Province of Nueva Vizcaya vs. CE Casecnan Water and Energy Company, Inc.

Real property tax assessments may be validly issued based on previously enacted ordinances fixing assessment levels and fair market values, even in the absence of a new ordinance for the taxable years in question. Moreover, Executive Order No. 173 reduces and condones real property tax liabilities of independent power producers under build-operate-transfer contracts with government-owned or -controlled corporations for all years up to 2014, and it applies to both unpaid and already paid taxes; any excess payment must be refunded.

CE Casecnan Water and Energy Company, Inc. and the National Irrigation Administration entered into a Build-Operate-Transfer contract on 13 November 1994, later amended on 26 June 1995, for a combined irrigation and hydroelectric power generation project. CE Casecnan undertook to finance, design, construct, and operate facilities that would divert water from the Casecnan Watershed in Nueva Vizcaya to the Pantabangan Reservoir, generating electrical energy in the process. The Provincial Assessor of Nueva Vizcaya thereafter sought to impose real property tax on the project’s dams, tunnels, machinery, and other improvements located in the Municipality of Alfonso Castaneda.

• The BOT Project: On 13 November 1994, CE Casecnan and the National Irrigation Administration entered into a Build-Operate-Transfer contract, amended on 26 June 1995, for a combined irrigation and hydroelectric power generation facility. CE Casecnan undertook to finance, design, construct, and operate the project, which diverted water from the Casecnan Watershed to the Pantabangan Reservoir and generated electrical energy accepted by NIA in exchange for fees. The project’s power generation capacity supplemented the Luzon grid and augmented power generation at the Pantabangan and Masiway hydroelectric plants in Nueva Ecija.

• Assessment and Demand: On 2 December 2002, the OIC Provincial Assessor of Nueva Vizcaya requested from CE Casecnan detailed estimates of infrastructure costs for the dams, trans-basin tunnel, buildings, machinery, roads, and other structures in Alfonso Castaneda, Nueva Vizcaya, for real property tax assessment. CE Casecnan provided the documents. On 28 September 2003, the Provincial Assessor’s Office informed CE Casecnan of the initial appraisal and assessment. On 27 February 2004, the Office of the Municipal Assessor and Treasurer demanded settlement of real property tax for 2003 and 2004. CE Casecnan endorsed the demand to NIA pursuant to their agreement, but NIA did not give instructions and instead filed its own protest with the Local Board of Assessment Appeals, which was denied on 1 December 2004.

• Payment Under Protest: The Provincial Treasurer issued a Final Demand on 1 February 2005 for ₱229,680,604.27, and another on 5 May 2005 for ₱238,368,919.33 covering 2003, 2004, and 2005. With NIA failing to respond, CE Casecnan paid the total delinquency of ₱250,734,306.98 under protest and sought reimbursement from NIA. On 23 August 2005, CE Casecnan filed a Protest with the Provincial Treasurer requesting review of the assessment, cessation of collection, and refund; this was dismissed on 15 October 2005. CE Casecnan’s subsequent appeal to the Local Board of Assessment Appeals was denied on 20 October 2006, the board holding that the registered owner of the machinery was CE Casecnan, a non-GOCC, and therefore not exempt under Section 234(c) of the Local Government Code.

• CBAA and CTA Proceedings: CE Casecnan appealed to the Central Board of Assessment Appeals; NIA’s separate appeal was consolidated. The CBAA initially dismissed both appeals on 5 December 2013, ruling that the properties were not exempt because the registered owner was not a GOCC or local water district. On reconsideration, the CBAA modified its ruling on 21 August 2015, declaring the assessments for 2003 and 2004 null and void because the Province of Nueva Vizcaya had not enacted a tax ordinance for those years. CE Casecnan then filed a petition for review with the Court of Tax Appeals En Banc, arguing that no valid tax ordinance existed for 2005 as well, seeking a refund of the amount paid, and invoking Executive Order No. 173. The CTA En Banc on 17 November 2017 affirmed the lack of a valid tax ordinance and remanded the case to the CBAA for computation of a refund under EO No. 173. The CTA noted that the Assistant Provincial Assessor himself admitted during testimony that the Province had not enacted tax ordinances for 2003, 2004, and 2005.

• Applicability of EO No. 173 to Paid Taxes: Petitioner Province of Nueva Vizcaya argued that Executive Order No. 173 only covers unpaid and existing real property tax liabilities, not taxes that CE Casecnan had already paid. The condonation and reduction could no longer be applied once the tax had been settled.

• Validity of the Assessments: Petitioner maintained that the tax assessments for 2003 to 2005 were valid. Tax Ordinance No. 2000-003, which fixed assessment levels for 2000 to 2002, could serve as the basis for the assessments in the succeeding years because no new ordinance had been enacted to repeal or replace it.

• Constitutionality of EO No. 173: Petitioner urged the Supreme Court to declare Executive Order No. 173 unconstitutional, contending it violated the principle of local autonomy under the Constitution.

• Applicability of EO No. 173: Respondent CE Casecnan argued that Executive Order No. 173 squarely applied to its real property tax liabilities because it is an independent power producer under a build-operate-transfer contract with NIA, a government-owned or -controlled corporation. The executive order does not distinguish between paid and unpaid taxes, and thus the reduction and condonation extended to the amount already paid under protest.

• Nullity of Assessments for Lack of Tax Ordinance: Respondent maintained that the CTA correctly ruled there was no legal basis for the real property tax assessments for 2003 to 2005, given the Province’s admitted failure to enact the requisite tax ordinances for those years. Accordingly, CE Casecnan claimed entitlement to a full refund of the ₱250,734,306.98 paid.

• Constitutionality of EO No. 173: Respondent defended the constitutionality of Executive Order No. 173, relying on the President’s authority under Section 277 of the Local Government Code to condone or reduce real property tax when public interest so requires.

• Validity of Assessments: Whether the real property tax assessments issued against CE Casecnan for the years 2003 to 2005 are null and void for lack of a valid tax ordinance.

• Applicability of EO No. 173: Whether Executive Order No. 173, which reduces and condones real property tax liabilities of independent power producers under build-operate-transfer contracts with government-owned or -controlled corporations, applies to real property taxes already paid by CE Casecnan.

• Constitutional Challenge: Whether the constitutionality of Executive Order No. 173 could be raised for the first time in a petition for review before the Supreme Court.

• Validity of Assessments: The assessments were valid. The failure of the Province of Nueva Vizcaya to enact a new tax ordinance updating assessment levels and fair market values for the years 2003 to 2005 did not nullify its power to levy real property tax. Tax Ordinance No. 99-002, adopting the 1999 Schedule of Fair Market Values, and Tax Ordinance No. 2000-003, fixing the assessment levels for 2000 to 2002, remained effective and provided a sufficient legal basis for the assessments. The requirement under Section 219 of the Local Government Code for a general revision of assessments every three years is directory and intended merely to ensure that valuations reflect current economic realities; non-compliance does not strip the local government of the authority to impose real property tax.

• Applicability of EO No. 173: Executive Order No. 173 applies to both outstanding and already paid real property tax liabilities. Section 1 of EO No. 173 does not distinguish between unpaid taxes and amounts already settled; it simply reduces the tax due to an amount computed using a 15% assessment level and 2% annual depreciation, less any amounts already paid, and condones all fines, penalties, and interest. Because CE Casecnan is an independent power producer under a build-operate-transfer contract with NIA, a GOCC, it is entitled to the reduction and condonation. Any excess payment must be refunded. The CTA En Banc was correct to remand the case to the Central Board of Assessment Appeals for the computation of the amount to be refunded.

• Constitutional Challenge: The constitutional question was not entertained. The challenge to the constitutionality of Executive Order No. 173 was raised for the first time in the Province’s petition before the Supreme Court. Under settled doctrine, a constitutional issue must be raised at the earliest opportunity in the pleadings before a competent court. The competent court for resolving the constitutionality of the executive order in this case was the Court of Tax Appeals, pursuant to Banco De Oro v. Republic. Having been belatedly interposed, the issue could not be considered at this stage.

• Continuity of Tax Ordinances — A local government unit’s failure to enact a new tax ordinance updating the schedule of fair market values and assessment levels does not invalidate the levy of real property tax. Existing ordinances fixing assessment levels and fair market values continue to serve as valid bases for assessment until amended or repealed. The directive under Section 219 of the Local Government Code for periodic general revision of assessments is directory and intended to align valuations with economic realities; it does not operate to suspend or extinguish the taxing power.

• EO No. 173 Condonation and Reduction — Executive Order No. 173 reduces all real property tax liabilities of independent power producers under build-operate-transfer contracts with government-owned or -controlled corporations, for all years up to 2014, to an amount equivalent to a tax due based on a 15% assessment level of fair market value, depreciated at 2% per annum, less any amounts already paid. All fines, penalties, and interest on such liabilities are condoned. The executive order applies regardless of whether the tax has been paid; the reduced amount is to be deducted from whatever the IPP has already paid, entitling the taxpayer to a refund of any excess.

• Earliest Opportunity Rule in Constitutional Litigation — The constitutionality of a statute or executive order must be raised at the earliest opportunity in the pleadings before a competent court capable of resolving the question. Failure to do so precludes the appellate court from considering the constitutional challenge. The Court of Tax Appeals is a competent court for determining the constitutionality of revenue-related executive orders under Banco De Oro v. Republic.

• "The ruling of the CTA En Banc invalidating the assessment of the RPT in the absence of an ordinance fixing the assessment levels and fair market values is dangerous and it is tantamount to emasculating the power of local governments to levy RPT." — The Court emphasized that the power to tax is not defeated by the local government’s failure to update ordinances.

• "The prescription under Section 219 of the LGC for local governments to undertake a general revision of real property assessments … is only to make sure that the schedule of fair market values and assessment levels capture the true economic realities … taking into consideration inflation and other economic indicators." — This clarifies the directory nature of the revision requirement.

• "EO No. 173 does not distinguish between outstanding liabilities and those that had been paid at the time the executive order became effective. Section 1 of EO No. 173 is clear that the reduced amount of RPT under the executive order should be deducted from whatever is paid by the IPP." — The Court rejected the argument that the condonation applied only to unpaid taxes.

• "The earliest opportunity to raise a constitutional issue is in the pleadings before a competent court that can resolve the same, such that, if it was not raised in the pleadings before a competent court, it cannot be considered at the trial, and, if not considered in the trial, it cannot be considered on appeal." — The Court applied the settled rule on constitutional adjudication to bar the belated challenge.

• Banco De Oro v. Republic, G.R. No. 198756 (Resolution), 16 August 2016 — Followed as authority that the Court of Tax Appeals is a competent court to resolve the constitutionality of a revenue-related executive order, thus it was the proper forum for raising the constitutional challenge.

• Estarija v. Ranada, 525 Phil. 718 (2006), citing Matibag v. Benipayo, 429 Phil. 554 (2002) — Applied for the rule that a constitutional question must be raised at the earliest opportunity; a failure to do so precludes its consideration on appeal.

• Article X, Section 5, 1987 Constitution — Recognized as the source of local government units’ power to create their own sources of revenue and levy taxes, consistent with the basic policy of local autonomy.

• Section 199(g), Local Government Code (R.A. No. 7160) — Defined “assessment level” as the percentage applied to fair market value to determine taxable value, which underlay the requirement of an ordinance fixing assessment levels.

• Section 218, Local Government Code — Provided the maximum assessment levels that local government units may legislate through ordinance, used to affirm that existing ordinances remained effective.

• Section 219, Local Government Code — Prescribed the period for general revision of real property assessments; interpreted as directory rather than mandatory, so non-compliance did not invalidate the assessments.

• Section 234(c), Local Government Code — Exemption of machinery and equipment actually, directly, and exclusively used by local water districts and GOCCs engaged in water supply and power generation; held inapplicable to CE Casecnan because it is not a GOCC or local water district, a finding unchallenged in this review.

• Section 277, Local Government Code — Empowered the President to condone or reduce real property tax and interest when public interest so requires; served as the statutory basis for Executive Order No. 173.

• Executive Order No. 173 — Applied to reduce CE Casecnan’s real property tax liability to an amount computed at 15% assessment level and 2% annual depreciation, with full condonation of fines, penalties, and interest, for all years up to 2014.

Chief Justice Diosdado M. Peralta (Chairperson), Justice Mario V. Lopez (designated as Additional Member), Justice Rodil V. Zalameda, Justice Samuel H. Gaerlan.