Batangas Power Corporation vs. Batangas City and National Power Corporation

The Court held that Section 193 of the Local Government Code operates as an express and general repeal of all tax exemption statutes, including the sweeping tax privileges previously enjoyed by government-owned and controlled corporations like the NPC under its special Charter, thereby subordinating these entities to local taxation to strengthen fiscal decentralization and local autonomy under the 1987 Constitution.

In the early 1990s, the Philippines faced a severe power crisis characterized by daily 8-to-12-hour outages. To attract private investors into power generation, the government, through the National Power Corporation, implemented Build-Operate-Transfer (BOT) schemes that offered incentives, including the assumption of tax liabilities by NPC. This case arises from the conflict between these contractual tax assumptions, statutory tax exemptions for pioneer enterprises under the Omnibus Investment Code, and the withdrawal of tax exemptions under the 1991 Local Government Code.

• On June 29, 1992, Enron Power Development Corporation (later assigned to BPC) and NPC entered into a Fast Track BOT Agreement wherein NPC agreed to be responsible for the payment of all taxes imposed on the power station, except income taxes and permit fees. The Local Government Code (R.A. No. 7160) had already taken effect on January 1, 1992, six months prior to this agreement.
• BPC registered with the Board of Investments as a pioneer enterprise on September 13, 1992, and received a Certificate of Registration on September 23, 1992, entitling it to a six-year tax holiday. BPC subsequently completed construction and commenced commercial operations on July 16, 1993, as certified by the BOI due to a force majeure delay.
• On October 12, 1998, Batangas City, through its legal officer, demanded payment of business taxes and penalties from 1994 onwards under the 1992 Batangas City Tax Code. BPC refused, invoking its tax-exempt status as a BOI-registered pioneer enterprise under Section 133(g) of the LGC.
• On April 15, 1999, the City Treasurer modified the demand, limiting the claim to business taxes for 1998-1999 only, asserting that the six-year tax holiday expired on September 22, 1998 (six years from the September 23, 1992 registration date).
• BPC maintained that the tax holiday commenced on July 16, 1993 (its commercial operation date) and would expire in 1999, citing a BOI letter and Article 39 of Executive Order No. 226 (Omnibus Investment Code). BPC also argued that NPC was liable for the taxes under the BOT Agreement.
• On August 26, 1999, NPC intervened, admitting its assumption of tax liabilities but refusing to pay on the ground that the business tax constituted an indirect tax on NPC, which was allegedly exempt from all taxes under Section 13 of its Charter (R.A. No. 6395).
• BPC filed a petition for declaratory relief with the Makati RTC; when the city withheld its business permit in February 2000, BPC filed a supplemental petition for injunction to prevent the closure of its power plant operations.

• Batangas Power Corporation argued that its six-year tax exemption as a pioneer enterprise under Section 133(g) of the LGC should be computed from the date of its actual commercial operation on July 16, 1993, not from its BOI registration date of September 23, 1992, relying on Article 39 of Executive Order No. 226 and a specific BOI certification. It also contended that NPC remained liable for the business taxes under the BOT Agreement, and that if NPC was exempt, then no tax liability attached to either party.
• National Power Corporation contended that its tax exemption under Section 13 of R.A. No. 6395 (NPC Charter), being a special law, could not be impliedly repealed by the general provisions of the LGC, and that Section 193 of the LGC did not specifically mention R.A. No. 6395 in the repealing clause. It further argued that Section 133(o) of the LGC exempted "national government, its agencies and instrumentalities" from local taxes, citing Basco v. PAGCOR as authority. Finally, NPC claimed that the Makati RTC lacked jurisdiction to issue an injunction against Batangas City.

• Batangas City argued that Section 133(g) of the LGC clearly provided that the six-year tax holiday for pioneer enterprises commenced from the "date of registration," which was September 23, 1992, making the exemption expire on September 22, 1998, and rendering BPC liable for 1998-1999 taxes. It asserted that it was not a party to the BOT Agreement and could not be bound by NPC’s contractual assumption of taxes, and that BPC, as the entity actually doing business within the city, was the proper taxpayer.
• (Implied in the RTC Decision) The trial court maintained that NPC’s tax exemption was withdrawn by the passage of the LGC, specifically Section 193, and that the supplemental petition for injunction was properly admitted.

• Procedural Issues: (1) Whether the Regional Trial Court of Makati had jurisdiction over the supplemental petition for injunction against Batangas City; and (2) Whether NPC was estopped from raising the jurisdictional objection for the first time on appeal.
• Substantive Issues: (1) Whether the six-year local tax holiday for BOI-certified pioneer enterprises under Section 133(g) of the LGC commences from the date of registration or the date of actual commercial operation; and (2) Whether NPC’s tax exemption privileges under its Charter were withdrawn by Section 193 of the Local Government Code.

• Procedural: The Supreme Court ruled that NPC was estopped from questioning the RTC’s jurisdiction over the supplemental petition for injunction. The Court applied the principle that a party who actively participates in judicial proceedings without objecting to jurisdiction cannot later attack the court’s jurisdiction after receiving an adverse judgment, citing Roxas v. Court of Appeals.
• Substantive: (1) The Court held that Section 133(g) of the LGC explicitly states that the tax holiday for pioneer enterprises lasts for six years "from the date of registration," and this provision applies specifically to local taxes imposed by government units. The Court rejected BPC’s reliance on Executive Order No. 226 (Article 39), which computes the tax holiday from the date of commercial operation, holding that this provision applies only to income taxes levied by the national government, not to local business taxes. Consequently, BPC’s tax exemption expired on September 22, 1998. (2) The Court held that NPC’s tax exemption under its Charter was expressly and generally withdrawn by Section 193 of the LGC, which repeals all statutes granting exemptions from local taxes, and by Section 534 (the repealing clause) of the same Code. The Court followed the recently decided case of National Power Corporation v. City of Cabanatuan (G.R. No. 149110, April 9, 2003), which established that the LGC removed the blanket exclusion of government instrumentalities from local taxation to enforce the constitutional policy of local autonomy. The Court distinguished Basco v. PAGCOR as having been decided prior to the effectivity of the LGC. Thus, NPC was liable to pay the business taxes assumed under the BOT Agreement.

• Express Repeal of Tax Exemptions (Section 193, LGC) — Section 193 of the Local Government Code constitutes an express and general repeal of all existing tax exemption statutes, including those granted to government-owned and controlled corporations (GOCCs) such as the NPC under its special Charter, thereby withdrawing sweeping tax privileges and subjecting these entities to local taxation.
• Local Autonomy and Fiscal Decentralization — The withdrawal of blanket tax exemptions from national government instrumentalities is justified by the constitutional mandate under Article X, Section 5 of the 1987 Constitution to strengthen local autonomy, empower local government units to create their own sources of revenue, and reduce fiscal dependence on the national government.
• Distinction Between National and Local Tax Regimes — Statutory provisions governing tax holidays (such as those in the Omnibus Investment Code) must be interpreted in relation to the taxing authority imposing the tax; provisions referring to the "start of commercial operation" apply to national income taxes, while the Local Government Code specifically governs the commencement of local tax holidays from the date of BOI registration.
• Estoppel by Waiver Regarding Jurisdiction — A party who voluntarily submits to the jurisdiction of a court by actively participating in proceedings without raising jurisdictional objections is estopped from challenging that jurisdiction after an adverse judgment is rendered.

• "Section 193 of the LGC, an express and general repeal of all statutes granting exemptions from local taxes, withdrew the sweeping tax privileges previously enjoyed by the NPC under its Charter."
• "The removal of the blanket exclusion of government instrumentalities from local taxation [is] one of the most significant provisions of the 1991 LGC."
• "Reliance of BPC on the provision of Executive Order No. 226, specifically Section 1, Article 39, Title III, is clearly misplaced as the six-year tax holiday provided therein which commences from the date of commercial operation refers to income taxes imposed by the national government on BOI-registered pioneer firms."
• "A party cannot be allowed to participate in a judicial proceeding, submit the case for decision, accept the judgment only if it is favorable to him but attack the jurisdiction of the court when it is adverse."

• National Power Corporation v. City of Cabanatuan, G.R. No. 149110, April 9, 2003 — Controlling precedent cited as the definitive ruling on the withdrawal of NPC's tax exemption privileges by Section 193 of the Local Government Code; the Court adopted the rationale and holding of this case completely.
• Basco v. Philippine Amusement and Gaming Corporation, 197 SCRA 51 (1991) — Distinguished because it was decided prior to the effectivity of the LGC, at a time when local government units had no authority to tax instrumentalities of the national government.
• Roxas v. Court of Appeals, 391 SCRA 351 (2002) — Cited for the procedural principle that a party cannot belatedly question the jurisdiction of a court after actively participating in proceedings and receiving an adverse decision.

• Section 133(g) of Republic Act No. 7160 (Local Government Code) — Mandates that local government units shall not levy taxes on BOI-certified pioneer enterprises for six years from the date of registration; the Court applied this to determine that BPC's local tax holiday commenced on September 23, 1992.
• Section 193 of Republic Act No. 7160 (Local Government Code) — Provides for the "Withdrawal of Tax Exemption Privileges" upon the effectivity of the Code, expressly repealing tax exemptions enjoyed by all persons, including GOCCs (except local water districts, cooperatives, and non-stock, non-profit hospitals and educational institutions).
• Section 534 of Republic Act No. 7160 (Local Government Code) — The repealing clause stating that all general and special laws, charters, and administrative regulations inconsistent with the LGC are hereby repealed or modified accordingly.
• Section 133(o) of Republic Act No. 7160 (Local Government Code) — Claimed by NPC as exempting national government instrumentalities from local taxes, but interpreted by the Court as not preserving pre-existing blanket exemptions in light of Section 193.
• Section 13 of Republic Act No. 6395 (NPC Charter, as amended) — Granted NPC exemption from all taxes; held to have been expressly repealed by the LGC.
• Section 1, Article 39 of Executive Order No. 226 (Omnibus Investment Code) — Provided that the tax holiday for pioneer enterprises commences from the date of commercial operations; the Court held this applicable only to national income taxes.
• Article X, Section 5 of the 1987 Constitution — Cited as the constitutional basis for the grant of taxing powers to local government units and the policy of local autonomy.