Philippine Fisheries Development Authority vs. Court of Appeals

National government instrumentalities are exempt from real property taxation by local government units as an inherent limitation on the latter's taxing power, except for portions of their properties where beneficial use has been granted to taxable persons; properties of public dominion, including ports constructed by the State, cannot be levied upon or sold at public auction to satisfy tax claims regardless of ownership changes.

The controversy arose from the Municipality of Navotas' attempt to collect real estate taxes from the Philippine Fisheries Development Authority for properties within the Navotas Fishing Port Complex. The NFPC was constructed using proceeds from a loan agreement between the Republic of the Philippines and the Asian Development Bank, situated on reclaimed land bounded by Manila Bay. The PFDA was created by Presidential Decree No. 977 and later reorganized by Executive Order No. 772 to manage fishing ports and markets, with the NFPC transferred to its jurisdiction. The dispute highlighted the tension between local government fiscal autonomy under the 1991 Local Government Code and the inherent limitation that local governments cannot tax national government instrumentalities or properties of public dominion.

• The Navotas Fishing Port Complex consists of 67 hectares of reclaimed land bounded by Manila Bay, constructed using funds from a loan agreement between the Republic of the Philippines and the Asian Development Bank, with harbor operations commencing on January 15, 1977 and market operations on April 3, 1977.
• The Philippine Fish Marketing Authority was created by Presidential Decree No. 977 on August 11, 1976, later reorganized into the Philippine Fisheries Development Authority by Executive Order No. 772 on February 8, 1982, with the NFPC transferred to PFDA's exclusive jurisdiction and included in its capitalization.
• The Municipality of Navotas assessed real property taxes against PFDA for the period 1981-1990 totaling P23,128,304.51 inclusive of penalties as of June 30, 1990, which remained unpaid despite demands.
• Municipal Treasurer Florante M. Barredo issued notice on October 29, 1990 scheduling public auction of NFPC for November 30, 1990 to satisfy the tax delinquency.
• The Department of Finance opined on July 14, 1990 that properties leased to taxable persons were subject to tax to be paid by the grantees, but the Municipality proceeded to publish auction notice in Balita newspaper on November 2, 1990.
• PFDA had leased portions of the NFPC to private entities including Frabelle Fishing Corporation on March 13, 1989, and admitted willingness to submit a list of lessees for proper assessment of taxes on leased portions.
• The NFPC land has no certificate of title registered in PFDA's name, and the properties were built by the State for public use and service as a fishing port complex.
• As of December 31, 2001, the total taxes due from PFDA-owned properties leased to private parties amounted to P62,841,947.79 according to the Realty Tax Order of Payment dated September 16, 2002.

• The NFPC is owned by the Republic of the Philippines, being reclaimed land and property of public dominion under Article 420 of the Civil Code, and thus exempt from real property tax.
• PFDA is not a taxable entity but merely an instrumentality operating the port in favor of the Republic pursuant to P.D. No. 977, as amended by E.O. No. 772, which granted it jurisdiction to manage but not ownership in the sovereign sense.
• As reclaimed land, the port complex should be considered reserved land under NDC v. Cebu City, remaining absolute property of the government and tax exempt.
• Citing Government v. Cabangis and Lampria v. Director of Lands, land reclaimed from the sea through government construction of breakwaters belongs to the State under Article 5 of the Law of Waters of 1866.
• The property is intended for public use and public service, qualifying as property of public dominion that cannot be alienated or taxed.
• The tax exemption under P.D. No. 977 (income tax exemption) indicates legislative intent that PFDA is not a taxable entity, and real property tax exemption follows as an inherent limitation on local taxing power.

• The real properties within NFPC are owned entirely by PFDA, not the Republic of the Philippines, and PFDA failed to submit proof to the Municipal Assessor that the properties are government-owned.
• Executive Order No. 772 effectively transferred ownership of NFPC to PFDA in 1982 by including it in PFDA's capitalization, making PFDA the owner liable for taxes from that date.
• If the properties truly belong to the government, the complaint should have been instituted in the name of the Republic of the Philippines represented by the Office of the Solicitor General, not by PFDA alone.
• The complaint is fatally defective due to non-compliance with the condition precedent of payment of the disputed tax assessment under protest before seeking judicial remedy.
• PFDA is a government-owned and controlled corporation (GOCC), not a mere agency, and as a juridical person under Section 193 of the Local Government Code, its tax exemption was withdrawn unless specifically provided.
• The beneficial use of the property was granted to taxable persons (lessees), making the property subject to tax under Section 234(a) of the Local Government Code.

• Procedural Issues: Whether the complaint was properly instituted by PFDA instead of the Republic of the Philippines; whether PFDA failed to exhaust administrative remedies by not paying taxes under protest and appealing to the Local Board of Assessment Appeals, Central Board of Assessment Appeals, and Court of Tax Appeals.
• Substantive Issues: Whether PFDA is liable for real property taxes on the NFPC; whether PFDA qualifies as a national government instrumentality exempt from local taxation under Section 133(o) of the Local Government Code; whether the NFPC constitutes property of public dominion exempt from execution and taxation; whether the beneficial use exception under Section 234(a) applies to portions leased to private parties; whether the NFPC can be sold at public auction to satisfy tax claims.

• Procedural: The Court addressed the substantive issues despite procedural objections, noting that the case presented pure questions of law regarding the nature of PFDA and the NFPC, and that the administrative remedies would not have provided adequate relief given the urgent threat of public auction of property of public dominion.
• Substantive: PFDA is a national government instrumentality, not a GOCC, because it has capital stock not divided into shares, no stockholders, and no members, administering special funds and enjoying operational autonomy under a charter; as such, it is exempt from real property tax under Section 133(o) of the Local Government Code which embodies the inherent limitation that local governments cannot tax the national government and its instrumentalities. The NFPC is property of public dominion under Article 420 of the Civil Code as a port constructed by the State for public use and service, and thus cannot be sold at public auction to satisfy tax claims regardless of ownership changes or lack of title registration. Under the beneficial use exception in Section 234(a) of the Local Government Code, PFDA is liable for real property taxes only on portions leased to taxable private entities, amounting to P62,841,947.79 as of December 31, 2001, while the remainder of the complex remains exempt. The Realty Tax Order of Payment is void except for the amount attributable to leased properties, and the Municipality is directed to refrain from levying on the NFPC to satisfy the tax delinquency on non-leased portions.

• Inherent Limitations on Taxing Power (Government Immunity) — The principle that local government units cannot impose taxes on the national government, its agencies and instrumentalities, as embodied in Section 133(o) of the Local Government Code, based on the fundamental doctrine that the government cannot tax itself; this limitation applies to national government instrumentalities like PFDA which are not integrated within department frameworks but are vested with special functions and corporate powers.
• Public Dominion Property (Article 420, Civil Code) — Property intended for public use, such as ports and bridges constructed by the State, or property belonging to the State intended for public service, is outside the commerce of man and cannot be alienated, mortgaged, or sold at public auction; such properties are exempt from execution and foreclosure regardless of who administers them.
• National Government Instrumentality vs. GOCC — A national government instrumentality is distinguished from a government-owned and controlled corporation by the absence of stock divided into shares, stockholders, or members; an instrumentality has capital stock fully subscribed by the government but enjoys operational autonomy and performs special functions, rendering it exempt from local taxation unlike GOCCs which are taxable juridical persons unless specifically exempted.
• Beneficial Use Exception — Under Section 234(a) of the Local Government Code, real property owned by the Republic or its political subdivisions is exempt from real property tax unless the beneficial use thereof has been granted to a taxable person, in which case the tax is imposed on the grantee but may be collected from the owner as the party in possession.

• "It is axiomatic that when public property is involved, exemption is the rule and taxation, the exception."
• "The port built by the State in the Iloilo fishing complex is a property of public dominion and cannot therefore be sold at public auction. Article 420 of the Civil Code provides: 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..."
• "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."
• "Reclaimed lands are lands of the public domain and cannot, without Congressional fiat, be subject of a sale, public or private."

• Manila International Airport Authority (MIAA) v. Court of Appeals, G.R. No. 155650 — Controlling precedent establishing the test for determining national government instrumentalities and their exemption from local taxation; the Court cited PFDA as an example of an instrumentality in that case.
• NDC v. Cebu City, G.R. No. 51593 — Cited for the definition of reserved land as public land withheld from sale or disposition, remaining absolute property of the government and tax exempt.
• Government v. Cabangis, 53 Phil. 112 — Historical precedent declaring that land reclaimed from the sea through government construction belongs to the State under the Law of Waters of 1866.
• Lampria v. Director of Lands, 67 Phil. 338 — Reinforced the rule that reclaimed lands are State property not subject to private appropriation.
• Chavez v. Public Estates Authority, G.R. No. 133250 — Authority for the proposition that reclaimed lands are public domain and cannot be sold without Congressional authorization.
• Social Security System v. City of Bacolod, G.R. No. L-35726 — Cited for the principle that exemption is the rule and taxation the exception when public property is involved.
• Laurel v. Garcia, G.R. No. 92013 — Distinguished regarding the requirement of executive and legislative concurrence for conveyance of government property; the Court noted President Marcos exercised both powers when E.O. No. 772 was issued.

• Article 420, Civil Code — Defines property of public dominion including ports constructed by the State and properties intended for public service; central to the determination that NFPC cannot be auctioned.
• Section 133(o), Local Government Code (R.A. No. 7160) — Common limitation on taxing power prohibiting local governments from levying taxes on the national government, its agencies and instrumentalities; the statutory basis for PFDA's exemption.
• Section 234(a), Local Government Code — Exception to tax exemption for government property when beneficial use is granted to taxable persons; basis for imposing tax liability only on leased portions.
• Section 193, Local Government Code — Withdrawal of tax exemptions for all juridical persons unless otherwise provided; respondents argued this applied to PFDA but Court held PFDA is an instrumentality, not merely a juridical person subject to this withdrawal.
• Section 2(10), Introductory Provisions, Administrative Code — Definition of national government instrumentality as an agency not integrated within the department framework, vested with special functions, endowed with corporate powers, administering special funds, and enjoying operational autonomy.
• Presidential Decree No. 977 — Charter creating the Philippine Fish Marketing Authority (PFDA's predecessor) and exempting it from income tax.
• Executive Order No. 772 — Amendment transferring NFPC to PFDA jurisdiction and including it in PFDA capitalization.
• Article 5, Law of Waters of 1866 — Historical provision stating that accretions and land reclaimed through government works belong to the State.