Republic of the Philippines

CENTRAL BOARD OF ASSESSMENT APPEALS M a n i l a

BENGUET CORPORATION,
Petitioner-Appellant, CBAA Case No. L-10

– versus –

BOARD OF ASSESSMENT APPEALS OF THE PROVINCE OF ZAMBALES,
Appellee,

– and –

PROVINCIAL ASSESSOR OF ZAMBALES and MUNICIPAL ASSESSOR SAN MARCELINO, ZAMBALES,
Respondents-Appellees. x – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – x

D E C I S I O N

This appeal seeks a new exemption from realty tax of the Bayarong

tailings dam and the land submerged therein, in the Benguet Corporation-Dizon

Copper Operations (BC-DCO) San Marcelino, Zambales. This is the same

tailings dam in CBAA Case No. 239: “Benguet Corporation, Petitioner-

Appellant, vs. Board of Assessment Appeals of the Province of Zambales,

Appellee, and the Provincial Assessor of Zambales and the Municipal Assessor

of San Marcelino, Zambales, Respondents-Appellees.”

In CBAA Case No. 239, the main issue was “the real property taxability of

the tailings dam as improvement”. The case was decided by this Board on

December 11, 1991, in favor of the dam’s taxability. This was affirmed by the

Supreme Court in Benguet Corporation, Petitioner vs. Central Board of

Assessment Appeals, et al., Respondents”, G.R. No. 106041, January 29,

1993.

In the meantime, R.A. 7160 took effect on January 1, 1992. Among its

provisions are the following:

“Sec. 234. Exemptions from Real Property Tax. – the following are exempted from payment of the real property tax:

Reference: Book VIII, pp. 107-119

x x x

(e) Machinery and equipment used for pollution control and environmental protection.”

Petitioner-Appellant now addresses a new letter of application to

Respondent-Appellee, Municipal Assessor of San Marcelino, Zambales, seeking

exemption of said tailings dam from payment of real property tax, this time on

the basis of the above-stated R.A. 7160 provision. (Annex A, dated August 3,

1993). Petitioner-Appellant claims that the tailings dam was “established

specifically as an anti-pollution device”. Among the supporting documents

submitted with the letter-application are:

“(a) a certification issued by the Regional Executive Director Samuel R. Penafiel of the Department of Environment and Natural Resources (DENR) – Region III dated 22 June 1993 stating, among others, that the tailings dam was constructed purposely for pollution control (Annex ‘A-3’ of the Petition); and

“(b) a letter of Director Joel D. Muyco of the Mines and Geosciences Bureau of the DENR dated 19 February 1993 finding that the tailings dam’s primary purpose was to prevent pollution (Annex ‘A-5’ of the Petition).”

In a letter dated August 16, 1993, (Annex B), Respondent-Appellee,

Municipal Assessor of San Marcelino, Zambales, denies Petitioner-Appellant’s

application for exemption, holding:

“(a) that petitioner’s tailings dam is not exclusively used for pollution control and environmental protection, and

“(b) that the tailings dam is not a machinery or equipment but an improvement and is, thus, not covered by Section 234 (e) of the Local Government Code.”

Petitioner-Appellant appeals to the Local Board of Assessment Appeals of

Zambales on the following grounds:

“1. Respondent’s narrow interpretation of the requirement of exclusively of use for pollution control and environmental protection ignores the rule enunciated by the Supreme Court in Abra Valley College, Inc. vs. Aquino, 162 SCRA 106 (1988) that ‘exclusive use’, for taxation purposes, allows incidental use reasonably related to the main or primary purpose.

“2. The tailings dam is a machinery or equipment under pertinent provisions of law and jurisprudence.”

Appellee Local Board cites the ruling of the Supreme Court in “Benguet

Corporation vs. Central Board of Assessment Appeals, et al.” (supra):

Reference: Book VIII, pp. 107-119

‘The Court is convinced that the subject dam falls within the definition of an ‘improvement’ because it is permanent in character and it enhances both the value and utility of petitioner’s mine. Moreover, the immovable nature of the dam defines its character as real property under Article 415 of the Civil Code and thus makes it taxable under Section 38 of the Real Property Tax Code.’

The Board below then disposes of the case as follows:

“The Supreme Court en banc having ruled that appellant’s tailings dam is ‘improvement’, we can not do otherwise but to follow the said ruling. Besides, the said decision of the Supreme Court operates as the law of the case (Actg. Registrars of Land Titles and Deed of Pasay City, Pasig and Makati, vs. RTC, Branch 57, Makati, Metro Manila (184 SCRA 622).

Moreover, to grant the instant appeal, is to disregard and render nugatory the said ruling of the Supreme Court that appellant’s tailings dam is a taxable improvement.

“WHEREFORE, premises considered, the instant appeal is hereby dismissed for lack of merit. Hence, the denial by Respondents of appellant’s application for realty tax exemption of its tailings dam is hereby maintained.”

As now appealed before this Board, Petitioner-Appellant assigns the

following errors:

“I

THE LBAA ERRED IN FINDING THAT BENGUET’S TAILINGS DAM ALLEGEDLY CANNOT BE A MACHINERY OR EQUIPMENT BECAUSE THE SUPREME COURT HAS CONSIDERED IT AS AN IMPROVEMENT.

“II

THE LBAA ERRED IN FINDING THAT THE SUPREME COURT’S RULING IN ‘BENGUET CORPORATION VS. CENTRAL BOARD OF ASSESSMENT APPEALS’ (G.R. No. 106041) CONSTITUTES THE LAW OF THE CASE.

“III

THE LBAA ERRED IN FAILING TO CONSIDER THAT BENGUET’S TAILINGS DAM AND THE LANDS SUBMERGED THEREUNDER ARE MACHINERY OR EQUIPMENT EXCLUSIVELY USED FOR POLLUTION CONTROL AND ENVIRONMENTAL PROTECTION.”

We conducted an ocular inspection of the Benguet tailings dam and heard

the case thereafter. In the testimony of its Resident Manager, Mr. Marcelo

Bolano, who identified himself as a Mining and a Civil Engineer, the dam is

described as follows:

1. The tailings dam’s nature:

“Dizon Coppergold Operations is an 18,000 tons mine and mill operation. It utilizes the open pit type of mining. The ore is drilled and then blasted to about 18-24 inches size. It is delivered to the concentrator mill. Reduced further into final sizes using crushers and grinders up to the time that it reaches a fine powder size where the valuable mineral contents are

Reference: Book VIII, pp. 107-119

liberated and can be in contact with the lime and frothers which allows the vulnerable minerals to float then it is further skimmed and separated. The valuable minerals are then passed through another conduit where it is dried and becomes the final product which is the concentrate. The substantial remnant of the process is the tailings, the mill tailings which is coursed to another conveyance and deposited into our pollution device which is the mill tailings dam. It is where it is impounded completely in that tailings dam.”

2. The dam’s primary purpose:

“The tailings dam is primarily a pollution control device or machinery. It is designed to contain 100% of the tailings production of the operation. And over the years, it is raised to the adequate level proportionate to the needs for space of the tailings that we produce.”

3. The mill tailings:

“The mill tailings coming out from the concentrator mill is a slurry, consisting of solids which is really ground rock. Well, the valuable minerals have already been removed and some water so it can flow efficiently through the pipes. It has residual amount of lime and frothers which can be used in the flotation process in the concentrator mill.”

4. The environmental impact in dumping the tailings.

“If the tailings of the operations is just thrown outside by sheer volume, it will be carried by the river flow of Mapanuepe river and it will do damage to rice lands along the banks of the river. It will clog canals, drainage and irrigation systems.”

As can be gleaned, the case at bar mainly revolves around whether or not

Benguet tailings dam is “machinery and equipment” used for pollution control

and environmental protection.

Sec. 234(e), R.A. 7160, supra, is quite clear and unambiguous. If,

therefore, Benguet tailings dam, or any such tailings dam for that matter, comes

within the ambit of “machinery and equipment” used for pollution and

environmental protection, its exemption from realty taxation is inevitable.

To find that Benguet’s tailings dam cannot be machinery or equipment

because the Supreme Court has considered it as an improvement “in the

previous case of Benguet Corporation vs. Central Board of Assessment

Appeals, 218 SCRA 271”, (p. 5, Appeal; LBAA Decision), is a “non-sequitur”, an

inference that does not follow the premises”. (See Fernandez vs. Dimagiba, 21

SCRA 432). The issues in these cases are different. Hence, the ruling of the

Supreme Court as above-mentioned does not constitute the law of the case.

Reference: Book VIII, pp. 107-119

It does not mean, however, that subject tailings dam is “machinery and

equipment” as a consequence therefor. As can be discerned, a converse

proposition is, by the same token, a “non-sequitur”. It does not follow that if the

tailings dam is “not improvement” or “does not constitute the law of the case”,

ergo, it is “machinery and equipment”. The tailings dam is “machinery and

equipment”. The test of the pudding is in the eating.

Sec. 199(o) of the Local Government Code of 1991 (R.A. 7160), defines

“machinery” as follows:

“’Machinery’ embraces machines, equipment, mechanical contrivances, instruments, appliances or apparatus which may or may not be attached, permanently or temporarily, to the real property. It includes the physical facilities for production, the installations and appurtenant service facilities, those which are mobile, self-powered or self-propelled, and those not permanently attached to the real property which are actually, directly, and exclusively used to meet the needs of the particular industry, business or activity and by which their very nature and purpose are designed for, or necessary to its manufacturing, mining, logging, commercial, industrial or agricultural purpose.”

“Machinery”, as above-defined, can be anything, from machines to

equipment, to mechanical contrivances, to instruments, to appliances or

apparatus. The Benguet tailings dam can be anyone of these. But does the

tailings dam possess: (a) “physical facilities for production”, or (b) “service

facilities”?

Petitioner-Appellant submits: “The tailings dam has been constructed for

the purpose of impounding the mine tailings and other waste matter from

Benguet’s mining operations. It is a service facility the exclusive purpose of

which is to protect the environment by averting or minimizing pollution. It is

actually, directly, and exclusively used to meet the needs of the mining industry

and is, as such, by its very nature and purpose, necessary to Benguet’s mining

operations.” (Pp. 6-7, Appeal.)

“Service” as in the above-definition of “machinery” could be (a) “offering a

product useful to another product” or (b) “to perform any business functions

auxiliary to production”. (See Webster’s Third New International Dictionary.) The

Reference: Book VIII, pp. 107-119

Benguet tailings dam neither performs any of such functions nor infuses any

input to production, whether it be to mining or otherwise.

While Mr. Bolano avers that “the tailings dam is primarily a pollution

control device or “machinery”, he also admits that the “mill tailings” are

“deposited into our air pollution device which is the tailings dam” and

“impounded completely in that tailings dam”. In other words, Benguet tailings

dam operates as a depository or dump for waste matter emitted by the mine.

But for its design and construction, how would a tailings dam differ from a

“landfill”? Is “landfill” “machinery”, therefore?

If the dam, which stores the tailings be “machinery”, would not the storage

facility of the “final product”, the “concentrate” be “machinery” too? Were the

“concentrate” and the “tailings” not constituted in one “ore” before they were

“skimmed and separated”?

Petitioner-Appellant contends that “the context within which the phrase

‘machinery and equipment’ is used in Section 234(c) is the same as that in

Section 234(e), namely, real property that serves a public purpose”. (P. 3, Reply

Memorandum.)

Section 234(c), R.A. 7160 reads:

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

“X x x.

“(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.”

It cites, further, the proceedings on the deliberation of Sec. 234(c), R.A.

7160, supra, as follows:

“HON. DE PEDRO. How about dams and reservoirs and watershed areas?

HON. OSMENA. Wala yun eh.

HON. PATERNO. Well, the dams and reservoirs would, I suppose, be considered as machinery and equipment.

ONE VOICE. Approved. x x x”

Reference: Book VIII, pp. 107-119

(Pp. 12-13, Appeal, P. 3, Reply Memorandum.)

We think otherwise: The dams and reservoirs and watershed areas

“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”, as distinguished from

tailings dams, are “facilities for production” of water and/or generation and

transmission of electric power. Tailings dams, as have been pointed out, are

not. The former, therefore, fit into the definition of “machinery”, the latter do not.

The law (R.A. 7160, supra), could not have been more appropriately

construed than to have considered “machinery and equipment used for pollution

control and environmental protection” as that which would transform an

otherwise injurious waste matter, not only into a harmless substance, but also

into a useful product. A recycling plant for garbage contemplated. In terms of

similarity to the Benguet tailings dam, is the tailings pond of an alcohol plant

wherein the waste matter or sediment deposited therein is processed into

vinegar.

“Machinery and equipment used for pollution control and environmental

protection”, is not just a barrier to contain waste matter. Such waste matter

unless devitalized, cannot erase concerns and apprehensions about a potential

disaster.

Mine tailings are inorganic and non-transmutable. “Sheer volume” of

tailings are deposited in the dam and stockpiled. Hence, “over the years, it is

raised to the adequate level proportionate to the needs for space” therefor.

The formidability of the Benguet tailings dam is not in question. Unduly

pitted against nature, however, nothing can inescapably be invulnerable. Our

horrible experience with “lahar” and the indelible lesson from the classical “leak

in the dike” of Holland are quite vivid and real.

This Board finds that the Benguet tailings dam is not “machinery and

equipment”, as alleged, and is not within the coverage of Sec. 234, R.A. 7160.

Reference: Book VIII, pp. 107-119

Petitioner-Appellant, therefore, cannot claim exemption from payment of the real

property tax thereto.

WHEREFORE, in view of the foregoing, the decision of the Board of

Assessment Appeals of the Province of Zambales, will not be disturbed and in

effect, will stand affirmed in toto. Hence, the herein appeal of Benguet

Corporation is hereby dismissed for lack of merit.

SO ORDERED.

Manila, Philippines, July 5, 1996.

(Signed) MARGARITA G. MAGISTRADO
Chairman

(Signed)

ELEANOR A. SANTOS VACANT Member Member

Reference: Book VIII, pp. 107-119