Local Government Taxation

MCIAA v. City of Lapu-Lapu

FIRST DIVISION

airports as may be established in the Province of Cebu." It is represented in this case by the Office of the Solicitor
General.

Respondent City of Lapu-Lapu is a local government unit and political subdivision, created and existing under its own
charter with capacity to sue and be sued. Respondent Elena T. Pacaldo was impleaded in her capacity as the City
Treasurer of respondent City. aScITE

Upon its creation, petitioner enjoyed exemption from realty taxes under the following provision of Republic Act No.
6958:

[G.R. No. 181756. June 15, 2015.]

MACTAN-CEBU INTERNATIONAL AIRPORT AUTHORITY

(MCIAA), petitioner, vs. CITY OF LAPU-LAPU and ELENA T. PACALDO, respondents.

Section 14. Tax Exemptions. The Authority shall be exempt from realty taxes imposed by the National
Government or any of its political subdivisions, agencies and instrumentalities: Provided,That no tax exemption
herein granted shall extend to any subsidiary which may be organized by the Authority.

On September 11, 1996, however, this Court rendered a decision in Mactan-Cebu International Airport Authority v.
Marcos 4 (the 1996 MCIAA case) declaring that upon the effectivity of Republic Act No. 7160 (The Local Government
Code of 1991), petitioner was no longer exempt from real estate taxes. The Court held:

DECISION

LEONARDO-DE CASTRO, J p:

This is a clear opportunity for this Court to clarify the effects of our two previous decisions, issued a decade apart, on
the power of local government units to collect real property taxes from airport authorities located within their area,
and the nature or the juridical personality of said airport authorities.

Since the last paragraph of Section 234 unequivocally withdrew, upon the effectivity of the LGC, exemptions from
payment of real property taxes granted to natural or juridical persons, including government-owned or controlled
corporations, except as provided in the said section, and the petitioner is, undoubtedly, a government-owned
corporation, it necessarily follows that its exemption from such tax granted it in Section 14 of its Charter, R.A. No.
6958, has been withdrawn. . . . .

On January 7, 1997, respondent City issued to petitioner a Statement of Real Estate Tax assessing the lots
comprising the Mactan International Airport in the amount of P162,058,959.52. Petitioner complained that there were
discrepancies in said Statement of Real Estate Tax as follows:

Before us is a Petition for Review on Certiorari under Rule 45 of the 1997 Rules of Civil Procedure seeking to
reverse and set aside the October 8, 2007 Decision 1 of the Court of Appeals (Cebu City) in CA-G.R. SP No. 01360
and the February 12, 2008 Resolution 2 denying petitioner's motion for reconsideration.

(a)

[T]he statement included lots and buildings not found in the inventory of petitioner's real properties;

THE FACTS

(b)

[S]ome of the lots were covered by two separate tax declarations which resulted in double assessment;

Petitioner Mactan-Cebu International Airport Authority (MCIAA) was created by Congress on July 31, 1990 under
Republic Act No. 6958 3 to "undertake the economical, efficient and effective control, management and supervision
of the Mactan International Airport in the Province of Cebu and the Lahug Airport in Cebu City . . . and such other

(c)

[There were] double entries pertaining to the same lots; and

(d)

[T]he statement included lots utilized exclusively for governmental purposes. 5

Respondent City amended its billing and sent a new Statement of Real Estate Tax to petitioner in the amount of
P151,376,134.66. Petitioner averred that this amount covered real estate taxes on the lots utilized solely and
exclusively for public or governmental purposes such as the airfield, runway and taxiway, and the lots on which they
are situated. 6

Petitioner paid respondent City the amount of four million pesos (P4,000,000.00) monthly, which was later increased
to six million pesos (P6,000,000.00) monthly. As of December 2003, petitioner had paid respondent City a total of
P275,728,313.36. 7

Under the Law on Public Corporations, the legislature has complete control over the property which a municipal
corporation has acquired in its public or governmental capacity and which is devoted to public or governmental use.
The municipality in dealing with said property is subject to such restrictions and limitations as the legislature may
impose. On the other hand, property which a municipal corporation acquired in its private or proprietary capacity, is
held by it in the same character as a private individual. Hence, the legislature in dealing with such property, is subject
to the constitutional restrictions concerning property (Martin, Public Corporations [1997], p. 30; see also Province of
Zamboanga del [Norte] v. City of Zamboanga [131 Phil. 446]). The same may be said of properties transferred to the
MCIAA and used for airport purposes, such as those involved herein. Since such properties are of public dominion,
they are deemed held by the MCIAA in trust for the Government and can be alienated only as may be provided by
law. HEITAD

Based on the foregoing, it is our considered opinion that the properties used for airport purposes, such as the airfield,
runway and taxiway and the lots on which the runway and taxiway are located, are owned by the State or by the
Republic of the Philippines and are merely held in trust by the MCIAA, notwithstanding that certificates of titles
thereto may have been issued in the name of the MCIAA. (Emphases added.)

Based on the above DOJ Opinion, the Department of Finance issued a 2nd Indorsement to the City Treasurer of
Lapu-Lapu dated August 3, 1998, 9 which reads:

Upon request of petitioner's General Manager, the Secretary of the Department of Justice (DOJ) issued Opinion No.
50, Series of 1998, 8 and we quote the pertinent portions of said Opinion below:

You further state that among the real properties deemed transferred to MCIAA are the airfield, runway, taxiway and
the lots on which the runway and taxiway are situated, the tax declarations of which were transferred in the name of
the MCIAA. In 1997, the City of Lapu-Lapu imposed real estate taxes on these properties invoking the provisions of
the Local Government Code.

It is your view that these properties are not subject to real property tax because they are exclusively used for airport
purposes. You said that the runway and taxiway are not only used by the commercial airlines but also by the
Philippine Air Force and other government agencies. As such and in conjunction with the above interpretation of
Section 15 of R.A. No. 6958, you believe that these properties are considered owned by the Republic of the
Philippines. Hence, this request for opinion.

The query is resolved in the affirmative. The properties used for airport purposes (i.e., airfield, runway, taxiway and
the lots on which the runway and taxiway are situated) are owned by the Republic of the Philippines.

xxx xxx xxx

The distinction as to which among the MCIAA properties are still considered "owned by the State or by the Republic
of the Philippines," such as the resolution in the above-cited DOJ Opinion No. 50, for purposes of real property tax
exemption is hereby deemed tenable considering that the subject "airfield, runway, taxiway and the lots on which the
runway and taxiway are situated" appears to be the subject of real property tax assessment and collection of the city
government of Lapu-Lapu, hence, the same are definitely located within the jurisdiction of Lapu-Lapu City. cTDaEH

Moreover, then Undersecretary Antonio P. Belicena of the Department of Finance, in his 1st Indorsement dated May
18, 1998, advanced that "this Department (DOF) interposes no objection to the request of Mactan Cebu International
Airport Authority for exemption from payment of real property tax on the property used for airport purposes"
mentioned above.

The City Assessor, therefore, is hereby instructed to transfer the assessment of the subject airfield, runway, taxiway
and the lots on which the runway and taxiway are situated, from the "Taxable Roll" to the "Exempt Roll" of real
properties.

The City Treasurer thereat should be informed on the action taken for his immediate appropriate action. (Emphases
added.) aDSIHc

Respondent City Treasurer Elena T. Pacaldo sent petitioner a Statement of Real Property Tax Balances up to the
year 2002 reflecting the amount of P246,395,477.20. Petitioner claimed that the statement again included the lots

utilized solely and exclusively for public purpose such as the airfield, runway, and taxiway and the lots on which
these are built. Respondent Pacaldo then issued Notices of Levy on 18 sets of real properties of petitioner. 10

However, upon motion of respondents, the RTC lifted the writ of preliminary injunction in an Order 15 dated
December 5, 2005. The RTC reasoned as follows:

Petitioner filed a petition for prohibition 11 with the Regional Trial Court (RTC) of Lapu-Lapu City with prayer for the
issuance of a temporary restraining order (TRO) and/or a writ of preliminary injunction, docketed as SCA No. 6056-L.
Branch 53 of RTC Lapu-Lapu City then issued a 72-hour TRO. The petition for prohibition sought to enjoin
respondent City from issuing a warrant of levy against petitioner's properties and from selling them at public auction
for delinquency in realty tax obligations. The petition likewise prayed for a declaration that the airport terminal
building, the airfield, runway, taxiway and the lots on which they are situated are exempted from real estate taxes
after due hearing. Petitioner based its claim of exemption on DOJ Opinion No. 50.

The respondent City, in the course of the hearing of its motion, presented to this Court a certified copy of its
Ordinance No. 44 (Omnibus Tax Ordinance of the City of Lapu-Lapu), Section 25 whereof authorized the collection of
a rate of one and one-half (1 1/2) [per centum] from owners, executors or administrators of any real estate lying
within the jurisdiction of the City of Lapu-Lapu, based on the assessed value as shown in the latest revision.

Though this ordinance was enacted prior to the effectivity of Republic Act No. 7160 (Local Government Code of
1991), to the mind of the Court this ordinance is still a valid and effective ordinance in view of Sec. 529 of RA 7160 . .
. [and the] Implementing Rules and Regulations of RA 7160 . . . .
The RTC issued an Order denying the motion for extension of the TRO. Thus, on December 10, 2003, respondent
City auctioned 27 of petitioner's properties. As there was no interested bidder who participated in the auction sale,
respondent City forfeited
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and purchased said properties. The corresponding Certificates of Sale of Delinquent Property were issued to
respondent City. 12

Petitioner claimed before the RTC that it had discovered that respondent City did not pass any ordinance authorizing
the collection of real property tax, a tax for the special education fund (SEF), and a penalty interest for its
nonpayment. Petitioner argued that without the corresponding tax ordinances, respondent City could not impose and
collect real property tax, an additional tax for the SEF, and penalty interest from petitioner. 13

The tax collected under Ordinance No. 44 is within the rates prescribed by RA 7160, though the 25% penalty
collected is higher than the 2% interest allowed under Sec. 255 of the said law which provides:

In case of failure to pay the basic real property tax or any other tax levied under this Title upon the expiration of the
periods as provided in Section 250, or when due, as the case may be, shall subject the taxpayer to the payment of
interest at the rate of two percent (2%) per month on the unpaid amount or a fraction thereof, until the delinquent tax
shall have been fully paid: Provided, however, That in no case shall the total interest on the unpaid tax or portion
thereof exceed thirty-six (36) months.

The RTC issued an Order 14 on December 28, 2004 granting petitioner's application for a writ of preliminary
injunction. The pertinent portions of the Order are quoted below:

The supervening legal issue has rendered it imperative that the matter of the consolidation of the ownership of the
auctioned properties be placed on hold. Furthermore, it is the view of the Court that great prejudice and damage will
be suffered by petitioner if it were to lose its dominion over these properties now when the most important legal issue
has still to be resolved by the Court. Besides, the respondents and the intervenor have not sufficiently shown cause
why petitioner's application should not be granted.

WHEREFORE, the foregoing considered, petitioner's application for a writ of preliminary injunction is granted.
Consequently, upon the approval of a bond in the amount of one million pesos (P1,000,000.00), let a writ of
preliminary injunction issue enjoining the respondents, the intervenor, their agents or persons acting in [their] behalf,
to desist from consolidating and exercising ownership over the properties of the petitioner.

This difference does not however detract from the essential enforceability and effectivity of Ordinance No. 44
pursuant to Section 529 of RA 7160 and Article 278 of the Implementing Rules and Regulations. The outcome of this
disparity is simply that respondent City can only collect an interest of 2% per month on the unpaid tax. Consequently,
respondent City [has] to recompute the petitioner's tax liability.

It is also the Court's perception that respondent City can still collect the additional 1% tax on real property without an
ordinance to this effect. It may be recalled that Republic Act No. 5447 has created the Special Education Fund which
is constituted from the proceeds of the additional tax on real property imposed by the law. Respondent City has
collected this tax as mandated by this law without any ordinance for the purpose, as there is no need for it. Even
when RA 5447 was amended by PD 464 (Real Property Tax Code), respondent City had continued to collect the tax,
as it used to.

It is true that RA 7160 has repealed RA 5447, but what has been repealed are only Section 3, a(3) and b(2) which
concern the allocation of the additional tax, considering that under RA 7160, the proceeds of the additional 1% tax on

real property accrue exclusively to the Special Education Fund. Nevertheless, RA 5447 has not been totally
repealed; there is only a partial repeal.
The Court of Appeals (Cebu City) promulgated the questioned Decision on October 8, 2007, holding that petitioner is
a government-owned or controlled corporation and its properties are subject to realty tax. The dispositive portion of
the questioned Decision reads:
It may be observed that there is no requirement in RA 7160 that an ordinance be enacted to enable the collection of
the additional 1% tax. This is so since RA 5447 is still in force and effect, and the declared policy of the government
in enacting the law, which is to contribute to the financial support of the goals of education as provided in the
Constitution, necessitates the continued and uninterrupted collection of the tax. Considering that this is a tax of farreaching importance, to require the passage of an ordinance in order that the tax may be collected would be to place
the collection of the tax at the option of the local legislature. This would run counter to the declared policy of the
government when the SEF was created and the tax imposed.

WHEREFORE, in view of the foregoing, judgment is hereby rendered by us as follows:

a.
We DECLARE the airport terminal building, the airfield, runway, taxiway and the lots on which they are
situated NOT EXEMPT from the real estate tax imposed by the respondent City of Lapu-Lapu;
As regards the allegation of respondents that this Court has no jurisdiction to entertain the instant petition, the Court
deems it proper, at this stage of the proceedings, not to treat this issue, as it involves facts which are yet to be
established.

. . . [T]he Court's issuance of a writ of preliminary injunction may appear to be a futile gesture in the light of Section
263 of RA 7160. . . . .

b.
We DECLARE the imposition and collection of the real estate tax, the additional levy for the Special
Education Fund and the penalty interest as VALID and LEGAL. However, pursuant to Section 255 of the Local
Government Code, respondent city can only collect an interest of 2% per month on the unpaid tax which total interest
shall, in no case, exceed thirty-six (36) months;

c.
We DECLARE the sale in public auction of the aforesaid properties and the eventual forfeiture and
purchase of the subject property by the respondent City of Lapu-Lapu

xxx xxx xxx

It would seem from the foregoing provisions, that once the taxpayer fails to redeem within the one-year period,
ownership fully vests on the local government unit concerned. Thus, when in the present case petitioner failed to
redeem the parcels of land acquired by respondent City, the ownership thereof became fully vested on respondent
City without the latter having to perform any other acts to perfect its ownership. Corollary thereto, ownership on the
part of respondent City has become a fait accompli.

WHEREFORE, in the light of the foregoing considerations, respondents' motion for reconsideration is granted, and
the order of this Court dated December 28, 2004 is hereby reconsidered. Consequently, the writ of preliminary
injunction issued by this Court is hereby lifted.

Aggrieved, petitioner filed a petition for certiorari 16 with the Court of Appeals (Cebu City), with urgent prayer for the
issuance of a TRO and/or writ of preliminary injunction, docketed as CA-G.R. SP No. 01360. The Court of Appeals
(Cebu City) issued a TRO 17 on January 5, 2006 and shortly thereafter, issued a writ of preliminary injunction 18 on
February 17, 2006. cSaATC

RULING OF THE COURT OF APPEALS

as NULL and VOID.However, petitioner MCIAA's property is encumbered only by a limited lien possessed by the
respondent City of Lapu-Lapu in accord with Section 257 of the Local Government Code. 19

Petitioner filed a Motion for Partial Reconsideration 20 of the questioned Decision covering only the portion of said
decision declaring that petitioner is a GOCC and, therefore, not exempt from the realty tax and special education
fund imposed by respondent City. Petitioner cited Manila International Airport Authority v. Court of Appeals 21 (the
2006 MIAA case) involving the City of Paraaque and the Manila International Airport Authority. Petitioner claimed
that it had been described by this Court as a government instrumentality, and that it followed "as a logical
consequence that petitioner is exempt from the taxing powers of respondent City of Lapu-Lapu." 22 Petitioner
alleged that the 1996 MCIAA case had been overturned by the Court in the 2006 MIAA case. Petitioner thus prayed
that it be declared exempt from paying the realty tax, special education fund, and interest being collected by
respondent City.

On February 12, 2008, the Court of Appeals denied petitioner's motion for partial reconsideration in the questioned
Resolution.

The Court of Appeals followed and applied the precedent established in the 1996 MCIAA case and refused to apply
the 2006 MIAA case. The Court of Appeals wrote in the questioned Decision: "We find that our position is in line with

the coherent and cohesive interpretation of the relevant provisions of the Local Government Code on local taxation
enunciated in the [1996 MCIAA] case which to our mind is more elegant and rational and provides intellectual clarity
than the one provided by the Supreme Court in the [2006] MIAA case." 23

In the questioned Decision, the Court of Appeals held that petitioner's airport terminal building, airfield, runway,
taxiway, and the lots on which they are situated are not exempt from real estate tax reasoning as follows: ETHIDa

Under the Local Government Code (LGC for brevity), enacted pursuant to the constitutional mandate of local
autonomy, all natural and juridical persons, including government-owned or controlled corporations (GOCCs),
instrumentalities and agencies, are no longer exempt from local taxes even if previously granted an exemption. The
only exemptions from local taxes are those specifically provided under the Code itself, or those enacted through
subsequent legislation.

Thus, the LGC, enacted pursuant to Section 3, Article X of the Constitution, provides for the exercise by local
government units of their power to tax, the scope thereof or its limitations, and the exemptions from local taxation.

Section 193 of the LGC is the general provision on withdrawal of tax exemption privileges. . . . . 24 (Citations
omitted.)

The Court of Appeals went on to state that contrary to the ruling of the Supreme Court in the 2006 MIAA case, it finds
and rules that:

a)
Section 133 of the LGC is not an absolute prohibition on the power of the LGUs to tax the National
Government, its agencies and instrumentalities as the same is qualified by Sections 193, 232 and 234 which
"otherwise provided"; and

b)

Petitioner MCIAA is a GOCC. 25 (Emphasis ours.)

The Court of Appeals ratiocinated in the following manner:

Section 133 of the LGC prescribes the common limitations on the taxing powers of local government units. . . . .

xxx xxx xxx

Pursuant to the explicit provision of Section 193 of the LGC, exemptions previously enjoyed by persons, whether
natural or juridical, like the petitioner MCIAA, are deemed withdrawn upon the effectivity of the Code. Further, the last
paragraph of Section 234 of the Code also unequivocally withdrew, upon the Code's effectivity, exemptions from
payment of real property taxes previously granted to natural or juridical persons, including government-owned or
controlled corporations, except as provided in the said section. Petitioner MCIAA, undoubtedly a juridical person, it
follows that its exemption from such tax granted under Section 14 of R.A. 6958 has been withdrawn.

The above-stated provision, however, qualified the exemption of the National Government, its agencies and
instrumentalities from local taxation with the phrase "unless otherwise provided herein."

xxx xxx xxx

Section 232 of the LGC provides for the power of the local government units (LGUs for brevity) to levy real property
tax. . . . .

From the [1996 MCIAA] ruling, it is acknowledged that, under Section 133 of the LGC, instrumentalities were
generally exempt from all forms of local government taxation, unless otherwise provided in the Code. On the other
hand, Section 232 "otherwise

xxx xxx xxx

Section 234 of the LGC provides for the exemptions from payment of real property taxes and withdraws previous
exemptions granted to natural and juridical persons, including government-owned and controlled corporations,
except as provided therein. . . . .

provided" insofar as it allowed local government units to levy an ad valorem real property tax, irrespective of who
owned the property. At the same time, the imposition of real property taxes under Section 232 is, in turn, qualified by
the phrase "not hereinafter specifically exempted." The exemptions from real property taxes are enumerated in
Section 234 of the Code which specifically states that only real properties owned by the Republic of the Philippines
or any of its political subdivisions are exempted from the payment of the tax. Clearly, instrumentalities or GOCCs do
not fall within the exceptions under Section 234 of the LGC.

xxx xxx xxx

Thus, as ruled in the [1996 MCIAA] case, the prohibition on taxing the national government, its agencies and
instrumentalities under Section 133 is qualified by Sections 232 and 234, and accordingly, the only relevant
exemption now applicable to these bodies is what is now provided under Section 234(a) of the Code. It may be noted
that the express withdrawal of previously granted exemptions to persons from the payment of real property tax by the
LGC does not even make any distinction as to whether the exempt person is a governmental entity or not. As
Sections 193 and 234 of the Code both state, the withdrawal applies to "all persons, including GOCCs," thus
encompassing the two classes of persons recognized under our laws, natural persons and juridical persons.

xxx xxx xxx

We also find to be not meritorious the assertion of petitioner MCIAA that the respondent city can no longer challenge
the tax-exempt character of the properties since it is estopped from doing so when respondent City of Lapu-Lapu,
through its former mayor, Ernest H. Weigel, Jr., had long ago conceded that petitioner's properties are exempt from
real property tax.

It is not denied by the respondent city that it considered, through its former mayor, Ernest H. Weigel, Jr., petitioner's
subject properties, specifically the runway and taxiway, as exempt from taxes. However, as astutely pointed out by
the respondent city it "can never be in estoppel, particularly in matters involving taxes. It is a well-known rule that
erroneous application and enforcement of the law by public officers do not preclude subsequent correct application of
the statute, and that the Government is never estopped by mistake or error on the part of its agents." 28 (Citations
omitted.) cSEDTC

The question of whether or not petitioner MCIAA is an instrumentality or a GOCC has already been lengthily but
soundly, cogently and lucidly answered in the [1996 MCIAA] case . . . .
The Court of Appeals established the following:

xxx xxx xxx

a)
[R]espondent City was able to prove and establish that it has a valid and existing ordinance for the
imposition of realty tax against petitioner MCIAA;
Based on the foregoing, the claim of the majority of the Supreme Court in the [2006 MIAA] case that MIAA (and also
petitioner MCIAA) is not a government-owned or controlled corporation but an instrumentality based on Section 2(10)
of the Administrative Code of 1987 appears to be unsound. In the [2006 MIAA] case, the majority justifies MIAA's
purported exemption on Section 133(o) of the Local Government Code which places "agencies and instrumentalities:
as generally exempt from the taxation powers of the LGUs. It further went on to hold that "By express mandate of the
Local Government Code, local governments cannot impose any kind of tax on national government instrumentalities
like the MIAA." . . . . 26 (Citations omitted.)

b)
[T]he imposition and collection of additional levy of 1% Special Education Fund (SEF) is authorized by law,
Republic Act No. 5447; and

c)
[T]he collection of penalty interest for delinquent taxes is not only authorized by law but is likewise
[sanctioned] by respondent City's ordinance. 29
The Court of Appeals further cited Justice Tinga's dissent in the 2006 MIAA case as well as provisions from petitioner
MCIAA's charter to show that petitioner is a GOCC. 27 The Court of Appeals wrote:
The Court of Appeals likewise held that respondent City has a valid and existing local tax ordinance, Ordinance No.
44, or the Omnibus Tax Ordinance of Lapu-Lapu City, which provided for the imposition of real property tax. The
relevant provision reads:
These cited provisions establish the fitness of the petitioner MCIAA to be the subject of legal relations. Under its
charter, it has the power to acquire, possess and incur
Chapter 5 Tax on Real Property Ownership

obligations. It also has the power to contract in its own name and to acquire title to movable or immovable property.
More importantly, it may likewise exercise powers of a corporation under the Corporation Code. Moreover, based on
its own allegation, it even recognized itself as a GOCC when it alleged in its petition for prohibition filed before the
lower court that it "is a body corporate organized and existing under Republic Act No. 6958 . . . ."

Section 25. RATE OF TAX. A rate of one and one-half (1 1/2) percentum shall be collected from owners,
executors or administrators of any real estate lying within the territorial jurisdiction of the City of Lapu-Lapu, based on
the assessed value as shown in the latest revision. 30

The Court of Appeals found that even if Ordinance No. 44 was enacted prior to the effectivity of the LGC, it remained
in force and effect, citing Section 529 of the LGC and Article 278 of the LGC's Implementing Rules and Regulations.
31

The tax collected under Ordinance No. 44 is within the rates prescribed by RA 7160, though the 25% penalty
collected is higher than the 2% allowed under Sec. 255 of the said law which provides:

xxx xxx xxx

As regards the Special Education Fund, the Court of Appeals held that respondent City can still collect the additional
1% tax on real property even without an ordinance to this effect, as this is authorized by Republic Act No. 5447, as
amended by Presidential Decree No. 464 (the Real Property Tax Code), which does not require an enabling tax
ordinance. The Court of Appeals affirmed the RTC's ruling that Republic Act No. 5447 was still in force and effect
notwithstanding the passing of the LGC, as the latter only partially repealed the former law. What Section 534 of the
LGC repealed was Section 3 a

(3) and b (2) of Republic Act No. 5447, and not the entire law that created the Special Education Fund. 32 The
repealed provisions referred to allocation of taxes on Virginia type cigarettes and duties on imported leaf tobacco and
the percentage remittances to the taxing authority concerned. The Court of Appeals, citing The Commission on Audit
of the Province of Cebu v. Province of Cebu, 33 held that "[t]he failure to add a specific repealing clause particularly
mentioning the statute to be repealed indicates that the intent was not to repeal any existing law on the matter,
unless an irreconcilable inconsistency and repugnancy exists in the terms of the new and the old laws." 34 The Court
of Appeals quoted the RTC's discussion on this issue, which we reproduce below:

This difference does not however detract from the essential enforceability and effectivity of Ordinance No. 44
pursuant to Section 529 of RA No. 7160 and Article 278 of the Implementing Rules and Regulations. The outcome of
this disparity is simply that respondent City can only collect an interest of 2% per month on the unpaid tax.
Consequently, respondent city will have to [recompute] the petitioner's tax liability. 39

It is worthy to note that the Court of Appeals nevertheless held that even if it is clear that respondent City has the
power to impose real property taxes over petitioner, "it is also evident and categorical that, under Republic Act No.
6958, the properties of petitioner MCIAA may not be conveyed or transferred to any person or entity except to the
national government." 40 The relevant provisions of the said law are quoted below:

Section 4. Functions, Powers and Duties. The Authority shall have the following functions, powers and duties:
It may be observed that there is no requirement in RA 7160 that an ordinance be enacted to enable the collection of
the additional 1% tax. This is so since R.A. 5447 is still in force and effect, and the declared policy of the government
in enacting the law, which is to contribute to the financial support of the goals of education as provided in the
Constitution, necessitates the continued and uninterrupted collection of the tax. Considering that this is a tax of farreaching importance, to require the passage of an ordinance in order that the tax may be collected would be to place
the collection of the tax at the option of the local legislature. This would run counter to the declared policy of the
government when the SEF was created and the tax imposed. 35

Regarding the penalty interest, the Court of Appeals found that Section 30 of Ordinance No. 44 of respondent City
provided for a penalty surcharge of 25% of the tax due for a given year. Said provision reads: AIDSTE

xxx xxx xxx

(e) To acquire, purchase, own, administer, lease, mortgage, sell or otherwise dispose of any land, building, airport
facility, or property of whatever kind and nature, whether movable or immovable, or any interest therein: Provided,
That any asset located in the Mactan International Airport important to national security shall not be subject to
alienation or mortgage by the Authority nor to transfer to any entity other than the National Government[.]

Section 30. PENALTY FOR FAILURE TO PAY TAX. Failure to pay the tax provided for under this Chapter within
the time fixed in Section 27, shall subject the taxpayer to a surcharge of twenty-five percent (25%), without interest.
36

Section 13. Borrowing Power. The Authority may, in accordance with Section 21, Article XII of the Constitution and
other existing laws, rules and regulations on local or foreign borrowing, raise funds, either from local or international
sources, by way of loans, credit or securities, and other borrowing instruments with the power to create pledges,
mortgages and other voluntary liens or encumbrances on any of its assets or properties, subject to the prior approval
of the President of the Philippines.

The Court of Appeals however declared that after the effectivity of the Local Government Code, the respondent City
could only collect penalty surcharge up to the extent of 72%, covering a period of three years or 36 months, for the
entire delinquent property. 37 This was lower than the 25% per annum surcharge imposed by Ordinance No. 44. 38
The Court of Appeals affirmed the findings of the RTC in the decision quoted below:

All loans contracted by the Authority under this section, together with all interests and other sums payable in respect
thereof, shall constitute a charge upon all the revenues and assets of the Authority and shall rank equally with one
another, but shall have priority over any other claim or charge on the revenue and assets of the Authority: Provided,
That this provision shall not be construed as a prohibition or

restriction on the power of the Authority to create pledges, mortgages and other voluntary liens or encumbrances on
any asset or property of the Authority.

The payment of the loans or other indebtedness of the Authority may be guaranteed by the National Government
subject to the approval of the President of the Philippines.

The Court of Appeals concluded that "it is clear that petitioner MCIAA is denied by its charter the absolute right to
dispose of its property to any person or entity except to the national government and it is not empowered to obtain
loans or encumber its property without the approval of the President." 41 The questioned Decision contained the
following conclusion:

With the advent of RA 7160, the Local Government Code, the power to tax is no longer vested exclusively on
Congress. LGUs, through its local legislative bodies, are now given direct authority to levy taxes, fees and other
charges pursuant to Article X, Section 5 of the 1987 Constitution. And one of the most significant provisions of the
LGC is the removal of the blanket inclusion of instrumentalities and agencies of the national government from the
coverage of local taxation. The express withdrawal by the Code of previously granted exemptions from realty taxes
applied to instrumentalities and government-owned or controlled corporations (GOCCs) such as the petitioner
Mactan-Cebu International Airport Authority. Thus, petitioner MCIAA became a taxable person in view of the
withdrawal of the realty tax exemption that it previously enjoyed under Section 14 of RA No. 6958 of its charter. As
expressed and categorically held in the Mactan case, the removal and withdrawal of tax exemptions previously
enjoyed by persons, natural or juridical, are consistent with the State policy to ensure autonomy to local governments
and the objective of the Local Government Code that they enjoy genuine and meaningful local autonomy to enable
them to attain their fullest development as self-reliant communities and make them effective partners in the
attainment of national goals.

However, in the case at bench, petitioner MCIAA's charter expressly bars the alienation or mortgage of its property to
any person or entity except to the national government. Therefore, while petitioner MCIAA is a taxable person for
purposes of real property taxation, respondent City of Lapu-Lapu is prohibited from seizing, selling and owning these
properties by and through a public auction in order to satisfy petitioner MCIAA's tax liability. 42 (Citations omitted.)

finality as there is still yet a pending motion for reconsideration filed with the Supreme Court in the aforesaid case.

Second, and more importantly, the ruling of the Supreme Court in the MIAA case cannot be similarly invoked in the
case at bench. The said case cannot be considered as the "law of the case." The "law of the case" doctrine has been
defined as that principle under which determinations of questions of law will generally be held to govern a case
throughout all its subsequent stages where such determination has already been made on a prior appeal to a court
of last resort. It is merely a rule of procedure and does not go to the power of the court, and will not be adhered to
where its application will result in an unjust decision. It relates entirely to questions of law, and is confined in its
operation to subsequent proceedings in the same case. According to said doctrine, whatever has been irrevocably
established constitutes the law of the case only as to the same parties in the same case and not to different parties in
an entirely different case. Besides, pending resolution of the aforesaid motion for reconsideration in the MIAA case,
the latter case has not irrevocably established anything.

Thus, after a thorough and judicious review of the allegations in petitioner's motion for reconsideration, this Court
resolves to deny the same as the matters raised therein had already been exhaustively discussed in the decision
sought to be reconsidered, and that no new matters were raised which would warrant the modification, much less
reversal, thereof. 43 (Emphasis added, citations omitted.) SDAaTC

PETITIONER'S THEORY

Petitioner is before us now claiming that this Court, in the 2006 MIAA case, had expressly declared that petitioner,
while vested with corporate powers, is not considered a government-owned or controlled corporation, but is a
government instrumentality like the Manila International Airport Authority (MIAA), Philippine Ports Authority (PPA),
University of the Philippines, and Bangko Sentral ng Pilipinas (BSP). Petitioner alleges that as a government
instrumentality, all its airport lands and buildings are exempt from real estate taxes imposed by respondent City. 44

Petitioner alleges that Republic Act No. 6958 placed "a limitation on petitioner's administration of its assets and
properties" as it provides under Section 4 (e) that "any asset in the international airport important to national security
cannot be alienated or mortgaged by petitioner or transferred to any entity other than the National Government." 45

In the questioned Resolution that affirmed its questioned Decision, the Court of Appeals denied petitioner's motion
for reconsideration based on the following grounds:
Thus, petitioner claims that the Court of Appeals (Cebu City) gravely erred in disregarding the following:
First, the MCIAA case remains the controlling law on the matter as the same is the established precedent; not the
MIAA case but the MCIAA case since the former, as keenly pointed out by the respondent City of Lapu-Lapu, has not
yet attained

PETITIONER IS A GOVERNMENT INSTRUMENTALITY AS EXPRESSLY DECLARED BY THE HONORABLE

COURT IN THE MIAA CASE. AS SUCH, IT IS EXEMPT FROM PAYING REAL ESTATE TAXES IMPOSED BY
RESPONDENT CITY OF LAPU-LAPU.

4.

Both are attached agencies of the Department of Transportation and Communications. 47

II
Petitioner compares its charter (Republic Act No. 6958) with that of MIAA (Executive Order No. 903).
THE PROPERTIES OF PETITIONER CONSISTING OF THE AIRPORT TERMINAL BUILDING, AIRFIELD,
RUNWAY, TAXIWAY, INCLUDING THE LOTS ON WHICH THEY ARE SITUATED, ARE EXEMPT FROM REAL
PROPERTY TAXES.

Section 3 of Executive Order No. 903 provides:

III

RESPONDENT CITY OF LAPU-LAPU CANNOT IMPOSE REAL PROPERTY TAX WITHOUT ANY APPROPRIATE
ORDINANCE.
Sec. 3. Creation of the Manila International Airport Authority. There is hereby established a body corporate to be
known as the Manila International Airport Authority which shall be attached to the Ministry of Transportation and
Communications. The principal office of the Authority shall be located at the New Manila International Airport. The
Authority may establish such offices, branches, agencies or subsidiaries as it may deem proper and necessary; . . . .

IV

RESPONDENT CITY OF LAPU-LAPU CANNOT IMPOSE AN ADDITIONAL 1% TAX FOR THE SPECIAL
EDUCATION FUND IN THE ABSENCE OF ANY CORRESPONDING ORDINANCE.

Section 2 of Republic Act No. 6958 reads:

Section 2. Creation of the Mactan-Cebu International Airport Authority. There is hereby established a body
corporate to be known as the Mactan-Cebu International Airport Authority which shall be attached to the Department
of Transportation and Communications. The principal office of the Authority shall be located at the Mactan
International Airport, Province of Cebu.

RESPONDENT CITY OF LAPU-LAPU CANNOT IMPOSE ANY INTEREST SANS ANY ORDINANCE MANDATING
ITS IMPOSITION. 46
The Authority may have such branches, agencies or subsidiaries as it may deem proper and necessary.
Petitioner claims the following similarities with MIAA:
As to MIAA's purposes and objectives, Section 4 of Executive Order No. 903 reads:
1.

MCIAA belongs to the same class and performs identical functions as MIAA;
Sec. 4. Purposes and Objectives. The Authority shall have the following purposes and objectives: AaCTcI

2.

MCIAA is a public utility like MIAA;

3.
MIAA was organized to operate the international and domestic airport in Paraaque City for public use,
while MCIAA was organized to operate the international and domestic airport in Mactan for public use.

(a)
To help encourage and promote international and domestic air traffic in the Philippines as a means of
making the Philippines a center of international trade and tourism and accelerating the development of the means of
transportation and communications in the country;

(b)
To formulate and adopt for application in the Airport internationally acceptable standards of airport
accommodation and service; and
(c)
To promulgate rules and regulations governing the planning, development, maintenance, operation and
improvement of the Airport, and to control and/or supervise as may be necessary the construction of any structure or
the rendition of any services within the Airport;
(c)

To upgrade and provide safe, efficient, and reliable airport facilities for international and domestic air travel.
(d)

To sue and be sued in its corporate name; acEHCD

(e)

To adopt and use a corporate seal;

(f)

To succeed by its corporate name;

(g)

To adopt its by-laws, and to amend or repeal the same from time to time;

(h)

To execute or enter into contracts of any kind or nature;

Petitioner claims that the above purposes and objectives are analogous to those enumerated in its charter,
specifically Section 3 of Republic Act No. 6958, which reads:

Section 3. Primary Purposes and Objectives. The Authority shall principally undertake the economical, efficient
and effective control, management and supervision of the Mactan International Airport in the Province of Cebu and
the Lahug Airport in Cebu City, hereinafter collectively referred to as the airports, and such other airports as may be
established in the Province of Cebu. In addition, it shall have the following objectives:

(a) To encourage, promote and develop international and domestic air traffic in the central Visayas and Mindanao
regions as a means of making the regions centers of

international trade and tourism, and accelerating the development of the means of transportation and
communications in the country; and

(i)
To acquire, purchase, own, administer, lease, mortgage, sell or otherwise dispose of any land, building,
airport facility, or property of whatever kind and nature, whether movable or immovable, or any interest therein;

(b) To upgrade the services and facilities of the airports and to formulate internationally acceptable standards of
airport accommodation and service.

(j)

The powers, functions and duties of MIAA under Section 5 of Executive Order No. 903 are:

To exercise the power of eminent domain in the pursuit of its purposes and objectives;

(k)
To levy, and collect dues, charges, fees or assessments for the use of the Airport premises, works,
appliances, facilities or concessions or for any service provided by the Authority, subject to the approval of the
Minister of Transportation and Communications in consultation with the Minister of Finance, and subject further to the
provisions of Batas Pambansa Blg. 325 where applicable;

Sec. 5. Functions, Powers and Duties. The Authority shall have the following functions, powers and duties:

(a)
To formulate, in coordination with the Bureau of Air Transportation and other appropriate government
agencies, a comprehensive and integrated policy and program for the Airport and to implement, review and update
such policy and program periodically;

(l)
To invest its idle funds, as it may deem proper, in government securities and other evidences of
indebtedness of the government;

(b)
To control, supervise, construct, maintain, operate and provide such facilities or services as shall be
necessary for the efficient functioning of the Airport;

10

(m)
To provide services, whether on its own or otherwise, within the Airport and the approaches thereof, which
shall include but shall not be limited to, the following:
(d)
To exercise all the powers of a corporation under the Corporation Code of the Philippines, insofar as those
powers are not inconsistent with the provisions of this Act;
(1)

(2)

Aircraft movement and allocation of parking areas of aircraft on the ground;

Loading or unloading of aircrafts;

(e)
To acquire, purchase, own, administer, lease, mortgage, sell or otherwise dispose of any land, building,
airport facility, or property of whatever kind and nature, whether movable or immovable, or any interest therein:
Provided, That any asset located in the

(3)
Passenger handling and other services directed towards the care, convenience and security of
passengers, visitors and other airport users; and
Mactan International Airport important to national security shall not be subject to alienation or mortgage by the
Authority nor to transfer to any entity other than the National Government;
(4)

Sorting, weighing, measuring, warehousing or handling of baggage and goods.

(f)

(n)
To perform such other acts and transact such other business, directly or indirectly necessary, incidental or
conducive to the attainment of the purposes and objectives of the Authority, including the adoption of necessary
measures to remedy congestion in the Airport; and

(o)
To exercise all the powers of a corporation under the Corporation Law, insofar as these powers are not
inconsistent with the provisions of this Executive Order.

To exercise the power of eminent domain in the pursuit of its purposes and objectives;

(g)
To levy and collect dues, charges, fees or assessments for the use of airport premises, works, appliances,
facilities or concessions, or for any service provided by the Authority;

(h)
To retain and appropriate dues, fees and charges collected by the Authority relative to the use of airport
premises for such measures as may be necessary to make the Authority more effective and efficient in the discharge
of its assigned tasks;

Petitioner claims that MCIAA has related functions, powers and duties under Section 4 of Republic Act No. 6958, as
shown in the provision quoted below:
(i)
To invest its idle funds, as it may deem proper, in government securities and other evidences of
indebtedness; and
Section 4. Functions, Powers and Duties. The Authority shall have the following functions, powers and duties:

(a)
To formulate a comprehensive and integrated development policy and program for the airports and to
implement, review and update such policy and program periodically;

(b)
To control, supervise, construct, maintain, operate and provide such facilities or services as shall be
necessary for the efficient functioning of the airports;

(c)
To promulgate rules and regulations governing the planning, development, maintenance, operation and
improvement of the airports, and to control and supervise the construction of any structure or the rendition of any
service within the airports;

(j)
To provide services, whether on its own or otherwise, within the airports and the approaches thereof as
may be necessary or in connection with the maintenance and operation of the airports and their facilities.

Petitioner claims that like MIAA, it has police authority within its premises, as shown in their respective charters
quoted below:

EO 903, Sec. 6. Police Authority. The Authority shall have the power to exercise such police authority as may be
necessary within its premises to carry out its functions and attain its purposes and objectives, without prejudice to the
exercise of functions within the same premises by the Ministry of National Defense through the Aviation Security
Command (AVSECOM) as provided in LOI 961: Provided, That the Authority may request the assistance of law
enforcement agencies, including request for deputization as may be required. . . . .

11

R.A. No. 6958, Section 5. Police Authority. The Authority shall have the power to exercise such police authority as
may be necessary within its premises or areas of operation to carry out its functions and attain its purposes and
objectives: Provided, That the Authority may request the assistance of law enforcement agencies, including request
for deputization as may be required. . . . .

Petitioner pointed out other similarities in the two charters, such as:

Under Article 420 of the Civil Code, the Airport Lands and Buildings of MIAA, being devoted to public use, are
properties of public dominion and thus owned by the State or the Republic of the Philippines. Article 420 specifically
mentions "ports . . .

constructed by the State," which includes public airports and seaports, as properties of public dominion and owned
by the Republic. As properties of public dominion owned by the Republic, there is no doubt whatsoever that the
Airport Lands and Buildings are expressly exempt from real estate tax under Section 234 (a) of the Local
Government Code. This Court has also repeatedly ruled that properties of public dominion are not subject to
execution or foreclosure sale. 49 (Emphases added.)

1.
Both MCIAA and MIAA are covered by the Civil Service Law, rules and regulations (Section 15, Executive
Order No. 903; Section 12, Republic Act No. 6958);

2.
Both charters contain a proviso on tax exemptions (Section 21, Executive Order No. 903; Section 14,
Republic Act No. 6958);

Petitioner insists that its properties consisting of the airport terminal building, airfield, runway, taxiway and the lots on
which they are situated are not subject to real property tax because they are actually, solely and exclusively used for
public purposes. 50 They are indispensable to the operation of the Mactan International Airport and by their very
nature, these properties are exempt from tax. Said properties belong to the State and are

3.
Both MCIAA and MIAA are required to submit to the President an annual report generally dealing with their
activities and operations (Section 14, Executive Order No. 903; Section 11, Republic Act No. 6958); and

merely held by petitioner in trust. As earlier mentioned, petitioner claims that these properties are important to
national security and cannot be alienated, mortgaged, or transferred to any entity except the National Government.

4.
Both have borrowing power subject to the approval of the President (Section 16, Executive Order No. 903;
Section 13, Republic Act No. 6958). 48

Petitioner prays that judgment be rendered:

a)

Declaring petitioner exempt from paying real property taxes as it is a government instrumentality;

Petitioner suggests that it is because of its similarity with MIAA that this Court, in the 2006 MIAA case, placed it in the
same class as MIAA and considered it as a government instrumentality.

Petitioner submits that since it is also a government instrumentality like MIAA, the following conclusion arrived by the
Court in the 2006 MIAA case is also applicable to petitioner: SDHTEC

Under Section 2(10) and (13) of the Introductory Provisions of the Administrative Code, which governs the legal
relation and status of government units, agencies and offices within the entire government machinery, MIAA is a
government instrumentality and not a government-owned or controlled corporation. Under Section 133(o) of the
Local Government Code, MIAA as a government instrumentality is not a taxable person because it is not subject to
"[t]axes, fees or charges of any kind" by local governments. The only exception is when MIAA leases its real property
to a "taxable person" as provided in Section 234(a) of the Local Government Code, in which case the specific real
property leased becomes subject to real estate tax. Thus, only portions of the Airport Lands and Buildings leased to
taxable persons like private parties are subject to real estate tax by the City of Paraaque.

b)
Declaring respondent City of Lapu-Lapu as bereft of any authority to levy and collect the basic real
property tax, the additional tax for the SEF and the penalty interest for its failure to pass the corresponding tax
ordinances; and

c)
Declaring, in the alternative, the airport lands and buildings of petitioner as exempt from real property
taxes as they are used solely and exclusively for public purpose. 51

In its Consolidated Reply filed through the OSG, petitioner claims that the 2006 MIAA ruling has overturned the 1996
MCIAA ruling. Petitioner cites Justice Dante O. Tinga's dissent in the MIAA ruling, as follows: HSAcaE

12

[The] ineluctable conclusion is that the majority rejects the rationale and ruling in Mactan. The majority provides for a
wildly different interpretation of Section 133, 193 and 234 of the Local Government Code than that employed by the
Court in Mactan. Moreover, the parties in Mactan and in this case are similarly situated, as can be obviously
deducted from the fact that both petitioners are airport authorities operating under similarly worded charters. And the
fact that the majority cites doctrines contrapuntal to the Local Government Code as in Basco and Maceda evinces an
intent to go against the Court's jurisprudential trend adopting the philosophy of expanded local government rule
under the Local Government Code.

. . . The majority is obviously inconsistent with Mactan and there is no way these two rulings can stand together.
Following basic principles in statutory construction, Mactan will be deemed as giving way to this new ruling.

xxx xxx xxx

There is no way the majority can be justified unless Mactan is overturned. The MCIAA and the MIAA are similarly
situated. They are both, as will be demonstrated, GOCCs, commonly engaged in the business of operating an
airport. They are the owners of airport properties they respectively maintain and hold title over these properties in
their name. These entities are both owned by the State, and denied by their respective charters the absolute right to
dispose of their properties without prior approval elsewhere. Both of them are not empowered to obtain loans or
encumber their properties without prior approval the prior approval of the President. 52 (Citations omitted.)

Petitioner likewise claims that the enactment of Ordinance No. 070-2007 is an admission on respondent City's part
that it must have a tax measure to be able to impose a tax or special assessment. Petitioner avers that assuming
that it is a non-exempt entity or that its airport lands and buildings are not exempt, it was only upon the effectivity of
Ordinance No. 070-2007 on January 1, 2008 that respondent City could properly impose the basic real property tax,
the additional tax for the SEF, and the interest in case of nonpayment. 53

Petitioner filed its Memorandum 54 on June 17, 2009.

RESPONDENTS' THEORY

In their Comment, 55 respondents point out that petitioner partially moved for a reconsideration of the questioned
Decision only as to the issue of whether petitioner is a GOCC or not. Thus, respondents declare that the other
portions of the questioned decision had already attained finality and ought not to be placed in issue in this petition for
certiorari. Thus, respondents discussed the other issues raised by petitioner with reservation as to this objection.

Respondents summarized the issues and the grounds relied upon as follows:

STATEMENT OF THE ISSUES

WHETHER OR NOT PETITIONER IS A GOVERNMENT INSTRUMENTALITY EXEMPT FROM PAYING REAL

PROPERTY TAXES

WHETHER OR NOT RESPONDENT CITY CAN [IMPOSE] REALTY TAX, SPECIAL EDUCATION FUND AND
PENALTY INTEREST

WHETHER OR NOT THE AIRPORT TERMINAL BUILDING, AIRFIELD, RUNWAY, TAXIWAY INCLUDING THE
LOTS ON WHICH THEY ARE SITUATED ARE EXEMPT FROM REALTY TAXES

GROUNDS RELIED UPON

1.

PETITIONER IS A GOCC HENCE NOT EXEMPT FROM REALTY TAXES

2.

TERMINAL BUILDING, RUNWAY, TAXIWAY ARE NOT EXEMPT FROM REALTY TAXES

3.

ESTOPPEL DOES NOT LIE AGAINST GOVERNMENT

4.

CITY CAN COLLECT REALTY TAX AND INTEREST

5.

CITY CAN COLLECT SEF

6.

MCIAA HAS NOT SHOWN ANY IRREPARABLE INJURY WARRANTING INJUNCTIVE RELIEF

7.

MCIAA HAS NOT COMPLIED WITH PROVISION OF THE LGC 56

13

Respondents claim that "the mere mention of MCIAA in the MIAA v. [Court of Appeals] case does not make it the
controlling case on the matter." 57 Respondents further claim that the 1996 MCIAAcase where this Court held that
petitioner is a GOCC is the controlling jurisprudence. Respondents point out that petitioner and MIAA are two very
different entities. Respondents argue that petitioner is a GOCC contrary to its assertions, based on its Charter and
on DOJ Opinion No. 50.

3. Respondent City can collect Special Education Fund.

Respondents contend that if petitioner is not a GOCC but an instrumentality of the government, still the following
statement in the 1996 MCIAA case applies:

b.
Congress did not entirely repeal the SEF law, hence, its levy, imposition and collection need not be
covered by ordinance. Besides, the City has enacted the Revenue Code containing provisions for the levy and
collection of the SEF. 61

Besides, nothing can prevent Congress from decreeing that even instrumentalities or agencies of the Government
performing governmental functions may be subject to tax. Where it is done precisely to fulfill a constitutional mandate
and national policy, no one can doubt its wisdom. 58

Respondents argue that MCIAA properties such as the terminal building, taxiway and runway are not exempt from
real property taxation. As discussed in the 1996 MCIAA case, Section 234 of the LGC omitted GOCCs such as
MCIAA from entities enjoying tax exemptions. Said decision also provides that the transfer of ownership of the land
to petitioner was absolute and petitioner cannot evade payment of taxes. 59

a.

The LGC does not require the enactment of an ordinance for the collection of the SEF.

Furthermore, respondents aver that:

1. Collection of taxes is beyond the ambit of injunction.

a.
Respondents contend that the petition only questions the denial of the writ of preliminary injunction by the
RTC and the Court of Appeals. Petitioner failed to show irreparable injury.

Even if the following issues were not raised by petitioner in its motion for reconsideration of the questioned Decision,
and thus the ruling pertaining to these issues in the questioned decision had become final, respondents still
discussed its side over its objections as to the propriety of bringing these up before this Court.

b.
Comparing the alleged damage that may be caused petitioner and the direct affront and challenge against
the power to tax, which is an attribute of sovereignty, it is but appropriate that injunctive relief should be denied.

1.

Estoppel does not lie against the government. AScHCD

2. Petitioner did not comply with LGC provisions on payment under protest.

2.

Respondent City can collect realty taxes and interest.

a. Petitioner should have protested the tax imposition as provided in Article 285 of the IRR of Republic Act No. 7160.
Section 252 of Republic Act No. 7160 62 requires that the taxpayer's protest can only be entertained if the tax is first
paid under protest. 63

a.

Based on the Local Government Code (Sections 232, 233, 255) and its IRR (Sections 241, 247).

b.
The City of Lapu-Lapu passed in 1980 Ordinance No. 44, or the Omnibus Tax Ordinance, wherein the
imposition of real property tax was made. This Ordinance was in force and effect by virtue of Article 278 of the IRR of
Republic Act No. 7160. 60

c.
Ordinance No. 070-2007, known as the Revised Lapu-Lapu City Revenue Code, imposed real property
taxes, special education fund and further provided for the payment of interest and surcharges. Thus, the issue is
pass and is moot and academic.

Respondents submitted their Memorandum 64 on June 30, 2009, wherein they allege that the 1996 MCIAA case is
still good law, as shown by the following cases wherein it was quoted:

1.
HESIcT

National Power Corporation v. Local Board of Assessment Appeals of Batangas [545 Phil. 92 (2007)];

2.

Mactan-Cebu International Airport Authority v. Urgello [549 Phil. 302 (2007)];

14

THIS COURT'S RULING

3.

4.

Quezon City v. ABS-CBN Broadcasting Corporation [588 Phil. 785 (2008)]; and

The City of Iloilo v. Smart Communications, Inc. [599 Phil. 492 (2009)].

The petition has merit. The petitioner is an instrumentality of the government; thus, its properties actually, solely and
exclusively used for public purposes, consisting of the airport terminal building, airfield, runway, taxiway and the lots
on which they are situated, are not subject to real property tax and respondent City is not justified in collecting taxes
from petitioner over said properties.

Respondents assert that the constant reference to the 1996 MCIAA case "could hardly mean that the doctrine has
breathed its last" and that the 1996 MCIAA case stands as precedent and is controlling on petitioner MCIAA. 65

DISCUSSION

Respondents allege that the issue for consideration is whether it is proper for petitioner to raise the issue of whether
it is not liable to pay real property taxes, special education

The Court of Appeals (Cebu City) erred in declaring that the 1996 MCIAA case still controls and that petitioner is a
GOCC. The 2006 MIAA case governs.

fund (SEF), interests and/or surcharges. 66 Respondents argue that the Court of Appeals was correct in declaring
petitioner liable for realty taxes, etc., on the terminal building, taxiway, and runway. Respondent City relies on the
following grounds:

1.

The case of MCIAA v. Marcos, et al., is controlling on petitioner MCIAA;

2.

MCIAA is a corporation;

The Court of Appeals' reliance on the 1996 MCIAA case is misplaced and its staunch refusal to apply the 2006 MIAA
case is patently erroneous. The Court of Appeals, finding for respondents, refused to apply the ruling in the 2006
MIAA case on the premise that the same had not yet reached finality, and that as far as MCIAA is concerned, the
1996 MCIAA case is still good law. 68

While it is true, as respondents allege, that the 1996 MCIAA case was cited in a long line of cases, 69 still, in 2006,
the Court en banc decided a case that in effect reversed the 1996 Mactan ruling.The 2006 MIAA case had, since the
promulgation of the questioned Decision and Resolution, reached finality and had in fact been either affirmed or cited
in numerous cases by the Court. 70 The decision became final and executory on November 3, 2006. 71
Furthermore, the 2006 MIAA case was decided by the Court en banc while

3.
Section 133 in relation to Sections 232 and 234 of the Local Government Code of 1991 authorizes the
collection of real property taxes (etc.) from MCIAA;
the 1996 MCIAA case was decided by a Division. Hence, the 1996 MCIAAcase should be read in light of the
subsequent and unequivocal ruling in the 2006 MIAA case.
4.
Terminal Building, Runway & Taxiway are not of the Public Dominion and are not exempt from realty taxes,
special education fund and interest;

5.

Respondent City can collect realty tax, interest/surcharge, and Special Education Fund from MCIAA; [and]

6.

Estoppel does not lie against the government. 67

To recall, in the 2006 MIAA case, we held that MIAA's airport lands and buildings are exempt from real estate tax
imposed by local governments; that it is not a GOCC but an instrumentality of the national government, with its real
properties being owned by the Republic of the Philippines, and these are exempt from real estate tax. Specifically
referring to petitioner, we stated as follows:

Many government instrumentalities are vested with corporate powers but they do not become stock or non-stock
corporations, which is a necessary condition before an agency or instrumentality is deemed a government-owned or
controlled corporation. Examples are the Mactan International Airport Authority, the Philippine Ports Authority, the
University of the Philippines andBangko Sentral ng Pilipinas. All these government instrumentalities exercise

15

corporate powers but they are not organized as stock or non-stock corporations as required by Section 2(13) of the
Introductory Provisions of the Administrative Code. These government instrumentalities are sometimes loosely called
government corporate entities. However, they are not government-owned or controlled corporations in the strict
sense as understood under the Administrative Code, which is the governing law defining the legal relationship and
status of government entities. 72 (Emphases ours.)

In the 2006 MIAA case, the issue before the Court was "whether the Airport Lands and Buildings of MIAA are exempt
from real estate tax under existing laws." 73 We quote the extensive discussion of the Court that led to its finding that
MIAA's lands and buildings were exempt from real estate tax imposed by local governments:

First, MIAA is not a government-owned or controlled corporation but an instrumentality of the National Government
and thus exempt from local taxation. Second, the real properties of MIAA are owned by the Republic of the
Philippines and thus exempt from real estate tax. AcICHD

Clearly, under its Charter, MIAA does not have capital stock that is divided into shares.

Section 3 of the Corporation Code defines a stock corporation as one whose "capital stock is divided into shares and
. . . authorized to distribute to the holders of such shares dividends . . . ." MIAA has capital but it is not divided into
shares of stock. MIAA has no stockholders or voting shares. Hence, MIAA is not a stock corporation.

MIAA is also not a non-stock corporation because it has no members. Section 87 of the Corporation Code defines a
non-stock corporation as "one where no part of its income is distributable as dividends to its members, trustees or
officers." A non-stock corporation must have members. Even if we assume that the Government is considered as the
sole member of MIAA, this will not make MIAA a non-stock corporation. Non-stock corporations cannot distribute any
part of their income to their members. Section 11 of the MIAA Charter mandates MIAA to remit 20% of its annual
gross operating income to the National Treasury. This prevents MIAA from qualifying as a non-stock corporation.
caITAC

1. MIAA is Not a Government-Owned or Controlled Corporation

xxx xxx xxx

Section 88 of the Corporation Code provides that non-stock corporations are "organized for charitable, religious,
educational, professional, cultural, recreational, fraternal, literary, scientific, social, civil service, or similar purposes,
like trade, industry, agriculture and like chambers." MIAA is not organized for any of these purposes. MIAA, a public
utility, is organized to operate an international and domestic airport for public use.

There is no dispute that a government-owned or controlled corporation is not exempt from real estate tax. However,
MIAA is not a government-owned or controlled corporation. Section 2(13) of the Introductory Provisions of the
Administrative Code of 1987 defines a government-owned or controlled corporation as follows:

Since MIAA is neither a stock nor a non-stock corporation, MIAA does not qualify as a government-owned or
controlled corporation. What then is the legal status of MIAA within the National Government?

SEC. 2. General Terms Defined. . . .

MIAA is a government instrumentality vested with corporate powers to perform efficiently its governmental functions.
MIAA is like any other government instrumentality, the only difference is that MIAA is vested with corporate

(13) Government-owned or controlled corporation refers to any agency organized as a stock or non-stock
corporation, vested with functions relating to public needs whether governmental or proprietary in nature, and owned
by the Government directly or through its instrumentalities either wholly, or, where applicable as in the case of stock
corporations, to the extent of at least fifty-one (51) percent of its capital stock: . . . .

powers. Section 2(10) of the Introductory Provisions of the Administrative Code defines a government
"instrumentality" as follows:

A government-owned or controlled corporation must be "organized as a stock or non-stock corporation." MIAA is not
organized as a stock or non-stock corporation. MIAA is not a stock corporation because it has no capital stock
divided into shares. MIAA has no stockholders or voting shares. . . .

SEC. 2. General Terms Defined. . . .

xxx xxx xxx

(10) Instrumentality refers to any agency of the National Government, not integrated within the department
framework, vested with special functions or jurisdiction by law, endowed with some if not all corporate powers,
administering special funds, and enjoying operational autonomy, usually through a charter. . . . .

16

When the law vests in a government instrumentality corporate powers, the instrumentality does not become a
corporation. Unless the government instrumentality is organized as a stock or non-stock corporation, it remains a
government instrumentality exercising not only governmental but also corporate powers. Thus, MIAA exercises the
governmental powers of eminent domain, police authority and the levying of fees and charges. At the same time,
MIAA exercises "all the powers of a corporation under the Corporation Law, insofar as these powers are not
inconsistent with the provisions of this Executive Order."

Likewise, when the law makes a government instrumentality operationally autonomous, the instrumentality remains
part of the National Government machinery although not integrated with the department framework. The MIAA
Charter expressly states that transforming MIAA into a "separate and autonomous body" will make its operation more
"financially viable."

Many government instrumentalities are vested with corporate powers but they do not become stock or non-stock
corporations, which is a necessary condition before an agency or instrumentality is deemed a government-owned or
controlled corporation. Examples are the Mactan International Airport Authority, the Philippine Ports Authority, the
University of the Philippines andBangko Sentral ng Pilipinas. All these government instrumentalities exercise
corporate powers but they are not organized as stock or non-stock corporations as required by Section 2(13) of the
Introductory Provisions of the Administrative Code. These government instrumentalities are sometimes loosely called
government corporate entities. However, they are not government-owned or controlled corporations in the strict
sense as understood under the Administrative Code, which is the governing law defining the legal relationship and
status of government entities. 74(Emphases ours, citations omitted.)

The Court in the 2006 MIAA case went on to discuss the limitation on the taxing power of the local governments as
against the national government or its instrumentality:

A government instrumentality like MIAA falls under Section 133(o) of the Local Government Code, which states:

Section 133(o) recognizes the basic principle that local governments cannot tax the national government, which
historically merely delegated to local governments the power to tax. While the 1987 Constitution now includes
taxation as one of the powers of local governments, local governments may only exercise such power "subject to
such guidelines and limitations as the Congress may provide."

When local governments invoke the power to tax on national government instrumentalities, such power is construed
strictly against local governments. The rule is that a tax is never presumed and there must be clear language in the
law imposing the tax. Any doubt whether a person, article or activity is taxable is resolved against taxation. This rule
applies with greater force when local governments seek to tax national government instrumentalities.

Another rule is that a tax exemption is strictly construed against the taxpayer claiming the exemption. However, when
Congress grants an exemption to a national government instrumentality from local taxation, such exemption is
construed liberally in favor of the national government instrumentality. . . . .

xxx xxx xxx

There is, moreover, no point in national and local governments taxing each other, unless a sound and compelling
policy requires such transfer of public funds from one government pocket to another.

There is also no reason for local governments to tax national government instrumentalities for rendering essential
public services to inhabitants of local governments. The only exception is when the legislature clearly intended to tax
government instrumentalities for the delivery of essential public services for sound and compelling policy
considerations. There must be express language in the law empowering local governments to tax national
government instrumentalities. Any doubt whether such power exists is resolved against local governments.

SEC. 133. Common Limitations on the Taxing Powers of Local Government Units.

Thus, Section 133 of the Local Government Code states that "unless otherwise provided" in the Code, local
governments cannot tax national government instrumentalities. . . .

Unless otherwise provided herein, the exercise of the taxing powers of provinces, cities, municipalities, and
barangays shall not extend to the levy of the following:

. 75 (Emphases ours, citations omitted.)

xxx xxx xxx

(o) Taxes, fees or charges of any kind on the National Government, its agencies and instrumentalities and local
government units. . . . .

The Court emphasized that the airport lands and buildings of MIAA are owned by the Republic and belong to the
public domain. The Court said:

17

xxx xxx xxx

The Airport Lands and Buildings of MIAA are property of public dominion and therefore owned by the State or the
Republic of the Philippines. . . . .
The Civil Code, Article 1271, prescribes that everything which is not outside the commerce of man may be the object
of a contract, . . . .
xxx xxx xxx
xxx xxx xxx
No one can dispute that properties of public dominion mentioned in Article 420 of the Civil Code, like "roads, canals,
rivers, torrents, ports and bridges constructed by the State," are owned by the State. The term "ports" includes
seaports and airports. The MIAA Airport Lands and Buildings constitute a "port" constructed by the State. Under
Article 420 of the Civil Code, the MIAA Airport Lands and Buildings are properties of public dominion and thus owned
by the State or the Republic of the Philippines.

The Airport Lands and Buildings are devoted to public use because they are used by the public for international and
domestic travel and transportation. The fact that the MIAA collects terminal fees and other charges from the public
does not remove the character of the Airport Lands and Buildings as properties for public use. . . . .

xxx xxx xxx

The terminal fees MIAA charges to passengers, as well as the landing fees MIAA charges to airlines, constitute the
bulk of the income that maintains the operations of MIAA. The collection of such fees does not change the character
of MIAA as an airport for public use. Such fees are often termed user's tax. This means taxing those among the
public who actually use a public facility instead of taxing all the public including those who never use the particular
public facility. A user's tax is more equitable a principle of taxation mandated in the 1987 Constitution. TAIaHE

The Airport Lands and Buildings of MIAA . . . are properties of public dominion because they are intended for public
use. As properties of public dominion, they indisputably belong to the State or the Republic of the Philippines. 76
(Emphases supplied, citations omitted.)

The Court has also ruled that property of public dominion, being outside the commerce of man, cannot be the subject
of an auction sale.

Properties of public dominion, being for public use, are not subject to levy, encumbrance or disposition through public
or private sale. Any encumbrance, levy on execution or auction sale of any property of public dominion is void for
being contrary to public policy. Essential public services will stop if properties of public dominion are subject to
encumbrances, foreclosures and auction sale. This will happen if the City of Paraaque can foreclose and compel
the auction sale of the 600-hectare runway of the MIAA for non-payment of real estate tax.

Before MIAA can encumber the Airport Lands and Buildings, the President must first withdraw from public use the
Airport Lands and Buildings. . . . .

xxx xxx xxx

Thus, unless the President issues a proclamation withdrawing the Airport Lands and Buildings from public use, these
properties remain properties of public dominion and are inalienable. Since the Airport Lands and Buildings are
inalienable in their present status as properties of public dominion, they are not subject to levy on execution or
foreclosure sale. As long as the Airport Lands and Buildings are reserved for public use, their ownership remains with
the State or the Republic of the Philippines.

The authority of the President to reserve lands of the public domain for public use, and to withdraw such public use,
is reiterated in Section 14, Chapter 4, Title I, Book III of the Administrative Code of 1987, which states:
The Court also held in the 2006 MIAA case that airport lands and buildings are outside the commerce of man.

As properties of public dominion, the Airport Lands and Buildings are outside the commerce of man. The Court has
ruled repeatedly that properties of public dominion are outside the commerce of man. As early as 1915, this Court
already ruled in Municipality of Cavite v. Rojas that properties devoted to public use are outside the commerce of
man, thus:

SEC. 14. Power to Reserve Lands of the Public and Private Domain of the Government. (1) The President shall
have the power to reserve for settlement or public use, and for specific public purposes, any of the lands of the public
domain, the use of which is not otherwise directed by law. The reserved land shall thereafter remain subject to the
specific public purpose indicated until otherwise provided by law or proclamation;

18

xxx xxx xxx

There is no question, therefore, that unless the Airport Lands and Buildings are withdrawn by law or presidential
proclamation from public use, they are properties of public dominion, owned by the Republic and outside the
commerce of man. 77

Significantly, the Court reiterated the above ruling and applied the same reasoning in Manila International Airport
Authority v. City of Pasay, 81 thus:

The only difference between the 2006 MIAA case and this case is that the 2006 MIAA case involved airport lands
and buildings located in Paraaque City while this case involved airport lands and buildings located in Pasay City.
The 2006 MIAA case and this case raised the same threshold issue: whether the local government can impose real
property tax on the airport lands, consisting mostly of the runways, as well as the airport buildings, of MIAA. . . . .

xxx xxx xxx

Thus, the Court held that MIAA is "merely holding title to the Airport Lands and Buildings in trust for the Republic.
[Under] Section 48, Chapter 12, Book I of the Administrative Code [which] allows instrumentalities like MIAA to hold
title to real properties owned by the Republic." 78

The Court in the 2006 MIAA case cited Section 234 (a) of the Local Government Code and held that said provision
exempts from real estate tax any "[r]eal property owned by the Republic of the Philippines." 79 The Court
emphasized, however, that "portions of the Airport Lands and Buildings that MIAA leases to private entities are not
exempt from real estate tax." The Court further held:

This exemption should be read in relation with Section 133(o) of the same Code, which prohibits local governments
from imposing "[t]axes, fees or charges of any kind on the National Government, its agencies and instrumentalities . .
. ." The real properties owned by the Republic are titled either in the name of the Republic itself or in the name of
agencies or instrumentalities of the National Government. The Administrative Code allows real property owned by
the Republic to be titled in the name of agencies or instrumentalities of the national government. Such real properties
remain owned by the Republic and continue to be exempt from real estate tax.

The Republic may grant the beneficial use of its real property to an agency or instrumentality of the national
government. This happens when title of the real property is transferred to an agency or instrumentality even as the
Republic remains the owner of the real property. Such arrangement does not result in the loss of the tax exemption.
Section 234 (a) of the Local Government Code states that real property owned by the Republic loses its tax
exemption only if the "beneficial use thereof has been granted, for consideration or otherwise, to a taxable person."
MIAA, as a government instrumentality, is not a taxable person under Section 133 (o) of the Local Government
Code. Thus, even if we assume that the Republic has granted to MIAA the beneficial use of the Airport Lands and
Buildings, such fact does not make these real properties subject to real estate tax.

The definition of "instrumentality" under Section 2(10) of the Introductory Provisions of the Administrative Code of
1987 uses the phrase "includes . . . government-owned or controlled corporations" which means that a government
"instrumentality" may or may not be a "government-owned or controlled corporation." Obviously, the term
government "instrumentality" is broader than the term "government-owned or controlled corporation."

....

xxx xxx xxx

The fact that two terms have separate definitions means that while a government "instrumentality" may include a
"government-owned or controlled corporation," there may be a government "instrumentality" that will not qualify as a
"government-owned or controlled corporation."

A close scrutiny of the definition of "government-owned or controlled corporation" in Section 2(13) will show that
MIAA would not fall under such definition. MIAA is a government "instrumentality" that does not qualify as a
"government-owned or controlled corporation." . . . .

xxx xxx xxx

However, portions of the Airport Lands and Buildings that MIAA leases to private entities are not exempt from real
estate tax. For example, the land area occupied by hangars that MIAA leases to private corporations is subject to
real estate tax. In such a case, MIAA has granted the beneficial use of such land area for a consideration to a
taxable person and therefore such land area is subject to real estate tax. . . . . 80

19

Thus, MIAA is not a government-owned or controlled corporation but a government instrumentality which is exempt
from any kind of tax from the local governments. Indeed, the exercise of the taxing power of local government units
is subject to the limitations enumerated in Section 133 of the Local Government Code. Under Section 133(o) of the
Local Government Code, local government units have no power to tax instrumentalities of the national government
like the MIAA. Hence, MIAA is not liable to pay real property tax for the NAIA Pasay properties. ICHDca

Furthermore, the airport lands and buildings of MIAA are properties of public dominion intended for public use, and
as such are exempt from real property tax under Section 234

(a) of the Local Government Code. However, under the same provision, if MIAA leases its real property to a taxable
person, the specific property leased becomes subject to real property tax. In this case, only those portions of the
NAIA Pasay properties which are

The Authority is actually a national government instrumentality which is defined as an agency of the national
government, not integrated within the department framework, vested with special functions or jurisdiction by law,
endowed with some if not all corporate powers, administering special funds, and enjoying operational autonomy,
usually through a charter. When the law vests in a government instrumentality corporate powers, the instrumentality
does not become a corporation. Unless the government instrumentality is organized as a stock or non-stock
corporation, it remains a government instrumentality exercising not only governmental but also corporate powers.

Thus, the Authority which is tasked with the special public function to carry out the government's policy "to promote
the development of the country's fishing industry and improve the efficiency in handling, preserving, marketing, and
distribution of fish and other aquatic products," exercises the governmental powers of eminent domain, and the
power to levy fees and charges. At the same time, the Authority exercises "the general corporate powers conferred
by laws upon private and government-owned or controlled corporations."

xxx xxx xxx

In light of the foregoing, the Authority should be classified as an instrumentality of the national government which is
liable to pay taxes only with respect to the portions of the
leased to taxable persons like private parties are subject to real property tax by the City of Pasay. (Emphases added,
citations omitted.)

The Court not only mentioned petitioner MCIAA as similarly situated as MIAA. It also mentioned several other
government instrumentalities, among which was the Philippine Fisheries Development Authority. Thus, applying the
2006 MIAA ruling, the Court, in Philippine Fisheries Development Authority v. Court of Appeals, 82 held:

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.

property, the beneficial use of which were vested in private entities. When local governments invoke the power to tax
on national government instrumentalities, such power is construed strictly against local governments. The rule is that
a tax is never presumed and there must be clear language in the law imposing the tax. Any doubt whether a person,
article or activity is taxable is resolved against taxation. This rule applies with greater force when local governments
seek to tax national government instrumentalities.

Thus, the real property tax assessments issued by the City of Iloilo should be upheld only with respect to the portions
leased to private persons. In case the Authority fails to pay the real property taxes due thereon, said portions cannot
be sold at public auction to satisfy the tax delinquency. . . . .

In the MIAA case, petitioner Philippine Fisheries Development Authority was cited as among the instrumentalities of
the national government. . . . .
xxx xxx xxx
xxx xxx xxx

Indeed, the Authority is not a GOCC but an instrumentality of the government. The Authority has a capital stock but it
is not divided into shares of stocks. Also, it has no stockholders or voting shares. Hence, it is not a stock corporation.
Neither [is it] a non-stock corporation because it has no members.

In sum, the Court finds that the Authority is an instrumentality of the national government, hence, it is liable to pay
real property taxes assessed by the City of Iloilo on the IFPC only with respect to those portions which are leased to
private entities. Notwithstanding said tax delinquency on the leased portions of the IFPC, the latter or any part
thereof, being a property of public domain, cannot be sold at public auction. This means that the City of Iloilo has to
satisfy the tax delinquency through means other than the sale at public auction of the IFPC. (Citations omitted.)

20

Another government instrumentality specifically mentioned in the 2006 MIAA case was the Philippine Ports Authority
(PPA). Hence, in Curata v. Philippine Ports Authority, 83 the Court held that the PPA is similarly situated as MIAA,
and ruled in this wise:

Apart from the foregoing consideration, the Court's fairly recent ruling in Manila International Airport Authority v. Court
of Appeals, a case likewise involving real estate tax assessments by a Metro Manila city on the real properties
administered by MIAA, argues for the non-tax liability of GSIS for real estate taxes. . . . .

xxx xxx xxx

This Court's disquisition in Manila International Airport Authority v. Court of Appeals ruling that MIAA is not a
government-owned and/or controlled corporation (GOCC), but an instrumentality of the National Government and
thus exempt from local taxation, and that its real properties are owned by the Republic of the Philippines is
instructive. . . . .

These findings

are

squarely applicable to PPA, as it is similarly situated as

MIAA. First, PPA

is

likewise not a GOCC for not having shares of stocks or

members. Second, the docks, piers and buildings it administers are likewise owned by the Republic and, thus,
outside the commerce of man. Third, PPA is a mere trustee of these properties. Hence, like MIAA, PPA is clearly a
government instrumentality, an agency of the government vested with corporate powers to perform efficiently its
governmental functions.

Therefore, an undeniable conclusion is that the funds of PPA partake of government funds, and such may not be
garnished absent an allocation by its Board or by statutory grant. If the PPA funds cannot be garnished and its
properties, being government properties, cannot be levied via a writ of execution pursuant to a final judgment, then
the

While perhaps not of governing sway in all fours inasmuch as what were involved in Manila International Airport
Authority, e.g., airfields and runways, are properties of the public dominion and, hence, outside the commerce of
man, the rationale underpinning the disposition in that case is squarely applicable to GSIS, both MIAA and GSIS
being similarly situated. First, while created under CA 186 as a non-stock corporation, a status that has remained
unchanged even when it operated under PD 1146 and RA 8291, GSIS is not, in the context of the aforequoted Sec.
193 of the LGC, a GOCC following the teaching of Manila International Airport Authority, for, like MIAA, GSIS's capital
is not divided into unit shares. Also, GSIS has no members to speak of. And by members, the reference is to those
who, under Sec. 87 of the Corporation Code, make up the non-stock corporation, and not to the compulsory
members of the system who are government employees. Its management is entrusted to a Board of Trustees whose
members are appointed by the President.

Second, the subject properties under GSIS's name are likewise owned by the Republic. The GSIS is but a mere
trustee of the subject properties which have either been ceded to it by the Government or acquired for the
enhancement of the system. This particular property arrangement is clearly shown by the fact that the disposal or
conveyance of said subject properties are either done by or through the authority of the President of the Philippines. .
. . . (Emphasis added, citations omitted.) TCAScE

All the more do we find that petitioner MCIAA, with its many similarities to the MIAA, should be classified as a
government instrumentality, as its properties are being used for public purposes, and should be exempt from real
estate taxes. This is not to derogate in any way the delegated authority of local government units to collect realty
taxes, but to uphold the fundamental doctrines of uniformity in taxation and equal protection of the

trial court likewise cannot grant discretionary execution pending appeal, as it would run afoul of the established
jurisprudence that government properties are exempt from execution. What cannot be done directly cannot be done
indirectly. (Citations omitted.)

laws, by applying all the jurisprudence that have exempted from said taxes similar authorities, agencies, and
instrumentalities, whether covered by the 2006 MIAA ruling or not.

In Government Service Insurance System v. City Treasurer and City Assessor of the City of Manila 84 the Court
found that the GSIS was also a government instrumentality and not a GOCC, applying the 2006 MIAA case even
though the GSIS was not among those specifically mentioned by the Court as similarly situated as MIAA. The Court
said:

To reiterate, petitioner MCIAA is vested with corporate powers but it is not a stock or non-stock corporation, which is
a necessary condition before an agency or instrumentality is deemed a government-owned or controlled corporation.
Like MIAA, petitioner MCIAA has capital under its charter but it is not divided into shares of stock. It also has no
stockholders or voting shares. Republic Act No. 6958 provides:

GSIS an instrumentality of the National Government

Section 9. Capital. The [Mactan-Cebu International Airport] Authority shall have an authorized capital stock equal
to and consisting of:

21

Finally, the Airport Lands and Buildings of MIAA are properties devoted to public use and thus are properties of public
dominion. Properties of public dominion are owned by the State or the Republic. . . . .
(a)
The value of fixed assets (including airport facilities, runways and equipment) and such other properties,
movable and immovable, currently administered by or belonging to the airports as valued on the date of the
effectivity of this Act;
xxx xxx xxx
(b)

The value of such real estate owned and/or administered by the airports; and
The term "ports . . . constructed by the State" includes airports and seaports. The

(c)
Government contribution in such amount as may be deemed an appropriate initial balance. Such initial
amount, as approved by the President of the Philippines, which shall be more or less equivalent to six (6) months
working capital requirement of the Authority, is hereby authorized to be appropriated in the General Appropriations
Act of the year following its enactment into law.

Thereafter, the government contribution to the capital of the Authority shall be provided for in the General
Appropriations Act.

Like in MIAA, the airport lands and buildings of MCIAA are properties of public dominion because they are intended
for public use. As properties of public dominion, they indisputably belong to the State or the Republic of the
Philippines, and are outside the commerce of man. This, unless petitioner leases its real property to a taxable
person, the specific property leased becomes subject to real property tax; in which case, only those portions of
petitioner's properties which are leased to taxable persons like private parties are subject to real property tax by the
City of Lapu-Lapu.

We hereby adopt and apply to petitioner MCIAA the findings and conclusions of the Court in the 2006 MIAA case,
and we quote:

To summarize, MIAA is not a government-owned or controlled corporation under Section 2(13) of the Introductory
Provisions of the Administrative Code because it is not organized as a stock or non-stock corporation. Neither is
MIAA a government-owned or controlled corporation under Section 16, Article XII of the 1987 Constitution because
MIAA is not required to meet the test of economic viability. MIAA is a government

instrumentality vested with corporate powers and performing essential public services pursuant to Section 2(10) of
the Introductory Provisions of the Administrative Code. As a government instrumentality, MIAA is not subject to any
kind of tax by local governments under Section 133(o) of the Local Government Code. The exception to the
exemption in Section 234(a) does not apply to MIAA because MIAA is not a taxable entity under the Local
Government Code. Such exception applies only if the beneficial use of real property owned by the Republic is given
to a taxable entity.

Airport Lands and Buildings of MIAA are intended for public use, and at the very least intended for public service.
Whether intended for public use or public service, the Airport Lands and Buildings are properties of public dominion.
As properties of public dominion, the Airport Lands and Buildings are owned by the Republic and thus exempt from
real estate tax under Section 234(a) of the Local Government Code.

4. Conclusion

Under Section 2(10) and (13) of the Introductory Provisions of the Administrative Code, which governs the legal
relation and status of government units, agencies and offices within the entire government machinery, MIAA is a
government instrumentality and not a government-owned or controlled corporation. Under Section 133(o) of the
Local Government Code, MIAA as a government instrumentality is not a taxable person because it is not subject to
"[t]axes, fees or charges of any kind" by local governments. The only exception is when MIAA leases its real property
to a "taxable person" as provided in Section 234(a) of the Local Government Code, in which case the specific real
property leased becomes subject to real estate tax. Thus, only portions of the Airport

Lands and Buildings leased to taxable persons like private parties are subject to real estate tax by the City of
Paraaque.

Under Article 420 of the Civil Code, the Airport Lands and Buildings of MIAA, being devoted to public use, are
properties of public dominion and thus owned by the State or the Republic of the Philippines. Article 420 specifically
mentions "ports . . . constructed by the State," which includes public airports and seaports, as properties of public
dominion and owned by the Republic. As properties of public dominion owned by the Republic, there is no doubt
whatsoever that the Airport Lands and Buildings are expressly exempt from real estate tax under Section 234(a) of
the Local Government Code. This Court

has also repeatedly ruled that properties of public dominion are not subject to execution or foreclosure sale. 85
(Emphases added.) ASEcHI

22

WHEREFORE,

we

hereby GRANT the petition.

ASIDE the Decision dated October 8,

2008 of the Court

of

We REVERSE and SET

2007 and the Resolution dated February 12,

Appeals (Cebu

City) in CA-G.R. SP No. 01360. Accordingly,

we DECLARE:

1.
Petitioner's properties that are actually, solely and exclusively used for public purpose, consisting of the
airport terminal building, airfield, runway, taxiway and the lots on which they are situated,EXEMPT from real property
tax imposed by the City of Lapu-Lapu.

2.
VOID all the real property tax assessments, including the additional tax for the special education fund and
the penalty interest, as well as the final notices of real property tax delinquencies, issued by the City of Lapu-Lapu on
petitioner's properties, except the assessment covering the portions that petitioner has leased to private parties.

Smart Communications, Inc. v. Municipality of Malvar, Batangas

3.
NULL and VOID the sale in public auction of 27 of petitioner's properties and the eventual forfeiture and
purchase of the said properties by respondent City of Lapu-Lapu. We likewise declareVOID the corresponding
Certificates of Sale of Delinquent Property

Republic of the Philippines

issued to respondent City of Lapu-Lapu.

SUPREME COURT

SO ORDERED.

Manila

Sereno, C.J., Bersamin, Perez and Perlas-Bernabe, JJ., concur.

EN BANC

G.R. No. 204429

February 18, 2014

SMART COMMUNICATIONS, INC., Petitioner, vs.

MUNICIPALITY OF MALVAR, BATANGAS, Respondent.

DECISION

23

CARPIO, J.:

TOTAL PROJECT COST:

PHP

11,000,000.00
The Case

For the Year 2001-2003

50% of 1% of the total project cost

This petition for review1 challenges the 26 June 2012 Decision2 and 13 November 2012 Resolution3 of the Court of
Tax. Appeals (CTA) En Banc.

Th e CTA En Banc affirmed the 17 December 2010 Decision4 and 7 April 2011 Resolution5 of the CTA First Division,
which in turn affirmed the 2 December 2008 Decision6 and 21 May 2009 Order7 of the Regional Trial Court of
Tanauan City, Batangas, Branch 6. The trial court declared void the assessment imposed by respondent Municipality
of Malvar, Batangas against petitioner Smart Communications, Inc. for its telecommunications tower for 2001 to July
2003 and directed respondent to assess petitioner only for the period starting 1 October 2003.

Add: 45% surcharge

24,750.00

Php79,750.00
Multiply by 3 yrs. (2001, 2002, 2003)

Php239,250.00

For the year 2004

1% of the total project cost

The Facts

Php55,000.00

37% surcharge

Php110,000.00

40,700.00

==========
Petitioner Smart Communications, Inc. (Smart) is a domestic corporation engaged in the business of providing
telecommunications services to the general public while respondent Municipality of Malvar, Batangas (Municipality) is
a local government unit created by law.

In the course of its business, Smart constructed a telecommunications tower within the territorial jurisdiction of the
Municipality. The construction of the tower was for the purpose of receiving and transmitting cellular communications
within the covered area.

Php150,700.00
TOTAL

Php389,950.00

Hoping that you will give this matter your preferential attention.8

On 30 July 2003, the Municipality passed Ordinance No. 18, series of 2003, entitled "An Ordinance Regulating the
Establishment of Special Projects."
Due to the alleged arrears in the payment of the assessment, the Municipality also caused the posting of a closure
notice on the telecommunications tower.

On 24 August 2004, Smart received from the Permit and Licensing Division of the Office of the Mayor of the
Municipality an assessment letter with a schedule of payment for the total amount of P389,950.00 for Smarts
telecommunications tower. The letter reads as follows:

On 9 September 2004, Smart filed a protest, claiming lack of due process in the issuance of the assessment and
closure notice. In the same protest, Smart challenged the validity of Ordinance No. 18 on which the assessment was
based.

This is to formally submit to your good office your schedule of payments in the Municipal Treasury of the Local
Government Unit of Malvar, province of Batangas which corresponds to the tower of your company built in the
premises of the municipality, to wit:

In a letter dated 28 September 2004, the Municipality denied Smarts protest.

24

On 17 November 2004, Smart filed with Regional Trial Court of Tanauan City, Batangas, Branch 6, an
"Appeal/Petition" assailing the validity of Ordinance No. 18. The case was docketed as SP Civil Case No. 04-111920.

On 2 December 2008, the trial court rendered a Decision partly granting Smarts Appeal/Petition. The trial court
confined its resolution of the case to the validity of the assessment, and did not rule on the legality of Ordinance No.
18. The trial court held that the assessment covering the period from 2001 to July 2003 was void since Ordinance
No. 18 was approved only on 30 July 2003. However, the trial court declared valid the assessment starting 1 October
2003, citing Article 4 of the Civil Code of the Philippines,9 in relation to the provisions of Ordinance No. 18 and
Section 166 of Republic Act No. 7160 or the Local Government Code of 1991 (LGC).10 The dispositive portion of the
trial courts Decision reads:

WHEREFORE, in light of the foregoing, the Petition is partly GRANTED. The assessment dated August 24, 2004
against petitioner is hereby declared null and void insofar as the assessment made from year 2001 to July 2003 and
respondent is hereby prohibited from assessing and collecting, from petitioner, fees during the said period and the
Municipal Government of Malvar, Batangas is directed to assess Smart Communications, Inc. only for the period
starting October 1, 2003.

SO ORDERED.12

On 7 April 2011, the CTA First Division issued a Resolution denying the motion for reconsideration.

Smart filed a petition for review with the CTA En Banc, which affirmed the CTA First Divisions decision and
resolution. The dispositive portion of the CTA En Bancs 26 June 2012 decision reads:

WHEREFORE, premises considered, the present Petition for Review is hereby DISMISSED for lack of merit.1wphi1

Accordingly, the assailed Decision dated December 17, 2010 and Resolution dated April 7, 2011 are hereby
AFFIRMED.

No costs.

SO ORDERED.13

SO ORDERED.11

The CTA En Banc denied the motion for reconsideration.

The trial court denied the motion for reconsideration in its Order of 21 May 2009.

Hence, this petition.

On 8 July 2009, Smart filed a petition for review with the CTA First Division, docketed as CTA AC No. 58.

The Ruling of the CTA En Banc

On 17 December 2010, the CTA First Division denied the petition for review. The dispositive portion of the decision
reads:

The CTA En Banc dismissed the petition on the ground of lack of jurisdiction. The CTA En Banc declared that it is a
court of special jurisdiction and as such, it can take cognizance only of such matters as are clearly within its
jurisdiction. Citing Section 7(a), paragraph 3, of Republic Act No. 9282, the CTA En Banc held that the CTA has
exclusive appellate jurisdiction to review on appeal, decisions, orders or resolutions of the Regional Trial Courts in
local tax cases originally resolved by them in the exercise of their original or appellate jurisdiction. However, the
same provision does not confer on the CTA jurisdiction to resolve cases where the constitutionality of a law or rule is
challenged.

WHEREFORE, the Petition for Review is hereby DENIED, for lack of merit. Accordingly, the assailed Decision dated
December 2, 2008 and the Order dated May 21, 2009 of Branch 6 of the Regional Trial Court of Tanauan City,
Batangas in SP. Civil Case No. 04-

The Issues

11-1920 entitled "Smart Communications, Inc. vs. Municipality of Malvar, Batangas" are AFFIRMED.

The petition raises the following arguments:

25

1. The [CTA En Banc Decision and Resolution] should be reversed and set aside for being contrary to law and
jurisprudence considering that the CTA En Banc should have exercised its jurisdiction and declared the Ordinance as
illegal.

The question now is whether the trial court resolved a local tax case in order to fall within the ambit of the CTAs
appellate jurisdiction This question, in turn, depends ultimately on whether the fees imposed under Ordinance No. 18
are in fact taxes.

Smart argues that the "fees" in Ordinance No. 18 are actually taxes since they are not regulatory, but revenueraising. Citing Philippine Airlines, Inc. v. Edu,16 Smart contends that the designation of "fees" in Ordinance No. 18 is
not controlling.

2.
The [CTA En Banc Decision and Resolution] should be reversed and set aside for being contrary to law
and jurisprudence considering that the doctrine of exhaustion of administrative remedies does not apply in [this
case].

3.

The [CTA En Banc Decision and Resolution] should be reversed and set aside for

being contrary to law and jurisprudence considering that the respondent has no authority to impose the so-called
"fees" on the basis of the void ordinance.14

The Court finds that the fees imposed under Ordinance No. 18 are not taxes.

Section 5, Article X of the 1987 Constitution provides that "each local government unit shall have the power to create
its own sources of revenues and to levy taxes, fees, and charges subject to such guidelines and limitations as the
Congress may provide, consistent with the basic policy of local autonomy. Such taxes, fees, and charges shall
accrue exclusively to the local government."

Consistent with this constitutional mandate, the LGC grants the taxing powers to each local government unit.
Specifically, Section 142 of the LGC grants municipalities the

The Ruling of the Court

The Court denies the petition.

On whether the CTA has jurisdiction over the present case

power to levy taxes, fees, and charges not otherwise levied by provinces. Section 143 of the LGC provides for the
scale of taxes on business that may be imposed by municipalities17 while Section 14718 of the same law provides
for the fees and charges that may be imposed by municipalities on business and occupation.

The LGC defines the term "charges" as referring to pecuniary liability, as rents or fees against persons or property,
while the term "fee" means "a charge fixed by law or ordinance for the regulation or inspection of a business or
activity."19

Smart contends that the CTA erred in dismissing the case for lack of jurisdiction. Smart maintains that the CTA has
jurisdiction over the present case considering the "unique" factual circumstances involved.

The CTA refuses to take cognizance of this case since it challenges the constitutionality of Ordinance No. 18, which
is outside the province of the CTA.

In this case, the Municipality issued Ordinance No. 18, which is entitled "An Ordinance Regulating the Establishment
of Special Projects," to regulate the "placing, stringing, attaching, installing, repair and construction of all gas mains,
electric, telegraph and telephone wires, conduits, meters and other apparatus, and provide for the correction,
condemnation or removal of the same when found to be dangerous, defective or otherwise hazardous to the welfare
of the inhabitant[s]."20 It was also envisioned to address the foreseen "environmental depredation" to be brought
about by these "special projects" to the Municipality.21 Pursuant to these objectives, the Municipality imposed fees
on various structures, which included telecommunications towers.

Jurisdiction is conferred by law. Republic Act No. 1125, as amended by Republic Act No. 9282, created the Court of
Tax Appeals. Section 7, paragraph (a), sub-paragraph (3)15 of the law vests the CTA with the exclusive appellate
jurisdiction over "decisions, orders or resolutions of the Regional Trial Courts in local tax cases originally decided or
resolved by them in the exercise of their original or appellate jurisdiction."

26

As clearly stated in its whereas clauses, the primary purpose of Ordinance No. 18 is to regulate the "placing,
stringing, attaching, installing, repair and construction of all gas mains, electric, telegraph and telephone wires,
conduits, meters and other apparatus" listed therein, which included Smarts telecommunications tower. Clearly, the
purpose of the assailed Ordinance is to regulate the enumerated activities particularly related to the construction and
maintenance of various structures. The fees in Ordinance No. 18 are not impositions on the building or structure
itself; rather, they are impositions on the activity subject of government regulation, such as the installation and
construction of the structures.22

Since the main purpose of Ordinance No. 18 is to regulate certain construction activities of the identified special
projects, which included "cell sites" or telecommunications towers, the fees imposed in Ordinance No. 18 are
primarily regulatory in nature, and not primarily revenue-raising. While the fees may contribute to the revenues of the
Municipality, this effect is merely incidental. Thus, the fees imposed in Ordinance No. 18 are not taxes.

In Progressive Development Corporation v. Quezon City,23 the Court declared that "if the generating of revenue is
the primary purpose and regulation is merely incidental, the imposition is a tax; but if regulation is the primary
purpose, the fact that incidentally revenue is also obtained does not make the imposition a tax."

In Victorias Milling Co., Inc. v. Municipality of Victorias,24 the Court reiterated that the purpose and effect of the
imposition determine whether it is a tax or a fee, and that the lack of any standards for such imposition gives the
presumption that the same is a tax.

Permit.

The following documents shall be submitted to the SB Secretary in triplicate:

a)

zoning clearance

b)

Vicinity Map

c)

Site Plan

d)

Evidence of ownership

e)
Certificate true copy of NTC Provisional Authority in case of Cellsites, telephone or telegraph line, ERB in
case of gasoline station, power plant, and other concerned national agencies

We accordingly say that the designation given by the municipal authorities does not decide whether the imposition is
properly a license tax or a license fee. The determining factors are the purpose and effect of the imposition as may
be apparent from the provisions of the ordinance. Thus, "[w]hen no police inspection, supervision, or regulation is
provided, nor any standard set for the applicant to establish, or that he agrees to attain or maintain, but any and all
persons engaged in the business designated, without qualification or hindrance, may come, and a license on
payment of the stipulated sum will issue, to do business, subject to no prescribed rule of conduct and under no
guardian eye, but according to the unrestrained judgment or fancy of the applicant and licensee, the presumption is
strong that the power of taxation, and not the police power, is being exercised."

Contrary to Smarts contention, Ordinance No. 18 expressly provides for the standards which Smart must satisfy
prior to the issuance of the specified permits, clearly indicating that the fees are regulatory in nature.

f)

Conversion order from DAR is located within agricultural zone.

g)

Radiation Protection Evaluation.

h)
Written consent from subdivision association or the residence of the area concerned if the special projects
is located within the residential zone.

i)

Barangay Council Resolution endorsing the special projects.

These requirements are as follows:

SECTION 6. Requirement for Final Development Permit Upon the expiration of 180 days and the proponents of
special projects shall apply for final [development permit] and they are require[d] to submit the following:
SECTION 5. Requirements and Procedures in Securing Preliminary Development

27

a)

evaluation from the committee where the Vice Mayor refers the special project

telecommunications entities and all aspects of its operations is specifically lodged by law on the NTC.

b)

Certification that all local fees have been paid.

To repeat, Ordinance No. 18 aims to regulate the "placing, stringing, attaching, installing, repair and construction of
all gas mains, electric, telegraph and telephone wires, conduits, meters and other apparatus" within the Municipality.
The fees are not imposed to regulate the administrative, technical, financial, or marketing operations of
telecommunications entities, such as Smarts; rather, to regulate the installation and maintenance of physical
structures Smarts cell sites or telecommunications tower. The regulation of the installation and maintenance of
such physical structures is an exercise of the police power of the Municipality. Clearly, the Municipality does not
encroach on NTCs regulatory powers.

Considering that the fees in Ordinance No. 18 are not in the nature of local taxes, and Smart is questioning the
constitutionality of the ordinance, the CTA correctly dismissed the petition for lack of jurisdiction. Likewise, Section
187 of the LGC,25 which outlines the procedure for questioning the constitutionality of a tax ordinance, is
inapplicable, rendering unnecessary the resolution of the issue on non-exhaustion of administrative remedies.

On whether the imposition of the fees in Ordinance No. 18 is ultra vire Smart argues that the Municipality exceeded
its power to impose taxes and fees as provided in Book II, Title One, Chapter 2, Article II of the LGC. Smart
maintains that the mayors permit fees in Ordinance No. 18 (equivalent to 1% of the project cost) are not among
those expressly enumerated in the LGC.

The Court likewise rejects Smarts contention that the power to fix the fees for the issuance of development permits
and locational clearances is exercised by the Housing and Land Use Regulatory Board (HLURB). Suffice it to state
that the HLURB itself recognizes the local government units power to collect fees related to land use and
development. Significantly, the HLURB issued locational guidelines governing telecommunications
infrastructure.1wphi1 Guideline No. VI relates to the collection of locational clearance fees either by the HLURB or
the concerned local government unit, to wit:

As discussed, the fees in Ordinance No.18 are not taxes. Logically, the imposition does not appear in the
enumeration of taxes under Section 143 of the LGC.

VI. Fees

Moreover, even if the fees do not appear in Section 143 or any other provision in the LGC, the Municipality is
empowered to impose taxes, fees and charges, not specifically enumerated in the LGC or taxed under the Tax Code
or other applicable law. Section 186 of the LGC, granting local government units wide latitude in imposing fees,
expressly provides:

The Housing and Land Use Regulatory Board in the performance of its functions shall collect the locational
clearance fee based on the revised schedule of fees under the special use project as per Resolution No. 622, series
of 1998 or by the concerned LGUs subject to EO 72.26

On whether Ordinance No. 18 is valid and constitutional

Section 186. Power To Levy Other Taxes, Fees or Charges. - Local government units may exercise the power to levy
taxes, fees or charges on any base or subject not otherwise specifically enumerated herein or taxed under the
provisions of the National Internal Revenue Code, as amended, or other applicable laws: Provided, That the taxes,
fees, or charges shall not be unjust, excessive, oppressive, confiscatory or contrary to declared national policy:
Provided, further, That the ordinance levying such taxes, fees or charges shall not be enacted without any prior
public hearing conducted for the purpose.

Smart further argues that the Municipality is encroaching on the regulatory powers of the National
Telecommunications Commission (NTC). Smart cites Section 5(g) of Republic Act No. 7925 which provides that the
National Telecommunications Commission (NTC), in the exercise of its regulatory powers, shall impose such fees
and charges as may be necessary to cover reasonable costs and expenses for the regulation and supervision of the
operations of telecommunications entities. Thus, Smart alleges that the regulation of

Smart contends that Ordinance No. 18 violates Sections 130(b)(3)27 and 186 of the LGC since the fees are unjust,
excessive, oppressive and confiscatory. Aside from this bare allegation, Smart did not present any evidence
substantiating its claims. In Victorias Milling Co., Inc. v. Municipality of Victorias,28 the Court rejected the argument
that the fees imposed by respondent therein are excessive for lack of evidence supporting such claim, to wit:

An ordinance carries with it the presumption of validity. The question of reasonableness though is open to judicial
inquiry. Much should be left thus to the discretion of municipal authorities. Courts will go slow in writing off an
ordinance as unreasonable unless the amount is so excessive as to be prohibitive, arbitrary, unreasonable,
oppressive, or confiscatory. A rule which has gained acceptance is that factors relevant to such an

inquiry are the municipal conditions as a whole and the nature of the business made subject to imposition.

28

Plaintiff, has however not sufficiently proven that, taking these factors together, the license taxes are unreasonable.
The presumption of validity subsists. For, plaintiff has limited itself to insisting that the amounts levied exceed the
cost of regulation and the municipality has adequate funds for the alleged purposes as evidenced by the
municipalitys cash surplus for the fiscal year ending 1956.

On the constitutionality issue, Smart merely pleaded for the declaration of unconstitutionality of Ordinance No. 18 in
the Prayer of the Petition, without any argument or evidence to support its plea. Nowhere in the body of the Petition
was this issue specifically raised and discussed. Significantly, Smart failed to cite any constitutional provision
allegedly violated by respondent when it issued Ordinance No. 18.

Settled is the rule that every law, in this case an ordinance, is presumed valid. To strike down a law as
unconstitutional, Smart has the burden to prove a clear and unequivocal breach of the Constitution, which Smart
miserably failed to do. In Lawyers Against Monopoly and Poverty (LAMP) v. Secretary of Budget and
Management,29 the Court held, thus:

The City of Manila v. Hon. Caridad H. Grecia-Cuerdo

Republic of the Philippines

SUPREME COURT

Manila

EN BANC
To justify the nullification of the law or its implementation, there must be a clear and unequivocal, not a doubtful,
breach of the Constitution. In case of doubt in the sufficiency of proof establishing unconstitutionality, the Court must
sustain legislation because "to invalidate [a law] based on xx x baseless supposition is an affront to the wisdom not
only of the legislature that passed it but also of the executive which approved it." This presumption of constitutionality
can be overcome only by the clearest showing that there was indeed an infraction of the Constitution, and only when
such a conclusion is reached by the required majority may the Court pronounce, in the discharge of the duty it
cannot escape, that the challenged act must be struck down.

G.R. No. 175723

February 4, 2014

THE CITY OF MANILA, represented by MAYOR JOSE L. ATIENZA, JR., and MS. LIBERTY M. TOLEDO, in her
capacity as the City Treasurer of Manila, Petitioners, vs.

WHEREFORE, the Court DENIES the petition.

SO ORDERED.

HON. CARIDAD H. GRECIA-CUERDO, in her capacity as Presiding Judge of the Regional Trial Court, Branch 112,
Pasay City; SM MART, INC.; SM PRIME HOLDINGS, INC.; STAR APPLIANCES CENTER; SUPERVALUE, INC.;
ACE HARDWARE PHILIPPINES, INC.; WATSON PERSONAL CARE STORES, PHILS., INC.; JOLLIMART PHILS.,
CORP.; SURPLUS MARKETING CORPORATION and SIGNATURE LINES,Respondents.

DECISION

PERALTA, J.:

Before the Court is a special civil action for certiorari under Rule 65 of the Rules of Court seeking to reverse and set
aside the Resolutions1 dated April 6, 2006 and November 29, 2006 of the Court of Appeals (CA) in CA-G.R. SP No.
87948.

29

The antecedents of the case, as summarized by the CA, are as follows:

Petitioners filed a Motion for Reconsideration,7 but the CA denied it in its Resolution dated November 29, 2006.
The record shows that petitioner City of Manila, through its treasurer, petitioner Liberty Toledo, assessed taxes for
the taxable period from January to December 2002 against private respondents SM Mart, Inc., SM Prime Holdings,
Inc., Star Appliances Center, Supervalue, Inc., Ace Hardware Philippines, Inc., Watsons Personal Care Stores Phils.,
Inc., Jollimart Philippines Corp., Surplus Marketing Corp. and Signature Lines. In addition to the taxes purportedly
due from private respondents pursuant to Section 14, 15, 16, 17 of the Revised Revenue Code of Manila (RRCM),
said assessment covered the local business taxes petitioners were authorized to collect under Section 21 of the
same Code. Because payment of the taxes assessed was a precondition for the issuance of their business permits,
private respondents were constrained to pay the P19,316,458.77 assessment under protest.

Hence, the present petition raising the following issues:

I- Whether or not the Honorable Court of Appeals gravely erred in dismissing the case for lack of jurisdiction.

II- Whether or not the Honorable Regional Trial Court gravely abuse[d] its discretion amounting to lack or excess of
jurisdiction in enjoining by issuing a Writ of Injunction the petitioners, their agents and/or authorized representatives
from implementing Section 21 of the Revised Revenue Code of Manila, as amended, against private respondents.
On January 24, 2004, private respondents filed [with the Regional Trial Court of Pasay City] the complaint
denominated as one for "Refund or Recovery of Illegally and/or Erroneously-Collected Local Business Tax,
Prohibition with Prayer to Issue TRO and Writ of Preliminary Injunction"

which was docketed as Civil Case No. 04-0019-CFM before public respondent's sala [at Branch 112]. In the
amended complaint they filed on February 16, 2004, private respondents alleged that, in relation to Section 21
thereof, Sections 14, 15, 16, 17, 18, 19 and 20 of the RRCM were violative of the limitations and guidelines under
Section 143

(h) of Republic Act. No. 7160 [Local Government Code] on double taxation. They further averred that petitioner city's
Ordinance No. 8011 which amended pertinent portions of the RRCM had already been declared to be illegal and
unconstitutional by the Department of Justice.2

28

III- Whether or not the Honorable Regional Trial Court gravely abuse[d] its discretion amounting to lack or excess of
jurisdiction in issuing the Writ of Injunction despite failure of private respondents to make a written claim for tax credit
or refund with the City Treasurer of Manila.

IV- Whether or not the Honorable Regional Trial Court gravely abuse[d] its discretion amounting to lack or excess of
jurisdiction considering that under Section 21 of the Manila Revenue Code, as amended, they are mere collecting
agents of the City Government.

In its Order3 dated July 9, 2004, the RTC granted private respondents' application for a writ of preliminary injunction.

Petitioners filed a Motion for Reconsideration4 but the RTC denied it in its Order5 dated October 15, 2004.

V- Whether or not the Honorable Regional Trial Court gravely abuse[d] its discretion amounting to lack or excess of
jurisdiction in issuing the Writ of Injunction because petitioner City of Manila and its constituents would result to
greater damage and prejudice thereof. (sic)8

Petitioners then filed a special civil action for certiorari with the CA assailing the July 9, 2004 and October 15, 2004
Orders of the RTC.6

Without first resolving the above issues, this Court finds that the instant petition should be denied for being moot and
academic.

In its Resolution promulgated on April 6, 2006, the CA dismissed petitioners' petition for certiorari holding that it has
no jurisdiction over the said petition. The CA ruled that since appellate jurisdiction over private respondents'
complaint for tax refund, which was filed with the RTC, is vested in the Court of Tax Appeals (CTA), pursuant to its
expanded jurisdiction under Republic Act No. 9282 (RA 9282), it follows that a petition for certiorari seeking
nullification of an interlocutory order issued in the said case should, likewise, be filed with the CTA.

Upon perusal of the original records of the instant case, this Court discovered that a Decision9 in the main case had
already been rendered by the RTC on August 13, 2007, the dispositive portion of which reads as follows:

30

WHEREFORE, in view of the foregoing, this Court hereby renders JUDGMENT in favor of the plaintiff and against
the defendant to grant a tax refund or credit for taxes paid pursuant to Section 21 of the Revenue Code of the City of
Manila as amended for the year 2002 in the following amounts:

In any case, the Court finds it necessary to resolve the issue on jurisdiction raised by petitioners owing to its
significance and for future guidance of both bench and bar. It is a settled principle that courts will decide a question
otherwise moot and academic if it is capable of repetition, yet evading review.14

To plaintiff SM Mart, Inc.

However, before proceeding, to resolve the question on jurisdiction, the Court deems it proper to likewise address a
procedural error which petitioners committed.

P 11,462,525.02

To plaintiff SM Prime Holdings, Inc.

3,118,104.63

To plaintiff Star Appliances Center

2,152,316.54

To plaintiff Supervalue, Inc.

1,362,750.34

To plaintiff Ace Hardware Phils., Inc.

To plaintiff Watsons Personal Care Health

419,689.04
-

Petitioners availed of the wrong remedy when they filed the instant special civil action for certiorari under Rule 65 of
the Rules of Court in assailing the Resolutions of the CA which dismissed their petition filed with the said court and
their motion for reconsideration of such dismissal. There is no dispute that the assailed Resolutions of the CA are in
the nature of a final order as they disposed of the petition completely. It is settled that in cases where an assailed
judgment or order is considered final, the remedy of the

231,453.62
29

Stores Phils., Inc.

To plaintiff Jollimart Phils., Corp.

140,908.54

To plaintiff Surplus Marketing Corp.

220,204.70

To plaintiff Signature Mktg. Corp.

94,906.34

TOTAL:

P 19,316,458.77

Defendants are further enjoined from collecting taxes under Section 21, Revenue Code of Manila from herein
plaintiff.

SO ORDERED.10

The parties did not inform the Court but based on the records, the above Decision had already become final and
executory per the Certificate of Finality11 issued by the same trial court on October 20, 2008. In fact, a Writ of
Execution12 was issued by the RTC on November 25, 2009. In view of the foregoing, it clearly appears that the
issues raised in the present petition, which merely involve the incident on the preliminary injunction issued by the
RTC, have already become moot and academic considering that the trial court, in its decision on the merits in the
main case, has already ruled in favor of respondents and that the same decision is now final and executory. Well
entrenched is the rule that where the issues have become moot and academic, there is no justiciable controversy,
thereby rendering the resolution of the same of no practical use or value.13

aggrieved party is appeal. Hence, in the instant case, petitioner should have filed a petition for review on certiorari
under Rule 45, which is a continuation of the appellate process over the original case.15

Petitioners should be reminded of the equally-settled rule that a special civil action for certiorari under Rule 65 is an
original or independent action based on grave abuse of discretion amounting to lack or excess of jurisdiction and it
will lie only if there is no appeal or any other plain, speedy, and adequate remedy in the ordinary course of law.16 As
such, it cannot be a substitute for a lost appeal.17

Nonetheless, in accordance with the liberal spirit pervading the Rules of Court and in the interest of substantial
justice, this Court has, before, treated a petition for certiorari as a petition for review on certiorari, particularly (1) if
the petition for certiorari was filed within the reglementary period within which to file a petition for review on certiorari;
(2) when errors of judgment are averred; and (3) when there is sufficient reason to justify the relaxation of the
rules.18 Considering that the present petition was filed within the 15-day reglementary period for filing a petition for
review on certiorari under Rule 45, that an error of judgment is averred, and because of the significance of the issue
on jurisdiction, the Court deems it proper and justified to relax the rules and, thus, treat the instant petition for
certiorari as a petition for review on certiorari.

Having disposed of the procedural aspect, we now turn to the central issue in this case. The basic question posed
before this Court is whether or not the CTA has jurisdiction over a special civil action for certiorari assailing an
interlocutory order issued by the RTC in a local tax case.

This Court rules in the affirmative.

31

3.
Decisions, orders or resolutions of the Regional Trial Courts in local tax cases originally decided or
resolved by them in the exercise of their original or appellate jurisdiction;
On June 16, 1954, Congress enacted Republic Act No. 1125 (RA 1125) creating the CTA and giving to the said court
jurisdiction over the following:

(1)
Decisions of the Collector of Internal Revenue in cases involving disputed assessments, refunds of internal
revenue taxes, fees or other charges, penalties imposed in relation thereto, or other matters arising under the
National Internal Revenue Code or other law or part of law administered by the Bureau of Internal Revenue;

(2)
Decisions of the Commissioner of Customs in cases involving liability for customs duties, fees or other
money charges; seizure, detention or release of property affected fines, forfeitures or other penalties imposed in
relation thereto; or other matters arising under the Customs Law or other law or part of law administered by the
Bureau of Customs; and

4.
Decisions of the Commissioner of Customs in cases involving liability for customs duties, fees or other
money charges, seizure, detention or release of property affected, fines, forfeitures or other penalties in relation
thereto, or other matters arising under the Customs Law or other laws administered by the Bureau of Customs;

5.
Decisions of the Central Board of Assessment Appeals in the exercise of its appellate jurisdiction over
cases involving the assessment and taxation of real property originally decided by the provincial or city board of
assessment appeals;

6.
Decisions of the Secretary of Finance on customs cases elevated to him automatically for review from
decisions of the Commissioner of Customs which are adverse to the Government under Section 2315 of the Tariff
and Customs Code;

(3) Decisions of provincial or City Boards of Assessment Appeals in cases involving the assessment and taxation of
real property or other matters arising under the Assessment Law, including rules and regulations relative thereto.

On March 30, 2004, the Legislature passed into law Republic Act No. 9282 (RA 9282) amending RA 1125 by
expanding the jurisdiction of the CTA, enlarging its membership and elevating its rank to the level of a collegiate
court with special jurisdiction. Pertinent portions of the amendatory act provides thus:

7.
Decisions of the Secretary of Trade and Industry, in the case of nonagricultural product, commodity or
article, and the Secretary of Agriculture in the case of agricultural

30

Sec. 7. Jurisdiction. - The CTA shall exercise:

product, commodity or article, involving dumping and countervailing duties under Section 301 and 302, respectively,
of the Tariff and Customs Code, and safeguard measures under Republic Act No. 8800, where either party may
appeal the decision to impose or not to impose said duties.
a. Exclusive appellate jurisdiction to review by appeal, as herein provided:
b. Jurisdiction over cases involving criminal offenses as herein provided:
1.
Decisions of the Commissioner of Internal Revenue in cases involving disputed assessments, refunds of
internal revenue taxes, fees or other charges, penalties in relation thereto, or other matters arising under the National
Internal Revenue or other laws administered by the Bureau of Internal Revenue;

2.
Inaction by the Commissioner of Internal Revenue in cases involving disputed assessments, refunds of
internal revenue taxes, fees or other charges, penalties in relations thereto, or other matters arising under the
National Internal Revenue Code or other laws administered by the Bureau of Internal Revenue, where the National
Internal Revenue Code provides a specific period of action, in which case the inaction shall be deemed a denial;

1.
Exclusive original jurisdiction over all criminal offenses arising from violations of the National Internal
Revenue Code or Tariff and Customs Code and other laws administered by the Bureau of Internal Revenue or the
Bureau of Customs: Provided, however, That offenses or felonies mentioned in this paragraph where the principal
amount of taxes and fees, exclusive of charges and penalties, claimed is less than One million pesos
(P1,000,000.00) or where there is no specified amount claimed shall be tried by the regular Courts and the
jurisdiction of the CTA shall be appellate. Any provision of law or the Rules of Court to the contrary notwithstanding,
the criminal action and the corresponding civil action for the recovery of civil liability for taxes and penalties shall at
all times be simultaneously instituted with, and jointly determined in the same proceeding by the CTA, the filing of the
criminal action being deemed to necessarily carry with it the filing of the civil action, and no right to reserve the filing
of such civil action separately from the criminal action will be recognized.

32

2.

Exclusive appellate jurisdiction in criminal offenses:

a.
Over appeals from the judgments, resolutions or orders of the Regional Trial Courts in tax cases originally
decided by them, in their respected territorial jurisdiction.

b.
Over petitions for review of the judgments, resolutions or orders of the Regional Trial Courts in the
exercise of their appellate jurisdiction over tax cases originally decided by the Metropolitan Trial Courts, Municipal
Trial Courts and Municipal Circuit Trial Courts in their respective jurisdiction.

c.

appellate jurisdiction.20 Thus, in the cases of Pimentel v. COMELEC,21 Garcia v. De Jesus,22 Veloria v.
COMELEC,23 Department of Agrarian Reform Adjudication Board v. Lubrica,24 and Garcia v. Sandiganbayan,25this
Court has ruled against the jurisdiction of courts or tribunals over petitions for certiorari on the ground that there is no
law which expressly gives these tribunals such power.26 It must be observed, however, that with the exception of
Garcia v. Sandiganbayan,27 these rulings pertain not to regular courts but to tribunals exercising quasi-judicial
powers. With respect to the Sandiganbayan, Republic Act No. 824928 now provides that the special criminal court
has exclusive original jurisdiction over petitions for the issuance of the writs of mandamus, prohibition, certiorari,
habeas corpus, injunctions, and other ancillary writs and processes in aid of its appellate jurisdiction.

In the same manner, Section 5 (1), Article VIII of the 1987 Constitution grants power to the Supreme Court, in the
exercise of its original jurisdiction, to issue writs of certiorari, prohibition and mandamus. With respect to the Court of
Appeals, Section 9 (1) of Batas Pambansa Blg. 129 (BP 129) gives the appellate court, also in the exercise of its
original jurisdiction, the power to issue, among others, a writ of certiorari,whether or not in aid of its appellate
jurisdiction. As to Regional Trial Courts, the power to issue a writ of certiorari, in the exercise of their original
jurisdiction, is provided under Section 21 of BP 129.

Jurisdiction over tax collection cases as herein provided:

1.
Exclusive original jurisdiction in tax collection cases involving final and executory assessments for taxes,
fees, charges and penalties: Provides, however, that collection cases where the principal amount of taxes and fees,
exclusive of charges and penalties, claimed is less than One million pesos (P1,000,000.00) shall be tried by the
proper Municipal Trial Court, Metropolitan Trial Court and Regional Trial Court.

The foregoing notwithstanding, while there is no express grant of such power, with respect to the CTA, Section 1,
Article VIII of the 1987 Constitution provides, nonetheless, that judicial power shall be vested in one Supreme Court
and in such lower courts as may be established by law and that judicial power includes the duty of the courts of
justice to settle actual controversies involving rights which are legally demandable and enforceable, and to determine
whether or not there has been a grave abuse of discretion

2.

31

Exclusive appellate jurisdiction in tax collection cases:

a. Over appeals from the judgments, resolutions or orders of the Regional Trial Courts in tax collection cases
originally decided by them, in their respective territorial jurisdiction.
amounting to lack or excess of jurisdiction on the part of any branch or instrumentality of the Government.

b. Over petitions for review of the judgments, resolutions or orders of the Regional Trial Courts in the Exercise of
their appellate jurisdiction over tax collection cases originally decided by the Metropolitan Trial Courts, Municipal Trial
Courts and Municipal Circuit Trial Courts, in their respective jurisdiction.19

A perusal of the above provisions would show that, while it is clearly stated that the CTA has exclusive appellate
jurisdiction over decisions, orders or resolutions of the RTCs in local tax cases originally decided or resolved by them
in the exercise of their original or appellate jurisdiction, there is no categorical statement under RA 1125 as well as
the amendatory RA 9282, which provides that th e CTA has jurisdiction over petitions for certiorari assailing
interlocutory orders issued by the RTC in local tax cases filed before it.

On the strength of the above constitutional provisions, it can be fairly interpreted that the power of the CTA includes
that of determining whether or not there has been grave abuse of discretion amounting to lack or excess of
jurisdiction on the part of the RTC in issuing an interlocutory order in cases falling within the exclusive appellate
jurisdiction of the tax court. It, thus, follows that the CTA, by constitutional mandate, is vested with jurisdiction to
issue writs of certiorari in these cases.

Indeed, in order for any appellate court to effectively exercise its appellate jurisdiction, it must have the authority to
issue, among others, a writ of certiorari. In transferring exclusive jurisdiction over appealed tax cases to the CTA, it
can reasonably be assumed that the law intended to transfer also such power as is deemed necessary, if not
indispensable, in aid of such appellate jurisdiction. There is no perceivable reason why the transfer should only be
considered as partial, not total.

The prevailing doctrine is that the authority to issue writs of certiorari involves the exercise of original jurisdiction
which must be expressly conferred by the Constitution or by law and cannot be implied from the mere existence of

33

Consistent with the above pronouncement, this Court has held as early as the case of J.M. Tuason & Co., Inc. v.
Jaramillo, et al.29 that "if a case may be appealed to a particular court or judicial tribunal or body, then said court or
judicial tribunal or body has jurisdiction to issue the extraordinary writ of certiorari, in aid of its appellate
jurisdiction."30 This principle was affirmed in De Jesus v. Court of Appeals,31 where the Court stated that "a court
may issue a writ of certiorari in aid of its appellate jurisdiction if said court has jurisdiction to review, by appeal or writ
of error, the final orders or decisions of the lower court."32 The rulings in J.M. Tuason and De Jesus were reiterated
in the more recent cases of Galang, Jr. v. Geronimo33 and Bulilis v. Nuez.34

Furthermore, Section 6, Rule 135 of the present Rules of Court provides that when by law, jurisdiction is conferred
on a court or judicial officer, all auxiliary writs, processes and other means necessary to carry it into effect may be
employed by such court or officer.

If this Court were to sustain petitioners' contention that jurisdiction over their certiorari petition lies with the CA, this
Court would be confirming the exercise by two judicial bodies, the CA and the CTA, of jurisdiction over basically the
same subject matter precisely the split-jurisdiction situation which is anathema to the orderly administration of
justice.35 The Court cannot accept that such was the legislative motive, especially considering that the law expressly
confers on the CTA, the tribunal with the specialized competence over tax and tariff matters, the role of judicial
review over local tax cases without mention of any other court that may exercise such power. Thus, the Court agrees
with the ruling of the CA that since appellate jurisdiction over private respondents' complaint for tax refund is vested
in the CTA, it follows that a petition for certiorari seeking nullification of an interlocutory order issued in the said case
should, likewise, be filed with the same court. To rule otherwise would lead to an absurd situation where one

might interfere with the proper exercise of its rightful jurisdiction in cases pending before it.37

Lastly, it would not be amiss to point out that a court which is endowed with a particular jurisdiction should have
powers which are necessary to enable it to act effectively within such jurisdiction. These should be regarded as
powers which are inherent in its jurisdiction and the court must possess them in order to enforce its rules of practice
and to suppress any abuses of its process and to defeat any attempted thwarting of such process.

In this regard, Section 1 of RA 9282 states that the CTA shall be of the same level as the CA and shall possess all
the inherent powers of a court of justice.

Indeed, courts possess certain inherent powers which may be said to be implied from a general grant of jurisdiction,
in addition to those expressly conferred on them. These inherent powers are such powers as are necessary for the
ordinary and efficient exercise of jurisdiction; or are essential to the existence, dignity and functions of the courts, as
well as to the due administration of justice; or are directly appropriate, convenient and suitable to the execution of
their granted powers; and include the power to maintain the court's jurisdiction and render it effective in behalf of the
litigants.38

32

court decides an appeal in the main case while another court rules on an incident in the very same case.

Stated differently, it would be somewhat incongruent with the pronounced judicial abhorrence to split jurisdiction to
conclude that the intention of the law is to divide the authority over a local tax case filed with the RTC by giving to the
CA or this Court jurisdiction to issue a writ of certiorari against interlocutory orders of the RTC but giving to the CTA
the jurisdiction over the appeal from the decision of the trial court in the same case. It is more in consonance with
logic and legal soundness to conclude that the grant of appellate jurisdiction to the CTA over tax cases filed in and
decided by the RTC carries with it the power to issue a writ of certiorari when necessary in aid of such appellate
jurisdiction. The supervisory power or jurisdiction of the CTA to issue a writ of certiorari in aid of its appellate
jurisdiction should co-exist with, and be a complement to, its appellate jurisdiction to review, by appeal, the final
orders and decisions of the RTC, in order to have complete supervision over the acts of the latter.36

A grant of appellate jurisdiction implies that there is included in it the power necessary to exercise it effectively, to
make all orders that will preserve the subject of the action, and to give effect to the final determination of the appeal.
It carries with it the power to protect that jurisdiction and to make the decisions of the court thereunder effective. The
court, in aid of its appellate jurisdiction, has authority to control all auxiliary and incidental matters necessary to the
efficient and proper exercise of that jurisdiction.1wphi1 For this purpose, it may, when necessary, prohibit or restrain
the performance of any act which

Thus, this Court has held that "while a court may be expressly granted the incidental powers necessary to effectuate
its jurisdiction, a grant of jurisdiction, in the absence of prohibitive legislation, implies the necessary and usual
incidental powers essential to effectuate it, and, subject to existing laws and constitutional provisions, every regularly
constituted court has power to do all things that are reasonably necessary for the administration of justice within the
scope of its jurisdiction and for the enforcement of its judgments and mandates."39 Hence, demands, matters or
questions ancillary or incidental to, or growing out of, the main action, and coming within the above principles, may
be taken cognizance of by the court and determined, since such jurisdiction is in aid of its authority over the principal
matter, even though the court may thus be called on to consider and decide matters which, as original causes of
action, would not be within its cognizance.40

Based on the foregoing disquisitions, it can be reasonably concluded that the authority of the CTA to take cognizance
of petitions for certiorari questioning interlocutory orders issued by the RTC in a local tax case is included in the
powers granted by the Constitution as well as inherent in the exercise of its appellate jurisdiction.

Finally, it would bear to point out that this Court is not abandoning the rule that, insofar as quasi-judicial tribunals are
concerned, the authority to issue writs of certiorari must still be expressly conferred by the Constitution or by law and
cannot be implied from the mere existence of their appellate jurisdiction. This doctrine remains as it applies only to
quasi-judicial bodies.

34

WHEREFORE, the petition is DENIED.

CITY TREASURER and CITY ASSESSOR of the CITY OF MANILA, Respondents.

SO ORDERED.

DECISION

VELASCO, JR., J.:

The Case

For review under Rule 45 of the Rules of Court on pure question of law are the November 15, 2007 Decision1 and
January 7, 2009 Order2 of the Regional Trial Court (RTC), Branch 49 in Manila, in Civil Case No. 02-104827, a suit
to nullify the assessment of real property taxes on certain properties belonging to petitioner Government Service
Insurance System (GSIS).
33
The Facts
GSIS v. City Treasurer and City Assessor of the City of Manila

Republic of the Philippines

SUPREME COURT

Petitioner GSIS owns or used to own two (2) parcels of land, one located at Katigbak 25th St., Bonifacio Drive,
Manila (Katigbak property), and the other, at Concepcion cor. Arroceros Sts., also in Manila (Concepcion-Arroceros
property). Title to the Concepcion-Arroceros property was transferred to this Court in 2005 pursuant to Proclamation
No. 8353 dated April 27, 2005. Both the GSIS and the Metropolitan Trial Court (MeTC) of Manila occupy the
Concepcion-Arroceros property, while the Katigbak property was under lease.

The controversy started when the City Treasurer of Manila addressed a letter4 dated September 13, 2002 to GSIS
President and General Manager Winston F. Garcia informing him of the unpaid real property taxes due on the
aforementioned properties for years 1992 to 2002, broken down as follows: (a) PhP 54,826,599.37 for the Katigbak
property; and (b) PhP 48,498,917.01 for the Concepcion-Arroceros property. The letter warned of the inclusion of the
subject properties in the scheduled October 30, 2002

Manila

THIRD DIVISION
public auction of all delinquent properties in Manila should the unpaid taxes remain unsettled before that date.
G.R. No. 186242

December 23, 2009

GOVERNMENT SERVICE INSURANCE SYSTEM, Petitioner, vs.

On September 16, 2002, the City Treasurer of Manila issued separate Notices of Realty Tax Delinquency5 for the
subject properties, with the usual warning of seizure and/or sale. On October 8, 2002, GSIS, through its legal
counsel, wrote back emphasizing the GSIS exemption from all kinds of taxes, including realty taxes, under Republic
Act No. (RA) 8291.6

35

Two days after, GSIS filed a petition for certiorari and prohibition7 with prayer for a restraining and injunctive relief
before the Manila RTC. In it, GSIS prayed for the nullification of the assessments thus made and that respondents
City of Manila officials be permanently enjoined from proceedings against GSIS property. GSIS would later amend
its petition8 to include the fact that: (a) the Katigbak property, covered by TCT Nos. 117685 and 119465 in the name
of GSIS, has, since November 1991, been leased to and occupied by the Manila Hotel Corporation (MHC), which
has contractually bound itself to pay any realty taxes that may be imposed on the subject property; and (b) the
Concepcion-Arroceros property is partly occupied by GSIS and partly occupied by the MeTC of Manila.

The Courts Ruling

The Ruling of the RTC

In the main, it is petitioners posture that both its old charter, Presidential Decree No. (PD) 1146, and present charter,
RA 8291 or the GSIS Act of 1997, exempt the agency and its properties from all forms of taxes and assessments,
inclusive of realty tax. Excepting, respondents counter that GSIS may not successfully resist the citys notices and
warrants of levy on the basis of its exemption under RA 8291, real property taxation being governed by RA 7160 or
the Local Government Code of 1991 (LGC, hereinafter).

By Decision of November 15, 2007, the RTC dismissed GSIS petition, as follows:

WHEREFORE, in view of the foregoing, judgment is hereby rendered, DISMISSING the petition for lack of merit, and
declaring the assessment conducted by the respondents City of Manila on the subject real properties of GSIS as
valid pursuant to law.

The issues raised may be formulated in the following wise: first, whether GSIS under its charter is exempt from real
property taxation; second, assuming that it is so exempt, whether GSIS is liable for real property taxes for its
properties leased to a taxable entity; and third, whether the properties of GSIS are exempt from levy.

The petition is meritorious.

First Core Issue: GSIS Exempt from Real Property Tax

SO ORDERED.9
Full tax exemption granted through PD 1146
GSIS sought but was denied reconsideration per the assailed Order dated January 7, 2009.

Thus, the instant petition for review on pure question of law.

In 1936, Commonwealth Act No. (CA) 18611 was enacted abolishing the then pension systems under Act No. 1638,
as amended, and establishing the GSIS to manage the pension system, life and retirement insurance, and other
benefits of all government employees. Under what may be considered as its first charter, the GSIS was set up as a
non-stock corporation managed by a board of trustees. Notably, Section 26 of CA 186 provided exemption from any
legal process and liens but only for insurance policies and their proceeds, thus:

The Issues

1.

Whether petitioner is exempt from the payment of real property taxes from 1992 to 2002;

Section 26. Exemption from legal process and liens. No policy of life insurance issued under this Act, or the
proceeds thereof, when paid to any member thereunder, nor any other benefit granted under this Act, shall be liable
to attachment, garnishment, or other process, or to be seized, taken, appropriated, or applied by any legal or
equitable process or operation of law to pay any debt or liability of such member, or his beneficiary, or any other
person who may have a right thereunder, either before or after payment; nor shall the proceeds thereof, when not
made payable to a named beneficiary, constitute a part of the estate of the member for payment of his debt. x x x

2.
Whether petitioner is exempt from the payment of real property taxes on the property it leased to a taxable
entity; and

3.
Whether petitioners real properties are exempt from warrants of levy and from tax sale for non-payment of
real property taxes.10

In 1977, PD 1146,12 otherwise known as the Revised Government Service Insurance Act of 1977, was issued,
providing for an expanded insurance system for government employees. Sec. 33 of PD 1146 provided for a new tax
treatment for GSIS, thus:

34

36

Section 33. Exemption from Tax, Legal Process and Lien. It is hereby declared to be the policy of the State that the
actuarial solvency of the funds of the System shall be preserved and maintained at all times and that the contribution
rates necessary to

From the foregoing provisos, there can be no serious doubt about the Congress intention to withdraw, subject to
certain defined exceptions, tax exemptions granted prior to the passage of RA 7160. The question that easily comes
to mind then is whether or

35
sustain the benefits under this Act shall be kept as low as possible in order not to burden the members of the System
and/or their employees. Taxes imposed on the System tend to impair the actuarial solvency of its funds and increase
the contribution rate necessary to sustain the benefits under this Act. Accordingly, notwithstanding any laws to the
contrary, the System, its assets, revenues including all accruals thereto, and benefits paid, shall be exempt from all
taxes, assessments, fees, charges or duties of all kinds. These exemptions shall continue unless expressly and
specifically revoked and any assessment against the System as of the approval of this Act are hereby considered
paid.

The benefits granted under this Act shall not be subject, among others, to attachment, garnishment, levy or other
processes. This, however, shall not apply to obligations of the member to the System, or to the employer, or when
the benefits granted herein are assigned by the member with the authority of the System. (Emphasis ours.)

A scrutiny of PD 1146 reveals that the non-stock corporate structure of GSIS, as established under CA 186,
remained unchanged. Sec. 3413 of PD 1146 pertinently provides that the GSIS, as created by CA 186, shall
implement the provisions of PD 1146.

not the full tax exemption heretofore granted to GSIS under PD 1146, particular insofar as realty tax is concerned,
was deemed withdrawn. We answer in the affirmative.

In Mactan Cebu International Airport Authority v. Marcos,[15] the Court held that the express withdrawal by the LGC
of previously granted exemptions from realty taxes applied to instrumentalities and government-owned and
controlled corporations (GOCCs), such as the Mactan-Cebu International Airport Authority. In City of Davao v. RTC,
Branch XII, Davao City,16 the Court, citing Mactan Cebu International Airport Authority, declared the GSIS liable for
real property taxes for the years 1992 to 1994 (contested real estate tax assessment therein), its previous exemption
under PD 1146 being considered withdrawn with the enactment of the LGC in 1991.

Significantly, the Court, in City of Davao, stated the observation that the GSIS tax-exempt status withdrawn in 1992
by the LGC was restored in 1997 by RA 8291.17

RA 7160 lifted GSIS tax exemption

Full tax exemption reenacted through RA 8291
Then came the enactment in 1991 of the LGC or RA 7160, providing the exercise of local government units (LGUs)
of their power to tax, the scope and limitations thereof,14 and the exemptions from taxations. Of particular pertinence
is the general provision on withdrawal of tax exemption privileges in Sec. 193 of the LGC, and the special provision
on withdrawal of exemption from payment of real property taxes in the last paragraph of the succeeding Sec. 234,
thus:

SEC. 193. Withdrawal of Tax Exemption Privileges. Unless otherwise provided in this Code, tax exemptions or
incentives granted to, or presently enjoyed by all persons, whether natural or juridical, including government-owned
or -controlled corporations, except local water districts, cooperatives duly registered under R.A. No. 6938, non-stock
and non-profit hospitals and educational institutions, are hereby withdrawn upon the effectivity of this Code.

SEC. 234. Exemption from Real Property Tax. x x x Except as provided herein, any exemption from payment of
real property tax previously granted to, or presently enjoyed by, all persons, whether natural or juridical, including all
government-owned or controlled corporation are hereby withdrawn upon the effectivity of this Code.

Indeed, almost 20 years to the day after the issuance of the GSIS charter, i.e., PD 1146, it was further amended and
expanded by RA 8291 which took effect on June 24, 1997.18 Under it, the full tax exemption privilege of GSIS was
restored, the operative provision being Sec. 39 thereof, a virtual replication of the earlier quoted Sec. 33 of PD 1146.
Sec. 39 of RA 8291 reads:

SEC. 39. Exemption from Tax, Legal Process and Lien. It is hereby declared to be the policy of the State that the
actuarial solvency of the funds of the GSIS shall be preserved and maintained at all times and that contribution rates
necessary to sustain the benefits under this Act shall be kept as low as possible in order not to burden the members
of the GSIS and their employers. Taxes imposed on the GSIS tend to impair the actuarial solvency of its funds and
increase the contribution rate necessary to sustain the benefits of this Act. Accordingly, notwithstanding, any laws to
the contrary, the GSIS, its assets, revenues including all accruals thereto, and benefits paid, shall be exempt from all
taxes, assessments, fees, charges or duties of all kinds. These exemptions shall continue unless expressly and
specifically revoked and any assessment against the GSIS as of the approval of this Act are hereby considered paid.
Consequently, all laws, ordinances, regulations, issuances, opinions or jurisprudence contrary to or in derogation of
this provision are hereby deemed repealed, superseded and rendered ineffective and without legal force and effect.

37

Moreover, these exemptions shall not be affected by subsequent laws to the contrary unless this section is expressly,
specifically and categorically revoked or repealed by law and a provision is enacted to substitute or replace the
exemption referred to herein as an essential factor to maintain or protect the solvency of the fund, notwithstanding
and independently of the guaranty of the national government to secure such solvency or liability.

The funds and/or the properties referred to herein as well as the benefits, sums or monies corresponding to the
benefits under this Act shall be exempt from attachment, garnishment, execution, levy or other processes issued by
the courts, quasi-judicial agencies or administrative bodies including Commission on Audit (COA) disallowances and
from all financial obligations of the members, including his pecuniary accountability arising from or caused or
occasioned by his exercise or performance of his official functions or duties, or incurred relative to or in connection
with his position or work except when his monetary liability, contractual or otherwise, is in favor of the GSIS.
(Emphasis ours.)

The foregoing exempting proviso, couched as it were in an encompassing manner, brooks no other construction but
that GSIS is exempt from all forms of taxes. While not determinative of this case, it is to be noted that prominently
added in GSIS present charter is a paragraph precluding any implied repeal of the tax-exempt clause so as to
protect the solvency of GSIS funds. Moreover, an express repeal by a subsequent law would not suffice to affect the
full exemption benefits granted the GSIS, unless the following conditionalities are met: (1) The repealing clause must
expressly, specifically, and categorically revoke or repeal Sec. 39; and (2) a provision is enacted to substitute or
replace the exemption referred to herein as an essential factor to maintain or protect the solvency of the fund. These
restrictions for a future express repeal, notwithstanding, do not make the proviso an irrepealable law, for such
restrictions do not impinge or limit the carte blanche legislative authority of the legislature to so amend it. The
restrictions merely enhance other provisos in the law ensuring the solvency of the GSIS fund.1avvphi1

Given the foregoing perspectives, the following may be assumed: (1) Pursuant to Sec. 33 of PD 1146, GSIS enjoyed
tax exemption from real estate taxes, among other tax burdens, until January 1, 1992 when the LGC took effect and
withdrew exemptions from payment of real estate taxes privileges granted under PD 1146; (2) RA 8291 restored in
1997 the tax exempt status of GSIS by reenacting under its Sec. 39 what was once Sec. 33 of P.D. 1146;19 and (3) If
any real estate tax is due to the City of Manila, it is, following City of Davao, only for the interim period, or from 1992
to 1996, to be precise.

36

necessary to sustain the benefits of this Act. Accordingly, notwithstanding, any laws to the contrary, the GSIS, its
assets, revenues including all accruals thereto, and benefits paid, shall be exempt from all taxes, assessments, fees,
charges or duties of all kinds. These exemptions shall continue unless expressly and specifically revoked and any
assessment against the GSIS as of the approval of this Act are hereby considered paid. Consequently, all laws,
ordinances, regulations, issuances, opinions or jurisprudence contrary to or in derogation of this provision are hereby
deemed repealed, superseded and rendered ineffective and without legal force and effect. (Emphasis added.)

GSIS an instrumentality of the National Government

Apart from the foregoing consideration, the Courts fairly recent ruling in Manila International Airport Authority v. Court
of Appeals,20 a case likewise involving real estate tax assessments by a Metro Manila city on the real properties
administered by MIAA, argues for the non-tax liability of GSIS for real estate taxes. There, the Court held that MIAA
does not qualify as a GOCC, not having been organized either as a stock corporation, its capital not being divided
into shares, or as a non-stock corporation because it has no members. MIAA is rather aninstrumentality of the
National Government and, hence, outside the purview of local taxation by force of Sec. 133 of the LGC providing in
context that "unless otherwise provided," local governments cannot tax national government instrumentalities. And as
the Court pronounced in Manila International Airport Authority, the airport lands and buildings MIAA administers
belong to the Republic of the Philippines, which makes MIAA a mere trustee of such assets. No less than the
Administrative Code of 1987 recognizes a scenario where a piece of land owned by the Republic is titled in the name
of a department, agency, or instrumentality. The following provision of the said Code suggests as much:

Sec. 48. Official Authorized to Convey Real Property.Whenever real property of the Government is authorized by
law to be conveyed, the deed of conveyance shall be executed in behalf of the government by the following: x x x x

(2) For property belonging to the Republic of the Philippines, but titled in the name of x x x any corporate agency or
instrumentality, by the executive head of the agency or instrumentality.21
Real property taxes assessed and due from GSIS considered paid

While recognizing the exempt status of GSIS owing to the reenactment of the full tax exemption clause under Sec.
39 of RA 8291 in 1997, the ponencia in City of Davao appeared to have failed to take stock of and fully appreciate
the all-embracing condoning proviso in the very same Sec. 39 which, for all intents and purposes, considered as paid
"any assessment against the GSIS as of the approval of this Act." If only to stress the point, we hereby reproduce the
pertinent portion of said Sec. 39:

While perhaps not of governing sway in all fours inasmuch as what were involved in Manila International Airport
Authority, e.g., airfields and runways, are properties of the public dominion and, hence, outside the commerce of
man, the rationale underpinning the disposition in that case is squarely applicable to GSIS, both MIAA and GSIS
being similarly situated. First, while created under CA 186 as a non-stock corporation, a status that has remained
unchanged even when it operated under PD 1146 and RA 8291, GSIS is not, in the context of the afore quoted Sec.
193 of the LGC, a GOCC following the teaching of Manila International Airport Authority, for, like MIAA, GSIS capital
is not

SEC. 39. Exemption from Tax, Legal Process and Lien. x x x Taxes imposed on the GSIS tend to impair the
actuarial solvency of its funds and increase the contribution rate

38

divided into unit shares. Also, GSIS has no members to speak of. And by members, the reference is to those who,
under Sec. 87 of the Corporation Code, make up the non-stock corporation, and not to the compulsory members of
the system who are government employees. Its management is entrusted to a Board of Trustees whose members
are appointed by the President.

It is true that said Sec. 234(a), quoted below, exempts from real estate taxes real property owned by the Republic,
unless the beneficial use of the property is, for consideration, transferred to a taxable person.

SEC. 234. Exemptions from Real Property Tax. The following are exempted from payment of the real property tax:
Second, the subject properties under GSISs name are likewise owned by the Republic. The GSIS is but a mere
trustee of the subject properties which have either been ceded to it by the Government or acquired for the
enhancement of the system. This particular property arrangement is clearly shown by the fact that the disposal or
conveyance of said subject properties are either done by or through the authority of the President of the Philippines.
Specifically, in the case of the Concepcion-Arroceros property, it was transferred, conveyed, and ceded to this Court
on April 27, 2005 through a presidential proclamation, Proclamation No. 835. Pertinently, the text of the proclamation
announces that the Concepcion-Arroceros property was earlier ceded to the GSIS on October 13, 1954 pursuant to
Proclamation No. 78 for office purposes and had since been titled to GSIS which constructed an office building
thereon. Thus, the transfer on April 27, 2005 of the Concepcion-Arroceros property to this Court by the President
through Proclamation No. 835. This illustrates the nature of the government ownership of the subject GSIS
properties, as indubitably shown in the last clause of Presidential Proclamation No. 835:

WHEREAS, by virtue of the Public Land Act (Commonwealth Act No. 141, as amended), Presidential Decree No.
1455, and the Administrative Code of 1987, the President is authorized to transfer any government propertythat is no
longer needed by the agency to which it belongs to other branches or agencies of the government. (Emphasis ours.)

(a) Real property owned by the Republic of the Philippines or any of its political subdivisions except when
thebeneficial use thereof has been granted, for consideration or otherwise, to a taxable person.

This exemption, however, must be read in relation with Sec. 133(o) of the LGC, which prohibits LGUs from imposing
taxes or fees of any kind on the national government, its agencies, and instrumentalities:

SEC. 133. Common Limitations on the Taxing Powers of Local Government Units. Unless otherwise provided
herein, the exercise of the taxing powers of provinces, cities, municipalities, and barangays shall not extend to the
levy of the following:

xxxx
Third, GSIS manages the funds for the life insurance, retirement, survivorship, and disability benefits of all
government employees and their beneficiaries. This undertaking, to be sure, constitutes an essential and vital
function which the government, through one of its agencies or instrumentalities, ought to perform if social security
services to civil service employees are to be delivered with reasonable dispatch. It is no wonder, therefore, that the
Republic guarantees the fulfillment of the obligations of the GSIS to its members (government employees and their
beneficiaries) when and as they become due. This guarantee was first formalized under Sec. 2422 of CA 186, then
Sec. 823 of PD 1146, and finally in Sec. 824 of RA 8291.

Second Core Issue: Beneficial Use Doctrine Applicable

The foregoing notwithstanding, the leased Katigbak property shall be taxable pursuant to the "beneficial use"
principle under Sec. 234(a) of the LGC.

(o) Taxes, fees or charges of any kinds on the National Government, its agencies and instrumentalities, and local
government units. (Emphasis supplied.)

Thus read together, the provisions allow the Republic to grant the beneficial use of its property to an agency or
instrumentality of the national government. Such grant does not necessarily result in the loss of the tax exemption.
The tax exemption the property of the Republic or its instrumentality carries ceases only if, as stated in Sec. 234(a)
of the LGC of 1991, "beneficial use thereof has been granted, for a consideration or otherwise, to a taxable person."
GSIS, as a government instrumentality, is not a taxable juridical person under Sec. 133(o) of the LGC. GSIS,
however, lost in a sense that status with respect to the Katigbak property when it contracted its beneficial use to
MHC, doubtless a taxable person. Thus, the real estate tax assessment of PhP 54,826,599.37 covering 1992 to
2002 over the subject Katigbak property is valid insofar as said tax delinquency is concerned as assessed over said
property.

Taxable entity having beneficial use of leased property liable for real property taxes thereon

37

The next query as to which between GSIS, as the owner of the Katigbak property, or MHC, as the lessee thereof, is
liable to pay the accrued real estate tax, need not detain us long. MHC ought to pay.

39

As we declared in Testate Estate of Concordia T. Lim, "the unpaid tax attaches to the property and is chargeable
against the taxable person who had actual or beneficial use and possession of it regardless of whether or not he is
the owner." Of the same tenor is the Courts holding in the subsequent Manila Electric Company v. Barlis25 and later
in Republic v. City of Kidapawan.26 Actual use refers to the purpose for which the property is principally or
predominantly utilized by the person in possession thereof.27

Being in possession and having actual use of the Katigbak property since November 1991, MHC is liable for the
realty taxes assessed over the Katigbak property from 1992 to 2002.

The foregoing is not all. As it were, MHC has obligated itself under the GSIS-MHC Contract of Lease to shoulder
such assessment. Stipulation l8 of the contract pertinently reads:

18. By law, the Lessor, [GSIS], is exempt from taxes, assessments and levies. Should there be any change in the
law or the interpretation thereof or any other circumstances which would subject the Leased Property to any kind of
tax, assessment or levy which would constitute a charge against the Lessor or create a lien against the Leased
Property, the Lessee agrees and obligates itself to shoulder and pay such tax, assessment or levy as it becomes
due.28 (Emphasis ours.)

38

The funds and/or the properties referred to herein as well as the benefits, sums or monies corresponding to the
benefits under this Act shall be exempt from attachment, garnishment, execution, levy or other processes issued by
the courts, quasi-judicial agencies or administrative bodies including Commission on Audit (COA) disallowances and
from all financial obligations of the members, including his pecuniary accountability arising from or caused or
occasioned by his exercise or performance of his official functions or duties, or incurred relative to or in connection
with his position or work except when his monetary liability, contractual or otherwise, is in favor of the GSIS.
(Emphasis ours.)

The Court would not be indulging in pure speculative exercise to say that the underlying legislative intent behind the
above exempting proviso cannot be other than to isolate GSIS funds and properties from legal processes that will
either impair the solvency of its fund or hamper its operation that would ultimately require an increase in the
contribution rate necessary to sustain the benefits of the system. Throughout GSIS life under three different charters,
the need to ensure the solvency of GSIS fund has always been a legislative concern, a concern expressed in the
tax-exempting provisions.

As a matter of law and contract, therefore, MHC stands liable to pay the realty taxes due on the Katigbak property.
Considering, however, that MHC has not been impleaded in the instant case, the remedy of the City of Manila is to
serve the realty tax assessment covering the subject Katigbak property to MHC and to pursue other available
remedies in case of nonpayment, for said property cannot be levied upon as shall be explained below.

Thus, even granting arguendo that GSIS liability for realty taxes attached from 1992, when RA 7160 effectively lifted
its tax exemption under PD 1146, to 1996, when RA 8291 restored the tax incentive, the levy on the subject
properties to answer for the assessed realty tax delinquencies cannot still be sustained. The simple reason: The
governing law, RA 8291, in force at the time of the levy prohibits it. And in the final analysis, the proscription against
the levy extends to the leased Katigbak property, the beneficial use doctrine, notwithstanding.

Third Core Issue: GSIS Properties Exempt from Levy

Summary

In light of the foregoing disquisition, the issue of the propriety of the threatened levy of subject properties by the City
of Manila to answer for the demanded realty tax deficiency is now moot and academic. A valid tax levy presupposes
a corresponding tax liability. Nonetheless, it will not be remiss to note that it is without doubt that the subject GSIS
properties are exempt from any attachment, garnishment, execution, levy, or other legal processes. This is the clear
import of the third paragraph of Sec. 39, RA 8291, which we quote anew for clarity:

In sum, the Court finds that GSIS enjoys under its charter full tax exemption. Moreover, as an instrumentality of the
national government, it is itself not liable to pay real estate taxes assessed by the City of Manila against its Katigbak
and Concepcion-Arroceros properties. Following the "beneficial use" rule, however, accrued real property taxes are
due from the Katigbak property, leased as it is to a taxable entity. But the corresponding liability for the payment
thereof devolves on the taxable beneficial user. The Katigbak property cannot in any event be subject of a public
auction sale, notwithstanding its realty tax delinquency. This means that the City of Manila has to satisfy its tax claim
by serving the accrued realty tax assessment on MHC, as the taxable beneficial user of the Katigbak property and, in
case of nonpayment, through means other than the sale at public auction of the leased property.

SEC. 39. Exemption from Tax, Legal Process and Lien. x x x.

xxxx

WHEREFORE, the instant petition is hereby GRANTED. The November 15, 2007 Decision and January 7, 2009
Order of the Regional Trial Court, Branch 49, Manila are REVERSED and SET ASIDE. Accordingly, the real property
tax assessments issued by the City of Manila to the Government Service Insurance System on the subject

40

SUPREME COURT
properties are declared VOID, except that the real property tax assessment pertaining to the leased Katigbak
property shall be valid if served on the Manila Hotel Corporation, as lessee which has actual and beneficial use
thereof. The City of Manila is permanently restrained from levying on or selling at public auction the subject
properties to satisfy the payment of the real property tax delinquency.

No pronouncement as to costs.

SO ORDERED.

Manila

SECOND DIVISION

G.R. No. 167732

July 11, 2012

TEAM PACIFIC CORPORATION, Petitioner, vs.

JOSEPHINE DAZA in her capacity as MUNICIPAL TREASURER OF TAGUIG, Respondent.

DECISION

PEREZ, J.:

The proper remedy from the denial of an assessment protest by a local treasurer is at issue in this Rule 45 petition
f(x review on certiorari filed by petitioner Team Pacific Corporation( TPC), assailing the Order dated 5 April 2005
issued by the Regional Trial Court (RTC), Branch 152, Pasig City in SCA No. 2(,62, dismissing its Rule 65 petition for
certiorari. 1

The facts are not in dispute.

39

Team Pacific Corporation v. Daza as Municipal Treasurer of Taguig

Republic of the Philippines

A domestic corporation engaged in the business of assembling and exporting semiconductor devices, TPC conducts
its business at the FTI Complex in the then Municipality of Taguig. It appears that since the start of its operations in
1999, TPC had been paying local business taxes assessed at one-half (1/2) rate pursuant to Section 75

(c) of Ordinance No. 24-93, otherwise known as the Taguig Revenue Code. Consistent with Section 143 (c)2 of
Republic Act (RA) No. 7160, otherwise known as the Local Government Code of 1991, said provision of the Taguig
Revenue Code provides as follows:

41

Section 75. Imposition of Tax. There is hereby imposed on the following persons, natural or juridical, who establish,
operate conduct or maintain their respective businesses within the Municipality of Taguig, a graduated business tax
in the amounts hereafter prescribed:

When it renewed its business license in 2004, however, TPCs business tax for the first quarter of the same year was
assessed in the sum of P208,109.77 by respondent Josephine Daza, in her capacity as then Municipal Treasurer of
Taguig. The assessment was computed by Daza by applying the full value of the rates provided under Section 75 of
the Taguig Revenue Code, instead of the one-half (1/2) rate provided under paragraph

xxxx

(c) On exporters, and on manufacturers, millers, producers, wholesalers, distributors, dealers or retailers of essential
commodities enumerated hereunder at a rate not exceeding one-half (1/2) of the rates prescribed under subsections
(a), (b) and (d) of this Section:

(1)

Rice and corn;

(2)
Wheat or cassava flour, meat, dairy products, locally manufactured, processed or preserved food, sugar,
salt and other agricultural, marine, and fresh water products, whether in their original state or not;

(3)

Cooking oil and cooking gas;

(4)

Laundry soap, detergents, and medicine;

(5)
Agricultural implements, equipment and post- harvest facilities, fertilizers, pesticides, insecticides,
herbicides and other farm inputs;

(6)

Poultry feeds and other animal feeds;

(7)

School supplies; and

(8)

Cement.

xxxx

(c) of the same provision. Constrained to pay the assessed business tax on 19 January 2004 in view of its being a
precondition for the renewal of its business permit, TPC filed on the same day a written protest with Daza, insisting
on the one-half (1/2) rate on which its business tax was previously assessed. In support of its position, TPC invoked
Section 143 (c) of the Local Government Code of 1991 and Section 2 of Local Finance Circular No. 4-93 of the
Department of Finance which provided guidelines for the imposition of business taxes on exporters by
municipalities.3

Subsequent to its 13 April 2004 demand for the refund and/or issuance of a tax credit for the sum of P104,054.88
which it considered as an overpayment of its business taxes for the same year,4 TPC filed its 15 April 2004 Rule 65
petition for certiorari which was docketed as SCA No. 2662 before the RTC. Alleging that no formal action was taken
regarding its protest on or before 19 March 2004 or within the period of sixty (60) days from the filing thereof as
prescribed under Article 195 of the Local Government Code,
40

TPC maintained that it was simply informed by Atty. Marianito D. Miranda, Chief of the Taguig Business Permit and
Licensing Office, that the assessment of its business tax at the full rate was justified by the fact that it was not an
exporter of the essential commodities enumerated under Section 143 of the Local Government Code and Section 75
of the Taguig Revenue Code. Arguing that Daza acted with grave abuse of discretion in not applying the one-half
(1/2) rate provided under paragraph (c) of the same provisions, TPC prayed for the issuance of a temporary
restraining order and/or permanent injunction to restrain the former from assessing business taxes at the full rate, the
refund of its overpayment as well as the grant of its claims for exemplary damages and attorneys fees.5

On 25 June 2004, Daza filed her comment to the foregoing petition, contending that the change in the administration
in the then Municipality of Taguig brought about the assessment and imposition of the correct business tax on TPC.
Not being an exporter of the essential commodities enumerated under the provisions in question, it was argued that
TPC is not entitled to the fifty (50%) percent business tax exemption it had been granted in the previous years.
Having supposedly denied the letter-protest thru Atty. Miranda, Daza likewise faulted TPC for not filing its appeal in
court within thirty (30) days from receipt of the denial in accordance with Article 195 of the Local Government Code.
Denigrating TPCs 13 April 2004 demand for the refund and/or issuance of a tax credit as a vain attempt to rectify its
procedural error, Daza prayed for the dismissal of the petition for certiorari on the ground that the same cannot be
resorted to as a substitute for a lost right of appeal and was, by itself, bereft of merit.6

In its 14 July 2004 reply, TPC insisted that Daza failed to act formally on its letter-protest and took the latter to task
for not attaching to her comment a copy of the supposed denial issued by Atty. Miranda.7 Acting on the
memorandum8 and motions to resolve filed by TPC,9 the RTC went on to render the herein assailed Order dated 5

42

April 2005, dismissing the petition for lack of merit. While finding that the absence of proof of Atty. Mirandas denial of
TPCs letter-protest meant that the latter had thirty (30) days from the lapse of the sixty (60) days prescribed under
Article 195 of the Local Government Code within which to perfect its appeal, the RTC ruled that, rather than the
special civil action of certiorari provided under Rule 65 of the 1997 Rules of Civil Procedure, an ordinary appeal
would have been the proper remedy from the assessment complained against.10 Without moving for the
reconsideration of the foregoing order, TPC filed the petition at bench on 28 April 2005, on pure questions of law.11

In its 6 June 2006 Memorandum, TPC proffers the following issues for resolution, to wit:

(a) whether or not it availed of the correct remedy against Dazas illegal assessment when it filed its petition for
certiorari before the RTC; and, (b) whether or not, as an exporter of semiconductor devices, it should be assessed
business taxes at the full rate instead of the one-half (1/2) rates provided under Section 75 (c) of the Taguig Revenue
Code and 143 (c) of the Local Government Code. In urging the reversal of the RTCs

assailed 5 April 2005 Order, TPC argues that, without the remedy of appeal being specified with particularity under
Article 195 of the Local Government Code, a Rule 65 petition for certiorari is the proper and logical remedy since
Daza acted with grave abuse of discretion in assessing its business taxes at the full rate. Although it is an exporter of
semiconductors, TPC insists that its business tax should have been computed at one-half (1/2) rate in accordance
with the clear intendment of the law. It likewise claimed that its position is congruent with administrative
determinations as well as Dazas own act of reverting back to the half rate assessment of its business tax for the
second quarter of 2006.12

In her memorandum, Daza, in turn, asserted that the RTC correctly dismissed TPCs petition for certiorari in view of
its failure to avail of the proper remedy of ordinary appeal provided under Article 195 of the Local Government Code.
As then Municipal Treasurer of Taguig, Daza argued that she did not exceed her jurisdiction or abuse her discretion
in assessing TPCs business tax pursuant to Section 143 (c) of the same Code and Section 75 (c) of the Taguig
Revenue Code. Not being an exporter of the basic commodities enumerated under the subject provisions, TPC
cannot insist on the computation of its business taxes on the basis of the one-half (1/2) rate prescribed for a category
of taxpayers to which it clearly did not belong. In view of TPCs choice of the wrong mode of appeal, Daza
maintained that the assailed assessment had already attained finality and can no longer be modified.13

We find the dismissal of the petition in order.

Considering that the RTCs assailed 5 April 2005 order did not delve on the proper rate of business tax imposable on
TPC as an exporter, we shall limit our discussion to the procedural aspects of the petition.

A taxpayer dissatisfied with a local treasurers denial of or inaction on his protest over an assessment has thirty (30)
days within which to appeal to the court of competent jurisdiction. Under the law, said period is to be reckoned from
the taxpayers receipt of the denial of his protest or the lapse of the sixty (60) day period within which the local

treasurer is required to decide the protest, from the moment of its filing. This much is clear from Section 195 of the
Local Government Code which provides as follows:

SEC. 195. Protest of Assessment. - When the local treasurer or his duly authorized representative finds that correct
taxes, fees, or charges have not been paid, he shall issue a notice of assessment stating the nature of the tax, fee or
charge, the amount of deficiency, the surcharges, interests and penalties. Within sixty (60) days from the receipt of
the notice of assessment, the taxpayer may file a written protest with the local treasurer contesting the assessment;
otherwise, the assessment shall become final and executory. The local treasurer shall decide the protest within sixty
(60) days from the time of its filing. If the local treasurer finds the protest to be wholly or partly meritorious, he shall
issue a notice canceling wholly or partially the assessment. However, if the local
41

treasurer finds the assessment to be wholly or partly correct, he shall deny the protest wholly or partly with notice to
the taxpayer. The taxpayer shall have thirty (30) days from the receipt of the denial of the protest or from the lapse of
the sixty (60) day period prescribed herein within which to appeal with the court of competent jurisdiction otherwise
the assessment becomes conclusive and unappealable.

Absent any showing of the formal denial of the protest by Atty. Miranda, then Chief of the Taguig Business Permit
and Licensing Office, we find that TPCs filing of its petition before the RTC on 19 April 2004 still timely. Reckoned
from the filing of the letter protest on 19 January 2004, Daza had sixty (60) days or until 19 March 2004 within which
to resolve the same in view of the fact that 2004 was a leap year. From the lapse of said period, TPC, in turn, had
thirty (30) days or until 18 March 2004 within which to file its appeal to the RTC. Since the latter date fell on a
Sunday, the RTC correctly ruled that TPCs filing of its petition on 19 April 2004 was still within the period prescribed
under the above quoted provision. Whether or not a Rule 65 petition for certiorari was the appropriate remedy from
Dazas inaction on TPCs letter-protest is, however, an entirely different issue which we are now called upon to
resolve, considering the RTCs ruling that it should have filed an ordinary appeal instead. As correctly observed by
TPC, after all, Section 195 of the Local Government Code does not elaborate on how an appeal is to be made from
the denial by a local treasurer of a protest on assessment made by a taxpayer.14

In the case of Yamane vs. BA Lepanto Condominium Corporation15 (BLCC), this Court saw fit to rule that the
remedy to be pursued by the taxpayer is one cognizable by the RTC in the exercise of its original not its appellate
jurisdiction. In said case, BLCCs appeal from the denial of its protest by the Makati City Treasurer was dismissed for
lack of merit by the RTC, prompting said taxpayer to file a Rule 42 petition for review with the Court of Appeals (CA).
After reconsidering its earlier decision to dismiss the petition on the ground that said remedy is restricted to decisions
rendered by the RTC on appeal, the CA went on to render a decision finding BLCC not liable for the business tax
assessed by the Makati City Treasurer. Sustaining the latters position that the jurisdiction exercised by the RTC over
BLCCs appeal was original in character, this Court ruled as follows:

x x x x [S] significantly, the Local Government Code, or any other statute for that matter, does not expressly confer
appellate jurisdiction on the part of regional trial courts from the denial of a tax protest by a local treasurer. On the
other hand, Section 22 of B.P. 129 expressly delineates the appellate jurisdiction of the Regional Trial Courts,
confining as it does said appellate jurisdiction to cases decided by Metropolitan, Municipal, and Municipal Circuit Trial

43

Courts. Unlike in the case of the Court of Appeals, B.P. 129 does not confer appellate jurisdiction on Regional Trial
Courts over rulings made by non-judicial entities.

From these premises, it is evident that the stance of the City Treasurer is correct as a matter of law, and that the
proper remedy of the Corporation from the RTC judgment is an ordinary appeal under Rule 41 to the Court of
Appeals.1wphi1 However, we make this pronouncement subject to two important qualifications. First, in this
particular case there are nonetheless significant reasons for the Court to overlook the procedural error and ultimately
uphold the adjudication of the jurisdiction exercised by the Court of Appeals in this case. Second, the doctrinal weight
of the pronouncement is confined to cases and controversies that emerged prior to the enactment of Republic Act
No. 9282, the law which expanded the jurisdiction of the Court of Tax Appeals (CTA). (Emphasis supplied)16

The foregoing pronouncements notwithstanding, we find that TPC erroneously availed of the wrong remedy in filing a
Rule 65 petition for certiorari to question Dazas inaction on its letter-protest. The rule is settled that, as a special civil
action, certiorari is available only if the following essential requisites concur: (1) it must be directed against a tribunal,
board, or officer exercising judicial or quasi-judicial functions; (2) the tribunal, board, or officer must have acted
without or in excess of jurisdiction or with grave abuse of discretion amounting to lack or excess of jurisdiction; and,
(3) there is no appeal nor any plain, speedy, and adequate remedy in the ordinary course of law.17 Judicial function
entails the power to determine what the law is and what the legal rights of the parties are, and then undertakes to
determine these questions and adjudicate upon the rights of the parties. Quasi-judicial function, on the other hand,
refers to the action and discretion of public administrative officers or bodies, which are required to investigate facts or
ascertain the existence of facts, hold hearings, and draw conclusions from them as a basis for their official action and
to exercise discretion of a judicial nature.18

Gauged from the foregoing definitions, Daza cannot be said to be performing a judicial or quasi-judicial function in
assessing TPCs business tax and/or effectively denying its protest as then Municipal Treasurer of Taguig. For this
reason, Dazas actions are not the proper subjects of a Rule 65 petition for certiorari which is the appropriate remedy
in cases where a the tribunal, board, or officer exercising judicial or quasi-judicial functions acted without or in grave
abuse of discretion amounting to lack or excess of jurisdiction and there is no appeal or any plain, speedy, and
adequate remedy in law.19 Narrow in scope and inflexible in character,20 certiorari is an extraordinary remedy
designed for the correction of errors of jurisdiction and not errors of judgment.21 It is likewise considered mutually
exclusive with appeal22 like the one provided by Article 195 of the Local Government Code for a local treasurers
denial of or inaction on a protest.

sight of the fact that, as amended by RA No. 9282,24 paragraph c (2) [a], Section 725 of RA No. 112526 has vested
the Court of Tax Appeals (CTA) with the exclusive appellate jurisdiction over, among others, appeals from the
judgments, resolutions or orders of the RTC in tax collection cases originally decided by them in their respective
territorial jurisdiction. As amended by Section 9 of RA No. 9282,27 Section 11 of RA No. 1125 likewise requires that
the appeal be perfected within thirty (30) days after receipt of the decision and shall be made by filing a petition for
review under a procedure analogous to that provided for under Rule 42 of the 1997 Rules of Civil Procedure.1wphi1

To our mind, TPCs erroneous availment of the wrong mode of appeal and direct resort to this Court instead of the
CTA both warrant the dismissal of the petition at bench. The rule is settled that the perfection of an appeal in the
manner and within the period fixed by law is not only mandatory but jurisdictional and non-compliance with these
legal requirements is fatal to a partys cause. 28 In Zamboanga Forest Managers Corp. vs. Pacific Timber and
Supply Co.,29 we ruled as follows:

Although appeal is an essential part of our judicial process, it has been held, time and again, that the right thereto is
not a natural right or a part of due process but is merely a statutory privilege. Thus, the perfection of an appeal in the
manner and within the period prescribed by law is not only mandatory but also jurisdictional and failure of a party to
conform to the rules regarding appeal will render the judgment final and executory. Once a decision attains finality, it
becomes the law of the case irrespective of whether the decision is erroneous or not and no court not even the
Supreme Court has the power to revise, review, change or alter the same. The basic rule of finality of judgment is
grounded on the fundamental principle of public policy and sound practice that, at the risk of occasional error. the
judgment of courts and the award of quasi-judicial agencies must become final at some definite date fixed by law.

WHEREFORE, premises considered, the petition is DENIED for lack of merit and being the wrong mode of appeal.

SO ORDERED.

Even if, in the interest of substantial justice, we were to consider its petition for certiorari as an appeal from Dazas
denial of its protest, TPCs availment of the wrong mode of appeal from the RTCs assailed 5 April 2005 Order has,
moreover, clearly rendered the same final and executory. Granted that a Rule 45 petition for review on certiorari is
the proper mode of appeal when the issues raised are purely questions of law,23 TPC lost

42

44

This is a petition for review on certiorari under Rule 45 of the 1997 Rules of Civil Procedure, on pure questions of
law, assailing the January 8, 2010 Order1 of the Regional Trial Court, Branch 195, Parafiaque City (RTC), which
ruled that petitioner Philippine Reclamation Authority (PRA) is a government-owned and controlled corporation
(GOCC), a taxable entity, and, therefore, . not exempt from payment of real property taxes. The pertinent portion of
the said order reads:

43

Republic of Philippines represented by PRA v. City of Paraaque

Republic of the Philippines

In view of the finding of this court that petitioner is not exempt from payment of real property taxes, respondent
Paraaque City Treasurer Liberato M. Carabeo did not act xxx without or in excess of jurisdiction, or with grave
abuse of discretion amounting to lack or in excess of jurisdiction in issuing the warrants of levy on the subject
properties.

WHEREFORE, the instant petition is dismissed. The Motion for Leave to File and Admit Attached Supplemental
Petition is denied and the supplemental petition attached thereto is not admitted.

SUPREME COURT
The Public Estates Authority (PEA) is a government corporation created by virtue of Presidential Decree (P.D.) No.
1084 (Creating the Public Estates Authority, Defining its Powers and Functions, Providing Funds Therefor and For
Other Purposes) which took effect on February 4,

Manila

1977 to provide a coordinated, economical and efficient reclamation of lands, and the administration and operation of
lands belonging to, managed and/or operated by, the

THIRD DIVISION

G.R. No. 191109

July 18, 2012

REPUBLIC OF THE PHILIPPINES, represented by the PHILIPPINE RECLAMATION AUTHORITY (PRA),Petitioner,

vs.

government with the object of maximizing their utilization and hastening their development consistent with public
interest.

On February 14, 1979, by virtue of Executive Order (E.O.) No. 525 issued by then President Ferdinand Marcos, PEA
was designated as the agency primarily responsible for integrating, directing and coordinating all reclamation
projects for and on behalf of the National Government.

CITY OF PARANAQUE, Respondent.

On October 26, 2004, then President Gloria Macapagal-Arroyo issued E.O. No. 380 transforming PEA into PRA,
which shall perform all the powers and functions of the PEA relating to reclamation activities.
DECISION

MENDOZA, J.:

By virtue of its mandate, PRA reclaimed several portions of the foreshore and offshore areas of Manila Bay, including
those located in Paraaque City, and was issued Original Certificates of Title (OCT Nos. 180, 202, 206, 207, 289,
557, and 559) and Transfer Certificates of Title (TCT Nos. 104628, 7312, 7309, 7311, 9685, and 9686) over the
reclaimed lands.

45

expressly repealed by R.A. No. 7160 and that PRA failed to comply with the procedural requirements in Section 206
thereof.
On February 19, 2003, then Paraaque City Treasurer Liberato M. Carabeo (Carabeo) issued Warrants of Levy on
PRAs reclaimed properties (Central Business Park and Barangay San Dionisio) located in Paraaque City based on
the assessment for delinquent real property taxes made by then Paraaque City Assessor Soledad Medina Cue for
tax years 2001 and 2002.

Not in conformity, PRA filed this petition for certiorari assailing the January 8, 2010 RTC Order based on the following
GROUNDS

On March 26, 2003, PRA filed a petition for prohibition with prayer for temporary restraining order (TRO) and/or writ
of preliminary injunction against Carabeo before the RTC.

On April 3, 2003, after due hearing, the RTC issued an order denying PRAs petition for the issuance of a temporary
restraining order.

THE TRIAL COURT GRAVELY ERRED IN FINDING THAT PETITIONER IS LIABLE TO PAY REAL PROPERTY TAX
ON THE SUBJECT RECLAIMED LANDS CONSIDERING

On April 4, 2003, PRA sent a letter to Carabeo requesting the latter not to proceed with the public auction of the
subject reclaimed properties on April 7, 2003. In response, Carabeo sent a letter stating that the public auction could
not be deferred because the RTC had already denied PRAs TRO application.

THAT PETITIONER IS AN INCORPORATED INSTRUMENTALITY OF THE NATIONAL GOVERNMENT AND IS,

THEREFORE, EXEMPT FROM PAYMENT OF REAL PROPERTY TAX UNDER SECTIONS 234(A) AND 133(O) OF
REPUBLIC ACT 7160 OR THE LOCAL GOVERNMENT CODE VIS--VIS MANILA INTERNATIONAL AIRPORT
AUTHORITY V. COURT OF APPEALS.

On April 25, 2003, the RTC denied PRAs prayer for the issuance of a writ of preliminary injunction for being moot
and academic considering that the auction sale of the subject properties on April 7, 2003 had already been
consummated.

On August 3, 2009, after an exchange of several pleadings and the failure of both parties to arrive at a compromise
agreement, PRA filed a Motion for Leave to File and Admit Attached Supplemental Petition which sought to declare
as null and void the assessment for real property taxes, the levy based on the said assessment, the public auction
sale

44

II

THE TRIAL COURT GRAVELY ERRED IN FAILING TO CONSIDER THAT RECLAIMED LANDS ARE PART OF THE
PUBLIC DOMAIN AND, HENCE, EXEMPT FROM REAL PROPERTY TAX.

PRA asserts that it is not a GOCC under Section 2(13) of the Introductory Provisions of the Administrative Code.
Neither is it a GOCC under Section 16, Article XII of the 1987 Constitution because it is not required to meet the test
of economic viability. Instead, PRA is a government instrumentality vested with corporate powers and performing an
essential public service pursuant to Section 2(10) of the Introductory Provisions of the Administrative Code. Although
it has a capital stock divided into shares, it is not authorized to distribute dividends and allotment of surplus and
profits to its stockholders. Therefore, it may not be classified as a stock corporation because it lacks the second

conducted on April 7, 2003, and the Certificates of Sale issued pursuant to the auction sale.
requisite of a stock corporation which is the distribution of dividends and allotment of surplus and profits to the
stockholders.
On January 8, 2010, the RTC rendered its decision dismissing PRAs petition. In ruling that PRA was not exempt
from payment of real property taxes, the RTC reasoned out that it was a GOCC under Section 3 of P.D. No. 1084. It
was organized as a stock corporation because it had an authorized capital stock divided into no par value shares. In
fact, PRA admitted its corporate personality and that said properties were registered in its name as shown by the
certificates of title. Therefore, as a GOCC, local tax exemption is withdrawn by virtue of Section 193 of Republic Act
(R.A.) No. 7160 Local Government Code (LGC) which was the prevailing law in 2001 and 2002 with respect to real
property taxation. The RTC also ruled that the tax exemption claimed by PRA under E.O. No. 654 had already been

It insists that it may not be classified as a non-stock corporation because it has no members and it is not organized
for charitable, religious, educational, professional, cultural, recreational, fraternal, literary, scientific, social, civil
service, or similar purposes, like trade, industry, agriculture and like chambers as provided in Section 88 of the
Corporation Code.

46

THE COURTS RULING

Moreover, PRA points out that it was not created to compete in the market place as there was no competing
reclamation company operated by the private sector. Also, while PRA is vested with corporate powers under P.D. No.
1084, such circumstance does not make it a corporation but merely an incorporated instrumentality and that the
mere fact that an incorporated instrumentality of the National Government holds title to real property does not make
said instrumentality a GOCC. Section 48, Chapter 12, Book I of the Administrative Code of 1987 recognizes a
scenario where a piece of land owned by the Republic is titled in the name of a department, agency or
instrumentality.

Thus, PRA insists that, as an incorporated instrumentality of the National Government, it is exempt from payment of
real property tax except when the beneficial use of the real property is granted to a taxable person. PRA claims that
based on Section 133(o) of the LGC, local governments cannot tax the national government which delegate to local
governments the power to tax.

It explains that reclaimed lands are part of the public domain, owned by the State, thus, exempt from the payment of
real estate taxes. Reclaimed lands retain their inherent potential as areas for public use or public service. While the
subject reclaimed lands are still in its hands, these lands remain public lands and form part of the public domain.
Hence, the assessment of real property taxes made on said lands, as well as the levy thereon, and the public sale
thereof on April 7, 2003, including the issuance of the certificates of sale in favor of the respondent Paraaque City,
are invalid and of no force and effect.

On the other hand, the City of Paraaque (respondent) argues that PRA since its creation consistently represented
itself to be a GOCC. PRAs very own charter (P.D. No. 1084) declared it to be a GOCC and that it has entered into
several thousands of contracts where it represented itself to be a GOCC. In fact, PRA admitted in its original and
amended petitions and pre-trial brief filed with the RTC of Paraaque City that it was a GOCC.

The Court finds merit in the petition.

Section 2(13) of the Introductory Provisions of the Administrative Code of 1987 defines a GOCC as follows:

SEC. 2. General Terms Defined. x x x x

(13) Government-owned or controlled corporation refers to any agency organized as a stock or non-stock
corporation, vested with functions relating to public needs whether governmental or proprietary in nature, and owned
by the Government directly or through its instrumentalities either wholly, or, where applicable as in the case of stock
corporations, to the extent of at least fifty-one

(51) percent of its capital stock: x x x.

On the other hand, Section 2(10) of the Introductory Provisions of the Administrative Code defines a government
"instrumentality" as follows:

SEC. 2. General Terms Defined. x x x x

Respondent further argues that PRA is a stock corporation with an authorized capital stock divided into 3 million no
par value shares, out of which 2 million shares have been subscribed and fully paid up. Section 193 of the LGC of
1991 has withdrawn tax

(10) Instrumentality refers to any agency of the National Government, not integrated within the department
framework, vested with special functions or jurisdiction by law, endowed with some if not all corporate powers,
administering special funds, and enjoying operational autonomy, usually through a charter. x x x

45
From the above definitions, it is clear that a GOCC must be "organized as a stock or non-stock corporation" while an
instrumentality is vested by law with corporate powers. Likewise, when the law makes a government instrumentality
operationally autonomous, the instrumentality remains part of the National Government machinery although not
integrated with the department framework.
exemption privileges granted to or presently enjoyed by all persons, whether natural or juridical, including GOCCs.

Hence, since PRA is a GOCC, it is not exempt from the payment of real property tax.

When the law vests in a government instrumentality corporate powers, the instrumentality does not necessarily
become a corporation. Unless the government instrumentality is organized as a stock or non-stock corporation, it
remains a government instrumentality exercising not only governmental but also corporate powers.

47

Many government instrumentalities are vested with corporate powers but they do not become stock or non-stock
corporations, which is a necessary condition before an

46

agency or instrumentality is deemed a GOCC. Examples are the Mactan International Airport Authority, the Philippine
Ports Authority, the University of the Philippines, and Bangko Sentral ng Pilipinas. All these government
instrumentalities exercise corporate powers but they are not organized as stock or non-stock corporations as
required by Section 2(13) of the Introductory Provisions of the Administrative Code. These government
instrumentalities are sometimes loosely called government corporate entities. They are not, however, GOCCs in the
strict sense as understood under the Administrative Code, which is the governing law defining the legal relationship
and status of government entities.2

Correlatively, Section 3 of the Corporation Code defines a stock corporation as one whose "capital stock is divided
into shares and x x x authorized to distribute to the holders of such shares dividends x x x." Section 87 thereof
defines a non-stock corporation as "one where no part of its income is distributable as dividends to its members,
trustees or officers." Further, Section 88 provides that non-stock corporations are "organized for charitable, religious,
educational, professional, cultural, recreational, fraternal, literary, scientific, social, civil service, or similar purposes,
like trade, industry, agriculture and like chambers."

Section 16. The Congress shall not, except by general law, provide for the formation, organization, or regulation of
private corporations. Government-owned or controlled corporations may be created or established by special
charters in the interest of the common good and subject to the test of economic viability.

The fundamental provision above authorizes Congress to create GOCCs through special charters on two conditions:
1) the GOCC must be established for the common good; and 2) the GOCC must meet the test of economic viability.
In this case, PRA may have passed the first condition of common good but failed the second one - economic viability.
Undoubtedly, the purpose behind the creation of PRA was not for economic or commercial activities. Neither was it
created to compete in the market place considering that there were no other competing reclamation companies
being operated by the private sector. As mentioned earlier, PRA was created essentially to perform a public service
considering that it was primarily responsible for a coordinated, economical and efficient reclamation, administration
and operation of lands belonging to the government with the object of maximizing their utilization and hastening their
development consistent with the public interest. Sections 2 and 4 of P.D. No. 1084 reads, as follows:

Two requisites must concur before one may be classified as a stock corporation, namely:

(1) that it has capital stock divided into shares; and (2) that it is authorized to distribute dividends and allotments of
surplus and profits to its stockholders. If only one requisite is present, it cannot be properly classified as a stock
corporation. As for non-stock corporations, they must have members and must not distribute any part of their income
to said members.3

Section 2. Declaration of policy. It is the declared policy of the State to provide for a coordinated, economical and
efficient reclamation of lands, and the administration and operation of lands belonging to, managed and/or operated
by the government, with the object of maximizing their utilization and hastening their development consistent with the
public interest.

Section 4. Purposes. The Authority is hereby created for the following purposes:
In the case at bench, PRA is not a GOCC because it is neither a stock nor a non-stock corporation. It cannot be
considered as a stock corporation because although it has a capital stock divided into no par value shares as
provided in Section 74 of P.D. No. 1084, it is not authorized to distribute dividends, surplus allotments or profits to
stockholders. There is no provision whatsoever in P.D. No. 1084 or in any of the subsequent executive issuances
pertaining to PRA, particularly, E.O. No. 525,5 E.O. No. 6546 and EO No. 7987 that authorizes PRA to distribute
dividends, surplus allotments or profits to its stockholders.

PRA cannot be considered a non-stock corporation either because it does not have members. A non-stock
corporation must have members.8 Moreover, it was not organized for any of the purposes mentioned in Section 88 of
the Corporation Code. Specifically, it was created to manage all government reclamation projects.

Furthermore, there is another reason why the PRA cannot be classified as a GOCC. Section 16, Article XII of the
1987 Constitution provides as follows:

(a)
To reclaim land, including foreshore and submerged areas, by dredging, filling or other means, or to
acquire reclaimed land;

(b)
To develop, improve, acquire, administer, deal in, subdivide, dispose, lease and sell any and all kinds of
lands, buildings, estates and other forms of real property, owned, managed, controlled and/or operated by the
government.

(c)
To provide for, operate or administer such services as may be necessary for the efficient, economical and
beneficial utilization of the above properties.

48

The twin requirement of common good and economic viability was lengthily discussed in the case of Manila
International Airport Authority v. Court of Appeals,9 the pertinent portion of which reads:

commercial transactions in competition with the private sector. The intent of the Constitution is to prevent the creation
of

Third, the government-owned or controlled corporations created through special charters are those that meet the two
conditions prescribed in Section 16, Article XII of the Constitution.

47

The first condition is that the government-owned or controlled corporation must be established for the common good.
The second condition is that the government-owned or controlled corporation must meet the test of economic
viability. Section 16, Article XII of the 1987 Constitution provides:

government-owned or controlled corporations that cannot survive on their own in the market place and thus merely
drain the public coffers.

Commissioner Blas F. Ople, proponent of the test of economic viability, explained to the Constitutional Commission
the purpose of this test, as follows:
SEC. 16. The Congress shall not, except by general law, provide for the formation, organization, or regulation of
private corporations. Government-owned or controlled corporations may be created or established by special
charters in the interest of the common good and subject to the test of economic viability.

The Constitution expressly authorizes the legislature to create "government-owned or controlled corporations"
through special charters only if these entities are required to meet the twin conditions of common good and
economic viability. In other words, Congress has no power to create government-owned or controlled corporations
with special charters unless they are made to comply with the two conditions of common good and economic
viability. The test of economic viability applies only to government-owned or controlled corporations that perform
economic or commercial activities and need to compete in the market place. Being essentially economic vehicles of
the State for the common good meaning for economic development purposes these government-owned or
controlled corporations with special charters are usually organized as stock corporations just like ordinary private
corporations.

In contrast, government instrumentalities vested with corporate powers and performing governmental or public
functions need not meet the test of economic viability. These instrumentalities perform essential public services for
the common good, services that every modern State must provide its citizens. These instrumentalities need not be
economically viable since the government may even subsidize their entire operations. These instrumentalities are not
the "government-owned or controlled corporations" referred to in Section 16, Article XII of the 1987 Constitution.

MR. OPLE: Madam President, the reason for this concern is really that when the government creates a corporation,
there is a sense in which this corporation becomes exempt from the test of economic performance. We know what
happened in the past. If a government corporation loses, then it makes its claim upon the taxpayers' money through
new equity infusions from the government and what is always invoked is the common good. That is the reason why
this year, out of a budget of P115 billion for the entire government, about P28 billion of this will go into equity
infusions to support a few government financial institutions. And this is all taxpayers' money which could have been
relocated to agrarian reform, to social services like health and education, to augment the salaries of grossly
underpaid public employees. And yet this is all going down the drain.

Therefore, when we insert the phrase "ECONOMIC VIABILITY" together with the "common good," this becomes a
restraint on future enthusiasts for state capitalism to excuse themselves from the responsibility of meeting the market
test so that they become viable. And so, Madam President, I reiterate, for the committee's consideration and I am
glad that I am joined in this proposal by Commissioner Foz, the insertion of the standard of "ECONOMIC VIABILITY
OR THE ECONOMIC TEST," together with the common good.1wphi1

Father Joaquin G. Bernas, a leading member of the Constitutional Commission, explains in his textbook The 1987
Constitution of the Republic of the Philippines: A Commentary:

Thus, the Constitution imposes no limitation when the legislature creates government instrumentalities vested with
corporate powers but performing essential governmental or public functions. Congress has plenary authority to
create government instrumentalities vested with corporate powers provided these instrumentalities perform essential
government functions or public services. However, when the legislature creates through special charters
corporations that perform economic or commercial activities, such entities known as "government-owned or
controlled corporations" must meet the test of economic viability because they compete in the market place.

The second sentence was added by the 1986 Constitutional Commission. The significant addition, however, is the
phrase "in the interest of the common good and subject to the test of economic viability." The addition includes the
ideas that they must show capacity to function efficiently in business and that they should not go into activities which
the private sector can do better. Moreover, economic viability is more than financial viability but also includes
capability to make profit and generate benefits not quantifiable in financial terms.

This is the situation of the Land Bank of the Philippines and the Development Bank of the Philippines and similar
government-owned or controlled corporations, which derive their incometo meet operating expenses solely from

Clearly, the test of economic viability does not apply to government entities vested with corporate powers and
performing essential public services. The State is obligated to render essential public services regardless of the

49

economic viability of providing such service. The non-economic viability of rendering such essential public service
does not excuse the State from withholding such essential services from the public.

However, government-owned or controlled corporations with special charters, organized essentially for economic or
commercial objectives, must meet the test of economic

SEC. 133. Common Limitations on the Taxing Powers of Local Government Units. Unless otherwise provided
herein, the exercise of the taxing powers of provinces, cities, municipalities, and barangays shall not extend to the
levy of the following:

xxxx

(o) Taxes, fees or charges of any kinds on the National Government, its agencies and instrumentalities, and local
government units. [Emphasis supplied]
viability. These are the government-owned or controlled corporations that are usually organized under their special
charters as stock corporations, like the Land Bank of the Philippines and the Development Bank of the Philippines.
These are the government-owned or controlled corporations, along with government-owned or controlled
corporations organized under the Corporation Code, that fall under the definition of "government-owned or controlled
corporations" in Section 2(10) of the Administrative Code. [Emphases supplied]
48
This Court is convinced that PRA is not a GOCC either under Section 2(3) of the Introductory Provisions of the
Administrative Code or under Section 16, Article XII of the 1987 Constitution. The facts, the evidence on record and
jurisprudence on the issue support the position that PRA was not organized either as a stock or a non-stock
corporation. Neither was it created by Congress to operate commercially and compete in the private market. Instead,
PRA is a government instrumentality vested with corporate powers and performing an essential public service
pursuant to Section 2(10) of the Introductory Provisions of the Administrative Code. Being an incorporated
government instrumentality, it is exempt from payment of real property tax.

Clearly, respondent has no valid or legal basis in taxing the subject reclaimed lands managed by PRA. On the other
hand, Section 234(a) of the LGC, in relation to its Section 133(o), exempts PRA from paying realty taxes and
protects it from the taxing powers of local government units.

Sections 234(a) and 133(o) of the LGC provide, as follows:

SEC. 234. Exemptions from Real Property Tax The following are exempted from payment of the real property tax:

(a) Real property owned by the Republic of the Philippines or any of its political subdivisions except when the
beneficial use thereof has been granted, for consideration or otherwise, to a taxable person.

xxxx

It is clear from Section 234 that real property owned by the Republic of the Philippines (the Republic) is exempt from
real property tax unless the beneficial use thereof has been granted to a taxable person. In this case, there is no
proof that PRA granted the beneficial use of the subject reclaimed lands to a taxable entity. There is no showing on
record either that PRA leased the subject reclaimed properties to a private taxable entity.

This exemption should be read in relation to Section 133(o) of the same Code, which prohibits local governments
from imposing "taxes, fees or charges of any kind on the National Government, its agencies and instrumentalities x x
x." The Administrative Code allows real property owned by the Republic to be titled in the name of agencies or
instrumentalities of the national government. Such real properties remain owned by the Republic and continue to be
exempt from real estate tax.

Indeed, the Republic grants the beneficial use of its real property to an agency or instrumentality of the national
government. This happens when the title of the real property is transferred to an agency or instrumentality even as
the Republic remains the owner of the real property. Such arrangement does not result in the loss of the tax
exemption, unless "the beneficial use thereof has been granted, for consideration or otherwise, to a taxable
person."10

The rationale behind Section 133(o) has also been explained in the case of the Manila International Airport
Authority,11 to wit:

Section 133(o) recognizes the basic principle that local governments cannot tax the national government, which
historically merely delegated to local governments the power to tax. While the 1987 Constitution now includes

50

taxation as one of the powers of local governments, local governments may only exercise such power "subject to
such guidelines and limitations as the Congress may provide."
This doctrine emanates from the "supremacy" of the National Government over local governments.
When local governments invoke the power to tax on national government instrumentalities, such power is construed
strictly against local governments. The rule is that a tax is never presumed and there must be clear language in the
law imposing the tax. Any doubt whether a person, article or activity is taxable is resolved against taxation. This rule
applies with greater force when local governments seek to tax national government instrumentalities.

Another rule is that a tax exemption is strictly construed against the taxpayer claiming the exemption. However, when
Congress grants an exemption to a national government instrumentality from local taxation, such exemption is
construed liberally in favor of the national government instrumentality. As this Court declared in Maceda v. Macaraig,
Jr.:

The reason for the rule does not apply in the case of exemptions running to the benefit of the government itself or its
agencies. In such case the practical effect of an exemption is merely to reduce the amount of money that has to be
handled by government in the

"Justice Holmes, speaking for the Supreme Court, made reference to the entire absence of power on the part of the
States to touch, in that way (taxation) at least, the instrumentalities of the United States (Johnson v. Maryland, 254
US 51) and it can be agreed that no state or political subdivision can regulate a federal instrumentality in such a way
as to prevent it from consummating its federal responsibilities, or even to seriously burden it in the accomplishment
of them." (Antieau, Modern Constitutional Law, Vol. 2, p. 140, emphasis supplied)

Otherwise, mere creatures of the State can defeat National policies thru extermination of what local authorities may
perceive to be undesirable activities or enterprise using the power to tax as "a tool for regulation." (U.S. v. Sanchez,
340 US 42)

The power to tax which was called by Justice Marshall as the "power to destroy" (McCulloch v. Maryland, supra)
cannot be allowed to defeat an instrumentality or creation of the very entity which has the inherent power to wield it.
[Emphases supplied]

49
course of its operations. For these reasons, provisions granting exemptions to government agencies may be
construed liberally, in favor of non tax-liability of such agencies.

There is, moreover, no point in national and local governments taxing each other, unless a sound and compelling
policy requires such transfer of public funds from one government pocket to another.

The Court agrees with PRA that the subject reclaimed lands are still part of the public domain, owned by the State
and, therefore, exempt from payment of real estate taxes.

There is also no reason for local governments to tax national government instrumentalities for rendering essential
public services to inhabitants of local governments. The only exception is when the legislature clearly intended to tax
government instrumentalities for the delivery of essential public services for sound and compelling policy
considerations. There must be express language in the law empowering local governments to tax national
government instrumentalities. Any doubt whether such power exists is resolved against local governments.

Section 2, Article XII of the 1987 Constitution reads in part, as follows:

Thus, Section 133 of the Local Government Code states that "unless otherwise provided" in the Code, local
governments cannot tax national government instrumentalities. As this Court held in Basco v. Philippine Amusements
and Gaming Corporation:

Section 2. All lands of the public domain, waters, minerals, coal, petroleum, and other mineral oils, all forces of
potential energy, fisheries, forests or timber, wildlife, flora and fauna, and other natural resources are owned by the
State. With the exception of agricultural lands, all other natural resources shall not be alienated. The exploration,
development, and utilization of natural resources shall be under the full control and supervision of the State. The
State may directly undertake such activities, or it may enter into co-production, joint venture, or production-sharing
agreements with Filipino citizens, or corporations or associations at least 60 per centum of whose capital is owned
by such citizens. Such agreements may be for a period not exceeding twenty-five years, renewable for not more than
twenty-five years, and under such terms and conditions as may provided by law. In cases of water rights for
irrigation, water supply, fisheries, or industrial uses other than the development of waterpower, beneficial use may be
the measure and limit of the grant.

The states have no power by taxation or otherwise, to retard, impede, burden or in any manner control the operation
of constitutional laws enacted by Congress to carry into execution the powers vested in the federal government. (MC
Culloch v. Maryland, 4 Wheat 316, 4 L Ed. 579)
Similarly, Article 420 of the Civil Code enumerates properties belonging to the State:

51

Art. 420. The following things are property of public dominion:

(1)The President shall have the power to reserve for settlement or public use, and for specific public purposes, any
of the lands of the public domain, the use of which is not otherwise directed by law. The reserved land shall
thereafter remain subject to the specific public purpose indicated until otherwise provided by law or proclamation.

(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;
Reclaimed lands such as the subject lands in issue are reserved lands for public use. They are properties of public
dominion. The ownership of such lands remains with the State unless they are withdrawn by law or presidential
proclamation from public use.
(2)
Those which belong to the State, without being for public use, and are intended for some public service or
for the development of the national wealth. [Emphases supplied]

Here, the subject lands are reclaimed lands, specifically portions of the foreshore and offshore areas of Manila Bay.
As such, these lands remain public lands and form part of the public domain. In the case of Chavez v. Public Estates
Authority and AMARI Coastal Development Corporation,12 the Court held that foreshore and submerged areas
irrefutably belonged to the public domain and were inalienable unless reclaimed, classified as alienable lands open
to disposition and further declared no longer needed for public service. The fact that alienable lands of the public
domain were transferred to the PEA (now PRA) and issued land patents or certificates of title in PEAs name did not
automatically make such lands private. This Court also held therein that reclaimed lands retained their inherent
potential as areas for public use or public service.

As the central implementing agency tasked to undertake reclamation projects nationwide, with authority to sell
reclaimed lands, PEA took the place of DENR as the government agency charged with leasing or selling reclaimed
lands of the public domain. The

Under Section 2, Article XII of the 1987 Constitution, the foreshore and submerged areas of Manila Bay are part of
the "lands of the public domain, waters x x x and other natural resources" and consequently "owned by the State." As
such, foreshore and submerged areas "shall not be alienated," unless they are classified as "agricultural lands" of the
public domain. The mere reclamation of these areas by PEA does not convert these inalienable natural resources of
the State into alienable or disposable lands of the public domain. There must be a law or presidential proclamation
officially classifying these reclaimed lands as alienable or disposable and open to disposition or concession.
Moreover, these reclaimed lands cannot be classified as alienable or disposable if the law has reserved them for
some public or quasi-public use.

As the Court has repeatedly ruled, properties of public dominion are not subject to execution or foreclosure sale.14
Thus, the assessment, levy and foreclosure made on the subject reclaimed lands by respondent, as well as the
issuances of certificates of title in favor of respondent, are without basis.

50

reclaimed lands being leased or sold by PEA are not private lands, in the same manner that DENR, when it disposes
of other alienable lands, does not dispose of private lands but alienable lands of the public domain. Only when
qualified private parties acquire these lands will the lands become private lands. In the hands of the government
agency tasked and authorized to dispose of alienable of disposable lands of the public domain, these lands are still
public, not private lands.

Furthermore, PEA's charter expressly states that PEA "shall hold lands of the public domain" as well as "any and all
kinds of lands." PEA can hold both lands of the public domain and private lands. Thus, the mere fact that alienable
lands of the public domain like the Freedom Islands are transferred to PEA and issued land patents or certificates of
title in PEA's name does not automatically make such lands private.13

WHEREFORE, the petition is GRANTED. The January 8, 2010 Order of the Regional Trial Court, Branch 195,
Paraaque City, is REVERSED and SET ASIDE. All reclaimed properties owned by the Philippine Reclamation
Authority are hereby declared EXEMPT from real estate taxes. All real estate tax assessments, including the final
notices of real estate tax delinquencies, issued by the City of Paraaque on the subject reclaimed properties; the
assailed auction sale, dated April 7, 2003; and the Certificates of Sale subsequently issued by the Paraaque City
Treasurer in favor of the City of Paraaque, are all declared VOID.

SO ORDERED.

Likewise, it is worthy to mention Section 14, Chapter 4, Title I, Book III of the Administrative Code of 1987, thus:

SEC 14. Power to Reserve Lands of the Public and Private Dominion of the Government.-

52

LEONARDO-DE CASTRO, J.:

For review is the June 30, 2004 Decision1 and the January 27, 2005 Resolution2 of the Court of Appeals in CA-G.R.
CV No. 69603, which affirmed with modification the August 10, 1998 Decision3 and October 9, 1998 Order4of the
Regional Trial Court (RTC) of Pasig City, Branch 157, in Civil Case No. 65420.

51

Sta. Lucia Realty and Development, Inc. v. City of Pasig

Petitioner Sta. Lucia Realty & Development, Inc. (Sta. Lucia) is the registered owner of several parcels of land with
Transfer Certificates of Title (TCT) Nos. 39112, 39110 and 38457, all of which indicated that the lots were located in
Barrio Tatlong Kawayan, Municipality of Pasig5 (Pasig).

Republic of the Philippines

The parcel of land covered by TCT No. 39112 was consolidated with that covered by TCT No. 518403, which was
situated in Barrio Tatlong Kawayan, Municipality of Cainta, Province of Rizal (Cainta). The two combined lots were
subsequently partitioned into three, for which TCT Nos. 532250, 598424, and 599131, now all bearing the Cainta
address, were issued.

SUPREME COURT

TCT No. 39110 was also divided into two lots, becoming TCT Nos. 92869 and 92870.

Manila

The lot covered by TCT No. 38457 was not segregated, but a commercial building owned by Sta. Lucia East
Commercial Center, Inc., a separate corporation, was built on it.6

FIRST DIVISION

G.R. No. 166838

June 15, 2011

STA. LUCIA REALTY & DEVELOPMENT, Inc., Petitioner, vs.

Upon Pasigs petition to correct the location stated in TCT Nos. 532250, 598424, and 599131, the Land Registration
Court, on June 9, 1995, ordered the amendment of the TCTs to read that the lots with respect to TCT No. 39112
were located in Barrio Tatlong Kawayan, Pasig City.7

On January 31, 1994, Cainta filed a petition8 for the settlement of its land boundary dispute with Pasig before the
RTC, Branch 74 of Antipolo City (Antipolo RTC). This case, docketed as Civil Case No. 94-3006, is still pending up to
this date.

CITY OF PASIG, Respondent,

MUNICIPALITY OF CAINTA, PROVINCE OF RIZAL, Intervenor.

DECISION

On November 28, 1995, Pasig filed a Complaint,9 docketed as Civil Case No. 65420, against Sta. Lucia for the
collection of real estate taxes, including penalties and interests, on the lots covered by TCT Nos. 532250, 598424,
599131, 92869, 92870 and 38457, including the improvements thereon (the subject properties).

Sta. Lucia, in its Answer, alleged that it had been religiously paying its real estate taxes to Cainta, just like what its
predecessors-in-interest did, by virtue of the demands and assessments made and the Tax Declarations issued by
Cainta on the claim that the subject properties were within its territorial jurisdiction. Sta. Lucia further argued that

53

since 1913, the real estate taxes for the lots covered by the above TCTs had been paid to Cainta.10

Cainta was allowed to file its own Answer-in-Intervention when it moved to intervene on the ground that its interest
would be greatly affected by the outcome of the case. It averred that it had been collecting the real property taxes on
the subject properties even before Sta. Lucia acquired them. Cainta further asseverated that the establishment of the
boundary monuments would show that the subject properties are within its metes and bounds.11

Sta. Lucia and Cainta thereafter moved for the suspension of the proceedings, and claimed that the pending petition
in the Antipolo RTC, for the settlement of boundary dispute between Cainta and Pasig, presented a "prejudicial
question" to the resolution of the case.12

The RTC denied this in an Order dated December 4, 1996 for lack of merit. Holding that the TCTs were conclusive
evidence as to its ownership and location,13 the RTC, on August 10, 1998, rendered a Decision in favor of Pasig:

WHEREFORE, in view of the foregoing, judgment is hereby rendered in favor of [Pasig], ordering Sta. Lucia Realty
and Development, Inc. to pay [Pasig]:

After Sta. Lucia and Cainta filed their Notices of Appeal, Pasig, on September 11, 1998, filed a Motion for
Reconsideration of the RTCs August 10, 1998 Decision.

The RTC, on October 9, 1998, granted Pasigs motion in an Order15 and modified its earlier decision to include the
realty taxes due on the improvements on the subject lots:

WHEREFORE, premises considered, the plaintiffs motion for reconsideration is hereby granted. Accordingly, the
Decision, dated August 10, 1998 is hereby modified in that the defendant is hereby ordered to pay plaintiff the
amount of P5,627,757.07 representing the unpaid taxes and penalties on the improvements on the subject parcels of
land whereon real estate taxes are adjudged as due for the year 1996.16

Accordingly, Sta. Lucia filed an Amended Notice of Appeal to include the RTCs October 9, 1998 Order in its protest.

On October 16, 1998, Pasig filed a Motion for Execution Pending Appeal, to which both Sta. Lucia and Cainta filed
several oppositions, on the assertion that there were no good reasons to warrant the execution pending appeal.17

On April 15, 1999, the RTC ordered the issuance of a Writ of Execution against Sta. Lucia.
1)
P273,349.14 representing unpaid real estate taxes and penalties as of 1996, plus interest of 2% per month
until fully paid;

2)

P50,000.00 as and by way of attorneys fees; and

3)

The costs of suit.

On May 21, 1999, Sta. Lucia filed a Petition for Certiorari under Rule 65 of the Rules of Court with the Court of
Appeals to assail the RTCs order granting the execution. Docketed as CA-G.R. SP No. 52874, the petition was
raffled to the First Division of the Court of Appeals, which on September 22, 2000, ruled in favor of Sta. Lucia, to wit:

WHEREFORE, in view of the foregoing, the instant petition is hereby GIVEN DUE COURSE and GRANTED by this
Court. The assailed Order dated April 15, 1999 in Civil Case No. 65420 granting the motion for execution pending
appeal and ordering the issuance of a writ of execution pending appeal is hereby SET ASIDE and declared NULL
and VOID.18

Judgment is likewise rendered against the intervenor Municipality of Cainta, Rizal, ordering it to refund to Sta. Lucia
Realty and Development, Inc. the realty tax payments
The Court of Appeals added that the boundary dispute case presented a "prejudicial question which must be decided
before x x x Pasig can collect the realty taxes due over the subject properties."19
52
Pasig sought to have this decision reversed in a Petition for Certiorari filed before this Court on November 29, 2000,
but this was denied on June 25, 2001 for being filed out of time.20
improperly collected and received by the former from the latter in the aggregate amount of P358, 403.68.14

54

Meanwhile, the appeal filed by Sta. Lucia and Cainta was raffled to the (former) Seventh Division of the Court of
Appeals and docketed as CA-G.R. CV No. 69603. On June 30, 2004, the Court of Appeals rendered its Decision,
wherein it agreed with the RTCs judgment:

III.

WHEREFORE, the appealed Decision is hereby AFFIRMED with the MODIFICATION that the award of P50,000.00
attorneys fees is DELETED.21

THE HONORABLE COURT OF APPEALS ERRED IN NOT HOLDING THAT THE PAYMENT OF REALTY TAXES
THROUGH THE MUNICIPALITY OF CAINTA WAS VALID PAYMENT OF REALTY TAXES

In affirming the RTC, the Court of Appeals declared that there was no proper legal basis to suspend the
proceedings.22 Elucidating on the legal meaning of a "prejudicial question," it held that "there can be no prejudicial
question when the cases involved are both civil."23 The Court of Appeals further held that the elements of litis
pendentia and forum shopping, as alleged by Cainta to be present, were not met.

IV.

53
Sta. Lucia and Cainta filed separate Motions for Reconsideration, which the Court of Appeals denied in a Resolution
dated January 27, 2005.

Undaunted, Sta. Lucia and Cainta filed separate Petitions for Certiorari with this Court. Caintas petition, docketed as
G.R. No. 166856 was denied on April 13, 2005 for Caintas failure to show any reversible error. Sta. Lucias own
petition is the one subject of this decision.24

In praying for the reversal of the June 30, 2004 judgment of the Court of Appeals, Sta. Lucia assigned the following
errors:

ASSIGNMENT OF ERRORS

THE HONORABLE COURT OF APPEALS ERRED IN NOT HOLDING THAT IN THE MEANTIME THAT THE
BOUNDARY DISPUTE CASE IN ANTIPOLO CITY REGIONAL TRIAL COURT IS BEING FINALLY RESOLVED, THE
PETITIONER STA. LUCIA SHOULD BE PAYING THE REALTY TAXES ON THE SUBJECT PROPERTIES
THROUGH THE INTERVENOR CAINTA TO PRESERVE THE STATUS QUO.25

Pasig, countering each error, claims that the lower courts correctly decided the case considering that the TCTs are
clear on their faces that the subject properties are situated in its territorial jurisdiction. Pasig contends that the
principles of litis pendentia, forum shopping, and res judicata are all inapplicable, due to the absence of their
requisite elements. Pasig maintains that the boundary dispute case before the Antipolo RTC is independent of the
complaint for collection of realty taxes which was filed before the Pasig RTC. It avers that the doctrine of "prejudicial
question," which has a definite meaning in law, cannot be invoked where the two cases involved are both civil. Thus,
Pasig argues, since there is no legal ground to preclude the simultaneous hearing of both cases, the suspension of
the proceedings in the Pasig RTC is baseless.

THE HONORABLE COURT OF APPEALS ERRED IN AFFIRMING [WITH MODIFICATION] THE DECISION OF THE
REGIONAL TRIAL COURT IN PASIG CITY

Cainta also filed its own comment reiterating its legal authority over the subject properties, which fall within its
territorial jurisdiction. Cainta claims that while it has been collecting the realty taxes over the subject properties since
way back 1913, Pasig only covered the same for real property tax purposes in 1990, 1992, and 1993. Cainta also
insists that there is a discrepancy between the locational entries and the technical descriptions in the TCTs, which
further supports the need to await the settlement of the boundary dispute case it initiated.

II.

The errors presented before this Court can be narrowed down into two basic issues:

THE HONORABLE COURT OF APPEALS ERRED IN NOT SUSPENDING THE CASE IN VIEW OF THE
PENDENCY OF THE BOUNDARY DISPUTE WHICH WILL FINALLY DETERMINE THE SITUS OF THE SUBJECT
PROPERTIES

1)
Whether the RTC and the CA were correct in deciding Pasigs Complaint without waiting for the resolution
of the boundary dispute case between Pasig and Cainta; and

55

2)
Whether Sta. Lucia should continue paying its real property taxes to Cainta, as it alleged to have always
done, or to Pasig, as the location stated in Sta. Lucias TCTs.

We agree with the First Division of the Court of Appeals in CA-G.R. SP No. 52874 that the resolution of the boundary
dispute between Pasig and Cainta would determine which local government unit is entitled to collect realty taxes
from Sta. Lucia.26

The Local Government Unit entitled

This requisite was reiterated in Republic Act No. 7160, also known as the 1991 the Local Government Code, to wit:

Section 201. Appraisal of Real Property. All real property, whether taxable or exempt, shall be appraised at the
current and fair market value prevailing in the locality where the property is situated. The Department of Finance
shall promulgate the necessary rules and regulations for the classification, appraisal, and assessment of real
property pursuant to the provisions of this Code.

Section 233. Rates of Levy. A province or city or a municipality within the Metropolitan Manila Area shall fix a
uniform rate of basic real property tax applicable to their respective localities as follows: x x x. (Emphases ours.)

To Collect Real Property Taxes

The only import of these provisions is that, while a local government unit is authorized under several laws to collect
real estate tax on properties falling under its territorial jurisdiction, it is imperative to first show that these properties
are unquestionably within its geographical boundaries.
The Former Seventh Division of the Court of Appeals held that the resolution of the complaint lodged before the
Pasig RTC did not necessitate the assessment of the parties evidence on the metes and bounds of their respective
territories. It cited our ruling in Odsigue v. Court of Appeals27 wherein we said that a certificate of title is
Accentuating on the importance of delineating territorial boundaries, this Court, in Mariano, Jr. v. Commission on
Elections30 said:
conclusive evidence of both its ownership and location.28 The Court of Appeals even referred to specific provisions
of the 1991 Local Government Code and Act. No. 496 to support its ruling that Pasig had the right to collect the realty
taxes on the subject

properties as the titles of the subject properties show on their faces that they are situated in Pasig.29

The importance of drawing with precise strokes the territorial boundaries of a local unit of government cannot be
overemphasized. The boundaries must be clear for they define

54

Under Presidential Decree No. 464 or the "Real Property Tax Code," the authority to collect real property taxes is
vested in the locality where the property is situated:

Sec. 5. Appraisal of Real Property. All real property, whether taxable or exempt, shall be appraised at the current
and fair market value prevailing in the locality where the property is situated.

the limits of the territorial jurisdiction of a local government unit. It can legitimately exercise powers of government
only within the limits of its territorial jurisdiction. Beyond these limits, its acts are ultra vires. Needless to state, any
uncertainty in the boundaries of local government units will sow costly conflicts in the exercise of governmental
powers which ultimately will prejudice the people's welfare. This is the evil sought to be avoided by the Local
Government Code in requiring that the land area of a local government unit must be spelled out in metes and
bounds, with technical descriptions.31 (Emphasis ours.)

xxxx

Sec. 57. Collection of tax to be the responsibility of treasurers. The collection of the real property tax and all
penalties accruing thereto, and the enforcement of the remedies provided for in this Code or any applicable laws,
shall be the responsibility of the treasurer of the province, city or municipality where the property is situated.
(Emphases ours.)

The significance of accurately defining a local government units boundaries was stressed in City of Pasig v.
Commission on Elections,32 which involved the consolidated petitions filed by the parties herein, Pasig and Cainta,
against two decisions of the Commission on Elections (COMELEC) with respect to the plebiscites scheduled by
Pasig for the ratification of its creation of two new Barangays. Ruling on the contradictory reliefs sought by Pasig and
Cainta, this Court affirmed the COMELEC decision to hold in abeyance the plebiscite to ratify the creation of
Barangay Karangalan; but set aside the COMELECs other decision, and nullified the plebiscite that ratified the
creation of Barangay Napico in Pasig, until the boundary dispute before the Antipolo RTC had been resolved. The
aforementioned case held as follows:

56

1.

The Petition of the City of Pasig in G.R. No. 125646 is DISMISSED for lack of merit; while

adequate basis. Our decision was in line with the doctrine that the TCT is conclusive evidence of ownership and
location. However, we refused to simply uphold the veracity of the disputed TCT, and instead, we remanded the case
back to the trial court for the determination of the exact location of the property seeing that it was the issue in the
complaint filed before it.37

2.
The Petition of the Municipality of Cainta in G.R. No. 128663 is GRANTED. The COMELEC Order in UND
No. 97-002, dated March 21, 1997, is SET ASIDE and the plebiscite held on March 15, 1997 to ratify the creation of
Barangay Napico in the City of Pasig is declared null and void. Plebiscite on the same is ordered held in abeyance
until

In City Government of Tagaytay v. Guerrero,38 this Court reprimanded the City of Tagaytay for levying taxes on a
property that was outside its territorial jurisdiction, viz:

after the courts settle with finality the boundary dispute between the City of Pasig and the Municipality of Cainta, in
Civil Case No. 94-3006.33

In this case, it is basic that before the City of Tagaytay may levy a certain property for sale due to tax delinquency,
the subject property should be under its territorial jurisdiction. The city officials are expected to know such basic
principle of law. The failure of the city officials of Tagaytay to verify if the property is within its jurisdiction before
levying taxes on the same constitutes gross negligence.39 (Emphasis ours.)

Clearly therefore, the local government unit entitled to collect real property taxes from Sta. Lucia must undoubtedly
show that the subject properties are situated within its territorial jurisdiction; otherwise, it would be acting beyond the
powers vested to it by law.

Certificates of Title as

Conclusive Evidence of Location

While we fully agree that a certificate of title is conclusive as to its ownership and location, this does not preclude the
filing of an action for the very purpose of attacking the statements therein. In De Pedro v. Romasan Development
Corporation,34 we proclaimed that:

We agree with the petitioners that, generally, a certificate of title shall be conclusive as to all matters contained
therein and conclusive evidence of the ownership of the land referred to therein. However, it bears stressing that
while certificates of title are

Although it is true that "Pasig" is the locality stated in the TCTs of the subject properties, both Sta. Lucia and Cainta
aver that the metes and bounds of the subject properties, as they are described in the TCTs, reveal that they are
within Caintas boundaries.40 This only means that there may be a conflict between the location as stated and the
location as technically described in the TCTs. Mere reliance therefore on the face of the TCTs will not suffice as they
can only be conclusive evidence of the subject properties locations if both the stated and described locations point to
the same area.

The Antipolo RTC, wherein the boundary dispute case between Pasig and Cainta is pending, would be able to best
determine once and for all the precise metes and bounds of both Pasigs and Caintas respective territorial
jurisdictions. The resolution of this dispute would necessarily ascertain the extent and reach of each local
governments authority, a prerequisite in the proper exercise of their powers, one of which is the power of taxation.
This was the conclusion reached by this Court in City of Pasig v. Commission on Elections,41 and by the First
Division of the Court of Appeals in CA-G.R. SP No. 52874. We do not see any reason why we cannot adhere to the
same logic and reasoning in this case.

The "Prejudicial Question" Debate

55
indefeasible, unassailable and binding against the whole world, including the government itself, they do not create or
vest title. They merely confirm or record title already existing and vested. They cannot be used to protect a usurper
from the true owner, nor can they be used as a shield for the commission of fraud; neither do they permit one to
enrich himself at the expense of other.35

In Pioneer Insurance and Surety Corporation v. Heirs of Vicente Coronado,36 we set aside the lower courts ruling
that the property subject of the case was not situated in the location stated and described in the TCT, for lack of

It would be unfair to hold Sta. Lucia liable again for real property taxes it already paid simply because Pasig cannot
wait for its boundary dispute with Cainta to be decided. Pasig has consistently argued that the boundary dispute
case is not a prejudicial question that would entail the suspension of its collection case against Sta. Lucia. This was
also its argument in City of Pasig v. Commission on Elections,42 when it sought to nullify the COMELECs ruling to
hold in abeyance (until the settlement of the boundary dispute case), the plebiscite that will ratify its creation of

57

Barangay Karangalan. We agreed with the COMELEC therein that the boundary dispute case presented a prejudicial
question and explained our statement in this wise:

(g) To amend and control its process and orders so as to make them comformable to law and justice.

Furthermore, we have acknowledged and affirmed this inherent power in our own decisions, to wit:
To begin with, we agree with the position of the COMELEC that Civil Case No. 94-3006 involving the boundary
dispute between the Municipality of Cainta and the City of Pasig presents a prejudicial question which must first be
decided before plebiscites for the creation of the proposed barangays may be held.

The City of Pasig argues that there is no prejudicial question since the same contemplates a civil and criminal action
and does not come into play where both cases are civil, as in the instant case. While this may be the general rule,
this Court has held in Vidad v. RTC of Negros Oriental, Br. 42, that, in the interest of good order, we can very well
suspend action on one case pending the final outcome of another case closely interrelated or linked to the first.

In the case at bar, while the City of Pasig vigorously claims that the areas covered by the proposed Barangays
Karangalan and Napico are within its territory, it can not deny that portions of the same area are included in the
boundary dispute case pending before the Regional Trial Court of Antipolo. Surely, whether the areas in controversy
shall be decided as within the territorial jurisdiction of the Municipality of Cainta or the City of Pasig has material
bearing to the creation of the proposed Barangays Karangalan and Napico. Indeed, a requisite for the creation of a
barangay is for its territorial jurisdiction to be properly identified by metes and bounds or by more or less permanent
natural boundaries. Precisely because territorial jurisdiction is an issue raised in the pending civil case, until and
unless such issue is resolved with finality, to define the territorial jurisdiction of the proposed barangays would only
be an exercise in futility. Not only that, we would be paving the way for potentially ultra viresacts of such barangays. x
x x.43 (Emphases ours.)

It is obvious from the foregoing, that the term "prejudicial question," as appearing in the cases involving the parties
herein, had been used loosely. Its usage had been more in reference to its ordinary meaning, than to its strict legal
meaning under the Rules of Court.44 Nevertheless, even without the impact of the connotation derived from the
term, our own Rules of Court state that a trial court may control its own proceedings according to its sound
discretion:

POWERS AND DUTIES OF COURTS AND JUDICIAL OFFICERS

Rule 135

The court in which an action is pending may, in the exercise of a sound discretion, upon proper application for a stay
of that action, hold the action in abeyance to abide the outcome of another pending in another court, especially
where the parties and the issues are the same, for there is power inherent in every court to control the disposition of
causes (sic) on its dockets with economy of time and effort for itself, for counsel, and for litigants. Where the rights of
parties to the second action cannot be properly determined until the questions raised in the first action are settled the
second action should be stayed.

The power to stay proceedings is incidental to the power inherent in every court to control the disposition of the
cases on its dockets, considering its time and effort, that of counsel and the litigants. But if proceedings must be
stayed, it must be done in order to avoid multiplicity of suits and prevent vexatious litigations, conflicting judgments,
confusion between litigants and courts. It bears stressing that whether or not the RTC would suspend the
proceedings in the SECOND CASE is submitted to its sound discretion.451avvphil

In light of the foregoing, we hold that the Pasig RTC should have held in abeyance the proceedings in Civil Case No.
65420, in view of the fact that the outcome of the boundary dispute case before the Antipolo RTC will undeniably
affect both Pasigs and Caintas rights. In fact, the only reason Pasig had to file a tax collection case against Sta.
Lucia was not that Sta. Lucia refused to pay, but that Sta. Lucia had already paid, albeit to another local government
unit. Evidently, had the territorial boundaries of the contending local government units herein been delineated with
accuracy, then there would be no controversy at all.

In the meantime, to avoid further animosity, Sta. Lucia is directed to deposit the succeeding real property taxes due
on the subject properties, in an escrow account with the Land Bank of the Philippines.

WHEREFORE, the instant petition is GRANTED. The June 30, 2004 Decision and the January 27, 2005 Resolution
of the Court of Appeals in CA-G.R. CV No. 69603 are SET

56

SEC. 5. Inherent powers of courts. Every court shall have power:

xxxx

58

ASIDE. The City of Pasig and the Municipality of Cainta are both directed to await the judgment in their boundary
dispute case (Civil Case No. 94-3006), pending before Branch 74 of the Regional Trial Court in Antipolo City, to
determine which local government unit is entitled to exercise its powers, including the collection of real property
taxes, on the properties subject of the dispute. In the meantime, Sta. Lucia Realty and Development, Inc. is directed
to deposit the succeeding real property taxes due on the lots and improvements covered by TCT Nos. 532250,
598424, 599131, 92869, 92870 and 38457 in an escrow account with the Land Bank of the Philippines.

SO ORDERED.

Republic of the Philippines

SUPREME COURT

Manila

FIRST DIVISION

G.R. No. 184879

February 23, 2011

REPUBLIC OF THE PHILIPPINES (DEPARTMENT OF TRANSPORTATION AND COMMUNICATIONS),Petitioner,

vs.

CITY OF MANDALUYONG, Respondent.

RESOLUTION

PEREZ, J.:

57

Republic of the Philippines (DTC) v. City of Mandaluyong

The subject of this petition for review on certiorari is the writ of possession issued in favor of respondent City of
Mandaluyong by the Regional Trial Court (RTC Branch 213), Branch 213, Mandaluyong City of real properties
forming part of the EDSA Metro Rail Transit (MRT) III.

Petitioner Republic of the Philippines (Republic) is represented in this suit by the Department of Transportation and
Communications (DOTC), which is the primary policy, planning, programming, regulating and administrative entity of
the executive branch of the government in the promotion, development, and regulation of dependable and
coordinated networks of transportation and communications systems, as well as in the fast, safe, efficient, and
reliable postal, transportation and communications services; while respondent City Government of Mandaluyong is a

59

local government unit tasked, among others, with meeting the priority needs and service requirements of its
constituents in Mandaluyong City.1

Delinquency on 7 September 2005 rectifying the 24 June 2005 notice by increasing the deficiency real property tax
to P1,306,617,522.96.12

The material facts and events leading to this controversy are as follows:

On the same date, the City Treasurer issued and served a Warrant of Levy upon MRTC with the corresponding
Notices of Levy upon the City Assessor and the Registrar of Deeds of Mandaluyong City.13

On 8 August 1997, the DOTC entered into a Revised and Restated Agreement to Build, Lease and Transfer a Light
Rail System for EDSA (BLT) with Metro Rail Transit Corporation Limited (Metro Rail), a foreign corporation. Under
the BLT Agreement, Metro Rail shall be responsible for the design, construction, equipping, completion, testing, and
commissioning of the Light Rail Transit System-LRTS Phase I (EDSA MRT III).2 The DOTC shall operate the same
but ownership of the EDSA MRT III shall remain with Metro Rail during the Revenue and Construction periods. At the
end of the Revenue

Period,3 Metro Rail shall transfer to DOTC its title to and all of its rights and interests therein, in exchange for
US$1.00.4

On 5 December 2005, petitioner Republic filed a case for Declaration of Nullity of Real Property Tax Assessment and
Warrant of Levy with a prayer for a Temporary Restraining Order (TRO) and Writ of Preliminary Injunction before the
Regional Trial Court (RTC Branch 208), Branch 208, Mandaluyong City, docketed as Civil Case No. MC05-2882.

Petitioner Republic alleged that since Metro Rail had transferred to the DOTC the actual use, possession and
operation of the EDSA MRT III System, Metro Rail or MRTC does not have actual or beneficial use and possession
of the EDSA MRT III properties as to

58
On even date, Metro Rail then assigned all its rights and obligations under the BLT Agreement to Metro Rail Transit
Corporation (MRTC), a domestic corporation.

In an agreement dated 15 July 2000, Metro Rail turned over the EDSA MRT III System to the DOTC for its
operation.5

In a joint resolution dated 5 April 2001, the City Assessors of Mandaluyong City, Quezon City, Makati City and Pasay
City fixed the current and market value of EDSA MRT III at US$655 Million or P32.75 Billion, and which will be
divided proportionately according to distance traversed among these cities.6

On 4 June 2001, the Office of the City Assessor of Mandaluyong issued Tax Declaration No. D-013-06267 in the
name of MRTC, fixing the market value of the railways, train cars, three (3) stations and miscellaneous expenses at
P5,974,365,000.00 and the assessed value at P4,779,492,000.00.7 Subsequently on 18 June 2001, the said Office
of the City Assessor of Mandaluyong City demanded payment of real property taxes due under the aforesaid tax
declaration.8

The computation of real property tax of MRTC was pegged at P317,250,730.23 from the taxable year 2000 until
August 2001.9 Two (2) years later or on August 2003, another demand was made on MRTC placing the deficiency
real estate tax due to the City of Mandaluyong at P769,784,981.52.10

subject it to payment of real estate taxes. On the other hand, notwithstanding the transfer to DOTC of the actual use,
possession and operation of the EDSA MRT III, petitioner Republic is not liable because local government units are
legally proscribed from imposing taxes of any kind on it under Section 133(o) of Republic Act No. 7160. Likewise,
under Section 234 of the same law, petitioner is exempted from payment of real property tax.14

MRTC filed a complaint-in-intervention and sought to declare the nullity of the real property tax assessments.

The posting and publication of the Notice of Auction were made on 26 February 2006 and 5 March 2006.15

On 22 March 2006, the RTC Branch 208, through Presiding Judge Esteban A. Tacla, Jr., denied both petitioner
Republics and MRTCs applications for TRO.16

Consequently, on 24 March 2006, a public auction was conducted. For lack of bidders, the real properties were
forfeited in favor of the City of Mandaluyong for the price of P1,483,700,100.18.17

Initially, a Notice of Delinquency dated 24 June 2005 was sent to MRTC wherein the assessed deficiency real
property tax amounted to P12,843,928.79,11 however the City Treasurer of Mandaluyong issued another Notice of

60

On 15 September 2006, the RTC Branch 208 issued an order denying petitioner and MRTCs application for
issuance of a writ of preliminary injunction. A motion for reconsideration was filed but it was eventually denied on 9
March 2007. The issue on the validity of tax assessment however is pending before that court.

permanently enjoin respondent from enjoying when it initiated Civil Case No. MC05-2882. The pendency of CA-G.R.
SP No. 98334 before the Court of Appeals, assailing the Orders denying respondents prayer for a TRO and
injunction should have pre-empted the issuance of the writ of possession by reason of litis pendencia.25

Petitioner Republic filed a petition for certiorari before the Court of Appeals challenging the denial of both the TRO
and injunction by RTC Branch 208.

In a Resolution dated 10 November 2008, this Court directed the parties to maintain the status quo and enjoined the
enforcement and implementation of the Order and Writ of Possession dated 22 October 2008.26

Meanwhile, respondent manifested before the Court of Appeals that due to the failure of MRTC to exercise the right
of redemption, the City Treasurer of Mandaluyong executed a Final Deed of Sale in favor of the purchaser in the
auction sale. Subsequently, Tax Declaration No. D-013-06267 in MRTCs name was cancelled and Tax Declaration
No. D-013-10636 was issued in its place.18

Respondent filed its comment refuting the allegations of petitioner. Respondent does not contest petitioners
immunity from local taxes. In fact, it has assessed MRTC, and not petitioner, for real property tax. Respondent
defends the RTCs issuance of a writ of possession after it was established that there was a valid foreclosure sale of
MRTCs properties for non-payment of real property taxes and after the title had been consolidated in respondents
name. Respondent also avers that the subject public auction sale is an execution sale within the purview of Section
33, Rule 39 of the Rules of Court, thus a writ of possession was validly issued. Respondent subscribes to this Courts
ruling in Ong v. Court of Appeals27 which clarified that there is no forum shopping where a petition for the issuance
of a writ of possession is filed despite the pendency of an action for annulment of mortgage and foreclosure sale.28

On 11 April 2008, respondent filed an ex parte petition praying for the issuance of a writ of possession before RTC
Branch 213 of Mandaluyong and docketed as LRC Case No. MC-08-460.19 Petitioner Republic countered that the
instant petition does not fall within the cases when a writ of possession may be issued. Moreover, petitioner argued
that the pendency of Civil Case No. MC05-2882 assailing the validity of the tax assessment and the subsequent
auction sale of the properties pre-empts the issuance of said writ.20

59

On 30 July 2008, the RTC Branch 213, through Judge Carlos A. Valenzuela, granted the petition for the issuance of
a writ of possession.21 A subsequent motion for reconsideration filed by petitioner was denied for lack of merit.22
This case is, ultimately, between a local governments power to tax and the national governments privilege of tax
exemption. That issue needs full hearing and deliberation, as indeed, the issue pends before the RTC, at first
instance. Such trial of facts and issues must proceed. It should not be pre-empted by the present petition that deals
with precisely the herein respondents intended end result.
While MRTC appealed said order to the Court of Appeals, petitioner Republic filed the instant case raising a question
of law, i.e. the propriety of the issuance of a writ of possession. To support its main thesis that the RTC Branch 213
erred in issuing a writ of possession, petitioner claims that since EDSA MRT properties are beneficially owned by
DOTC, it should not have been assessed for payment of real property taxes. Being a governmental entity, it is
exempt from payment of real property tax under Section 234 of the Local Government Code. Therefore, no tax
delinquency exist authorizing respondent to sell the subject properties through public auction. It then follows that
respondent has no legal right to a writ of possession.231avvphi1

Petitioner Republic then asserts that the auction sale conducted by respondent cannot be likened to an extrajudicial
foreclosure sale of a real estate mortgage under Act No. 3135 as a justification for the issuance of a writ of
possession. Petitioner Republic reasons that the EDSA MRT properties were not put up as a collateral or security for
a loan or indebtedness which was secured from respondent, nor was there any mortgage contract voluntarily entered
into by petitioner or even by MRTC.24

Finally, petitioner Republic adds that all requisites of litis pendencia exist in CA-G.R. SP No. 98334, which is a case
for denial of injunction and TRO and in the present case, concerning the issuance of a writ of possession because
there is identity of parties, rights asserted and reliefs prayer for. Respondent seeks to acquire possession over the
EDSA MRT III properties on the basis of its tax assessments and auction sale, which petitioner Republic seeks to

A writ of possession is a mere incident in the transfer of title.29 In the instant case, it stemmed from the exercise of
alleged ownership by respondent over EDSA MRT III properties by virtue of a tax delinquency sale. The issue of
whether the auction sale should be enjoined is still pending before the Court of Appeals. Pending determination, it is
premature for respondent to have conducted the auction sale and caused the transfer of title over the real properties
to its name. The denial by the RTC to issue an injunction or TRO does not automatically give respondent the liberty
to proceed with the actions sought to be enjoined, especially so in this case where a certiorari petition assailing the
denial is still being deliberated in the Court of Appeals. All the more it is premature for the RTC to issue a writ of
possession where the ownership of the subject properties is derived from an auction sale, the validity of which is still
being threshed out in the Court of Appeals. The RTC should have held in abeyance the issuance of a writ of
possession. At this juncture, the writ issued is premature and has no force and effect.

WHEREFORE, the petition is GRANTED. The Decision and Order dated 30 July 2008 and 6 October 2008,
respectively of RTC Branch 213 of Mandaluyong City in LRC Case No. M-08-460 are hereby VACATED and SET
ASIDE. The status quo Order dated 10 November 2008 is MAINTAINED. The Court of Appeals is ORDERED to
resolve CA-G.R. SP No. 98334 with deliberate dispatch.

61

SO ORDERED.

G.R. No. 117577 December 1, 1995

ALEJANDRO B. TY AND MVR PICTURE TUBE, INC., petitioners, vs.

THE HON. AURELIO C. TRAMPE, in his capacity as Judge of the Regional Trial Court of Pasig, Metro Manila, THE
HON. SECRETARY OF FINANCE, THE MUNICIPAL ASSESSOR OF PASIG AND THE MUNICIPAL TREASURER
OF PASIG, respondents.

PANGANIBAN, J.:

60

ARE THE INCREASED REAL ESTATE TAXES imposed by and being collected in the Municipality (now City) of
Pasig, effective from the year 1994, valid an legal? This is the question brought before this Court for resolution.

The Parties
Alejandro Ty. v. Hon. Trampe, et al.
Petitioner Alejandro B. Ty is a resident of and registered owner of lands and buildings in the Municipality (now City) of
Pasig, while petitioner MVR Picture Tube, Inc. is a corporation duly organized and existing under Philippine laws and
is likewise a registered owner of lands and buildings in said Municipality 1 .
Republic of the Philippines

SUPREME COURT

Manila

EN BANC

Respondent Aurelio C. Trampe is being sued in his capacity as presiding judge of Branch 163. Regional Trial Court
of the National Capital Judicial Region, sitting in Pasig, whose Decision dated 14 July 1994 and Order dated 30
September 1994 in Special Civil Action No. 629 (entitled "Alejandro B. Ty and MVR Picture Tube, Inc. vs. The Hon.
Secretary of Finance. et al.") are sought to be set aside. Respondent Secretary of Finance is impleaded as the
government officer who approved the Schedule of Market Values used as basis for the new tax assessments being
enforced by respondents Municipal Assessor and Municipal Treasurer of Pasig and the legality of which is being
questioned in this petition 2 .

The Antecedent Facts

On 06 January 1994, respondent Assessor sent a notice of assessment respecting certain real properties of
petitioners located in Pasig, Metro Manila. In a letter dated 18 March 1994, petitioners through counsel "request(ed)
the Municipal Assessor to reconsider the subject assessments" 3 .

62

Not satisfied, petitioners on 29 March 1994 filed with the Regional Trial Court of the National Capital Judicial Region,
Branch 163, presided over by respondent Judge, a Petition for Prohibition with prayer for a restraining order and/or
writ of preliminary injunction to declare null and void the new tax assessments and to enjoin the collection of real
estate taxes based on said assessments. In a Decision 4 dated 14 July 1994, respondent Judge denied the petition
"for lack of merit" in the following disposition.

May 1995. Petitioners filed their Reply to the Comment of respondent Assessor and Treasurer 06 January 1995, and
their Reply to that of the respondent Secretary on 18 May 1995. After careful deliberation on the above pleadings,
the Court resolved to give due course to the petition, and, inasmuch as the issues are relatively simple, the Court
dispensed with requiring the parties to submit further memoranda and instead decided to consider the respondents'
respective Comments as their answers and memoranda. Thus the case is now considered submitted for resolution.

The Issues
WHEREFORE, foregoing premises considered, petitioners' prayer to declare unconstitutional the schedule of market
values as prepared by the Municipal Assessor of Pasig, Metro Manila, and to enjoin permanently the Municipal
Treasurer of Pasig, Metro Manila, from collecting the real property taxes based thereof (sic) is hereby DENIED for
lack of merit. Cost (sic) de oficio.

Subsequently, petitioners' Motion for Reconsideration was also denied by respondent Judge in an Order 5 dated 30
September 1994.

Rebuffed by said Decision and Order, petitioners filed this present Petition for Review directly before this Court,
raising pure questions of law and assigning the following errors:

The Court a quo gravely erred in holding that Presidential Decree No. 921 was expressly repealed by R.A. 7160 and
that said presidential decree including its Implementing Rules (P.D. 464) went down to the statutes' graveyard
together with the other decision(s) of the Supreme Court affecting the same.

The Court a quo while holding that the new tax assessments have tremendously increased ranging from 418.8% to
570%, gravely erred in blaming petitioners for their failure to exhaust administrative remedies provided for by law.

The issues brought by the parties for decision by this Court are:

1.
Whether Republic Act No. 7160, otherwise known as the Local Government Code of 1991, repealed the
provisions of Presidential Decree No. 921;

2.

Whether petitioners are required to exhaust administrative remedies prior to seeking judicial relief; and

3.

Whether the new tax assessments are oppressive and confiscatory, and therefore unconstitutional.

In disposing of the above issues against petitioners, the court a quo ruled that the schedule of market values and the
assessments based thereon prepared solely by respondent assessor are valid and legal, they having been prepared
in accordance with the provisions of the Local Government Code of 1991 (R.A. 7160). It held also that said Code had
effectively repealed the previous law on the matter, P.D. 921, which required, in the preparation of said schedule,
joint action by all the city and municipal assessors in the Metropolitan Manila area. The lower court also faulted
petitioners with failure to exhaust administrative remedies provided under Sections 226 and 252 of R.A. 7160.
Finally, it found the questioned assessments consistent with the "tremendously increased
. . . price of real estate anywhere in the country." 7

The Court a quo blatantly erred in not declaring the confiscatory and oppressive nature of the assessments as illegal.
void ab initio and unconstitutional constituting a deprivation of property without due process of law. 6
Stated the court:
In a resolution dated 21 November 1994, this Court, without giving due course to the petition, required respondents
to comment thereon. Respondents Municipal Treasurer and Municipal Assessor, through counsel, filed their
Comment on 19 December 1994, and respondent Secretary of Finance, through the Solicitor General, submitted his
on 11

This Court is inclined to agree with the view of defendants that R.A. 7160 in its repealing clause provide (sic) that
Presidential Decree Nos. . . . 464 . . . are hereby repealed and rendered of no force and effect. Hence said
presidential decrees including their implementing rules went down to the statutes' graveyard together with the
decisions of the Supreme Court on cases effecting (sic) the same.

61

63

This Court is also in accord with respondents (sic) view that petitioners failed to avail of either Section 226 of R.A.
7160, that is by appealing the assessment of their properties to the Board of Assessment Appeal within sixty 160)
days from the date of receipt of the written Notice of Assessment, and if it is true that petitioner (sic) as alleged in
their

62

To resolve the first issue, it is necessary to revisit the following provisions of law:

pleadings was not afforded the opportunity to appeal to the board of assessment appeal, then they could have
availed of the provisions of Section 252, of the same R.A. 7160 by paying the real estate tax under protest. Because
of petitioners (sic) failure to avail of either Sections 226 or 252 of R.A. 7160, they failed to exhaust administratives
(sic) remedies provided for by law before bringing the case to Court. (Buayan Cattle Co., Inc. vs. Quintillan, 128
SCRA 276). Therefore the filing of this case before this Court is premature, the same not falling under the exception
because the issue involved is not a question of law but of fact (Valmonte vs. Belmonte, Jr., 170 SCRA 256).

1. Section 15 of P.D. No. 464, promulgated on 20 May 1974, otherwise known as the Peal Property Tax Code:

Sec. 15. Preparation of Schedule of Values. Before any general revision of property assessments is made, as
provided in this Code, there shall be prepared for the province or city a Schedule of Market Value for the different
classes of real property therein situated in such form and detail as shall be prescribed by the Secretary of Finance.

Petitioners also alleged that the New Tax Assessments are not only oppressive and confiscatory but also destructive
in view of the tremendous increase in its valuation, from P855,360.00 to P4,121,280.00 a marked increase of
418.8% of one of its properties, while the other, from P857,600.00 to P4,374,410.00, an increased (sic) of 510%.
This Court agree (sic) with petitioners (sic) observation, but the reality (sic) the price of real property anywhere in the
country tremendously increased. This is shown in the Real Estate Monitor of Economic Incorporated (copy attached
with the memorandum of respondents). For example real properties in Pasig in 1991 located at the Ortigas
Commercial Complex command (sic) a price of P42,000.00 per square meter which price is supported by a case
filed before this Court (civil case no. 64506, Jesus Fajardo, et al. vs. Ortigas and Co.) for Recovery (sic) of agents
(sic) commission. The property subject of the sale which was also located at the Ortigas Commercial Complex at
Pasig, Metro Manila was sold to a Taiwanese at P42,000.00 per square meter. It is therefore not surprising that the
assessment of real properties in Pasig has increased tremendously. Had petitioners first exhausted administrative
remedies they would have realized the fact that prices of real estate has (sic) tremendously increased and would
have known the reason/reasons why. 8

Said schedule, together with an abstract of the data (on) which it is based, shall be submitted to the Secretary of
Finance for review not later than the thirty-first day of December immediately preceding the calendar year the
general revision of assessments shall be undertaken. The Secretary of Finance shall have ninety days from the date
of receipt within which to review said schedule to determine whether it conforms with the provisions of this Code.

In its Order dated 30 September 1994 denying the Motion for Reconsideration, the court a quo ruled:

The Schedule of Values that will serve as the basis for the appraisal and assessment for taxation purposes of real
properties located within the Metropolitan Area shall be prepared jointly by the City Assessors of the Districts created
under Section one hereof, with the City Assessor of Manila acting as Chairman, in accordance with the pertinent
provisions of Presidential Decree No. 464, as amended, otherwise known as the Real Property Tax Code, and the
implementing rules and regulations thereof issued by the Secretary of Finance.

This Court despite petitioners' exhaustive and thorough research and discussion of the point in issue, is still inclined
to sustain the view that P.D. 921 was impliedly repealed by R.A. 7160. P.D. 921 to the mind of this Court is an
implementing law of P.D. 464, Sections 3, 6, 9, 12 and 13 of said P.D. provide how certain provisions of P.D. 464
shall be implemented. Since P.D. 464 was expressly repealed by R.A. 7160. P.D. 921 must necessarily be
considered repealed, otherwise, what should Sections 3, 6, 9, 12 and 13 of P.D. 921 implement? And, had the law
makers intended to have said P.D. 921 remain valid and enforceable they would have provided so in R.A. 7160.
Since there is none, P.D. 921 must be considered repealed. 9

2. Subsequently, on 12 April 1976, P.D. 921 was promulgated, which in Section 9 thereof, states:

Sec. 9. Preparation of Schedule of Values for Real Property within the Metropolitan Area.

3. Section One of P.D. 921, referred to above, provides:

Re: The First Issue:

Sec. 1. Division of Metropolitan Manila into Local Treasury and Assessment Districts. For purposes of effective
fiscal management, Metropolitan Manila is hereby divided into the following Local Treasury and Assessment
Districts:

Repeal of P.D. 921?

First District Manila

64

Second District Quezon City, Pasig, Marikina,

(a)

...

(b)

...

Mandaluyong and San Juan

Third District Caloocan City, Malabon,

(c)
. . . ; and Presidential Decree Nos. 381, 436, 464, 477, 626, 632, 752, and 1136 are hereby repealed and
rendered of no force and effect.
Navotas and Valenzuela
xxx xxx xxx
Fourth District Pasay City, Makati, Paranaque,

Muntinlupa, Las Pias, Pateros and

Taguig

Manila, Quezon City, Caloocan City and Pasay City shall be the respective Centers of the aforesaid Treasury and
Assessment Districts.

4. On 01 January 1992, Republic Act No. 7160, otherwise known as the Local Government Code of 1991, took
effect. Section 212 of said law is quoted as follows:

Sec. 212. Preparation of Schedule of Fair Market Values. Before any general revision of property assessment is
made pursuant to the provisions of this Title, there shall be prepared a schedule of fair market values by the
provincial, city and the municipal assessors of the municipalities within the Metropolitan Manila Area for the different
classes of real property situated in their respective local government units for enactment by ordinance of the
sanggunian concerned. The schedule of fair market values shall be published in a newspaper of general circulation
in the province, city or municipality concerned, or in the absence thereof, shall be posted in the provincial capitol, city
or municipal hall and in two other conspicuous public place therein.

(f) All general and special laws, acts, city charter, decrees, executive orders, proclamations and administrative
regulations, or part or parts thereof which are inconsistent with any of the provisions of this Code are hereby
repealed or modified accordingly. (emphasis supplied)

It is obvious from the above provisions of R.A 7160, specifically Sec. 534, that P.D. 921 was NOT EXPRESSLY
repealed by said statute. Thus, the question is: Was P.D. 921 IMPLIEDLY repealed by R.A. 7160?

Petitioners contend that, contrary to the aforequoted Decision of the lower court, "whether the assessment is made
before or after the effectivity of R.A. 7160, the

63

observance of, and compliance with, the explicit requirement of P.D. 921 is strict and mandatory either" because P.D.
921 was not impliedly repealed by R.A. 7160 and is therefore still the applicable statute, or because the Supreme
Court, in three related cases 10 promulgated on 16 December 1993 after the Local Government Code of 1991
already took effect ruled that a schedule of market values and the corresponding assessments based thereon
"prepared solely by the city assessor . . . failed to comply with the explicit requirement (of collegial and joint action by
all the assessors in the Metropolitan Manila area under P.D. 921) . . . and are on that account illegal and void."

5. The repealing clause of R.A. 7160 found in the Section 534 thereof is hereby reproduced as follows:

Sec. 534. Repealing Clause.

On the other hand, respondents aver that Section 9 of P.D. 921 and Section 212 of R.A. 7160 are clearly and
unequivocally incompatible because they dwell on the same subject matter, namely, the preparation of a schedule of
values for real property within the Metropolitan Manila Area. Under P.D. 921, the schedule shall be preparedjointly by
the city assessors of the District, while, under R.A. 7160, such schedule shall be prepared "by the provincial, city and
municipal assessors of the municipalities within the Metropolitan Manila area . . . ". Furthermore, they claim that

65

"Section 9 (of P.D. 921) merely supplement(ed) Section 15 of P.D. 464 in so far as the preparation of the schedule of
values in Metro Manila (is concerned)." Thus, "with the express repeal of P.D. 464 . . . P.D. 921 . . .can not therefore
exist independently on its own." They also argue that although the aforecited Supreme Court decision was
promulgated after R.A. 7160 took effect, "the assessment of the Municipal Assessors in those three (3) cited cases
were assessed in 1990 prior to the effectivity of the Code." Hence, the doctrine in said cases cannot be applied to
those prepared in 1994 under R.A. 7160.

We rule for petitioners.

R.A. 7160 has a repealing provision (Section 534) and, if the intention of the legislature was to abrogate P.D. 921, it
would have included it in such repealing clause, as it did in expressly rendering of no force and effect several other
presidential decrees. Hence, any repeal or modification of P.D. 921 can only be possible under par. (f) of said Section
534, as follows:

(f) All general and special laws, acts, city charter, decrees, executive orders, proclamations and administrative
regulations, part or parts thereof which are inconsistent with any of the provisions of the Code are hereby repealed or
modified accordingly.

and that the latter be inconsistent with the former. (Cf. Calderon v. Provincia del Santisimo Rosario, 28 Phil. 164
[1914]). There must be a showing of repugnancy clear and convincing in character. The language used in the latter
statute must be such as to render it irreconcilable with what has been formerly enacted. An inconsistency that falls
short of that standard does not suffice. What is needed is a manifest indication of the legislative purpose to repeal.
[Citing numerous cases]

More specifically, a subsequent statute, general in character as to its terms and application, is not to be construed as
repealing a special or specific enactment, unless the legislative purpose to do so is manifest. This is so even if the
provisions of the latter are sufficiently comprehensive to include what was set forth in the special act. This principle
has likewise been consistently applied in decisions of the Court from Manila Railroad Co. v. Rafferty (40 Phil 224),
decided as far back as 1919. A citation from an opinion of Justice Tuason is illuminating. Thus: "From another angle
the presumption against repeal is stronger. A special law is not regarded as having been amended or repealed by a
general law unless the intent to repeal or alter is manifest. Generalia specialibus non derogant. An this is true
although the terms of the general act are broad enough to include the matter in the special statute. . . . At any rate, in
the event harmony between provisions of this type in the same law or in two laws is impossible, the specific provision
controls unless the statute, considered in its entirety, indicates a contrary intention upon the part of the
legislature. . . . A general law is one which embraces a class of subjects or places and does not omit any subject or
place naturally belonging to such class, while a special act is one which relates to particular persons or things of a
class." (citing Valera v. Tuason, 80 Phil. 823, 827-828 [1948].)

64
The foregoing partakes of the nature of a general repealing provision. It is a basic rule of statutory construction that
repeals by implication are not favored. An implied repeal will not be allowed unless it is convincingly and
unambiguously demonstrated that the two laws are so clearly repugnant and patently inconsistent that they cannot
co-exist. This is based on the rationale that the will of the legislature cannot be overturned by the judicial function of
construction and interpretation. Courts cannot take the place of Congress in repealing statutes. Their function is to try
to harmonize, as much as possible, seeming conflicts in the laws and resolve doubts in favor of their validity and coexistence.

In Villegas v. Subido, 11 the issue raised before the Court was whether the Decentralization Act had the effect of
repealing what was specifically ordained in the Charter of the City of Manila. Under the Charter, it was provided in its
Section 22 that "The President of the Philippines with the consent of the Commission on Appointments shall appoint .
. . the City Treasurer and his Assistant." Under the Decentralization Act, it was provided that "All other employees,
except teachers paid out of provincial, city or municipal general funds and other local funds shall . . . be appointed by
the provincial governor, city or municipal mayor upon recommendation of the head of office concerned."

The Court, in holding that there was no implied repeal in this case 12 , said:

. . . It has been the constant holding of this Court that repeals by implication are not favored and will not be so
declared unless it be manifest that the legislature so intended. Such a doctrine goes as far back as United States v.
Reyes, a 1908 decision (10 Phil. 423, Cf. U.S. v. Academia, 10 Phil. 431 [1908]). It is necessary then before such a
repeal is deemed to exist that it be shown that the statutes or statutory provisions deal with the same subject matter

In the relatively recent case of Mecano vs. Commission on Audit 13 , the Court en banc had occasion to reiterate and
to reinforce the rule against implied repeals, as follows:

Repeal by implication proceeds on the premise that where a statute of later date clearly reveals an intention on the
part of the legislature to abrogate a prior act on the subject, that intention must be given effect. Hence, before there
can be a repeal, there must be a clear showing on the part of the law maker that the intent in enacting the new law
was to abrogate the old one. The intention to repeal must be clear and manifest; otherwise, at least, as a general
rule, the later act is to be construed as a continuation of, and not a substitute for, the first act and will continue so far
as the two acts are the same from the time of the first enactment.

There are two categories of repeal by implication. The first is where provisions in the two acts on the same subject
matter are in an irreconcilable conflict, the later act to the extent of the conflict constitutes an implied repeal of the
earlier one. The second is if the later act covers the whole subject of the earlier one and is clearly intended as a
substitute, it will operate to repeal the earlier law.

Implied repeal by irreconcilable inconsistency take place when the two statutes cover the same subject matter; they
are so clearly inconsistent and incompatible with each other that they cannot be reconciled or harmonized; and both
cannot be given effect, that is that one law cannot be enforced without nullifying the other.

66

In the same vein, but in different words, this Court ruled in Gordon vs. Veridiano 14 :

It is obvious that harmony in these provisions is not only possible, but in fact desirable, necessary and consistent
with the legislative intent and policy. By reading together and harmonizing these two provisions, we arrive at the
following steps in the preparation of the said schedule, as follows:

Courts of justice, when confronted with apparently conflicting statutes, should endeavor to reconcile the same
instead of declaring outright the invalidity of one as against the other. Such alacrity should be avoided. The wise
policy is for the judge to harmonize them if this is possible, bearing in mind that they are equally the handiwork of the
same legislature, and so give effect to both while at the same time also according due respect to a coordinate
department of the government. It is this policy the Court will apply in arriving at the interpretation of the laws abovecited and the conclusions that should follow therefrom.

1.
The assessor in each municipality or city in the Metropolitan Manila area shall prepare his/her proposed
schedule of values, in accordance with Sec. 212, R.A. 7160.

In the instant case, and using the Courts' standard for implied repeal in Mecano, we compared the two laws.

2.
Then, the Local Treasury and Assessment District shall meet, per Sec. 9, P.D. 921. In the instant case, that
district shall be composed of the assessors in Quezon City, Pasig, Marikina, Mandaluyong and San Juan, pursuant
to Sec. 1 of said P.D. In this meeting, the different assessors shall compare their individual assessments, discuss
and thereafter jointly agree and produce a schedule of values for their district, taking into account the preamble of
said P.D. that they should evolve "a progressive revenue raising program that will not unduly burden the taxpayers".

Presidential Decree No. 921 was promulgated on 12 April 1976, with the aim of, inter alia, evolving "a progressive
revenue raising program that will not unduly burden the tax payers . . . " 15 in Metropolitan Manila. Hence, it provided
for the "administration of local financial services in Metropolitan Manila" only, and for this purpose, divided the area
into four Local Treasury and Assessment Districts, regulated the duties and functions of the

treasurers and assessors in the cities and municipalities in said area and spelled out the process of assessing,
imposing and distributing the proceeds of real estate taxes therein.

Upon the other hand, Republic Act No. 7160, otherwise "known and cited as the Local 'Government Code of 1991'"
16 took effect on 01 January 1992 17. It declared "genuine and meaningful local autonomy" as a policy of the state.
Such policy was meant to decentralize government "powers, authority, responsibilities and resources" from the
national government to the local government units "to enable them to attain their fullest development as self-reliant
communities and make them more effective partners in the attainment of national goals." 18 In the formulation and
implementation of policies and measures on local autonomy, ''(l)ocal government units may group themselves,
consolidate or coordinate their efforts, services and resources for purposes commonly beneficial to them." 19

From the above, it is clear that the two laws are not co-extensive and mutually inclusive in their scope and purpose.
While R.A. 7160 covers almost all governmental functions delegated to local government units all over the country,
P.D. 921 embraces only the Metropolitan Manila area and is limited to the administration of financial services therein,
especially the assessment and collection of real estate (and some other local) taxes.

Coming down to specifics, Sec. 9 of P.D. 921 requires that the schedule of values of real properties in the
Metropolitan Manila area shall be prepared jointly by the city assessors in the districts created therein: while Sec.
212 of R.A. 7160 states that the schedule shall be prepared "by the provincial, city and municipal assessors of the
municipalities within the Metropolitan Manila Area for the different classes of real property situated in their respective
local government units for enactment by ordinance of the sanggunian concerned. . . ."

65

3. The schedule jointly agreed upon by the assessors shall then be published in a newspaper of general circulation
and submitted to the sanggunian concerned for enactment by ordinance, per Sec. 212, R.A. 7160.

By this harmonization, both the preamble of P.D. 921 decreeing that the real estate taxes shall "not unduly burden
the taxpayer" and the "operative principle of decentralization" provided under Sec. 3, R.A. 7160 encouraging local
government units to "consolidate or coordinate their efforts, services and resources" shall be fulfilled. Indeed the
essence of joint local action for common good so cherished in the Local Government Code finds concrete expression
in this harmonization.

How about respondents' claim that, with the express repeal of P.D. 464, P.D. 921 being merely a "supplement" of
said P.D. cannot "exist independently on its own"? Quite the contrary is true. By harmonizing P.D. 921 with R.A.
7160, we have just demonstrated that it can exist outside of P.D. 464, as a support, supplement and extension of
R.A. 7160, which for this purpose, has replaced P.D. 464.

Since it is now clear that P.D. 921 is still good law, it is equally clear that this Court's ruling in the
Mathay/Javier/Puyat-Reyes cases (supra) is still the prevailing and applicable doctrine. And, applying the said ruling
in the present case, it is likewise clear that the schedule of values prepared solely by the respondent municipal
assessor is illegal and void.

Re: The Second Issue:

67

Exhaustion of Administrative Remedies

We now come to the second issue. The provisions of Sections 226 and 252 of R.A. 7160 being material to this issue,
are set forth below:

Sec. 226. Local Board of Assessment Appeals. Any owner or person having legal interest in the property who is
not satisfied with the action of the provincial, city or municipal assessor in the assessment of his property may, within
sixty (60) days from the date of receipt of the written notice of assessment, appeal to the Board of Assessment
Appeals of the province or city by filing a petition under oath in the form prescribed for the purpose, together with
copies of the tax declarations and such affidavits or documents submitted in support of the appeal.

In laying down the powers of the Local Board of Assessment Appeals, R.A. 7160 provides in Sec. 229 (b) that "(t)he
proceedings of the Board shall be conducted solely for the purpose of ascertaining the facts . . . ." It follows that
appeals to this Board may be fruitful only where questions of fact are involved. Again, the protest contemplated
under Sec. 252 of R.A. 7160 is needed where there is a question as to the reasonableness of the amount assessed.
Hence, if a taxpayer disputes the reasonableness of an increase in a real estate tax assessment, he is required to
"first pay the tax" under protest. Otherwise, the city or municipal treasurer will not act on his protest. In the case at
bench however, the petitioners are questioning the very authority and power of the assessor, acting solely and
independently, to impose the assessment and of the treasurer to collect the tax. These are not questions merely of
amounts of the increase in the tax but attacks on the very validity of anyincrease.

Finally, it will be noted that in the consolidated cases of Mathay/Javier/Puyat-Reyes cited earlier, the Supreme Court
referred the petitions (which similarly questioned the schedules of market values prepared solely by the respective
assessors in the local government units concerned) to the Board of Assessment Appeal, not for the latter, to exercise
its appellate jurisdiction, but rather to act only as a fact-finding commission. Said the
Court 22 thru Chief Justice Andres R. Narvasa:

Sec. 252. Payment under Protest. (a) No protest shall be entertained unless the taxpayer first pays the tax. There
shall be annotated on the tax receipts the words "paid under protest". The protest in writing must be filed within thirty
(30) days from payment of the tax to the provincial, city treasurer or municipal treasurer, in the case of a municipality
within Metropolitan Manila Area, who shall decide the protest within sixty (60) days from receipt.

(b)

The tax or a portion thereof paid under protest shall be held in trust by the treasurer concerned.

(c)
In the event that the protest is finally decided in favor of the taxpayer, the amount or portion of the tax
protested shall be refunded to the protestant, or applied as tax credit against his existing or future tax liability.

(d)
In the event that the protest is denied or upon the lapse of the sixty-day period prescribed in subparagraph
(a), the taxpayer may avail of the remedies as provided for in Chapter 3, Title Two, Book II of this Code.

Respondents argue that this case is premature because petitioners neither appealed the questioned assessments
on their properties to the Board of Assessment Appeal, pursuant to Sec. 226, nor paid the taxes under protest, per
Sec. 252.

We do not agree. Although as a rule, administrative remedies must first be exhausted before resort to judicial action
can prosper, there is a well-settled exception in cases where the controversy does not involve questions of fact but
only of law. 20 In the present case, the parties, even during the proceedings in the lower court on 11 April 1994,
already agreed "that the issues in the petition are legal" 21 , and thus, no evidence was presented in said court.

66

On November 5, 1991, the Court issued a Resolution clarifying its earlier one of May 16, 1991. It pointed out that the
authority of the Central Board of Assessment Appeals "to take cognizance of the factual issues raised in these two
cases by virtue of the referral by this Court in the exercise of its extraordinary or certiorari jurisdiction should not be
confused with its appellate jurisdiction over appealed assessment cases under Section 36 of P.D. 464 otherwise
known as the Real Property Tax Code. The Board is not acting in its appellate jurisdiction in the instant cases but
rather, it is acting as a Court-appointed fact-finding commission to assist the Court in resolving the factual issues
raised in G.R. Nos. 97618 and 97760."

In other words, the Court gave due course to the petitions therein in spite of the fact that the petitioners had not,
apriori, exhausted administrative remedies by filing an appeal before said Board. Because there were factual issues
raised in the Mathay, et al. cases, the Supreme Court constituted the Central Board of Assessment Appeals as a
fact-finding body to assist the Court in resolving said factual issues. But in the instant proceedings, there are no such
factual issues. Therefore, there is no reason to require petitioners to exhaust the administrative remedies provided in
R.A. 7160, nor to mandate a referral by this Court to said Board.

Re: The Third Issue:

Constitutionality of the Assessments

68

Having already definitively disposed of the case through the resolution of the foregoing two issues, we find no more
need to pass upon the third. It is axiomatic that the constitutionality of a law, regulation, ordinance or act will not be
resolved by courts if the controversy can be, as in this case it has been, settled on other grounds. In the recent case
of Macasiano vs. National Housing Authority 23 , this Court declared:

It is a rule firmly entrenched in our jurisprudence that the constitutionality of an act of the legislature will not be
determined by the courts unless that question is properly raised and presented in appropriate cases and is
necessary to a determination of the case, i.e., the issue of constitutionality must be the very lis mota presented. To
reiterate, the essential requisites for a successful judicial inquiry into the constitutionality of a law are:

WHEREFORE, judgment is hereby rendered REVERSING and SETTING ASIDE the questioned Decision and Order
of respondent Judge, DECLARING as null and void the questioned Schedule of Market Values for properties in Pasig
City prepared by respondent Assessor, as well as the corresponding assessments and real estate tax increases
based thereon; and ENJOINING the respondent Treasurer from collecting the real estate tax increases made on the
basis of said Schedule and assessments. No costs.

SO ORDERED.

(a) the existence of an actual case or controversy involving a conflict of legal rights susceptible of judicial
determination, (b) the constitutional question must be raised by a proper party, (c) the constitutional question must be
raised at the earliest opportunity, and (d) the resolution of the constitutional question must be necessary to the
decision of the case. (emphasis supplied)

The aforequoted decision in Macasiano merely reiterated the ruling in Laurel vs. Garcia 24, where this Court held:

The Court does not ordinarily pass upon constitutional questions unless these questions are properly raised in
appropriate cases and their resolution is necessary for the determination of the case (People v. Vera, 65 Phil. 56
[1937]). The Court will not pass upon a constitutional question although properly presented by the record if the case
can be disposed of on some other ground such as the application of a statute or general law (Siler v. Louisville and
Nashville R. Co., 213 U.S. 175, [1909], Railroad Commission v. Pullman Co., 312 U.S. 496 [1941]). 25 (emphasis
supplied)

67

Coca-Cola Bottlers Phils. Inc. v. City of Manila

In view of the foregoing ruling, the question may be asked: what happens to real estate tax payments already made
prior to its promulgation and finality? Under the law 26 , "the taxpayer may file a written claim for refund or credit for
taxes and interests . . . ."
Republic of the Philippines
Finally, this Tribunal would be remiss in its duty as guardian of the judicial branch if we let pass unnoticed the ease
by which the respondent Judge consigned "to the statutes' graveyard" a legislative enactment "together with the
(three) decisions of the Supreme Court" promulgated jointly and unanimously en banc. An elementary regard for the
sacredness of laws and the stability of judicial doctrines laid down by superior authority should have constrained him
to be more circumspect in rendering his decision and to spell out carefully and precisely the reasons for his decision
to invalidate such acts, instead of imperiously decreeing an implied repeal. He knows or should have known the legal
precedents against implied repeals. Respondent Judge, in his decision, did not even make an attempt to try to
reconcile or harmonize the laws involved. Instead, he just unceremoniously swept them and this Court's decisions
into the dustbin of "judicial history." In his future acts and decisions, he is admonished to be more judicious in setting
aside established laws, doctrines and precedents.

SUPREME COURT

Manila

FIRST DIVISION

69

G.R. No. 156252

June 27, 2006

COCA-COLA BOTTLERS PHILIPPINES, INC., Petitioner, vs.

CITY OF MANILA, LIBERTY M. TOLEDO City Treasurer and JOSEPH SANTIAGO Chief, Licensing Division,
Respondents.

DECISION

the last paragraph thereof which reads: "PROVIDED, that all registered businesses in the City of Manila that are
already paying the aforementioned tax shall be exempted from payment thereof", which was deleted; that said
deletion would, in effect, impose additional business tax on businesses, including herein petitioner, that are already
subject to business tax under the other sections, specifically Sec. 14, of the New Revenue Code of the City of
Manila, which imposition, petitioner claims, "is beyond or exceeds the limitation on the taxing power of the City of
Manila under Sec. 143 (h) of the LGC of 1991; and that deletion is a palpable and manifest violation of the Local
Government Code of 1991, and the clear mandate of Article X, Sec. 5 of the 1987 Constitution, hence Section 21 is
"illegal and unconstitutional."

On 17 August 2000, then DOJ Secretary Artemio G. Tuquero issued a Resolution declaring Tax Ordinance No. 7988
null and void and without legal effect, the pertinent portions of which read:

After a judicious scrutiny of the records of this case, in the light of the pertinent provisions of the Local Government
Code of 1991, this Department finds for the petitioner.

CHICO-NAZARIO, J.:
The Local Government Code of 1991 provides:
Before Us is a Petition for Review on Certiorari under Rule 45 of the 1997 Rules of Civil Procedure, assailing the
Order1 of the Regional Trial Court (RTC) of Manila, Branch 21, dated 8 May 2002, dismissing petitioners Petition for
Injunction, and the Order2 dated 5 December 2002, denying petitioners Motion for Reconsideration.

Petitioner Coca-Cola Bottlers Philippines, Inc. is a corporation engaged in the business of manufacturing and selling
beverages and maintains a sales office located in the City of Manila.

On 25 February 2000, the City Mayor of Manila approved Tax Ordinance No. 7988, otherwise known as "Revised
Revenue Code of the City of Manila" repealing Tax Ordinance No. 7794 entitled, "Revenue Code of the City of
Manila." Tax Ordinance No. 7988 amended certain sections of Tax Ordinance No. 7794 by increasing the tax rates
applicable to certain establishments operating within the territorial jurisdiction of the City of Manila, including herein
petitioner.

Aggrieved by said tax ordinance, petitioner filed a Petition3 before the Department of Justice (DOJ), against the City
of Manila and its Sangguniang Panlungsod, invoking Section 1874 of the Local Government Code of 1991 (Republic
Act No. 7160). Said Petition questions the constitutionality or legality of Section 21 of Tax Ordinance No. 7988.
According to petitioner:

Section 21 of the Old Revenue Code of the City of Manila (Ordinance No. 7794, as amended) was reproduced
verbatim as Section 21 under the new Ordinance except for

"Section 188. Publication of Tax Ordinances and Revenue Measures. Within ten (10) days after their approval,
certified true copies of all provincial, city and municipal tax ordinances or revenue measures shall be published in full
for three (3) consecutive days in a newspaper of local circulation; Provided, however, that in provinces, cities, and
municipalities where there are no newspapers or local circulations the same may be posted in at least two (2)
conspicuous and publicly accessible places." (R.A. No. 7160) (stress supplied)

Upon the other hand, the Rules and Regulations Implementing the Local Government Code of 1991, insofar as
pertinent, mandates:

"Art. 277. Publication of Tax Ordinances and Revenue Measures. (a) within ten (10) days after their approval,
certified true copies of all provincial, city and municipal tax ordinances or revenue measures shall be published in full
for three (3) consecutive days in a newspaper of local circulation provided that in provinces, cities and municipalities
where there are no newspapers of local circulation, the same may be posted in at least two (2) conspicuous and
publicly accessible places.

If the tax ordinances or revenue measure contains penal provisions as authorized under Art. 279 of this Rule, the gist
of such tax ordinance or revenue measure shall be published in a newspaper of general circulation within the
province, posting of such ordinance or measure shall be made in accessible and conspicuous public places in all
municipalities and cities of the province to which the sanggunian enacting the ordinance or revenue measure
belongs.

68

70

xxx xxx xxx."

On 16 November 2000, Atty. Leonardo A. Aurelio wrote the Bureau of Local Government Finance (BLGF) requesting
in behalf of his client, Singer Sewing Machine Company, an

(emphasis ours)

It is clear from the above-quoted provisions of R.A. No. 7160 and its implementing rules that the requirement of
publication is MANDATORY and leaves no choice. The use of the word "shall" in both provisions is imperative,
operating to impose a duty that may be enforced (Soco v. Militante, 123 SCRA 160, 167; Modern Coach Corp. v.
Faver 173 SE 2d 497, 499).

Its essence is simply to inform the people and the entities who may likely be affected, of the existence of the tax
measure. It bears emphasis, that, strict observance of the said procedural requirement is the only safeguard against
any unjust and unreasonable exercise of the taxing powers by ensuring that the taxpayers are notified through
publication of the existence of the measure, and are therefore able to voice out their views or objections to the said
measure. For, after all, taxes are obligatory exactions or enforced contributions corollary to taking of property.

opinion on whether the Office of the City Treasurer of Manila has the right to enforce Tax Ordinance No. 7988 despite
the Resolution, dated 17 August 2000, of the DOJ Secretary. Acting on said letter, the BLGF Executive Director
issued an Indorsement on 20 November 2000 ordering the City Treasurer of Manila to "cease and desist" from
enforcing Tax Ordinance No. 7988. According to the BLGF:

In the attached Resolution dated August 17, 2000 of the Department of Justice, it is stated that "x x x Ordinance No.
7988 of the City of Manila is hereby declared NULL AND VOID AND WITHOUT LEGAL EFFECT for having been
enacted in contravention of the provisions of the Local Government Code of 1991 and its implementing rules and
regulations."

xxxx
xxxx

In the case at bar, respondents, by its failure to file their comments and present documentary evidence to show that
the mandatory requirement of law on publication, among other things, has been met, may be deemed to have
waived its right to controvert or dispute the documentary evidence submitted by petitioner which indubitably show
that subject tax ordinance was published only once, i.e., on the May 22, 2000 issue of the Philippine Post. Clearly,
therefore, herein respondents failed to satisfy the requirement that said ordinance shall be published for three (3)
consecutive days as required by law.

In view thereof, that Office is hereby instructed to cease and desist from implementing the aforementioned Manila
Tax Ordinance No. 7988, inviting attention to Section 190 of the Local Government Code (LGC) of 1991, quoted
hereunder:

"Section 190. Attempt to Enforce Void or Suspended Tax Ordinances and Revenue Measures.- The enforcement of
any tax ordinance or revenue measures after due notice of the disapproval or suspension thereof shall be sufficient
ground to administrative disciplinary action against the local officials and employees responsible therefore."

xxxx
Be guided accordingly.6
In view of the foregoing, we find it unnecessary to pass upon the other issues raised by the petitioner.

WHEREFORE, premises considered, Tax Ordinance No. 7988 of the City of Manila is hereby declared NULL and
VOID and WITHOUT LEGAL EFFECT for having been enacted in contravention of the provisions of the Local
Government Code of 1991 and its implementing rules and regulations.5

The City of Manila failed to file a Motion for Reconsideration nor lodge an appeal of said Resolution, thus, said
Resolution of the DOJ Secretary declaring Tax Ordinance No. 7988 null and void has lapsed into finality.

Despite the Resolution of the DOJ declaring Tax Ordinance No. 7988 null and void and the directive of the BLGF that
respondents cease and desist from enforcing said tax ordinance, respondents continued to assess petitioner
business tax for the year 2001 based on the tax rates prescribed under Tax Ordinance No. 7988. Thus, petitioner
filed a Complaint with the RTC of Manila, Branch 21, on 17 January 2001, praying that respondents be enjoined from
implementing the aforementioned tax ordinance.

On 28 November 2001, the RTC of Manila, Branch 21, rendered a Decision in favor of petitioner, the decretal portion
of which states:

71

The defendants did not follow the procedure in the enactment of Tax Ordinance No. 7988. The Court agrees with
plaintiffs contention that the ordinance should first be published for three (3) consecutive days in a newspaper of
local circulation aside from the posting of the same in at least four (4) conspicuous public places.

xxxx

x x x [T]he only logical conclusion, therefore, is that Ordinance No. 8011, subject herein, is also null and void, it being
a mere amendatory ordinance of Ordinance No. 7988 which, as earlier stated, had been nullified by this Department.
An invalid or unconstitutional law or ordinance does not, in legal contemplation, exist (Manila Motors Co., Inc. vs.
Flores, 99 Phil. 738). Where a statute which has been amended is invalid, nothing, in effect, has been amended. As
held in People vs. Lim, 108 Phil. 1091:

"If an order or law sought to be amended is invalid, then it does not legally exist. There would be no occasion or
need to amend it; x x x" (at p. 1097)

69

Instead of amending Ordinance No. 7988, herein respondent should have enacted another tax measure which
strictly complies with the requirements of law, both procedural and substantive. The passage of the assailed
ordinance did not have the effect of curing the defects of Ordinance No. 7988 which, any way, does not legally exist.

xxxx
WHEREFORE, premises considered, judgment is hereby rendered declaring the injunction permanent. Defendants
are enjoined from implementing Tax Ordinance No. 7988. The bond posted by the plaintiff is hereby CANCELLED.7

During the pendency of the said case, the City Mayor of Manila approved on 22 February 2001 Tax Ordinance No.
8011 entitled, "An Ordinance Amending Certain Sections of Ordinance No. 7988." Said tax ordinance was again
challenged by petitioner before the DOJ through a Petition questioning the legality of the aforementioned tax
ordinance on the grounds that (1) said tax ordinance amends a tax ordinance previously declared null and void and
without legal effect by the DOJ; and (2) said tax ordinance was likewise not published upon its approval in
accordance with Section 188 of the Local Government Code of 1991.

On 5 July 2001, then DOJ Secretary Hernando Perez issued a Resolution declaring Tax Ordinance No. 8011 null and
void and legally not existing. According to the DOJ Secretary:

After a careful examination/evaluation of the records of this case and applying the pertinent provisions of the Local
Government Code of 1991, this Department finds the instant petition of Coca-Cola Bottlers, Philippines, Inc.
meritorious.

WHEREFORE, premises considered, Tax Ordinance No. 8011 is hereby declared NULL and VOID and LEGALLY
NOT EXISTING.8

Respondents Motion for Reconsideration of the Resolution of the DOJ was subsequently denied in a
Resolution,9dated 12 March 2002.

The City of Manila appealed the DOJ Resolution, dated 12 March 2002, denying its Motion for Reconsideration of
the Resolution nullifying Tax Ordinance No. 8011 before the RTC of Manila, Branch 17, but the same was dismissed
for lack of jurisdiction in an Order, dated 2 December 2002. According to the trial court:

From whatever angle the recourse of herein petitioners was viewed, either from the standpoint of Section 1, Rule 43,
or Section 1 and the last sentence of the second paragraph of Section 4, Rule 65 of the 1997 Rules of Civil
Procedure, the conclusion was inevitable that petitioners remedial measure from dispositions of the Secretary of
Justice should have been ventilated before the next judicial plane. x x x

It bears stress, at the outset, that the subject ordinance was passed and approved by the respondents principally to
amend Ordinance No. 7988 which was earlier nullified by this Department in its Resolution Dated August 17, 2000,
also at the instance of the herein petitioner. x x x
Accordingly, by reason of the foregoing premises, Civil Case No. 02-103372 for "Certiorari" is DISMISSED.

xxxx

72

Consequently, respondents appealed the foregoing Order, dated 2 December 2002, via a Petition for Review on
Certiorari to the Supreme Court docketed as G.R. No. 157490. However, said appeal was dismissed in our
Resolution, dated 23 June 2003, the dispositive of which reads:

Pursuant to Rule 45 and other related provisions of the 1997 Rules of Civil Procedure as amended governing
appeals by certiorari to the Supreme Court, only petitions which are accompanied by or which comply strictly with the
requirements specified therein shall be entertained. On the basis thereof, the Court resolves to DENY the instant
petition for review on certiorari of the orders of the Regional Trial Court, Manila, Branch 17 dated December 2, 2002
and March 7, 2003 for the late filing as the petition was filed beyond the reglementary period of fifteen (15) days fixed
in Sec. 2, Rule 45 in relation to Sec. 5(a), Rule 56.

The omnibus motion of petitioners for reconsideration of the resolution of April 23, 2003 which denied the motion for
an extension of time to file a petition is DENIED for lack of merit.

Respondents Motion for Reconsideration was subsequently denied in a Resolution, dated 11 August 2003, in which
the Court resolved as follows:

Acting on the motion of petitioners for reconsideration of the resolution of June 23, 2003 which denied the petition for
review on certiorari and considering that there is no

Petitioners Motion for Reconsideration of the abovequoted Order was denied by the trial court in the second
challenged Order, dated 5 December 2002; hence the instant Petition.

The case at bar revolves around the sole pivotal issue of whether or not Tax Ordinance No. 7988 is null and void and
of no legal effect. However, respondents, in their Comment and Memorandum, raise the procedural issue of whether
or not the instant Petition has complied with the requirements of the 1997 Rules on Civil Procedure; thus, the Court
resolves to first pass upon this issue before tackling the substantial matters involved in this case.

Respondents insist that the instant Petition raises questions of fact that are proscribed under Rule 45 of the 1997
Rules of Civil Procedure which states that Petitions for Certiorari before the Supreme Court shall raise only questions
of law. We do not agree. There is a question of fact when doubt or controversy arises as to the truth or falsity of the
alleged facts, when there is no dispute as to fact, the question of whether or not the conclusion drawn therefrom is
correct is a question of law.11 A thorough reading of the Petition will reveal that petitioner does not present an issue
in which we are called to rule on the truth or falsity of any fact alleged in the case. Furthermore, the resolution of
whether or not the court a quo erred in dismissing petitioners case in light of the enactment of Tax Ordinance No.
8011, allegedly amending Tax Ordinance No. 7988, does not necessitate an incursion into the facts attending the
case.

Contrarily, it is respondents who actually raise questions of fact before us. While accusing petitioner of raising
questions of fact, respondents, in the same breath, proceeded to allege that the RTC of Manila, Branch 21, in its
Decision, dated 28 November 2001, failed to take into account the evidence presented by respondents allegedly
proving that Tax Ordinance No. 7988 was published for four times in a newspaper of general circulation in
accordance with the requirements of law. A determination of whether or not the trial court erred in concluding that Tax
Ordinance No.

70

compelling reason to warrant a modification of this Courts resolution, the Court resolves to DENY reconsideration
with FINALITY.

Meanwhile, on the basis of the enactment of Tax Ordinance No. 8011, the City of Manila filed a Motion for
Reconsideration with the RTC of Manila, Branch 21, of its Decision, dated 28 November 2001, which the court a quo
granted in the herein assailed Order dated 8 May 2002, the full text of which reads:

Considering that Ordinance No. 7988 (Amended Revenue Code of the City of Manila) has already been amended by
Ordinance No. 8011 entitled "An Ordinance Amending Certain Sections of Ordinance No. 7988" approved by the City
Mayor of Manila on February 22, 2001, let the above-entitled case be as it is hereby DISMISSED. Without
pronouncement as to costs."10

7988 was indeed published for four times in a newspaper of general circulation would clearly involve a calibration of
the probative value of the evidence presented by respondents to prove such allegation. Therefore, said issue is a
question of fact which this Court, not being a trier of facts, will decline to pass upon.

Respondents also point out that the Petition was not properly verified and certified because Nelson Empalmado, the
Vice President for Tax and Financial Services of Coca-Cola Bottlers Philippines, Inc. who verified the subject Petition
was not duly authorized to file said Petition. Respondents assert that nowhere in the attached Secretarys Certificate
can it be found the authority of Nelson Empalmado to institute the instant Petition. Thus, there being a lack of proper
verification, respondents contend that the Petition must be treated as a mere scrap of paper, which has no legal
effect as declared in Section 4, Rule 7 of the 1997 Rules of Civil Procedure.

An inspection of the Secretarys Certificate attached to the petition will show that Nelson Empalmado is not among
those designated as representative to prosecute claims in behalf of Coca-Cola Bottlers Philippines, Inc. However, it
would seem that the authority of Mr. Empalmado to file the instant Petition emanated from a Special Power of
Attorney signed by Ramon V. Lapez, Jr., Associate Legal Counsel/Assistant Corporate Secretary of Coca-Cola
Bottlers Philippines, Inc. and one of those named in the Secretarys Certificate as authorized to file a Petition in

73

behalf of the corporation. A careful perusal of said Secretarys Certificate will further reveal that the persons
authorized therein to represent petitioner corporation in any suit are also empowered to designate and appoint any
individual as attorney-in-fact of the corporation for the prosecution of any suit. Accordingly, by virtue of the Special
Power of Attorney executed by Ramon V. Lapez, Jr. authorizing Nelson Emplamado to file a Petition before the
Supreme Court, the instant Petition has been properly verified, in accordance with the 1997 Rules of Civil Procedure.

amended Tax Ordinance No. 7988. As held by this Court in the case of People v. Lim,12 if an order or law sought to
be amended is invalid, then it does not legally exist, there should be no occasion or need to amend it.13

WHEREFORE, premises considered, the instant Petition is hereby GRANTED. The Orders of the RTC of Manila,
Branch 21, dated 8 May 2002 and 5 December 2002, respectively, are hereby REVERSED and SET ASIDE.
Having disposed of the procedural issues raised by respondents, We now come to the pivotal issue in this petition.
SO ORDERED.
It is undisputed from the facts of the case that Tax Ordinance No. 7988 has already been declared by the DOJ
Secretary, in its Order, dated 17 August 2000, as null and void and without legal effect due to respondents failure to
satisfy the requirement that said ordinance be published for three consecutive days as required by law. Neither is
there quibbling on the fact that the said Order of the DOJ was never appealed by the City of Manila, thus, it had
attained finality after the lapse of the period to appeal.

Furthermore, the RTC of Manila, Branch 21, in its Decision dated 28 November 2001, reiterated the findings of the
DOJ Secretary that respondents failed to follow the procedure in the enactment of tax measures as mandated by
Section 188 of the Local Government Code of 1991, in that they failed to publish Tax Ordinance No. 7988 for three
consecutive days in a newspaper of local circulation. From the foregoing, it is evident that Tax Ordinance No. 7988 is
null and void as said ordinance was published
71

only for one day in the 22 May 2000 issue of the Philippine Post in contravention of the unmistakable directive of the
Local Government Code of 1991.

Despite the nullity of Tax Ordinance No. 7988, the court a quo, in the assailed Order, dated 8 May 2002, went on to
dismiss petitioners case on the force of the enactment of Tax Ordinance No. 8011, amending Tax Ordinance No.
7988. Significantly, said amending ordinance was likewise declared null and void by the DOJ Secretary in a
Resolution, dated 5 July 2001, elucidating that "[I]nstead of amending Ordinance No. 7988, [herein] respondent
should have enacted another tax measure which strictly complies with the requirements of law, both procedural and
substantive. The passage of the assailed ordinance did not have the effect of curing the defects of Ordinance No.
7988 which, any way, does not legally exist." Said Resolution of the DOJ Secretary had, as well, attained finality by
virtue of the dismissal with finality by this Court of respondents Petition for Review on Certiorari in G.R. No. 157490
assailing the dismissal by the RTC of Manila, Branch 17, of its appeal due to lack of jurisdiction in its Order, dated 11
August 2003.

Based on the foregoing, this Court must reverse the Order of the RTC of Manila, Branch 21, dismissing petitioners
case as there is no basis in law for such dismissal. The amending law, having been declared as null and void, in
legal contemplation, therefore, does not exist. Furthermore, even if Tax Ordinance No. 8011 was not declared null
and void, the trial court should not have dismissed the case on the reason that said tax ordinance had already

72

City of Manila v. Coca-Cola

Republic of the Philippines

74

SUPREME COURT

The case stemmed from the following facts:

Manila

Prior to 25 February 2000, respondent had been paying the City of Manila local business tax only under Section 14
of Tax Ordinance No. 7794,6 being expressly exempted from

THIRD DIVISION

G.R. No. 181845

August 4, 2009

THE CITY OF MANILA, LIBERTY M. TOLEDO, in her capacity as THE TREASURER OF MANILA and JOSEPH
SANTIAGO, in his capacity as the CHIEF OF THE LICENSE DIVISION OF CITY OF MANILA,petitioners,

the business tax under Section 21 of the same tax ordinance. Pertinent provisions of Tax Ordinance No. 7794
provide:

Section 14. Tax on Manufacturers, Assemblers and Other Processors. There is hereby imposed a graduated tax
on manufacturers, assemblers, repackers, processors, brewers, distillers, rectifiers, and compounders of liquors,
distilled spirits, and wines or manufacturers of any article of commerce of whatever kind or nature, in accordance
with any of the following schedule:

vs.
xxxx
COCA-COLA BOTTLERS PHILIPPINES, INC., Respondent.
over P6,500,000.00 up to
DECISION
P25,000,000.00 - - - - - - - - - - - - - - - - - - - -- P36,000.00 plus 50% of 1%
CHICO-NAZARIO, J.:
in excess of P6,500,000.00
This case is a Petition for Review on Certiorari under Rule 45 of the Revised Rules of Civil Procedure seeking to
review and reverse the Decision1 dated 18 January 2008 and Resolution2 dated 18 February 2008 of the Court of
Tax Appeals en banc (CTA en banc) in C.T.A. EB No. 307. In its assailed Decision, the CTA en banc dismissed the
Petition for Review of herein petitioners City of Manila, Liberty M. Toledo (Toledo), and Joseph Santiago (Santiago);
and affirmed the Resolutions dated 24 May 2007,3 8 June 2007,4 and 26 July 2007,5 of the CTA First Division in
C.T.A. AC No. 31, which, in turn, dismissed the Petition for Review of petitioners in said case for being filed out of
time. In its questioned Resolution, the CTA en banc denied the Motion for Reconsideration of petitioners.

Petitioner City of Manila is a public corporation empowered to collect and assess business taxes, revenue fees, and
permit fees, through its officers, petitioners Toledo and Santiago, in their capacities as City Treasurer and Chief of the
Licensing Division, respectively. On the other hand, respondent Coca-Cola Bottlers Philippines, Inc. is a corporation
engaged in the business of manufacturing and selling beverages, and which maintains a sales office in the City of
Manila.

xxxx

Section 21. Tax on Businesses Subject to the Excise, Value-Added or Percentage Taxes under the NIRC. On any
of the following businesses and articles of commerce subject to excise, value-added or percentage taxes under the
National Internal Revenue Code hereinafter referred to as NIRC, as amended, a tax of FIFTY PERCENT (50%) of
ONE PERCENT (1%) per annum on the gross sales or receipts of the preceding calendar year is hereby imposed:

(A) On persons who sell goods and services in the course of trade or business; and those who import goods whether
for business or otherwise; as provided for in Sections 100 to 103 of the NIRC as administered and determined by the
Bureau of Internal Revenue pursuant to the pertinent provisions of the said Code.

75

xxxx

(D) Excisable goods subject to VAT

(1)

(2)

However, before the Court could declare Tax Ordinance No. 7988 and Tax Ordinance No. 8011 null and void,
petitioner City of Manila assessed respondent on the basis of Section 21 of Tax Ordinance No. 7794, as amended by
the aforementioned tax ordinances, for deficiency local business taxes, penalties, and interest, in the total amount of
P18,583,932.04, for the third and fourth quarters of the year 2000. Respondent filed a protest with petitioner Toledo
on the ground that the said assessment amounted to double taxation, as respondent was taxed twice, i.e., under
Sections 14 and 21 of Tax Ordinance No. 7794, as amended by Tax Ordinances No. 7988 and No. 8011. Petitioner
Toledo did not respond to the protest of respondent.

Distilled spirits

Wines

xxxx

(8)

Coal and coke

(9)

Fermented liquor, brewers wholesale price, excluding the ad valorem tax

Consequently, respondent filed with the Regional Trial Court (RTC) of Manila, Branch 47, an action for the
cancellation of the assessment against respondent for business taxes, which was docketed as Civil Case No. 03107088.

On 14 July 2006, the RTC rendered a Decision9 dismissing Civil Case No. 03-107088. The RTC ruled that the
business taxes imposed upon the respondent under Sections 14 and 21 of Tax Ordinance No. 7988, as amended,
were not of the same kind or character; therefore, there was no double taxation. The RTC, though, in an Order10
dated 16 November 2006, granted the Motion for Reconsideration of respondent, decreed the cancellation and
withdrawal of the assessment against the latter, and barred petitioners from further imposing/assessing local
business taxes against respondent under Section 21 of Tax Ordinance No. 7794, as amended by Tax Ordinance No.
7988 and Tax Ordinance No. 8011. The 16 November 2006 Decision of the RTC was in conformity with

73

xxxx

PROVIDED, that all registered businesses in the City of Manila that are already paying the aforementioned tax shall
be exempted from payment thereof.

Petitioner City of Manila subsequently approved on 25 February 2000, Tax Ordinance No. 7988,7 amending certain
sections of Tax Ordinance No. 7794, particularly: (1) Section 14, by increasing the tax rates applicable to certain
establishments operating within the territorial jurisdiction of the City of Manila; and (2) Section 21, by deleting the
proviso found therein, which stated "that all registered businesses in the City of Manila that are already paying the
aforementioned tax shall be exempted from payment thereof." Petitioner City of Manila approved only after a year, on
22 February 2001, another tax ordinance, Tax Ordinance No. 8011, amending Tax Ordinance No. 7988.

the ruling of this Court in the Coca-Cola case, in which Tax Ordinance No. 7988 and Tax Ordinance No. 8011 were
declared null and void. The Motion for Reconsideration of petitioners was denied by the RTC in an Order11 dated 4
April 2007. Petitioners received a copy of the 4 April 2007 Order of the RTC, denying their Motion for
Reconsideration of the 16 November 2006 Order of the same court, on 20 April 2007.

On 4 May 2007, petitioners filed with the CTA a Motion for Extension of Time to File Petition for Review, praying for a
15-day extension or until 20 May 2007 within which to file their Petition. The Motion for Extension of petitioners was
docketed as C.T.A. AC No. 31, raffled to the CTA First Division.

Again, on 18 May 2007, petitioners filed, through registered mail, a Second Motion for Extension of Time to File a
Petition for Review, praying for another 10-day extension, or until 30 May 2007, within which to file their Petition.

On 24 May 2007, however, the CTA First Division already issued a Resolution dismissing C.T.A. AC No. 31 for failure
of petitioners to timely file their Petition for Review on 20 May 2007.
Tax Ordinances No. 7988 and No. 8011 were later declared by the Court null and void in Coca-Cola Bottlers
Philippines, Inc. v. City of Manila8 (Coca-Cola case) for the following reasons: (1) Tax Ordinance No. 7988 was
enacted in contravention of the provisions of the Local Government Code (LGC) of 1991 and its implementing rules
and regulations; and (2) Tax Ordinance No. 8011 could not cure the defects of Tax Ordinance No. 7988, which did
not legally exist.

76

Unaware of the 24 May 2007 Resolution of the CTA First Division, petitioners filed their Petition for Review therewith
on 30 May 2007 via registered mail. On 8 June 2007, the CTA First Division issued another Resolution, reiterating
the dismissal of the Petition for Review of petitioners.

Petitioners moved for the reconsideration of the foregoing Resolutions dated 24 May 2007 and 8 June 2007, but their
motion was denied by the CTA First Division in a Resolution dated 26 July 2007. The CTA First Division reasoned
that the Petition for Review of petitioners was not only filed out of time -- it also failed to comply with the provisions of
Section 4, Rule 5; and Sections 2 and 3, Rule 6, of the Revised Rules of the CTA.

Petitioners thereafter filed a Petition for Review before the CTA en banc, docketed as C.T.A. EB No. 307, arguing
that the CTA First Division erred in dismissing their Petition for Review in C.T.A. AC No. 31 for being filed out of time,
without considering the merits of their Petition.

The CTA en banc rendered its Decision on 18 January 2008, dismissing the Petition for Review of petitioners and
affirming the Resolutions dated 24 May 2007, 8 June 2007, and 26 July 2007 of the CTA First Division. The CTA en
banc similarly denied the Motion for Reconsideration of petitioners in a Resolution dated 18 February 2008.

Hence, the present Petition, where petitioners raise the following issues:

74

I. WHETHER OR NOT PETITIONERS SUBSTANTIALLY COMPLIED WITH THE REGLEMENTARY PERIOD TO

TIMELY APPEAL THE CASE FOR REVIEW BEFORE THE [CTA DIVISION].

II. WHETHER OR NOT THE RULING OF THIS COURT IN THE EARLIER [COCA-COLA CASE] IS DOCTRINAL
AND CONTROLLING IN THE INSTANT CASE.

III. WHETHER OR NOT PETITIONER CITY OF MANILA CAN STILL ASSESS TAXES UNDER [SECTIONS] 14 AND
21 OF [TAX ORDINANCE NO. 7794, AS AMENDED].

IV. WHETHER OR NOT THE ENFORCEMENT OF [SECTION] 21 OF THE [TAX ORDINANCE NO. 7794, AS
AMENDED] CONSTITUTES DOUBLE TAXATION.

Petitioners assert that Section 1, Rule 712 of the Revised Rules of the CTA refers to certain provisions of the Rules
of Court, such as Rule 42 of the latter, and makes them applicable to the tax court. Petitioners then cannot be faulted
in relying on the provisions of Section 1, Rule 4213 of the Rules of Court as regards the period for filing a Petition for
Review with the CTA in division. Section 1, Rule 42 of the Rules of Court provides for a 15-day period, reckoned from
receipt of the adverse decision of the trial court, within which to file a Petition for Review with the Court of Appeals.
The same rule allows an additional 15-day period within which to file such a Petition; and, only for the most
compelling reasons, another extension period not to exceed 15 days. Petitioners received on 20 April 2007 a copy of
the 4 April 2007 Order of the RTC, denying their Motion for Reconsideration of the 16 November 2006 Order of the
same court. On 4 May 2007, believing that they only had 15 days to file a Petition for Review with the CTA in division,
petitioners moved for a 15-day extension, or until 20 May 2007, within which to file said Petition. Prior to the lapse of
their first extension period, or on 18 May 2007, petitioners again moved for a 10-day extension, or until 30 May 2007,
within which to file their Petition for Review. Thus, when petitioners filed their Petition for Review with the CTA First
Division on 30 May 2007, the same was filed well within the reglementary period for doing so.

Petitioners argue in the alternative that even assuming that Section 3(a), Rule 814 of the Revised Rules of the CTA
governs the period for filing a Petition for Review with the CTA in division, still, their Petition for Review was filed
within the reglementary period. Petitioners call attention to the fact that prior to the lapse of the 30-day period for
filing a Petition for Review under Section 3(a), Rule 8 of the Revised Rules of the CTA, they had already moved for a
10-day extension, or until 30 May 2007, within which to file their Petition. Petitioners claim that there was sufficient
justification in equity for the grant of the 10-day extension they requested, as the primordial consideration should be
the substantive, and not the procedural, aspect of the case. Moreover, Section 3(a), Rule 8 of the Revised Rules of
the CTA, is silent as to whether the 30-day period for filing a Petition for Review with the CTA in division may be
extended or not.

Petitioners also contend that the Coca-Cola case is not determinative of the issues in the present case because the
issue of nullity of Tax Ordinance No. 7988 and Tax Ordinance No. 8011 is not the lis mota herein. The Coca-Cola
case is not doctrinal and cannot be considered as the law of the case.

Petitioners further insist that notwithstanding the declaration of nullity of Tax Ordinance No. 7988 and Tax Ordinance
No. 8011, Tax Ordinance No. 7794 remains a valid piece of local legislation. The nullity of Tax Ordinance No. 7988
and Tax Ordinance No. 8011 does not effectively bar petitioners from imposing local business taxes upon respondent
under Sections 14 and 21 of Tax Ordinance No. 7794, as they were read prior to their being amended by the
foregoing null and void tax ordinances.

Petitioners finally maintain that imposing upon respondent local business taxes under both Sections 14 and 21 of Tax
Ordinance No. 7794 does not constitute direct double taxation. Section 143 of the LGC gives municipal, as well as
city governments, the power to impose business taxes, to wit:

SECTION 143. Tax on Business. The municipality may impose taxes on the following businesses:

77

(a) On manufacturers, assemblers, repackers, processors, brewers, distillers, rectifiers, and compounders of liquors,
distilled spirits, and wines or manufacturers of any article of commerce of whatever kind or nature, in accordance
with the following schedule:

(h)
On any business, not otherwise specified in the preceding paragraphs, which the sanggunian concerned
may deem proper to tax: Provided, That on any business subject to the excise, value-added or percentage tax under
the National Internal Revenue Code, as amended, the rate of tax shall not exceed two percent (2%) of gross sales or
receipts of the preceding calendar year.

xxxx

(b) On wholesalers, distributors, or dealers in any article of commerce of whatever kind or nature in accordance with
the following schedule:

xxxx

Section 14 of Tax Ordinance No. 7794 imposes local business tax on manufacturers, etc. of liquors, distilled spirits,
wines, and any other article of commerce, pursuant to Section 143(a) of the LGC. On the other hand, the local
business tax under Section 21 of Tax Ordinance No. 7794 is imposed upon persons selling goods and services in the
course of trade or business, and those importing goods for business or otherwise, who, pursuant to Section 143(h) of
the LGC, are subject to excise tax, value-added tax (VAT), or percentage tax under the National Internal Revenue
Code (NIRC). Thus, there can be no double taxation when respondent is being taxed under both Sections 14 and 21
of Tax Ordinance No. 7794, for under the first, it is being taxed as a manufacturer; while under the second, it is being
taxed as a person selling goods in the course of trade or business subject to excise, VAT, or percentage tax.

(c) On exporters, and on manufacturers, millers, producers, wholesalers, distributors, dealers or retailers of essential
commodities enumerated hereunder at a rate not exceeding one-half (1/2) of the rates prescribed under subsections
(a), (b) and (d) of this Section:

The Court first addresses the issue raised by petitioners concerning the period within which to file with the CTA a
Petition for Review from an adverse decision or ruling of the RTC.

xxxx

The period to appeal the decision or ruling of the RTC to the CTA via a Petition for Review is specifically governed by
Section 11 of Republic Act No. 9282,15 and Section 3(a), Rule 8 of the Revised Rules of the CTA.

Provided, however, That barangays shall have the exclusive power to levy taxes, as provided under Section 152
hereof, on gross sales or receipts of the preceding calendar year of Fifty thousand pesos (P50,000.00) or less, in the
case of cities, and Thirty thousand pesos (P30,000) or less, in the case of municipalities.

Section 11 of Republic Act No. 9282 provides:

(e) On contractors and other independent contractors, in accordance with the following schedule:

SEC. 11. Who May Appeal; Mode of Appeal; Effect of Appeal. Any party adversely affected by a decision, ruling or
inaction of the Commissioner of Internal Revenue, the Commissioner of Customs, the Secretary of Finance, the
Secretary of Trade and Industry or the Secretary of Agriculture or the Central Board of Assessment Appeals or the
Regional Trial Courts may file an Appeal with the CTA within thirty (30) days after the

75

xxxx
receipt of such decision or ruling or after the expiration of the period fixed by law for action as referred to in Section
7(a)(2) herein.
(f)
On banks and other financial institutions, at a rate not exceeding fifty percent (50%) of one percent (1%)
on the gross receipts of the preceding calendar year derived from interest, commissions and discounts from lending
activities, income from financial leasing, dividends, rentals on property and profit from exchange or sale of property,
insurance premium.

Appeal shall be made by filing a petition for review under a procedure analogous to that provided for under Rule 42
of the 1997 Rules of Civil Procedure with the CTA within thirty (30) days from the receipt of the decision or ruling or in
the case of inaction as herein provided, from the expiration of the period fixed by law to act thereon. x x x. (Emphasis
supplied.)

(g)
On peddlers engaged in the sale of any merchandise or article of commerce, at a rate not exceeding Fifty
pesos (P50.00) per peddler annually.

78

Section 3(a), Rule 8 of the Revised Rules of the CTA states:

In this case, the CTA First Division did indeed err in finding that petitioners failed to file their Petition for Review in
C.T.A. AC No. 31 within the reglementary period.
SEC 3. Who may appeal; period to file petition. (a) A party adversely affected by a decision, ruling or the inaction of
the Commissioner of Internal Revenue on disputed assessments or claims for refund of internal revenue taxes, or by
a decision or ruling of the Commissioner of Customs, the Secretary of Finance, the Secretary of Trade and Industry,
the Secretary of Agriculture, or a Regional Trial Court in the exercise of its original jurisdiction may appeal to the
Court by petition for review filed within thirty days after receipt of a copy of such decision or ruling, or expiration of
the period fixed by law for the Commissioner of Internal Revenue to act on the disputed assessments. x x x.
(Emphasis supplied.)

It is crystal clear from the afore-quoted provisions that to appeal an adverse decision or ruling of the RTC to the CTA,
the taxpayer must file a Petition for Review with the CTA within 30 days from receipt of said adverse decision or
ruling of the RTC.

It is also true that the same provisions are silent as to whether such 30-day period can be extended or not. However,
Section 11 of Republic Act No. 9282 does state that the Petition for Review shall be filed with the CTA following the
procedure analogous to Rule 42 of the Revised Rules of Civil Procedure. Section 1, Rule 4216 of the Revised Rules
of Civil Procedure provides that the Petition for Review of an adverse judgment or final order of the RTC must be
filed with the Court of Appeals within: (1) the original 15-day period from receipt of the judgment or final order to be
appealed; (2) an extended period of 15 days from the lapse of the original period; and (3) only for the most
compelling reasons, another extended period not to exceed 15 days from the lapse of the first extended period.

Following by analogy Section 1, Rule 42 of the Revised Rules of Civil Procedure, the 30-day original period for filing
a Petition for Review with the CTA under Section 11 of Republic Act No. 9282, as implemented by Section 3(a), Rule
8 of the Revised Rules of the CTA, may be extended for a period of 15 days. No further extension shall be allowed
thereafter, except only for the most compelling reasons, in which case the extended period shall not exceed 15 days.

From 20 April 2007, the date petitioners received a copy of the 4 April 2007 Order of the RTC, denying their Motion
for Reconsideration of the 16 November 2006 Order, petitioners had 30 days, or until 20 May 2007, within which to
file their Petition for Review with the CTA. Hence, the Motion for Extension filed by petitioners on 4 May 2007
grounded on their belief that the reglementary period for filing their Petition for Review with the CTA was to expire on
5 May 2007, thus, compelling them to seek an extension of 15 days, or until 20 May 2007, to file said Petition was
unnecessary and superfluous. Even without said Motion for Extension, petitioners could file their Petition for Review
until 20 May 2007, as it was still within the 30-day reglementary period provided for under Section 11 of Republic Act
No. 9282; and implemented by Section 3(a), Rule 8 of the Revised Rules of the CTA.

The Motion for Extension filed by the petitioners on 18 May 2007, prior to the lapse of the 30-day reglementary
period on 20 May 2007, in which they prayed for another extended period of 10 days, or until 30 May 2007, to file
their Petition for Review was, in reality, only the first Motion for Extension of petitioners. The CTA First Division
should have granted the same, as it was sanctioned by the rules of procedure. In fact, petitioners were only praying
for a 10-day extension, five days less than the 15-day extended period allowed by the rules. Thus, when petitioners
filed via registered mail their Petition for Review in C.T.A. AC No. 31 on 30 May 2007, they were able to comply with
the reglementary period for filing such a petition.

Nevertheless, there were other reasons for which the CTA First Division dismissed the Petition for Review of
petitioners in C.T.A. AC No. 31; i.e., petitioners failed to conform to Section 4 of Rule 5, and Section 2 of Rule 6 of
the Revised Rules of the CTA. The Court sustains the CTA First Division in this regard.

Section 4, Rule 5 of the Revised Rules of the CTA requires that:

76

SEC. 4. Number of copies. The parties shall file eleven signed copies of every paper for cases before the Court en
banc and six signed copies for cases before a Division of

Even the CTA en banc, in its Decision dated 18 January 2008, recognizes that the 30-day period within which to file
the Petition for Review with the CTA may, indeed, be extended, thus:

the Court in addition to the signed original copy, except as otherwise directed by the Court. Papers to be filed in more
than one case shall include one additional copy for each additional case. (Emphasis supplied.)

Being suppletory to R.A. 9282, the 1997 Rules of Civil Procedure allow an additional period of fifteen (15) days for
the movant to file a Petition for Review, upon Motion, and payment of the full amount of the docket fees. A further
extension of fifteen (15) days may be granted on compelling reasons in accordance with the provision of Section 1,
Rule 42 of the 1997 Rules of Civil Procedure x x x.17

Section 2, Rule 6 of the Revised Rules of the CTA further necessitates that:

79

SEC. 2. Petition for review; contents. The petition for review shall contain allegations showing the jurisdiction of the
Court, a concise statement of the complete facts and a summary statement of the issues involved in the case, as
well as the reasons relied upon for the review of the challenged decision. The petition shall be verified and must
contain a certification against forum shopping as provided in Section 3, Rule 46 of the Rules of Court. A clearly
legible duplicate original or certified true copy of the decision appealed from shall be attached to the petition.
(Emphasis supplied.)

Petitioners never offered an explanation for their non-compliance with Section 4 of Rule 5, and Section 2 of Rule 6 of
the Revised Rules of the CTA. Hence, although the Court had, in previous instances, relaxed the application of rules
of procedure, it cannot do so in this case for lack of any justification.

Even assuming arguendo that the Petition for Review of petitioners in C.T.A. AC No. 31 should have been given due
course by the CTA First Division, it is still dismissible for lack of merit.
The aforesaid provisions should be read in conjunction with Section 1, Rule 7 of the Revised Rules of the CTA, which
provides:

SECTION 1. Applicability of the Rules of Court on procedure in the Court of Appeals, exception. The procedure in
the Court en banc or in Divisions in original or in appealed cases shall be the same as those in petitions for review
and appeals before the Court of Appeals pursuant to the applicable provisions of Rules 42, 43, 44, and 46 of the
Rules of Court, except as otherwise provided for in these Rules. (Emphasis supplied.)

As found by the CTA First Division and affirmed by the CTA en banc, the Petition for Review filed by petitioners via
registered mail on 30 May 2007 consisted only of one copy and all the attachments thereto, including the Decision
dated 14 July 2006; and that the assailed Orders dated 16 November 2006 and 4 April 2007 of the RTC in Civil Case
No. 03-107088 were mere machine copies. Evidently, petitioners did not comply at all with the requirements set forth
under Section 4, Rule 5; or with Section 2, Rule 6 of the Revised Rules of the CTA. Although the Revised Rules of
the CTA do not provide for the consequence of such non-compliance, Section 3, Rule 42 of the Rules of Court may
be applied suppletorily, as allowed by Section 1, Rule 7 of the Revised Rules of the CTA. Section 3, Rule 42 of the
Rules of Court reads:

SEC. 3. Effect of failure to comply with requirements. The failure of the petitioner to comply with any of the
foregoing requirements regarding the payment of the docket and other lawful fees, the deposit for costs, proof of
service of the petition, and the contents of and the documents which should accompany the petition shall be
sufficient ground for the dismissal thereof. (Emphasis supplied.)

True, petitioners subsequently submitted certified copies of the Decision dated 14 July 2006 and assailed Orders
dated 16 November 2006 and 4 April 2007 of the RTC in Civil Case No. 03-107088, but a closer examination of the
stamp on said documents reveals

Contrary to the assertions of petitioners, the Coca-Cola case is indeed applicable to the instant case. The pivotal
issue raised therein was whether Tax Ordinance No. 7988 and Tax Ordinance No. 8011 were null and void, which
this Court resolved in the affirmative. Tax Ordinance No. 7988 was declared by the Secretary of the Department of
Justice (DOJ) as null and void and without legal effect due to the failure of herein petitioner City of Manila to satisfy
the requirement under the law that said ordinance be published for three consecutive days. Petitioner City of Manila
never appealed said declaration of the DOJ Secretary; thus, it attained finality after the lapse of the period for appeal
of the same. The passage of Tax Ordinance No. 8011, amending Tax Ordinance No. 7988, did not cure the defects of
the latter, which, in any way, did not legally exist.

By virtue of the Coca-Cola case, Tax Ordinance No. 7988 and Tax Ordinance No. 8011 are null and void and without
any legal effect. Therefore, respondent cannot be taxed and assessed under the amendatory laws--Tax Ordinance
No. 7988 and Tax Ordinance No. 8011.

Petitioners insist that even with the declaration of nullity of Tax Ordinance No. 7988 and Tax Ordinance No. 8011,
respondent could still be made liable for local business taxes under both Sections 14 and 21 of Tax Ordinance No.
7944 as they were originally read, without the amendment by the null and void tax ordinances.

Emphasis must be given to the fact that prior to the passage of Tax Ordinance No. 7988 and Tax Ordinance No. 8011
by petitioner City of Manila, petitioners subjected and assessed respondent only for the local business tax under
Section 14 of Tax Ordinance No. 7794, but never under Section 21 of the same. This was due to the clear and
unambiguous proviso in Section 21 of Tax Ordinance No. 7794, which stated that "all registered business in the City
of Manila that are already paying the aforementioned tax shall be exempted from payment thereof." The
"aforementioned tax" referred to in said proviso refers to local business tax. Stated differently, Section 21 of Tax
Ordinance No. 7794 exempts from the payment of the local business tax imposed by said section, businesses that
are already paying such tax under other sections of the same tax ordinance. The said proviso, however, was deleted
from Section 21 of Tax Ordinance

77

No. 7794 by Tax Ordinances No. 7988 and No. 8011. Following this deletion, petitioners began assessing
respondent for the local business tax under Section 21 of Tax Ordinance No. 7794, as amended.1avvphi1
that they were prepared and certified only on 14 August 2007, about two months and a half after the filing of the
Petition for Review by petitioners.
The Court easily infers from the foregoing circumstances that petitioners themselves believed that prior to Tax
Ordinance No. 7988 and Tax Ordinance No. 8011, respondent was exempt from the local business tax under Section

80

21 of Tax Ordinance No. 7794. Hence, petitioners had to wait for the deletion of the exempting proviso in Section 21
of Tax Ordinance No. 7794 by Tax Ordinance No. 7988 and Tax Ordinance No. 8011 before they assessed
respondent for the local business tax under said section. Yet, with the pronouncement by this Court in the Coca-Cola
case that Tax Ordinance No. 7988 and Tax Ordinance No. 8011 were null and void and without legal effect, then
Section 21 of Tax Ordinance No. 7794, as it has been previously worded, with its exempting proviso, is back in effect.
Accordingly, respondent should not have been subjected to the local business tax under Section 21 of Tax Ordinance
No. 7794 for the third and fourth quarters of 2000, given its exemption therefrom since it was already paying the local
business tax under Section 14 of the same ordinance.

WHEREFORE, premises considered, the instant Petition for Review on Certiorari is hereby DENIED. No costs.

SO ORDERED.

Petitioners obstinately ignore the exempting proviso in Section 21 of Tax Ordinance No. 7794, to their own detriment.
Said exempting proviso was precisely included in said section so as to avoid double taxation.

Double taxation means taxing the same property twice when it should be taxed only once; that is, "taxing the same
person twice by the same jurisdiction for the same thing." It is obnoxious when the taxpayer is taxed twice, when it
should be but once. Otherwise described as "direct duplicate taxation," the two taxes must be imposed on the same
subject matter, for the same purpose, by the same taxing authority, within the same jurisdiction, during the same
taxing period; and the taxes must be of the same kind or character.18

Using the aforementioned test, the Court finds that there is indeed double taxation if respondent is subjected to the
taxes under both Sections 14 and 21 of Tax Ordinance No. 7794, since these are being imposed: (1) on the same
subject matter the privilege of doing business in the City of Manila; (2) for the same purpose to make persons
conducting business within the City of Manila contribute to city revenues; (3) by the same taxing authority petitioner
City of Manila; (4) within the same taxing jurisdiction within the territorial jurisdiction of the City of Manila; (5) for the
same taxing periods per calendar year; and (6) of the same kind or character a local business tax imposed on
gross sales or receipts of the business.

The distinction petitioners attempt to make between the taxes under Sections 14 and 21 of Tax Ordinance No. 7794
is specious. The Court revisits Section 143 of the LGC, the very source of the power of municipalities and cities to
impose a local business tax, and to which any local business tax imposed by petitioner City of Manila must conform.
It is

79

78
Napocor v. City Cabanatuan

apparent from a perusal thereof that when a municipality or city has already imposed a business tax on
manufacturers, etc. of liquors, distilled spirits, wines, and any other article of commerce, pursuant to Section 143(a)
of the LGC, said municipality or city may no longer subject the same manufacturers, etc. to a business tax under
Section 143(h) of the same Code. Section 143(h) may be imposed only on businesses that are subject to excise tax,
VAT, or percentage tax under the NIRC, and that are "not otherwise specified in preceding paragraphs." In the same
way, businesses such as respondents, already subject to a local business tax under Section 14 of Tax Ordinance
No. 7794 [which is based on Section 143(a) of the LGC], can no longer be made liable for local business tax under
Section 21 of the same Tax Ordinance [which is based on Section 143(h) of the LGC].

Republic of the Philippines

SUPREME COURT

81

Manila

THIRD DIVISION

G.R. No. 149110

April 9, 2003

NATIONAL POWER CORPORATION, petitioner, vs.

The Corporation shall be non-profit and shall devote all its return from its capital investment, as well as excess
revenues from its operation, for expansion. To enable the Corporation to pay its indebtedness and obligations and in
furtherance and effective implementation of the policy enunciated in Section one of this Act, the Corporation is
hereby exempt:

(a)
From the payment of all taxes, duties, fees, imposts, charges, costs and service fees in any court or
administrative proceedings in which it may be a party, restrictions and duties to the Republic of the Philippines, its
provinces, cities, municipalities and other government agencies and instrumentalities;

CITY OF CABANATUAN, respondent.

(b)
From all income taxes, franchise taxes and realty taxes to be paid to the National Government, its
provinces, cities, municipalities and other government agencies and instrumentalities;
PUNO, J.:

This is a petition for review1 of the Decision2 and the Resolution3 of the Court of Appeals dated March 12, 2001 and
July 10, 2001, respectively, finding petitioner National Power Corporation (NPC) liable to pay franchise tax to
respondent City of Cabanatuan.

(c)
From all import duties, compensating taxes and advanced sales tax, and wharfage fees on import of
foreign goods required for its operations and projects; and

(d)
From all taxes, duties, fees, imposts, and all other charges imposed by the Republic of the Philippines, its
provinces, cities, municipalities and other government agencies and
Petitioner is a government-owned and controlled corporation created under Commonwealth Act No. 120, as
amended.4 It is tasked to undertake the "development of hydroelectric generations of power and the production of
electricity from nuclear, geothermal and other sources, as well as, the transmission of electric power on a nationwide
basis."5 Concomitant to its mandated duty, petitioner has, among others, the power to construct, operate and
maintain power plants, auxiliary plants, power stations and substations for the purpose of developing hydraulic power
and supplying such power to the inhabitants.6

For many years now, petitioner sells electric power to the residents of Cabanatuan City, posting a gross income of
P107,814,187.96 in 1992.7 Pursuant to section 37 of Ordinance No. 165-92,8 the respondent assessed the
petitioner a franchise tax amounting to P808,606.41, representing 75% of 1% of the latter's gross receipts for the
preceding year.9

Petitioner, whose capital stock was subscribed and paid wholly by the Philippine Government,10 refused to pay the
tax assessment. It argued that the respondent has no authority to impose tax on government entities. Petitioner also
contended that as a non-profit organization, it is exempted from the payment of all forms of taxes, charges, duties or
fees11 in accordance with sec. 13 of Rep. Act No. 6395, as amended, viz:

instrumentalities, on all petroleum products used by the Corporation in the generation, transmission, utilization, and
sale of electric power."12

The respondent filed a collection suit in the Regional Trial Court of Cabanatuan City, demanding that petitioner pay
the assessed tax due, plus a surcharge equivalent to 25% of the amount of tax, and 2% monthly
interest.13Respondent alleged that petitioner's exemption from local taxes has been repealed by section 193 of Rep.
Act No. 7160,14 which reads as follows:

"Sec. 193. Withdrawal of Tax Exemption Privileges.- Unless otherwise provided in this Code, tax exemptions or
incentives granted to, or presently enjoyed by all persons, whether natural or juridical, including government owned
or controlled corporations, except local water districts, cooperatives duly registered under R.A. No. 6938, non-stock
and non-profit hospitals and educational institutions, are hereby withdrawn upon the effectivity of this Code."

"Sec.13. Non-profit Character of the Corporation; Exemption from all Taxes, Duties, Fees, Imposts and Other
Charges by Government and Governmental Instrumentalities.-

82

On January 25, 1996, the trial court issued an Order15 dismissing the case. It ruled that the tax exemption privileges
granted to petitioner subsist despite the passage of Rep. Act No. 7160 for the following reasons: (1) Rep. Act No.
6395 is a particular law and it may not be repealed by Rep. Act No. 7160 which is a general law; (2) section 193 of
Rep. Act No. 7160 is in the nature of an implied repeal which is not favored; and (3) local governments have no
power to tax instrumentalities of the national government. Pertinent portion of the Order reads:

80

"The question of whether a particular law has been repealed or not by a subsequent law is a matter of legislative
intent. The lawmakers may expressly repeal a law by incorporating therein repealing provisions which expressly and
specifically cite(s) the particular law or laws, and portions thereof, that are intended to be repealed. A declaration in a
statute, usually in its repealing clause, that a particular and specific law, identified by its number or title is repealed is
an express repeal; all others are implied repeal. Sec. 193 of R.A. No. 7160 is an implied repealing clause because it
fails to identify the act or acts that are intended to be repealed. It is a well-settled rule of statutory construction that
repeals of statutes by implication are not favored. The presumption is against inconsistency and repugnancy for the
legislative is presumed to know the existing laws on the subject and not to have enacted inconsistent or conflicting
statutes. It is also a well-settled rule that, generally, general law does not repeal a special law unless it clearly
appears that the legislative has intended by the latter general act to modify or repeal the earlier special law. Thus,
despite the passage of R.A. No. 7160 from which the questioned Ordinance No. 165-92 was based, the tax
exemption privileges of defendant NPC remain.

Another point going against plaintiff in this case is the ruling of the Supreme Court in the case of Basco vs. Philippine
Amusement and Gaming Corporation, 197 SCRA 52, where it was held that:

'Local governments have no power to tax instrumentalities of the National Government. PAGCOR is a government
owned or controlled corporation with an original charter, PD 1869. All of its shares of stocks are owned by the
National Government. xxx Being an instrumentality of the government, PAGCOR should be and actually is exempt
from local taxes. Otherwise, its operation might be burdened, impeded or subjected to control by mere local
government.'

Like PAGCOR, NPC, being a government owned and controlled corporation with an original charter and its shares of
stocks owned by the National Government, is beyond the taxing power of the Local Government. Corollary to this, it
should be noted here that in the NPC Charter's declaration of Policy, Congress declared that: 'xxx (2) the total
electrification of the Philippines through the development of power from all services to meet the needs of industrial
development and dispersal and needs of rural electrification are primary objectives of the nations which shall be
pursued coordinately and supported by all instrumentalities and agencies of the government, including its financial
institutions.' (underscoring supplied). To allow plaintiff to subject defendant to its tax-ordinance would be to impede
the avowed goal of this government instrumentality.

Unlike the State, a city or municipality has no inherent power of taxation. Its taxing power is limited to that which is
provided for in its charter or other statute. Any grant of taxing power is to be construed strictly, with doubts resolved
against its existence.

From the existing law and the rulings of the Supreme Court itself, it is very clear that the plaintiff could not impose the
subject tax on the defendant."16

On appeal, the Court of Appeals reversed the trial court's Order17 on the ground that section 193, in relation to
sections 137 and 151 of the LGC, expressly withdrew the exemptions granted to the petitioner.18 It ordered the
petitioner to pay the respondent city government the following: (a) the sum of P808,606.41 representing the
franchise tax due based on gross receipts for the year 1992, (b) the tax due every year thereafter based in the gross
receipts earned by NPC, (c) in all cases, to pay a surcharge of 25% of the tax due and unpaid, and (d) the sum of P
10,000.00 as litigation expense.19

On April 4, 2001, the petitioner filed a Motion for Reconsideration on the Court of Appeal's Decision. This was denied
by the appellate court, viz:

"The Court finds no merit in NPC's motion for reconsideration. Its arguments reiterated therein that the taxing power
of the province under Art. 137 (sic) of the Local Government Code refers merely to private persons or corporations in
which category it (NPC) does not belong, and that the LGC (RA 7160) which is a general law may not impliedly
repeal the NPC Charter which is a special lawfinds the answer in Section 193 of the LGC to the effect that 'tax
exemptions or incentives granted to, or presently enjoyed by all persons, whether natural or juridical, including
government-owned or controlled corporations except local water districts xxx are hereby withdrawn.' The repeal is
direct and unequivocal, not implied.

IN VIEW WHEREOF, the motion for reconsideration is hereby DENIED.

SO ORDERED."20

In this petition for review, petitioner raises the following issues:

"A. THE COURT OF APPEALS GRAVELY ERRED IN HOLDING THAT NPC, A PUBLIC NON-PROFIT
CORPORATION, IS LIABLE TO PAY A FRANCHISE TAX AS IT FAILED TO CONSIDER THAT SECTION 137 OF
THE LOCAL GOVERNMENT CODE IN RELATION TO SECTION 131 APPLIES ONLY TO PRIVATE PERSONS OR
CORPORATIONS ENJOYING A FRANCHISE.

83

B. THE COURT OF APPEALS GRAVELY ERRED IN HOLDING THAT NPC'S EXEMPTION FROM ALL FORMS OF
TAXES HAS BEEN REPEALED BY THE PROVISION OF THE LOCAL GOVERNMENT CODE AS THE
ENACTMENT OF A LATER LEGISLATION, WHICH IS A GENERAL LAW, CANNOT BE CONSTRUED TO HAVE
REPEALED A SPECIAL LAW.

The rates of taxes that the city may levy may exceed the maximum rates allowed for the province or municipality by
not more than fifty percent (50%) except the rates of professional and amusement taxes."

Petitioner, however, submits that it is not liable to pay an annual franchise tax to the respondent city government. It
contends that sections 137 and 151 of the LGC in relation to section 131, limit the taxing power of the respondent
city government to private entities that are engaged in trade or occupation for profit.22

Section 131 (m) of the LGC defines a "franchise" as "a right or privilege, affected with public interest which is
conferred upon private persons or corporations, under such terms and conditions as the government and its political
subdivisions may impose in the interest of the public welfare, security and safety." From the phraseology of this
provision, the petitioner claims that the word "private" modifies the terms "persons" and "corporations." Hence, when
the LGC uses the term "franchise," petitioner submits that it should refer specifically to franchises granted to private
natural persons and to private

81

C. THE COURT OF APPEALS GRAVELY ERRED IN NOT CONSIDERING THAT AN EXERCISE OF POLICE
POWER THROUGH TAX EXEMPTION SHOULD PREVAIL OVER THE LOCAL GOVERNMENT CODE."21

It is beyond dispute that the respondent city government has the authority to issue Ordinance No. 165-92 and
impose an annual tax on "businesses enjoying a franchise," pursuant to section 151 in relation to section 137 of the
LGC, viz:

"Sec. 137. Franchise Tax. - Notwithstanding any exemption granted by any law or other special law, the province
may impose a tax on businesses enjoying a franchise, at a rate not exceeding fifty percent (50%) of one percent
(1%) of the gross annual receipts for the preceding calendar year based on the incoming receipt, or realized, within
its territorial jurisdiction.

corporations.23 Ergo, its charter should not be considered a "franchise" for the purpose of imposing the franchise tax
in question.

On the other hand, section 131 (d) of the LGC defines "business" as "trade or commercial activity regularly engaged
in as means of livelihood or with a view to profit." Petitioner claims that it is not engaged in an activity for profit, in as
much as its charter specifically provides that it is a "non-profit organization." In any case, petitioner argues that the
accumulation of profit is merely incidental to its operation; all these profits are required by law to be channeled for
expansion and improvement of its facilities and services.24

Petitioner also alleges that it is an instrumentality of the National Government,25 and as such, may not be taxed by
the respondent city government. It cites the doctrine in Basco vs. Philippine Amusement and Gaming Corporation26
where this Court held that local governments have no power to tax instrumentalities of the National Government, viz:

In the case of a newly started business, the tax shall not exceed one-twentieth (1/20) of one percent (1%) of the
capital investment. In the succeeding calendar year, regardless of when the business started to operate, the tax shall
be based on the gross receipts for the preceding calendar year, or any fraction thereof, as provided herein."
(emphasis supplied)

"Local governments have no power to tax instrumentalities of the National Government.

PAGCOR has a dual role, to operate and regulate gambling casinos. The latter role is governmental, which places it
in the category of an agency or instrumentality of the Government. Being an instrumentality of the Government,
PAGCOR should be and actually is exempt from local taxes. Otherwise, its operation might be burdened, impeded or
subjected to control by a mere local government.

x x

Sec. 151. Scope of Taxing Powers.- Except as otherwise provided in this Code, the city, may levy the taxes, fees,
and charges which the province or municipality may impose: Provided, however, That the taxes, fees and charges
levied and collected by highly urbanized and independent component cities shall accrue to them and distributed in
accordance with the provisions of this Code.

'The states have no power by taxation or otherwise, to retard, impede, burden or in any manner control the operation
of constitutional laws enacted by Congress to carry into execution the powers vested in the federal government. (MC
Culloch v. Maryland, 4 Wheat 316, 4 L Ed. 579)'

84

This doctrine emanates from the 'supremacy' of the National Government over local governments.

'Justice Holmes, speaking for the Supreme Court, made reference to the entire absence of power on the part of the
States to touch, in that way (taxation) at least, the instrumentalities of the United States (Johnson v. Maryland, 254
US 51) and it can be agreed that no state or political subdivision can regulate a federal instrumentality in such a way
as to prevent it from consummating its federal responsibilities, or even seriously burden it from accomplishment of
them.' (Antieau, Modern Constitutional Law, Vol. 2, p. 140, italics supplied)

Otherwise, mere creatures of the State can defeat National policies thru extermination of what local authorities may
perceive to be undesirable activities or enterprise using the power to tax as ' a tool regulation' (U.S. v. Sanchez, 340
US 42).

Taxes are the lifeblood of the government,30 for without taxes, the government can neither exist nor endure. A
principal attribute of sovereignty,31 the exercise of taxing power derives its source from the very existence of the
state whose social contract with its citizens obliges it to promote public interest and common good. The theory
behind the exercise of the power to tax emanates from necessity;32 without taxes, government cannot fulfill its
mandate of promoting the general welfare and well-being of the people.

In recent years, the increasing social challenges of the times expanded the scope of state activity, and taxation has
become a tool to realize social justice and the equitable distribution of wealth, economic progress and the protection
of local industries as well as public welfare and similar objectives.33 Taxation assumes even greater significance with
the ratification of the 1987 Constitution. Thenceforth, the power to tax is no longer vested exclusively on Congress;
local legislative bodies are now given direct authority to levy taxes, fees and other charges34 pursuant to Article X,
section 5 of the 1987 Constitution, viz:

82

"Section 5.- Each Local Government unit shall have the power to create its own sources of revenue, to levy taxes,
fees and charges subject to such guidelines and limitations as the Congress may provide, consistent with the basic
policy of local autonomy. Such taxes, fees and charges shall accrue exclusively to the Local Governments."
The power to tax which was called by Justice Marshall as the 'power to destroy' (Mc Culloch v. Maryland,supra)
cannot be allowed to defeat an instrumentality or creation of the very entity which has the inherent power to wield
it."27

Petitioner contends that section 193 of Rep. Act No. 7160, withdrawing the tax privileges of government-owned or
controlled corporations, is in the nature of an implied repeal. A special law, its charter cannot be amended or
modified impliedly by the local government code which is a general law. Consequently, petitioner claims that its
exemption from all taxes, fees or charges under its charter subsists despite the passage of the LGC, viz:

"It is a well-settled rule of statutory construction that repeals of statutes by implication are not favored and as much
as possible, effect must be given to all enactments of the legislature. Moreover, it has to be conceded that the charter
of the NPC constitutes a special law. Republic Act No. 7160, is a general law. It is a basic rule in statutory
construction that the enactment of a later legislation which is a general law cannot be construed to have repealed a
special law. Where there is a conflict between a general law and a special statute, the special statute should prevail
since it evinces the legislative intent more clearly than the general statute."28

Finally, petitioner submits that the charter of the NPC, being a valid exercise of police power, should prevail over the
LGC. It alleges that the power of the local government to impose franchise tax is subordinate to petitioner's
exemption from taxation; "police power being the most pervasive, the least limitable and most demanding of all
powers, including the power of taxation."29

The petition is without merit.

This paradigm shift results from the realization that genuine development can be achieved only by strengthening
local autonomy and promoting decentralization of governance. For a long time, the country's highly centralized
government structure has bred a culture of dependence among local government leaders upon the national
leadership. It has also "dampened the spirit of initiative, innovation and imaginative resilience in matters of local
development on the part of local government leaders."35 The only way to shatter this culture of dependence is to
give the LGUs a wider role in the delivery of basic services, and confer them sufficient powers to generate their own
sources for the purpose. To achieve this goal, section 3 of Article X of the 1987 Constitution mandates Congress to
enact a local government code that will, consistent with the basic policy of local autonomy, set the guidelines and
limitations to this grant of taxing powers, viz:

"Section 3. The Congress shall enact a local government code which shall provide for a more responsive and
accountable local government structure instituted through a system of decentralization with effective mechanisms of
recall, initiative, and referendum, allocate among the different local government units their powers, responsibilities,
and resources, and provide for the qualifications, election, appointment and removal, term, salaries, powers and
functions and duties of local officials, and all other matters relating to the organization and operation of the local
units."

To recall, prior to the enactment of the Rep. Act No. 7160,36 also known as the Local Government Code of 1991
(LGC), various measures have been enacted to promote local autonomy. These include the Barrio Charter of
1959,37 the Local Autonomy Act of 1959,38 the Decentralization Act of 196739 and the Local Government Code of
1983.40 Despite these initiatives, however, the shackles of dependence on the national government remained. Local
government units were faced with the same problems that hamper their capabilities to participate effectively in the
national development efforts, among which are: (a) inadequate tax base, (b) lack of fiscal control over external

85

sources of income, (c) limited authority to prioritize and approve development projects, (d) heavy dependence on
external sources of income, and (e) limited supervisory control over personnel of national line agencies.41

Considered as the most revolutionary piece of legislation on local autonomy,42 the LGC effectively deals with the
fiscal constraints faced by LGUs. It widens the tax base of LGUs to include taxes which were prohibited by previous
laws such as the imposition of taxes on forest products, forest concessionaires, mineral products, mining operations,
and the like. The LGC likewise provides enough flexibility to impose tax rates in

"Thus, reading together sections 133, 232, and 234 of the LGC, we conclude that as a general rule, as laid down in
section 133, the taxing power of local governments cannot extend to the levy of inter alia, 'taxes, fees and charges of
any kind on the national government, its agencies and instrumentalities, and local government units'; however,
pursuant to section 232, provinces, cities and municipalities in the Metropolitan Manila Area may impose the real
property tax except on, inter alia, 'real property owned by the Republic of the Philippines or any of its political
subdivisions except when the beneficial use thereof has been granted for consideration or otherwise, to a taxable
person as provided in the item (a) of the first paragraph of section 12.'"47

83
In the case at bar, section 151 in relation to section 137 of the LGC clearly authorizes the respondent city
government to impose on the petitioner the franchise tax in question.

accordance with their needs and capabilities. It does not prescribe graduated fixed rates but merely specifies the
minimum and maximum tax rates and leaves the determination of the actual rates to the respective sanggunian.43

One of the most significant provisions of the LGC is the removal of the blanket exclusion of instrumentalities and
agencies of the national government from the coverage of local taxation. Although as a general rule, LGUs cannot
impose taxes, fees or charges of any kind on the National Government, its agencies and instrumentalities, this rule
now admits an exception, i.e., when specific provisions of the LGC authorize the LGUs to impose taxes, fees or
charges on the aforementioned entities, viz:

"Section 133. Common Limitations on the Taxing Powers of the Local Government Units.- Unless otherwise provided
herein, the exercise of the taxing powers of provinces, cities, municipalities, and barangays shall not extend to the
levy of the following:

x x

(o) Taxes, fees, or charges of any kind on the National Government, its agencies and instrumentalities, and local
government units." (emphasis supplied)

In view of the afore-quoted provision of the LGC, the doctrine in Basco vs. Philippine Amusement and Gaming
Corporation44 relied upon by the petitioner to support its claim no longer applies. To emphasize, the Basco case was
decided prior to the effectivity of the LGC, when no law empowering the local government units to tax
instrumentalities of the National Government was in effect. However, as this Court ruled in the case of Mactan Cebu
International Airport Authority (MCIAA) vs. Marcos,45 nothing prevents Congress from decreeing that even
instrumentalities or agencies of the government performing governmental functions may be subject to tax.46 In
enacting the LGC, Congress exercised its prerogative to tax instrumentalities and agencies of government as it sees
fit. Thus, after reviewing the specific provisions of the LGC, this Court held that MCIAA, although an instrumentality
of the national government, was subject to real property tax, viz:

In its general signification, a franchise is a privilege conferred by government authority, which does not belong to
citizens of the country generally as a matter of common right.48 In its specific sense, a franchise may refer to a
general or primary franchise, or to a special or secondary franchise. The former relates to the right to exist as a
corporation, by virtue of duly approved articles of incorporation, or a charter pursuant to a special law creating the
corporation.49 The right under a primary or general franchise is vested in the individuals who compose the
corporation and not in the corporation itself.50 On the other hand, the latter refers to the right or privileges conferred
upon an existing corporation such as the right to use the streets of a municipality to lay pipes of tracks, erect poles or
string wires.51 The rights under a secondary or special franchise are vested in the corporation and may ordinarily be
conveyed or mortgaged under a general power granted to a corporation to dispose of its property, except such
special or secondary franchises as are charged with a public use.52

In section 131 (m) of the LGC, Congress unmistakably defined a franchise in the sense of a secondary or special
franchise. This is to avoid any confusion when the word franchise is used in the context of taxation. As commonly
used, a franchise tax is "a tax on the privilege of transacting business in the state and exercising corporate
franchises granted by the state."53 It is not levied on the corporation simply for existing as a corporation, upon its
property54 or its income,55 but on its exercise of the rights or privileges granted to it by the government. Hence, a
corporation need not pay franchise tax from the time it ceased to do business and exercise its franchise.56 It is
within this context that the phrase "tax on businesses enjoying a franchise" in section 137 of the LGC should be
interpreted and understood. Verily, to determine whether the petitioner is covered by the franchise tax in question,
the following requisites should concur: (1) that petitioner has a "franchise" in the sense of a secondary or special
franchise; and (2) that it is exercising its rights or privileges under this franchise within the territory of the respondent
city government.

Petitioner fulfills the first requisite. Commonwealth Act No. 120, as amended by Rep. Act No. 7395, constitutes
petitioner's primary and secondary franchises. It serves as the petitioner's charter, defining its composition,
capitalization, the appointment and the specific duties of its corporate officers, and its corporate life span.57 As its
secondary franchise, Commonwealth Act No. 120, as amended, vests the petitioner the following powers which are
not available to ordinary corporations, viz:

"x x x

86

(m)
To cooperate with, and to coordinate its operations with those of the National Electrification Administration
and public service entities;
(e) To conduct investigations and surveys for the development of water power in any part of the Philippines;
(n)
To exercise complete jurisdiction and control over watersheds surrounding the reservoirs of plants and/or
projects constructed or proposed to be constructed by the Corporation. Upon determination by the Corporation of the
areas required for watersheds

84

(f)
To take water from any public stream, river, creek, lake, spring or waterfall in the Philippines, for the
purposes specified in this Act; to intercept and divert the flow of waters from lands of riparian owners and from
persons owning or interested in waters which are or may be necessary for said purposes, upon payment of just
compensation therefor; to alter, straighten, obstruct or increase the flow of water in streams or water channels
intersecting or connecting therewith or contiguous to its works or any part thereof: Provided, That just compensation
shall be paid to any person or persons whose property is, directly or indirectly, adversely affected or damaged
thereby;

(g)
To construct, operate and maintain power plants, auxiliary plants, dams, reservoirs, pipes, mains,
transmission lines, power stations and substations, and other works for the purpose of developing hydraulic power
from any river, creek, lake, spring and waterfall in the Philippines and supplying such power to the inhabitants
thereof; to acquire, construct, install, maintain, operate, and improve gas, oil, or steam engines, and/or other prime
movers, generators and machinery in plants and/or auxiliary plants for the production of electric power; to establish,
develop, operate, maintain and administer power and lighting systems for the transmission and utilization of its
power generation; to sell electric power in bulk to (1) industrial enterprises, (2) city, municipal or provincial systems
and other government institutions, (3) electric cooperatives, (4) franchise holders, and (5) real estate subdivisions x x
x;

(h)
To acquire, promote, hold, transfer, sell, lease, rent, mortgage, encumber and otherwise dispose of
property incident to, or necessary, convenient or proper to carry out the purposes for which the Corporation was
created: Provided, That in case a right of way is necessary for its transmission lines, easement of right of way shall
only be sought: Provided, however, That in case the property itself shall be acquired by purchase, the cost thereof
shall be the fair market value at the time of the taking of such property;

(i)
To construct works across, or otherwise, any stream, watercourse, canal, ditch, flume, street, avenue,
highway or railway of private and public ownership, as the location of said works may require xxx;

for a specific project, the Bureau of Forestry, the Reforestation Administration and the Bureau of Lands shall, upon
written advice by the Corporation, forthwith surrender jurisdiction to the Corporation of all areas embraced within the
watersheds, subject to existing private rights, the needs of waterworks systems, and the requirements of domestic
water supply;

(o) In the prosecution and maintenance of its projects, the Corporation shall adopt measures to prevent
environmental pollution and promote the conservation, development and maximum utilization of natural resources
xxx "58

With these powers, petitioner eventually had the monopoly in the generation and distribution of electricity. This
monopoly was strengthened with the issuance of Pres. Decree No. 40,59 nationalizing the electric power industry.
Although Exec. Order No. 21560 thereafter allowed private sector participation in the generation of electricity, the
transmission of electricity remains the monopoly of the petitioner.

Petitioner also fulfills the second requisite. It is operating within the respondent city government's territorial
jurisdiction pursuant to the powers granted to it by Commonwealth Act No. 120, as amended. From its operations in
the City of Cabanatuan, petitioner realized a gross income of P107,814,187.96 in 1992. Fulfilling both requisites,
petitioner is, and ought to be, subject of the franchise tax in question.

Petitioner, however, insists that it is excluded from the coverage of the franchise tax simply because its stocks are
wholly owned by the National Government, and its charter characterized it as a "non-profit" organization.

These contentions must necessarily fail.

(j)
To exercise the right of eminent domain for the purpose of this Act in the manner provided by law for
instituting condemnation proceedings by the national, provincial and municipal governments;

x x

To stress, a franchise tax is imposed based not on the ownership but on the exercise by the corporation of a privilege
to do business. The taxable entity is the corporation which exercises the franchise, and not the individual
stockholders. By virtue of its charter, petitioner was created as a separate and distinct entity from the National
Government. It can sue and be sued under its own name,61 and can exercise all the powers of a corporation under
the Corporation Code.62

87

To be sure, the ownership by the National Government of its entire capital stock does not necessarily imply that
petitioner is not engaged in business. Section 2 of Pres. Decree No. 202963 classifies government-owned or
controlled corporations (GOCCs) into those performing governmental functions and those performing proprietary
functions, viz:

"A government-owned or controlled corporation is a stock or a non-stock corporation, whether performing

governmental or proprietary functions, which is directly chartered by special law or if organized under the general
corporation law is owned or controlled by the government directly, or indirectly through a parent corporation or

(o) To exercise such powers and do such things as may be reasonably necessary to carry out the business and
purposes for which it was organized, or which, from time to time, may be declared by the Board to be necessary,
useful, incidental or auxiliary to accomplish the said purpose xxx."(emphases supplied)

It is worthy to note that all other private franchise holders receiving at least sixty percent (60%) of its electricity
requirement from the petitioner are likewise imposed the cap of twelve percent (12%) on profits.69 The main
difference is that the petitioner is mandated to devote "all its returns from its capital investment, as well as excess
revenues from its operation, for expansion"70 while other franchise holders have the option to distribute

85
their profits to its stockholders by declaring dividends. We do not see why this fact can be a source of difference in
tax treatment. In both instances, the taxable entity is the corporation, which exercises the franchise, and not the
individual stockholders.
subsidiary corporation, to the extent of at least a majority of its outstanding voting capital stock x x x." (emphases
supplied)
We also do not find merit in the petitioner's contention that its tax exemptions under its charter subsist despite the
passage of the LGC.
Governmental functions are those pertaining to the administration of government, and as such, are treated as
absolute obligation on the part of the state to perform while proprietary functions are those that are undertaken only
by way of advancing the general interest of society, and are merely optional on the government.64 Included in the
class of GOCCs performing proprietary functions are "business-like" entities such as the National Steel Corporation
(NSC), the National Development Corporation (NDC), the Social Security System (SSS), the Government Service
Insurance System (GSIS), and the National Water Sewerage Authority (NAWASA),65 among others.

Petitioner was created to "undertake the development of hydroelectric generation of power and the production of
electricity from nuclear, geothermal and other sources, as well as the transmission of electric power on a nationwide
basis."66 Pursuant to this mandate, petitioner generates power and sells electricity in bulk. Certainly, these activities
do not partake of the sovereign functions of the government. They are purely private and commercial undertakings,
albeit imbued with public interest. The public interest involved in its activities, however, does not distract from the true
nature of the petitioner as a commercial enterprise, in the same league with similar public utilities like telephone and
telegraph companies, railroad companies, water supply and irrigation companies, gas, coal or light companies,
power plants, ice plant among others; all of which are declared by this Court as ministrant or proprietary functions of
government aimed at advancing the general interest of society.67

A closer reading of its charter reveals that even the legislature treats the character of the petitioner's enterprise as a
"business," although it limits petitioner's profits to twelve percent (12%), viz:68

As a rule, tax exemptions are construed strongly against the claimant. Exemptions must be shown to exist clearly
and categorically, and supported by clear legal provisions.71 In the case at bar, the petitioner's sole refuge is section
13 of Rep. Act No. 6395 exempting from, among others, "all income taxes, franchise taxes and realty taxes to be
paid to the National Government, its provinces, cities, municipalities and other government agencies and
instrumentalities." However, section 193 of the LGC withdrew, subject to limited exceptions, the sweeping tax
privileges previously enjoyed by private and public corporations. Contrary to the contention of petitioner, section 193
of the LGC is an express, albeit general, repeal of all statutes granting tax exemptions from local taxes.72 It reads:

"Sec. 193. Withdrawal of Tax Exemption Privileges.- Unless otherwise provided in this Code, tax exemptions or
incentives granted to, or presently enjoyed by all persons, whether natural or juridical, including government-owned
or controlled corporations, except local water districts, cooperatives duly registered under R.A. No. 6938, non-stock
and non-profit hospitals and educational institutions, are hereby withdrawn upon the effectivity of this Code."
(emphases supplied)

It is a basic precept of statutory construction that the express mention of one person, thing, act, or consequence
excludes all others as expressed in the familiar maxim expressio unius est exclusio alterius.73 Not being a local
water district, a cooperative registered under R.A. No. 6938, or a non-stock and non-profit hospital or educational
institution, petitioner clearly does not belong to the exception. It is therefore incumbent upon the petitioner to point to
some provisions of the LGC that expressly grant it exemption from local taxes.

"(n) When essential to the proper administration of its corporate affairs or necessary for the proper transaction of its
business or to carry out the purposes for which it was organized, to contract indebtedness and issue bonds subject
to approval of the President upon recommendation of the Secretary of Finance;

88

But this would be an exercise in futility. Section 137 of the LGC clearly states that the LGUs can impose franchise tax
"notwithstanding any exemption granted by any law or other special law." This particular provision of the LGC does
not admit any exception. In City Government of San Pablo, Laguna v. Reyes,74 MERALCO's exemption from the
payment of franchise taxes was brought as an issue before this Court. The same issue was involved in the
subsequent case of Manila Electric Company v. Province of Laguna.75 Ruling in favor of the local government in
both instances, we ruled that the franchise tax in question is imposable despite any exemption enjoyed by
MERALCO under special laws, viz:

86

"It is our view that petitioners correctly rely on provisions of Sections 137 and 193 of the LGC to support their position
that MERALCO's tax exemption has been withdrawn. The explicit language of section 137 which authorizes the
province to impose franchise tax 'notwithstanding any exemption granted by any law or other special law' is allencompassing and clear. The franchise tax is imposable despite any exemption enjoyed under special laws.

Doubtless, the power to tax is the most effective instrument to raise needed revenues to finance and support myriad
activities of the local government units for the delivery of basic services essential to the promotion of the general
welfare and the enhancement of peace, progress, and prosperity of the people. As this Court observed in the Mactan
case, "the original reasons for the withdrawal of tax exemption privileges granted to government-owned or controlled
corporations and all other units of

government were that such privilege resulted in serious tax base erosion and distortions in the tax treatment of
similarly situated enterprises."78 With the added burden of devolution, it is even more imperative for government
entities to share in the requirements of development, fiscal or otherwise, by paying taxes or other charges due from
them.

IN VIEW WHEREOF, the instant petition is DENIED and the assailed Decision and Resolution of the Court of
Appeals dated March 12, 2001 and July 10, 2001, respectively, are hereby AFFIRMED.

SO ORDERED.
Section 193 buttresses the withdrawal of extant tax exemption privileges. By stating that unless otherwise provided
in this Code, tax exemptions or incentives granted to or presently enjoyed by all persons, whether natural or juridical,
including government-owned or controlled corporations except (1) local water districts, (2) cooperatives duly
registered under R.A. 6938, (3) non-stock and non-profit hospitals and educational institutions, are withdrawn upon
the effectivity of this code, the obvious import is to limit the exemptions to the three enumerated entities. It is a basic
precept of statutory construction that the express mention of one person, thing, act, or consequence excludes all
others as expressed in the familiar maxim expressio unius est exclusio alterius. In the absence of any provision of
the Code to the contrary, and we find no other provision in point, any existing tax exemption or incentive enjoyed by
MERALCO under existing law was clearly intended to be withdrawn.

Panganiban, Sandoval-Gutierrez, Corona, and Carpio-Morales, JJ., concur.

Reading together sections 137 and 193 of the LGC, we conclude that under the LGC the local government unit may
now impose a local tax at a rate not exceeding 50% of 1% of the gross annual receipts for the preceding calendar
based on the incoming receipts realized within its territorial jurisdiction. The legislative purpose to withdraw tax
privileges enjoyed under existing law or charter is clearly manifested by the language used on (sic) Sections 137 and
193 categorically withdrawing such exemption subject only to the exceptions enumerated. Since it would be not only
tedious and impractical to attempt to enumerate all the existing statutes providing for special tax exemptions or
privileges, the LGC provided for an express, albeit general, withdrawal of such exemptions or privileges. No more
unequivocal language could have been used."76 (emphases supplied).

It is worth mentioning that section 192 of the LGC empowers the LGUs, through ordinances duly approved, to grant
tax exemptions, initiatives or reliefs.77 But in enacting section 37 of Ordinance No. 165-92 which imposes an annual
franchise tax "notwithstanding any exemption granted by law or other special law," the respondent city government
clearly did not intend to exempt the petitioner from the coverage thereof.
87

89

Palma Devt. Corp. v. Municipality of Malangas

Republic of the Philippines

"UPON THE VIEW WE TAKE OF THIS CASE, THUS, the assailed Decision is VACATED and SET ASIDE, and this
case is ordered REMANDED to the court a quo for the reception of evidence of the parties on the matter or point
delineated in the final sentence above-stated."4

The assailed Resolution denied petitioners Motion for Reconsideration.

SUPREME COURT

The Facts

Manila

The facts are undisputed. Petitioner Palma Development Corporation is engaged in milling and selling rice and corn
to wholesalers in Zamboanga City. It uses the municipal port of Malangas, Zamboanga del Sur as transshipment
point for its goods. The port, as well as the surrounding roads leading to it, belong to and are maintained by the
Municipality of Malangas, Zamboanga del Sur.

THIRD DIVISION

G.R. No. 152492

The Petition for Review1 before us assails the August 31, 2001 Decision2 and the February 6, 2002 Resolution3of
the Court of Appeals (CA) in CA-GR CV No. 56477. The dispositive portion of the challenged Decision reads as
follows:

October 16, 2003

PALMA DEVELOPMENT CORPORATION, petitioner, vs.

On January 16, 1994, the municipality passed Municipal Revenue Code No. 09, Series of 1993, which was
subsequently approved by the Sangguniang Panlalawigan of

MUNICIPALITY OF MALANGAS, ZAMBOANGA DEL SUR, respondent.

Zamboanga del Sur in Resolution No. 1330 dated August 4, 1994. Section 5G.01 of the ordinance reads:
DECISION

PANGANIBAN, J.:

"Section 5G.01. Imposition of fees. There shall be collected service fee for its use of the municipal road[s] or streets
leading to the wharf and to any point along the shorelines within the jurisdiction of the municipality and for police
surveillance on all goods and all equipment harbored or sheltered in the premises of the wharf and other within the
jurisdiction of this municipality in the following schedule:

In accordance with the Local Government Code of 1991, a municipal ordinance imposing fees on goods that pass
through the issuing municipalitys territory is null and void.

a)

The Case

2. Ford Fiera P10.00

Vehicles and Equipment: rate of fee 1. Automatic per unit P10.00

3. Trucks P10.00 x x x x x x x x x

90

b)

Other Goods, Construction Material products: 1. Bamboo craft P20.00

aforecited sections of RA No. 7160. The appellate court ruled that petitioner still had to adduce evidence to
substantiate its allegations that the assailed ordinance had imposed fees on the movement of goods within the
Municipality of Malangas in the guise of a toll fee for the use of municipal roads and a service fee for police
surveillance. Thus, the CA held that the absence of such evidence necessitated the remand of the case to the trial
court.

2. Bangus/Kilo 0.30 x x x x x x x x x
41. Rice and corn grits/sack 0.50"5

Hence, this Petition.6

Accordingly, the service fees imposed by Section 5G.01 of the ordinance was paid by petitioner under protest. It
contended that under Republic Act No. 7160, otherwise known as the Local Government Code of 1991, municipal
governments did not have the authority to tax goods and vehicles that passed through their jurisdictions. Thereafter,
before the Regional Trial Court (RTC) of Pagadian City, petitioner filed against the Municipality of Malangas on
November 20, 1995, an action for declaratory relief assailing the validity of Section 5G.01 of the municipal ordinance.

Issues

On the premise that the case involved the validity of a municipal ordinance, the RTC directed respondent to secure
the opinion of the Office of the Solicitor General. The trial court likewise ordered that the opinions of the Departments
of Finance and of Justice be sought. As these opinions were still unavailable as of October 17, 1996, petitioners
counsel filed, without objection from respondent, a Manifestation seeking the submission of the case for the RTCs
decision on a pure question of law.

"1. Whether or not the Court of Appeals erred when it ordered that the extant case be remanded to the lower court
for reception of evidence.

Petitioner raises the following issues for our consideration:

"2. Whether or not the Court of Appeals erred when it ruled that a full blown trial on the merits is necessary and that
plaintiff-appellee, now petitioner, has to adduce evidence to substantiate its thesis that the assailed municipal
ordinance, in fact, imposes fees on the movement of goods within the jurisdiction of the defendant and that this
imposition is merely in the guise of a toll fee for the use of municipal roads and service fee for police surveillance.
88
"3. Whether or not the Court of Appeals erred when it did not rule that the questioned municipal ordinance is contrary
to the provisions of R.A. No. 7160 or the Local Government Code of the Philippines."7

In due time, the trial court rendered its November 13, 1996 Decision declaring the entire Municipal Revenue Code
No. 09 as ultra vires and, hence, null and void.
In brief, the issues boil down to the following: 1) whether Section 5G.01 of Municipal Revenue Code No. 09 is valid;
and 2) whether the remand of the case to the trial court is necessary.
Ruling of the Court of Appeals
The Courts Ruling
The CA held that local government units already had revenue-raising powers as provided for under Sections 153 and
155 of RA No. 7160. It ruled as well that within the purview of these provisions -- and therefore valid -- is Section
5G.01, which provides for a "service fee for the use of the municipal road or streets leading to the wharf and to any
point along the shorelines within the jurisdiction of the municipality" and "for police surveillance on all goods and all
equipment harbored or sheltered in the premises of the wharf and other within the jurisdiction of this municipality."

However, since both parties had submitted the case to the trial court for decision on a pure question of law without a
full-blown trial on the merits, the CA could not determine whether the facts of the case were within the ambit of the

The Petition is meritorious.

First Issue:

91

Validity of the Imposed Fees

Petitioner argues that while respondent has the power to tax or impose fees on vehicles using its roads, it cannot tax
the goods that are transported by the vehicles. The provision of the ordinance imposing a service fee for police
surveillance on goods is allegedly contrary to Section 133(e) of RA No. 7160, which reads:

"Section 133. Common Limitations on the Taxing Powers of Local Government Units. Unless otherwise provided
herein, the exercise of the taxing powers of provinces, cities, municipalities, and barangays shall not extend to the
levy of the following:

of the Philippines and members of the Philippine National Police on mission, post office personnel delivering mail,
physically-handicapped, and disabled citizens who are sixty-five (65) years or older.1a\^/phi1.net

"When public safety and welfare so requires, the sanggunian concerned may discontinue the collection of the tolls,
and thereafter the said facility shall be free and open for public use."

Respondent claims that there is no proof that the P0.50 fee for every sack of rice or corn is a fraudulent legislation
enacted to subvert the limitation imposed by Section 133(e) of RA No. 7160. Moreover, it argues that allowing
petitioner to use its roads without paying the P0.50 fee for every sack of rice or corn would contravene the principle
of unjust enrichment.

xxxxxxxxx

e) Taxes, fees and charges and other impositions upon goods carried into and out of, or passing through, the
territorial jurisdictions of local government units in the guise of charges for wharfage, tolls for bridges or otherwise, or
other taxes, fees or charges in any form whatsoever upon such goods or merchandise;"

On the other hand, respondent maintains that the subject fees are intended for services rendered, the use of
municipal roads and police surveillance. The fees are supposedly not covered by the prohibited impositions under
Section 133(e) of RA No. 7160.8 It further contends that it was empowered by the express mandate of Sections 153
and 155 of RA No. 7160 to enact Section 5G.01 of the ordinance. The pertinent provisions of this statute read as
follows:

"Section 153. Service Fees and Charges. -- Local government units may impose and collect such reasonable fees
and charges for services rendered.

By express language of Sections 153 and 155 of RA No. 7160, local government units, through their Sanggunian,
may prescribe the terms and conditions for the imposition of toll fees or charges for the use of any public road, pier
or wharf funded and constructed by them. A service fee imposed on vehicles using municipal roads leading to the
wharf is thus valid. However, Section 133(e) of RA No. 7160 prohibits the imposition, in the guise of wharfage, of
fees -- as well as all other taxes or charges in any form whatsoever -- on goods or merchandise. It is therefore
irrelevant if the fees imposed are actually for police surveillance on the goods, because any other form of imposition
on goods passing through the territorial jurisdiction of the municipality is clearly prohibited by Section 133(e).

Under Section 131(y) of RA No. 7160, wharfage is defined as "a fee assessed against the cargo of a vessel engaged
in foreign or domestic trade based on quantity, weight, or measure received and/or discharged by vessel." It is
apparent that a wharfage does not lose its basic character by being labeled as a service fee "for police surveillance
on all goods."

Unpersuasive is the contention of respondent that petitioner would unjustly be enriched at the formers expense.
Though the rules thereon apply equally well to the government,9 for unjust enrichment to be deemed present, two
conditions must generally concur: (a) a person is unjustly benefited, and (b) such benefit is derived at anothers
expense or damage.10

xxxxxxxxx

"Section 155. Toll Fees or Charges. -- The sanggunian concerned may prescribe the terms and conditions and fix the
rates for the imposition of toll fees or charges for the use of any public road, pier or wharf, waterway, bridge, ferry or
telecommunication system funded and constructed by the local government unit concerned: Provided, That no such
toll fees or charges shall be collected from officers and enlisted men of the Armed Forces

In the instant case, the benefits from the use of the municipal roads and the wharf were not unjustly derived by
petitioner. Those benefits resulted from the infrastructure that the municipality was mandated by law to
provide.11There is no unjust enrichment where the one receiving the benefit has a legal right or entitlement thereto,
or when there is no causal relation between ones enrichment and the others impoverishment.12

Second Issue:
89
Remand of the Case

92

Petitioner asserts that the remand of the case to the trial court for further reception of evidence is unnecessary,
because the facts are undisputed by both parties. It has already been clearly established, without need for further
evidence, that petitioner transports rice and corn on board trucks that pass through the municipal roads leading to
the wharf. Under protest, it paid the service fees, a fact that respondent has readily admitted without qualification.

Respondent, on the other hand, is silent on the issue of the remand of the case to the trial court. The former merely
defends the validity of the ordinance, arguing neither for nor against the remand.

We rule against the remand. Not only is it frowned upon by the Rules of Court;13 it is also unnecessary on the basis
of the facts established by the admissions of the parties. Besides, the fact sought to be established with the
reception of additional evidence is irrelevant to the due settlement of the case.

The pertinent portion of the assailed CA Decision reads:

"To be stressed is the fact that local government units now have the following common revenue raising powers under
the Local Government Code:

Section 153. Service Fees and Charges. -- Local government units may impose and collect such reasonable fees
and charges for services rendered.

xxxxxxxxx

Section 155. Toll Fees or Charges. -- The Sanggunian concerned may prescribe the terms and conditions and fix the
rates for the imposition of toll fees or charges for the use of any public road, pier or wharf, waterway, bridge, ferry or
telecommunication system funded and constructed by the local government unit concerned: Provided, That no such
toll fees or charges shall be collected from officers and enlisted men of the Armed Forces of the Philippines and
members of the Philippine National Police on mission, post office personnel delivering mail, physically-handicapped,
and disabled citizens who are sixty-five (65) years or older.

When public safety and welfare so requires, the Sanggunian concerned may discontinue the collection of the tolls,
and thereafter the said facility shall be free and open for public use. x x x

"As we see it, the disputed municipal ordinance, which provides for a service fee for the use of the municipal road or
streets leading to the wharf and to any point along the shorelines within the jurisdiction of the municipality and for
police surveillance on all

90

goods and all equipment harbored or sheltered in the premises of the wharf and other within the jurisdiction of this
municipality, seems to fall within the compass of the above cited provisions of R.A. No. 7160. As elsewhere
indicated, the parties in this case, nonetheless, chose to submit the issue to the Trial Court on a pure question of
law, without a full-blown trial on the merits: consequently, we are not prepared to say, at this juncture, that the facts
of the case inevitably call for the application, and/or that these make out a clear-cut case within the ambit and
purview, of the aforecited section. The plaintiff, thus, has to adduce evidence to substantiate its thesis that the
assailed municipal ordinance, in fact, imposes fees on the movement of goods within the jurisdiction of the
defendant, and that this imposition is merely in the guise of a toll fee for the use of municipal roads and service fee
for police surveillance. Competent evidence upon this score must, thus, be presented."14

We note that Section 5G.01 imposes two types of service fees: 1) one for the use of the municipal roads and 2)
another for police surveillance on all goods and equipment sheltered in the premises of the wharf. The amount of
service fees, however, is based on the type of vehicle that passes through the road and the type of goods being
transported.1a\^/phi1.net

While both parties admit that the service fees imposed are for the use of the municipal roads, petitioner maintains
that the service fee for police surveillance on goods harbored on the wharf is in the guise of a wharfage,15 a
prohibited imposition under Section 133(e) of RA No. 7160.

Thus, the CA held that the case should be remanded to the trial court in order to resolve this factual dispute. The
appellate court noted that under Section 155 of RA No. 7160, municipalities apparently now have the power to
impose fees for the use of municipal roads.

Nevertheless, a remand is still unnecessary even if the service fee charged against the goods are for police
surveillance, because Section 133(e) of RA No. 7160 expressly prohibits the imposition of all other taxes, fees or
charges in any form whatsoever upon the merchandise or goods that pass through the territorial jurisdiction of local
government units. It is therefore immaterial to the instant case whether the service fee on the goods is for police
surveillance or not, since the subject provision of the revenue ordinance is invalid. Reception of further evidence to
establish this fact would not legalize the imposition of such fee in any way.

Furthermore, neither party disputes any of the other material facts of the case. From their respective Briefs before
the CA and their Memoranda before this Court, they do not dispute the fact that petitioner, from its principal place of
business, transports rice and corn on board trucks bound for respondents wharf. The trucks traverse the municipal
roads en route to the wharf, where the sacks of rice and corn are manually loaded into marine vessels bound for
Zamboanga City. Likewise undisputed is the fact that

93

respondent imposed and collected fees under the ordinance from petitioner. The former admits that it has been
collecting, in addition to the fees on vehicles, P0.50 for every sack of rice or corn that the latter has been shipping
through the wharf.16

Republic of the Philippines

SUPREME COURT
The foregoing allegations are formal judicial admissions that are conclusive upon the parties making them. They
require no further proof in accordance with Section 4 of Rule 129 of the Rules of Court, which reads:
Manila
"SEC. 4. Judicial admissions. An admission, verbal or written, made by a party in the course of the proceedings in
the same case, does not require proof. The admission may be contradicted only by showing that it was made
through palpable mistake or that no such admission was made."

Judicial admissions made by parties in the pleadings, in the course of the trial, or in other proceedings in the same
case are conclusive. No further evidence is required to prove them. Moreover, they cannot be contradicted unless it
is shown that they have been made through palpable mistake, or that they have not been made at all.17

THIRD DIVISION

G.R. No. 155491

July 21, 2009

SMART COMMUNICATIONS, INC., Petitioner, vs.

WHEREFORE, the Petition is GRANTED. The assailed Decision and Resolution of the Court of Appeals are hereby
SET ASIDE. The imposition of a service fee for police surveillance on all goods harbored or sheltered in the premises
of the municipal port of Malangas under Sec. 5G.01 of the Malangas Municipal Revenue Code No. 09, series of
1993, is declared NULL AND VOID for being violative of Republic Act No. 7160.

SO ORDERED.

Puno, (Chairman), Sandoval-Gutierrez and Carpio-Morales, JJ., concur.

Corona, J., on leave.

THE CITY OF DAVAO, represented herein by its Mayor Hon. RODRIGO DUTERTE, and the SANGGUNIANG
PANLUNSOD OF DAVAO CITY, Respondents.

RESOLUTION

NACHURA, J.:

Before the Court is a Motion for Reconsideration1 filed by Smart Communications, Inc. (Smart) of the Decision2 of
the Court dated September 16, 2008, denying its appeal of the Decision and Order of the Regional Trial Court (RTC)
of Davao City, dated July 19, 2002 and September 26, 2002, respectively.

Briefly, the factual antecedents are as follows:

Smart Communications, Inc. v. City of Davao

On February 18, 2002, Smart filed a special civil action for declaratory relief3 for the ascertainment of its rights and
obligations under the Tax Code of the City of Davao, which imposes a franchise tax on businesses enjoying a
franchise within the territorial jurisdiction of Davao. Smart avers that its telecenter in Davao City is exempt from
payment of franchise tax to the City.

94

On July 19, 2002, the RTC rendered a Decision denying the petition. Smart filed a motion for reconsideration, which
was denied by the trial court in an Order dated September 26, 2002. Smart filed an appeal before this Court, but the
same was denied in a decision dated September 16, 2008. Hence, the instant motion for reconsideration raising the
following grounds: (1) the "in lieu of all taxes" clause in Smarts franchise, Republic Act No. 7294 (RA 7294), covers
local taxes; the rule of strict construction against tax exemptions is not applicable; (2) the "in lieu of all taxes" clause
is not rendered ineffective by the Expanded VAT Law; (3) Section 23 of Republic Act No. 79254 (RA 7925) includes a
tax exemption; and (4) the imposition of a local franchise tax on Smart would violate the constitutional prohibition
against impairment of the obligation of contracts.

23 of RA 7925, in order to claim exemption from the payment of local franchise tax. Digitel claimed, just like the
petitioner in this case, that it was exempt from the payment of any other taxes except the national franchise and
income taxes. Digitel alleged that Smart was exempted from the payment of local franchise tax.

However, it failed to substantiate its allegation, and, thus, the Court denied Digitels claim for exemption from
provincial franchise tax. Cited was the ruling of the Court in PLDT v.

92
Section 9 of RA 7294 and Section 23 of RA 7925 are once again put in issue. Section 9 of Smarts legislative
franchise contains the contentious "in lieu of all taxes" clause. The Section reads:

Section 9. Tax provisions. The grantee, its successors or assigns shall be liable to pay the same taxes on their
real estate buildings and personal property, exclusive of this franchise, as other persons or corporations which are
now or hereafter may be required by law to pay. In addition thereto, the grantee, its successors or assigns shall pay a
franchise tax equivalent to three percent (3%) of all gross receipts of the business transacted under this franchise by
the grantee, its successors or assigns and the said percentage shall be in lieu of all taxes on this franchise or
earnings thereof: Provided, That the grantee, its successors or assigns shall continue to be liable for income taxes
payable under Title II of the National Internal Revenue Code pursuant to Section 2 of Executive Order No. 72 unless
the latter enactment is amended or repealed, in which case the amendment or repeal shall be applicable thereto.

xxx5

Section 23 of RA 7925, otherwise known as the most favored treatment clause or equality clause, contains the word
"exemption," viz.:

SEC. 23. Equality of Treatment in the Telecommunications Industry Any advantage, favor, privilege, exemption, or
immunity granted under existing franchises, or may hereafter be granted, shall ipso facto become part of previously
granted telecommunications franchises and shall be accorded immediately and unconditionally to the grantees of
such franchises: Provided, however, That the foregoing shall neither apply to nor affect provisions of
telecommunications franchises concerning territory covered by the franchise, the life span of the franchise, or the
type of the service authorized by the franchise.6

A review of the recent decisions of the Court on the matter of exemptions from local franchise tax and the
interpretation of the word "exemption" found in Section 23 of RA 7925 is imperative in order to resolve this issue
once and for all.

City of Davao,10 wherein the Court, speaking through Mr. Justice Vicente V. Mendoza, held that in approving Section
23 of RA No. 7925, Congress did not intend it to operate as a blanket tax exemption to all telecommunications
entities. Section 23 cannot be considered as having amended PLDTs franchise so as to entitle it to exemption from
the imposition of local franchise taxes. The Court further held that tax exemptions are highly disfavored and that a tax
exemption must be expressed in the statute in clear language that leaves no doubt of the intention of the legislature
to grant such exemption. And, even in the instances when it is granted, the exemption must be interpreted in
strictissimi juris against the taxpayer and liberally in favor of the taxing authority.

The Court also clarified the meaning of the word "exemption" in Section 23 of RA 7925: that the word "exemption" as
used in the statute refers or pertains merely to an exemption from regulatory or reporting requirements of the
Department of Transportation and Communication or the National Transmission Corporation and not to an exemption
from the grantees tax liability.

In Philippine Long Distance Telephone Company (PLDT) v. Province of Laguna,11 PLDT was a holder of a legislative
franchise under Act No. 3436, as amended. On August 24, 1991, the terms and conditions of its franchise were
consolidated under Republic Act No. 7082, Section 12 of which embodies the so-called "in-lieu-of-all taxes" clause.
Under the said Section, PLDT shall pay a franchise tax equivalent to three percent (3%) of all its gross receipts,
which franchise tax shall be "in lieu of all taxes." The issue that the Court had to resolve was whether PLDT was
liable to pay franchise tax to the Province of Laguna in view of the "in lieu of all taxes" clause in its franchise and
Section 23 of RA 7925.lawph!l

Applying the rule of strict construction of laws granting tax exemptions and the rule that doubts are resolved in favor
of municipal corporations in interpreting statutory provisions on municipal taxing powers, the Court held that Section
23 of RA 7925 could not be considered as having amended petitioner's franchise so as to entitle it to exemption from
the imposition of local franchise taxes.

In ruling against the claim of PLDT, the Court cited the previous decisions in PLDT v. City of Davao12 and PLDT v.
City of Bacolod,13 in denying the claim for exemption from the payment of local franchise tax.

In Digital Telecommunications Philippines, Inc. (Digitel) v. Province of Pangasinan,7 Digitel used as an argument the
"in lieu of all taxes" clauses/provisos found in the legislative franchises of Globe,8 Smart and Bell,9 vis--visSection

95

In sum, the aforecited jurisprudence suggests that aside from the national franchise tax, the franchisee is still liable
to pay the local franchise tax, unless it is expressly and unequivocally exempted from the payment thereof under its
legislative franchise. The "in lieu of all taxes" clause in a legislative franchise should categorically state that the
exemption applies to both local and national taxes; otherwise, the exemption claimed should be strictly construed
against the taxpayer and liberally in favor of the taxing authority.

93
Republic Act No. 7716, otherwise known as the "Expanded VAT Law," did not remove or abolish the payment of local
franchise tax. It merely replaced the national franchise tax that was previously paid by telecommunications franchise
holders and in its stead imposed a ten percent (10%) VAT in accordance with Section 108 of the Tax Code. VAT
replaced the national franchise tax, but it did not prohibit nor abolish the imposition of local franchise tax by cities or
municipaties.

The power to tax by local government units emanates from Section 5, Article X of the Constitution which empowers
them to create their own sources of revenues and to levy taxes, fees and charges subject to such guidelines and
limitations as the Congress may provide. The imposition of local franchise tax is not inconsistent with the advent of
the VAT, which renders functus officio the franchise tax paid to the national government. VAT inures to the benefit of
the national government, while a local franchise tax is a revenue of the local government unit.

WHEREFORE, the motion for reconsideration is DENIED, and this denial is final.

SO ORDERED.

Mobil Phil., Inc. v. City Treasurer of Makati

Republic of the Philippines

SUPREME COURT

FIRST DIVISION

G.R. No. 154092 July 14, 2005

MOBIL PHILIPPINES, INC., Petitioners, vs.

THE CITY TREASURER OF MAKATI and the CHIEF OF THE LICENSE DIVISION OF THE CITY OF
MAKATI,Respondents.

DECISION

QUISUMBING, J.:

This petition for review on certiorari seeks the reversal of the Decision1 dated November 22, 2001 of the Regional
Trial Court of Pasig City, Branch 268, in Civil Case No. 67599, subsequently affirmed in an Order2 dated May 15,
2002.

96

For the Gross Sales made in 1998

Petitioner is a domestic corporation engaged in the manufacturing, importing, exporting and wholesaling of
petroleum products, while respondents are the local government officials of the City of Makati charged with the
implementation of the Revenue Code of the City of Makati, as well as the collection and assessment of business
taxes, license fees and permit fees within said city.3

Prior to September 1998, petitioners principal office was at the National Development Company Building, in 116
Tordesillas St., Salcedo Village, Makati City. On August 20, 1998, petitioner filed an application with the City
Treasurer of Makati for the retirement of its business within the City of Makati as it moved its principal place of
business to Pasig City.4

As Manufacturer P 40,008.33

As Wholesaler 1,291,630.51

Sub-Total __1,331,638.84

In its application, petitioner declared its gross sales/receipts as follows:

TOTAL ASSESSED BUSINESS TAXES P 1,898,106.967

Gross Sales Receipts for Calendar Year 1997

P 453,799,493.29

Gross Sales Receipts for Calendar Year 1998

267,952,766.675

On September 11, 1998, petitioner paid the assessed amount of P1,898,106.96 under protest. The City Treasurer
issued therefor Official Receipt No. 9065025C8 and approved the petitioners application for retirement of business
from Makati to Pasig City.

January to August
On July 21, 1999, petitioner filed a claim for P1,331,638.84 refund.9 On August 11, 1999, petitioner received a
letter10 denying the claim for refund on the ground that petitioner was merely transferring and not retiring its
business, and that the gross sales realized while petitioner still maintained office in Makati from January 1 to August
31, 1998 should be taxed in the City of Makati.11
Upon evaluation of petitioners application, then OIC of the License Division, Ms. Jesusa E. Cuneta, issued to
petitioner, a billing slip6 assessing the following taxes against petitioner:
Petitioner subsequently filed a petition with the Regional Trial Court of Pasig City, Branch 268, seeking the refund of
business taxes erroneously collected by the City of Makati.
For the 4th Quarter of 1998 (based on 1997 gross sales)
In its Decision, the trial court ruled as follows:
As Manufacturer P 14,439.54

As Wholesaler 550,778.58

In summary, the pertinent law provides that a person or entity doing business in the Municipality shall be subject to
business tax. The tax shall be fixed by the quarter. The initial tax for the quarter in which a business starts to operate
shall be two and one-half percent (2%) of one percent (1%) of its capital investment. Thereafter, the tax shall be
computed based on the gross sales or receipts of the preceding quarter. In the succeeding calendar year, regardless
of when the business started to operate, the tax

Garbage Fee 1,250.00

94
Sub-Total P 566,468.12

97

shall be based on the gross sales or receipts for the preceding calendar year. That tax shall accrue on the first day of
January of each year and payment shall be made within the first 20 days of January or of each subsequent quarter
as the case may be.

Prefatorily, it is necessary to distinguish between a business tax vis--vis an income tax.

Business taxes imposed in the exercise of police power for regulatory purposes are paid for the privilege of carrying
on a business in the year the tax was paid. It is paid at the
Considering therefore that the business tax accrues only on the first day of January as provided in Sec. 3A.07 and
becomes payable within the first 20 days thereof or of each subsequent quarter, the payments made by Mobil in the
year 1998 are therefore payments for the business tax for 1997 which accrued in January of 1998 and became
payable within the first 20 days of January or of each subsequent quarter. Thus, upon retirement in August 1998, the
taxes for said year which should accrue in January 1999 [become] immediately payable before the application for
retirement can be approved (Ibid, (g), Sec. 3A.08). The assessment of the Chief of the License Division of Makati is
therefore with legal basis and does not constitute double taxation.

WHEREFORE, premises considered, the instant petition for refund is hereby DENIED and the case is dismissed for
lack of merit.

beginning of the year as a fee to allow the business to operate for the rest of the year. It is deemed a prerequisite to
the conduct of business.

Income tax, on the other hand, is a tax on all yearly profits arising from property, professions, trades or offices, or as
a tax on a persons income, emoluments, profits and the like. It is tax on income, whether net or gross realized in one
taxable year.15 It is due on or before the 15th day of the 4th month following the close of the taxpayers taxable year
and is generally regarded as an excise tax, levied upon the right of a person or entity to receive income or profits.

SO ORDERED.12

Petitioner filed a Motion for Reconsideration13 which was denied in an Order dated May 15, 2002, hence this
appeal.

Before us, petitioner alleges now that,

THE TRIAL COURT ERRED IN HOLDING THAT PETITIONERS BUSINESS TAX PAYMENTS MADE IN 1998 ARE
ACTUALLY PAYMENTS FOR BUSINESS TAXES IN 1997. THIS CONCLUSION IS CONTROVERTED BY MAKATI
CITYS REVENUE CODE, AND, IN FACT, CONSTITUTES DOUBLE TAXATION.14

Simply stated, the issue is: Are the business taxes paid by petitioner in 1998, business taxes for 1997 or 1998?

The trial court erred when it said that the payments made by petitioner in 1998 are payments for business tax
incurred in 1997 which only accrued in January 1998. Likewise, it erred when it ruled that petitioner was still liable for
business taxes based on its gross income/revenue for January to August 1998.

Section 3A.04 of the Makati City Revenue Code states:

Sec.3A.04. Computation of tax for newly-started business. In the case of newly-started business under Sec. 3A.02,
(a), (b), (c), (d), (e), (f), (g), (h), (i), (j), (k), (l), and (m) above, the tax shall be fixed by the quarter. The initial tax of the
quarter in which the business starts to operate shall be two and one half percent (2 %) of one percent (1%) of the
capital investment.

In the succeeding quarter or quarters, in cases where the business opens before the last quarter of the year, the tax
shall be based on the gross sales or receipt for the preceding quarter at one-half ( ) of the rates fixed therefor by
the pertinent schedule in Section 3A.02, (a), (b), (c), (d), (e), (f), (g), (h), (i), (j), (k), (l), and (m).

According to petitioner, the 1997 gross sales/revenue is merely the basis for the amount of business taxes due for
the privilege of carrying on a business in the year when the tax was paid.

For their part, respondents argue that since local taxes, which include business taxes, are paid either within the first
twenty days of January of each year or of each subsequent quarter, as the case may be, what the taxpayer actually
pays during the recorded calendar year is actually its business tax for the preceding year.

In the succeeding calendar year, regardless of when the business started to operate, the tax shall be based on the
gross sales or receipts for the preceding calendar year, or any fraction thereof as provided in the same pertinent
schedules.16

Under the Makati Revenue Code, it appears that the business tax, like income tax, is computed based on the
previous years figures. This is the reason for the confusion. A newly-started business is already liable for business
taxes (i.e. license fees) at the start of the quarter when it commences operations. In computing the amount of tax

98

due for the first quarter of operations, the business capital investment is used as the basis. For the subsequent
quarters of the first year, the tax is based on the gross sales/receipts for the previous quarter. In the following year(s),
the business is then taxed based on the gross sales or receipts of the previous year. The business taxes paid in the
year 1998 is for the privilege of engaging in business for the same year, and not for having engaged in business for
1997.

WHEREFORE, the assailed Decision is hereby REVERSED and respondents City Treasurer and Chief of the
License Division of Makati City are ordered to REFUND to petitioner business taxes paid in the amount
ofP1,331,638.84. Costs against respondents.

Upon its transfer, petitioner was apparently subjected to Sec. 3A.11 par. (g) which states:

SO ORDERED.

95

...

(g) Retirement of business.

...

For purposes thereof, termination shall mean that business operation are stopped completely.
96
...
Yamane v. BA Lepanto Condo, Corp.
(2) If it is found that the retirement or termination of the business is legitimate, [a]nd the tax due therefrom be less
than the tax due for the current year based on the gross sales or receipts, the difference in the amount of the tax
shall be paid before the business is considered officially retired or terminated.17
Republic of the Philippines
Based on this foregoing provision, on the year an establishment retires or terminates its business within the
municipality, it would be required to pay the difference in the amount if the tax collected, based on the previous years
gross sales or receipts, is less than the actual tax due based on the current years gross sales or receipts.

For the year 1998, petitioner paid a total of P2,262,122.48 to the City Treasurer of Makati18 as business taxes for
the year 1998. The amount of tax as computed based on petitioners gross sales for 1998 is only P1,331,638.84.
Since the amount paid is more than the amount computed based on petitioners actual gross sales for 1998,
petitioner upon its retirement is not liable for additional taxes to the City of Makati. Thus, we find that the respondent
erroneously treated the assessment and collection of business tax as if it were income tax, by rendering an
additional assessment of P1,331,638.84 for the revenue generated for the year 1998.

SUPREME COURT

SECOND DIVISION

G.R. No. 154993 October 25, 2005

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LUZ R. YAMANE, in her capacity as the CITY TREASURER OF MAKATI CITY, Petitioner,

On 15 December 1998, the Corporation received a Notice of Assessment dated 14 December 1998 signed by the
City Treasurer. The Notice of Assessment stated that the Corporation is "liable to pay the correct city business taxes,
fees and charges," computed as totaling P1,601,013.77 for the years 1995 to 1997.3 The Notice of Assessment was
silent as to the statutory basis of the business taxes assessed.

vs.

BA LEPANTO CONDOMINUM CORPORATION, Respondent.

DECISION

Through counsel, the Corporation responded with a written tax protest dated 12 February 1999, addressed to the
City Treasurer. It was evident in the protest that the Corporation was perplexed on the statutory basis of the tax
assessment.

With due respect, we submit that the Assessment has no basis as the Corporation is not liable for business taxes
and surcharges and interest thereon, under the Makati [Revenue] Code or even under the [Local Government] Code.

Tinga, J.:

Petitioner City Treasurer of Makati, Luz Yamane (City Treasurer), presents for resolution of this Court two novel
questions: one procedural, the other substantive, yet both of obvious significance. The first pertains to the proper
mode of judicial review undertaken from decisions of the regional trial courts resolving the denial of tax protests
made by local government treasurers, pursuant to the Local Government Code. The second is whether a local
government unit can, under the Local Government Code, impel a condominium corporation to pay business taxes.1

While we agree with the City Treasurers position on the first issue, there ultimately is sufficient justification for the
Court to overlook what is essentially a procedural error. We uphold respondents on the second issue. Indeed, there
are disturbing aspects in both procedure and substance that attend the attempts by the City of Makati to flex its
taxing muscle. Considering that the tax imposition now in question has utterly no basis in law, judicial relief is
imperative. There are fewer indisputable causes for the exercise of judicial review over the exercise of the taxing
power than when the tax is based on whim, and not on law.

The facts, as culled from the record, follow.

Respondent BA-Lepanto Condominium Corporation (the "Corporation") is a duly organized condominium corporation
constituted in accordance with the Condominium Act,2 which owns and holds title to the common and limited
common areas of the BA-Lepanto Condominium (the "Condominium"), situated in Paseo de Roxas, Makati City. Its
membership comprises the various unit owners of the Condominium. The Corporation is authorized, under Article V
of its Amended By-Laws, to collect regular assessments from

its members for operating expenses, capital expenditures on the common areas, and other special assessments as
provided for in the Master Deed with Declaration of Restrictions of the Condominium.

The Makati [Revenue] Code and the [Local Government] Code do not contain any provisions on which the
Assessment could be based. One might argue that Sec. 3A.02(m) of the Makati [Revenue] Code imposes business
tax on owners or operators of any business not specified in the said code. We submit, however, that this is not
applicable to the Corporation as the Corporation is not an owner or operator of any business in the contemplation of
the Makati [Revenue] Code and even the [Local Government] Code.4

Proceeding from the premise that its tax liability arose from Section 3A.02(m) of the Makati Revenue Code, the
Corporation proceeded to argue that under both the Makati Code and the Local Government Code, "business" is
defined as "trade or commercial activity regularly engaged in as a means of livelihood or with a view to profit." It was
submitted that the Corporation, as a condominium corporation, was organized not for profit, but to hold title over the
common areas of the Condominium, to manage the Condominium for the unit owners, and to hold title to the parcels
of land on which the Condominium was located. Neither was the Corporation authorized, under its articles of
incorporation or by-laws to engage in profit-making activities. The assessments it did collect from the unit owners
were for capital expenditures and operating expenses.5

The protest was rejected by the City Treasurer in a letter dated 4 March 1999. She insisted that the collection of dues
from the unit owners was effected primarily "to sustain and maintain the expenses of the common areas, with the
end in view [sic] of getting full appreciative living values [sic] for the individual condominium occupants and to
command better marketable [sic] prices for those occupants" who would in the future sell their respective units.6
Thus, she concluded since the "chances of getting higher prices for well-managed common areas of any
condominium are better and more effective that

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condominiums with poor [sic] managed common areas," the corporation activity "is a profit venture making [sic]".7

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From the denial of the protest, the Corporation filed an Appeal with the Regional Trial Court (RTC) of Makati.8 On 1
March 2000, the Makati RTC Branch 57 rendered a Decision9 dismissing the appeal for lack of merit. Accepting the
premise laid by the City Treasurer, the RTC acknowledged, in sadly risible language:

Herein appellant, to defray the improvements and beautification of the common areas, collect [sic] assessments from
its members. Its end view is to get appreciate living rules for the unit owners [sic], to give an impression to outsides
[sic] of the quality of service the condominium offers, so as to allow present owners to command better prices in the
event of sale.10

With this, the RTC concluded that the activities of the Corporation fell squarely under the definition of "business"
under Section 13(b) of the Local Government Code, and thus subject to local business taxation.11

From this Decision of the RTC, the Corporation filed a Petition for Review under Rule 42 of the Rules of Civil
Procedure with the Court of Appeals. Initially, the petition was dismissed outright12 on the ground that only decisions
of the RTC brought on appeal from a first level court could be elevated for review under the mode of review
prescribed under Rule 42.13 However, the Corporation pointed out in its Motion for Reconsideration that under
Section 195 of the Local Government Code, the remedy of the taxpayer on the denial of the protest filed with the
local treasurer is to appeal the denial with the court of competent jurisdiction.14 Persuaded by this contention, the
Court of Appeals reinstated the petition.15

On 7 June 2002, the Court of Appeals Special Sixteenth Division rendered the Decision16 now assailed before this
Court. The appellate court reversed the RTC and declared that the Corporation was not liable to pay business taxes
to the City of Makati.17 In doing so, the Court of Appeals delved into jurisprudential definitions of profit,18and
concluded that the Corporation was not engaged in profit. For one, it was held that the very statutory concept of a
condominium corporation showed that it was not a juridical entity intended to make profit, as its sole purpose was to
hold title to the common areas in the condominium and to maintain the condominium.19

Corporation is empowered "to acquire, own, hold, enjoy, lease, operate and maintain, and to convey sell, transfer or
otherwise dispose of real or personal property" allegedly qualifies "as incident to the fact of [the Corporations] act of
engaging in business.22

The City Treasurer also claims that the Corporation had filed the wrong mode of appeal before the Court of Appeals
when the latter filed its Petition for Review under Rule 42. It is reasoned that the decision of the Makati RTC was
rendered in the exercise of original jurisdiction, it being the first court which took cognizance of the case. Accordingly,
with the Corporation having pursued an erroneous mode of appeal, the RTC Decision is deemed to have become
final and executory.

First, we dispose of the procedural issue, which essentially boils down to whether the RTC, in deciding an appeal
taken from a denial of a protest by a local treasurer under Section 195 of the Local Government Code, exercises
"original jurisdiction" or "appellate jurisdiction." The question assumes a measure of importance to this petition, for
the adoption of the position of the City Treasurer that the mode of review of the decision taken by the RTC is
governed by Rule 41 of the Rules of Civil Procedure means that the decision of the RTC would have long become
final and executory by reason of the failure of the Corporation to file a notice of appeal.23

There are discernible conflicting views on the issue. The first, as expressed by the Court of Appeals, holds that the
RTC, in reviewing denials of protests by local treasurers, exercises appellate jurisdiction. This position is anchored
on the language of Section 195 of the Local Government Code which states that the remedy of the taxpayer whose
protest is denied by the local treasurer is "to appeal with the court of competent jurisdiction."24Apparently though,
the Local Government Code does not elaborate on how such "appeal" should be undertaken.

The other view, as maintained by the City Treasurer, is that the jurisdiction exercised by the RTC is original in
character. This is the first time that the position has been presented to the court for adjudication. Still, this argument
does find jurisprudential mooring in our ruling in Garcia v. De Jesus,25 where the Court proffered the following
distinction between original jurisdiction and appellate jurisdiction: "Original jurisdiction is the power of the Court to
take judicial cognizance of a case instituted for judicial action for the first time under conditions provided by law.
Appellate jurisdiction is the authority of a Court
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The Court of Appeals likewise cited provisions from the Corporations Amended Articles of Incorporation and
Amended By-Laws that, to its estimation, established that the Corporation was not engaged in business and the
assessment collected from unit owners limited to those necessary to defray the expenses in the maintenance of the
common areas and management the condominium.20
higher in rank to re-examine the final order or judgment of a lower Court which tried the case now elevated for
judicial review."26
Upon denial of her Motion for Reconsideration,21 the City Treasurer elevated the present Petition for Reviewunder
Rule 45. It is argued that the Corporation is engaged in business, for the dues collected from the different unit
owners is utilized towards the beautification and maintenance of the Condominium, resulting in "full appreciative
living values" for the condominium units which would command better market prices should they be sold in the
future. The City Treasurer likewise avers that the rationale for business taxes is not on the income received or profit
earned by the business, but the privilege to engage in business. The fact that the

The quoted definitions were taken from the commentaries of the esteemed Justice Florenz Regalado. With the
definitions as beacon, the review taken by the RTC over the denial of the protest by the local treasurer would fall
within that courts original jurisdiction. In short, the review is the initial judicial cognizance of the matter. Moreover,
labeling the said review as an exercise of appellate jurisdiction is inappropriate, since the denial of the protest is not
the judgment or order of a lower court, but of a local government official.

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of appeal and instead treat these petitions in the manner as they should have appropriately been filed.32 The Court
of Appeals could very well have treated the Corporations petition for review as an ordinary appeal.
The stringent concept of original jurisdiction may seemingly be neutered by Rule 43 of the 1997 Rules of Civil
Procedure, Section 1 of which lists a slew of administrative agencies and quasi-judicial tribunals or their officers
whose decisions may be reviewed by the Court of Appeals in the exercise of its appellate jurisdiction. However, the
basic law of jurisdiction, Batas Pambansa Blg. 129 (B.P. 129),27 ineluctably confers appellate jurisdiction on the
Court of Appeals over final rulings of quasi-judicial agencies, instrumentalities, boards or commission, by explicitly
using the phrase "appellate jurisdiction."28 The power to create or characterize jurisdiction of courts belongs to the
legislature. While the traditional notion of appellate jurisdiction connotes judicial review over lower court decisions, it
has to yield to statutory redefinitions that clearly expand its breadth to encompass even review of decisions of
officers in the executive branches of government.

Yet significantly, the Local Government Code, or any other statute for that matter, does not expressly confer
appellate jurisdiction on the part of regional trial courts from the denial of a tax protest by a local treasurer. On the
other hand, Section 22 of B.P. 129 expressly delineates the appellate jurisdiction of the Regional Trial Courts,
confining as it does said appellate jurisdiction to cases decided by Metropolitan, Municipal, and Municipal Circuit Trial
Courts. Unlike in the case of the Court of Appeals, B.P. 129 does not confer appellate jurisdiction on Regional Trial
Courts over rulings made by non-judicial entities.

From these premises, it is evident that the stance of the City Treasurer is correct as a matter of law, and that the
proper remedy of the Corporation from the RTC judgment is an ordinary appeal under Rule 41 to the Court of
Appeals. However, we make this pronouncement subject to two important qualifications. First, in this particular case
there are nonetheless significant reasons for the Court to overlook the procedural error and ultimately uphold the
adjudication of the jurisdiction exercised by the Court of Appeals in this case. Second, the doctrinal weight of the
pronouncement is confined to cases and controversies that emerged prior to the enactment of Republic Act No.
9282, the law which expanded the jurisdiction of the Court of Tax Appeals (CTA).

Moreover, we recognize that the Corporations error in elevating the RTC decision for review via Rule 42 actually
worked to the benefit of the City Treasurer. There is wider latitude on the part of the Court of Appeals to refuse
cognizance over a petition for review under Rule 42 than it would have over an ordinary appeal under Rule 41.
Under Section 13, Rule 41, the stated grounds for the dismissal of an ordinary appeal prior to the transmission of the
case records are when the appeal was taken out of time or when the docket fees were not paid.33 On the other
hand, Section 6, Rule 42 provides that in order that the Court of Appeals may allow due course to the petition for
review, it must first make a prima facie finding that the lower court has committed an error that would warrant the
reversal or modification of the decision under review.34 There is no similar requirement of a prima facie
determination of error in the case of ordinary appeal, which is perfected upon the filing of the notice of appeal in due
time.35

Evidently, by employing the Rule 42 mode of review, the Corporation faced a greater risk of having its petition
rejected by the Court of Appeals as compared to having filed an ordinary appeal under Rule 41. This was not an
error that worked to the prejudice of the City Treasurer.

We now proceed to the substantive issue, on whether the City of Makati may collect business taxes on condominium
corporations.
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We begin with an overview of the power of a local government unit to impose business taxes.
Republic Act No. 9282 definitively proves in its Section 7(a)(3) that the CTA exercises exclusive appellate jurisdiction
to review on appeal decisions, orders or resolutions of the Regional Trial Courts in local tax cases original decided or
resolved by them in the exercise of their originally or appellate jurisdiction. Moreover, the provision also states that
the review is triggered "by filing a petition for review under a procedure analogous to that provided for under Rule 42
of the 1997 Rules of Civil Procedure."29

Republic Act No. 9282, however, would not apply to this case simply because it arose prior to the effectivity of that
law. To declare otherwise would be to institute a jurisdictional rule derived not from express statutory grant, but from
implication. The jurisdiction of a court to take cognizance of a case should be clearly conferred and should not be
deemed to exist on mere implications,30 and this settled rule would be needlessly emasculated should we declare
that the Corporations position is correct in law.

Be that as it may, characteristic of all procedural rules is adherence to the precept that they should not be enforced
blindly, especially if mechanical application would defeat the higher ends that animates our civil procedurethe just,
speedy and inexpensive disposition of every action and proceeding.31 Indeed, we have repeatedly upheldand
utilized ourselvesthe discretion of courts to nonetheless take cognizance of petitions raised on an erroneous mode

The power of local government units to impose taxes within its territorial jurisdiction derives from the Constitution
itself, which recognizes the power of these units "to create its own sources of revenue and to levy taxes, fees, and
charges subject to such guidelines and limitations as the Congress may provide, consistent with the basic policy of
local autonomy."36 These guidelines and limitations as provided by Congress are in main contained in the Local
Government Code of 1991 (the "Code"), which provides for comprehensive instances when and how local
government units may impose taxes. The significant limitations are enumerated primarily in Section 133 of the Code,
which include among others, a prohibition on the imposition of income taxes except when levied on banks and other
financial institutions.37 None of the other general limitations under Section 133 find application to the case at bar.

The most well-known mode of local government taxation is perhaps the real property tax, which is governed by Title
II, Book II of the Code, and which bears no application in this case. A different set of provisions, found under Title I of
Book II, governs other taxes imposable by local government units, including business taxes. Under Section 151 of
the Code, cities such as Makati are authorized to levy the same taxes fees and charges as provinces and
municipalities. It is in Article II, Title II, Book II of the Code, governing

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municipal taxes, where the provisions on business taxation relevant to this petition may be found.38

Section 143 of the Code specifically enumerates several types of business on which municipalities and cities may
impose taxes. These include manufacturers, wholesalers, distributors, dealers of any article of commerce of
whatever nature; those engaged in the export or commerce of essential commodities; contractors and other
independent contractors; banks and financial institutions; and peddlers engaged in the sale of any merchandise or
article of commerce. Moreover, the local sanggunian is also authorized to impose taxes on any other businesses not
otherwise specified under Section 143 which the sanggunian concerned may deem proper to tax.

The coverage of business taxation particular to the City of Makati is provided by the Makati Revenue Code
("Revenue Code"), enacted through Municipal Ordinance No. 92-072. The Revenue Code remains in effect as of this

writing. Article A, Chapter III of the Revenue Code governs business taxes in Makati, and it is quite specific as to the
particular businesses which are covered by business taxes. To give a sample of the specified businesses under the
Revenue Code which are not enumerated under the Local Government Code, we cite Section 3A.02(f) of the Code,
which levies a gross receipt tax :

(m) On owners or operators of any business not specified above shall pay the tax at the rate of two percent (2%) for
1993, two and one-half percent (2 %) for 1994 and 1995, and three percent (3%) for 1996 and the years thereafter
of the gross receipts during the preceding year.42

The initial inquiry is what provision of the Makati Revenue Code does the City Treasurer rely on to make the
Corporation liable for business taxes. Even at this point, there already stands a problem with the City Treasurers
cause of action.

Our careful examination of the record reveals a highly disconcerting fact. At no point has the City Treasurer been
candid enough to inform the Corporation, the RTC, the Court of Appeals, or this Court for that matter, as to what
exactly is the precise statutory basis under the Makati Revenue Code for the levying of the business tax on
petitioner. We have examined all of the pleadings submitted by the City Treasurer in all the antecedent judicial
proceedings, as well as in this present petition, and also the communications by
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the City Treasurer to the Corporation which form part of the record. Nowhere therein is there any citation made by
the City Treasurer of any provision of the Revenue Code which would serve as the legal authority for the collection of
business taxes from condominiums in Makati.
(f) On contractors and other independent contractors defined in Sec. 3A.01(q) of Chapter III of this Code, and on
owners or operators of business establishments rendering or offering services such as: advertising agencies; animal
hospitals; assaying laboratories; belt and buckle shops; blacksmith shops; bookbinders; booking officers for film
exchange; booking offices for transportation on commission basis; breeding of game cocks and other sporting
animals belonging to others; business management services; collecting agencies; escort services; feasibility studies;
consultancy services; garages; garbage disposal contractors; gold and silversmith shops; inspection services for
incoming and outgoing cargoes; interior decorating services; janitorial services; job placement or recruitment
agencies; landscaping contractors; lathe machine shops; management consultants not subject to professional tax;
medical and dental laboratories; mercantile agencies; messsengerial services; operators of shoe shine stands;
painting shops; perma press establishments; rent-a-plant services; polo players; school for and/or horse-back riding
academy; real estate appraisers; real estate brokerages; photostatic, white/blue printing, Xerox, typing, and
mimeographing services; rental of bicycles and/or tricycles, furniture, shoes, watches, household appliances, boats,
typewriters, etc.; roasting of pigs, fowls, etc.; shipping agencies; shipyard for repairing ships for others; shops for
shearing animals; silkscreen or T-shirt printing shops; stables; travel agencies; vaciador shops; veterinary clinics;
video rentals and/or coverage services; dancing schools/speed reading/EDP; nursery, vocational and other schools
not regulated by the Department of Education, Culture and Sports, (DECS), day care centers; etc.39

Other provisions of the Revenue Code likewise subject hotel and restaurant owners and operators40, real estate
dealers, and lessors of real estate41 to business taxes.

Ostensibly, the notice of assessment, which stands as the first instance the taxpayer is officially made aware of the
pending tax liability, should be sufficiently informative to apprise the taxpayer the legal basis of the tax. Section 195
of the Local Government Code does not go as far as to expressly require that the notice of assessment specifically
cite the provision of the ordinance involved but it does require that it state the nature of the tax, fee or charge, the
amount of deficiency, surcharges, interests and penalties. In this case, the notice of assessment sent to the
Corporation did state that the assessment was for business taxes, as well as the amount of the assessment. There
may have been prima facie compliance with the requirement under Section 195. However in this case, the Revenue
Code provides multiple provisions on business taxes, and at varying rates. Hence, we could appreciate the
Corporations confusion, as expressed in its protest, as to the exact legal basis for the tax.43 Reference to the local
tax ordinance is vital, for the power of local government units to impose local taxes is exercised through the
appropriate ordinance enacted by the sanggunian, and not by the Local Government Code alone.44 What
determines tax liability is the tax ordinance, the Local Government Code being the enabling law for the local
legislative body.

Moreover, a careful examination of the Revenue Code shows that while Section 3A.02(m) seems designed as a
catch-all provision, Section 3A.02(f), which provides for a different tax rate from that of the former provision, may be
construed to be of similar import. While Section 3A.02(f) is quite exhaustive in enumerating the class of businesses
taxed under the provision, the listing, while it does not include condominium-related enterprises, ends with the
abbreviation "etc.", or "et cetera".

Should the comprehensive listing not prove encompassing enough, there is also a catch-all provision similar to that
under the Local Government Code. This is found in Section 3A.02(m) of the Revenue Code, which provides:

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We do note our discomfort with the unlimited breadth and the dangerous uncertainty which are the twin hallmarks of
the words "et cetera." Certainly, we cannot be disposed to uphold any tax imposition that derives its authority from
enigmatic and uncertain words such as "et cetera." Yet we cannot even say with definiteness whether the tax
imposed on the Corporation in this case is based on "et cetera," or on Section 3A.02(m), or on any other provision of
the Revenue Code. Assuming that the assessment made on the Corporation is on a provision other than Section
3A.02(m), the main legal issue takes on a different complexion. For example, if it is based on "et cetera" under
Section 3A.02(f), we would have to examine whether the Corporation faces analogous comparison with the other
businesses listed under that provision.

The creation of the condominium corporation is sanctioned by Republic Act No. 4726, otherwise known as the
Condominium Act. Under the law, a condominium is an interest in real property consisting of a separate interest in a
unit in a residential, industrial or commercial building and an undivided interest in common, directly or indirectly, in
the land on which it is located and in other common areas of the building.46 To enable the orderly administration over
these common areas which are jointly owned by the various unit owners, the Condominium Act permits the creation
of a condominium corporation, which is specially formed for the purpose of holding title to the common area, in which
the holders of separate interests shall automatically be members or shareholders, to the exclusion of others, in
proportion to the appurtenant interest of their respective

Certainly, the City Treasurer has not been helpful in that regard, as she has been silent all through out as to the exact
basis for the tax imposition which she wishes that this Court uphold. Indeed, there is only one thing that prevents this
Court from ruling that

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units.47 The necessity of a condominium corporation has not gained widespread acceptance48, and even is merely
permissible under the Condominium Act.49 Nonetheless, the condominium corporation has been resorted to by
many condominium projects, such as the Corporation in this case.
there has been a due process violation on account of the City Treasurers failure to disclose on paper the statutory
basis of the taxthat the Corporation itself does not allege injury arising from such failure on the part of the City
Treasurer.

We do not know why the Corporation chose not to put this issue into litigation, though we can ultimately presume that
no injury was sustained because the City Treasurer failed to cite the specific statutory basis of the tax. What is
essential though is that the local treasurer be required to explain to the taxpayer with sufficient particularity the basis
of the tax, so as to leave no doubt in the mind of the taxpayer as to the specific tax involved.

In line with the authority of the condominium corporation to manage the condominium project, it may be authorized,
in the deed of restrictions, "to make reasonable assessments to meet authorized expenditures, each condominium
unit to be assessed separately for its share of such expenses in proportion (unless otherwise provided) to its owners
fractional interest in any common areas."50 It is the collection of these assessments from unit owners that form the
basis of the City Treasurers claim that the Corporation is doing business.

The Condominium Act imposes several limitations on the condominium corporation that prove crucial to the
disposition of this case. Under Section 10 of the law, the
In this case, the Corporation seems confident enough in litigating despite the failure of the City Treasurer to admit on
what exact provision of the Revenue Code the tax liability ensued. This is perhaps because the Corporation has
anchored its central argument on the position that the Local Government Code itself does not sanction the imposition
of business taxes against it. This position was sustained by the Court of Appeals, and now merits our analysis.

As stated earlier, local tax on businesses is authorized under Section 143 of the Local Government Code. The word
"business" itself is defined under Section 131(d) of the Code as "trade or commercial activity regularly engaged in as
a means of livelihood or with a view to profit."45 This definition of "business" takes on importance, since Section 143
allows local government units to impose local taxes on businesses other than those specified under the provision.
Moreover, even those business activities specifically named in Section 143 are themselves susceptible to broad
interpretation. For example, Section 143(b) authorizes the imposition of business taxes on wholesalers, distributors,
or dealers in any article of commerce of whatever kind or nature.

It is thus imperative that in order that the Corporation may be subjected to business taxes, its activities must fall
within the definition of business as provided in the Local Government Code. And to hold that they do is to ignore the
very statutory nature of a condominium corporation.

corporate purposes of a condominium corporation are limited to the holding of the common areas, either in
ownership or any other interest in real property recognized by law; to the management of the project; and to such
other purposes as may be necessary, incidental or convenient to the accomplishment of such purpose.51 Further,
the same provision prohibits the articles of incorporation or by-laws of the condominium corporation from containing
any provisions which are contrary to the provisions of the Condominium Act, the enabling or master deed, or the
declaration of restrictions of the condominium project.52

We can elicit from the Condominium Act that a condominium corporation is precluded by statute from engaging in
corporate activities other than the holding of the common areas, the administration of the condominium project, and
other acts necessary, incidental or convenient to the accomplishment of such purposes. Neither the maintenance of
livelihood, nor the procurement of profit, fall within the scope of permissible corporate purposes of a condominium
corporation under the Condominium Act.

The Court has examined the particular Articles of Incorporation and By-Laws of the Corporation, and these
documents unmistakably hew to the limitations contained in the Condominium Act. Per the Articles of Incorporation,
the Corporations corporate purposes are limited to: (a) owning and holding title to the common and limited common
areas in the Condominium Project; (b) adopting such necessary measures for the protection and safeguard of the

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unit owners and their property, including the power to contract for security services and for insurance coverage on
the entire project; (c) making and adopting needful rules and regulations concerning the use, enjoyment and
occupancy of the units and common areas, including the power to fix penalties and assessments for violation of such
rules; (d) to provide for the maintenance, repair, sanitation, and cleanliness of the common and limited common
areas; (e) to provide and contract for public utilities and other services to the common areas; (f) to contract for the

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services of persons or firms to assist in the management and operation of the Condominium Project; (g) to discharge
any lien or encumbrances upon the Condominium Project; (h) to enforce the terms contained in the Master Deed
with Declaration of Restrictions of the Project; (i) to levy and

Besides, we shudder at the thought of upholding tax liability on the basis of the standard of "full appreciative living
values", a phrase that defies statutory explication, commonsensical meaning, the English language, or even
definition from Google. The exercise of the power of taxation constitutes a deprivation of property under the

collect those assessments as provided in the Master Deed, in order to defray the costs, expenses and losses of the
condominium; (j) to acquire, own, hold, enjoy, lease operate and maintain, and to convey, sell transfer, mortgage or
otherwise dispose of real or personal property in connection with the purposes and activities of the corporation; and

due process clause,56 and the taxpayers right to due process is violated when arbitrary or oppressive methods are
used in assessing and collecting taxes.57 The fact that the Corporation did not fall within the enumerated classes of
taxable businesses under either the Local Government Code or the Makati Revenue Code already forewarns that a
clear demonstration is essential on the part of the City Treasurer on why the Corporation should be taxed anyway.
"Full appreciative living values" is nothing but blather in search of meaning, and to impose a tax hinged on that
standard is both arbitrary and oppressive.

(k) to exercise and perform such other powers reasonably necessary, incidental or convenient to accomplish the
foregoing purposes.53

Obviously, none of these stated corporate purposes are geared towards maintaining a livelihood or the obtention of
profit. Even though the Corporation is empowered to levy assessments or dues from the unit owners, these amounts
collected are not intended for the incurrence of profit by the Corporation or its members, but to shoulder the multitude
of necessary expenses that arise from the maintenance of the Condominium Project. Just as much is confirmed by
Section 1, Article V of the Amended By-Laws, which enumerate the particular expenses to be defrayed by the regular
assessments collected from the unit owners. These would include the salaries of the employees of the Corporation,
and the cost of maintenance and ordinary repairs of the common areas.54

The City Treasurer nonetheless contends that the collection of these assessments and dues are "with the end view
of getting full appreciative living values" for the condominium units, and as a result, profit is obtained once these units
are sold at higher prices. The Court cites with approval the two counterpoints raised by the Court of Appeals in
rejecting this contention. First, if any profit is obtained by the sale of the units, it accrues not to the corporation but to
the unit owner. Second, if the unit owner does obtain profit from the sale of the corporation, the owner is already
required to pay capital gains tax on the appreciated value of the condominium unit.55

Moreover, the logic on this point of the City Treasurer is baffling. By this rationale, every Makati City car owner may
be considered as being engaged in business, since the repairs or improvements on the car may be deemed oriented
towards appreciating the value of the car upon resale. There is an evident distinction between persons who spend on
repairs and improvements on their personal and real property for the purpose of increasing its resale value, and
those who defray such expenses for the purpose of preserving the property. The vast majority of persons fall under
the second category, and it would be highly specious to subject these persons to local business taxes. The profit
motive in such cases is hardly the driving factor behind such improvements, if it were contemplated at all. Any profit
that would be derived under such circumstances would merely be incidental, if not accidental.

The City Treasurer also contends that the fact that the Corporation is engaged in business is evinced by the Articles
of Incorporation, which specifically empowers the Corporation "to acquire, own, hold, enjoy, lease, operate and
maintain, and to convey, sell, transfer mortgage or otherwise dispose of real or personal property."58What the City
Treasurer fails to add is that every corporation

organized under the Corporation Code59 is so specifically empowered. Section 36(7) of the Corporation Code states
that every corporation incorporated under the Code has the power and capacity "to purchase, receive, take or grant,
hold, convey, sell, lease, pledge, mortgage and otherwise deal with such real and personal property . . . as the
transaction of the lawful business of the corporation may reasonably and necessarily require . . .

."60Without this power, corporations, as juridical persons, would be deprived of the capacity to engage in most
meaningful legal relations.

Again, whatever capacity the Corporation may have pursuant to its power to exercise acts of ownership over
personal and real property is limited by its stated corporate purposes, which are by themselves further limited by the
Condominium Act. A condominium corporation, while enjoying such powers of ownership, is prohibited by law from
transacting its properties for the purpose of gainful profit.

105

Accordingly, and with a significant degree of comfort, we hold that condominium corporations are generally exempt
from local business taxation under the Local Government Code, irrespective of any local ordinance that seeks to
declare otherwise.

Still, we can note a possible exception to the rule. It is not unthinkable that the unit owners of a condominium would
band together to engage in activities for profit under the shelter of the condominium corporation.61 Such activity
would be prohibited under the Condominium Act, but if the fact is established, we see no reason why the
condominium corporation may be made liable by the local government unit for business taxes. Even though such
activities would be considered as ultra vires, since they are engaged in

beyond the legal capacity of the condominium corporation62, the principle of estoppel would preclude the
corporation or its officers and members from invoking the void nature of its undertakings for profit as a means of
acquitting itself of tax liability.

Still, the City Treasurer has not posited the claim that the Corporation is engaged in business activities beyond the
statutory purposes of a condominium corporation. The assessment appears to be based solely on the Corporations
collection of assessments from unit owners, such assessments being utilized to defray the necessary expenses for
the Condominium Project and the common areas. There is no contemplation of business, no orientation towards
profit in this case. Hence, the assailed tax assessment has no basis under the Local Government Code or the Makati
Revenue Code, and the insistence of the city in its collection of the void tax constitutes an attempt at deprivation of
property without due process of law.

WHEREFORE, the petition is DENIED. No costs.

SO ORDERED.

103

Ericsson Telecoms Inc. v. City of Pasig

106

THIRD DIVISION

G.R. No. 176667

In a Decision2 dated March 8, 2004, the RTC canceled and set aside the assessments made by respondent and its
City Treasurer. The dispositive portion of the RTC Decision reads:

November 22, 2007

WHEREFORE, premises considered, judgment is hereby rendered in favor of the plaintiff and ordering defendants to
CANCEL and SET ASIDE Assessment Notice dated October 25, 2000 and Notice of Assessment dated November
19, 2001.

ERICSSON TELECOMMUNICATIONS, INC., petitioner, vs.

SO ORDERED.3
CITY OF PASIG, represented by its City Mayor, Hon. Vicente P. Eusebio, et al.*, respondents.

DECISION

AUSTRIA-MARTINEZ, J.:

Ericsson Telecommunications, Inc. (petitioner), a corporation with principal office in Pasig City, is engaged in the
design, engineering, and marketing of telecommunication facilities/system. In an Assessment Notice dated October
25, 2000 issued by the City Treasurer of Pasig City, petitioner was assessed a business tax deficiency for the years
1998 and 1999 amounting to P9,466,885.00 and P4,993,682.00, respectively, based on its gross revenues as
reported in its audited financial statements for the years 1997 and 1998. Petitioner filed a Protest dated December
21, 2000, claiming that the computation of the local business tax should be based on gross receipts and not on gross
revenue.

On appeal, the Court of Appeals (CA) rendered its Decision4 dated November 20, 2006, the dispositive portion of
which reads:

WHEREFORE, the decision appealed from is hereby ordered SET ASIDE and a new one entered DISMISSING the
plaintiff/appellee's complaint WITHOUT PREJUDICE.

SO ORDERED.5

The CA sustained respondent's claim that the petition filed with the RTC should have been dismissed due to
petitioner's failure to show that Atty. Maria Theresa B. Ramos (Atty. Ramos), petitioner's Manager for Tax and Legal
Affairs and the person who signed the Verification and Certification of Non-Forum Shopping, was duly authorized by
the Board of Directors.

The City of Pasig (respondent) issued another Notice of Assessment to petitioner on November 19, 2001, this time
based on business tax deficiencies for the years 2000 and 2001, amounting to P4,665,775.51 andP4,710,242.93,
respectively, based on its gross revenues for the years 1999 and 2000. Again, petitioner filed a Protest on January
21, 2002, reiterating its position that the local business tax should be based on gross receiptsand not gross revenue.

Its motion for reconsideration having been denied in a Resolution6 dated February 9, 2007, petitioner now comes
before the Court via a Petition for Review on Certiorari under Rule 45 of the Rules of Court, on the following grounds:

Respondent denied petitioner's protest and gave the latter 30 days within which to appeal the denial. This prompted
petitioner to file a petition for review1 with the Regional Trial Court (RTC) of Pasig, Branch 168, praying for the
annulment and cancellation of petitioner's deficiency local business taxes totaling P17,262,205.66.

(1)
THE COURT OF APPEALS ERRED IN DISMISSING THE CASE FOR LACK OF SHOWING THAT THE
SIGNATORY OF THE VERIFICATION/ CERTIFICATION IS NOT SPECIFICALLY AUTHORIZED FOR AND IN
BEHALF OF PETITIONER.

Respondent and its City Treasurer filed a motion to dismiss on the grounds that the court had no jurisdiction over the
subject matter and that petitioner had no legal capacity to sue. The RTC denied the motion in an Order dated
December 3, 2002 due to respondents' failure to include a notice of hearing. Thereafter, the RTC declared
respondents in default and allowed petitioner to present evidence ex- parte.

(2)
THE COURT OF APPEALS ERRED IN GIVING DUE COURSE TO RESPONDENT'S APPEAL,
CONSIDERING THAT IT HAS NO JURISDICTION OVER THE SAME, THE MATTERS TO BE RESOLVED BEING
PURE QUESTIONS OF LAW, JURISDICTION OVER WHICH IS VESTED ONLY WITH THIS HONORABLE COURT.

107

(3)
ASSUMING THE COURT OF APPEALS HAS JURISDICTION OVER RESPONDENT'S APPEAL, SAID
COURT ERRED IN NOT DECIDING ON THE MERITS OF THE CASE FOR THE SPEEDY DISPOSITION
THEREOF, CONSIDERING THAT THE DEFICIENCY LOCAL BUSINESS TAX ASSESSMENTS ISSUED BY

In the present case, petitioner submitted a Secretary's Certificate signed on May 6, 2002, whereby Atty. Ramos was
authorized to file a protest at the local government level and to "sign, execute and deliver any and all papers,
documents and pleadings relative to the said protest and to do and perform all such acts and things as may be
necessary to effect the foregoing."13

RESPONDENT ARE CLEARLY INVALID AND CONTRARY TO THE PROVISIONS OF THE PASIG REVENUE
CODE AND THE LOCAL GOVERNMENT CODE.7
Applying the foregoing jurisprudence, the subsequent submission of the Secretary's Certificate and the substantial
merits of the petition, which will be shown forthwith, justify a relaxation of the rule.
104
Second, the CA should have dismissed the appeal of respondent as it has no jurisdiction over the case since the
appeal involves a pure question of law. The CA seriously erred in
After receipt by the Court of respondent's complaint and petitioner's reply, the petition is given due course and
considered ready for decision without the need of memoranda from the parties.

The Court grants the petition.

First, the complaint filed by petitioner with the RTC was erroneously dismissed by the CA for failure of petitioner to
show that its Manager for Tax and Legal Affairs, Atty. Ramos, was authorized by the Board of Directors to sign the
Verification and Certification of Non-Forum Shopping in behalf of the petitioner corporation.

Time and again, the Court, under special circumstances and for compelling reasons, sanctioned substantial
compliance with the rule on the submission of verification and certification against non-forum shopping.8

In General Milling Corporation v. National Labor Relations Commission,9 the Court deemed as substantial
compliance the belated attempt of the petitioner to attach to the motion for reconsideration the board
resolution/secretary's certificate, stating that there was no attempt on the part of the petitioner to ignore the
prescribed procedural requirements.

In Shipside Incorporated v. Court of Appeals,10 the authority of the petitioner's resident manager to sign the
certification against forum shopping was submitted to the CA only after the latter dismissed the petition. The Court
considered the merits of the case and the fact that the petitioner subsequently submitted a secretary's certificate, as
special circumstances or compelling reasons that justify tempering the requirements in regard to the certificate of
non-forum shopping.11

There were also cases where there was complete non-compliance with the rule on certification against forum
shopping and yet the Court proceeded to decide the case on the merits in order to serve the ends of substantial
justice.12

ruling that the appeal involves a mixed question of law and fact necessitating an examination and evaluation of the
audited financial statements and other documents in order to determine petitioner's tax base.

There is a question of law when the doubt or difference is on what the law is on a certain state of facts. On the other
hand, there is a question of fact when the doubt or difference is on the truth or falsity of the facts alleged.14For a
question to be one of law, the same must not involve an examination of the probative value of the evidence
presented by the litigants or any of them. The resolution of the issue must rest solely on what the law provides on the
given set of circumstances. Once it is clear that the issue invites a review of the evidence presented, the question
posed is one of fact. Thus, the test of whether a question is one of law or of fact is not the appellation given to such
question by the party raising the same; rather, it is whether the appellate court can determine the issue raised
without reviewing or evaluating the evidence, in which case, it is a question of law; otherwise it is a question of
fact.15

There is no dispute as to the veracity of the facts involved in the present case. While there is an issue as to the
correct amount of local business tax to be paid by petitioner, its determination will not involve a look into petitioner's
audited financial statements or documents, as these are not disputed; rather, petitioner's correct tax liability will be
ascertained through an interpretation of the pertinent tax laws, i.e., whether the local business tax, as imposed by the
Pasig City Revenue Code (Ordinance No. 25-92) and the Local Government Code of 1991, should be based on
gross receipts, and not on gross revenue which respondent relied on in computing petitioner's local business tax
deficiency. This, clearly, is a question of law, and beyond the jurisdiction of the CA.

Section 2(c), Rule 41 of the Rules of Court provides that in all cases where questions of law are raised or involved,
the appeal shall be to this Court by petition for review on certiorari under Rule 45.

Thus, as correctly pointed out by petitioner, the appeal before the CA should have been dismissed, pursuant to
Section 5(f), Rule 56 of the Rules of Court, which provides:

108

Sec. 5. Grounds for dismissal of appeal.- The appeal may be dismissed motu proprio or on motion of the respondent
on the following grounds:

Insofar as petitioner is concerned, the applicable provision is subsection (e), Section 143 of the same Code covering
contractors and other independent contractors, to wit:

xxxx

SEC. 143. Tax on Business. - The municipality may impose taxes on the following businesses:

(f) Error in the choice or mode of appeal.

xxxx

xxxx

(e) On contractors and other independent contractors, in accordance with the following schedule:

Third, the dismissal of the appeal, in effect, would have sustained the RTC Decision ordering respondent to cancel
the Assessment Notices issued by respondent, and

With gross receipts for the preceding Amount of Tax Per

calendar year in the amount of:

Annum

105

xxxx

therefore, would have rendered moot and academic the issue of whether the local business tax on contractors
should be based on gross receipts or gross revenues.

(Emphasis supplied)

However, the higher interest of substantial justice dictates that this Court should resolve the same, to evade further
repetition of erroneous interpretation of the law,16 for the guidance of the bench and bar.

The above provision specifically refers to gross receipts which is defined under Section 131 of the Local Government
Code, as follows:

As earlier stated, the substantive issue in this case is whether the local business tax on contractors should be based
on gross receipts or gross revenue.

xxxx

Respondent assessed deficiency local business taxes on petitioner based on the latter's gross revenue as reported
in its financial statements, arguing that gross receipts is synonymous with gross earnings/revenue, which, in turn,
includes uncollected earnings. Petitioner, however, contends that only the portion of the revenues which were
actually and constructively received should be considered in determining its tax base.

(n) "Gross Sales or Receipts" include the total amount of money or its equivalent representing the contract price,
compensation or service fee, including the amount charged or materials supplied with the services and the deposits
or advance payments

Respondent is authorized to levy business taxes under Section 143 in relation to Section 151 of the Local
Government Code.

109

actually or constructively received during the taxable quarter for the services performed or to be performed for
another person excluding discounts if determinable at the time of sales, sales return, excise tax, and value-added tax
(VAT);

Under Article 531:

xxxx

The law is clear. Gross receipts include money or its equivalent actually or constructively received in consideration of
services rendered or articles sold, exchanged or leased, whether actual or constructive.

In Commissioner

of Internal Revenue v.

Bank of Commerce,17 the Court

interpreted gross

receipts as including those

which were

actually or constructively

106

"Possession is acquired by the material occupation of a thing or the exercise of a right, or by the fact that it is subject
to the action of our will, or by the proper acts and legal formalities established for acquiring such right."

received, viz.:
Article 532 states:
Actual receipt of interest income is not limited to physical receipt. Actual receipt may either be physical receipt or
constructive receipt. When the depository bank withholds the final tax to pay the tax liability of the lending bank,
there is prior to the withholding a constructive receipt by the lending bank of the amount withheld. From the amount
constructively received by the lending bank, the depository bank deducts the final withholding tax and remits it to the
government for the account of the lending bank. Thus, the interest income actually received by the lending bank,
both physically and constructively, is the net interest plus the amount withheld as final tax.

"Possession may be acquired by the same person who is to enjoy it, by his legal representative, by his agent, or by
any person without any power whatever; but in the last case, the possession shall not be considered as acquired
until the person in whose name the act of possession was executed has ratified the same, without prejudice to the
juridical consequences of negotiorum gestio in a proper case."

The concept of a withholding tax on income obviously and necessarily implies that the amount of the tax withheld
comes from the income earned by the taxpayer. Since the amount of the tax withheld constitutes income earned by
the taxpayer, then that amount manifestly forms part of the taxpayer's gross receipts. Because the amount withheld
belongs to the taxpayer, he can transfer its ownership to the government in payment of his tax liability. The amount
withheld indubitably comes from income of the taxpayer, and thus forms part of his gross receipts. (Emphasis
supplied)

The last means of acquiring possession under Article 531 refers to juridical actsthe acquisition of possession by
sufficient titleto which the law gives the force of acts of possession. Respondent argues that only items of income
actually received should be included in its gross receipts. It claims that since the amount had already been withheld
at source, it did not have actual receipt thereof.

Further elaboration was made by the Court in Commissioner of Internal Revenue v. Bank of the Philippine Islands,18
in this wise:

We clarify. Article 531 of the Civil Code clearly provides that the acquisition of the right of possession is through the
proper acts and legal formalities established therefor. The withholding process is one such act. There may not be
actual receipt of the income withheld; however, as provided for in Article 532, possession by any person without any
power whatsoever shall be considered as acquired when ratified by the person in whose name the act of possession
is executed.

Receipt of income may be actual or constructive. We have held that the withholding process results in the taxpayer's
constructive receipt of the income withheld, to wit:

By analogy, we apply to the receipt of income the rules on actual and constructive possession provided in Articles
531 and 532 of our Civil Code.

In our withholding tax system, possession is acquired by the payor as the withholding agent of the government,
because the taxpayer ratifies the very act of possession for the government. There is thus constructive receipt. The
processes of bookkeeping and accounting for interest on deposits and yield on deposit substitutes that are subjected
to FWT are indeedfor legal purposestantamount to delivery, receipt or remittance.19

110

Revenue Regulations No. 16-2005 dated September 1, 200520 defined and gave examples of "constructive receipt",
to wit:

receive the income, and the amount can be determined with reasonable accuracy; the right to receive income, and
not the actual receipt, determines when to include the amount in gross income.25

SEC. 4. 108-4. Definition of Gross Receipts. -- x x x

The imposition of local business tax based on petitioner's gross revenue will inevitably result in the constitutionally
proscribed double taxation taxing of the same person twice by the same jurisdiction for the same thing26
inasmuch as petitioner's revenue or income for a taxable year will definitely include its gross receipts already
reported during the previous year and for which local business tax has already been paid.

"Constructive receipt" occurs when the money consideration or its equivalent is placed at the control of the person
who rendered the service without restrictions by the payor. The following are examples of constructive receipts:

(1)

deposit in banks which are made available to the seller of services without restrictions;

Thus, respondent committed a palpable error when it assessed petitioner's local business tax based on its gross
revenue as reported in its audited financial statements, as Section 143 of the Local Government Code and Section
22(e) of the Pasig Revenue Code clearly provide that the tax should be computed based on gross receipts.

(2)
issuance by the debtor of a notice to offset any debt or obligation and acceptance thereof by the seller as
payment for services rendered; and

WHEREFORE, the petition is GRANTED. The Decision dated November 20, 2006 and Resolution dated February 9,
2007 issued by the Court of Appeals are SET ASIDE, and the Decision dated March 8, 2004 rendered by the
Regional Trial Court of Pasig, Branch 168 is REINSTATED.

(3) transfer of the amounts retained by the payor to the account of the contractor.

SO ORDERED. Ynares-Santiago, Chairperson, Chico-Nazario, Nachura, Reyes, JJ., concur.

There is, therefore, constructive receipt, when the consideration for the articles sold, exchanged or leased, or the
services rendered has already been placed under the control of the person who sold the goods or rendered the
services without any restriction by the payor.

In contrast, gross revenue covers money or its equivalent actually or constructively received, including the value of
services rendered or articles sold, exchanged or leased, the payment of which is yet to be received. This is in
consonance with the International Financial Reporting Standards,21 which defines revenue as the gross inflow of
economic benefits (cash, receivables, and other assets) arising from the ordinary operating activities of an enterprise
(such as sales of goods, sales of services, interest, royalties, and dividends),22 which is measured at the fair value
of the consideration received or receivable.23

Allied Thread Co., Inc. v. Manila

Republic of the Philippines

SUPREME COURT
As aptly stated by the RTC:
Manila
"[R]evenue from services rendered is recognized when services have been performed and are billable." It is
"recorded at the amount received or expected to be received." (Section E [17] of the Statements of Financial
Accounting Standards No. 1).24

In petitioner's case, its audited financial statements reflect income or revenue which accrued to it during the taxable
period although not yet actually or constructively received or paid. This is because petitioner uses the accrual
method of accounting, where income is reportable when all the events have occurred that fix the taxpayer's right to

EN BANC

G.R. No. L-40296 November 21, 1984

111

xxx xxx xxx

ALLIED THREAD CO., INC., and KER & COMPANY, LTD., petitioners, vs.

HON. CITY MAYOR OF MANILA, HON. CITY TREASURER OF MANILA, HON. LORENZO RELOVA, in his capacity
as Presiding Judge, Branch II, CFI of Manila, respondents.

PROVIDED HOWEVER, that for purposes of collection of this tax, manufacturers and producers maintaining or
operating branch or sales offices elsewhere shall record the sale in the branch or sales office making the sale and
the tax thereon shall accrue to the City of Manila if the branch of sales office is in Manila. In cases where there is no
such branch or sales office in the city, the sale shag be duly recorded in the principal office along with the sales
made in the principal office. Sixty percent of all sales recorded in the principal office shall be taxable by the City of
Manila if the principal office is in Manila, while the remaining forty percent shall be deemed as sales made in the
factory and shall he taxable by the local government where the factory is located.

Antonio A. Nieva for petitioners.

Santiago F. Alidio, S.M. Artiaga, Jr. and Jose A. Perella for respondents.

In cases where a manufacturer or producer has factories in Manila and in different localities, the forty per cent sales
allocation mentioned in the preceding paragraph shall be appropriated among the City of Manila and the localities
where the factories are situated in proportion to their respective volumes of production during the period for which
the tax is due.

ABAD SANTOS, J.:

The records show that petitioner Allied Id Co., inc. is engaged in the business of manufacturing sewing thread and
yarn under duly registered marks and labels. It operates its factory and maintains an office in Pasig, Rizal. In order to
sell its products in Manila and in other parts of the Philippines, petitioner Allied Thread Co., Inc. engaged the services
of a sales broker, Ker & Company, Ltd. (co-petitioner herein), the latter deriving commissions from every sale made
for its principal.

This is a Petition for Review challenging the decision of the then Court of First Instance of Manila presided by then
Judge, now Justice Lorenzo Relova, which upheld the validity of Manila Ordinance No. 7516, as amended by
Ordinance Nos. 7544, 7545 and 7556, and adjudging petitioner Allied Thread Co., Inc. taxable thereunder
considering that its products are sold in Manila.

On June 12, 1974, the Municipal Board of the City of Manila enacted Ordinance No. 7516 imposing on
manufacturers, importer porters or producers, doing business in the City of Manila, business taxes based on gross
sales on a graduated basis. The Mayor approved the said Ordinance on June 15, 1974. In due time, the same
ordinance underwent a series of amendments, to wit: on June 19, 1974, by Ordinance No. 7544 approved by the
Mayor on the same date; Ordinance No. 7545 enacted by the Municipal Board on June 20, 1974 and approved by
the Mayor on June 27, 1974; and Ordinance No. 7556, enacted by the Municipal Board on July 20, 1974 and
approved by the Mayor on July 29,1974. Ordinance No. 7516 as amended, reads as follows:

Sec. 1. Business Tax. There is hereby imposed on the following business in the City of Manila an annual tax
collectible quarterly except on those for which fixed taxes are already provided for as follows:

Having been affected by the aforementioned Ordinance, being manufacturers and sales brokers, on July 22, 1974,
Allied Thread Co., Inc. and Ker & Co., Ltd. filed with the defunct Court of First Instance of Manila, a petition for
Declaratory Relief, contending that Ordinance No. 7516, as amended, is not valid nor enforceable as the same is
contrary to Section 54 of Presidential Decree No. 426, as clarified by Local Tax Regulation No. 1-74 dated April 8,
1974 of the Department of Finance, reading as follows:

J. GENERAL PROVISIONS

1.
All existing tax ordinance of provinces, cities, municipalities and barrios shall be deemed ipso factonullified
on June 30, 1974.

2.
The local boards or councils should enact their respective tax ordinances pursuant to the provisions of the
Local Tax Code, as amended by P.D. 426, to take effect not earlier than July 1, 1974.

A. On manufacturers, importers, or producers of any article of commerce of whatever kind or nature, including
brewers, distilled spirits and/or wines in accordance with the following schedule:

112

3. Pursuant to the provisions of Section 42 of the Code, as amended by Section 18 of the said Decree, a local tax
ordinance shall go into effect on the 15th day after approved by the local chief executives in accordance with Section
41 of the Code. 4. In view hereof, and considering the provisions of Section 54 of the Code, regarding the accrual of
taxes a local tax ordinance intended to take effect on July 1, 1974 should be enacted by the Local Chief Executive
not later than June 15, 1974. (Emphasis supplied)

Otherwise stated, petitioners assert that due to the series of amendments to Ordinance No. 7516, the same
Ordinance fell short of the deadline set by Sec. 54 of P.D. No. 426 that "for an ordinance intended to take effect on
July 1, 1974, it must be enacted on or before June 15, 1974." Necessarily, so it is asserted, the said Ordinance No.
7516 as amended, is not valid nor enforceable.

Petitioners further contend that the questioned Ordinance did not comply with the necessary publication requirement
in a newspaper of general circulation as mandated by Sec. 43 of the Local Tax Code. Petitioner Allied Thread Co.,
Inc. also claims that it should not be subjected to the said Ordinance No. 7516 as amended, because it does not
operate or maintain a branch office in Manila and that its principal office and factory are located in Pasig, Rizal.

We agree with the decision of the then Court of First Instance of Manila, upholding the validity of Ordinance No. 7516
as amended, and finding petitioner Allied Thread Co., Inc. the proper subject thereto.

There is no dispute that Ordinance No. 7516 was enacted by the Municipal Board of Manila on June 12, 1974 and
approved by the City Mayor on June 15, 1974. Fifteen (15) days thereafter, or on July 1, 1974, the said ordinance
became effective pursuant to Sec. 42 of the Local Tax Code. It is clear therefore that Ordinance No. 7516 has fully
conformed with P.D. No. 426 and Local Tax Regulation No. 1-74 which require that "a local tax ordinance intended to
take effect on July 1, 1974 should be enacted by the Local Chief Executive not later than June 15, 1974 ". The
subsequent amendments to the basic ordinance did not in any way invalidate it nor move the date of its effectivity. To
hold otherwise would limit the power of the defunct Municipal Board of Manila to amend an existing ordinance as
exigencies require.

Petitioners complain that they were not fully apprised of the enactment of Ordinance No. 7516 for the same was not
duly published in a newspaper of general circulation. Respondents argue however, that copies of Ordinance No.
7516 and its amendments were posted in public buildings, government offices, and public places in lieu of publication
in newspaper of general circulation.

(b) by means of posting of copies thereof in the local legislative hall or premises and two other conspicuous places
within the territorial jurisdiction of the local government. Respondents, having complied with the second mode of
notice, We are of the opinion that there is no legal infirmity to the validity of Ordinance No. 7516 as amended.

Finally, petitioner Allied Thread Co., Inc. claims exclusion from Ordinance No. 7515 as amended on the ground that it
does not maintain an office or branch office in the City of Manila, where the subject Ordinance only applies. This
contention is devoid of merit. Allied Thread Co., Inc. admits that it does business in the City of Manila through a
broker or agent, Ker & Company, Ltd. Doing business in the City of Manila is all that is required to fall within the
coverage of the Ordinance.

It should be noted that Ordinance No. 7516 as amended imposes a business tax on manufacturers, importers or
producers doing business in the City of Manila. The tax imposition here is upon the performance of an act, enjoyment
of a privilege, or the engaging in an occupation, and hence is in the nature of an excise tax.

The power to levy an excise upon the performance of an act or the engaging in an occupation does not depend upon
the domicile of the person subject to the excise nor upon the physical location of the property and in connection with
the act or occupation taxed, but depends upon the place in which the act is performed or occupation engaged in.

Thus, the gauge for taxability under the said Ordinance No. 7516 as amended does not depend on the location of
the office, but attaches upon the place where the respective sale transaction(s) is perfected and consummated. (See
Koppel (Phil.) vs. Yatco, 77 Phil. 496 [1946]) Since Allied Thread Co., Inc. sells its products in the City of Manila
through its broker, Ker & Company, Ltd., it cannot escape the tax liability imposed by Ordinance No. 7516 as
amended.

WHEREFORE, the petition is hereby dismissed for lack of merit. Costs against the petitioners.

SO ORDERED.

Fernando, C.J., Makasiar, Aquino, Concepcion, Jr., Melencio-Herrera, Plana, Escolin, Gutierrez, Jr., De la Fuente,
and Cuevas, JJ., concur.
We are persuaded that there was substantial compliance of the law on publication. Section 43 of the Local Tax Code
provides two modes of apprising the public of a new ordinance, either, (a) by means of publication in a newspaper of
general circulation or,

Teehankee and Relova, JJ., took no part.

113

ROMERO, J.:

Province of Bulacan v. CA

Before us is a petition for certiorari seeking the reversal of the decision of the Court of Appeals dated September 27,
1995 declaring petitioner without authority to levy taxes on stones, sand, gravel, earth and other quarry resources
extracted from private lands, as well as the August 26, 1996 resolution of the appellate court denying its motion for
reconsideration.

The facts are as follows:

Republic of the Philippines

SUPREME COURT

Manila

THIRD DIVISION

G.R. No. 126232 November 27, 1998

THE PROVINCE OF BULACAN, ROBERTO M. PAGDANGANAN, FLORENCE CHAVES, and MANUEL DJ

SIAYNGCO in their capacity as PROVINCIAL GOVERNOR, PROVINCIAL TREASURER, PROVINCIAL LEGAL

On June 26, 1992, the Sangguniang Panlalawigan of Bulacan passed Provincial Ordinance No. 3, known as "An
Ordinance Enacting the Revenue Code of the Bulacan Province." which was to take effect on July 1, 1992. Section
21 of the ordinance provides as follows:

Sec. 21 Imposition of Tax. There is hereby levied and collected a tax of 10% of the fair market value in the locality
per cubic meter of ordinary stones, sand, gravel, earth and other quarry resources, such, but not limited to marble,
granite, volcanic cinders, basalt, tuff and rock phosphate, extracted from public lands or from beds of seas, lakes,
rivers, streams, creeks and other public waters within its territorial jurisdiction (Emphasis ours)

Pursuant thereto, the Provincial Treasurer of Bulacan, in a letter dated November 11, 1993, assessed private
respondent Republic Cement Corporation (hereafter Republic Cement) P2,524,692.13 for extracting limestone, shale
and silica from several parcels of private land in the province during the third quarter of 1992 until the second quarter
of 1993. Believing that the province, on the basis of above-said ordinance, had no authority to impose taxes on
quarry resources extracted from private lands, Republic Cement formally contested the same on December 23,
1993. The same was, however, denied by the Provincial Treasurer on January 17, 1994. Republic Cement,
consequently filed a petition for declaratory relief with the Regional Trial Court of Bulacan on February 14, 1994. The
province filed a motion to dismiss Republic Cement's petition, which was granted by the trial court on May 13, 1993,
which ruled that declaratory relief was improper, allegedly because a breach of the ordinance had been committed
by Republic Cement.

ADVISER, respectively, petitioners, vs.

THE HONORABLE COURT OF APPEALS (FORMER SPECIAL 12TH DIVISION), REPUBLIC CEMENT
CORPORATION, respondents.

On July 11, 1994, Republic Cement filed a petition for certiorari with the Supreme Court seeking to reverse the trial
court's dismissal of their petition. The Court, in a resolution dated July 27, 1994, referred the same to the Court of
Appeals, where it was docketed as CA G.R. SP No. 34915. The appellate court required petitioners to file a
comment, which they did on September 7, 1994.

In the interim, the Province of Bulacan issued a warrant of levy against Republic Cement, allegedly because of its
unpaid tax liabilities. Negotiations between Republic Cement and petitioners resulted in an agreement and modus
vivendi on December 12, 1994, whereby Republic Cement agreed to pay under protest P1,262,346.00, 50% of the

114

tax assessed by petitioner, in exchange for the lifting of the warrant of levy. Furthermore, Republic Cement and
petitioners agreed to limit the issue for resolution by the Court of Appeals to the question as to whether or not the
provincial government could impose and/or assess taxes on quarry resources extracted by Republic Cement from
private lands pursuant to Section 21 of Provincial Ordinance No. 3. This agreement and modus vivendi were
embodied in a joint manifestation and motion signed by Governor Roberto Pagdanganan, on behalf of the Province
of Bulacan, by Provincial Treasurer Florence Chavez, and by Provincial Legal Officer Manuel Siayngco, as
petitioners' counsel and filed with the Court of Appeals on December 13, 1994. In a resolution dated December 29,
1994, the appellate court approved the same and limited the issue to be resolved to the question of whether or not
the provincial government could impose taxes on stones, sand, gravel, earth and other quarry resources extracted
from private lands.

4.
GOING BEYOND THE PARAMETERS OF ITS APPELLATE JURISDICTION IN RENDERING THE
SEPTEMBER 27, 1995 DECISION;

5.
HOLDING THAT PRIVATE RESPONDENT (HEREIN PETITIONER) ARE ESTOPPED FROM RAISING
THE PROCEDURAL ISSUE IN THE MOTION FOR RECONSIDERATION;

After due trial, the Court of Appeals, on September 27, 1995, rendered the following judgment:

6.
THE INTERPRETATION OF SECTION 134 OF THE LOCAL GOVERNMENT CODE AS STATED IN THE
SECOND TO THE LAST PARAGRAPH OF PAGE 5 OF ITS SEPTEMBER 27, 1995 DECISION;

WHEREFORE, judgment is hereby rendered declaring the Province of Bulacan under its Provincial Ordinance No. 3
entitled "An Ordinance Enacting The Revenue Code of Bulacan Province" to be without legal authority to impose and
assess taxes on quarry

7.
SUSTAINING THE ALLEGATIONS OF HEREIN RESPONDENT WHICH UNJUSTLY DEPRIVED
PETITIONER THE POWER TO CREATE ITS OWN SOURCES OF REVENUE;

8.
DECLARING THAT THE ASSESSMENT MADE BY THE PROVINCE OF BULACAN AGAINST RCC AS
NULL AND VOID WHICH IN EFFECT IS A COLLATERAL ATTACK ON PROVINCIAL ORDINANCE NO. 3; AND

resources extracted by RCC from private lands, hence the interpretation of Respondent Treasurer of Chapter II,
Article D, Section 21 of the Ordinance, and the assessment made by the Province of Bulacan against RCC is null
and void.

9.

Petitioners' motion for reconsideration, as well as their supplemental motion for reconsideration, was denied by the
appellate court on August 26, 1996, hence this appeal.

The issues raised by petitioners are devoid of merit. The number and diversity of errors raised by appellants impel
us, however, to discuss the points raised seriatim.

Petitioners claim that the Court of Appeals erred in:

In their first assignment of error, petitioners contend that instead of filing a petition for certiorari with the Supreme
Court, Republic Cement should have appealed from the order of the trial court dismissing their petition.
CitingMartinez vs. CA, 1 they allege that a motion to dismiss is a final order, the remedy against which is not a
petition forcertiorari, but an appeal, regardless of the questions sought to be raised on appeal, whether of fact or of
law, whether involving jurisdiction or grave abuse of discretion of the trial court.

1.
NOT HAVING OUTRIGHTLY DISMISSED THE SUBJECT PETITION ON THE GROUND THAT THE
SAME IS NOT THE APPROPRIATE REMEDY FROM THE TRIAL COURT'S GRANT OF THE PRIVATE
RESPONDENTS' (HEREIN PETITIONER) MOTION TO DISMISS;

2.
NOT DISMISSING THE SUBJECT PETITION FOR BEING VIOLATIVE OF CIRCULAR 2-90 ISSUED BY
THE SUPREME COURT;

FAILING TO CONSIDER THE REGALIAN DOCTRINE IN FAVOR OF THE LOCAL GOVERNMENT.

Petitioners' argument is misleading. While it is true that the remedy against a final order is an appeal, and not a
petition for certiorari, the petition referred to is a petition for certiorari under Rule 65. As stated in Martinez, the party
aggrieved does not have the option to substitute the special civil action of certiorari under Rule 65 for the remedy of
appeal. The existence and availability of the right of appeal are antithetical to the availment of the special civil action
of certiorari.

3.
NOT DISMISSING THE PETITION FOR REVIEW ON THE GROUND THAT THE TRIAL COURT'S
ORDER OF MAY 13, 1994 HAD LONG BECOME FINAL AND EXECUTORY;

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Republic Cement did not, however, file a petition for certiorari under Rule 65, but an appeal by certiorari under Rule
45. Even law students know that certiorari under Rule 45 is a mode of appeal, an appeal from the Regional Trial
Court being taken in either of two ways (a) by writ of error (involving questions of fact and law) and (b) bycertiorari
(limited only to issues of law), with an appeal by certiorari being brought to the Supreme Court, there being no
provision of law for taking appeals by certiorari to the Court of Appeals. 2 It is thus clearly apparent that Republic
Cement correctly contested the trial court's order of dismissal by filing an appeal by certiorari under Rule 45. In fact,
petitioners, in their second assignment of error, admit that a petition for review on certiorari under Rule 45 is
available to a party aggrieved by an order granting a motion to dismiss. 3 They claim, however, that Republic
Cement could not avail of the same allegedly because the latter raised issues of fact, which is prohibited, Rule 45
providing that "(t)he petition shall raise only questions of law which must be distinctly set forth." 4 In this respect,
petitioners claim that Republic Cement's petition should have been dismissed by the appellate court, Circular 2-90
providing:

4. Erroneous Appeals. An appeal taken to either the Supreme Court or the Court of Appeals by the wrong or
inappropriate mode shall be dismissed.

xxx xxx xxx

d) No transfer of appeals erroneously taken. No transfers of appeals erroneously taken to the Supreme Court or
to the Court of Appeals to whichever of these Tribunals has appropriate appellate jurisdiction will be allowed;
continued ignorance or wilful disregard of the law on appeals will not be tolerated.

As the trial court's order was properly appealed by Republic Cement, the trial court's May 13, 1994 order never
became final and executory, rendering petitioner's third assignment of error moot and academic.

Petitioners' fourth and fifth assignment of errors are likewise without merit. Petitioners assert that the Court of
Appeals could only rule on the propriety of the trial court's dismissal of Republic Cement's petition for declaratory
relief, allegedly because that was the sole relief sought by the latter in its petition for certiorari. Petitioners claim that
the appellate court overstepped its jurisdiction when it declared null and void the assessment made by the Province
of Bulacan against Republic Cement.

Petitioners gloss over the fact that, during the proceedings before the Court of Appeals, they entered into an
agreement and modus vivendi whereby they limited the issue for resolution to the question as to whether or not the
provincial government could impose and/or assess taxes on stones, sand, gravel, earth and other quarry resources
extracted by Republic Cement from private lands. This agreement and modus vivendi were approved by the
appellate court on December 29, 1994. All throughout the proceedings, petitioners never questioned the authority of
the Court of Appeals to decide this issue, an issue which it brought itself within the purview of the appellate court.
Only when an adverse decision was rendered by the Court of Appeals did petitioners question the jurisdiction of the
former.

Petitioners are barred by the doctrine of estoppel from contesting the authority of the Court of Appeals to decide the
instant case, as this Court has consistently held that "(a) party cannot invoke the jurisdiction of a court to secure
affirmative relief against his opponent and after obtaining or failing to obtain such relief, repudiate or question that
same jurisdiction." 5 The Supreme Court frowns upon the undesirable practice of a party

submitting his case for decision and then accepting the judgment, only if favorable, and attacking it for lack of
jurisdiction when adverse. 6
Petitioners even fault the Court for referring Republic Cement's petition to the Court of Appeals, claiming that the
same should have been dismissed pursuant to Circular 2-90. Petitioners conveniently overlook the other provisions
of Circular 2-90, specifically 4b) thereof, which provides:

b) Raising factual issues in appeal by certiorari. Although submission of issues of fact in an appeal by certiorari
taken to the Supreme Court from the regional trial court is ordinarily proscribed, the Supreme Court nonetheless
retains the option, in the exercise of its sound discretion and considering the attendant circumstances, either itself to
take cognizance of and decide such issues or to refer them to the Court of Appeals for determination.

As can be clearly adduced from the foregoing, when an appeal by certiorari under Rule 45 erroneously raises factual
issues, the Court has the option to refer the petition to the Court of Appeals. The exercise by the Court of this option
may not now be questioned by petitioners.

In a desperate attempt to ward off defeat, petitioners now repudiate the above-mentioned agreement and modus
vivendi, claiming that the same was not binding on the Province of Bulacan, not having been authorized by
theSangguniang Panlalawigan of Bulacan. While it is true that the Provincial Governor can enter into contract and
obligate the province only upon authority of the sangguniang panlalawigan, 7 the same is inapplicable to the case at
bar. The agreement and modus vivendi may have been signed by petitioner Roberto Pagdanganan, as Governor of
the Province of Bulacan, without authorization from the sangguniang panlalawigan, but it was also signed by Manuel
Siayngco, the Provincial Legal Officer, in his capacity as such, and as counsel of petitioners.

It is a well-settled rule that all proceedings in court to enforce a remedy, to bring a claim, demand, cause of action or
subject matter of a suit to hearing, trial, determination, judgment and execution are within the exclusive control of the
attorney. 8 With respect to such matters of ordinary judicial procedure, the attorney needs no special authority to bind
his client. 9 Such questions as what action or pleading to file, where and when to file it, what are its formal
requirements, what should be the theory of the case, what defenses to raise, how may the claim or defense be
proved, when to rest the case, as well as those affecting the competency of a witness, the sufficiency, relevancy,
materiality or immateriality of certain evidence and the burden of proof are within the authority of the attorney to

116

decide. 10 Whatever decision an attorney makes on any of these procedural questions, even if it adversely affects a
client's case, will generally bind a client. The agreement and modus vivendi signed by petitioners' counsel is binding
upon petitioners, even if theSanggunian had not authorized the same, limitation of issues being a procedural
question falling within the exclusive authority of the attorney to decide.

Sec. 133. Common Limitations on the Taxing Powers of Local Government Units. Unless otherwise provided
herein, the exercise of the taxing powers of provinces, cities, municipalities, and barangays shall not extend to the
levy of the following:

xxx xxx xxx

In any case, the remaining issues raised by petitioner are likewise devoid of merit, a province having no authority to
impose taxes on stones, sand, gravel, earth and other quarry resources extracted from private lands. The pertinent
provisions of the Local Government Code are as follows:
(h) Excise taxes on articles enumerated under the National Internal Revenue Code, as amended, and taxes, fees or
charges on petroleum products;
Sec. 134. Scope of Taxing Powers. Except as otherwise provided in this Code, the province may levy only the
taxes, fees, and charges as provided in this Article.
xxx xxx xxx
Sec. 158. Tax on Sand, Gravel and Other Quarry Resources. The province may levy and collect not more than ten
percent (10%) of fair market value in the locality per cubic meter of ordinary stones, sand, gravel, earth, and other
quarry resources, as defined under the National Internal Revenue Code, as amended, extracted from public lands or
from the beds of seas, lakes, rivers, streams, creeks, and other public waters within its territorial jurisdiction.

A province may not, therefore, levy excise taxes on articles already taxed by the National Internal Revenue Code.
Unfortunately for petitioners, the National Internal Revenue Code provides:

Sec. 151. Mineral Products.

xxx xxx xxx (Emphasis supplied)

The appellate court, on the basis of Section 134, ruled that a province was empowered to impose taxes only on
sand, gravel, and other quarry resources extracted from public lands, its authority to tax being limited by said
provision only to those taxes, fees and charges provided in Article One, Chapter 2, Title One of Book II of the Local
Government Code. 11 On the other hand, petitioners claim that Sections 129 12 and 186 13 of the Local
Government Code authorizes the province to impose taxes other than those specifically enumerated under the Local
Government Code.

(A) Rates of Tax. There shall be levied, assessed and collected on minerals, mineral products and quarry
resources, excise tax as follows:

xxx xxx xxx

(2) On all nonmetallic minerals and quarry resources, a tax of two percent (2%) based on the actual market value of
the gross output thereof at the time of removal, in case of
The Court of Appeals erred in ruling that a province can impose only the taxes specifically mentioned under the Local
Government Code. As correctly pointed out by petitioners, Section 186 allows a province to levy taxes other than
those specifically enumerated under the Code, subject to the conditions specified therein.

This finding, nevertheless, affords cold comfort to petitioners as they are still prohibited from imposing taxes on
stones, sand, gravel, earth and other quarry resources extracted from private lands. The tax imposed by the
Province of Bulacan is an excise tax, being a tax upon the performance, carrying on, or exercise of an activity. 14The
Local Government Code provides:

those locally extracted or produced; or the values used by the Bureau of Customs in determining tariff and customs
duties, net of excise tax and value-added tax, in the case of importation.

xxx xxx xxx

(B) [Definition of Terms]. for purposes of this Section, the term-

117

xxx xxx xxx

(4) Quarry resources shall mean any common stone or other common mineral substances as the Director of the
Bureau of Mines and Geo-Sciences may declare to be quarry resources such as, but not restricted to, marl, marble,
granite, volcanic cinders, basalt, tuff and rock phosphate; Provided, That they contain no metal or metals or other
valuable minerals in economically workable quantities.

WHEREFORE, premises considered, the instant petition is DISMISSED for lack of merit and the decision of the
Court of Appeals is hereby AFFIRMED in toto. Costs against petitioner.

SO ORDERED.

Narvasa, C.J., Kapunan, Purisima and Pardo, JJ., concur.

It is clearly apparent from the above provision that the National Internal Revenue Code levies a tax on all quarry
resources, regardless of origin, whether extracted from public or private land. Thus, a province may not ordinarily
impose taxes on stones, sand, gravel, earth and other quarry resources, as the same are already taxed under the
National Internal Revenue Code. The province can, however, impose a tax on stones, sand, gravel, earth and other
quarry resources extracted from public land because it is expressly empowered to do so under the Local
Government Code. As to stones, sand, gravel, earth and other quarry resources extracted from private land,
however, it may not do so, because of the limitation provided by Section 133 of the Code in relation to Section 151 of
the National Internal Revenue Code.

Given the above disquisition, petitioners cannot claim that the appellate court unjustly deprived them of the power to
create their sources of revenue, their assessment of taxes against Republic Cement being ultra vires, traversing as it
does the limitations set by the Local Government Code.

Petitioners likewise aver that the appellate court' s declaration of nullity of its assessment against Republic Cement is
a collateral attack on Provincial Ordinance No. 3, which is prohibited by public policy. 15 Contrary to petitioners'
claim, the legality of the ordinance was never questioned by the Court of Appeals. Rather, what the appellate court
questioned was petitioners' assessment of taxes on Republic Cement on the basis of Provincial Ordinance No. 3, not
the ordinance itself.
Angeles City v. Angeles City Electric Corp.
Furthermore, Section 21 of Provincial Ordinance No. 3 is practically only a reproduction of Section 138 of the Local
Government Code. A cursory reading of both would show that both refer to ordinary sand, stone, gravel, earth and
other quarry resources extracted from public lands. Even if we disregard the limitation set by Section 133 of the
Local Government Code, petitioners may not, impose taxes on stones, sand, gravel, earth and
Republic of the Philippines

SUPREME COURT

other quarry resources extracted from private lands on the basis of Section 21 of Provincial Ordinance No. 3 as the
latter clearly applies only to quarry resources extracted from public lands. Petitioners may not invoke the Regalian
doctrine to extend the coverage of their ordinance to quarry resources extracted from private lands, for taxes, being
burdens, are not to be presumed beyond what the applicable statute expressly and clearly declares, tax statutes
being construed strictissimi juris against the government. 16

Manila

FIRST DIVISION

118

G.R. No. 166134

June 29, 2010

ANGELES CITY, Petitioner, vs.

ANGELES CITY ELECTRIC CORPORATION and REGIONAL TRIAL COURT BRANCH 57, ANGELES
CITY,Respondents.

DECISION

Such franchise tax shall be payable to the Commissioner of Internal Revenue or his duly authorized representative
on or before the twentieth day of the month following the end of each calendar quarter or month as may be provided
in the respective franchise or pertinent municipal regulation and shall, any provision of the Local Tax Code or any
other law to the contrary notwithstanding, be in lieu of all taxes and assessments of whatever nature imposed by any
national or local authority on earnings, receipts, income and privilege of generation, distribution and sale of electric
current.

On January 1, 1992, RA 7160 or the Local Government Code (LGC) of 1991 was passed into law, conferring upon
provinces and cities the power, among others, to impose tax on businesses enjoying franchise.4 In accordance with
the LGC, the Sangguniang Panlungsod of Angeles City enacted on December 23, 1993 Tax Ordinance No. 33, S-93,
otherwise known as the Revised Revenue Code of Angeles City (RRCAC).

DEL CASTILLO, J.:

The prohibition on the issuance of a writ of injunction to enjoin the collection of taxes applies only to national internal
revenue taxes, and not to local taxes.

This Petition1 for Certiorari under Rule 65 of the Rules of Court seeks to set aside the Writ of Preliminary Injunction
issued by the Regional Trial Court (RTC) of Angeles City, Branch 57, in Civil Case No. 11401, enjoining Angeles City
and its City Treasurer from levying, seizing, disposing and selling at public auction the properties owned by Angeles
Electric Corporation (AEC).

On February 7, 1994, a petition seeking the reduction of the tax rates and a review of the provisions of the RRCAC
was filed with the Sangguniang Panlungsod by Metro Angeles Chamber of Commerce and Industry Inc. (MACCI) of
which AEC is a member. There being no action taken by the Sangguniang Panlungsod on the matter, MACCI
elevated the petition5 to the Department of Finance, which referred the same to the Bureau of Local Government
Finance (BLGF). In the petition, MACCI alleged that the RRCAC is oppressive, excessive, unjust and confiscatory;
that it was published only once, simultaneously on January 22, 1994; and that no public hearings were conducted
prior to its enactment. Acting on the petition, the BLGF issued a First Indorsement6 to the City Treasurer of Angeles
City, instructing the latter to make representations with the Sangguniang Panlungsod for the appropriate amendment
of the RRCAC in order to ensure compliance with the provisions of the LGC, and to make a report on the action
taken within five days.

Thereafter, starting July 1995, AEC has been paying the local franchise tax to the Office of the City Treasurer on a
quarterly basis, in addition to the national franchise tax it pays every quarter to the Bureau of Internal Revenue (BIR).
Factual Antecedents
Proceedings before the City Treasurer
On June 18, 1964, AEC was granted a legislative franchise under Republic Act No. (RA) 40792 to construct,
maintain and operate an electric light, heat, and power system for the purpose of generating and distributing electric
light, heat and power for sale in Angeles City, Pampanga. Pursuant to Section 3-A thereof,3 AECs payment of
franchise tax for gross earnings from electric current sold was in lieu of all taxes, fees and assessments.

On September 11, 1974, Presidential Decree No. (PD) 551 reduced the franchise tax of electric franchise holders.
Section 1 of PD 551 provided that:

SECTION 1. Any provision of law or local ordinance to the contrary notwithstanding, the franchise tax payable by all
grantees of franchises to generate, distribute and sell electric current for light, heat and power shall be two percent
(2%) of their gross receipts received from the sale of electric current and from transactions incident to the generation,
distribution and sale of electric current.

On January 22, 2004, the City Treasurer issued a Notice of Assessment7 to AEC for payment of business tax,
license fee and other charges for the period 1993 to 2004 in the total amount of P94,861,194.10. Within the period
prescribed by law, AEC protested the assessment claiming that:

(a)

pursuant to RA 4079, it is exempt from paying local business tax;

(b)
since it is already paying franchise tax on business, the payment of business tax would result in double
taxation;

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On August 5, 2004, Angeles City and its City Treasurer filed a "Motion for Dissolution of Preliminary Injunction and
Motion for Reconsideration of the Order dated May 24, 2004,"20 which was opposed by AEC.21
115
Finding no compelling reason to disturb and reconsider its previous findings, the RTC denied the joint motion on
October 14, 2004.22
(c)
the period to assess had prescribed because under the LGC, taxes and fees can only be assessed and
collected within five (5) years from the date they become due; and

(d)
the assessment and collection of taxes under the RRCAC cannot be made retroactive to 1993 or prior to
its effectivity.8

Issue

Being a special civil action for certiorari, the issue in the instant case is limited to the determination of whether the
RTC gravely abused its discretion in issuing the writ of

On February 17, 2004, the City Treasurer denied the protest for lack of merit and requested AEC to settle its tax
liabilities.9

Proceedings before the RTC

Aggrieved, AEC appealed the denial of its protest to the RTC of Angeles City via a Petition for Declaratory Relief,10
docketed as Civil Case No. 11401.

On April 5, 2004, the City Treasurer levied on the real properties of AEC.11 A Notice of Auction Sale12 was published
and posted announcing that a public auction of the levied properties of AEC would be held on May 7, 2004.

This prompted AEC to file with the RTC, where the petition for declaratory relief was pending, an Urgent Motion for
Issuance of Temporary Restraining Order and/or Writ of Preliminary Injunction13 to enjoin Angeles City and its City
Treasurer from levying, annotating the levy, seizing, confiscating, garnishing, selling and disposing at public auction
the properties of AEC.

Meanwhile, in response to the petition for declaratory relief filed by AEC, Angeles City and its City Treasurer filed an
Answer with Counterclaim14 to which AEC filed a Reply.15

After due notice and hearing, the RTC issued a Temporary Restraining Order (TRO)16 on May 4, 2004, followed by
an Order17 dated May 24, 2004 granting the issuance of a Writ of Preliminary Injunction, conditioned upon the filing
of a bond in the amount of P10,000,000.00. Upon AECs posting of the required bond, the RTC issued a Writ of
Preliminary Injunction on May 28, 2004,18 which was amended on May 31, 2004 due to some clerical errors.19

preliminary injunction enjoining Angeles City and its City Treasurer from levying, selling, and disposing the properties
of AEC. All other matters pertaining to the validity of the tax assessment and AECs tax exemption must therefore be
left for the determination of the RTC where the main case is pending decision.

Petitioners Arguments

Petitioners main argument is that the collection of taxes cannot be enjoined by the RTC, citing Valley Trading Co.,
Inc. v. Court of First Instance of Isabela, Branch II,23 wherein the lower courts denial of a motion for the issuance of
a writ of preliminary injunction to enjoin the collection of a local tax was upheld. Petitioner further reasons that since
the levy and auction of the properties of a delinquent taxpayer are proper and lawful acts specifically allowed by the
LGC, these cannot be the subject of an injunctive writ. Petitioner likewise insists that AEC must first pay the tax
before it can protest the assessment. Finally, petitioner contends that the tax exemption claimed by AEC has no legal
basis because RA 4079 has been expressly repealed by the LGC.

Private respondents Arguments

Private respondent AEC on the other hand asserts that there was no grave abuse of discretion on the part of the
RTC in issuing the writ of preliminary injunction because it was issued after due notice and hearing, and was
necessary to prevent the petition from becoming moot. In addition, AEC claims that the issuance of the writ of
injunction was proper since the tax assessment issued by the City Treasurer is not yet final, having been seasonably
appealed pursuant to Section 19524 of the LGC. AEC likewise points out that following the case of Pantoja v.
David,25 proceedings to invalidate a warrant of distraint and levy to restrain the collection of taxes do not violate the
prohibition against injunction to restrain the collection of taxes because the proceedings are directed at the right of
the City Treasurer to collect the tax by distraint or levy. As to its tax liability, AEC maintains that it is exempt from
paying local business tax. In any case, AEC counters that the issue of whether it is liable to pay the assessed local

120

business tax is a factual issue that should be determined by the RTC and not by the Supreme Court via a petition for
certiorari under Rule 65 of the Rules of Court.

Nevertheless, it must be emphasized that although there is no express prohibition in the LGC, injunctions enjoining
the collection of local taxes are frowned upon. Courts therefore should exercise extreme caution in issuing such
injunctions.

Our Ruling
No grave abuse of discretion was committed by the RTC

We find the petition bereft of merit.

Section 3, Rule 58, of the Rules of Court lays down the requirements for the issuance of a writ of preliminary
injunction, viz:
The LGC does not specifically prohibit an injunction enjoining the collection of taxes

A principle deeply embedded in our jurisprudence is that taxes being the lifeblood of the government should be
collected promptly,26 without unnecessary hindrance27 or delay.28 In line with this principle, the National Internal
Revenue Code of 1997 (NIRC) expressly provides that no court shall have the authority to grant an injunction to
restrain

(a)
That the applicant is entitled to the relief demanded, and the whole or part of such relief consists in
restraining the commission or continuance of the acts complained of, or in the performance of an act or acts, either
for a limited period or perpetually;

(b)
That the commission, continuance or non-performance of the act or acts complained of during the litigation
would probably work injustice to the applicant; or

the collection of any national internal revenue tax, fee or charge imposed by the code.29 An exception to this rule
obtains only when in the opinion of the Court of Tax Appeals (CTA) the collection thereof may jeopardize the interest
of the government and/or the taxpayer.30

The situation, however, is different in the case of the collection of local taxes as there is no express provision in the
LGC prohibiting courts from issuing an injunction to restrain local governments from collecting taxes. Thus, in the
case of Valley Trading Co., Inc. v. Court of First Instance of Isabela, Branch II, cited by the petitioner, we ruled that:

Unlike the National Internal Revenue Code, the Local Tax Code31 does not contain any specific provision prohibiting
courts from enjoining the collection of local taxes. Such statutory lapse or intent, however it may be viewed, may
have allowed preliminary injunction where local taxes are involved but cannot negate the procedural rules and
requirements under Rule 58.32

In light of the foregoing, petitioners reliance on the above-cited case to support its view that the collection of taxes
cannot be enjoined is misplaced. The lower courts denial of the motion for the issuance of a writ of preliminary
injunction to enjoin the collection of the local tax was upheld in that case, not because courts are prohibited from
granting such injunction, but because the circumstances required for the issuance of writ of injunction were not
present.

(c)
That a party, court, or agency or a person is doing, threatening, or attempting to do, or is procuring or
suffering to be done, some act or acts probably in violation of the rights of the applicant respecting the subject of the
action or proceeding, and tending to render the judgment ineffectual.

Two requisites must exist to warrant the issuance of a writ of preliminary injunction, namely: (1) the existence of a
clear and unmistakable right that must be protected; and
(2) an urgent and paramount necessity for the writ to prevent serious damage.33

In issuing the injunction, the RTC ratiocinated that:

It is very evident on record that petitioner34 resorted and filed an urgent motion for issuance of a temporary
restraining order and preliminary injunction to stop the scheduled auction sale only when a warrant of levy was
issued and published in the newspaper setting the auction sale of petitioners property by the City Treasurer, merely
few weeks after the petition for declaratory relief has been filed, because if the respondent will not be restrained, it
will render this petition moot and academic. To the mind of the Court, since there is no other plain, speedy and
adequate remedy available to the petitioner in the ordinary course of law except this application for a temporary
restraining order and/or writ of preliminary injunction to stop the auction sale and/or to enjoin and/or restrain
respondents from levying, annotating the levy, seizing, confiscating, garnishing, selling and disposing at public
auction the properties of petitioner, or otherwise exercising other administrative remedies against the petitioner and
its properties, this alone justifies the move of the petitioner in seeking the injunctive reliefs sought for.

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Petitioner in its petition is questioning the assessment or the ruling of the City Treasurer on the business tax and
fees, and not the local ordinance concerned. This being the case, the Court opines that notice is not required to the
Solicitor General since what is involved is just a violation of a private right involving the right of ownership and
possession of petitioners properties. Petitioner, therefore, need not comply with Section 4, Rule 63 requiring such
notice to the Office of the Solicitor General.

The Court is fully aware of the Supreme Court pronouncement that injunction is not proper to restrain the collection
of taxes. The issue here as of the moment is the restraining of the respondent from pursuing its auction sale of the
petitioners properties. The right of ownership and possession of the petitioner over the properties subject of the
auction sale is at stake.

Respondents assert that not one of the witnesses presented by the petitioner have proven what kind of right has
been violated by the respondent, but merely mentioned of an injury which is only a scenario based on speculation
because of petitioners claim that electric power may be disrupted.

Engr. Abordos testimony reveals and even his Affidavit Exhibit "S" showed that if the auction sale will push thru,
petitioner will not only lose control and operation of its facility, but its employees will also be denied access to
equipments vital to petitioners operations, and since only the petitioner has the capability to operate Petersville sub
station, there will be a massive power failure or blackout which will adversely affect

business and economy, if not lives and properties in Angeles City and surrounding communities.

Petitioner, thru its witnesses, in the hearing of the temporary restraining order, presented sufficient and convincing
evidence proving irreparable damages and injury which were already elaborated in the temporary restraining order
although the same may be realized only if the auction sale will proceed. And unless prevented, restrained, and
enjoined, grave and irreparable damage will be suffered not only by the petitioner but all its electric consumers in
Angeles, Clark, Dau and Bacolor, Pampanga.

The purpose of injunction is to prevent injury and damage from being incurred, otherwise, it will render any judgment
in this case ineffectual.

"As an extraordinary remedy, injunction is calculated to preserve or maintain the status quo of things and is generally
availed of to prevent actual or threatened acts, until the merits of the case can be heard" (Cagayan de Oro City
Landless Res. Assn. Inc. vs. CA, 254 SCRA 220)

It appearing that the two essential requisites of an injunction have been satisfied, as there exists a right on the part of
the petitioner to be protected, its right[s] of ownership and possession of the properties subject of the auction sale,
and that the acts (conducting an auction sale) against which the injunction is to be directed, are violative of the said
rights of the petitioner, the Court has no other recourse but to grant the prayer for the issuance of a writ of
preliminary injunction considering that if the respondent will not be restrained from doing the acts complained of, it
will preempt the Court from properly adjudicating on the merits the various issues between the parties, and will
render moot and academic the proceedings before this court.35

As a rule, the issuance of a preliminary injunction rests entirely within the discretion of the court taking cognizance of
the case and will not be interfered with, except where there is grave abuse of discretion committed by the court.36
For grave abuse of discretion to prosper as a ground for certiorari, it must be demonstrated that the lower court or
tribunal has exercised its power in an arbitrary and despotic manner, by reason of passion or personal hostility, and it
must be patent and gross as would amount to an evasion or to a unilateral refusal to perform the duty enjoined or to
act in contemplation of law.37 In other words, mere abuse of discretion is not enough.381avvph!1

Guided by the foregoing, we find no grave abuse of discretion on the part of the RTC in issuing the writ of injunction.
Petitioner, who has the burden to prove grave abuse of discretion,39 failed to show that the RTC acted arbitrarily and
capriciously in granting the injunction. Neither was petitioner able to prove that the injunction was issued without any
factual or legal justification. In assailing the injunction, petitioner primarily relied on the prohibition on the issuance of
a writ of injunction to restrain the collection of taxes. But as we have already said, there is no such prohibition in the
case of local taxes. Records

also show that before issuing the injunction, the RTC conducted a hearing where both parties were given the
opportunity to present their arguments. During the hearing, AEC was able to show that it had a clear and
unmistakable legal right over the properties to be levied and that it would sustain serious damage if these properties,
which are vital to its operations, would be sold at public auction. As we see it then, the writ of injunction was properly
issued.

A final note. While we are mindful that the damage to a taxpayers property rights generally takes a back seat to the
paramount need of the State for funds to sustain governmental functions,40 this rule finds no application in the
instant case where the disputed tax assessment is not yet due and demandable. Considering that AEC was able to
appeal the denial of its protest within the period prescribed under Section 195 of the LGC, the collection of business
taxes41 through levy at this time is, to our mind, hasty, if not premature.42 The issues of tax exemption, double
taxation, prescription and the alleged retroactive application of the RRCAC, raised in the protest of AEC now pending
with the RTC, must first be resolved before the properties of AEC can be levied. In the meantime, AECs rights of
ownership and possession must be respected.

WHEREFORE, the petition is hereby DISMISSED.

122

SO ORDERED.

Pelizloy Realty Corp. The Province of Benguet

Republic of the Philippines

This is a Petition for Review on Certiorari under Rule 45 of the Rules of Court praying that the December 10, 2007
decision of the Regional Trial Court,- Branch 62, La Trinidad, Benguet in Civil Case No. 06-CV-2232 be reversed and
set aside and a new one issued in which: ( 1) respondent Province of Benguet is declared as having no authority to
levy amusement taxes on admission fees for resorts, swimming pools, bath houses, hot springs, tourist spots, and
other places for recreation; (2) Section 59, Article X of the Benguet Provincial Revenue Code of 2005 is declared null
and void; and (3) the respondent Province of Benguet is permanently enjoined from enforcing Section 59, Article X of
the Benguet Provincial Revenue Code of 2005.

Petitioner Pelizloy Realty Corporation ("Pelizloy") owns Palm Grove Resort, which is designed for recreation and
which has facilities like swimming pools, a spa and function halls. It is located at Asin, Angalisan, Municipality of
Tuba, Province of Benguet.

SUPREME COURT
On December 8, 2005, the Provincial Board of the Province of Benguet approved Provincial Tax Ordinance No. 05107, otherwise known as the Benguet Revenue Code of 2005 ("Tax Ordinance"). Section 59, Article X of the Tax
Ordinance levied a ten percent (10%) amusement tax on gross receipts from admissions to "resorts, swimming
pools, bath houses, hot springs and tourist spots." Specifically, it provides the following:

Baguio City

THIRD DIVISION

G.R. No. 183137

Article Ten: Amusement Tax on Admission

April 10, 2013

PELIZLOY REALTY CORPORATION, represented herein by its President, GREGORY K. LOY, Petitioner,

vs.

Section 59. Imposition of Tax. There is hereby levied a tax to be collected from the proprietors, lessees, or operators
of theaters, cinemas, concert halls, circuses, cockpits, dancing halls, dancing schools, night or day clubs, and other
places of amusement at the rate of thirty percent (30%) of the gross receipts from admission fees; and

A tax of ten percent (10%) of gross receipts from admission fees for boxing, resorts, swimming pools, bath houses,
hot springs, and tourist spots is likewise levied. [Emphasis and underscoring supplied]

THE PROVINCE OF BENGUET, Respondent.

Section 162 of the Tax Ordinance provided that the Tax Ordinance shall take effect on January 1, 2006.
DECISION

LEONEN, J.:

The principal issue in this case is the scope of authority of a province to impose an amusement tax.

It was Pelizloy's position that the Tax Ordinance's imposition of a 10% amusement tax on gross receipts from
admission fees for resorts, swimming pools, bath houses, hot springs, and tourist spots is an ultra vires act on the
part of the Province of Benguet. Thus, it filed an appeal/petition before the Secretary of Justice on January 27, 2006.

The appeal/petition was filed within the thirty (30)-day period from the effectivity of a tax ordinance allowed by
Section 187 of Republic Act No. 7160, otherwise known as the Local Government Code (LGC).1 The appeal/petition
was docketed as MSO-OSJ Case No. 03-2006.

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Under Section 187 of the LGC, the Secretary of Justice has sixty (60) days from receipt of the appeal to render a
decision. After the lapse of which, the aggrieved party may file appropriate proceedings with a court of competent
jurisdiction.

Treating the Secretary of Justice's failure to decide on its appeal/petition within the sixty (60) days provided by
Section 187 of the LGC as an implied denial of such appeal/petition, Pelizloy filed a Petition for Declaratory Relief
and Injunction before the Regional Trial Court, Branch 62, La Trinidad, Benguet. The petition was docketed as Civil
Case No. 06-CV-2232.

Pelizloy argued that Section 59, Article X of the Tax Ordinance imposed a percentage tax in violation of the limitation
on the taxing powers of local government units (LGUs) under Section 133 (i) of the LGC. Thus, it was null and void
ab initio. Section 133 (i) of the LGC provides:

Section 133. Common Limitations on the Taxing Powers of Local Government Units. - Unless otherwise provided
herein, the exercise of the taxing powers of provinces, cities, municipalities, and barangays shall not extend to the
levy of the following:

xxx

xxx

(b) "Amusement" is a pleasurable diversion and entertainment. It is synonymous to relaxation, avocation, pastime, or
fun On December 10, 2007, the RTC rendered the assailed Decision dismissing the Petition for Declaratory Relief
and Injunction for lack of merit.

Procedurally, the RTC ruled that Declaratory Relief was a proper remedy. On the validity of Section 59, Article X of
the Tax Ordinance, the RTC noted that, while Section 59, Article X imposes a percentage tax, Section 133 (i) of the
LGC itself allowed for exceptions. It noted that what the LGC prohibits is not the imposition by LGUs of percentage
taxes in general but the "imposition and levy of percentage tax on sales, barters, etc., on goods and services only."5
It further gave credence to the Province of Benguet's assertion that resorts, swimming pools, bath houses, hot
springs, and tourist spots are encompassed by the phrase other places of amusement in Section 140 of the LGC.

On May 21, 2008, the RTC denied Pelizloys Motion for Reconsideration.

Aggrieved, Pelizloy filed the present petition on June 10, 2008 on pure questions of law. It assailed the legality of
Section 59, Article X of the Tax Ordinance as being a (supposedly) prohibited percentage tax per Section 133 (i) of
the LGC.

In its Comment, the Province of Benguet, erroneously citing Section 40 of the LGC, argued that Section 59, Article X
of the Tax Ordinance does not levy a percentage tax
(i) Percentage or value-added tax (VAT) on sales, barters or exchanges or similar transactions on goods or services
except as otherwise provided herein

The Province of Benguet assailed the Petition for Declaratory Relief and Injunction as an improper remedy. It alleged
that once a tax liability has attached, the only remedy of a taxpayer is to pay the tax and to sue for recovery after
exhausting administrative remedies.2

On substantive grounds, the Province of Benguet argued that the phrase other places of amusement in Section 140
(a) of the LGC3 encompasses resorts, swimming pools, bath houses, hot springs, and tourist spots since "Article 220
(b) (sic)" of the LGC defines "amusement" as "pleasurable diversion and entertainment x x x synonymous to
relaxation, avocation, pastime, or fun."4 However, the Province of Benguet erroneously cited Section 220 (b) of the
LGC. Section 220 of the LGC refers to valuation of real property for real estate tax purposes. Section 131 (b) of the
LGC, the provision which actually defines "amusement", states:

"because the imposition is not based on the total gross receipts of services of the petitioner but solely and actually
limited on the gross receipts of the admission fees collected."6 In addition, it argued that provinces can validly
impose amusement taxes on resorts, swimming pools, bath houses, hot springs, and tourist spots, these being
amusement places.

For resolution in this petition are the following issues:

1.
Whether or not Section 59, Article X of Provincial Tax Ordinance No. 05-107, otherwise known as the
Benguet Revenue Code of 2005, levies a percentage tax.

Section 131. Definition of Terms. - When used in this Title, the term:

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2.
Whether or not provinces are authorized to impose amusement taxes on admission fees to resorts,
swimming pools, bath houses, hot springs, and tourist spots for being "amusement places" under the Local
Government Code.

The power to tax "is an attribute of sovereignty,"7 and as such, inheres in the State. Such, however, is not true for
provinces, cities, municipalities and barangays as they are not the sovereign;8 rather, they are mere "territorial and
political subdivisions of the Republic of the Philippines".9

First, Section 130 provides for the following fundamental principles governing the taxing powers of LGUs:

1.

Taxation shall be uniform in each LGU.

2.

Taxes, fees, charges and other impositions shall:

a.

be equitable and based as far as practicable on the taxpayer's ability to pay;

b.

be levied and collected only for public purposes;

c.

not be unjust, excessive, oppressive, or confiscatory;

d.

not be contrary to law, public policy, national economic policy, or in the restraint of trade.

3.
person.

The collection of local taxes, fees, charges and other impositions shall in no case be let to any private

The rule governing the taxing power of provinces, cities, muncipalities and barangays is summarized in Icard v. City
Council of Baguio:10

It is settled that a municipal corporation unlike a sovereign state is clothed with no inherent power of taxation. The
charter or statute must plainly show an intent to confer that power or the municipality, cannot assume it. And the
power when granted is to be construed in strictissimi juris. Any doubt or ambiguity arising out of the term used in
granting that power must be resolved against the municipality. Inferences, implications, deductions all these have
no place in the interpretation of the taxing power of a municipal corporation.11 [Underscoring supplied]

Therefore, the power of a province to tax is limited to the extent that such power is delegated to it either by the
Constitution or by statute. Section 5, Article X of the 1987 Constitution is clear on this point:

Section 5. Each local government unit shall have the power to create its own sources of revenues and to levy taxes,
fees and charges subject to such guidelines and limitations as the Congress may provide, consistent with the basic
policy of local autonomy. Such taxes, fees, and charges shall accrue exclusively to the local governments.
[Underscoring supplied]

Per Section 5, Article X of the 1987 Constitution, "the power to tax is no longer vested exclusively on Congress; local
legislative bodies are now given direct authority to levy

taxes, fees and other charges."12 Nevertheless, such authority is "subject to such guidelines and limitations as the
Congress may provide".13

In conformity with Section 3, Article X of the 1987 Constitution,14 Congress enacted Republic Act No. 7160,
otherwise known as the Local Government Code of 1991. Book II of the LGC governs local taxation and fiscal
matters.

Relevant provisions of Book II of the LGC establish the parameters of the taxing powers of LGUS found below.

4.
The revenue collected pursuant to the provisions of the LGC shall inure solely to the benefit of, and be
subject to the disposition by, the LGU levying the tax, fee, charge or other imposition unless otherwise specifically
provided by the LGC.

5.

Each LGU shall, as far as practicable, evolve a progressive system of taxation.

Second, Section 133 provides for the common limitations on the taxing powers of LGUs. Specifically, Section 133 (i)
prohibits the levy by LGUs of percentage or value-added tax (VAT) on sales, barters or exchanges or similar
transactions on goods or services except as otherwise provided by the LGC.

As it is Pelizloys contention that Section 59, Article X of the Tax Ordinance levies a prohibited percentage tax, it is
crucial to understand first the concept of a percentage tax.

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In Commissioner of Internal Revenue v. Citytrust Investment Phils. Inc.,15 the Supreme Court defined percentage
tax as a "tax measured by a certain percentage of the gross
(e)
The proceeds from the amusement tax shall be shared equally by the province and the municipality where
such amusement places are located. [Underscoring supplied]

selling price or gross value in money of goods sold, bartered or imported; or of the gross receipts or earnings derived
by any person engaged in the sale of services." Also, Republic Act No. 8424, otherwise known as the National
Internal Revenue Code (NIRC), in Section 125, Title V,16 lists amusement taxes as among the (other) percentage
taxes which are levied regardless of whether or not a taxpayer is already liable to pay value-added tax (VAT).

Evidently, Section 140 of the LGC carves a clear exception to the general rule in Section 133 (i). Section 140
expressly allows for the imposition by provinces of amusement taxes

Amusement taxes are fixed at a certain percentage of the gross receipts incurred by certain specified
establishments.

on "the proprietors, lessees, or operators of theaters, cinemas, concert halls, circuses, boxing stadia, and other
places of amusement."

Thus, applying the definition in CIR v. Citytrust and drawing from the treatment of amusement taxes by the NIRC,
amusement taxes are percentage taxes as correctly argued by Pelizloy.

However, resorts, swimming pools, bath houses, hot springs, and tourist spots are not among those places expressly
mentioned by Section 140 of the LGC as being subject to amusement taxes. Thus, the determination of whether
amusement taxes may be levied on admissions to resorts, swimming pools, bath houses, hot springs, and tourist
spots hinges on whether the phrase other places of amusement encompasses resorts, swimming pools, bath
houses, hot springs, and tourist spots.

However, provinces are not barred from levying amusement taxes even if amusement taxes are a form of
percentage taxes. Section 133 (i) of the LGC prohibits the levy of percentage taxes "except as otherwise provided"
by the LGC.

Section 140 of the LGC provides:

SECTION 140. Amusement Tax - (a) The province may levy an amusement tax to be collected from the proprietors,
lessees, or operators of theaters, cinemas, concert halls, circuses, boxing stadia, and other places of amusement at
a rate of not more than thirty percent (30%) of the gross receipts from admission fees.

(b)
In the case of theaters of cinemas, the tax shall first be deducted and withheld by their proprietors,
lessees, or operators and paid to the provincial treasurer before the gross receipts are divided between said
proprietors, lessees, or operators and the distributors of the cinematographic films.

(c)
The holding of operas, concerts, dramas, recitals, painting and art exhibitions, flower shows, musical
programs, literary and oratorical presentations, except pop, rock, or similar concerts shall be exempt from the
payment of the tax herein imposed.

(d)
The Sangguniang Panlalawigan may prescribe the time, manner, terms and conditions for the payment of
tax. In case of fraud or failure to pay the tax, the Sangguniang Panlalawigan may impose such surcharges, interests
and penalties.

Under the principle of ejusdem generis, "where a general word or phrase follows an enumeration of particular and
specific words of the same class or where the latter follow the former, the general word or phrase is to be construed
to include, or to be restricted to persons, things or cases akin to, resembling, or of the same kind or class as those
specifically mentioned."17

The purpose and rationale of the principle was explained by the Court in National Power Corporation v. Angas18as
follows:

The purpose of the rule on ejusdem generis is to give effect to both the particular and general words, by treating the
particular words as indicating the class and the general words as including all that is embraced in said class,
although not specifically named by the particular words. This is justified on the ground that if the lawmaking body
intended the general terms to be used in their unrestricted sense, it would have not made an enumeration of
particular subjects but would have used only general terms. [2 Sutherland, Statutory Construction, 3rd ed., pp. 395400].19

In Philippine Basketball Association v. Court of Appeals,20 the Supreme Court had an opportunity to interpret a
starkly similar provision or the counterpart provision of Section 140 of the LGC in the Local Tax Code then in effect.
Petitioner Philippine Basketball Association (PBA) contended that it was subject to the imposition by LGUs of
amusement taxes (as opposed to amusement taxes imposed by the national government).1wphi1 In support of its
contentions, it cited Section 13 of Presidential Decree No. 231, otherwise known as the Local Tax Code of 1973,
(which is analogous to Section 140 of the LGC) providing the following:

126

Section 13. Amusement tax on admission. - The province shall impose a tax on admission to be collected from the
proprietors, lessees, or operators of theaters, cinematographs, concert halls, circuses and other places of
amusement xxx.

As defined in The New Oxford American Dictionary,22 show means "a spectacle or display of something, typically
an impressive one";23 while performance means "an act of staging or presenting a play, a concert, or other form of
entertainment."24 As such, the ordinary definitions of the words show and performance denote not only visual
engagement (i.e., the seeing or viewing of things) but also active doing (e.g., displaying, staging or presenting) such
that actions are manifested to, and (correspondingly) perceived by an audience.

Applying the principle of ejusdem generis, the Supreme Court rejected PBA's assertions and noted that:
Considering these, it is clear that resorts, swimming pools, bath houses, hot springs and tourist spots cannot be
considered venues primarily "where one seeks admission to entertain oneself by seeing or viewing the show or
performances". While it is true that they may be venues where people are visually engaged, they are not primarily
venues for their proprietors or operators to actively display, stage or present shows and/or performances.
In determining the meaning of the phrase 'other places of amusement', one must refer to the prior enumeration of
theaters, cinematographs, concert halls and circuses with artistic expression as their common characteristic.
Professional basketball games do not fall under the same category as theaters, cinematographs, concert halls and
circuses as the latter basically belong to artistic forms of entertainment while the former caters to sports and
gaming.21 [Underscoring supplied]

However, even as the phrase other places of amusement was already clarified in Philippine Basketball Association,
Section 140 of the LGC adds to the enumeration of 'places of amusement' which may properly be subject to
amusement tax. Section 140 specifically mentions 'boxing stadia' in addition to "theaters, cinematographs, concert
halls and circuses" which were already mentioned in PD No. 231. Also, 'artistic expression' as a characteristic does
not pertain to 'boxing stadia'.

In the present case, the Court need not embark on a laborious effort at statutory construction. Section 131 (c) of the
LGC already provides a clear definition of amusement places:

Section 131. Definition of Terms. - When used in this Title, the term:

Thus, resorts, swimming pools, bath houses, hot springs and tourist spots do not belong to the same category or
class as theaters, cinemas, concert halls, circuses, and boxing stadia. It follows that they cannot be considered as
among the other places of amusement contemplated by Section 140 of the LGC and which may properly be subject
to amusement taxes.

At this juncture, it is helpful to recall this Courts pronouncements in Icard:

The power to tax when granted to a province is to be construed in strictissimi juris. Any doubt or ambiguity arising out
of the term used in granting that power must be resolved against the province. Inferences, implications, deductions
all these have no place in the interpretation of the taxing power of a province.25

In this case, the definition of' amusement places' in Section 131 (c) of the LGC is a clear basis for determining what
constitutes the 'other places of amusement' which may properly be subject to amusement tax impositions by
provinces. There is no reason for going beyond such basis. To do otherwise would be to countenance an arbitrary
interpretation/application of a tax law and to inflict an injustice on unassuming taxpayers.

xxx

(c) "Amusement Places" include theaters, cinemas, concert halls, circuses and other places of amusement where
one seeks admission to entertain oneself by seeing or viewing the show or performances [Underscoring supplied]

Indeed, theaters, cinemas, concert halls, circuses, and boxing stadia are bound by a common typifying characteristic
in that they are all venues primarily for the staging of spectacles or the holding of public shows, exhibitions,
performances, and other events meant to be viewed by an audience. Accordingly, other places of amusement must
be interpreted in light of the typifying characteristic of being venues "where one seeks admission to entertain oneself
by seeing or viewing the show or performances" or being venues primarily used to stage spectacles or hold public
shows, exhibitions, performances, and other events meant to be viewed by an audience.

The previous pronouncements notwithstanding, it will be noted that it is only the second paragraph of Section 59,
Article X of the Tax Ordinance which imposes amusement taxes on "resorts, swimming pools, bath houses, hot
springs, and tourist spots". The first paragraph of Section 59, Article X of the Tax Ordinance refers to "theaters,
cinemas, concert halls, circuses, cockpits, dancing halls, dancing schools, night or day clubs, and other places of
amusement".1wphi1 In any case, the issues raised by Pelizloy are pertinent only with respect to the second
paragraph of Section 59, Article X of the Tax Ordinance. Thus, there is no reason to invalidate the first paragraph of
Section 59, Article X of the Tax Ordinance. Any declaration as to the Province of Benguet's lack of authority to levy
amusement taxes must be limited to admission fees to resorts, swimming pools, bath houses, hot springs and tourist
spots.

Moreover, the second paragraph of Section 59, Article X of the Tax Ordinance is not limited to resorts, swimming
pools, bath houses, hot springs, and tourist spots but also covers admission fees for boxing. As Section 140 of the

127

LGC allows for the imposition of amusement taxes on gross receipts from admission fees to boxing stadia, Section
59, Article X of the Tax Ordinance must be sustained with respect to admission fees from boxing stadia.

WHEREFORE, the petition for review on certiorari is GRANTED. The second paragraph of Section 59, Article X of
the Benguet Provincial Revenue Code of 2005, in so far as it imposes amusement taxes on admission fees to
resorts, swimming pools, bath houses, hot springs and tourist spots, is declared null and void. Respondent Province
of Benguet is permanently enjoined from enforcing the second paragraph of Section 59, Article X of the Benguet
Provincial Revenue Code of 2005 with respect to resorts, swimming pools, bath houses, hot springs and tourist
spots.

SO ORDERED.

REAL PROPERTY TAX

LUNG CENTER OF THE PHILIPPINES,petitioner, vs. QUEZON CITY and

CONSTANTINO P. ROSAS, in his capacity as City Assessor of Quezon
City,respondents.
DECISION
CALLEJO,SR., Jp:
This is a petition for review on certiorari under Rule 45 of the Rules of Court, as amended, of the
Decision 1 dated July 17, 2000 of the Court of Appeals in CA-G.R. SP No. 57014 which affirmed the
decision of the Central Board of Assessment Appeals holding that the lot owned by the petitioner and
its hospital building constructed thereon are subject to assessment for purposes of real property tax.
The Antecedents
The petitioner Lung Center of the Philippines is a non-stock and non-profit entity established on
January 16, 1981 by virtue of Presidential Decree No. 1823. 2 It is the registered owner of a parcel of
land, particularly described as Lot No. RP-3-B-3A-1-B-1, SWO-04-000495, located at Quezon Avenue
corner Elliptical Road, Central District, Quezon City. The lot has an area of 121,463 square meters and
is covered by Transfer Certificate of Title (TCT) No. 261320 of the Registry of Deeds of Quezon City.
Erected in the middle of the aforesaid lot is a hospital known as the Lung Center of the Philippines. A
big space at the ground floor is being leased to private parties, for canteen and small store spaces,
and to medical or professional practitioners who use the same as their private clinics for their patients
whom they charge for their professional services. Almost one-half of the entire area on the left side of
the building along Quezon Avenue is vacant and idle, while a big portion on the right side, at the
corner of Quezon Avenue and Elliptical Road, is being leased for commercial purposes to a private
enterprise known as the Elliptical Orchids and Garden Center.

The petitioner accepts paying and non-paying patients. It also renders medical services to outpatients, both paying and non-paying. Aside from its income from paying patients, the petitioner
receives annual subsidies from the government.
On June 7, 1993, both the land and the hospital building of the petitioner were assessed for real
property taxes in the amount of P4,554,860 by the City Assessor of Quezon City. 3 Accordingly, Tax
Declaration Nos. C-021-01226 (16-2518) and C-021-01231 (15-2518-A) were issued for the land and
the hospital building, respectively. 4 On August 25, 1993, the petitioner filed a Claim for Exemption
5 from real property taxes with the City Assessor, predicated on its claim that it is a charitable
institution. The petitioner's request was denied, and a petition was, thereafter, filed before the Local
Board of Assessment Appeals of Quezon City (QC-LBAA, for brevity) for the reversal of the resolution
of the City Assessor. The petitioner alleged that under Section 28, paragraph 3 of the 1987
Constitution, the property is exempt from real property taxes. It averred that a minimum of 60% of
its hospital beds are exclusively used for charity patients and that the major thrust of its hospital
operation is to serve charity patients. The petitioner contends that it is a charitable institution and, as
such, is exempt from real property taxes. The QC-LBAA rendered judgment dismissing the petition
and holding the petitioner liable for real property taxes. 6
The QC-LBAA's decision was, likewise, affirmed on appeal by the Central Board of Assessment Appeals
of Quezon City (CBAA, for brevity) 7 which ruled that the petitioner was not a charitable institution
and that its real properties were not actually, directly and exclusively used for charitable purposes;
hence, it was not entitled to real property tax exemption under the constitution and the law. The
petitioner sought relief from the Court of Appeals, which rendered judgment affirming the decision of
the CBAA. 8
Undaunted, the petitioner filed its petition in this Court contending that:
A. THE COURT A QUO ERRED IN DECLARING PETITIONER AS NOT ENTITLED TO
REALTY TAX EXEMPTIONS ON THE GROUND THAT ITS LAND, BUILDING
AND IMPROVEMENTS, SUBJECT OF ASSESSMENT, ARE NOT ACTUALLY,
DIRECTLY AND EXCLUSIVELY DEVOTED FOR CHARITABLE PURPOSES.
B. WHILE PETITIONER IS NOT DECLARED AS REAL PROPERTY TAX EXEMPT
UNDER ITS CHARTER, PD 1823, SAID EXEMPTION MAY NEVERTHELESS
BE EXTENDED UPON PROPER APPLICATION.
The petitioner avers that it is a charitable institution within the context of Section 28(3), Article VI of
the 1987 Constitution. It asserts that its character as a charitable institution is not altered by the fact
that it admits paying patients and renders medical services to them, leases portions of the land to
private parties, and rents out portions of the hospital to private medical practitioners from which it
derives income to be used for operational expenses. The petitioner points out that for the years 1995
to 1999, 100% of its out-patients were charity patients and of the hospital's 282-bed capacity, 60%
thereof, or 170 beds, is allotted to charity patients. It asserts that the fact that it receives subsidies
from the government attests to its character as a charitable institution. It contends that the
"exclusivity" required in the Constitution does not necessarily mean "solely." Hence, even if a portion
of its real estate is leased out to private individuals from whom it derives income, it does not lose its
character as a charitable institution, and its exemption from the payment of real estate taxes on its
real property. The petitioner cited our ruling in Herrera v.QC-BAA 9 to bolster its pose. The
petitioner further contends that even if P.D. No. 1823 does not exempt it from the payment of real
estate taxes, it is not precluded from seeking tax exemption under the 1987 Constitution.
In their comment on the petition, the respondents aver that the petitioner is not a charitable entity.
The petitioner's real property is not exempt from the payment of real estate taxes under P.D. No.

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1823 and even under the 1987 Constitution because it failed to prove that it is a charitable institution
and that the said property is actually, directly and exclusively used for charitable purposes. The
respondents noted that in a newspaper report, it appears that graft charges were filed with the
Sandiganbayan against the director of the petitioner, its administrative officer, and Zenaida Rivera, the
proprietress of the Elliptical Orchids and Garden Center, for entering into a lease contract over
7,663.13 square meters of the property in 1990 for only P20,000 a month, when the monthly rental
should be P357,000 a month as determined by the Commission on Audit; and that instead of
complying with the directive of the COA for the cancellation of the contract for being grossly
prejudicial to the government, the petitioner renewed the same on March 13, 1995 for a monthly
rental of only P24,000. They assert that the petitioner uses the subsidies granted by the government
for charity patients and uses the rest of its income from the property for the benefit of paying
patients, among other purposes. They aver that the petitioner failed to adduce substantial evidence
that 100% of its out-patients and 170 beds in the hospital are reserved for indigent patients. The
respondents further assert, thus:
13. That the claims/allegations of the Petitioner LCP do not speak well of its
record of service. That before a patient is admitted for treatment in the Center,
first impression is that it is pay-patient and required to pay a certain amount as
deposit. That even if a patient is living below the poverty line, he is charged with
high hospital bills. And, without these bills being first settled, the poor patient
cannot be allowed to leave the hospital or be discharged without first paying the
hospital bills or issue a promissory note guaranteed and indorsed by an influential
agency or person known only to the Center; that even the remains of deceased
poor patients suffered the same fate. Moreover, before a patient is admitted for
treatment as free or charity patient, one must undergo a series of interviews and
must submit all the requirements needed by the Center, usually accompanied by
endorsement by an influential agency or person known only to the Center. These
facts were heard and admitted by the Petitioner LCP during the hearings before
the Honorable QC-BAA and Honorable CBAA. These are the reasons of indigent
patients, instead of seeking treatment with the Center, they prefer to be treated
at the Quezon Institute. Can such practice by the Center be called charitable? 10
The Issues
The issues for resolution are the following: (a) whether the petitioner is a charitable institution within
the context of Presidential Decree No. 1823 and the 1973 and 1987 Constitutions and Section 234(b)
of Republic Act No. 7160; and (b) whether the real properties of the petitioner are exempt from real
property taxes.
The Court's Ruling
The petition is partially granted.
On the first issue, we hold that the petitioner is a charitable institution within the context of the 1973
and 1987 Constitutions. To determine whether an enterprise is a charitable institution/entity or not,
the elements which should be considered include the statute creating the enterprise, its corporate
purposes, its constitution and by-laws, the methods of administration, the nature of the actual work
performed, the character of the services rendered, the indefiniteness of the beneficiaries, and the use
and occupation of the properties. 11
In the legal sense, a charity may be fully defined as a gift, to be applied consistently with existing
laws, for the benefit of an indefinite number of persons, either by bringing their minds and hearts
under the influence of education or religion, by assisting them to establish themselves in life or

otherwise lessening the burden of government. 12 It may be applied to almost anything that tend to
promote the well-doing and well-being of social man. It embraces the improvement and promotion of
the happiness of man. 13 The word "charitable" is not restricted to relief of the poor or sick. 14
The test of a charity and a charitable organization are in law the same. The test whether an enterprise
is charitable or not is whether it exists to carry out a purpose reorganized in law as charitable or
whether it is maintained for gain, profit, or private advantage. TDCcAE

Under P.D. No. 1823, the petitioner is a non-profit and non-stock corporation which, subject to the
provisions of the decree, is to be administered by the Office of the President of the Philippines with
the Ministry of Health and the Ministry of Human Settlements. It was organized for the welfare and
benefit of the Filipino people principally to help combat the high incidence of lung and pulmonary
diseases in the Philippines. The raison d'etre for the creation of the petitioner is stated in the decree,
viz:
Whereas, for decades, respiratory diseases have been a priority concern, having
been the leading cause of illness and death in the Philippines, comprising more
than 45% of the total annual deaths from all causes, thus, exacting a tremendous
toll on human resources, which ailments are likely to increase and degenerate
into serious lung diseases on account of unabated pollution, industrialization and
unchecked cigarette smoking in the country;
Whereas, the more common lung diseases are, to a great extent, preventable,
and curable with early and adequate medical care, immunization and through
prompt and intensive prevention and health education programs;
Whereas, there is an urgent need to consolidate and reinforce existing programs,
strategies and efforts at preventing, treating and rehabilitating people affected by
lung diseases, and to undertake research and training on the cure and prevention
of lung diseases, through a Lung Center which will house and nurture the above
and related activities and provide tertiary-level care for more difficult and
problematical cases;
Whereas, to achieve this purpose, the Government intends to provide material
and financial support towards the establishment and maintenance of a Lung
Center for the welfare and benefit of the Filipino people. 15
The purposes for which the petitioner was created are spelled out in its Articles of Incorporation, thus:
SECOND: That the purposes for which such corporation is formed are as follows:
1. To construct, establish, equip, maintain, administer and conduct an integrated
medical institution which shall specialize in the treatment, care, rehabilitation
and/or relief of lung and allied diseases in line with the concern of the
government to assist and provide material and financial support in the
establishment and maintenance of a lung center primarily to benefit the people of
the Philippines and in pursuance of the policy of the State to secure the wellbeing of the people by providing them specialized health and medical services and
by minimizing the incidence of lung diseases in the country and elsewhere.
2. To promote the noble undertaking of scientific research related to the
prevention of lung or pulmonary ailments and the care of lung patients, including

129

the holding of a series of relevant congresses, conventions, seminars and

conferences;
3. To stimulate and, whenever possible, underwrite scientific researches on the
biological, demographic, social, economic, eugenic and physiological aspects of
lung or pulmonary diseases and their control; and to collect and publish the
findings of such research for public consumption;
4. To facilitate the dissemination of ideas and public acceptance of information on
lung consciousness or awareness, and the development of fact-finding,
information and reporting facilities for and in aid of the general purposes or
objects aforesaid, especially in human lung requirements, general health and
physical fitness, and other relevant or related fields;
5. To encourage the training of physicians, nurses, health officers, social workers
and medical and technical personnel in the practical and scientific implementation
of services to lung patients;
6. To assist universities and research institutions in their studies about lung
diseases, to encourage advanced training in matters of the lung and related fields
and to support educational programs of value to general health;
7. To encourage the formation of other organizations on the national, provincial
and/or city and local levels; and to coordinate their various efforts and activities
for the purpose of achieving a more effective programmatic approach on the
common problems relative to the objectives enumerated herein;
8. To seek and obtain assistance in any form from both international and local
foundations and organizations; and to administer grants and funds that may be
given to the organization;
9. To extend, whenever possible and expedient, medical services to the public
and, in general, to promote and protect the health of the masses of our people,
which has long been recognized as an economic asset and a social blessing;
10. To help prevent, relieve and alleviate the lung or pulmonary afflictions and
maladies of the people in any and all walks of life, including those who are poor
and needy, all without regard to or discrimination, because of race, creed, color or
political belief of the persons helped; and to enable them to obtain treatment
when such disorders occur;

14. To do everything necessary, proper, advisable or convenient for the

accomplishment of any of the powers herein set forth and to do every other act
and thing incidental thereto or connected therewith. 16
Hence, the medical services of the petitioner are to be rendered to the public in general in any and all
walks of life including those who are poor and the needy without discrimination. After all, any person,
the rich as well as the poor, may fall sick or be injured or wounded and become a subject of charity.
17
As a general principle, a charitable institution does not lose its character as such and its exemption
from taxes simply because it derives income from paying patients, whether out-patient, or confined in
the hospital, or receives subsidies from the government, so long as the money received is devoted or
used altogether to the charitable object which it is intended to achieve; and no money inures to the
private benefit of the persons managing or operating the institution. 18 In Congregational Sunday
School, etc.v.Board of Review, 19 the State Supreme Court of Illinois held, thus:
. . . [A]n institution does not lose its charitable character, and consequent
exemption from taxation, by reason of the fact that those recipients of its benefits
who are able to pay are required to do so, where no profit is made by the
institution and the amounts so received are applied in furthering its charitable
purposes, and those benefits are refused to none on account of inability to pay
therefor. The fundamental ground upon which all exemptions in favor of charitable
institutions are based is the benefit conferred upon the public by them, and a
consequent relief, to some extent, of the burden upon the state to care for and
advance the interests of its citizens. 20
As aptly stated by the State Supreme Court of South Dakota in Lutheran Hospital Association of
South Dakota v.Baker: 21
. . . [T]he fact that paying patients are taken, the profits derived from attendance
upon these patients being exclusively devoted to the maintenance of the charity,
seems rather to enhance the usefulness of the institution to the poor; for it is a
matter of common observation amongst those who have gone about at all
amongst the suffering classes, that the deserving poor can with difficulty be
persuaded to enter an asylum of any kind confined to the reception of objects of
charity; and that their honest pride is much less wounded by being placed in an
institution in which paying patients are also received. The fact of receiving money
from some of the patients does not, we think, at all impair the character of the
charity, so long as the money thus received is devoted altogether to the charitable
object which the institution is intended to further. 22

11. To participate, as circumstances may warrant, in any activity designed and

carried on to promote the general health of the community;

The money received by the petitioner becomes a part of the trust fund and must be devoted to public
trust purposes and cannot be diverted to private profit or benefit. 23

12. To acquire and/or borrow funds and to own all funds or equipment,
educational materials and supplies by purchase, donation, or otherwise and to
dispose of and distribute the same in such manner, and, on such basis as the
Center shall, from time to time, deem proper and best, under the particular
circumstances, to serve its general and non-profit purposes and objectives;

Under P.D. No. 1823, the petitioner

character as a charitable institution
granted by the government. As held
of Equalization of Salt Lake County:

13. To buy, purchase, acquire, own, lease, hold, sell, exchange, transfer and
dispose of properties, whether real or personal, for purposes herein mentioned;
and

is entitled to receive donations. The petitioner does not lose its

simply because the gift or donation is in the form of subsidies
by the State Supreme Court of Utah in Yorgason v.County Board
24

Second, the . . . government subsidy payments are provided to the project. Thus,
those payments are like a gift or donation of any other kind except they come
from the government. In both Intermountain Health Care and the present case,
the crux is the presence or absence of material reciprocity. It is entirely irrelevant

130

to this analysis that the government, rather than a private benefactor, chose to
make up the deficit resulting from the exchange between St. Mark's Tower and
the tenants by making a contribution to the landlord, just as it would have been
irrelevant in Intermountain Health Careif the patients' income supplements had
come from private individuals rather than the government.
Therefore, the fact that subsidization of part of the cost of furnishing such
housing is by the government rather than private charitable contributions does
not dictate the denial of a charitable exemption if the facts otherwise support
such an exemption, as they do here. 25

In this case, the petitioner adduced substantial evidence that it spent its income, including the
subsidies from the government for 1991 and 1992 for its patients and for the operation of the
hospital. It even incurred a net loss in 1991 and 1992 from its operations.
Even as we find that the petitioner is a charitable institution, we hold, anent the second issue, that
those portions of its real property that are leased to private entities are not exempt from real property
taxes as these are not actually, directly and exclusively used for charitable purposes.
The settled rule in this jurisdiction is that laws granting exemption from tax are construed strictissimi
juris against the taxpayer and liberally in favor of the taxing power. Taxation is the rule and
exemption is the exception. The effect of an exemption is equivalent to an appropriation. Hence, a
claim for exemption from tax payments must be clearly shown and based on language in the law too
plain to be mistaken. 26 As held in Salvation Army v.Hoehn: 27
An intention on the part of the legislature to grant an exemption from the taxing
power of the state will never be implied from language which will admit of any
other reasonable construction. Such an intention must be expressed in clear and
unmistakable terms, or must appear by necessary implication from the language
used, for it is a well settled principle that, when a special privilege or exemption is
claimed under a statute, charter or act of incorporation, it is to be construed
strictly against the property owner and in favor of the public. This principle applies
with peculiar force to a claim of exemption from taxation. . . . 28
Section 2 of Presidential Decree No. 1823, relied upon by the petitioner, specifically provides that the
petitioner shall enjoy the tax exemptions and privileges:
SEC. 2. TAX EXEMPTIONS AND PRIVILEGES. Being a non-profit, non-stock
corporation organized primarily to help combat the high incidence of lung and
pulmonary diseases in the Philippines, all donations, contributions, endowments
and equipment and supplies to be imported by authorized entities or persons and
by the Board of Trustees of the Lung Center of the Philippines, Inc., for the actual
use and benefit of the Lung Center, shall be exempt from income and gift taxes,
the same further deductible in full for the purpose of determining the maximum
deductible amount under Section 30, paragraph (h), of the National Internal
Revenue Code, as amended.
The Lung Center of the Philippines shall be exempt from the payment of taxes,
charges and fees imposed by the Government or any political subdivision or
instrumentality thereof with respect to equipment purchases made by, or for the
Lung Center. 29

It is plain as day that under the decree, the petitioner does not enjoy any property tax exemption
privileges for its real properties as well as the building constructed thereon . If the intentions were
otherwise, the same should have been among the enumeration of tax exempt privileges under Section
2:
It is a settled rule of statutory construction that the express mention of one
person, thing, or consequence implies the exclusion of all others. The rule is
expressed in the familiar maxim, expressio unius est exclusio alterius.
The rule of expressio unius est exclusio alterius is formulated in a number of
ways. One variation of the rule is the principle that what is expressed puts an end
to that which is implied. Expressium facit cessare tacitum. Thus, where a statute,
by its terms, is expressly limited to certain matters, it may not, by interpretation
or construction, be extended to other matters.
xxx xxx xxx
The rule of expressio unius est exclusio alterius and its variations are canons of
restrictive interpretation. They are based on the rules of logic and the natural
workings of the human mind. They are predicated upon one's own voluntary act
and not upon that of others. They proceed from the premise that the legislature
would not have made specified enumeration in a statute had the intention been
not to restrict its meaning and confine its terms to those expressly mentioned.
30
The exemption must not be so enlarged by construction since the reasonable presumption is that the
State has granted in express terms all it intended to grant at all, and that unless the privilege is
limited to the very terms of the statute the favor would be intended beyond what was meant. 31
Section 28(3), Article VI of the 1987 Philippine Constitution provides, thus:
(3) Charitable institutions, churches and parsonages or convents appurtenant
thereto, mosques, non-profit cemeteries, and all lands, buildings, and
improvements, actually, directlyandexclusively used for religious, charitable or
educational purposes shall be exempt from taxation. 32
The tax exemption under this constitutional provision coversproperty taxes only. 33 As Chief Justice
Hilario G. Davide, Jr., then a member of the 1986 Constitutional Commission, explained: ". . . what is
exempted is not the institution itself . . .; those exempted from real estate taxes are lands, buildings
and improvements actually, directly and exclusively used for religious, charitable or educational
purposes." 34
Consequently, the constitutional provision is implemented by Section 234(b) of Republic Act No. 7160
(otherwise known as the Local Government Code of 1991) as follows:
SECTION 234. Exemptions from Real Property Tax. The following are exempted
from payment of the real property tax:
xxx xxx xxx
(b) Charitable institutions, churches, parsonages or convents appurtenant
thereto, mosques, non-profit or religious cemeteries and all lands, buildings, and

131

improvements actually, directly, and exclusively used for religious, charitable or

educational purposes. 35
We note that under the 1935 Constitution, ". . . all lands, buildings, and improvements used
'exclusively' for charitable . . . purposes shall be exempt from taxation." 36 However, under the
1973 and the present Constitutions, for "lands, buildings, and improvements" of the charitable
institution to be considered exempt, the same should not only be "exclusively" used for charitable
purposes; it is required that such property be used "actually" and "directly" for such purposes. 37
In light of the foregoing substantial changes in the Constitution, the petitioner cannot rely on our
ruling in Herrera v.Quezon City Board of Assessment Appealswhich was promulgated on September
30, 1961 before the 1973 and 1987 Constitutions took effect. 38 As this Court held in Province of
Abra v.Hernando: 39
. . . Under the 1935 Constitution: "Cemeteries, churches, and parsonages or
convents appurtenant thereto, and all lands, buildings, and improvements used
exclusively for religious, charitable, or educational purposes shall be exempt from
taxation." The present Constitution added "charitable institutions, mosques, and
non-profit cemeteries" and required that for the exemption of "lands, buildings,
and improvements," they should not only be "exclusively" but also "actually" and
"directly" used for religious or charitable purposes. The Constitution is worded
differently. The change should not be ignored. It must be duly taken into
consideration. Reliance on past decisions would have sufficed were the words
"actually" as well as "directly" not added. There must be proof therefore of the
actual and direct use of the lands, buildings, and improvements for religious or
charitable purposes to be exempt from taxation . . .
Under the 1973 and 1987 Constitutions and Rep. Act No. 7160 in order to be entitled to the
exemption, the petitioner is burdened to prove, by clear and unequivocal proof, that (a) it is a
charitable institution; and (b) its real properties are ACTUALLY, DIRECTLY and EXCLUSIVELY used for
charitable purposes. "Exclusive" is defined as possessed and enjoyed to the exclusion of others;
debarred from participation or enjoyment; and "exclusively" is defined, "in a manner to exclude; as
enjoying a privilege exclusively." 40 If real property is used for one or more commercial purposes, it
is not exclusively used for the exempted purposes but is subject to taxation. 41 The words
"dominant use" or "principal use" cannot be substituted for the words "used exclusively" without doing
violence to the Constitutions and the law. 42 Solely is synonymous with exclusively. 43
What is meant by actual, direct and exclusive use of the property for charitable purposes is the direct
and immediate and actual application of the property itself to the purposes for which the charitable
institution is organized. It is not the use of the income from the real property that is determinative of
whether the property is used for tax-exempt purposes. 44
The petitioner failed to discharge its burden to prove that the entirety of its real property is actually,
directly and exclusively used for charitable purposes. While portions of the hospital are used for the
treatment of patients and the dispensation of medical services to them, whether paying or nonpaying, other portions thereof are being leased to private individuals for their clinics and a canteen.
Further, a portion of the land is being leased to a private individual for her business enterprise under
the business name "Elliptical Orchids and Garden Center." Indeed, the petitioner's evidence shows
that it collected P1,136,483.45 as rentals in 1991 and P1,679,999.28 for 1992 from the said lessees.
Accordingly, we hold that the portions of the land leased to private entities as well as those parts of
the hospital leased to private individuals are not exempt from such taxes. 45 On the other hand, the

portions of the land occupied by the hospital and portions of the hospital used for its patients,
whether paying or non-paying, are exempt from real property taxes.

IN LIGHT OF ALL THE FOREGOING, the petition is PARTIALLY GRANTED. The respondent Quezon City
Assessor is hereby DIRECTED to determine, after due hearing, the precise portions of the land and
the area thereof which are leased to private persons, and to compute the real property taxes due
thereon as provided for by law.
SO ORDERED. cCAIES
Davide, Jr., C.J., Puno, Panganiban, Quisumbing, Sandoval-Gutierrez, Carpio, Corona, CarpioMorales, Azcuna and Tinga, JJ., concur.
Vitug, J., is on official leave.
Ynares-SantiagoandAustria-Martinez, JJ., are on leave.
||| (Lung Center of the Phil. v. Quezon City, G.R. No. 144104, [June 29, 2004], 477 PHIL 141-160)
Republic
SUPREME
Manila

of

the

Philippines
COURT

EN BANC
G.R. No. 155650

July 20, 2006

MANILA
INTERNATIONAL
AIRPORT
AUTHORITY,
petitioner,
vs.
COURT OF APPEALS, CITY OF PARAAQUE, CITY MAYOR OF PARAAQUE, SANGGUNIANG
PANGLUNGSOD NG PARAAQUE, CITY ASSESSOR OF PARAAQUE, and CITY TREASURER OF
PARAAQUE, respondents.
DECISION
CARPIO, J.:
The Antecedents
Petitioner Manila International Airport Authority (MIAA) operates the Ninoy Aquino International
Airport (NAIA) Complex in Paraaque City under Executive Order No. 903, otherwise known as the
Revised Charter of the Manila International Airport Authority ("MIAA Charter"). Executive Order No.
903 was issued on 21 July 1983 by then President Ferdinand E. Marcos. Subsequently, Executive
Order Nos. 9091 and 2982 amended the MIAA Charter.
As operator of the international airport, MIAA administers the land, improvements and equipment
within the NAIA Complex. The MIAA Charter transferred to MIAA approximately 600 hectares of land, 3
including the runways and buildings ("Airport Lands and Buildings") then under the Bureau of Air
Transportation.4 The MIAA Charter further provides that no portion of the land transferred to MIAA
shall be disposed of through sale or any other mode unless specifically approved by the President of
the Philippines.5

132

On 21 March 1997, the Office of the Government Corporate Counsel (OGCC) issued Opinion No. 061.
The OGCC opined that the Local Government Code of 1991 withdrew the exemption from real estate
tax granted to MIAA under Section 21 of the MIAA Charter. Thus, MIAA negotiated with respondent
City of Paraaque to pay the real estate tax imposed by the City. MIAA then paid some of the real
estate tax already due.
On 28 June 2001, MIAA received Final Notices of Real Estate Tax Delinquency from the City of
Paraaque for the taxable years 1992 to 2001. MIAA's real estate tax delinquency is broken down as
follows:
TAX
TAXABLE
DECLARATIO
YEAR
N

TAX DUE

PENALTY

TOTAL

E-016-01370 1992-2001

19,558,160.0 11,201,083.2 30,789,243.20

0
0

E-016-01374 1992-2001

111,689,424. 68,149,479.5 179,838,904.4

90
9
9

E-016-01375 1992-2001

20,276,058.0 12,371,832.0 32,647,890.00

0
0

E-016-01376 1992-2001

58,144,028.0 35,477,712.0 93,621,740.00

0
0

E-016-01377 1992-2001

18,134,614.6 11,065,188.5 29,199,803.24

5
9

E-016-01378 1992-2001

111,107,950. 67,794,681.5 178,902,631.9

40
9
9

E-016-01379 1992-2001

4,322,340.00 2,637,360.00 6,959,700.00

E-016-01380 1992-2001

7,776,436.00 4,744,944.00 12,521,380.00

*E-016-013- 1998-2001
85

6,444,810.00 2,900,164.50 9,344,974.50

*E-01601387

1998-2001

34,876,800.0 5,694,560.00 50,571,360.00

0

*E-01601396

1998-2001

75,240.00

GRAND
TOTAL

33,858.00

109,098.00

1992-1997 RPT was paid on Dec. 24, 1997 as per O.R.#9476102 for P4,207,028.75
#9476101 for P28,676,480.00
#9476103 for P49,115.006
On 17 July 2001, the City of Paraaque, through its City Treasurer, issued notices of levy and warrants
of levy on the Airport Lands and Buildings. The Mayor of the City of Paraaque threatened to sell at
public auction the Airport Lands and Buildings should MIAA fail to pay the real estate tax delinquency.
MIAA thus sought a clarification of OGCC Opinion No. 061.
On 9 August 2001, the OGCC issued Opinion No. 147 clarifying OGCC Opinion No. 061. The OGCC
pointed out that Section 206 of the Local Government Code requires persons exempt from real estate
tax to show proof of exemption. The OGCC opined that Section 21 of the MIAA Charter is the proof
that MIAA is exempt from real estate tax.
On 1 October 2001, MIAA filed with the Court of Appeals an original petition for prohibition and
injunction, with prayer for preliminary injunction or temporary restraining order. The petition sought
to restrain the City of Paraaque from imposing real estate tax on, levying against, and auctioning for
public sale the Airport Lands and Buildings. The petition was docketed as CA-G.R. SP No. 66878.
On 5 October 2001, the Court of Appeals dismissed the petition because MIAA filed it beyond the 60day reglementary period. The Court of Appeals also denied on 27 September 2002 MIAA's motion for
reconsideration and supplemental motion for reconsideration. Hence, MIAA filed on 5 December 2002
the present petition for review.7
Meanwhile, in January 2003, the City of Paraaque posted notices of auction sale at the Barangay
Halls of Barangays Vitalez, Sto. Nio, and Tambo, Paraaque City; in the public market of Barangay La
Huerta; and in the main lobby of the Paraaque City Hall. The City of Paraaque published the notices
in the 3 and 10 January 2003 issues of the Philippine Daily Inquirer, a newspaper of general
circulation in the Philippines. The notices announced the public auction sale of the Airport Lands and
Buildings to the highest bidder on 7 February 2003, 10:00 a.m., at the Legislative Session Hall
Building of Paraaque City.
A day before the public auction, or on 6 February 2003, at 5:10 p.m., MIAA filed before this Court an
Urgent Ex-Parte and Reiteratory Motion for the Issuance of a Temporary Restraining Order. The
motion sought to restrain respondents the City of Paraaque, City Mayor of Paraaque,
Sangguniang Panglungsod ng Paraaque, City Treasurer of Paraaque, and the City Assessor of
Paraaque ("respondents") from auctioning the Airport Lands and Buildings.
On 7 February 2003, this Court issued a temporary restraining order (TRO) effective immediately. The
Court ordered respondents to cease and desist from selling at public auction the Airport Lands and
Buildings. Respondents received the TRO on the same day that the Court issued it. However,
respondents received the TRO only at 1:25 p.m. or three hours after the conclusion of the public
auction.
On 10 February 2003, this Court issued a Resolution confirming nunc pro tunc the TRO.

P392,435,86 P232,070,86 P
1.95
3.47
624,506,725.4
2

On 29 March 2005, the Court heard the parties in oral arguments. In compliance with the directive
issued during the hearing, MIAA, respondent City of Paraaque, and the Solicitor General
subsequently submitted their respective Memoranda.

133

MIAA admits that the MIAA Charter has placed the title to the Airport Lands and Buildings in the name
of MIAA. However, MIAA points out that it cannot claim ownership over these properties since the real
owner of the Airport Lands and Buildings is the Republic of the Philippines. The MIAA Charter
mandates MIAA to devote the Airport Lands and Buildings for the benefit of the general public. Since
the Airport Lands and Buildings are devoted to public use and public service, the ownership of these
properties remains with the State. The Airport Lands and Buildings are thus inalienable and are not
subject to real estate tax by local governments.
MIAA also points out that Section 21 of the MIAA Charter specifically exempts MIAA from the payment
of real estate tax. MIAA insists that it is also exempt from real estate tax under Section 234 of the
Local Government Code because the Airport Lands and Buildings are owned by the Republic. To justify
the exemption, MIAA invokes the principle that the government cannot tax itself. MIAA points out that
the reason for tax exemption of public property is that its taxation would not inure to any public
advantage, since in such a case the tax debtor is also the tax creditor.
Respondents invoke Section 193 of the Local Government Code, which expressly withdrew the tax
exemption privileges of "government-owned and-controlled corporations" upon the effectivity of
the Local Government Code. Respondents also argue that a basic rule of statutory construction is that
the express mention of one person, thing, or act excludes all others. An international airport is not
among the exceptions mentioned in Section 193 of the Local Government Code. Thus, respondents
assert that MIAA cannot claim that the Airport Lands and Buildings are exempt from real estate tax.
Respondents also cite the ruling of this Court in Mactan International Airport v. Marcos 8 where we
held that the Local Government Code has withdrawn the exemption from real estate tax granted to
international airports. Respondents further argue that since MIAA has already paid some of the real
estate tax assessments, it is now estopped from claiming that the Airport Lands and Buildings are
exempt from real estate tax.
The Issue
This petition raises the threshold issue of whether the Airport Lands and Buildings of MIAA are exempt
from real estate tax under existing laws. If so exempt, then the real estate tax assessments issued by
the City of Paraaque, and all proceedings taken pursuant to such assessments, are void. In such
event, the other issues raised in this petition become moot.
The Court's Ruling
We rule that MIAA's Airport Lands and Buildings are exempt from real estate tax imposed by local
governments.
First, MIAA is not a government-owned or controlled corporation but an instrumentality of the
National Government and thus exempt from local taxation. Second, the real properties of MIAA are
owned by the Republic of the Philippines and thus exempt from real estate tax.
1. MIAA is Not a Government-Owned or Controlled Corporation
Respondents argue that MIAA, being a government-owned or controlled corporation, is not exempt
from real estate tax. Respondents claim that the deletion of the phrase "any government-owned or
controlled so exempt by its charter" in Section 234(e) of the Local Government Code withdrew the
real estate tax exemption of government-owned or controlled corporations. The deleted phrase
appeared in Section 40(a) of the 1974 Real Property Tax Code enumerating the entities exempt from
real estate tax.

There is no dispute that a government-owned or controlled corporation is not exempt from real estate
tax. However, MIAA is not a government-owned or controlled corporation. Section 2(13) of the
Introductory Provisions of the Administrative Code of 1987 defines a government-owned or controlled
corporation as follows:
SEC. 2. General Terms Defined. x x x x
(13) Government-owned or controlled corporation refers to any agency organized as a stock
or non-stock corporation, vested with functions relating to public needs whether
governmental or proprietary in nature, and owned by the Government directly or through its
instrumentalities either wholly, or, where applicable as in the case of stock corporations, to the
extent of at least fifty-one (51) percent of its capital stock: x x x. (Emphasis supplied)
A government-owned or controlled corporation must be "organized as a stock or non-stock
corporation." MIAA is not organized as a stock or non-stock corporation. MIAA is not a stock
corporation because it has no capital stock divided into shares. MIAA has no stockholders or
voting shares. Section 10 of the MIAA Charter9 provides:
SECTION 10. Capital. The capital of the Authority to be contributed by the National
Government shall be increased from Two and One-half Billion (P2,500,000,000.00) Pesos to Ten
Billion (P10,000,000,000.00) Pesos to consist of:
(a) The value of fixed assets including airport facilities, runways and equipment and such other
properties, movable and immovable[,] which may be contributed by the National Government or
transferred by it from any of its agencies, the valuation of which shall be determined jointly with
the Department of Budget and Management and the Commission on Audit on the date of such
contribution or transfer after making due allowances for depreciation and other deductions
taking into account the loans and other liabilities of the Authority at the time of the takeover of
the assets and other properties;
(b) That the amount of P605 million as of December 31, 1986 representing about seventy
percentum (70%) of the unremitted share of the National Government from 1983 to 1986 to be
remitted to the National Treasury as provided for in Section 11 of E. O. No. 903 as amended,
shall be converted into the equity of the National Government in the Authority. Thereafter, the
Government contribution to the capital of the Authority shall be provided in the General
Appropriations Act.
Clearly, under its Charter, MIAA does not have capital stock that is divided into shares.
Section 3 of the Corporation Code 10 defines a stock corporation as one whose "capital stock is
divided into shares and x x x authorized to distribute to the holders of such shares
dividends x x x." MIAA has capital but it is not divided into shares of stock. MIAA has no
stockholders or voting shares. Hence, MIAA is not a stock corporation.
MIAA is also not a non-stock corporation because it has no members. Section 87 of the Corporation
Code defines a non-stock corporation as "one where no part of its income is distributable as dividends
to its members, trustees or officers." A non-stock corporation must have members. Even if we
assume that the Government is considered as the sole member of MIAA, this will not make MIAA a
non-stock corporation. Non-stock corporations cannot distribute any part of their income to their
members. Section 11 of the MIAA Charter mandates MIAA to remit 20% of its annual gross operating
income to the National Treasury.11 This prevents MIAA from qualifying as a non-stock corporation.

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Section 88 of the Corporation Code provides that non-stock corporations are "organized for charitable,
religious, educational, professional, cultural, recreational, fraternal, literary, scientific, social, civil
service, or similar purposes, like trade, industry, agriculture and like chambers." MIAA is not
organized for any of these purposes. MIAA, a public utility, is organized to operate an international
and domestic airport for public use.
Since MIAA is neither a stock nor a non-stock corporation, MIAA does not qualify as a governmentowned or controlled corporation. What then is the legal status of MIAA within the National
Government?
MIAA is a government instrumentality vested with corporate powers to perform efficiently its
governmental functions. MIAA is like any other government instrumentality, the only difference is that
MIAA is vested with corporate powers. Section 2(10) of the Introductory Provisions of the
Administrative Code defines a government "instrumentality" as follows:

xxxx
(o) Taxes, fees or charges of any kind on the National Government, its agencies and
instrumentalitiesand local government units.(Emphasis and underscoring supplied)
Section 133(o) recognizes the basic principle that local governments cannot tax the national
government, which historically merely delegated to local governments the power to tax. While the
1987 Constitution now includes taxation as one of the powers of local governments, local
governments may only exercise such power "subject to such guidelines and limitations as the
Congress may provide."18

SEC. 2. General Terms Defined. x x x x

When local governments invoke the power to tax on national government instrumentalities, such
power is construed strictly against local governments. The rule is that a tax is never presumed and
there must be clear language in the law imposing the tax. Any doubt whether a person, article or
activity is taxable is resolved against taxation. This rule applies with greater force when local
governments seek to tax national government instrumentalities.

(10) Instrumentality refers to any agency of the National Government, not integrated within the
department framework, vested with special functions or jurisdiction by law, endowed with
some if not all corporate powers, administering special funds, and enjoying operational
autonomy, usually through a charter. x x x (Emphasis supplied)

Another rule is that a tax exemption is strictly construed against the taxpayer claiming the exemption.
However, when Congress grants an exemption to a national government instrumentality from local
taxation, such exemption is construed liberally in favor of the national government instrumentality. As
this Court declared in Maceda v. Macaraig, Jr.:

When the law vests in a government instrumentality corporate powers, the instrumentality does not
become a corporation. Unless the government instrumentality is organized as a stock or non-stock
corporation, it remains a government instrumentality exercising not only governmental but also
corporate powers. Thus, MIAA exercises the governmental powers of eminent domain, 12 police
authority13 and the levying of fees and charges. 14 At the same time, MIAA exercises "all the powers of
a corporation under the Corporation Law, insofar as these powers are not inconsistent with the
provisions of this Executive Order."15

The reason for the rule does not apply in the case of exemptions running to the benefit of the
government itself or its agencies. In such case the practical effect of an exemption is merely to
reduce the amount of money that has to be handled by government in the course of its
operations. For these reasons, provisions granting exemptions to government agencies may be
construed liberally, in favor of non tax-liability of such agencies. 19

Likewise, when the law makes a government instrumentality operationally autonomous, the
instrumentality remains part of the National Government machinery although not integrated with the
department framework. The MIAA Charter expressly states that transforming MIAA into a "separate
and autonomous body"16 will make its operation more "financially viable." 17
Many government instrumentalities are vested with corporate powers but they do not become stock
or non-stock corporations, which is a necessary condition before an agency or instrumentality is
deemed a government-owned or controlled corporation. Examples are the Mactan International
Airport Authority, the Philippine Ports Authority, the University of the Philippines and Bangko Sentral
ng Pilipinas. All these government instrumentalities exercise corporate powers but they are not
organized as stock or non-stock corporations as required by Section 2(13) of the Introductory
Provisions of the Administrative Code. These government instrumentalities are sometimes loosely
called government corporate entities. However, they are not government-owned or controlled
corporations in the strict sense as understood under the Administrative Code, which is the governing
law defining the legal relationship and status of government entities.
A government instrumentality like MIAA falls under Section 133(o) of the Local Government Code,
which states:
SEC. 133. Common Limitations on the Taxing Powers of Local Government Units. Unless
otherwise provided herein, the exercise of the taxing powers of provinces, cities,
municipalities, and barangays shall not extend to the levy of the following:

There is, moreover, no point in national and local governments taxing each other, unless a sound and
compelling policy requires such transfer of public funds from one government pocket to another.
There is also no reason for local governments to tax national government instrumentalities for
rendering essential public services to inhabitants of local governments. The only exception is when
the legislature clearly intended to tax government instrumentalities for the delivery of
essential public services for sound and compelling policy considerations. There must be
express language in the law empowering local governments to tax national government
instrumentalities. Any doubt whether such power exists is resolved against local governments.
Thus, Section 133 of the Local Government Code states that "unless otherwise provided" in the
Code, local governments cannot tax national government instrumentalities. As this Court held in
Basco v. Philippine Amusements and Gaming Corporation:
The states have no power by taxation or otherwise, to retard, impede, burden or in any
manner control the operation of constitutional laws enacted by Congress to carry into
execution the powers vested in the federal government. (MC Culloch v. Maryland, 4 Wheat
316, 4 L Ed. 579)
This doctrine emanates from the "supremacy" of the National Government over local
governments.
"Justice Holmes, speaking for the Supreme Court, made reference to the entire absence of
power on the part of the States to touch, in that way (taxation) at least, the
instrumentalities of the United States (Johnson v. Maryland, 254 US 51) and it can be

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agreed that no state or political subdivision can regulate a federal instrumentality in such a
way as to prevent it from consummating its federal responsibilities, or even to seriously
burden it in the accomplishment of them." (Antieau, Modern Constitutional Law, Vol. 2, p.
140, emphasis supplied)
Otherwise, mere creatures of the State can defeat National policies thru extermination of what
local authorities may perceive to be undesirable activities or enterprise using the power to tax as
"a tool for regulation" (U.S. v. Sanchez, 340 US 42).
The power to tax which was called by Justice Marshall as the "power to destroy" (Mc Culloch v.
Maryland, supra) cannot be allowed to defeat an instrumentality or creation of the very entity
which has the inherent power to wield it. 20
2. Airport Lands and Buildings of MIAA are Owned by the Republic
a. Airport Lands and Buildings are of Public Dominion
The Airport Lands and Buildings of MIAA are property of public dominion and therefore owned by
the State or the Republic of the Philippines. The Civil Code provides:
ARTICLE 419. Property is either of public dominion or of private ownership.
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;
(2) Those which belong to the State, without being for public use, and are intended for some
public service or for the development of the national wealth. (Emphasis supplied)
ARTICLE 421. All other property of the State, which is not of the character stated in the
preceding article, is patrimonial property.
ARTICLE 422. Property of public dominion, when no longer intended for public use or for public
service, shall form part of the patrimonial property of the State.
No one can dispute that properties of public dominion mentioned in Article 420 of the Civil Code, like
"roads, canals, rivers, torrents, ports and bridges constructed by the State," are owned by
the State. The term "ports" includes seaports and airports. The MIAA Airport Lands and
Buildings constitute a "port" constructed by the State. Under Article 420 of the Civil Code, the MIAA
Airport Lands and Buildings are properties of public dominion and thus owned by the State or the
Republic of the Philippines.
The Airport Lands and Buildings are devoted to public use because they are used by the public for
international and domestic travel and transportation. The fact that the MIAA collects terminal
fees and other charges from the public does not remove the character of the Airport Lands and
Buildings as properties for public use. The operation by the government of a tollway does not change
the character of the road as one for public use. Someone must pay for the maintenance of the road,
either the public indirectly through the taxes they pay the government, or only those among the
public who actually use the road through the toll fees they pay upon using the road. The tollway
system is even a more efficient and equitable manner of taxing the public for the maintenance of
public roads.

The charging of fees to the public does not determine the character of the property whether it is of
public dominion or not. Article 420 of the Civil Code defines property of public dominion as one
"intended for public use." Even if the government collects toll fees, the road is still "intended for public
use" if anyone can use the road under the same terms and conditions as the rest of the public. The
charging of fees, the limitation on the kind of vehicles that can use the road, the speed restrictions
and other conditions for the use of the road do not affect the public character of the road.
The terminal fees MIAA charges to passengers, as well as the landing fees MIAA charges to airlines,
constitute the bulk of the income that maintains the operations of MIAA. The collection of such fees
does not change the character of MIAA as an airport for public use. Such fees are often termed user's
tax. This means taxing those among the public who actually use a public facility instead of taxing all
the public including those who never use the particular public facility. A user's tax is more equitable
a principle of taxation mandated in the 1987 Constitution.21
The Airport Lands and Buildings of MIAA, which its Charter calls the "principal airport of the
Philippines for both international and domestic air traffic," 22 are properties of public dominion because
they are intended for public use.As properties of public dominion, they indisputably belong to
the State or the Republic of the Philippines.
b. Airport Lands and Buildings are Outside the Commerce of Man
The Airport Lands and Buildings of MIAA are devoted to public use and thus are properties of public
dominion. As properties of public dominion, the Airport Lands and Buildings are outside the
commerce of man. The Court has ruled repeatedly that properties of public dominion are outside the
commerce of man. As early as 1915, this Court already ruled in Municipality of Cavite v. Rojas that
properties devoted to public use are outside the commerce of man, thus:
According to article 344 of the Civil Code: "Property for public use in provinces and in towns
comprises the provincial and town roads, the squares, streets, fountains, and public waters, the
promenades, and public works of general service supported by said towns or provinces."
The said Plaza Soledad being a promenade for public use, the municipal council of Cavite could
not in 1907 withdraw or exclude from public use a portion thereof in order to lease it for the sole
benefit of the defendant Hilaria Rojas. In leasing a portion of said plaza or public place to the
defendant for private use the plaintiff municipality exceeded its authority in the exercise of its
powers by executing a contract over a thing of which it could not dispose, nor is it empowered so
to do.
The Civil Code, article 1271, prescribes that everything which is not outside the commerce of
man may be the object of a contract, and plazas and streets are outside of this commerce, as
was decided by the supreme court of Spain in its decision of February 12, 1895, which says:
"Communal things that cannot be sold because they are by their very nature outside of
commerce are those for public use, such as the plazas, streets, common lands, rivers,
fountains, etc." (Emphasis supplied) 23
Again in Espiritu v. Municipal Council, the Court declared that properties of public dominion are
outside the commerce of man:
xxx Town plazas are properties of public dominion, to be devoted to public use and to be
made available to the public in general. They are outside the commerce of man and cannot
be disposed of or even leased by the municipality to private parties. While in case of war or
during an emergency, town plazas may be occupied temporarily by private individuals, as was
done and as was tolerated by the Municipality of Pozorrubio, when the emergency has ceased,

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said temporary occupation or use must also cease, and the town officials should see to it that
the town plazas should ever be kept open to the public and free from encumbrances or illegal
private constructions.24 (Emphasis supplied)
The Court has also ruled that property of public dominion, being outside the commerce of man,
cannot be the subject of an auction sale.25
Properties of public dominion, being for public use, are not subject to levy, encumbrance or
disposition through public or private sale. Any encumbrance, levy on execution or auction sale of any
property of public dominion is void for being contrary to public policy. Essential public services will
stop if properties of public dominion are subject to encumbrances, foreclosures and auction sale. This
will happen if the City of Paraaque can foreclose and compel the auction sale of the 600-hectare
runway of the MIAA for non-payment of real estate tax.
Before MIAA can encumber26 the Airport Lands and Buildings, the President must first withdraw
from public usethe Airport Lands and Buildings. Sections 83 and 88 of the Public Land Law or
Commonwealth Act No. 141, which "remains to this day the existing general law governing the
classification and disposition of lands of the public domain other than timber and mineral lands," 27
provide:
SECTION 83. Upon the recommendation of the Secretary of Agriculture and Natural Resources,
the President may designate by proclamation any tract or tracts of land of the public domain as
reservations for the use of the Republic of the Philippines or of any of its branches, or of the
inhabitants thereof, in accordance with regulations prescribed for this purposes, or for quasipublic uses or purposes when the public interest requires it, including reservations for highways,
rights of way for railroads, hydraulic power sites, irrigation systems, communal pastures or
lequas communales, public parks, public quarries, public fishponds, working men's village and
other improvements for the public benefit.
SECTION 88. The tract or tracts of land reserved under the provisions of Section eightythree shall benon-alienable and shall not be subject to occupation, entry, sale, lease,
or other disposition until again declared alienable under the provisions of this Act or
by proclamation of the President. (Emphasis and underscoring supplied)
Thus, unless the President issues a proclamation withdrawing the Airport Lands and Buildings from
public use, these properties remain properties of public dominion and are inalienable. Since the
Airport Lands and Buildings are inalienable in their present status as properties of public dominion,
they are not subject to levy on execution or foreclosure sale. As long as the Airport Lands and
Buildings are reserved for public use, their ownership remains with the State or the Republic of the
Philippines.
The authority of the President to reserve lands of the public domain for public use, and to withdraw
such public use, is reiterated in Section 14, Chapter 4, Title I, Book III of the Administrative Code of
1987, which states:
SEC. 14. Power to Reserve Lands of the Public and Private Domain of the Government. (1)
The President shall have the power to reserve for settlement or public use, and for
specific public purposes, any of the lands of the public domain, the use of which is not
otherwise directed by law. The reserved land shall thereafter remain subject to the
specific public purpose indicated until otherwise provided by law or proclamation;
x x x x. (Emphasis supplied)

There is no question, therefore, that unless the Airport Lands and Buildings are withdrawn by law or
presidential proclamation from public use, they are properties of public dominion, owned by the
Republic and outside the commerce of man.
c. MIAA is a Mere Trustee of the Republic
MIAA is merely holding title to the Airport Lands and Buildings in trust for the Republic. Section 48,
Chapter 12, Book I of the Administrative Code allows instrumentalities like MIAA to hold title
to real properties owned by the Republic, thus:
SEC. 48. Official Authorized to Convey Real Property. Whenever real property of the
Government is authorized by law to be conveyed, the deed of conveyance shall be executed in
behalf of the government by the following:
(1) For property belonging to and titled in the name of the Republic of the Philippines, by the
President, unless the authority therefor is expressly vested by law in another officer.
(2) For property belonging to the Republic of the Philippines but titled in the name of
any political subdivision or of any corporate agency or instrumentality, by the executive
head of the agency or instrumentality. (Emphasis supplied)
In MIAA's case, its status as a mere trustee of the Airport Lands and Buildings is clearer because even
its executive head cannot sign the deed of conveyance on behalf of the Republic. Only the President of
the Republic can sign such deed of conveyance.28
d. Transfer to MIAA was Meant to Implement a Reorganization
The MIAA Charter, which is a law, transferred to MIAA the title to the Airport Lands and Buildings from
the Bureau of Air Transportation of the Department of Transportation and Communications. The MIAA
Charter provides:
SECTION 3. Creation of the Manila International Airport Authority. x x x x
The land where the Airport is presently located as well as the surrounding land area of
approximately six hundred hectares, are hereby transferred, conveyed and assigned to
the ownership and administration of the Authority, subject to existing rights, if any .
The Bureau of Lands and other appropriate government agencies shall undertake an actual
survey of the area transferred within one year from the promulgation of this Executive Order and
the corresponding title to be issued in the name of the Authority. Any portion thereof shall
not be disposed through sale or through any other mode unless specifically approved
by the President of the Philippines. (Emphasis supplied)
SECTION 22. Transfer of Existing Facilities and Intangible Assets. All existing public airport
facilities, runways, lands, buildings and other property, movable or immovable, belonging
to the Airport, and all assets, powers, rights, interests and privileges belonging to the Bureau
of Air Transportation relating to airport works or air operations, including all equipment which
are necessary for the operation of crash fire and rescue facilities, are hereby transferred to the
Authority. (Emphasis supplied)
SECTION 25. Abolition of the Manila International Airport as a Division in the Bureau of Air
Transportation and Transitory Provisions. The Manila International Airport including the Manila
Domestic Airport as a division under the Bureau of Air Transportation is hereby abolished.

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x x x x.
The MIAA Charter transferred the Airport Lands and Buildings to MIAA without the Republic receiving
cash, promissory notes or even stock since MIAA is not a stock corporation.
The whereas clauses of the MIAA Charter explain the rationale for the transfer of the Airport Lands
and Buildings to MIAA, thus:
WHEREAS, the Manila International Airport as the principal airport of the Philippines for both
international and domestic air traffic, is required to provide standards of airport accommodation
and service comparable with the best airports in the world;
WHEREAS, domestic and other terminals, general aviation and other facilities, have to be
upgraded to meet the current and future air traffic and other demands of aviation in Metro
Manila;
WHEREAS, a management and organization study has indicated that the objectives of
providing high standards of accommodation and service within the context of a
financially viable operation, will best be achieved by a separate and autonomous body;
and
WHEREAS, under Presidential Decree No. 1416, as amended by Presidential Decree No. 1772,
the President of the Philippines is given continuing authority to reorganize the National
Government, which authority includes the creation of new entities, agencies and
instrumentalities of the Government[.] (Emphasis supplied)
The transfer of the Airport Lands and Buildings from the Bureau of Air Transportation to MIAA was not
meant to transfer beneficial ownership of these assets from the Republic to MIAA. The purpose was
merely to reorganize a division in the Bureau of Air Transportation into a separate and
autonomous body. The Republic remains the beneficial owner of the Airport Lands and Buildings.
MIAA itself is owned solely by the Republic. No party claims any ownership rights over MIAA's assets
adverse to the Republic.
The MIAA Charter expressly provides that the Airport Lands and Buildings "shall not be disposed
through sale or through any other mode unless specifically approved by the President of
the Philippines." This only means that the Republic retained the beneficial ownership of the Airport
Lands and Buildings because under Article 428 of the Civil Code, only the "owner has the right to x x
x dispose of a thing." Since MIAA cannot dispose of the Airport Lands and Buildings, MIAA does not
own the Airport Lands and Buildings.
At any time, the President can transfer back to the Republic title to the Airport Lands and Buildings
without the Republic paying MIAA any consideration. Under Section 3 of the MIAA Charter, the
President is the only one who can authorize the sale or disposition of the Airport Lands and Buildings.
This only confirms that the Airport Lands and Buildings belong to the Republic.
e. Real Property Owned by the Republic is Not Taxable
Section 234(a) of the Local Government Code exempts from real estate tax any "[r]eal property
owned by the Republic of the Philippines." Section 234(a) provides:
SEC. 234. Exemptions from Real Property Tax. The following are exempted from
payment of the real property tax:

(a) Real property owned by the Republic of the Philippines or any of its political
subdivisions except when the beneficial use thereof has been granted, for
consideration or otherwise, to a taxable person;
x x x. (Emphasis supplied)
This exemption should be read in relation with Section 133(o) of the same Code, which prohibits local
governments from imposing "[t]axes, fees or charges of any kind on the National Government, its
agencies and instrumentalitiesx x x." The real properties owned by the Republic are titled either in
the name of the Republic itself or in the name of agencies or instrumentalities of the National
Government. The Administrative Code allows real property owned by the Republic to be titled in the
name of agencies or instrumentalities of the national government. Such real properties remain owned
by the Republic and continue to be exempt from real estate tax.
The Republic may grant the beneficial use of its real property to an agency or instrumentality of the
national government. This happens when title of the real property is transferred to an agency or
instrumentality even as the Republic remains the owner of the real property. Such arrangement does
not result in the loss of the tax exemption. Section 234(a) of the Local Government Code states that
real property owned by the Republic loses its tax exemption only if the "beneficial use thereof has
been granted, for consideration or otherwise, to a taxable person." MIAA, as a government
instrumentality, is not a taxable person under Section 133(o) of the Local Government Code. Thus,
even if we assume that the Republic has granted to MIAA the beneficial use of the Airport Lands and
Buildings, such fact does not make these real properties subject to real estate tax.
However, portions of the Airport Lands and Buildings that MIAA leases to private entities are not
exempt from real estate tax. For example, the land area occupied by hangars that MIAA leases to
private corporations is subject to real estate tax. In such a case, MIAA has granted the beneficial use
of such land area for a consideration to ataxable person and therefore such land area is subject to
real estate tax. In Lung Center of the Philippines v. Quezon City, the Court ruled:
Accordingly, we hold that the portions of the land leased to private entities as well as those parts
of the hospital leased to private individuals are not exempt from such taxes. On the other hand,
the portions of the land occupied by the hospital and portions of the hospital used for its
patients, whether paying or non-paying, are exempt from real property taxes. 29
3. Refutation of Arguments of Minority
The minority asserts that the MIAA is not exempt from real estate tax because Section 193 of the
Local Government Code of 1991 withdrew the tax exemption of "all persons, whether natural or
juridical" upon the effectivity of the Code. Section 193 provides:
SEC. 193. Withdrawal of Tax Exemption Privileges Unless otherwise provided in this Code,
tax exemptions or incentives granted to, or presently enjoyed by all persons, whether
natural or juridical, including government-owned or controlled corporations, except local water
districts, cooperatives duly registered under R.A. No. 6938, non-stock and non-profit hospitals
and educational institutions are hereby withdrawn upon effectivity of this Code. (Emphasis
supplied)
The minority states that MIAA is indisputably a juridical person. The minority argues that since the
Local Government Code withdrew the tax exemption of all juridical persons, then MIAA is not
exempt from real estate tax. Thus, the minority declares:

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It is evident from the quoted provisions of the Local Government Code that the
withdrawn exemptions from realty tax cover not just GOCCs, but all persons. To repeat,
the provisions lay down the explicit proposition that the withdrawal of realty tax exemption
applies to all persons. The reference to or the inclusion of GOCCs is only clarificatory or
illustrative of the explicit provision.
The term "All persons" encompasses the two classes of persons recognized under our
laws, natural and juridical persons. Obviously, MIAA is not a natural person. Thus, the
determinative test is not just whether MIAA is a GOCC, but whether MIAA is a juridical
person at all. (Emphasis and underscoring in the original)
The minority posits that the "determinative test" whether MIAA is exempt from local taxation is its
status whether MIAA is a juridical person or not. The minority also insists that "Sections 193 and
234 may be examined in isolation from Section 133(o) to ascertain MIAA's claim of exemption."
The argument of the minority is fatally flawed. Section 193 of the Local Government Code expressly
withdrew the tax exemption of all juridical persons "[u]nless otherwise provided in this Code."
Now, Section 133(o) of the Local Government Code expressly provides otherwise, specifically
prohibiting local governments from imposing any kind of tax on national government
instrumentalities. Section 133(o) states:
SEC. 133. Common Limitations on the Taxing Powers of Local Government Units. Unless
otherwise provided herein, the exercise of the taxing powers of provinces, cities, municipalities,
and barangays shall not extend to the levy of the following:
xxxx
(o) Taxes, fees or charges of any kinds on the National Government, its agencies and
instrumentalities, and local government units. (Emphasis and underscoring supplied)
By express mandate of the Local Government Code, local governments cannot impose any kind of tax
on national government instrumentalities like the MIAA. Local governments are devoid of power to tax
the national government, its agencies and instrumentalities. The taxing powers of local governments
do not extend to the national government, its agencies and instrumentalities, "[u]nless otherwise
provided in this Code" as stated in the saving clause of Section 133. The saving clause refers to
Section 234(a) on the exception to the exemption from real estate tax of real property owned by the
Republic.
The minority, however, theorizes that unless exempted in Section 193 itself, all juridical persons are
subject to tax by local governments. The minority insists that the juridical persons exempt from local
taxation are limited to the three classes of entities specifically enumerated as exempt in Section 193.
Thus, the minority states:
x x x Under Section 193, the exemption is limited to (a) local water districts; (b) cooperatives
duly registered under Republic Act No. 6938; and (c) non-stock and non-profit hospitals and
educational institutions. It would be belaboring the obvious why the MIAA does not fall within
any of the exempt entities under Section 193. (Emphasis supplied)
The minority's theory directly contradicts and completely negates Section 133(o) of the Local
Government Code. This theory will result in gross absurdities. It will make the national government,
which itself is a juridical person, subject to tax by local governments since the national government is
not included in the enumeration of exempt entities in Section 193. Under this theory, local

governments can impose any kind of local tax, and not only real estate tax, on the national
government.
Under the minority's theory, many national government instrumentalities with juridical personalities
will also be subject to any kind of local tax, and not only real estate tax. Some of the national
government instrumentalities vested by law with juridical personalities are: Bangko Sentral ng
Pilipinas,30 Philippine Rice Research Institute,31Laguna Lake
Development Authority,32 Fisheries Development Authority,33 Bases Conversion Development
Authority,34Philippine Ports Authority,35 Cagayan de Oro Port Authority,36 San Fernando Port Authority,37
Cebu Port Authority,38 and Philippine National Railways.39
The minority's theory violates Section 133(o) of the Local Government Code which expressly prohibits
local governments from imposing any kind of tax on national government instrumentalities. Section
133(o) does not distinguish between national government instrumentalities with or without juridical
personalities. Where the law does not distinguish, courts should not distinguish. Thus, Section 133(o)
applies to all national government instrumentalities, with or without juridical personalities. The
determinative test whether MIAA is exempt from local taxation is not whether MIAA is a juridical
person, but whether it is a national government instrumentality under Section 133(o) of the Local
Government Code. Section 133(o) is the specific provision of law prohibiting local governments from
imposing any kind of tax on the national government, its agencies and instrumentalities.
Section 133 of the Local Government Code starts with the saving clause "[u]nless otherwise provided
in this Code." This means that unless the Local Government Code grants an express authorization,
local governments have no power to tax the national government, its agencies and instrumentalities.
Clearly, the rule is local governments have no power to tax the national government, its agencies and
instrumentalities. As an exception to this rule, local governments may tax the national government,
its agencies and instrumentalities only if the Local Government Code expressly so provides.
The saving clause in Section 133 refers to the exception to the exemption in Section 234(a) of the
Code, which makes the national government subject to real estate tax when it gives the beneficial use
of its real properties to a taxable entity. Section 234(a) of the Local Government Code provides:
SEC. 234. Exemptions from Real Property Tax The following are exempted from payment of the
real property tax:
(a) Real property owned by the Republic of the Philippines or any of its political subdivisions
except when the beneficial use thereof has been granted, for consideration or otherwise, to a
taxable person.
x x x. (Emphasis supplied)
Under Section 234(a), real property owned by the Republic is exempt from real estate tax. The
exception to this exemption is when the government gives the beneficial use of the real property to a
taxable entity.
The exception to the exemption in Section 234(a) is the only instance when the national government,
its agencies and instrumentalities are subject to any kind of tax by local governments. The exception
to the exemption applies only to real estate tax and not to any other tax. The justification for the
exception to the exemption is that the real property, although owned by the Republic, is not devoted
to public use or public service but devoted to the private gain of a taxable person.

139

The minority also argues that since Section 133 precedes Section 193 and 234 of the Local
Government Code, the later provisions prevail over Section 133. Thus, the minority asserts:
x x x Moreover, sequentially Section 133 antecedes Section 193 and 234. Following an accepted
rule of construction, in case of conflict the subsequent provisions should prevail. Therefore,
MIAA, as a juridical person, is subject to real property taxes, the general exemptions attaching
to instrumentalities under Section 133(o) of the Local Government Code being qualified by
Sections 193 and 234 of the same law. (Emphasis supplied)
The minority assumes that there is an irreconcilable conflict between Section 133 on one hand, and
Sections 193 and 234 on the other. No one has urged that there is such a conflict, much less has any
one presenteda persuasive argument that there is such a conflict. The minority's assumption of an
irreconcilable conflict in the statutory provisions is an egregious error for two reasons.
First, there is no conflict whatsoever between Sections 133 and 193 because Section 193 expressly
admits its subordination to other provisions of the Code when Section 193 states "[u]nless otherwise
provided in this Code." By its own words, Section 193 admits the superiority of other provisions of the
Local Government Code that limit the exercise of the taxing power in Section 193. When a provision
of law grants a power but withholds such power on certain matters, there is no conflict between the
grant of power and the withholding of power. The grantee of the power simply cannot exercise the
power on matters withheld from its power.
Second, Section 133 is entitled "Common Limitations on the Taxing Powers of Local Government
Units." Section 133 limits the grant to local governments of the power to tax, and not merely the
exercise of a delegated power to tax. Section 133 states that the taxing powers of local governments
"shall not extend to the levy" of any kind of tax on the national government, its agencies and
instrumentalities. There is no clearer limitation on the taxing power than this.
Since Section 133 prescribes the "common limitations" on the taxing powers of local governments,
Section 133 logically prevails over Section 193 which grants local governments such taxing powers.
By their very meaning and purpose, the "common limitations" on the taxing power prevail over the
grant or exercise of the taxing power. If the taxing power of local governments in Section 193 prevails
over the limitations on such taxing power in Section 133, then local governments can impose any kind
of tax on the national government, its agencies and instrumentalities a gross absurdity.
Local governments have no power to tax the national government, its agencies and instrumentalities,
except as otherwise provided in the Local Government Code pursuant to the saving clause in Section
133 stating "[u]nless otherwise provided in this Code." This exception which is an exception to the
exemption of the Republic from real estate tax imposed by local governments refers to Section
234(a) of the Code. The exception to the exemption in Section 234(a) subjects real property owned
by the Republic, whether titled in the name of the national government, its agencies or
instrumentalities, to real estate tax if the beneficial use of such property is given to a taxable entity.
The minority also claims that the definition in the Administrative Code of the phrase "governmentowned or controlled corporation" is not controlling. The minority points out that Section 2 of the
Introductory Provisions of the Administrative Code admits that its definitions are not controlling when
it provides:
SEC. 2. General Terms Defined. Unless the specific words of the text, or the context as a
whole, or a particular statute, shall require a different meaning:
xxxx

The minority then concludes that reliance on the Administrative Code definition is "flawed."
The minority's argument is a non sequitur. True, Section 2 of the Administrative Code recognizes that
a statute may require a different meaning than that defined in the Administrative Code. However, this
does not automatically mean that the definition in the Administrative Code does not apply to the Local
Government Code. Section 2 of the Administrative Code clearly states that "unless the specific words
x x x of a particular statute shall require a different meaning," the definition in Section 2 of the
Administrative Code shall apply. Thus, unless there is specific language in the Local Government Code
defining the phrase "government-owned or controlled corporation" differently from the definition in
the Administrative Code, the definition in the Administrative Code prevails.
The minority does not point to any provision in the Local Government Code defining the phrase
"government-owned or controlled corporation" differently from the definition in the Administrative
Code. Indeed, there is none. The Local Government Code is silent on the definition of the phrase
"government-owned or controlled corporation." The Administrative Code, however, expressly defines
the phrase "government-owned or controlled corporation." The inescapable conclusion is that the
Administrative Code definition of the phrase "government-owned or controlled corporation" applies to
the Local Government Code.
The third whereas clause of the Administrative Code states that the Code "incorporates in a unified
document the major structural, functional and procedural principles and rules of governance." Thus,
the Administrative Code is the governing law defining the status and relationship of government
departments, bureaus, offices, agencies and instrumentalities. Unless a statute expressly provides for
a different status and relationship for a specific government unit or entity, the provisions of the
Administrative Code prevail.
The minority also contends that the phrase "government-owned or controlled corporation" should
apply only to corporations organized under the Corporation Code, the general incorporation law, and
not to corporations created by special charters. The minority sees no reason why government
corporations with special charters should have a capital stock. Thus, the minority declares:
I submit that the definition of "government-owned or controlled corporations" under the
Administrative Code refer to those corporations owned by the government or its
instrumentalities which are created not by legislative enactment, but formed and organized
under the Corporation Code through registration with the Securities and Exchange Commission.
In short, these are GOCCs without original charters.
xxxx
It might as well be worth pointing out that there is no point in requiring a capital structure for
GOCCs whose full ownership is limited by its charter to the State or Republic. Such GOCCs are
not empowered to declare dividends or alienate their capital shares.
The contention of the minority is seriously flawed. It is not in accord with the Constitution and existing
legislations. It will also result in gross absurdities.
First, the Administrative Code definition of the phrase "government-owned or controlled corporation"
does not distinguish between one incorporated under the Corporation Code or under a special charter.
Where the law does not distinguish, courts should not distinguish.
Second, Congress has created through special charters several government-owned corporations
organized as stock corporations. Prime examples are the Land Bank of the Philippines and the

140

Development Bank of the Philippines. The special charter 40 of the Land Bank of the Philippines
provides:
SECTION 81. Capital. The authorized capital stock of the Bank shall be nine billion pesos,
divided into seven hundred and eighty million common shares with a par value of ten pesos
each, which shall be fully subscribed by the Government, and one hundred and twenty million
preferred shares with a par value of ten pesos each, which shall be issued in accordance with the
provisions of Sections seventy-seven and eighty-three of this Code. (Emphasis supplied)
Likewise, the special charter41 of the Development Bank of the Philippines provides:
SECTION 7. Authorized Capital Stock Par value. The capital stock of the Bank shall be Five
Billion Pesos to be divided into Fifty Million common shares with par value of P100 per share.
These shares are available for subscription by the National Government. Upon the effectivity of
this Charter, the National Government shall subscribe to Twenty-Five Million common shares of
stock worth Two Billion Five Hundred Million which shall be deemed paid for by the Government
with the net asset values of the Bank remaining after the transfer of assets and liabilities as
provided in Section 30 hereof. (Emphasis supplied)
Other government-owned corporations organized as stock corporations under their special charters
are the Philippine Crop Insurance Corporation, 42 Philippine International Trading Corporation, 43 and the
Philippine National Bank44 before it was reorganized as a stock corporation under the Corporation
Code. All these government-owned corporations organized under special charters as stock
corporations are subject to real estate tax on real properties owned by them. To rule that they are not
government-owned or controlled corporations because they are not registered with the Securities and
Exchange Commission would remove them from the reach of Section 234 of the Local Government
Code, thus exempting them from real estate tax.
Third, the government-owned or controlled corporations created through special charters are those
that meet the two conditions prescribed in Section 16, Article XII of the Constitution. The first
condition is that the government-owned or controlled corporation must be established for the
common good. The second condition is that the government-owned or controlled corporation must
meet the test of economic viability. Section 16, Article XII of the 1987 Constitution provides:
SEC. 16. The Congress shall not, except by general law, provide for the formation, organization,
or regulation of private corporations. Government-owned or controlled corporations may be
created or established by special charters in the interest of the common good and subject to the
test of economic viability. (Emphasis and underscoring supplied)
The Constitution expressly authorizes the legislature to create "government-owned or controlled
corporations" through special charters only if these entities are required to meet the twin conditions
of common good and economic viability. In other words, Congress has no power to create
government-owned or controlled corporations with special charters unless they are made to comply
with the two conditions of common good and economic viability. The test of economic viability applies
only to government-owned or controlled corporations that perform economic or commercial activities
and need to compete in the market place. Being essentially economic vehicles of the State for the
common good meaning for economic development purposes these government-owned or
controlled corporations with special charters are usually organized as stock corporations just like
ordinary private corporations.
In contrast, government instrumentalities vested with corporate powers and performing governmental
or public functions need not meet the test of economic viability. These instrumentalities perform
essential public services for the common good, services that every modern State must provide its

citizens. These instrumentalities need not be economically viable since the government may even
subsidize their entire operations. These instrumentalities are not the "government-owned or
controlled corporations" referred to in Section 16, Article XII of the 1987 Constitution.
Thus, the Constitution imposes no limitation when the legislature creates government
instrumentalities vested with corporate powers but performing essential governmental or public
functions. Congress has plenary authority to create government instrumentalities vested with
corporate powers provided these instrumentalities perform essential government functions or public
services. However, when the legislature creates through special charters corporations that perform
economic or commercial activities, such entities known as "government-owned or controlled
corporations" must meet the test of economic viability because they compete in the market place.
This is the situation of the Land Bank of the Philippines and the Development Bank of the Philippines
and similar government-owned or controlled corporations, which derive their income to meet
operating expenses solely from commercial transactions in competition with the private sector. The
intent of the Constitution is to prevent the creation of government-owned or controlled corporations
that cannot survive on their own in the market place and thus merely drain the public coffers.
Commissioner Blas F. Ople, proponent of the test of economic viability, explained to the Constitutional
Commission the purpose of this test, as follows:
MR. OPLE: Madam President, the reason for this concern is really that when the government
creates a corporation, there is a sense in which this corporation becomes exempt from the test
of economic performance. We know what happened in the past. If a government corporation
loses, then it makes its claim upon the taxpayers' money through new equity infusions from the
government and what is always invoked is the common good. That is the reason why this year,
out of a budget of P115 billion for the entire government, about P28 billion of this will go into
equity infusions to support a few government financial institutions. And this is all taxpayers'
money which could have been relocated to agrarian reform, to social services like health and
education, to augment the salaries of grossly underpaid public employees. And yet this is all
going down the drain.
Therefore, when we insert the phrase "ECONOMIC VIABILITY" together with the "common good,"
this becomes a restraint on future enthusiasts for state capitalism to excuse themselves from the
responsibility of meeting the market test so that they become viable. And so, Madam President,
I reiterate, for the committee's consideration and I am glad that I am joined in this proposal by
Commissioner Foz, the insertion of the standard of "ECONOMIC VIABILITY OR THE ECONOMIC
TEST," together with the common good. 45
Father Joaquin G. Bernas, a leading member of the Constitutional Commission, explains in his
textbook The 1987 Constitution of the Republic of the Philippines: A Commentary:
The second sentence was added by the 1986 Constitutional Commission. The significant
addition, however, is the phrase "in the interest of the common good and subject to the test of
economic viability." The addition includes the ideas that they must show capacity to function
efficiently in business and that they should not go into activities which the private sector can do
better. Moreover, economic viability is more than financial viability but also includes capability to
make profit and generate benefits not quantifiable in financial terms. 46(Emphasis supplied)
Clearly, the test of economic viability does not apply to government entities vested with corporate
powers and performing essential public services. The State is obligated to render essential public
services regardless of the economic viability of providing such service. The non-economic viability of

141

rendering such essential public service does not excuse the State from withholding such essential
services from the public.
However, government-owned or controlled corporations with special charters, organized essentially for
economic or commercial objectives, must meet the test of economic viability. These are the
government-owned or controlled corporations that are usually organized under their special charters
as stock corporations, like the Land Bank of the Philippines and the Development Bank of the
Philippines. These are the government-owned or controlled corporations, along with governmentowned or controlled corporations organized under the Corporation Code, that fall under the definition
of "government-owned or controlled corporations" in Section 2(10) of the Administrative Code.
The MIAA need not meet the test of economic viability because the legislature did not create MIAA to
compete in the market place. MIAA does not compete in the market place because there is no
competing international airport operated by the private sector. MIAA performs an essential public
service as the primary domestic and international airport of the Philippines. The operation of an
international airport requires the presence of personnel from the following government agencies:
1. The Bureau of Immigration and Deportation, to document the arrival and departure of
passengers, screening out those without visas or travel documents, or those with hold departure
orders;

(10) Instrumentality refers to any agency of the National Government, not integrated within the
department framework, vested with special functions or jurisdiction by law, endowed with some
if not all corporate powers, administering special funds, and enjoying operational autonomy,
usually through a charter. x x x (Emphasis supplied)
The fact alone that MIAA is endowed with corporate powers does not make MIAA a governmentowned or controlled corporation. Without a change in its capital structure, MIAA remains a
government instrumentality under Section 2(10) of the Introductory Provisions of the Administrative
Code. More importantly, as long as MIAA renders essential public services, it need not comply with the
test of economic viability. Thus, MIAA is outside the scope of the phrase "government-owned or
controlled corporations" under Section 16, Article XII of the 1987 Constitution.
The minority belittles the use in the Local Government Code of the phrase "government-owned or
controlled corporation" as merely "clarificatory or illustrative." This is fatal. The 1987 Constitution
prescribes explicit conditions for the creation of "government-owned or controlled corporations." The
Administrative Code defines what constitutes a "government-owned or controlled corporation." To
belittle this phrase as "clarificatory or illustrative" is grave error.

4. The Department of Agriculture, to enforce measures against the spread of plant and animal
diseases into the country;

To summarize, MIAA is not a government-owned or controlled corporation under Section 2(13) of the
Introductory Provisions of the Administrative Code because it is not organized as a stock or non-stock
corporation. Neither is MIAA a government-owned or controlled corporation under Section 16, Article
XII of the 1987 Constitution because MIAA is not required to meet the test of economic viability. MIAA
is a government instrumentality vested with corporate powers and performing essential public
services pursuant to Section 2(10) of the Introductory Provisions of the Administrative Code. As a
government instrumentality, MIAA is not subject to any kind of tax by local governments under
Section 133(o) of the Local Government Code. The exception to the exemption in Section 234(a) does
not apply to MIAA because MIAA is not a taxable entity under the Local Government Code. Such
exception applies only if the beneficial use of real property owned by the Republic is given to a
taxable entity.

5. The Aviation Security Command of the Philippine National Police, to prevent the entry of
terrorists and the escape of criminals, as well as to secure the airport premises from terrorist
attack or seizure;

Finally, the Airport Lands and Buildings of MIAA are properties devoted to public use and thus are
properties of public dominion. Properties of public dominion are owned by the State or the Republic.
Article 420 of the Civil Code provides:

2. The Bureau of Customs, to collect import duties or enforce the ban on prohibited
importations;
3. The quarantine office of the Department of Health, to enforce health measures against the
spread of infectious diseases into the country;

6. The Air Traffic Office of the Department of Transportation and Communications, to authorize
aircraft to enter or leave Philippine airspace, as well as to land on, or take off from, the airport;
and
7. The MIAA, to provide the proper premises such as runway and buildings for the
government personnel, passengers, and airlines, and to manage the airport operations.
All these agencies of government perform government functions essential to the operation of an
international airport.
MIAA performs an essential public service that every modern State must provide its citizens. MIAA
derives its revenues principally from the mandatory fees and charges MIAA imposes on passengers
and airlines. The terminal fees that MIAA charges every passenger are regulatory or administrative
fees47 and not income from commercial transactions.
MIAA falls under the definition of a government instrumentality under Section 2(10) of the
Introductory Provisions of the Administrative Code, which provides:
SEC. 2. General Terms Defined. x x x x

Art. 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;
(2) Those which belong to the State, without being for public use, and are intended for some
public service or for the development of the national wealth. (Emphasis supplied)
The term "ports x x x constructed by the State" includes airports and seaports. The Airport Lands and
Buildings of MIAA are intended for public use, and at the very least intended for public service.
Whether intended for public use or public service, the Airport Lands and Buildings are properties of
public dominion. As properties of public dominion, the Airport Lands and Buildings are owned by the
Republic and thus exempt from real estate tax under Section 234(a) of the Local Government Code.
4. Conclusion
Under Section 2(10) and (13) of the Introductory Provisions of the Administrative Code, which
governs the legal relation and status of government units, agencies and offices within the entire
government machinery, MIAA is a government instrumentality and not a government-owned or

142

controlled corporation. Under Section 133(o) of the Local Government Code, MIAA as a government
instrumentality is not a taxable person because it is not subject to "[t]axes, fees or charges of any
kind" by local governments. The only exception is when MIAA leases its real property to a "taxable
person" as provided in Section 234(a) of the Local Government Code, in which case the specific real
property leased becomes subject to real estate tax. Thus, only portions of the Airport Lands and
Buildings leased to taxable persons like private parties are subject to real estate tax by the City of
Paraaque.
Under Article 420 of the Civil Code, the Airport Lands and Buildings of MIAA, being devoted to public
use, are properties of public dominion and thus owned by the State or the Republic of the Philippines.
Article 420 specifically mentions "ports x x x constructed by the State," which includes public airports
and seaports, as properties of public dominion and owned by the Republic. As properties of public
dominion owned by the Republic, there is no doubt whatsoever that the Airport Lands and Buildings
are expressly exempt from real estate tax under Section 234(a) of the Local Government Code. This
Court has also repeatedly ruled that properties of public dominion are not subject to execution or
foreclosure sale.
WHEREFORE, we GRANT the petition. We SET ASIDE the assailed Resolutions of the Court of
Appeals of 5 October 2001 and 27 September 2002 in CA-G.R. SP No. 66878. We DECLARE the
Airport Lands and Buildings of the Manila International Airport Authority EXEMPT from the real estate
tax imposed by the City of Paraaque. We declare VOID all the real estate tax assessments, including
the final notices of real estate tax delinquencies, issued by the City of Paraaque on the Airport Lands
and Buildings of the Manila International Airport Authority, except for the portions that the Manila
International Airport Authority has leased to private parties. We also declare VOID the assailed
auction sale, and all its effects, of the Airport Lands and Buildings of the Manila International Airport
Authority.

Respondent Bayan Telecommunications, Inc. 3 (Bayantel) is a legislative franchise holder under

Republic Act (Rep. Act) No. 32594 to establish and operate radio stations for domestic
telecommunications, radiophone, broadcasting and telecasting.
Of relevance to this controversy is the tax provision of Rep. Act No. 3259, embodied in Section 14
thereof, which reads:
SECTION 14. (a) The grantee shall be liable to pay the same taxes on its real estate, buildings and
personal property, exclusive of the franchise, as other persons or corporations are now or hereafter
may be required by law to pay. (b) The grantee shall further pay to the Treasurer of the Philippines
each year, within ten days after the audit and approval of the accounts as prescribed in this Act, one
and one-half per centum of all gross receipts from the business transacted under this franchise by the
said grantee (Emphasis supplied).
On January 1, 1992, Rep. Act No. 7160, otherwise known as the "Local Government Code of 1991"
(LGC), took effect. Section 232 of the Code grants local government units within the Metro Manila
Area the power to levy tax on real properties, thus:
SEC. 232. Power to Levy Real Property Tax. A province or city or a municipality within the
Metropolitan Manila Area may levy an annual ad valorem tax on real property such as land, building,
machinery and other improvements not hereinafter specifically exempted.
Complementing the aforequoted provision is the second paragraph of Section 234 of the same Code
which withdrew any exemption from realty tax heretofore granted to or enjoyed by all persons,
natural or juridical, to wit:

No costs.

SEC. 234 - Exemptions from Real Property Tax. The following are exempted from payment of the real
property tax:

SO ORDERED.

xxx xxx xxx

THE CITY GOVERNMENT OF QUEZON CITY, AND THE CITY TREASURER OF QUEZON CITY,
DR.
VICTOR
B.
ENRIGA,
Petitioners,
vs.
BAYAN TELECOMMUNICATIONS, INC., Respondent.

Except as provided herein, any exemption from payment of real property tax previously granted to, or
enjoyed by, all persons, whether natural or juridical, including government-owned-or-controlled
corporations is hereby withdrawn upon effectivity of this Code (Emphasis supplied).

DECISION
GARCIA,J.:
Before the Court, on pure questions of law, is this petition for review on certiorari under Rule 45 of
the Rules of Court to nullify and set aside the following issuances of the Regional Trial Court (RTC) of
Quezon City, Branch 227, in its Civil Case No. Q-02-47292, to wit:
1) Decision1 dated June 6, 2003, declaring respondent Bayan Telecommunications, Inc. exempt from
real estate taxation on its real properties located in Quezon City; and
2) Order2 dated December 30, 2003, denying petitioners motion for reconsideration.
The facts:

On July 20, 1992, barely few months after the LGC took effect, Congress enacted Rep. Act No. 7633,
amending Bayantels original franchise. The amendatory law (Rep. Act No. 7633) contained the
following tax provision:
SEC. 11. The grantee, its successors or assigns shall be liable to pay the same taxes on their real
estate, buildings and personal property, exclusive of this franchise, as other persons or corporations
are now or hereafter may be required by law to pay. In addition thereto, the grantee, its successors
or assigns shall pay a franchise tax equivalent to three percent (3%) of all gross receipts of the
telephone or other telecommunications businesses transacted under this franchise by the grantee, its
successors or assigns and the said percentage shall be in lieu of all taxes on this franchise or earnings
thereof. Provided, That the grantee, its successors or assigns shall continue to be liable for income
taxes payable under Title II of the National Internal Revenue Code . xxx. [Emphasis supplied]
It is undisputed that within the territorial boundary of Quezon City, Bayantel owned several real
properties on which it maintained various telecommunications facilities. These real properties, as
hereunder described, are covered by the following tax declarations:

143

(a) Tax Declaration Nos. D-096-04071, D-096-04074, D-096-04072 and D-096-04073 pertaining
to Bayantels Head Office and Operations Center in Roosevelt St., San Francisco del Monte,
Quezon City allegedly the nerve center of petitioners telecommunications franchise operations,
said Operation Center housing mainly petitioners Network Operations Group and switching,
transmission and related equipment;
(b) Tax Declaration Nos. D-124-01013, D-124-00939, D-124-00920 and D-124-00941 covering
Bayantels land, building and equipment in Maginhawa St., Barangay East Teachers Village,
Quezon City which houses telecommunications facilities; and
(c) Tax Declaration Nos. D-011-10809, D-011-10810, D-011-10811, and D-011-11540 referring
to Bayantels Exchange Center located in Proj. 8, Brgy. Bahay Toro, Tandang Sora, Quezon City
which houses the Network Operations Group and cover switching, transmission and other related
equipment.
In 1993, the government of Quezon City, pursuant to the taxing power vested on local government
units by Section 5, Article X of the 1987 Constitution, infra, in relation to Section 232 of the LGC,
supra, enacted City Ordinance No. SP-91, S-93, otherwise known as the Quezon City Revenue Code
(QCRC),5 imposing, under Section 5 thereof, a real property tax on all real properties in Quezon City,
and, reiterating in its Section 6, the withdrawal of exemption from real property tax under Section
234 of the LGC, supra. Furthermore, much like the LGC, the QCRC, under its Section 230, withdrew
tax exemption privileges in general, as follows:

On account thereof, the Quezon City Treasurer sent out notices of delinquency for the total amount
ofP43,878,208.18, followed by the issuance of several warrants of levy against Bayantels properties
preparatory to their sale at a public auction set on July 30, 2002.
Threatened with the imminent loss of its properties, Bayantel immediately withdrew its appeal with
the LBAA and instead filed with the RTC of Quezon City a petition for prohibition with an urgent
application for a temporary restraining order (TRO) and/or writ of preliminary injunction, thereat
docketed as Civil Case No. Q-02-47292, which was raffled to Branch 227 of the court.
On July 29, 2002, or in the eve of the public auction scheduled the following day, the lower court
issued a TRO, followed, after due hearing, by a writ of preliminary injunction via its order of August
20, 2002.
And, having heard the parties on the merits, the same court came out with its challenged Decision of
June 6, 2003, the dispositive portion of which reads:
WHEREFORE, premises considered, pursuant to the enabling franchise under Section 11 of Republic
Act No. 7633, the real estate properties and buildings of petitioner [now, respondent Bayantel] which
have been admitted to be used in the operation of petitioners franchise described in the following tax
declarations are hereby DECLARED exempt from real estate taxation:
(1) Tax Declaration No. D-096-04071

SEC. 230. Withdrawal of Tax Exemption Privileges. Unless otherwise provided in this Code, tax
exemptions or incentives granted to, or presently enjoyed by all persons, whether natural or juridical,
including government owned or controlled corporations, except local water districts, cooperatives duly
registered under RA 6938, non-stock and non-profit hospitals and educational institutions, business
enterprises certified by the Board of Investments (BOI) as pioneer or non-pioneer for a period of six
(6) and four (4) years, respectively, are hereby withdrawn effective upon approval of this Code
(Emphasis supplied).

(2) Tax Declaration No. D-096-04074

Conformably with the Citys Revenue Code, new tax declarations for Bayantels real properties in
Quezon City were issued by the City Assessor and were received by Bayantel on August 13, 1998,
except one (Tax Declaration No. 124-01013) which was received on July 14, 1999.

(6) Tax Declaration No. D-011-10809

Meanwhile, on March 16, 1995, Rep. Act No. 7925,

otherwise known as the "Public
Telecommunications Policy Act of the Philippines," envisaged to level the playing field among
telecommunications companies, took effect. Section 23 of the Act provides:

(8) Tax Declaration No. D-124-00940

SEC. 23. Equality of Treatment in the Telecommunications Industry. Any advantage, favor, privilege,
exemption, or immunity granted under existing franchises, or may hereafter be granted, shall ipso
facto become part of previously granted telecommunications franchises and shall be accorded
immediately and unconditionally to the grantees of such franchises: Provided, however, That the
foregoing shall neither apply to nor affect provisions of telecommunications franchises concerning
territory covered by the franchise, the life span of the franchise, or the type of service authorized by
the franchise.

(10) Tax Declaration No. D-096-04072

On January 7, 1999, Bayantel wrote the office of the City Assessor seeking the exclusion of its real
properties in the city from the roll of taxable real properties. With its request having been denied,
Bayantel interposed an appeal with the Local Board of Assessment Appeals (LBAA). And, evidently on
its firm belief of its exempt status, Bayantel did not pay the real property taxes assessed against it by
the Quezon City government.

(3) Tax Declaration No. D-124-01013

(4) Tax Declaration No. D-011-10810
(5) Tax Declaration No. D-011-10811

(7) Tax Declaration No. D-124-00941

(9) Tax Declaration No. D-124-00939

(11) Tax Declaration No. D-096-04073

(12) Tax Declaration No. D-011-11540
The preliminary prohibitory injunction issued in the August 20, 2002 Order of this Court is hereby
made permanent. Since this is a resolution of a purely legal issue, there is no pronouncement as to
costs.
SO ORDERED.

144

Their motion for reconsideration having been denied by the court in its Order dated December 30,
2003, petitioners elevated the case directly to this Court on pure questions of law, ascribing to the
lower court the following errors:
I. [I]n declaring the real properties of respondent exempt from real property taxes notwithstanding
the fact that the tax exemption granted to Bayantel in its original franchise had been withdrawn by
the [LGC] and that the said exemption was not restored by the enactment of RA 7633.
II. [In] declaring the real properties of respondent exempt from real property taxes notwithstanding
the enactment of the [QCRC] which withdrew the tax exemption which may have been granted by RA
7633.
III. [In] declaring the real properties of respondent exempt from real property taxes notwithstanding
the vague and ambiguous grant of tax exemption provided under Section 11 of RA 7633.
IV. [In] declaring the real properties of respondent exempt from real property taxes notwithstanding
the fact that [it] had failed to exhaust administrative remedies in its claim for real property tax
exemption. (Words in bracket added.)
As we see it, the errors assigned may ultimately be reduced to two (2) basic issues, namely:
1. Whether or not Bayantels real properties in Quezon City are exempt from real property taxes
under its legislative franchise; and
2. Whether or not Bayantel is required to exhaust administrative remedies before seeking
judicial relief with the trial court.
We shall first address the second issue, the same being procedural in nature.
Petitioners argue that Bayantel had failed to avail itself of the administrative remedies provided for
under the LGC, adding that the trial court erred in giving due course to Bayantels petition for
prohibition. To petitioners, the appeal mechanics under the LGC constitute Bayantels plain and
speedy remedy in this case.
The Court does not agree.
Petitions for prohibition are governed by the following provision of Rule 65 of the Rules of Court:
SEC. 2. Petition for prohibition. When the proceedings of any tribunal, are without or in excess of
its or his jurisdiction, or with grave abuse of discretion amounting to lack or excess of jurisdiction, and
there is no appeal or any other plain, speedy, and adequate remedy in the ordinary course of law, a
person aggrieved thereby may file a verified petition in the proper court, alleging the facts with
certainty and praying that judgment be rendered commanding the respondent to desist from further
proceedings in the action or matter specified therein, or otherwise, granting such incidental reliefs as
law and justice may require.
With the reality that Bayantels real properties were already levied upon on account of its nonpayment
of real estate taxes thereon, the Court agrees with Bayantel that an appeal to the LBAA is not a
speedy and adequate remedy within the context of the aforequoted Section 2 of Rule 65. This is not
to mention of the auction sale of said properties already scheduled on July 30, 2002.

questions presently involved, gave due course to the instant petition. As the Court has said in Ty vs.
Trampe:7
xxx. Although as a rule, administrative remedies must first be exhausted before resort to judicial
action can prosper, there is a well-settled exception in cases where the controversy does not involve
questions of fact but only of law. xxx.
Lest it be overlooked, an appeal to the LBAA, to be properly considered, required prior payment under
protest of the amount of P43,878,208.18, a figure which, in the light of the then prevailing Asian
financial crisis, may have been difficult to raise up. Given this reality, an appeal to the LBAA may not
be considered as a plain, speedy and adequate remedy. It is thus understandable why Bayantel opted
to withdraw its earlier appeal with the LBAA and, instead, filed its petition for prohibition with urgent
application for injunctive relief in Civil Case No. Q-02-47292. The remedy availed of by Bayantel under
Section 2, Rule 65 of the Rules of Court must be upheld.
This brings the Court to the more weighty question of whether or not Bayantels real properties in
Quezon City are, under its franchise, exempt from real property tax.
The lower court resolved the issue in the affirmative, basically owing to the phrase "exclusive of this
franchise" found in Section 11 of Bayantels amended franchise, Rep. Act No. 7633. To petitioners,
however, the language of Section 11 of Rep. Act No. 7633 is neither clear nor unequivocal. The
elaborate and extensive discussion devoted by the trial court on the meaning and import of said
phrase, they add, suggests as much. It is petitioners thesis that Bayantel was in no time given any
express exemption from the payment of real property tax under its amendatory franchise.
There seems to be no issue as to Bayantels exemption from real estate taxes by virtue of the term
"exclusive of the franchise" qualifying the phrase "same taxes on its real estate, buildings and
personal property," found in Section 14, supra, of its franchise, Rep. Act No. 3259, as originally
granted.
The legislative intent expressed in the phrase "exclusive of this franchise" cannot be construed other
than distinguishing between two (2) sets of properties, be they real or personal, owned by the
franchisee, namely, (a) those actually, directly and exclusively used in its radio or telecommunications
business, and (b) those properties which are not so used. It is worthy to note that the properties
subject of the present controversy are only those which are admittedly falling under the first category.
To the mind of the Court, Section 14 of Rep. Act No. 3259 effectively works to grant or delegate to
local governments of Congress inherent power to tax the franchisees properties belonging to the
second group of properties indicated above, that is, all properties which, "exclusive of this franchise,"
are not actually and directly used in the pursuit of its franchise. As may be recalled, the taxing power
of local governments under both the 1935 and the 1973 Constitutions solely depended upon an
enabling law. Absent such enabling law, local government units were without authority to impose and
collect taxes on real properties within their respective territorial jurisdictions. While Section 14 of Rep.
Act No. 3259 may be validly viewed as an implied delegation of power to tax, the delegation under
that provision, as couched, is limited to impositions over properties of the franchisee which are not
actually, directly and exclusively used in the pursuit of its franchise. Necessarily, other properties of
Bayantel directly used in the pursuit of its business are beyond the pale of the delegated taxing power
of local governments. In a very real sense, therefore, real properties of Bayantel, save those exclusive
of its franchise, are subject to realty taxes. Ultimately, therefore, the inevitable result was that all
realties which are actually, directly and exclusively used in the operation of its franchise are
"exempted" from any property tax.

Moreover, one of the recognized exceptions to the exhaustion- of-administrative remedies rule is
when, as here, only legal issues are to be resolved. In fact, the Court, cognizant of the nature of the

145

Bayantels franchise being national in character, the "exemption" thus granted under Section 14 of
Rep. Act No. 3259 applies to all its real or personal properties found anywhere within the Philippine
archipelago.
However, with the LGCs taking effect on January 1, 1992, Bayantels "exemption" from real estate
taxes for properties of whatever kind located within the Metro Manila area was, by force of Section
234 of the Code, supra, expressly withdrawn. But, not long thereafter, however, or on July 20, 1992,
Congress passed Rep. Act No. 7633 amending Bayantels original franchise. Worthy of note is that
Section 11 of Rep. Act No. 7633 is a virtual reenacment of the tax provision, i.e., Section 14, supra, of
Bayantels original franchise under Rep. Act No. 3259. Stated otherwise, Section 14 of Rep. Act No.
3259 which was deemed impliedly repealed by Section 234 of the LGC was expressly revived under
Section 14 of Rep. Act No. 7633. In concrete terms, the realty tax exemption heretofore enjoyed by
Bayantel under its original franchise, but subsequently withdrawn by force of Section 234 of the LGC,
has been restored by Section 14 of Rep. Act No. 7633.
The Court has taken stock of the fact that by virtue of Section 5, Article X of the 1987 Constitution, 8
local governments are empowered to levy taxes. And pursuant to this constitutional empowerment,
juxtaposed with Section 2329 of the LGC, the Quezon City government enacted in 1993 its local
Revenue Code, imposing real property tax on all real properties found within its territorial jurisdiction.
And as earlier stated, the Citys Revenue Code, just like the LGC, expressly withdrew, under Section
230 thereof, supra, all tax exemption privileges in general.
This thus raises the question of whether or not the Citys Revenue Code pursuant to which the city
treasurer of Quezon City levied real property taxes against Bayantels real properties located within
the City effectively withdrew the tax exemption enjoyed by Bayantel under its franchise, as amended.
Bayantel answers the poser in the negative arguing that once again it is only "liable to pay the same
taxes, as any other persons or corporations on all its real or personal properties, exclusive of its
franchise."
Bayantels posture is well-taken. While the system of local government taxation has changed with the
onset of the 1987 Constitution, the power of local government units to tax is still limited. As we
explained in Mactan Cebu International Airport Authority:10
The power to tax is primarily vested in the Congress; however, in our jurisdiction, it may be exercised
by local legislative bodies, no longer merely be virtue of a valid delegation as before, but pursuant to
direct authority conferred by Section 5, Article X of the Constitution. Under the latter, the exercise of
the power may be subject to such guidelines and limitations as the Congress may provide which,
however, must be consistent with the basic policy of local autonomy. (at p. 680; Emphasis supplied.)
Clearly then, while a new slant on the subject of local taxation now prevails in the sense that the
former doctrine of local government units delegated power to tax had been effectively modified with
Article X, Section 5 of the 1987 Constitution now in place, .the basic doctrine on local taxation
remains essentially the same. For as the Court stressed in Mactan, "the power to tax is [still] primarily
vested in the Congress."
This new perspective is best articulated by Fr. Joaquin G. Bernas, S.J., himself a Commissioner of the
1986 Constitutional Commission which crafted the 1987 Constitution, thus:
What is the effect of Section 5 on the fiscal position of municipal corporations? Section 5 does not
change the doctrine that municipal corporations do not possess inherent powers of taxation. What it
does is to confer municipal corporations a general power to levy taxes and otherwise create sources of
revenue. They no longer have to wait for a statutory grant of these powers. The power of the

legislative authority relative to the fiscal powers of local governments has been reduced to the
authority to impose limitations on municipal powers. Moreover, these limitations must be "consistent
with the basic policy of local autonomy." The important legal effect of Section 5 is thus to reverse the
principle that doubts are resolved against municipal corporations. Henceforth, in interpreting statutory
provisions on municipal fiscal powers, doubts will be resolved in favor of municipal corporations. It is
understood, however, that taxes imposed by local government must be for a public purpose, uniform
within a locality, must not be confiscatory, and must be within the jurisdiction of the local unit to
pass.11 (Emphasis supplied).
In net effect, the controversy presently before the Court involves, at bottom, a clash between the
inherent taxing power of the legislature, which necessarily includes the power to exempt, and the
local governments delegated power to tax under the aegis of the 1987 Constitution.
Now to go back to the Quezon City Revenue Code which imposed real estate taxes on all real
properties within the citys territory and removed exemptions theretofore "previously granted to, or
presently enjoyed by all persons, whether natural or juridical .," 12 there can really be no dispute that
the power of the Quezon City Government to tax is limited by Section 232 of the LGC which expressly
provides that "a province or city or municipality within the Metropolitan Manila Area may levy an
annual ad valorem tax on real property such as land, building, machinery, and other improvement not
hereinafter specifically exempted." Under this law, the Legislature highlighted its power to thereafter
exempt certain realties from the taxing power of local government units. An interpretation denying
Congress such power to exempt would reduce the phrase "not hereinafter specifically exempted" as a
pure jargon, without meaning whatsoever. Needless to state, such absurd situation is unacceptable.
For sure, in Philippine Long Distance Telephone Company, Inc. (PLDT) vs. City of Davao, 13 this Court
has upheld the power of Congress to grant exemptions over the power of local government units to
impose taxes. There, the Court wrote:
Indeed, the grant of taxing powers to local government units under the Constitution and the LGC does
not affect the power of Congress to grant exemptions to certain persons, pursuant to a declared
national policy. The legal effect of the constitutional grant to local governments simply means that in
interpreting statutory provisions on municipal taxing powers, doubts must be resolved in favor of
municipal corporations. (Emphasis supplied.)
As we see it, then, the issue in this case no longer dwells on whether Congress has the power to
exempt Bayantels properties from realty taxes by its enactment of Rep. Act No. 7633 which amended
Bayantels original franchise. The more decisive question turns on whether Congress actually did
exempt Bayantels properties at all by virtue of Section 11 of Rep. Act No. 7633.
Admittedly, Rep. Act No. 7633 was enacted subsequent to the LGC. Perfectly aware that the LGC has
already withdrawn Bayantels former exemption from realty taxes, Congress opted to pass Rep. Act
No. 7633 using, under Section 11 thereof, exactly the same defining phrase "exclusive of this
franchise" which was the basis for Bayantels exemption from realty taxes prior to the LGC. In plain
language, Section 11 of Rep. Act No. 7633 states that "the grantee, its successors or assigns shall be
liable to pay the same taxes on their real estate, buildings and personal property, exclusive of this
franchise, as other persons or corporations are now or hereafter may be required by law to pay." The
Court views this subsequent piece of legislation as an express and real intention on the part of
Congress to once again remove from the LGCs delegated taxing power, all of the franchisees
(Bayantels) properties that are actually, directly and exclusively used in the pursuit of its franchise.
WHEREFORE, the petition is DENIED.
No pronouncement as to costs.

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SO ORDERED.

FELS ENERGY, INC.,petitioner, vs. THE PROVINCE OF BATANGAS and THE

OFFICE OF THE PROVINCIAL ASSESSOR OF BATANGAS,respondents.
[G.R. No. 170628. February 16, 2007.]
NATIONAL POWER CORPORATION,petitioner, vs. LOCAL BOARD OF
ASSESSMENT APPEALS OF BATANGAS, LAURO C. ANDAYA, in his capacity
as the Assessor of the Province of Batangas, and the PROVINCE OF
BATANGAS represented by its Provincial Assessor,respondents.
DECISION
CALLEJO,SR.,Jp:
Before us are two consolidated cases docketed as G.R. No. 168557 and G.R. No. 170628, which were
filed by petitioners FELS Energy, Inc. (FELS) and National Power Corporation (NPC), respectively. The
first is a petition for review on certiorari assailing the August 25, 2004 Decision 1 of the Court of
Appeals (CA) in CA-G.R. SP No. 67490 and its Resolution 2 dated June 20, 2005; the second, also a
petition for review on certiorari, challenges the February 9, 2005 Decision 3 and November 23, 2005
Resolution 4 of the CA in CA-G.R. SP No. 67491. Both petitions were dismissed on the ground of
prescription.
The pertinent facts are as follows:
On January 18, 1993, NPC entered into a lease contract with Polar Energy, Inc. over 3x30 MW diesel
engine power barges moored at Balayan Bay in Calaca, Batangas. The contract, denominated as an
Energy Conversion Agreement 5 (Agreement), was for a period of five years. Article 10 reads:
10.1 RESPONSIBILITY. NAPOCOR shall be responsible for the payment of (a)
all taxes, import duties, fees, charges and other levies imposed by the National
Government of the Republic of the Philippines or any agency or instrumentality
thereof to which POLAR may be or become subject to or in relation to the
performance of their obligations under this agreement (other than (i) taxes
imposed or calculated on the basis of the net income of POLAR and Personal
Income Taxes of its employees and (ii) construction permit fees, environmental
permit fees and other similar fees and charges) and (b) all real estate taxes and
assessments, rates and other charges in respect of the Power Barges. 6
Subsequently, Polar Energy, Inc. assigned its rights under the Agreement to FELS. The NPC initially
opposed the assignment of rights, citing paragraph 17.2 of Article 17 of the Agreement. HATICc
On August 7, 1995, FELS received an assessment of real property taxes on the power barges from
Provincial Assessor Lauro C. Andaya of Batangas City. The assessed tax, which likewise covered those
due for 1994, amounted to P56,184,088.40 per annum. FELS referred the matter to NPC, reminding it
of its obligation under the Agreement to pay all real estate taxes. It then gave NPC the full power and
authority to represent it in any conference regarding the real property assessment of the Provincial
Assessor.

In a letter 7 dated September 7, 1995, NPC sought reconsideration of the Provincial Assessor's
decision to assess real property taxes on the power barges. However, the motion was denied on
September 22, 1995, and the Provincial Assessor advised NPC to pay the assessment. 8 This
prompted NPC to file a petition with the Local Board of Assessment Appeals (LBAA) for the setting
aside of the assessment and the declaration of the barges as non-taxable items; it also prayed that
should LBAA find the barges to be taxable, the Provincial Assessor be directed to make the necessary
corrections. 9
In its Answer to the petition, the Provincial Assessor averred that the barges were real property for
purposes of taxation under Section 199 (c) of Republic Act (R.A.) No. 7160.
Before the case was decided by the LBAA, NPC filed a Manifestation, informing the LBAA that the
Department of Finance (DOF) had rendered an opinion 10 dated May 20, 1996, where it is clearly
stated that power barges are not real property subject to real property assessment.
On August 26, 1996, the LBAA rendered a Resolution 11 denying the petition. Thefallo reads:
WHEREFORE, the Petition is DENIED. FELS is hereby ordered to pay the real
estate tax in the amount of P56,184,088.40, for the year 1994.
SO ORDERED. 12
The LBAA ruled that the power plant facilities, while they may be classified as movable or personal
property, are nevertheless considered real property for taxation purposes because they are installed
at a specific location with a character of permanency. The LBAA also pointed out that the owner of the
barges-FELS, a private corporation-is the one being taxed, not NPC. A mere agreement making NPC
responsible for the payment of all real estate taxes and assessments will not justify the exemption of
FELS; such a privilege can only be granted to NPC and cannot be extended to FELS. Finally, the LBAA
also ruled that the petition was filed out of time.
Aggrieved, FELS appealed the LBAA's ruling to the Central Board of Assessment Appeals (CBAA).
On August 28, 1996, the Provincial Treasurer of Batangas City issued a Notice of Levy and Warrant by
Distraint
13
over the power barges, seeking to collect real property taxes amounting to
P232,602,125.91 as of July 31, 1996. The notice and warrant was officially served to FELS on
November 8, 1996. It then filed a Motion to Lift Levy dated November 14, 1996, praying that the
Provincial Assessor be further restrained by the CBAA from enforcing the disputed assessment during
the pendency of the appeal.
On November 15, 1996, the CBAA issued an Order 14 lifting the levy and distraint on the properties
of FELS in order not to preempt and render ineffectual, nugatory and illusory any resolution or
judgment which the Board would issue.
Meantime, the NPC filed a Motion for Intervention 15 dated August 7, 1998 in the proceedings
before the CBAA. This was approved by the CBAA in an Order 16 dated September 22, 1998.
During the pendency of the case, both FELS and NPC filed several motions to admit bond to guarantee
the payment of real property taxes assessed by the Provincial Assessor (in the event that the
judgment be unfavorable to them). The bonds were duly approved by the CBAA.
On April 6, 2000, the CBAA rendered a Decision
property tax. The dispositive portion reads:

17

finding the power barges exempt from real

147

WHEREFORE, the Resolution of the Local Board of Assessment Appeals of the

Province of Batangas is hereby reversed. Respondent-appellee Provincial Assessor
of the Province of Batangas is hereby ordered to drop subject property under
ARP/Tax Declaration No. 018-00958 from the List of Taxable Properties in the
Assessment Roll. The Provincial Treasurer of Batangas is hereby directed to act
accordingly.
SO ORDERED. 18
Ruling in favor of FELS and NPC, the CBAA reasoned that the power barges belong to NPC; since they
are actually, directly and exclusively used by it, the power barges are covered by the exemptions
under Section 234 (c) of R.A. No. 7160. 19 As to the other jurisdictional issue, the CBAA ruled that
prescription did not preclude the NPC from pursuing its claim for tax exemption in accordance with
Section 206 of R.A. No. 7160. The Provincial Assessor filed a motion for reconsideration, which was
opposed by FELS and NPC. AHDacC
In a complete volte face, the CBAA issued a Resolution
decision. Thefallo of the resolution reads:

20 on July 31, 2001 reversing its earlier

WHEREFORE, premises considered, it is the resolution of this Board that:

(a) The decision of the Board dated 6 April 2000 is hereby reversed.
(b) The petition of FELS, as well as the intervention of NPC, is dismissed.
(c) The resolution of the Local Board of Assessment Appeals of Batangas is hereby
affirmed,
(d) The real property tax assessment on FELS by the Provincial Assessor of
Batangas is likewise hereby affirmed.
SO ORDERED. 21
FELS and NPC filed separate motions for reconsideration, which were timely opposed by the Provincial
Assessor. The CBAA denied the said motions in a Resolution 22 dated October 19, 2001.
Dissatisfied, FELS filed a petition for review before the CA docketed as CA-G.R. SP No. 67490.
Meanwhile, NPC filed a separate petition, docketed as CA-G.R. SP No. 67491.
On January 17, 2002, NPC filed a Manifestation/Motion for Consolidation in CA-G.R. SP No. 67490
praying for the consolidation of its petition with CA-G.R. SP No. 67491. In a Resolution 23 dated
February 12, 2002, the appellate court directed NPC to re-file its motion for consolidation with CAG.R. SP No. 67491, since it is theponente of the latter petition who should resolve the request for
reconsideration.
NPC failed to comply with the aforesaid resolution. On August 25, 2004, the Twelfth Division of the
appellate court rendered judgment in CA-G.R. SP No. 67490 denying the petition on the ground of
prescription. The decretal portion of the decision reads:
WHEREFORE, the petition for review is DENIED for lack of merit and the
assailed Resolutions dated July 31, 2001 and October 19, 2001 of the Central
Board of Assessment Appeals areAFFIRMED.

SO ORDERED. 24
On September 20, 2004, FELS timely filed a motion for reconsideration seeking the reversal of the
appellate court's decision in CA-G.R. SP No. 67490.
Thereafter, NPC filed a petition for review dated October 19, 2004 before this Court, docketed as G.R.
No. 165113, assailing the appellate court's decision in CA-G.R. SP No. 67490. The petition was,
however, denied in this Court's Resolution 25 of November 8, 2004, for NPC's failure to sufficiently
show that the CA committed any reversible error in the challenged decision. NPC filed a motion for
reconsideration, which the Court denied with finality in a Resolution 26 dated January 19, 2005.
Meantime, the appellate court dismissed the petition in CA-G.R. SP No. 67491. It held that the right
to question the assessment of the Provincial Assessor had already prescribed upon the failure of FELS
to appeal the disputed assessment to the LBAA within the period prescribed by law. Since FELS had
lost the right to question the assessment, the right of the Provincial Government to collect the tax
was already absolute.

NPC filed a motion for reconsideration dated March 8, 2005, seeking reconsideration of the February
5, 2005 ruling of the CA in CA-G.R. SP No. 67491. The motion was denied in a Resolution 27 dated
November 23, 2005.
The motion for reconsideration filed by FELS in CA-G.R. SP No. 67490 had been earlier denied for lack
of merit in a Resolution 28 dated June 20, 2005.
On August 3, 2005, FELS filed the petition docketed as G.R. No. 168557 before this Court, raising the
following issues:
A.
Whether power barges, which are floating and movable, are personal properties
and therefore, not subject to real property tax.
B.
Assuming that the subject power barges are real properties, whether they are
exempt from real estate tax under Section 234 of the Local Government Code
("LGC").
C.
Assuming arguendo that the subject power barges are subject to real estate tax,
whether or not it should be NPC which should be made to pay the same under the
law.
D.
Assuming arguendo that the subject power barges are real properties, whether or
not the same is subject to depreciation just like any other personal properties.
E.

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Whether the right of the petitioner to question the patently null and void real
property tax assessment on the petitioner's personal properties is imprescriptible.
29
On January 13, 2006, NPC filed its own petition for review before this Court (G.R. No. 170628),
indicating the following errors committed by the CA:
I
THE COURT OF APPEALS GRAVELY ERRED IN HOLDING THAT THE APPEAL TO THE
LBAA WAS FILED OUT OF TIME.
II
THE COURT OF APPEALS GRAVELY ERRED IN NOT HOLDING THAT THE POWER
BARGES ARE NOT SUBJECT TO REAL PROPERTY TAXES.
III
THE COURT OF APPEALS GRAVELY ERRED IN NOT HOLDING THAT THE
ASSESSMENT ON THE POWER BARGES WAS NOT MADE IN ACCORDANCE WITH
LAW. 30
Considering that the factual antecedents of both cases are similar, the Court ordered the consolidation
of the two cases in a Resolution 31 dated March 8, 2006.
In an earlier Resolution dated February 1, 2006, the Court had required the parties to submit their
respective Memoranda within 30 days from notice. Almost a year passed but the parties had not
submitted their respective memoranda. Considering that taxes the lifeblood of our economy are
involved in the present controversy, the Court was prompted to dispense with the said pleadings, with
the end view of advancing the interests of justice and avoiding further delay.
In both petitions, FELS and NPC maintain that the appeal before the LBAA was not time-barred. FELS
argues that when NPC moved to have the assessment reconsidered on September 7, 1995, the
running of the period to file an appeal with the LBAA was tolled. For its part, NPC posits that the 60day period for appealing to the LBAA should be reckoned from its receipt of the denial of its motion
for reconsideration.
Petitioners' contentions are bereft of merit.
Section 226 of R.A. No. 7160, otherwise known as the Local Government Code of 1991, provides:
SECTION 226. Local Board of Assessment Appeals. Any owner or person
having legal interest in the property who is not satisfied with the action of the
provincial, city or municipal assessor in the assessment of his property may,
within sixty (60) days from the date of receipt of the written notice of
assessment, appeal to the Board of Assessment Appeals of the province or city by
filing a petition under oath in the form prescribed for the purpose, together with
copies of the tax declarations and such affidavits or documents submitted in
support of the appeal.
We note that the notice of assessment which the Provincial Assessor sent to FELS on August 7, 1995,
contained the following statement:

If you are not satisfied with this assessment, you may, within sixty (60) days
from the date of receipt hereof, appeal to the Board of Assessment Appealsof the
province by filing a petition under oath on the form prescribed for the purpose,
together with copies of ARP/Tax Declaration and such affidavits or documents
submitted in support of the appeal. 32
Instead of appealing to the Board of Assessment Appeals (as stated in the notice), NPC opted to file a
motion for reconsideration of the Provincial Assessor's decision, a remedy not sanctioned by law.
The remedy of appeal to the LBAA is available from an adverse ruling or action of the provincial, city
or municipal assessor in the assessment of the property. It follows then that the determination made
by the respondent Provincial Assessor with regard to the taxability of the subject real properties falls
within its power to assess properties for taxation purposes subject to appeal before the LBAA. 33
We fully agree with the rationalization of the CA in both CA-G.R. SP No. 67490 and CA-G.R. SP No.
67491. The two divisions of the appellate court cited the case of Callanta v. Office of the
Ombudsman, 34 where we ruled that under Section 226 of R.A. No. 7160, 35 the last action of the
local assessor on a particular assessment shall be the notice of assessment; it is this last action which
gives the owner of the property the right to appeal to the LBAA. The procedure likewise does not
permit the property owner the remedy of filing a motion for reconsideration before the local assessor.
The pertinent holding of the Court in Callanta is as follows:
. . . [T]he same Code is equally clear that the aggrieved owners should have
brought their appeals before the LBAA. Unfortunately, despite the advice to this
effect contained in their respective notices of assessment, the owners chose to
bring their requests for a review/readjustment before the city assessor, a remedy
not sanctioned by the law. To allow this procedure would indeed invite corruption
in the system of appraisal and assessment. It conveniently courts a graft-prone
situation where values of real property may be initially set unreasonably high, and
then subsequently reduced upon the request of a property owner. In the latter
instance, allusions of a possible covert, illicit trade-off cannot be avoided, and in
fact can conveniently take place. Such occasion for mischief must be prevented
and excised from our system. 36
For its part, the appellate court declared in CA-G.R. SP No. 67491:
. . . . The Court announces:Henceforth, whenever the local assessor sends a
notice to the owner or lawful possessor of real property of its revised assessed
value, the former shall no longer have any jurisdiction to entertain any request
for a review or readjustment. The appropriate forum where the aggrieved party
may bring his appeal is the LBAA as provided by law. It follows ineluctably that
the 60-day period for making the appeal to the LBAA runs without interruption.
This is what We held in SP 67490 and reaffirm today in SP 67491. 37
To reiterate, if the taxpayer fails to appeal in due course, the right of the local government to collect
the taxes due with respect to the taxpayer's property becomes absolute upon the expiration of the
period to appeal. 38 It also bears stressing that the taxpayer's failure to question the assessment in
the LBAA renders the assessment of the local assessor final, executory and demandable, thus,
precluding the taxpayer from questioning the correctness of the assessment, or from invoking any
defense that would reopen the question of its liability on the merits. 39
In fine, the LBAA acted correctly when it dismissed the petitioners' appeal for having been filed out of
time; the CBAA and the appellate court were likewise correct in affirming the dismissal. Elementary is

149

the rule that the perfection of an appeal within the period therefor is both mandatory and
jurisdictional, and failure in this regard renders the decision final and executory. 40
In the Comment filed by the Provincial Assessor, it is asserted that the instant petition is barred by
res judicata; that the final and executory judgment in G.R. No. 165113 (where there was a final
determination on the issue of prescription), effectively precludes the claims herein; and that the filing
of the instant petition after an adverse judgment in G.R. No. 165113 constitutes forum shopping.
FELS maintains that the argument of the Provincial Assessor is completely misplaced since it was not
a party to the erroneous petition which the NPC filed in G.R. No. 165113. It avers that it did not
participate in the aforesaid proceeding, and the Supreme Court never acquired jurisdiction over it. As
to the issue of forum shopping, petitioner claims that no forum shopping could have been committed
since the elements of litis pendentia or res judicataare not present.
We do not agree.
Res judicata pervades every organized system of jurisprudence and is founded upon two grounds
embodied in various maxims of common law, namely: (1) public policy and necessity, which makes it
to the interest of the State that there should be an end to litigation republicae ut sit litium; and (2)
the hardship on the individual of being vexed twice for the same cause nemo debet bis vexari et
eadem causa. A conflicting doctrine would subject the public peace and quiet to the will and
dereliction of individuals and prefer the regalement of the litigious disposition on the part of suitors to
the preservation of the public tranquility and happiness. 41 As we ruled inHeirs of Trinidad De Leon
Vda. de Roxas v. Court of Appeals: 42
. . . An existing final judgment or decree rendered upon the merits,
without fraud or collusion, by a court of competent jurisdiction acting
upon a matter within its authority is conclusive on the rights of the
parties and their privies. This ruling holds in all other actions or suits, in
the same or any other judicial tribunal of concurrent jurisdiction,
touching on the points or matters in issue in the first suit.
xxx xxx xxx
Courts will simply refuse to reopen what has been decided. They will not allow the
same parties or their privies to litigate anew a question once it has been
considered and decided with finality. Litigations must end and terminate sometime
and somewhere. The effective and efficient administration of justice requires that
once a judgment has become final, the prevailing party should not be deprived of
the fruits of the verdict by subsequent suits on the same issues filed by the same
parties.

This is in accordance with the doctrine of res judicata which has the following
elements: (1) the former judgment must be final; (2) the court which rendered it
had jurisdiction over the subject matter and the parties; (3) the judgment must
be on the merits; and (4) there must be between the first and the second actions,
identity of parties, subject matter and causes of action. The application of the
doctrine ofres judicatadoes not require absolute identity of parties but
merely substantial identity of parties. There is substantial identity of
parties when there is community of interest or privity of interest between

a party in the first and a party in the second case even if the first case did
not implead the latter. 43
To recall, FELS gave NPC the full power and authority to represent it in any proceeding regarding real
property assessment. Therefore, when petitioner NPC filed its petition for review docketed as G.R. No.
165113, it did so not only on its behalf but also on behalf of FELS. Moreover, the assailed decision in
the earlier petition for review filed in this Court was the decision of the appellate court in CA-G.R. SP
No. 67490, in which FELS was the petitioner. Thus, the decision in G.R. No. 165116 is binding on
petitioner FELS under the principle of privity of interest. In fine, FELS and NPC are substantially
"identical parties" as to warrant the application of res judicata. FELS's argument that it is not bound
by the erroneous petition filed by NPC is thus unavailing.
On the issue of forum shopping, we rule for the Provincial Assessor. Forum shopping exists when, as a
result of an adverse judgment in one forum, a party seeks another and possibly favorable judgment in
another forum other than by appeal or special civil action or certiorari. There is also forum shopping
when a party institutes two or more actions or proceedings grounded on the same cause, on the
gamble that one or the other court would make a favorable disposition. 44
Petitioner FELS alleges that there is no forum shopping since the elements of res judicata are not
present in the cases at bar; however, as already discussed, res judicata may be properly applied
herein. Petitioners engaged in forum shopping when they filed G.R. Nos. 168557 and 170628 after the
petition for review in G.R. No. 165116. Indeed, petitioners went from one court to another trying to
get a favorable decision from one of the tribunals which allowed them to pursue their cases.
It must be stressed that an important factor in determining the existence of forum shopping is the
vexation caused to the courts and the parties-litigants by the filing of similar cases to claim
substantially the same reliefs. 45 The rationale against forum shopping is that a party should not be
allowed to pursue simultaneous remedies in two differentfora. Filing multiple petitions or complaints
constitutes abuse of court processes, which tends to degrade the administration of justice, wreaks
havoc upon orderly judicial procedure, and adds to the congestion of the heavily burdened dockets of
the courts. 46
Thus, there is forum shopping when there exist: (a) identity of parties, or at least such parties as
represent the same interests in both actions, (b) identity of rights asserted and relief prayed for, the
relief being founded on the same facts, and (c) the identity of the two preceding particulars is such
that any judgment rendered in the pending case, regardless of which party is successful, would
amount to res judicata in the other. 47
Having found that the elements of res judicata and forum shopping are present in the consolidated
cases, a discussion of the other issues is no longer necessary. Nevertheless, for the peace and
contentment of petitioners, we shall shed light on the merits of the case.
As found by the appellate court, the CBAA and LBAA power barges are real property and are thus
subject to real property tax. This is also the inevitable conclusion, considering that G.R. No. 165113
was dismissed for failure to sufficiently show any reversible error. Tax assessments by tax examiners
are presumed correct and made in good faith, with the taxpayer having the burden of proving
otherwise. 48 Besides, factual findings of administrative bodies, which have acquired expertise in their
field, are generally binding and conclusive upon the Court; we will not assume to interfere with the
sensible exercise of the judgment of men especially trained in appraising property. Where the judicial
mind is left in doubt, it is a sound policy to leave the assessment undisturbed. 49 We find no reason
to depart from this rule in this case.

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In Consolidated Edison Company of New York, Inc., et al. v. The City of New York, et al., 50 a power
company brought an action to review property tax assessment. On the city's motion to dismiss, the
Supreme Court of New York held that the barges on which were mounted gas turbine power plants
designated to generate electrical power, the fuel oil barges which supplied fuel oil to the power plant
barges, and the accessory equipment mounted on the barges were subject to real property taxation.
Moreover, Article 415 (9) of the New Civil Code provides that "[d]ocks and structures which, though
floating, are intended by their nature and object to remain at a fixed place on a river, lake, or coast"
are considered immovable property. Thus, power barges are categorized as immovable property by
destination, being in the nature of machinery and other implements intended by the owner for an
industry or work which may be carried on in a building or on a piece of land and which tend directly to
meet the needs of said industry or work. 51
Petitioners maintain nevertheless that the power barges are exempt from real estate tax under
Section 234 (c) of R.A. No. 7160 because they are actually, directly and exclusively used by petitioner
NPC, a government- owned and controlled corporation engaged in the supply, generation, and
transmission of electric power.
We affirm the findings of the LBAA and CBAA that the owner of the taxable properties is petitioner
FELS, which in fine, is the entity being taxed by the local government. As stipulated under Section
2.11, Article 2 of the Agreement:
OWNERSHIP OF POWER BARGES. POLAR shall own the Power Barges and all
the fixtures, fittings, machinery and equipment on the Site used in connection
with the Power Barges which have been supplied by it at its own cost. POLAR shall
operate, manage and maintain the Power Barges for the purpose of converting
Fuel of NAPOCOR into electricity. 52

Time and again, the Supreme Court has stated that taxation is the rule and exemption is the
exception. 55 The law does not look with favor on tax exemptions and the entity that would seek to
be thus privileged must justify it by words too plain to be mistaken and too categorical to be
misinterpreted. 56 Thus, applying the rule of strict construction of laws granting tax exemptions,
and the rule that doubts should be resolved in favor of provincial corporations, we hold that FELS is
considered a taxable entity.
The mere undertaking of petitioner NPC under Section 10.1 of the Agreement, that it shall be
responsible for the payment of all real estate taxes and assessments, does not justify the exemption.
The privilege granted to petitioner NPC cannot be extended to FELS. The covenant is between FELS
and NPC and does not bind a third person not privy thereto, in this case, the Province of Batangas.
HTCISE
It must be pointed out that the protracted and circuitous litigation has seriously resulted in the local
government's deprivation of revenues. The power to tax is an incident of sovereignty and is unlimited
in its magnitude, acknowledging in its very nature no perimeter so that security against its abuse is to
be found only in the responsibility of the legislature which imposes the tax on the constituency who
are to pay for it. 57 The right of local government units to collect taxes due must always be upheld
to avoid severe tax erosion. This consideration is consistent with the State policy to guarantee the
autonomy of local governments 58 and the objective of the Local Government Code that they enjoy
genuine and meaningful local autonomy to empower them to achieve their fullest development as
self-reliant communities and make them effective partners in the attainment of national goals. 59
In conclusion, we reiterate that the power to tax is the most potent instrument to raise the needed
revenues to finance and support myriad activities of the local government units for the delivery of
basic services essential to the promotion of the general welfare and the enhancement of peace,
progress, and prosperity of the people. 60

It follows then that FELS cannot escape liability from the payment of realty taxes by invoking its
exemption in Section 234 (c) of R.A. No. 7160, which reads:
SECTION 234. Exemptions from Real Property Tax. The following are
exempted from payment of the real property tax:

WHEREFORE, the Petitions are DENIED and the assailed Decisions and Resolutions AFFIRMED.
SO ORDERED.

xxx xxx xxx

(c) All machineries and equipment that are actually, directly and
exclusively used by local water districts and government-owned or
controlled corporations engaged in the supply and distribution of water
and/or generation and transmission of electric power; . . .
Indeed, the law states that the machinery must be actually, directly and exclusively used by the
government owned or controlled corporation; nevertheless, petitioner FELS still cannot find solace in
this provision because Section 5.5, Article 5 of the Agreement provides:
OPERATION. POLAR undertakes that until the end of the Lease Period, subject to
the supply of the necessary Fuel pursuant to Article 6 and to the other provisions
hereof, it will operate the Power Bargesto convert such Fuel into electricity in
accordance with Part A of Article 7. 53
It is a basic rule that obligations arising from a contract have the force of law between the parties.
Not being contrary to law, morals, good customs, public order or public policy, the parties to the
contract are bound by its terms and conditions. 54

NATIONAL POWER CORPORATION,petitioner, vs. CENTRAL BOARD OF

ASSESSMENT APPEALS (CBAA), LOCAL BOARD OF ASSESSMENT APPEALS
(LBAA) OF LA UNION, PROVINCIAL TREASURER, LA UNION and
MUNICIPAL ASSESSOR OF BAUANG, LA UNION,respondents.
DECISION
BRION,Jp:
What are the real property tax implications of a Build-Operate-Transfer (BOT) agreement between a
government-owned and controlled corporation (GOCC) that enjoys tax exemption and a private
corporation? Specifically, under the terms of the BOT Agreement, can the GOCC be deemed the
actual, direct, and exclusive user of machineries and equipment for tax exemption purposes? If not,
can it pass on its tax-exempt status to its BOT partner, a private corporation, through the BOT
agreement? ACTIHa

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The National Power Corporation (NAPOCOR) claims in this case that the machineries and equipment
used in a project covered by a BOT agreement, to which it is a party, should be accorded the taxexempt status it enjoys. The Local Board of Assessment Appeals of the Province of La Union (LBAA),
the Central Board of Assessment Appeals (CBAA) and the Court of Tax Appeals (CTA) were one in
rejecting NAPOCOR's claim.
The present petition for review on certiorari filed under Rule 45 of the Rules of Court by NAPOCOR
challenges this uniform ruling and seeks the reversal of the CTA's Decision dated February 13, 2006 in
the consolidated cases of NAPOCOR v. CBAA, et al. 1 andBauang Private Power Corp. v. Sangguniang
Panlalawigan ng La Union, et al., 2 and of the denial of the motion for reconsideration that followed.
THE ANTECEDENTS
On January 11, 1993, First Private Power Corporation (FPPC) entered into a BOT agreement with
NAPOCOR for the construction of the 215 Megawatt Bauang Diesel Power Plant in Payocpoc, Bauang,
La Union. The BOT Agreement provided, via an Accession Undertaking, for the creation of the Bauang
Private Power Corporation (BPPC) that will own, manage and operate the power plant/station, and
assume and perform FPPC's obligations under the BOT agreement. For a fee, 3 BPPC will convert
NAPOCOR's supplied diesel fuel into electricity and deliver the product to NAPOCOR.
The pertinent provisions of the BOT agreement, as they relate to the submitted issues in the present
case, read:
2.03 NAPOCOR shall make available the Site to CONTRACTOR for the purpose of
building and operating the Power Station at no cost to CONTRACTOR for the
period commencing on the Effective Date and ending on the Transfer Date and
NAPOCOR shall be responsible for the payment of all real estate taxes and
assessments, rates, and other charges in respect of the Site and the buildings and
improvements thereon. HDCTAc
xxx xxx xxx
2.08 From the date hereof until the Transfer Date,CONTRACTOR shall,
directly or indirectly, own the Power Station and all the fixtures, fittings,
machinery, and equipment on the Site or used in connection with the
Power Station which have been supplied by it or at its cost and it shall
operate and manage the Power Station for the purpose of converting fuel
of NAPOCOR into electricity.
2.09 Until the Transfer Date,NAPOCOR shall, at its own cost, supply and
deliver all Fuel for the Power Station and shall take all electricity
generated by the Power Station at the request of NAPOCOR which shall
pay to CONTRACTOR fees as provided in Clause 11.
xxx xxx xxx
2.11 On the Transfer Date, the Power Station shall be transferred by the
CONTRACTOR to NAPOCOR without payment of any compensation.
The Officer-in-Charge of the Municipal Assessor's Office of Bauang, La Union initially issued
Declaration of Real Property Nos. 25016 and 25022 to 25029 declaring BPPC's machineries and
equipment as tax-exempt. On the initiative of the Bauang Vice Mayor, the municipality questioned
before the Regional Director of the Bureau of Local Government Finance (BLGF) the declared tax

exemption; later, the issue was elevated to the Deputy Executive Director and Officer-in-Charge of the
BLGF, Department of Finance, who ruled that BPPC's machineries and equipments are subject to real
property tax and directed the Assessors' Office to take appropriate action.
The Provincial/Municipal Assessors thereupon issued Revised Tax Declaration Nos. 30026 to 30033
and 30337, and cancelled the earlier issued Declarations of Real Property. The Municipal Assessor of
Bauang then issued a Notice of Assessment and Tax Bill to BPPC assessing/taxing the machineries and
equipments in the total sum of P288,582,848.00 for the 1995-1998 period, sans interest of two
percent (2%) on the unpaid amounts. BPPC's Vice-President and Plant Manager received the Notice of
Assessment and Tax Bill on August 7, 1998. CITcSH
On October 5, 1998, NAPOCOR filed a petition (styledIn Re Petition to Declare Exempt the Revised
and Retroactive to 1995 Tax Declaration Nos. 30026 to 30033 and 30037) with the LBAA. The petition
asked that, retroactive to 1995, the machineries covered by the tax declarations be exempt from real
property tax under Section 234 (c) of Republic Act No. 7160 (the Local Government Code or LGC);
and, that these properties be dropped from the assessment roll pursuant to Section 206 of the LGC.
Section 234 (c) of the LGC provides: 4
Section 234. Exemptions from Real Property Tax. The following are exempted
from the payment of real property tax:
xxx xxx xxx
(c) All machineries and equipment that are actually, directly and exclusively used
by local water districts and government-owned or -controlled corporations
engaged in the supply and distribution of water and/or generation and
transmission of electric power;
xxx xxx xxx.
The LBAA denied NAPOCOR's petition for exemption in a Decision dated October 26, 2001. It ruled
that the exemption provided by Section 234 (c) of the LGC applies only when a government-owned or
controlled corporation like NAPOCOR owns and/or actually uses machineries and equipment for the
generation and transmission of electric power; in this case, NAPOCOR does not own and does not
even actually and directly use the machineries. It is the BPPC, a non-government entity, which owns,
maintains, and operates the machineries and equipment; using these, it generates electricity and
then sells this to NAPOCOR. Additionally, it ruled that the liability for the payment of the real estate
taxes is determined by law and not by the agreement of the parties; hence, the provision in the BOT
Agreement whereby NAPOCOR assumed responsibility for the payment of all real estate taxes and
assessments, rates, and other charges, in relation with the site, buildings, and improvements in the
BOT project, is an arrangement between the parties that cannot be the basis in identifying who is
liable to the government for the real estate tax.
NAPOCOR appealed the LBAA ruling to the CBAA. BPPC moved to intervene on the ground that it has
a direct interest in the outcome of the litigation. 5 The CBAA subsequently dismissed the appeal based
on its finding that the BPPC, and not NAPOCOR, is the actual, direct and exclusive user of the
equipment and machineries; thus, the exemption under Section 234 (c) does not apply. The CBAA
ruled:
Sec. 234 (c), R.A. 7160 (supra), is clear and unambiguous: "there is no room for
construction." (citations omitted)
xxx xxx xxx

152

Actual use, according to Sec. 199 (b) of R.A. 7160, "refers to the purpose for
which the property is principally or predominantly utilized by the person in
possession thereof." InVelez v. Locsin, 55 SCRA 152: "The word 'use' means to
employ for the attainment of some purpose or end." In the "Operation of the
Power Station" (Clause 8.01 of the BOT Agreement), CONTRACTOR shall, at its
own cost, be responsible for the management, operation, maintenance and repair
of the Power Station during the Co-operation period . . . ." Said Co-operation
period is fifteen (15) years, after which the Power Station will be turned over or
transferred to NAPOCOR. Does this determine when NAPOCOR should take over
the actual, direct and exclusive use of the Power Station? That is fifteen (15)
years therefrom? cDTSHE
It has been established that BPPC manufactures or generates the power which is
sold to NAPOCOR and NAPOCOR distributes said power to the consumers. In other
words, the relationship between BPPC and NAPOCOR is one of manufacturer or
seller and exclusive distributor or buyer. The general perception is that the
exclusive distributor or buyer of goods has nothing to do with the manufacturing
thereof but as exclusive distributor the latter has the right to acquire all the goods
to be sold to the exclusion of all others.
In terms of the definitions under Sec. 199 (b) and that offered by RespondentsAppellees (supra), the machineries and equipment are principally or
predominantly utilized by BPPC. In terms of theVelez vs. Locsin case (supra),
BPPC employs the machineries and equipment to attain its purpose of generating
power to be sold to NAPOCOR and collect payment therefrom to compensate for
its investment. The BOT Agreement is not a contract for nothing.
The following definitions are given by Black's Law Dictionary, Third Edition:
"Actually is opposed to seemingly, pretendedly, or feignedly, as actually engaged
in farming means really, truly in fact."
"Directly. In a direct way without anything intervening; not by secondary, but by
direct means."
"Exclusively. Apart from all others; without admission of others to participation; in
a manner to exclude."
Indeed BPPC does not use said machineries and equipment pretendedly or
feignedly but truly and factually hence, "actually". BPPC uses them without
anything intervening hence, directly. BPPC uses the same machineries and
equipment apart from all others hence, exclusively. This is the fact against the
fact there is no argument. This same fact will also deny NAPOCOR's claim to a ten
(10%) assessment level provided for under Sec. 218 of R.A. 7160 (supra) as to
the requirement thereto is simply the same as that in realty tax exemption. The
BPPC is a private entity, not a Government Owned or Controlled Corporation
(GOCC), hence, not entitled to a 10% assessment level. CEDHTa

NAPOCOR then filed with the CTA a petition for review, docketed as CTA E.B. No. 51, to challenge the
CBAA decision. BPPC filed its own petition for review of the CBAA decision with the CTA which was
docketed as CTA E.B. No. 58. The two petitions were subsequently consolidated.

THE APPEALED CTA RULING

The CTA rendered on February 13, 2006 a decision dismissing the consolidated petitions. It
ruled on two issues: (1) whether BPPC seasonably filed its protest against the assessment; and (2)
whether the machineries and equipments are actually, directly, and exclusively used by NAPOCOR in
the generation and transmission of electric power, and are therefore not subject to tax.
On the first issue, the CTA applied Section 226 of the LGC which provides the remedy from an
assessment as follows:
SEC. 226. Local Board of Assessment Appeals. Any owner or person having
legal interest in the property who is not satisfied with the action of the provincial,
city or municipal assessor in the assessment of his property may, within sixty (60)
days from the date of receipt of the written notice of assessment, appeal to the
Board of Assessment Appeals in the province or city by filing a petition under oath
in the form prescribed for the purpose, together with copies of tax declarations
and such affidavits or documents submitted in support of the appeal.
It found that BPPC never filed an appeal to contest or question the assessment; instead, it was
NAPOCOR that filed the purported appeal a petition for exemption of the machineries and
equipment. The CTA, however, said that NAPOCOR is not the proper party, and the purported
appeal did not substantially comply with the requisites of the law.
According to the CTA, NAPOCOR is not the registered owner of the machineries and equipment. These
are registered in BPPC's name as further confirmed by Section 2.08 of the BOT Agreement. 6 Thus,
the CTA declared that until the transfer date of the power station, NAPOCOR does not own any of the
machineries and equipment, and therefore has no legal right, title, or interest over these properties.
Thus, the CTA concluded that NAPOCOR has no cause of action and no legal personality to question
the assessment. As the respondent local government units claim, NAPOCOR is an interloper in the
issue of BPPC's real estate tax liabilities. ACEIac
The CTA additionally found that BPPC's subsequent attempt to question the assessment viaa motion
for intervention with the CBAA failed to follow the correct process prescribed by the Rules Governing
Appeals to the CBAA; 7 its appeal was not accompanied by an appeal bond.
Also, the CTA found NAPOCOR's petition to be an inappropriate remedy, as it is not the appeal
contemplated by law; NAPOCOR was in fact asserting an exemption on the basis of the provisions of
the BOT Agreement. An exemption is an evidentiary matter for the assessors, not for the LBAA, to
decide pursuant to Section 206 of the LGC; 8 NAPOCOR cannot simply bypass the authority granted
to concerned administrative agencies, as these available administrative remedies must first be
exhausted.
On the more substantive second issue, the CTA saw it clear from the BOT Agreement that BPPC owns
and uses the machineries and equipment in the power station, thus directly addressing and disproving
NAPOCOR's "actual, direct, and exclusive use" argument. It noted that under the BOT Agreement,
NAPOCOR shall have a right over the machineries and equipments only after their transfer at the end
of the 15-year co-operation period. "By the nature of the agreement and work of BPPC, the
[machineries] are actually, directly, and exclusively used by it in the conversion of bunker fuel to
electricity for [NAPOCOR] for a fee", the CTA said.
Section 234 (c) of the LGC, according to the CTA, is clear. The exemption under the law does not
apply because BPPC is not a GOCC it is an independent power corporation currently operating and
maintaining the power plant pursuant to the BOT Agreement. The BOT agreement cannot likewise be

153

the basis for the claimed exemption; tax exemption cannot be agreed upon by mere contract between
the parties (BPPC and NAPOCOR), as it must be expressly granted by the Constitution, statute, or
franchise. A tax exemption, if and when granted, is also not transferrable, as it is a personal privilege
and it must be strictly construed, the CTA said in closing. IESAac

THE CTA ERRED ON A QUESTION OF LAW IN NOT CONSTRUING THE

EXEMPTIONS UNDER R.A. NO. 7160 IN HARMONY WITH PETITIONER'S CHARTER
AND THE BOT LAW.
V.

THE SEPARATE APPEALS

Thereupon, NAPOCOR and BPPC sought separate reviews of the CTA decision with us.
G.R. No. 173811
BPPC filed on September 11, 2006 its petition separately from NAPOCOR. The BPPC petition was
docketed as G.R. No. 173811 and was raffled to the First Division of the Court.
The First Division denied BPPC's petition in its Resolution dated October 4, 2006 on the reasoning that
BPPC failed to sufficiently show that the CTA committed any reversible error in the challenged decision
and resolution as to warrant the exercise of the Court's discretionary appellate jurisdiction.
BPPC moved to reconsider the denial of its petition, but the Third Division (after the Court's
reorganization) denied the motion for reconsideration with finality after finding no substantial
arguments to warrant reconsideration. The resolution denying BPPC's petition for review had
become final and executory and was thus recorded in the Book of Entries of Judgment on
April 3, 2007.

ASSUMING THE 215 MW BAUANG DIESEL POWER PLANT IS TAXABLE, THE SAME
SHOULD BE CLASSIFIED AS "SPECIAL" FOR REAL PROPERTY TAX PURPOSES
SUBJECT
TO
A
10%
ASSESSMENT
LEVEL,
AND
NOT
AS
COMMERCIAL/INDUSTRIAL PROPERTIES SUBJECT TO AN 80% ASSESSMENT
RATE.
In the interim and in light of the sale at public auction of the machineries and equipments, NAPOCOR
filed a Supplemental Petition based on the following grounds:
I.
THE CTA ERRED ON A QUESTION OF LAW IN DISMISSING PETITIONER'S APPEAL
BECAUSE THE LATTER IS A GOVERNMENT INSTRUMENTALITY WHOSE FOREIGN
AND DOMESTIC INDEBTEDNESS ARE GUARANTEED BY THE NATIONAL
GOVERNMENT, IS THE BENEFICIAL OWNER OF THE SUBJECT POWER PLANT AND
[IS] THUS EXEMPT FROM THE PAYMENT OF REAL PROPERTY TAXES.
II.

G.R. No. 171470 The Present Case

The NAPOCOR petition now pending with us was filed on April 6, 2006 and was docketed as G.R. No.
171470. We required the respondents to comment on the petition in our Resolution of May 3, 2006.
The respondents filed the required comments. NAPOCOR subsequently filed its Reply.
NAPOCOR cited the following as grounds for its petition:
I.
THE CTA ERRED ON A QUESTION OF LAW IN NOT RULING THAT PETITIONER IS
THE ACTUAL, DIRECT, AND EXCLUSIVE USER OF THE BAUANG DIESEL POWER
PLANT.
II.
THE CTA ERRED ON A QUESTION OF LAW IN DISREGARDING THAT THE REAL
PROPERTY TAX EXEMPTION IS RETAINED UNDER R.A. NO. 7160. SECATH
III.
THE CTA ERRED ON A QUESTION OF LAW IN RULING THAT PETITIONER MUST BE
ENGAGED IN BOTH GENERATION AND TRANSMISSION OF POWER BEFORE THE
EXEMPTION UNDER SECTION 234(C) OF R.A. NO. 7160 CAN APPLY.
IV.

THE CTA ERRED ON A QUESTION OF LAW IN DISMISSING PETITIONER'S APPEAL

BECAUSE THIS LED TO THE SALE OF THE BAUANG POWER PLANT TO THE
PROVINCIAL GOVERNMENT OF LA UNION, THUS SERIOUSLY VIOLATING
PETITIONER'S
STATUTORY
MANDATE
TO
CARRY
OUT
THE
TOTAL
ELECTRIFICATION OF THE COUNTRY. ISADET
To support its claim that it is entitled to tax exemption as the actual, direct, and exclusive user of the
machineries and equipment, NAPOCOR argues that:
a. the BOT agreement is a financing agreement where it (NAPOCOR) is the beneficial owner and the
actual, direct, and exclusive user of the power plant, while BPPC is the lender/creditor that retains the
plant's legal ownership until it is fully paid; the power plant is a NAPOCOR project and BPPC is just the
financier-contractor, and any BPPC activity is made on NAPOCOR's behalf as a contractor for
NAPOCOR; in this way, NAPOCOR takes advantage of BPPC's financial resources and technical
expertise to secure a continuous supply of electric power.
b. its payment of energy fees, fixed operating fees, and other infrastructure fees to BPPC is not
inconsistent with its (NAPOCOR's) beneficial ownership and actual, direct, and exclusive use of the
power plant, since the collection of the fees is the repayment scheme prescribed by Section 6 9 of
Republic Act No. 6957, 10 as amended by Republic Act No. 7718 (BOT Law, as amended); its
amortizations over the 15-year co-operation period constitute full payment for the power plant that
would warrant the transfer of ownership without payment of additional compensation; finally, that
Republic Act No. 9136 or the Electric Power Industry Reform Act of 2001 has booked the power plant
as NAPOCOR's asset for privatization purposes.
c. its tax exemption should apply to a BOT project, citing the conditions that gave rise to the BOT law
and its own mandate to provide electricity nationwide; BOT projects are really government projects
where the private sector participates to provide the heavy initial financial requirements; and that

154

Congress specifically considered NAPOCOR's situation in granting tax exemption to machineries and
equipment used in power generation and distribution. EcAHDT
d. in the interpretation of Section 234 (c) of the LGC, related statutes must be considered and the
task of the courts is to harmonize all these laws, if possible; specifically, Section 234 (c) of the LGC
was enacted to clarify or restore NAPOCOR's real property tax exemption so that NAPOCOR can
perform its public function of supplying electricity to the entire country at affordable rates, while the
BOT law was enacted, among others, to authorize NAPOCOR to enter into BOT contracts with the
private sector so that NAPOCOR can carry out its mandate; the tax exemption under Section 234 (c)
of the LGC must be given effect as the only legal and cogent way of harmonizing it with NAPOCOR's
Charter and the BOT law.

NAPOCOR concludes that the CTA's ruling clearly defeats the spirit behind its creation, the enactment
of the BOT Law, and the tax exemption provision under the LGC.
THE COURT'S RULING
We find the petition devoid of merit. Like the Court's First Division (later, Third Division) in G.R.
No. 173811, we find that NAPOCOR failed to sufficiently show that the CTA committed any reversible
error in its ruling. STDEcA
NAPOCOR's basis for its claimed exemption Section 234 (c) of the LGC is clear and not at all
ambiguous in its terms. Exempt from real property taxation are: (a)all machineries and equipment;
(b) [that are] actually, directly, and exclusively used by; (c) [local water districts and] governmentowned or controlled corporations engaged in the[supply and distribution of water and/or]generation
and transmission of electric power.
We note, in the first place, that the present case is not the first occasion where NAPOCOR claimed real
property tax exemption for a contract partner under Sec. 234 (c) of the LGC. In FELS Energy, Inc. v.
The Province of Batangas 11 (that was consolidated withNAPOCOR v. Local Board of Assessment
Appeals of Batangas, et al.), 12 the Province of Batangas assessed real property taxes against FELS
Energy, Inc. the owner of a barge used in generating electricity under an agreement with
NAPOCOR. Their agreement provided that NAPOCOR shall pay all of FELS' real estate taxes and
assessments. We concluded in that case that we could not recognize the tax exemption claimed, since
NAPOCOR was not the actual, direct and exclusive user of the barge as required by Sec. 234 (c). In
making this ruling, we cited the required standard of construction applicable to tax exemptions and
said:
Time and again, the Supreme Court has stated that taxation is the rule and
exemption is the exception. The law does not look with favor on tax exemptions
and the entity that would seek to be thus privileged must justify it by words too
plain to be mistaken and too categorical to be misinterpreted. Thus, applying the
rule of strict construction of laws granting tax exemptions, and the rule that
doubts should be resolved in favor of provincial corporations, we hold that FELS is
considered a taxable entity.

The mere undertaking of petitioner NPC under Section 10.1 of the Agreement,
that it shall be responsible for the payment of all real estate taxes and
assessments, does not justify the exemption. The privilege granted to petitioner
NPC cannot be extended to FELS. The covenant is between FELS and NPC and
does not bind a third person not privy thereto, in this case, the Province of
Batangas.
We also recognized thisstrictissimi jurisstandard inNAPOCOR v. City of Cabanatuan. 13 Under this
standard, the claimant must show beyond doubt, with clear and convincing evidence, the factual
basis for the claim. Thus, the real issue in a tax exemption case such as the present case is
whether NAPOCOR was able to convincingly show the factual basis for its claimed exception.
CSTDEH
The records show that NAPOCOR, no less, admits BPPC's ownership of the machineries and equipment
in the power plant. 14 Likewise, the provisions of the BOT agreement cited above clearly show BPPC's
ownership. Thus, ownership is not a disputed issue.
Rather than ownership, NAPOCOR's use of the machineries and equipment is the critical issue, since
its claim under Sec. 234 (c) of the LGC is premised onactual, direct and exclusive use. To support this
claim, NAPOCOR characterizes the BOT Agreement as a mere financing agreement where BPPC is the
financier, while it (NAPOCOR) is the actual user of the properties.
As in the fact of ownership, NAPOCOR's assertion is belied by the documented arrangements between
the contracting parties, viewed particularly from the prism of the BOT law.
The underlying concept behind a BOT agreement is defined and described in the BOT law as follows:
Build-operate-and-transfer A contractual arrangement whereby the project
proponent undertakes the construction, including financing, of a given
infrastructure facility, and the operation and maintenance thereof. The project
proponent operates the facility over a fixed term during which it is allowed to
charge facility users appropriate tolls, fees, rentals, and charges not exceeding
those proposed in its bid or as negotiated and incorporated in the contract to
enable the project proponent to recover its investment, and operating and
maintenance expenses in the project. The project proponent transfers the facility
to the government agency or local government unit concerned at the end of the
fixed term which shall not exceed fifty (50) years . . . .
Under this concept, it is the project proponent who constructs the project at its own cost and
subsequently operates and manages it. The proponent secures the return on its investments from
those using the project's facilities through appropriate tolls, fees, rentals, and charges not
exceeding those proposed in its bid or as negotiated. At the end of the fixed term agreed upon,
the project proponent transfers the ownership of the facility to the government agency. Thus, the
government is able to put up projects and provide immediate services without the burden of the
heavy expenditures that a project start up requires. EHDCAI
A reading of the provisions of the parties' BOT Agreement shows that it fully conforms to this concept.
By its express terms, BPPC has complete ownership both legal and beneficial of the project,
including the machineries and equipment used, subject only to the transfer of these properties
without cost to NAPOCOR after the lapse of the period agreed upon. As agreed upon, BPPC provided
the funds for the construction of the power plant, including the machineries and equipment needed
for power generation; thereafter, it actually operated and still operates the power plant, uses its
machineries and equipment, and receives payment for these activities and the electricity generated

155

under a defined compensation scheme. Notably, BPPC as owner-user is responsible for any
defect in the machineries and equipment. 15
As envisioned in the BOT law, the parties' agreement assumes that within the agreed BOT period,
BPPC the investor-private corporation shall recover its investment and earn profits through the
agreed compensation scheme; thereafter, it shall transfer the whole project, including machineries
and equipment, to NAPOCOR without additional cost or compensation. The latter, for its part, derives
benefit from the project through the fulfillment of its mandate of delivering electricity to consumers at
the soonest possible time, without immediately shouldering the huge financial requirements that the
project would entail if it were to undertake the project on its own. Its obligation, in exchange, is to
shoulder specific operating costs under a compensation scheme that includes the purchase of all the
electricity that BPPC generates.
That some kind of "financing" arrangement is contemplated in the sense that the private sector
proponent shall initially shoulder the heavy cost of constructing the project's buildings and structures
and of purchasing the needed machineries and equipment is undeniable. The arrangement,
however, goes beyond the simple provision of funds, since the private sector proponent not only
constructs and buys the necessary assets to put up the project, but operates and manages it as well
during an agreed period that would allow it to recover its basic costs and earn profits. In other words,
the private sector proponent goes into business for itself, assuming risks and incurring costs for its
account. If it receives support from the government at all during the agreed period, these are preagreed items of assistance geared to ensure that the BOT agreement's objectives both for the
project proponent and for the government are achieved. In this sense, a BOT arrangement issui
generisand is different from the usual financing arrangements where funds are advanced to a
borrower who uses the funds to establish a project that it owns, subject only to a collateral security
arrangement to guard against the nonpayment of the loan. It is different, too, from an arrangement
where a government agency borrows funds to put a project from a private sector-lender who is
thereafter commissioned to run the project for the government agency. In the latter case, the
government agency is the owner of the project from the beginning, and the lender-operator is merely
its agent in running the project. EDcIAC
If the BOT Agreement under consideration departs at all from the concept of a BOT project as defined
by law, it is only in the way BPPC's cost recovery is achieved; instead of selling to facility users or to
the general public at large, the generated electricity is purchased by NAPOCOR which then resells it to
power distribution companies. This deviation, however, is dictated, more than anything else, by the
structure and usages of the power industry and does not change the BOT nature of the transaction
between the parties.
Consistent with the BOT concept and as implemented, BPPC the owner-manager-operator of the
project is the actual user of its machineries and equipment. BPPC's ownership and use of the
machineries and equipment are actual, direct, and immediate, while NAPOCOR's is contingent and, at
this stage of the BOT Agreement, not sufficient to support its claim for tax exemption. Thus, the CTA
committed no reversible error in denying NAPOCOR's claim for tax exemption.
For these same reasons, we reject NAPOCOR's argument that the machineries and equipment must
be subjected to a lower assessment level. NAPOCOR cites as support Section 216 of the LGC which
provides:
Section 216. Special Classes of Real Property. All lands, buildings, and other
improvements thereon actually, directly and exclusively used for hospitals,
cultural, or scientific purposes, and those owned and used by local water districts,
and government-owned or controlled corporations rendering essential public

services in the supply and distribution of water and/or generation and

transmission of electric power shall be classified as special.

in relation with Section 218 (d) of the LGC which provides:

Section 218. Assessment Levels. The assessment levels to be applied to the
fair market value of real property to determine its assessed value shall be fixed by
ordinances
of
theSangguniang
Panlalawigan,
Sangguniang
PanlungsodorSangguniang Bayanof a municipality within the Metropolitan Manila
Area, at the rates not exceeding the following: THEcAS
xxx xxx xxx
(d) On Special Classes: The assessment levels for all lands buildings, machineries
and other improvements;
Actual Use Assessment Level
Cultural 15%
Scientific 15%
Hospital 15%
Local water districts 10%
Government-owned

controlled
in
distribution

engaged
and
and/or
transmission
power HScaCT

or
the
of
generation
of

10%
corporations
supply
water
and
electric

Since the basis for the application of the claimed differential treatment or assessment level is the
same as the claimed tax exemption, the lower tribunals correctly found that there is no basis to apply
the lower assessment level of 10%.
As our last point, we note that a real concern for NAPOCOR in this case is its assumption under the
BOT agreement of BPPC's real property tax liability (which in itself is a recognition that BPPC's real
properties are not really tax exempt). NAPOCOR argues that if no tax exemption will be recognized,
the responsibility it assumed carries practical implications that are very difficult to ignore. In fact,
NAPOCOR's supplemental petition is anchored on these practical implications the alleged detriment
to the public interest that will result if the levy, sale, and transfer of the machineries and equipment
were to be completed. NAPOCOR's reference is to the fact that the machineries and equipment have
been sold in public auction and the buyer the respondent Province will consolidate its ownership
over these properties on February 1, 2009.
We fully recognize these concerns. However, these considerations are not relevant to our disposition
of the issues in this case. We are faced here with the application of clear provisions of law and settled
jurisprudence to a case that, to our mind, should not be treated differently solely because of non-legal

156

or practical considerations. Significantly, local government real property taxation also has
constitutional underpinnings, based on Section 5 of Article X of the Constitution, 16 that we cannot
simply ignore. InFELS Energy, Inc. v. The Province of Batangas, 17 earlier cited, we said:
The power to tax is an incident of sovereignty and is unlimited in its magnitude,
acknowledging in its very nature no perimeter so that security against its abuse is
to be found only in the responsibility of the legislature which imposes the tax on
the constituency who are to pay for it. The right of local government units to
collect taxes due must always be upheld to avoid severe tax erosion. This
consideration is consistent with the State policy to guarantee the
autonomy of local governments and the objective of the Local
Government Code that they enjoy genuine and meaningful local
autonomy to empower them to achieve their fullest development as selfreliant communities and make them effective partners in the attainment
of national goals.TADCSE
In conclusion, we reiterate that the power to tax is the most potent
instrument to raise the needed revenues to finance and support myriad
activities of the local government units for the delivery of basic services
essential to the promotion of the general welfare and the enhancement
of peace, progress, and prosperity of the people. [Emphasis supplied.]
This ruling reminds us of the other side of the coin in terms of concerns and protection of
interests. La Union, as a local government unit, has no less than its own constitutional interests
to protect in pursuing this case. These are interests that this Court must also be sensitive to and
has taken into account in this Decision.
We close with the observation that our role in addressing the concerns and the interests at stake is
not all-encompassing. The Judiciary can only resolve the current dispute through our reading and
interpretation of the law. The other branches of government which act on policy and which execute
these policies, including NAPOCOR itself and the respondent local government unit, are more in the
position to act in tackling feared practical consequences. This ruling on the law can be their
springboard for action.
In light of these conclusions and observations, we need not discuss the other issues raised.
WHEREFORE, premises considered, we DENY NAPOCOR's petition for lack of merit. We AFFIRM the
appealed decision of the Court of Tax Appeals. Costs against NAPOCOR.

NATIONAL POWER CORPORATION,petitioner, vs. PROVINCE OF QUEZON

and MUNICIPALITY OF PAGBILAO,respondents.

BACKGROUND FACTS
The NPC is a government-owned and controlled corporation mandated by law to undertake, among
others, the production of electricity from nuclear, geothermal, and other sources, and the
transmission of electric power on a nationwide basis. 2 To pursue this mandate, the NPC entered into
an Energy Conversion Agreement (ECA) with Mirant on November 9, 1991. The ECA provided for a
build-operate-transfer (BOT) arrangement between Mirant and the NPC. Mirant will build and finance a
coal-fired thermal power plant on the lots owned by the NPC in Pagbilao, Quezon for the purpose of
converting fuel into electricity, and thereafter, operate and maintain the power plant for a period of 25
years. The NPC, in turn, will supply the necessary fuel to be converted by Mirant into electric power,
take the power generated, and use it to supply the electric power needs of the country. At the end of
the 25-year term, Mirant will transfer the power plant to the NPC without compensation. According to
the NPC, the power plant is currently operational and is one of the largest sources of electric power in
the country. 3
Among the obligations undertaken by the NPC under the ECA was the payment of all taxes that the
government may impose on Mirant. Article 11.1 of the ECA 4 specifically provides:
11.1. RESPONSIBILITY. [NPC] shall be responsible for the payment of(a) all
taxes, import duties, fees, charges and other levies imposed by the National
Government of the Republic of the Philippines or any agency or instrumentality
thereof to which [Mirant] may at any time be or become subject in or in relation
to the performance of their obligations under this Agreement (other than (i) taxes
imposed or calculated on the basis of the net income [of Mirant] and (ii)
construction permit fees, environmental permit fees and other similar fees and
charges), and(b) all real estate taxes and assessments, rates and other
charges in respect of the Site, the buildings and improvements thereon
and the Power Station. [Emphasis supplied.]
In a letter dated Match 2, 2000, theMunicipality of Pagbilao assessed Mirant's real property
taxeson the power plant and its machineries in the total amount of P1,538,076,000.00 for the period
of 1997 to 2000. The Municipality of Pagbilao furnished the NPC a copy of the assessment letter.
STcHEI
To protect its interests, the NPC filed a petition before the Local Board of Assessment Appeals (LBAA)
entitled "In Re: Petition to Declare Exempt from Payment of Property Tax on Machineries and
Equipment Used for Generation and Transmission of Power, under Section 234 (c) of RA 7160 [LGC],
located at Pagbilao, Quezon . . ." 5 on April 14, 2000.The NPC objected to the assessment
against Miranton the claim that it (the NPC) is entitled to the tax exemptions provided in Section
234, paragraphs (c) and (e) of the LGC. These provisions state:
Section 234. Exemptions from Real Property Tax. The following are exempted
from payment for * the real property tax:

DECISION

xxx xxx xxx

BRION,Jp:

(c) All machineries and equipment that are actually, directly, and
exclusively used by local water districts and government-owned or
-controlled corporations engaged in the supply and distribution of water
and/or generation and transmission of electric power;

We resolve in this petition for review oncertiorarithe question of whether the National Power
Corporation (NPC), as a government-owned and controlled corporation, can claim tax exemption
under Section 234 of the Local Government Code (LGC) for the taxes due from the Mirant Pagbilao
Corporation (Mirant) 1 whose tax liabilities the NPC has contractually assumed.

xxx xxx xxx

157

(e) Machinery and equipment

environmental protection.

used

for

pollution

control

and

Except as provided herein, any exemption from payment of real property tax
previously granted to, or presently enjoyed by, all persons, whether natural or
juridical, including government-owned or -controlled corporations are hereby
withdrawn upon the effectivity of the Code.
Assuming that it cannot claim the exemptions stated in these provisions, the NPC alternatively
asserted that it is entitled to:
a. the lower assessment level of 10% under Section 218 (d) of the LGC for
government-owned and controlled corporations engaged in the
generation and transmission of electric power, instead of the 80%
assessment level for commercial properties as imposed in the
assessment letter; and
b. an allowance for depreciation of the subject machineries under Section 225 of
the LGC.
The LBAA dismissed the NPC's petition on the Municipality of Pagbilao's motion, through a one-page
Order dated November 13, 2000. 6
The NPC appealed the denial of its petition with the Central Board of Assessment Appeals (CBAA).
Although it noted the incompleteness of the LBAA decision for failing to state the factual basis of its
ruling, the CBAA nevertheless affirmed, in its decision of August 18, 2003, the denial of the NPC's
claim for exemption. The CBAA likewise denied the NPC's subsequent motion for reconsideration,
prompting the NPC to institute an appeal before the Court of Tax Appeals (CTA).

The NPC's assertion of beneficial ownership of the power plant also supports its claim for tax
exemptions under Section 234 (c) of the LGC. The NPC alleges that it has the right to control and
supervise the entire output and operation of the power plant. This arrangement, to the NPC, proves
that it is the entity actually, directly, and exclusively using the subject machineries. Mirant's
possession of the power plant is irrelevant since all of Mirant activities relating to power generation
are undertakenfor and in behalf of the NPC. Additionally, all the electricity Mirant generates is utilized
by the NPC in supplying the power needs of the country; Mirant therefore operates the power plant
for the exclusive and direct benefit of the NPC. Lastly, the NPC posits that the machineries taxed by
the local government include anti-pollution devices which should have been excluded from the
assessment under Section 234 (c) of the LGC.
Assuming that the NPC is liable to pay the assessed real property tax, it asserts that a reassessment
is necessary as it is entitled to depreciation allowance on the machineries and to the lower 10%
assessment level under Sections 225 and 218 (d) of the LGC, respectively. This position is
complemented by its prayer to have the case remanded to the LBAA for the proper determination of
its tax liabilities.
THE COURT'S RULING
This case is not one of first impression. We have previously ruled against the NPC's claimed
exemptions under the LGC in the cases of FELS Energy, Inc. v. Province of Batangas 8 andNPC v.
CBAA. 9 Based on the principles we declared in those cases, as well as the defects we found in the
NPC's tax assessment protest,we conclude that the petition lacks merit.
The
NPC
questioning the CBAA's jurisdiction

is

estopped

The assailed CTAen bancdecision brushed aside the NPC'ssin perjuicioarguments by declaring that:

Before the CTA, the NPC claimed it was procedurally erroneous for the CBAA to exercise jurisdiction
over its appeal because the LBAA issued asin perjuicio 7 decision, that is, the LBAA pronounced a
judgment without any finding of fact. It argued that the CBAA should have remanded the case to the
LBAA. On substantive issues, the NPC asserted the same grounds it relied upon to support its claimed
tax exemptions. 2005jur

The court finds merit in [NPC's] claim that the Order of the LBAA of the Province
of Quezon is asin perjuiciodecision.A perusal thereof shows that the assailed
Order does not contain findings of facts in support of the dismissal of the
case. It merely stated a finding of merit in the contention of the Municipality of
Pagbilao . . . . aCSDIc

The CTAen bancresolved to dismiss the NPC's petition on February 21, 2006. From this ruling, the NPC
filed the present petition seeking the reversal of the CTAen banc'sdecision.

However, on appeal before the CBAA, [NPC] assigned several errors, both
in fact and in law, pertaining to the LBAA's decision. Thus, petitioner is
bound by the appellate jurisdiction of the CBAA under the principle of
equitable estoppel. In this regard, [NPC] is in no position to question the
appellate jurisdiction of the CBAA as it is the same party which sought its
jurisdiction and participated in the proceedings therein. 10 [Emphasis
supplied.]

THE PETITION
The NPC contends that the CTAen bancerred in ruling that the NPC is estopped from questioning the
LBAA'ssin perjuiciojudgment; the LBAA decision, it posits, cannot serve as an appealable decision that
would vest the CBAA with appellate jurisdiction; asin perjuiciodecision, by its nature, is null and void.
The NPC likewise assails the CTAen bancruling that the NPC was not the proper party to protest the
real property tax assessment, as it did not have the requisite "legal interest". The NPC claims that it
has legal interest because of its beneficial ownership of the power plant and its machineries; what
Mirant holds is merely a naked title. Under the terms of the ECA, the NPC also claims that it possesses
all the attributes of ownership, namely, the rights to enjoy, to dispose of, and to recover against the
holder and possessor of the thing owned. That it will acquire and fully own the power plant after the
lapse of 25 years further underscores its "legal interest" in protesting the assessment.

from

We agree that the NPC can no longer divest the CBAA of the power to decide the appeal after invoking
and submitting itself to the board's jurisdiction. We note that even the NPC itself found nothing
objectionable in the LBAA'ssin perjuiciodecision when it filed its appeal before the CBAA; the NPC did
not cite this ground as basis for its appeal. What it cited were grounds that went into the merits of its
case. In fact, its appeal contained no prayer for the remand of the case to the LBAA.

A basic jurisdictional rule, essentially based on fairness, is that a party cannot invoke a court's
jurisdiction to secure affirmative relief and, after failing to obtain the requested relief, repudiate or

158

question that same jurisdiction. 11 Moreover, a remand would be unnecessary, as we find the CBAA's
and the CTAen banc'sdenial of NPC's claims entirely in accord with the law and with jurisprudence.
The
entity
liable
the right to protest the assessment

for

tax

has

Before we resolve the question of the NPC's entitlement to tax exemption, we find it necessary to
determine first whether the NPC initiated a validprotest against the assessment. A taxpayer's failure
to question the assessment before the LBAA renders the assessment of the local assessor final,
executory, and demandable, thus precluding the taxpayer from questioning the correctness of the
assessment, or from invoking any defense that would reopen the question of its liability on the merits.
12
Section 226 of the LGC lists down the two entities vested with the personality to contest an
assessment: the owner and the person with legal interest in the property.
A person legally burdened with the obligation to pay for the tax imposed on a property has legal
interest in the property and the personality to protest a tax assessment on the property. This is the
logical and legal conclusion when Section 226, on the rules governing an assessment protest, is
placed side by side with Section 250 on the payment of real property tax; both provisions refer to the
same parties who may protest and pay the tax:
SEC. 226. Local Board of Assessment Appeals. Any owner or person having
legal interest in the propertywho is not satisfied with the action of the
provincial, city or municipal assessor in the assessment of his property may,
within sixty (60) days from the date of receipt of the written notice of
assessment, appeal to the Board of Assessment Appeals of the province or
city . . . .
SEC. 250. Payment of Real Property Taxes in Installments. The owner of the
real property or the person having legal interest thereinmay pay the basic
real property tax . . . due thereon without interest in four (4) equal
installments . . . . TIADCc
The liability for taxes generally rests on the owner of the real property at the time the tax accrues.
This is a necessary consequence that proceeds from the fact of ownership. 13 However, personal
liability for realty taxes may also expressly rest on the entity with the beneficial use of the real
property, such as the tax on property owned by the government but leased to private persons or
entities, or when the tax assessment is made on the basis of the actual use of the property. 14 In
either case, the unpaid realty tax attaches to the property 15 but is directly chargeable
against the taxable person who hasactual and beneficial use and possessionof the property
regardless of whether or not that person is the owner. 16
In the present case, the NPC, contrary to its claims, is neither the owner nor the possessor/user of
the subject machineries.
The ECA's terms regarding the power plant's machineries clearly vest their ownership with Mirant.
Article 2.12 of the ECA 17 states:
2.12 OWNERSHIP OF POWER STATION. From the Effective Date until the Transfer
Date [that is, the day following the last day of the 25-year period], [Mirant]
shall, directly or indirectly, own the Power Station and all the fixtures,
fittings, machinery and equipment on the Siteor used in connection with the

Power Station which have been supplied by it or at its cost. [Mirant] shall operate,
manage, and maintain the Power Station for the purpose of converting fuel of
[NPC] into electricity. [Emphasis supplied.]
The NPC contends that it should nevertheless be regarded as the beneficial owner of the plant, since it
will acquire ownership thereof at the end of 25 years. The NPC also asserts, by quoting portions of the
ECA, that it has the right to control and supervise the construction and operation of the plant, and
that Mirant has retained only naked title to it. These contentions, unfortunately, are not sufficient to
vest the NPC the personality to protest the assessment.
InCario v. Ofilado, 18 we declared thatlegal interest should be an interest that is actual and
material, direct and immediate, not simply contingent or expectant. The concept of the
directness and immediacy involved is no different from that required in motions for intervention under
Rule 19 of the Rules of Court that allow one who is not a party to the case to participate because of
his or her direct and immediate interest, characterized by either gain or loss from the judgment that
the court may render. 19 In the present case, the NPC's ownership of the plant will happen
onlyafterthe lapse of the 25-year period; until such time arrives, the NPC's claim of ownership is
merely contingent,i.e., dependent on whether the plant and its machineries exist at that time. Prior to
this event, the NPC's real interest is only in the continued operation of the plant for the generation of
electricity. This interest has not been shown to be adversely affected by the realty taxes imposed and
is an interest that NPC can protect, not by claiming an exemption that is not due to Mirant, but by
paying the taxes it (NPC) has assumed for Mirant under the ECA.
To show that Mirant only retains a naked title, the NPC has selectively cited provisions of the ECA to
make it appear that it has the sole authority over the power plant and its operations. Contrary to
these assertions, however, a complete reading of the ECA shows that Mirant has more substantial
powers in the control and supervision of the power plant's construction and operations.
Under Articles 2.1 and 3.1 of the ECA, Mirant is responsible for the design, construction, equipping,
testing, and commissioning of the power plant. Article 5.1 on the operation of the power plant states
that Mirant shall be responsible for the power plant's management, operation, maintenance, and
repair until the Transfer Date. This is reiterated in Article 5.3 where Mirant undertakes to operate the
power plant to convert fuel into electricity. TaHIDS
While the NPC asserts that it has the power to authorize the closure of the power plant without any
veto on the part of Mirant, the full text of Article 8.5 of the ECA shows that Mirant is possessed with
similar powers to terminate the agreement:
8.5 BUYOUT. If the circumstances set out in Article 7.18, Article 9.4, Article 14.4
or Article 28.4 arise or if, not earlier than 20 years after the Completion Date,
[the NPC] gives not less than 90 days notice to [Mirant] that it wishes to close the
power station, orif [the NPC] has failed to ensure the due payment of any
sum due hereunder within three months of its due date then, upon
[Mirant] giving to [the NPC] not less than 90 days notice requiring [the
NPC] to buy out [Mirant]or, as the case may be, [the NPC] giving not less than
90 days notice requiring [Mirant] to sell out to [NPC], [NPC] shall purchase all
[Mirant's] right, title, and interest in and to the Power Station and thereupon all
[Mirant's] obligations hereunder shall cease. [Emphasis supplied.]
On liability for taxes, the NPC does indeed assume responsibility for the taxes due on the power plant
and its machineries, 20 specifically, "all real estate taxes and assessments, rates and other charges in
respect of the site, the buildings and improvements thereon and the [power plant]." At first blush,
this contractual provision would appear to make the NPC liable and give it standing to protest the

159

assessment.The tax liability we refer to above, however, is theliability arising from lawthat
the local government unit can rightfully and successfully enforce, not the contractual
liability that is enforceable between the parties to a contract as discussed below. By law, the
tax liability rests on Mirant based on its ownership, use, and possession of the plant and its
machineries.
InTestate of Concordia Lim v. City of Manila, 21 we had occasion to rule that:
In [Baguio v. Busuego], 22 the assumption by the vendee of the liability for real
estate taxes prospectively due was in harmony with the tax policy thatthe user
of the property bears the tax. In [the present case],the interpretation that
the [vendee] assumed a liability for overdue real estate taxes for the
periods prior to the contract of sale is incongruent with the said policy
because there wasno immediate transfer of possession of the
propertiesprevious to full payment of the repurchase price.
xxx xxx xxx
To impose the real property tax on the estate which was neither the owner nor
the beneficial user of the property during the designated periods would not only
be contrary to law but also unjust.
For a fuller appreciation of this ruling, theBaguiocase referred to a contract of sale wherein the vendee
not only assumed liability for the taxes on the property, but also acquired its use and possession,
even though title remained with the vendor pending full payment of the purchase price. Under this
situation, we found the vendee who had assumed liability for the realty taxes and who had been given
use and possession to be liable. Compared with Baguio, theLimcase supposedly involved the same
contractual assumption of tax liabilities, 23 but possession and enjoyment of the property remained
with other persons. Effectively,Limheld that the contractual assumption of the obligation to pay real
property tax, by itself, is not sufficient to make one legally compellable by the government to pay for
the taxes due; the person liable must also have use and possession of the property.
Using theBaguioandLimsituations as guides, and after considering the comparable legal situations of
the parties assuming liability in these cases, we conclude that the NPC's contractual liability alone
cannot be the basis for the enforcement of tax liabilities against it by the local government unit.
InBaguioandLim, the vendors still retained ownership, and the effectiveness of the tax liabilities
assumed by the vendees turned on the possession and use of the property subject to tax. In other
words, the contractual assumption of liability was supplemented by an interest that the party
assuming liability had on the property taxed; on this basis, the vendee inBaguiowas found liable,
while the vendee inLimwas not. In the present case, the NPC is neither the owner, nor the possessor
or user of the property taxed. No interest on its part thus justifies any tax liability on its part other
than its voluntary contractual undertaking. Under this legal situation, only Mirant as the contractual
obligor, not the local government unit, can enforce the tax liability that the NPC contractually
assumed; the NPC does not have the "legal interest" that the law and jurisprudence require to give it
personality to protest the tax imposed by law on Mirant.

the parties, their assigns and heirs. Quite obviously, there is no privity between the respondent local
government units and the NPC, even though both are public corporations. The tax due will not come
from one pocket and go to another pocket of the same governmental entity. An LGU is independent
and autonomous in its taxing powers and this is clearly reflected in Section 130 of the LGC which
states: DAHaTc
SEC. 130. Fundamental Principles. The following fundamental principles shall
govern the exercise of the taxing and other revenue-raising powers of local
government units:
xxx xxx xxx
(d) Therevenue collected pursuant to the provisions of this Code shall
inure solely to the benefit of, and be subject to disposition by, the local
government unitlevying the tax, fee, charge or other imposition unless
otherwise specifically provided herein; . . . . [Emphasis Supplied.]
An exception to the rule on relativity of contracts is provided under the same Article 1311 as
follows:
If the contract should contain some stipulation in favor of a third person, he may
demand its fulfillment provided he communicated his acceptance to the obligor
before its revocation. A mere incidental benefit or interest of a person is not
sufficient.The contracting parties must have clearly and deliberately
conferred a favor upon a third person. [Emphasis supplied.]
The NPC's assumption of tax liability under Article 11.1 of the ECA does not appear, however, to
be in any way for the benefit of the Municipality of Pagbilao and the Province of Quezon. In fact, if
the NPC theory of the case were to be followed, the NPC's assumption of tax liability will work
against the interests of these LGUs. Besides, based on the objectives of the BOT Law 24 that
underlie the parties' BOT agreement, 25 the assumption of taxes clause is an incentive for private
corporations to take part and invest in Philippine industries. Thus, the principle of relativity of
contracts applies with full force in the relationship between Mirant and NPC, on the one hand, and
the respondent LGUs, on the other.
To reiterate, only the parties to the ECA agreement can exact and demand the enforcement of the
rights and obligations it established only Mirant can demand compliance from the NPC for the
payment of the real property tax the NPC assumed to pay. The local government units (the
Municipality of Pagbilao and the Province of Quezon), as third parties to the ECA, cannot demand
payment from the NPC on the basis of Article 11.1 of the ECA alone.Corollarily, the local government
units can neither be compelled to recognize the protest of a tax assessment from the NPC, an entity
against whom it cannot enforce the tax liability.
The
test
of
exemption
is
not ownership, of the subject machineries

the

nature

of

the

use,

At any rate, the NPC's claim of tax exemptions is completely without merit. To successfully claim
exemption under Section 234 (c) of the LGC, the claimant must prove two elements:
By our above conclusion, we do not thereby pass upon the validity of the contractual stipulation
between the NPC and Mirant on the assumption of liability that the NPC undertook. All we declare is
that the stipulation is entirely between the NPC and Mirant, and does not bind third persons who are
not privy to the contract between these parties. We say this pursuant to the principle of relativity of
contracts under Article 1311 of the Civil Code which postulates that contracts take effect only between

a. the machineries and equipment areactually, directly, and exclusively used

bylocal water districts andgovernment-owned or controlled
corporations; and

160

b. the local water districts and government-owned and controlled corporations

claiming exemption must be engaged in the supply and distribution of
water and/or the generation and transmission of electric power. ECDAcS
As applied to the present case, the government-owned or controlled corporation claiming exemption
must be the entity actually, directly, and exclusively using the real properties, and the use must be
devoted to the generation and transmission of electric power. Neither the NPC nor Mirant satisfies
both requirements. Although the plant's machineries are devoted to the generation of electric power,
by the NPC's own admission and as previously pointed out, Mirant a private corporation uses and
operates them. That Mirant operates the machineries solely in compliance with the will of the NPC
only underscores the fact that NPC does notactually, directly, and exclusively usethem. The
machineries must be actually, directly, and exclusively used by the government-owned or controlled
corporation for the exemption under Section 234 (c) to apply. 26
Nor will NPC find solace in its
supplying the power needs of
machineries that are exempted
that these machineries generate

claim that it utilizes all the power plant's generated electricity in

its customers. Based on the clear wording of the law, it is the
from the payment of real property tax, not the water or electricity
and distribute. 27

Even the NPC's claim of beneficial ownership is unavailing. The test of exemption is the use, not the
ownership of the machineries devoted to generation and transmission of electric power. 28 The nature
of the NPC's ownership of these machineries only finds materiality in resolving the NPC's claim of legal
interest in protesting the tax assessment on Mirant. As we discussed above, this claim is inexistent for
tax protest purposes.
Lastly, from the points of view of essential fairness and the integrity of our tax system, we find it
essentially wrong to allow the NPC to assume in its BOT contracts the liability of the other contracting
party for taxes that the government can impose on that other party, and at the same time allow NPC
to turn around and say that no taxes should be collected because the NPC is tax-exempt as a
government-owned and controlled corporation. We cannot be a party to this kind of arrangement; for
us to allow it without congressional authority is to intrude into the realm of policy and to debase the
tax system that the Legislature established. We will then also be grossly unfair to the people of the
Province of Quezon and the Municipality of Pagbilao who, by law, stand to benefit from the tax
provisions of the LGC.
WHEREFORE, weDENYthe National Power Corporation's petition for review oncertiorari,
andAFFIRMthe decision of the Court of Tax Appealsen bancdated February 21, 2006. Costs against
the petitioner.

The pertinent facts, as narrated by the CTA First Division, are as follows:
Petitioner (herein respondent Toledo Power, Inc.) is a general partnership duly
organized and existing under Philippine laws, with principal office at Sangi, Toledo
City, Cebu. It is principally engaged in the business of power generation and
subsequent sale thereof to the National Power Corporation (NPC), Cebu Electric
Cooperative III (CEBECO), Atlas Consolidated Mining and Development
Corporation, Atlas Fertilizer Corporation and Cebu Industrial Park Development,
Inc., and is registered with the Bureau of Internal Revenue (BIR) as a Value
Added Tax taxpayer in accordance with Section 236 of the National Internal
Revenue Code (NIRC) with Tax Identification No. 003-883-626-VAT and BIR
Certificate of Registration bearing RDO Control No. 94-083-000300.
On June 20, 2002, petitioner filed an application with the Energy Regulatory
Commission (ERC) for the issuance of a Certificate of Compliance pursuant to the
Implementing Rules and Regulations of R.A. 9136, otherwise known as the
"Electric Power Industry Reform Act of 2007" (EPIRA).
On October 25, 2001, petitioner filed with the BIR Revenue District Office (RDO)
No. 83 at Toledo City, Province of Cebu, its Quarterly VAT Return for the third
quarter of 2001, declaring among others, the following: HcDATC
Zero-rated Sales/Receipts
Taxable
Sales-Sale
Scrap/Others

P143,000,032.37
of

Output Tax

34,422.89

Less: Input Tax

On Domestic Purchases

4,765,458.58

On Importation of Goods 1,242,792.00

Total Available Input Tax

6,008,250.58

SO ORDERED.

COMMISSIONER OF INTERNAL REVENUE,petitioner, vs. TOLEDO POWER,

INC.,respondent.

Excess
Input
Overpayment

Tax

This resolves the Petition for Review on Certiorari under Rule 45 of the Rules of Court seeking the
reversal of the Court of Tax Appeals (CTA) En Banc Decision 1 dated May 7, 2008, and Resolution 2
dated July 18, 2008.

&

P5,973,827.69
==========
==

DECISION
PERALTA,Jp:

378,651.74

However, an amended Quarterly VAT Return for the same quarter of 2001 was
filed on November 22, 2001. The amended return shows unutilized input VAT
credits of P5,909,588.96 arising from petitioner's taxable purchases for the
third quarter of 2001 and the following other information:
Zero-rated Sales/Receipts

P143,000,032.37

161

Total Available Input Tax

Taxable
Sales-Sale
Scrap/Others

of

Output Tax

378,651.74
34,422.89

Excess
Input
Overpayment

Less: Input Tax

On Domestic Purchases

Total Available Input Tax

5,944,011.85

Excess
Input
Overpayment

Tax

&

P5,909,588.96
============

Thus, for the third quarter of 2001, petitioner allegedly has unutilized input VAT in
the total amount of P5,909,588.96 on its domestic purchase of taxable goods and
services and importation of goods, which purchases and importations are all
attributable to its zero-rated sale of power generation services to NPC, CEBECO,
Atlas Consolidated Mining and Development Corporation, Atlas Fertilizer
Corporation and Cebu Industrial Park Development, Inc. Said input VAT of
P5,909,588.96 paid by petitioner on its domestic purchase of goods and services
for the third quarter of 2001 allegedly remained unutilized against output VAT
liability in said period or even in subsequent matters.
On January 25, 2002, petitioner filed with the BIR RDO No. 83 at Toledo City,
Province of Cebu, its Quarterly VAT Return for the fourth quarter of 2001
declaring, among others, the following:
P127,259,72
0.44

Zero-Rated Sales/Receipts
Taxable
Sales-Sale
Scrap/Others
Output Tax

of

309,697.50
28,154.33

Less: Input Tax

On Domestic Purchases

1,374,608.64

Tax

&P3,219,781.
31
========
====

4,718,099.85

On Importation of Goods 1,225,912.00

3,247,935.64

Thus, petitioner allegedly had an excess input VAT credits of P3,219,781.31 for
the fourth quarter of 2001 which remained unutilized against output VAT
liability in said period or even in the subsequent quarters.
For the third and fourth quarters of 2001, petitioner incurred and accumulated
input VAT from its domestic purchase of goods and services, which are all
attributable to its zero-rated sales of power generation services to NPC, CEBECO,
Atlas Consolidated Mining and Development Corporation, Atlas Fertilizer
Corporation and Cebu Industrial Park Development Inc., in the total amount of
P9,129,370.27. Said excess and unutilized input VAT was allegedly not utilized
against any output VAT liability in the subsequent quarters nor carried over to the
succeeding taxable quarters. aDHCAE
On September 30, 2003, pursuant to the procedure prescribed in Revenue
Regulations No. 7-95, as amended, petitioner filed with the BIR RDO No. 83, an
administrative claim for refund or unutilized input VAT for the third and fourth
quarter of 2001 in the amounts of P5,909,588.96 and P3,219,781.31,
respectively, or the aggregate amount of P9,129,370.27.
Respondent (herein petitioner Commissioner of Internal Revenue) has not ruled
upon petitioner's administrative claim and in order to preserve its right to file a
judicial claim for the refund or issuance of a tax credit certificate of its unutilized
input VAT, petitioner filed a Petition for Review to suspend the running of the twoyear prescriptive period under Section 112(D) of the 1997 NIRC and Section
4.106-2(c) of Revenue Regulations No. 7-95, as amended. On October 24, 2003,
petitioner filed a Petition for Review for the refund or issuance of a tax credit
certificate in the amount of P5,909,588.96 for the third quarter of 2001, docketed
as CTA Case No. 6805 and, on January 22, 2004, filed another Petition for Review
for the refund or issuance of tax credit certificate in the amount of P3,219,781.31
for the fourth quarter of 2001, docketed as CTA Case No. 6851, both for its
unutilized input VAT paid by petitioner on its domestic purchases of goods and
services and importation of goods attributable to zero-rated sales.
On January 30, 2004, petitioner filed a Motion for Consolidation CTA Case Nos.
6805 and 6851, since these cases involve the same parties, same facts and
issues. The said Motion was granted in open court on February 27, 2004 and
confirmed in a Resolution dated March 8, 2004.
xxx xxx xxx

On Importation of Goods 1,873,327.00

162

After presenting its testimonial and documentary evidence, petitioner formally

offered its evidence on February 16, 2006. On March 24, 2006, this Court
promulgated a Resolution admitting all the exhibits offered by petitioner.
Respondent, on the other hand, failed to adduce any evidence. HCDAac
In a Resolution dated July 6, 2006, this consolidated case was ordered submitted
for decision with only petitioner's Memorandum, as respondent failed to file one
within the period given by the Court. 3
Acting on the petition, the CTA First Division issued a Decision dated May 17, 2007 partially granting
Toledo Power, Inc.'s (TPI) refund claim or issuance of tax credit certificate. Pertinent portions of the
Decision read:
In sum, petitioner was able to show its entitlement to the refund or issuance of
tax credit certificate in the amount of P8,553,050.44 computed as follows:
Total Available Input VAT

P9,191,947.49

Less: Disallowed Input VAT

(P20,696.34+P52,363.64+P277,207.
350,267.48
50)
Substantiated available input VAT

P8,841,680.01

Less: Output VAT

62,577.22

Substantiated Unutilized Input VAT

P8,779,102.79

Refundable Input VAT

P8,553,050.44

IN VIEW OF THE FOREGOING, the Petition for Review is PARTIALLY

GRANTED. Respondent is hereby ORDERED to refund or to issue a tax credit
certificate in favor of petitioner in the reduced amount of P8,553,050.44
representing the substantiated unutilized input VAT for the third and fourth
quarters of 2001.
SO ORDERED. 4
The Commissioner of Internal Revenue (CIR), thereafter, filed a Motion for Reconsideration against
said Decision. However, the same was denied in a Resolution dated October 15, 2007.
On appeal to the CTAEn Banc, the CIR argued that TPI failed to comply with the invoicing
requirements to prove entitlement to the refund or issuance of tax credit certificate. In addition, he
challenged the jurisdiction of the CTA First Division to entertain respondent's petition for review for
failure on its part to comply with the provisions of Section 112 (C) of the Tax Code.
In a Decision dated May 7, 2008, the CTAEn Bancaffirmed with modification the First Division's
assailed decision. It held
. . . after re-examination of the records of this case, out of the alleged Zerorated sales amounting to P270,259,752.81, only the amount of
P248,989,191.87 is fully substantiated. Therefore, respondent is entitled to the
refund or issuance of tax credit certificate in the amount of P8,088,151.07
computed as follows:
Total Available Input VAT

P9,191,947.49

Multiply by the ratio of substantiated

Less: Disallowed Input VAT

zero-rated sales to the total zerorated

(P20,696.34+P52,363.64+P27
350,267.48
7,207.50)

sales

Substantiated zero-rated sales 263,300,858.02

Total zero-rated sales

270,259,752.81

Substantiated
VAT

available

Less: Output VAT

input

P8,841,680.01
62,577.22

Substantiated Unutilized Input

P8,779,102.79
VAT

163

Multiply
by
substantiated

the

ratio

of

zero-rated sales to the total

zero-rated
sales
Substantiated
sales

zero-rated

248,989,191.87

Total zero-rated sales

Refundable Input VAT

270,259,752.81
P8,088,151.07
===========

WHEREFORE, premises considered, the Petition for Review En Bancis DENIED

for lack of merit. Accordingly, the Decision dated May 17, 2007 and Resolution
dated October 15, 2007 are AFFIRMED with MODIFICATION. Petitioner is
hereby ORDERED TO REFUND to respondent the sum of EIGHT MILLION
EIGHTY-EIGHT THOUSAND ONE HUNDRED FIFTY-ONE PESOS AND SEVEN
CENTAVOS (P8,088,151.07) only for the third and fourth quarters of taxable
year 2001.
SO ORDERED. 5
In a Resolution dated July 18, 2008, the CTAEn Bancdenied the CIR's motion for reconsideration.
Undaunted by the adverse ruling of the CTA, the CIR now seeks recourse to this Court on the
following ground:
THE COURT OF TAX APPEALSEN BANCERRED IN RULING THAT THE
GOVERNMENT IS LIABLE TO REFUND PETITIONER FOR ALLEGED OVERPAYMENT
OF VAT. 6
In essence, two issues must be addressed to determine whether TPI is indeed entitled to its claim for
refund or issuance of tax credit certificate: (1) whether TPI complied with the 120+30 day rule under
Section 112 (C) of the Tax Code, and (2) whether TPI sufficiently complied with the invoicing
requirements under the Tax Code.
Let us discuss the issues in seriatim.
First, it must be emphasized that to validly claim a refund or tax credit of input tax, compliance with
the 120+30 day rule under Section 112 of the Tax Code is mandatory. DSAICa
Pertinent portions of Section 112 of the Tax Code, as amended by Republic Act No. 9337, 7 state:
SEC. 112.Refunds or Tax Credits of Input Tax.

(A)Zero-rated or Effectively Zero-Rated Sales. Any VAT-registered person,

whose sales are zero-rated or effectively zero-rated may, within two (2) years
after the close of the taxable quarter when the sales were made, apply for the
issuance of a tax credit certificate or refund of creditable input tax due or paid
attributable to such sales, except transitional input tax, to the extent that such
input tax has not been applied against output tax:Provided, however, That in the
case of zero-rated sales under Section 106(A)(2)(a)(1), (2) and (b) and Section
108(B)(1) and (2), the acceptable foreign currency exchange proceeds thereof
had been duly accounted for in accordance with the rules and regulations of the
Bangko Sentral ng Pilipinas (BSP): Provided, further, That where the taxpayer is
engaged in zero-rated or effectively zero-rated sale and also in taxable or exempt
sale of goods of properties or services, and the amount of creditable input tax due
or paid cannot be directly and entirely attributed to any one of the transactions, it
shall be allocated proportionately on the basis of the volume of sales:Provided,
finally, That for a person making sales that are zero-rated under Section 108(B)
(6), the input taxes shall be allocated ratably between his zero-rated and nonzero-rated sales.
xxx xxx xxx
(C)Period within which Refund or Tax Credit of Input Taxes shall be Made. In
proper cases, the Commissioner shall grant a refund or issue the tax credit
certificate for creditable input taxes within one hundred twenty (120) days from
the date of submission of complete documents in support of the application filed
in accordance with Subsection (A) hereof.
In case of full or partial denial of the claim for tax refund or tax credit, or the
failure on the part of the Commissioner to act on the application within the period
prescribed above, the taxpayer may, within thirty (30) days from the receipt of
the decision denying the claim or after the expiration of the one hundred twenty
day-period, appeal the decision or the unacted claim with the Court of Tax
Appeals.
Section 112 decrees that a VAT-registered person, whose sales are zero-rated or effectively zerorated, may apply for the issuance of a tax credit or refund creditable input tax due or paid attributable
to such sales within two years after the close of the taxable quarter when the sales were made. From
the date of submission of complete documents in support of its application, the CIR has 120 days to
decide whether or not to grant the claim for refund or issuance of tax credit certificate. In case of full
or partial denial of the claim for tax refund or tax credit, or the failure on the part of the CIR to act on
the application within the given period, the taxpayer may, within 30 days from receipt of the decision
denying the claim or after the expiration of the 120-day period, appeal with the CTA the decision or
inaction of the CIR.
Recently, in the consolidated cases of Commissioner of Internal Revenue v. San Roque Power
Corporation, 8 (San Roque), the Court confirmed the mandatory and jurisdictional nature of the
120+30 day rule. It ratiocinated as follows:
At the time San Roque filed its petition for review with the CTA, the 120+30 day
mandatory periods were already in the law. Section 112 (C) expressly grants the
Commissioner 120 days within which to decide the taxpayer's claim. The law is
clear, plain and unequivocal ". . . the Commissioner shall grant a refund or issue
the tax credit certificate for creditable input taxes within one hundred twenty
(120) days from the date of submission of complete documents." Following the

164

verba legis doctrine, this law must be applied exactly as worded since it is clear,
plain and unequivocal. The taxpayer cannot simply file a petition with the CTA
without waiting for the Commissioner's decision within the 120-day mandatory
and jurisdictional period. The CTA will have no jurisdiction because there will be
no "decision" or "deemed a denial" decision of the Commissioner for the CTA to
review. In San Roque's case, it filed its petition with the CTA a mere 13 days after
it filed its administrative claim with the Commissioner. Indisputably, San Roque
knowingly violated the mandatory 120-day period, and it cannot blame anyone
but itself.
Section 112(C) also expressly grants the taxpayer a 30-day period to appeal to
the CTA the decision or inaction of the Commissioner, thus:
. . . the taxpayer affected may, within thirty (30) days
from the receipt of the decision denying the claim or
after the expiration of the one-hundred twenty dayperiod, appeal the decision or the unacted claim with the
Court of Tax Appeals. (Emphasis supplied.)
This law is clear, plain, and unequivocal. Following the well-settled verba legis
doctrine, this law should be applied exactly as worded since it is clear, plain and
unequivocal. As this law states, the taxpayer may, if he wishes, appeal the
decision of the Commissioner to the CTA within 30 days from receipt of the
Commissioner's decision, or if the Commissioner does not act on the taxpayer's
claim within the 120-day period, the taxpayer may appeal to the CTA within 30
days from the expiration of the 120-day period.
xxx xxx xxx
When Section 112 (C) states that "the taxpayer affected may, within thirty (30)
days from receipt of the decision denying the claim or after the expiration of the
one hundred twenty-day period, appeal the decision or the enacted claim with the
Court of Tax Appeals," the law does not make the 120+30 day periods optional
just because the law uses the word "may." The word "may" simply means that
the taxpayer may or may not appeal the decision of the Commissioner within
30 days from receipt of the decision, or within 30 days from the expiration of the
120-day period. Certainly by no stretch of the imagination can the word "may" be
construed as making the 120+30 day periods optional, allowing the taxpayer to
file a judicial claim one day after filing the administrative claim with the
Commissioner.
The old rule that the taxpayer may file the judicial claim, without waiting for the
Commissioner's decision if the two-year prescriptive period is about to expire,
cannot apply because that rule was adopted before the enactment of the 30-day
period. The 30-day period was adopted precisely to do away with the old
rule, so that under the VAT System the taxpayer will always have 30 days
to file the judicial claim even if the Commissioner acts only on the 120th
day, or does not act at all during the 120-day period. With the 30-day
period always available to the taxpayer, the taxpayer can no longer file a judicial
claim for refund or credit of input VAT without waiting for the Commissioner to
decide until the expiration of the 120-day period.

To repeat, a claim for tax refund or credit, like a claim for tax exemption, is
construed strictly against the taxpayer. One of the conditions for a judicial claim
of refund or credit under the VAT System is compliance with the 120+30 day
mandatory and jurisdictional periods. Thus, strict compliance with the 120+30
day periods is necessary for such a claim to prosper, whether before, during, or
after the effectivity of theAtlasdoctrine, except for the period from the issuance of
BIR Ruling No. DA-489-03 on 10 December 2003 to 6 October 2010 when
theAichidoctrine was adopted, which again reinstated the 120+30 day periods as
mandatory and jurisdictional. 9
In a nutshell, the rules on the determination of the prescriptive period for filing a tax refund or credit
of unutilized input VAT, as provided in Section 112 of the Tax Code, are as follows:
(1)An administrative claim must be filed with the CIR within two years after the
close of the taxable quarter when the zero-rated or effectively zero-rated
sales were made.
(2)The CIR has 120 days from the date of submission of complete documents in
support of the administrative claim within which to decide whether to
grant a refund or issue a tax credit certificate. The 120-day period may
extend beyond the two-year period from the filing of the administrative
claim if the claim is filed in the later part of the two-year period. If the
120-day period expires without any decision from the CIR, then the
administrative claim may be considered to be denied by inaction.
HTCIcE
(3)A judicial claim must be filed with the CTA within 30 days from the receipt of
the CIR's decision denying the administrative claim or from the
expiration of the 120-day period without any action from the CIR.
(4)All taxpayers, however, can rely on BIR Ruling No. DA-489-03 from the time of
its issuance on 10 December 2003 up to its reversal by this Court
inAichion 6 October 2010, as an exception to the mandatory and
jurisdictional 120+30 day periods. 10
Here, TPI filed its third and fourth quarterly VAT returns for 2001 on October 25, 2001 and January
25, 2002, respectively. It then filed an administrative claim for refund of its unutilized input VAT for
the third and fourth quarters of 2001 on September 30, 2003. Thus, the CIR had 120 days or until
January 28, 2004, after the submission of TPI's administrative claim and complete documents in
support of its application, within which to decide on its claim. Then, it is only after the expiration of
the 120-day period, if there is inaction on the part of the CIR, where TPI may elevate its claim with
the CTA within 30 days.
In the present case, however, it appears that TPI's judicial claims for refund of its unutilized input VAT
covering the third and fourth quarters of 2001 were prematurely filed on October 24, 2003 and
January 22, 2004, respectively.
However, although TPI's judicial claim for the fourth quarter of 2001 has been filed prematurely, the
most recent pronouncements of the Court provide for a window wherein the same may be
entertained.
As held in theSan Roqueponencia, strict compliance with the 120+30 day mandatory and
jurisdictional periods is not necessary when the judicial claims are filed between December 10, 2003

165

(issuance of BIR Ruling No. DA-489-03 which states that the taxpayer need not wait for the 120-day
period to expire before it could seek judicial relief) to October 6, 2010 (promulgation of the Aichi
doctrine).

1.the name, TIN and address of seller;

Clearly, therefore, TPI's refund claim of unutilized input VAT for the third quarter of 2001 was denied
for being prematurely filed with the CTA, while its refund claim of unutilized input VAT for the fourth
quarter of 2001 may be entertained since it falls within the exception provided in the Court's most
recent rulings.

3.quantity, unit cost and description of merchandise or nature of service;

With that settled, we now resolve the issue of whether TPI sufficiently complied with the invoicing
requirements under the Tax Code with respect to the fourth quarter of 2001.

5.the word "zero-rated" imprinted on the invoice covering zero-rated

sales; and

Section 113 (A), in relation to Section 237 of the Tax Code, provides:

6.the invoice value or consideration. 11

SEC. 113.Invoicing and Accounting Requirements for VAT-Registered Persons.

(A)Invoicing Requirements. A VAT-registered person shall, for every sale, issue
an invoice or receipt. In addition to the information shall be indicated in
the invoice or receipt:
(1)A statement that the seller is a VAT-registered person, followed by his
taxpayer's identification number (TIN); and
(2)The total amount which the purchaser pays or is obligated to pay to
the seller with the indication that such amount includes valueadded tax.
xxx xxx xxx
SEC. 237. Issuance of Receipts or Sales of Commercial Invoices. All persons
subject to an internal revenue tax shall, for each sale or transfer of merchandise
or for services rendered valued at Twenty-five pesos (P25.00) or more, issue duly
registered receipts or sales or commercial invoices, prepared at least in duplicate,
showing the date of transaction, quantity, unit cost and description of
merchandise or nature of service:Provided, however, That in the case of sales,
receipts or transfers in the amount of One hundred pesos (P100.00) or more, or
regardless of the amount, where the sale or transfer is made by a person liable to
value-added tax to another person also liable to value-added tax; or where the
receipt is issued to cover payment made as rentals, commissions, compensations
or fees, receipts or invoices shall be issued which shall show the name, business
style, if any, and address of the purchaser, customer or client:Provided,
further,That where the purchaser is a VAT-registered person, in addition to the
information herein required, the invoice or receipts shall further show the
Taxpayer Identification Number (TIN) of the purchaser.

2.date of transaction;

4.the name, TIN, business style, if any, and address of the VATregistered purchaser, customer or client;

In the present case, we agree with the CTA's findings that the words "zero-rated" appeared on the
VAT invoices/official receipts presented by the TPI in support of its refund claim. Although the same
was merely stamped and not pre-printed, the same is sufficient compliance with the law, since the
imprinting of the word "zero-rated" was required merely to distinguish sales subject to 10% VAT,
those that are subject to 0% VAT (zero-rated) and exempt sales, to enable the Bureau of Internal
Revenue to properly implement and enforce the other VAT provisions of the Tax Code.
Moreover, it is doctrinal that the Court will not lightly set aside the conclusions reached by the CTA
which, by the very nature of its function of being dedicated exclusively to the resolution of tax
problems, has accordingly developed an expertise on the subject, unless there has been an abuse or
improvident exercise of authority. 12
InBarcelon, Roxas Securities, Inc. v. Commissioner of Internal Revenue, 13 the Court held that it
accords the findings of fact by the CTA with the highest respect. It ruled that factual findings made by
the CTA can only be disturbed on appeal if they are supported by substantial evidence or there is a
showing of gross error or abuse on the part of the Tax Court. In the absence of any clear and
convincing proof to the contrary, this Court must presume that the CTA rendered a decision which is
valid in every respect. 14
WHEREFORE, premises considered, the instant petition is PARTIALLY GRANTED. The
Commissioner of Internal Revenue is hereby ORDERED to refund or issue tax credit certificate in
favor of Toledo Power, Inc. only for the fourth quarter of 2001. This case is hereby REMANDED to the
Court of Tax Appeals for the proper computation of the refundable amount representing unutilized
input VAT for the fourth quarter of 2001. aETAHD
SO ORDERED.

Section 4.108-1 of Revenue Regulations No. 7-95 states:

Section 4.108-1.Invoicing Requirements. All VAT-registered persons shall, for
every sale or lease of goods or properties or services, issue duly registered
receipts or sales or commercial invoices which must show:

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