National Power Corporation vs. Province of Albay

The Fiscal Incentives Review Board, under Presidential Decree No. 776, had only recommendatory powers to the President regarding the withdrawal, modification, or revocation of tax exemptions, and could not validly grant, restore, or impose tax exemptions on its own authority; therefore, tax exemption resolutions issued by the FIRB without Presidential approval under PD 776 were void, and a government-owned corporation whose statutory tax exemption had been withdrawn by Presidential Decree No. 1931 remained liable for taxes during the period between such withdrawal and the valid restoration of exemption by proper executive authority under a subsequently enacted law authorizing such restoration.

The National Power Corporation (NAPOCOR), a government-owned and controlled corporation, operated properties and facilities in Tiwi, Albay under a legislative charter (Commonwealth Act No. 120, as amended by Republic Act No. 6395) that declared it exempt from the payment of all forms of taxes, duties, fees, imposts, and other charges. On June 11, 1984, Presidential Decree No. 1931 withdrew all tax and duty exemptions granted to government-owned or controlled corporations, including their subsidiaries. Following this withdrawal, the Fiscal Incentives Review Board (FIRB), created under Presidential Decree No. 776, issued several resolutions attempting to "restore" NAPOCOR's tax exemption privileges for various periods. Relying on the withdrawal of exemptions under PD 1931, the Province of Albay assessed real property taxes against NAPOCOR for the period from June 11, 1984 to March 10, 1987, and scheduled a public auction of NAPOCOR's properties, including buildings and machines, to satisfy the alleged tax delinquencies.

• NAPOCOR owned properties, buildings, machines, and improvements located in Tiwi, Albay, which were the subject of a notice of auction sale published by the Province of Albay on March 14 and 15, 1989.
• The Province of Albay claimed that NAPOCOR had accumulated real property tax delinquencies totaling P214,845,184.76 for the period from June 11, 1984 up to March 10, 1987, and intended to apply the proceeds of the auction sale to satisfy these delinquencies.
• NAPOCOR opposed the auction sale, invoking FIRB Resolution No. 17-87, which purported to restore NAPOCOR's tax and duty exemption privileges effective March 10, 1987, and a Memorandum from the Executive Secretary dated October 5, 1987, which confirmed and approved such restoration pursuant to Sections 1(f) and 2(e) of Executive Order No. 93.
• Under Section 13 of Republic Act No. 6395 (amending Commonwealth Act No. 120), NAPOCOR was originally declared exempt from the payment of all forms of taxes, duties, fees, imposts, and other charges.
• On June 11, 1984, Presidential Decree No. 1931 was promulgated, withdrawing all exemptions from the payment of duties, taxes, fees, imposts, and other charges granted to government-owned or controlled corporations, including their subsidiaries.
• Presidential Decree No. 776 (August 24, 1975) created the Fiscal Incentives Review Board (FIRB) and authorized it merely to "recommend to the President... the withdrawal, modification, revocation or suspension" of statutory subsidies or tax exemption grants, except those granted by the Constitution.
• FIRB Resolution No. 10-85 attempted to restore NAPOCOR's tax exemption effective June 11, 1984 to June 30, 1985; FIRB Resolution No. 1-86 attempted to grant tax exemption privileges from July 1, 1985 indefinitely; and FIRB Resolution No. 17-87 attempted to grant tax exemption privileges effective March 10, 1987.
• On December 17, 1986, Executive Order No. 93 was promulgated, withdrawing all tax and duty incentives except those specifically enumerated, and authorizing the FIRB to restore tax and/or duty exemptions withdrawn thereunder, revise their scope, impose conditions, and prescribe dates of effectivity.

• NAPOCOR argued that it was exempt from real property taxes based on FIRB Resolution No. 17-87 and the confirmatory Memorandum of the Executive Secretary dated October 5, 1987, which restored its tax exemption privileges effective March 10, 1987 pursuant to Commonwealth Act No. 120 as amended.
• NAPOCOR contended that the auction sale should be annulled because it violated the tax exemption privileges restored by the FIRB and confirmed by the Office of the President under Executive Order No. 93.
• NAPOCOR maintained that the FIRB resolutions were valid and constituted sufficient basis for its claim of tax immunity during the contested period.

• The Province of Albay argued that the various FIRB issuances constituted an undue delegation of the legislative power to grant tax exemptions and were therefore null and void under the Constitution, as only the legislature could accord tax exemption privileges.
• Respondents contended that under Presidential Decree No. 776, the FIRB was empowered merely to "recommend" to the President the withdrawal or modification of tax exemptions, and had no authority to impose taxes, revoke existing ones, or restore exemptions on its own.
• Respondents conceded that NAPOCOR's exemption had been validly restored as of March 10, 1987, but insisted that NAPOCOR remained liable for real property taxes accrued during the "interregnum" between June 11, 1984 (withdrawal by PD 1931) and March 10, 1987 (valid restoration).
• Respondents questioned Executive Order No. 93 as an alleged unlawful delegation of legislative power, but only insofar as NAPOCOR's tax accumulation for the June 11, 1984 to March 10, 1987 period was concerned.

• Procedural Issues: Whether the Supreme Court should rule on the constitutionality of Executive Order No. 93 as an undue delegation of legislative power when the respondents only questioned its application to the specific tax period from June 11, 1984 to March 10, 1987, and admitted the validity of the tax exemption restoration as of March 10, 1987.
• Substantive Issues: Whether the Fiscal Incentives Review Board had the authority under Presidential Decree No. 776 to validly restore NAPOCOR's tax exemptions through FIRB Resolutions Nos. 10-85 and 1-86, and whether NAPOCOR was liable for real property taxes for the period from June 11, 1984 to March 10, 1987.

• Procedural: The Court declined to rule on the constitutionality of Executive Order No. 93 as an undue delegation of the legislative power to grant tax exemptions, noting that the respondents admitted the validity of NAPOCOR's tax exemption restoration as of March 10, 1987, and questioned the delegation only insofar as the interregnum period was concerned. The Court reserved the issue of delegation "to the future and its constitutionality when the proper case arises," leaving Executive Order No. 93 alone as far as it granted tax exemptions beginning December 17, 1986.
• Substantive: The Court ruled that the FIRB, under its charter Presidential Decree No. 776, had been empowered merely to "recommend" tax exemptions to the President and could not validly prescribe, grant, or restore tax exemptions on its own authority. Consequently, FIRB Resolutions Nos. 10-85 and 1-86 were invalid and ineffective to restore NAPOCOR's tax exemptions for the periods they covered. The Court held that NAPOCOR's tax exemption privileges were withdrawn effective June 11, 1984 by Presidential Decree No. 1931, and were not validly restored until March 10, 1987 when Executive Order No. 93 (which prospectively authorized the FIRB to restore exemptions) became effective and the Office of the President confirmed the restoration. Therefore, NAPOCOR was held liable for real property taxes accumulated between June 11, 1984 and March 10, 1987, and the auction sale of its properties to satisfy these delinquencies was declared valid.

• Strict Construction of Tax Exemptions — As an inherent limitation on tax exemptions, claims of tax exemption must be construed strictly against the claimant and must be shown to exist clearly and categorically, supported by clear legal provisions; exemptions are not favored in law and are construed against the taxpayer who claims them.
• Taxes as the Lifeblood of the Nation — As an inherent limitation justifying strict construction of exemptions, taxes are the lifeblood of the nation, and their primary purpose is to generate funds for the State to finance the needs of the citizenry and advance the common weal.
• Non-Delegation of Legislative Power (Taxation) — The power to grant tax exemptions is inherently legislative and cannot be delegated to administrative agencies without constitutional standards; while the Court reserved ruling on whether Executive Order No. 93 constituted an invalid delegation, it held that under Presidential Decree No. 776, the FIRB clearly lacked the power to restore exemptions as its authority was merely recommendatory, not substantive.
• Prospective Operation of Delegating Statutes — A statute or executive order conferring new substantive powers upon an administrative body operates prospectively and cannot retroactively validate prior ultra vires acts of that body; thus, Executive Order No. 93 could not ratify or validate the invalid FIRB resolutions issued prior to its effectivity.

• "As we said, the FIRB, under its charter, Presidential Decree No. 776, had been empowered merely to 'recommend' tax exemptions. By itself, it could not have validly prescribed exemptions or restore taxability."
• "Taxes are the lifeblood of the nation. Their primary purpose is to generate funds for the State to finance the needs of the citizenry and to advance the common weal."
• "As a rule finally, claims of tax exemption are construed strongly against the claimant. They must also be shown to exist clearly and categorically, and supported by clear legal provisions."
• "Actually, the State has no reason to decry the taxation of NAPOCOR's properties, as and by way of real property taxes. Real property taxes, after all, form part and parcel of the financing apparatus of the Government in development and nation-building, particularly in the local government level... To all intents and purposes, real property taxes are funds taken by the State with one hand and given to the other."

• Commissioner of Internal Revenue v. Lingayen Gulf Electric Power Co., Inc., No. L-23771, August 4, 1988, 164 SCRA 27 — Cited for the principle that tax exemptions do not cover periods prior to the grant of the exemption or before the effective date of restoration, thereby establishing liability for taxes accrued during the intervening period when no valid exemption existed.
• Commissioner of Internal Revenue v. Guerrero, No. L-20942, September 22, 1967, 21 SCRA 180 — Cited for the established rule that claims of tax exemption are construed strongly against the claimant.
• Commissioner of Internal Revenue v. Pineda, No. L-22734, September 15, 1967, 21 SCRA 105 — Cited for the doctrine that taxes are the lifeblood of the nation, justifying strict construction of exemptions.

• Commonwealth Act No. 120, Section 13 (as amended by Republic Act No. 6395, Section 13) — Statutory provision originally granting NAPOCOR, including its subsidiaries, exemption from the payment of all forms of taxes, duties, fees, imposts, and other charges, as well as costs and service fees in any court or administrative proceedings.
• Presidential Decree No. 776, Section 2 — Provision creating the Fiscal Incentives Review Board and limiting its authority to recommending to the President the withdrawal, modification, revocation, or suspension of statutory tax exemption grants, except those granted by the Constitution.
• Presidential Decree No. 1931, Section 1 — Provision withdrawing all exemptions from the payment of duties, taxes, fees, imposts, and other charges granted to government-owned or controlled corporations, including their subsidiaries, effective June 11, 1984.
• Executive Order No. 93, Sections 1 and 2 — Provision withdrawing tax and duty incentives and authorizing the FIRB to restore exemptions withdrawn thereunder, impose conditions, and prescribe dates of effectivity, promulgated on December 17, 1986.
• Presidential Decree No. 464, Sections 86 and 87 — Provisions of the Real Property Tax Code detailing the distribution and application of real property tax proceeds to local government units, cited to emphasize that real property taxes form part of the financing apparatus of government.

• Feliciano, J. — Concurred in the result without writing a separate opinion.

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