Republic of the Philippines




– versus –


– and –


x – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – x


This Appeal seeks to set aside the Resolution of the Local Board of

Assessment Appeals of the Province of Batangas, Appellee, which denied Far

East Livingstone Shipbuilding Ltd.’s (FELS ENERGY, INC.), Petitioner-

Appellant’s Petition, initially filed by National Power Corp. (NPC), in its capacity

as Attorney-in Fact of FELS Energy, Inc., against the realty tax assessment

made by Lauro C. Andaya, Provincial Assessor of Batangas, Respondent-

Appellee, on Petitioner-Appellant’s power barges at Balayan Bay in Calaca,

Batangas, under lease contract with NPC, Intervenor-Appellant.

The lease contract (designated as “Energy Conversion Agreement” or

“ECA”) for the 3 x 30 – MW power barges was originally entered into by and

between the National Power Corporation and Polar Energy, Inc. for the period

of five (5) years. With NPC’s approval, Polar Energy, Inc. subsequently

assigned its rights over the ECA to FELS Energy, Inc. As provided in the lease

contract, NPC supplies the fuel to be converted into electricity and delivered to

NPC. Consequently, the power barges got to be moored at Balayan Bay in

Calaca, Batangas.

Reference: Book VIII, pp. 238-249

Respondent-Appellee Lauro C. Andaya, Provincial Assessor of Batangas

assessed the power barges as machinery, remaining at a fixed place, and

therefore, real property. FELS Energy, Inc. referred the matter to NPC,

pursuant to the ECA, granting the latter full power and authority, to represent

the former with respect to the assessment. NPC, in a request for

reconsideration, opposed said assessment claiming that they are floating

equipment, hence, movable and personal property. The request not having

been granted, NPC, as Attorney-in-Fact of Fels Energy, Inc. appealed before

the Local Board of Assessment Appeals of the Province of Batangas. The

Petition was denied hence, this Appeal: Fels Energy, Inc., now takes over from

NPC as Petitioner-Appellant, NPC is now Intervenor-Appellant.

The following errors are assigned:






The issues enunciated before Appellee Local Board are as follows:

“1 Whether the Power Plant facilities are personal or real property which, with respect to the latter can be assessed under the Real Property Tax. (sic)

“2. Whether the assessment of the Respondent is fair, correct, just and in accordance with law.”

Appellee Local Board finds for Respondent-Appellee as follows:

“X x x these Power Plant Facilities are real property in the sense that they are machineries for industrial purposes to generate power in a fixed place for a period of five (5) years. X x x. While in some concept, barges may be classified as movable or personal property but in the case at bar, these vessels can be considered real property for purposes of taxation because they are machineries in contemplation of law, x x x.”

“On the second issue the Board finds no reason to disturb the basis of computation in assessing these power barges by the respondent as the assessment was done in

Reference: Book VIII, pp. 238-249

accordance with Section 224 of Republic Act 7160, in relation to Section 203 and 204 of the same set.” (sic).

Substantial arguments have been given by both parties on the above-

issues. The allegation however, that NPC is covered by realty tax exemption

must be duly considered. The fact that it was NPC that stationed the power

barges to Balayan Bay in Calaca, Batangas (supra), must not be overlooked.

Among others, the lease agreement (ECA) provides:

“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 thereto to which POLAR may be or become subject to or in relation to the performance of their obligation under this Agreement x x x and (b) all real estate taxes and assessments, rates and other charges in respect of the Power Barges.”

The mandate of NPC is provided for in RA 6395, ‘AN ACT REVISING


“Section 1. The Charter of the National Power Corporation is hereby revised, and shall henceforth read as follows:

“Section 1. Declaration of Policy. – Congress hereby declares that (1) x x x

(2) the total electrification of the Philippines through the development of power from all sources to meet the needs of rural electrification are primary objectives of the nation which shall be pursued coordinately and supported by all instrumentalities and agencies of the government including its financial institutions.

“’Sec. 2. The National Power Corporation; x x x Defined. – To carry out the above-stated policy, specifically 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, x x x.’”

The same RA 6395 provides for exemptions for NPC as cited in its

Petition before the provincial LBAA of Batangas as follows:

“’Sec. 13. X x x: Exemption from all Taxes, Duties, Fees, Imposts and other Charges by Government and Governmental Instrumentalities.-

x x x

“’(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.’”

This was denied by Respondent-Appellee as follows:

Reference: Book VIII, pp. 238-249

“X x x FELS, a private corporation and owner of the property, is the one being taxed and not the National Power Corporation.”

Be that as it may, the Province of Batangas, as any other Philippine

province is granted the power to impose real property tax under the Local

Government Code of 1991 (RA 7160) as follows:

Sec. 232. Power to Levy Real Property Tax. – 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.”

This was the basis of Respondent-Appellee’s assessment of the power

barges against Fels Energy, Inc., Petitioner-Appellant.

Exemptions thereto, however, are as follows:

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

(c) All machineries and equipment that are actually, directly and exclusively used by water districts and government-owned or –controlled corporations engaged in the supply and distribution of water and/or generation and transmission of electric power.”

Accordingly, the dominant and fundamental issue, subordinative of the

other issues in this case is: Whether or not the Power Barges at Balayan Bay in

Calaca, Batangas, under lease contract (ECA), with the National Power

Corporation (NPC) to generate and supply the needed electric power therefor,

be subject to real property tax.

As can be gleaned, the following are the requisites for exemption under

Sec. 234 (c) of RA 7160 (supra):

1. (All) machineries and equipment;

2. (That are) actually, directly and exclusively used by water districts and government-owned or-controlled corporations;

3. Engaged in the supply and distribution of water and/or generation and transmission of electric power.

Admittedly, the power barges are machineries and NPC is a government-

owned and controlled corporation engaged in the generation and transmission

of electric power. In the case at bar therefore, the matter that is in dispute is the

actual, direct and exclusive use of the power barges.

Reference: Book VIII, pp. 238-249

Petitioner-Appellant claims that the power barges are actually, directly

and exclusively used by NPC, being the beneficial user thereof. “The clear

provisions of the ECA between petitioner-appellant and NPC is the most telling

and best evidence:

“WHEREAS, NAPOCOR has an additional power plant capacity to meet deficiencies.

urgent need for its power supply

“WHEREAS, in response to this urgent need by NAPOCOR, several private sector proponents have made offers for power plants compatible with these needs.

“WHEREAS, POLAR6 has made the most responsive offer to meet the needs and requirements of NAPOCOR.”

x x x

“POLAR shall operate the power barges in accordance with the operating criteria and guidelines of NAPOCOR.”

x x x

Respondent-Appellee counters:

“One basic rule in statutory construction is that, in construing a statute, the Court must look into the spirit of the law or the reason for its enactment.

“A close examination of the provisions of x x x Section 234 of RA 7160 is necessary for a determination of the spirit behind its enactment.

“In paragraph (a), it seems clear that the property of the Republic of the Philippines or any of its political subdivisions that is exempt from taxation will be owned by the Government in its sovereign capacity like lands of the public domain except if such government property is leased or given in concession to private persons who get beneficial use thereof and therefore, taxable to them, the beneficial owners.”


“The fact that the power barges, x x x, are the object of a lease contract between FELS and NPC, does not make the NPC the beneficial user of the same.

“The lease contract is a bilateral, onerous and commutative contract such that it gives rise to reciprocal rights and obligations for both parties. Each one of the parties procures for itself a benefit through the giving of an equivalent that is pecuniarily appreciable. In simple terms, the lease contract, NPC receives the power generated by the power barges owned by FELS, while the later (sic) on the other hand, receives huge amounts of consideration for the electricity generated by the power barges. X x x.

_________________________________ 6
“Now Petitioner-Appellant Fels Energy, Inc.”

Reference: Book VIII, pp. 238-249

“Thus, it is not correct to state that NPC has the beneficial use of the power barges when in actuality FELS derives beneficial income in the form of fees for the power generated by the barges and transmitted to and received by NPC.

“To extend the exemption privileges under Section 234 to a multimillion private corporation as FELS is to defeat the spirit of the legislature in its enactment for there is simply no justification for it.

“What is more, the law explicitly qualifies use as ‘actual, direct and exclusive’. We should not lose hold of the fact that it is FELS which has actual and direct operation of the power barges. Consequently too, NPC does not have the ‘exclusive’ use of their power barges.”

Sec. 234(c) of RA 7160 (supra), is clear and unambiguous hence “there

is no room for construction”. (Aparri vs. Court of Appeals, 127 SCRA 241.)

Earlier yet though, in the case of Luzon Surety Co., Inc. vs. De Garcia (30

SCRA 112), the Supreme Court declared:

“no process of interpretation or construction need to be resorted to where a provision of law peremtorily calls for application. Where a requirement is made in explicit and unambiguous terms, no discretion is left to the judiciary. It must see to it that its mandate is obeyed.”

The “actual, direct and exclusive use” of the power barges in this case

merely, must have to be determined and defined: who has the actual, direct and

exclusive use of the power barges, FELS or NPC? “The word ‘use’ means to

employ for the attainment of some purpose or end. (See Velez vs. Locsin, 55

SCRA 152.) In the instant case, the purpose or end is the generation of the

needed electric power in the grid at Batangas. Such is the mandate of NPC—to

supply or provide electricity among others. As the power supply in the Luzon

grid at Batangas was inadequate, NPC employed the power barges of FELS to

attain said purpose or end.

Art. 1643 of the Civil Code of the Philippines provides:

“In the lease of things, one of the parties binds himself to give another the enjoyment or use of a thing for a price certain and for a period which may be definite or indefinite.”

Anyway you look at it, the use of the power barges belongs to NPC.

Whether they are actually, directly and exclusively used by NPC?

The following definitions are given by Black’s Law Dictionary, Third


Reference: Book VIII, pp. 238-249

“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; only solely; substantially all or for the greater part. To the exclusion of all others; without admission of others to participation; in a manner to exclude.”

Indeed, NPC does not use the power barges pretendedly or feignedly but

truly and in fact, hence, actually. NPC uses the power barges without anything

intervening, hence, directly. NPC uses the power barges apart from all others,

hence, exclusively. Clearly and unequivocally, the power barges are covered by

the exemption under Sec. 234(c), RA 7160 (supra).

Perforce, this Board has to pass upon the issue of Prescription as it is

essentially a vital issue—not merely a side issue as held by the Board below.

According to the record of the case, on August 7, 1995, Petitioner-

Appellant received a letter from Respondent-Appellee assessing real property

taxes on its power barges in the amount of P56,184,011.40 per annum. The

Local Board of Assessment Appeals of Batangas received the Appeal on

November 6, 1995. The appeal was purportedly dated October 24, 1995 as

appearing in its Notarial Verification.

Respondent-Appellee impugned that the Appeal was not made within the

sixty (60) day period for perfecting the Appeal, “and therefore the instant

petition has no factual and legal basis and should be outrightly denied”.

Petitioner-Appellant however, contended that a letter-request for

reconsideration, addressed to Respondent-Appellee interrupted the period for

perfecting the Appeal “and it was only on 27 September 1995, when the

request was denied, that the period started to run again”. Appellee Local Board

heard and decided the case on the merit and acquiring jurisdiction on Appeal,

this Board also heard the case on the merit.

In a post-hearing Memorandum before this Board, Respondent-Appellee

cited the Supreme Court’s ruling on prescriptive period as follows:

Reference: Book VIII, pp. 238-249

“In the very recent case of Antonio P. Callanta et. al., vs. Office of the Ombudsman G.R. Nos. 115253-74, January 30, 1998, it was held by the Supreme Court that the sending of the Notice of Assessment is the last action of the Assessor, and if the party assessed wishes to question the same, an appeal must be made to the Local Board of Assessment Appeals.”

Petitioner-Appellant’s post-hearing Position Paper contained the


“X x x, the instant petition was filed right on time.

“But even if filed beyond the reglementary period, the rules of procedure of both the Local Board of Assessment Appeals and the Central Board of Assessment Appeals provide for the liberal construction of said rules in order to promote their objectives and to assist the parties in obtaining just, speedy and inexpensive determination of every action relative to real property assessment and collection of real property taxes (Section 2).”

Petitioner-Appellant cited the following:

“’Equity as the complement of legal jurisdiction seeks to reach and to complete justice where courts of law, through the inflexibility of their rules and want of power to adapt their judgments to the special circumstances of cases, are incompetent so to do. Equity regards the spirit of and not the letter, the intent and not the form, the substance rather than the circumstance, as it is variously expressed by different courts…’ (Air Manila, Inc. vs. Court of Industrial Relations, 83 SCRA 597).”

It is well settled that the sixty-day-period-rule for perfecting an appeal

starts from receipt of the Notice of Assessment. Request for Reconsideration

does not interrupt such period. Reckoned from August 7, 1995, the date of

receipt of letter of assessment to November 6, 1995, the date of receipt of the

Appeal by the Local Board is ninety one (91) days; or even to the date of

Appeal, purportedly October 24, 1995, from August 7, 1995 is seventy eight

(78) days. Either way, therefore, Prescription has attached.

It has also long been settled that Prescription is a jurisdictional issue

which could warrant dismissal of a case properly objected to, otherwise, it is

deemed waived. This is laid down in Section 11, Rule 40 of the Rules of Court,

to wit:

“Lack of jurisdiction. – A case tried by an inferior court without jurisdiction over the subject matter shall be dismissed on appeal by the Court of First Instance. But instead of dismissing the case, the Court of First Instance in the exercise of its original jurisdiction, may try the case on the merits if the parties therein file their pleadings and go to trial without any objection to such jurisdiction.”

This is reiterated by the Supreme Court as follows:

“But even assuming that the municipal court had no jurisdiction, on appeal to the Court of First Instance, defendant in his motion to dismiss failed

Reference: Book VIII, pp. 238-249

to raise the question of jurisdiction. It is true that in his answer filed after his motion to dismiss had been denied, he alleged as an affirmative defense the lack of jurisdiction of the trial court, but it would appear that he did not urge or press his defense. On the other hand, he and plaintiff not only filed pleadings before said Court of First Instance, but also presented evidence. In other words, they did not object to the trial court exercising its original jurisdiction x x x.

“Consequently, the trial court did not commit error in not dismissing the case as prayed for by defendant, and in exercising its original jurisdiction and deciding the case on its merits.” (Bachrach Motor Inc., Inc. vs. Lejano, 105 Phil 8.)

In the case of Aureo and Penero vs. Aureo, (105 Phil. 81), the Supreme

Court said:

“X x x, it would seem that the defendant did not insist in raising the question of jurisdiction and in his motion to set aside the decision, he asked for opportunity to present his own evidence. X x x.

“We do not believe that the trial court erred in denying defendant’s motion to set aside the decision.”

Presumably, the question arises: what should have happened to the case

had it been properly objected to?

This Board’s Decision in Land Bank of the Philippines, Petitioner-

Appellant, vs. Board of Assessment Appeals of Manila, Appellee, and City

Assessor of Manila, Respondent-Appellee, CBAA Case No. 195, Re: Tax

Declaration No. 073-0073 City of Manila, provide for the answer as follows:

“It has long been settled that failure to appeal within the statutory period renders the Local Board without jurisdiction to entertain an appeal and is a ground to dismiss the case. X x x.

“Besides, the right to appeal is a mere statutory privilege and may be exercised only in the manner and in accordance with the provision of law.

“Wherefore, the appealed decision is hereby affirmed. However, Petitioner-Appellant LBP is not precluded from pursuing its claim for tax exemption in accordance with Section 9 of PD No. 464, the Real Property Tax Code, which provides as follows:

“’Section 9. Proof of Exemption of Real Property from Taxation. – Every person by or for whom real property is declared who shall claim tax exemption for such property under this Code shall file with the Provincial or City Assessor within thirty (30) days from date of the declaration of real property sufficient documentary evidence in support of such claim including corporate charters, titles of ownership, articles of incorporation, by laws, contracts, affidavits and certifications and mortgage deeds, and similar documents.

‘If required evidence is not submitted within the period herein specified, the property shall be listed in the assessment roll as taxable. However, if it shall be proven to be tax exempt the same shall be dropped from the roll of taxable properties.’”

Reference: Book VIII, pp. 238-249

Invariably, the above-mentioned Sec. 9 of PD 464 is identically reproduced

as Sec. 206 in the Local Government Code of 1991, R.A. 7160.

Accordingly, Prescription, not having been properly objected to, did not lie in

the instant case. But even if it did lie, dismissal of the case due to Prescription

does not preclude the National Power Corporation from pursuing its claim for tax

exemption in accordance with Sec. 206 of the Local Government Code of 1991,

R.A. 7160 (formerly Sec. 9, PD 464).

Having thus found that the power barges are not subject to realty tax, after

having proceeded with the case on the merit and passed upon the issue of

Prescription, the other issues raised in this case have become moot and


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.


Manila, Philippines.

April 06, 2000.




Reference: Book VIII, pp. 238-249