National Power Corporation vs. Provincial Government of Bulacan

A claim for exemption from real property tax, whether full or partial, does not question the local assessor’s authority to assess but raises the reasonableness or correctness of the assessment, a question of fact that requires compliance with the Section 252 payment-under-protest requirement before the LBAA may act. The Section 234(c) machinery exemption requires proof that the machineries and equipment are actually, directly, and exclusively used for the exempting purpose.

NPC is a government-owned and controlled corporation that owns and operates the Angat Hydro-Electric Power Plant in Hilltop, San Lorenzo, Norzagaray, Bulacan. The Provincial Government of Bulacan, the Municipal Government of Norzagaray, and the Municipal Assessor of Norzagaray are the local authorities named as respondents in the RPT dispute. The Local Government Code governs real property taxation, including the Section 252 payment-under-protest requirement and the Section 234 exemptions invoked by NPC.

On December 12, 2006, NPC received from the Municipal Assessor of Norzagaray a Notice of Assessment for RPT covering January 1, 1996 to December 31, 2005 for the properties listed in the Machineries Assessment, namely the main dam, spillway with three taintor steel gates, two diversion tunnels, tailrace tunnel, penstock, auxiliary draft tube gates with frames and guiderails, draft tube gates and hoists, power tunnel, power intake structure, surge tunnel, and power intake service and bulkhead gates. On December 14, 2006, NPC received another Notice of Assessment for RPT covering January 1, 1997 to December 31, 2006 for the Land Assessment, covering the camp site, spillway, and powerhouse, with a total tax due of PHP 82,845,188.60.

As the parties failed to settle amicably, NPC questioned the assessment before the LBAA of Bulacan, assigning two errors: the properties in the Machineries Assessment were exempt under Section 234(c) of the LGC because they were actually, directly, and exclusively used in generating and transmitting electricity; and the assessor erroneously assigned a 40% assessment level to the land instead of the 10% rate prescribed for GOCCs under Section 218(d). In its Answer, the Municipal Assessor admitted a mistake in assigning 40% and sent a new Notice of Assessment on February 8, 2007 using the 10% assessment level on special classes of properties under Section 2.D.17, paragraph (d) of the Provincial Revenue Code of Bulacan; the revised RPT due for the Land Assessment covering January 1, 1996 to December 31, 2005 was PHP 18,475,003.20 and PHP 2,733,248.00 for January 1, 2006 to December 31, 2006. The assessor posited that the hearing on the Machineries Assessment should be deferred until NPC had paid the assessment under protest. The Provincial Government of Bulacan invoked Section 216 of the LGC as the basis of NPC’s liability for RPT on the machineries, argued that the properties are structures wherein RPT could be properly imposed, and sought dismissal for lack of certification against non-forum shopping. NPC countered that it was not required to pay the tax under protest under Ty vs. Trampe because it was questioning the very authority and power of the Municipal Assessor to impose RPT on properties exempt from the tax; it added that the Land Assessment was still erroneous because the Sanggunian concerned did not pass an ordinance on the fair market value of the special classes of properties as mandated by Sections 212 and 215 of the LGC.

On August 14, 2008, the LBAA rendered a Judgment upholding the RPT assessment against NPC. It ruled that payment under protest is a condition sine qua non before filing an appeal to the Board; that Ty vs. Trampe did not apply because the issue there involved harmonization of PD 921 and the LGC; that NPC failed to prove that the machineries were actually, directly, and exclusively used in the generation or transmission of electric power; and that Sections 212 and 215 of the LGC did not apply because Norzagaray is outside Metro Manila. It ordered NPC to pay PHP 18,475,003.20 for the Land Assessment covering January 1, 1997 to December 31, 2006 and PHP 113,960,000.00 for the Machineries Assessment covering January 1, 1996 to December 31, 2005. NPC appealed to the CBAA, insisting that it is not liable to pay RPT because the machineries are actually, directly, and exclusively used in the generation or transmission of electric power. On the Land Assessment, NPC posited that the local assessor issued a Notice of Assessment dated June 1, 2007 limiting NPC’s liability to PHP 6,485,422.60, so the LBAA erred in still ordering payment of PHP 18,475,003.20.

On August 26, 2010, the CBAA dismissed NPC’s appeal. It ruled that NPC failed to prove that the machineries were actually, directly, and exclusively used for generating and transmitting electric power; that the dam and its auxiliaries are multi-purpose; that the other properties are either water conveyance structures or utilized for preventive maintenance, periodic check-ups and repairs, and safety measures; and that the structures are used for retention, conservation, diversion, utilization, management and control of water, and also for irrigation, flood control, and water supply for the Greater Manila Area. It upheld the assessments and affirmed the LBAA. NPC’s motion for reconsideration was denied on October 14, 2011.

NPC filed a Petition before the CTA En Banc, docketed as CTA Case No. 850 (CBAA Case No. L-93), averring that the CBAA erred in ordering it to pay PHP 18,475,003.20 for the Land Assessment instead of PHP 6,485,422.60 based on the amended assessment, and that the properties in the Machineries Assessment were actually, directly, and exclusively used for electricity generation, pollution control, and environmental protection and were exempt from RPT. On November 29, 2012, the CTA En Banc denied NPC’s Petition. It noted that the Municipality of Norzagaray amended the statement of account for the Land Assessment to PHP 6,485,422.60, but held that NPC’s failure to first pay the tax rendered its protest without effect and its appeal to the LBAA prematurely filed; it cited National Power Corporation vs. Province of Quezon and ruled that the premature filing violated the doctrine of exhaustion of administrative remedies and that NPC had no cause of action. The CTA En Banc affirmed the CBAA and ordered NPC to pay PHP 18,475,003.20 for the Land Assessment and PHP 113,960,000.00 for the Machineries Assessment. It denied NPC’s motion for reconsideration on April 22, 2013.

The CBAA’s factual findings described the assessed properties as follows: the main dam is an immovable massive wall of earth and rockfill that receives, holds, and impounds water from the Angat and Umiray rivers and is used primarily to irrigate agricultural lands in Central Luzon, provide domestic water supply for Metro Manila and neighboring towns through the MWSS, and generate hydroelectric power; the spillway and three taintor gates release water from the reservoir once it exceeds capacity and act as outlets to prevent flooding and loss of lives and property; the two diversion canals were used to divert water during the construction of the dam; the power tunnel conveys water from the reservoir to the penstocks down to the main and auxiliary power units; after energizing the turbines, the used water is let out through the tailrace and surge tunnels and channeled downstream to the Angat River, the Bustos Dam of the NIA for irrigation, and the Ipo Dam of the MWSS for water supply; the power intake structures and draft tube gates and hoists are primarily used as safety and preventive mechanisms during repairs and maintenance by controlling the amount of water in the units and dewatering chambers. NPC’s Plant Manager, Eng. Rodolfo German, testified that the questioned properties are structures used for retention, conservation, diversion, utilization, management and control of water, and admitted that the facilities are also used for irrigation, flood control, and water supply for the Greater Manila Area. The LBAA witness testified that the dam complex is a multi-purpose facility performing other functions like providing water for irrigation, flood control and mitigation, and potable water, aside from power generation. The properties actually, directly, and exclusively used for power generation and transmission, such as water turbines, water pumps, generators, transformers, and transmitters, were excluded from the assessments.

• Payment Under Protest: NPC argued that it was not required to pay the tax under protest because it was not questioning the reasonableness or correctness of the assessments but the very authority and power of the Municipal Assessor to assess properties that are exempt from RPT; it invoked Ty vs. Trampe.
• Scope of CTA Review: NPC averred that the CTA erroneously denied the Petition on the ground that NPC failed to comply with the payment-under-protest requirement, an issue never raised by the parties in their Petition and Comment.
• Machineries Exemption: NPC claimed that the properties in the Machineries Assessment were exempt under Section 234(c) of the LGC because they were actually, directly, and exclusively used for electricity generation, pollution control, and environmental protection; it invoked the Section 199(o) definition of machinery and argued that the assessed properties were not structures, or that even if structures, they were still machineries.
• Land Assessment as Government Instrumentality: NPC argued that it is a government instrumentality that should not be subjected to local taxes by LGUs; even assuming liability, it should have been ordered to pay only PHP 6,485,422.60 based on the amended assessment.
• Land Assessment Level and Ordinance: NPC argued before the LBAA that the assessor erroneously assigned a 40% assessment level instead of the 10% rate for GOCCs under Section 218(d) of the LGC, and that the Sanggunian concerned did not pass an ordinance on the fair market value of special classes of properties as required by Sections 212 and 215.

• Payment Under Protest: The Municipal Assessor posited that the hearing on the Machineries Assessment should be deferred until NPC had paid the assessment under protest.
• Machineries as Structures: The Provincial Government of Bulacan invoked Section 216 of the LGC as the basis of NPC’s liability for RPT on the machineries and argued that the properties are structures on which RPT could be properly imposed.
• Non-Forum Shopping: The Provincial Government argued that the petition should be dismissed for lack of certification against non-forum shopping.
• CTA Ruling: Respondents reiterated the CTA En Banc’s discussion in their Comment on the Petition.

• Scope of CTA Review: Whether the CTA may rule upon related issues not specifically raised by the parties but necessary to achieve an orderly disposition of the case.
• Payment Under Protest: Whether compliance with the payment-under-protest requirement in Section 252 of the LGC is a condition sine qua non to question the assessment of the local assessor before the LBAA.
• Machineries Assessment Exemption: Whether the properties listed in the Machineries Assessment are exempt from RPT.
• Land Assessment Exemption: Whether the properties listed in the Land Assessment are exempt from RPT.

• Scope of CTA Review: Yes. Under Section 1, Rule 14 of the Revised Rules of the CTA, the CTA may rule upon related issues necessary to achieve an orderly disposition; the payment-under-protest issue was ancillary to the premature filing with the LBAA.
• Payment Under Protest: Yes. A claim for RPT exemption is a question of fact on the correctness of the assessment, so Section 252 payment under protest is mandatory; without a valid protest, the LBAA cannot act and the appeal is premature.
• Machineries Assessment Exemption: No. The eleven properties were not shown to be actually, directly, and exclusively used for power generation and transmission; the Section 234(c) exemption was not met, and the Section 234(e) pollution-control exemption was not alleged or proven.
• Land Assessment Exemption: No. NPC is a GOCC whose local tax exemption was repealed by Section 193 of the LGC; its lands are special classes under Sections 216 and 218, subject to the 10% assessment level, and the liability is PHP 6,485,422.60 under the amended assessment.

• Scope of CTA Review: The SC held that the CTA may rule upon related issues not specifically raised by the parties but necessary to achieve an orderly disposition of the case under Section 1, Rule 14 of the Revised Rules of the CTA. The payment-under-protest requirement in Section 252 of the LGC is ancillary to the issue of premature filing with the LBAA: if NPC was required to pay but failed, the administrative protest with the assessor was without effect and the Petition filed with the LBAA was premature. The Municipal Assessor of Norzagaray raised during the LBAA proceedings that NPC did not pay the questioned tax under protest, so NPC is deemed to have impliedly consented to try the issue under Rule 10, Section 5 of the Rules of Court.
• Payment Under Protest: The SC rejected NPC’s argument that it was questioning the assessor’s authority. A claim for exemption from RPT, whether full or partial, does not question the authority of the local assessor to assess real property tax; it raises the reasonableness or correctness of the assessment, a question of fact. Section 206 of the LGC implies that the local assessor has authority to assess the property, and any subsequent claim for exemption is allowed only when sufficient proof is adduced. National Power Corporation vs. Province of Quezon, National Power Corporation vs. The Provincial Treasurer of Benguet, and Camp John Hay Development Corporation vs. Central Board of Assessment Appeals held that payment under protest is mandatory; without a valid protest, the LBAA cannot act. Ty vs. Trampe and Olivarez vs. Marquez were distinguished: Ty involved a legal question on the validity of any increase and the authority of the assessor and treasurer, while Olivarez involved the correctness of assessments and exemption, a question of fact. Here, NPC’s LBAA petition raised factual questions on whether the machineries were actually, directly, and exclusively used and whether the land computation was erroneous. Sections 252 and 226 of the LGC provide successive administrative remedies; Section 226’s “action” of the assessor refers to the denial of a protest under Section 252. NPC did not pay the tax, so its protest was ineffective and its LBAA appeal was premature. The CTA correctly ruled that the appeal was premature, but it should have desisted from ruling on NPC’s liability after recognizing that failure. Nevertheless, the SC resolved the merits because the LBAA and CBAA had already done so, the CBAA conducted hearings and ocular inspections, remand would be futile, a Warrant of Levy had been issued, and the case had been pending for almost ten years.
• Machineries Assessment Exemption: Section 234(c) of the LGC requires: (a) the machineries and equipment are actually, directly, and exclusively used by local water districts or GOCCs; and (b) the local water district or GOCC is engaged in the supply and distribution of water and/or the generation and transmission of electric power. NPC is undisputed to be a GOCC engaged in power generation and transmission. “Machinery” under Section 199(o) of the LGC and Article 290(o) of the LGC Implementing Rules includes physical facilities for production, installations, and appurtenant service facilities if actually, directly, and exclusively used to meet the needs of the particular industry and by their nature and purpose are necessary or indispensable for the exempting purpose. The CBAA found that the eleven assessed properties were multi-purpose, water conveyance structures, or used for preventive maintenance, periodic check-ups, repairs, and safety measures; they were also used for irrigation, flood control, and water supply for the Greater Manila Area. NPC’s Plant Manager testified that the properties are structures used for retention, conservation, diversion, utilization, management and control of water, and admitted that the facilities are also used for irrigation, flood control, and water supply. These findings negate the actual, direct, and exclusive use requirement. The SC accords great respect to the factual findings of the LBAA and CBAA absent erroneous appreciation of evidence. The properties actually used for power generation and transmission, such as water turbines, water pumps, generators, transformers, and transmitters, were already excluded from the assessment. As to Section 234(e), the exemption for machinery and equipment used for pollution control and environmental protection is based on usage and requires direct, immediate, and actual use; NPC did not allege this before the LBAA and CBAA and introduced no evidence, raising it only in its motion for reconsideration and admitting “some usage,” which is not exclusive use.
• Land Assessment Exemption: NPC’s claim that it is a government instrumentality exempt from local taxes is misplaced. NPC admitted that it is a GOCC duly organized under RA No. 6395, and the parties never disputed its status as a GOCC. A GOCC is defined as an agency organized as a stock or non-stock corporation vested with functions relating to public needs and owned by the Government directly or through its instrumentalities. NPC is a wholly-owned stock corporation organized to undertake hydroelectric generation and transmission. In National Power Corporation vs. City of Cabanatuan, the SC ruled that NPC’s exemption from local taxes as a GOCC had been repealed by Section 193 of the LGC; NPC must point to an express exemption in the LGC. Under Sections 216 and 218 of the LGC, lands, buildings, and other improvements owned and used by GOCCs rendering essential public services in the generation and transmission of electric power are classified as special classes of real property subject to a 10% assessment level. The CTA En Banc observed that on June 1, 2007, the Municipality of Norzagaray issued an amended statement of account for the Land Assessment, such that the RPT due on the lands shall be PHP 6,485,422.60, and this revised amount was confirmed in a letter dated July 12, 2007. The SC thus upheld the land assessment in the reduced amount of PHP 6,485,422.60.

• Payment Under Protest for RPT Exemption Claims — A claim for exemption from RPT, whether full or partial, does not question the local assessor’s authority to assess but raises the reasonableness or correctness of the assessment, a question of fact. Section 252 of the LGC requires the taxpayer to first pay the tax under protest; without a valid protest, the LBAA has no authority to act. Applied to NPC’s exemption claim.
• Question of Fact vs. Question of Law in RPT Protests — If the issue is the correctness or reasonableness of the assessment, including a claim for exemption, the taxpayer must exhaust administrative remedies under Sections 252 and 226 of the LGC. If the issue is the legality or validity of the assessment or the assessor’s lack of authority, it is a question of law cognizable by the RTC. Applied: NPC’s claim was factual, not an attack on authority.
• Exhaustion of Administrative Remedies; Exceptions — Non-exhaustion renders an action premature but is not jurisdictional; it may be disregarded when requiring exhaustion would be unreasonable or when the issue has become moot. Applied: LBAA and CBAA already resolved the merits, CBAA conducted hearings and ocular inspections, and remand would be futile.
• Machinery Exemption under Section 234(c) of the LGC — The claimant must prove: (a) the machineries and equipment are actually, directly, and exclusively used by local water districts or GOCCs; and (b) the local water district or GOCC is engaged in the supply and distribution of water and/or the generation and transmission of electric power. “Machinery” under Section 199(o) and Article 290(o) of the LGC IRR includes physical facilities if actually, directly, and exclusively used and necessary or indispensable for the exempting purpose. Applied: NPC met the GOCC requirement but failed the use requirement.
• Exclusive Use Requirement — “Exclusive” means possessed and enjoyed to the exclusion of others; if property is used for one or more commercial purposes, it is not exclusively used for the exempted purpose. “Dominant use” or “principal use” cannot substitute for “used exclusively.” Applied: the dam complex was multi-purpose, also used for irrigation, flood control, and water supply.
• Pollution Control Exemption under Section 234(e) of the LGC — The exemption is based on usage and requires direct, immediate, and actual use for pollution control and environmental protection; it must be alleged and supported by evidence. Applied: NPC did not allege or prove such use before the LBAA and CBAA.
• GOCC Local Tax Exemption Repealed by the LGC — Section 193 of the LGC repealed the local tax exemptions of GOCCs like NPC; a GOCC must point to an express exemption in the LGC. Applied: NPC’s land assessment was not exempt but subject to the 10% special class assessment level.
• Respect for Factual Findings of Administrative Bodies — Factual findings of administrative bodies with expertise, such as the LBAA and CBAA, are accorded great respect absent erroneous appreciation of evidence. Applied: the SC upheld the CBAA’s finding that the machineries were not exclusively used for power generation and transmission.
• CTA’s Authority to Rule on Related Issues — Under Section 1, Rule 14 of the Revised Rules of the CTA, the CTA may rule upon related issues not specifically raised by the parties but necessary to achieve an orderly disposition. Applied: the payment-under-protest issue was ancillary to the premature filing with the LBAA.

• “A claim for exemption from real property tax (RPT), whether full or partial, does not deal with the authority and power of the local assessor to impose the assessment or the local treasurer to collect the tax.” — This frames the SC’s core rule that an exemption claim is not an attack on the assessor’s authority but a question of correctness requiring payment under protest.
• “The issue of exemption that pertains to the reasonableness or correctness of the assessment is a question of fact that administrative agencies should resolve. Therefore, compliance with the “payment under protest” requirement in Section 252 (a) of the Local Government Code (LGC) is mandatory.” — This states the decisive procedural rule applied against NPC.
• “A claim for tax exemption, whether full or partial, does not question the authority of local assessor to assess real property tax, but merely raises a question of the reasonableness or correctness of such assessment, which requires compliance with Section 252 of the LGC of 1991.” — This is the SC’s restatement of the rule after distinguishing Ty vs. Trampe and Olivarez vs. Marquez.
• “The words “dominant use” or “principal use” cannot be substituted for the words “used exclusively” without doing violence to the Constitutions and the law. Solely is synonymous with exclusively.” — This defines the exclusive-use requirement applied to deny the Section 234(c) machinery exemption.

• National Power Corporation vs. Province of Quezon, 624 Phil. 738 (2010) — Controlling precedent; held that a claim for exemption is a question of fact on the correctness of the assessment, requiring payment under protest; followed.
• Camp John Hay Development Corporation vs. Central Board of Assessment Appeals, 718 Phil. 543 (2013) — Applied; held that a claim for RPT exemption is a question of fact that must first be resolved by the LBAA and requires payment under protest.
• Ty vs. Hon. Trampe, 321 Phil. 81 (1995) — Distinguished; applies when the taxpayer questions the very authority and power of the assessor and treasurer and raises a legal question, in which case Section 252 does not apply.
• Olivarez vs. Marquez, 482 Phil. 183 (2004) — Distinguished; petition primarily involved the correctness of assessments, a question of fact, and should have been brought to the LBAA.
• National Power Corporation vs. Municipal Government of Navotas, 747 Phil. 744 (2014) — Distinguished; the only issue was the legality or validity of the assessment, a question of law cognizable by the RTC.
• City of Lapu-Lapu vs. Philippine Economic Zone Authority, 748 Phil. 473 (2014) — Relied on for the guidelines on a taxpayer’s remedies against erroneous or illegal RPT assessments.
• Lung Center of the Philippines vs. Quezon City, 477 Phil. 141 (2004) — Relied on for the definition of “exclusive” use; dominant or principal use cannot substitute for exclusive use.
• National Power Corporation vs. City of Cabanatuan, 449 Phil. 233 (2003) — Relied on for the ruling that NPC’s exemption from local taxes as a GOCC had been repealed by Section 193 of the LGC.

• Section 252(a), Local Government Code (RA 7160) — Requires the taxpayer to first pay the tax under protest before any protest is entertained; applied to hold NPC’s protest ineffective and its LBAA appeal premature.
• Section 226, Local Government Code — Allows an appeal to the LBAA from the assessor’s action in the assessment; read with Section 252(d), the “action” refers to the assessor’s denial of a protest, so without a valid protest the LBAA cannot act.
• Section 206, Local Government Code — Provides that real property not declared and proved tax-exempt shall be included in the assessment roll; used to show the assessor has authority to assess and that an exemption claim is a correctness issue requiring proof.
• Section 234(c), Local Government Code — Exempts machineries and equipment actually, directly, and exclusively used by local water districts and GOCCs engaged in water supply/distribution and/or electric power generation/transmission; applied and denied because the properties were not exclusively used for the exempting purpose.
• Section 234(e), Local Government Code — Exempts machinery and equipment used for pollution control and environmental protection; denied because NPC did not allege or prove direct, immediate, and actual use for that purpose.
• Section 199(o), Local Government Code and Article 290(o), LGC Implementing Rules — Define “machinery” to include physical facilities and installations if actually, directly, and exclusively used and necessary or indispensable for the industry or activity; applied in assessing the machineries claim.
• Section 216, Local Government Code — Classifies lands, buildings, and improvements owned and used by GOCCs rendering essential public services in water and/or electric power as special classes of real property; applied to the Land Assessment.
• Section 218(d), Local Government Code — Fixes a 10% assessment level for GOCCs engaged in water supply/distribution and/or electric power generation/transmission; applied to reduce the Land Assessment to PHP 6,485,422.60.
• Section 193, Local Government Code — Repealed local tax exemptions of GOCCs; applied to hold that NPC must point to an express LGC exemption and is not exempt from the land RPT.
• Section 229, Local Government Code — Provides that LBAA proceedings are conducted solely to ascertain facts; used to distinguish factual exemption issues from legal questions cognizable by the RTC.
• Section 1, Rule 14, Revised Rules of the CTA (A.M. No. 05-11-07-CTA) — Allows the CTA to rule upon related issues not specifically raised by the parties but necessary for an orderly disposition; applied to the payment-under-protest issue.
• Rule 10, Section 5, Rules of Court — Treats issues not raised in the pleadings as raised when tried with the express or implied consent of the parties; applied because the Municipal Assessor raised non-payment during the LBAA proceedings.
• Rule 45, Rules of Court — Governs the Petition for Review filed by NPC; the case reached the SC through this mode.
• Section 2(13), Administrative Code of 1987 — Defines a GOCC as an agency organized as a stock or non-stock corporation vested with functions relating to public needs and owned by the Government directly or through its instrumentalities; applied to NPC.
• Sections 2 and 5, RA No. 6395 (NPC Charter) — Establish NPC as a wholly-owned stock corporation organized to undertake hydroelectric generation and transmission; applied to confirm its GOCC status.