaE

[The] ineluctable conclusion is that the majority rejects the rationale and ruling in Mactan. The majority provides for a wildly different interpretation of Section 133, 193 and 234 of the Local Government Code than that employed by the Court in Mactan. Moreover, the parties in Mactan and in this case are similarly situated, as can be obviously deducted from the fact that both petitioners are airport authorities operating under similarly worded charters. And the fact that the majority cites doctrines contrapuntal to the Local Government Code as in Basco and Maceda evinces an intent to go against the Court's jurisprudential trend adopting the philosophy of expanded local government rule under the Local Government Code.

. . . The majority is obviously inconsistent with Mactan and there is no way these two rulings can stand together. Following basic principles in statutory construction, Mactan will be deemed as giving way to this new ruling.

xxx xxx xxx

There is no way the majority can be justified unless Mactan is overturned. The MCIAA and the MIAA are similarly situated. They are both, as will be demonstrated, GOCCs, commonly engaged in the business of operating an airport. They are the owners of airport properties they respectively maintain and hold title over these properties in their name. These entities are both owned by the State, and denied by their respective charters the absolute right to dispose of their properties without prior approval elsewhere. Both of them are not empowered to obtain loans or encumber their properties without prior approval the prior approval of the President. 52 (Citations omitted.)

Petitioner likewise claims that the enactment of Ordinance No. 070-2007 is an admission on respondent City's part that it must have a tax measure to be able to impose a tax or special assessment. Petitioner avers that assuming that it is a non-exempt entity or that its airport lands and buildings are not exempt, it was only upon the effectivity of Ordinance No. 070-2007 on January 1, 2008 that respondent City could properly impose the basic real property tax, the additional tax for the SEF, and the interest in case of nonpayment. 53

Petitioner filed its Memorandum 54 on June 17, 2009.

RESPONDENTS' THEORY

In their Comment, 55 respondents point out that petitioner partially moved for a reconsideration of the questioned Decision only as to the issue of whether petitioner is a GOCC or not. Thus, respondents declare that the other portions of the questioned decision had already attained finality and ought not to be placed in issue in this petition for certiorari. Thus, respondents discussed the other issues raised by petitioner with reservation as to this objection.

9

Respondents summarized the issues and the grounds relied upon as follows:

STATEMENT OF THE ISSUES

WHETHER OR NOT PETITIONER IS A GOVERNMENT INSTRUMENTALITY EXEMPT FROM PAYING REAL PROPERTY TAXES

WHETHER OR NOT RESPONDENT CITY CAN [IMPOSE] REALTY TAX, SPECIAL EDUCATION FUND AND PENALTY INTEREST

WHETHER OR NOT THE AIRPORT TERMINAL BUILDING, AIRFIELD, RUNWAY, TAXIWAY INCLUDING THE LOTS ON WHICH THEY ARE SITUATED ARE EXEMPT FROM REALTY TAXES

GROUNDS RELIED UPON

1. PETITIONER IS A GOCC HENCE NOT EXEMPT FROM REALTY TAXES

2. TERMINAL BUILDING, RUNWAY, TAXIWAY ARE NOT EXEMPT FROM REALTY TAXES

3. ESTOPPEL DOES NOT LIE AGAINST GOVERNMENT

4. CITY CAN COLLECT REALTY TAX AND INTEREST

5. CITY CAN COLLECT SEF

6. MCIAA HAS NOT SHOWN ANY IRREPARABLE INJURY WARRANTING INJUNCTIVE RELIEF

7. MCIAA HAS NOT COMPLIED WITH PROVISION OF THE LGC 56

Respondents claim that "the mere mention of MCIAA in the MIAA v. [Court of Appeals] case does not make it the controlling case on the matter." 57 Respondents further claim that the 1996 MCIAAcase where this Court held that petitioner is a GOCC is the controlling jurisprudence. Respondents point out that petitioner and MIAA are two very different entities. Respondents argue that petitioner is a GOCC contrary to its assertions, based on its Charter and on DOJ Opinion No. 50.

Respondents contend that if petitioner is not a GOCC but an instrumentality of the government, still the following statement in the 1996 MCIAA case applies:

Besides, nothing can prevent Congress from decreeing that even instrumentalities or agencies of the Government performing governmental functions may be subject to tax. Where it is done precisely to fulfill a constitutional mandate and national policy, no one can doubt its wisdom. 58

Respondents argue that MCIAA properties such as the terminal building, taxiway and runway are not exempt from real property taxation. As discussed in the 1996 MCIAA case, Section 234 of the LGC omitted GOCCs such as MCIAA from entities enjoying tax exemptions. Said decision also provides that the transfer of ownership of the land to petitioner was absolute and petitioner cannot evade payment of taxes. 59

Even if the following issues were not raised by petitioner in its motion for reconsideration of the questioned Decision, and thus the ruling pertaining to these issues in the questioned decision had become final, respondents still discussed its side over its objections as to the propriety of bringing these up before this Court.

1. Estoppel does not lie against the government. AScHCD

2. Respondent City can collect realty taxes and interest.

a. Based on the Local Government Code (Sections 232, 233, 255) and its IRR (Sections 241, 247).

b. The City of Lapu-Lapu passed in 1980 Ordinance No. 44, or the Omnibus Tax Ordinance, wherein the imposition of real property tax was made. This Ordinance was in force and effect by virtue of Article 278 of the IRR of Republic Act No. 7160. 60

c. Ordinance No. 070-2007, known as the Revised Lapu-Lapu City Revenue Code, imposed real property taxes, special education fund and further provided for the payment of interest and surcharges. Thus, the issue is passé and is moot and academic.

3. Respondent City can collect Special Education Fund.

a. The LGC does not require the enactment of an ordinance for the collection of the SEF.

b. Congress did not entirely repeal the SEF law, hence, its levy, imposition and collection need not be covered by ordinance. Besides, the City has enacted the Revenue Code containing provisions for the levy and collection of the SEF. 61

Furthermore, respondents aver that:

1. Collection of taxes is beyond the ambit of injunction.

a. Respondents contend that the petition only questions the denial of the writ of preliminary injunction by the RTC and the Court of Appeals. Petitioner failed to show irreparable injury.

b. Comparing the alleged damage that may be caused petitioner and the direct affront and challenge against the power to tax, which is an attribute of sovereignty, it is but appropriate that injunctive relief should be denied.

2. Petitioner did not comply with LGC provisions on payment under protest.

a. Petitioner should have protested the tax imposition as provided in Article 285 of the IRR of Republic Act No. 7160. Section 252 of Republic Act No. 7160 62 requires that the taxpayer's protest can only be entertained if the tax is first paid under protest. 63

Respondents submitted their Memorandum 64 on June 30, 2009, wherein they allege that the 1996 MCIAA case is still good law, as shown by the following cases wherein it was quoted:

1. National Power Corporation v. Local Board of Assessment Appeals of Batangas [545 Phil. 92 (2007)]; HESIcT

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2. Mactan-Cebu International Airport Authority v. Urgello [549 Phil. 302 (2007)];

3. Quezon City v. ABS-CBN Broadcasting Corporation [588 Phil. 785 (2008)]; and

4. The City of Iloilo v. Smart Communications, Inc. [599 Phil. 492 (2009)].

Respondents assert that the constant reference to the 1996 MCIAA case "could hardly mean that the doctrine has breathed its last" and that the 1996 MCIAA case stands as precedent and is controlling on petitioner MCIAA. 65

Respondents allege that the issue for consideration is whether it is proper for petitioner to raise the issue of whether it is not liable to pay real property taxes, special education

fund (SEF), interests and/or surcharges. 66 Respondents argue that the Court of Appeals was correct in declaring petitioner liable for realty taxes, etc., on the terminal building, taxiway, and runway. Respondent City relies on the following grounds:

1. The case of MCIAA v. Marcos, et al., is controlling on petitioner MCIAA;

2. MCIAA is a corporation;

3. Section 133 in relation to Sections 232 and 234 of the Local Government Code of 1991 authorizes the collection of real property taxes (etc.) from MCIAA;

4. Terminal Building, Runway & Taxiway are not of the Public Dominion and are not exempt from realty taxes, special education fund and interest;

5. Respondent City can collect realty tax, interest/surcharge, and Special Education Fund from MCIAA; [and]

6. Estoppel does not lie against the government. 67

THIS COURT'S RULING

The petition has merit. The petitioner is an instrumentality of the government; thus, its properties actually, solely and exclusively used for public purposes, consisting of the airport terminal building, airfield, runway, taxiway and the lots on which they are situated, are not subject to real property tax and respondent City is not justified in collecting taxes from petitioner over said properties.

DISCUSSION

The Court of Appeals (Cebu City) erred in declaring that the 1996 MCIAA case still controls and that petitioner is a GOCC. The 2006 MIAA case governs.

The Court of Appeals' reliance on the 1996 MCIAA case is misplaced and its staunch refusal to apply the 2006 MIAA case is patently erroneous. The Court of Appeals, finding for respondents, refused to apply the ruling in the 2006 MIAA case on the premise that the same had not yet reached finality, and that as far as MCIAA is concerned, the 1996 MCIAA case is still good law. 68

While it is true, as respondents allege, that the 1996 MCIAA case was cited in a long line of cases, 69 still, in 2006, the Court en banc decided a case that in effect reversed the 1996 Mactan ruling.The 2006 MIAA case had, since the promulgation of the questioned Decision and Resolution, reached finality and had in fact been either affirmed or cited in numerous cases by the Court. 70 The decision became final and executory on November 3, 2006. 71 Furthermore, the 2006 MIAA case was decided by the Court en banc while

the 1996 MCIAA case was decided by a Division. Hence, the 1996 MCIAAcase should be read in light of the subsequent and unequivocal ruling in the 2006 MIAA case.

To recall, in the 2006 MIAA case, we held that MIAA's airport lands and buildings are exempt from real estate tax imposed by local governments; that it is not a GOCC but an instrumentality of the national government, with its real properties being owned by the Republic of the Philippines, and these are exempt from real estate tax. Specifically referring to petitioner, we stated as follows:

Many government instrumentalities are vested with corporate powers but they do not become stock or non-stock corporations, which is a necessary condition before an agency or instrumentality is deemed a government-owned or controlled corporation. Examples are the Mactan International Airport Authority, the Philippine Ports Authority, the University of the Philippines andBangko Sentral ng Pilipinas. All these government instrumentalities exercise corporate powers but they are not organized as stock or non-stock corporations as required by Section 2(13) of the Introductory Provisions of the Administrative Code. These government instrumentalities are sometimes loosely called government corporate entities. However, they are not government-owned or controlled corporations in the strict sense as understood under the Administrative Code, which is the governing law defining the legal relationship and status of government entities. 72 (Emphases ours.)

In the 2006 MIAA case, the issue before the Court was "whether the Airport Lands and Buildings of MIAA are exempt from real estate tax under existing laws." 73 We quote the extensive discussion of the Court that led to its finding that MIAA's lands and buildings were exempt from real estate tax imposed by local governments:

First, MIAA is not a government-owned or controlled corporation but an instrumentality of the National Government and thus exempt from local taxation. Second, the real properties of MIAA are owned by the Republic of the Philippines and thus exempt from real estate tax. AcICHD

1. MIAA is Not a Government-Owned or Controlled Corporation

xxx xxx xxx

There is no dispute that a government-owned or controlled corporation is not exempt from real estate tax. However, MIAA is not a government-owned or controlled corporation. Section 2(13) of the Introductory Provisions of the Administrative Code of 1987 defines a government-owned or controlled corporation as follows:

SEC. 2. General Terms Defined. — . . .

(13) Government-owned or controlled corporation refers to any agency organized as a stock or non-stock corporation, vested with functions relating to public needs whether governmental or proprietary in nature, and owned by the Government directly or through its instrumentalities either wholly, or, where applicable as in the case of stock corporations, to the extent of at least fifty-one (51) percent of its capital stock: . . . .

11

A government-owned or controlled corporation must be "organized as a stock or non-stock corporation." MIAA is not organized as a stock or non-stock corporation. MIAA is not a stock corporation because it has no capital stock divided into shares. MIAA has no stockholders or voting shares. . . .

xxx xxx xxx

Clearly, under its Charter, MIAA does not have capital stock that is divided into shares.

Section 3 of the Corporation Code defines a stock corporation as one whose "capital stock is divided into shares and . . . authorized to distribute to the holders of such shares dividends . . . ." MIAA has capital but it is not divided into shares of stock. MIAA has no stockholders or voting shares. Hence, MIAA is not a stock corporation.

MIAA is also not a non-stock corporation because it has no members. Section 87 of the Corporation Code defines a non-stock corporation as "one where no part of its income is distributable as dividends to its members, trustees or officers." A non-stock corporation must have members. Even if we assume that the Government is considered as the sole member of MIAA, this will not make MIAA a non-stock corporation. Non-stock corporations cannot distribute any part of their income to their members. Section 11 of the MIAA Charter mandates MIAA to remit 20% of its annual gross operating income to the National Treasury. This prevents MIAA from qualifying as a non-stock corporation. caITAC

Section 88 of the Corporation Code provides that non-stock corporations are "organized for charitable, religious, educational, professional, cultural, recreational, fraternal, literary, scientific, social, civil service, or similar purposes, like trade, industry, agriculture and like chambers." MIAA is not organized for any of these purposes. MIAA, a public utility, is organized to operate an international and domestic airport for public use.

Since MIAA is neither a stock nor a non-stock corporation, MIAA does not qualify as a government-owned or controlled corporation. What then is the legal status of MIAA within the National Government?

MIAA is a government instrumentality vested with corporate powers to perform efficiently its governmental functions. MIAA is like any other government instrumentality, the only difference is that MIAA is vested with corporate

powers. Section 2(10) of the Introductory Provisions of the Administrative Code defines a government "instrumentality" as follows:

SEC. 2. General Terms Defined. — . . .

(10) Instrumentality refers to any agency of the National Government, not integrated within the department framework, vested with special functions or jurisdiction by law, endowed with some if not all corporate powers, administering special funds, and enjoying operational autonomy, usually through a charter. . . . .

When the law vests in a government instrumentality corporate powers, the instrumentality does not become a corporation. Unless the government instrumentality is organized as a stock or non-stock corporation, it remains a government instrumentality exercising not only governmental but also corporate powers. Thus, MIAA exercises the governmental powers of eminent domain, police authority and the levying of fees and charges. At the same time, MIAA exercises "all the powers of a corporation under the Corporation Law, insofar as these powers are not inconsistent with the provisions of this Executive Order."

Likewise, when the law makes a government instrumentality operationally autonomous, the instrumentality remains part of the National Government machinery although not integrated with the department framework. The MIAA Charter expressly states that transforming MIAA into a "separate and autonomous body" will make its operation more "financially viable."

Many government instrumentalities are vested with corporate powers but they do not become stock or non-stock corporations, which is a necessary condition before an agency or instrumentality is deemed a government-owned or controlled corporation. Examples are the Mactan International Airport Authority, the Philippine Ports Authority, the University of the Philippines andBangko Sentral ng Pilipinas. All these government instrumentalities exercise corporate powers but they are not organized as stock or non-stock corporations as required by Section 2(13) of the Introductory Provisions of the Administrative Code. These government instrumentalities are sometimes loosely called government corporate entities. However, they are not government-owned or controlled corporations in the strict sense as understood under the Administrative Code, which is the governing law defining the legal relationship and status of government entities. 74(Emphases ours, citations omitted.)

The Court in the 2006 MIAA case went on to discuss the limitation on the taxing power of the local governments as against the national government or its instrumentality:

A government instrumentality like MIAA falls under Section 133(o) of the Local Government Code, which states:

SEC. 133. Common Limitations on the Taxing Powers of Local Government Units. —

Unless otherwise provided herein, the exercise of the taxing powers of provinces, cities, municipalities, and barangays shall not extend to the levy of the following:

xxx xxx xxx

(o) Taxes, fees or charges of any kind on the National Government, its agencies and instrumentalities and local government units. . . . .

Section 133(o) recognizes the basic principle that local governments cannot tax the national government, which historically merely delegated to local governments the power to tax. While the 1987 Constitution now includes taxation as one of the powers of local governments, local governments may only exercise such power "subject to such guidelines and limitations as the Congress may provide."

When local governments invoke the power to tax on national government instrumentalities, such power is construed strictly against local governments. The rule is that a tax is never presumed and there must be clear language in the law imposing the tax. Any doubt whether a person, article or activity is taxable is resolved against taxation. This rule applies with greater force when local governments seek to tax national government instrumentalities.

Another rule is that a tax exemption is strictly construed against the taxpayer claiming the exemption. However, when Congress grants an exemption to a national government instrumentality from local taxation, such exemption is construed liberally in favor of the national government instrumentality. . . . .

xxx xxx xxx

There is, moreover, no point in national and local governments taxing each other, unless a sound and compelling policy requires such transfer of public funds from one government pocket to another.

12

There is also no reason for local governments to tax national government instrumentalities for rendering essential public services to inhabitants of local governments. The only exception is when the legislature clearly intended to tax government instrumentalities for the delivery of essential public services for sound and compelling policy considerations. There must be express language in the law empowering local governments to tax national government instrumentalities. Any doubt whether such power exists is resolved against local governments.

Thus, Section 133 of the Local Government Code states that "unless otherwise provided" in the Code, local governments cannot tax national government instrumentalities. . . .

. 75 (Emphases ours, citations omitted.)

The Court emphasized that the airport lands and buildings of MIAA are owned by the Republic and belong to the public domain. The Court said:

The Airport Lands and Buildings of MIAA are property of public dominion and therefore owned by the State or the Republic of the Philippines. . . . .

xxx xxx xxx

No one can dispute that properties of public dominion mentioned in Article 420 of the Civil Code, like "roads, canals, rivers, torrents, ports and bridges constructed by the State," are owned by the State. The term "ports" includes seaports and airports. The MIAA Airport Lands and Buildings constitute a "port" constructed by the State. Under Article 420 of the Civil Code, the MIAA Airport Lands and Buildings are properties of public dominion and thus owned by the State or the Republic of the Philippines.

The Airport Lands and Buildings are devoted to public use because they are used by the public for international and domestic travel and transportation. The fact that the MIAA collects terminal fees and other charges from the public does not remove the character of the Airport Lands and Buildings as properties for public use. . . . .

xxx xxx xxx

The terminal fees MIAA charges to passengers, as well as the landing fees MIAA charges to airlines, constitute the bulk of the income that maintains the operations of MIAA. The collection of such fees does not change the character of MIAA as an airport for public use. Such fees are often termed user's tax. This means taxing those among the public who actually use a public facility instead of taxing all the public including those who never use the particular public facility. A user's tax is more equitable — a principle of taxation mandated in the 1987 Constitution. TAIaHE

The Airport Lands and Buildings of MIAA . . . are properties of public dominion because they are intended for public use. As properties of public dominion, they indisputably belong to the State or the Republic of the Philippines. 76 (Emphases supplied, citations omitted.)

The Court also held in the 2006 MIAA case that airport lands and buildings are outside the commerce of man.

As properties of public dominion, the Airport Lands and Buildings are outside the commerce of man. The Court has ruled repeatedly that properties of public dominion are outside the commerce of man. As early as 1915, this Court already ruled in Municipality of Cavite v. Rojas that properties devoted to public use are outside the commerce of man, thus:

xxx xxx xxx

The Civil Code, Article 1271, prescribes that everything which is not outside the commerce of man may be the object of a contract, . . . .

xxx xxx xxx

The Court has also ruled that property of public dominion, being outside the commerce of man, cannot be the subject of an auction sale.

Properties of public dominion, being for public use, are not subject to levy, encumbrance or disposition through public or private sale. Any encumbrance, levy on execution or auction sale of any property of public dominion is void for being contrary to public policy. Essential public services will stop if properties of public dominion are subject to encumbrances, foreclosures and auction sale. This will happen if the City of Parañaque can foreclose and compel the auction sale of the 600-hectare runway of the MIAA for non-payment of real estate tax.

Before MIAA can encumber the Airport Lands and Buildings, the President must first withdraw from public use the Airport Lands and Buildings. . . . .

xxx xxx xxx

Thus, unless the President issues a proclamation withdrawing the Airport Lands and Buildings from public use, these properties remain properties of public dominion and are inalienable. Since the Airport Lands and Buildings are inalienable in their present status as properties of public dominion, they are not subject to levy on execution or foreclosure sale. As long as the Airport Lands and Buildings are reserved for public use, their ownership remains with the State or the Republic of the Philippines.

The authority of the President to reserve lands of the public domain for public use, and to withdraw such public use, is reiterated in Section 14, Chapter 4, Title I, Book III of the Administrative Code of 1987, which states:

SEC. 14. Power to Reserve Lands of the Public and Private Domain of the Government. — (1) The President shall have the power to reserve for settlement or public use, and for specific public purposes, any of the lands of the public domain, the use of which is not otherwise directed by law. The reserved land shall thereafter remain subject to the specific public purpose indicated until otherwise provided by law or proclamation;

xxx xxx xxx

There is no question, therefore, that unless the Airport Lands and Buildings are withdrawn by law or presidential proclamation from public use, they are properties of public dominion, owned by the Republic and outside the commerce of man. 77

Thus, the Court held that MIAA is "merely holding title to the Airport Lands and Buildings in trust for the Republic. [Under] Section 48, Chapter 12, Book I of the Administrative Code [which] allows instrumentalities like MIAA to hold title to real properties owned by the Republic." 78

13

The Court in the 2006 MIAA case cited Section 234 (a) of the Local Government Code and held that said provision exempts from real estate tax any "[r]eal property owned by the Republic of the Philippines." 79 The Court emphasized, however, that "portions of the Airport Lands and Buildings that MIAA leases to private entities are not exempt from real estate tax." The Court further held:

This exemption should be read in relation with Section 133(o) of the same Code, which prohibits local governments from imposing "[t]axes, fees or charges of any kind on the National Government, its agencies and instrumentalities . . . ." The real properties owned by the Republic are titled either in the name of the Republic itself or in the name of agencies or instrumentalities of the National Government. The Administrative Code allows real property owned by the Republic to be titled in the name of agencies or instrumentalities of the national government. Such real properties remain owned by the Republic and continue to be exempt from real estate tax.

The Republic may grant the beneficial use of its real property to an agency or instrumentality of the national government. This happens when title of the real property is transferred to an agency or instrumentality even as the Republic remains the owner of the real property. Such arrangement does not result in the loss of the tax exemption. Section 234 (a) of the Local Government Code states that real property owned by the Republic loses its tax exemption only if the "beneficial use thereof has been granted, for consideration or otherwise, to a taxable person." MIAA, as a government instrumentality, is not a taxable person under Section 133 (o) of the Local Government Code. Thus, even if we assume that the Republic has granted to MIAA the beneficial use of the Airport Lands and Buildings, such fact does not make these real properties subject to real estate tax.

However, portions of the Airport Lands and Buildings that MIAA leases to private entities are not exempt from real estate tax. For example, the land area occupied by hangars that MIAA leases to private corporations is subject to real estate tax. In such a case, MIAA has granted the beneficial use of such land area for a consideration to a taxable person and therefore such land area is subject to real estate tax. . . . . 80

Significantly, the Court reiterated the above ruling and applied the same reasoning in Manila International Airport Authority v. City of Pasay, 81 thus:

The only difference between the 2006 MIAA case and this case is that the 2006 MIAA case involved airport lands and buildings located in Parañaque City while this case involved airport lands and buildings located in Pasay City. The 2006 MIAA case and this case raised the same threshold issue: whether the local government can impose real property tax on the airport lands, consisting mostly of the runways, as well as the airport buildings, of MIAA. . . . .

xxx xxx xxx

The definition of "instrumentality" under Section 2(10) of the Introductory Provisions of the Administrative Code of 1987 uses the phrase "includes . . . government-owned or controlled corporations" which means that a government "instrumentality" may or may not be a "government-owned or controlled corporation." Obviously, the term government "instrumentality" is broader than the term "government-owned or controlled corporation."

. . . .

xxx xxx xxx

The fact that two terms have separate definitions means that while a government "instrumentality" may include a "government-owned or controlled corporation," there may be a government "instrumentality" that will not qualify as a "government-owned or controlled corporation."

A close scrutiny of the definition of "government-owned or controlled corporation" in Section 2(13) will show that MIAA would not fall under such definition. MIAA is a government "instrumentality" that does not qualify as a "government-owned or controlled corporation." . . . .

xxx xxx xxx

Thus, MIAA is not a government-owned or controlled corporation but a government instrumentality which is exempt from any kind of tax from the local governments. Indeed, the exercise of the taxing power of local government units is subject to the limitations enumerated in Section 133 of the Local Government Code. Under Section 133(o) of the Local Government Code, local government units have no power to tax instrumentalities of the national government like the MIAA. Hence, MIAA is not liable to pay real property tax for the NAIA Pasay properties. ICHDca

Furthermore, the airport lands and buildings of MIAA are properties of public dominion intended for public use, and as such are exempt from real property tax under Section 234

(a) of the Local Government Code. However, under the same provision, if MIAA leases its real property to a taxable person, the specific property leased becomes subject to real property tax. In this case, only those portions of the NAIA Pasay properties which are

leased to taxable persons like private parties are subject to real property tax by the City of Pasay. (Emphases added, citations omitted.)

The Court not only mentioned petitioner MCIAA as similarly situated as MIAA. It also mentioned several other government instrumentalities, among which was the Philippine Fisheries Development Authority. Thus, applying the 2006 MIAA ruling, the Court, in Philippine Fisheries Development Authority v. Court of Appeals, 82 held:

On the basis of the parameters set in the MIAA case, the Authority should be classified as an instrumentality of the national government. As such, it is generally exempt from payment of real property tax, except those portions which have been leased to private entities.

In the MIAA case, petitioner Philippine Fisheries Development Authority was cited as among the instrumentalities of the national government. . . . .

xxx xxx xxx

Indeed, the Authority is not a GOCC but an instrumentality of the government. The Authority has a capital stock but it is not divided into shares of stocks. Also, it has no stockholders or voting shares. Hence, it is not a stock corporation. Neither [is it] a non-stock corporation because it has no members.

The Authority is actually a national government instrumentality which is defined as an agency of the national government, not integrated within the department framework, vested with special functions or jurisdiction by law, endowed with some if not all corporate powers, administering special funds, and enjoying operational autonomy, usually through a charter. When the law vests in a government instrumentality corporate powers, the instrumentality does not become a corporation. Unless the government instrumentality is organized as a stock or non-stock corporation, it remains a government instrumentality exercising not only governmental but also corporate powers.

Thus, the Authority which is tasked with the special public function to carry out the government's policy "to promote the development of the country's fishing industry and improve the efficiency in handling, preserving, marketing, and

14

distribution of fish and other aquatic products," exercises the governmental powers of eminent domain, and the power to levy fees and charges. At the same time, the Authority exercises "the general corporate powers conferred by laws upon private and government-owned or controlled corporations."

xxx xxx xxx

In light of the foregoing, the Authority should be classified as an instrumentality of the national government which is liable to pay taxes only with respect to the portions of the

property, the beneficial use of which were vested in private entities. When local governments invoke the power to tax on national government instrumentalities, such power is construed strictly against local governments. The rule is that a tax is never presumed and there must be clear language in the law imposing the tax. Any doubt whether a person, article or activity is taxable is resolved against taxation. This rule applies with greater force when local governments seek to tax national government instrumentalities.

Thus, the real property tax assessments issued by the City of Iloilo should be upheld only with respect to the portions leased to private persons. In case the Authority fails to pay the real property taxes due thereon, said portions cannot be sold at public auction to satisfy the tax delinquency. . . . .

xxx xxx xxx

In sum, the Court finds that the Authority is an instrumentality of the national government, hence, it is liable to pay real property taxes assessed by the City of Iloilo on the IFPC only with respect to those portions which are leased to private entities. Notwithstanding said tax delinquency on the leased portions of the IFPC, the latter or any part thereof, being a property of public domain, cannot be sold at public auction. This means that the City of Iloilo has to satisfy the tax delinquency through means other than the sale at public auction of the IFPC. (Citations omitted.)

Another government instrumentality specifically mentioned in the 2006 MIAA case was the Philippine Ports Authority (PPA). Hence, in Curata v. Philippine Ports Authority, 83 the Court held that the PPA is similarly situated as MIAA, and ruled in this wise:

This Court's disquisition in Manila International Airport Authority v. Court of Appeals — ruling that MIAA is not a government-owned and/or controlled corporation (GOCC), but an instrumentality of the National Government and thus exempt from local taxation, and that its real properties are owned by the Republic of the Philippines — is instructive. . . . .

These findings are squarely applicable to PPA, as it is similarly situated asMIAA. First, PPA is likewise not a GOCC for not having shares of stocks or

members. Second, the docks, piers and buildings it administers are likewise owned by the Republic and, thus, outside the commerce of man. Third, PPA is a mere trustee of these properties. Hence, like MIAA, PPA is clearly a government instrumentality, an agency of the government vested with corporate powers to perform efficiently its governmental functions.

Therefore, an undeniable conclusion is that the funds of PPA partake of government funds, and such may not be garnished absent an allocation by its Board or by statutory grant. If the PPA funds cannot be garnished and its properties, being government properties, cannot be levied via a writ of execution pursuant to a final judgment, then the

trial court likewise cannot grant discretionary execution pending appeal, as it would run afoul of the established jurisprudence that government properties are exempt from execution. What cannot be done directly cannot be done indirectly. (Citations omitted.)

In Government Service Insurance System v. City Treasurer and City Assessor of the City of Manila 84 the Court found that the GSIS was also a government instrumentality and not a GOCC, applying the 2006 MIAA case even though the GSIS was not among those specifically mentioned by the Court as similarly situated as MIAA. The Court said:

GSIS an instrumentality of the National Government

Apart from the foregoing consideration, the Court's fairly recent ruling in Manila International Airport Authority v. Court of Appeals, a case likewise involving real estate tax assessments by a Metro Manila city on the real properties administered by MIAA, argues for the non-tax liability of GSIS for real estate taxes. . . . .

xxx xxx xxx

While perhaps not of governing sway in all fours inasmuch as what were involved in Manila International Airport Authority, e.g., airfields and runways, are properties of the public dominion and, hence, outside the commerce of man, the rationale underpinning the disposition in that case is squarely applicable to GSIS, both MIAA and GSIS being similarly situated. First, while created under CA 186 as a non-stock corporation, a status that has remained unchanged even when it operated under PD 1146 and RA 8291, GSIS is not, in the context of the aforequoted Sec. 193 of the LGC, a GOCC following the teaching of Manila International Airport Authority, for, like MIAA, GSIS's capital is not divided into unit shares. Also, GSIS has no members to speak of. And by members, the reference is to those who, under Sec. 87 of the Corporation Code, make up the non-stock corporation, and not to the compulsory members of the system who are government employees. Its management is entrusted to a Board of Trustees whose members are appointed by the President.

Second, the subject properties under GSIS's name are likewise owned by the Republic. The GSIS is but a mere trustee of the subject properties which have either been ceded to it by the Government or acquired for the enhancement of the system. This particular property arrangement is clearly shown by the fact that the disposal or conveyance of said subject properties are either done by or through the authority of the President of the Philippines. . . . . (Emphasis added, citations omitted.) TCAScE

All the more do we find that petitioner MCIAA, with its many similarities to the MIAA, should be classified as a government instrumentality, as its properties are being used for public purposes, and should be exempt from real estate taxes. This is not to derogate in any way the delegated authority of local government units to collect realty taxes, but to uphold the fundamental doctrines of uniformity in taxation and equal protection of the

laws, by applying all the jurisprudence that have exempted from said taxes similar authorities, agencies, and instrumentalities, whether covered by the 2006 MIAA ruling or not.

To reiterate, petitioner MCIAA is vested with corporate powers but it is not a stock or non-stock corporation, which is a necessary condition before an agency or instrumentality is deemed a government-owned or controlled corporation. Like MIAA, petitioner MCIAA has capital under its charter but it is not divided into shares of stock. It also has no stockholders or voting shares. Republic Act No. 6958 provides:

15

Section 9. Capital. — The [Mactan-Cebu International Airport] Authority shall have an authorized capital stock equal to and consisting of:

(a) The value of fixed assets (including airport facilities, runways and equipment) and such other properties, movable and immovable, currently administered by or belonging to the airports as valued on the date of the effectivity of this Act;

(b) The value of such real estate owned and/or administered by the airports; and

(c) Government contribution in such amount as may be deemed an appropriate initial balance. Such initial amount, as approved by the President of the Philippines, which shall be more or less equivalent to six (6) months working capital requirement of the Authority, is hereby authorized to be appropriated in the General Appropriations Act of the year following its enactment into law.

Thereafter, the government contribution to the capital of the Authority shall be provided for in the General Appropriations Act.

Like in MIAA, the airport lands and buildings of MCIAA are properties of public dominion because they are intended for public use. As properties of public dominion, they indisputably belong to the State or the Republic of the Philippines, and are outside the commerce of man. This, unless petitioner leases its real property to a taxable person, the specific property leased becomes subject to real property tax; in which case, only those portions of petitioner's properties which are leased to taxable persons like private parties are subject to real property tax by the City of Lapu-Lapu.

We hereby adopt and apply to petitioner MCIAA the findings and conclusions of the Court in the 2006 MIAA case, and we quote:

To summarize, MIAA is not a government-owned or controlled corporation under Section 2(13) of the Introductory Provisions of the Administrative Code because it is not organized as a stock or non-stock corporation. Neither is MIAA a government-owned or controlled corporation under Section 16, Article XII of the 1987 Constitution because MIAA is not required to meet the test of economic viability. MIAA is a government

instrumentality vested with corporate powers and performing essential public services pursuant to Section 2(10) of the Introductory Provisions of the Administrative Code. As a government instrumentality, MIAA is not subject to any kind of tax by local governments under Section 133(o) of the Local Government Code. The exception to the exemption in Section 234(a) does not apply to MIAA because MIAA is not a taxable entity under the Local Government Code. Such exception applies only if the beneficial use of real property owned by the Republic is given to a taxable entity.

Finally, the Airport Lands and Buildings of MIAA are properties devoted to public use and thus are properties of public dominion. Properties of public dominion are owned by the State or the Republic. . . . .

xxx xxx xxx

The term "ports . . . constructed by the State" includes airports and seaports. The

Airport Lands and Buildings of MIAA are intended for public use, and at the very least intended for public service. Whether intended for public use or public service, the Airport Lands and Buildings are properties of public dominion.

As properties of public dominion, the Airport Lands and Buildings are owned by the Republic and thus exempt from real estate tax under Section 234(a) of the Local Government Code.

4. Conclusion

Under Section 2(10) and (13) of the Introductory Provisions of the Administrative Code, which governs the legal relation and status of government units, agencies and offices within the entire government machinery, MIAA is a government instrumentality and not a government-owned or controlled corporation. Under Section 133(o) of the Local Government Code, MIAA as a government instrumentality is not a taxable person because it is not subject to "[t]axes, fees or charges of any kind" by local governments. The only exception is when MIAA leases its real property to a "taxable person" as provided in Section 234(a) of the Local Government Code, in which case the specific real property leased becomes subject to real estate tax. Thus, only portions of the Airport

Lands and Buildings leased to taxable persons like private parties are subject to real estate tax by the City of Parañaque.

Under Article 420 of the Civil Code, the Airport Lands and Buildings of MIAA, being devoted to public use, are properties of public dominion and thus owned by the State or the Republic of the Philippines. Article 420 specifically mentions "ports . . . constructed by the State," which includes public airports and seaports, as properties of public dominion and owned by the Republic. As properties of public dominion owned by the Republic, there is no doubt whatsoever that the Airport Lands and Buildings are expressly exempt from real estate tax under Section 234(a) of the Local Government Code. This Court

has also repeatedly ruled that properties of public dominion are not subject to execution or foreclosure sale. 85 (Emphases added.) ASEcHI

WHEREFORE, we hereby GRANT the petition. We REVERSE and SETASIDE the Decision dated October 8, 2007 and the Resolution dated February 12,2008 of the Court of Appeals (Cebu City) in CA-G.R. SP No. 01360. Accordingly,we DECLARE:

1. Petitioner's properties that are actually, solely and exclusively used for public purpose, consisting of the airport terminal building, airfield, runway, taxiway and the lots on which they are situated,EXEMPT from real property tax imposed by the City of Lapu-Lapu.

2. VOID all the real property tax assessments, including the additional tax for the special education fund and the penalty interest, as well as the final notices of real property tax delinquencies, issued by the City of Lapu-Lapu on petitioner's properties, except the assessment covering the portions that petitioner has leased to private parties.

3. NULL and VOID the sale in public auction of 27 of petitioner's properties and the eventual forfeiture and purchase of the said properties by respondent City of Lapu-Lapu. We likewise declareVOID the corresponding Certificates of Sale of Delinquent Property

issued to respondent City of Lapu-Lapu.

SO ORDERED.

Sereno, C.J., Bersamin, Perez and Perlas-Bernabe, JJ., concur.

16

Smart Communications, Inc. v. Municipality of Malvar, Batangas

Republic of the Philippines

SUPREME COURT

Manila

EN BANC

G.R. No. 204429 February 18, 2014

SMART COMMUNICATIONS, INC., Petitioner, vs.

MUNICIPALITY OF MALVAR, BATANGAS, Respondent.

D E C I S I O N

CARPIO, J.:

The Case

This petition for review1 challenges the 26 June 2012 Decision2 and 13 November 2012 Resolution3 of the Court of Tax. Appeals (CTA) En Banc.

Th e CTA En Banc affirmed the 17 December 2010 Decision4 and 7 April 2011 Resolution5 of the CTA First Division, which in turn affirmed the 2 December 2008 Decision6 and 21 May 2009 Order7 of the Regional Trial Court

of Tanauan City, Batangas, Branch 6. The trial court declared void the assessment imposed by respondent Municipality of Malvar, Batangas against petitioner Smart Communications, Inc. for its telecommunications tower for 2001 to July 2003 and directed respondent to assess petitioner only for the period starting 1 October 2003.

The Facts

Petitioner Smart Communications, Inc. (Smart) is a domestic corporation engaged in the business of providing telecommunications services to the general public while respondent Municipality of Malvar, Batangas (Municipality) is a local government unit created by law.

In the course of its business, Smart constructed a telecommunications tower within the territorial jurisdiction of the Municipality. The construction of the tower was for the purpose of receiving and transmitting cellular communications within the covered area.

On 30 July 2003, the Municipality passed Ordinance No. 18, series of 2003, entitled "An Ordinance Regulating the Establishment of Special Projects."

On 24 August 2004, Smart received from the Permit and Licensing Division of the Office of the Mayor of the Municipality an assessment letter with a schedule of payment for the total amount of P389,950.00 for Smart’s telecommunications tower. The letter reads as follows:

This is to formally submit to your good office your schedule of payments in the Municipal Treasury of the Local Government Unit of Malvar, province of Batangas which corresponds to the tower of your company built in the premises of the municipality, to wit:

TOTAL PROJECT COST: PHP11,000,000.00

For the Year 2001-200350% of 1% of the total project cost Php55,000.00Add: 45% surcharge 24,750.00

Php79,750.00Multiply by 3 yrs. (2001, 2002, 2003) Php239,250.00For the year 20041% of the total project cost Php110,000.0037% surcharge 40,700.00

==========Php150,700.00

TOTAL Php389,950.00

Hoping that you will give this matter your preferential attention.8

Due to the alleged arrears in the payment of the assessment, the Municipality also caused the posting of a closure notice on the telecommunications tower.

17

On 9 September 2004, Smart filed a protest, claiming lack of due process in the issuance of the assessment and closure notice. In the same protest, Smart challenged the validity of Ordinance No. 18 on which the assessment was based.

In a letter dated 28 September 2004, the Municipality denied Smart’s protest.

On 17 November 2004, Smart filed with Regional Trial Court of Tanauan City, Batangas, Branch 6, an "Appeal/Petition" assailing the validity of Ordinance No. 18. The case was docketed as SP Civil Case No. 04-11-1920.

On 2 December 2008, the trial court rendered a Decision partly granting Smart’s Appeal/Petition. The trial court confined its resolution of the case to the validity of the assessment, and did not rule on the legality of Ordinance No. 18. The trial court held that the assessment covering the period from 2001 to July 2003 was void since Ordinance No. 18 was approved only on 30 July 2003. However, the trial court declared valid the assessment starting 1 October 2003, citing Article 4 of the Civil Code of the Philippines,9 in relation to the provisions of Ordinance No. 18 and Section 166 of Republic Act No. 7160 or the Local Government Code of 1991 (LGC).10 The dispositive portion of the trial court’s Decision reads:

WHEREFORE, in light of the foregoing, the Petition is partly GRANTED. The assessment dated August 24, 2004 against petitioner is hereby declared null and void insofar as the assessment made from year 2001 to July 2003 and respondent is hereby prohibited from assessing and collecting, from petitioner, fees during the said period and the Municipal Government of Malvar, Batangas is directed to assess Smart Communications, Inc. only for the period starting October 1, 2003.

No costs.

SO ORDERED.11

The trial court denied the motion for reconsideration in its Order of 21 May 2009.

On 8 July 2009, Smart filed a petition for review with the CTA First Division, docketed as CTA AC No. 58.

On 17 December 2010, the CTA First Division denied the petition for review. The dispositive portion of the decision reads:

WHEREFORE, the Petition for Review is hereby DENIED, for lack of merit. Accordingly, the assailed Decision dated December 2, 2008 and the Order dated May 21, 2009 of Branch 6 of the Regional Trial Court of Tanauan City, Batangas in SP. Civil Case No. 04-

11-1920 entitled "Smart Communications, Inc. vs. Municipality of Malvar, Batangas" are AFFIRMED.

SO ORDERED.12

On 7 April 2011, the CTA First Division issued a Resolution denying the motion for reconsideration.

Smart filed a petition for review with the CTA En Banc, which affirmed the CTA First Division’s decision and resolution. The dispositive portion of the CTA En Banc’s 26 June 2012 decision reads:

WHEREFORE, premises considered, the present Petition for Review is hereby DISMISSED for lack of merit.1âwphi1

Accordingly, the assailed Decision dated December 17, 2010 and Resolution dated April 7, 2011 are hereby AFFIRMED.

SO ORDERED.13

The CTA En Banc denied the motion for reconsideration.

Hence, this petition.

The Ruling of the CTA En Banc

The CTA En Banc dismissed the petition on the ground of lack of jurisdiction. The CTA En Banc declared that it is a court of special jurisdiction and as such, it can take cognizance only of such matters as are clearly within its jurisdiction. Citing Section 7(a), paragraph 3, of Republic Act No. 9282, the CTA En Banc held that the CTA has exclusive appellate jurisdiction to review on appeal, decisions, orders or resolutions of the Regional Trial Courts in local tax cases originally resolved by them in the exercise of their original or appellate jurisdiction. However, the same provision does not confer on the CTA jurisdiction to resolve cases where the constitutionality of a law or rule is challenged.

The Issues

The petition raises the following arguments:

1. The [CTA En Banc Decision and Resolution] should be reversed and set aside for being contrary to law and jurisprudence considering that the CTA En Banc should have exercised its jurisdiction and declared the Ordinance as illegal.

2. The [CTA En Banc Decision and Resolution] should be reversed and set aside for being contrary to law and jurisprudence considering that the doctrine of exhaustion of administrative remedies does not apply in [this case].

3. The [CTA En Banc Decision and Resolution] should be reversed and set aside for

being contrary to law and jurisprudence considering that the respondent has no authority to impose the so-called "fees" on the basis of the void ordinance.14

The Ruling of the Court

The Court denies the petition.

On whether the CTA has jurisdiction over the present case

18

Smart contends that the CTA erred in dismissing the case for lack of jurisdiction. Smart maintains that the CTA has jurisdiction over the present case considering the "unique" factual circumstances involved.

The CTA refuses to take cognizance of this case since it challenges the constitutionality of Ordinance No. 18, which is outside the province of the CTA.

Jurisdiction is conferred by law. Republic Act No. 1125, as amended by Republic Act No. 9282, created the Court of Tax Appeals. Section 7, paragraph (a), sub-paragraph (3)15 of the law vests the CTA with the exclusive appellate jurisdiction over "decisions, orders or resolutions of the Regional Trial Courts in local tax cases originally decided or resolved by them in the exercise of their original or appellate jurisdiction."

The question now is whether the trial court resolved a local tax case in order to fall within the ambit of the CTA’s appellate jurisdiction This question, in turn, depends ultimately on whether the fees imposed under Ordinance No. 18 are in fact taxes.

Smart argues that the "fees" in Ordinance No. 18 are actually taxes since they are not regulatory, but revenue-raising. Citing Philippine Airlines, Inc. v. Edu,16 Smart contends that the designation of "fees" in Ordinance No. 18 is not controlling.

The Court finds that the fees imposed under Ordinance No. 18 are not taxes.

Section 5, Article X of the 1987 Constitution provides that "each local government unit shall have the power to create its own sources of revenues and to levy taxes, fees, and charges subject to such guidelines and limitations as the Congress may provide, consistent with the basic policy of local autonomy. Such taxes, fees, and charges shall accrue exclusively to the local government."

Consistent with this constitutional mandate, the LGC grants the taxing powers to each local government unit. Specifically, Section 142 of the LGC grants municipalities the

power to levy taxes, fees, and charges not otherwise levied by provinces. Section 143 of the LGC provides for the scale of taxes on business that may be imposed by municipalities17 while Section 14718 of the same law provides for the fees and charges that may be imposed by municipalities on business and occupation.

The LGC defines the term "charges" as referring to pecuniary liability, as rents or fees against persons or property, while the term "fee" means "a charge fixed by law or ordinance for the regulation or inspection of a business or activity."19

In this case, the Municipality issued Ordinance No. 18, which is entitled "An Ordinance Regulating the Establishment of Special Projects," to regulate the "placing, stringing, attaching, installing, repair and construction of all gas mains, electric, telegraph and telephone wires, conduits, meters and other apparatus, and provide for the correction, condemnation or removal of the same when found to be dangerous, defective or otherwise hazardous to the welfare of the inhabitant[s]."20 It was also envisioned to address the foreseen "environmental depredation" to be brought about by these "special projects" to the Municipality.21 Pursuant to these objectives, the Municipality imposed fees on various structures, which included telecommunications towers.

As clearly stated in its whereas clauses, the primary purpose of Ordinance No. 18 is to regulate the "placing, stringing, attaching, installing, repair and construction of all gas mains, electric, telegraph and telephone wires, conduits, meters and other apparatus" listed therein, which included Smart’s telecommunications tower. Clearly, the purpose of the assailed Ordinance is to regulate the enumerated activities particularly related to the construction and maintenance of various structures. The fees in Ordinance No. 18 are not impositions on the building or structure

itself; rather, they are impositions on the activity subject of government regulation, such as the installation and construction of the structures.22

Since the main purpose of Ordinance No. 18 is to regulate certain construction activities of the identified special projects, which included "cell sites" or telecommunications towers, the fees imposed in Ordinance No. 18 are primarily regulatory in nature, and not primarily revenue-raising. While the fees may contribute to the revenues of the Municipality, this effect is merely incidental. Thus, the fees imposed in Ordinance No. 18 are not taxes.

In Progressive Development Corporation v. Quezon City,23 the Court declared that "if the generating of revenue is the primary purpose and regulation is merely incidental, the imposition is a tax; but if regulation is the primary purpose, the fact that incidentally revenue is also obtained does not make the imposition a tax."

In Victorias Milling Co., Inc. v. Municipality of Victorias,24 the Court reiterated that the purpose and effect of the imposition determine whether it is a tax or a fee, and that the lack of any standards for such imposition gives the presumption that the same is a tax.

We accordingly say that the designation given by the municipal authorities does not decide whether the imposition is properly a license tax or a license fee. The determining factors are the purpose and effect of the imposition as may be apparent from the provisions of the ordinance. Thus, "[w]hen no police inspection, supervision, or regulation is provided, nor any standard set for the applicant to establish, or that he agrees to attain or maintain, but any and all persons engaged in the business designated, without qualification or hindrance, may come, and a license on payment of the stipulated sum will issue, to do business, subject to no prescribed rule of conduct and under no guardian eye, but according to the unrestrained judgment or fancy of the applicant and licensee, the presumption is strong that the power of taxation, and not the police power, is being exercised."

Contrary to Smart’s contention, Ordinance No. 18 expressly provides for the standards which Smart must satisfy prior to the issuance of the specified permits, clearly indicating that the fees are regulatory in nature.

These requirements are as follows:

SECTION 5. Requirements and Procedures in Securing Preliminary Development

Permit.

The following documents shall be submitted to the SB Secretary in triplicate:

a) zoning clearance

b) Vicinity Map

c) Site Plan

d) Evidence of ownership

e) Certificate true copy of NTC Provisional Authority in case of Cellsites, telephone or telegraph line, ERB in case of gasoline station, power plant, and other concerned national agencies

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f) Conversion order from DAR is located within agricultural zone.

g) Radiation Protection Evaluation.

h) Written consent from subdivision association or the residence of the area concerned if the special projects is located within the residential zone.

i) Barangay Council Resolution endorsing the special projects.

SECTION 6. Requirement for Final Development Permit – Upon the expiration of 180 days and the proponents of special projects shall apply for final [development permit] and they are require[d] to submit the following:

a) evaluation from the committee where the Vice Mayor refers the special project

b) Certification that all local fees have been paid.

Considering that the fees in Ordinance No. 18 are not in the nature of local taxes, and Smart is questioning the constitutionality of the ordinance, the CTA correctly dismissed the petition for lack of jurisdiction. Likewise, Section 187 of the LGC,25 which outlines the procedure for questioning the constitutionality of a tax ordinance, is inapplicable, rendering unnecessary the resolution of the issue on non-exhaustion of administrative remedies.

On whether the imposition of the fees in Ordinance No. 18 is ultra vire Smart argues that the Municipality exceeded its power to impose taxes and fees as provided in Book II, Title One, Chapter 2, Article II of the LGC. Smart maintains that the mayor’s permit fees in Ordinance No. 18 (equivalent to 1% of the project cost) are not among those expressly enumerated in the LGC.

As discussed, the fees in Ordinance No.18 are not taxes. Logically, the imposition does not appear in the enumeration of taxes under Section 143 of the LGC.

Moreover, even if the fees do not appear in Section 143 or any other provision in the LGC, the Municipality is empowered to impose taxes, fees and charges, not specifically enumerated in the LGC or taxed under the Tax Code or other applicable law. Section 186 of the LGC, granting local government units wide latitude in imposing fees, expressly provides:

Section 186. Power To Levy Other Taxes, Fees or Charges. - Local government units may exercise the power to levy taxes, fees or charges on any base or subject not otherwise specifically enumerated herein or taxed under the provisions of the National Internal Revenue Code, as amended, or other applicable laws: Provided, That the taxes, fees, or charges shall not be unjust, excessive, oppressive, confiscatory or contrary to declared national policy: Provided, further, That the ordinance levying such taxes, fees or charges shall not be enacted without any prior public hearing conducted for the purpose.

Smart further argues that the Municipality is encroaching on the regulatory powers of the National Telecommunications Commission (NTC). Smart cites Section 5(g) of Republic Act No. 7925 which provides that the National Telecommunications Commission (NTC), in the exercise of its regulatory powers, shall impose such fees and charges as may be necessary to cover reasonable costs and expenses for the regulation and supervision of the operations of telecommunications entities. Thus, Smart alleges that the regulation of

telecommunications entities and all aspects of its operations is specifically lodged by law on the NTC.

To repeat, Ordinance No. 18 aims to regulate the "placing, stringing, attaching, installing, repair and construction of all gas mains, electric, telegraph and telephone wires, conduits, meters and other apparatus" within the Municipality. The fees are not imposed to regulate the administrative, technical, financial, or marketing operations of telecommunications entities, such as Smart’s; rather, to regulate the installation and maintenance of physical structures – Smart’s cell sites or telecommunications tower. The regulation of the installation and maintenance of such physical structures is an exercise of the police power of the Municipality. Clearly, the Municipality does not encroach on NTC’s regulatory powers.

The Court likewise rejects Smart’s contention that the power to fix the fees for the issuance of development permits and locational clearances is exercised by the Housing and Land Use Regulatory Board (HLURB). Suffice it to state that the HLURB itself recognizes the local government units’ power to collect fees related to land use and development. Significantly, the HLURB issued locational guidelines governing telecommunications infrastructure.1âwphi1 Guideline No. VI relates to the collection of locational clearance fees either by the HLURB or the concerned local government unit, to wit:

VI. Fees

The Housing and Land Use Regulatory Board in the performance of its functions shall collect the locational clearance fee based on the revised schedule of fees under the special use project as per Resolution No. 622, series of 1998 or by the concerned LGUs subject to EO 72.26

On whether Ordinance No. 18 is valid and constitutional

Smart contends that Ordinance No. 18 violates Sections 130(b)(3)27 and 186 of the LGC since the fees are unjust, excessive, oppressive and confiscatory. Aside from this bare allegation, Smart did not present any evidence substantiating its claims. In Victorias Milling Co., Inc. v. Municipality of Victorias,28 the Court rejected the argument that the fees imposed by respondent therein are excessive for lack of evidence supporting such claim, to wit:

An ordinance carries with it the presumption of validity. The question of reasonableness though is open to judicial inquiry. Much should be left thus to the discretion of municipal authorities. Courts will go slow in writing off an ordinance as unreasonable unless the amount is so excessive as to be prohibitive, arbitrary, unreasonable, oppressive, or confiscatory. A rule which has gained acceptance is that factors relevant to such an

inquiry are the municipal conditions as a whole and the nature of the business made subject to imposition.

Plaintiff, has however not sufficiently proven that, taking these factors together, the license taxes are unreasonable. The presumption of validity subsists. For, plaintiff has limited itself to insisting that the amounts levied exceed the cost of regulation and the municipality has adequate funds for the alleged purposes as evidenced by the municipality’s cash surplus for the fiscal year ending 1956.

On the constitutionality issue, Smart merely pleaded for the declaration of unconstitutionality of Ordinance No. 18 in the Prayer of the Petition, without any argument or evidence to support its plea. Nowhere in the body of the Petition was this issue specifically raised and discussed. Significantly, Smart failed to cite any constitutional provision allegedly violated by respondent when it issued Ordinance No. 18.

20

Settled is the rule that every law, in this case an ordinance, is presumed valid. To strike down a law as unconstitutional, Smart has the burden to prove a clear and unequivocal breach of the Constitution, which Smart miserably failed to do. In Lawyers Against Monopoly and Poverty (LAMP) v. Secretary of Budget and Management,29 the Court held, thus:

To justify the nullification of the law or its implementation, there must be a clear and unequivocal, not a doubtful, breach of the Constitution. In case of doubt in the sufficiency of proof establishing unconstitutionality, the Court must sustain legislation because "to invalidate [a law] based on xx x baseless supposition is an affront to the wisdom not only of the legislature that passed it but also of the executive which approved it." This presumption of constitutionality can be overcome only by the clearest showing that there was indeed an infraction of the Constitution, and only when such a conclusion is reached by the required majority may the Court pronounce, in the discharge of the duty it cannot escape, that the challenged act must be struck down.

WHEREFORE, the Court DENIES the petition.

SO ORDERED.

The City of Manila v. Hon. Caridad H. Grecia-Cuerdo

Republic of the Philippines

SUPREME COURT

Manila

EN BANC

G.R. No. 175723 February 4, 2014

THE CITY OF MANILA, represented by MAYOR JOSE L. ATIENZA, JR., and MS. LIBERTY M. TOLEDO, in her capacity as the City Treasurer of Manila, Petitioners, vs.

HON. CARIDAD H. GRECIA-CUERDO, in her capacity as Presiding Judge of the Regional Trial Court, Branch 112, Pasay City; SM MART, INC.; SM PRIME HOLDINGS, INC.; STAR APPLIANCES CENTER; SUPERVALUE, INC.; ACE HARDWARE PHILIPPINES, INC.; WATSON PERSONAL CARE STORES, PHILS., INC.; JOLLIMART PHILS., CORP.; SURPLUS MARKETING CORPORATION and SIGNATURE LINES,Respondents.

D E C I S I O N

PERALTA, J.:

Before the Court is a special civil action for certiorari under Rule 65 of the Rules of Court seeking to reverse and set aside the Resolutions1 dated April 6, 2006 and November 29, 2006 of the Court of Appeals (CA) in CA-G.R. SP No. 87948.

The antecedents of the case, as summarized by the CA, are as follows:

The record shows that petitioner City of Manila, through its treasurer, petitioner Liberty Toledo, assessed taxes for the taxable period from January to December 2002 against private respondents SM Mart, Inc., SM Prime Holdings, Inc., Star Appliances Center, Supervalue, Inc., Ace Hardware Philippines, Inc., Watsons Personal Care Stores Phils., Inc., Jollimart Philippines Corp., Surplus Marketing Corp. and Signature Lines. In addition to the taxes purportedly due from private respondents pursuant to Section 14, 15, 16, 17 of the Revised Revenue Code of Manila (RRCM), said assessment covered the local business taxes petitioners were authorized to collect under Section 21 of the same Code. Because payment of the taxes assessed was a precondition for the issuance of their business permits, private respondents were constrained to pay the P19,316,458.77 assessment under protest.

On January 24, 2004, private respondents filed [with the Regional Trial Court of Pasay City] the complaint denominated as one for "Refund or Recovery of Illegally and/or Erroneously-Collected Local Business Tax, Prohibition with Prayer to Issue TRO and Writ of Preliminary Injunction"

which was docketed as Civil Case No. 04-0019-CFM before public respondent's sala [at Branch 112]. In the amended complaint they filed on February 16, 2004, private respondents alleged that, in relation to Section 21 thereof, Sections 14, 15, 16, 17, 18, 19 and 20 of the RRCM were violative of the limitations and guidelines under Section 143

(h) of Republic Act. No. 7160 [Local Government Code] on double taxation. They further averred that petitioner city's Ordinance No. 8011 which amended pertinent portions of the RRCM had already been declared to be illegal and unconstitutional by the Department of Justice.2

In its Order3 dated July 9, 2004, the RTC granted private respondents' application for a writ of preliminary injunction.

Petitioners filed a Motion for Reconsideration4 but the RTC denied it in its Order5 dated October 15, 2004.

Petitioners then filed a special civil action for certiorari with the CA assailing the July 9, 2004 and October 15, 2004 Orders of the RTC.6

In its Resolution promulgated on April 6, 2006, the CA dismissed petitioners' petition for certiorari holding that it has no jurisdiction over the said petition. The CA ruled that since appellate jurisdiction over private respondents' complaint for tax refund, which was filed with the RTC, is vested in the Court of Tax Appeals (CTA), pursuant to its expanded jurisdiction under Republic Act No. 9282 (RA 9282), it follows that a petition for certiorari seeking nullification of an interlocutory order issued in the said case should, likewise, be filed with the CTA.

Petitioners filed a Motion for Reconsideration,7 but the CA denied it in its Resolution dated November 29, 2006.

Hence, the present petition raising the following issues:

I- Whether or not the Honorable Court of Appeals gravely erred in dismissing the case for lack of jurisdiction.

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II- Whether or not the Honorable Regional Trial Court gravely abuse[d] its discretion amounting to lack or excess of jurisdiction in enjoining by issuing a Writ of Injunction the petitioners, their agents and/or authorized representatives from implementing Section 21 of the Revised Revenue Code of Manila, as amended, against private respondents.

28

III- Whether or not the Honorable Regional Trial Court gravely abuse[d] its discretion amounting to lack or excess of jurisdiction in issuing the Writ of Injunction despite failure of private respondents to make a written claim for tax credit or refund with the City Treasurer of Manila.

IV- Whether or not the Honorable Regional Trial Court gravely abuse[d] its discretion amounting to lack or excess of jurisdiction considering that under Section 21 of the Manila Revenue Code, as amended, they are mere collecting agents of the City Government.

V- Whether or not the Honorable Regional Trial Court gravely abuse[d] its discretion amounting to lack or excess of jurisdiction in issuing the Writ of Injunction because petitioner City of Manila and its constituents would result to greater damage and prejudice thereof. (sic)8

Without first resolving the above issues, this Court finds that the instant petition should be denied for being moot and academic.

Upon perusal of the original records of the instant case, this Court discovered that a Decision9 in the main case had already been rendered by the RTC on August 13, 2007, the dispositive portion of which reads as follows:

WHEREFORE, in view of the foregoing, this Court hereby renders JUDGMENT in favor of the plaintiff and against the defendant to grant a tax refund or credit for taxes paid pursuant to Section 21 of the Revenue Code of the City of Manila as amended for the year 2002 in the following amounts:

To plaintiff SM Mart, Inc. - P 11,462,525.02To plaintiff SM Prime Holdings, Inc. - 3,118,104.63To plaintiff Star Appliances Center - 2,152,316.54To plaintiff Supervalue, Inc. - 1,362,750.34To plaintiff Ace Hardware Phils., Inc. - 419,689.04To plaintiff Watsons Personal Care Health - 231,453.62

Stores Phils., Inc.To plaintiff Jollimart Phils., Corp. - 140,908.54To plaintiff Surplus Marketing Corp. - 220,204.70To plaintiff Signature Mktg. Corp. - 94,906.34TOTAL: - P 19,316,458.77

Defendants are further enjoined from collecting taxes under Section 21, Revenue Code of Manila from herein plaintiff.

SO ORDERED.10

The parties did not inform the Court but based on the records, the above Decision had already become final and executory per the Certificate of Finality11 issued by the same trial court on October 20, 2008. In fact, a Writ of Execution12 was issued by the RTC on November 25, 2009. In view of the foregoing, it clearly appears that the issues raised in the present petition, which merely involve the incident on the preliminary injunction issued by the RTC, have already become moot and academic considering that the trial court, in its decision on the merits in the main case, has already ruled in favor of respondents and that the same decision is now final and executory. Well entrenched is the rule that where the issues have become moot and academic, there is no justiciable controversy, thereby rendering the resolution of the same of no practical use or value.13

In any case, the Court finds it necessary to resolve the issue on jurisdiction raised by petitioners owing to its significance and for future guidance of both bench and bar. It is a settled principle that courts will decide a question otherwise moot and academic if it is capable of repetition, yet evading review.14

However, before proceeding, to resolve the question on jurisdiction, the Court deems it proper to likewise address a procedural error which petitioners committed.

Petitioners availed of the wrong remedy when they filed the instant special civil action for certiorari under Rule 65 of the Rules of Court in assailing the Resolutions of the CA which dismissed their petition filed with the said court and their motion for reconsideration of such dismissal. There is no dispute that the assailed Resolutions of the CA are in the nature of a final order as they disposed of the petition completely. It is settled that in cases where an assailed judgment or order is considered final, the remedy of the

29

aggrieved party is appeal. Hence, in the instant case, petitioner should have filed a petition for review on certiorari under Rule 45, which is a continuation of the appellate process over the original case.15

Petitioners should be reminded of the equally-settled rule that a special civil action for certiorari under Rule 65 is an original or independent action based on grave abuse of discretion amounting to lack or excess of jurisdiction and it will lie only if there is no appeal or any other plain, speedy, and adequate remedy in the ordinary course of law.16 As such, it cannot be a substitute for a lost appeal.17

Nonetheless, in accordance with the liberal spirit pervading the Rules of Court and in the interest of substantial justice, this Court has, before, treated a petition for certiorari as a petition for review on certiorari, particularly (1) if the petition for certiorari was filed within the reglementary period within which to file a petition for review on certiorari; (2) when errors of judgment are averred; and (3) when there is sufficient reason to justify the relaxation of the rules.18 Considering that the present petition was filed within the 15-day reglementary period for filing a petition for review on certiorari under Rule 45, that an error of judgment is averred, and because of the significance of the issue on jurisdiction, the Court deems it proper and justified to relax the rules and, thus, treat the instant petition for certiorari as a petition for review on certiorari.

Having disposed of the procedural aspect, we now turn to the central issue in this case. The basic question posed before this Court is whether or not the CTA has jurisdiction over a special civil action for certiorari assailing an interlocutory order issued by the RTC in a local tax case.

This Court rules in the affirmative.

22

On June 16, 1954, Congress enacted Republic Act No. 1125 (RA 1125) creating the CTA and giving to the said court jurisdiction over the following:

(1) Decisions of the Collector of Internal Revenue in cases involving disputed assessments, refunds of internal revenue taxes, fees or other charges, penalties imposed in relation thereto, or other matters arising under the National Internal Revenue Code or other law or part of law administered by the Bureau of Internal Revenue;

(2) Decisions of the Commissioner of Customs in cases involving liability for customs duties, fees or other money charges; seizure, detention or release of property affected fines, forfeitures or other penalties imposed in relation thereto; or other matters arising under the Customs Law or other law or part of law administered by the Bureau of Customs; and

(3) Decisions of provincial or City Boards of Assessment Appeals in cases involving the assessment and taxation of real property or other matters arising under the Assessment Law, including rules and regulations relative thereto.

On March 30, 2004, the Legislature passed into law Republic Act No. 9282 (RA 9282) amending RA 1125 by expanding the jurisdiction of the CTA, enlarging its membership and elevating its rank to the level of a collegiate court with special jurisdiction. Pertinent portions of the amendatory act provides thus:

Sec. 7. Jurisdiction. - The CTA shall exercise:

a. Exclusive appellate jurisdiction to review by appeal, as herein provided:

1. Decisions of the Commissioner of Internal Revenue in cases involving disputed assessments, refunds of internal revenue taxes, fees or other charges, penalties in relation thereto, or other matters arising under the National Internal Revenue or other laws administered by the Bureau of Internal Revenue;

2. Inaction by the Commissioner of Internal Revenue in cases involving disputed assessments, refunds of internal revenue taxes, fees or other charges, penalties in relations thereto, or other matters arising under the National Internal Revenue Code or other laws administered by the Bureau of Internal Revenue, where the National Internal Revenue Code provides a specific period of action, in which case the inaction shall be deemed a denial;

3. Decisions, orders or resolutions of the Regional Trial Courts in local tax cases originally decided or resolved by them in the exercise of their original or appellate jurisdiction;

4. Decisions of the Commissioner of Customs in cases involving liability for customs duties, fees or other money charges, seizure, detention or release of property affected, fines, forfeitures or other penalties in relation thereto, or other matters arising under the Customs Law or other laws administered by the Bureau of Customs;

5. Decisions of the Central Board of Assessment Appeals in the exercise of its appellate jurisdiction over cases involving the assessment and taxation of real property originally decided by the provincial or city board of assessment appeals;

6. Decisions of the Secretary of Finance on customs cases elevated to him automatically for review from decisions of the Commissioner of Customs which are adverse to the Government under Section 2315 of the Tariff and Customs Code;

7. Decisions of the Secretary of Trade and Industry, in the case of nonagricultural product, commodity or article, and the Secretary of Agriculture in the case of agricultural

30

product, commodity or article, involving dumping and countervailing duties under Section 301 and 302, respectively, of the Tariff and Customs Code, and safeguard measures under Republic Act No. 8800, where either party may appeal the decision to impose or not to impose said duties.

b. Jurisdiction over cases involving criminal offenses as herein provided:

1. Exclusive original jurisdiction over all criminal offenses arising from violations of the National Internal Revenue Code or Tariff and Customs Code and other laws administered by the Bureau of Internal Revenue or the Bureau of Customs: Provided, however, That offenses or felonies mentioned in this paragraph where the principal amount of taxes and fees, exclusive of charges and penalties, claimed is less than One million pesos (P1,000,000.00) or where there is no specified amount claimed shall be tried by the regular Courts and the jurisdiction of the CTA shall be appellate. Any provision of law or the Rules of Court to the contrary notwithstanding, the criminal action and the corresponding civil action for the recovery of civil liability for taxes and penalties shall at all times be simultaneously instituted with, and jointly determined in the same proceeding by the CTA, the filing of the criminal action being deemed to necessarily carry with it the filing of the civil action, and no right to reserve the filing of such civil action separately from the criminal action will be recognized.

2. Exclusive appellate jurisdiction in criminal offenses:

a. Over appeals from the judgments, resolutions or orders of the Regional Trial Courts in tax cases originally decided by them, in their respected territorial jurisdiction.

b. Over petitions for review of the judgments, resolutions or orders of the Regional Trial Courts in the exercise of their appellate jurisdiction over tax cases originally decided by the Metropolitan Trial Courts, Municipal Trial Courts and Municipal Circuit Trial Courts in their respective jurisdiction.

c. Jurisdiction over tax collection cases as herein provided:

1. Exclusive original jurisdiction in tax collection cases involving final and executory assessments for taxes, fees, charges and penalties: Provides, however, that collection cases where the principal amount of taxes and fees, exclusive of charges and penalties, claimed is less than One million pesos (P1,000,000.00) shall be tried by the proper Municipal Trial Court, Metropolitan Trial Court and Regional Trial Court.

2. Exclusive appellate jurisdiction in tax collection cases:

a. Over appeals from the judgments, resolutions or orders of the Regional Trial Courts in tax collection cases originally decided by them, in their respective territorial jurisdiction.

b. Over petitions for review of the judgments, resolutions or orders of the Regional Trial Courts in the Exercise of their appellate jurisdiction over tax collection cases originally decided by the Metropolitan Trial Courts, Municipal Trial Courts and Municipal Circuit Trial Courts, in their respective jurisdiction.19

A perusal of the above provisions would show that, while it is clearly stated that the CTA has exclusive appellate jurisdiction over decisions, orders or resolutions of the RTCs in local tax cases originally decided or resolved by them

23

in the exercise of their original or appellate jurisdiction, there is no categorical statement under RA 1125 as well as the amendatory RA 9282, which provides that th e CTA has jurisdiction over petitions for certiorari assailing interlocutory orders issued by the RTC in local tax cases filed before it.

The prevailing doctrine is that the authority to issue writs of certiorari involves the exercise of original jurisdiction which must be expressly conferred by the Constitution or by law and cannot be implied from the mere existence of appellate jurisdiction.20 Thus, in the cases of Pimentel v. COMELEC,21 Garcia v. De Jesus,22 Veloria v. COMELEC,23 Department of Agrarian Reform Adjudication Board v. Lubrica,24 and Garcia v. Sandiganbayan,25this Court has ruled against the jurisdiction of courts or tribunals over petitions for certiorari on the ground that there is no law which expressly gives these tribunals such power.26 It must be observed, however, that with the exception of Garcia v. Sandiganbayan,27 these rulings pertain not to regular courts but to tribunals exercising quasi-judicial powers. With respect to the Sandiganbayan, Republic Act No. 824928 now provides that the special criminal court has exclusive original jurisdiction over petitions for the issuance of the writs of mandamus, prohibition, certiorari, habeas corpus, injunctions, and other ancillary writs and processes in aid of its appellate jurisdiction.

In the same manner, Section 5 (1), Article VIII of the 1987 Constitution grants power to the Supreme Court, in the exercise of its original jurisdiction, to issue writs of certiorari, prohibition and mandamus. With respect to the Court of Appeals, Section 9 (1) of Batas Pambansa Blg. 129 (BP 129) gives the appellate court, also in the exercise of its original jurisdiction, the power to issue, among others, a writ of certiorari,whether or not in aid of its appellate jurisdiction. As to Regional Trial Courts, the power to issue a writ of certiorari, in the exercise of their original jurisdiction, is provided under Section 21 of BP 129.

The foregoing notwithstanding, while there is no express grant of such power, with respect to the CTA, Section 1, Article VIII of the 1987 Constitution provides, nonetheless, that judicial power shall be vested in one Supreme Court and in such lower courts as may be established by law and that judicial power includes the duty of the courts of justice to settle actual controversies involving rights which are legally demandable and enforceable, and to determine whether or not there has been a grave abuse of discretion

31

amounting to lack or excess of jurisdiction on the part of any branch or instrumentality of the Government.

On the strength of the above constitutional provisions, it can be fairly interpreted that the power of the CTA includes that of determining whether or not there has been grave abuse of discretion amounting to lack or excess of jurisdiction on the part of the RTC in issuing an interlocutory order in cases falling within the exclusive appellate jurisdiction of the tax court. It, thus, follows that the CTA, by constitutional mandate, is vested with jurisdiction to issue writs of certiorari in these cases.

Indeed, in order for any appellate court to effectively exercise its appellate jurisdiction, it must have the authority to issue, among others, a writ of certiorari. In transferring exclusive jurisdiction over appealed tax cases to the CTA, it can reasonably be assumed that the law intended to transfer also such power as is deemed necessary, if not indispensable, in aid of such appellate jurisdiction. There is no perceivable reason why the transfer should only be considered as partial, not total.

Consistent with the above pronouncement, this Court has held as early as the case of J.M. Tuason & Co., Inc. v. Jaramillo, et al.29 that "if a case may be appealed to a particular court or judicial tribunal or body, then said court or judicial tribunal or body has jurisdiction to issue the extraordinary writ of certiorari, in aid of its appellate jurisdiction."30 This principle was affirmed in De Jesus v. Court of Appeals,31 where the Court stated that "a court may issue a writ of certiorari in aid of its appellate jurisdiction if said court has jurisdiction to review, by appeal or writ of error, the final orders or decisions of the lower court."32 The rulings in J.M. Tuason and De Jesus were reiterated in the more recent cases of Galang, Jr. v. Geronimo33 and Bulilis v. Nuez.34

Furthermore, Section 6, Rule 135 of the present Rules of Court provides that when by law, jurisdiction is conferred on a court or judicial officer, all auxiliary writs, processes and other means necessary to carry it into effect may be employed by such court or officer.

If this Court were to sustain petitioners' contention that jurisdiction over their certiorari petition lies with the CA, this Court would be confirming the exercise by two judicial bodies, the CA and the CTA, of jurisdiction over basically the same subject matter – precisely the split-jurisdiction situation which is anathema to the orderly administration of justice.35 The Court cannot accept that such was the legislative motive, especially considering that the law expressly confers on the CTA, the tribunal with the specialized competence over tax and tariff matters, the role of judicial review over local tax cases without mention of any other court that may exercise such power. Thus, the Court agrees with the ruling of the CA that since appellate jurisdiction over private respondents' complaint for tax refund is vested in the CTA, it follows that a petition for certiorari seeking nullification of an interlocutory order issued in the said case should, likewise, be filed with the same court. To rule otherwise would lead to an absurd situation where one

court decides an appeal in the main case while another court rules on an incident in the very same case.

Stated differently, it would be somewhat incongruent with the pronounced judicial abhorrence to split jurisdiction to conclude that the intention of the law is to divide the authority over a local tax case filed with the RTC by giving to the CA or this Court jurisdiction to issue a writ of certiorari against interlocutory orders of the RTC but giving to the CTA the jurisdiction over the appeal from the decision of the trial court in the same case. It is more in consonance with logic and legal soundness to conclude that the grant of appellate jurisdiction to the CTA over tax cases filed in and decided by the RTC carries with it the power to issue a writ of certiorari when necessary in aid of such appellate jurisdiction. The supervisory power or jurisdiction of the CTA to issue a writ of certiorari in aid of its appellate jurisdiction should co-exist with, and be a complement to, its appellate jurisdiction to review, by appeal, the final orders and decisions of the RTC, in order to have complete supervision over the acts of the latter.36

A grant of appellate jurisdiction implies that there is included in it the power necessary to exercise it effectively, to make all orders that will preserve the subject of the action, and to give effect to the final determination of the appeal. It carries with it the power to protect that jurisdiction and to make the decisions of the court thereunder effective. The court, in aid of its appellate jurisdiction, has authority to control all auxiliary and incidental matters necessary to the efficient and proper exercise of that jurisdiction.1âwphi1 For this purpose, it may, when necessary, prohibit or restrain the performance of any act which

might interfere with the proper exercise of its rightful jurisdiction in cases pending before it.37

Lastly, it would not be amiss to point out that a court which is endowed with a particular jurisdiction should have powers which are necessary to enable it to act effectively within such jurisdiction. These should be regarded as powers which are inherent in its jurisdiction and the court must possess them in order to enforce its rules of practice and to suppress any abuses of its process and to defeat any attempted thwarting of such process.

In this regard, Section 1 of RA 9282 states that the CTA shall be of the same level as the CA and shall possess all the inherent powers of a court of justice.

Indeed, courts possess certain inherent powers which may be said to be implied from a general grant of jurisdiction, in addition to those expressly conferred on them. These inherent powers are such powers as are necessary for the ordinary and efficient exercise of jurisdiction; or are essential to the existence, dignity and functions of the courts, as well as to the due administration of justice; or are directly appropriate, convenient and suitable to the execution of their granted powers; and include the power to maintain the court's jurisdiction and render it effective in behalf of the litigants.38

24

32

Thus, this Court has held that "while a court may be expressly granted the incidental powers necessary to effectuate its jurisdiction, a grant of jurisdiction, in the absence of prohibitive legislation, implies the necessary and usual incidental powers essential to effectuate it, and, subject to existing laws and constitutional provisions, every regularly constituted court has power to do all things that are reasonably necessary for the administration of justice within the scope of its jurisdiction and for the enforcement of its judgments and mandates."39 Hence, demands, matters or questions ancillary or incidental to, or growing out of, the main action, and coming within the above principles, may be taken cognizance of by the court and determined, since such jurisdiction is in aid of its authority over the principal matter, even though the court may thus be called on to consider and decide matters which, as original causes of action, would not be within its cognizance.40

Based on the foregoing disquisitions, it can be reasonably concluded that the authority of the CTA to take cognizance of petitions for certiorari questioning interlocutory orders issued by the RTC in a local tax case is included in the powers granted by the Constitution as well as inherent in the exercise of its appellate jurisdiction.

Finally, it would bear to point out that this Court is not abandoning the rule that, insofar as quasi-judicial tribunals are concerned, the authority to issue writs of certiorari must still be expressly conferred by the Constitution or by law and cannot be implied from the mere existence of their appellate jurisdiction. This doctrine remains as it applies only to quasi-judicial bodies.

WHEREFORE, the petition is DENIED.

SO ORDERED.

33

GSIS v. City Treasurer and City Assessor of the City of Manila

Republic of the Philippines

SUPREME COURT

Manila

THIRD DIVISION

G.R. No. 186242 December 23, 2009

GOVERNMENT SERVICE INSURANCE SYSTEM, Petitioner, vs.

CITY TREASURER and CITY ASSESSOR of the CITY OF MANILA, Respondents.

D E C I S I O N

VELASCO, JR., J.:

The Case

For review under Rule 45 of the Rules of Court on pure question of law are the November 15, 2007 Decision1 and January 7, 2009 Order2 of the Regional Trial Court (RTC), Branch 49 in Manila, in Civil Case No. 02-104827, a suit to nullify the assessment of real property taxes on certain properties belonging to petitioner Government Service Insurance System (GSIS).

The Facts

Petitioner GSIS owns or used to own two (2) parcels of land, one located at Katigbak 25th St., Bonifacio Drive, Manila (Katigbak property), and the other, at Concepcion cor. Arroceros Sts., also in Manila (Concepcion-Arroceros property). Title to the Concepcion-Arroceros property was transferred to this Court in 2005 pursuant to Proclamation No. 8353 dated April 27, 2005. Both the GSIS and the Metropolitan Trial Court (MeTC) of Manila occupy the Concepcion-Arroceros property, while the Katigbak property was under lease.

The controversy started when the City Treasurer of Manila addressed a letter4 dated September 13, 2002 to GSIS President and General Manager Winston F. Garcia informing him of the unpaid real property taxes due on the aforementioned properties for years 1992 to 2002, broken down as follows: (a) PhP 54,826,599.37 for the Katigbak property; and (b) PhP 48,498,917.01 for the Concepcion-Arroceros property. The letter warned of the inclusion of the subject properties in the scheduled October 30, 2002

public auction of all delinquent properties in Manila should the unpaid taxes remain unsettled before that date.

On September 16, 2002, the City Treasurer of Manila issued separate Notices of Realty Tax Delinquency5 for the subject properties, with the usual warning of seizure and/or sale. On October 8, 2002, GSIS, through its legal counsel, wrote back emphasizing the GSIS’ exemption from all kinds of taxes, including realty taxes, under Republic Act No. (RA) 8291.6

Two days after, GSIS filed a petition for certiorari and prohibition7 with prayer for a restraining and injunctive relief before the Manila RTC. In it, GSIS prayed for the nullification of the assessments thus made and that respondents City of Manila officials be permanently enjoined from proceedings against GSIS’ property. GSIS would later amend its petition8 to include the fact that: (a) the Katigbak property, covered by TCT Nos. 117685 and 119465 in the name of GSIS, has, since November 1991, been leased to and occupied by the Manila Hotel Corporation (MHC), which has contractually bound itself to pay any realty taxes that may be imposed on the subject property; and (b) the Concepcion-Arroceros property is partly occupied by GSIS and partly occupied by the MeTC of Manila.

The Ruling of the RTC

By Decision of November 15, 2007, the RTC dismissed GSIS’ petition, as follows:

25

WHEREFORE, in view of the foregoing, judgment is hereby rendered, DISMISSING the petition for lack of merit, and declaring the assessment conducted by the respondents City of Manila on the subject real properties of GSIS as valid pursuant to law.

SO ORDERED.9

GSIS sought but was denied reconsideration per the assailed Order dated January 7, 2009.

Thus, the instant petition for review on pure question of law.

The Issues

1. Whether petitioner is exempt from the payment of real property taxes from 1992 to 2002;

2. Whether petitioner is exempt from the payment of real property taxes on the property it leased to a taxable entity; and

3. Whether petitioner’s real properties are exempt from warrants of levy and from tax sale for non-payment of real property taxes.10 34

The Court’s Ruling

The issues raised may be formulated in the following wise: first, whether GSIS under its charter is exempt from real property taxation; second, assuming that it is so exempt, whether GSIS is liable for real property taxes for its properties leased to a taxable entity; and third, whether the properties of GSIS are exempt from levy.

In the main, it is petitioner’s posture that both its old charter, Presidential Decree No. (PD) 1146, and present charter, RA 8291 or the GSIS Act of 1997, exempt the agency and its properties from all forms of taxes and assessments, inclusive of realty tax. Excepting, respondents counter that GSIS may not successfully resist the city’s notices and warrants of levy on the basis of its exemption under RA 8291, real property taxation being governed by RA 7160 or the Local Government Code of 1991 (LGC, hereinafter).

The petition is meritorious.

First Core Issue: GSIS Exempt from Real Property Tax

Full tax exemption granted through PD 1146

In 1936, Commonwealth Act No. (CA) 18611 was enacted abolishing the then pension systems under Act No. 1638, as amended, and establishing the GSIS to manage the pension system, life and retirement insurance, and other benefits of all government employees. Under what may be considered as its first charter, the GSIS was set up as a non-stock corporation managed by a board of trustees. Notably, Section 26 of CA 186 provided exemption from any legal process and liens but only for insurance policies and their proceeds, thus:

Section 26. Exemption from legal process and liens. — No policy of life insurance issued under this Act, or the proceeds thereof, when paid to any member thereunder, nor any other benefit granted under this Act, shall be liable to attachment, garnishment, or other process, or to be seized, taken, appropriated, or applied by any legal or equitable process or operation of law to pay any debt or liability of such member, or his beneficiary, or any other

person who may have a right thereunder, either before or after payment; nor shall the proceeds thereof, when not made payable to a named beneficiary, constitute a part of the estate of the member for payment of his debt. x x x

In 1977, PD 1146,12 otherwise known as the Revised Government Service Insurance Act of 1977, was issued, providing for an expanded insurance system for government employees. Sec. 33 of PD 1146 provided for a new tax treatment for GSIS, thus:

Section 33. Exemption from Tax, Legal Process and Lien. It is hereby declared to be the policy of the State that the actuarial solvency of the funds of the System shall be preserved and maintained at all times and that the contribution rates necessary to

sustain the benefits under this Act shall be kept as low as possible in order not to burden the members of the System and/or their employees. Taxes imposed on the System tend to impair the actuarial solvency of its funds and increase the contribution rate necessary to sustain the benefits under this Act. Accordingly, notwithstanding any laws to the contrary, the System, its assets, revenues including all accruals thereto, and benefits paid, shall be exempt from all taxes, assessments, fees, charges or duties of all kinds. These exemptions shall continue unless expressly and specifically revoked and any assessment against the System as of the approval of this Act are hereby considered paid.

The benefits granted under this Act shall not be subject, among others, to attachment, garnishment, levy or other processes. This, however, shall not apply to obligations of the member to the System, or to the employer, or when the benefits granted herein are assigned by the member with the authority of the System. (Emphasis ours.)

A scrutiny of PD 1146 reveals that the non-stock corporate structure of GSIS, as established under CA 186, remained unchanged. Sec. 3413 of PD 1146 pertinently provides that the GSIS, as created by CA 186, shall implement the provisions of PD 1146.

RA 7160 lifted GSIS tax exemption

Then came the enactment in 1991 of the LGC or RA 7160, providing the exercise of local government units (LGUs) of their power to tax, the scope and limitations thereof,14 and the exemptions from taxations. Of particular pertinence is the general provision on withdrawal of tax exemption privileges in Sec. 193 of the LGC, and the special provision on withdrawal of exemption from payment of real property taxes in the last paragraph of the succeeding Sec. 234, thus:

SEC. 193. Withdrawal of Tax Exemption Privileges. – Unless otherwise provided in this Code, tax exemptions or incentives granted to, or presently enjoyed by all persons, whether natural or juridical, including government-owned or -controlled corporations, except local water districts, cooperatives duly registered under R.A. No. 6938, non-stock and non-profit hospitals and educational institutions, are hereby withdrawn upon the effectivity of this Code.

SEC. 234. Exemption from Real Property Tax. – x x x 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 all government-owned or controlled corporation are hereby withdrawn upon the effectivity of this Code.

From the foregoing provisos, there can be no serious doubt about the Congress’ intention to withdraw, subject to certain defined exceptions, tax exemptions granted prior to the passage of RA 7160. The question that easily comes to mind then is whether or

35

26

not the full tax exemption heretofore granted to GSIS under PD 1146, particular insofar as realty tax is concerned, was deemed withdrawn. We answer in the affirmative.

In Mactan Cebu International Airport Authority v. Marcos,[15] the Court held that the express withdrawal by the LGC of previously granted exemptions from realty taxes applied to instrumentalities and government-owned and controlled corporations (GOCCs), such as the Mactan-Cebu International Airport Authority. In City of Davao v. RTC, Branch XII, Davao City,16 the Court, citing Mactan Cebu International Airport Authority, declared the GSIS liable for real property taxes for the years 1992 to 1994 (contested real estate tax assessment therein), its previous exemption under PD 1146 being considered withdrawn with the enactment of the LGC in 1991.

Significantly, the Court, in City of Davao, stated the observation that the GSIS’ tax-exempt status withdrawn in 1992 by the LGC was restored in 1997 by RA 8291.17

Full tax exemption reenacted through RA 8291

Indeed, almost 20 years to the day after the issuance of the GSIS charter, i.e., PD 1146, it was further amended and expanded by RA 8291 which took effect on June 24, 1997.18 Under it, the full tax exemption privilege of GSIS was restored, the operative provision being Sec. 39 thereof, a virtual replication of the earlier quoted Sec. 33 of PD 1146. Sec. 39 of RA 8291 reads:

SEC. 39. Exemption from Tax, Legal Process and Lien. – It is hereby declared to be the policy of the State that the actuarial solvency of the funds of the GSIS shall be preserved and maintained at all times and that contribution rates necessary to sustain the benefits under this Act shall be kept as low as possible in order not to burden the members of the GSIS and their employers. Taxes imposed on the GSIS tend to impair the actuarial solvency of its funds and increase the contribution rate necessary to sustain the benefits of this Act. Accordingly, notwithstanding, any laws to the contrary, the GSIS, its assets, revenues including all accruals thereto, and benefits paid, shall be exempt from all taxes, assessments, fees, charges or duties of all kinds. These exemptions shall continue unless expressly and specifically revoked and any assessment against the GSIS as of the approval of this Act are hereby considered paid. Consequently, all laws, ordinances, regulations, issuances, opinions or jurisprudence contrary to or in derogation of this provision are hereby deemed repealed, superseded and rendered ineffective and without legal force and effect.

Moreover, these exemptions shall not be affected by subsequent laws to the contrary unless this section is expressly, specifically and categorically revoked or repealed by law and a provision is enacted to substitute or replace the exemption referred to herein as an essential factor to maintain or protect the solvency of the fund, notwithstanding and independently of the guaranty of the national government to secure such solvency or liability.

The funds and/or the properties referred to herein as well as the benefits, sums or monies corresponding to the benefits under this Act shall be exempt from attachment, garnishment, execution, levy or other processes issued by the courts, quasi-judicial agencies or administrative bodies including Commission on Audit (COA) disallowances and from all financial obligations of the members, including his pecuniary accountability arising from or caused or occasioned by his exercise or performance of his official functions or duties, or incurred relative to or in connection with his position or work except when his monetary liability, contractual or otherwise, is in favor of the GSIS. (Emphasis ours.)

The foregoing exempting proviso, couched as it were in an encompassing manner, brooks no other construction but that GSIS is exempt from all forms of taxes. While not determinative of this case, it is to be noted that prominently added in GSIS’ present charter is a paragraph precluding any implied repeal of the tax-exempt clause so as to protect the solvency of GSIS funds. Moreover, an express repeal by a subsequent law would not suffice to affect the

full exemption benefits granted the GSIS, unless the following conditionalities are met: (1) The repealing clause must expressly, specifically, and categorically revoke or repeal Sec. 39; and (2) a provision is enacted to substitute or replace the exemption referred to herein as an essential factor to maintain or protect the solvency of the fund. These restrictions for a future express repeal, notwithstanding, do not make the proviso an irrepealable law, for such restrictions do not impinge or limit the carte blanche legislative authority of the legislature to so amend it. The restrictions merely enhance other provisos in the law ensuring the solvency of the GSIS fund.1avvphi1

Given the foregoing perspectives, the following may be assumed: (1) Pursuant to Sec. 33 of PD 1146, GSIS enjoyed tax exemption from real estate taxes, among other tax burdens, until January 1, 1992 when the LGC took effect and withdrew exemptions from payment of real estate taxes privileges granted under PD 1146; (2) RA 8291 restored in 1997 the tax exempt status of GSIS by reenacting under its Sec. 39 what was once Sec. 33 of P.D. 1146;19 and (3) If any real estate tax is due to the City of Manila, it is, following City of Davao, only for the interim period, or from 1992 to 1996, to be precise.

Real property taxes assessed and due from GSIS considered paid

While recognizing the exempt status of GSIS owing to the reenactment of the full tax exemption clause under Sec. 39 of RA 8291 in 1997, the ponencia in City of Davao appeared to have failed to take stock of and fully appreciate the all-embracing condoning proviso in the very same Sec. 39 which, for all intents and purposes, considered as paid "any assessment against the GSIS as of the approval of this Act." If only to stress the point, we hereby reproduce the pertinent portion of said Sec. 39:

SEC. 39. Exemption from Tax, Legal Process and Lien. – x x x Taxes imposed on the GSIS tend to impair the actuarial solvency of its funds and increase the contribution rate36

necessary to sustain the benefits of this Act. Accordingly, notwithstanding, any laws to the contrary, the GSIS, its assets, revenues including all accruals thereto, and benefits paid, shall be exempt from all taxes, assessments, fees, charges or duties of all kinds. These exemptions shall continue unless expressly and specifically revoked and any assessment against the GSIS as of the approval of this Act are hereby considered paid. Consequently, all laws, ordinances, regulations, issuances, opinions or jurisprudence contrary to or in derogation of this provision are hereby deemed repealed, superseded and rendered ineffective and without legal force and effect. (Emphasis added.)

GSIS an instrumentality of the National Government

Apart from the foregoing consideration, the Court’s fairly recent ruling in Manila International Airport Authority v. Court of Appeals,20 a case likewise involving real estate tax assessments by a Metro Manila city on the real properties administered by MIAA, argues for the non-tax liability of GSIS for real estate taxes. There, the Court held that MIAA does not qualify as a GOCC, not having been organized either as a stock corporation, its capital not being divided into shares, or as a non-stock corporation because it has no members. MIAA is rather aninstrumentality of the National Government and, hence, outside the purview of local taxation by force of Sec. 133 of the LGC providing in context that "unless otherwise provided," local governments cannot tax national government instrumentalities. And as the Court pronounced in Manila International Airport Authority, the airport lands and buildings MIAA administers belong to the Republic of the Philippines, which makes MIAA a mere trustee of such assets. No less than the Administrative Code of 1987 recognizes a scenario where a piece of land owned by the Republic is titled in the name of a department, agency, or instrumentality. The following provision of the said Code suggests as much:

Sec. 48. Official Authorized to Convey Real Property.––Whenever real property of the Government is authorized by law to be conveyed, the deed of conveyance shall be executed in behalf of the government by the following: x x x x

27

(2) For property belonging to the Republic of the Philippines, but titled in the name of x x x any corporate agency or instrumentality, by the executive head of the agency or instrumentality.21

While perhaps not of governing sway in all fours inasmuch as what were involved in Manila International Airport Authority, e.g., airfields and runways, are properties of the public dominion and, hence, outside the commerce of man, the rationale underpinning the disposition in that case is squarely applicable to GSIS, both MIAA and GSIS being similarly situated. First, while created under CA 186 as a non-stock corporation, a status that has remained unchanged even when it operated under PD 1146 and RA 8291, GSIS is not, in the context of the afore quoted Sec. 193 of the LGC, a GOCC following the teaching of Manila International Airport Authority, for, like MIAA, GSIS’ capital is not

divided into unit shares. Also, GSIS has no members to speak of. And by members, the reference is to those who, under Sec. 87 of the Corporation Code, make up the non-stock corporation, and not to the compulsory members of the system who are government employees. Its management is entrusted to a Board of Trustees whose members are appointed by the President.

Second, the subject properties under GSIS’s name are likewise owned by the Republic. The GSIS is but a mere trustee of the subject properties which have either been ceded to it by the Government or acquired for the enhancement of the system. This particular property arrangement is clearly shown by the fact that the disposal or conveyance of said subject properties are either done by or through the authority of the President of the Philippines. Specifically, in the case of the Concepcion-Arroceros property, it was transferred, conveyed, and ceded to this Court on April 27, 2005 through a presidential proclamation, Proclamation No. 835. Pertinently, the text of the proclamation announces that the Concepcion-Arroceros property was earlier ceded to the GSIS on October 13, 1954 pursuant to Proclamation No. 78 for office purposes and had since been titled to GSIS which constructed an office building thereon. Thus, the transfer on April 27, 2005 of the Concepcion-Arroceros property to this Court by the President through Proclamation No. 835. This illustrates the nature of the government ownership of the subject GSIS properties, as indubitably shown in the last clause of Presidential Proclamation No. 835:

WHEREAS, by virtue of the Public Land Act (Commonwealth Act No. 141, as amended), Presidential Decree No. 1455, and the Administrative Code of 1987, the President is authorized to transfer any government propertythat is no longer needed by the agency to which it belongs to other branches or agencies of the government. (Emphasis ours.)

Third, GSIS manages the funds for the life insurance, retirement, survivorship, and disability benefits of all government employees and their beneficiaries. This undertaking, to be sure, constitutes an essential and vital function which the government, through one of its agencies or instrumentalities, ought to perform if social security services to civil service employees are to be delivered with reasonable dispatch. It is no wonder, therefore, that the Republic guarantees the fulfillment of the obligations of the GSIS to its members (government employees and their beneficiaries) when and as they become due. This guarantee was first formalized under Sec. 2422 of CA 186, then Sec. 823 of PD 1146, and finally in Sec. 824 of RA 8291.

Second Core Issue: Beneficial Use Doctrine Applicable

The foregoing notwithstanding, the leased Katigbak property shall be taxable pursuant to the "beneficial use" principle under Sec. 234(a) of the LGC.

37

It is true that said Sec. 234(a), quoted below, exempts from real estate taxes real property owned by the Republic, unless the beneficial use of the property is, for consideration, transferred to a taxable person.

SEC. 234. Exemptions from Real Property Tax. – The following are exempted from payment of the real property tax:

(a) Real property owned by the Republic of the Philippines or any of its political subdivisions except when thebeneficial use thereof has been granted, for consideration or otherwise, to a taxable person.

This exemption, however, must be read in relation with Sec. 133(o) of the LGC, which prohibits LGUs from imposing taxes or fees of any kind on the national government, its agencies, and instrumentalities:

SEC. 133. Common Limitations on the Taxing Powers of Local Government Units. – Unless otherwise provided herein, the exercise of the taxing powers of provinces, cities, municipalities, and barangays shall not extend to the levy of the following:

x x x x

(o) Taxes, fees or charges of any kinds on the National Government, its agencies and instrumentalities, and local government units. (Emphasis supplied.)

Thus read together, the provisions allow the Republic to grant the beneficial use of its property to an agency or instrumentality of the national government. Such grant does not necessarily result in the loss of the tax exemption. The tax exemption the property of the Republic or its instrumentality carries ceases only if, as stated in Sec. 234(a) of the LGC of 1991, "beneficial use thereof has been granted, for a consideration or otherwise, to a taxable person." GSIS, as a government instrumentality, is not a taxable juridical person under Sec. 133(o) of the LGC. GSIS, however, lost in a sense that status with respect to the Katigbak property when it contracted its beneficial use to MHC, doubtless a taxable person. Thus, the real estate tax assessment of PhP 54,826,599.37 covering 1992 to 2002 over the subject Katigbak property is valid insofar as said tax delinquency is concerned as assessed over said property.

Taxable entity having beneficial use of leased property liable for real property taxes thereon

The next query as to which between GSIS, as the owner of the Katigbak property, or MHC, as the lessee thereof, is liable to pay the accrued real estate tax, need not detain us long. MHC ought to pay.

As we declared in Testate Estate of Concordia T. Lim, "the unpaid tax attaches to the property and is chargeable against the taxable person who had actual or beneficial use and possession of it regardless of whether or not he is the owner." Of the same tenor is the Court’s holding in the subsequent Manila Electric Company v. Barlis25 and later in Republic v. City of Kidapawan.26 Actual use refers to the purpose for which the property is principally or predominantly utilized by the person in possession thereof.27

Being in possession and having actual use of the Katigbak property since November 1991, MHC is liable for the realty taxes assessed over the Katigbak property from 1992 to 2002.

The foregoing is not all. As it were, MHC has obligated itself under the GSIS-MHC Contract of Lease to shoulder such assessment. Stipulation l8 of the contract pertinently reads:

18. By law, the Lessor, [GSIS], is exempt from taxes, assessments and levies. Should there be any change in the law or the interpretation thereof or any other circumstances which would subject the Leased Property to any kind of

28

tax, assessment or levy which would constitute a charge against the Lessor or create a lien against the Leased Property, the Lessee agrees and obligates itself to shoulder and pay such tax, assessment or levy as it becomes due.28 (Emphasis ours.)

As a matter of law and contract, therefore, MHC stands liable to pay the realty taxes due on the Katigbak property. Considering, however, that MHC has not been impleaded in the instant case, the remedy of the City of Manila is to serve the realty tax assessment covering the subject Katigbak property to MHC and to pursue other available remedies in case of nonpayment, for said property cannot be levied upon as shall be explained below.

Third Core Issue: GSIS Properties Exempt from Levy

In light of the foregoing disquisition, the issue of the propriety of the threatened levy of subject properties by the City of Manila to answer for the demanded realty tax deficiency is now moot and academic. A valid tax levy presupposes a corresponding tax liability. Nonetheless, it will not be remiss to note that it is without doubt that the subject GSIS properties are exempt from any attachment, garnishment, execution, levy, or other legal processes. This is the clear import of the third paragraph of Sec. 39, RA 8291, which we quote anew for clarity:

SEC. 39. Exemption from Tax, Legal Process and Lien. – x x x.

x x x x

38

The funds and/or the properties referred to herein as well as the benefits, sums or monies corresponding to the benefits under this Act shall be exempt from attachment, garnishment, execution, levy or other processes issued by the courts, quasi-judicial agencies or administrative bodies including Commission on Audit (COA) disallowances and from all financial obligations of the members, including his pecuniary accountability arising from or caused or occasioned by his exercise or performance of his official functions or duties, or incurred relative to or in connection with his position or work except when his monetary liability, contractual or otherwise, is in favor of the GSIS. (Emphasis ours.)

The Court would not be indulging in pure speculative exercise to say that the underlying legislative intent behind the above exempting proviso cannot be other than to isolate GSIS funds and properties from legal processes that will either impair the solvency of its fund or hamper its operation that would ultimately require an increase in the contribution rate necessary to sustain the benefits of the system. Throughout GSIS’ life under three different charters, the need to ensure the solvency of GSIS fund has always been a legislative concern, a concern expressed in the tax-exempting provisions.

Thus, even granting arguendo that GSIS’ liability for realty taxes attached from 1992, when RA 7160 effectively lifted its tax exemption under PD 1146, to 1996, when RA 8291 restored the tax incentive, the levy on the subject properties to answer for the assessed realty tax delinquencies cannot still be sustained. The simple reason: The governing law, RA 8291, in force at the time of the levy prohibits it. And in the final analysis, the proscription against the levy extends to the leased Katigbak property, the beneficial use doctrine, notwithstanding.

Summary

In sum, the Court finds that GSIS enjoys under its charter full tax exemption. Moreover, as an instrumentality of the national government, it is itself not liable to pay real estate taxes assessed by the City of Manila against its Katigbak

and Concepcion-Arroceros properties. Following the "beneficial use" rule, however, accrued real property taxes are due from the Katigbak property, leased as it is to a taxable entity. But the corresponding liability for the payment thereof devolves on the taxable beneficial user. The Katigbak property cannot in any event be subject of a public auction sale, notwithstanding its realty tax delinquency. This means that the City of Manila has to satisfy its tax claim by serving the accrued realty tax assessment on MHC, as the taxable beneficial user of the Katigbak property and, in case of nonpayment, through means other than the sale at public auction of the leased property.

WHEREFORE, the instant petition is hereby GRANTED. The November 15, 2007 Decision and January 7, 2009 Order of the Regional Trial Court, Branch 49, Manila are REVERSED and SET ASIDE. Accordingly, the real property tax assessments issued by the City of Manila to the Government Service Insurance System on the subject

properties are declared VOID, except that the real property tax assessment pertaining to the leased Katigbak property shall be valid if served on the Manila Hotel Corporation, as lessee which has actual and beneficial use thereof. The City of Manila is permanently restrained from levying on or selling at public auction the subject properties to satisfy the payment of the real property tax delinquency.

No pronouncement as to costs.

SO ORDERED.

39

Team Pacific Corporation v. Daza as Municipal Treasurer of Taguig

Republic of the Philippines

SUPREME COURT

Manila

SECOND DIVISION

G.R. No. 167732 July 11, 201229

TEAM PACIFIC CORPORATION, Petitioner, vs.

JOSEPHINE DAZA in her capacity as MUNICIPAL TREASURER OF TAGUIG, Respondent.

D E C I S I O N

PEREZ, J.:

The proper remedy from the denial of an assessment protest by a local treasurer is at issue in this Rule 45 petition f(x review on certiorari filed by petitioner Team Pacific Corporation( TPC), assailing the Order dated 5 April 2005 issued by the Regional Trial Court (RTC), Branch 152, Pasig City in SCA No. 2(,62, dismissing its Rule 65 petition for certiorari. 1

The facts are not in dispute.

A domestic corporation engaged in the business of assembling and exporting semiconductor devices, TPC conducts its business at the FTI Complex in the then Municipality of Taguig. It appears that since the start of its operations in 1999, TPC had been paying local business taxes assessed at one-half (1/2) rate pursuant to Section 75

(c) of Ordinance No. 24-93, otherwise known as the Taguig Revenue Code. Consistent with Section 143 (c)2 of Republic Act (RA) No. 7160, otherwise known as the Local Government Code of 1991, said provision of the Taguig Revenue Code provides as follows:

Section 75. Imposition of Tax. – There is hereby imposed on the following persons, natural or juridical, who establish, operate conduct or maintain their respective businesses within the Municipality of Taguig, a graduated business tax in the amounts hereafter prescribed:

x x x x

(c) On exporters, and on manufacturers, millers, producers, wholesalers, distributors, dealers or retailers of essential commodities enumerated hereunder at a rate not exceeding one-half (1/2) of the rates prescribed under subsections (a), (b) and (d) of this Section:

(1) Rice and corn;

(2) Wheat or cassava flour, meat, dairy products, locally manufactured, processed or preserved food, sugar, salt and other agricultural, marine, and fresh water products, whether in their original state or not;

(3) Cooking oil and cooking gas;

(4) Laundry soap, detergents, and medicine;

(5) Agricultural implements, equipment and post- harvest facilities, fertilizers, pesticides, insecticides, herbicides and other farm inputs;

(6) Poultry feeds and other animal feeds;

(7) School supplies; and

(8) Cement.

x x x x

When it renewed its business license in 2004, however, TPC’s business tax for the first quarter of the same year was assessed in the sum of P208,109.77 by respondent Josephine Daza, in her capacity as then Municipal Treasurer of Taguig. The assessment was computed by Daza by applying the full value of the rates provided under Section 75 of the Taguig Revenue Code, instead of the one-half (1/2) rate provided under paragraph

(c) of the same provision. Constrained to pay the assessed business tax on 19 January 2004 in view of its being a precondition for the renewal of its business permit, TPC filed on the same day a written protest with Daza, insisting on the one-half (1/2) rate on which its business tax was previously assessed. In support of its position, TPC invoked Section 143 (c) of the Local Government Code of 1991 and Section 2 of Local Finance Circular No. 4-93 of the Department of Finance which provided guidelines for the imposition of business taxes on exporters by municipalities.3

Subsequent to its 13 April 2004 demand for the refund and/or issuance of a tax credit for the sum of P104,054.88 which it considered as an overpayment of its business taxes for the same year,4 TPC filed its 15 April 2004 Rule 65 petition for certiorari which was docketed as SCA No. 2662 before the RTC. Alleging that no formal action was taken regarding its protest on or before 19 March 2004 or within the period of sixty (60) days from the filing thereof as prescribed under Article 195 of the Local Government Code,40

TPC maintained that it was simply informed by Atty. Marianito D. Miranda, Chief of the Taguig Business Permit and Licensing Office, that the assessment of its business tax at the full rate was justified by the fact that it was not an exporter of the essential commodities enumerated under Section 143 of the Local Government Code and Section 75 of the Taguig Revenue Code. Arguing that Daza acted with grave abuse of discretion in not applying the one-half (1/2) rate provided under paragraph (c) of the same provisions, TPC prayed for the issuance of a temporary restraining order and/or permanent injunction to restrain the former from assessing business taxes at the full rate, the refund of its overpayment as well as the grant of its claims for exemplary damages and attorney’s fees.5

On 25 June 2004, Daza filed her comment to the foregoing petition, contending that the change in the administration in the then Municipality of Taguig brought about the assessment and imposition of the correct business tax on TPC. Not being an exporter of the essential commodities enumerated under the provisions in question, it was argued that TPC is not entitled to the fifty (50%) percent business tax exemption it had been granted in the previous years. Having supposedly denied the letter-protest thru Atty. Miranda, Daza likewise faulted TPC for not filing its appeal in court within thirty (30) days from receipt of the denial in accordance with Article 195 of the Local Government Code. Denigrating TPC’s 13 April 2004 demand for the refund and/or issuance of a tax credit as a vain attempt to rectify its procedural error, Daza prayed for the dismissal of the petition for certiorari on the ground that the same cannot be resorted to as a substitute for a lost right of appeal and was, by itself, bereft of merit.6

In its 14 July 2004 reply, TPC insisted that Daza failed to act formally on its letter-protest and took the latter to task for not attaching to her comment a copy of the supposed denial issued by Atty. Miranda.7 Acting on the memorandum8 and motions to resolve filed by TPC,9 the RTC went on to render the herein assailed Order dated 5 April 2005, dismissing the petition for lack of merit. While finding that the absence of proof of Atty. Miranda’s denial of TPC’s letter-protest meant that the latter had thirty (30) days from the lapse of the sixty (60) days prescribed under Article 195 of the Local Government Code within which to perfect its appeal, the RTC ruled that, rather than the special civil action of certiorari provided under Rule 65 of the 1997 Rules of Civil Procedure, an ordinary appeal

30

would have been the proper remedy from the assessment complained against.10 Without moving for the reconsideration of the foregoing order, TPC filed the petition at bench on 28 April 2005, on pure questions of law.11

In its 6 June 2006 Memorandum, TPC proffers the following issues for resolution, to wit:

(a) whether or not it availed of the correct remedy against Daza’s illegal assessment when it filed its petition for certiorari before the RTC; and, (b) whether or not, as an exporter of semiconductor devices, it should be assessed business taxes at the full rate instead of the one-half (1/2) rates provided under Section 75 (c) of the Taguig Revenue Code and 143 (c) of the Local Government Code. In urging the reversal of the RTC’s

assailed 5 April 2005 Order, TPC argues that, without the remedy of appeal being specified with particularity under Article 195 of the Local Government Code, a Rule 65 petition for certiorari is the proper and logical remedy since Daza acted with grave abuse of discretion in assessing its business taxes at the full rate. Although it is an exporter of semiconductors, TPC insists that its business tax should have been computed at one-half (1/2) rate in accordance with the clear intendment of the law. It likewise claimed that its position is congruent with administrative determinations as well as Daza’s own act of reverting back to the half rate assessment of its business tax for the second quarter of 2006.12

In her memorandum, Daza, in turn, asserted that the RTC correctly dismissed TPC’s petition for certiorari in view of its failure to avail of the proper remedy of ordinary appeal provided under Article 195 of the Local Government Code. As then Municipal Treasurer of Taguig, Daza argued that she did not exceed her jurisdiction or abuse her discretion in assessing TPC’s business tax pursuant to Section 143 (c) of the same Code and Section 75 (c) of the Taguig Revenue Code. Not being an exporter of the basic commodities enumerated under the subject provisions, TPC cannot insist on the computation of its business taxes on the basis of the one-half (1/2) rate prescribed for a category of taxpayers to which it clearly did not belong. In view of TPC’s choice of the wrong mode of appeal, Daza maintained that the assailed assessment had already attained finality and can no longer be modified.13

We find the dismissal of the petition in order.

Considering that the RTC’s assailed 5 April 2005 order did not delve on the proper rate of business tax imposable on TPC as an exporter, we shall limit our discussion to the procedural aspects of the petition.

A taxpayer dissatisfied with a local treasurer’s denial of or inaction on his protest over an assessment has thirty (30) days within which to appeal to the court of competent jurisdiction. Under the law, said period is to be reckoned from the taxpayer’s receipt of the denial of his protest or the lapse of the sixty (60) day period within which the local treasurer is required to decide the protest, from the moment of its filing. This much is clear from Section 195 of the Local Government Code which provides as follows:

SEC. 195. Protest of Assessment. - When the local treasurer or his duly authorized representative finds that correct taxes, fees, or charges have not been paid, he shall issue a notice of assessment stating the nature of the tax, fee or charge, the amount of deficiency, the surcharges, interests and penalties. Within sixty (60) days from the receipt of the notice of assessment, the taxpayer may file a written protest with the local treasurer contesting the assessment; otherwise, the assessment shall become final and executory. The local treasurer shall decide the protest within sixty (60) days from the time of its filing. If the local treasurer finds the protest to be wholly or partly meritorious, he shall issue a notice canceling wholly or partially the assessment. However, if the local41

treasurer finds the assessment to be wholly or partly correct, he shall deny the protest wholly or partly with notice to the taxpayer. The taxpayer shall have thirty (30) days from the receipt of the denial of the protest or from the lapse of

the sixty (60) day period prescribed herein within which to appeal with the court of competent jurisdiction otherwise the assessment becomes conclusive and unappealable.

Absent any showing of the formal denial of the protest by Atty. Miranda, then Chief of the Taguig Business Permit and Licensing Office, we find that TPC’s filing of its petition before the RTC on 19 April 2004 still timely. Reckoned from the filing of the letter protest on 19 January 2004, Daza had sixty (60) days or until 19 March 2004 within which to resolve the same in view of the fact that 2004 was a leap year. From the lapse of said period, TPC, in turn, had thirty (30) days or until 18 March 2004 within which to file its appeal to the RTC. Since the latter date fell on a Sunday, the RTC correctly ruled that TPC’s filing of its petition on 19 April 2004 was still within the period prescribed under the above quoted provision. Whether or not a Rule 65 petition for certiorari was the appropriate remedy from Daza’s inaction on TPC’s letter-protest is, however, an entirely different issue which we are now called upon to resolve, considering the RTC’s ruling that it should have filed an ordinary appeal instead. As correctly observed by TPC, after all, Section 195 of the Local Government Code does not elaborate on how an appeal is to be made from the denial by a local treasurer of a protest on assessment made by a taxpayer.14

In the case of Yamane vs. BA Lepanto Condominium Corporation15 (BLCC), this Court saw fit to rule that the remedy to be pursued by the taxpayer is one cognizable by the RTC in the exercise of its original – not its appellate – jurisdiction. In said case, BLCC’s appeal from the denial of its protest by the Makati City Treasurer was dismissed for lack of merit by the RTC, prompting said taxpayer to file a Rule 42 petition for review with the Court of Appeals (CA). After reconsidering its earlier decision to dismiss the petition on the ground that said remedy is restricted to decisions rendered by the RTC on appeal, the CA went on to render a decision finding BLCC not liable for the business tax assessed by the Makati City Treasurer. Sustaining the latter’s position that the jurisdiction exercised by the RTC over BLCC’s appeal was original in character, this Court ruled as follows:

x x x x [S] significantly, the Local Government Code, or any other statute for that matter, does not expressly confer appellate jurisdiction on the part of regional trial courts from the denial of a tax protest by a local treasurer. On the other hand, Section 22 of B.P. 129 expressly delineates the appellate jurisdiction of the Regional Trial Courts, confining as it does said appellate jurisdiction to cases decided by Metropolitan, Municipal, and Municipal Circuit Trial Courts. Unlike in the case of the Court of Appeals, B.P. 129 does not confer appellate jurisdiction on Regional Trial Courts over rulings made by non-judicial entities.

From these premises, it is evident that the stance of the City Treasurer is correct as a matter of law, and that the proper remedy of the Corporation from the RTC judgment is an ordinary appeal under Rule 41 to the Court of Appeals.1âwphi1 However, we make this pronouncement subject to two important qualifications. First, in this particular case there are nonetheless significant reasons for the Court to overlook the procedural error and ultimately uphold the adjudication of the jurisdiction exercised by the Court of Appeals in this case. Second, the doctrinal weight of the pronouncement is confined to cases and controversies that emerged prior to the enactment of Republic Act No. 9282, the law which expanded the jurisdiction of the Court of Tax Appeals (CTA). (Emphasis supplied)16

The foregoing pronouncements notwithstanding, we find that TPC erroneously availed of the wrong remedy in filing a Rule 65 petition for certiorari to question Daza’s inaction on its letter-protest. The rule is settled that, as a special civil action, certiorari is available only if the following essential requisites concur: (1) it must be directed against a tribunal, board, or officer exercising judicial or quasi-judicial functions; (2) the tribunal, board, or officer must have acted without or in excess of jurisdiction or with grave abuse of discretion amounting to lack or excess of jurisdiction; and, (3) there is no appeal nor any plain, speedy, and adequate remedy in the ordinary course of law.17 Judicial function entails the power to determine what the law is and what the legal rights of the parties are, and then undertakes to determine these questions and adjudicate upon the rights of the parties. Quasi-judicial function, on the other hand, refers to the action and discretion of public administrative officers or bodies, which are required to investigate facts or ascertain the existence of facts, hold hearings, and draw conclusions from them as a basis for their official action and to exercise discretion of a judicial nature.18

31

Gauged from the foregoing definitions, Daza cannot be said to be performing a judicial or quasi-judicial function in assessing TPC’s business tax and/or effectively denying its protest as then Municipal Treasurer of Taguig. For this reason, Daza’s actions are not the proper subjects of a Rule 65 petition for certiorari which is the appropriate remedy in cases where a the tribunal, board, or officer exercising judicial or quasi-judicial functions acted without or in grave abuse of discretion amounting to lack or excess of jurisdiction and there is no appeal or any plain, speedy, and adequate remedy in law.19 Narrow in scope and inflexible in character,20 certiorari is an extraordinary remedy designed for the correction of errors of jurisdiction and not errors of judgment.21 It is likewise considered mutually exclusive with appeal22 like the one provided by Article 195 of the Local Government Code for a local treasurer’s denial of or inaction on a protest.

Even if, in the interest of substantial justice, we were to consider its petition for certiorari as an appeal from Daza’s denial of its protest, TPC’s availment of the wrong mode of appeal from the RTC’s assailed 5 April 2005 Order has, moreover, clearly rendered the same final and executory. Granted that a Rule 45 petition for review on certiorari is the proper mode of appeal when the issues raised are purely questions of law,23 TPC lost

42

sight of the fact that, as amended by RA No. 9282,24 paragraph c (2) [a], Section 725 of RA No. 112526 has vested the Court of Tax Appeals (CTA) with the exclusive appellate jurisdiction over, among others, appeals from the judgments, resolutions or orders of the RTC in tax collection cases originally decided by them in their respective territorial jurisdiction. As amended by Section 9 of RA No. 9282,27 Section 11 of RA No. 1125 likewise requires that the appeal be perfected within thirty (30) days after receipt of the decision and shall be made by filing a petition for review under a procedure analogous to that provided for under Rule 42 of the 1997 Rules of Civil Procedure.1âwphi1

To our mind, TPC’s erroneous availment of the wrong mode of appeal and direct resort to this Court instead of the CTA both warrant the dismissal of the petition at bench. The rule is settled that the perfection of an appeal in the manner and within the period fixed by law is not only mandatory but jurisdictional and non-compliance with these legal requirements is fatal to a party’s cause. 28 In Zamboanga Forest Managers Corp. vs. Pacific Timber and Supply Co.,29 we ruled as follows:

Although appeal is an essential part of our judicial process, it has been held, time and again, that the right thereto is not a natural right or a part of due process but is merely a statutory privilege. Thus, the perfection of an appeal in the manner and within the period prescribed by law is not only mandatory but also jurisdictional and failure of a party to conform to the rules regarding appeal will render the judgment final and executory. Once a decision attains finality, it becomes the law of the case irrespective of whether the decision is erroneous or not and no court — not even the Supreme Court — has the power to revise, review, change or alter the same. The basic rule of finality of judgment is grounded on the fundamental principle of public policy and sound practice that, at the risk of occasional error. the judgment of courts and the award of quasi-judicial agencies must become final at some definite date fixed by law.

WHEREFORE, premises considered, the petition is DENIED for lack of merit and being the wrong mode of appeal.

SO ORDERED.

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Republic of Philippines represented by PRA v. City of Parañaque

Republic of the Philippines

SUPREME COURT

Manila

THIRD DIVISION

G.R. No. 191109 July 18, 2012

REPUBLIC OF THE PHILIPPINES, represented by the PHILIPPINE RECLAMATION AUTHORITY (PRA),Petitioner,

vs.

CITY OF PARANAQUE, Respondent.

D E C I S I O N

MENDOZA, J.:

This is a petition for review on certiorari under Rule 45 of the 1997 Rules of Civil Procedure, on pure questions of law, assailing the January 8, 2010 Order1 of the Regional Trial Court, Branch 195, Parafiaque City (RTC), which ruled that petitioner Philippine Reclamation Authority (PRA) is a government-owned and controlled corporation (GOCC), a taxable entity, and, therefore, . not exempt from payment of real property taxes. The pertinent portion of the said order reads:

In view of the finding of this court that petitioner is not exempt from payment of real property taxes, respondent Parañaque City Treasurer Liberato M. Carabeo did not act xxx without or in excess of jurisdiction, or with grave abuse of discretion amounting to lack or in excess of jurisdiction in issuing the warrants of levy on the subject properties.

WHEREFORE, the instant petition is dismissed. The Motion for Leave to File and Admit Attached Supplemental Petition is denied and the supplemental petition attached thereto is not admitted.

The Public Estates Authority (PEA) is a government corporation created by virtue of Presidential Decree (P.D.) No. 1084 (Creating the Public Estates Authority, Defining its Powers and Functions, Providing Funds Therefor and For Other Purposes) which took effect on February 4,

32

1977 to provide a coordinated, economical and efficient reclamation of lands, and the administration and operation of lands belonging to, managed and/or operated by, the

government with the object of maximizing their utilization and hastening their development consistent with public interest.

On February 14, 1979, by virtue of Executive Order (E.O.) No. 525 issued by then President Ferdinand Marcos, PEA was designated as the agency primarily responsible for integrating, directing and coordinating all reclamation projects for and on behalf of the National Government.

On October 26, 2004, then President Gloria Macapagal-Arroyo issued E.O. No. 380 transforming PEA into PRA, which shall perform all the powers and functions of the PEA relating to reclamation activities.

By virtue of its mandate, PRA reclaimed several portions of the foreshore and offshore areas of Manila Bay, including those located in Parañaque City, and was issued Original Certificates of Title (OCT Nos. 180, 202, 206, 207, 289, 557, and 559) and Transfer Certificates of Title (TCT Nos. 104628, 7312, 7309, 7311, 9685, and 9686) over the reclaimed lands.

On February 19, 2003, then Parañaque City Treasurer Liberato M. Carabeo (Carabeo) issued Warrants of Levy on PRA’s reclaimed properties (Central Business Park and Barangay San Dionisio) located in Parañaque City based on the assessment for delinquent real property taxes made by then Parañaque City Assessor Soledad Medina Cue for tax years 2001 and 2002.

On March 26, 2003, PRA filed a petition for prohibition with prayer for temporary restraining order (TRO) and/or writ of preliminary injunction against Carabeo before the RTC.

On April 3, 2003, after due hearing, the RTC issued an order denying PRA’s petition for the issuance of a temporary restraining order.

On April 4, 2003, PRA sent a letter to Carabeo requesting the latter not to proceed with the public auction of the subject reclaimed properties on April 7, 2003. In response, Carabeo sent a letter stating that the public auction could not be deferred because the RTC had already denied PRA’s TRO application.

On April 25, 2003, the RTC denied PRA’s prayer for the issuance of a writ of preliminary injunction for being moot and academic considering that the auction sale of the subject properties on April 7, 2003 had already been consummated.

On August 3, 2009, after an exchange of several pleadings and the failure of both parties to arrive at a compromise agreement, PRA filed a Motion for Leave to File and Admit Attached Supplemental Petition which sought to declare as null and void the assessment for real property taxes, the levy based on the said assessment, the public auction sale

44

conducted on April 7, 2003, and the Certificates of Sale issued pursuant to the auction sale.

On January 8, 2010, the RTC rendered its decision dismissing PRA’s petition. In ruling that PRA was not exempt from payment of real property taxes, the RTC reasoned out that it was a GOCC under Section 3 of P.D. No. 1084. It was organized as a stock corporation because it had an authorized capital stock divided into no par value shares. In fact, PRA admitted its corporate personality and that said properties were registered in its name as shown by the certificates of title. Therefore, as a GOCC, local tax exemption is withdrawn by virtue of Section 193 of Republic Act (R.A.) No. 7160 Local Government Code (LGC) which was the prevailing law in 2001 and 2002 with respect to real property taxation. The RTC also ruled that the tax exemption claimed by PRA under E.O. No. 654 had already been expressly repealed by R.A. No. 7160 and that PRA failed to comply with the procedural requirements in Section 206 thereof.

Not in conformity, PRA filed this petition for certiorari assailing the January 8, 2010 RTC Order based on the following GROUNDS

I

THE TRIAL COURT GRAVELY ERRED IN FINDING THAT PETITIONER IS LIABLE TO PAY REAL PROPERTY TAX ON THE SUBJECT RECLAIMED LANDS CONSIDERING

THAT PETITIONER IS AN INCORPORATED INSTRUMENTALITY OF THE NATIONAL GOVERNMENT AND IS, THEREFORE, EXEMPT FROM PAYMENT OF REAL PROPERTY TAX UNDER SECTIONS 234(A) AND 133(O) OF REPUBLIC ACT 7160 OR THE LOCAL GOVERNMENT CODE VIS-À-VIS MANILA INTERNATIONAL AIRPORT AUTHORITY V. COURT OF APPEALS.

II

THE TRIAL COURT GRAVELY ERRED IN FAILING TO CONSIDER THAT RECLAIMED LANDS ARE PART OF THE PUBLIC DOMAIN AND, HENCE, EXEMPT FROM REAL PROPERTY TAX.

PRA asserts that it is not a GOCC under Section 2(13) of the Introductory Provisions of the Administrative Code. Neither is it a GOCC under Section 16, Article XII of the 1987 Constitution because it is not required to meet the test of economic viability. Instead, PRA is a government instrumentality vested with corporate powers and performing an essential public service pursuant to Section 2(10) of the Introductory Provisions of the Administrative Code. Although it has a capital stock divided into shares, it is not authorized to distribute dividends and allotment of surplus and profits to its stockholders. Therefore, it may not be classified as a stock corporation because it lacks the second

requisite of a stock corporation which is the distribution of dividends and allotment of surplus and profits to the stockholders.

It insists that it may not be classified as a non-stock corporation because it has no members and it is not organized for charitable, religious, educational, professional, cultural, recreational, fraternal, literary, scientific, social, civil service, or similar purposes, like trade, industry, agriculture and like chambers as provided in Section 88 of the Corporation Code.

Moreover, PRA points out that it was not created to compete in the market place as there was no competing reclamation company operated by the private sector. Also, while PRA is vested with corporate powers under P.D. No. 1084, such circumstance does not make it a corporation but merely an incorporated instrumentality and that the mere fact that an incorporated instrumentality of the National Government holds title to real property does not make said instrumentality a GOCC. Section 48, Chapter 12, Book I of the Administrative Code of 1987 recognizes a scenario where a piece of land owned by the Republic is titled in the name of a department, agency or instrumentality.

33

Thus, PRA insists that, as an incorporated instrumentality of the National Government, it is exempt from payment of real property tax except when the beneficial use of the real property is granted to a taxable person. PRA claims that based on Section 133(o) of the LGC, local governments cannot tax the national government which delegate to local governments the power to tax.

It explains that reclaimed lands are part of the public domain, owned by the State, thus, exempt from the payment of real estate taxes. Reclaimed lands retain their inherent potential as areas for public use or public service. While the subject reclaimed lands are still in its hands, these lands remain public lands and form part of the public domain. Hence, the assessment of real property taxes made on said lands, as well as the levy thereon, and the public sale thereof on April 7, 2003, including the issuance of the certificates of sale in favor of the respondent Parañaque City, are invalid and of no force and effect.

On the other hand, the City of Parañaque (respondent) argues that PRA since its creation consistently represented itself to be a GOCC. PRA’s very own charter (P.D. No. 1084) declared it to be a GOCC and that it has entered into several thousands of contracts where it represented itself to be a GOCC. In fact, PRA admitted in its original and amended petitions and pre-trial brief filed with the RTC of Parañaque City that it was a GOCC.

Respondent further argues that PRA is a stock corporation with an authorized capital stock divided into 3 million no par value shares, out of which 2 million shares have been subscribed and fully paid up. Section 193 of the LGC of 1991 has withdrawn tax

45

exemption privileges granted to or presently enjoyed by all persons, whether natural or juridical, including GOCCs.

Hence, since PRA is a GOCC, it is not exempt from the payment of real property tax.

THE COURT’S RULING

The Court finds merit in the petition.

Section 2(13) of the Introductory Provisions of the Administrative Code of 1987 defines a GOCC as follows:

SEC. 2. General Terms Defined. – x x x x

(13) Government-owned or controlled corporation refers to any agency organized as a stock or non-stock corporation, vested with functions relating to public needs whether governmental or proprietary in nature, and owned by the Government directly or through its instrumentalities either wholly, or, where applicable as in the case of stock corporations, to the extent of at least fifty-one

(51) percent of its capital stock: x x x.

On the other hand, Section 2(10) of the Introductory Provisions of the Administrative Code defines a government "instrumentality" as follows:

SEC. 2. General Terms Defined. –– x x x x

(10) Instrumentality refers to any agency of the National Government, not integrated within the department framework, vested with special functions or jurisdiction by law, endowed with some if not all corporate powers, administering special funds, and enjoying operational autonomy, usually through a charter. x x x

From the above definitions, it is clear that a GOCC must be "organized as a stock or non-stock corporation" while an instrumentality is vested by law with corporate powers. Likewise, when the law makes a government instrumentality operationally autonomous, the instrumentality remains part of the National Government machinery although not integrated with the department framework.

When the law vests in a government instrumentality corporate powers, the instrumentality does not necessarily become a corporation. Unless the government instrumentality is organized as a stock or non-stock corporation, it remains a government instrumentality exercising not only governmental but also corporate powers.

Many government instrumentalities are vested with corporate powers but they do not become stock or non-stock corporations, which is a necessary condition before an

agency or instrumentality is deemed a GOCC. Examples are the Mactan International Airport Authority, the Philippine Ports Authority, the University of the Philippines, and Bangko Sentral ng Pilipinas. All these government instrumentalities exercise corporate powers but they are not organized as stock or non-stock corporations as required by Section 2(13) of the Introductory Provisions of the Administrative Code. These government instrumentalities are sometimes loosely called government corporate entities. They are not, however, GOCCs in the strict sense as understood under the Administrative Code, which is the governing law defining the legal relationship and status of government entities.2

Correlatively, Section 3 of the Corporation Code defines a stock corporation as one whose "capital stock is divided into shares and x x x authorized to distribute to the holders of such shares dividends x x x." Section 87 thereof defines a non-stock corporation as "one where no part of its income is distributable as dividends to its members, trustees or officers." Further, Section 88 provides that non-stock corporations are "organized for charitable, religious, educational, professional, cultural, recreational, fraternal, literary, scientific, social, civil service, or similar purposes, like trade, industry, agriculture and like chambers."

Two requisites must concur before one may be classified as a stock corporation, namely:

(1) that it has capital stock divided into shares; and (2) that it is authorized to distribute dividends and allotments of surplus and profits to its stockholders. If only one requisite is present, it cannot be properly classified as a stock corporation. As for non-stock corporations, they must have members and must not distribute any part of their income to said members.3

In the case at bench, PRA is not a GOCC because it is neither a stock nor a non-stock corporation. It cannot be considered as a stock corporation because although it has a capital stock divided into no par value shares as provided in Section 74 of P.D. No. 1084, it is not authorized to distribute dividends, surplus allotments or profits to stockholders. There is no provision whatsoever in P.D. No. 1084 or in any of the subsequent executive issuances pertaining to PRA, particularly, E.O. No. 525,5 E.O. No. 6546 and EO No. 7987 that authorizes PRA to distribute dividends, surplus allotments or profits to its stockholders.

PRA cannot be considered a non-stock corporation either because it does not have members. A non-stock corporation must have members.8 Moreover, it was not organized for any of the purposes mentioned in Section 88 of the Corporation Code. Specifically, it was created to manage all government reclamation projects.

34

Furthermore, there is another reason why the PRA cannot be classified as a GOCC. Section 16, Article XII of the 1987 Constitution provides as follows:

46

Section 16. The Congress shall not, except by general law, provide for the formation, organization, or regulation of private corporations. Government-owned or controlled corporations may be created or established by special charters in the interest of the common good and subject to the test of economic viability.

The fundamental provision above authorizes Congress to create GOCCs through special charters on two conditions: 1) the GOCC must be established for the common good; and 2) the GOCC must meet the test of economic viability. In this case, PRA may have passed the first condition of common good but failed the second one - economic viability. Undoubtedly, the purpose behind the creation of PRA was not for economic or commercial activities. Neither was it created to compete in the market place considering that there were no other competing reclamation companies being operated by the private sector. As mentioned earlier, PRA was created essentially to perform a public service considering that it was primarily responsible for a coordinated, economical and efficient reclamation, administration and operation of lands belonging to the government with the object of maximizing their utilization and hastening their development consistent with the public interest. Sections 2 and 4 of P.D. No. 1084 reads, as follows:

Section 2. Declaration of policy. It is the declared policy of the State to provide for a coordinated, economical and efficient reclamation of lands, and the administration and operation of lands belonging to, managed and/or operated by the government, with the object of maximizing their utilization and hastening their development consistent with the public interest.

Section 4. Purposes. The Authority is hereby created for the following purposes:

(a) To reclaim land, including foreshore and submerged areas, by dredging, filling or other means, or to acquire reclaimed land;

(b) To develop, improve, acquire, administer, deal in, subdivide, dispose, lease and sell any and all kinds of lands, buildings, estates and other forms of real property, owned, managed, controlled and/or operated by the government.

(c) To provide for, operate or administer such services as may be necessary for the efficient, economical and beneficial utilization of the above properties.

The twin requirement of common good and economic viability was lengthily discussed in the case of Manila International Airport Authority v. Court of Appeals,9 the pertinent portion of which reads:

Third, the government-owned or controlled corporations created through special charters are those that meet the two conditions prescribed in Section 16, Article XII of the Constitution.

The first condition is that the government-owned or controlled corporation must be established for the common good. The second condition is that the government-owned or controlled corporation must meet the test of economic viability. Section 16, Article XII of the 1987 Constitution provides:

SEC. 16. The Congress shall not, except by general law, provide for the formation, organization, or regulation of private corporations. Government-owned or controlled corporations may be created or established by special charters in the interest of the common good and subject to the test of economic viability.

The Constitution expressly authorizes the legislature to create "government-owned or controlled corporations" through special charters only if these entities are required to meet the twin conditions of common good and economic viability. In other words, Congress has no power to create government-owned or controlled corporations with special charters unless they are made to comply with the two conditions of common good and economic viability. The test of economic viability applies only to government-owned or controlled corporations that perform economic or commercial activities and need to compete in the market place. Being essentially economic vehicles of the State for the common good — meaning for economic development purposes — these government-owned or controlled corporations with special charters are usually organized as stock corporations just like ordinary private corporations.

In contrast, government instrumentalities vested with corporate powers and performing governmental or public functions need not meet the test of economic viability. These instrumentalities perform essential public services for the common good, services that every modern State must provide its citizens. These instrumentalities need not be economically viable since the government may even subsidize their entire operations. These instrumentalities are not the "government-owned or controlled corporations" referred to in Section 16, Article XII of the 1987 Constitution.

Thus, the Constitution imposes no limitation when the legislature creates government instrumentalities vested with corporate powers but performing essential governmental or public functions. Congress has plenary authority to create government instrumentalities vested with corporate powers provided these instrumentalities perform essential government functions or public services. However, when the legislature creates through special charters corporations that perform economic or commercial activities, such entities — known as "government-owned or controlled corporations" — must meet the test of economic viability because they compete in the market place.

This is the situation of the Land Bank of the Philippines and the Development Bank of the Philippines and similar government-owned or controlled corporations, which derive their incometo meet operating expenses solely from commercial transactions in competition with the private sector. The intent of the Constitution is to prevent the creation of

47

government-owned or controlled corporations that cannot survive on their own in the market place and thus merely drain the public coffers.

Commissioner Blas F. Ople, proponent of the test of economic viability, explained to the Constitutional Commission the purpose of this test, as follows:

MR. OPLE: Madam President, the reason for this concern is really that when the government creates a corporation, there is a sense in which this corporation becomes exempt from the test of economic performance. We know what happened in the past. If a government corporation loses, then it makes its claim upon the taxpayers' money through new equity infusions from the government and what is always invoked is the common good. That is the reason why this year, out of a budget of P115 billion for the entire government, about P28 billion of this will go into equity infusions to support a few government financial institutions. And this is all taxpayers' money which could have been relocated to agrarian reform, to social services like health and education, to augment the salaries of grossly underpaid public employees. And yet this is all going down the drain.

Therefore, when we insert the phrase "ECONOMIC VIABILITY" together with the "common good," this becomes a restraint on future enthusiasts for state capitalism to excuse themselves from the responsibility of meeting the market

35

test so that they become viable. And so, Madam President, I reiterate, for the committee's consideration and I am glad that I am joined in this proposal by Commissioner Foz, the insertion of the standard of "ECONOMIC VIABILITY OR THE ECONOMIC TEST," together with the common good.1âwphi1

Father Joaquin G. Bernas, a leading member of the Constitutional Commission, explains in his textbook The 1987 Constitution of the Republic of the Philippines: A Commentary:

The second sentence was added by the 1986 Constitutional Commission. The significant addition, however, is the phrase "in the interest of the common good and subject to the test of economic viability." The addition includes the ideas that they must show capacity to function efficiently in business and that they should not go into activities which the private sector can do better. Moreover, economic viability is more than financial viability but also includes capability to make profit and generate benefits not quantifiable in financial terms.

Clearly, the test of economic viability does not apply to government entities vested with corporate powers and performing essential public services. The State is obligated to render essential public services regardless of the economic viability of providing such service. The non-economic viability of rendering such essential public service does not excuse the State from withholding such essential services from the public.

However, government-owned or controlled corporations with special charters, organized essentially for economic or commercial objectives, must meet the test of economic

viability. These are the government-owned or controlled corporations that are usually organized under their special charters as stock corporations, like the Land Bank of the Philippines and the Development Bank of the Philippines. These are the government-owned or controlled corporations, along with government-owned or controlled corporations organized under the Corporation Code, that fall under the definition of "government-owned or controlled corporations" in Section 2(10) of the Administrative Code. [Emphases supplied]

This Court is convinced that PRA is not a GOCC either under Section 2(3) of the Introductory Provisions of the Administrative Code or under Section 16, Article XII of the 1987 Constitution. The facts, the evidence on record and jurisprudence on the issue support the position that PRA was not organized either as a stock or a non-stock corporation. Neither was it created by Congress to operate commercially and compete in the private market. Instead, PRA is a government instrumentality vested with corporate powers and performing an essential public service pursuant to Section 2(10) of the Introductory Provisions of the Administrative Code. Being an incorporated government instrumentality, it is exempt from payment of real property tax.

Clearly, respondent has no valid or legal basis in taxing the subject reclaimed lands managed by PRA. On the other hand, Section 234(a) of the LGC, in relation to its Section 133(o), exempts PRA from paying realty taxes and protects it from the taxing powers of local government units.

Sections 234(a) and 133(o) of the LGC provide, as follows:

SEC. 234. Exemptions from Real Property Tax – The following are exempted from payment of the real property tax:

(a) Real property owned by the Republic of the Philippines or any of its political subdivisions except when the beneficial use thereof has been granted, for consideration or otherwise, to a taxable person.

x x x x

SEC. 133. Common Limitations on the Taxing Powers of Local Government Units. – Unless otherwise provided herein, the exercise of the taxing powers of provinces, cities, municipalities, and barangays shall not extend to the levy of the following:

x x x x

(o) Taxes, fees or charges of any kinds on the National Government, its agencies and instrumentalities, and local government units. [Emphasis supplied]

48

It is clear from Section 234 that real property owned by the Republic of the Philippines (the Republic) is exempt from real property tax unless the beneficial use thereof has been granted to a taxable person. In this case, there is no proof that PRA granted the beneficial use of the subject reclaimed lands to a taxable entity. There is no showing on record either that PRA leased the subject reclaimed properties to a private taxable entity.

This exemption should be read in relation to Section 133(o) of the same Code, which prohibits local governments from imposing "taxes, fees or charges of any kind on the National Government, its agencies and instrumentalities x x x." The Administrative Code allows real property owned by the Republic to be titled in the name of agencies or instrumentalities of the national government. Such real properties remain owned by the Republic and continue to be exempt from real estate tax.

Indeed, the Republic grants the beneficial use of its real property to an agency or instrumentality of the national government. This happens when the title of the real property is transferred to an agency or instrumentality even as the Republic remains the owner of the real property. Such arrangement does not result in the loss of the tax exemption, unless "the beneficial use thereof has been granted, for consideration or otherwise, to a taxable person."10

The rationale behind Section 133(o) has also been explained in the case of the Manila International Airport Authority,11 to wit:

Section 133(o) recognizes the basic principle that local governments cannot tax the national government, which historically merely delegated to local governments the power to tax. While the 1987 Constitution now includes taxation as one of the powers of local governments, local governments may only exercise such power "subject to such guidelines and limitations as the Congress may provide."

When local governments invoke the power to tax on national government instrumentalities, such power is construed strictly against local governments. The rule is that a tax is never presumed and there must be clear language in the law imposing the tax. Any doubt whether a person, article or activity is taxable is resolved against taxation. This rule applies with greater force when local governments seek to tax national government instrumentalities.

Another rule is that a tax exemption is strictly construed against the taxpayer claiming the exemption. However, when Congress grants an exemption to a national government instrumentality from local taxation, such exemption is construed liberally in favor of the national government instrumentality. As this Court declared in Maceda v. Macaraig, Jr.:

36

The reason for the rule does not apply in the case of exemptions running to the benefit of the government itself or its agencies. In such case the practical effect of an exemption is merely to reduce the amount of money that has to be handled by government in the

course of its operations. For these reasons, provisions granting exemptions to government agencies may be construed liberally, in favor of non tax-liability of such agencies.

There is, moreover, no point in national and local governments taxing each other, unless a sound and compelling policy requires such transfer of public funds from one government pocket to another.

There is also no reason for local governments to tax national government instrumentalities for rendering essential public services to inhabitants of local governments. The only exception is when the legislature clearly intended to tax government instrumentalities for the delivery of essential public services for sound and compelling policy considerations. There must be express language in the law empowering local governments to tax national government instrumentalities. Any doubt whether such power exists is resolved against local governments.

Thus, Section 133 of the Local Government Code states that "unless otherwise provided" in the Code, local governments cannot tax national government instrumentalities. As this Court held in Basco v. Philippine Amusements and Gaming Corporation:

The states have no power by taxation or otherwise, to retard, impede, burden or in any manner control the operation of constitutional laws enacted by Congress to carry into execution the powers vested in the federal 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 a federal instrumentality in such a way as to prevent it from consummating its federal responsibilities, or even to seriously burden it in the accomplishment of them." (Antieau, Modern Constitutional Law, Vol. 2, p. 140, emphasis supplied)

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

The power to tax which was called by Justice Marshall as the "power to destroy" (McCulloch v. Maryland, supra) cannot be allowed to defeat an instrumentality or creation of the very entity which has the inherent power to wield it. [Emphases supplied]

49

The Court agrees with PRA that the subject reclaimed lands are still part of the public domain, owned by the State and, therefore, exempt from payment of real estate taxes.

Section 2, Article XII of the 1987 Constitution reads in part, as follows:

Section 2. All lands of the public domain, waters, minerals, coal, petroleum, and other mineral oils, all forces of potential energy, fisheries, forests or timber, wildlife, flora and fauna, and other natural resources are owned by the State. With the exception of agricultural lands, all other natural resources shall not be alienated. The exploration, development, and utilization of natural resources shall be under the full control and supervision of the State. The State may directly undertake such activities, or it may enter into co-production, joint venture, or production-sharing agreements with Filipino citizens, or corporations or associations at least 60 per centum of whose capital is owned by such citizens. Such agreements may be for a period not exceeding twenty-five years, renewable for not more than twenty-five years, and under such terms and conditions as may provided by law. In cases of water rights for irrigation, water supply, fisheries, or industrial uses other than the development of waterpower, beneficial use may be the measure and limit of the grant.

Similarly, Article 420 of the Civil Code enumerates properties belonging to the State:

Art. 420. The following things are property of public dominion:

(1) Those intended for public use, such as roads, canals, rivers, torrents, ports and bridges constructed by the State, banks, shores, roadsteads, and others of similar character;

(2) Those which belong to the State, without being for public use, and are intended for some public service or for the development of the national wealth. [Emphases supplied]

Here, the subject lands are reclaimed lands, specifically portions of the foreshore and offshore areas of Manila Bay. As such, these lands remain public lands and form part of the public domain. In the case of Chavez v. Public Estates Authority and AMARI Coastal Development Corporation,12 the Court held that foreshore and submerged areas irrefutably belonged to the public domain and were inalienable unless reclaimed, classified as alienable lands open to disposition and further declared no longer needed for public service. The fact that alienable lands of the public domain were transferred to the PEA (now PRA) and issued land patents or certificates of title in PEA’s name did not automatically make such lands private. This Court also held therein that reclaimed lands retained their inherent potential as areas for public use or public service.

As the central implementing agency tasked to undertake reclamation projects nationwide, with authority to sell reclaimed lands, PEA took the place of DENR as the government agency charged with leasing or selling reclaimed lands of the public domain. The

reclaimed lands being leased or sold by PEA are not private lands, in the same manner that DENR, when it disposes of other alienable lands, does not dispose of private lands but alienable lands of the public domain. Only when qualified private parties acquire these lands will the lands become private lands. In the hands of the government agency tasked and authorized to dispose of alienable of disposable lands of the public domain, these lands are still public, not private lands.

Furthermore, PEA's charter expressly states that PEA "shall hold lands of the public domain" as well as "any and all kinds of lands." PEA can hold both lands of the public domain and private lands. Thus, the mere fact that alienable lands of the public domain like the Freedom Islands are transferred to PEA and issued land patents or certificates of title in PEA's name does not automatically make such lands private.13

Likewise, it is worthy to mention Section 14, Chapter 4, Title I, Book III of the Administrative Code of 1987, thus:

SEC 14. Power to Reserve Lands of the Public and Private Dominion of the Government.-

37

(1)The President shall have the power to reserve for settlement or public use, and for specific public purposes, any of the lands of the public domain, the use of which is not otherwise directed by law. The reserved land shall thereafter remain subject to the specific public purpose indicated until otherwise provided by law or proclamation.

Reclaimed lands such as the subject lands in issue are reserved lands for public use. They are properties of public dominion. The ownership of such lands remains with the State unless they are withdrawn by law or presidential proclamation from public use.

Under Section 2, Article XII of the 1987 Constitution, the foreshore and submerged areas of Manila Bay are part of the "lands of the public domain, waters x x x and other natural resources" and consequently "owned by the State." As such, foreshore and submerged areas "shall not be alienated," unless they are classified as "agricultural lands" of the public domain. The mere reclamation of these areas by PEA does not convert these inalienable natural resources of the State into alienable or disposable lands of the public domain. There must be a law or presidential proclamation officially classifying these reclaimed lands as alienable or disposable and open to disposition or concession. Moreover, these reclaimed lands cannot be classified as alienable or disposable if the law has reserved them for some public or quasi-public use.

As the Court has repeatedly ruled, properties of public dominion are not subject to execution or foreclosure sale.14 Thus, the assessment, levy and foreclosure made on the subject reclaimed lands by respondent, as well as the issuances of certificates of title in favor of respondent, are without basis.

50

WHEREFORE, the petition is GRANTED. The January 8, 2010 Order of the Regional Trial Court, Branch 195, Parañaque City, is REVERSED and SET ASIDE. All reclaimed properties owned by the Philippine Reclamation Authority are hereby declared EXEMPT from real estate taxes. All real estate tax assessments, including the final notices of real estate tax delinquencies, issued by the City of Parañaque on the subject reclaimed properties; the assailed auction sale, dated April 7, 2003; and the Certificates of Sale subsequently issued by the Parañaque City Treasurer in favor of the City of Parañaque, are all declared VOID.

SO ORDERED.

51

Sta. Lucia Realty and Development, Inc. v. City of Pasig

Republic of the Philippines

SUPREME COURT

Manila

FIRST DIVISION

G.R. No. 166838 June 15, 2011

STA. LUCIA REALTY & DEVELOPMENT, Inc., Petitioner, vs.

CITY OF PASIG, Respondent,

MUNICIPALITY OF CAINTA, PROVINCE OF RIZAL, Intervenor.

D E C I S I O N

LEONARDO-DE CASTRO, J.:

For review is the June 30, 2004 Decision1 and the January 27, 2005 Resolution2 of the Court of Appeals in CA-G.R. CV No. 69603, which affirmed with modification the August 10, 1998 Decision3 and October 9, 1998 Order4of the Regional Trial Court (RTC) of Pasig City, Branch 157, in Civil Case No. 65420.

Petitioner Sta. Lucia Realty & Development, Inc. (Sta. Lucia) is the registered owner of several parcels of land with Transfer Certificates of Title (TCT) Nos. 39112, 39110 and 38457, all of which indicated that the lots were located in Barrio Tatlong Kawayan, Municipality of Pasig5 (Pasig).

The parcel of land covered by TCT No. 39112 was consolidated with that covered by TCT No. 518403, which was situated in Barrio Tatlong Kawayan, Municipality of Cainta, Province of Rizal (Cainta). The two combined lots were subsequently partitioned into three, for which TCT Nos. 532250, 598424, and 599131, now all bearing the Cainta address, were issued.

TCT No. 39110 was also divided into two lots, becoming TCT Nos. 92869 and 92870.

The lot covered by TCT No. 38457 was not segregated, but a commercial building owned by Sta. Lucia East Commercial Center, Inc., a separate corporation, was built on it.6

Upon Pasig’s petition to correct the location stated in TCT Nos. 532250, 598424, and 599131, the Land Registration Court, on June 9, 1995, ordered the amendment of the TCTs to read that the lots with respect to TCT No. 39112 were located in Barrio Tatlong Kawayan, Pasig City.7

On January 31, 1994, Cainta filed a petition8 for the settlement of its land boundary dispute with Pasig before the RTC, Branch 74 of Antipolo City (Antipolo RTC). This case, docketed as Civil Case No. 94-3006, is still pending up to this date.

On November 28, 1995, Pasig filed a Complaint,9 docketed as Civil Case No. 65420, against Sta. Lucia for the collection of real estate taxes, including penalties and interests, on the lots covered by TCT Nos. 532250, 598424, 599131, 92869, 92870 and 38457, including the improvements thereon (the subject properties).

38

Sta. Lucia, in its Answer, alleged that it had been religiously paying its real estate taxes to Cainta, just like what its predecessors-in-interest did, by virtue of the demands and assessments made and the Tax Declarations issued by Cainta on the claim that the subject properties were within its territorial jurisdiction. Sta. Lucia further argued that

since 1913, the real estate taxes for the lots covered by the above TCTs had been paid to Cainta.10

Cainta was allowed to file its own Answer-in-Intervention when it moved to intervene on the ground that its interest would be greatly affected by the outcome of the case. It averred that it had been collecting the real property taxes on the subject properties even before Sta. Lucia acquired them. Cainta further asseverated that the establishment of the boundary monuments would show that the subject properties are within its metes and bounds.11

Sta. Lucia and Cainta thereafter moved for the suspension of the proceedings, and claimed that the pending petition in the Antipolo RTC, for the settlement of boundary dispute between Cainta and Pasig, presented a "prejudicial question" to the resolution of the case.12

The RTC denied this in an Order dated December 4, 1996 for lack of merit. Holding that the TCTs were conclusive evidence as to its ownership and location,13 the RTC, on August 10, 1998, rendered a Decision in favor of Pasig:

WHEREFORE, in view of the foregoing, judgment is hereby rendered in favor of [Pasig], ordering Sta. Lucia Realty and Development, Inc. to pay [Pasig]:

1) P273,349.14 representing unpaid real estate taxes and penalties as of 1996, plus interest of 2% per month until fully paid;

2) P50,000.00 as and by way of attorney’s fees; and

3) The costs of suit.

Judgment is likewise rendered against the intervenor Municipality of Cainta, Rizal, ordering it to refund to Sta. Lucia Realty and Development, Inc. the realty tax payments

52

improperly collected and received by the former from the latter in the aggregate amount of P358, 403.68.14

After Sta. Lucia and Cainta filed their Notices of Appeal, Pasig, on September 11, 1998, filed a Motion for Reconsideration of the RTC’s August 10, 1998 Decision.

The RTC, on October 9, 1998, granted Pasig’s motion in an Order15 and modified its earlier decision to include the realty taxes due on the improvements on the subject lots:

WHEREFORE, premises considered, the plaintiff’s motion for reconsideration is hereby granted. Accordingly, the Decision, dated August 10, 1998 is hereby modified in that the defendant is hereby ordered to pay plaintiff the amount of P5,627,757.07 representing the unpaid taxes and penalties on the improvements on the subject parcels of land whereon real estate taxes are adjudged as due for the year 1996.16

Accordingly, Sta. Lucia filed an Amended Notice of Appeal to include the RTC’s October 9, 1998 Order in its protest.

On October 16, 1998, Pasig filed a Motion for Execution Pending Appeal, to which both Sta. Lucia and Cainta filed several oppositions, on the assertion that there were no good reasons to warrant the execution pending appeal.17

On April 15, 1999, the RTC ordered the issuance of a Writ of Execution against Sta. Lucia.

On May 21, 1999, Sta. Lucia filed a Petition for Certiorari under Rule 65 of the Rules of Court with the Court of Appeals to assail the RTC’s order granting the execution. Docketed as CA-G.R. SP No. 52874, the petition was raffled to the First Division of the Court of Appeals, which on September 22, 2000, ruled in favor of Sta. Lucia, to wit:

WHEREFORE, in view of the foregoing, the instant petition is hereby GIVEN DUE COURSE and GRANTED by this Court. The assailed Order dated April 15, 1999 in Civil Case No. 65420 granting the motion for execution pending appeal and ordering the issuance of a writ of execution pending appeal is hereby SET ASIDE and declared NULL and VOID.18

The Court of Appeals added that the boundary dispute case presented a "prejudicial question which must be decided before x x x Pasig can collect the realty taxes due over the subject properties."19

Pasig sought to have this decision reversed in a Petition for Certiorari filed before this Court on November 29, 2000, but this was denied on June 25, 2001 for being filed out of time.20

Meanwhile, the appeal filed by Sta. Lucia and Cainta was raffled to the (former) Seventh Division of the Court of Appeals and docketed as CA-G.R. CV No. 69603. On June 30, 2004, the Court of Appeals rendered its Decision, wherein it agreed with the RTC’s judgment:

WHEREFORE, the appealed Decision is hereby AFFIRMED with the MODIFICATION that the award of P50,000.00 attorney’s fees is DELETED.21

In affirming the RTC, the Court of Appeals declared that there was no proper legal basis to suspend the proceedings.22 Elucidating on the legal meaning of a "prejudicial question," it held that "there can be no prejudicial question when the cases involved are both civil."23 The Court of Appeals further held that the elements of litis pendentia and forum shopping, as alleged by Cainta to be present, were not met.

Sta. Lucia and Cainta filed separate Motions for Reconsideration, which the Court of Appeals denied in a Resolution dated January 27, 2005.

Undaunted, Sta. Lucia and Cainta filed separate Petitions for Certiorari with this Court. Cainta’s petition, docketed as G.R. No. 166856 was denied on April 13, 2005 for Cainta’s failure to show any reversible error. Sta. Lucia’s own petition is the one subject of this decision.24

In praying for the reversal of the June 30, 2004 judgment of the Court of Appeals, Sta. Lucia assigned the following errors:

ASSIGNMENT OF ERRORS

I

39

THE HONORABLE COURT OF APPEALS ERRED IN AFFIRMING [WITH MODIFICATION] THE DECISION OF THE REGIONAL TRIAL COURT IN PASIG CITY

II.

THE HONORABLE COURT OF APPEALS ERRED IN NOT SUSPENDING THE CASE IN VIEW OF THE PENDENCY OF THE BOUNDARY DISPUTE WHICH WILL FINALLY DETERMINE THE SITUS OF THE SUBJECT PROPERTIES

III.

THE HONORABLE COURT OF APPEALS ERRED IN NOT HOLDING THAT THE PAYMENT OF REALTY TAXES THROUGH THE MUNICIPALITY OF CAINTA WAS VALID PAYMENT OF REALTY TAXES

IV.

53

THE HONORABLE COURT OF APPEALS ERRED IN NOT HOLDING THAT IN THE MEANTIME THAT THE BOUNDARY DISPUTE CASE IN ANTIPOLO CITY REGIONAL TRIAL COURT IS BEING FINALLY RESOLVED, THE PETITIONER STA. LUCIA SHOULD BE PAYING THE REALTY TAXES ON THE SUBJECT PROPERTIES THROUGH THE INTERVENOR CAINTA TO PRESERVE THE STATUS QUO.25

Pasig, countering each error, claims that the lower courts correctly decided the case considering that the TCTs are clear on their faces that the subject properties are situated in its territorial jurisdiction. Pasig contends that the principles of litis pendentia, forum shopping, and res judicata are all inapplicable, due to the absence of their requisite elements. Pasig maintains that the boundary dispute case before the Antipolo RTC is independent of the complaint for collection of realty taxes which was filed before the Pasig RTC. It avers that the doctrine of "prejudicial question," which has a definite meaning in law, cannot be invoked where the two cases involved are both civil. Thus, Pasig argues, since there is no legal ground to preclude the simultaneous hearing of both cases, the suspension of the proceedings in the Pasig RTC is baseless.

Cainta also filed its own comment reiterating its legal authority over the subject properties, which fall within its territorial jurisdiction. Cainta claims that while it has been collecting the realty taxes over the subject properties since way back 1913, Pasig only covered the same for real property tax purposes in 1990, 1992, and 1993. Cainta also insists that there is a discrepancy between the locational entries and the technical descriptions in the TCTs, which further supports the need to await the settlement of the boundary dispute case it initiated.

The errors presented before this Court can be narrowed down into two basic issues:

1) Whether the RTC and the CA were correct in deciding Pasig’s Complaint without waiting for the resolution of the boundary dispute case between Pasig and Cainta; and

2) Whether Sta. Lucia should continue paying its real property taxes to Cainta, as it alleged to have always done, or to Pasig, as the location stated in Sta. Lucia’s TCTs.

We agree with the First Division of the Court of Appeals in CA-G.R. SP No. 52874 that the resolution of the boundary dispute between Pasig and Cainta would determine which local government unit is entitled to collect realty taxes from Sta. Lucia.26

The Local Government Unit entitled

To Collect Real Property Taxes

The Former Seventh Division of the Court of Appeals held that the resolution of the complaint lodged before the Pasig RTC did not necessitate the assessment of the parties’ evidence on the metes and bounds of their respective territories. It cited our ruling in Odsigue v. Court of Appeals27 wherein we said that a certificate of title is

conclusive evidence of both its ownership and location.28 The Court of Appeals even referred to specific provisions of the 1991 Local Government Code and Act. No. 496 to support its ruling that Pasig had the right to collect the realty taxes on the subject

properties as the titles of the subject properties show on their faces that they are situated in Pasig.29

Under Presidential Decree No. 464 or the "Real Property Tax Code," the authority to collect real property taxes is vested in the locality where the property is situated:

Sec. 5. Appraisal of Real Property. — All real property, whether taxable or exempt, shall be appraised at the current and fair market value prevailing in the locality where the property is situated.

x x x x

Sec. 57. Collection of tax to be the responsibility of treasurers. — The collection of the real property tax and all penalties accruing thereto, and the enforcement of the remedies provided for in this Code or any applicable laws, shall be the responsibility of the treasurer of the province, city or municipality where the property is situated. (Emphases ours.)

This requisite was reiterated in Republic Act No. 7160, also known as the 1991 the Local Government Code, to wit:

Section 201. Appraisal of Real Property. – All real property, whether taxable or exempt, shall be appraised at the current and fair market value prevailing in the locality where the property is situated. The Department of Finance shall promulgate the necessary rules and regulations for the classification, appraisal, and assessment of real property pursuant to the provisions of this Code.

Section 233. Rates of Levy. – A province or city or a municipality within the Metropolitan Manila Area shall fix a uniform rate of basic real property tax applicable to their respective localities as follows: x x x. (Emphases ours.)

The only import of these provisions is that, while a local government unit is authorized under several laws to collect real estate tax on properties falling under its territorial jurisdiction, it is imperative to first show that these properties are unquestionably within its geographical boundaries.

Accentuating on the importance of delineating territorial boundaries, this Court, in Mariano, Jr. v. Commission on Elections30 said:

The importance of drawing with precise strokes the territorial boundaries of a local unit of government cannot be overemphasized. The boundaries must be clear for they define

5440

the limits of the territorial jurisdiction of a local government unit. It can legitimately exercise powers of government only within the limits of its territorial jurisdiction. Beyond these limits, its acts are ultra vires. Needless to state, any uncertainty in the boundaries of local government units will sow costly conflicts in the exercise of governmental powers which ultimately will prejudice the people's welfare. This is the evil sought to be avoided by the Local Government Code in requiring that the land area of a local government unit must be spelled out in metes and bounds, with technical descriptions.31 (Emphasis ours.)

The significance of accurately defining a local government unit’s boundaries was stressed in City of Pasig v. Commission on Elections,32 which involved the consolidated petitions filed by the parties herein, Pasig and Cainta, against two decisions of the Commission on Elections (COMELEC) with respect to the plebiscites scheduled by Pasig for the ratification of its creation of two new Barangays. Ruling on the contradictory reliefs sought by Pasig and Cainta, this Court affirmed the COMELEC decision to hold in abeyance the plebiscite to ratify the creation of Barangay Karangalan; but set aside the COMELEC’s other decision, and nullified the plebiscite that ratified the creation of Barangay Napico in Pasig, until the boundary dispute before the Antipolo RTC had been resolved. The aforementioned case held as follows:

1. The Petition of the City of Pasig in G.R. No. 125646 is DISMISSED for lack of merit; while

2. The Petition of the Municipality of Cainta in G.R. No. 128663 is GRANTED. The COMELEC Order in UND No. 97-002, dated March 21, 1997, is SET ASIDE and the plebiscite held on March 15, 1997 to ratify the creation of Barangay Napico in the City of Pasig is declared null and void. Plebiscite on the same is ordered held in abeyance until

after the courts settle with finality the boundary dispute between the City of Pasig and the Municipality of Cainta, in Civil Case No. 94-3006.33

Clearly therefore, the local government unit entitled to collect real property taxes from Sta. Lucia must undoubtedly show that the subject properties are situated within its territorial jurisdiction; otherwise, it would be acting beyond the powers vested to it by law.

Certificates of Title as

Conclusive Evidence of Location

While we fully agree that a certificate of title is conclusive as to its ownership and location, this does not preclude the filing of an action for the very purpose of attacking the statements therein. In De Pedro v. Romasan Development Corporation,34 we proclaimed that:

We agree with the petitioners that, generally, a certificate of title shall be conclusive as to all matters contained therein and conclusive evidence of the ownership of the land referred to therein. However, it bears stressing that while certificates of title are

indefeasible, unassailable and binding against the whole world, including the government itself, they do not create or vest title. They merely confirm or record title already existing and vested. They cannot be used to protect a usurper from the true owner, nor can they be used as a shield for the commission of fraud; neither do they permit one to enrich himself at the expense of other.35

In Pioneer Insurance and Surety Corporation v. Heirs of Vicente Coronado,36 we set aside the lower courts’ ruling that the property subject of the case was not situated in the location stated and described in the TCT, for lack of adequate basis. Our decision was in line with the doctrine that the TCT is conclusive evidence of ownership and location. However, we refused to simply uphold the veracity of the disputed TCT, and instead, we remanded the case back to the trial court for the determination of the exact location of the property seeing that it was the issue in the complaint filed before it.37

In City Government of Tagaytay v. Guerrero,38 this Court reprimanded the City of Tagaytay for levying taxes on a property that was outside its territorial jurisdiction, viz:

In this case, it is basic that before the City of Tagaytay may levy a certain property for sale due to tax delinquency, the subject property should be under its territorial jurisdiction. The city officials are expected to know such basic principle of law. The failure of the city officials of Tagaytay to verify if the property is within its jurisdiction before levying taxes on the same constitutes gross negligence.39 (Emphasis ours.)

Although it is true that "Pasig" is the locality stated in the TCTs of the subject properties, both Sta. Lucia and Cainta aver that the metes and bounds of the subject properties, as they are described in the TCTs, reveal that they are within Cainta’s boundaries.40 This only means that there may be a conflict between the location as stated and the location as technically described in the TCTs. Mere reliance therefore on the face of the TCTs will not suffice as they can only be conclusive evidence of the subject properties’ locations if both the stated and described locations point to the same area.

The Antipolo RTC, wherein the boundary dispute case between Pasig and Cainta is pending, would be able to best determine once and for all the precise metes and bounds of both Pasig’s and Cainta’s respective territorial jurisdictions. The resolution of this dispute would necessarily ascertain the extent and reach of each local government’s authority, a prerequisite in the proper exercise of their powers, one of which is the power of taxation. This was the conclusion reached by this Court in City of Pasig v. Commission on Elections,41 and by the First Division of the Court of Appeals in CA-G.R. SP No. 52874. We do not see any reason why we cannot adhere to the same logic and reasoning in this case.

The "Prejudicial Question" Debate

55

It would be unfair to hold Sta. Lucia liable again for real property taxes it already paid simply because Pasig cannot wait for its boundary dispute with Cainta to be decided. Pasig has consistently argued that the boundary dispute case is not a prejudicial question that would entail the suspension of its collection case against Sta. Lucia. This was also its argument in City of Pasig v. Commission on Elections,42 when it sought to nullify the COMELEC’s ruling to hold in abeyance (until the settlement of the boundary dispute case), the plebiscite that will ratify its creation of Barangay Karangalan. We agreed with the COMELEC therein that the boundary dispute case presented a prejudicial question and explained our statement in this wise:

To begin with, we agree with the position of the COMELEC that Civil Case No. 94-3006 involving the boundary dispute between the Municipality of Cainta and the City of Pasig presents a prejudicial question which must first be decided before plebiscites for the creation of the proposed barangays may be held.

The City of Pasig argues that there is no prejudicial question since the same contemplates a civil and criminal action and does not come into play where both cases are civil, as in the instant case. While this may be the general rule,

41

this Court has held in Vidad v. RTC of Negros Oriental, Br. 42, that, in the interest of good order, we can very well suspend action on one case pending the final outcome of another case closely interrelated or linked to the first.

In the case at bar, while the City of Pasig vigorously claims that the areas covered by the proposed Barangays Karangalan and Napico are within its territory, it can not deny that portions of the same area are included in the boundary dispute case pending before the Regional Trial Court of Antipolo. Surely, whether the areas in controversy shall be decided as within the territorial jurisdiction of the Municipality of Cainta or the City of Pasig has material bearing to the creation of the proposed Barangays Karangalan and Napico. Indeed, a requisite for the creation of a barangay is for its territorial jurisdiction to be properly identified by metes and bounds or by more or less permanent natural boundaries. Precisely because territorial jurisdiction is an issue raised in the pending civil case, until and unless such issue is resolved with finality, to define the territorial jurisdiction of the proposed barangays would only be an exercise in futility. Not only that, we would be paving the way for potentially ultra viresacts of such barangays. x x x.43 (Emphases ours.)

It is obvious from the foregoing, that the term "prejudicial question," as appearing in the cases involving the parties herein, had been used loosely. Its usage had been more in reference to its ordinary meaning, than to its strict legal meaning under the Rules of Court.44 Nevertheless, even without the impact of the connotation derived from the term, our own Rules of Court state that a trial court may control its own proceedings according to its sound discretion:

POWERS AND DUTIES OF COURTS AND JUDICIAL OFFICERS

Rule 135

SEC. 5. Inherent powers of courts. – Every court shall have power:

x x x x

(g) To amend and control its process and orders so as to make them comformable to law and justice.

Furthermore, we have acknowledged and affirmed this inherent power in our own decisions, to wit:

The court in which an action is pending may, in the exercise of a sound discretion, upon proper application for a stay of that action, hold the action in abeyance to abide the outcome of another pending in another court, especially where the parties and the issues are the same, for there is power inherent in every court to control the disposition of causes (sic) on its dockets with economy of time and effort for itself, for counsel, and for litigants. Where the rights of parties to the second action cannot be properly determined until the questions raised in the first action are settled the second action should be stayed.

The power to stay proceedings is incidental to the power inherent in every court to control the disposition of the cases on its dockets, considering its time and effort, that of counsel and the litigants. But if proceedings must be stayed, it must be done in order to avoid multiplicity of suits and prevent vexatious litigations, conflicting judgments, confusion between litigants and courts. It bears stressing that whether or not the RTC would suspend the proceedings in the SECOND CASE is submitted to its sound discretion.451avvphil

In light of the foregoing, we hold that the Pasig RTC should have held in abeyance the proceedings in Civil Case No. 65420, in view of the fact that the outcome of the boundary dispute case before the Antipolo RTC will undeniably affect both Pasig’s and Cainta’s rights. In fact, the only reason Pasig had to file a tax collection case against Sta. Lucia was not that Sta. Lucia refused to pay, but that Sta. Lucia had already paid, albeit to another local government unit. Evidently, had the territorial boundaries of the contending local government units herein been delineated with accuracy, then there would be no controversy at all.

In the meantime, to avoid further animosity, Sta. Lucia is directed to deposit the succeeding real property taxes due on the subject properties, in an escrow account with the Land Bank of the Philippines.

WHEREFORE, the instant petition is GRANTED. The June 30, 2004 Decision and the January 27, 2005 Resolution of the Court of Appeals in CA-G.R. CV No. 69603 are SET

56

ASIDE. The City of Pasig and the Municipality of Cainta are both directed to await the judgment in their boundary dispute case (Civil Case No. 94-3006), pending before Branch 74 of the Regional Trial Court in Antipolo City, to determine which local government unit is entitled to exercise its powers, including the collection of real property taxes, on the properties subject of the dispute. In the meantime, Sta. Lucia Realty and Development, Inc. is directed to deposit the succeeding real property taxes due on the lots and improvements covered by TCT Nos. 532250, 598424, 599131, 92869, 92870 and 38457 in an escrow account with the Land Bank of the Philippines.

SO ORDERED.

57

Republic of the Philippines (DTC) v. City of Mandaluyong

Republic of the Philippines

SUPREME COURT

42

Manila

FIRST DIVISION

G.R. No. 184879 February 23, 2011

REPUBLIC OF THE PHILIPPINES (DEPARTMENT OF TRANSPORTATION AND COMMUNICATIONS),Petitioner,

vs.

CITY OF MANDALUYONG, Respondent.

R E S O L U T I O N

PEREZ, J.:

The subject of this petition for review on certiorari is the writ of possession issued in favor of respondent City of Mandaluyong by the Regional Trial Court (RTC Branch 213), Branch 213, Mandaluyong City of real properties forming part of the EDSA Metro Rail Transit (MRT) III.

Petitioner Republic of the Philippines (Republic) is represented in this suit by the Department of Transportation and Communications (DOTC), which is the primary policy, planning, programming, regulating and administrative entity of the executive branch of the government in the promotion, development, and regulation of dependable and coordinated networks of transportation and communications systems, as well as in the fast, safe, efficient, and reliable postal, transportation and communications services; while respondent City Government of Mandaluyong is a local government unit tasked, among others, with meeting the priority needs and service requirements of its constituents in Mandaluyong City.1

The material facts and events leading to this controversy are as follows:

On 8 August 1997, the DOTC entered into a Revised and Restated Agreement to Build, Lease and Transfer a Light Rail System for EDSA (BLT) with Metro Rail Transit Corporation Limited (Metro Rail), a foreign corporation. Under the BLT Agreement, Metro Rail shall be responsible for the design, construction, equipping, completion, testing, and commissioning of the Light Rail Transit System-LRTS Phase I (EDSA MRT III).2 The DOTC shall operate the same but ownership of the EDSA MRT III shall remain with Metro Rail during the Revenue and Construction periods. At the end of the Revenue

Period,3 Metro Rail shall transfer to DOTC its title to and all of its rights and interests therein, in exchange for US$1.00.4

On even date, Metro Rail then assigned all its rights and obligations under the BLT Agreement to Metro Rail Transit Corporation (MRTC), a domestic corporation.

In an agreement dated 15 July 2000, Metro Rail turned over the EDSA MRT III System to the DOTC for its operation.5

In a joint resolution dated 5 April 2001, the City Assessors of Mandaluyong City, Quezon City, Makati City and Pasay City fixed the current and market value of EDSA MRT III at US$655 Million or P32.75 Billion, and which will be divided proportionately according to distance traversed among these cities.6

On 4 June 2001, the Office of the City Assessor of Mandaluyong issued Tax Declaration No. D-013-06267 in the name of MRTC, fixing the market value of the railways, train cars, three (3) stations and miscellaneous expenses at P5,974,365,000.00 and the assessed value at P4,779,492,000.00.7 Subsequently on 18 June 2001, the said Office of the City Assessor of Mandaluyong City demanded payment of real property taxes due under the aforesaid tax declaration.8

The computation of real property tax of MRTC was pegged at P317,250,730.23 from the taxable year 2000 until August 2001.9 Two (2) years later or on August 2003, another demand was made on MRTC placing the deficiency real estate tax due to the City of Mandaluyong at P769,784,981.52.10

Initially, a Notice of Delinquency dated 24 June 2005 was sent to MRTC wherein the assessed deficiency real property tax amounted to P12,843,928.79,11 however the City Treasurer of Mandaluyong issued another Notice of Delinquency on 7 September 2005 rectifying the 24 June 2005 notice by increasing the deficiency real property tax to P1,306,617,522.96.12

On the same date, the City Treasurer issued and served a Warrant of Levy upon MRTC with the corresponding Notices of Levy upon the City Assessor and the Registrar of Deeds of Mandaluyong City.13

On 5 December 2005, petitioner Republic filed a case for Declaration of Nullity of Real Property Tax Assessment and Warrant of Levy with a prayer for a Temporary Restraining Order (TRO) and Writ of Preliminary Injunction before the Regional Trial Court (RTC Branch 208), Branch 208, Mandaluyong City, docketed as Civil Case No. MC05-2882.

Petitioner Republic alleged that since Metro Rail had transferred to the DOTC the actual use, possession and operation of the EDSA MRT III System, Metro Rail or MRTC does not have actual or beneficial use and possession of the EDSA MRT III properties as to

58

subject it to payment of real estate taxes. On the other hand, notwithstanding the transfer to DOTC of the actual use, possession and operation of the EDSA MRT III, petitioner Republic is not liable because local government units are legally proscribed from imposing taxes of any kind on it under Section 133(o) of Republic Act No. 7160. Likewise, under Section 234 of the same law, petitioner is exempted from payment of real property tax.14

MRTC filed a complaint-in-intervention and sought to declare the nullity of the real property tax assessments.

The posting and publication of the Notice of Auction were made on 26 February 2006 and 5 March 2006.15

On 22 March 2006, the RTC Branch 208, through Presiding Judge Esteban A. Tacla, Jr., denied both petitioner Republic’s and MRTC’s applications for TRO.16

Consequently, on 24 March 2006, a public auction was conducted. For lack of bidders, the real properties were forfeited in favor of the City of Mandaluyong for the price of P1,483,700,100.18.17

On 15 September 2006, the RTC Branch 208 issued an order denying petitioner and MRTC’s application for issuance of a writ of preliminary injunction. A motion for reconsideration was filed but it was eventually denied on 9 March 2007. The issue on the validity of tax assessment however is pending before that court.

43

Petitioner Republic filed a petition for certiorari before the Court of Appeals challenging the denial of both the TRO and injunction by RTC Branch 208.

Meanwhile, respondent manifested before the Court of Appeals that due to the failure of MRTC to exercise the right of redemption, the City Treasurer of Mandaluyong executed a Final Deed of Sale in favor of the purchaser in the auction sale. Subsequently, Tax Declaration No. D-013-06267 in MRTC’s name was cancelled and Tax Declaration No. D-013-10636 was issued in its place.18

On 11 April 2008, respondent filed an ex parte petition praying for the issuance of a writ of possession before RTC Branch 213 of Mandaluyong and docketed as LRC Case No. MC-08-460.19 Petitioner Republic countered that the instant petition does not fall within the cases when a writ of possession may be issued. Moreover, petitioner argued that the pendency of Civil Case No. MC05-2882 assailing the validity of the tax assessment and the subsequent auction sale of the properties pre-empts the issuance of said writ.20

On 30 July 2008, the RTC Branch 213, through Judge Carlos A. Valenzuela, granted the petition for the issuance of a writ of possession.21 A subsequent motion for reconsideration filed by petitioner was denied for lack of merit.22

While MRTC appealed said order to the Court of Appeals, petitioner Republic filed the instant case raising a question of law, i.e. the propriety of the issuance of a writ of possession. To support its main thesis that the RTC Branch 213 erred in issuing a writ of possession, petitioner claims that since EDSA MRT properties are beneficially owned by DOTC, it should not have been assessed for payment of real property taxes. Being a governmental entity, it is exempt from payment of real property tax under Section 234 of the Local Government Code. Therefore, no tax delinquency exist authorizing respondent to sell the subject properties through public auction. It then follows that respondent has no legal right to a writ of possession.231avvphi1

Petitioner Republic then asserts that the auction sale conducted by respondent cannot be likened to an extrajudicial foreclosure sale of a real estate mortgage under Act No. 3135 as a justification for the issuance of a writ of possession. Petitioner Republic reasons that the EDSA MRT properties were not put up as a collateral or security for a loan or indebtedness which was secured from respondent, nor was there any mortgage contract voluntarily entered into by petitioner or even by MRTC.24

Finally, petitioner Republic adds that all requisites of litis pendencia exist in CA-G.R. SP No. 98334, which is a case for denial of injunction and TRO and in the present case, concerning the issuance of a writ of possession because there is identity of parties, rights asserted and reliefs prayer for. Respondent seeks to acquire possession over the EDSA MRT III properties on the basis of its tax assessments and auction sale, which petitioner Republic seeks to permanently enjoin respondent from enjoying when it initiated Civil Case No. MC05-2882. The pendency of CA-G.R. SP No. 98334 before the Court of Appeals, assailing the Orders denying respondent’s prayer for a TRO and injunction should have pre-empted the issuance of the writ of possession by reason of litis pendencia.25

In a Resolution dated 10 November 2008, this Court directed the parties to maintain the status quo and enjoined the enforcement and implementation of the Order and Writ of Possession dated 22 October 2008.26

Respondent filed its comment refuting the allegations of petitioner. Respondent does not contest petitioner’s immunity from local taxes. In fact, it has assessed MRTC, and not petitioner, for real property tax. Respondent defends the RTC’s issuance of a writ of possession after it was established that there was a valid foreclosure sale of MRTC’s properties for non-payment of real property taxes and after the title had been consolidated in respondent’s name. Respondent also avers that the subject public auction sale is an execution sale within the purview of Section 33, Rule 39 of the Rules of Court, thus a writ of possession was validly issued. Respondent subscribes to this Court’s ruling in Ong v. Court of Appeals27 which clarified that there is no forum shopping where a petition for the issuance of a writ of possession is filed despite the pendency of an action for annulment of mortgage and foreclosure sale.28

59

This case is, ultimately, between a local government’s power to tax and the national government’s privilege of tax exemption. That issue needs full hearing and deliberation, as indeed, the issue pends before the RTC, at first instance. Such trial of facts and issues must proceed. It should not be pre-empted by the present petition that deals with precisely the herein respondent’s intended end result.

A writ of possession is a mere incident in the transfer of title.29 In the instant case, it stemmed from the exercise of alleged ownership by respondent over EDSA MRT III properties by virtue of a tax delinquency sale. The issue of whether the auction sale should be enjoined is still pending before the Court of Appeals. Pending determination, it is premature for respondent to have conducted the auction sale and caused the transfer of title over the real properties to its name. The denial by the RTC to issue an injunction or TRO does not automatically give respondent the liberty to proceed with the actions sought to be enjoined, especially so in this case where a certiorari petition assailing the denial is still being deliberated in the Court of Appeals. All the more it is premature for the RTC to issue a writ of possession where the ownership of the subject properties is derived from an auction sale, the validity of which is still being threshed out in the Court of Appeals. The RTC should have held in abeyance the issuance of a writ of possession. At this juncture, the writ issued is premature and has no force and effect.

WHEREFORE, the petition is GRANTED. The Decision and Order dated 30 July 2008 and 6 October 2008, respectively of RTC Branch 213 of Mandaluyong City in LRC Case No. M-08-460 are hereby VACATED and SET ASIDE. The status quo Order dated 10 November 2008 is MAINTAINED. The Court of Appeals is ORDERED to resolve CA-G.R. SP No. 98334 with deliberate dispatch.

SO ORDERED.

60

Alejandro Ty. v. Hon. Trampe, et al.

Republic of the Philippines

SUPREME COURT

Manila

44

EN BANC

G.R. No. 117577 December 1, 1995

ALEJANDRO B. TY AND MVR PICTURE TUBE, INC., petitioners, vs.

THE HON. AURELIO C. TRAMPE, in his capacity as Judge of the Regional Trial Court of Pasig, Metro Manila, THE HON. SECRETARY OF FINANCE, THE MUNICIPAL ASSESSOR OF PASIG AND THE MUNICIPAL TREASURER OF PASIG, respondents.

PANGANIBAN, J.:

ARE THE INCREASED REAL ESTATE TAXES imposed by and being collected in the Municipality (now City) of Pasig, effective from the year 1994, valid an legal? This is the question brought before this Court for resolution.

The Parties

Petitioner Alejandro B. Ty is a resident of and registered owner of lands and buildings in the Municipality (now City) of Pasig, while petitioner MVR Picture Tube, Inc. is a corporation duly organized and existing under Philippine laws and is likewise a registered owner of lands and buildings in said Municipality 1 .

Respondent Aurelio C. Trampe is being sued in his capacity as presiding judge of Branch 163. Regional Trial Court of the National Capital Judicial Region, sitting in Pasig, whose Decision dated 14 July 1994 and Order dated 30 September 1994 in Special Civil Action No. 629 (entitled "Alejandro B. Ty and MVR Picture Tube, Inc. vs. The Hon. Secretary of Finance. et al.") are sought to be set aside. Respondent Secretary of Finance is impleaded as the government officer who approved the Schedule of Market Values used as basis for the new tax assessments being enforced by respondents Municipal Assessor and Municipal Treasurer of Pasig and the legality of which is being questioned in this petition 2 .

The Antecedent Facts

On 06 January 1994, respondent Assessor sent a notice of assessment respecting certain real properties of petitioners located in Pasig, Metro Manila. In a letter dated 18 March 1994, petitioners through counsel "request(ed) the Municipal Assessor to reconsider the subject assessments" 3 .

Not satisfied, petitioners on 29 March 1994 filed with the Regional Trial Court of the National Capital Judicial Region, Branch 163, presided over by respondent Judge, a Petition for Prohibition with prayer for a restraining order and/or writ of preliminary injunction to declare null and void the new tax assessments and to enjoin the collection of real estate taxes based on said assessments. In a Decision 4 dated 14 July 1994, respondent Judge denied the petition "for lack of merit" in the following disposition.

WHEREFORE, foregoing premises considered, petitioners' prayer to declare unconstitutional the schedule of market values as prepared by the Municipal Assessor of Pasig, Metro Manila, and to enjoin permanently the Municipal Treasurer of Pasig, Metro Manila, from collecting the real property taxes based thereof (sic) is hereby DENIED for lack of merit. Cost (sic) de oficio.

Subsequently, petitioners' Motion for Reconsideration was also denied by respondent Judge in an Order 5 dated 30 September 1994.

Rebuffed by said Decision and Order, petitioners filed this present Petition for Review directly before this Court, raising pure questions of law and assigning the following errors:

The Court a quo gravely erred in holding that Presidential Decree No. 921 was expressly repealed by R.A. 7160 and that said presidential decree including its Implementing Rules (P.D. 464) went down to the statutes' graveyard together with the other decision(s) of the Supreme Court affecting the same.

The Court a quo while holding that the new tax assessments have tremendously increased ranging from 418.8% to 570%, gravely erred in blaming petitioners for their failure to exhaust administrative remedies provided for by law.

The Court a quo blatantly erred in not declaring the confiscatory and oppressive nature of the assessments as illegal. void ab initio and unconstitutional constituting a deprivation of property without due process of law. 6

In a resolution dated 21 November 1994, this Court, without giving due course to the petition, required respondents to comment thereon. Respondents Municipal Treasurer and Municipal Assessor, through counsel, filed their Comment on 19 December 1994, and respondent Secretary of Finance, through the Solicitor General, submitted his on 11

61

May 1995. Petitioners filed their Reply to the Comment of respondent Assessor and Treasurer 06 January 1995, and their Reply to that of the respondent Secretary on 18 May 1995. After careful deliberation on the above pleadings, the Court resolved to give due course to the petition, and, inasmuch as the issues are relatively simple, the Court dispensed with requiring the parties to submit further memoranda and instead decided to consider the respondents' respective Comments as their answers and memoranda. Thus the case is now considered submitted for resolution.

The Issues

The issues brought by the parties for decision by this Court are:

1. Whether Republic Act No. 7160, otherwise known as the Local Government Code of 1991, repealed the provisions of Presidential Decree No. 921;

2. Whether petitioners are required to exhaust administrative remedies prior to seeking judicial relief; and

3. Whether the new tax assessments are oppressive and confiscatory, and therefore unconstitutional.

In disposing of the above issues against petitioners, the court a quo ruled that the schedule of market values and the assessments based thereon prepared solely by respondent assessor are valid and legal, they having been prepared in accordance with the provisions of the Local Government Code of 1991 (R.A. 7160). It held also that said Code had effectively repealed the previous law on the matter, P.D. 921, which required, in the preparation of said schedule, joint action by all the city and municipal assessors in the Metropolitan Manila area. The lower court also faulted petitioners with failure to exhaust administrative remedies provided under Sections 226 and 252 of R.A. 7160. Finally, it found the questioned assessments consistent with the "tremendously increased

45

. . . price of real estate anywhere in the country." 7

Stated the court:

This Court is inclined to agree with the view of defendants that R.A. 7160 in its repealing clause provide (sic) that Presidential Decree Nos. . . . 464 . . . are hereby repealed and rendered of no force and effect. Hence said presidential decrees including their implementing rules went down to the statutes' graveyard together with the decisions of the Supreme Court on cases effecting (sic) the same.

This Court is also in accord with respondents (sic) view that petitioners failed to avail of either Section 226 of R.A. 7160, that is by appealing the assessment of their properties to the Board of Assessment Appeal within sixty 160) days from the date of receipt of the written Notice of Assessment, and if it is true that petitioner (sic) as alleged in their

pleadings was not afforded the opportunity to appeal to the board of assessment appeal, then they could have availed of the provisions of Section 252, of the same R.A. 7160 by paying the real estate tax under protest. Because of petitioners (sic) failure to avail of either Sections 226 or 252 of R.A. 7160, they failed to exhaust administratives (sic) remedies provided for by law before bringing the case to Court. (Buayan Cattle Co., Inc. vs. Quintillan, 128 SCRA 276). Therefore the filing of this case before this Court is premature, the same not falling under the exception because the issue involved is not a question of law but of fact (Valmonte vs. Belmonte, Jr., 170 SCRA 256).

Petitioners also alleged that the New Tax Assessments are not only oppressive and confiscatory but also destructive in view of the tremendous increase in its valuation, from P855,360.00 to P4,121,280.00 a marked increase of 418.8% of one of its properties, while the other, from P857,600.00 to P4,374,410.00, an increased (sic) of 510%. This Court agree (sic) with petitioners (sic) observation, but the reality (sic) the price of real property anywhere in the country tremendously increased. This is shown in the Real Estate Monitor of Economic Incorporated (copy attached with the memorandum of respondents). For example real properties in Pasig in 1991 located at the Ortigas Commercial Complex command (sic) a price of P42,000.00 per square meter which price is supported by a case filed before this Court (civil case no. 64506, Jesus Fajardo, et al. vs. Ortigas and Co.) for Recovery (sic) of agents (sic) commission. The property subject of the sale which was also located at the Ortigas Commercial Complex at Pasig, Metro Manila was sold to a Taiwanese at P42,000.00 per square meter. It is therefore not surprising that the assessment of real properties in Pasig has increased tremendously. Had petitioners first exhausted administrative remedies they would have realized the fact that prices of real estate has (sic) tremendously increased and would have known the reason/reasons why. 8

In its Order dated 30 September 1994 denying the Motion for Reconsideration, the court a quo ruled:

This Court despite petitioners' exhaustive and thorough research and discussion of the point in issue, is still inclined to sustain the view that P.D. 921 was impliedly repealed by R.A. 7160. P.D. 921 to the mind of this Court is an implementing law of P.D. 464, Sections 3, 6, 9, 12 and 13 of said P.D. provide how certain provisions of P.D. 464 shall be implemented. Since P.D. 464 was expressly repealed by R.A. 7160. P.D. 921 must necessarily be considered repealed, otherwise, what should Sections 3, 6, 9, 12 and 13 of P.D. 921 implement? And, had the law makers intended to have said P.D. 921 remain valid and enforceable they would have provided so in R.A. 7160. Since there is none, P.D. 921 must be considered repealed. 9

Re: The First Issue:

Repeal of P.D. 921?

62

To resolve the first issue, it is necessary to revisit the following provisions of law:

1. Section 15 of P.D. No. 464, promulgated on 20 May 1974, otherwise known as the Peal Property Tax Code:

Sec. 15. Preparation of Schedule of Values. — Before any general revision of property assessments is made, as provided in this Code, there shall be prepared for the province or city a Schedule of Market Value for the different classes of real property therein situated in such form and detail as shall be prescribed by the Secretary of Finance.

Said schedule, together with an abstract of the data (on) which it is based, shall be submitted to the Secretary of Finance for review not later than the thirty-first day of December immediately preceding the calendar year the general revision of assessments shall be undertaken. The Secretary of Finance shall have ninety days from the date of receipt within which to review said schedule to determine whether it conforms with the provisions of this Code.

2. Subsequently, on 12 April 1976, P.D. 921 was promulgated, which in Section 9 thereof, states:

Sec. 9. Preparation of Schedule of Values for Real Property within the Metropolitan Area.

— The Schedule of Values that will serve as the basis for the appraisal and assessment for taxation purposes of real properties located within the Metropolitan Area shall be prepared jointly by the City Assessors of the Districts created under Section one hereof, with the City Assessor of Manila acting as Chairman, in accordance with the pertinent provisions of Presidential Decree No. 464, as amended, otherwise known as the Real Property Tax Code, and the implementing rules and regulations thereof issued by the Secretary of Finance.

3. Section One of P.D. 921, referred to above, provides:

Sec. 1. Division of Metropolitan Manila into Local Treasury and Assessment Districts. — For purposes of effective fiscal management, Metropolitan Manila is hereby divided into the following Local Treasury and Assessment Districts:

First District — Manila

Second District — Quezon City, Pasig, Marikina,

Mandaluyong and San Juan

Third District — Caloocan City, Malabon,

Navotas and Valenzuela

Fourth District — Pasay City, Makati, Paranaque,

Muntinlupa, Las Piñas, Pateros and

Taguig

46

Manila, Quezon City, Caloocan City and Pasay City shall be the respective Centers of the aforesaid Treasury and Assessment Districts.

4. On 01 January 1992, Republic Act No. 7160, otherwise known as the Local Government Code of 1991, took effect. Section 212 of said law is quoted as follows:

Sec. 212. Preparation of Schedule of Fair Market Values. — Before any general revision of property assessment is made pursuant to the provisions of this Title, there shall be prepared a schedule of fair market values by the provincial, city and the municipal assessors of the municipalities within the Metropolitan Manila Area for the different classes of real property situated in their respective local government units for enactment by ordinance of the sanggunian concerned. The schedule of fair market values shall be published in a newspaper of general circulation in the province, city or municipality concerned, or in the absence thereof, shall be posted in the provincial capitol, city or municipal hall and in two other conspicuous public place therein.

5. The repealing clause of R.A. 7160 found in the Section 534 thereof is hereby reproduced as follows:

Sec. 534. Repealing Clause. —

(a) . . .

(b) . . .

(c) . . . ; and Presidential Decree Nos. 381, 436, 464, 477, 626, 632, 752, and 1136 are hereby repealed and rendered of no force and effect.

xxx xxx xxx

(f) All general and special laws, acts, city charter, decrees, executive orders, proclamations and administrative regulations, or part or parts thereof which are inconsistent with any of the provisions of this Code are hereby repealed or modified accordingly. (emphasis supplied)

It is obvious from the above provisions of R.A 7160, specifically Sec. 534, that P.D. 921 was NOT EXPRESSLY repealed by said statute. Thus, the question is: Was P.D. 921 IMPLIEDLY repealed by R.A. 7160?

Petitioners contend that, contrary to the aforequoted Decision of the lower court, "whether the assessment is made before or after the effectivity of R.A. 7160, the

63

observance of, and compliance with, the explicit requirement of P.D. 921 is strict and mandatory either" because P.D. 921 was not impliedly repealed by R.A. 7160 and is therefore still the applicable statute, or because the Supreme Court, in three related cases 10 promulgated on 16 December 1993 — after the Local Government Code of 1991 already took effect — ruled that a schedule of market values and the corresponding assessments based thereon "prepared solely by the city assessor . . . failed to comply with the explicit requirement (of collegial and joint action by all the assessors in the Metropolitan Manila area under P.D. 921) . . . and are on that account illegal and void."

On the other hand, respondents aver that Section 9 of P.D. 921 and Section 212 of R.A. 7160 are clearly and unequivocally incompatible because they dwell on the same subject matter, namely, the preparation of a schedule of values for real property within the Metropolitan Manila Area. Under P.D. 921, the schedule shall be preparedjointly by the city assessors of the District, while, under R.A. 7160, such schedule shall be prepared "by the provincial, city and municipal assessors of the municipalities within the Metropolitan Manila area . . . ". Furthermore, they claim that "Section 9 (of P.D. 921) merely supplement(ed) Section 15 of P.D. 464 in so far as the preparation of the schedule of values in Metro Manila (is concerned)." Thus, "with the express repeal of P.D. 464 . . . P.D. 921 . . .can not therefore exist independently on its own." They also argue that although the aforecited Supreme Court decision was promulgated after R.A. 7160 took effect, "the assessment of the Municipal Assessors in those three (3) cited cases were assessed in 1990 prior to the effectivity of the Code." Hence, the doctrine in said cases cannot be applied to those prepared in 1994 under R.A. 7160.

We rule for petitioners.

R.A. 7160 has a repealing provision (Section 534) and, if the intention of the legislature was to abrogate P.D. 921, it would have included it in such repealing clause, as it did in expressly rendering of no force and effect several other presidential decrees. Hence, any repeal or modification of P.D. 921 can only be possible under par. (f) of said Section 534, as follows:

(f) All general and special laws, acts, city charter, decrees, executive orders, proclamations and administrative regulations, part or parts thereof which are inconsistent with any of the provisions of the Code are hereby repealed or modified accordingly.

The foregoing partakes of the nature of a general repealing provision. It is a basic rule of statutory construction that repeals by implication are not favored. An implied repeal will not be allowed unless it is convincingly and unambiguously demonstrated that the two laws are so clearly repugnant and patently inconsistent that they cannot co-exist. This is based on the rationale that the will of the legislature cannot be overturned by the judicial function of construction and interpretation. Courts cannot take the place of Congress in repealing statutes. Their function is to try to harmonize, as much as possible, seeming conflicts in the laws and resolve doubts in favor of their validity and co-existence.

In Villegas v. Subido, 11 the issue raised before the Court was whether the Decentralization Act had the effect of repealing what was specifically ordained in the Charter of the City of Manila. Under the Charter, it was provided in its Section 22 that "The President of the Philippines with the consent of the Commission on Appointments shall appoint . . . the City Treasurer and his Assistant." Under the Decentralization Act, it was provided that "All other employees, except teachers paid out of provincial, city or municipal general funds and other local funds shall . . . be appointed by the provincial governor, city or municipal mayor upon recommendation of the head of office concerned."

The Court, in holding that there was no implied repeal in this case 12 , said:

. . . It has been the constant holding of this Court that repeals by implication are not favored and will not be so declared unless it be manifest that the legislature so intended. Such a doctrine goes as far back as United States v. Reyes, a 1908 decision (10 Phil. 423, Cf. U.S. v. Academia, 10 Phil. 431 [1908]). It is necessary then before such a repeal is deemed to exist that it be shown that the statutes or statutory provisions deal with the same subject matter and that the latter be inconsistent with the former. (Cf. Calderon v. Provincia del Santisimo Rosario, 28 Phil. 164 [1914]). There must be a showing of repugnancy clear and convincing in character. The language used in the latter statute must be such as to render it irreconcilable with what has been formerly enacted. An inconsistency that falls short of that standard does not suffice. What is needed is a manifest indication of the legislative purpose to repeal. [Citing numerous cases]

47

More specifically, a subsequent statute, general in character as to its terms and application, is not to be construed as repealing a special or specific enactment, unless the legislative purpose to do so is manifest. This is so even if the provisions of the latter are sufficiently comprehensive to include what was set forth in the special act. This principle has likewise been consistently applied in decisions of the Court from Manila Railroad Co. v. Rafferty (40 Phil 224), decided as far back as 1919. A citation from an opinion of Justice Tuason is illuminating. Thus: "From another angle the presumption against repeal is stronger. A special law is not regarded as having been amended or repealed by a general law unless the intent to repeal or alter is manifest. Generalia specialibus non derogant. An this is true although the terms of the general act are broad enough to include the matter in the special statute. . . . At any rate, in the event harmony between provisions of this type in the same law or in two laws is impossible, the specific provision controls unless the statute, considered in its entirety, indicates a contrary intention upon the part of the legislature. . . . A general law is one which embraces a class of subjects or places and does not omit any subject or place naturally belonging to such class, while a special act is one which relates to particular persons or things of a class." (citing Valera v. Tuason, 80 Phil. 823, 827-828 [1948].)

64

In the relatively recent case of Mecano vs. Commission on Audit 13 , the Court en banc had occasion to reiterate and to reinforce the rule against implied repeals, as follows:

Repeal by implication proceeds on the premise that where a statute of later date clearly reveals an intention on the part of the legislature to abrogate a prior act on the subject, that intention must be given effect. Hence, before there can be a repeal, there must be a clear showing on the part of the law maker that the intent in enacting the new law was to abrogate the old one. The intention to repeal must be clear and manifest; otherwise, at least, as a general rule, the later act is to be construed as a continuation of, and not a substitute for, the first act and will continue so far as the two acts are the same from the time of the first enactment.

There are two categories of repeal by implication. The first is where provisions in the two acts on the same subject matter are in an irreconcilable conflict, the later act to the extent of the conflict constitutes an implied repeal of the earlier one. The second is if the later act covers the whole subject of the earlier one and is clearly intended as a substitute, it will operate to repeal the earlier law.

Implied repeal by irreconcilable inconsistency take place when the two statutes cover the same subject matter; they are so clearly inconsistent and incompatible with each other that they cannot be reconciled or harmonized; and both cannot be given effect, that is that one law cannot be enforced without nullifying the other.

In the same vein, but in different words, this Court ruled in Gordon vs. Veridiano 14 :

Courts of justice, when confronted with apparently conflicting statutes, should endeavor to reconcile the same instead of declaring outright the invalidity of one as against the other. Such alacrity should be avoided. The wise policy is for the judge to harmonize them if this is possible, bearing in mind that they are equally the handiwork of the same legislature, and so give effect to both while at the same time also according due respect to a coordinate department of the government. It is this policy the Court will apply in arriving at the interpretation of the laws above-cited and the conclusions that should follow therefrom.

In the instant case, and using the Courts' standard for implied repeal in Mecano, we compared the two laws.

Presidential Decree No. 921 was promulgated on 12 April 1976, with the aim of, inter alia, evolving "a progressive revenue raising program that will not unduly burden the tax payers . . . " 15 in Metropolitan Manila. Hence, it provided for the "administration of local financial services in Metropolitan Manila" only, and for this purpose, divided the area into four Local Treasury and Assessment Districts, regulated the duties and functions of the

treasurers and assessors in the cities and municipalities in said area and spelled out the process of assessing, imposing and distributing the proceeds of real estate taxes therein.

Upon the other hand, Republic Act No. 7160, otherwise "known and cited as the Local 'Government Code of 1991'" 16 took effect on 01 January 1992 17. It declared "genuine and meaningful local autonomy" as a policy of the state. Such policy was meant to decentralize government "powers, authority, responsibilities and resources" from the national government to the local government units "to enable them to attain their fullest development as self-reliant communities and make them more effective partners in the attainment of national goals." 18 In the formulation and implementation of policies and measures on local autonomy, ''(l)ocal government units may group themselves, consolidate or coordinate their efforts, services and resources for purposes commonly beneficial to them." 19

From the above, it is clear that the two laws are not co-extensive and mutually inclusive in their scope and purpose. While R.A. 7160 covers almost all governmental functions delegated to local government units all over the country, P.D. 921 embraces only the Metropolitan Manila area and is limited to the administration of financial services therein, especially the assessment and collection of real estate (and some other local) taxes.

Coming down to specifics, Sec. 9 of P.D. 921 requires that the schedule of values of real properties in the Metropolitan Manila area shall be prepared jointly by the city assessors in the districts created therein: while Sec. 212 of R.A. 7160 states that the schedule shall be prepared "by the provincial, city and municipal assessors of the municipalities within the Metropolitan Manila Area for the different classes of real property situated in their respective local government units for enactment by ordinance of the sanggunian concerned. . . ."

It is obvious that harmony in these provisions is not only possible, but in fact desirable, necessary and consistent with the legislative intent and policy. By reading together and harmonizing these two provisions, we arrive at the following steps in the preparation of the said schedule, as follows:

1. The assessor in each municipality or city in the Metropolitan Manila area shall prepare his/her proposed schedule of values, in accordance with Sec. 212, R.A. 7160.

2. Then, the Local Treasury and Assessment District shall meet, per Sec. 9, P.D. 921. In the instant case, that district shall be composed of the assessors in Quezon City, Pasig, Marikina, Mandaluyong and San Juan, pursuant to Sec. 1 of said P.D. In this meeting, the different assessors shall compare their individual assessments, discuss and thereafter jointly agree and produce a schedule of values for their district, taking into account the preamble of said P.D. that they should evolve "a progressive revenue raising program that will not unduly burden the taxpayers".

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3. The schedule jointly agreed upon by the assessors shall then be published in a newspaper of general circulation and submitted to the sanggunian concerned for enactment by ordinance, per Sec. 212, R.A. 7160.

By this harmonization, both the preamble of P.D. 921 decreeing that the real estate taxes shall "not unduly burden the taxpayer" and the "operative principle of decentralization" provided under Sec. 3, R.A. 7160 encouraging local government units to "consolidate or coordinate their efforts, services and resources" shall be fulfilled. Indeed the essence of joint local action for common good so cherished in the Local Government Code finds concrete expression in this harmonization.

48

How about respondents' claim that, with the express repeal of P.D. 464, P.D. 921 — being merely a "supplement" of said P.D. — cannot "exist independently on its own"? Quite the contrary is true. By harmonizing P.D. 921 with R.A. 7160, we have just demonstrated that it can exist outside of P.D. 464, as a support, supplement and extension of R.A. 7160, which for this purpose, has replaced P.D. 464.

Since it is now clear that P.D. 921 is still good law, it is equally clear that this Court's ruling in the Mathay/Javier/Puyat-Reyes cases (supra) is still the prevailing and applicable doctrine. And, applying the said ruling in the present case, it is likewise clear that the schedule of values prepared solely by the respondent municipal assessor is illegal and void.

Re: The Second Issue:

Exhaustion of Administrative Remedies

We now come to the second issue. The provisions of Sections 226 and 252 of R.A. 7160 being material to this issue, are set forth below:

Sec. 226. Local Board of Assessment Appeals. — Any owner or person having legal interest in the property who is not satisfied with the action of the provincial, city or municipal assessor in the assessment of his property may, within sixty (60) days from the date of receipt of the written notice of assessment, appeal to the Board of Assessment Appeals of the province or city by filing a petition under oath in the form prescribed for the purpose, together with copies of the tax declarations and such affidavits or documents submitted in support of the appeal.

Sec. 252. Payment under Protest. — (a) No protest shall be entertained unless the taxpayer first pays the tax. There shall be annotated on the tax receipts the words "paid under protest". The protest in writing must be filed within thirty (30) days from payment of the tax to the provincial, city treasurer or municipal treasurer, in the case of a municipality within Metropolitan Manila Area, who shall decide the protest within sixty (60) days from receipt.

(b) The tax or a portion thereof paid under protest shall be held in trust by the treasurer concerned.

(c) In the event that the protest is finally decided in favor of the taxpayer, the amount or portion of the tax protested shall be refunded to the protestant, or applied as tax credit against his existing or future tax liability.

(d) In the event that the protest is denied or upon the lapse of the sixty-day period prescribed in subparagraph (a), the taxpayer may avail of the remedies as provided for in Chapter 3, Title Two, Book II of this Code.

Respondents argue that this case is premature because petitioners neither appealed the questioned assessments on their properties to the Board of Assessment Appeal, pursuant to Sec. 226, nor paid the taxes under protest, per Sec. 252.

We do not agree. Although as a rule, administrative remedies must first be exhausted before resort to judicial action can prosper, there is a well-settled exception in cases where the controversy does not involve questions of fact but only of law. 20 In the present case, the parties, even during the proceedings in the lower court on 11 April 1994, already agreed "that the issues in the petition are legal" 21 , and thus, no evidence was presented in said court.

In laying down the powers of the Local Board of Assessment Appeals, R.A. 7160 provides in Sec. 229 (b) that "(t)he proceedings of the Board shall be conducted solely for the purpose of ascertaining the facts . . . ." It follows that appeals to this Board may be fruitful only where questions of fact are involved. Again, the protest contemplated under Sec. 252 of R.A. 7160 is needed where there is a question as to the reasonableness of the amount assessed.

Hence, if a taxpayer disputes the reasonableness of an increase in a real estate tax assessment, he is required to "first pay the tax" under protest. Otherwise, the city or municipal treasurer will not act on his protest. In the case at bench however, the petitioners are questioning the very authority and power of the assessor, acting solely and independently, to impose the assessment and of the treasurer to collect the tax. These are not questions merely of amounts of the increase in the tax but attacks on the very validity of anyincrease.

Finally, it will be noted that in the consolidated cases of Mathay/Javier/Puyat-Reyes cited earlier, the Supreme Court referred the petitions (which similarly questioned the schedules of market values prepared solely by the respective assessors in the local government units concerned) to the Board of Assessment Appeal, not for the latter, to exercise its appellate jurisdiction, but rather to act only as a fact-finding commission. Said theCourt 22 thru Chief Justice Andres R. Narvasa:

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On November 5, 1991, the Court issued a Resolution clarifying its earlier one of May 16, 1991. It pointed out that the authority of the Central Board of Assessment Appeals "to take cognizance of the factual issues raised in these two cases by virtue of the referral by this Court in the exercise of its extraordinary or certiorari jurisdiction should not be confused with its appellate jurisdiction over appealed assessment cases under Section 36 of P.D. 464 otherwise known as the Real Property Tax Code. The Board is not acting in its appellate jurisdiction in the instant cases but rather, it is acting as a Court-appointed fact-finding commission to assist the Court in resolving the factual issues raised in G.R. Nos. 97618 and 97760."

In other words, the Court gave due course to the petitions therein in spite of the fact that the petitioners had not, apriori, exhausted administrative remedies by filing an appeal before said Board. Because there were factual issues raised in the Mathay, et al. cases, the Supreme Court constituted the Central Board of Assessment Appeals as a fact-finding body to assist the Court in resolving said factual issues. But in the instant proceedings, there are no such factual issues. Therefore, there is no reason to require petitioners to exhaust the administrative remedies provided in R.A. 7160, nor to mandate a referral by this Court to said Board.

Re: The Third Issue:

Constitutionality of the Assessments

Having already definitively disposed of the case through the resolution of the foregoing two issues, we find no more need to pass upon the third. It is axiomatic that the constitutionality of a law, regulation, ordinance or act will not be resolved by courts if the controversy can be, as in this case it has been, settled on other grounds. In the recent case of Macasiano vs. National Housing Authority 23 , this Court declared:

It is a rule firmly entrenched in our jurisprudence that the constitutionality of an act of the legislature will not be determined by the courts unless that question is properly raised and presented in appropriate cases and is necessary to a determination of the case, i.e., the issue of constitutionality must be the very lis mota presented. To reiterate, the essential requisites for a successful judicial inquiry into the constitutionality of a law are:

(a) the existence of an actual case or controversy involving a conflict of legal rights susceptible of judicial determination, (b) the constitutional question must be raised by a proper party, (c) the constitutional question must be raised at the earliest opportunity, and (d) the resolution of the constitutional question must be necessary to the decision of the case. (emphasis supplied)

The aforequoted decision in Macasiano merely reiterated the ruling in Laurel vs. Garcia 24, where this Court held:49

The Court does not ordinarily pass upon constitutional questions unless these questions are properly raised in appropriate cases and their resolution is necessary for the determination of the case (People v. Vera, 65 Phil. 56 [1937]). The Court will not pass upon a constitutional question although properly presented by the record if the case can be disposed of on some other ground such as the application of a statute or general law (Siler v. Louisville and Nashville R. Co., 213 U.S. 175, [1909], Railroad Commission v. Pullman Co., 312 U.S. 496 [1941]). 25 (emphasis supplied)

In view of the foregoing ruling, the question may be asked: what happens to real estate tax payments already made prior to its promulgation and finality? Under the law 26 , "the taxpayer may file a written claim for refund or credit for taxes and interests . . . ."

Finally, this Tribunal would be remiss in its duty as guardian of the judicial branch if we let pass unnoticed the ease by which the respondent Judge consigned "to the statutes' graveyard" a legislative enactment "together with the (three) decisions of the Supreme Court" promulgated jointly and unanimously en banc. An elementary regard for the sacredness of laws and the stability of judicial doctrines laid down by superior authority should have constrained him to be more circumspect in rendering his decision and to spell out carefully and precisely the reasons for his decision to invalidate such acts, instead of imperiously decreeing an implied repeal. He knows or should have known the legal precedents against implied repeals. Respondent Judge, in his decision, did not even make an attempt to try to reconcile or harmonize the laws involved. Instead, he just unceremoniously swept them and this Court's decisions into the dustbin of "judicial history." In his future acts and decisions, he is admonished to be more judicious in setting aside established laws, doctrines and precedents.

WHEREFORE, judgment is hereby rendered REVERSING and SETTING ASIDE the questioned Decision and Order of respondent Judge, DECLARING as null and void the questioned Schedule of Market Values for properties in Pasig City prepared by respondent Assessor, as well as the corresponding assessments and real estate tax increases based thereon; and ENJOINING the respondent Treasurer from collecting the real estate tax increases made on the basis of said Schedule and assessments. No costs.

SO ORDERED.

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Coca-Cola Bottlers Phils. Inc. v. City of Manila

Republic of the Philippines

SUPREME COURT

Manila

FIRST DIVISION

G.R. No. 156252 June 27, 2006

COCA-COLA BOTTLERS PHILIPPINES, INC., Petitioner, vs.

CITY OF MANILA, LIBERTY M. TOLEDO – City Treasurer and JOSEPH SANTIAGO – Chief, Licensing Division, Respondents.

D E C I S I O N

CHICO-NAZARIO, J.:

Before Us is a Petition for Review on Certiorari under Rule 45 of the 1997 Rules of Civil Procedure, assailing the Order1 of the Regional Trial Court (RTC) of Manila, Branch 21, dated 8 May 2002, dismissing petitioner’s Petition for Injunction, and the Order2 dated 5 December 2002, denying petitioner’s Motion for Reconsideration.

Petitioner Coca-Cola Bottlers Philippines, Inc. is a corporation engaged in the business of manufacturing and selling beverages and maintains a sales office located in the City of Manila.

On 25 February 2000, the City Mayor of Manila approved Tax Ordinance No. 7988, otherwise known as "Revised Revenue Code of the City of Manila" repealing Tax Ordinance No. 7794 entitled, "Revenue Code of the City of Manila." Tax Ordinance No. 7988 amended certain sections of Tax Ordinance No. 7794 by increasing the tax rates applicable to certain establishments operating within the territorial jurisdiction of the City of Manila, including herein petitioner.

Aggrieved by said tax ordinance, petitioner filed a Petition3 before the Department of Justice (DOJ), against the City of Manila and its Sangguniang Panlungsod, invoking Section 1874 of the Local Government Code of 1991 (Republic Act No. 7160). Said Petition questions the constitutionality or legality of Section 21 of Tax Ordinance No. 7988. According to petitioner:

Section 21 of the Old Revenue Code of the City of Manila (Ordinance No. 7794, as amended) was reproduced verbatim as Section 21 under the new Ordinance except for

the last paragraph thereof which reads: "PROVIDED, that all registered businesses in the City of Manila that are already paying the aforementioned tax shall be exempted from payment thereof", which was deleted; that said deletion would, in effect, impose additional business tax on businesses, including herein petitioner, that are already subject to business tax under the other sections, specifically Sec. 14, of the New Revenue Code of the City of Manila, which imposition, petitioner claims, "is beyond or exceeds the limitation on the taxing power of the City of Manila under Sec. 143 (h) of the LGC of 1991; and that deletion is a palpable and manifest violation of the Local Government Code of 1991, and the clear mandate of Article X, Sec. 5 of the 1987 Constitution, hence Section 21 is "illegal and unconstitutional."

On 17 August 2000, then DOJ Secretary Artemio G. Tuquero issued a Resolution declaring Tax Ordinance No. 7988 null and void and without legal effect, the pertinent portions of which read:

50

After a judicious scrutiny of the records of this case, in the light of the pertinent provisions of the Local Government Code of 1991, this Department finds for the petitioner.

The Local Government Code of 1991 provides:

"Section 188. Publication of Tax Ordinances and Revenue Measures. – Within ten (10) days after their approval, certified true copies of all provincial, city and municipal tax ordinances or revenue measures shall be published in full for three (3) consecutive days in a newspaper of local circulation; Provided, however, that in provinces, cities, and municipalities where there are no newspapers or local circulations the same may be posted in at least two (2) conspicuous and publicly accessible places." (R.A. No. 7160) (stress supplied)

Upon the other hand, the Rules and Regulations Implementing the Local Government Code of 1991, insofar as pertinent, mandates:

"Art. 277. Publication of Tax Ordinances and Revenue Measures. – (a) within ten (10) days after their approval, certified true copies of all provincial, city and municipal tax ordinances or revenue measures shall be published in full for three (3) consecutive days in a newspaper of local circulation provided that in provinces, cities and municipalities where there are no newspapers of local circulation, the same may be posted in at least two (2) conspicuous and publicly accessible places.

If the tax ordinances or revenue measure contains penal provisions as authorized under Art. 279 of this Rule, the gist of such tax ordinance or revenue measure shall be published in a newspaper of general circulation within the province, posting of such ordinance or measure shall be made in accessible and conspicuous public places in all municipalities and cities of the province to which the sanggunian enacting the ordinance or revenue measure belongs.

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xxx xxx xxx."

(emphasis ours)

It is clear from the above-quoted provisions of R.A. No. 7160 and its implementing rules that the requirement of publication is MANDATORY and leaves no choice. The use of the word "shall" in both provisions is imperative, operating to impose a duty that may be enforced (Soco v. Militante, 123 SCRA 160, 167; Modern Coach Corp. v. Faver 173 SE 2d 497, 499).

Its essence is simply to inform the people and the entities who may likely be affected, of the existence of the tax measure. It bears emphasis, that, strict observance of the said procedural requirement is the only safeguard against any unjust and unreasonable exercise of the taxing powers by ensuring that the taxpayers are notified through publication of the existence of the measure, and are therefore able to voice out their views or objections to the said measure. For, after all, taxes are obligatory exactions or enforced contributions corollary to taking of property.

x x x x

In the case at bar, respondents, by its failure to file their comments and present documentary evidence to show that the mandatory requirement of law on publication, among other things, has been met, may be deemed to have waived its right to controvert or dispute the documentary evidence submitted by petitioner which indubitably show that subject tax ordinance was published only once, i.e., on the May 22, 2000 issue of the Philippine Post. Clearly,

therefore, herein respondents failed to satisfy the requirement that said ordinance shall be published for three (3) consecutive days as required by law.

x x x x

In view of the foregoing, we find it unnecessary to pass upon the other issues raised by the petitioner.

WHEREFORE, premises considered, Tax Ordinance No. 7988 of the City of Manila is hereby declared NULL and VOID and WITHOUT LEGAL EFFECT for having been enacted in contravention of the provisions of the Local Government Code of 1991 and its implementing rules and regulations.5

The City of Manila failed to file a Motion for Reconsideration nor lodge an appeal of said Resolution, thus, said Resolution of the DOJ Secretary declaring Tax Ordinance No. 7988 null and void has lapsed into finality.

On 16 November 2000, Atty. Leonardo A. Aurelio wrote the Bureau of Local Government Finance (BLGF) requesting in behalf of his client, Singer Sewing Machine Company, an

opinion on whether the Office of the City Treasurer of Manila has the right to enforce Tax Ordinance No. 7988 despite the Resolution, dated 17 August 2000, of the DOJ Secretary. Acting on said letter, the BLGF Executive Director issued an Indorsement on 20 November 2000 ordering the City Treasurer of Manila to "cease and desist" from enforcing Tax Ordinance No. 7988. According to the BLGF:

In the attached Resolution dated August 17, 2000 of the Department of Justice, it is stated that "x x x Ordinance No. 7988 of the City of Manila is hereby declared NULL AND VOID AND WITHOUT LEGAL EFFECT for having been enacted in contravention of the provisions of the Local Government Code of 1991 and its implementing rules and regulations."

x x x x

In view thereof, that Office is hereby instructed to cease and desist from implementing the aforementioned Manila Tax Ordinance No. 7988, inviting attention to Section 190 of the Local Government Code (LGC) of 1991, quoted hereunder:

"Section 190. Attempt to Enforce Void or Suspended Tax Ordinances and Revenue Measures.- The enforcement of any tax ordinance or revenue measures after due notice of the disapproval or suspension thereof shall be sufficient ground to administrative disciplinary action against the local officials and employees responsible therefore."

Be guided accordingly.6

Despite the Resolution of the DOJ declaring Tax Ordinance No. 7988 null and void and the directive of the BLGF that respondents cease and desist from enforcing said tax ordinance, respondents continued to assess petitioner business tax for the year 2001 based on the tax rates prescribed under Tax Ordinance No. 7988. Thus, petitioner filed a Complaint with the RTC of Manila, Branch 21, on 17 January 2001, praying that respondents be enjoined from implementing the aforementioned tax ordinance.

On 28 November 2001, the RTC of Manila, Branch 21, rendered a Decision in favor of petitioner, the decretal portion of which states:

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The defendants did not follow the procedure in the enactment of Tax Ordinance No. 7988. The Court agrees with plaintiff’s contention that the ordinance should first be published for three (3) consecutive days in a newspaper of local circulation aside from the posting of the same in at least four (4) conspicuous public places.

x x x x

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WHEREFORE, premises considered, judgment is hereby rendered declaring the injunction permanent. Defendants are enjoined from implementing Tax Ordinance No. 7988. The bond posted by the plaintiff is hereby CANCELLED.7

During the pendency of the said case, the City Mayor of Manila approved on 22 February 2001 Tax Ordinance No. 8011 entitled, "An Ordinance Amending Certain Sections of Ordinance No. 7988." Said tax ordinance was again challenged by petitioner before the DOJ through a Petition questioning the legality of the aforementioned tax ordinance on the grounds that (1) said tax ordinance amends a tax ordinance previously declared null and void and without legal effect by the DOJ; and (2) said tax ordinance was likewise not published upon its approval in accordance with Section 188 of the Local Government Code of 1991.

On 5 July 2001, then DOJ Secretary Hernando Perez issued a Resolution declaring Tax Ordinance No. 8011 null and void and legally not existing. According to the DOJ Secretary:

After a careful examination/evaluation of the records of this case and applying the pertinent provisions of the Local Government Code of 1991, this Department finds the instant petition of Coca-Cola Bottlers, Philippines, Inc. meritorious.

It bears stress, at the outset, that the subject ordinance was passed and approved by the respondents principally to amend Ordinance No. 7988 which was earlier nullified by this Department in its Resolution Dated August 17, 2000, also at the instance of the herein petitioner. x x x

x x x x

x x x [T]he only logical conclusion, therefore, is that Ordinance No. 8011, subject herein, is also null and void, it being a mere amendatory ordinance of Ordinance No. 7988 which, as earlier stated, had been nullified by this Department. An invalid or unconstitutional law or ordinance does not, in legal contemplation, exist (Manila Motors Co., Inc. vs. Flores, 99 Phil. 738). Where a statute which has been amended is invalid, nothing, in effect, has been amended. As held in People vs. Lim, 108 Phil. 1091:

"If an order or law sought to be amended is invalid, then it does not legally exist. There would be no occasion or need to amend it; x x x" (at p. 1097)

Instead of amending Ordinance No. 7988, herein respondent should have enacted another tax measure which strictly complies with the requirements of law, both procedural and substantive. The passage of the assailed ordinance did not have the effect of curing the defects of Ordinance No. 7988 which, any way, does not legally exist.

x x x x

WHEREFORE, premises considered, Tax Ordinance No. 8011 is hereby declared NULL and VOID and LEGALLY NOT EXISTING.8

Respondent’s Motion for Reconsideration of the Resolution of the DOJ was subsequently denied in a Resolution,9dated 12 March 2002.

The City of Manila appealed the DOJ Resolution, dated 12 March 2002, denying its Motion for Reconsideration of the Resolution nullifying Tax Ordinance No. 8011 before the RTC of Manila, Branch 17, but the same was dismissed for lack of jurisdiction in an Order, dated 2 December 2002. According to the trial court:

From whatever angle the recourse of herein petitioners was viewed, either from the standpoint of Section 1, Rule 43, or Section 1 and the last sentence of the second paragraph of Section 4, Rule 65 of the 1997 Rules of Civil Procedure, the conclusion was inevitable that petitioners’ remedial measure from dispositions of the Secretary of Justice should have been ventilated before the next judicial plane. x x x

Accordingly, by reason of the foregoing premises, Civil Case No. 02-103372 for "Certiorari" is DISMISSED.

Consequently, respondents appealed the foregoing Order, dated 2 December 2002, via a Petition for Review on Certiorari to the Supreme Court docketed as G.R. No. 157490. However, said appeal was dismissed in our Resolution, dated 23 June 2003, the dispositive of which reads:

Pursuant to Rule 45 and other related provisions of the 1997 Rules of Civil Procedure as amended governing appeals by certiorari to the Supreme Court, only petitions which are accompanied by or which comply strictly with the requirements specified therein shall be entertained. On the basis thereof, the Court resolves to DENY the instant petition for review on certiorari of the orders of the Regional Trial Court, Manila, Branch 17 dated December 2, 2002 and March 7, 2003 for the late filing as the petition was filed beyond the reglementary period of fifteen (15) days fixed in Sec. 2, Rule 45 in relation to Sec. 5(a), Rule 56.

The omnibus motion of petitioners for reconsideration of the resolution of April 23, 2003 which denied the motion for an extension of time to file a petition is DENIED for lack of merit.

Respondents’ Motion for Reconsideration was subsequently denied in a Resolution, dated 11 August 2003, in which the Court resolved as follows:

Acting on the motion of petitioners for reconsideration of the resolution of June 23, 2003 which denied the petition for review on certiorari and considering that there is no

70

compelling reason to warrant a modification of this Court’s resolution, the Court resolves to DENY reconsideration with FINALITY.

Meanwhile, on the basis of the enactment of Tax Ordinance No. 8011, the City of Manila filed a Motion for Reconsideration with the RTC of Manila, Branch 21, of its Decision, dated 28 November 2001, which the court a quo granted in the herein assailed Order dated 8 May 2002, the full text of which reads:

52

Considering that Ordinance No. 7988 (Amended Revenue Code of the City of Manila) has already been amended by Ordinance No. 8011 entitled "An Ordinance Amending Certain Sections of Ordinance No. 7988" approved by the City Mayor of Manila on February 22, 2001, let the above-entitled case be as it is hereby DISMISSED. Without pronouncement as to costs."10

Petitioner’s Motion for Reconsideration of the abovequoted Order was denied by the trial court in the second challenged Order, dated 5 December 2002; hence the instant Petition.

The case at bar revolves around the sole pivotal issue of whether or not Tax Ordinance No. 7988 is null and void and of no legal effect. However, respondents, in their Comment and Memorandum, raise the procedural issue of whether or not the instant Petition has complied with the requirements of the 1997 Rules on Civil Procedure; thus, the Court resolves to first pass upon this issue before tackling the substantial matters involved in this case.

Respondents insist that the instant Petition raises questions of fact that are proscribed under Rule 45 of the 1997 Rules of Civil Procedure which states that Petitions for Certiorari before the Supreme Court shall raise only questions of law. We do not agree. There is a question of fact when doubt or controversy arises as to the truth or falsity of the alleged facts, when there is no dispute as to fact, the question of whether or not the conclusion drawn therefrom is correct is a question of law.11 A thorough reading of the Petition will reveal that petitioner does not present an issue in which we are called to rule on the truth or falsity of any fact alleged in the case. Furthermore, the resolution of whether or not the court a quo erred in dismissing petitioner’s case in light of the enactment of Tax Ordinance No. 8011, allegedly amending Tax Ordinance No. 7988, does not necessitate an incursion into the facts attending the case.

Contrarily, it is respondents who actually raise questions of fact before us. While accusing petitioner of raising questions of fact, respondents, in the same breath, proceeded to allege that the RTC of Manila, Branch 21, in its Decision, dated 28 November 2001, failed to take into account the evidence presented by respondents allegedly proving that Tax Ordinance No. 7988 was published for four times in a newspaper of general circulation in accordance with the requirements of law. A determination of whether or not the trial court erred in concluding that Tax Ordinance No.

7988 was indeed published for four times in a newspaper of general circulation would clearly involve a calibration of the probative value of the evidence presented by respondents to prove such allegation. Therefore, said issue is a question of fact which this Court, not being a trier of facts, will decline to pass upon.

Respondents also point out that the Petition was not properly verified and certified because Nelson Empalmado, the Vice President for Tax and Financial Services of Coca-Cola Bottlers Philippines, Inc. who verified the subject Petition was not duly authorized to file said Petition. Respondents assert that nowhere in the attached Secretary’s Certificate can it be found the authority of Nelson Empalmado to institute the instant Petition. Thus, there being a lack of proper verification, respondents contend that the Petition must be treated as a mere scrap of paper, which has no legal effect as declared in Section 4, Rule 7 of the 1997 Rules of Civil Procedure.

An inspection of the Secretary’s Certificate attached to the petition will show that Nelson Empalmado is not among those designated as representative to prosecute claims in behalf of Coca-Cola Bottlers Philippines, Inc. However, it would seem that the authority of Mr. Empalmado to file the instant Petition emanated from a Special Power of Attorney signed by Ramon V. Lapez, Jr., Associate Legal Counsel/Assistant Corporate Secretary of Coca-Cola Bottlers Philippines, Inc. and one of those named in the Secretary’s Certificate as authorized to file a Petition in behalf of the corporation. A careful perusal of said Secretary’s Certificate will further reveal that the persons authorized therein to represent petitioner corporation in any suit are also empowered to designate and appoint any individual as attorney-in-fact of the corporation for the prosecution of any suit. Accordingly, by virtue of the Special Power of Attorney executed by Ramon V. Lapez, Jr. authorizing Nelson Emplamado to file a Petition before the Supreme Court, the instant Petition has been properly verified, in accordance with the 1997 Rules of Civil Procedure.

Having disposed of the procedural issues raised by respondents, We now come to the pivotal issue in this petition.

It is undisputed from the facts of the case that Tax Ordinance No. 7988 has already been declared by the DOJ Secretary, in its Order, dated 17 August 2000, as null and void and without legal effect due to respondents’ failure to satisfy the requirement that said ordinance be published for three consecutive days as required by law. Neither is there quibbling on the fact that the said Order of the DOJ was never appealed by the City of Manila, thus, it had attained finality after the lapse of the period to appeal.

Furthermore, the RTC of Manila, Branch 21, in its Decision dated 28 November 2001, reiterated the findings of the DOJ Secretary that respondents failed to follow the procedure in the enactment of tax measures as mandated by Section 188 of the Local Government Code of 1991, in that they failed to publish Tax Ordinance No. 7988 for three consecutive days in a newspaper of local circulation. From the foregoing, it is evident that Tax Ordinance No. 7988 is null and void as said ordinance was published71

only for one day in the 22 May 2000 issue of the Philippine Post in contravention of the unmistakable directive of the Local Government Code of 1991.

Despite the nullity of Tax Ordinance No. 7988, the court a quo, in the assailed Order, dated 8 May 2002, went on to dismiss petitioner’s case on the force of the enactment of Tax Ordinance No. 8011, amending Tax Ordinance No. 7988. Significantly, said amending ordinance was likewise declared null and void by the DOJ Secretary in a Resolution, dated 5 July 2001, elucidating that "[I]nstead of amending Ordinance No. 7988, [herein] respondent should have enacted another tax measure which strictly complies with the requirements of law, both procedural and substantive. The passage of the assailed ordinance did not have the effect of curing the defects of Ordinance No. 7988 which, any way, does not legally exist." Said Resolution of the DOJ Secretary had, as well, attained finality by virtue of the dismissal with finality by this Court of respondents’ Petition for Review on Certiorari in G.R. No. 157490 assailing the dismissal by the RTC of Manila, Branch 17, of its appeal due to lack of jurisdiction in its Order, dated 11 August 2003.

Based on the foregoing, this Court must reverse the Order of the RTC of Manila, Branch 21, dismissing petitioner’s case as there is no basis in law for such dismissal. The amending law, having been declared as null and void, in legal contemplation, therefore, does not exist. Furthermore, even if Tax Ordinance No. 8011 was not declared null and void, the trial court should not have dismissed the case on the reason that said tax ordinance had already amended Tax Ordinance No. 7988. As held by this Court in the case of People v. Lim,12 if an order or law sought to be amended is invalid, then it does not legally exist, there should be no occasion or need to amend it.13

WHEREFORE, premises considered, the instant Petition is hereby GRANTED. The Orders of the RTC of Manila, Branch 21, dated 8 May 2002 and 5 December 2002, respectively, are hereby REVERSED and SET ASIDE.

SO ORDERED.

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72

City of Manila v. Coca-Cola

Republic of the Philippines

SUPREME COURT

Manila

THIRD DIVISION

G.R. No. 181845 August 4, 2009

THE CITY OF MANILA, LIBERTY M. TOLEDO, in her capacity as THE TREASURER OF MANILA and JOSEPH SANTIAGO, in his capacity as the CHIEF OF THE LICENSE DIVISION OF CITY OF MANILA,petitioners,

vs.

COCA-COLA BOTTLERS PHILIPPINES, INC., Respondent.

D E C I S I O N

CHICO-NAZARIO, J.:

This case is a Petition for Review on Certiorari under Rule 45 of the Revised Rules of Civil Procedure seeking to review and reverse the Decision1 dated 18 January 2008 and Resolution2 dated 18 February 2008 of the Court of Tax Appeals en banc (CTA en banc) in C.T.A. EB No. 307. In its assailed Decision, the CTA en banc dismissed the Petition for Review of herein petitioners City of Manila, Liberty M. Toledo (Toledo), and Joseph Santiago (Santiago); and affirmed the Resolutions dated 24 May 2007,3 8 June 2007,4 and 26 July 2007,5 of the CTA First Division in C.T.A. AC No. 31, which, in turn, dismissed the Petition for Review of petitioners in said case for being filed out of time. In its questioned Resolution, the CTA en banc denied the Motion for Reconsideration of petitioners.

Petitioner City of Manila is a public corporation empowered to collect and assess business taxes, revenue fees, and permit fees, through its officers, petitioners Toledo and Santiago, in their capacities as City Treasurer and Chief of the Licensing Division, respectively. On the other hand, respondent Coca-Cola Bottlers Philippines, Inc. is a corporation engaged in the business of manufacturing and selling beverages, and which maintains a sales office in the City of Manila.

The case stemmed from the following facts:

Prior to 25 February 2000, respondent had been paying the City of Manila local business tax only under Section 14 of Tax Ordinance No. 7794,6 being expressly exempted from

the business tax under Section 21 of the same tax ordinance. Pertinent provisions of Tax Ordinance No. 7794 provide:

Section 14. – Tax on Manufacturers, Assemblers and Other Processors. – There is hereby imposed a graduated tax on manufacturers, assemblers, repackers, processors, brewers, distillers, rectifiers, and compounders of liquors, distilled spirits, and wines or manufacturers of any article of commerce of whatever kind or nature, in accordance with any of the following schedule:

x x x x

over P6,500,000.00 up to

P25,000,000.00 - - - - - - - - - - - - - - - - - - - -- P36,000.00 plus 50% of 1%

in excess of P6,500,000.00

x x x x

Section 21. – Tax on Businesses Subject to the Excise, Value-Added or Percentage Taxes under the NIRC. – On any of the following businesses and articles of commerce subject to excise, value-added or percentage taxes under the National Internal Revenue Code hereinafter referred to as NIRC, as amended, a tax of FIFTY PERCENT (50%) of ONE PERCENT (1%) per annum on the gross sales or receipts of the preceding calendar year is hereby imposed:

(A) On persons who sell goods and services in the course of trade or business; and those who import goods whether for business or otherwise; as provided for in Sections 100 to 103 of the NIRC as administered and determined by the Bureau of Internal Revenue pursuant to the pertinent provisions of the said Code.

x x x x

(D) Excisable goods subject to VAT

(1) Distilled spirits

(2) Wines

x x x x

(8) Coal and coke

(9) Fermented liquor, brewers’ wholesale price, excluding the ad valorem tax 73

54

x x x x

PROVIDED, that all registered businesses in the City of Manila that are already paying the aforementioned tax shall be exempted from payment thereof.

Petitioner City of Manila subsequently approved on 25 February 2000, Tax Ordinance No. 7988,7 amending certain sections of Tax Ordinance No. 7794, particularly: (1) Section 14, by increasing the tax rates applicable to certain establishments operating within the territorial jurisdiction of the City of Manila; and (2) Section 21, by deleting the proviso found therein, which stated "that all registered businesses in the City of Manila that are already paying the aforementioned tax shall be exempted from payment thereof." Petitioner City of Manila approved only after a year, on 22 February 2001, another tax ordinance, Tax Ordinance No. 8011, amending Tax Ordinance No. 7988.

Tax Ordinances No. 7988 and No. 8011 were later declared by the Court null and void in Coca-Cola Bottlers Philippines, Inc. v. City of Manila8 (Coca-Cola case) for the following reasons: (1) Tax Ordinance No. 7988 was enacted in contravention of the provisions of the Local Government Code (LGC) of 1991 and its implementing rules and regulations; and (2) Tax Ordinance No. 8011 could not cure the defects of Tax Ordinance No. 7988, which did not legally exist.

However, before the Court could declare Tax Ordinance No. 7988 and Tax Ordinance No. 8011 null and void, petitioner City of Manila assessed respondent on the basis of Section 21 of Tax Ordinance No. 7794, as amended by the aforementioned tax ordinances, for deficiency local business taxes, penalties, and interest, in the total amount of P18,583,932.04, for the third and fourth quarters of the year 2000. Respondent filed a protest with petitioner Toledo on the ground that the said assessment amounted to double taxation, as respondent was taxed twice, i.e., under Sections 14 and 21 of Tax Ordinance No. 7794, as amended by Tax Ordinances No. 7988 and No. 8011. Petitioner Toledo did not respond to the protest of respondent.

Consequently, respondent filed with the Regional Trial Court (RTC) of Manila, Branch 47, an action for the cancellation of the assessment against respondent for business taxes, which was docketed as Civil Case No. 03-107088.

On 14 July 2006, the RTC rendered a Decision9 dismissing Civil Case No. 03-107088. The RTC ruled that the business taxes imposed upon the respondent under Sections 14 and 21 of Tax Ordinance No. 7988, as amended, were not of the same kind or character; therefore, there was no double taxation. The RTC, though, in an Order10 dated 16 November 2006, granted the Motion for Reconsideration of respondent, decreed the cancellation and withdrawal of the assessment against the latter, and barred petitioners from further imposing/assessing local business taxes against respondent under Section 21 of Tax Ordinance No. 7794, as amended by Tax Ordinance No. 7988 and Tax Ordinance No. 8011. The 16 November 2006 Decision of the RTC was in conformity with

the ruling of this Court in the Coca-Cola case, in which Tax Ordinance No. 7988 and Tax Ordinance No. 8011 were declared null and void. The Motion for Reconsideration of petitioners was denied by the RTC in an Order11 dated 4 April 2007. Petitioners received a copy of the 4 April 2007 Order of the RTC, denying their Motion for Reconsideration of the 16 November 2006 Order of the same court, on 20 April 2007.

On 4 May 2007, petitioners filed with the CTA a Motion for Extension of Time to File Petition for Review, praying for a 15-day extension or until 20 May 2007 within which to file their Petition. The Motion for Extension of petitioners was docketed as C.T.A. AC No. 31, raffled to the CTA First Division.

Again, on 18 May 2007, petitioners filed, through registered mail, a Second Motion for Extension of Time to File a Petition for Review, praying for another 10-day extension, or until 30 May 2007, within which to file their Petition.

On 24 May 2007, however, the CTA First Division already issued a Resolution dismissing C.T.A. AC No. 31 for failure of petitioners to timely file their Petition for Review on 20 May 2007.

Unaware of the 24 May 2007 Resolution of the CTA First Division, petitioners filed their Petition for Review therewith on 30 May 2007 via registered mail. On 8 June 2007, the CTA First Division issued another Resolution, reiterating the dismissal of the Petition for Review of petitioners.

Petitioners moved for the reconsideration of the foregoing Resolutions dated 24 May 2007 and 8 June 2007, but their motion was denied by the CTA First Division in a Resolution dated 26 July 2007. The CTA First Division reasoned that the Petition for Review of petitioners was not only filed out of time -- it also failed to comply with the provisions of Section 4, Rule 5; and Sections 2 and 3, Rule 6, of the Revised Rules of the CTA.

Petitioners thereafter filed a Petition for Review before the CTA en banc, docketed as C.T.A. EB No. 307, arguing that the CTA First Division erred in dismissing their Petition for Review in C.T.A. AC No. 31 for being filed out of time, without considering the merits of their Petition.

The CTA en banc rendered its Decision on 18 January 2008, dismissing the Petition for Review of petitioners and affirming the Resolutions dated 24 May 2007, 8 June 2007, and 26 July 2007 of the CTA First Division. The CTA en banc similarly denied the Motion for Reconsideration of petitioners in a Resolution dated 18 February 2008.

Hence, the present Petition, where petitioners raise the following issues:

74

I. WHETHER OR NOT PETITIONERS SUBSTANTIALLY COMPLIED WITH THE REGLEMENTARY PERIOD TO TIMELY APPEAL THE CASE FOR REVIEW BEFORE THE [CTA DIVISION].

II. WHETHER OR NOT THE RULING OF THIS COURT IN THE EARLIER [COCA-COLA CASE] IS DOCTRINAL AND CONTROLLING IN THE INSTANT CASE.

III. WHETHER OR NOT PETITIONER CITY OF MANILA CAN STILL ASSESS TAXES UNDER [SECTIONS] 14 AND 21 OF [TAX ORDINANCE NO. 7794, AS AMENDED].

IV. WHETHER OR NOT THE ENFORCEMENT OF [SECTION] 21 OF THE [TAX ORDINANCE NO. 7794, AS AMENDED] CONSTITUTES DOUBLE TAXATION.

Petitioners assert that Section 1, Rule 712 of the Revised Rules of the CTA refers to certain provisions of the Rules of Court, such as Rule 42 of the latter, and makes them applicable to the tax court. Petitioners then cannot be faulted in relying on the provisions of Section 1, Rule 4213 of the Rules of Court as regards the period for filing a Petition for Review with the CTA in division. Section 1, Rule 42 of the Rules of Court provides for a 15-day period, reckoned from receipt of the adverse decision of the trial court, within which to file a Petition for Review with the Court of Appeals. The same rule allows an additional 15-day period within which to file such a Petition; and, only for the most compelling reasons, another extension period not to exceed 15 days. Petitioners received on 20 April 2007 a copy of the 4 April 2007 Order of the RTC, denying their Motion for Reconsideration of the 16 November 2006 Order of the same court. On 4 May 2007, believing that they only had 15 days to file a Petition for Review with the CTA in division, petitioners moved for a 15-day extension, or until 20 May 2007, within which to file said Petition. Prior to the lapse of their first extension period, or on 18 May 2007, petitioners again moved for a 10-day extension, or until 30

55

May 2007, within which to file their Petition for Review. Thus, when petitioners filed their Petition for Review with the CTA First Division on 30 May 2007, the same was filed well within the reglementary period for doing so.

Petitioners argue in the alternative that even assuming that Section 3(a), Rule 814 of the Revised Rules of the CTA governs the period for filing a Petition for Review with the CTA in division, still, their Petition for Review was filed within the reglementary period. Petitioners call attention to the fact that prior to the lapse of the 30-day period for filing a Petition for Review under Section 3(a), Rule 8 of the Revised Rules of the CTA, they had already moved for a 10-day extension, or until 30 May 2007, within which to file their Petition. Petitioners claim that there was sufficient justification in equity for the grant of the 10-day extension they requested, as the primordial consideration should be the substantive, and not the procedural, aspect of the case. Moreover, Section 3(a), Rule 8 of the Revised Rules of the CTA, is silent as to whether the 30-day period for filing a Petition for Review with the CTA in division may be extended or not.

Petitioners also contend that the Coca-Cola case is not determinative of the issues in the present case because the issue of nullity of Tax Ordinance No. 7988 and Tax Ordinance No. 8011 is not the lis mota herein. The Coca-Cola case is not doctrinal and cannot be considered as the law of the case.

Petitioners further insist that notwithstanding the declaration of nullity of Tax Ordinance No. 7988 and Tax Ordinance No. 8011, Tax Ordinance No. 7794 remains a valid piece of local legislation. The nullity of Tax Ordinance No. 7988 and Tax Ordinance No. 8011 does not effectively bar petitioners from imposing local business taxes upon respondent under Sections 14 and 21 of Tax Ordinance No. 7794, as they were read prior to their being amended by the foregoing null and void tax ordinances.

Petitioners finally maintain that imposing upon respondent local business taxes under both Sections 14 and 21 of Tax Ordinance No. 7794 does not constitute direct double taxation. Section 143 of the LGC gives municipal, as well as city governments, the power to impose business taxes, to wit:

SECTION 143. Tax on Business. – The municipality may impose taxes on the following businesses:

(a) On manufacturers, assemblers, repackers, processors, brewers, distillers, rectifiers, and compounders of liquors, distilled spirits, and wines or manufacturers of any article of commerce of whatever kind or nature, in accordance with the following schedule:

x x x x

(b) On wholesalers, distributors, or dealers in any article of commerce of whatever kind or nature in accordance with the following schedule:

x x x x

(c) On exporters, and on manufacturers, millers, producers, wholesalers, distributors, dealers or retailers of essential commodities enumerated hereunder at a rate not exceeding one-half (1/2) of the rates prescribed under subsections (a), (b) and (d) of this Section:

x x x x

Provided, however, That barangays shall have the exclusive power to levy taxes, as provided under Section 152 hereof, on gross sales or receipts of the preceding calendar year of Fifty thousand pesos (P50,000.00) or less, in the case of cities, and Thirty thousand pesos (P30,000) or less, in the case of municipalities.

(e) On contractors and other independent contractors, in accordance with the following schedule:75

x x x x

(f) On banks and other financial institutions, at a rate not exceeding fifty percent (50%) of one percent (1%) on the gross receipts of the preceding calendar year derived from interest, commissions and discounts from lending activities, income from financial leasing, dividends, rentals on property and profit from exchange or sale of property, insurance premium.

(g) On peddlers engaged in the sale of any merchandise or article of commerce, at a rate not exceeding Fifty pesos (P50.00) per peddler annually.

(h) On any business, not otherwise specified in the preceding paragraphs, which the sanggunian concerned may deem proper to tax: Provided, That on any business subject to the excise, value-added or percentage tax under the National Internal Revenue Code, as amended, the rate of tax shall not exceed two percent (2%) of gross sales or receipts of the preceding calendar year.

Section 14 of Tax Ordinance No. 7794 imposes local business tax on manufacturers, etc. of liquors, distilled spirits, wines, and any other article of commerce, pursuant to Section 143(a) of the LGC. On the other hand, the local business tax under Section 21 of Tax Ordinance No. 7794 is imposed upon persons selling goods and services in the course of trade or business, and those importing goods for business or otherwise, who, pursuant to Section 143(h) of the LGC, are subject to excise tax, value-added tax (VAT), or percentage tax under the National Internal Revenue Code (NIRC). Thus, there can be no double taxation when respondent is being taxed under both Sections 14 and 21 of Tax Ordinance No. 7794, for under the first, it is being taxed as a manufacturer; while under the second, it is being taxed as a person selling goods in the course of trade or business subject to excise, VAT, or percentage tax.

The Court first addresses the issue raised by petitioners concerning the period within which to file with the CTA a Petition for Review from an adverse decision or ruling of the RTC.

The period to appeal the decision or ruling of the RTC to the CTA via a Petition for Review is specifically governed by Section 11 of Republic Act No. 9282,15 and Section 3(a), Rule 8 of the Revised Rules of the CTA.

Section 11 of Republic Act No. 9282 provides:

SEC. 11. Who May Appeal; Mode of Appeal; Effect of Appeal. – Any party adversely affected by a decision, ruling or inaction of the Commissioner of Internal Revenue, the Commissioner of Customs, the Secretary of Finance, the Secretary of Trade and Industry or the Secretary of Agriculture or the Central Board of Assessment Appeals or the Regional Trial Courts may file an Appeal with the CTA within thirty (30) days after the

receipt of such decision or ruling or after the expiration of the period fixed by law for action as referred to in Section 7(a)(2) herein.

Appeal shall be made by filing a petition for review under a procedure analogous to that provided for under Rule 42 of the 1997 Rules of Civil Procedure with the CTA within thirty (30) days from the receipt of the decision or ruling or in the case of inaction as herein provided, from the expiration of the period fixed by law to act thereon. x x x. (Emphasis supplied.)

56

Section 3(a), Rule 8 of the Revised Rules of the CTA states:

SEC 3. Who may appeal; period to file petition. – (a) A party adversely affected by a decision, ruling or the inaction of the Commissioner of Internal Revenue on disputed assessments or claims for refund of internal revenue taxes, or by a decision or ruling of the Commissioner of Customs, the Secretary of Finance, the Secretary of Trade and Industry, the Secretary of Agriculture, or a Regional Trial Court in the exercise of its original jurisdiction may appeal to the Court by petition for review filed within thirty days after receipt of a copy of such decision or ruling, or expiration of the period fixed by law for the Commissioner of Internal Revenue to act on the disputed assessments. x x x. (Emphasis supplied.)

It is crystal clear from the afore-quoted provisions that to appeal an adverse decision or ruling of the RTC to the CTA, the taxpayer must file a Petition for Review with the CTA within 30 days from receipt of said adverse decision or ruling of the RTC.

It is also true that the same provisions are silent as to whether such 30-day period can be extended or not. However, Section 11 of Republic Act No. 9282 does state that the Petition for Review shall be filed with the CTA following the procedure analogous to Rule 42 of the Revised Rules of Civil Procedure. Section 1, Rule 4216 of the Revised Rules of Civil Procedure provides that the Petition for Review of an adverse judgment or final order of the RTC must be filed with the Court of Appeals within: (1) the original 15-day period from receipt of the judgment or final order to be appealed; (2) an extended period of 15 days from the lapse of the original period; and (3) only for the most compelling reasons, another extended period not to exceed 15 days from the lapse of the first extended period.

Following by analogy Section 1, Rule 42 of the Revised Rules of Civil Procedure, the 30-day original period for filing a Petition for Review with the CTA under Section 11 of Republic Act No. 9282, as implemented by Section 3(a), Rule 8 of the Revised Rules of the CTA, may be extended for a period of 15 days. No further extension shall be allowed thereafter, except only for the most compelling reasons, in which case the extended period shall not exceed 15 days.

76

Even the CTA en banc, in its Decision dated 18 January 2008, recognizes that the 30-day period within which to file the Petition for Review with the CTA may, indeed, be extended, thus:

Being suppletory to R.A. 9282, the 1997 Rules of Civil Procedure allow an additional period of fifteen (15) days for the movant to file a Petition for Review, upon Motion, and payment of the full amount of the docket fees. A further extension of fifteen (15) days may be granted on compelling reasons in accordance with the provision of Section 1, Rule 42 of the 1997 Rules of Civil Procedure x x x.17

In this case, the CTA First Division did indeed err in finding that petitioners failed to file their Petition for Review in C.T.A. AC No. 31 within the reglementary period.

From 20 April 2007, the date petitioners received a copy of the 4 April 2007 Order of the RTC, denying their Motion for Reconsideration of the 16 November 2006 Order, petitioners had 30 days, or until 20 May 2007, within which to file their Petition for Review with the CTA. Hence, the Motion for Extension filed by petitioners on 4 May 2007 – grounded on their belief that the reglementary period for filing their Petition for Review with the CTA was to expire on 5 May 2007, thus, compelling them to seek an extension of 15 days, or until 20 May 2007, to file said Petition – was unnecessary and superfluous. Even without said Motion for Extension, petitioners could file their Petition for Review until 20 May 2007, as it was still within the 30-day reglementary period provided for under Section 11 of Republic Act No. 9282; and implemented by Section 3(a), Rule 8 of the Revised Rules of the CTA.

The Motion for Extension filed by the petitioners on 18 May 2007, prior to the lapse of the 30-day reglementary period on 20 May 2007, in which they prayed for another extended period of 10 days, or until 30 May 2007, to file their Petition for Review was, in reality, only the first Motion for Extension of petitioners. The CTA First Division should have granted the same, as it was sanctioned by the rules of procedure. In fact, petitioners were only praying for a 10-day extension, five days less than the 15-day extended period allowed by the rules. Thus, when petitioners filed via registered mail their Petition for Review in C.T.A. AC No. 31 on 30 May 2007, they were able to comply with the reglementary period for filing such a petition.

Nevertheless, there were other reasons for which the CTA First Division dismissed the Petition for Review of petitioners in C.T.A. AC No. 31; i.e., petitioners failed to conform to Section 4 of Rule 5, and Section 2 of Rule 6 of the Revised Rules of the CTA. The Court sustains the CTA First Division in this regard.

Section 4, Rule 5 of the Revised Rules of the CTA requires that:

SEC. 4. Number of copies. – The parties shall file eleven signed copies of every paper for cases before the Court en banc and six signed copies for cases before a Division of

the Court in addition to the signed original copy, except as otherwise directed by the Court. Papers to be filed in more than one case shall include one additional copy for each additional case. (Emphasis supplied.)

Section 2, Rule 6 of the Revised Rules of the CTA further necessitates that:

SEC. 2. Petition for review; contents. – The petition for review shall contain allegations showing the jurisdiction of the Court, a concise statement of the complete facts and a summary statement of the issues involved in the case, as well as the reasons relied upon for the review of the challenged decision. The petition shall be verified and must contain a certification against forum shopping as provided in Section 3, Rule 46 of the Rules of Court. A clearly legible duplicate original or certified true copy of the decision appealed from shall be attached to the petition. (Emphasis supplied.)

The aforesaid provisions should be read in conjunction with Section 1, Rule 7 of the Revised Rules of the CTA, which provides:

SECTION 1. Applicability of the Rules of Court on procedure in the Court of Appeals, exception. – The procedure in the Court en banc or in Divisions in original or in appealed cases shall be the same as those in petitions for review and appeals before the Court of Appeals pursuant to the applicable provisions of Rules 42, 43, 44, and 46 of the Rules of Court, except as otherwise provided for in these Rules. (Emphasis supplied.)

As found by the CTA First Division and affirmed by the CTA en banc, the Petition for Review filed by petitioners via registered mail on 30 May 2007 consisted only of one copy and all the attachments thereto, including the Decision dated 14 July 2006; and that the assailed Orders dated 16 November 2006 and 4 April 2007 of the RTC in Civil Case No. 03-107088 were mere machine copies. Evidently, petitioners did not comply at all with the requirements set forth under Section 4, Rule 5; or with Section 2, Rule 6 of the Revised Rules of the CTA. Although the Revised Rules of the CTA do not provide for the consequence of such non-compliance, Section 3, Rule 42 of the Rules of Court may be applied suppletorily, as allowed by Section 1, Rule 7 of the Revised Rules of the CTA. Section 3, Rule 42 of the Rules of Court reads:

SEC. 3. Effect of failure to comply with requirements. – The failure of the petitioner to comply with any of the foregoing requirements regarding the payment of the docket and other lawful fees, the deposit for costs, proof of

57

service of the petition, and the contents of and the documents which should accompany the petition shall be sufficient ground for the dismissal thereof. (Emphasis supplied.)

True, petitioners subsequently submitted certified copies of the Decision dated 14 July 2006 and assailed Orders dated 16 November 2006 and 4 April 2007 of the RTC in Civil Case No. 03-107088, but a closer examination of the stamp on said documents reveals

77

that they were prepared and certified only on 14 August 2007, about two months and a half after the filing of the Petition for Review by petitioners.

Petitioners never offered an explanation for their non-compliance with Section 4 of Rule 5, and Section 2 of Rule 6 of the Revised Rules of the CTA. Hence, although the Court had, in previous instances, relaxed the application of rules of procedure, it cannot do so in this case for lack of any justification.

Even assuming arguendo that the Petition for Review of petitioners in C.T.A. AC No. 31 should have been given due course by the CTA First Division, it is still dismissible for lack of merit.

Contrary to the assertions of petitioners, the Coca-Cola case is indeed applicable to the instant case. The pivotal issue raised therein was whether Tax Ordinance No. 7988 and Tax Ordinance No. 8011 were null and void, which this Court resolved in the affirmative. Tax Ordinance No. 7988 was declared by the Secretary of the Department of Justice (DOJ) as null and void and without legal effect due to the failure of herein petitioner City of Manila to satisfy the requirement under the law that said ordinance be published for three consecutive days. Petitioner City of Manila never appealed said declaration of the DOJ Secretary; thus, it attained finality after the lapse of the period for appeal of the same. The passage of Tax Ordinance No. 8011, amending Tax Ordinance No. 7988, did not cure the defects of the latter, which, in any way, did not legally exist.

By virtue of the Coca-Cola case, Tax Ordinance No. 7988 and Tax Ordinance No. 8011 are null and void and without any legal effect. Therefore, respondent cannot be taxed and assessed under the amendatory laws--Tax Ordinance No. 7988 and Tax Ordinance No. 8011.

Petitioners insist that even with the declaration of nullity of Tax Ordinance No. 7988 and Tax Ordinance No. 8011, respondent could still be made liable for local business taxes under both Sections 14 and 21 of Tax Ordinance No. 7944 as they were originally read, without the amendment by the null and void tax ordinances.

Emphasis must be given to the fact that prior to the passage of Tax Ordinance No. 7988 and Tax Ordinance No. 8011 by petitioner City of Manila, petitioners subjected and assessed respondent only for the local business tax under Section 14 of Tax Ordinance No. 7794, but never under Section 21 of the same. This was due to the clear and unambiguous proviso in Section 21 of Tax Ordinance No. 7794, which stated that "all registered business in the City of Manila that are already paying the aforementioned tax shall be exempted from payment thereof." The "aforementioned tax" referred to in said proviso refers to local business tax. Stated differently, Section 21 of Tax Ordinance No. 7794 exempts from the payment of the local business tax imposed by said section, businesses that are already paying such tax under other sections of the same tax ordinance. The said proviso, however, was deleted from Section 21 of Tax Ordinance

No. 7794 by Tax Ordinances No. 7988 and No. 8011. Following this deletion, petitioners began assessing respondent for the local business tax under Section 21 of Tax Ordinance No. 7794, as amended.1avvphi1

The Court easily infers from the foregoing circumstances that petitioners themselves believed that prior to Tax Ordinance No. 7988 and Tax Ordinance No. 8011, respondent was exempt from the local business tax under Section 21 of Tax Ordinance No. 7794. Hence, petitioners had to wait for the deletion of the exempting proviso in Section 21 of Tax Ordinance No. 7794 by Tax Ordinance No. 7988 and Tax Ordinance No. 8011 before they assessed respondent for the local business tax under said section. Yet, with the pronouncement by this Court in the Coca-Cola case that Tax Ordinance No. 7988 and Tax Ordinance No. 8011 were null and void and without legal effect, then Section 21 of Tax Ordinance No. 7794, as it has been previously worded, with its exempting proviso, is back in effect. Accordingly, respondent should not have been subjected to the local business tax under Section 21 of Tax Ordinance No. 7794 for the third and fourth quarters of 2000, given its exemption therefrom since it was already paying the local business tax under Section 14 of the same ordinance.

Petitioners obstinately ignore the exempting proviso in Section 21 of Tax Ordinance No. 7794, to their own detriment. Said exempting proviso was precisely included in said section so as to avoid double taxation.

Double taxation means taxing the same property twice when it should be taxed only once; that is, "taxing the same person twice by the same jurisdiction for the same thing." It is obnoxious when the taxpayer is taxed twice, when it should be but once. Otherwise described as "direct duplicate taxation," the two taxes must be imposed on the same subject matter, for the same purpose, by the same taxing authority, within the same jurisdiction, during the same taxing period; and the taxes must be of the same kind or character.18

Using the aforementioned test, the Court finds that there is indeed double taxation if respondent is subjected to the taxes under both Sections 14 and 21 of Tax Ordinance No. 7794, since these are being imposed: (1) on the same subject matter – the privilege of doing business in the City of Manila; (2) for the same purpose – to make persons conducting business within the City of Manila contribute to city revenues; (3) by the same taxing authority – petitioner City of Manila; (4) within the same taxing jurisdiction – within the territorial jurisdiction of the City of Manila; (5) for the same taxing periods – per calendar year; and (6) of the same kind or character – a local business tax imposed on gross sales or receipts of the business.

The distinction petitioners attempt to make between the taxes under Sections 14 and 21 of Tax Ordinance No. 7794 is specious. The Court revisits Section 143 of the LGC, the very source of the power of municipalities and cities to impose a local business tax, and to which any local business tax imposed by petitioner City of Manila must conform. It is78

apparent from a perusal thereof that when a municipality or city has already imposed a business tax on manufacturers, etc. of liquors, distilled spirits, wines, and any other article of commerce, pursuant to Section 143(a) of the LGC, said municipality or city may no longer subject the same manufacturers, etc. to a business tax under Section 143(h) of the same Code. Section 143(h) may be imposed only on businesses that are subject to excise tax, VAT, or percentage tax under the NIRC, and that are "not otherwise specified in preceding paragraphs." In the same way, businesses such as respondent’s, already subject to a local business tax under Section 14 of Tax Ordinance No. 7794 [which is based on Section 143(a) of the LGC], can no longer be made liable for local business tax under Section 21 of the same Tax Ordinance [which is based on Section 143(h) of the LGC].

WHEREFORE, premises considered, the instant Petition for Review on Certiorari is hereby DENIED. No costs.

SO ORDERED.

58

79

Napocor v. City Cabanatuan

Republic of the Philippines

SUPREME COURT

Manila

THIRD DIVISION

G.R. No. 149110 April 9, 2003

NATIONAL POWER CORPORATION, petitioner, vs.

CITY OF CABANATUAN, respondent.

PUNO, J.:

This is a petition for review1 of the Decision2 and the Resolution3 of the Court of Appeals dated March 12, 2001 and July 10, 2001, respectively, finding petitioner National Power Corporation (NPC) liable to pay franchise tax to respondent City of Cabanatuan.

Petitioner is a government-owned and controlled corporation created under Commonwealth Act No. 120, as amended.4 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 of electric power on a nationwide basis."5 Concomitant to its mandated duty, petitioner has, among others, the power to construct, operate and maintain power plants, auxiliary plants, power stations and substations for the purpose of developing hydraulic power and supplying such power to the inhabitants.6

For many years now, petitioner sells electric power to the residents of Cabanatuan City, posting a gross income of P107,814,187.96 in 1992.7 Pursuant to section 37 of Ordinance No. 165-92,8 the respondent assessed the

petitioner a franchise tax amounting to P808,606.41, representing 75% of 1% of the latter's gross receipts for the preceding year.9

Petitioner, whose capital stock was subscribed and paid wholly by the Philippine Government,10 refused to pay the tax assessment. It argued that the respondent has no authority to impose tax on government entities. Petitioner also contended that as a non-profit organization, it is exempted from the payment of all forms of taxes, charges, duties or fees11 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 and Other Charges by Government and Governmental Instrumentalities.-

The Corporation shall be non-profit and shall devote all its return from its capital investment, as well as excess revenues from its operation, for expansion. To enable the Corporation to pay its indebtedness and obligations and in furtherance and effective implementation of the policy enunciated in Section one of this Act, the Corporation is hereby exempt:

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

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

(d) From all taxes, duties, fees, imposts, and all other charges 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 electric power."12

The respondent filed a collection suit in the Regional Trial Court of Cabanatuan City, demanding that petitioner pay the assessed tax due, plus a surcharge equivalent to 25% of the amount of tax, and 2% monthly interest.13Respondent alleged that petitioner's exemption from local taxes has been repealed by section 193 of Rep. Act No. 7160,14 which reads as follows:

"Sec. 193. Withdrawal of Tax Exemption Privileges.- Unless otherwise provided in this Code, tax exemptions or incentives granted to, or presently enjoyed by all persons, whether natural or juridical, including government owned or controlled corporations, except local water districts, cooperatives duly registered under R.A. No. 6938, non-stock and non-profit hospitals and educational institutions, are hereby withdrawn upon the effectivity of this Code."

On January 25, 1996, the trial court issued an Order15 dismissing the case. It ruled that the tax exemption privileges 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 a general 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:

80

59

"The question of whether a particular law has been repealed or not by a subsequent law is a matter of legislative intent. The lawmakers may expressly repeal a law by incorporating therein repealing provisions which expressly and specifically cite(s) the particular law or laws, and portions thereof, that are intended to 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 of R.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 not favored. The presumption is against inconsistency and repugnancy for the legislative is presumed to know the existing laws on the subject and not to have enacted inconsistent or conflicting statutes. It is also a well-settled rule that, generally, general law does not repeal a special law unless it clearly appears that the legislative has intended by the latter general act to modify or repeal the earlier special law. Thus, despite the 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 Basco vs. 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 a government owned or controlled corporation with an original charter, PD 1869. All of its shares of stocks are owned by the National Government. xxx Being an instrumentality of the government, PAGCOR should be and actually is exempt from local taxes. Otherwise, its operation might be burdened, impeded or subjected to control by mere local government.'

Like PAGCOR, NPC, being a government owned and controlled corporation with an original charter and its 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 Charter's declaration of Policy, Congress declared that: 'xxx (2) the total electrification of the Philippines through the development of power from all services to meet the needs of industrial development and dispersal and needs of rural electrification are primary objectives of the nations which shall be pursued coordinately and supported by all instrumentalities and agencies of the government, including its financial institutions.' (underscoring supplied). To allow plaintiff to subject defendant to its tax-ordinance would be to impede the avowed goal of this government instrumentality.

Unlike the State, a city or municipality has no inherent power of taxation. Its taxing power is limited to that which is provided for in its charter or other statute. Any grant of taxing power is to be construed strictly, 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 could not impose the subject tax on the defendant."16

On appeal, the Court of Appeals reversed the trial court's Order17 on the ground that section 193, in relation to sections 137 and 151 of the LGC, expressly withdrew the exemptions granted to the petitioner.18 It ordered the petitioner to pay the respondent city government the following: (a) the sum of P808,606.41 representing the franchise tax due based on gross receipts for the year 1992, (b) the tax due every year thereafter based in the gross receipts earned by NPC, (c) in all cases, to pay a surcharge of 25% of the tax due and unpaid, and (d) the sum of P 10,000.00 as litigation expense.19

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

"The Court finds no merit in NPC's motion for reconsideration. Its arguments reiterated therein that the taxing 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 is a general law may not impliedly repeal the NPC Charter which is a special law—finds the answer in Section 193 of the LGC to the effect that 'tax exemptions or incentives granted to, or presently enjoyed by all persons, whether natural or juridical, including government-owned or controlled corporations except local water districts xxx are hereby withdrawn.' The repeal is direct and unequivocal, not implied.

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

SO ORDERED."20

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 CONSIDER THAT SECTION 137 OF THE LOCAL GOVERNMENT CODE IN RELATION TO SECTION 131 APPLIES ONLY TO PRIVATE PERSONS OR CORPORATIONS ENJOYING A FRANCHISE.

B. THE COURT OF APPEALS GRAVELY ERRED IN HOLDING THAT NPC'S EXEMPTION FROM ALL FORMS OF TAXES HAS BEEN REPEALED BY THE PROVISION OF THE LOCAL GOVERNMENT CODE AS THE ENACTMENT OF A LATER LEGISLATION, WHICH IS A GENERAL LAW, CANNOT BE CONSTRUED TO HAVE REPEALED A SPECIAL LAW.

81

C. THE COURT OF APPEALS GRAVELY ERRED IN NOT CONSIDERING THAT AN EXERCISE OF POLICE POWER THROUGH TAX EXEMPTION SHOULD PREVAIL OVER THE LOCAL GOVERNMENT CODE."21

It is beyond dispute that the respondent city government has the authority to issue Ordinance No. 165-92 and impose an annual tax on "businesses enjoying a franchise," pursuant to section 151 in relation to section 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 the incoming 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 to operate, the tax shall be based on the gross receipts for the preceding calendar year, or any fraction thereof, as provided herein." (emphasis supplied)

x x x

60

Sec. 151. Scope of Taxing Powers.- Except as otherwise provided in this Code, the city, may levy the taxes, fees, and charges which the province or municipality may impose: Provided, however, That the taxes, fees and charges levied and collected by highly urbanized and independent component cities shall accrue 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 or municipality 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 city government. 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 for profit.22

Section 131 (m) of the LGC defines a "franchise" as "a right or privilege, affected with public interest which is conferred upon private persons or corporations, under such terms and conditions as the government and its political subdivisions may impose in the interest of the public welfare, security and safety." 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 submits that it should refer specifically to franchises granted to private natural persons and to private

corporations.23 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 activity regularly engaged in as means of livelihood or with a view to profit." Petitioner claims that it is not engaged in an activity for profit, in as much as its charter specifically provides that it is a "non-profit organization." In any case, petitioner argues that the accumulation of profit is merely incidental to its operation; all these profits are required by law to be channeled for expansion and improvement of its facilities and services.24

Petitioner also alleges that it is an instrumentality of the National Government,25 and as such, may not be taxed by the respondent city government. It cites the doctrine in Basco vs. Philippine Amusement and Gaming Corporation26 where this Court held that local governments have no power to tax instrumentalities 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, which places it in the category of an agency or instrumentality of the Government. Being an instrumentality of the Government, PAGCOR should be and actually is exempt from local taxes. Otherwise, its operation might 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 the operation of constitutional laws enacted by Congress to carry into execution the powers vested in the federal 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 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 local authorities may perceive to be undesirable activities or enterprise using the power to tax as ' a tool regulation' (U.S. v. Sanchez, 340 US 42).

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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 has the inherent power to wield it."27

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 be amended 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 the passage of the LGC, viz:

"It is a well-settled rule of statutory construction that repeals of statutes by implication are not favored and as much as possible, effect must be given to all enactments of the legislature. Moreover, it has to be conceded that the charter of the NPC constitutes a special law. Republic Act No. 7160, is a general law. It is a basic rule in statutory construction that the enactment of a later legislation which is a general law cannot be construed to have repealed a special law. Where there is a conflict between a general law and a special statute, the special statute should prevail since it evinces the legislative intent more clearly than the general statute."28

Finally, petitioner submits that the charter of the NPC, being a valid exercise of police power, should prevail over the LGC. It alleges that the power of the local government to impose franchise tax is subordinate to petitioner's exemption from taxation; "police power being the most pervasive, the least limitable and most demanding of all powers, including the power of taxation."29

The petition is without merit.

Taxes are the lifeblood of the government,30 for without taxes, the government can neither exist nor endure. A principal attribute of sovereignty,31 the exercise of taxing power derives its source from the very existence of the state whose social contract with its citizens obliges it to promote public interest and common good. The theory behind the exercise of the power to tax emanates from necessity;32 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, and taxation has become a tool to realize social justice and the equitable distribution of wealth, economic progress and the protection of local industries as well as public welfare and similar objectives.33 Taxation assumes even greater significance with the ratification of the 1987 Constitution. Thenceforth, the power to tax is no longer vested exclusively on Congress; local legislative bodies are now given direct authority to levy taxes, fees and other charges34 pursuant to Article X, section 5 of the 1987 Constitution, viz:

"Section 5.- Each Local Government unit shall have the power to create its own sources of revenue, to levy taxes, fees and charges subject to such guidelines and limitations as the Congress may provide, consistent with the basic policy of local autonomy. Such taxes, fees and charges shall accrue exclusively to the Local Governments."

This paradigm shift results from the realization that genuine development can be achieved only by strengthening local autonomy and promoting decentralization of governance. For a long time, the country's highly centralized

61

government structure has bred a culture of dependence among local government leaders upon the national leadership. It has also "dampened the spirit of initiative, innovation and imaginative resilience in matters of local development on the part of local government leaders."35 The only way to shatter this culture of dependence is to give the LGUs a wider role in the delivery of basic services, and confer them sufficient powers to generate their own sources for the purpose. To achieve this goal, section 3 of Article X of the 1987 Constitution mandates Congress to enact a local government code that will, consistent with the basic policy of local autonomy, set the guidelines and limitations to this grant of taxing powers, 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 effective mechanisms of recall, initiative, and referendum, allocate among the different local government units their powers, responsibilities, and resources, and provide for the qualifications, election, appointment and removal, term, salaries, powers and functions and duties of local officials, and all other matters relating to the organization and operation of the local units."

To recall, prior to the enactment of the Rep. Act No. 7160,36 also known as the Local Government Code of 1991 (LGC), various measures have been enacted to promote local autonomy. These include the Barrio Charter of 1959,37 the Local Autonomy Act of 1959,38 the Decentralization Act of 196739 and the Local Government Code of 1983.40 Despite these initiatives, however, the shackles of dependence on the national government remained. Local government units were faced with the same problems that hamper their capabilities to participate effectively in the national development efforts, among which are: (a) inadequate tax base, (b) lack of fiscal control over external sources of income, (c) limited authority to prioritize and approve development projects, (d) heavy dependence on external sources of income, and (e) limited supervisory control over personnel of national line agencies.41

Considered as the most revolutionary piece of legislation on local autonomy,42 the LGC effectively deals with the fiscal constraints faced by LGUs. It widens the tax base of LGUs to include taxes which were prohibited by previous laws such as the imposition of taxes on forest products, forest concessionaires, mineral products, mining operations, and the like. The LGC likewise provides enough flexibility to impose tax rates in

83

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 rates to the respective sanggunian.43

One of the most significant provisions of the LGC is the removal of the blanket exclusion of instrumentalities and agencies of the national government from the coverage of local taxation. Although as a general rule, LGUs cannot impose taxes, fees or charges of any kind on the National Government, its agencies and instrumentalities, this rule now admits an exception, i.e., when specific provisions of the LGC 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.- Unless otherwise provided herein, the exercise of the taxing powers of provinces, cities, municipalities, and barangays shall not extend to the levy of the following:

x x x

(o) Taxes, fees, or charges of any kind on the National Government, its agencies and instrumentalities, and local government units." (emphasis supplied)

In view of the afore-quoted provision of the LGC, the doctrine in Basco vs. Philippine Amusement and Gaming Corporation44 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 this Court ruled in the case of Mactan Cebu International Airport Authority (MCIAA) vs. Marcos,45 nothing prevents Congress from decreeing that even instrumentalities or agencies of the government performing governmental functions may be subject to tax.46 In enacting the LGC, Congress exercised its prerogative to tax instrumentalities and agencies of government as it sees fit. Thus, after reviewing the specific provisions of the LGC, this Court held that MCIAA, although an instrumentality of the national government, 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, as 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 local government 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 by the Republic of the Philippines or any of its political subdivisions except when the beneficial use thereof has been granted for consideration or otherwise, to a taxable person as provided in the item (a) of the first paragraph of section 12.'"47

In the case at bar, section 151 in relation to section 137 of the LGC clearly authorizes the respondent city government 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 not belong to citizens of the country generally as a matter of common right.48 In its specific sense, a franchise may refer to a general or primary franchise, or to a special or secondary franchise. The former relates to the 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.49 The right under a primary or general franchise is vested in the individuals who compose the corporation and not in the corporation itself.50 On the other hand, the latter refers to the right or privileges conferred upon an existing corporation such as the right to use the streets of a municipality to lay pipes of tracks, erect poles or string wires.51 The rights under a secondary or special franchise are vested in the corporation and may ordinarily be conveyed or mortgaged under a general power granted to a corporation to dispose of its property, except such special or secondary franchises as are charged with a public use.52

In section 131 (m) of the LGC, Congress unmistakably defined a franchise in the sense of a secondary or special franchise. This is to avoid any confusion when the word franchise is used in the context of taxation. As commonly used, a franchise tax is "a tax on the privilege of transacting business in the state and exercising corporate franchises granted by the state."53 It is not levied on the corporation simply for existing as a corporation, upon its property54 or its income,55 but on its exercise of the rights or privileges granted to it by the government. Hence, a corporation need not pay franchise tax from the time it ceased to do business and exercise its franchise.56 It is within this context that the phrase "tax on businesses enjoying 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 city government.

Petitioner fulfills the first requisite. Commonwealth Act No. 120, as amended by Rep. Act No. 7395, constitutes petitioner's primary and secondary franchises. It serves as the petitioner's charter, defining its composition, capitalization, the appointment and the specific duties of its corporate officers, and its corporate life span.57 As its secondary franchise, Commonwealth Act No. 120, as amended, vests the petitioner the following powers which are not available to ordinary corporations, viz:

"x x x

62

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

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(f) To take water from any public stream, river, creek, lake, spring or waterfall in the Philippines, for the purposes specified in this Act; to intercept and divert the flow of waters from lands of riparian owners and from 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 in streams or water channels intersecting or connecting therewith or contiguous to its works or any part thereof: 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 such power to the inhabitants thereof; to acquire, construct, install, maintain, operate, and improve gas, oil, or steam engines, and/or other prime movers, generators and machinery in plants and/or auxiliary plants for the production of electric power; to establish, develop, operate, maintain and administer power and lighting systems for the transmission and utilization of its power generation; to sell electric power in bulk to (1) industrial enterprises, (2) city, municipal or provincial systems and other government institutions, (3) electric cooperatives, (4) franchise holders, and (5) real estate subdivisions x x x;

(h) To acquire, promote, hold, transfer, sell, lease, rent, mortgage, encumber and otherwise dispose of property incident to, or necessary, convenient or proper to carry out the purposes for which the Corporation 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 be acquired 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 for instituting condemnation proceedings by the national, provincial and municipal governments;

x x x

(m) To cooperate with, and to coordinate its operations with those of the National Electrification Administration 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 the Corporation of the areas required for watersheds

for a specific project, the Bureau of Forestry, the Reforestation 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 to existing 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 prevent environmental pollution and promote the conservation, development and maximum utilization of natural resources xxx "58

With these powers, petitioner eventually had the monopoly in the generation and distribution of electricity. This monopoly was strengthened with the issuance of Pres. Decree No. 40,59 nationalizing the electric power industry. Although Exec. Order No. 21560 thereafter allowed private sector participation in the generation of electricity, the transmission of electricity remains the monopoly of the petitioner.

Petitioner also fulfills the second requisite. It is operating within the respondent city government's territorial 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 in 1992. 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 its stocks are wholly owned by the National Government, and its charter characterized it as a "non-profit" organization.

These contentions must necessarily fail.

To stress, a franchise tax is imposed based not on the ownership but on the exercise by the corporation of a privilege to do business. The taxable entity is the corporation which exercises the franchise, and not the individual stockholders. By virtue of its charter, petitioner was created as a separate and distinct entity from the National Government. It can sue and be sued under its own name,61 and can exercise all the powers of a corporation under the Corporation Code.62

To be sure, the ownership by the National Government of its entire capital stock does not necessarily imply that petitioner is not engaged in business. Section 2 of Pres. Decree No. 202963 classifies government-owned or controlled corporations (GOCCs) into those performing governmental functions and 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 if organized under the general corporation law is owned or controlled by the government directly, or indirectly through a parent corporation or

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subsidiary corporation, to the extent of at least a majority of its outstanding voting capital stock x x x." (emphases supplied)

Governmental functions are those pertaining to the administration of government, and as such, are treated as absolute obligation on the part of the state to perform while proprietary functions are those that are undertaken only by way of advancing the general interest of society, and are merely optional on the government.64 Included in the class of GOCCs performing proprietary functions are "business-like" entities such as the National Steel Corporation (NSC), the National Development Corporation (NDC), the Social Security System (SSS), the Government Service Insurance System (GSIS), and the National Water Sewerage Authority (NAWASA),65 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 electric power on a nationwide basis."66 Pursuant to this mandate, petitioner generates power and sells electricity in bulk. Certainly, these activities do not partake of the sovereign functions of the government. They are purely private and commercial undertakings,

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albeit imbued with public interest. The public interest involved in its activities, however, does not distract from the true nature of the petitioner as a commercial enterprise, in the same league with similar public utilities like telephone and telegraph companies, railroad companies, water supply and irrigation companies, gas, coal or light companies, power plants, ice plant among others; all of which are declared by this Court as ministrant or proprietary functions of government aimed at advancing the general interest of society.67

A closer reading of its charter reveals that even the legislature treats the character of the petitioner's enterprise as a "business," although it limits petitioner's profits to twelve percent (12%), viz:68

"(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 contract indebtedness and issue bonds subject to approval of the President upon recommendation of the Secretary of Finance;

(o) To exercise such powers and do such things as may be reasonably necessary to carry out the business and 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 its electricity requirement from the petitioner are likewise imposed the cap of twelve percent (12%) on profits.69 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"70 while other franchise holders have the option to distribute

their profits to its stockholders by declaring dividends. We do not see why this 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 petitioner's 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 claimant. Exemptions must be shown to exist clearly and categorically, and supported by clear legal provisions.71 In the case at bar, the petitioner's sole refuge 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 other government agencies and instrumentalities." However, section 193 of the LGC withdrew, subject to limited 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 all statutes granting tax exemptions from local taxes.72 It reads:

"Sec. 193. Withdrawal of Tax Exemption Privileges.- Unless otherwise provided in this Code, tax exemptions or incentives granted to, or presently enjoyed by all persons, whether natural or juridical, including government-owned or controlled corporations, except local water districts, cooperatives duly registered under R.A. No. 6938, non-stock and non-profit hospitals and educational institutions, are hereby withdrawn upon the effectivity of this Code." (emphases supplied)

It is a basic precept of statutory construction that the express mention of one person, thing, act, or consequence excludes all others as expressed in the familiar maxim expressio unius est exclusio alterius.73 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 therefore incumbent upon the petitioner to point to some provisions of the LGC that expressly grant it exemption from 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." This particular provision of the LGC does not admit any exception. In City Government of San Pablo, Laguna v. Reyes,74 MERALCO's exemption from the payment of franchise taxes was brought as an issue before this Court. The same issue was involved in the subsequent case of Manila Electric Company v. Province of Laguna.75 Ruling in favor of the local government in both instances, we ruled that the franchise tax in question is imposable despite any exemption enjoyed by MERALCO under special laws, viz:

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"It is our view that petitioners correctly rely on provisions of Sections 137 and 193 of the LGC to support their position that MERALCO's tax exemption has been withdrawn. The explicit language of section 137 which authorizes the province to impose franchise tax 'notwithstanding any exemption granted by any law or other special law' is all-encompassing and clear. The franchise tax is imposable despite any exemption enjoyed under special laws.

Section 193 buttresses the withdrawal of extant tax exemption privileges. By stating that unless otherwise provided in this Code, tax exemptions or incentives granted to or presently enjoyed by all persons, whether natural or juridical, including government-owned or controlled corporations except (1) local water districts, (2) cooperatives duly registered under R.A. 6938, (3) non-stock and non-profit hospitals and educational institutions, are withdrawn upon the effectivity of this code, the obvious import is to limit the exemptions to the three enumerated entities. It is a basic precept of statutory construction that the express mention of one person, thing, act, or consequence excludes all others as expressed in the familiar maxim expressio unius est exclusio alterius. In the absence of any provision of the Code to the contrary, and we find no other provision in point, any existing tax exemption or incentive enjoyed by MERALCO 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 annual receipts 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 such exemptions or privileges. No more unequivocal language could have been used."76 (emphases supplied).

It is worth mentioning that section 192 of the LGC empowers the LGUs, through ordinances duly approved, to grant tax exemptions, initiatives or reliefs.77 But in enacting section 37 of Ordinance No. 165-92 which imposes an annual franchise tax "notwithstanding any exemption granted by law or other special law," the respondent city government clearly did not intend to exempt the petitioner from the coverage thereof.

Doubtless, the power to tax is the most effective instrument to raise needed revenues to finance and support 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. As this 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 were that such privilege resulted in serious tax base erosion and distortions in the tax treatment of similarly situated enterprises."78 With the added burden of devolution, it is even more imperative for government entities to share in the requirements of development, fiscal or otherwise, by paying taxes or other charges due from them.

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

SO ORDERED.

Panganiban, Sandoval-Gutierrez, Corona, and Carpio-Morales, JJ., concur.

87

Palma Devt. Corp. v. Municipality of Malangas

Republic of the Philippines

SUPREME COURT

Manila

THIRD DIVISION

G.R. No. 152492 October 16, 2003

PALMA DEVELOPMENT CORPORATION, petitioner, vs.

MUNICIPALITY OF MALANGAS, ZAMBOANGA DEL SUR, respondent.

D E C I S I O N

PANGANIBAN, J.:

In accordance with the Local Government Code of 1991, a municipal ordinance imposing fees on goods that pass through the issuing municipality’s territory is null and void.

The Case

The Petition for Review1 before us assails the August 31, 2001 Decision2 and the February 6, 2002 Resolution3of the Court of Appeals (CA) in CA-GR CV No. 56477. The dispositive portion of the challenged Decision reads as follows:

"UPON THE VIEW WE TAKE OF THIS CASE, THUS, the assailed Decision is VACATED and SET ASIDE, and this case is ordered REMANDED to the court a quo for the reception of evidence of the parties on the matter or point delineated in the final sentence above-stated."4

The assailed Resolution denied petitioner’s Motion for Reconsideration.

The Facts

The facts are undisputed. Petitioner Palma Development Corporation is engaged in milling and selling rice and corn to wholesalers in Zamboanga City. It uses the municipal port of Malangas, Zamboanga del Sur as transshipment point for its goods. The port, as well as the surrounding roads leading to it, belong to and are maintained by the Municipality of Malangas, Zamboanga del Sur.

On January 16, 1994, the municipality passed Municipal Revenue Code No. 09, Series of 1993, which was subsequently approved by the Sangguniang Panlalawigan of

Zamboanga del Sur in Resolution No. 1330 dated August 4, 1994. Section 5G.01 of the ordinance reads:

"Section 5G.01. Imposition of fees. There shall be collected service fee for its use of the municipal road[s] or streets leading to the wharf and to any point along the shorelines within the jurisdiction of the municipality and for police surveillance on all goods and all equipment harbored or sheltered in the premises of the wharf and other within the jurisdiction of this municipality in the following schedule:

a) Vehicles and Equipment: rate of fee 1. Automatic per unit P10.00

2. Ford Fiera P10.00

3. Trucks P10.00 x x x x x x x x x

b) Other Goods, Construction Material products: 1. Bamboo craft P20.00

2. Bangus/Kilo 0.30 x x x x x x x x x 41. Rice and corn grits/sack 0.50"5

Accordingly, the service fees imposed by Section 5G.01 of the ordinance was paid by petitioner under protest. It contended that under Republic Act No. 7160, otherwise known as the Local Government Code of 1991, municipal governments did not have the authority to tax goods and vehicles that passed through their jurisdictions. Thereafter, before the Regional Trial Court (RTC) of Pagadian City, petitioner filed against the Municipality of Malangas on November 20, 1995, an action for declaratory relief assailing the validity of Section 5G.01 of the municipal ordinance.

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On the premise that the case involved the validity of a municipal ordinance, the RTC directed respondent to secure the opinion of the Office of the Solicitor General. The trial court likewise ordered that the opinions of the Departments of Finance and of Justice be sought. As these opinions were still unavailable as of October 17, 1996, petitioner’s counsel filed, without objection from respondent, a Manifestation seeking the submission of the case for the RTC’s decision on a pure question of law.

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In due time, the trial court rendered its November 13, 1996 Decision declaring the entire Municipal Revenue Code No. 09 as ultra vires and, hence, null and void.

Ruling of the Court of Appeals

The CA held that local government units already had revenue-raising powers as provided for under Sections 153 and 155 of RA No. 7160. It ruled as well that within the purview of these provisions -- and therefore valid -- is Section 5G.01, which provides for a "service fee for the use of the municipal road or streets leading to the wharf and to any point along the shorelines within the jurisdiction of the municipality" and "for police surveillance on all goods and all equipment harbored or sheltered in the premises of the wharf and other within the jurisdiction of this municipality."

However, since both parties had submitted the case to the trial court for decision on a pure question of law without a full-blown trial on the merits, the CA could not determine whether the facts of the case were within the ambit of the aforecited sections of RA No. 7160. The appellate court ruled that petitioner still had to adduce evidence to substantiate its allegations that the assailed ordinance had imposed fees on the movement of goods within the Municipality of Malangas in the guise of a toll fee for the use of municipal roads and a service fee for police surveillance. Thus, the CA held that the absence of such evidence necessitated the remand of the case to the trial court.

Hence, this Petition.6

Issues

Petitioner raises the following issues for our consideration:

"1. Whether or not the Court of Appeals erred when it ordered that the extant case be remanded to the lower court for reception of evidence.

"2. Whether or not the Court of Appeals erred when it ruled that a full blown trial on the merits is necessary and that plaintiff-appellee, now petitioner, ‘has to adduce evidence to substantiate its thesis that the assailed municipal ordinance, in fact, imposes fees on the movement of goods within the jurisdiction of the defendant and that this imposition is merely in the guise of a toll fee for the use of municipal roads and service fee for police surveillance.’

"3. Whether or not the Court of Appeals erred when it did not rule that the questioned municipal ordinance is contrary to the provisions of R.A. No. 7160 or the Local Government Code of the Philippines."7

In brief, the issues boil down to the following: 1) whether Section 5G.01 of Municipal Revenue Code No. 09 is valid; and 2) whether the remand of the case to the trial court is necessary.

The Court’s Ruling

The Petition is meritorious.

First Issue:

Validity of the Imposed Fees

Petitioner argues that while respondent has the power to tax or impose fees on vehicles using its roads, it cannot tax the goods that are transported by the vehicles. The provision of the ordinance imposing a service fee for police surveillance on goods is allegedly contrary to Section 133(e) of RA No. 7160, which reads:

"Section 133. Common Limitations on the Taxing Powers of Local Government Units. – Unless otherwise provided herein, the exercise of the taxing powers of provinces, cities, municipalities, and barangays shall not extend to the levy of the following:

x x x x x x x x x

e) Taxes, fees and charges and other impositions upon goods carried into and out of, or passing through, the territorial jurisdictions of local government units in the guise of charges for wharfage, tolls for bridges or otherwise, or other taxes, fees or charges in any form whatsoever upon such goods or merchandise;"

On the other hand, respondent maintains that the subject fees are intended for services rendered, the use of municipal roads and police surveillance. The fees are supposedly not covered by the prohibited impositions under Section 133(e) of RA No. 7160.8 It further contends that it was empowered by the express mandate of Sections 153 and 155 of RA No. 7160 to enact Section 5G.01 of the ordinance. The pertinent provisions of this statute read as follows:

"Section 153. Service Fees and Charges. -- Local government units may impose and collect such reasonable fees and charges for services rendered.

x x x x x x x x x

"Section 155. Toll Fees or Charges. -- The sanggunian concerned may prescribe the terms and conditions and fix the rates for the imposition of toll fees or charges for the use of any public road, pier or wharf, waterway, bridge, ferry or telecommunication system funded and constructed by the local government unit concerned: Provided, That no such toll fees or charges shall be collected from officers and enlisted men of the Armed Forces

89

of the Philippines and members of the Philippine National Police on mission, post office personnel delivering mail, physically-handicapped, and disabled citizens who are sixty-five (65) years or older.1a\^/phi1.net

"When public safety and welfare so requires, the sanggunian concerned may discontinue the collection of the tolls, and thereafter the said facility shall be free and open for public use."

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Respondent claims that there is no proof that the P0.50 fee for every sack of rice or corn is a fraudulent legislation enacted to subvert the limitation imposed by Section 133(e) of RA No. 7160. Moreover, it argues that allowing petitioner to use its roads without paying the P0.50 fee for every sack of rice or corn would contravene the principle of unjust enrichment.

By express language of Sections 153 and 155 of RA No. 7160, local government units, through their Sanggunian, may prescribe the terms and conditions for the imposition of toll fees or charges for the use of any public road, pier or wharf funded and constructed by them. A service fee imposed on vehicles using municipal roads leading to the wharf is thus valid. However, Section 133(e) of RA No. 7160 prohibits the imposition, in the guise of wharfage, of fees -- as well as all other taxes or charges in any form whatsoever -- on goods or merchandise. It is therefore irrelevant if the fees imposed are actually for police surveillance on the goods, because any other form of imposition on goods passing through the territorial jurisdiction of the municipality is clearly prohibited by Section 133(e).

Under Section 131(y) of RA No. 7160, wharfage is defined as "a fee assessed against the cargo of a vessel engaged in foreign or domestic trade based on quantity, weight, or measure received and/or discharged by vessel." It is apparent that a wharfage does not lose its basic character by being labeled as a service fee "for police surveillance on all goods."

Unpersuasive is the contention of respondent that petitioner would unjustly be enriched at the former’s expense. Though the rules thereon apply equally well to the government,9 for unjust enrichment to be deemed present, two conditions must generally concur: (a) a person is unjustly benefited, and (b) such benefit is derived at another’s expense or damage.10

In the instant case, the benefits from the use of the municipal roads and the wharf were not unjustly derived by petitioner. Those benefits resulted from the infrastructure that the municipality was mandated by law to provide.11There is no unjust enrichment where the one receiving the benefit has a legal right or entitlement thereto, or when there is no causal relation between one’s enrichment and the other’s impoverishment.12

Second Issue:

Remand of the Case

Petitioner asserts that the remand of the case to the trial court for further reception of evidence is unnecessary, because the facts are undisputed by both parties. It has already been clearly established, without need for further evidence, that petitioner transports rice and corn on board trucks that pass through the municipal roads leading to the wharf. Under protest, it paid the service fees, a fact that respondent has readily admitted without qualification.

Respondent, on the other hand, is silent on the issue of the remand of the case to the trial court. The former merely defends the validity of the ordinance, arguing neither for nor against the remand.

We rule against the remand. Not only is it frowned upon by the Rules of Court;13 it is also unnecessary on the basis of the facts established by the admissions of the parties. Besides, the fact sought to be established with the reception of additional evidence is irrelevant to the due settlement of the case.

The pertinent portion of the assailed CA Decision reads:

"To be stressed is the fact that local government units now have the following common revenue raising powers under the Local Government Code:

‘Section 153. Service Fees and Charges. -- Local government units may impose and collect such reasonable fees and charges for services rendered.

x x x x x x x x x

‘Section 155. Toll Fees or Charges. -- The Sanggunian concerned may prescribe the terms and conditions and fix the rates for the imposition of toll fees or charges for the use of any public road, pier or wharf, waterway, bridge, ferry or telecommunication system funded and constructed by the local government unit concerned: Provided, That no such toll fees or charges shall be collected from officers and enlisted men of the Armed Forces of the Philippines and members of the Philippine National Police on mission, post office personnel delivering mail, physically-handicapped, and disabled citizens who are sixty-five (65) years or older.

‘When public safety and welfare so requires, the Sanggunian concerned may discontinue the collection of the tolls, and thereafter the said facility shall be free and open for public use. x x x’

"As we see it, the disputed municipal ordinance, which provides for a service fee for the use of the municipal road or streets leading to the wharf and to any point along the shorelines within the jurisdiction of the municipality and for police surveillance on all

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goods and all equipment harbored or sheltered in the premises of the wharf and other within the jurisdiction of this municipality, seems to fall within the compass of the above cited provisions of R.A. No. 7160. As elsewhere indicated, the parties in this case, nonetheless, chose to submit the issue to the Trial Court on a ‘pure question of law,’ without a full-blown trial on the merits: consequently, we are not prepared to say, at this juncture, that the facts of the case inevitably call for the application, and/or that these make out a clear-cut case within the ambit and purview, of the aforecited section. The plaintiff, thus, has to adduce evidence to substantiate its thesis that the assailed municipal ordinance, in fact, imposes fees on the movement of goods within the jurisdiction of the defendant, and that this imposition is merely in the guise of a toll fee for the use of municipal roads and service fee for police surveillance. Competent evidence upon this score must, thus, be presented."14

We note that Section 5G.01 imposes two types of service fees: 1) one for the use of the municipal roads and 2) another for police surveillance on all goods and equipment sheltered in the premises of the wharf. The amount of service fees, however, is based on the type of vehicle that passes through the road and the type of goods being transported.1a\^/phi1.net

While both parties admit that the service fees imposed are for the use of the municipal roads, petitioner maintains that the service fee for police surveillance on goods harbored on the wharf is in the guise of a wharfage,15 a prohibited imposition under Section 133(e) of RA No. 7160.

Thus, the CA held that the case should be remanded to the trial court in order to resolve this factual dispute. The appellate court noted that under Section 155 of RA No. 7160, municipalities apparently now have the power to impose fees for the use of municipal roads.

Nevertheless, a remand is still unnecessary even if the service fee charged against the goods are for police surveillance, because Section 133(e) of RA No. 7160 expressly prohibits the imposition of all other taxes, fees or charges in any form whatsoever upon the merchandise or goods that pass through the territorial jurisdiction of local government units. It is therefore immaterial to the instant case whether the service fee on the goods is for police surveillance or not, since the subject provision of the revenue ordinance is invalid. Reception of further evidence to establish this fact would not legalize the imposition of such fee in any way.

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Furthermore, neither party disputes any of the other material facts of the case. From their respective Briefs before the CA and their Memoranda before this Court, they do not dispute the fact that petitioner, from its principal place of business, transports rice and corn on board trucks bound for respondent’s wharf. The trucks traverse the municipal roads en route to the wharf, where the sacks of rice and corn are manually loaded into marine vessels bound for Zamboanga City. Likewise undisputed is the fact that

respondent imposed and collected fees under the ordinance from petitioner. The former admits that it has been collecting, in addition to the fees on vehicles, P0.50 for every sack of rice or corn that the latter has been shipping through the wharf.16

The foregoing allegations are formal judicial admissions that are conclusive upon the parties making them. They require no further proof in accordance with Section 4 of Rule 129 of the Rules of Court, which reads:

"SEC. 4. Judicial admissions. – An admission, verbal or written, made by a party in the course of the proceedings in the same case, does not require proof. The admission may be contradicted only by showing that it was made through palpable mistake or that no such admission was made."

Judicial admissions made by parties in the pleadings, in the course of the trial, or in other proceedings in the same case are conclusive. No further evidence is required to prove them. Moreover, they cannot be contradicted unless it is shown that they have been made through palpable mistake, or that they have not been made at all.17

WHEREFORE, the Petition is GRANTED. The assailed Decision and Resolution of the Court of Appeals are hereby SET ASIDE. The imposition of a service fee for police surveillance on all goods harbored or sheltered in the premises of the municipal port of Malangas under Sec. 5G.01 of the Malangas Municipal Revenue Code No. 09, series of 1993, is declared NULL AND VOID for being violative of Republic Act No. 7160.

SO ORDERED.

Puno, (Chairman), Sandoval-Gutierrez and Carpio-Morales, JJ., concur.

Corona, J., on leave.

Smart Communications, Inc. v. City of Davao

Republic of the Philippines

SUPREME COURT

Manila

THIRD DIVISION

G.R. No. 155491 July 21, 2009

SMART COMMUNICATIONS, INC., Petitioner, vs.

THE CITY OF DAVAO, represented herein by its Mayor Hon. RODRIGO DUTERTE, and the SANGGUNIANG PANLUNSOD OF DAVAO CITY, Respondents.

R E S O L U T I O N

NACHURA, J.:

Before the Court is a Motion for Reconsideration1 filed by Smart Communications, Inc. (Smart) of the Decision2 of the Court dated September 16, 2008, denying its appeal of the Decision and Order of the Regional Trial Court (RTC) of Davao City, dated July 19, 2002 and September 26, 2002, respectively.

Briefly, the factual antecedents are as follows:

On February 18, 2002, Smart filed a special civil action for declaratory relief3 for the ascertainment of its rights and obligations under the Tax Code of the City of Davao, which imposes a franchise tax on businesses enjoying a franchise within the territorial jurisdiction of Davao. Smart avers that its telecenter in Davao City is exempt from payment of franchise tax to the City.

On July 19, 2002, the RTC rendered a Decision denying the petition. Smart filed a motion for reconsideration, which was denied by the trial court in an Order dated September 26, 2002. Smart filed an appeal before this Court, but the same was denied in a decision dated September 16, 2008. Hence, the instant motion for reconsideration raising the following grounds: (1) the "in lieu of all taxes" clause in Smart’s franchise, Republic Act No. 7294 (RA 7294), covers local taxes; the rule of strict construction against tax exemptions is not applicable; (2) the "in lieu of all taxes" clause is not rendered ineffective by the Expanded VAT Law; (3) Section 23 of Republic Act No. 79254 (RA 7925) includes a tax exemption; and (4) the imposition of a local franchise tax on Smart would violate the constitutional prohibition against impairment of the obligation of contracts.

Section 9 of RA 7294 and Section 23 of RA 7925 are once again put in issue. Section 9 of Smart’s legislative franchise contains the contentious "in lieu of all taxes" clause. The Section reads:

Section 9. Tax provisions. — The grantee, its successors or assigns shall be liable to pay the same taxes on their real estate buildings and personal property, exclusive of this franchise, as other persons or corporations which are now or hereafter may be required by law to pay. In addition thereto, the grantee, its successors or assigns shall pay a franchise tax equivalent to three percent (3%) of all gross receipts of the business transacted under this franchise by the grantee, its successors or assigns and the said percentage shall be in lieu of all taxes on this franchise or earnings thereof: Provided, That the grantee, its successors or assigns shall continue to be liable for income taxes payable under Title II of the National Internal Revenue Code pursuant to Section 2 of Executive Order No. 72 unless the latter enactment is amended or repealed, in which case the amendment or repeal shall be applicable thereto.

xxx5

Section 23 of RA 7925, otherwise known as the most favored treatment clause or equality clause, contains the word "exemption," viz.:

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SEC. 23. Equality of Treatment in the Telecommunications Industry — Any advantage, favor, privilege, exemption, or immunity granted under existing franchises, or may hereafter be granted, shall ipso facto become part of previously granted telecommunications franchises and shall be accorded immediately and unconditionally to the grantees of such franchises: Provided, however, That the foregoing shall neither apply to nor affect provisions of telecommunications franchises concerning territory covered by the franchise, the life span of the franchise, or the type of the service authorized by the franchise.6

A review of the recent decisions of the Court on the matter of exemptions from local franchise tax and the interpretation of the word "exemption" found in Section 23 of RA 7925 is imperative in order to resolve this issue once and for all.

In Digital Telecommunications Philippines, Inc. (Digitel) v. Province of Pangasinan,7 Digitel used as an argument the "in lieu of all taxes" clauses/provisos found in the legislative franchises of Globe,8 Smart and Bell,9 vis-à-visSection 23 of RA 7925, in order to claim exemption from the payment of local franchise tax. Digitel claimed, just like the petitioner in this case, that it was exempt from the payment of any other taxes except the national franchise and income taxes. Digitel alleged that Smart was exempted from the payment of local franchise tax.

However, it failed to substantiate its allegation, and, thus, the Court denied Digitel’s claim for exemption from provincial franchise tax. Cited was the ruling of the Court in PLDT v.

92

City of Davao,10 wherein the Court, speaking through Mr. Justice Vicente V. Mendoza, held that in approving Section 23 of RA No. 7925, Congress did not intend it to operate as a blanket tax exemption to all telecommunications entities. Section 23 cannot be considered as having amended PLDT’s franchise so as to entitle it to exemption from the imposition of local franchise taxes. The Court further held that tax exemptions are highly disfavored and that a tax exemption must be expressed in the statute in clear language that leaves no doubt of the intention of the legislature to grant such exemption. And, even in the instances when it is granted, the exemption must be interpreted in strictissimi juris against the taxpayer and liberally in favor of the taxing authority.

The Court also clarified the meaning of the word "exemption" in Section 23 of RA 7925: that the word "exemption" as used in the statute refers or pertains merely to an exemption from regulatory or reporting requirements of the Department of Transportation and Communication or the National Transmission Corporation and not to an exemption from the grantee’s tax liability.

In Philippine Long Distance Telephone Company (PLDT) v. Province of Laguna,11 PLDT was a holder of a legislative franchise under Act No. 3436, as amended. On August 24, 1991, the terms and conditions of its franchise were consolidated under Republic Act No. 7082, Section 12 of which embodies the so-called "in-lieu-of-all taxes" clause. Under the said Section, PLDT shall pay a franchise tax equivalent to three percent (3%) of all its gross receipts, which franchise tax shall be "in lieu of all taxes." The issue that the Court had to resolve was whether PLDT was liable to pay franchise tax to the Province of Laguna in view of the "in lieu of all taxes" clause in its franchise and Section 23 of RA 7925.lawph!l

Applying the rule of strict construction of laws granting tax exemptions and the rule that doubts are resolved in favor of municipal corporations in interpreting statutory provisions on municipal taxing powers, the Court held that Section 23 of RA 7925 could not be considered as having amended petitioner's franchise so as to entitle it to exemption from the imposition of local franchise taxes.

In ruling against the claim of PLDT, the Court cited the previous decisions in PLDT v. City of Davao12 and PLDT v. City of Bacolod,13 in denying the claim for exemption from the payment of local franchise tax.

In sum, the aforecited jurisprudence suggests that aside from the national franchise tax, the franchisee is still liable to pay the local franchise tax, unless it is expressly and unequivocally exempted from the payment thereof under its legislative franchise. The "in lieu of all taxes" clause in a legislative franchise should categorically state that the exemption applies to both local and national taxes; otherwise, the exemption claimed should be strictly construed against the taxpayer and liberally in favor of the taxing authority.

Republic Act No. 7716, otherwise known as the "Expanded VAT Law," did not remove or abolish the payment of local franchise tax. It merely replaced the national franchise tax that was previously paid by telecommunications franchise holders and in its stead imposed a ten percent (10%) VAT in accordance with Section 108 of the Tax Code. VAT replaced the national franchise tax, but it did not prohibit nor abolish the imposition of local franchise tax by cities or municipaties.

The power to tax by local government units emanates from Section 5, Article X of the Constitution which empowers them to create their own sources of revenues and to levy taxes, fees and charges subject to such guidelines and limitations as the Congress may provide. The imposition of local franchise tax is not inconsistent with the advent of the VAT, which renders functus officio the franchise tax paid to the national government. VAT inures to the benefit of the national government, while a local franchise tax is a revenue of the local government unit.

WHEREFORE, the motion for reconsideration is DENIED, and this denial is final.

SO ORDERED.

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Mobil Phil., Inc. v. City Treasurer of Makati

Republic of the Philippines

SUPREME COURT

69

FIRST DIVISION

G.R. No. 154092 July 14, 2005

MOBIL PHILIPPINES, INC., Petitioners, vs.

THE CITY TREASURER OF MAKATI and the CHIEF OF THE LICENSE DIVISION OF THE CITY OF MAKATI,Respondents.

D E C I S I O N

QUISUMBING, J.:

This petition for review on certiorari seeks the reversal of the Decision1 dated November 22, 2001 of the Regional Trial Court of Pasig City, Branch 268, in Civil Case No. 67599, subsequently affirmed in an Order2 dated May 15, 2002.

Petitioner is a domestic corporation engaged in the manufacturing, importing, exporting and wholesaling of petroleum products, while respondents are the local government officials of the City of Makati charged with the implementation of the Revenue Code of the City of Makati, as well as the collection and assessment of business taxes, license fees and permit fees within said city.3

Prior to September 1998, petitioner’s principal office was at the National Development Company Building, in 116 Tordesillas St., Salcedo Village, Makati City. On August 20, 1998, petitioner filed an application with the City Treasurer of Makati for the retirement of its business within the City of Makati as it moved its principal place of business to Pasig City.4

In its application, petitioner declared its gross sales/receipts as follows:

Gross Sales Receipts for Calendar Year 1997 P 453,799,493.29Gross Sales Receipts for Calendar Year 1998 267,952,766.675January to August

Upon evaluation of petitioner’s application, then OIC of the License Division, Ms. Jesusa E. Cuneta, issued to petitioner, a billing slip6 assessing the following taxes against petitioner:

For the 4th Quarter of 1998 (based on 1997 gross sales)

As Manufacturer P 14,439.54

As Wholesaler 550,778.58

Garbage Fee 1,250.00

Sub-Total P 566,468.12

For the Gross Sales made in 1998

As Manufacturer P 40,008.33

As Wholesaler 1,291,630.51

Sub-Total __1,331,638.84

TOTAL ASSESSED BUSINESS TAXES P 1,898,106.967

On September 11, 1998, petitioner paid the assessed amount of P1,898,106.96 under protest. The City Treasurer issued therefor Official Receipt No. 9065025C8 and approved the petitioner’s application for retirement of business from Makati to Pasig City.

On July 21, 1999, petitioner filed a claim for P1,331,638.84 refund.9 On August 11, 1999, petitioner received a letter10 denying the claim for refund on the ground that petitioner was merely transferring and not retiring its business, and that the gross sales realized while petitioner still maintained office in Makati from January 1 to August 31, 1998 should be taxed in the City of Makati.11

Petitioner subsequently filed a petition with the Regional Trial Court of Pasig City, Branch 268, seeking the refund of business taxes erroneously collected by the City of Makati.

In its Decision, the trial court ruled as follows:

In summary, the pertinent law provides that a person or entity doing business in the Municipality shall be subject to business tax. The tax shall be fixed by the quarter. The initial tax for the quarter in which a business starts to operate shall be two and one-half percent (2½%) of one percent (1%) of its capital investment. Thereafter, the tax shall be computed based on the gross sales or receipts of the preceding quarter. In the succeeding calendar year, regardless of when the business started to operate, the tax

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shall be based on the gross sales or receipts for the preceding calendar year. That tax shall accrue on the first day of January of each year and payment shall be made within the first 20 days of January or of each subsequent quarter as the case may be.

Considering therefore that the business tax accrues only on the first day of January as provided in Sec. 3A.07 and becomes payable within the first 20 days thereof or of each subsequent quarter, the payments made by Mobil in the year 1998 are therefore payments for the business tax for 1997 which accrued in January of 1998 and became payable within the first 20 days of January or of each subsequent quarter. Thus, upon retirement in August 1998, the taxes for said year which should accrue in January 1999 [become] immediately payable before the application for retirement can be approved (Ibid, (g), Sec. 3A.08). The assessment of the Chief of the License Division of Makati is therefore with legal basis and does not constitute double taxation.

WHEREFORE, premises considered, the instant petition for refund is hereby DENIED and the case is dismissed for lack of merit.

SO ORDERED.12

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Petitioner filed a Motion for Reconsideration13 which was denied in an Order dated May 15, 2002, hence this appeal.

Before us, petitioner alleges now that,

THE TRIAL COURT ERRED IN HOLDING THAT PETITIONER’S BUSINESS TAX PAYMENTS MADE IN 1998 ARE ACTUALLY PAYMENTS FOR BUSINESS TAXES IN 1997. THIS CONCLUSION IS CONTROVERTED BY MAKATI CITY’S REVENUE CODE, AND, IN FACT, CONSTITUTES DOUBLE TAXATION.14

Simply stated, the issue is: Are the business taxes paid by petitioner in 1998, business taxes for 1997 or 1998?

According to petitioner, the 1997 gross sales/revenue is merely the basis for the amount of business taxes due for the privilege of carrying on a business in the year when the tax was paid.

For their part, respondents argue that since local taxes, which include business taxes, are paid either within the first twenty days of January of each year or of each subsequent quarter, as the case may be, what the taxpayer actually pays during the recorded calendar year is actually its business tax for the preceding year.

Prefatorily, it is necessary to distinguish between a business tax vis-à-vis an income tax.

Business taxes imposed in the exercise of police power for regulatory purposes are paid for the privilege of carrying on a business in the year the tax was paid. It is paid at the

beginning of the year as a fee to allow the business to operate for the rest of the year. It is deemed a prerequisite to the conduct of business.

Income tax, on the other hand, is a tax on all yearly profits arising from property, professions, trades or offices, or as a tax on a person’s income, emoluments, profits and the like. It is tax on income, whether net or gross realized in one taxable year.15 It is due on or before the 15th day of the 4th month following the close of the taxpayer’s taxable year and is generally regarded as an excise tax, levied upon the right of a person or entity to receive income or profits.

The trial court erred when it said that the payments made by petitioner in 1998 are payments for business tax incurred in 1997 which only accrued in January 1998. Likewise, it erred when it ruled that petitioner was still liable for business taxes based on its gross income/revenue for January to August 1998.

Section 3A.04 of the Makati City Revenue Code states:

Sec.3A.04. Computation of tax for newly-started business. In the case of newly-started business under Sec. 3A.02, (a), (b), (c), (d), (e), (f), (g), (h), (i), (j), (k), (l), and (m) above, the tax shall be fixed by the quarter. The initial tax of the quarter in which the business starts to operate shall be two and one half percent (2 ½ %) of one percent (1%) of the capital investment.

In the succeeding quarter or quarters, in cases where the business opens before the last quarter of the year, the tax shall be based on the gross sales or receipt for the preceding quarter at one-half ( ½ ) of the rates fixed therefor by the pertinent schedule in Section 3A.02, (a), (b), (c), (d), (e), (f), (g), (h), (i), (j), (k), (l), and (m).

In the succeeding calendar year, regardless of when the business started to operate, the tax shall be based on the gross sales or receipts for the preceding calendar year, or any fraction thereof as provided in the same pertinent schedules.16

Under the Makati Revenue Code, it appears that the business tax, like income tax, is computed based on the previous year’s figures. This is the reason for the confusion. A newly-started business is already liable for business taxes (i.e. license fees) at the start of the quarter when it commences operations. In computing the amount of tax due for the first quarter of operations, the business’ capital investment is used as the basis. For the subsequent quarters of the first year, the tax is based on the gross sales/receipts for the previous quarter. In the following year(s), the business is then taxed based on the gross sales or receipts of the previous year. The business taxes paid in the year 1998 is for the privilege of engaging in business for the same year, and not for having engaged in business for 1997.

Upon its transfer, petitioner was apparently subjected to Sec. 3A.11 par. (g) which states:

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. . .

(g) Retirement of business.

. . .

For purposes thereof, termination shall mean that business operation are stopped completely.

. . .

(2) If it is found that the retirement or termination of the business is legitimate, [a]nd the tax due therefrom be less than the tax due for the current year based on the gross sales or receipts, the difference in the amount of the tax shall be paid before the business is considered officially retired or terminated.17

Based on this foregoing provision, on the year an establishment retires or terminates its business within the municipality, it would be required to pay the difference in the amount if the tax collected, based on the previous year’s gross sales or receipts, is less than the actual tax due based on the current year’s gross sales or receipts.

For the year 1998, petitioner paid a total of P2,262,122.48 to the City Treasurer of Makati18 as business taxes for the year 1998. The amount of tax as computed based on petitioner’s gross sales for 1998 is only P1,331,638.84. Since the amount paid is more than the amount computed based on petitioner’s actual gross sales for 1998, petitioner upon its retirement is not liable for additional taxes to the City of Makati. Thus, we find that the respondent erroneously treated the assessment and collection of business tax as if it were income tax, by rendering an additional assessment of P1,331,638.84 for the revenue generated for the year 1998.

WHEREFORE, the assailed Decision is hereby REVERSED and respondents City Treasurer and Chief of the License Division of Makati City are ordered to REFUND to petitioner business taxes paid in the amount ofP1,331,638.84. Costs against respondents.

SO ORDERED.

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96

Yamane v. BA Lepanto Condo, Corp.

Republic of the Philippines

SUPREME COURT

SECOND DIVISION

G.R. No. 154993 October 25, 2005

LUZ R. YAMANE, in her capacity as the CITY TREASURER OF MAKATI CITY, Petitioner,

vs.

BA LEPANTO CONDOMINUM CORPORATION, Respondent.

D E C I S I O N

Tinga, J.:

Petitioner City Treasurer of Makati, Luz Yamane (City Treasurer), presents for resolution of this Court two novel questions: one procedural, the other substantive, yet both of obvious significance. The first pertains to the proper mode of judicial review undertaken from decisions of the regional trial courts resolving the denial of tax protests made by local government treasurers, pursuant to the Local Government Code. The second is whether a local government unit can, under the Local Government Code, impel a condominium corporation to pay business taxes.1

While we agree with the City Treasurer’s position on the first issue, there ultimately is sufficient justification for the Court to overlook what is essentially a procedural error. We uphold respondents on the second issue. Indeed, there are disturbing aspects in both procedure and substance that attend the attempts by the City of Makati to flex its taxing muscle. Considering that the tax imposition now in question has utterly no basis in law, judicial relief is imperative. There are fewer indisputable causes for the exercise of judicial review over the exercise of the taxing power than when the tax is based on whim, and not on law.

The facts, as culled from the record, follow.

Respondent BA-Lepanto Condominium Corporation (the "Corporation") is a duly organized condominium corporation constituted in accordance with the Condominium Act,2 which owns and holds title to the common and limited common areas of the BA-Lepanto Condominium (the "Condominium"), situated in Paseo de Roxas, Makati City. Its membership comprises the various unit owners of the Condominium. The Corporation is authorized, under Article V of its Amended By-Laws, to collect regular assessments from

its members for operating expenses, capital expenditures on the common areas, and other special assessments as provided for in the Master Deed with Declaration of Restrictions of the Condominium.

On 15 December 1998, the Corporation received a Notice of Assessment dated 14 December 1998 signed by the City Treasurer. The Notice of Assessment stated that the Corporation is "liable to pay the correct city business taxes, fees and charges," computed as totaling P1,601,013.77 for the years 1995 to 1997.3 The Notice of Assessment was silent as to the statutory basis of the business taxes assessed.

Through counsel, the Corporation responded with a written tax protest dated 12 February 1999, addressed to the City Treasurer. It was evident in the protest that the Corporation was perplexed on the statutory basis of the tax assessment.

With due respect, we submit that the Assessment has no basis as the Corporation is not liable for business taxes and surcharges and interest thereon, under the Makati [Revenue] Code or even under the [Local Government] Code.

The Makati [Revenue] Code and the [Local Government] Code do not contain any provisions on which the Assessment could be based. One might argue that Sec. 3A.02(m) of the Makati [Revenue] Code imposes business tax on owners or operators of any business not specified in the said code. We submit, however, that this is not applicable to the Corporation as the Corporation is not an owner or operator of any business in the contemplation of the Makati [Revenue] Code and even the [Local Government] Code.4

Proceeding from the premise that its tax liability arose from Section 3A.02(m) of the Makati Revenue Code, the Corporation proceeded to argue that under both the Makati Code and the Local Government Code, "business" is defined as "trade or commercial activity regularly engaged in as a means of livelihood or with a view to profit." It was submitted that the Corporation, as a condominium corporation, was organized not for profit, but to hold title over the common areas of the Condominium, to manage the Condominium for the unit owners, and to hold title to the parcels of land on which the Condominium was located. Neither was the Corporation authorized, under its articles of incorporation or by-laws to engage in profit-making activities. The assessments it did collect from the unit owners were for capital expenditures and operating expenses.5

The protest was rejected by the City Treasurer in a letter dated 4 March 1999. She insisted that the collection of dues from the unit owners was effected primarily "to sustain and maintain the expenses of the common areas, with the end in view [sic] of getting full appreciative living values [sic] for the individual condominium occupants and to command better marketable [sic] prices for those occupants" who would in the future sell their respective units.6 Thus, she concluded since the "chances of getting higher prices for well-managed common areas of any condominium are better and more effective that

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condominiums with poor [sic] managed common areas," the corporation activity "is a profit venture making [sic]".7

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From the denial of the protest, the Corporation filed an Appeal with the Regional Trial Court (RTC) of Makati.8 On 1 March 2000, the Makati RTC Branch 57 rendered a Decision9 dismissing the appeal for lack of merit. Accepting the premise laid by the City Treasurer, the RTC acknowledged, in sadly risible language:

Herein appellant, to defray the improvements and beautification of the common areas, collect [sic] assessments from its members. Its end view is to get appreciate living rules for the unit owners [sic], to give an impression to outsides [sic] of the quality of service the condominium offers, so as to allow present owners to command better prices in the event of sale.10

With this, the RTC concluded that the activities of the Corporation fell squarely under the definition of "business" under Section 13(b) of the Local Government Code, and thus subject to local business taxation.11

From this Decision of the RTC, the Corporation filed a Petition for Review under Rule 42 of the Rules of Civil Procedure with the Court of Appeals. Initially, the petition was dismissed outright12 on the ground that only decisions of the RTC brought on appeal from a first level court could be elevated for review under the mode of review prescribed under Rule 42.13 However, the Corporation pointed out in its Motion for Reconsideration that under Section 195 of the Local Government Code, the remedy of the taxpayer on the denial of the protest filed with the local treasurer is to appeal the denial with the court of competent jurisdiction.14 Persuaded by this contention, the Court of Appeals reinstated the petition.15

On 7 June 2002, the Court of Appeals Special Sixteenth Division rendered the Decision16 now assailed before this Court. The appellate court reversed the RTC and declared that the Corporation was not liable to pay business taxes to the City of Makati.17 In doing so, the Court of Appeals delved into jurisprudential definitions of profit,18and concluded that the Corporation was not engaged in profit. For one, it was held that the very statutory concept of a condominium corporation showed that it was not a juridical entity intended to make profit, as its sole purpose was to hold title to the common areas in the condominium and to maintain the condominium.19

The Court of Appeals likewise cited provisions from the Corporation’s Amended Articles of Incorporation and Amended By-Laws that, to its estimation, established that the Corporation was not engaged in business and the assessment collected from unit owners limited to those necessary to defray the expenses in the maintenance of the common areas and management the condominium.20

Upon denial of her Motion for Reconsideration,21 the City Treasurer elevated the present Petition for Reviewunder Rule 45. It is argued that the Corporation is engaged in business, for the dues collected from the different unit owners is utilized towards the beautification and maintenance of the Condominium, resulting in "full appreciative living values" for the condominium units which would command better market prices should they be sold in the future. The City Treasurer likewise avers that the rationale for business taxes is not on the income received or profit earned by the business, but the privilege to engage in business. The fact that the

Corporation is empowered "to acquire, own, hold, enjoy, lease, operate and maintain, and to convey sell, transfer or otherwise dispose of real or personal property" allegedly qualifies "as incident to the fact of [the Corporation’s] act of engaging in business.22

The City Treasurer also claims that the Corporation had filed the wrong mode of appeal before the Court of Appeals when the latter filed its Petition for Review under Rule 42. It is reasoned that the decision of the Makati RTC was rendered in the exercise of original jurisdiction, it being the first court which took cognizance of the case. Accordingly, with the Corporation having pursued an erroneous mode of appeal, the RTC Decision is deemed to have become final and executory.

First, we dispose of the procedural issue, which essentially boils down to whether the RTC, in deciding an appeal taken from a denial of a protest by a local treasurer under Section 195 of the Local Government Code, exercises "original jurisdiction" or "appellate jurisdiction." The question assumes a measure of importance to this petition, for

the adoption of the position of the City Treasurer that the mode of review of the decision taken by the RTC is governed by Rule 41 of the Rules of Civil Procedure means that the decision of the RTC would have long become final and executory by reason of the failure of the Corporation to file a notice of appeal.23

There are discernible conflicting views on the issue. The first, as expressed by the Court of Appeals, holds that the RTC, in reviewing denials of protests by local treasurers, exercises appellate jurisdiction. This position is anchored on the language of Section 195 of the Local Government Code which states that the remedy of the taxpayer whose protest is denied by the local treasurer is "to appeal with the court of competent jurisdiction."24Apparently though, the Local Government Code does not elaborate on how such "appeal" should be undertaken.

The other view, as maintained by the City Treasurer, is that the jurisdiction exercised by the RTC is original in character. This is the first time that the position has been presented to the court for adjudication. Still, this argument does find jurisprudential mooring in our ruling in Garcia v. De Jesus,25 where the Court proffered the following distinction between original jurisdiction and appellate jurisdiction: "Original jurisdiction is the power of the Court to take judicial cognizance of a case instituted for judicial action for the first time under conditions provided by law. Appellate jurisdiction is the authority of a Court98

higher in rank to re-examine the final order or judgment of a lower Court which tried the case now elevated for judicial review."26

The quoted definitions were taken from the commentaries of the esteemed Justice Florenz Regalado. With the definitions as beacon, the review taken by the RTC over the denial of the protest by the local treasurer would fall within that court’s original jurisdiction. In short, the review is the initial judicial cognizance of the matter. Moreover, labeling the said review as an exercise of appellate jurisdiction is inappropriate, since the denial of the protest is not the judgment or order of a lower court, but of a local government official.

The stringent concept of original jurisdiction may seemingly be neutered by Rule 43 of the 1997 Rules of Civil Procedure, Section 1 of which lists a slew of administrative agencies and quasi-judicial tribunals or their officers whose decisions may be reviewed by the Court of Appeals in the exercise of its appellate jurisdiction. However, the basic law of jurisdiction, Batas Pambansa Blg. 129 (B.P. 129),27 ineluctably confers appellate jurisdiction on the Court of Appeals over final rulings of quasi-judicial agencies, instrumentalities, boards or commission, by explicitly using the phrase "appellate jurisdiction."28 The power to create or characterize jurisdiction of courts belongs to the legislature. While the traditional notion of appellate jurisdiction connotes judicial review over lower court decisions, it has to yield to statutory redefinitions that clearly expand its breadth to encompass even review of decisions of officers in the executive branches of government.

Yet significantly, the Local Government Code, or any other statute for that matter, does not expressly confer appellate jurisdiction on the part of regional trial courts from the denial of a tax protest by a local treasurer. On the other hand, Section 22 of B.P. 129 expressly delineates the appellate jurisdiction of the Regional Trial Courts, confining as it does said appellate jurisdiction to cases decided by Metropolitan, Municipal, and Municipal Circuit Trial Courts. Unlike in the case of the Court of Appeals, B.P. 129 does not confer appellate jurisdiction on Regional Trial Courts over rulings made by non-judicial entities.

From these premises, it is evident that the stance of the City Treasurer is correct as a matter of law, and that the proper remedy of the Corporation from the RTC judgment is an ordinary appeal under Rule 41 to the Court of Appeals. However, we make this pronouncement subject to two important qualifications. First, in this particular case there are nonetheless significant reasons for the Court to overlook the procedural error and ultimately uphold the adjudication of the jurisdiction exercised by the Court of Appeals in this case. Second, the doctrinal weight of the pronouncement is confined to cases and controversies that emerged prior to the enactment of Republic Act No. 9282, the law which expanded the jurisdiction of the Court of Tax Appeals (CTA).

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Republic Act No. 9282 definitively proves in its Section 7(a)(3) that the CTA exercises exclusive appellate jurisdiction to review on appeal decisions, orders or resolutions of the Regional Trial Courts in local tax cases original decided or resolved by them in the exercise of their originally or appellate jurisdiction. Moreover, the provision also states that the review is triggered "by filing a petition for review under a procedure analogous to that provided for under Rule 42 of the 1997 Rules of Civil Procedure."29

Republic Act No. 9282, however, would not apply to this case simply because it arose prior to the effectivity of that law. To declare otherwise would be to institute a jurisdictional rule derived not from express statutory grant, but from implication. The jurisdiction of a court to take cognizance of a case should be clearly conferred and should not be deemed to exist on mere implications,30 and this settled rule would be needlessly emasculated should we declare that the Corporation’s position is correct in law.

Be that as it may, characteristic of all procedural rules is adherence to the precept that they should not be enforced blindly, especially if mechanical application would defeat the higher ends that animates our civil procedure—the just, speedy and inexpensive disposition of every action and proceeding.31 Indeed, we have repeatedly upheld—and utilized ourselves—the discretion of courts to nonetheless take cognizance of petitions raised on an erroneous mode of appeal and instead treat these petitions in the manner as they should have appropriately been filed.32 The Court of Appeals could very well have treated the Corporation’s petition for review as an ordinary appeal.

Moreover, we recognize that the Corporation’s error in elevating the RTC decision for review via Rule 42 actually worked to the benefit of the City Treasurer. There is wider latitude on the part of the Court of Appeals to refuse cognizance over a petition for review under Rule 42 than it would have over an ordinary appeal under Rule 41. Under Section 13, Rule 41, the stated grounds for the dismissal of an ordinary appeal prior to the transmission of the case records are when the appeal was taken out of time or when the docket fees were not paid.33 On the other hand, Section 6, Rule 42 provides that in order that the Court of Appeals may allow due course to the petition for review, it must first make a prima facie finding that the lower court has committed an error that would warrant the reversal or modification of the decision under review.34 There is no similar requirement of a prima facie determination of error in the case of ordinary appeal, which is perfected upon the filing of the notice of appeal in due time.35

Evidently, by employing the Rule 42 mode of review, the Corporation faced a greater risk of having its petition rejected by the Court of Appeals as compared to having filed an ordinary appeal under Rule 41. This was not an error that worked to the prejudice of the City Treasurer.

We now proceed to the substantive issue, on whether the City of Makati may collect business taxes on condominium corporations.99

We begin with an overview of the power of a local government unit to impose business taxes.

The power of local government units to impose taxes within its territorial jurisdiction derives from the Constitution itself, which recognizes the power of these units "to create its own sources of revenue and to levy taxes, fees, and charges subject to such guidelines and limitations as the Congress may provide, consistent with the basic policy of local autonomy."36 These guidelines and limitations as provided by Congress are in main contained in the Local Government Code of 1991 (the "Code"), which provides for comprehensive instances when and how local government units may impose taxes. The significant limitations are enumerated primarily in Section 133 of the Code, which include among others, a prohibition on the imposition of income taxes except when levied on banks and other financial institutions.37 None of the other general limitations under Section 133 find application to the case at bar.

The most well-known mode of local government taxation is perhaps the real property tax, which is governed by Title II, Book II of the Code, and which bears no application in this case. A different set of provisions, found under Title I of Book II, governs other taxes imposable by local government units, including business taxes. Under Section 151 of the Code, cities such as Makati are authorized to levy the same taxes fees and charges as provinces and municipalities. It is in Article II, Title II, Book II of the Code, governing

municipal taxes, where the provisions on business taxation relevant to this petition may be found.38

Section 143 of the Code specifically enumerates several types of business on which municipalities and cities may impose taxes. These include manufacturers, wholesalers, distributors, dealers of any article of commerce of whatever nature; those engaged in the export or commerce of essential commodities; contractors and other independent contractors; banks and financial institutions; and peddlers engaged in the sale of any merchandise or article of commerce. Moreover, the local sanggunian is also authorized to impose taxes on any other businesses not otherwise specified under Section 143 which the sanggunian concerned may deem proper to tax.

The coverage of business taxation particular to the City of Makati is provided by the Makati Revenue Code ("Revenue Code"), enacted through Municipal Ordinance No. 92-072. The Revenue Code remains in effect as of this

writing. Article A, Chapter III of the Revenue Code governs business taxes in Makati, and it is quite specific as to the particular businesses which are covered by business taxes. To give a sample of the specified businesses under the Revenue Code which are not enumerated under the Local Government Code, we cite Section 3A.02(f) of the Code, which levies a gross receipt tax :

(f) On contractors and other independent contractors defined in Sec. 3A.01(q) of Chapter III of this Code, and on owners or operators of business establishments rendering or offering services such as: advertising agencies; animal hospitals; assaying laboratories; belt and buckle shops; blacksmith shops; bookbinders; booking officers for film exchange; booking offices for transportation on commission basis; breeding of game cocks and other sporting animals belonging to others; business management services; collecting agencies; escort services; feasibility studies; consultancy services; garages; garbage disposal contractors; gold and silversmith shops; inspection services for incoming and outgoing cargoes; interior decorating services; janitorial services; job placement or recruitment agencies; landscaping contractors; lathe machine shops; management consultants not subject to professional tax; medical and dental laboratories; mercantile agencies; messsengerial services; operators of shoe shine stands; painting shops; perma press establishments; rent-a-plant services; polo players; school for and/or horse-back riding academy; real estate appraisers; real estate brokerages; photostatic, white/blue printing, Xerox, typing, and mimeographing services; rental of bicycles and/or tricycles, furniture, shoes, watches, household appliances, boats, typewriters, etc.; roasting of pigs, fowls, etc.; shipping agencies; shipyard for repairing ships for others; shops for shearing animals; silkscreen or T-shirt printing shops; stables; travel agencies; vaciador shops; veterinary clinics; video rentals and/or coverage services; dancing schools/speed reading/EDP; nursery, vocational and other schools not regulated by the Department of Education, Culture and Sports, (DECS), day care centers; etc.39

Other provisions of the Revenue Code likewise subject hotel and restaurant owners and operators40, real estate dealers, and lessors of real estate41 to business taxes.

Should the comprehensive listing not prove encompassing enough, there is also a catch-all provision similar to that under the Local Government Code. This is found in Section 3A.02(m) of the Revenue Code, which provides:

(m) On owners or operators of any business not specified above shall pay the tax at the rate of two percent (2%) for 1993, two and one-half percent (2 ½%) for 1994 and 1995, and three percent (3%) for 1996 and the years thereafter of the gross receipts during the preceding year.42

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The initial inquiry is what provision of the Makati Revenue Code does the City Treasurer rely on to make the Corporation liable for business taxes. Even at this point, there already stands a problem with the City Treasurer’s cause of action.

Our careful examination of the record reveals a highly disconcerting fact. At no point has the City Treasurer been candid enough to inform the Corporation, the RTC, the Court of Appeals, or this Court for that matter, as to what exactly is the precise statutory basis under the Makati Revenue Code for the levying of the business tax on petitioner. We have examined all of the pleadings submitted by the City Treasurer in all the antecedent judicial proceedings, as well as in this present petition, and also the communications by100

the City Treasurer to the Corporation which form part of the record. Nowhere therein is there any citation made by the City Treasurer of any provision of the Revenue Code which would serve as the legal authority for the collection of business taxes from condominiums in Makati.

Ostensibly, the notice of assessment, which stands as the first instance the taxpayer is officially made aware of the pending tax liability, should be sufficiently informative to apprise the taxpayer the legal basis of the tax. Section 195 of the Local Government Code does not go as far as to expressly require that the notice of assessment specifically cite the provision of the ordinance involved but it does require that it state the nature of the tax, fee or charge, the amount of deficiency, surcharges, interests and penalties. In this case, the notice of assessment sent to the Corporation did state that the assessment was for business taxes, as well as the amount of the assessment. There may have been prima facie compliance with the requirement under Section 195. However in this case, the Revenue Code provides multiple provisions on business taxes, and at varying rates. Hence, we could appreciate the Corporation’s confusion, as expressed in its protest, as to the exact legal basis for the tax.43 Reference to the local tax ordinance is vital, for the power of local government units to impose local taxes is exercised through the appropriate ordinance enacted by the sanggunian, and not by the Local Government Code alone.44 What determines tax liability is the tax ordinance, the Local Government Code being the enabling law for the local legislative body.

Moreover, a careful examination of the Revenue Code shows that while Section 3A.02(m) seems designed as a catch-all provision, Section 3A.02(f), which provides for a different tax rate from that of the former provision, may be construed to be of similar import. While Section 3A.02(f) is quite exhaustive in enumerating the class of businesses taxed under the provision, the listing, while it does not include condominium-related enterprises, ends with the abbreviation "etc.", or "et cetera".

We do note our discomfort with the unlimited breadth and the dangerous uncertainty which are the twin hallmarks of the words "et cetera." Certainly, we cannot be disposed to uphold any tax imposition that derives its authority from enigmatic and uncertain words such as "et cetera." Yet we cannot even say with definiteness whether the tax imposed on the Corporation in this case is based on "et cetera," or on Section 3A.02(m), or on any other provision of the Revenue Code. Assuming that the assessment made on the Corporation is on a provision other than Section 3A.02(m), the main legal issue takes on a different complexion. For example, if it is based on "et cetera" under Section 3A.02(f), we would have to examine whether the Corporation faces analogous comparison with the other businesses listed under that provision.

Certainly, the City Treasurer has not been helpful in that regard, as she has been silent all through out as to the exact basis for the tax imposition which she wishes that this Court uphold. Indeed, there is only one thing that prevents this Court from ruling that

there has been a due process violation on account of the City Treasurer’s failure to disclose on paper the statutory basis of the tax–that the Corporation itself does not allege injury arising from such failure on the part of the City Treasurer.

We do not know why the Corporation chose not to put this issue into litigation, though we can ultimately presume that no injury was sustained because the City Treasurer failed to cite the specific statutory basis of the tax. What is essential though is that the local treasurer be required to explain to the taxpayer with sufficient particularity the basis of the tax, so as to leave no doubt in the mind of the taxpayer as to the specific tax involved.

In this case, the Corporation seems confident enough in litigating despite the failure of the City Treasurer to admit on what exact provision of the Revenue Code the tax liability ensued. This is perhaps because the Corporation has anchored its central argument on the position that the Local Government Code itself does not sanction the imposition of business taxes against it. This position was sustained by the Court of Appeals, and now merits our analysis.

As stated earlier, local tax on businesses is authorized under Section 143 of the Local Government Code. The word "business" itself is defined under Section 131(d) of the Code as "trade or commercial activity regularly engaged in as a means of livelihood or with a view to profit."45 This definition of "business" takes on importance, since Section 143 allows local government units to impose local taxes on businesses other than those specified under the provision. Moreover, even those business activities specifically named in Section 143 are themselves susceptible to broad interpretation. For example, Section 143(b) authorizes the imposition of business taxes on wholesalers, distributors, or dealers in any article of commerce of whatever kind or nature.

It is thus imperative that in order that the Corporation may be subjected to business taxes, its activities must fall within the definition of business as provided in the Local Government Code. And to hold that they do is to ignore the very statutory nature of a condominium corporation.

The creation of the condominium corporation is sanctioned by Republic Act No. 4726, otherwise known as the Condominium Act. Under the law, a condominium is an interest in real property consisting of a separate interest in a unit in a residential, industrial or commercial building and an undivided interest in common, directly or indirectly, in the land on which it is located and in other common areas of the building.46 To enable the orderly administration over these common areas which are jointly owned by the various unit owners, the Condominium Act permits the creation of a condominium corporation, which is specially formed for the purpose of holding title to the common area, in which the holders of separate interests shall automatically be members or shareholders, to the exclusion of others, in proportion to the appurtenant interest of their respective

101

units.47 The necessity of a condominium corporation has not gained widespread acceptance48, and even is merely permissible under the Condominium Act.49 Nonetheless, the condominium corporation has been resorted to by many condominium projects, such as the Corporation in this case.

In line with the authority of the condominium corporation to manage the condominium project, it may be authorized, in the deed of restrictions, "to make reasonable assessments to meet authorized expenditures, each condominium unit to be assessed separately for its share of such expenses in proportion (unless otherwise provided) to its owner’s fractional interest in any common areas."50 It is the collection of these assessments from unit owners that form the basis of the City Treasurer’s claim that the Corporation is doing business.

The Condominium Act imposes several limitations on the condominium corporation that prove crucial to the disposition of this case. Under Section 10 of the law, the

75

corporate purposes of a condominium corporation are limited to the holding of the common areas, either in ownership or any other interest in real property recognized by law; to the management of the project; and to such other purposes as may be necessary, incidental or convenient to the accomplishment of such purpose.51 Further, the same provision prohibits the articles of incorporation or by-laws of the condominium corporation from containing any provisions which are contrary to the provisions of the Condominium Act, the enabling or master deed, or the declaration of restrictions of the condominium project.52

We can elicit from the Condominium Act that a condominium corporation is precluded by statute from engaging in corporate activities other than the holding of the common areas, the administration of the condominium project, and other acts necessary, incidental or convenient to the accomplishment of such purposes. Neither the maintenance of livelihood, nor the procurement of profit, fall within the scope of permissible corporate purposes of a condominium corporation under the Condominium Act.

The Court has examined the particular Articles of Incorporation and By-Laws of the Corporation, and these documents unmistakably hew to the limitations contained in the Condominium Act. Per the Articles of Incorporation, the Corporation’s corporate purposes are limited to: (a) owning and holding title to the common and limited common areas in the Condominium Project; (b) adopting such necessary measures for the protection and safeguard of the unit owners and their property, including the power to contract for security services and for insurance coverage on the entire project; (c) making and adopting needful rules and regulations concerning the use, enjoyment and occupancy of the units and common areas, including the power to fix penalties and assessments for violation of such rules; (d) to provide for the maintenance, repair, sanitation, and cleanliness of the common and limited common areas; (e) to provide and contract for public utilities and other services to the common areas; (f) to contract for the

services of persons or firms to assist in the management and operation of the Condominium Project; (g) to discharge any lien or encumbrances upon the Condominium Project; (h) to enforce the terms contained in the Master Deed with Declaration of Restrictions of the Project; (i) to levy and

collect those assessments as provided in the Master Deed, in order to defray the costs, expenses and losses of the condominium; (j) to acquire, own, hold, enjoy, lease operate and maintain, and to convey, sell transfer, mortgage or otherwise dispose of real or personal property in connection with the purposes and activities of the corporation; and

(k) to exercise and perform such other powers reasonably necessary, incidental or convenient to accomplish the foregoing purposes.53

Obviously, none of these stated corporate purposes are geared towards maintaining a livelihood or the obtention of profit. Even though the Corporation is empowered to levy assessments or dues from the unit owners, these amounts collected are not intended for the incurrence of profit by the Corporation or its members, but to shoulder the multitude of necessary expenses that arise from the maintenance of the Condominium Project. Just as much is confirmed by Section 1, Article V of the Amended By-Laws, which enumerate the particular expenses to be defrayed by the regular assessments collected from the unit owners. These would include the salaries of the employees of the Corporation, and the cost of maintenance and ordinary repairs of the common areas.54

The City Treasurer nonetheless contends that the collection of these assessments and dues are "with the end view of getting full appreciative living values" for the condominium units, and as a result, profit is obtained once these units are sold at higher prices. The Court cites with approval the two counterpoints raised by the Court of Appeals in rejecting this contention. First, if any profit is obtained by the sale of the units, it accrues not to the corporation but to the unit owner. Second, if the unit owner does obtain profit from the sale of the corporation, the owner is already required to pay capital gains tax on the appreciated value of the condominium unit.55

Moreover, the logic on this point of the City Treasurer is baffling. By this rationale, every Makati City car owner may be considered as being engaged in business, since the repairs or improvements on the car may be deemed oriented

towards appreciating the value of the car upon resale. There is an evident distinction between persons who spend on repairs and improvements on their personal and real property for the purpose of increasing its resale value, and those who defray such expenses for the purpose of preserving the property. The vast majority of persons fall under the second category, and it would be highly specious to subject these persons to local business taxes. The profit motive in such cases is hardly the driving factor behind such improvements, if it were contemplated at all. Any profit that would be derived under such circumstances would merely be incidental, if not accidental.

102

Besides, we shudder at the thought of upholding tax liability on the basis of the standard of "full appreciative living values", a phrase that defies statutory explication, commonsensical meaning, the English language, or even definition from Google. The exercise of the power of taxation constitutes a deprivation of property under the

due process clause,56 and the taxpayer’s right to due process is violated when arbitrary or oppressive methods are used in assessing and collecting taxes.57 The fact that the Corporation did not fall within the enumerated classes of taxable businesses under either the Local Government Code or the Makati Revenue Code already forewarns that a clear demonstration is essential on the part of the City Treasurer on why the Corporation should be taxed anyway. "Full appreciative living values" is nothing but blather in search of meaning, and to impose a tax hinged on that standard is both arbitrary and oppressive.

The City Treasurer also contends that the fact that the Corporation is engaged in business is evinced by the Articles of Incorporation, which specifically empowers the Corporation "to acquire, own, hold, enjoy, lease, operate and maintain, and to convey, sell, transfer mortgage or otherwise dispose of real or personal property."58What the City Treasurer fails to add is that every corporation

organized under the Corporation Code59 is so specifically empowered. Section 36(7) of the Corporation Code states that every corporation incorporated under the Code has the power and capacity "to purchase, receive, take or grant, hold, convey, sell, lease, pledge, mortgage and otherwise deal with such real and personal property . . . as the transaction of the lawful business of the corporation may reasonably and necessarily require . . .

."60Without this power, corporations, as juridical persons, would be deprived of the capacity to engage in most meaningful legal relations.

Again, whatever capacity the Corporation may have pursuant to its power to exercise acts of ownership over personal and real property is limited by its stated corporate purposes, which are by themselves further limited by the Condominium Act. A condominium corporation, while enjoying such powers of ownership, is prohibited by law from transacting its properties for the purpose of gainful profit.

Accordingly, and with a significant degree of comfort, we hold that condominium corporations are generally exempt from local business taxation under the Local Government Code, irrespective of any local ordinance that seeks to declare otherwise.

Still, we can note a possible exception to the rule. It is not unthinkable that the unit owners of a condominium would band together to engage in activities for profit under the shelter of the condominium corporation.61 Such activity would be prohibited under the Condominium Act, but if the fact is established, we see no reason why the condominium corporation may be made liable by the local government unit for business taxes. Even though such activities would be considered as ultra vires, since they are engaged in

76

beyond the legal capacity of the condominium corporation62, the principle of estoppel would preclude the corporation or its officers and members from invoking the void nature of its undertakings for profit as a means of acquitting itself of tax liability.

Still, the City Treasurer has not posited the claim that the Corporation is engaged in business activities beyond the statutory purposes of a condominium corporation. The assessment appears to be based solely on the Corporation’s collection of assessments from unit owners, such assessments being utilized to defray the necessary expenses for the Condominium Project and the common areas. There is no contemplation of business, no orientation towards profit in this case. Hence, the assailed tax assessment has no basis under the Local Government Code or the Makati Revenue Code, and the insistence of the city in its collection of the void tax constitutes an attempt at deprivation of property without due process of law.

WHEREFORE, the petition is DENIED. No costs.

SO ORDERED.

103

Ericsson Telecoms Inc. v. City of Pasig

THIRD DIVISION

G.R. No. 176667 November 22, 2007

ERICSSON TELECOMMUNICATIONS, INC., petitioner, vs.

CITY OF PASIG, represented by its City Mayor, Hon. Vicente P. Eusebio, et al.*, respondents.

D E C I S I O N

AUSTRIA-MARTINEZ, J.:

Ericsson Telecommunications, Inc. (petitioner), a corporation with principal office in Pasig City, is engaged in the design, engineering, and marketing of telecommunication facilities/system. In an Assessment Notice dated October 25, 2000 issued by the City Treasurer of Pasig City, petitioner was assessed a business tax deficiency for the years 1998 and 1999 amounting to P9,466,885.00 and P4,993,682.00, respectively, based on its gross revenues as reported in its audited financial statements for the years 1997 and 1998. Petitioner filed a Protest dated December 21, 2000, claiming that the computation of the local business tax should be based on gross receipts and not on gross revenue.

The City of Pasig (respondent) issued another Notice of Assessment to petitioner on November 19, 2001, this time based on business tax deficiencies for the years 2000 and 2001, amounting to P4,665,775.51 andP4,710,242.93, respectively, based on its gross revenues for the years 1999 and 2000. Again, petitioner filed a Protest on January 21, 2002, reiterating its position that the local business tax should be based on gross receiptsand not gross revenue.

Respondent denied petitioner's protest and gave the latter 30 days within which to appeal the denial. This prompted petitioner to file a petition for review1 with the Regional Trial Court (RTC) of Pasig, Branch 168, praying for the annulment and cancellation of petitioner's deficiency local business taxes totaling P17,262,205.66.

Respondent and its City Treasurer filed a motion to dismiss on the grounds that the court had no jurisdiction over the subject matter and that petitioner had no legal capacity to sue. The RTC denied the motion in an Order dated December 3, 2002 due to respondents' failure to include a notice of hearing. Thereafter, the RTC declared respondents in default and allowed petitioner to present evidence ex- parte.

In a Decision2 dated March 8, 2004, the RTC canceled and set aside the assessments made by respondent and its City Treasurer. The dispositive portion of the RTC Decision reads:

WHEREFORE, premises considered, judgment is hereby rendered in favor of the plaintiff and ordering defendants to CANCEL and SET ASIDE Assessment Notice dated October 25, 2000 and Notice of Assessment dated November 19, 2001.

SO ORDERED.3

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On appeal, the Court of Appeals (CA) rendered its Decision4 dated November 20, 2006, the dispositive portion of which reads:

WHEREFORE, the decision appealed from is hereby ordered SET ASIDE and a new one entered DISMISSING the plaintiff/appellee's complaint WITHOUT PREJUDICE.

SO ORDERED.5

The CA sustained respondent's claim that the petition filed with the RTC should have been dismissed due to petitioner's failure to show that Atty. Maria Theresa B. Ramos (Atty. Ramos), petitioner's Manager for Tax and Legal Affairs and the person who signed the Verification and Certification of Non-Forum Shopping, was duly authorized by the Board of Directors.

Its motion for reconsideration having been denied in a Resolution6 dated February 9, 2007, petitioner now comes before the Court via a Petition for Review on Certiorari under Rule 45 of the Rules of Court, on the following grounds:

(1) THE COURT OF APPEALS ERRED IN DISMISSING THE CASE FOR LACK OF SHOWING THAT THE SIGNATORY OF THE VERIFICATION/ CERTIFICATION IS NOT SPECIFICALLY AUTHORIZED FOR AND IN BEHALF OF PETITIONER.

(2) THE COURT OF APPEALS ERRED IN GIVING DUE COURSE TO RESPONDENT'S APPEAL, CONSIDERING THAT IT HAS NO JURISDICTION OVER THE SAME, THE MATTERS TO BE RESOLVED BEING PURE QUESTIONS OF LAW, JURISDICTION OVER WHICH IS VESTED ONLY WITH THIS HONORABLE COURT.

(3) ASSUMING THE COURT OF APPEALS HAS JURISDICTION OVER RESPONDENT'S APPEAL, SAID COURT ERRED IN NOT DECIDING ON THE MERITS OF THE CASE FOR THE SPEEDY DISPOSITION THEREOF, CONSIDERING THAT THE DEFICIENCY LOCAL BUSINESS TAX ASSESSMENTS ISSUED BY

RESPONDENT ARE CLEARLY INVALID AND CONTRARY TO THE PROVISIONS OF THE PASIG REVENUE CODE AND THE LOCAL GOVERNMENT CODE.7

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After receipt by the Court of respondent's complaint and petitioner's reply, the petition is given due course and considered ready for decision without the need of memoranda from the parties.

The Court grants the petition.

First, the complaint filed by petitioner with the RTC was erroneously dismissed by the CA for failure of petitioner to show that its Manager for Tax and Legal Affairs, Atty. Ramos, was authorized by the Board of Directors to sign the Verification and Certification of Non-Forum Shopping in behalf of the petitioner corporation.

Time and again, the Court, under special circumstances and for compelling reasons, sanctioned substantial compliance with the rule on the submission of verification and certification against non-forum shopping.8

In General Milling Corporation v. National Labor Relations Commission,9 the Court deemed as substantial compliance the belated attempt of the petitioner to attach to the motion for reconsideration the board resolution/secretary's certificate, stating that there was no attempt on the part of the petitioner to ignore the prescribed procedural requirements.

In Shipside Incorporated v. Court of Appeals,10 the authority of the petitioner's resident manager to sign the certification against forum shopping was submitted to the CA only after the latter dismissed the petition. The Court considered the merits of the case and the fact that the petitioner subsequently submitted a secretary's certificate, as special circumstances or compelling reasons that justify tempering the requirements in regard to the certificate of non-forum shopping.11

There were also cases where there was complete non-compliance with the rule on certification against forum shopping and yet the Court proceeded to decide the case on the merits in order to serve the ends of substantial justice.12

In the present case, petitioner submitted a Secretary's Certificate signed on May 6, 2002, whereby Atty. Ramos was authorized to file a protest at the local government level and to "sign, execute and deliver any and all papers, documents and pleadings relative to the said protest and to do and perform all such acts and things as may be necessary to effect the foregoing."13

Applying the foregoing jurisprudence, the subsequent submission of the Secretary's Certificate and the substantial merits of the petition, which will be shown forthwith, justify a relaxation of the rule.

Second, the CA should have dismissed the appeal of respondent as it has no jurisdiction over the case since the appeal involves a pure question of law. The CA seriously erred in

ruling that the appeal involves a mixed question of law and fact necessitating an examination and evaluation of the audited financial statements and other documents in order to determine petitioner's tax base.

There is a question of law when the doubt or difference is on what the law is on a certain state of facts. On the other hand, there is a question of fact when the doubt or difference is on the truth or falsity of the facts alleged.14For a question to be one of law, the same must not involve an examination of the probative value of the evidence presented by the litigants or any of them. The resolution of the issue must rest solely on what the law provides on the given set of circumstances. Once it is clear that the issue invites a review of the evidence presented, the question posed is one of fact. Thus, the test of whether a question is one of law or of fact is not the appellation given to such question by the party raising the same; rather, it is whether the appellate court can determine the issue raised without reviewing or evaluating the evidence, in which case, it is a question of law; otherwise it is a question of fact.15

There is no dispute as to the veracity of the facts involved in the present case. While there is an issue as to the correct amount of local business tax to be paid by petitioner, its determination will not involve a look into petitioner's audited financial statements or documents, as these are not disputed; rather, petitioner's correct tax liability will be ascertained through an interpretation of the pertinent tax laws, i.e., whether the local business tax, as imposed by the Pasig City Revenue Code (Ordinance No. 25-92) and the Local Government Code of 1991, should be based on gross receipts, and not on gross revenue which respondent relied on in computing petitioner's local business tax deficiency. This, clearly, is a question of law, and beyond the jurisdiction of the CA.

Section 2(c), Rule 41 of the Rules of Court provides that in all cases where questions of law are raised or involved, the appeal shall be to this Court by petition for review on certiorari under Rule 45.

78

Thus, as correctly pointed out by petitioner, the appeal before the CA should have been dismissed, pursuant to Section 5(f), Rule 56 of the Rules of Court, which provides:

Sec. 5. Grounds for dismissal of appeal.- The appeal may be dismissed motu proprio or on motion of the respondent on the following grounds:

x x x x

(f) Error in the choice or mode of appeal.

x x x x

Third, the dismissal of the appeal, in effect, would have sustained the RTC Decision ordering respondent to cancel the Assessment Notices issued by respondent, and

105

therefore, would have rendered moot and academic the issue of whether the local business tax on contractors should be based on gross receipts or gross revenues.

However, the higher interest of substantial justice dictates that this Court should resolve the same, to evade further repetition of erroneous interpretation of the law,16 for the guidance of the bench and bar.

As earlier stated, the substantive issue in this case is whether the local business tax on contractors should be based on gross receipts or gross revenue.

Respondent assessed deficiency local business taxes on petitioner based on the latter's gross revenue as reported in its financial statements, arguing that gross receipts is synonymous with gross earnings/revenue, which, in turn, includes uncollected earnings. Petitioner, however, contends that only the portion of the revenues which were actually and constructively received should be considered in determining its tax base.

Respondent is authorized to levy business taxes under Section 143 in relation to Section 151 of the Local Government Code.

Insofar as petitioner is concerned, the applicable provision is subsection (e), Section 143 of the same Code covering contractors and other independent contractors, to wit:

SEC. 143. Tax on Business. - The municipality may impose taxes on the following businesses:

x x x x

(e) On contractors and other independent contractors, in accordance with the following schedule:

With gross receipts for the preceding Amount of Tax Per

calendar year in the amount of: Annum

x x x x

(Emphasis supplied)

The above provision specifically refers to gross receipts which is defined under Section 131 of the Local Government Code, as follows:

x x x x

(n) "Gross Sales or Receipts" include the total amount of money or its equivalent representing the contract price, compensation or service fee, including the amount charged or materials supplied with the services and the deposits or advance payments

actually or constructively received during the taxable quarter for the services performed or to be performed for another person excluding discounts if determinable at the time of sales, sales return, excise tax, and value-added tax (VAT);

x x x x

The law is clear. Gross receipts include money or its equivalent actually or constructively received in consideration of services rendered or articles sold, exchanged or leased, whether actual or constructive.

In Commissioner of Internal Revenue v. Bank of Commerce,17 the Courtinterpreted gross receipts as including those which were actually or constructivelyreceived, viz.:

Actual receipt of interest income is not limited to physical receipt. Actual receipt may either be physical receipt or constructive receipt. When the depository bank withholds the final tax to pay the tax liability of the lending bank, there is prior to the withholding a constructive receipt by the lending bank of the amount withheld. From the amount constructively received by the lending bank, the depository bank deducts the final withholding tax and remits it to the government for the account of the lending bank. Thus, the interest income actually received by the lending bank, both physically and constructively, is the net interest plus the amount withheld as final tax.

The concept of a withholding tax on income obviously and necessarily implies that the amount of the tax withheld comes from the income earned by the taxpayer. Since the amount of the tax withheld constitutes income earned by the taxpayer, then that amount manifestly forms part of the taxpayer's gross receipts. Because the amount withheld belongs to the taxpayer, he can transfer its ownership to the government in payment of his tax liability. The amount withheld indubitably comes from income of the taxpayer, and thus forms part of his gross receipts. (Emphasis supplied)

Further elaboration was made by the Court in Commissioner of Internal Revenue v. Bank of the Philippine Islands,18 in this wise:

Receipt of income may be actual or constructive. We have held that the withholding process results in the taxpayer's constructive receipt of the income withheld, to wit:

79

By analogy, we apply to the receipt of income the rules on actual and constructive possession provided in Articles 531 and 532 of our Civil Code.

Under Article 531:

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"Possession is acquired by the material occupation of a thing or the exercise of a right, or by the fact that it is subject to the action of our will, or by the proper acts and legal formalities established for acquiring such right."

Article 532 states:

"Possession may be acquired by the same person who is to enjoy it, by his legal representative, by his agent, or by any person without any power whatever; but in the last case, the possession shall not be considered as acquired until the person in whose name the act of possession was executed has ratified the same, without prejudice to the juridical consequences of negotiorum gestio in a proper case."

The last means of acquiring possession under Article 531 refers to juridical acts—the acquisition of possession by sufficient title—to which the law gives the force of acts of possession. Respondent argues that only items of income actually received should be included in its gross receipts. It claims that since the amount had already been withheld at source, it did not have actual receipt thereof.

We clarify. Article 531 of the Civil Code clearly provides that the acquisition of the right of possession is through the proper acts and legal formalities established therefor. The withholding process is one such act. There may not be actual receipt of the income withheld; however, as provided for in Article 532, possession by any person without any power whatsoever shall be considered as acquired when ratified by the person in whose name the act of possession is executed.

In our withholding tax system, possession is acquired by the payor as the withholding agent of the government, because the taxpayer ratifies the very act of possession for the government. There is thus constructive receipt. The processes of bookkeeping and accounting for interest on deposits and yield on deposit substitutes that are subjected to FWT are indeed—for legal purposes—tantamount to delivery, receipt or remittance.19

Revenue Regulations No. 16-2005 dated September 1, 200520 defined and gave examples of "constructive receipt", to wit:

SEC. 4. 108-4. Definition of Gross Receipts. -- x x x

"Constructive receipt" occurs when the money consideration or its equivalent is placed at the control of the person who rendered the service without restrictions by the payor. The following are examples of constructive receipts:

(1) deposit in banks which are made available to the seller of services without restrictions;

(2) issuance by the debtor of a notice to offset any debt or obligation and acceptance thereof by the seller as payment for services rendered; and

(3) transfer of the amounts retained by the payor to the account of the contractor.

There is, therefore, constructive receipt, when the consideration for the articles sold, exchanged or leased, or the services rendered has already been placed under the control of the person who sold the goods or rendered the services without any restriction by the payor.

In contrast, gross revenue covers money or its equivalent actually or constructively received, including the value of services rendered or articles sold, exchanged or leased, the payment of which is yet to be received. This is in consonance with the International Financial Reporting Standards,21 which defines revenue as the gross inflow of economic benefits (cash, receivables, and other assets) arising from the ordinary operating activities of an enterprise (such as sales of goods, sales of services, interest, royalties, and dividends),22 which is measured at the fair value of the consideration received or receivable.23

As aptly stated by the RTC:

"[R]evenue from services rendered is recognized when services have been performed and are billable." It is "recorded at the amount received or expected to be received." (Section E [17] of the Statements of Financial Accounting Standards No. 1).24

In petitioner's case, its audited financial statements reflect income or revenue which accrued to it during the taxable period although not yet actually or constructively received or paid. This is because petitioner uses the accrual method of accounting, where income is reportable when all the events have occurred that fix the taxpayer's right to receive the income, and the amount can be determined with reasonable accuracy; the right to receive income, and not the actual receipt, determines when to include the amount in gross income.25

The imposition of local business tax based on petitioner's gross revenue will inevitably result in the constitutionally proscribed double taxation – taxing of the same person twice by the same jurisdiction for the same thing26 – inasmuch as petitioner's revenue or income for a taxable year will definitely include its gross receipts already reported during the previous year and for which local business tax has already been paid.

Thus, respondent committed a palpable error when it assessed petitioner's local business tax based on its gross revenue as reported in its audited financial statements, as Section 143 of the Local Government Code and Section 22(e) of the Pasig Revenue Code clearly provide that the tax should be computed based on gross receipts.

WHEREFORE, the petition is GRANTED. The Decision dated November 20, 2006 and Resolution dated February 9, 2007 issued by the Court of Appeals are SET ASIDE, and the Decision dated March 8, 2004 rendered by the Regional Trial Court of Pasig, Branch 168 is REINSTATED.

SO ORDERED. Ynares-Santiago, Chairperson, Chico-Nazario, Nachura, Reyes, JJ., concur.

Allied Thread Co., Inc. v. Manila

Republic of the Philippines

SUPREME COURT

80

Manila

EN BANC

G.R. No. L-40296 November 21, 1984

ALLIED THREAD CO., INC., and KER & COMPANY, LTD., petitioners, vs.

HON. CITY MAYOR OF MANILA, HON. CITY TREASURER OF MANILA, HON. LORENZO RELOVA, in his capacity as Presiding Judge, Branch II, CFI of Manila, respondents.

Antonio A. Nieva for petitioners.

Santiago F. Alidio, S.M. Artiaga, Jr. and Jose A. Perella for respondents.

ABAD SANTOS, J.:

This is a Petition for Review challenging the decision of the then Court of First Instance of Manila presided by then Judge, now Justice Lorenzo Relova, which upheld the validity of Manila Ordinance No. 7516, as amended by Ordinance Nos. 7544, 7545 and 7556, and adjudging petitioner Allied Thread Co., Inc. taxable thereunder considering that its products are sold in Manila.

On June 12, 1974, the Municipal Board of the City of Manila enacted Ordinance No. 7516 imposing on manufacturers, importer porters or producers, doing business in the City of Manila, business taxes based on gross sales on a graduated basis. The Mayor approved the said Ordinance on June 15, 1974. In due time, the same ordinance underwent a series of amendments, to wit: on June 19, 1974, by Ordinance No. 7544 approved by the Mayor on the same date; Ordinance No. 7545 enacted by the Municipal Board on June 20, 1974 and approved by the Mayor on June 27, 1974; and Ordinance No. 7556, enacted by the Municipal Board on July 20, 1974 and approved by the Mayor on July 29,1974. Ordinance No. 7516 as amended, reads as follows:

Sec. 1. Business Tax. — There is hereby imposed on the following business in the City of Manila an annual tax collectible quarterly except on those for which fixed taxes are already provided for as follows:

A. On manufacturers, importers, or producers of any article of commerce of whatever kind or nature, including brewers, distilled spirits and/or wines in accordance with the following schedule:

xxx xxx xxx

PROVIDED HOWEVER, that for purposes of collection of this tax, manufacturers and producers maintaining or operating branch or sales offices elsewhere shall record the sale in the branch or sales office making the sale and the tax thereon shall accrue to the City of Manila if the branch of sales office is in Manila. In cases where there is no such branch or sales office in the city, the sale shag be duly recorded in the principal office along with the sales made in the principal office. Sixty percent of all sales recorded in the principal office shall be taxable by the City of Manila if the principal office is in Manila, while the remaining forty percent shall be deemed as sales made in the factory and shall he taxable by the local government where the factory is located.

In cases where a manufacturer or producer has factories in Manila and in different localities, the forty per cent sales allocation mentioned in the preceding paragraph shall be appropriated among the City of Manila and the localities where the factories are situated in proportion to their respective volumes of production during the period for which the tax is due.

The records show that petitioner Allied Id Co., inc. is engaged in the business of manufacturing sewing thread and yarn under duly registered marks and labels. It operates its factory and maintains an office in Pasig, Rizal. In order to sell its products in Manila and in other parts of the Philippines, petitioner Allied Thread Co., Inc. engaged the services of a sales broker, Ker & Company, Ltd. (co-petitioner herein), the latter deriving commissions from every sale made for its principal.

Having been affected by the aforementioned Ordinance, being manufacturers and sales brokers, on July 22, 1974, Allied Thread Co., Inc. and Ker & Co., Ltd. filed with the defunct Court of First Instance of Manila, a petition for Declaratory Relief, contending that Ordinance No. 7516, as amended, is not valid nor enforceable as the same is contrary to Section 54 of Presidential Decree No. 426, as clarified by Local Tax Regulation No. 1-74 dated April 8, 1974 of the Department of Finance, reading as follows:

J. GENERAL PROVISIONS

1. All existing tax ordinance of provinces, cities, municipalities and barrios shall be deemed ipso factonullified on June 30, 1974.

2. The local boards or councils should enact their respective tax ordinances pursuant to the provisions of the Local Tax Code, as amended by P.D. 426, to take effect not earlier than July 1, 1974.

3. Pursuant to the provisions of Section 42 of the Code, as amended by Section 18 of the said Decree, a local tax ordinance shall go into effect on the 15th day after approved by the local chief executives in accordance with Section 41 of the Code. 4. In view hereof, and considering the provisions of Section 54 of the Code, regarding the accrual of taxes a local tax ordinance intended to take effect on July 1, 1974 should be enacted by the Local Chief Executive not later than June 15, 1974. (Emphasis supplied)

Otherwise stated, petitioners assert that due to the series of amendments to Ordinance No. 7516, the same Ordinance fell short of the deadline set by Sec. 54 of P.D. No. 426 that "for an ordinance intended to take effect on July 1, 1974, it must be enacted on or before June 15, 1974." Necessarily, so it is asserted, the said Ordinance No. 7516 as amended, is not valid nor enforceable.

Petitioners further contend that the questioned Ordinance did not comply with the necessary publication requirement in a newspaper of general circulation as mandated by Sec. 43 of the Local Tax Code. Petitioner Allied Thread Co., Inc. also claims that it should not be subjected to the said Ordinance No. 7516 as amended, because it does not operate or maintain a branch office in Manila and that its principal office and factory are located in Pasig, Rizal.

We agree with the decision of the then Court of First Instance of Manila, upholding the validity of Ordinance No. 7516 as amended, and finding petitioner Allied Thread Co., Inc. the proper subject thereto.

There is no dispute that Ordinance No. 7516 was enacted by the Municipal Board of Manila on June 12, 1974 and approved by the City Mayor on June 15, 1974. Fifteen (15) days thereafter, or on July 1, 1974, the said ordinance became effective pursuant to Sec. 42 of the Local Tax Code. It is clear therefore that Ordinance No. 7516 has fully conformed with P.D. No. 426 and Local Tax Regulation No. 1-74 which require that "a local tax ordinance intended to take effect on July 1, 1974 should be enacted by the Local Chief Executive not later than June 15, 1974 ". The

81

subsequent amendments to the basic ordinance did not in any way invalidate it nor move the date of its effectivity. To hold otherwise would limit the power of the defunct Municipal Board of Manila to amend an existing ordinance as exigencies require.

Petitioners complain that they were not fully apprised of the enactment of Ordinance No. 7516 for the same was not duly published in a newspaper of general circulation. Respondents argue however, that copies of Ordinance No. 7516 and its amendments were posted in public buildings, government offices, and public places in lieu of publication in newspaper of general circulation.

We are persuaded that there was substantial compliance of the law on publication. Section 43 of the Local Tax Code provides two modes of apprising the public of a new ordinance, either, (a) by means of publication in a newspaper of general circulation or,

(b) by means of posting of copies thereof in the local legislative hall or premises and two other conspicuous places within the territorial jurisdiction of the local government. Respondents, having complied with the second mode of notice, We are of the opinion that there is no legal infirmity to the validity of Ordinance No. 7516 as amended.

Finally, petitioner Allied Thread Co., Inc. claims exclusion from Ordinance No. 7515 as amended on the ground that it does not maintain an office or branch office in the City of Manila, where the subject Ordinance only applies. This contention is devoid of merit. Allied Thread Co., Inc. admits that it does business in the City of Manila through a broker or agent, Ker & Company, Ltd. Doing business in the City of Manila is all that is required to fall within the coverage of the Ordinance.

It should be noted that Ordinance No. 7516 as amended imposes a business tax on manufacturers, importers or producers doing business in the City of Manila. The tax imposition here is upon the performance of an act, enjoyment of a privilege, or the engaging in an occupation, and hence is in the nature of an excise tax.

The power to levy an excise upon the performance of an act or the engaging in an occupation does not depend upon the domicile of the person subject to the excise nor upon the physical location of the property and in connection with the act or occupation taxed, but depends upon the place in which the act is performed or occupation engaged in.

Thus, the gauge for taxability under the said Ordinance No. 7516 as amended does not depend on the location of the office, but attaches upon the place where the respective sale transaction(s) is perfected and consummated. (See Koppel (Phil.) vs. Yatco, 77 Phil. 496 [1946]) Since Allied Thread Co., Inc. sells its products in the City of Manila through its broker, Ker & Company, Ltd., it cannot escape the tax liability imposed by Ordinance No. 7516 as amended.

WHEREFORE, the petition is hereby dismissed for lack of merit. Costs against the petitioners.

SO ORDERED.

Fernando, C.J., Makasiar, Aquino, Concepcion, Jr., Melencio-Herrera, Plana, Escolin, Gutierrez, Jr., De la Fuente, and Cuevas, JJ., concur.

Teehankee and Relova, JJ., took no part.

Province of Bulacan v. CA

Republic of the Philippines

SUPREME COURT

Manila

THIRD DIVISION

G.R. No. 126232 November 27, 1998

THE PROVINCE OF BULACAN, ROBERTO M. PAGDANGANAN, FLORENCE CHAVES, and MANUEL DJ SIAYNGCO in their capacity as PROVINCIAL GOVERNOR, PROVINCIAL TREASURER, PROVINCIAL LEGAL

ADVISER, respectively, petitioners, vs.

THE HONORABLE COURT OF APPEALS (FORMER SPECIAL 12TH DIVISION), REPUBLIC CEMENT CORPORATION, respondents.

ROMERO, J.:

Before us is a petition for certiorari seeking the reversal of the decision of the Court of Appeals dated September 27, 1995 declaring petitioner without authority to levy taxes on stones, sand, gravel, earth and other quarry resources extracted from private lands, as well as the August 26, 1996 resolution of the appellate court denying its motion for reconsideration.

The facts are as follows:

On June 26, 1992, the Sangguniang Panlalawigan of Bulacan passed Provincial Ordinance No. 3, known as "An Ordinance Enacting the Revenue Code of the Bulacan Province." which was to take effect on July 1, 1992. Section 21 of the ordinance provides as follows:

Sec. 21 Imposition of Tax. There is hereby levied and collected a tax of 10% of the fair market value in the locality per cubic meter of ordinary stones, sand, gravel, earth and other quarry resources, such, but not limited to marble, granite, volcanic cinders, basalt, tuff and rock phosphate, extracted from public lands or from beds of seas, lakes, rivers, streams, creeks and other public waters within its territorial jurisdiction (Emphasis ours)

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Pursuant thereto, the Provincial Treasurer of Bulacan, in a letter dated November 11, 1993, assessed private respondent Republic Cement Corporation (hereafter Republic Cement) P2,524,692.13 for extracting limestone, shale and silica from several parcels of private land in the province during the third quarter of 1992 until the second quarter of 1993. Believing that the province, on the basis of above-said ordinance, had no authority to impose taxes on quarry resources extracted from private lands, Republic Cement formally contested the same on December 23, 1993. The same was, however, denied by the Provincial Treasurer on January 17, 1994. Republic Cement, consequently filed a petition for declaratory relief with the Regional Trial Court of Bulacan on February 14, 1994. The province filed a motion to dismiss Republic Cement's petition, which was granted by the trial court on May 13, 1993, which ruled that declaratory relief was improper, allegedly because a breach of the ordinance had been committed by Republic Cement.

On July 11, 1994, Republic Cement filed a petition for certiorari with the Supreme Court seeking to reverse the trial court's dismissal of their petition. The Court, in a resolution dated July 27, 1994, referred the same to the Court of Appeals, where it was docketed as CA G.R. SP No. 34915. The appellate court required petitioners to file a comment, which they did on September 7, 1994.

In the interim, the Province of Bulacan issued a warrant of levy against Republic Cement, allegedly because of its unpaid tax liabilities. Negotiations between Republic Cement and petitioners resulted in an agreement and modus vivendi on December 12, 1994, whereby Republic Cement agreed to pay under protest P1,262,346.00, 50% of the tax assessed by petitioner, in exchange for the lifting of the warrant of levy. Furthermore, Republic Cement and petitioners agreed to limit the issue for resolution by the Court of Appeals to the question as to whether or not the provincial government could impose and/or assess taxes on quarry resources extracted by Republic Cement from private lands pursuant to Section 21 of Provincial Ordinance No. 3. This agreement and modus vivendi were embodied in a joint manifestation and motion signed by Governor Roberto Pagdanganan, on behalf of the Province of Bulacan, by Provincial Treasurer Florence Chavez, and by Provincial Legal Officer Manuel Siayngco, as petitioners' counsel and filed with the Court of Appeals on December 13, 1994. In a resolution dated December 29, 1994, the appellate court approved the same and limited the issue to be resolved to the question of whether or not the provincial government could impose taxes on stones, sand, gravel, earth and other quarry resources extracted from private lands.

After due trial, the Court of Appeals, on September 27, 1995, rendered the following judgment:

WHEREFORE, judgment is hereby rendered declaring the Province of Bulacan under its Provincial Ordinance No. 3 entitled "An Ordinance Enacting The Revenue Code of Bulacan Province" to be without legal authority to impose and assess taxes on quarry

resources extracted by RCC from private lands, hence the interpretation of Respondent Treasurer of Chapter II, Article D, Section 21 of the Ordinance, and the assessment made by the Province of Bulacan against RCC is null and void.

Petitioners' motion for reconsideration, as well as their supplemental motion for reconsideration, was denied by the appellate court on August 26, 1996, hence this appeal.

Petitioners claim that the Court of Appeals erred in:

1. NOT HAVING OUTRIGHTLY DISMISSED THE SUBJECT PETITION ON THE GROUND THAT THE SAME IS NOT THE APPROPRIATE REMEDY FROM THE TRIAL COURT'S GRANT OF THE PRIVATE RESPONDENTS' (HEREIN PETITIONER) MOTION TO DISMISS;

2. NOT DISMISSING THE SUBJECT PETITION FOR BEING VIOLATIVE OF CIRCULAR 2-90 ISSUED BY THE SUPREME COURT;

3. NOT DISMISSING THE PETITION FOR REVIEW ON THE GROUND THAT THE TRIAL COURT'S ORDER OF MAY 13, 1994 HAD LONG BECOME FINAL AND EXECUTORY;

4. GOING BEYOND THE PARAMETERS OF ITS APPELLATE JURISDICTION IN RENDERING THE SEPTEMBER 27, 1995 DECISION;

5. HOLDING THAT PRIVATE RESPONDENT (HEREIN PETITIONER) ARE ESTOPPED FROM RAISING THE PROCEDURAL ISSUE IN THE MOTION FOR RECONSIDERATION;

6. THE INTERPRETATION OF SECTION 134 OF THE LOCAL GOVERNMENT CODE AS STATED IN THE SECOND TO THE LAST PARAGRAPH OF PAGE 5 OF ITS SEPTEMBER 27, 1995 DECISION;

7. SUSTAINING THE ALLEGATIONS OF HEREIN RESPONDENT WHICH UNJUSTLY DEPRIVED PETITIONER THE POWER TO CREATE ITS OWN SOURCES OF REVENUE;

8. DECLARING THAT THE ASSESSMENT MADE BY THE PROVINCE OF BULACAN AGAINST RCC AS NULL AND VOID WHICH IN EFFECT IS A COLLATERAL ATTACK ON PROVINCIAL ORDINANCE NO. 3; AND

9. FAILING TO CONSIDER THE REGALIAN DOCTRINE IN FAVOR OF THE LOCAL GOVERNMENT.

The issues raised by petitioners are devoid of merit. The number and diversity of errors raised by appellants impel us, however, to discuss the points raised seriatim.

In their first assignment of error, petitioners contend that instead of filing a petition for certiorari with the Supreme Court, Republic Cement should have appealed from the order of the trial court dismissing their petition. CitingMartinez vs. CA, 1 they allege that a motion to dismiss is a final order, the remedy against which is not a petition forcertiorari, but an appeal, regardless of the questions sought to be raised on appeal, whether of fact or of law, whether involving jurisdiction or grave abuse of discretion of the trial court.

Petitioners' argument is misleading. While it is true that the remedy against a final order is an appeal, and not a petition for certiorari, the petition referred to is a petition for certiorari under Rule 65. As stated in Martinez, the party aggrieved does not have the option to substitute the special civil action of certiorari under Rule 65 for the remedy of appeal. The existence and availability of the right of appeal are antithetical to the availment of the special civil action of certiorari.

Republic Cement did not, however, file a petition for certiorari under Rule 65, but an appeal by certiorari under Rule 45. Even law students know that certiorari under Rule 45 is a mode of appeal, an appeal from the Regional Trial Court being taken in either of two ways (a) by writ of error (involving questions of fact and law) and (b) bycertiorari (limited only to issues of law), with an appeal by certiorari being brought to the Supreme Court, there being no provision of law for taking appeals by certiorari to the Court of Appeals. 2 It is thus clearly apparent that Republic Cement correctly contested the trial court's order of dismissal by filing an appeal by certiorari under Rule 45. In fact, petitioners, in their second assignment of error, admit that a petition for review on certiorari under Rule 45 is available to a party aggrieved by an order granting a motion to dismiss. 3 They claim, however, that Republic Cement could not avail of the same allegedly because the latter raised issues of fact, which is prohibited, Rule 45 providing that "(t)he petition shall raise only questions of law which must be distinctly set forth." 4 In this respect, petitioners claim that Republic Cement's petition should have been dismissed by the appellate court, Circular 2-90 providing:

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4. Erroneous Appeals. — An appeal taken to either the Supreme Court or the Court of Appeals by the wrong or inappropriate mode shall be dismissed.

xxx xxx xxx

d) No transfer of appeals erroneously taken. — No transfers of appeals erroneously taken to the Supreme Court or to the Court of Appeals to whichever of these Tribunals has appropriate appellate jurisdiction will be allowed; continued ignorance or wilful disregard of the law on appeals will not be tolerated.

Petitioners even fault the Court for referring Republic Cement's petition to the Court of Appeals, claiming that the same should have been dismissed pursuant to Circular 2-90. Petitioners conveniently overlook the other provisions of Circular 2-90, specifically 4b) thereof, which provides:

b) Raising factual issues in appeal by certiorari. — Although submission of issues of fact in an appeal by certiorari taken to the Supreme Court from the regional trial court is ordinarily proscribed, the Supreme Court nonetheless retains the option, in the exercise of its sound discretion and considering the attendant circumstances, either itself to take cognizance of and decide such issues or to refer them to the Court of Appeals for determination.

As can be clearly adduced from the foregoing, when an appeal by certiorari under Rule 45 erroneously raises factual issues, the Court has the option to refer the petition to the Court of Appeals. The exercise by the Court of this option may not now be questioned by petitioners.

As the trial court's order was properly appealed by Republic Cement, the trial court's May 13, 1994 order never became final and executory, rendering petitioner's third assignment of error moot and academic.

Petitioners' fourth and fifth assignment of errors are likewise without merit. Petitioners assert that the Court of Appeals could only rule on the propriety of the trial court's dismissal of Republic Cement's petition for declaratory relief, allegedly because that was the sole relief sought by the latter in its petition for certiorari. Petitioners claim that the appellate court overstepped its jurisdiction when it declared null and void the assessment made by the Province of Bulacan against Republic Cement.

Petitioners gloss over the fact that, during the proceedings before the Court of Appeals, they entered into an agreement and modus vivendi whereby they limited the issue for resolution to the question as to whether or not the provincial government could impose and/or assess taxes on stones, sand, gravel, earth and other quarry resources extracted by Republic Cement from private lands. This agreement and modus vivendi were approved by the appellate court on December 29, 1994. All throughout the proceedings, petitioners never questioned the authority of the Court of Appeals to decide this issue, an issue which it brought itself within the purview of the appellate court. Only when an adverse decision was rendered by the Court of Appeals did petitioners question the jurisdiction of the former.

Petitioners are barred by the doctrine of estoppel from contesting the authority of the Court of Appeals to decide the instant case, as this Court has consistently held that "(a) party cannot invoke the jurisdiction of a court to secure affirmative relief against his opponent and after obtaining or failing to obtain such relief, repudiate or question that same jurisdiction." 5 The Supreme Court frowns upon the undesirable practice of a party

submitting his case for decision and then accepting the judgment, only if favorable, and attacking it for lack of jurisdiction when adverse. 6

In a desperate attempt to ward off defeat, petitioners now repudiate the above-mentioned agreement and modus vivendi, claiming that the same was not binding on the Province of Bulacan, not having been authorized by theSangguniang Panlalawigan of Bulacan. While it is true that the Provincial Governor can enter into contract and obligate the province only upon authority of the sangguniang panlalawigan, 7 the same is inapplicable to the case at bar. The agreement and modus vivendi may have been signed by petitioner Roberto Pagdanganan, as Governor of the Province of Bulacan, without authorization from the sangguniang panlalawigan, but it was also signed by Manuel Siayngco, the Provincial Legal Officer, in his capacity as such, and as counsel of petitioners.

It is a well-settled rule that all proceedings in court to enforce a remedy, to bring a claim, demand, cause of action or subject matter of a suit to hearing, trial, determination, judgment and execution are within the exclusive control of the attorney. 8 With respect to such matters of ordinary judicial procedure, the attorney needs no special authority to bind his client. 9 Such questions as what action or pleading to file, where and when to file it, what are its formal requirements, what should be the theory of the case, what defenses to raise, how may the claim or defense be proved, when to rest the case, as well as those affecting the competency of a witness, the sufficiency, relevancy, materiality or immateriality of certain evidence and the burden of proof are within the authority of the attorney to decide. 10 Whatever decision an attorney makes on any of these procedural questions, even if it adversely affects a client's case, will generally bind a client. The agreement and modus vivendi signed by petitioners' counsel is binding upon petitioners, even if theSanggunian had not authorized the same, limitation of issues being a procedural question falling within the exclusive authority of the attorney to decide.

In any case, the remaining issues raised by petitioner are likewise devoid of merit, a province having no authority to impose taxes on stones, sand, gravel, earth and other quarry resources extracted from private lands. The pertinent provisions of the Local Government Code are as follows:

Sec. 134. Scope of Taxing Powers. — Except as otherwise provided in this Code, the province may levy only the taxes, fees, and charges as provided in this Article.

Sec. 158. Tax on Sand, Gravel and Other Quarry Resources. — The province may levy and collect not more than ten percent (10%) of fair market value in the locality per cubic meter of ordinary stones, sand, gravel, earth, and other quarry resources, as defined under the National Internal Revenue Code, as amended, extracted from public lands or from the beds of seas, lakes, rivers, streams, creeks, and other public waters within its territorial jurisdiction.

xxx xxx xxx (Emphasis supplied)

The appellate court, on the basis of Section 134, ruled that a province was empowered to impose taxes only on sand, gravel, and other quarry resources extracted from public lands, its authority to tax being limited by said provision only to those taxes, fees and charges provided in Article One, Chapter 2, Title One of Book II of the Local Government Code. 11 On the other hand, petitioners claim that Sections 129 12 and 186 13 of the Local Government Code authorizes the province to impose taxes other than those specifically enumerated under the Local Government Code.

The Court of Appeals erred in ruling that a province can impose only the taxes specifically mentioned under the Local Government Code. As correctly pointed out by petitioners, Section 186 allows a province to levy taxes other than those specifically enumerated under the Code, subject to the conditions specified therein.

This finding, nevertheless, affords cold comfort to petitioners as they are still prohibited from imposing taxes on stones, sand, gravel, earth and other quarry resources extracted from private lands. The tax imposed by the

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Province of Bulacan is an excise tax, being a tax upon the performance, carrying on, or exercise of an activity. 14The Local Government Code provides:

Sec. 133. — Common Limitations on the Taxing Powers of Local Government Units. — Unless otherwise provided herein, the exercise of the taxing powers of provinces, cities, municipalities, and barangays shall not extend to the levy of the following:

xxx xxx xxx

(h) Excise taxes on articles enumerated under the National Internal Revenue Code, as amended, and taxes, fees or charges on petroleum products;

xxx xxx xxx

A province may not, therefore, levy excise taxes on articles already taxed by the National Internal Revenue Code. Unfortunately for petitioners, the National Internal Revenue Code provides:

Sec. 151. — Mineral Products. —

(A) Rates of Tax. — There shall be levied, assessed and collected on minerals, mineral products and quarry resources, excise tax as follows:

xxx xxx xxx

(2) On all nonmetallic minerals and quarry resources, a tax of two percent (2%) based on the actual market value of the gross output thereof at the time of removal, in case of

those locally extracted or produced; or the values used by the Bureau of Customs in determining tariff and customs duties, net of excise tax and value-added tax, in the case of importation.

xxx xxx xxx

(B) [Definition of Terms]. — for purposes of this Section, the term-

xxx xxx xxx

(4) Quarry resources shall mean any common stone or other common mineral substances as the Director of the Bureau of Mines and Geo-Sciences may declare to be quarry resources such as, but not restricted to, marl, marble, granite, volcanic cinders, basalt, tuff and rock phosphate; Provided, That they contain no metal or metals or other valuable minerals in economically workable quantities.

It is clearly apparent from the above provision that the National Internal Revenue Code levies a tax on all quarry resources, regardless of origin, whether extracted from public or private land. Thus, a province may not ordinarily impose taxes on stones, sand, gravel, earth and other quarry resources, as the same are already taxed under the National Internal Revenue Code. The province can, however, impose a tax on stones, sand, gravel, earth and other quarry resources extracted from public land because it is expressly empowered to do so under the Local Government Code. As to stones, sand, gravel, earth and other quarry resources extracted from private land,

however, it may not do so, because of the limitation provided by Section 133 of the Code in relation to Section 151 of the National Internal Revenue Code.

Given the above disquisition, petitioners cannot claim that the appellate court unjustly deprived them of the power to create their sources of revenue, their assessment of taxes against Republic Cement being ultra vires, traversing as it does the limitations set by the Local Government Code.

Petitioners likewise aver that the appellate court' s declaration of nullity of its assessment against Republic Cement is a collateral attack on Provincial Ordinance No. 3, which is prohibited by public policy. 15 Contrary to petitioners' claim, the legality of the ordinance was never questioned by the Court of Appeals. Rather, what the appellate court questioned was petitioners' assessment of taxes on Republic Cement on the basis of Provincial Ordinance No. 3, not the ordinance itself.

Furthermore, Section 21 of Provincial Ordinance No. 3 is practically only a reproduction of Section 138 of the Local Government Code. A cursory reading of both would show that both refer to ordinary sand, stone, gravel, earth and other quarry resources extracted from public lands. Even if we disregard the limitation set by Section 133 of the Local Government Code, petitioners may not, impose taxes on stones, sand, gravel, earth and

other quarry resources extracted from private lands on the basis of Section 21 of Provincial Ordinance No. 3 as the latter clearly applies only to quarry resources extracted from public lands. Petitioners may not invoke the Regalian doctrine to extend the coverage of their ordinance to quarry resources extracted from private lands, for taxes, being burdens, are not to be presumed beyond what the applicable statute expressly and clearly declares, tax statutes being construed strictissimi juris against the government. 16

WHEREFORE, premises considered, the instant petition is DISMISSED for lack of merit and the decision of the Court of Appeals is hereby AFFIRMED in toto. Costs against petitioner.

SO ORDERED.

Narvasa, C.J., Kapunan, Purisima and Pardo, JJ., concur.

Angeles City v. Angeles City Electric Corp.

Republic of the Philippines

85

SUPREME COURT

Manila

FIRST DIVISION

G.R. No. 166134 June 29, 2010

ANGELES CITY, Petitioner, vs.

ANGELES CITY ELECTRIC CORPORATION and REGIONAL TRIAL COURT BRANCH 57, ANGELES CITY,Respondents.

D E C I S I O N

DEL CASTILLO, J.:

The prohibition on the issuance of a writ of injunction to enjoin the collection of taxes applies only to national internal revenue taxes, and not to local taxes.

This Petition1 for Certiorari under Rule 65 of the Rules of Court seeks to set aside the Writ of Preliminary Injunction issued by the Regional Trial Court (RTC) of Angeles City, Branch 57, in Civil Case No. 11401, enjoining Angeles City and its City Treasurer from levying, seizing, disposing and selling at public auction the properties owned by Angeles Electric Corporation (AEC).

Factual Antecedents

On June 18, 1964, AEC was granted a legislative franchise under Republic Act No. (RA) 40792 to construct, maintain and operate an electric light, heat, and power system for the purpose of generating and distributing electric light, heat and power for sale in Angeles City, Pampanga. Pursuant to Section 3-A thereof,3 AEC’s payment of franchise tax for gross earnings from electric current sold was in lieu of all taxes, fees and assessments.

On September 11, 1974, Presidential Decree No. (PD) 551 reduced the franchise tax of electric franchise holders. Section 1 of PD 551 provided that:

SECTION 1. Any provision of law or local ordinance to the contrary notwithstanding, the franchise tax payable by all grantees of franchises to generate, distribute and sell electric current for light, heat and power shall be two percent (2%) of their gross receipts received from the sale of electric current and from transactions incident to the generation, distribution and sale of electric current.

Such franchise tax shall be payable to the Commissioner of Internal Revenue or his duly authorized representative on or before the twentieth day of the month following the end of each calendar quarter or month as may be provided in the respective franchise or pertinent municipal regulation and shall, any provision of the Local Tax Code or any other law to the contrary notwithstanding, be in lieu of all taxes and assessments of whatever nature imposed by any national or local authority on earnings, receipts, income and privilege of generation, distribution and sale of electric current.

On January 1, 1992, RA 7160 or the Local Government Code (LGC) of 1991 was passed into law, conferring upon provinces and cities the power, among others, to impose tax on businesses enjoying franchise.4 In accordance with the LGC, the Sangguniang Panlungsod of Angeles City enacted on December 23, 1993 Tax Ordinance No. 33, S-93, otherwise known as the Revised Revenue Code of Angeles City (RRCAC).

On February 7, 1994, a petition seeking the reduction of the tax rates and a review of the provisions of the RRCAC was filed with the Sangguniang Panlungsod by Metro Angeles Chamber of Commerce and Industry Inc. (MACCI) of which AEC is a member. There being no action taken by the Sangguniang Panlungsod on the matter, MACCI elevated the petition5 to the Department of Finance, which referred the same to the Bureau of Local Government Finance (BLGF). In the petition, MACCI alleged that the RRCAC is oppressive, excessive, unjust and confiscatory; that it was published only once, simultaneously on January 22, 1994; and that no public hearings were conducted prior to its enactment. Acting on the petition, the BLGF issued a First Indorsement6 to the City Treasurer of Angeles City, instructing the latter to make representations with the Sangguniang Panlungsod for the appropriate amendment of the RRCAC in order to ensure compliance with the provisions of the LGC, and to make a report on the action taken within five days.

Thereafter, starting July 1995, AEC has been paying the local franchise tax to the Office of the City Treasurer on a quarterly basis, in addition to the national franchise tax it pays every quarter to the Bureau of Internal Revenue (BIR).

Proceedings before the City Treasurer

On January 22, 2004, the City Treasurer issued a Notice of Assessment7 to AEC for payment of business tax, license fee and other charges for the period 1993 to 2004 in the total amount of P94,861,194.10. Within the period prescribed by law, AEC protested the assessment claiming that:

(a) pursuant to RA 4079, it is exempt from paying local business tax;

(b) since it is already paying franchise tax on business, the payment of business tax would result in double taxation;

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(c) the period to assess had prescribed because under the LGC, taxes and fees can only be assessed and collected within five (5) years from the date they become due; and

(d) the assessment and collection of taxes under the RRCAC cannot be made retroactive to 1993 or prior to its effectivity.8

On February 17, 2004, the City Treasurer denied the protest for lack of merit and requested AEC to settle its tax liabilities.9

Proceedings before the RTC

Aggrieved, AEC appealed the denial of its protest to the RTC of Angeles City via a Petition for Declaratory Relief,10 docketed as Civil Case No. 11401.

On April 5, 2004, the City Treasurer levied on the real properties of AEC.11 A Notice of Auction Sale12 was published and posted announcing that a public auction of the levied properties of AEC would be held on May 7, 2004.

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This prompted AEC to file with the RTC, where the petition for declaratory relief was pending, an Urgent Motion for Issuance of Temporary Restraining Order and/or Writ of Preliminary Injunction13 to enjoin Angeles City and its City Treasurer from levying, annotating the levy, seizing, confiscating, garnishing, selling and disposing at public auction the properties of AEC.

Meanwhile, in response to the petition for declaratory relief filed by AEC, Angeles City and its City Treasurer filed an Answer with Counterclaim14 to which AEC filed a Reply.15

After due notice and hearing, the RTC issued a Temporary Restraining Order (TRO)16 on May 4, 2004, followed by an Order17 dated May 24, 2004 granting the issuance of a Writ of Preliminary Injunction, conditioned upon the filing of a bond in the amount of P10,000,000.00. Upon AEC’s posting of the required bond, the RTC issued a Writ of Preliminary Injunction on May 28, 2004,18 which was amended on May 31, 2004 due to some clerical errors.19

On August 5, 2004, Angeles City and its City Treasurer filed a "Motion for Dissolution of Preliminary Injunction and Motion for Reconsideration of the Order dated May 24, 2004,"20 which was opposed by AEC.21

Finding no compelling reason to disturb and reconsider its previous findings, the RTC denied the joint motion on October 14, 2004.22

Issue

Being a special civil action for certiorari, the issue in the instant case is limited to the determination of whether the RTC gravely abused its discretion in issuing the writ of

preliminary injunction enjoining Angeles City and its City Treasurer from levying, selling, and disposing the properties of AEC. All other matters pertaining to the validity of the tax assessment and AEC’s tax exemption must therefore be left for the determination of the RTC where the main case is pending decision.

Petitioner’s Arguments

Petitioner’s main argument is that the collection of taxes cannot be enjoined by the RTC, citing Valley Trading Co., Inc. v. Court of First Instance of Isabela, Branch II,23 wherein the lower court’s denial of a motion for the issuance of a writ of preliminary injunction to enjoin the collection of a local tax was upheld. Petitioner further reasons that since the levy and auction of the properties of a delinquent taxpayer are proper and lawful acts specifically allowed by the LGC, these cannot be the subject of an injunctive writ. Petitioner likewise insists that AEC must first pay the tax before it can protest the assessment. Finally, petitioner contends that the tax exemption claimed by AEC has no legal basis because RA 4079 has been expressly repealed by the LGC.

Private respondent’s Arguments

Private respondent AEC on the other hand asserts that there was no grave abuse of discretion on the part of the RTC in issuing the writ of preliminary injunction because it was issued after due notice and hearing, and was necessary to prevent the petition from becoming moot. In addition, AEC claims that the issuance of the writ of injunction was proper since the tax assessment issued by the City Treasurer is not yet final, having been seasonably appealed pursuant to Section 19524 of the LGC. AEC likewise points out that following the case of Pantoja v. David,25 proceedings to invalidate a warrant of distraint and levy to restrain the collection of taxes do not violate the prohibition against injunction to restrain the collection of taxes because the proceedings are directed at the right of the City Treasurer to collect the tax by distraint or levy. As to its tax liability, AEC maintains that it is exempt from

paying local business tax. In any case, AEC counters that the issue of whether it is liable to pay the assessed local business tax is a factual issue that should be determined by the RTC and not by the Supreme Court via a petition for certiorari under Rule 65 of the Rules of Court.

Our Ruling

We find the petition bereft of merit.

The LGC does not specifically prohibit an injunction enjoining the collection of taxes

A principle deeply embedded in our jurisprudence is that taxes being the lifeblood of the government should be collected promptly,26 without unnecessary hindrance27 or delay.28 In line with this principle, the National Internal Revenue Code of 1997 (NIRC) expressly provides that no court shall have the authority to grant an injunction to restrain

the collection of any national internal revenue tax, fee or charge imposed by the code.29 An exception to this rule obtains only when in the opinion of the Court of Tax Appeals (CTA) the collection thereof may jeopardize the interest of the government and/or the taxpayer.30

The situation, however, is different in the case of the collection of local taxes as there is no express provision in the LGC prohibiting courts from issuing an injunction to restrain local governments from collecting taxes. Thus, in the case of Valley Trading Co., Inc. v. Court of First Instance of Isabela, Branch II, cited by the petitioner, we ruled that:

Unlike the National Internal Revenue Code, the Local Tax Code31 does not contain any specific provision prohibiting courts from enjoining the collection of local taxes. Such statutory lapse or intent, however it may be viewed, may have allowed preliminary injunction where local taxes are involved but cannot negate the procedural rules and requirements under Rule 58.32

In light of the foregoing, petitioner’s reliance on the above-cited case to support its view that the collection of taxes cannot be enjoined is misplaced. The lower court’s denial of the motion for the issuance of a writ of preliminary injunction to enjoin the collection of the local tax was upheld in that case, not because courts are prohibited from granting such injunction, but because the circumstances required for the issuance of writ of injunction were not present.

Nevertheless, it must be emphasized that although there is no express prohibition in the LGC, injunctions enjoining the collection of local taxes are frowned upon. Courts therefore should exercise extreme caution in issuing such injunctions.

No grave abuse of discretion was committed by the RTC

Section 3, Rule 58, of the Rules of Court lays down the requirements for the issuance of a writ of preliminary injunction, viz:

(a) That the applicant is entitled to the relief demanded, and the whole or part of such relief consists in restraining the commission or continuance of the acts complained of, or in the performance of an act or acts, either for a limited period or perpetually;

(b) That the commission, continuance or non-performance of the act or acts complained of during the litigation would probably work injustice to the applicant; or

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(c) That a party, court, or agency or a person is doing, threatening, or attempting to do, or is procuring or suffering to be done, some act or acts probably in violation of the rights of the applicant respecting the subject of the action or proceeding, and tending to render the judgment ineffectual.

Two requisites must exist to warrant the issuance of a writ of preliminary injunction, namely: (1) the existence of a clear and unmistakable right that must be protected; and(2) an urgent and paramount necessity for the writ to prevent serious damage.33

In issuing the injunction, the RTC ratiocinated that:

It is very evident on record that petitioner34 resorted and filed an urgent motion for issuance of a temporary restraining order and preliminary injunction to stop the scheduled auction sale only when a warrant of levy was issued and published in the newspaper setting the auction sale of petitioner’s property by the City Treasurer, merely few weeks after the petition for declaratory relief has been filed, because if the respondent will not be restrained, it will render this petition moot and academic. To the mind of the Court, since there is no other plain, speedy and adequate remedy available to the petitioner in the ordinary course of law except this application for a temporary restraining order and/or writ of preliminary injunction to stop the auction sale and/or to enjoin and/or restrain respondents from levying, annotating the levy, seizing, confiscating, garnishing, selling and disposing at public auction the properties of petitioner, or otherwise exercising other administrative remedies against the petitioner and its properties, this alone justifies the move of the petitioner in seeking the injunctive reliefs sought for.

Petitioner in its petition is questioning the assessment or the ruling of the City Treasurer on the business tax and fees, and not the local ordinance concerned. This being the case, the Court opines that notice is not required to the Solicitor General since what is involved is just a violation of a private right involving the right of ownership and possession of petitioner’s properties. Petitioner, therefore, need not comply with Section 4, Rule 63 requiring such notice to the Office of the Solicitor General.

The Court is fully aware of the Supreme Court pronouncement that injunction is not proper to restrain the collection of taxes. The issue here as of the moment is the restraining of the respondent from pursuing its auction sale of the petitioner’s properties. The right of ownership and possession of the petitioner over the properties subject of the auction sale is at stake.

Respondents assert that not one of the witnesses presented by the petitioner have proven what kind of right has been violated by the respondent, but merely mentioned of an injury which is only a scenario based on speculation because of petitioner’s claim that electric power may be disrupted.

Engr. Abordo’s testimony reveals and even his Affidavit Exhibit "S" showed that if the auction sale will push thru, petitioner will not only lose control and operation of its facility, but its employees will also be denied access to equipments vital to petitioner’s operations, and since only the petitioner has the capability to operate Petersville sub station, there will be a massive power failure or blackout which will adversely affect

business and economy, if not lives and properties in Angeles City and surrounding communities.

Petitioner, thru its witnesses, in the hearing of the temporary restraining order, presented sufficient and convincing evidence proving irreparable damages and injury which were already elaborated in the temporary restraining order although the same may be realized only if the auction sale will proceed. And unless prevented, restrained, and

enjoined, grave and irreparable damage will be suffered not only by the petitioner but all its electric consumers in Angeles, Clark, Dau and Bacolor, Pampanga.

The purpose of injunction is to prevent injury and damage from being incurred, otherwise, it will render any judgment in this case ineffectual.

"As an extraordinary remedy, injunction is calculated to preserve or maintain the status quo of things and is generally availed of to prevent actual or threatened acts, until the merits of the case can be heard" (Cagayan de Oro City Landless Res. Assn. Inc. vs. CA, 254 SCRA 220)

It appearing that the two essential requisites of an injunction have been satisfied, as there exists a right on the part of the petitioner to be protected, its right[s] of ownership and possession of the properties subject of the auction sale, and that the acts (conducting an auction sale) against which the injunction is to be directed, are violative of the said rights of the petitioner, the Court has no other recourse but to grant the prayer for the issuance of a writ of preliminary injunction considering that if the respondent will not be restrained from doing the acts complained of, it will preempt the Court from properly adjudicating on the merits the various issues between the parties, and will render moot and academic the proceedings before this court.35

As a rule, the issuance of a preliminary injunction rests entirely within the discretion of the court taking cognizance of the case and will not be interfered with, except where there is grave abuse of discretion committed by the court.36 For grave abuse of discretion to prosper as a ground for certiorari, it must be demonstrated that the lower court or tribunal has exercised its power in an arbitrary and despotic manner, by reason of passion or personal hostility, and it must be patent and gross as would amount to an evasion or to a unilateral refusal to perform the duty enjoined or to act in contemplation of law.37 In other words, mere abuse of discretion is not enough.381avvph!1

Guided by the foregoing, we find no grave abuse of discretion on the part of the RTC in issuing the writ of injunction. Petitioner, who has the burden to prove grave abuse of discretion,39 failed to show that the RTC acted arbitrarily and capriciously in granting the injunction. Neither was petitioner able to prove that the injunction was issued without any factual or legal justification. In assailing the injunction, petitioner primarily relied on the prohibition on the issuance of a writ of injunction to restrain the collection of taxes. But as we have already said, there is no such prohibition in the case of local taxes. Records

also show that before issuing the injunction, the RTC conducted a hearing where both parties were given the opportunity to present their arguments. During the hearing, AEC was able to show that it had a clear and unmistakable legal right over the properties to be levied and that it would sustain serious damage if these properties, which are vital to its operations, would be sold at public auction. As we see it then, the writ of injunction was properly issued.

A final note. While we are mindful that the damage to a taxpayer’s property rights generally takes a back seat to the paramount need of the State for funds to sustain governmental functions,40 this rule finds no application in the instant case where the disputed tax assessment is not yet due and demandable. Considering that AEC was able to appeal the denial of its protest within the period prescribed under Section 195 of the LGC, the collection of business taxes41 through levy at this time is, to our mind, hasty, if not premature.42 The issues of tax exemption, double taxation, prescription and the alleged retroactive application of the RRCAC, raised in the protest of AEC now pending with the RTC, must first be resolved before the properties of AEC can be levied. In the meantime, AEC’s rights of ownership and possession must be respected.

WHEREFORE, the petition is hereby DISMISSED.

SO ORDERED.

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Pelizloy Realty Corp. The Province of Benguet

Republic of the Philippines

SUPREME COURT

Baguio City

THIRD DIVISION

G.R. No. 183137 April 10, 2013

PELIZLOY REALTY CORPORATION, represented herein by its President, GREGORY K. LOY, Petitioner,

vs.

THE PROVINCE OF BENGUET, Respondent.

D E C I S I O N

LEONEN, J.:

The principal issue in this case is the scope of authority of a province to impose an amusement tax.

This is a Petition for Review on Certiorari under Rule 45 of the Rules of Court praying that the December 10, 2007 decision of the Regional Trial Court,- Branch 62, La Trinidad, Benguet in Civil Case No. 06-CV-2232 be reversed and set aside and a new one issued in which: ( 1) respondent Province of Benguet is declared as having no authority to levy amusement taxes on admission fees for resorts, swimming pools, bath houses, hot springs, tourist spots, and other places for recreation; (2) Section 59, Article X of the Benguet Provincial Revenue Code of 2005 is declared null and void; and (3) the respondent Province of Benguet is permanently enjoined from enforcing Section 59, Article X of the Benguet Provincial Revenue Code of 2005.

Petitioner Pelizloy Realty Corporation ("Pelizloy") owns Palm Grove Resort, which is designed for recreation and which has facilities like swimming pools, a spa and function halls. It is located at Asin, Angalisan, Municipality of Tuba, Province of Benguet.

On December 8, 2005, the Provincial Board of the Province of Benguet approved Provincial Tax Ordinance No. 05-107, otherwise known as the Benguet Revenue Code of 2005 ("Tax Ordinance"). Section 59, Article X of the Tax Ordinance levied a ten percent (10%) amusement tax on gross receipts from admissions to "resorts, swimming pools, bath houses, hot springs and tourist spots." Specifically, it provides the following:

Article Ten: Amusement Tax on Admission

Section 59. Imposition of Tax. There is hereby levied a tax to be collected from the proprietors, lessees, or operators of theaters, cinemas, concert halls, circuses, cockpits, dancing halls, dancing schools, night or day clubs, and other places of amusement at the rate of thirty percent (30%) of the gross receipts from admission fees; and

A tax of ten percent (10%) of gross receipts from admission fees for boxing, resorts, swimming pools, bath houses, hot springs, and tourist spots is likewise levied. [Emphasis and underscoring supplied]

Section 162 of the Tax Ordinance provided that the Tax Ordinance shall take effect on January 1, 2006.

It was Pelizloy's position that the Tax Ordinance's imposition of a 10% amusement tax on gross receipts from admission fees for resorts, swimming pools, bath houses, hot springs, and tourist spots is an ultra vires act on the part of the Province of Benguet. Thus, it filed an appeal/petition before the Secretary of Justice on January 27, 2006.

The appeal/petition was filed within the thirty (30)-day period from the effectivity of a tax ordinance allowed by Section 187 of Republic Act No. 7160, otherwise known as the Local Government Code (LGC).1 The appeal/petition was docketed as MSO-OSJ Case No. 03-2006.

Under Section 187 of the LGC, the Secretary of Justice has sixty (60) days from receipt of the appeal to render a decision. After the lapse of which, the aggrieved party may file appropriate proceedings with a court of competent jurisdiction.

Treating the Secretary of Justice's failure to decide on its appeal/petition within the sixty (60) days provided by Section 187 of the LGC as an implied denial of such appeal/petition, Pelizloy filed a Petition for Declaratory Relief and Injunction before the Regional Trial Court, Branch 62, La Trinidad, Benguet. The petition was docketed as Civil Case No. 06-CV-2232.

Pelizloy argued that Section 59, Article X of the Tax Ordinance imposed a percentage tax in violation of the limitation on the taxing powers of local government units (LGUs) under Section 133 (i) of the LGC. Thus, it was null and void ab initio. Section 133 (i) of the LGC provides:

Section 133. Common Limitations on the Taxing Powers of Local Government Units. - Unless otherwise provided herein, the exercise of the taxing powers of provinces, cities, municipalities, and barangays shall not extend to the levy of the following:

x x x

(i) Percentage or value-added tax (VAT) on sales, barters or exchanges or similar transactions on goods or services except as otherwise provided herein

The Province of Benguet assailed the Petition for Declaratory Relief and Injunction as an improper remedy. It alleged that once a tax liability has attached, the only remedy of a taxpayer is to pay the tax and to sue for recovery after exhausting administrative remedies.2

On substantive grounds, the Province of Benguet argued that the phrase ‘other places of amusement’ in Section 140 (a) of the LGC3 encompasses resorts, swimming pools, bath houses, hot springs, and tourist spots since "Article 220 (b) (sic)" of the LGC defines "amusement" as "pleasurable diversion and entertainment x x x synonymous to relaxation, avocation, pastime, or fun."4 However, the Province of Benguet erroneously cited Section 220 (b) of the

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LGC. Section 220 of the LGC refers to valuation of real property for real estate tax purposes. Section 131 (b) of the LGC, the provision which actually defines "amusement", states:

Section 131. Definition of Terms. - When used in this Title, the term:

x x x

(b) "Amusement" is a pleasurable diversion and entertainment. It is synonymous to relaxation, avocation, pastime, or fun On December 10, 2007, the RTC rendered the assailed Decision dismissing the Petition for Declaratory Relief and Injunction for lack of merit.

Procedurally, the RTC ruled that Declaratory Relief was a proper remedy. On the validity of Section 59, Article X of the Tax Ordinance, the RTC noted that, while Section 59, Article X imposes a percentage tax, Section 133 (i) of the LGC itself allowed for exceptions. It noted that what the LGC prohibits is not the imposition by LGUs of percentage taxes in general but the "imposition and levy of percentage tax on sales, barters, etc., on goods and services only."5 It further gave credence to the Province of Benguet's assertion that resorts, swimming pools, bath houses, hot springs, and tourist spots are encompassed by the phrase ‘other places of amusement’ in Section 140 of the LGC.

On May 21, 2008, the RTC denied Pelizloy’s Motion for Reconsideration.

Aggrieved, Pelizloy filed the present petition on June 10, 2008 on pure questions of law. It assailed the legality of Section 59, Article X of the Tax Ordinance as being a (supposedly) prohibited percentage tax per Section 133 (i) of the LGC.

In its Comment, the Province of Benguet, erroneously citing Section 40 of the LGC, argued that Section 59, Article X of the Tax Ordinance does not levy a percentage tax

"because the imposition is not based on the total gross receipts of services of the petitioner but solely and actually limited on the gross receipts of the admission fees collected."6 In addition, it argued that provinces can validly impose amusement taxes on resorts, swimming pools, bath houses, hot springs, and tourist spots, these being ‘amusement places’.

For resolution in this petition are the following issues:

1. Whether or not Section 59, Article X of Provincial Tax Ordinance No. 05-107, otherwise known as the Benguet Revenue Code of 2005, levies a percentage tax.

2. Whether or not provinces are authorized to impose amusement taxes on admission fees to resorts, swimming pools, bath houses, hot springs, and tourist spots for being "amusement places" under the Local Government Code.

The power to tax "is an attribute of sovereignty,"7 and as such, inheres in the State. Such, however, is not true for provinces, cities, municipalities and barangays as they are not the sovereign;8 rather, they are mere "territorial and political subdivisions of the Republic of the Philippines".9

The rule governing the taxing power of provinces, cities, muncipalities and barangays is summarized in Icard v. City Council of Baguio:10

It is settled that a municipal corporation unlike a sovereign state is clothed with no inherent power of taxation. The charter or statute must plainly show an intent to confer that power or the municipality, cannot assume it. And the power when granted is to be construed in strictissimi juris. Any doubt or ambiguity arising out of the term used in granting that power must be resolved against the municipality. Inferences, implications, deductions – all these – have no place in the interpretation of the taxing power of a municipal corporation.11 [Underscoring supplied]

Therefore, the power of a province to tax is limited to the extent that such power is delegated to it either by the Constitution or by statute. Section 5, Article X of the 1987 Constitution is clear on this point:

Section 5. Each local government unit shall have the power to create its own sources of revenues and to levy taxes, fees and charges subject to such guidelines and limitations as the Congress may provide, consistent with the basic policy of local autonomy. Such taxes, fees, and charges shall accrue exclusively to the local governments. [Underscoring supplied]

Per Section 5, Article X of the 1987 Constitution, "the power to tax is no longer vested exclusively on Congress; local legislative bodies are now given direct authority to levy

taxes, fees and other charges."12 Nevertheless, such authority is "subject to such guidelines and limitations as the Congress may provide".13

In conformity with Section 3, Article X of the 1987 Constitution,14 Congress enacted Republic Act No. 7160, otherwise known as the Local Government Code of 1991. Book II of the LGC governs local taxation and fiscal matters.

Relevant provisions of Book II of the LGC establish the parameters of the taxing powers of LGUS found below.

First, Section 130 provides for the following fundamental principles governing the taxing powers of LGUs:

1. Taxation shall be uniform in each LGU.

2. Taxes, fees, charges and other impositions shall:

a. be equitable and based as far as practicable on the taxpayer's ability to pay;

b. be levied and collected only for public purposes;

c. not be unjust, excessive, oppressive, or confiscatory;

d. not be contrary to law, public policy, national economic policy, or in the restraint of trade.

3. The collection of local taxes, fees, charges and other impositions shall in no case be let to any private person.

4. The revenue collected pursuant to the provisions of the LGC shall inure solely to the benefit of, and be subject to the disposition by, the LGU levying the tax, fee, charge or other imposition unless otherwise specifically provided by the LGC.

5. Each LGU shall, as far as practicable, evolve a progressive system of taxation.

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Second, Section 133 provides for the common limitations on the taxing powers of LGUs. Specifically, Section 133 (i) prohibits the levy by LGUs of percentage or value-added tax (VAT) on sales, barters or exchanges or similar transactions on goods or services except as otherwise provided by the LGC.

As it is Pelizloy’s contention that Section 59, Article X of the Tax Ordinance levies a prohibited percentage tax, it is crucial to understand first the concept of a percentage tax.

In Commissioner of Internal Revenue v. Citytrust Investment Phils. Inc.,15 the Supreme Court defined percentage tax as a "tax measured by a certain percentage of the gross

selling price or gross value in money of goods sold, bartered or imported; or of the gross receipts or earnings derived by any person engaged in the sale of services." Also, Republic Act No. 8424, otherwise known as the National Internal Revenue Code (NIRC), in Section 125, Title V,16 lists amusement taxes as among the (other) percentage taxes which are levied regardless of whether or not a taxpayer is already liable to pay value-added tax (VAT).

Amusement taxes are fixed at a certain percentage of the gross receipts incurred by certain specified establishments.

Thus, applying the definition in CIR v. Citytrust and drawing from the treatment of amusement taxes by the NIRC, amusement taxes are percentage taxes as correctly argued by Pelizloy.

However, provinces are not barred from levying amusement taxes even if amusement taxes are a form of percentage taxes. Section 133 (i) of the LGC prohibits the levy of percentage taxes "except as otherwise provided" by the LGC.

Section 140 of the LGC provides:

SECTION 140. Amusement Tax - (a) The province may levy an amusement tax to be collected from the proprietors, lessees, or operators of theaters, cinemas, concert halls, circuses, boxing stadia, and other places of amusement at a rate of not more than thirty percent (30%) of the gross receipts from admission fees.

(b) In the case of theaters of cinemas, the tax shall first be deducted and withheld by their proprietors, lessees, or operators and paid to the provincial treasurer before the gross receipts are divided between said proprietors, lessees, or operators and the distributors of the cinematographic films.

(c) The holding of operas, concerts, dramas, recitals, painting and art exhibitions, flower shows, musical programs, literary and oratorical presentations, except pop, rock, or similar concerts shall be exempt from the payment of the tax herein imposed.

(d) The Sangguniang Panlalawigan may prescribe the time, manner, terms and conditions for the payment of tax. In case of fraud or failure to pay the tax, the Sangguniang Panlalawigan may impose such surcharges, interests and penalties.

(e) The proceeds from the amusement tax shall be shared equally by the province and the municipality where such amusement places are located. [Underscoring supplied]

Evidently, Section 140 of the LGC carves a clear exception to the general rule in Section 133 (i). Section 140 expressly allows for the imposition by provinces of amusement taxes

on "the proprietors, lessees, or operators of theaters, cinemas, concert halls, circuses, boxing stadia, and other places of amusement."

However, resorts, swimming pools, bath houses, hot springs, and tourist spots are not among those places expressly mentioned by Section 140 of the LGC as being subject to amusement taxes. Thus, the determination of whether amusement taxes may be levied on admissions to resorts, swimming pools, bath houses, hot springs, and tourist spots hinges on whether the phrase ‘other places of amusement’ encompasses resorts, swimming pools, bath houses, hot springs, and tourist spots.

Under the principle of ejusdem generis, "where a general word or phrase follows an enumeration of particular and specific words of the same class or where the latter follow the former, the general word or phrase is to be construed to include, or to be restricted to persons, things or cases akin to, resembling, or of the same kind or class as those specifically mentioned."17

The purpose and rationale of the principle was explained by the Court in National Power Corporation v. Angas18as follows:

The purpose of the rule on ejusdem generis is to give effect to both the particular and general words, by treating the particular words as indicating the class and the general words as including all that is embraced in said class, although not specifically named by the particular words. This is justified on the ground that if the lawmaking body intended the general terms to be used in their unrestricted sense, it would have not made an enumeration of particular subjects but would have used only general terms. [2 Sutherland, Statutory Construction, 3rd ed., pp. 395-400].19

In Philippine Basketball Association v. Court of Appeals,20 the Supreme Court had an opportunity to interpret a starkly similar provision or the counterpart provision of Section 140 of the LGC in the Local Tax Code then in effect. Petitioner Philippine Basketball Association (PBA) contended that it was subject to the imposition by LGUs of amusement taxes (as opposed to amusement taxes imposed by the national government).1âwphi1 In support of its contentions, it cited Section 13 of Presidential Decree No. 231, otherwise known as the Local Tax Code of 1973, (which is analogous to Section 140 of the LGC) providing the following:

Section 13. Amusement tax on admission. - The province shall impose a tax on admission to be collected from the proprietors, lessees, or operators of theaters, cinematographs, concert halls, circuses and other places of amusement xxx.

Applying the principle of ejusdem generis, the Supreme Court rejected PBA's assertions and noted that:

In determining the meaning of the phrase 'other places of amusement', one must refer to the prior enumeration of theaters, cinematographs, concert halls and circuses with artistic expression as their common characteristic. Professional basketball games do not fall under the same category as theaters, cinematographs, concert halls and circuses as the latter basically belong to artistic forms of entertainment while the former caters to sports and gaming.21 [Underscoring supplied]

However, even as the phrase ‘other places of amusement’ was already clarified in Philippine Basketball Association, Section 140 of the LGC adds to the enumeration of 'places of amusement' which may properly be subject to amusement tax. Section 140 specifically mentions 'boxing stadia' in addition to "theaters, cinematographs, concert halls and circuses" which were already mentioned in PD No. 231. Also, 'artistic expression' as a characteristic does not pertain to 'boxing stadia'.

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In the present case, the Court need not embark on a laborious effort at statutory construction. Section 131 (c) of the LGC already provides a clear definition of ‘amusement places’:

Section 131. Definition of Terms. - When used in this Title, the term:

x x x

(c) "Amusement Places" include theaters, cinemas, concert halls, circuses and other places of amusement where one seeks admission to entertain oneself by seeing or viewing the show or performances [Underscoring supplied]

Indeed, theaters, cinemas, concert halls, circuses, and boxing stadia are bound by a common typifying characteristic in that they are all venues primarily for the staging of spectacles or the holding of public shows, exhibitions, performances, and other events meant to be viewed by an audience. Accordingly, ‘other places of amusement’ must be interpreted in light of the typifying characteristic of being venues "where one seeks admission to entertain oneself by seeing or viewing the show or performances" or being venues primarily used to stage spectacles or hold public shows, exhibitions, performances, and other events meant to be viewed by an audience.

As defined in The New Oxford American Dictionary,22 ‘show’ means "a spectacle or display of something, typically an impressive one";23 while ‘performance’ means "an act of staging or presenting a play, a concert, or other form of entertainment."24 As such, the ordinary definitions of the words ‘show’ and ‘performance’ denote not only visual engagement (i.e., the seeing or viewing of things) but also active doing (e.g., displaying, staging or presenting) such that actions are manifested to, and (correspondingly) perceived by an audience.

Considering these, it is clear that resorts, swimming pools, bath houses, hot springs and tourist spots cannot be considered venues primarily "where one seeks admission to entertain oneself by seeing or viewing the show or performances". While it is true that they may be venues where people are visually engaged, they are not primarily venues for their proprietors or operators to actively display, stage or present shows and/or performances.

Thus, resorts, swimming pools, bath houses, hot springs and tourist spots do not belong to the same category or class as theaters, cinemas, concert halls, circuses, and boxing stadia. It follows that they cannot be considered as among the ‘other places of amusement’ contemplated by Section 140 of the LGC and which may properly be subject to amusement taxes.

At this juncture, it is helpful to recall this Court’s pronouncements in Icard:

The power to tax when granted to a province is to be construed in strictissimi juris. Any doubt or ambiguity arising out of the term used in granting that power must be resolved against the province. Inferences, implications, deductions – all these – have no place in the interpretation of the taxing power of a province.25

In this case, the definition of' amusement places' in Section 131 (c) of the LGC is a clear basis for determining what constitutes the 'other places of amusement' which may properly be subject to amusement tax impositions by provinces. There is no reason for going beyond such basis. To do otherwise would be to countenance an arbitrary interpretation/application of a tax law and to inflict an injustice on unassuming taxpayers.

The previous pronouncements notwithstanding, it will be noted that it is only the second paragraph of Section 59, Article X of the Tax Ordinance which imposes amusement taxes on "resorts, swimming pools, bath houses, hot springs, and tourist spots". The first paragraph of Section 59, Article X of the Tax Ordinance refers to "theaters, cinemas, concert halls, circuses, cockpits, dancing halls, dancing schools, night or day clubs, and other places of amusement".1âwphi1 In any case, the issues raised by Pelizloy are pertinent only with respect to the second paragraph of Section 59, Article X of the Tax Ordinance. Thus, there is no reason to invalidate the first paragraph of

Section 59, Article X of the Tax Ordinance. Any declaration as to the Province of Benguet's lack of authority to levy amusement taxes must be limited to admission fees to resorts, swimming pools, bath houses, hot springs and tourist spots.

Moreover, the second paragraph of Section 59, Article X of the Tax Ordinance is not limited to resorts, swimming pools, bath houses, hot springs, and tourist spots but also covers admission fees for boxing. As Section 140 of the LGC allows for the imposition of amusement taxes on gross receipts from admission fees to boxing stadia, Section 59, Article X of the Tax Ordinance must be sustained with respect to admission fees from boxing stadia.

WHEREFORE, the petition for review on certiorari is GRANTED. The second paragraph of Section 59, Article X of the Benguet Provincial Revenue Code of 2005, in so far as it imposes amusement taxes on admission fees to resorts, swimming pools, bath houses, hot springs and tourist spots, is declared null and void. Respondent Province of Benguet is permanently enjoined from enforcing the second paragraph of Section 59, Article X of the Benguet Provincial Revenue Code of 2005 with respect to resorts, swimming pools, bath houses, hot springs and tourist spots.

SO ORDERED.

REAL PROPERTY TAX

LUNG CENTER OF THE PHILIPPINES,petitioner, vs. QUEZON CITY and CONSTANTINO P. ROSAS, in his capacity as City Assessor of Quezon City,respondents.

D E C I S I O NCALLEJO,SR., Jp:This is a petition for review on certiorari under Rule 45 of the Rules of Court, as amended, of the Decision 1 dated July 17, 2000 of the Court of Appeals in CA-G.R. SP No. 57014 which affirmed the decision of the Central Board of Assessment Appeals holding that the lot owned by the petitioner and its hospital building constructed thereon are subject to assessment for purposes of real property tax.

The AntecedentsThe petitioner Lung Center of the Philippines is a non-stock and non-profit entity established on January 16, 1981 by virtue of Presidential Decree No. 1823. 2 It is the registered owner of a parcel of land, particularly described as Lot No. RP-3-B-3A-1-B-1, SWO-04-000495, located at Quezon Avenue corner Elliptical Road, Central District, Quezon City. The lot has an area of 121,463 square meters and is covered by Transfer Certificate of Title (TCT) No. 261320 of the Registry of Deeds of Quezon City. Erected in the middle of the aforesaid lot is a hospital known as the Lung Center of the Philippines. A big space at the ground floor is being leased to private parties, for canteen and small store spaces, and to medical or professional practitioners who use the same as their private clinics for their patients whom they charge for their professional services. Almost one-half of the entire area on the left side of the building along Quezon Avenue is vacant and idle, while a big portion on the right side, at the corner of Quezon Avenue and Elliptical Road, is being leased for commercial purposes to a private enterprise known as the Elliptical Orchids and Garden Center.The petitioner accepts paying and non-paying patients. It also renders medical services to out-patients, both paying and non-paying. Aside from its income from paying patients, the petitioner receives annual subsidies from the government.On June 7, 1993, both the land and the hospital building of the petitioner were assessed for real property taxes in the amount of P4,554,860 by the City Assessor of Quezon City. 3 Accordingly, Tax Declaration Nos. C-021-01226 (16-2518) and C-021-01231 (15-2518-A) were issued for the land and the hospital building, respectively. 4 On August 25, 1993, the petitioner filed a Claim for Exemption 5 from real property taxes with the City Assessor, predicated on its claim that it is a charitable institution. The petitioner's request was denied, and a petition was, thereafter, filed before the Local

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Board of Assessment Appeals of Quezon City (QC-LBAA, for brevity) for the reversal of the resolution of the City Assessor. The petitioner alleged that under Section 28, paragraph 3 of the 1987 Constitution, the property is exempt from real property taxes. It averred that a minimum of 60% of its hospital beds are exclusively used for charity patients and that the major thrust of its hospital operation is to serve charity patients. The petitioner contends that it is a charitable institution and, as such, is exempt from real property taxes. The QC-LBAA rendered judgment dismissing the petition and holding the petitioner liable for real property taxes. 6 The QC-LBAA's decision was, likewise, affirmed on appeal by the Central Board of Assessment Appeals of Quezon City (CBAA, for brevity) 7 which ruled that the petitioner was not a charitable institution and that its real properties were not actually, directly and exclusively used for charitable purposes; hence, it was not entitled to real property tax exemption under the constitution and the law. The petitioner sought relief from the Court of Appeals, which rendered judgment affirming the decision of the CBAA. 8 Undaunted, the petitioner filed its petition in this Court contending that:

A. THE COURT A QUO ERRED IN DECLARING PETITIONER AS NOT ENTITLED TO REALTY TAX EXEMPTIONS ON THE GROUND THAT ITS LAND, BUILDING AND IMPROVEMENTS, SUBJECT OF ASSESSMENT, ARE NOT ACTUALLY, DIRECTLY AND EXCLUSIVELY DEVOTED FOR CHARITABLE PURPOSES.

B. WHILE PETITIONER IS NOT DECLARED AS REAL PROPERTY TAX EXEMPT UNDER ITS CHARTER, PD 1823, SAID EXEMPTION MAY NEVERTHELESS BE EXTENDED UPON PROPER APPLICATION.

The petitioner avers that it is a charitable institution within the context of Section 28(3), Article VI of the 1987 Constitution. It asserts that its character as a charitable institution is not altered by the fact that it admits paying patients and renders medical services to them, leases portions of the land to private parties, and rents out portions of the hospital to private medical practitioners from which it derives income to be used for operational expenses. The petitioner points out that for the years 1995 to 1999, 100% of its out-patients were charity patients and of the hospital's 282-bed capacity, 60% thereof, or 170 beds, is allotted to charity patients. It asserts that the fact that it receives subsidies from the government attests to its character as a charitable institution. It contends that the "exclusivity" required in the Constitution does not necessarily mean "solely." Hence, even if a portion of its real estate is leased out to private individuals from whom it derives income, it does not lose its character as a charitable institution, and its exemption from the payment of real estate taxes on its real property. The petitioner cited our ruling in Herrera v.QC-BAA 9 to bolster its pose. The petitioner further contends that even if P.D. No. 1823 does not exempt it from the payment of real estate taxes, it is not precluded from seeking tax exemption under the 1987 Constitution.In their comment on the petition, the respondents aver that the petitioner is not a charitable entity. The petitioner's real property is not exempt from the payment of real estate taxes under P.D. No. 1823 and even under the 1987 Constitution because it failed to prove that it is a charitable institution and that the said property is actually, directly and exclusively used for charitable purposes. The respondents noted that in a newspaper report, it appears that graft charges were filed with the Sandiganbayan against the director of the petitioner, its administrative officer, and Zenaida Rivera, the proprietress of the Elliptical Orchids and Garden Center, for entering into a lease contract over 7,663.13 square meters of the property in 1990 for only P20,000 a month, when the monthly rental should be P357,000 a month as determined by the Commission on Audit; and that instead of complying with the directive of the COA for the cancellation of the contract for being grossly prejudicial to the government, the petitioner renewed the same on March 13, 1995 for a monthly rental of only P24,000. They assert that the petitioner uses the subsidies granted by the government for charity patients and uses the rest of its income from the property for the benefit of paying patients, among other purposes. They aver that the petitioner failed to adduce substantial evidence that 100% of its out-patients and 170 beds in the hospital are reserved for indigent patients. The respondents further assert, thus:

13. That the claims/allegations of the Petitioner LCP do not speak well of its record of service. That before a patient is admitted for treatment in the Center, first impression is that it is pay-patient and required to pay a certain amount as deposit. That even if a patient is living below the poverty line, he is charged with

high hospital bills. And, without these bills being first settled, the poor patient cannot be allowed to leave the hospital or be discharged without first paying the hospital bills or issue a promissory note guaranteed and indorsed by an influential agency or person known only to the Center; that even the remains of deceased poor patients suffered the same fate. Moreover, before a patient is admitted for treatment as free or charity patient, one must undergo a series of interviews and must submit all the requirements needed by the Center, usually accompanied by endorsement by an influential agency or person known only to the Center. These facts were heard and admitted by the Petitioner LCP during the hearings before the Honorable QC-BAA and Honorable CBAA. These are the reasons of indigent patients, instead of seeking treatment with the Center, they prefer to be treated at the Quezon Institute. Can such practice by the Center be called charitable? 10

The IssuesThe issues for resolution are the following: (a) whether the petitioner is a charitable institution within the context of Presidential Decree No. 1823 and the 1973 and 1987 Constitutions and Section 234(b) of Republic Act No. 7160; and (b) whether the real properties of the petitioner are exempt from real property taxes.

The Court's RulingThe petition is partially granted.On the first issue, we hold that the petitioner is a charitable institution within the context of the 1973 and 1987 Constitutions. To determine whether an enterprise is a charitable institution/entity or not, the elements which should be considered include the statute creating the enterprise, its corporate purposes, its constitution and by-laws, the methods of administration, the nature of the actual work performed, the character of the services rendered, the indefiniteness of the beneficiaries, and the use and occupation of the properties. 11 In the legal sense, a charity may be fully defined as a gift, to be applied consistently with existing laws, for the benefit of an indefinite number of persons, either by bringing their minds and hearts under the influence of education or religion, by assisting them to establish themselves in life or otherwise lessening the burden of government. 12 It may be applied to almost anything that tend to promote the well-doing and well-being of social man. It embraces the improvement and promotion of the happiness of man. 13 The word "charitable" is not restricted to relief of the poor or sick. 14 The test of a charity and a charitable organization are in law the same. The test whether an enterprise is charitable or not is whether it exists to carry out a purpose reorganized in law as charitable or whether it is maintained for gain, profit, or private advantage. TDCcAE Under P.D. No. 1823, the petitioner is a non-profit and non-stock corporation which, subject to the provisions of the decree, is to be administered by the Office of the President of the Philippines with the Ministry of Health and the Ministry of Human Settlements. It was organized for the welfare and benefit of the Filipino people principally to help combat the high incidence of lung and pulmonary diseases in the Philippines. The raison d'etre for the creation of the petitioner is stated in the decree, viz:

Whereas, for decades, respiratory diseases have been a priority concern, having been the leading cause of illness and death in the Philippines, comprising more than 45% of the total annual deaths from all causes, thus, exacting a tremendous toll on human resources, which ailments are likely to increase and degenerate into serious lung diseases on account of unabated pollution, industrialization and unchecked cigarette smoking in the country;Whereas, the more common lung diseases are, to a great extent, preventable, and curable with early and adequate medical care, immunization and through prompt and intensive prevention and health education programs;Whereas, there is an urgent need to consolidate and reinforce existing programs, strategies and efforts at preventing, treating and rehabilitating people affected by lung diseases, and to undertake research and training on the cure and prevention of lung diseases, through a Lung Center which will house and nurture the above

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and related activities and provide tertiary-level care for more difficult and problematical cases;Whereas, to achieve this purpose, the Government intends to provide material and financial support towards the establishment and maintenance of a Lung Center for the welfare and benefit of the Filipino people. 15

The purposes for which the petitioner was created are spelled out in its Articles of Incorporation, thus:SECOND: That the purposes for which such corporation is formed are as follows:1. To construct, establish, equip, maintain, administer and conduct an integrated medical institution which shall specialize in the treatment, care, rehabilitation and/or relief of lung and allied diseases in line with the concern of the government to assist and provide material and financial support in the establishment and maintenance of a lung center primarily to benefit the people of the Philippines and in pursuance of the policy of the State to secure the well-being of the people by providing them specialized health and medical services and by minimizing the incidence of lung diseases in the country and elsewhere.2. To promote the noble undertaking of scientific research related to the prevention of lung or pulmonary ailments and the care of lung patients, including the holding of a series of relevant congresses, conventions, seminars and conferences;3. To stimulate and, whenever possible, underwrite scientific researches on the biological, demographic, social, economic, eugenic and physiological aspects of lung or pulmonary diseases and their control; and to collect and publish the findings of such research for public consumption;4. To facilitate the dissemination of ideas and public acceptance of information on lung consciousness or awareness, and the development of fact-finding, information and reporting facilities for and in aid of the general purposes or objects aforesaid, especially in human lung requirements, general health and physical fitness, and other relevant or related fields;5. To encourage the training of physicians, nurses, health officers, social workers and medical and technical personnel in the practical and scientific implementation of services to lung patients;6. To assist universities and research institutions in their studies about lung diseases, to encourage advanced training in matters of the lung and related fields and to support educational programs of value to general health;7. To encourage the formation of other organizations on the national, provincial and/or city and local levels; and to coordinate their various efforts and activities for the purpose of achieving a more effective programmatic approach on the common problems relative to the objectives enumerated herein;8. To seek and obtain assistance in any form from both international and local foundations and organizations; and to administer grants and funds that may be given to the organization;9. To extend, whenever possible and expedient, medical services to the public and, in general, to promote and protect the health of the masses of our people, which has long been recognized as an economic asset and a social blessing;10. To help prevent, relieve and alleviate the lung or pulmonary afflictions and maladies of the people in any and all walks of life, including those who are poor and needy, all without regard to or discrimination, because of race, creed, color or political belief of the persons helped; and to enable them to obtain treatment when such disorders occur;11. To participate, as circumstances may warrant, in any activity designed and carried on to promote the general health of the community;12. To acquire and/or borrow funds and to own all funds or equipment, educational materials and supplies by purchase, donation, or otherwise and to

dispose of and distribute the same in such manner, and, on such basis as the Center shall, from time to time, deem proper and best, under the particular circumstances, to serve its general and non-profit purposes and objectives;13. To buy, purchase, acquire, own, lease, hold, sell, exchange, transfer and dispose of properties, whether real or personal, for purposes herein mentioned; and14. To do everything necessary, proper, advisable or convenient for the accomplishment of any of the powers herein set forth and to do every other act and thing incidental thereto or connected therewith. 16

Hence, the medical services of the petitioner are to be rendered to the public in general in any and all walks of life including those who are poor and the needy without discrimination. After all, any person, the rich as well as the poor, may fall sick or be injured or wounded and become a subject of charity. 17 As a general principle, a charitable institution does not lose its character as such and its exemption from taxes simply because it derives income from paying patients, whether out-patient, or confined in the hospital, or receives subsidies from the government, so long as the money received is devoted or used altogether to the charitable object which it is intended to achieve; and no money inures to the private benefit of the persons managing or operating the institution. 18 In Congregational Sunday School, etc.v.Board of Review, 19 the State Supreme Court of Illinois held, thus:

. . . [A]n institution does not lose its charitable character, and consequent exemption from taxation, by reason of the fact that those recipients of its benefits who are able to pay are required to do so, where no profit is made by the institution and the amounts so received are applied in furthering its charitable purposes, and those benefits are refused to none on account of inability to pay therefor. The fundamental ground upon which all exemptions in favor of charitable institutions are based is the benefit conferred upon the public by them, and a consequent relief, to some extent, of the burden upon the state to care for and advance the interests of its citizens. 20

As aptly stated by the State Supreme Court of South Dakota in Lutheran Hospital Association of South Dakota v.Baker: 21

. . . [T]he fact that paying patients are taken, the profits derived from attendance upon these patients being exclusively devoted to the maintenance of the charity, seems rather to enhance the usefulness of the institution to the poor; for it is a matter of common observation amongst those who have gone about at all amongst the suffering classes, that the deserving poor can with difficulty be persuaded to enter an asylum of any kind confined to the reception of objects of charity; and that their honest pride is much less wounded by being placed in an institution in which paying patients are also received. The fact of receiving money from some of the patients does not, we think, at all impair the character of the charity, so long as the money thus received is devoted altogether to the charitable object which the institution is intended to further. 22

The money received by the petitioner becomes a part of the trust fund and must be devoted to public trust purposes and cannot be diverted to private profit or benefit. 23 Under P.D. No. 1823, the petitioner is entitled to receive donations. The petitioner does not lose its character as a charitable institution simply because the gift or donation is in the form of subsidies granted by the government. As held by the State Supreme Court of Utah in Yorgason v.County Board of Equalization of Salt Lake County: 24

Second, the . . . government subsidy payments are provided to the project. Thus, those payments are like a gift or donation of any other kind except they come from the government. In both Intermountain Health Care and the present case, the crux is the presence or absence of material reciprocity. It is entirely irrelevant to this analysis that the government, rather than a private benefactor, chose to make up the deficit resulting from the exchange between St. Mark's Tower and the tenants by making a contribution to the landlord, just as it would have been

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irrelevant in Intermountain Health Careif the patients' income supplements had come from private individuals rather than the government.Therefore, the fact that subsidization of part of the cost of furnishing such housing is by the government rather than private charitable contributions does not dictate the denial of a charitable exemption if the facts otherwise support such an exemption, as they do here. 25

In this case, the petitioner adduced substantial evidence that it spent its income, including the subsidies from the government for 1991 and 1992 for its patients and for the operation of the hospital. It even incurred a net loss in 1991 and 1992 from its operations.Even as we find that the petitioner is a charitable institution, we hold, anent the second issue, that those portions of its real property that are leased to private entities are not exempt from real property taxes as these are not actually, directly and exclusively used for charitable purposes.The settled rule in this jurisdiction is that laws granting exemption from tax are construed strictissimi juris against the taxpayer and liberally in favor of the taxing power. Taxation is the rule and exemption is the exception. The effect of an exemption is equivalent to an appropriation. Hence, a claim for exemption from tax payments must be clearly shown and based on language in the law too plain to be mistaken. 26 As held in Salvation Army v.Hoehn: 27

An intention on the part of the legislature to grant an exemption from the taxing power of the state will never be implied from language which will admit of any other reasonable construction. Such an intention must be expressed in clear and unmistakable terms, or must appear by necessary implication from the language used, for it is a well settled principle that, when a special privilege or exemption is claimed under a statute, charter or act of incorporation, it is to be construed strictly against the property owner and in favor of the public. This principle applies with peculiar force to a claim of exemption from taxation. . . . 28

Section 2 of Presidential Decree No. 1823, relied upon by the petitioner, specifically provides that the petitioner shall enjoy the tax exemptions and privileges:

SEC. 2. TAX EXEMPTIONS AND PRIVILEGES. — Being a non-profit, non-stock corporation organized primarily to help combat the high incidence of lung and pulmonary diseases in the Philippines, all donations, contributions, endowments and equipment and supplies to be imported by authorized entities or persons and by the Board of Trustees of the Lung Center of the Philippines, Inc., for the actual use and benefit of the Lung Center, shall be exempt from income and gift taxes, the same further deductible in full for the purpose of determining the maximum deductible amount under Section 30, paragraph (h), of the National Internal Revenue Code, as amended.The Lung Center of the Philippines shall be exempt from the payment of taxes, charges and fees imposed by the Government or any political subdivision or instrumentality thereof with respect to equipment purchases made by, or for the Lung Center. 29

It is plain as day that under the decree, the petitioner does not enjoy any property tax exemption privileges for its real properties as well as the building constructed thereon . If the intentions were otherwise, the same should have been among the enumeration of tax exempt privileges under Section 2:

It is a settled rule of statutory construction that the express mention of one person, thing, or consequence implies the exclusion of all others. The rule is expressed in the familiar maxim, expressio unius est exclusio alterius. The rule of expressio unius est exclusio alterius is formulated in a number of ways. One variation of the rule is the principle that what is expressed puts an end to that which is implied. Expressium facit cessare tacitum. Thus, where a statute, by its terms, is expressly limited to certain matters, it may not, by interpretation or construction, be extended to other matters.

xxx xxx xxxThe rule of expressio unius est exclusio alterius and its variations are canons of restrictive interpretation. They are based on the rules of logic and the natural workings of the human mind. They are predicated upon one's own voluntary act and not upon that of others. They proceed from the premise that the legislature would not have made specified enumeration in a statute had the intention been not to restrict its meaning and confine its terms to those expressly mentioned. 30

The exemption must not be so enlarged by construction since the reasonable presumption is that the State has granted in express terms all it intended to grant at all, and that unless the privilege is limited to the very terms of the statute the favor would be intended beyond what was meant. 31 Section 28(3), Article VI of the 1987 Philippine Constitution provides, thus:

(3) Charitable institutions, churches and parsonages or convents appurtenant thereto, mosques, non-profit cemeteries, and all lands, buildings, and improvements, actually, directlyandexclusively used for religious, charitable or educational purposes shall be exempt from taxation. 32

The tax exemption under this constitutional provision coversproperty taxes only. 33 As Chief Justice Hilario G. Davide, Jr., then a member of the 1986 Constitutional Commission, explained: ". . . what is exempted is not the institution itself . . .; those exempted from real estate taxes are lands, buildings and improvements actually, directly and exclusively used for religious, charitable or educational purposes." 34 Consequently, the constitutional provision is implemented by Section 234(b) of Republic Act No. 7160 (otherwise known as the Local Government Code of 1991) as follows:

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

xxx xxx xxx(b) Charitable institutions, churches, parsonages or convents appurtenant thereto, mosques, non-profit or religious cemeteries and all lands, buildings, and improvements actually, directly, and exclusively used for religious, charitable or educational purposes. 35

We note that under the 1935 Constitution, ". . . all lands, buildings, and improvements used 'exclusively' for … charitable . . . purposes shall be exempt from taxation." 36 However, under the 1973 and the present Constitutions, for "lands, buildings, and improvements" of the charitable institution to be considered exempt, the same should not only be "exclusively" used for charitable purposes; it is required that such property be used "actually" and "directly" for such purposes. 37 In light of the foregoing substantial changes in the Constitution, the petitioner cannot rely on our ruling in Herrera v.Quezon City Board of Assessment Appealswhich was promulgated on September 30, 1961 before the 1973 and 1987 Constitutions took effect. 38 As this Court held in Province of Abra v.Hernando: 39

. . . Under the 1935 Constitution: "Cemeteries, churches, and parsonages or convents appurtenant thereto, and all lands, buildings, and improvements used exclusively for religious, charitable, or educational purposes shall be exempt from taxation." The present Constitution added "charitable institutions, mosques, and non-profit cemeteries" and required that for the exemption of "lands, buildings, and improvements," they should not only be "exclusively" but also "actually" and "directly" used for religious or charitable purposes. The Constitution is worded differently. The change should not be ignored. It must be duly taken into consideration. Reliance on past decisions would have sufficed were the words "actually" as well as "directly" not added. There must be proof therefore of the actual and direct use of the lands, buildings, and improvements for religious or charitable purposes to be exempt from taxation . . .

Under the 1973 and 1987 Constitutions and Rep. Act No. 7160 in order to be entitled to the exemption, the petitioner is burdened to prove, by clear and unequivocal proof, that (a) it is a charitable institution; and (b) its real properties are ACTUALLY, DIRECTLY and EXCLUSIVELY used for

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charitable purposes. "Exclusive" is defined as possessed and enjoyed to the exclusion of others; debarred from participation or enjoyment; and "exclusively" is defined, "in a manner to exclude; as enjoying a privilege exclusively." 40 If real property is used for one or more commercial purposes, it is not exclusively used for the exempted purposes but is subject to taxation. 41 The words "dominant use" or "principal use" cannot be substituted for the words "used exclusively" without doing violence to the Constitutions and the law. 42 Solely is synonymous with exclusively. 43 What is meant by actual, direct and exclusive use of the property for charitable purposes is the direct and immediate and actual application of the property itself to the purposes for which the charitable institution is organized. It is not the use of the income from the real property that is determinative of whether the property is used for tax-exempt purposes. 44 The petitioner failed to discharge its burden to prove that the entirety of its real property is actually, directly and exclusively used for charitable purposes. While portions of the hospital are used for the treatment of patients and the dispensation of medical services to them, whether paying or non-paying, other portions thereof are being leased to private individuals for their clinics and a canteen. Further, a portion of the land is being leased to a private individual for her business enterprise under the business name "Elliptical Orchids and Garden Center." Indeed, the petitioner's evidence shows that it collected P1,136,483.45 as rentals in 1991 and P1,679,999.28 for 1992 from the said lessees.Accordingly, we hold that the portions of the land leased to private entities as well as those parts of the hospital leased to private individuals are not exempt from such taxes. 45 On the other hand, the portions of the land occupied by the hospital and portions of the hospital used for its patients, whether paying or non-paying, are exempt from real property taxes. IN LIGHT OF ALL THE FOREGOING, the petition is PARTIALLY GRANTED. The respondent Quezon City Assessor is hereby DIRECTED to determine, after due hearing, the precise portions of the land and the area thereof which are leased to private persons, and to compute the real property taxes due thereon as provided for by law.SO ORDERED. cCAIESDavide, Jr., C.J., Puno, Panganiban, Quisumbing, Sandoval-Gutierrez, Carpio, Corona, Carpio-Morales, Azcuna and Tinga, JJ., concur.Vitug, J., is on official leave.Ynares-SantiagoandAustria-Martinez, JJ., are on leave.||| (Lung Center of the Phil. v. Quezon City, G.R. No. 144104, [June 29, 2004], 477 PHIL 141-160)Republic of the PhilippinesSUPREME COURTManilaEN BANCG.R. No. 155650 July 20, 2006MANILA INTERNATIONAL AIRPORT AUTHORITY, petitioner, vs.COURT OF APPEALS, CITY OF PARAÑAQUE, CITY MAYOR OF PARAÑAQUE, SANGGUNIANG PANGLUNGSOD NG PARAÑAQUE, CITY ASSESSOR OF PARAÑAQUE, and CITY TREASURER OF PARAÑAQUE, respondents.D E C I S I O NCARPIO, J.:The AntecedentsPetitioner Manila International Airport Authority (MIAA) operates the Ninoy Aquino International Airport (NAIA) Complex in Parañaque City under Executive Order No. 903, otherwise known as the Revised Charter of the Manila International Airport Authority ("MIAA Charter"). Executive Order No. 903 was issued on 21 July 1983 by then President Ferdinand E. Marcos. Subsequently, Executive Order Nos. 9091 and 2982 amended the MIAA Charter.

As operator of the international airport, MIAA administers the land, improvements and equipment within the NAIA Complex. The MIAA Charter transferred to MIAA approximately 600 hectares of land,3

including the runways and buildings ("Airport Lands and Buildings") then under the Bureau of Air Transportation.4 The MIAA Charter further provides that no portion of the land transferred to MIAA shall be disposed of through sale or any other mode unless specifically approved by the President of the Philippines.5

On 21 March 1997, the Office of the Government Corporate Counsel (OGCC) issued Opinion No. 061. The OGCC opined that the Local Government Code of 1991 withdrew the exemption from real estate tax granted to MIAA under Section 21 of the MIAA Charter. Thus, MIAA negotiated with respondent City of Parañaque to pay the real estate tax imposed by the City. MIAA then paid some of the real estate tax already due.On 28 June 2001, MIAA received Final Notices of Real Estate Tax Delinquency from the City of Parañaque for the taxable years 1992 to 2001. MIAA's real estate tax delinquency is broken down as follows:

TAX DECLARATION

TAXABLE YEAR TAX DUE PENALTY TOTAL

E-016-01370 1992-2001 19,558,160.00

11,201,083.20

30,789,243.20

E-016-01374 1992-2001 111,689,424.90

68,149,479.59

179,838,904.49

E-016-01375 1992-2001 20,276,058.00

12,371,832.00

32,647,890.00

E-016-01376 1992-2001 58,144,028.00

35,477,712.00

93,621,740.00

E-016-01377 1992-2001 18,134,614.65

11,065,188.59

29,199,803.24

E-016-01378 1992-2001 111,107,950.40

67,794,681.59

178,902,631.99

E-016-01379 1992-2001 4,322,340.00 2,637,360.00 6,959,700.00E-016-01380 1992-2001 7,776,436.00 4,744,944.00 12,521,380.00*E-016-013-85

1998-2001 6,444,810.00 2,900,164.50 9,344,974.50

*E-016-01387 1998-2001 34,876,800.00

5,694,560.00 50,571,360.00

*E-016-01396 1998-2001 75,240.00 33,858.00 109,098.00GRAND TOTAL

P392,435,861.95

P232,070,863.47

P 624,506,725.42

1992-1997 RPT was paid on Dec. 24, 1997 as per O.R.#9476102 for P4,207,028.75#9476101 for P28,676,480.00#9476103 for P49,115.006

On 17 July 2001, the City of Parañaque, through its City Treasurer, issued notices of levy and warrants of levy on the Airport Lands and Buildings. The Mayor of the City of Parañaque threatened to sell at

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public auction the Airport Lands and Buildings should MIAA fail to pay the real estate tax delinquency. MIAA thus sought a clarification of OGCC Opinion No. 061.On 9 August 2001, the OGCC issued Opinion No. 147 clarifying OGCC Opinion No. 061. The OGCC pointed out that Section 206 of the Local Government Code requires persons exempt from real estate tax to show proof of exemption. The OGCC opined that Section 21 of the MIAA Charter is the proof that MIAA is exempt from real estate tax.On 1 October 2001, MIAA filed with the Court of Appeals an original petition for prohibition and injunction, with prayer for preliminary injunction or temporary restraining order. The petition sought to restrain the City of Parañaque from imposing real estate tax on, levying against, and auctioning for public sale the Airport Lands and Buildings. The petition was docketed as CA-G.R. SP No. 66878.On 5 October 2001, the Court of Appeals dismissed the petition because MIAA filed it beyond the 60-day reglementary period. The Court of Appeals also denied on 27 September 2002 MIAA's motion for reconsideration and supplemental motion for reconsideration. Hence, MIAA filed on 5 December 2002 the present petition for review.7

Meanwhile, in January 2003, the City of Parañaque posted notices of auction sale at the Barangay Halls of Barangays Vitalez, Sto. Niño, and Tambo, Parañaque City; in the public market of Barangay La Huerta; and in the main lobby of the Parañaque City Hall. The City of Parañaque published the notices in the 3 and 10 January 2003 issues of the Philippine Daily Inquirer, a newspaper of general circulation in the Philippines. The notices announced the public auction sale of the Airport Lands and Buildings to the highest bidder on 7 February 2003, 10:00 a.m., at the Legislative Session Hall Building of Parañaque City.A day before the public auction, or on 6 February 2003, at 5:10 p.m., MIAA filed before this Court an Urgent Ex-Parte and Reiteratory Motion for the Issuance of a Temporary Restraining Order. The motion sought to restrain respondents — the City of Parañaque, City Mayor of Parañaque, Sangguniang Panglungsod ng Parañaque, City Treasurer of Parañaque, and the City Assessor of Parañaque ("respondents") — from auctioning the Airport Lands and Buildings.On 7 February 2003, this Court issued a temporary restraining order (TRO) effective immediately. The Court ordered respondents to cease and desist from selling at public auction the Airport Lands and Buildings. Respondents received the TRO on the same day that the Court issued it. However, respondents received the TRO only at 1:25 p.m. or three hours after the conclusion of the public auction.On 10 February 2003, this Court issued a Resolution confirming nunc pro tunc the TRO.On 29 March 2005, the Court heard the parties in oral arguments. In compliance with the directive issued during the hearing, MIAA, respondent City of Parañaque, and the Solicitor General subsequently submitted their respective Memoranda.MIAA admits that the MIAA Charter has placed the title to the Airport Lands and Buildings in the name of MIAA. However, MIAA points out that it cannot claim ownership over these properties since the real owner of the Airport Lands and Buildings is the Republic of the Philippines. The MIAA Charter mandates MIAA to devote the Airport Lands and Buildings for the benefit of the general public. Since the Airport Lands and Buildings are devoted to public use and public service, the ownership of these properties remains with the State. The Airport Lands and Buildings are thus inalienable and are not subject to real estate tax by local governments.MIAA also points out that Section 21 of the MIAA Charter specifically exempts MIAA from the payment of real estate tax. MIAA insists that it is also exempt from real estate tax under Section 234 of the Local Government Code because the Airport Lands and Buildings are owned by the Republic. To justify the exemption, MIAA invokes the principle that the government cannot tax itself. MIAA points out that the reason for tax exemption of public property is that its taxation would not inure to any public advantage, since in such a case the tax debtor is also the tax creditor.Respondents invoke Section 193 of the Local Government Code, which expressly withdrew the tax exemption privileges of "government-owned and-controlled corporations" upon the effectivity of the Local Government Code. Respondents also argue that a basic rule of statutory construction is that the express mention of one person, thing, or act excludes all others. An international airport is not among the exceptions mentioned in Section 193 of the Local Government Code. Thus, respondents assert that MIAA cannot claim that the Airport Lands and Buildings are exempt from real estate tax.

Respondents also cite the ruling of this Court in Mactan International Airport v. Marcos8 where we held that the Local Government Code has withdrawn the exemption from real estate tax granted to international airports. Respondents further argue that since MIAA has already paid some of the real estate tax assessments, it is now estopped from claiming that the Airport Lands and Buildings are exempt from real estate tax.The IssueThis petition raises the threshold issue of whether the Airport Lands and Buildings of MIAA are exempt from real estate tax under existing laws. If so exempt, then the real estate tax assessments issued by the City of Parañaque, and all proceedings taken pursuant to such assessments, are void. In such event, the other issues raised in this petition become moot.The Court's RulingWe rule that MIAA's Airport Lands and Buildings are exempt from real estate tax imposed by local governments.First, MIAA is not a government-owned or controlled corporation but an instrumentality of the National Government and thus exempt from local taxation. Second, the real properties of MIAA are owned by the Republic of the Philippines and thus exempt from real estate tax.1. MIAA is Not a Government-Owned or Controlled CorporationRespondents argue that MIAA, being a government-owned or controlled corporation, is not exempt from real estate tax. Respondents claim that the deletion of the phrase "any government-owned or controlled so exempt by its charter" in Section 234(e) of the Local Government Code withdrew the real estate tax exemption of government-owned or controlled corporations. The deleted phrase appeared in Section 40(a) of the 1974 Real Property Tax Code enumerating the entities exempt from real estate tax.There is no dispute that a government-owned or controlled corporation is not exempt from real estate tax. However, MIAA is not a government-owned or controlled corporation. Section 2(13) of the Introductory Provisions of the Administrative Code of 1987 defines a government-owned or controlled corporation as follows:

SEC. 2. General Terms Defined. – x x x x(13) Government-owned or controlled corporation refers to any agency organized as a stock or non-stock corporation, vested with functions relating to public needs whether governmental or proprietary in nature, and owned by the Government directly or through its instrumentalities either wholly, or, where applicable as in the case of stock corporations, to the extent of at least fifty-one (51) percent of its capital stock: x x x. (Emphasis supplied)

A government-owned or controlled corporation must be "organized as a stock or non-stock corporation." MIAA is not organized as a stock or non-stock corporation. MIAA is not a stock corporation because it has no capital stock divided into shares. MIAA has no stockholders or voting shares. Section 10 of the MIAA Charter9 provides:

SECTION 10. Capital. — The capital of the Authority to be contributed by the National Government shall be increased from Two and One-half Billion (P2,500,000,000.00) Pesos to Ten Billion (P10,000,000,000.00) Pesos to consist of:(a) The value of fixed assets including airport facilities, runways and equipment and such other properties, movable and immovable[,] which may be contributed by the National Government or transferred by it from any of its agencies, the valuation of which shall be determined jointly with the Department of Budget and Management and the Commission on Audit on the date of such contribution or transfer after making due allowances for depreciation and other deductions taking into account the loans and other liabilities of the Authority at the time of the takeover of the assets and other properties;(b) That the amount of P605 million as of December 31, 1986 representing about seventy percentum (70%) of the unremitted share of the National Government from 1983 to 1986 to be remitted to the National Treasury as provided for in Section 11 of E. O. No. 903 as amended, shall be converted into the equity of the National Government in the Authority. Thereafter, the Government contribution to the capital of the Authority shall be provided in the General Appropriations Act.

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Clearly, under its Charter, MIAA does not have capital stock that is divided into shares.Section 3 of the Corporation Code10 defines a stock corporation as one whose "capital stock is divided into shares and x x x authorized to distribute to the holders of such shares dividends x x x." MIAA has capital but it is not divided into shares of stock. MIAA has no stockholders or voting shares. Hence, MIAA is not a stock corporation.MIAA is also not a non-stock corporation because it has no members. Section 87 of the Corporation Code defines a non-stock corporation as "one where no part of its income is distributable as dividends to its members, trustees or officers." A non-stock corporation must have members. Even if we assume that the Government is considered as the sole member of MIAA, this will not make MIAA a non-stock corporation. Non-stock corporations cannot distribute any part of their income to their members. Section 11 of the MIAA Charter mandates MIAA to remit 20% of its annual gross operating income to the National Treasury.11 This prevents MIAA from qualifying as a non-stock corporation.Section 88 of the Corporation Code provides that non-stock corporations are "organized for charitable, religious, educational, professional, cultural, recreational, fraternal, literary, scientific, social, civil service, or similar purposes, like trade, industry, agriculture and like chambers." MIAA is not organized for any of these purposes. MIAA, a public utility, is organized to operate an international and domestic airport for public use.Since MIAA is neither a stock nor a non-stock corporation, MIAA does not qualify as a government-owned or controlled corporation. What then is the legal status of MIAA within the National Government?MIAA is a government instrumentality vested with corporate powers to perform efficiently its governmental functions. MIAA is like any other government instrumentality, the only difference is that MIAA is vested with corporate powers. Section 2(10) of the Introductory Provisions of the Administrative Code defines a government "instrumentality" as follows:

SEC. 2. General Terms Defined. –– x x x x(10) Instrumentality refers to any agency of the National Government, not integrated within the department framework, vested with special functions or jurisdiction by law, endowed with some if not all corporate powers, administering special funds, and enjoying operational autonomy, usually through a charter. x x x (Emphasis supplied)

When the law vests in a government instrumentality corporate powers, the instrumentality does not become a corporation. Unless the government instrumentality is organized as a stock or non-stock corporation, it remains a government instrumentality exercising not only governmental but also corporate powers. Thus, MIAA exercises the governmental powers of eminent domain,12 police authority13 and the levying of fees and charges.14 At the same time, MIAA exercises "all the powers of a corporation under the Corporation Law, insofar as these powers are not inconsistent with the provisions of this Executive Order."15

Likewise, when the law makes a government instrumentality operationally autonomous, the instrumentality remains part of the National Government machinery although not integrated with the department framework. The MIAA Charter expressly states that transforming MIAA into a "separate and autonomous body"16 will make its operation more "financially viable."17

Many government instrumentalities are vested with corporate powers but they do not become stock or non-stock corporations, which is a necessary condition before an agency or instrumentality is deemed a government-owned or controlled corporation. Examples are the Mactan International Airport Authority, the Philippine Ports Authority, the University of the Philippines and Bangko Sentral ng Pilipinas. All these government instrumentalities exercise corporate powers but they are not organized as stock or non-stock corporations as required by Section 2(13) of the Introductory Provisions of the Administrative Code. These government instrumentalities are sometimes loosely called government corporate entities. However, they are not government-owned or controlled corporations in the strict sense as understood under the Administrative Code, which is the governing law defining the legal relationship and status of government entities.A government instrumentality like MIAA falls under Section 133(o) of the Local Government Code, which states:

SEC. 133. Common Limitations on the Taxing Powers of Local Government Units. – Unless otherwise provided herein, the exercise of the taxing powers of provinces, cities, municipalities, and barangays shall not extend to the levy of the following:x x x x(o) Taxes, fees or charges of any kind on the National Government, its agencies and instrumentalitiesand local government units.(Emphasis and underscoring supplied)

Section 133(o) recognizes the basic principle that local governments cannot tax the national government, which historically merely delegated to local governments the power to tax. While the 1987 Constitution now includes taxation as one of the powers of local governments, local governments may only exercise such power "subject to such guidelines and limitations as the Congress may provide."18

When local governments invoke the power to tax on national government instrumentalities, such power is construed strictly against local governments. The rule is that a tax is never presumed and there must be clear language in the law imposing the tax. Any doubt whether a person, article or activity is taxable is resolved against taxation. This rule applies with greater force when local governments seek to tax national government instrumentalities.Another rule is that a tax exemption is strictly construed against the taxpayer claiming the exemption. However, when Congress grants an exemption to a national government instrumentality from local taxation, such exemption is construed liberally in favor of the national government instrumentality. As this Court declared in Maceda v. Macaraig, Jr.:

The reason for the rule does not apply in the case of exemptions running to the benefit of the government itself or its agencies. In such case the practical effect of an exemption is merely to reduce the amount of money that has to be handled by government in the course of its operations. For these reasons, provisions granting exemptions to government agencies may be construed liberally, in favor of non tax-liability of such agencies.19

There is, moreover, no point in national and local governments taxing each other, unless a sound and compelling policy requires such transfer of public funds from one government pocket to another.There is also no reason for local governments to tax national government instrumentalities for rendering essential public services to inhabitants of local governments. The only exception is when the legislature clearly intended to tax government instrumentalities for the delivery of essential public services for sound and compelling policy considerations. There must be express language in the law empowering local governments to tax national government instrumentalities. Any doubt whether such power exists is resolved against local governments.Thus, Section 133 of the Local Government Code states that "unless otherwise provided" in the Code, local governments cannot tax national government instrumentalities. As this Court held in Basco v. Philippine Amusements and Gaming Corporation:

The states have no power by taxation or otherwise, to retard, impede, burden or in any manner control the operation of constitutional laws enacted by Congress to carry into execution the powers vested in the federal 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 a federal instrumentality in such a way as to prevent it from consummating its federal responsibilities, or even to seriously burden it in the accomplishment of them." (Antieau, Modern Constitutional Law, Vol. 2, p. 140, emphasis supplied)

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

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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 has the inherent power to wield it. 20

2. Airport Lands and Buildings of MIAA are Owned by the Republica. Airport Lands and Buildings are of Public DominionThe Airport Lands and Buildings of MIAA are property of public dominion and therefore owned by the State or the Republic of the Philippines. The Civil Code provides:

ARTICLE 419. Property is either of public dominion or of private ownership.ARTICLE 420. The following things are property of public dominion:(1) Those intended for public use, such as roads, canals, rivers, torrents, ports and bridges constructed by the State, banks, shores, roadsteads, and others of similar character;(2) Those which belong to the State, without being for public use, and are intended for some public service or for the development of the national wealth. (Emphasis supplied)ARTICLE 421. All other property of the State, which is not of the character stated in the preceding article, is patrimonial property.ARTICLE 422. Property of public dominion, when no longer intended for public use or for public service, shall form part of the patrimonial property of the State.

No one can dispute that properties of public dominion mentioned in Article 420 of the Civil Code, like "roads, canals, rivers, torrents, ports and bridges constructed by the State," are owned by the State. The term "ports" includes seaports and airports. The MIAA Airport Lands and Buildings constitute a "port" constructed by the State. Under Article 420 of the Civil Code, the MIAA Airport Lands and Buildings are properties of public dominion and thus owned by the State or the Republic of the Philippines.The Airport Lands and Buildings are devoted to public use because they are used by the public for international and domestic travel and transportation. The fact that the MIAA collects terminal fees and other charges from the public does not remove the character of the Airport Lands and Buildings as properties for public use. The operation by the government of a tollway does not change the character of the road as one for public use. Someone must pay for the maintenance of the road, either the public indirectly through the taxes they pay the government, or only those among the public who actually use the road through the toll fees they pay upon using the road. The tollway system is even a more efficient and equitable manner of taxing the public for the maintenance of public roads.The charging of fees to the public does not determine the character of the property whether it is of public dominion or not. Article 420 of the Civil Code defines property of public dominion as one "intended for public use." Even if the government collects toll fees, the road is still "intended for public use" if anyone can use the road under the same terms and conditions as the rest of the public. The charging of fees, the limitation on the kind of vehicles that can use the road, the speed restrictions and other conditions for the use of the road do not affect the public character of the road.The terminal fees MIAA charges to passengers, as well as the landing fees MIAA charges to airlines, constitute the bulk of the income that maintains the operations of MIAA. The collection of such fees does not change the character of MIAA as an airport for public use. Such fees are often termed user's tax. This means taxing those among the public who actually use a public facility instead of taxing all the public including those who never use the particular public facility. A user's tax is more equitable — a principle of taxation mandated in the 1987 Constitution.21

The Airport Lands and Buildings of MIAA, which its Charter calls the "principal airport of the Philippines for both international and domestic air traffic,"22 are properties of public dominion because they are intended for public use.As properties of public dominion, they indisputably belong to the State or the Republic of the Philippines.b. Airport Lands and Buildings are Outside the Commerce of ManThe Airport Lands and Buildings of MIAA are devoted to public use and thus are properties of public dominion. As properties of public dominion, the Airport Lands and Buildings are outside the commerce of man. The Court has ruled repeatedly that properties of public dominion are outside the

commerce of man. As early as 1915, this Court already ruled in Municipality of Cavite v. Rojas that properties devoted to public use are outside the commerce of man, thus:

According to article 344 of the Civil Code: "Property for public use in provinces and in towns comprises the provincial and town roads, the squares, streets, fountains, and public waters, the promenades, and public works of general service supported by said towns or provinces."The said Plaza Soledad being a promenade for public use, the municipal council of Cavite could not in 1907 withdraw or exclude from public use a portion thereof in order to lease it for the sole benefit of the defendant Hilaria Rojas. In leasing a portion of said plaza or public place to the defendant for private use the plaintiff municipality exceeded its authority in the exercise of its powers by executing a contract over a thing of which it could not dispose, nor is it empowered so to do.The Civil Code, article 1271, prescribes that everything which is not outside the commerce of man may be the object of a contract, and plazas and streets are outside of this commerce, as was decided by the supreme court of Spain in its decision of February 12, 1895, which says: "Communal things that cannot be sold because they are by their very nature outside of commerce are those for public use, such as the plazas, streets, common lands, rivers, fountains, etc." (Emphasis supplied) 23

Again in Espiritu v. Municipal Council, the Court declared that properties of public dominion are outside the commerce of man:

xxx Town plazas are properties of public dominion, to be devoted to public use and to be made available to the public in general. They are outside the commerce of man and cannot be disposed of or even leased by the municipality to private parties. While in case of war or during an emergency, town plazas may be occupied temporarily by private individuals, as was done and as was tolerated by the Municipality of Pozorrubio, when the emergency has ceased, said temporary occupation or use must also cease, and the town officials should see to it that the town plazas should ever be kept open to the public and free from encumbrances or illegal private constructions.24 (Emphasis supplied)

The Court has also ruled that property of public dominion, being outside the commerce of man, cannot be the subject of an auction sale.25

Properties of public dominion, being for public use, are not subject to levy, encumbrance or disposition through public or private sale. Any encumbrance, levy on execution or auction sale of any property of public dominion is void for being contrary to public policy. Essential public services will stop if properties of public dominion are subject to encumbrances, foreclosures and auction sale. This will happen if the City of Parañaque can foreclose and compel the auction sale of the 600-hectare runway of the MIAA for non-payment of real estate tax.Before MIAA can encumber26 the Airport Lands and Buildings, the President must first withdraw from public usethe Airport Lands and Buildings. Sections 83 and 88 of the Public Land Law or Commonwealth Act No. 141, which "remains to this day the existing general law governing the classification and disposition of lands of the public domain other than timber and mineral lands,"27

provide:SECTION 83. Upon the recommendation of the Secretary of Agriculture and Natural Resources, the President may designate by proclamation any tract or tracts of land of the public domain as reservations for the use of the Republic of the Philippines or of any of its branches, or of the inhabitants thereof, in accordance with regulations prescribed for this purposes, or for quasi-public uses or purposes when the public interest requires it, including reservations for highways, rights of way for railroads, hydraulic power sites, irrigation systems, communal pastures or lequas communales, public parks, public quarries, public fishponds, working men's village and other improvements for the public benefit.SECTION 88. The tract or tracts of land reserved under the provisions of Section eighty-three shall benon-alienable and shall not be subject to occupation, entry, sale, lease, or other disposition until again declared alienable under the provisions of this Act or by proclamation of the President. (Emphasis and underscoring supplied)

Thus, unless the President issues a proclamation withdrawing the Airport Lands and Buildings from public use, these properties remain properties of public dominion and are inalienable. Since the

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Airport Lands and Buildings are inalienable in their present status as properties of public dominion, they are not subject to levy on execution or foreclosure sale. As long as the Airport Lands and Buildings are reserved for public use, their ownership remains with the State or the Republic of the Philippines.The authority of the President to reserve lands of the public domain for public use, and to withdraw such public use, is reiterated in Section 14, Chapter 4, Title I, Book III of the Administrative Code of 1987, which states:

SEC. 14. Power to Reserve Lands of the Public and Private Domain of the Government. — (1) The President shall have the power to reserve for settlement or public use, and for specific public purposes, any of the lands of the public domain, the use of which is not otherwise directed by law. The reserved land shall thereafter remain subject to the specific public purpose indicated until otherwise provided by law or proclamation;x x x x. (Emphasis supplied)

There is no question, therefore, that unless the Airport Lands and Buildings are withdrawn by law or presidential proclamation from public use, they are properties of public dominion, owned by the Republic and outside the commerce of man.c. MIAA is a Mere Trustee of the RepublicMIAA is merely holding title to the Airport Lands and Buildings in trust for the Republic. Section 48, Chapter 12, Book I of the Administrative Code allows instrumentalities like MIAA to hold title to real properties owned by the Republic, thus:

SEC. 48. Official Authorized to Convey Real Property. — Whenever real property of the Government is authorized by law to be conveyed, the deed of conveyance shall be executed in behalf of the government by the following:(1) For property belonging to and titled in the name of the Republic of the Philippines, by the President, unless the authority therefor is expressly vested by law in another officer.(2) For property belonging to the Republic of the Philippines but titled in the name of any political subdivision or of any corporate agency or instrumentality, by the executive head of the agency or instrumentality. (Emphasis supplied)

In MIAA's case, its status as a mere trustee of the Airport Lands and Buildings is clearer because even its executive head cannot sign the deed of conveyance on behalf of the Republic. Only the President of the Republic can sign such deed of conveyance.28

d. Transfer to MIAA was Meant to Implement a ReorganizationThe MIAA Charter, which is a law, transferred to MIAA the title to the Airport Lands and Buildings from the Bureau of Air Transportation of the Department of Transportation and Communications. The MIAA Charter provides:

SECTION 3. Creation of the Manila International Airport Authority. — x x x xThe land where the Airport is presently located as well as the surrounding land area of approximately six hundred hectares, are hereby transferred, conveyed and assigned to the ownership and administration of the Authority, subject to existing rights, if any. The Bureau of Lands and other appropriate government agencies shall undertake an actual survey of the area transferred within one year from the promulgation of this Executive Order and the corresponding title to be issued in the name of the Authority. Any portion thereof shall not be disposed through sale or through any other mode unless specifically approved by the President of the Philippines. (Emphasis supplied)SECTION 22. Transfer of Existing Facilities and Intangible Assets. — All existing public airport facilities, runways, lands, buildings and other property, movable or immovable, belonging to the Airport, and all assets, powers, rights, interests and privileges belonging to the Bureau of Air Transportation relating to airport works or air operations, including all equipment which are necessary for the operation of crash fire and rescue facilities, are hereby transferred to the Authority. (Emphasis supplied)

SECTION 25. Abolition of the Manila International Airport as a Division in the Bureau of Air Transportation and Transitory Provisions. — The Manila International Airport including the Manila Domestic Airport as a division under the Bureau of Air Transportation is hereby abolished.x x x x.

The MIAA Charter transferred the Airport Lands and Buildings to MIAA without the Republic receiving cash, promissory notes or even stock since MIAA is not a stock corporation.The whereas clauses of the MIAA Charter explain the rationale for the transfer of the Airport Lands and Buildings to MIAA, thus:

WHEREAS, the Manila International Airport as the principal airport of the Philippines for both international and domestic air traffic, is required to provide standards of airport accommodation and service comparable with the best airports in the world;WHEREAS, domestic and other terminals, general aviation and other facilities, have to be upgraded to meet the current and future air traffic and other demands of aviation in Metro Manila;WHEREAS, a management and organization study has indicated that the objectives of providing high standards of accommodation and service within the context of a financially viable operation, will best be achieved by a separate and autonomous body; andWHEREAS, under Presidential Decree No. 1416, as amended by Presidential Decree No. 1772, the President of the Philippines is given continuing authority to reorganize the National Government, which authority includes the creation of new entities, agencies and instrumentalities of the Government[.] (Emphasis supplied)

The transfer of the Airport Lands and Buildings from the Bureau of Air Transportation to MIAA was not meant to transfer beneficial ownership of these assets from the Republic to MIAA. The purpose was merely to reorganize a division in the Bureau of Air Transportation into a separate and autonomous body. The Republic remains the beneficial owner of the Airport Lands and Buildings. MIAA itself is owned solely by the Republic. No party claims any ownership rights over MIAA's assets adverse to the Republic.The MIAA Charter expressly provides that the Airport Lands and Buildings "shall not be disposed through sale or through any other mode unless specifically approved by the President of the Philippines." This only means that the Republic retained the beneficial ownership of the Airport Lands and Buildings because under Article 428 of the Civil Code, only the "owner has the right to x x x dispose of a thing." Since MIAA cannot dispose of the Airport Lands and Buildings, MIAA does not own the Airport Lands and Buildings.At any time, the President can transfer back to the Republic title to the Airport Lands and Buildings without the Republic paying MIAA any consideration. Under Section 3 of the MIAA Charter, the President is the only one who can authorize the sale or disposition of the Airport Lands and Buildings. This only confirms that the Airport Lands and Buildings belong to the Republic.e. Real Property Owned by the Republic is Not TaxableSection 234(a) of the Local Government Code exempts from real estate tax any "[r]eal property owned by the Republic of the Philippines." Section 234(a) provides:

SEC. 234. Exemptions from Real Property Tax. — The following are exempted from payment of the real property tax:(a) Real property owned by the Republic of the Philippines or any of its political subdivisions except when the beneficial use thereof has been granted, for consideration or otherwise, to a taxable person;x x x. (Emphasis supplied)

This exemption should be read in relation with Section 133(o) of the same Code, which prohibits local governments from imposing "[t]axes, fees or charges of any kind on the National Government, its agencies and instrumentalitiesx x x." The real properties owned by the Republic are titled either in the name of the Republic itself or in the name of agencies or instrumentalities of the National Government. The Administrative Code allows real property owned by the Republic to be titled in the

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name of agencies or instrumentalities of the national government. Such real properties remain owned by the Republic and continue to be exempt from real estate tax.The Republic may grant the beneficial use of its real property to an agency or instrumentality of the national government. This happens when title of the real property is transferred to an agency or instrumentality even as the Republic remains the owner of the real property. Such arrangement does not result in the loss of the tax exemption. Section 234(a) of the Local Government Code states that real property owned by the Republic loses its tax exemption only if the "beneficial use thereof has been granted, for consideration or otherwise, to a taxable person." MIAA, as a government instrumentality, is not a taxable person under Section 133(o) of the Local Government Code. Thus, even if we assume that the Republic has granted to MIAA the beneficial use of the Airport Lands and Buildings, such fact does not make these real properties subject to real estate tax.However, portions of the Airport Lands and Buildings that MIAA leases to private entities are not exempt from real estate tax. For example, the land area occupied by hangars that MIAA leases to private corporations is subject to real estate tax. In such a case, MIAA has granted the beneficial use of such land area for a consideration to ataxable person and therefore such land area is subject to real estate tax. In Lung Center of the Philippines v. Quezon City, the Court ruled:

Accordingly, we hold that the portions of the land leased to private entities as well as those parts of the hospital leased to private individuals are not exempt from such taxes. On the other hand, the portions of the land occupied by the hospital and portions of the hospital used for its patients, whether paying or non-paying, are exempt from real property taxes.29

3. Refutation of Arguments of MinorityThe minority asserts that the MIAA is not exempt from real estate tax because Section 193 of the Local Government Code of 1991 withdrew the tax exemption of "all persons, whether natural or juridical" upon the effectivity of the Code. Section 193 provides:

SEC. 193. Withdrawal of Tax Exemption Privileges – Unless otherwise provided in this Code, tax exemptions or incentives granted to, or presently enjoyed by all persons, whether natural or juridical, including government-owned or controlled corporations, except local water districts, cooperatives duly registered under R.A. No. 6938, non-stock and non-profit hospitals and educational institutions are hereby withdrawn upon effectivity of this Code. (Emphasis supplied)

The minority states that MIAA is indisputably a juridical person. The minority argues that since the Local Government Code withdrew the tax exemption of all juridical persons, then MIAA is not exempt from real estate tax. Thus, the minority declares:

It is evident from the quoted provisions of the Local Government Code that the withdrawn exemptions from realty tax cover not just GOCCs, but all persons. To repeat, the provisions lay down the explicit proposition that the withdrawal of realty tax exemption applies to all persons. The reference to or the inclusion of GOCCs is only clarificatory or illustrative of the explicit provision.The term "All persons" encompasses the two classes of persons recognized under our laws, natural and juridical persons. Obviously, MIAA is not a natural person. Thus, the determinative test is not just whether MIAA is a GOCC, but whether MIAA is a juridical person at all. (Emphasis and underscoring in the original)

The minority posits that the "determinative test" whether MIAA is exempt from local taxation is its status — whether MIAA is a juridical person or not. The minority also insists that "Sections 193 and 234 may be examined in isolation from Section 133(o) to ascertain MIAA's claim of exemption."The argument of the minority is fatally flawed. Section 193 of the Local Government Code expressly withdrew the tax exemption of all juridical persons "[u]nless otherwise provided in this Code." Now, Section 133(o) of the Local Government Code expressly provides otherwise, specifically prohibiting local governments from imposing any kind of tax on national government instrumentalities. Section 133(o) states:

SEC. 133. Common Limitations on the Taxing Powers of Local Government Units . – Unless otherwise provided herein, the exercise of the taxing powers of provinces, cities, municipalities, and barangays shall not extend to the levy of the following:

x x x x(o) Taxes, fees or charges of any kinds on the National Government, its agencies and instrumentalities, and local government units. (Emphasis and underscoring supplied)

By express mandate of the Local Government Code, local governments cannot impose any kind of tax on national government instrumentalities like the MIAA. Local governments are devoid of power to tax the national government, its agencies and instrumentalities. The taxing powers of local governments do not extend to the national government, its agencies and instrumentalities, "[u]nless otherwise provided in this Code" as stated in the saving clause of Section 133. The saving clause refers to Section 234(a) on the exception to the exemption from real estate tax of real property owned by the Republic.The minority, however, theorizes that unless exempted in Section 193 itself, all juridical persons are subject to tax by local governments. The minority insists that the juridical persons exempt from local taxation are limited to the three classes of entities specifically enumerated as exempt in Section 193. Thus, the minority states:

x x x Under Section 193, the exemption is limited to (a) local water districts; (b) cooperatives duly registered under Republic Act No. 6938; and (c) non-stock and non-profit hospitals and educational institutions. It would be belaboring the obvious why the MIAA does not fall within any of the exempt entities under Section 193. (Emphasis supplied)

The minority's theory directly contradicts and completely negates Section 133(o) of the Local Government Code. This theory will result in gross absurdities. It will make the national government, which itself is a juridical person, subject to tax by local governments since the national government is not included in the enumeration of exempt entities in Section 193. Under this theory, local governments can impose any kind of local tax, and not only real estate tax, on the national government.Under the minority's theory, many national government instrumentalities with juridical personalities will also be subject to any kind of local tax, and not only real estate tax. Some of the national government instrumentalities vested by law with juridical personalities are: Bangko Sentral ng Pilipinas,30 Philippine Rice Research Institute,31Laguna LakeDevelopment Authority,32 Fisheries Development Authority,33 Bases Conversion Development Authority,34Philippine Ports Authority,35 Cagayan de Oro Port Authority,36 San Fernando Port Authority,37

Cebu Port Authority,38 and Philippine National Railways.39

The minority's theory violates Section 133(o) of the Local Government Code which expressly prohibits local governments from imposing any kind of tax on national government instrumentalities. Section 133(o) does not distinguish between national government instrumentalities with or without juridical personalities. Where the law does not distinguish, courts should not distinguish. Thus, Section 133(o) applies to all national government instrumentalities, with or without juridical personalities. The determinative test whether MIAA is exempt from local taxation is not whether MIAA is a juridical person, but whether it is a national government instrumentality under Section 133(o) of the Local Government Code. Section 133(o) is the specific provision of law prohibiting local governments from imposing any kind of tax on the national government, its agencies and instrumentalities.Section 133 of the Local Government Code starts with the saving clause "[u]nless otherwise provided in this Code." This means that unless the Local Government Code grants an express authorization, local governments have no power to tax the national government, its agencies and instrumentalities. Clearly, the rule is local governments have no power to tax the national government, its agencies and instrumentalities. As an exception to this rule, local governments may tax the national government, its agencies and instrumentalities only if the Local Government Code expressly so provides.The saving clause in Section 133 refers to the exception to the exemption in Section 234(a) of the Code, which makes the national government subject to real estate tax when it gives the beneficial use of its real properties to a taxable entity. Section 234(a) of the Local Government Code provides:

SEC. 234. Exemptions from Real Property Tax – The following are exempted from payment of the real property tax:

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(a) Real property owned by the Republic of the Philippines or any of its political subdivisions except when the beneficial use thereof has been granted, for consideration or otherwise, to a taxable person.x x x. (Emphasis supplied)

Under Section 234(a), real property owned by the Republic is exempt from real estate tax. The exception to this exemption is when the government gives the beneficial use of the real property to a taxable entity.The exception to the exemption in Section 234(a) is the only instance when the national government, its agencies and instrumentalities are subject to any kind of tax by local governments. The exception to the exemption applies only to real estate tax and not to any other tax. The justification for the exception to the exemption is that the real property, although owned by the Republic, is not devoted to public use or public service but devoted to the private gain of a taxable person.The minority also argues that since Section 133 precedes Section 193 and 234 of the Local Government Code, the later provisions prevail over Section 133. Thus, the minority asserts:

x x x Moreover, sequentially Section 133 antecedes Section 193 and 234. Following an accepted rule of construction, in case of conflict the subsequent provisions should prevail. Therefore, MIAA, as a juridical person, is subject to real property taxes, the general exemptions attaching to instrumentalities under Section 133(o) of the Local Government Code being qualified by Sections 193 and 234 of the same law. (Emphasis supplied)

The minority assumes that there is an irreconcilable conflict between Section 133 on one hand, and Sections 193 and 234 on the other. No one has urged that there is such a conflict, much less has any one presenteda persuasive argument that there is such a conflict. The minority's assumption of an irreconcilable conflict in the statutory provisions is an egregious error for two reasons.First, there is no conflict whatsoever between Sections 133 and 193 because Section 193 expressly admits its subordination to other provisions of the Code when Section 193 states "[u]nless otherwise provided in this Code." By its own words, Section 193 admits the superiority of other provisions of the Local Government Code that limit the exercise of the taxing power in Section 193. When a provision of law grants a power but withholds such power on certain matters, there is no conflict between the grant of power and the withholding of power. The grantee of the power simply cannot exercise the power on matters withheld from its power.Second, Section 133 is entitled "Common Limitations on the Taxing Powers of Local Government Units." Section 133 limits the grant to local governments of the power to tax, and not merely the exercise of a delegated power to tax. Section 133 states that the taxing powers of local governments "shall not extend to the levy" of any kind of tax on the national government, its agencies and instrumentalities. There is no clearer limitation on the taxing power than this.Since Section 133 prescribes the "common limitations" on the taxing powers of local governments, Section 133 logically prevails over Section 193 which grants local governments such taxing powers. By their very meaning and purpose, the "common limitations" on the taxing power prevail over the grant or exercise of the taxing power. If the taxing power of local governments in Section 193 prevails over the limitations on such taxing power in Section 133, then local governments can impose any kind of tax on the national government, its agencies and instrumentalities — a gross absurdity.Local governments have no power to tax the national government, its agencies and instrumentalities, except as otherwise provided in the Local Government Code pursuant to the saving clause in Section 133 stating "[u]nless otherwise provided in this Code." This exception — which is an exception to the exemption of the Republic from real estate tax imposed by local governments — refers to Section 234(a) of the Code. The exception to the exemption in Section 234(a) subjects real property owned by the Republic, whether titled in the name of the national government, its agencies or instrumentalities, to real estate tax if the beneficial use of such property is given to a taxable entity.The minority also claims that the definition in the Administrative Code of the phrase "government-owned or controlled corporation" is not controlling. The minority points out that Section 2 of the Introductory Provisions of the Administrative Code admits that its definitions are not controlling when it provides:

SEC. 2. General Terms Defined. — Unless the specific words of the text, or the context as a whole, or a particular statute, shall require a different meaning:x x x x

The minority then concludes that reliance on the Administrative Code definition is "flawed."The minority's argument is a non sequitur. True, Section 2 of the Administrative Code recognizes that a statute may require a different meaning than that defined in the Administrative Code. However, this does not automatically mean that the definition in the Administrative Code does not apply to the Local Government Code. Section 2 of the Administrative Code clearly states that "unless the specific words x x x of a particular statute shall require a different meaning," the definition in Section 2 of the Administrative Code shall apply. Thus, unless there is specific language in the Local Government Code defining the phrase "government-owned or controlled corporation" differently from the definition in the Administrative Code, the definition in the Administrative Code prevails.The minority does not point to any provision in the Local Government Code defining the phrase "government-owned or controlled corporation" differently from the definition in the Administrative Code. Indeed, there is none. The Local Government Code is silent on the definition of the phrase "government-owned or controlled corporation." The Administrative Code, however, expressly defines the phrase "government-owned or controlled corporation." The inescapable conclusion is that the Administrative Code definition of the phrase "government-owned or controlled corporation" applies to the Local Government Code.The third whereas clause of the Administrative Code states that the Code "incorporates in a unified document the major structural, functional and procedural principles and rules of governance." Thus, the Administrative Code is the governing law defining the status and relationship of government departments, bureaus, offices, agencies and instrumentalities. Unless a statute expressly provides for a different status and relationship for a specific government unit or entity, the provisions of the Administrative Code prevail.The minority also contends that the phrase "government-owned or controlled corporation" should apply only to corporations organized under the Corporation Code, the general incorporation law, and not to corporations created by special charters. The minority sees no reason why government corporations with special charters should have a capital stock. Thus, the minority declares:

I submit that the definition of "government-owned or controlled corporations" under the Administrative Code refer to those corporations owned by the government or its instrumentalities which are created not by legislative enactment, but formed and organized under the Corporation Code through registration with the Securities and Exchange Commission. In short, these are GOCCs without original charters.x x x xIt might as well be worth pointing out that there is no point in requiring a capital structure for GOCCs whose full ownership is limited by its charter to the State or Republic. Such GOCCs are not empowered to declare dividends or alienate their capital shares.

The contention of the minority is seriously flawed. It is not in accord with the Constitution and existing legislations. It will also result in gross absurdities.First, the Administrative Code definition of the phrase "government-owned or controlled corporation" does not distinguish between one incorporated under the Corporation Code or under a special charter. Where the law does not distinguish, courts should not distinguish.Second, Congress has created through special charters several government-owned corporations organized as stock corporations. Prime examples are the Land Bank of the Philippines and the Development Bank of the Philippines. The special charter40 of the Land Bank of the Philippines provides:

SECTION 81. Capital. — The authorized capital stock of the Bank shall be nine billion pesos, divided into seven hundred and eighty million common shares with a par value of ten pesos each, which shall be fully subscribed by the Government, and one hundred and twenty million preferred shares with a par value of ten pesos each, which shall be issued in accordance with the provisions of Sections seventy-seven and eighty-three of this Code. (Emphasis supplied)

Likewise, the special charter41 of the Development Bank of the Philippines provides:102

SECTION 7. Authorized Capital Stock – Par value. — The capital stock of the Bank shall be Five Billion Pesos to be divided into Fifty Million common shares with par value of P100 per share. These shares are available for subscription by the National Government. Upon the effectivity of this Charter, the National Government shall subscribe to Twenty-Five Million common shares of stock worth Two Billion Five Hundred Million which shall be deemed paid for by the Government with the net asset values of the Bank remaining after the transfer of assets and liabilities as provided in Section 30 hereof. (Emphasis supplied)

Other government-owned corporations organized as stock corporations under their special charters are the Philippine Crop Insurance Corporation,42 Philippine International Trading Corporation,43 and the Philippine National Bank44 before it was reorganized as a stock corporation under the Corporation Code. All these government-owned corporations organized under special charters as stock corporations are subject to real estate tax on real properties owned by them. To rule that they are not government-owned or controlled corporations because they are not registered with the Securities and Exchange Commission would remove them from the reach of Section 234 of the Local Government Code, thus exempting them from real estate tax.Third, the government-owned or controlled corporations created through special charters are those that meet the two conditions prescribed in Section 16, Article XII of the Constitution. The first condition is that the government-owned or controlled corporation must be established for the common good. The second condition is that the government-owned or controlled corporation must meet the test of economic viability. Section 16, Article XII of the 1987 Constitution provides:

SEC. 16. The Congress shall not, except by general law, provide for the formation, organization, or regulation of private corporations. Government-owned or controlled corporations may be created or established by special charters in the interest of the common good and subject to the test of economic viability. (Emphasis and underscoring supplied)

The Constitution expressly authorizes the legislature to create "government-owned or controlled corporations" through special charters only if these entities are required to meet the twin conditions of common good and economic viability. In other words, Congress has no power to create government-owned or controlled corporations with special charters unless they are made to comply with the two conditions of common good and economic viability. The test of economic viability applies only to government-owned or controlled corporations that perform economic or commercial activities and need to compete in the market place. Being essentially economic vehicles of the State for the common good — meaning for economic development purposes — these government-owned or controlled corporations with special charters are usually organized as stock corporations just like ordinary private corporations.In contrast, government instrumentalities vested with corporate powers and performing governmental or public functions need not meet the test of economic viability. These instrumentalities perform essential public services for the common good, services that every modern State must provide its citizens. These instrumentalities need not be economically viable since the government may even subsidize their entire operations. These instrumentalities are not the "government-owned or controlled corporations" referred to in Section 16, Article XII of the 1987 Constitution.Thus, the Constitution imposes no limitation when the legislature creates government instrumentalities vested with corporate powers but performing essential governmental or public functions. Congress has plenary authority to create government instrumentalities vested with corporate powers provided these instrumentalities perform essential government functions or public services. However, when the legislature creates through special charters corporations that perform economic or commercial activities, such entities — known as "government-owned or controlled corporations" — must meet the test of economic viability because they compete in the market place.This is the situation of the Land Bank of the Philippines and the Development Bank of the Philippines and similar government-owned or controlled corporations, which derive their income to meet operating expenses solely from commercial transactions in competition with the private sector. The intent of the Constitution is to prevent the creation of government-owned or controlled corporations that cannot survive on their own in the market place and thus merely drain the public coffers.Commissioner Blas F. Ople, proponent of the test of economic viability, explained to the Constitutional Commission the purpose of this test, as follows:

MR. OPLE: Madam President, the reason for this concern is really that when the government creates a corporation, there is a sense in which this corporation becomes exempt from the test of economic performance. We know what happened in the past. If a government corporation loses, then it makes its claim upon the taxpayers' money through new equity infusions from the government and what is always invoked is the common good. That is the reason why this year, out of a budget of P115 billion for the entire government, about P28 billion of this will go into equity infusions to support a few government financial institutions. And this is all taxpayers' money which could have been relocated to agrarian reform, to social services like health and education, to augment the salaries of grossly underpaid public employees. And yet this is all going down the drain.Therefore, when we insert the phrase "ECONOMIC VIABILITY" together with the "common good," this becomes a restraint on future enthusiasts for state capitalism to excuse themselves from the responsibility of meeting the market test so that they become viable. And so, Madam President, I reiterate, for the committee's consideration and I am glad that I am joined in this proposal by Commissioner Foz, the insertion of the standard of "ECONOMIC VIABILITY OR THE ECONOMIC TEST," together with the common good.45

Father Joaquin G. Bernas, a leading member of the Constitutional Commission, explains in his textbook The 1987 Constitution of the Republic of the Philippines: A Commentary:

The second sentence was added by the 1986 Constitutional Commission. The significant addition, however, is the phrase "in the interest of the common good and subject to the test of economic viability." The addition includes the ideas that they must show capacity to function efficiently in business and that they should not go into activities which the private sector can do better. Moreover, economic viability is more than financial viability but also includes capability to make profit and generate benefits not quantifiable in financial terms.46(Emphasis supplied)

Clearly, the test of economic viability does not apply to government entities vested with corporate powers and performing essential public services. The State is obligated to render essential public services regardless of the economic viability of providing such service. The non-economic viability of rendering such essential public service does not excuse the State from withholding such essential services from the public.However, government-owned or controlled corporations with special charters, organized essentially for economic or commercial objectives, must meet the test of economic viability. These are the government-owned or controlled corporations that are usually organized under their special charters as stock corporations, like the Land Bank of the Philippines and the Development Bank of the Philippines. These are the government-owned or controlled corporations, along with government-owned or controlled corporations organized under the Corporation Code, that fall under the definition of "government-owned or controlled corporations" in Section 2(10) of the Administrative Code.The MIAA need not meet the test of economic viability because the legislature did not create MIAA to compete in the market place. MIAA does not compete in the market place because there is no competing international airport operated by the private sector. MIAA performs an essential public service as the primary domestic and international airport of the Philippines. The operation of an international airport requires the presence of personnel from the following government agencies:

1. The Bureau of Immigration and Deportation, to document the arrival and departure of passengers, screening out those without visas or travel documents, or those with hold departure orders;2. The Bureau of Customs, to collect import duties or enforce the ban on prohibited importations;3. The quarantine office of the Department of Health, to enforce health measures against the spread of infectious diseases into the country;4. The Department of Agriculture, to enforce measures against the spread of plant and animal diseases into the country;5. The Aviation Security Command of the Philippine National Police, to prevent the entry of terrorists and the escape of criminals, as well as to secure the airport premises from terrorist attack or seizure;

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6. The Air Traffic Office of the Department of Transportation and Communications, to authorize aircraft to enter or leave Philippine airspace, as well as to land on, or take off from, the airport; and7. The MIAA, to provide the proper premises — such as runway and buildings — for the government personnel, passengers, and airlines, and to manage the airport operations.

All these agencies of government perform government functions essential to the operation of an international airport.MIAA performs an essential public service that every modern State must provide its citizens. MIAA derives its revenues principally from the mandatory fees and charges MIAA imposes on passengers and airlines. The terminal fees that MIAA charges every passenger are regulatory or administrative fees47 and not income from commercial transactions.MIAA falls under the definition of a government instrumentality under Section 2(10) of the Introductory Provisions of the Administrative Code, which provides:

SEC. 2. General Terms Defined. – x x x x(10) Instrumentality refers to any agency of the National Government, not integrated within the department framework, vested with special functions or jurisdiction by law, endowed with some if not all corporate powers, administering special funds, and enjoying operational autonomy, usually through a charter. x x x (Emphasis supplied)

The fact alone that MIAA is endowed with corporate powers does not make MIAA a government-owned or controlled corporation. Without a change in its capital structure, MIAA remains a government instrumentality under Section 2(10) of the Introductory Provisions of the Administrative Code. More importantly, as long as MIAA renders essential public services, it need not comply with the test of economic viability. Thus, MIAA is outside the scope of the phrase "government-owned or controlled corporations" under Section 16, Article XII of the 1987 Constitution.The minority belittles the use in the Local Government Code of the phrase "government-owned or controlled corporation" as merely "clarificatory or illustrative." This is fatal. The 1987 Constitution prescribes explicit conditions for the creation of "government-owned or controlled corporations." The Administrative Code defines what constitutes a "government-owned or controlled corporation." To belittle this phrase as "clarificatory or illustrative" is grave error.To summarize, MIAA is not a government-owned or controlled corporation under Section 2(13) of the Introductory Provisions of the Administrative Code because it is not organized as a stock or non-stock corporation. Neither is MIAA a government-owned or controlled corporation under Section 16, Article XII of the 1987 Constitution because MIAA is not required to meet the test of economic viability. MIAA is a government instrumentality vested with corporate powers and performing essential public services pursuant to Section 2(10) of the Introductory Provisions of the Administrative Code. As a government instrumentality, MIAA is not subject to any kind of tax by local governments under Section 133(o) of the Local Government Code. The exception to the exemption in Section 234(a) does not apply to MIAA because MIAA is not a taxable entity under the Local Government Code. Such exception applies only if the beneficial use of real property owned by the Republic is given to a taxable entity.Finally, the Airport Lands and Buildings of MIAA are properties devoted to public use and thus are properties of public dominion. Properties of public dominion are owned by the State or the Republic. Article 420 of the Civil Code provides:

Art. 420. The following things are property of public dominion:(1) Those intended for public use, such as roads, canals, rivers, torrents, ports and bridges constructed by the State, banks, shores, roadsteads, and others of similar character;(2) Those which belong to the State, without being for public use, and are intended for some public service or for the development of the national wealth. (Emphasis supplied)

The term "ports x x x constructed by the State" includes airports and seaports. The Airport Lands and Buildings of MIAA are intended for public use, and at the very least intended for public service. Whether intended for public use or public service, the Airport Lands and Buildings are properties of public dominion. As properties of public dominion, the Airport Lands and Buildings are owned by the Republic and thus exempt from real estate tax under Section 234(a) of the Local Government Code.

4. ConclusionUnder Section 2(10) and (13) of the Introductory Provisions of the Administrative Code, which governs the legal relation and status of government units, agencies and offices within the entire government machinery, MIAA is a government instrumentality and not a government-owned or controlled corporation. Under Section 133(o) of the Local Government Code, MIAA as a government instrumentality is not a taxable person because it is not subject to "[t]axes, fees or charges of any kind" by local governments. The only exception is when MIAA leases its real property to a "taxable person" as provided in Section 234(a) of the Local Government Code, in which case the specific real property leased becomes subject to real estate tax. Thus, only portions of the Airport Lands and Buildings leased to taxable persons like private parties are subject to real estate tax by the City of Parañaque.Under Article 420 of the Civil Code, the Airport Lands and Buildings of MIAA, being devoted to public use, are properties of public dominion and thus owned by the State or the Republic of the Philippines. Article 420 specifically mentions "ports x x x constructed by the State," which includes public airports and seaports, as properties of public dominion and owned by the Republic. As properties of public dominion owned by the Republic, there is no doubt whatsoever that the Airport Lands and Buildings are expressly exempt from real estate tax under Section 234(a) of the Local Government Code. This Court has also repeatedly ruled that properties of public dominion are not subject to execution or foreclosure sale.WHEREFORE, we GRANT the petition. We SET ASIDE the assailed Resolutions of the Court of Appeals of 5 October 2001 and 27 September 2002 in CA-G.R. SP No. 66878. We DECLARE the Airport Lands and Buildings of the Manila International Airport Authority EXEMPT from the real estate tax imposed by the City of Parañaque. We declare VOID all the real estate tax assessments, including the final notices of real estate tax delinquencies, issued by the City of Parañaque on the Airport Lands and Buildings of the Manila International Airport Authority, except for the portions that the Manila International Airport Authority has leased to private parties. We also declare VOID the assailed auction sale, and all its effects, of the Airport Lands and Buildings of the Manila International Airport Authority.No costs.SO ORDERED.THE CITY GOVERNMENT OF QUEZON CITY, AND THE CITY TREASURER OF QUEZON CITY, DR. VICTOR B. ENRIGA, Petitioners, vs.BAYAN TELECOMMUNICATIONS, INC., Respondent.D E C I S I O NGARCIA,J.:Before the Court, on pure questions of law, is this petition for review on certiorari under Rule 45 of the Rules of Court to nullify and set aside the following issuances of the Regional Trial Court (RTC) of Quezon City, Branch 227, in its Civil Case No. Q-02-47292, to wit:1) Decision1 dated June 6, 2003, declaring respondent Bayan Telecommunications, Inc. exempt from real estate taxation on its real properties located in Quezon City; and2) Order2 dated December 30, 2003, denying petitioners’ motion for reconsideration.The facts:Respondent Bayan Telecommunications, Inc.3 (Bayantel) is a legislative franchise holder under Republic Act (Rep. Act) No. 32594 to establish and operate radio stations for domestic telecommunications, radiophone, broadcasting and telecasting.Of relevance to this controversy is the tax provision of Rep. Act No. 3259, embodied in Section 14 thereof, which reads:SECTION 14. (a) The grantee shall be liable to pay the same taxes on its real estate, buildings and personal property, exclusive of the franchise, as other persons or corporations are now or hereafter may be required by law to pay. (b) The grantee shall further pay to the Treasurer of the Philippines each year, within ten days after the audit and approval of the accounts as prescribed in this Act, one

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and one-half per centum of all gross receipts from the business transacted under this franchise by the said grantee (Emphasis supplied).On January 1, 1992, Rep. Act No. 7160, otherwise known as the "Local Government Code of 1991" (LGC), took effect. Section 232 of the Code grants local government units within the Metro Manila Area the power to levy tax on real properties, thus:SEC. 232. – Power to Levy Real Property Tax. – A province or city or a municipality within the Metropolitan Manila Area may levy an annual ad valorem tax on real property such as land, building, machinery and other improvements not hereinafter specifically exempted.Complementing the aforequoted provision is the second paragraph of Section 234 of the same Code which withdrew any exemption from realty tax heretofore granted to or enjoyed by all persons, natural or juridical, to wit:SEC. 234 - Exemptions from Real Property Tax. The following are exempted from payment of the real property tax:xxx xxx xxxExcept as provided herein, any exemption from payment of real property tax previously granted to, or enjoyed by, all persons, whether natural or juridical, including government-owned-or-controlled corporations is hereby withdrawn upon effectivity of this Code (Emphasis supplied).On July 20, 1992, barely few months after the LGC took effect, Congress enacted Rep. Act No. 7633, amending Bayantel’s original franchise. The amendatory law (Rep. Act No. 7633) contained the following tax provision:SEC. 11. The grantee, its successors or assigns shall be liable to pay the same taxes on their real estate, buildings and personal property, exclusive of this franchise, as other persons or corporations are now or hereafter may be required by law to pay. In addition thereto, the grantee, its successors or assigns shall pay a franchise tax equivalent to three percent (3%) of all gross receipts of the telephone or other telecommunications businesses transacted under this franchise by the grantee, its successors or assigns and the said percentage shall be in lieu of all taxes on this franchise or earnings thereof. Provided, That the grantee, its successors or assigns shall continue to be liable for income taxes payable under Title II of the National Internal Revenue Code …. xxx. [Emphasis supplied]It is undisputed that within the territorial boundary of Quezon City, Bayantel owned several real properties on which it maintained various telecommunications facilities. These real properties, as hereunder described, are covered by the following tax declarations:

(a) Tax Declaration Nos. D-096-04071, D-096-04074, D-096-04072 and D-096-04073 pertaining to Bayantel’s Head Office and Operations Center in Roosevelt St., San Francisco del Monte, Quezon City allegedly the nerve center of petitioner’s telecommunications franchise operations, said Operation Center housing mainly petitioner’s Network Operations Group and switching, transmission and related equipment;(b) Tax Declaration Nos. D-124-01013, D-124-00939, D-124-00920 and D-124-00941 covering Bayantel’s land, building and equipment in Maginhawa St., Barangay East Teacher’s Village, Quezon City which houses telecommunications facilities; and(c) Tax Declaration Nos. D-011-10809, D-011-10810, D-011-10811, and D-011-11540 referring to Bayantel’s Exchange Center located in Proj. 8, Brgy. Bahay Toro, Tandang Sora, Quezon City which houses the Network Operations Group and cover switching, transmission and other related equipment.

In 1993, the government of Quezon City, pursuant to the taxing power vested on local government units by Section 5, Article X of the 1987 Constitution, infra, in relation to Section 232 of the LGC, supra, enacted City Ordinance No. SP-91, S-93, otherwise known as the Quezon City Revenue Code (QCRC),5 imposing, under Section 5 thereof, a real property tax on all real properties in Quezon City, and, reiterating in its Section 6, the withdrawal of exemption from real property tax under Section 234 of the LGC, supra. Furthermore, much like the LGC, the QCRC, under its Section 230, withdrew tax exemption privileges in general, as follows:SEC. 230. Withdrawal of Tax Exemption Privileges. – Unless otherwise provided in this Code, tax exemptions or incentives granted to, or presently enjoyed by all persons, whether natural or juridical, including government owned or controlled corporations, except local water districts, cooperatives duly

registered under RA 6938, non-stock and non-profit hospitals and educational institutions, business enterprises certified by the Board of Investments (BOI) as pioneer or non-pioneer for a period of six (6) and four (4) years, respectively, … are hereby withdrawn effective upon approval of this Code (Emphasis supplied).Conformably with the City’s Revenue Code, new tax declarations for Bayantel’s real properties in Quezon City were issued by the City Assessor and were received by Bayantel on August 13, 1998, except one (Tax Declaration No. 124-01013) which was received on July 14, 1999.Meanwhile, on March 16, 1995, Rep. Act No. 7925,6 otherwise known as the "Public Telecommunications Policy Act of the Philippines," envisaged to level the playing field among telecommunications companies, took effect. Section 23 of the Act provides:SEC. 23. Equality of Treatment in the Telecommunications Industry. – Any advantage, favor, privilege, exemption, or immunity granted under existing franchises, or may hereafter be granted, shall ipso facto become part of previously granted telecommunications franchises and shall be accorded immediately and unconditionally to the grantees of such franchises: Provided, however, That the foregoing shall neither apply to nor affect provisions of telecommunications franchises concerning territory covered by the franchise, the life span of the franchise, or the type of service authorized by the franchise.On January 7, 1999, Bayantel wrote the office of the City Assessor seeking the exclusion of its real properties in the city from the roll of taxable real properties. With its request having been denied, Bayantel interposed an appeal with the Local Board of Assessment Appeals (LBAA). And, evidently on its firm belief of its exempt status, Bayantel did not pay the real property taxes assessed against it by the Quezon City government.On account thereof, the Quezon City Treasurer sent out notices of delinquency for the total amount ofP43,878,208.18, followed by the issuance of several warrants of levy against Bayantel’s properties preparatory to their sale at a public auction set on July 30, 2002.Threatened with the imminent loss of its properties, Bayantel immediately withdrew its appeal with the LBAA and instead filed with the RTC of Quezon City a petition for prohibition with an urgent application for a temporary restraining order (TRO) and/or writ of preliminary injunction, thereat docketed as Civil Case No. Q-02-47292, which was raffled to Branch 227 of the court.On July 29, 2002, or in the eve of the public auction scheduled the following day, the lower court issued a TRO, followed, after due hearing, by a writ of preliminary injunction via its order of August 20, 2002.And, having heard the parties on the merits, the same court came out with its challenged Decision of June 6, 2003, the dispositive portion of which reads:WHEREFORE, premises considered, pursuant to the enabling franchise under Section 11 of Republic Act No. 7633, the real estate properties and buildings of petitioner [now, respondent Bayantel] which have been admitted to be used in the operation of petitioner’s franchise described in the following tax declarations are hereby DECLARED exempt from real estate taxation:

(1) Tax Declaration No. D-096-04071 –(2) Tax Declaration No. D-096-04074 –(3) Tax Declaration No. D-124-01013 –(4) Tax Declaration No. D-011-10810 –(5) Tax Declaration No. D-011-10811 –(6) Tax Declaration No. D-011-10809 –(7) Tax Declaration No. D-124-00941 –(8) Tax Declaration No. D-124-00940 –(9) Tax Declaration No. D-124-00939 –(10) Tax Declaration No. D-096-04072 –(11) Tax Declaration No. D-096-04073 –(12) Tax Declaration No. D-011-11540 –

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The preliminary prohibitory injunction issued in the August 20, 2002 Order of this Court is hereby made permanent. Since this is a resolution of a purely legal issue, there is no pronouncement as to costs.SO ORDERED.Their motion for reconsideration having been denied by the court in its Order dated December 30, 2003, petitioners elevated the case directly to this Court on pure questions of law, ascribing to the lower court the following errors:I. [I]n declaring the real properties of respondent exempt from real property taxes notwithstanding the fact that the tax exemption granted to Bayantel in its original franchise had been withdrawn by the [LGC] and that the said exemption was not restored by the enactment of RA 7633.II. [In] declaring the real properties of respondent exempt from real property taxes notwithstanding the enactment of the [QCRC] which withdrew the tax exemption which may have been granted by RA 7633.III. [In] declaring the real properties of respondent exempt from real property taxes notwithstanding the vague and ambiguous grant of tax exemption provided under Section 11 of RA 7633.IV. [In] declaring the real properties of respondent exempt from real property taxes notwithstanding the fact that [it] had failed to exhaust administrative remedies in its claim for real property tax exemption. (Words in bracket added.)As we see it, the errors assigned may ultimately be reduced to two (2) basic issues, namely:

1. Whether or not Bayantel’s real properties in Quezon City are exempt from real property taxes under its legislative franchise; and2. Whether or not Bayantel is required to exhaust administrative remedies before seeking judicial relief with the trial court.

We shall first address the second issue, the same being procedural in nature.Petitioners argue that Bayantel had failed to avail itself of the administrative remedies provided for under the LGC, adding that the trial court erred in giving due course to Bayantel’s petition for prohibition. To petitioners, the appeal mechanics under the LGC constitute Bayantel’s plain and speedy remedy in this case.The Court does not agree.Petitions for prohibition are governed by the following provision of Rule 65 of the Rules of Court:SEC. 2. Petition for prohibition. – When the proceedings of any tribunal, … are without or in excess of its or his jurisdiction, or with grave abuse of discretion amounting to lack or excess of jurisdiction, and there is no appeal or any other plain, speedy, and adequate remedy in the ordinary course of law, a person aggrieved thereby may file a verified petition in the proper court, alleging the facts with certainty and praying that judgment be rendered commanding the respondent to desist from further proceedings in the action or matter specified therein, or otherwise, granting such incidental reliefs as law and justice may require.With the reality that Bayantel’s real properties were already levied upon on account of its nonpayment of real estate taxes thereon, the Court agrees with Bayantel that an appeal to the LBAA is not a speedy and adequate remedy within the context of the aforequoted Section 2 of Rule 65. This is not to mention of the auction sale of said properties already scheduled on July 30, 2002.Moreover, one of the recognized exceptions to the exhaustion- of-administrative remedies rule is when, as here, only legal issues are to be resolved. In fact, the Court, cognizant of the nature of the questions presently involved, gave due course to the instant petition. As the Court has said in Ty vs. Trampe:7

xxx. Although as a rule, administrative remedies must first be exhausted before resort to judicial action can prosper, there is a well-settled exception in cases where the controversy does not involve questions of fact but only of law. xxx.Lest it be overlooked, an appeal to the LBAA, to be properly considered, required prior payment under protest of the amount of P43,878,208.18, a figure which, in the light of the then prevailing Asian financial crisis, may have been difficult to raise up. Given this reality, an appeal to the LBAA may not be considered as a plain, speedy and adequate remedy. It is thus understandable why Bayantel opted

to withdraw its earlier appeal with the LBAA and, instead, filed its petition for prohibition with urgent application for injunctive relief in Civil Case No. Q-02-47292. The remedy availed of by Bayantel under Section 2, Rule 65 of the Rules of Court must be upheld.This brings the Court to the more weighty question of whether or not Bayantel’s real properties in Quezon City are, under its franchise, exempt from real property tax.The lower court resolved the issue in the affirmative, basically owing to the phrase "exclusive of this franchise" found in Section 11 of Bayantel’s amended franchise, Rep. Act No. 7633. To petitioners, however, the language of Section 11 of Rep. Act No. 7633 is neither clear nor unequivocal. The elaborate and extensive discussion devoted by the trial court on the meaning and import of said phrase, they add, suggests as much. It is petitioners’ thesis that Bayantel was in no time given any express exemption from the payment of real property tax under its amendatory franchise.There seems to be no issue as to Bayantel’s exemption from real estate taxes by virtue of the term "exclusive of the franchise" qualifying the phrase "same taxes on its real estate, buildings and personal property," found in Section 14, supra, of its franchise, Rep. Act No. 3259, as originally granted.The legislative intent expressed in the phrase "exclusive of this franchise" cannot be construed other than distinguishing between two (2) sets of properties, be they real or personal, owned by the franchisee, namely, (a) those actually, directly and exclusively used in its radio or telecommunications business, and (b) those properties which are not so used. It is worthy to note that the properties subject of the present controversy are only those which are admittedly falling under the first category.To the mind of the Court, Section 14 of Rep. Act No. 3259 effectively works to grant or delegate to local governments of Congress’ inherent power to tax the franchisee’s properties belonging to the second group of properties indicated above, that is, all properties which, "exclusive of this franchise," are not actually and directly used in the pursuit of its franchise. As may be recalled, the taxing power of local governments under both the 1935 and the 1973 Constitutions solely depended upon an enabling law. Absent such enabling law, local government units were without authority to impose and collect taxes on real properties within their respective territorial jurisdictions. While Section 14 of Rep. Act No. 3259 may be validly viewed as an implied delegation of power to tax, the delegation under that provision, as couched, is limited to impositions over properties of the franchisee which are not actually, directly and exclusively used in the pursuit of its franchise. Necessarily, other properties of Bayantel directly used in the pursuit of its business are beyond the pale of the delegated taxing power of local governments. In a very real sense, therefore, real properties of Bayantel, save those exclusive of its franchise, are subject to realty taxes. Ultimately, therefore, the inevitable result was that all realties which are actually, directly and exclusively used in the operation of its franchise are "exempted" from any property tax.Bayantel’s franchise being national in character, the "exemption" thus granted under Section 14 of Rep. Act No. 3259 applies to all its real or personal properties found anywhere within the Philippine archipelago.However, with the LGC’s taking effect on January 1, 1992, Bayantel’s "exemption" from real estate taxes for properties of whatever kind located within the Metro Manila area was, by force of Section 234 of the Code, supra, expressly withdrawn. But, not long thereafter, however, or on July 20, 1992, Congress passed Rep. Act No. 7633 amending Bayantel’s original franchise. Worthy of note is that Section 11 of Rep. Act No. 7633 is a virtual reenacment of the tax provision, i.e., Section 14, supra, of Bayantel’s original franchise under Rep. Act No. 3259. Stated otherwise, Section 14 of Rep. Act No. 3259 which was deemed impliedly repealed by Section 234 of the LGC was expressly revived under Section 14 of Rep. Act No. 7633. In concrete terms, the realty tax exemption heretofore enjoyed by Bayantel under its original franchise, but subsequently withdrawn by force of Section 234 of the LGC, has been restored by Section 14 of Rep. Act No. 7633.The Court has taken stock of the fact that by virtue of Section 5, Article X of the 1987 Constitution, 8

local governments are empowered to levy taxes. And pursuant to this constitutional empowerment, juxtaposed with Section 2329 of the LGC, the Quezon City government enacted in 1993 its local Revenue Code, imposing real property tax on all real properties found within its territorial jurisdiction. And as earlier stated, the City’s Revenue Code, just like the LGC, expressly withdrew, under Section 230 thereof, supra, all tax exemption privileges in general.

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This thus raises the question of whether or not the City’s Revenue Code pursuant to which the city treasurer of Quezon City levied real property taxes against Bayantel’s real properties located within the City effectively withdrew the tax exemption enjoyed by Bayantel under its franchise, as amended.Bayantel answers the poser in the negative arguing that once again it is only "liable to pay the same taxes, as any other persons or corporations on all its real or personal properties, exclusive of its franchise."Bayantel’s posture is well-taken. While the system of local government taxation has changed with the onset of the 1987 Constitution, the power of local government units to tax is still limited. As we explained in Mactan Cebu International Airport Authority:10

The power to tax is primarily vested in the Congress; however, in our jurisdiction, it may be exercised by local legislative bodies, no longer merely be virtue of a valid delegation as before, but pursuant to direct authority conferred by Section 5, Article X of the Constitution. Under the latter, the exercise of the power may be subject to such guidelines and limitations as the Congress may provide which, however, must be consistent with the basic policy of local autonomy. (at p. 680; Emphasis supplied.)Clearly then, while a new slant on the subject of local taxation now prevails in the sense that the former doctrine of local government units’ delegated power to tax had been effectively modified with Article X, Section 5 of the 1987 Constitution now in place, .the basic doctrine on local taxation remains essentially the same. For as the Court stressed in Mactan, "the power to tax is [still] primarily vested in the Congress."This new perspective is best articulated by Fr. Joaquin G. Bernas, S.J., himself a Commissioner of the 1986 Constitutional Commission which crafted the 1987 Constitution, thus:What is the effect of Section 5 on the fiscal position of municipal corporations? Section 5 does not change the doctrine that municipal corporations do not possess inherent powers of taxation. What it does is to confer municipal corporations a general power to levy taxes and otherwise create sources of revenue. They no longer have to wait for a statutory grant of these powers. The power of the legislative authority relative to the fiscal powers of local governments has been reduced to the authority to impose limitations on municipal powers. Moreover, these limitations must be "consistent with the basic policy of local autonomy." The important legal effect of Section 5 is thus to reverse the principle that doubts are resolved against municipal corporations. Henceforth, in interpreting statutory provisions on municipal fiscal powers, doubts will be resolved in favor of municipal corporations. It is understood, however, that taxes imposed by local government must be for a public purpose, uniform within a locality, must not be confiscatory, and must be within the jurisdiction of the local unit to pass.11 (Emphasis supplied).In net effect, the controversy presently before the Court involves, at bottom, a clash between the inherent taxing power of the legislature, which necessarily includes the power to exempt, and the local government’s delegated power to tax under the aegis of the 1987 Constitution.Now to go back to the Quezon City Revenue Code which imposed real estate taxes on all real properties within the city’s territory and removed exemptions theretofore "previously granted to, or presently enjoyed by all persons, whether natural or juridical ….,"12 there can really be no dispute that the power of the Quezon City Government to tax is limited by Section 232 of the LGC which expressly provides that "a province or city or municipality within the Metropolitan Manila Area may levy an annual ad valorem tax on real property such as land, building, machinery, and other improvement not hereinafter specifically exempted." Under this law, the Legislature highlighted its power to thereafter exempt certain realties from the taxing power of local government units. An interpretation denying Congress such power to exempt would reduce the phrase "not hereinafter specifically exempted" as a pure jargon, without meaning whatsoever. Needless to state, such absurd situation is unacceptable.For sure, in Philippine Long Distance Telephone Company, Inc. (PLDT) vs. City of Davao,13 this Court has upheld the power of Congress to grant exemptions over the power of local government units to impose taxes. There, the Court wrote:Indeed, the grant of taxing powers to local government units under the Constitution and the LGC does not affect the power of Congress to grant exemptions to certain persons, pursuant to a declared national policy. The legal effect of the constitutional grant to local governments simply means that in interpreting statutory provisions on municipal taxing powers, doubts must be resolved in favor of municipal corporations. (Emphasis supplied.)

As we see it, then, the issue in this case no longer dwells on whether Congress has the power to exempt Bayantel’s properties from realty taxes by its enactment of Rep. Act No. 7633 which amended Bayantel’s original franchise. The more decisive question turns on whether Congress actually did exempt Bayantel’s properties at all by virtue of Section 11 of Rep. Act No. 7633.Admittedly, Rep. Act No. 7633 was enacted subsequent to the LGC. Perfectly aware that the LGC has already withdrawn Bayantel’s former exemption from realty taxes, Congress opted to pass Rep. Act No. 7633 using, under Section 11 thereof, exactly the same defining phrase "exclusive of this franchise" which was the basis for Bayantel’s exemption from realty taxes prior to the LGC. In plain language, Section 11 of Rep. Act No. 7633 states that "the grantee, its successors or assigns shall be liable to pay the same taxes on their real estate, buildings and personal property, exclusive of this franchise, as other persons or corporations are now or hereafter may be required by law to pay." The Court views this subsequent piece of legislation as an express and real intention on the part of Congress to once again remove from the LGC’s delegated taxing power, all of the franchisee’s (Bayantel’s) properties that are actually, directly and exclusively used in the pursuit of its franchise.WHEREFORE, the petition is DENIED.No pronouncement as to costs.SO ORDERED.

FELS ENERGY, INC.,petitioner, vs. THE PROVINCE OF BATANGAS and THE OFFICE OF THE PROVINCIAL ASSESSOR OF BATANGAS,respondents.

[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 NCALLEJO,SR.,Jp:Before us are two consolidated cases docketed as G.R. No. 168557 and G.R. No. 170628, which were filed by petitioners FELS Energy, Inc. (FELS) and National Power Corporation (NPC), respectively. The first is a petition for review on certiorari assailing the August 25, 2004 Decision 1 of the Court of Appeals (CA) in CA-G.R. SP No. 67490 and its Resolution 2 dated June 20, 2005; the second, also a petition for review on certiorari, challenges the February 9, 2005 Decision 3 and November 23, 2005 Resolution 4 of the CA in CA-G.R. SP No. 67491. Both petitions were dismissed on the ground of prescription.The pertinent facts are as follows:On January 18, 1993, NPC entered into a lease contract with Polar Energy, Inc. over 3x30 MW diesel engine power barges moored at Balayan Bay in Calaca, Batangas. The contract, denominated as an Energy Conversion Agreement 5 (Agreement), was for a period of five years. Article 10 reads:

10.1 RESPONSIBILITY. NAPOCOR shall be responsible for the payment of (a) all taxes, import duties, fees, charges and other levies imposed by the National Government of the Republic of the Philippines or any agency or instrumentality thereof to which POLAR may be or become subject to or in relation to the performance of their obligations under this agreement (other than (i) taxes imposed or calculated on the basis of the net income of POLAR and Personal Income Taxes of its employees and (ii) construction permit fees, environmental permit fees and other similar fees and charges) and (b) all real estate taxes and assessments, rates and other charges in respect of the Power Barges. 6

Subsequently, Polar Energy, Inc. assigned its rights under the Agreement to FELS. The NPC initially opposed the assignment of rights, citing paragraph 17.2 of Article 17 of the Agreement. HATICcOn August 7, 1995, FELS received an assessment of real property taxes on the power barges from Provincial Assessor Lauro C. Andaya of Batangas City. The assessed tax, which likewise covered those due for 1994, amounted to P56,184,088.40 per annum. FELS referred the matter to NPC, reminding it

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of its obligation under the Agreement to pay all real estate taxes. It then gave NPC the full power and authority to represent it in any conference regarding the real property assessment of the Provincial Assessor.In a letter 7 dated September 7, 1995, NPC sought reconsideration of the Provincial Assessor's decision to assess real property taxes on the power barges. However, the motion was denied on September 22, 1995, and the Provincial Assessor advised NPC to pay the assessment. 8 This prompted NPC to file a petition with the Local Board of Assessment Appeals (LBAA) for the setting aside of the assessment and the declaration of the barges as non-taxable items; it also prayed that should LBAA find the barges to be taxable, the Provincial Assessor be directed to make the necessary corrections. 9 In its Answer to the petition, the Provincial Assessor averred that the barges were real property for purposes of taxation under Section 199 (c) of Republic Act (R.A.) No. 7160.Before the case was decided by the LBAA, NPC filed a Manifestation, informing the LBAA that the Department of Finance (DOF) had rendered an opinion 10 dated May 20, 1996, where it is clearly stated that power barges are not real property subject to real property assessment.On August 26, 1996, the LBAA rendered a Resolution 11 denying the petition. Thefallo reads:

WHEREFORE, the Petition is DENIED. FELS is hereby ordered to pay the real estate tax in the amount of P56,184,088.40, for the year 1994.SO ORDERED. 12

The LBAA ruled that the power plant facilities, while they may be classified as movable or personal property, are nevertheless considered real property for taxation purposes because they are installed at a specific location with a character of permanency. The LBAA also pointed out that the owner of the barges-FELS, a private corporation-is the one being taxed, not NPC. A mere agreement making NPC responsible for the payment of all real estate taxes and assessments will not justify the exemption of FELS; such a privilege can only be granted to NPC and cannot be extended to FELS. Finally, the LBAA also ruled that the petition was filed out of time.Aggrieved, FELS appealed the LBAA's 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 by Distraint 13 over the power barges, seeking to collect real property taxes amounting to P232,602,125.91 as of July 31, 1996. The notice and warrant was officially served to FELS on November 8, 1996. It then filed a Motion to Lift Levy dated November 14, 1996, praying 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 Order 14 lifting the levy and distraint on the properties of FELS in order not to preempt and render ineffectual, nugatory and illusory any resolution or judgment which the Board would issue.Meantime, the NPC filed a Motion for Intervention 15 dated August 7, 1998 in the proceedings before the CBAA. This was approved by the CBAA in an Order 16 dated September 22, 1998.During the pendency of the case, both FELS and NPC filed several motions to admit bond to guarantee the payment of real property taxes assessed by the Provincial Assessor (in the event that the judgment be unfavorable to them). The bonds were duly approved by the CBAA.On April 6, 2000, the CBAA rendered a Decision 17 finding the power barges exempt from real property tax. The dispositive portion reads:

WHEREFORE, the Resolution of the Local Board of Assessment Appeals of the Province of Batangas is hereby reversed. Respondent-appellee Provincial Assessor of the Province of Batangas is hereby ordered to drop subject property under ARP/Tax Declaration No. 018-00958 from the List of Taxable Properties in the Assessment Roll. The Provincial Treasurer of Batangas is hereby directed to act accordingly.SO ORDERED. 18

Ruling in favor of FELS and NPC, the CBAA reasoned that the power barges belong to NPC; since they are actually, directly and exclusively used by it, the power barges are covered by the exemptions

under Section 234 (c) of R.A. No. 7160. 19 As to the other jurisdictional issue, the CBAA ruled that prescription did not preclude the NPC from pursuing its claim for tax exemption in accordance with Section 206 of R.A. No. 7160. The Provincial Assessor filed a motion for reconsideration, which was opposed by FELS and NPC. AHDacCIn a complete volte face, the CBAA issued a Resolution 20 on July 31, 2001 reversing its earlier decision. Thefallo of the resolution reads:WHEREFORE, premises considered, it is the resolution of this Board that:

(a) The decision of the Board dated 6 April 2000 is hereby reversed.(b) The petition of FELS, as well as the intervention of NPC, is dismissed.(c) The resolution of the Local Board of Assessment Appeals of Batangas is hereby

affirmed,(d) The real property tax assessment on FELS by the Provincial Assessor of

Batangas is likewise hereby affirmed.SO ORDERED. 21

FELS and NPC filed separate motions for reconsideration, which were timely opposed by the Provincial Assessor. The CBAA denied the said motions in a Resolution 22 dated October 19, 2001.Dissatisfied, FELS filed a petition for review before the CA docketed as CA-G.R. SP No. 67490. Meanwhile, NPC filed a separate petition, docketed as CA-G.R. SP No. 67491.On January 17, 2002, NPC filed a Manifestation/Motion for Consolidation in CA-G.R. SP No. 67490 praying for the consolidation of its petition with CA-G.R. SP No. 67491. In a Resolution 23 dated February 12, 2002, the appellate court directed NPC to re-file its motion for consolidation with CA-G.R. SP No. 67491, since it is theponente of the latter petition who should resolve the request for reconsideration.NPC failed to comply with the aforesaid resolution. On August 25, 2004, the Twelfth Division of the appellate court rendered judgment in CA-G.R. SP No. 67490 denying the petition on the ground of prescription. The decretal portion of the decision reads:

WHEREFORE, the petition for review is DENIED for lack of merit and the assailed Resolutions dated July 31, 2001 and October 19, 2001 of the Central Board of Assessment Appeals areAFFIRMED.

SO ORDERED. 24 On September 20, 2004, FELS timely filed a motion for reconsideration seeking the reversal of the appellate court's 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 court's decision in CA-G.R. SP No. 67490. The petition was, however, denied in this Court's Resolution 25 of November 8, 2004, for NPC's failure to sufficiently show that the CA committed any reversible error in the challenged decision. NPC filed a motion for reconsideration, which the Court denied with finality in a Resolution 26 dated January 19, 2005.Meantime, the appellate court dismissed the petition in CA-G.R. SP No. 67491. It held that the right to question the assessment of the Provincial Assessor had already prescribed upon the failure of FELS to appeal the disputed assessment to the LBAA within the period prescribed by law. Since FELS had lost the right to question the assessment, the right of the Provincial Government to collect the tax was already absolute. NPC filed a motion for reconsideration dated March 8, 2005, seeking reconsideration of the February 5, 2005 ruling of the CA in CA-G.R. SP No. 67491. The motion was denied in a Resolution 27 dated November 23, 2005.The motion for reconsideration filed by FELS in CA-G.R. SP No. 67490 had been earlier denied for lack of merit in a Resolution 28 dated June 20, 2005.On August 3, 2005, FELS filed the petition docketed as G.R. No. 168557 before this Court, raising the following issues:

A.108

Whether power barges, which are floating and movable, are personal properties and therefore, not subject to real property tax.B.Assuming that the subject power barges are real properties, whether they are exempt from real estate tax under Section 234 of the Local Government Code ("LGC").C.Assuming arguendo that the subject power barges are subject to real estate tax, whether or not it should be NPC which should be made to pay the same under the law.D.Assuming arguendo that the subject power barges are real properties, whether or not the same is subject to depreciation just like any other personal properties.E.Whether the right of the petitioner to question the patently null and void real property tax assessment on the petitioner's 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:

ITHE COURT OF APPEALS GRAVELY ERRED IN HOLDING THAT THE APPEAL TO THE LBAA WAS FILED OUT OF TIME.IITHE COURT OF APPEALS GRAVELY ERRED IN NOT HOLDING THAT THE POWER BARGES ARE NOT SUBJECT TO REAL PROPERTY TAXES.IIITHE COURT OF APPEALS GRAVELY ERRED IN NOT HOLDING THAT THE ASSESSMENT ON THE POWER BARGES WAS NOT MADE IN ACCORDANCE WITH LAW. 30

Considering that the factual antecedents of both cases are similar, the Court ordered the consolidation of the two cases in a Resolution 31 dated March 8, 2006.In an earlier Resolution dated February 1, 2006, the Court had required the parties to submit their respective Memoranda within 30 days from notice. Almost a year passed but the parties had not submitted their respective memoranda. Considering that taxes — the lifeblood of our economy — are involved in the present controversy, the Court was prompted to dispense with the said pleadings, with the end view of advancing the interests of justice and avoiding further delay.In both petitions, FELS and NPC maintain that the appeal before the LBAA was not time-barred. FELS argues that when NPC moved to have the assessment reconsidered on September 7, 1995, the running of the period to file an appeal with the LBAA was tolled. For its part, NPC posits that the 60-day period for appealing to the LBAA should be reckoned from its receipt of the denial of its motion for reconsideration.Petitioners' contentions are bereft of merit.Section 226 of R.A. No. 7160, otherwise known as the Local Government Code of 1991, provides:

SECTION 226. Local Board of Assessment Appeals. — Any owner or person having 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 by filing a petition under oath in the form prescribed for the purpose, together with copies of the tax declarations and such affidavits or documents submitted in support of the appeal.

We note that the notice of assessment which the Provincial Assessor sent to FELS on August 7, 1995, contained the following statement:

If you are not satisfied with this assessment, you may, within sixty (60) days from the date of receipt hereof, appeal to the Board of Assessment Appealsof the province by filing a petition under oath on the form prescribed for the purpose, together with copies of ARP/Tax Declaration and such affidavits or documents submitted in support of the appeal. 32

Instead of appealing to the Board of Assessment Appeals (as stated in the notice), NPC opted to file a motion for reconsideration of the Provincial Assessor's 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 or municipal assessor in the assessment of the property. It follows then that the determination made by the respondent Provincial Assessor with regard to the taxability of the subject real properties falls within its power to assess properties for taxation purposes subject to appeal before the LBAA. 33 We fully agree with the rationalization of the CA in both CA-G.R. SP No. 67490 and CA-G.R. SP No. 67491. The two divisions of the appellate court cited the case of Callanta v. Office of the Ombudsman, 34 where we ruled that under Section 226 of R.A. No. 7160, 35 the last action of the local assessor on a particular assessment shall be the notice of assessment; it is this last action which gives the owner of the property the right to appeal to the LBAA. The procedure likewise does not permit the property owner the remedy of filing a motion for reconsideration before the local assessor. The pertinent holding of the Court in Callanta is as follows:

. . . [T]he same Code is equally clear that the aggrieved owners should have brought their appeals before the LBAA. Unfortunately, despite the advice to this effect contained in their respective notices of assessment, the owners chose to bring their requests for a review/readjustment before the city assessor, a remedy not sanctioned by the law. To allow this procedure would indeed invite corruption in the system of appraisal and assessment. It conveniently courts a graft-prone situation where values of real property may be initially set unreasonably high, and then subsequently reduced upon the request of a property owner. In the latter instance, allusions of a possible covert, illicit trade-off cannot be avoided, and in fact can conveniently take place. Such occasion for mischief must be prevented and excised from our system. 36

For its part, the appellate court declared in CA-G.R. SP No. 67491:. . . . The Court announces:Henceforth, whenever the local assessor sends a notice to the owner or lawful possessor of real property of its revised assessed value, the former shall no longer have any jurisdiction to entertain any request for a review or readjustment. The appropriate forum where the aggrieved party may bring his appeal is the LBAA as provided by law. It follows ineluctably that the 60-day period for making the appeal to the LBAA runs without interruption. This is what We held in SP 67490 and reaffirm today in SP 67491. 37

To reiterate, if the taxpayer fails to appeal in due course, the right of the local government to collect the taxes due with respect to the taxpayer's property becomes absolute upon the expiration of the period to appeal. 38 It also bears stressing that the taxpayer's failure to question the assessment in the LBAA renders the assessment of the local assessor final, executory and demandable, thus, precluding the taxpayer from questioning the correctness of the assessment, or from invoking any defense that would reopen the question of its liability on the merits. 39 In fine, the LBAA acted correctly when it dismissed the petitioners' appeal for having been filed out of time; the CBAA and the appellate court were likewise correct in affirming the dismissal. Elementary is the rule that the perfection of an appeal within the period therefor is both mandatory and jurisdictional, and failure in this regard renders the decision final and executory. 40 In the Comment filed by the Provincial Assessor, it is asserted that the instant petition is barred by res judicata; that the final and executory judgment in G.R. No. 165113 (where there was a final determination on the issue of prescription), effectively precludes the claims herein; and that the filing of the instant petition after an adverse judgment in G.R. No. 165113 constitutes forum shopping.

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FELS maintains that the argument of the Provincial Assessor is completely misplaced since it was not a party to the erroneous petition which the NPC filed in G.R. No. 165113. It avers that it did not participate in the aforesaid proceeding, and the Supreme Court never acquired jurisdiction over it. As to the issue of forum shopping, petitioner claims that no forum shopping could have been committed since the elements of litis pendentia or res judicataare not present.We do not agree.Res judicata pervades every organized system of jurisprudence and is founded upon two grounds embodied in various maxims of common law, namely: (1) public policy and necessity, which makes it to the interest of the State that there should be an end to litigation — republicae ut sit litium; and (2) the hardship on the individual of being vexed twice for the same cause — nemo debet bis vexari et eadem causa. A conflicting doctrine would subject the public peace and quiet to the will and dereliction of individuals and prefer the regalement of the litigious disposition on the part of suitors to the preservation of the public tranquility and happiness. 41 As we ruled inHeirs of Trinidad De Leon Vda. de Roxas v. Court of Appeals: 42

. . . An existing final judgment or decree — rendered upon the merits, without fraud or collusion, by a court of competent jurisdiction acting upon a matter within its authority — is conclusive on the rights of the parties and their privies. This ruling holds in all other actions or suits, in the same or any other judicial tribunal of concurrent jurisdiction, touching on the points or matters in issue in the first suit.

xxx xxx xxxCourts will simply refuse to reopen what has been decided. They will not allow the same parties or their privies to litigate anew a question once it has been considered and decided with finality. Litigations must end and terminate sometime and somewhere. The effective and efficient administration of justice requires that once a judgment has become final, the prevailing party should not be deprived of the fruits of the verdict by subsequent suits on the same issues filed by the same parties. This is in accordance with the doctrine of res judicata which has the following elements: (1) the former judgment must be final; (2) the court which rendered it had jurisdiction over the subject matter and the parties; (3) the judgment must be on the merits; and (4) there must be between the first and the second actions, identity of parties, subject matter and causes of action. The application of the doctrine ofres judicatadoes not require absolute identity of parties but merely substantial identity of parties. There is substantial identity of parties when there is community of interest or privity of interest between a party in the first and a party in the second case even if the first case did not implead the latter. 43

To recall, FELS gave NPC the full power and authority to represent it in any proceeding regarding real property assessment. Therefore, when petitioner NPC filed its petition for review docketed as G.R. No. 165113, it did so not only on its behalf but also on behalf of FELS. Moreover, the assailed decision in the earlier petition for review filed in this Court was the decision of the appellate court in CA-G.R. SP No. 67490, in which FELS was the petitioner. Thus, the decision in G.R. No. 165116 is binding on petitioner FELS under the principle of privity of interest. In fine, FELS and NPC are substantially "identical parties" as to warrant the application of res judicata. FELS's argument that it is not bound by the erroneous petition filed by NPC is thus unavailing.On the issue of forum shopping, we rule for the Provincial Assessor. Forum shopping exists when, as a result of an adverse judgment in one forum, a party seeks another and possibly favorable judgment in another forum other than by appeal or special civil action or certiorari. There is also forum shopping when a party institutes two or more actions or proceedings grounded on the same cause, on the gamble that one or the other court would make a favorable disposition. 44

Petitioner FELS alleges that there is no forum shopping since the elements of res judicata are not present in the cases at bar; however, as already discussed, res judicata may be properly applied herein. Petitioners engaged in forum shopping when they filed G.R. Nos. 168557 and 170628 after the petition for review in G.R. No. 165116. Indeed, petitioners went from one court to another trying to get a favorable decision from one of the tribunals which allowed them to pursue their cases.It must be stressed that an important factor in determining the existence of forum shopping is the vexation caused to the courts and the parties-litigants by the filing of similar cases to claim substantially the same reliefs. 45 The rationale against forum shopping is that a party should not be allowed to pursue simultaneous remedies in two differentfora. Filing multiple petitions or complaints constitutes abuse of court processes, which tends to degrade the administration of justice, wreaks havoc upon orderly judicial procedure, and adds to the congestion of the heavily burdened dockets of the courts. 46 Thus, there is forum shopping when there exist: (a) identity of parties, or at least such parties as represent the same interests in both actions, (b) identity of rights asserted and relief prayed for, the relief being founded on the same facts, and (c) the identity of the two preceding particulars is such that any judgment rendered in the pending case, regardless of which party is successful, would amount to res judicata in the other. 47 Having found that the elements of res judicata and forum shopping are present in the consolidated cases, a discussion of the other issues is no longer necessary. Nevertheless, for the peace and contentment of petitioners, we shall shed light on the merits of the case.As found by the appellate court, the CBAA and LBAA power barges are real property and are thus subject to real property tax. This is also the inevitable conclusion, considering that G.R. No. 165113 was dismissed for failure to sufficiently show any reversible error. Tax assessments by tax examiners are presumed correct and made in good faith, with the taxpayer having the burden of proving otherwise. 48 Besides, factual findings of administrative bodies, which have acquired expertise in their field, are generally binding and conclusive upon the Court; we will not assume to interfere with the sensible exercise of the judgment of men especially trained in appraising property. Where the judicial mind is left in doubt, it is a sound policy to leave the assessment undisturbed. 49 We find no reason to depart from this rule in this case.In Consolidated Edison Company of New York, Inc., et al. v. The City of New York, et al., 50 a power company brought an action to review property tax assessment. On the city's motion to dismiss, the Supreme Court of New York held that the barges on which were mounted gas turbine power plants designated to generate electrical power, the fuel oil barges which supplied fuel oil to the power plant barges, and the accessory equipment mounted on the barges were subject to real property taxation.Moreover, Article 415 (9) of the New Civil Code provides that "[d]ocks and structures which, though floating, are intended by their nature and object to remain at a fixed place on a river, lake, or coast" are considered immovable property. Thus, power barges are categorized as immovable property by destination, being in the nature of machinery and other implements intended by the owner for an industry or work which may be carried on in a building or on a piece of land and which tend directly to meet the needs of said industry or work. 51 Petitioners maintain nevertheless that the power barges are exempt from real estate tax under Section 234 (c) of R.A. No. 7160 because they are actually, directly and exclusively used by petitioner NPC, a government- owned and controlled corporation engaged in the supply, generation, and transmission of electric power.We affirm the findings of the LBAA and CBAA that the owner of the taxable properties is petitioner FELS, which in fine, is the entity being taxed by the local government. As stipulated under Section 2.11, Article 2 of the Agreement:

OWNERSHIP OF POWER BARGES. POLAR shall own the Power Barges and all the fixtures, fittings, machinery and equipment on the Site used in connection with the Power Barges which have been supplied by it at its own cost. POLAR shall operate, manage and maintain the Power Barges for the purpose of converting Fuel of NAPOCOR into electricity. 52

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

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SECTION 234. Exemptions from Real Property Tax. — The following are exempted from payment of the real property tax: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; . . .

Indeed, the law states that the machinery must be actually, directly and exclusively used by the government owned or controlled corporation; nevertheless, petitioner FELS still cannot find solace in this provision because Section 5.5, Article 5 of the Agreement provides:

OPERATION. POLAR undertakes that until the end of the Lease Period, subject to the supply of the necessary Fuel pursuant to Article 6 and to the other provisions hereof, it will operate the Power Bargesto convert such Fuel into electricity in accordance with Part A of Article 7. 53

It is a basic rule that obligations arising from a contract have the force of law between the parties. Not being contrary to law, morals, good customs, public order or public policy, the parties to the contract are bound by its terms and conditions. 54 Time and again, the Supreme Court has stated that taxation is the rule and exemption is the exception. 55 The law does not look with favor on tax exemptions and the entity that would seek to be thus privileged must justify it by words too plain to be mistaken and too categorical to be misinterpreted. 56 Thus, applying the rule of strict construction of laws granting tax exemptions, and the rule that doubts should be resolved in favor of provincial corporations, we hold that FELS is considered a taxable entity.The mere undertaking of petitioner NPC under Section 10.1 of the Agreement, that it shall be responsible for the payment of all real estate taxes and assessments, does not justify the exemption. The privilege granted to petitioner NPC cannot be extended to FELS. The covenant is between FELS and NPC and does not bind a third person not privy thereto, in this case, the Province of Batangas. HTCISEIt must be pointed out that the protracted and circuitous litigation has seriously resulted in the local government's deprivation of revenues. The power to tax is an incident of sovereignty and is unlimited in its magnitude, acknowledging in its very nature no perimeter so that security against its abuse is to be found only in the responsibility of the legislature which imposes the tax on the constituency who are to pay for it. 57 The right of local government units to collect taxes due must always be upheld to avoid severe tax erosion. This consideration is consistent with the State policy to guarantee the autonomy of local governments 58 and the objective of the Local Government Code that they enjoy genuine and meaningful local autonomy to empower them to achieve their fullest development as self-reliant communities and make them effective partners in the attainment of national goals. 59 In conclusion, we reiterate that the power to tax is the most potent instrument to raise the needed revenues to finance and support myriad activities of the local government units for the delivery of basic services essential to the promotion of the general welfare and the enhancement of peace, progress, and prosperity of the people. 60 WHEREFORE, the Petitions are DENIED and the assailed Decisions and Resolutions AFFIRMED.SO ORDERED.

NATIONAL POWER CORPORATION,petitioner, vs. CENTRAL BOARD OF ASSESSMENT APPEALS (CBAA), LOCAL BOARD OF ASSESSMENT APPEALS (LBAA) OF LA UNION, PROVINCIAL TREASURER, LA UNION and MUNICIPAL ASSESSOR OF BAUANG, LA UNION,respondents.

D E C I S I O NBRION,Jp:

What are the real property tax implications of a Build-Operate-Transfer (BOT) agreement between a government-owned and controlled corporation (GOCC) that enjoys tax exemption and a private corporation? Specifically, under the terms of the BOT Agreement, can the GOCC be deemed the actual, direct, and exclusive user of machineries and equipment for tax exemption purposes? If not, can it pass on its tax-exempt status to its BOT partner, a private corporation, through the BOT agreement? ACTIHaThe National Power Corporation (NAPOCOR) claims in this case that the machineries and equipment used in a project covered by a BOT agreement, to which it is a party, should be accorded the tax-exempt status it enjoys. The Local Board of Assessment Appeals of the Province of La Union (LBAA), the Central Board of Assessment Appeals (CBAA) and the Court of Tax Appeals (CTA) were one in rejecting NAPOCOR's claim.The present petition for review on certiorari filed under Rule 45 of the Rules of Court by NAPOCOR challenges this uniform ruling and seeks the reversal of the CTA's Decision dated February 13, 2006 in the consolidated cases of NAPOCOR v. CBAA, et al. 1 andBauang Private Power Corp. v. Sangguniang Panlalawigan ng La Union, et al., 2 and of the denial of the motion for reconsideration that followed.

THE ANTECEDENTSOn January 11, 1993, First Private Power Corporation (FPPC) entered into a BOT agreement with NAPOCOR for the construction of the 215 Megawatt Bauang Diesel Power Plant in Payocpoc, Bauang, La Union. The BOT Agreement provided, via an Accession Undertaking, for the creation of the Bauang Private Power Corporation (BPPC) that will own, manage and operate the power plant/station, and assume and perform FPPC's obligations under the BOT agreement. For a fee, 3 BPPC will convert NAPOCOR's supplied diesel fuel into electricity and deliver the product to NAPOCOR.The pertinent provisions of the BOT agreement, as they relate to the submitted issues in the present case, read:

2.03 NAPOCOR shall make available the Site to CONTRACTOR for the purpose of building and operating the Power Station at no cost to CONTRACTOR for the period commencing on the Effective Date and ending on the Transfer Date and NAPOCOR shall be responsible for the payment of all real estate taxes and assessments, rates, and other charges in respect of the Site and the buildings and improvements thereon. HDCTAcxxx xxx xxx2.08 From the date hereof until the Transfer Date,CONTRACTOR shall, directly or indirectly, own the Power Station and all the fixtures, fittings, machinery, and equipment on the Site or used in connection with the Power Station which have been supplied by it or at its cost and it shall operate and manage the Power Station for the purpose of converting fuel of NAPOCOR into electricity.2.09 Until the Transfer Date,NAPOCOR shall, at its own cost, supply and deliver all Fuel for the Power Station and shall take all electricity generated by the Power Station at the request of NAPOCOR which shall pay to CONTRACTOR fees as provided in Clause 11.xxx xxx xxx2.11 On the Transfer Date, the Power Station shall be transferred by the CONTRACTOR to NAPOCOR without payment of any compensation.

The Officer-in-Charge of the Municipal Assessor's Office of Bauang, La Union initially issued Declaration of Real Property Nos. 25016 and 25022 to 25029 declaring BPPC's machineries and equipment as tax-exempt. On the initiative of the Bauang Vice Mayor, the municipality questioned before the Regional Director of the Bureau of Local Government Finance (BLGF) the declared tax exemption; later, the issue was elevated to the Deputy Executive Director and Officer-in-Charge of the BLGF, Department of Finance, who ruled that BPPC's machineries and equipments are subject to real property tax and directed the Assessors' Office to take appropriate action.The Provincial/Municipal Assessors thereupon issued Revised Tax Declaration Nos. 30026 to 30033 and 30337, and cancelled the earlier issued Declarations of Real Property. The Municipal Assessor of

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Bauang then issued a Notice of Assessment and Tax Bill to BPPC assessing/taxing the machineries and equipments in the total sum of P288,582,848.00 for the 1995-1998 period, sans interest of two percent (2%) on the unpaid amounts. BPPC's Vice-President and Plant Manager received the Notice of Assessment and Tax Bill on August 7, 1998. CITcSHOn October 5, 1998, NAPOCOR filed a petition (styledIn Re Petition to Declare Exempt the Revised and Retroactive to 1995 Tax Declaration Nos. 30026 to 30033 and 30037) with the LBAA. The petition asked that, retroactive to 1995, the machineries covered by the tax declarations be exempt from real property tax under Section 234 (c) of Republic Act No. 7160 (the Local Government Code or LGC); and, that these properties be dropped from the assessment roll pursuant to Section 206 of the LGC. Section 234 (c) of the LGC provides: 4

Section 234. Exemptions from Real Property Tax. — The following are exempted from the payment of real property tax: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.

The LBAA denied NAPOCOR's petition for exemption in a Decision dated October 26, 2001. It ruled that the exemption provided by Section 234 (c) of the LGC applies only when a government-owned or controlled corporation like NAPOCOR owns and/or actually uses machineries and equipment for the generation and transmission of electric power; in this case, NAPOCOR does not own and does not even actually and directly use the machineries. It is the BPPC, a non-government entity, which owns, maintains, and operates the machineries and equipment; using these, it generates electricity and then sells this to NAPOCOR. Additionally, it ruled that the liability for the payment of the real estate taxes is determined by law and not by the agreement of the parties; hence, the provision in the BOT Agreement whereby NAPOCOR assumed responsibility for the payment of all real estate taxes and assessments, rates, and other charges, in relation with the site, buildings, and improvements in the BOT project, is an arrangement between the parties that cannot be the basis in identifying who is liable to the government for the real estate tax. NAPOCOR appealed the LBAA ruling to the CBAA. BPPC moved to intervene on the ground that it has a direct interest in the outcome of the litigation. 5 The CBAA subsequently dismissed the appeal based on its finding that the BPPC, and not NAPOCOR, is the actual, direct and exclusive user of the equipment and machineries; thus, the exemption under Section 234 (c) does not apply. The CBAA ruled:

Sec. 234 (c), R.A. 7160 (supra), is clear and unambiguous: "there is no room for construction." (citations omitted)xxx xxx xxxActual use, according to Sec. 199 (b) of R.A. 7160, "refers to the purpose for which the property is principally or predominantly utilized by the person in possession thereof." InVelez v. Locsin, 55 SCRA 152: "The word 'use' means to employ for the attainment of some purpose or end." In the "Operation of the Power Station" (Clause 8.01 of the BOT Agreement), CONTRACTOR shall, at its own cost, be responsible for the management, operation, maintenance and repair of the Power Station during the Co-operation period . . . ." Said Co-operation period is fifteen (15) years, after which the Power Station will be turned over or transferred to NAPOCOR. Does this determine when NAPOCOR should take over the actual, direct and exclusive use of the Power Station? That is fifteen (15) years therefrom? cDTSHEIt has been established that BPPC manufactures or generates the power which is sold to NAPOCOR and NAPOCOR distributes said power to the consumers. In other words, the relationship between BPPC and NAPOCOR is one of manufacturer or seller and exclusive distributor or buyer. The general perception is that the exclusive distributor or buyer of goods has nothing to do with the manufacturing

thereof but as exclusive distributor the latter has the right to acquire all the goods to be sold to the exclusion of all others.In terms of the definitions under Sec. 199 (b) and that offered by Respondents-Appellees (supra), the machineries and equipment are principally or predominantly utilized by BPPC. In terms of theVelez vs. Locsin case (supra), BPPC employs the machineries and equipment to attain its purpose of generating power to be sold to NAPOCOR and collect payment therefrom to compensate for its investment. The BOT Agreement is not a contract for nothing. The following definitions are given by Black's Law Dictionary, Third Edition:"Actually is opposed to seemingly, pretendedly, or feignedly, as actually engaged in farming means really, truly in fact.""Directly. In a direct way without anything intervening; not by secondary, but by direct means.""Exclusively. Apart from all others; without admission of others to participation; in a manner to exclude."Indeed BPPC does not use said machineries and equipment pretendedly or feignedly but truly and factually hence, "actually". BPPC uses them without anything intervening hence, directly. BPPC uses the same machineries and equipment apart from all others hence, exclusively. This is the fact — against the fact there is no argument. This same fact will also deny NAPOCOR's claim to a ten (10%) assessment level provided for under Sec. 218 of R.A. 7160 (supra) as to the requirement thereto is simply the same as that in realty tax exemption. The BPPC is a private entity, not a Government Owned or Controlled Corporation (GOCC), hence, not entitled to a 10% assessment level. CEDHTa

NAPOCOR then filed with the CTA a petition for review, docketed as CTA E.B. No. 51, to challenge the CBAA decision. BPPC filed its own petition for review of the CBAA decision with the CTA which was docketed as CTA E.B. No. 58. The two petitions were subsequently consolidated.

THE APPEALED CTA RULINGThe CTA rendered on February 13, 2006 a decision dismissing the consolidated petitions. It ruled on two issues: (1) whether BPPC seasonably filed its protest against the assessment; and (2) whether the machineries and equipments are actually, directly, and exclusively used by NAPOCOR in the generation and transmission of electric power, and are therefore not subject to tax. On the first issue, the CTA applied Section 226 of the LGC which provides the remedy from an assessment as follows:

SEC. 226. Local Board of Assessment Appeals. — Any owner or person having legal interest in the property who is not satisfied with the action of the provincial, city or municipal assessor in the assessment of his property may, within sixty (60) days from the date of receipt of the written notice of assessment, appeal to the Board of Assessment Appeals in the province or city by filing a petition under oath in the form prescribed for the purpose, together with copies of tax declarations and such affidavits or documents submitted in support of the appeal.

It found that BPPC never filed an appeal to contest or question the assessment; instead, it was NAPOCOR that filed the purported appeal — a petition for exemption of the machineries and equipment. The CTA, however, said that NAPOCOR is not the proper party, and the purported appeal did not substantially comply with the requisites of the law.

According to the CTA, NAPOCOR is not the registered owner of the machineries and equipment. These are registered in BPPC's name as further confirmed by Section 2.08 of the BOT Agreement. 6 Thus, the CTA declared that until the transfer date of the power station, NAPOCOR does not own any of the machineries and equipment, and therefore has no legal right, title, or interest over these properties. Thus, the CTA concluded that NAPOCOR has no cause of action and no legal personality to question

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the assessment. As the respondent local government units claim, NAPOCOR is an interloper in the issue of BPPC's real estate tax liabilities. ACEIacThe CTA additionally found that BPPC's subsequent attempt to question the assessmentviaa motion for intervention with the CBAA failed to follow the correct process prescribed by the Rules Governing Appeals to the CBAA; 7 its appeal was not accompanied by an appeal bond.Also, the CTA found NAPOCOR's petition to be an inappropriate remedy, as it is not the appeal contemplated by law; NAPOCOR was in fact asserting an exemption on the basis of the provisions of the BOT Agreement. An exemption is an evidentiary matter for the assessors, not for the LBAA, to decide pursuant to Section 206 of the LGC; 8 NAPOCOR cannot simply bypass the authority granted to concerned administrative agencies, as these available administrative remedies must first be exhausted. On the more substantive second issue, the CTA saw it clear from the BOT Agreement that BPPC owns and uses the machineries and equipment in the power station, thus directly addressing and disproving NAPOCOR's "actual, direct, and exclusive use" argument. It noted that under the BOT Agreement, NAPOCOR shall have a right over the machineries and equipments only after their transfer at the end of the 15-year co-operation period. "By the nature of the agreement and work of BPPC, the [machineries] are actually, directly, and exclusively used by it in the conversion of bunker fuel to electricity for [NAPOCOR] for a fee", the CTA said.Section 234 (c) of the LGC, according to the CTA, is clear. The exemption under the law does not apply because BPPC is not a GOCC — it is an independent power corporation currently operating and maintaining the power plant pursuant to the BOT Agreement. The BOT agreement cannot likewise be the basis for the claimed exemption; tax exemption cannot be agreed upon by mere contract between the parties (BPPC and NAPOCOR), as it must be expressly granted by the Constitution, statute, or franchise. A tax exemption, if and when granted, is also not transferrable, as it is a personal privilege and it must be strictly construed, the CTA said in closing. IESAac

THE SEPARATE APPEALSThereupon, NAPOCOR and BPPC sought separate reviews of the CTA decision with us.

G.R. No. 173811BPPC filed on September 11, 2006 its petition separately from NAPOCOR. The BPPC petition was docketed as G.R. No. 173811 and was raffled to the First Division of the Court.The First Division denied BPPC's petition in its Resolution dated October 4, 2006 on the reasoning that BPPC failed to sufficiently show that the CTA committed any reversible error in the challenged decision and resolution as to warrant the exercise of the Court's discretionary appellate jurisdiction.BPPC moved to reconsider the denial of its petition, but the Third Division (after the Court's reorganization) denied the motion for reconsideration with finality after finding no substantial arguments to warrant reconsideration. The resolution denying BPPC's petition for review had become final and executory and was thus recorded in the Book of Entries of Judgment on April 3, 2007.

G.R. No. 171470 — The Present CaseThe NAPOCOR petition now pending with us was filed on April 6, 2006 and was docketed as G.R. No. 171470. We required the respondents to comment on the petition in our Resolution of May 3, 2006. The respondents filed the required comments. NAPOCOR subsequently filed its Reply.NAPOCOR cited the following as grounds for its petition:

I.THE CTA ERRED ON A QUESTION OF LAW IN NOT RULING THAT PETITIONER IS THE ACTUAL, DIRECT, AND EXCLUSIVE USER OF THE BAUANG DIESEL POWER PLANT.II.THE CTA ERRED ON A QUESTION OF LAW IN DISREGARDING THAT THE REAL PROPERTY TAX EXEMPTION IS RETAINED UNDER R.A. NO. 7160. SECATHIII.

THE CTA ERRED ON A QUESTION OF LAW IN RULING THAT PETITIONER MUST BE ENGAGED IN BOTH GENERATION AND TRANSMISSION OF POWER BEFORE THE EXEMPTION UNDER SECTION 234(C) OF R.A. NO. 7160 CAN APPLY.IV.THE CTA ERRED ON A QUESTION OF LAW IN NOT CONSTRUING THE EXEMPTIONS UNDER R.A. NO. 7160 IN HARMONY WITH PETITIONER'S CHARTER AND THE BOT LAW.V.ASSUMING THE 215 MW BAUANG DIESEL POWER PLANT IS TAXABLE, THE SAME SHOULD BE CLASSIFIED AS "SPECIAL" FOR REAL PROPERTY TAX PURPOSES SUBJECT TO A 10% ASSESSMENT LEVEL, AND NOT AS COMMERCIAL/INDUSTRIAL PROPERTIES SUBJECT TO AN 80% ASSESSMENT RATE.

In the interim and in light of the sale at public auction of the machineries and equipments, NAPOCOR filed a Supplemental Petition based on the following grounds:

I.THE CTA ERRED ON A QUESTION OF LAW IN DISMISSING PETITIONER'S APPEAL BECAUSE THE LATTER IS A GOVERNMENT INSTRUMENTALITY WHOSE FOREIGN AND DOMESTIC INDEBTEDNESS ARE GUARANTEED BY THE NATIONAL GOVERNMENT, IS THE BENEFICIAL OWNER OF THE SUBJECT POWER PLANT AND [IS] THUS EXEMPT FROM THE PAYMENT OF REAL PROPERTY TAXES.II.THE CTA ERRED ON A QUESTION OF LAW IN DISMISSING PETITIONER'S APPEAL BECAUSE THIS LED TO THE SALE OF THE BAUANG POWER PLANT TO THE PROVINCIAL GOVERNMENT OF LA UNION, THUS SERIOUSLY VIOLATING PETITIONER'S STATUTORY MANDATE TO CARRY OUT THE TOTAL ELECTRIFICATION OF THE COUNTRY. ISADET

To support its claim that it is entitled to tax exemption as the actual, direct, and exclusive user of the machineries and equipment, NAPOCOR argues that:a. the BOT agreement is a financing agreement where it (NAPOCOR) is the beneficial owner and the actual, direct, and exclusive user of the power plant, while BPPC is the lender/creditor that retains the plant's legal ownership until it is fully paid; the power plant is a NAPOCOR project and BPPC is just the financier-contractor, and any BPPC activity is made on NAPOCOR's behalf as a contractor for NAPOCOR; in this way, NAPOCOR takes advantage of BPPC's financial resources and technical expertise to secure a continuous supply of electric power. b. its payment of energy fees, fixed operating fees, and other infrastructure fees to BPPC is not inconsistent with its (NAPOCOR's) beneficial ownership and actual, direct, and exclusive use of the power plant, since the collection of the fees is the repayment scheme prescribed by Section 6 9 of Republic Act No. 6957, 10 as amended by Republic Act No. 7718 (BOT Law, as amended); its amortizations over the 15-year co-operation period constitute full payment for the power plant that would warrant the transfer of ownership without payment of additional compensation; finally, that Republic Act No. 9136 or the Electric Power Industry Reform Act of 2001 has booked the power plant as NAPOCOR's asset for privatization purposes.c. its tax exemption should apply to a BOT project, citing the conditions that gave rise to the BOT law and its own mandate to provide electricity nationwide; BOT projects are really government projects where the private sector participates to provide the heavy initial financial requirements; and that Congress specifically considered NAPOCOR's situation in granting tax exemption to machineries and equipment used in power generation and distribution. EcAHDTd. in the interpretation of Section 234 (c) of the LGC, related statutes must be considered and the task of the courts is to harmonize all these laws, if possible; specifically, Section 234 (c) of the LGC was enacted to clarify or restore NAPOCOR's real property tax exemption so that NAPOCOR can perform its public function of supplying electricity to the entire country at affordable rates, while the BOT law was enacted, among others, to authorize NAPOCOR to enter into BOT contracts with the private sector so that NAPOCOR can carry out its mandate; the tax exemption under Section 234 (c) of the LGC must be

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given effect as the only legal and cogent way of harmonizing it with NAPOCOR's Charter and the BOT law. NAPOCOR concludes that the CTA's ruling clearly defeats the spirit behind its creation, the enactment of the BOT Law, and the tax exemption provision under the LGC.

THE COURT'S RULINGWe find the petition devoid of merit. Like the Court's First Division (later, Third Division) in G.R. No. 173811, we find that NAPOCOR failed to sufficiently show that the CTA committed any reversible error in its ruling. STDEcANAPOCOR's basis for its claimed exemption — Section 234 (c) of the LGC — is clear and not at all ambiguous in its terms. Exempt from real property taxation are: (a)all machineries and equipment; (b) [that are] actually, directly, and exclusively used by; (c) [local water districts and] government-owned or –controlled corporations engaged in the[supply and distribution of water and/or]generation and transmission of electric power.We note, in the first place, that the present case is not the first occasion where NAPOCOR claimed real property tax exemption for a contract partner under Sec. 234 (c) of the LGC. InFELS Energy, Inc. v. The Province of Batangas 11 (that was consolidated withNAPOCOR v. Local Board of Assessment Appeals of Batangas, et al.), 12 the Province of Batangas assessed real property taxes against FELS Energy, Inc. — the owner of a barge used in generating electricity under an agreement with NAPOCOR. Their agreement provided that NAPOCOR shall pay all of FELS' real estate taxes and assessments. We concluded in that case that we could not recognize the tax exemption claimed, since NAPOCOR was not the actual, direct and exclusive user of the barge as required by Sec. 234 (c). In making this ruling, we cited the required standard of construction applicable to tax exemptions and said:

Time and again, the Supreme Court has stated that taxation is the rule and exemption is the exception. The law does not look with favor on tax exemptions and the entity that would seek to be thus privileged must justify it by words too plain to be mistaken and too categorical to be misinterpreted. Thus, applying the rule of strict construction of laws granting tax exemptions, and the rule that doubts should be resolved in favor of provincial corporations, we hold that FELS is considered a taxable entity.The mere undertaking of petitioner NPC under Section 10.1 of the Agreement, that it shall be responsible for the payment of all real estate taxes and assessments, does not justify the exemption. The privilege granted to petitioner NPC cannot be extended to FELS. The covenant is between FELS and NPC and does not bind a third person not privy thereto, in this case, the Province of Batangas.

We also recognized thisstrictissimi jurisstandard inNAPOCOR v. City of Cabanatuan. 13 Under this standard, the claimant must show beyond doubt, with clear and convincing evidence, the factual basis for the claim. Thus, the real issue in a tax exemption case such as the present case is whether NAPOCOR was able to convincingly show the factual basis for its claimed exception. CSTDEH

The records show that NAPOCOR, no less, admits BPPC's ownership of the machineries and equipment in the power plant. 14 Likewise, the provisions of the BOT agreement cited above clearly show BPPC's ownership. Thus, ownership is not a disputed issue.Rather than ownership, NAPOCOR's use of the machineries and equipment is the critical issue, since its claim under Sec. 234 (c) of the LGC is premised onactual, direct and exclusive use. To support this claim, NAPOCOR characterizes the BOT Agreement as a mere financing agreement where BPPC is the financier, while it (NAPOCOR) is the actual user of the properties.As in the fact of ownership, NAPOCOR's assertion is belied by the documented arrangements between the contracting parties, viewed particularly from the prism of the BOT law. The underlying concept behind a BOT agreement is defined and described in the BOT law as follows:

Build-operate-and-transfer — A contractual arrangement whereby the project proponent undertakes the construction, including financing, of a given infrastructure facility, and the operation and maintenance thereof. The project proponent operates the facility over a fixed term during which it is allowed to charge facility users appropriate tolls, fees, rentals, and charges not exceeding those proposed in its bid or as negotiated and incorporated in the contract to enable the project proponent to recover its investment, and operating and maintenance expenses in the project. The project proponent transfers the facility to the government agency or local government unit concerned at the end of the fixed term which shall not exceed fifty (50) years . . . .

Under this concept, it is the project proponent who constructs the project at its own cost and subsequently operates and manages it. The proponent secures the return on its investments from those using the project's facilities through appropriate tolls, fees, rentals, and charges not exceeding those proposed in its bid or as negotiated. At the end of the fixed term agreed upon, the project proponent transfers the ownership of the facility to the government agency. Thus, the government is able to put up projects and provide immediate services without the burden of the heavy expenditures that a project start up requires. EHDCAI

A reading of the provisions of the parties' BOT Agreement shows that it fully conforms to this concept. By its express terms, BPPC has complete ownership — both legal and beneficial — of the project, including the machineries and equipment used, subject only to the transfer of these properties without cost to NAPOCOR after the lapse of the period agreed upon. As agreed upon, BPPC provided the funds for the construction of the power plant, including the machineries and equipment needed for power generation; thereafter, it actually operated and still operates the power plant, uses its machineries and equipment, and receives payment for these activities and the electricity generated under a defined compensation scheme. Notably, BPPC — as owner-user — is responsible for any defect in the machineries and equipment. 15 As envisioned in the BOT law, the parties' agreement assumes that within the agreed BOT period, BPPC — the investor-private corporation — shall recover its investment and earn profits through the agreed compensation scheme; thereafter, it shall transfer the whole project, including machineries and equipment, to NAPOCOR without additional cost or compensation. The latter, for its part, derives benefit from the project through the fulfillment of its mandate of delivering electricity to consumers at the soonest possible time, without immediately shouldering the huge financial requirements that the project would entail if it were to undertake the project on its own. Its obligation, in exchange, is to shoulder specific operating costs under a compensation scheme that includes the purchase of all the electricity that BPPC generates. That some kind of "financing" arrangement is contemplated — in the sense that the private sector proponent shall initially shoulder the heavy cost of constructing the project's buildings and structures and of purchasing the needed machineries and equipment — is undeniable. The arrangement, however, goes beyond the simple provision of funds, since the private sector proponent not only constructs and buys the necessary assets to put up the project, but operates and manages it as well during an agreed period that would allow it to recover its basic costs and earn profits. In other words, the private sector proponent goes into business for itself, assuming risks and incurring costs for its account. If it receives support from the government at all during the agreed period, these are pre-agreed items of assistance geared to ensure that the BOT agreement's objectives — both for the project proponent and for the government — are achieved. In this sense, a BOT arrangement issui generisand is different from the usual financing arrangements where funds are advanced to a borrower who uses the funds to establish a project that it owns, subject only to a collateral security arrangement to guard against the nonpayment of the loan. It is different, too, from an arrangement where a government agency borrows funds to put a project from a private sector-lender who is thereafter commissioned to run the project for the government agency. In the latter case, the government agency is the owner of the project from the beginning, and the lender-operator is merely its agent in running the project. EDcIACIf the BOT Agreement under consideration departs at all from the concept of a BOT project as defined by law, it is only in the way BPPC's cost recovery is achieved; instead of selling to facility users or to the general public at large, the generated electricity is purchased by NAPOCOR which then resells it to

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power distribution companies. This deviation, however, is dictated, more than anything else, by the structure and usages of the power industry and does not change the BOT nature of the transaction between the parties.Consistent with the BOT concept and as implemented, BPPC — the owner-manager-operator of the project — is the actual user of its machineries and equipment. BPPC's ownership and use of the machineries and equipment are actual, direct, and immediate, while NAPOCOR's is contingent and, at this stage of the BOT Agreement, not sufficient to support its claim for tax exemption. Thus, the CTA committed no reversible error in denying NAPOCOR's claim for tax exemption. For these same reasons, we reject NAPOCOR's argument that the machineries and equipment must be subjected to a lower assessment level. NAPOCOR cites as support Section 216 of the LGC which provides:

Section 216. Special Classes of Real Property. — All lands, buildings, and other improvements thereon actually, directly and exclusively used for hospitals, cultural, or scientific purposes, and those owned and used by local water districts, and government-owned or controlled corporations rendering essential public services in the supply and distribution of water and/or generation and transmission of electric power shall be classified as special.

in relation with Section 218 (d) of the LGC which provides:Section 218. Assessment Levels. — The assessment levels to be applied to the fair market value of real property to determine its assessed value shall be fixed by ordinances of theSangguniang Panlalawigan, Sangguniang PanlungsodorSangguniang Bayanof a municipality within the Metropolitan Manila Area, at the rates not exceeding the following: THEcASxxx xxx xxx(d) On Special Classes: The assessment levels for all lands buildings, machineries and other improvements;

Actual Use Assessment LevelCultural 15%Scientific 15%Hospital 15%Local water districts 10%Government-owned or 10% controlled corporations engaged in the supply and distribution of water and/or generation and transmission of electric power HScaCT

Since the basis for the application of the claimed differential treatment or assessment level is the same as the claimed tax exemption, the lower tribunals correctly found that there is no basis to apply the lower assessment level of 10%.As our last point, we note that a real concern for NAPOCOR in this case is its assumption under the BOT agreement of BPPC's real property tax liability (which in itself is a recognition that BPPC's real properties are not really tax exempt). NAPOCOR argues that if no tax exemption will be recognized, the responsibility it assumed carries practical implications that are very difficult to ignore. In fact, NAPOCOR's supplemental petition is anchored on these practical implications — the alleged detriment to the public interest that will result if the levy, sale, and transfer of the machineries and equipment were to be completed. NAPOCOR's reference is to the fact that the machineries and equipment have been sold in public auction and the buyer — the respondent Province — will consolidate its ownership over these properties on February 1, 2009.

We fully recognize these concerns. However, these considerations are not relevant to our disposition of the issues in this case. We are faced here with the application of clear provisions of law and settled jurisprudence to a case that, to our mind, should not be treated differently solely because of non-legal or practical considerations. Significantly, local government real property taxation also has constitutional underpinnings, based on Section 5 of Article X of the Constitution, 16 that we cannot simply ignore. InFELS Energy, Inc. v. The Province of Batangas, 17 earlier cited, we said:

The power to tax is an incident of sovereignty and is unlimited in its magnitude, acknowledging in its very nature no perimeter so that security against its abuse is to be found only in the responsibility of the legislature which imposes the tax on the constituency who are to pay for it. The right of local government units to collect taxes due must always be upheld to avoid severe tax erosion. This consideration is consistent with the State policy to guarantee the autonomy of local governments and the objective of the Local Government Code that they enjoy genuine and meaningful local autonomy to empower them to achieve their fullest development as self-reliant communities and make them effective partners in the attainment of national goals.TADCSEIn conclusion, we reiterate that the power to tax is the most potent instrument to raise the needed revenues to finance and support myriad activities of the local government units for the delivery of basic services essential to the promotion of the general welfare and the enhancement of peace, progress, and prosperity of the people. [Emphasis supplied.]

This ruling reminds us of the other side of the coin in terms of concerns and protection of interests. La Union, as a local government unit, has no less than its own constitutional interests to protect in pursuing this case. These are interests that this Court must also be sensitive to and has taken into account in this Decision.

We close with the observation that our role in addressing the concerns and the interests at stake is not all-encompassing. The Judiciary can only resolve the current dispute through our reading and interpretation of the law. The other branches of government which act on policy and which execute these policies, including NAPOCOR itself and the respondent local government unit, are more in the position to act in tackling feared practical consequences. This ruling on the law can be their springboard for action. In light of these conclusions and observations, we need not discuss the other issues raised.WHEREFORE, premises considered, we DENY NAPOCOR's petition for lack of merit. We AFFIRM the appealed decision of the Court of Tax Appeals. Costs against NAPOCOR.

NATIONAL POWER CORPORATION,petitioner, vs. PROVINCE OF QUEZON and MUNICIPALITY OF PAGBILAO,respondents.

D E C I S I O NBRION,Jp:We resolve in this petition for review oncertiorarithe 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 FACTSThe 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 November 9, 1991. The ECA provided for a build-operate-transfer (BOT) arrangement between Mirant and the NPC. Mirant will build and finance a coal-fired thermal power plant on the lots owned by the NPC in Pagbilao, Quezon for the purpose of converting fuel into electricity, and thereafter, operate and maintain the power plant for a period of 25 years. The NPC, in turn, will supply the necessary fuel to be converted by Mirant into electric power, take the

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power generated, and use it to supply the electric power needs of the country. At the end of the 25-year term, Mirant will transfer the power plant to the NPC without compensation. According to the NPC, the power plant is currently operational and is one of the largest sources of electric power in the country. 3 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 Match 2, 2000, theMunicipality of Pagbilao assessed Mirant's real property taxeson the power plant and its machineries in the total amount of P1,538,076,000.00 for the period of 1997 to 2000. The Municipality of Pagbilao furnished the NPC a copy of the assessment letter. STcHEITo 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 . . ." 5 on April 14, 2000.The NPC objected to the assessment against Miranton 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 Municipality of Pagbilao's motion, through a one-page Order dated November 13, 2000. 6 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 August 18, 2003, the denial of the NPC's claim for exemption. The CBAA likewise denied the NPC's subsequent motion for reconsideration, prompting the NPC to institute an appeal before the Court of Tax Appeals (CTA).Before the CTA, the NPC claimed it was procedurally erroneous for the CBAA to exercise jurisdiction over its appeal because the LBAA issued asin 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. 2005jurThe CTAen bancresolved to dismiss the NPC's petition on February 21, 2006. From this ruling, the NPC filed the present petition seeking the reversal of the CTAen banc'sdecision.

THE PETITIONThe NPC contends that the CTAen bancerred in ruling that the NPC is estopped from questioning the LBAA'ssin perjuiciojudgment; the LBAA decision, it posits, cannot serve as an appealable decision that would vest the CBAA with appellate jurisdiction; asin perjuiciodecision, by its nature, is null and void.The NPC likewise assails the CTAen bancruling 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 undertakenfor 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 (c) 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 RULINGThis 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 andNPC 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 fromquestioning the CBAA's jurisdiction

The assailed CTAen bancdecision brushed aside the NPC'ssin perjuicioarguments by declaring that:The court finds merit in [NPC's] claim that the Order of the LBAA of the Province of Quezon is asin perjuiciodecision.A perusal thereof shows that the assailed Order does not contain findings of facts in support of the dismissal of the case. It merely stated a finding of merit in the contention of the Municipality of Pagbilao . . . . aCSDIcHowever, 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

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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'ssin perjuiciodecision 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 CTAen banc'sdenial of NPC's claims entirely in accord with the law and with jurisprudence.

The entity liable for tax hasthe 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 validprotest 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:

SEC. 226. Local Board of Assessment Appeals. —Any owner or person having legal interest in the propertywho 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 . . . .SEC. 250. Payment of Real Property Taxes in Installments. — The owner of the real property or the person having legal interest thereinmay pay the basic real property tax . . . due thereon without interest in four (4) equal installments . . . . TIADCc

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 hasactual and beneficial use and possessionof 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 Siteor 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.InCariño v. Ofilado, 18 we declared thatlegal 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 onlyafterthe 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. TaHIDSWhile 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, orif [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 does indeed assume 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 theliability arising from lawthat 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.InTestate 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 thatthe user

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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 wasno immediate transfer of possession of the propertiesprevious to full payment of the repurchase price.xxx xxx xxxTo 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, theBaguiocase referred to a contract of sale wherein the vendee not only assumed liability for the taxes on the property, but also acquired its use and possession, even though title remained with the vendor pending full payment of the purchase price. Under this situation, we found the vendee who had assumed liability for the realty taxes and who had been given use and possession to be liable. Compared with Baguio, theLimcase supposedly involved the same contractual assumption of tax liabilities, 23 but possession and enjoyment of the property remained with other persons. Effectively,Limheld that the contractual assumption of the obligation to pay real property tax, by itself, is not sufficient to make one legally compellable by the government to pay for the taxes due; the person liable must also have use and possession of the property.Using theBaguioandLimsituations as guides, and after considering the comparable legal situations of the parties assuming liability in these cases, we conclude that the NPC's contractual liability alone cannot be the basis for the enforcement of tax liabilities against it by the local government unit. InBaguioandLim, the vendors still retained ownership, and the effectiveness of the tax liabilities assumed by the vendees turned on the possession and use of the property subject to tax. In other words, the contractual assumption of liability was supplemented by an interest that the party assuming liability had on the property taxed; on this basis, the vendee inBaguiowas found liable, while the vendee inLimwas not. In the present case, the NPC is neither the owner, nor the possessor or user of the property taxed. No interest on its part thus justifies any tax liability on its part other than its voluntary contractual undertaking. Under this legal situation, only Mirant as the contractual obligor, not the local government unit, can enforce the tax liability that the NPC contractually assumed; the NPC does not have the "legal interest" that the law and jurisprudence require to give it personality to protest the tax imposed by law on Mirant. 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: DAHaTc

SEC. 130. Fundamental Principles. — The following fundamental principles shall govern the exercise of the taxing and other revenue-raising powers of local government units:xxx xxx xxx(d) Therevenue collected pursuant to the provisions of this Code shall inure solely to the benefit of, and be subject to disposition by, the local government unitlevying the tax, fee, charge or other imposition unless otherwise specifically provided herein; . . . . [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 fulfillment 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 Municipality of Pagbilao and the Province of Quezon. In fact, if the NPC theory of the case were to be followed, the NPC's assumption of tax liability will work against the interests of these LGUs. Besides, based on the objectives of the BOT Law 24 that underlie the parties' BOT agreement, 25 the assumption of taxes clause is an incentive for private corporations to take part and invest in Philippine industries. Thus, the principle of relativity of contracts applies with full force in the relationship between Mirant and NPC, on the one hand, and the respondent LGUs, on the other.

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 Municipality of Pagbilao and the Province of Quezon), as third parties to the ECA, cannot demand payment from the NPC on the basis of Article 11.1 of the ECA alone.Corollarily, the local government units can neither be compelled to recognize the protest of a tax assessment from the NPC, an entity against whom it cannot enforce the tax liability.

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 areactually, directly, and exclusively used bylocal water districts andgovernment-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. ECDAcS

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 notactually, directly, and exclusively usethem. 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

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tax system that the Legislature established. We will then also be grossly unfair to the people of the Province of Quezon and the Municipality of Pagbilao who, by law, stand to benefit from the tax provisions of the LGC. WHEREFORE, weDENYthe National Power Corporation's petition for review oncertiorari, andAFFIRMthe decision of the Court of Tax Appealsen bancdated February 21, 2006. Costs against the petitioner.SO ORDERED.

COMMISSIONER OF INTERNAL REVENUE,petitioner, vs. TOLEDO POWER, INC.,respondent.

DECISIONPERALTA,Jp:This resolves the Petition for Review on Certiorari under Rule 45 of the Rules of Court seeking the reversal of the Court of Tax Appeals (CTA) En Banc Decision 1 dated May 7, 2008, and Resolution 2 dated July 18, 2008. The pertinent facts, as narrated by the CTA First Division, are as follows:

Petitioner (herein respondent Toledo Power, Inc.) is a general partnership duly organized and existing under Philippine laws, with principal office at Sangi, Toledo City, Cebu. It is principally engaged in the business of power generation and subsequent sale thereof to the National Power Corporation (NPC), Cebu Electric Cooperative III (CEBECO), Atlas Consolidated Mining and Development Corporation, Atlas Fertilizer Corporation and Cebu Industrial Park Development, Inc., and is registered with the Bureau of Internal Revenue (BIR) as a Value Added Tax taxpayer in accordance with Section 236 of the National Internal Revenue Code (NIRC) with Tax Identification No. 003-883-626-VAT and BIR Certificate of Registration bearing RDO Control No. 94-083-000300.On June 20, 2002, petitioner filed an application with the Energy Regulatory Commission (ERC) for the issuance of a Certificate of Compliance pursuant to the Implementing Rules and Regulations of R.A. 9136, otherwise known as the "Electric Power Industry Reform Act of 2007" (EPIRA).On October 25, 2001, petitioner filed with the BIR Revenue District Office (RDO) No. 83 at Toledo City, Province of Cebu, its Quarterly VAT Return for the third quarter of 2001, declaring among others, the following: HcDATC

Zero-rated Sales/Receipts P143,000,032.37Taxable Sales-Sale of Scrap/Others 378,651.74

Output Tax 34,422.89Less: Input Tax

On Domestic Purchases 4,765,458.58

On Importation of Goods 1,242,792.00Total Available Input Tax 6,008,250.58

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Excess Input Tax & Overpayment P5,973,827.69

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However, an amended Quarterly VAT Return for the same quarter of 2001 was filed on November 22, 2001. The amended return shows unutilized input VAT credits of P5,909,588.96 arising from petitioner's taxable purchases for the third quarter of 2001 and the following other information:

Zero-rated Sales/Receipts P143,000,032.37Taxable Sales-Sale of Scrap/Others 378,651.74

Output Tax 34,422.89Less: Input Tax

On Domestic Purchases 4,718,099.85

On Importation of Goods 1,225,912.00Total Available Input Tax 5,944,011.85

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Excess Input Tax & Overpayment P5,909,588.96

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Thus, for the third quarter of 2001, petitioner allegedly has unutilized input VAT in the total amount of P5,909,588.96 on its domestic purchase of taxable goods and services and importation of goods, which purchases and importations are all attributable to its zero-rated sale of power generation services to NPC, CEBECO, Atlas Consolidated Mining and Development Corporation, Atlas Fertilizer Corporation and Cebu Industrial Park Development, Inc. Said input VAT of P5,909,588.96 paid by petitioner on its domestic purchase of goods and services for the third quarter of 2001 allegedly remained unutilized against output VAT liability in said period or even in subsequent matters.On January 25, 2002, petitioner filed with the BIR RDO No. 83 at Toledo City, Province of Cebu, its Quarterly VAT Return for the fourth quarter of 2001 declaring, among others, the following:

Zero-Rated Sales/Receipts P127,259,720.44

Taxable Sales-Sale of Scrap/Others 309,697.50

Output Tax 28,154.33Less: Input Tax

On Domestic Purchases 1,374,608.64

On Importation of Goods 1,873,327.00Total Available Input Tax 3,247,935.64

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Excess Input Tax & P3,219,781.

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Overpayment 31

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Thus, petitioner allegedly had an excess input VAT credits of P3,219,781.31 for the fourth quarter of 2001 which remained unutilized against output VAT liability in said period or even in the subsequent quarters.For the third and fourth quarters of 2001, petitioner incurred and accumulated input VAT from its domestic purchase of goods and services, which are all attributable to its zero-rated sales of power generation services to NPC, CEBECO, Atlas Consolidated Mining and Development Corporation, Atlas Fertilizer Corporation and Cebu Industrial Park Development Inc., in the total amount of P9,129,370.27. Said excess and unutilized input VAT was allegedly not utilized against any output VAT liability in the subsequent quarters nor carried over to the succeeding taxable quarters. aDHCAEOn September 30, 2003, pursuant to the procedure prescribed in Revenue Regulations No. 7-95, as amended, petitioner filed with the BIR RDO No. 83, an administrative claim for refund or unutilized input VAT for the third and fourth quarter of 2001 in the amounts of P5,909,588.96 and P3,219,781.31, respectively, or the aggregate amount of P9,129,370.27.Respondent (herein petitioner Commissioner of Internal Revenue) has not ruled upon petitioner's administrative claim and in order to preserve its right to file a judicial claim for the refund or issuance of a tax credit certificate of its unutilized input VAT, petitioner filed a Petition for Review to suspend the running of the two-year prescriptive period under Section 112(D) of the 1997 NIRC and Section 4.106-2(c) of Revenue Regulations No. 7-95, as amended. On October 24, 2003, petitioner filed a Petition for Review for the refund or issuance of a tax credit certificate in the amount of P5,909,588.96 for the third quarter of 2001, docketed as CTA Case No. 6805 and, on January 22, 2004, filed another Petition for Review for the refund or issuance of tax credit certificate in the amount of P3,219,781.31 for the fourth quarter of 2001, docketed as CTA Case No. 6851, both for its unutilized input VAT paid by petitioner on its domestic purchases of goods and services and importation of goods attributable to zero-rated sales. On January 30, 2004, petitioner filed a Motion for Consolidation CTA Case Nos. 6805 and 6851, since these cases involve the same parties, same facts and issues. The said Motion was granted in open court on February 27, 2004 and confirmed in a Resolution dated March 8, 2004.

xxx xxx xxxAfter presenting its testimonial and documentary evidence, petitioner formally offered its evidence on February 16, 2006. On March 24, 2006, this Court promulgated a Resolution admitting all the exhibits offered by petitioner. Respondent, on the other hand, failed to adduce any evidence. HCDAacIn a Resolution dated July 6, 2006, this consolidated case was ordered submitted for decision with only petitioner's Memorandum, as respondent failed to file one within the period given by the Court. 3

Acting on the petition, the CTA First Division issued a Decision dated May 17, 2007 partially granting Toledo Power, Inc.'s (TPI) refund claim or issuance of tax credit certificate. Pertinent portions of the Decision read:

In sum, petitioner was able to show its entitlement to the refund or issuance of tax credit certificate in the amount of P8,553,050.44 computed as follows:

Total Available Input VAT P9,191,947.49Less: Disallowed Input VAT

(P20,696.34+P52,363.64+P277,207.50) 350,267.48

Substantiated available input VAT P8,841,680.01Less: Output VAT 62,577.22

Substantiated Unutilized Input VAT P8,779,102.79Multiply by the ratio of substantiated zero-rated sales to the total zero-rated

sales

Substantiated zero-rated sales 263,300,858.02

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Total zero-rated sales 270,259,752.81

Refundable Input VAT P8,553,050.44

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IN VIEW OF THE FOREGOING, the Petition for Review is PARTIALLY GRANTED. Respondent is hereby ORDERED to refund or to issue a tax credit certificate in favor of petitioner in the reduced amount of P8,553,050.44 representing the substantiated unutilized input VAT for the third and fourth quarters of 2001. SO ORDERED. 4

The Commissioner of Internal Revenue (CIR), thereafter, filed a Motion for Reconsideration against said Decision. However, the same was denied in a Resolution dated October 15, 2007.On appeal to the CTAEn Banc, the CIR argued that TPI failed to comply with the invoicing requirements to prove entitlement to the refund or issuance of tax credit certificate. In addition, he challenged the jurisdiction of the CTA First Division to entertain respondent's petition for review for failure on its part to comply with the provisions of Section 112 (C) of the Tax Code.In a Decision dated May 7, 2008, the CTAEn Bancaffirmed with modification the First Division's assailed decision. It held —

. . . after re-examination of the records of this case, out of the alleged Zero-rated sales amounting to P270,259,752.81, only the amount of P248,989,191.87 is fully substantiated. Therefore, respondent is entitled to the refund or issuance of tax credit certificate in the amount of P8,088,151.07 computed as follows:

Total Available Input VAT P9,191,947.49Less: Disallowed Input VAT (P20,696.34+P52,363.64+P277,207.50) 350,267.48

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Substantiated available input VAT P8,841,680.01

Less: Output VAT 62,577.22

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Substantiated Unutilized Input VAT P8,779,102.79

Multiply by the ratio of substantiated

zero-rated sales to the total zero-rated

sales

Substantiated zero-rated sales 248,989,191.87

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Total zero-rated sales 270,259,752.81Refundable Input VAT P8,088,151.07

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WHEREFORE, premises considered, the Petition for Review En Bancis DENIED for lack of merit. Accordingly, the Decision dated May 17, 2007 and Resolution dated October 15, 2007 are AFFIRMED with MODIFICATION. Petitioner is hereby ORDERED TO REFUND to respondent the sum of EIGHT MILLION EIGHTY-EIGHT THOUSAND ONE HUNDRED FIFTY-ONE PESOS AND SEVEN CENTAVOS (P8,088,151.07) only for the third and fourth quarters of taxable year 2001.SO ORDERED. 5

In a Resolution dated July 18, 2008, the CTAEn Bancdenied the CIR's motion for reconsideration. Undaunted by the adverse ruling of the CTA, the CIR now seeks recourse to this Court on the following ground:

THE COURT OF TAX APPEALSEN BANCERRED IN RULING THAT THE GOVERNMENT IS LIABLE TO REFUND PETITIONER FOR ALLEGED OVERPAYMENT OF VAT. 6

In essence, two issues must be addressed to determine whether TPI is indeed entitled to its claim for refund or issuance of tax credit certificate: (1) whether TPI complied with the 120+30 day rule under Section 112 (C) of the Tax Code, and (2) whether TPI sufficiently complied with the invoicing requirements under the Tax Code.Let us discuss the issues in seriatim.First, it must be emphasized that to validly claim a refund or tax credit of input tax, compliance with the 120+30 day rule under Section 112 of the Tax Code is mandatory. DSAICaPertinent portions of Section 112 of the Tax Code, as amended by Republic Act No. 9337, 7 state:

SEC. 112.Refunds or Tax Credits of Input Tax. —

(A)Zero-rated or Effectively Zero-Rated Sales. — Any VAT-registered person, whose sales are zero-rated or effectively zero-rated may, within two (2) years after the close of the taxable quarter when the sales were made, apply for the issuance of a tax credit certificate or refund of creditable input tax due or paid attributable to such sales, except transitional input tax, to the extent that such input tax has not been applied against output tax:Provided, however, That in the case of zero-rated sales under Section 106(A)(2)(a)(1), (2) and (b) and Section 108(B)(1) and (2), the acceptable foreign currency exchange proceeds thereof had been duly accounted for in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas (BSP): Provided, further, That where the taxpayer is engaged in zero-rated or effectively zero-rated sale and also in taxable or exempt sale of goods of properties or services, and the amount of creditable input tax due or paid cannot be directly and entirely attributed to any one of the transactions, it shall be allocated proportionately on the basis of the volume of sales:Provided, finally, That for a person making sales that are zero-rated under Section 108(B)(6), the input taxes shall be allocated ratably between his zero-rated and non-zero-rated sales.

xxx xxx xxx(C)Period within which Refund or Tax Credit of Input Taxes shall be Made. — In proper cases, the Commissioner shall grant a refund or issue the tax credit certificate for creditable input taxes within one hundred twenty (120) days from the date of submission of complete documents in support of the application filed in accordance with Subsection (A) hereof. In case of full or partial denial of the claim for tax refund or tax credit, or the failure on the part of the Commissioner to act on the application within the period prescribed above, the taxpayer may, within thirty (30) days from the receipt of the decision denying the claim or after the expiration of the one hundred twenty day-period, appeal the decision or the unacted claim with the Court of Tax Appeals.

Section 112 decrees that a VAT-registered person, whose sales are zero-rated or effectively zero-rated, may apply for the issuance of a tax credit or refund creditable input tax due or paid attributable to such sales within two years after the close of the taxable quarter when the sales were made. From the date of submission of complete documents in support of its application, the CIR has 120 days to decide whether or not to grant the claim for refund or issuance of tax credit certificate. In case of full or partial denial of the claim for tax refund or tax credit, or the failure on the part of the CIR to act on the application within the given period, the taxpayer may, within 30 days from receipt of the decision denying the claim or after the expiration of the 120-day period, appeal with the CTA the decision or inaction of the CIR.Recently, in the consolidated cases of Commissioner of Internal Revenue v. San Roque Power Corporation, 8 (San Roque), the Court confirmed the mandatory and jurisdictional nature of the 120+30 day rule. It ratiocinated as follows:

At the time San Roque filed its petition for review with the CTA, the 120+30 day mandatory periods were already in the law. Section 112 (C) expressly grants the Commissioner 120 days within which to decide the taxpayer's claim. The law is clear, plain and unequivocal ". . . the Commissioner shall grant a refund or issue the tax credit certificate for creditable input taxes within one hundred twenty (120) days from the date of submission of complete documents." Following the verba legis doctrine, this law must be applied exactly as worded since it is clear, plain and unequivocal. The taxpayer cannot simply file a petition with the CTA without waiting for the Commissioner's decision within the 120-day mandatory and jurisdictional period. The CTA will have no jurisdiction because there will be no "decision" or "deemed a denial" decision of the Commissioner for the CTA to review. In San Roque's case, it filed its petition with the CTA a mere 13 days after it filed its administrative claim with the Commissioner. Indisputably, San Roque

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knowingly violated the mandatory 120-day period, and it cannot blame anyone but itself.Section 112(C) also expressly grants the taxpayer a 30-day period to appeal to the CTA the decision or inaction of the Commissioner, thus:

. . . the taxpayer affected may, within thirty (30) days from the receipt of the decision denying the claim or after the expiration of the one-hundred twenty day-period, appeal the decision or the unacted claim with the Court of Tax Appeals. (Emphasis supplied.)

This law is clear, plain, and unequivocal. Following the well-settled verba legis doctrine, this law should be applied exactly as worded since it is clear, plain and unequivocal. As this law states, the taxpayer may, if he wishes, appeal the decision of the Commissioner to the CTA within 30 days from receipt of the Commissioner's decision, or if the Commissioner does not act on the taxpayer's claim within the 120-day period, the taxpayer may appeal to the CTA within 30 days from the expiration of the 120-day period.

xxx xxx xxxWhen Section 112 (C) states that "the taxpayer affected may, within thirty (30) days from receipt of the decision denying the claim or after the expiration of the one hundred twenty-day period, appeal the decision or the enacted claim with the Court of Tax Appeals," the law does not make the 120+30 day periods optional just because the law uses the word "may." The word "may" simply means that the taxpayer may or may not appeal the decision of the Commissioner within 30 days from receipt of the decision, or within 30 days from the expiration of the 120-day period. Certainly by no stretch of the imagination can the word "may" be construed as making the 120+30 day periods optional, allowing the taxpayer to file a judicial claim one day after filing the administrative claim with the Commissioner.The old rule that the taxpayer may file the judicial claim, without waiting for the Commissioner's decision if the two-year prescriptive period is about to expire, cannot apply because that rule was adopted before the enactment of the 30-day period. The 30-day period was adopted precisely to do away with the old rule, so that under the VAT System the taxpayer will always have 30 days to file the judicial claim even if the Commissioner acts only on the 120th day, or does not act at all during the 120-day period. With the 30-day period always available to the taxpayer, the taxpayer can no longer file a judicial claim for refund or credit of input VAT without waiting for the Commissioner to decide until the expiration of the 120-day period.To repeat, a claim for tax refund or credit, like a claim for tax exemption, is construed strictly against the taxpayer. One of the conditions for a judicial claim of refund or credit under the VAT System is compliance with the 120+30 day mandatory and jurisdictional periods. Thus, strict compliance with the 120+30 day periods is necessary for such a claim to prosper, whether before, during, or after the effectivity of theAtlasdoctrine, except for the period from the issuance of BIR Ruling No. DA-489-03 on 10 December 2003 to 6 October 2010 when theAichidoctrine was adopted, which again reinstated the 120+30 day periods as mandatory and jurisdictional. 9

In a nutshell, the rules on the determination of the prescriptive period for filing a tax refund or credit of unutilized input VAT, as provided in Section 112 of the Tax Code, are as follows:

(1)An administrative claim must be filed with the CIR within two years after the close of the taxable quarter when the zero-rated or effectively zero-rated sales were made.

(2)The CIR has 120 days from the date of submission of complete documents in support of the administrative claim within which to decide whether to

grant a refund or issue a tax credit certificate. The 120-day period may extend beyond the two-year period from the filing of the administrative claim if the claim is filed in the later part of the two-year period. If the 120-day period expires without any decision from the CIR, then the administrative claim may be considered to be denied by inaction. HTCIcE

(3)A judicial claim must be filed with the CTA within 30 days from the receipt of the CIR's decision denying the administrative claim or from the expiration of the 120-day period without any action from the CIR.

(4)All taxpayers, however, can rely on BIR Ruling No. DA-489-03 from the time of its issuance on 10 December 2003 up to its reversal by this Court inAichion 6 October 2010, as an exception to the mandatory and jurisdictional 120+30 day periods. 10

Here, TPI filed its third and fourth quarterly VAT returns for 2001 on October 25, 2001 and January 25, 2002, respectively. It then filed an administrative claim for refund of its unutilized input VAT for the third and fourth quarters of 2001 on September 30, 2003. Thus, the CIR had 120 days or until January 28, 2004, after the submission of TPI's administrative claim and complete documents in support of its application, within which to decide on its claim. Then, it is only after the expiration of the 120-day period, if there is inaction on the part of the CIR, where TPI may elevate its claim with the CTA within 30 days.In the present case, however, it appears that TPI's judicial claims for refund of its unutilized input VAT covering the third and fourth quarters of 2001 were prematurely filed on October 24, 2003 and January 22, 2004, respectively.However, although TPI's judicial claim for the fourth quarter of 2001 has been filed prematurely, the most recent pronouncements of the Court provide for a window wherein the same may be entertained.As held in theSan Roqueponencia, strict compliance with the 120+30 day mandatory and jurisdictional periods is not necessary when the judicial claims are filed between December 10, 2003 (issuance of BIR Ruling No. DA-489-03 which states that the taxpayer need not wait for the 120-day period to expire before it could seek judicial relief) to October 6, 2010 (promulgation of the Aichi doctrine).Clearly, therefore, TPI's refund claim of unutilized input VAT for the third quarter of 2001 was denied for being prematurely filed with the CTA, while its refund claim of unutilized input VAT for the fourth quarter of 2001 may be entertained since it falls within the exception provided in the Court's most recent rulings.With that settled, we now resolve the issue of whether TPI sufficiently complied with the invoicing requirements under the Tax Code with respect to the fourth quarter of 2001.Section 113 (A), in relation to Section 237 of the Tax Code, provides:

SEC. 113.Invoicing and Accounting Requirements for VAT-Registered Persons. —(A)Invoicing Requirements. — A VAT-registered person shall, for every sale, issue

an invoice or receipt. In addition to the information shall be indicated in the invoice or receipt:(1)A statement that the seller is a VAT-registered person, followed by his

taxpayer's identification number (TIN); and(2)The total amount which the purchaser pays or is obligated to pay to

the seller with the indication that such amount includes value-added tax.

xxx xxx xxxSEC. 237. —Issuance of Receipts or Sales of Commercial Invoices. — All persons subject to an internal revenue tax shall, for each sale or transfer of merchandise or for services rendered valued at Twenty-five pesos (P25.00) or more, issue duly registered receipts or sales or commercial invoices, prepared at least in duplicate, showing the date of transaction, quantity, unit cost and description of merchandise or nature of service:Provided, however, That in the case of sales, receipts or transfers in the amount of One hundred pesos (P100.00) or more, or

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regardless of the amount, where the sale or transfer is made by a person liable to value-added tax to another person also liable to value-added tax; or where the receipt is issued to cover payment made as rentals, commissions, compensations or fees, receipts or invoices shall be issued which shall show the name, business style, if any, and address of the purchaser, customer or client:Provided, further,That where the purchaser is a VAT-registered person, in addition to the information herein required, the invoice or receipts shall further show the Taxpayer Identification Number (TIN) of the purchaser.

Section 4.108-1 of Revenue Regulations No. 7-95 states:Section 4.108-1.Invoicing Requirements. — All VAT-registered persons shall, for every sale or lease of goods or properties or services, issue duly registered receipts or sales or commercial invoices which must show:

1.the name, TIN and address of seller;2.date of transaction;3.quantity, unit cost and description of merchandise or nature of service;4.the name, TIN, business style, if any, and address of the VAT-registered

purchaser, customer or client;5.the word "zero-rated" imprinted on the invoice covering zero-rated

sales; and6.the invoice value or consideration. 11

In the present case, we agree with the CTA's findings that the words "zero-rated" appeared on the VAT invoices/official receipts presented by the TPI in support of its refund claim. Although the same was merely stamped and not pre-printed, the same is sufficient compliance with the law, since the imprinting of the word "zero-rated" was required merely to distinguish sales subject to 10% VAT, those that are subject to 0% VAT (zero-rated) and exempt sales, to enable the Bureau of Internal Revenue to properly implement and enforce the other VAT provisions of the Tax Code.Moreover, it is doctrinal that the Court will not lightly set aside the conclusions reached by the CTA which, by the very nature of its function of being dedicated exclusively to the resolution of tax problems, has accordingly developed an expertise on the subject, unless there has been an abuse or improvident exercise of authority. 12 InBarcelon, Roxas Securities, Inc. v. Commissioner of Internal Revenue, 13 the Court held that it accords the findings of fact by the CTA with the highest respect. It ruled that factual findings made by the CTA can only be disturbed on appeal if they are supported by substantial evidence or there is a showing of gross error or abuse on the part of the Tax Court. In the absence of any clear and convincing proof to the contrary, this Court must presume that the CTA rendered a decision which is valid in every respect. 14 WHEREFORE, premises considered, the instant petition is PARTIALLY GRANTED. The Commissioner of Internal Revenue is hereby ORDERED to refund or issue tax credit certificate in favor of Toledo Power, Inc. only for the fourth quarter of 2001. This case is hereby REMANDED to the Court of Tax Appeals for the proper computation of the refundable amount representing unutilized input VAT for the fourth quarter of 2001. aETAHDSO ORDERED.

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