NPC v Province of Quezon

July 15, 2009

Doctrine: Exemption from Real Property Tax under Section 234

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.

The test of exemption is the use, not the ownership of the machineries devoted to generation and transmission
of electric power.

FACTS
NPC is a GOCC that entered into a Built Operate Transfer under an Energy Conversion Agreement (ECA)
agreement with Mirant for a powerplant on NPCs lot in Pagbilao, Quezon.
NPC had the obligation to pay all taxes that government may impose on Mirant under the ECA.
The Municipality of Pagbilao assessed real property taxes on the power plant and machineries 1.5B for 1997
2007.
NPC filed a petition before the Local Board of Assessment Appeals - asking them to declare them exempt from
payment of property tax on equipment used for power generation under section 234 of the LGC
NPC also objected to the assessment against Mirant and claims exemption under Sec 234 c and e of the LGC
They further state that should they not be entitled to claim the exemptions then they are entitled to a lower
assesment level and and allowance for deprecation
LBAA dismissed the NPCs petition
NPC appealed to the CBAA which affirmed the LBAA decision
MR by NPC was also denied
NPC then appealed to the CTA but the CTA en banc resolved to dismiss NPCs petition
Hence this case filed by NPC

ISSUE/ HELD :
(1) Is NPC exempt from payment of the real property taxes?

(a) NPC not exempt. NPC sought jurisdiction of the CBAA hence estopped from questioning such jurisdiction.

NPC claims CBAA had no authority to exercise jurisdiction on appeal of LBAAs decision since there was no finding of fact
such decision is null and void

CTA claims that NPC was not the proper party to protest the real property tax assessment. While NPC says that they
have legal interest due to their beneficial ownership of the plant and machineries.

Further they claim that machineries also include ANTI POLLUTION DEVICES wc should have been excluded from
assessment (Sec 234e)

The Court held that NPC is estopped from questioning the CBAAs jurisdiction since it was NPC itself which sought the
jurisdiction of the CBAA and even participated in the proceedings.

(b) NPCs claim of tax exemption without merit since they failed to prove the 2 elements in Sec 234 of the LGC:

a. the machineries and equipment are actually, directly, and exclusively used by local water districts
and government-owned or controlled corporations; and
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.

Neither NPC and Mirant failed to satisfy both requirements. Here Mirant, a private corporation, was the one who used/
operated the machineries.

NPCs 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

(2) Does NPC have the right to protest the assessment?

JALEGRE
No. NPC is neither the owner or possessor /user of the subject machineries. Their claim of ownership is merely
contingent. Hence, they do not have the personality to protest the tax imposed by law to Mirant.

Section 226 of the LGC lists down the entities vested with the personality to contest and assessment. (1) The OWNER
and (2)THE PERSON LEGAL INTEREST OVER THE PROPERTY.

The ECA terms clearly vest ownership with Mirant.

NPC claims that it will own the machineries at the end of 25 years, hence it is the beneficial owner of the plant. However
jurisprudence states that legal interest should be an interest that is actual and material, direct and immediate, not simply
contingent or expectant.

NB:
GOCC and LGU: No privity between such even if both are public corporations

SC: Petition by NPC denied.

JALEGRE