Republic of the Philippines

CENTRAL BOARD OF ASSESSMENT APPEALS 7th Floor, EDPC Bldg., BSP Complex, Roxas Boulevard, Manila

NATIONAL POWER CORPORATION, Petitioner-Appellant,
Re: – versus –

LOCAL BOARD OF ASSESSMENT APPEALS OF THE PROVINCE OF PAMPANGA,
Appellee,

CBAA CASE NO. L-36

LBAA Case No. 99-01 TD Nos. 13027-507 & 13027-1435-1

– and –

PROVINCIAL ASSESSOR OF PAMPANGA, MUNICIPAL ASSESSOR OF PAMPANGA, AND MUNICIPAL TREASURER OF MEXICO, PAMPANGA,
Respondents-Appellees. x – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – x

D E C I S I O N

This is an Appeal filed on August 30, 2002 by the National Power

Corporation (NPC for brevity) from the Decision rendered on July 29, 2002 by the

Local Board of Assessment Appeals of the Province of Pampanga, the

dispositive portion of which reads as follows:

“WHEREFORE, premises considered, the Board hereby affirms the assessment of the Municipality of Mexico declaring that the properties of Petitioner NAPOCOR covered Tax Declaration Nos. 13027-507 and 13027-1435-1 subject to the payment of the real property tax.”

Alleging that it received a copy of the Decision appealed from, NPC

assigned the following error:

THE LOCAL BOARD OF ASSESSMENT APPEALS ERRED IN AFFIRMING THE ASSESSMENT OF THE MUNICIPALITY OF MEXICO DECLARING THAT THE PROPERTIES OF NPC COVERED BY TAX DECLARATION NOS. 13027-507 AND 13027-1435-1 ARE NOT EXEMPT FROM THE PAYMENT OF REAL PROPERTY TAX PURSUANT TO SECTION 234 (C) OF THE LOCAL GOVERNMENT CODE OF 1991 (REPUBLIC ACT 7160).

As culled from the records, the facts of this case are as follows:

1. On May 16, 1985 the Municipal Assessor assessed the “Power

Station Building” and classified it as “Control & Repair House” with a market

value of P122,500.00 and an assessed value of P79,630.00 at the

assessment level of 65% under Tax Declaration No. 13026-507;

Reference: Book XII, pp. 1-8

2. On November 6, 1992 the Municipal Assessor assessed the “Office

Building and Control House” and classified it as “industrial” building with a

market value of P8,107,260.00 and an assessed value of P6,485,810.00 at

the assessment level of 80% under Tax Declaration No. 13027-1435-1;

3. On December 10, 1998 NPC received a letter dated December 7,

1998 from the Municipal Assessor, which letter advised NPC that the

Municipal Assessor’s Office maintained its stand that subject properties were

not exempted from payment of the real property tax and that, if NPC was not

satisfied, it may formally file an appeal to the Board of Assessment Appeals

of the Province of Pampanga;

4. On January 8, 1999 NOC filed its Petition with the Local Board of

Assessment Appeals of Pampanga stating that, as stated in LuDo & Lu Ym

Corporation vs. Central Bank, 108 Phil. 572, “in industry, equipment is

defined as physical facilities available for production, including building,

machineries and tool, etc.” and that, therefore, its subject control house and

power station are exempt from payment of the real property tax pursuant to

the provisions of Section 234 (c) of R.A. 7160;

5. In its Position Paper dated March 22, 1999, NPC submitted to the

Local Board documents showing: (1) that the Municipal Assessor’s Office of

Ramon, Isabela listed as exempt NPC’s “power house and other equipment”

at the Magat Hydroelectric Plant (Annex “A”), as well as the “power house”

(Annex “A-1”), (2) that the Municipal Assessor’s Office in Itogon, Benguet

listed as exempt NPC’s “power house/control and other machinery and

equipment” at Binga Hydroelectric Plant (Annex “B”);

6. In her Memorandum filed on May 23, 2002 with the Local Board,

Respondent reiterated her stand that subject properties, being “buildings”,

were not exempt from payment of the real property tax under the provisions

of Section 234 (c) of R.A. 7160; and

7. On July 29, 2002, the Local Board of the Province of Pampanga

rendered the decision subject of this instant Appeal.

Petitioner-Appellant submits, on one hand, that the subject buildings are

actually, directly and exclusively used in the generation and transmission of

Reference: Book XII, pp. 1-8

electricity since the structures provide the necessary security and shelter of the

machinery and equipment.

Respondent Municipal Assessor, on the other hand, argues that the

subject properties are actually utilized as working space for its officials and

employees and security for its machinery and equipment and, coupled with the

fact that the same subject properties are “buildings” – not “machinery and

equipment” – they are subject to the payment of the real property tax, not being

among those exempted under Section 234 (c) of R.A. 7160.

Petitioner-Appellant counters that the offices of NPC officers are but

necessary for the operation of machinery housed inside the building which, in

itself, part of the equipment; that prudence demands that the officers who are in-

charge of the operations of the whole substation, including the monitoring of all

functioning machines, installations, structures and other implements be near or

within the immediate reach to see the efficient generation and distribution of

electricity and the operation and maintenance of the aforesaid machines,

installations, structures and other implements; and that the necessary presence

of those officers and the provision of their office spaces do not disqualify the

whole building being covered by the word “equipment”.

We find for the Petitioner-Appellant.

As correctly stated by both Petitioner-Appellant and Respondents-

Appellees, the applicable and controlling provision of law in the instant appeal is

paragraph c of section 234 of R.A. 7160, which provides:

The following are exempt from payment of the real property tax::

(a) x x x

(b) x x x

(c) “All machineries and equipment that are actually, directly, and

exclusively used by local water district and government-owned or

controlled corporations engaged in the supply and distribution of

water and/or generation and transmission of electric power.”

Reference: Book XII, pp. 1-8

Clear and simple is the law so there is no need to resort to the much-

abused latin maxims in statutory construction. It is obvious that the following

requisites must be in attendance to qualify for the exemption, to wit:

1. The properties sought to be exempted are machineries and

equipments;

2. Machineries and equipments are actually, directly and exclusively

used by local water districts and government-owned or controlled

corporations (GOCC’s);

3. The local water districts and GOCC’s are engaged in the supply and

distribution of water and/or generation and transmission of electric

power.

Putting it in another manner correlatively, these means that if the real

properties sought to be exempted are not machineries and equipments, even

granting that the requisites are present, they are still taxable; and granting that

the latter are indeed machineries and equipment, if they are not used actually,

directly, and exclusively by local water districts and GOCC’s, they are not

exempt; and granting further that the GOCC is the actual, direct and exclusive

user of the assessed machineries and equipment, the exemption cannot be

availed if the GOCC is not engaged in the generation and transmission of electric

power. In short, all the requisites must be present and taken together for the tax

exempting provision to apply.

Are these requisites in full attendance in Petitioner-Appellant’s case? We

believe so.

It is of public knowledge and judicial notice that the herein Petitioner-

Appellant NAPOCOR is a GOCC engaged in electric power generation. It is also

admitted that the GOCC is the direct, actual, and exclusive user and owner of the

assessed properties consisting of a power station building declared as “control

and repair house” under TD No. 13026-507 and an office building and control

house declared as “industrial building” under TD No. 13027-1435-1.

Reference: Book XII, pp. 1-8

It is the “machineries and equipment” part of the exempting provision that

gave rise to the controversy leading to this appeal. The Petitioner-Appellant and

the Respondent-Appellees differ in their interpretation of the term “equipment”

and its use. The appellee assessor contends that the power station – is a

building housing the machineries of the appellant and therefore not machinery

and/or equipment directly used in power generation. The other property is

likewise a building utilized as office/working space for appellant’s officials and

employees while operating the power generating machines.

On the contrary, they are equipment directly used in power generation,

says the appellant.

As far as equipment is concerned, our Supreme Court made the following

pronouncements in Lu Do and Lu Ym Corporation vs. Central Bank, 108 Phil.

572; “equipment has been defined as “materials or articles used in equipping as

for an expedition; the articles comprised in an outfit, as furnishings, or apparatus,

equipage; as laboratory equipments. x x x

In industry, physical facilities available for production including buildings,

machineries, tools, etc., whatever is needed in equipping; the articles comprised

in an outfit; equipage; synonymous with furnishings, taken together with

“machines”. “As used in exemption no. 3, the equipment referred to therein must

relate to furnishings or equipage necessary for the operation of the industry.”

(Underscoring supplied)

To supply water and electric power to large areas are not simple and easy

tasks. These require a vast array of resources, manpower possessing a high

degree of skill and competence with high tech machineries and modern devices.

It is not merely opening and closing a faucet or a canal. It is not merely switching

on and off a portable generator. In the case on appeal, it includes all that is

necessary in insuring a safe, continuous, and efficient supply of electric power.

We believe that the power station should be exempted. Machinery at this

level, is like the human body. Constant exposure to the elements, especially

Reference: Book XII, pp. 1-8

inclement weather will result in sickness to the human body. In case of

machineries, rapid deterioration will set in leading to ultimate breakdown. To

insurecontinuous delivery of power, the machines must stay healthy, hence

should be properly clothed and sheltered. That is the actual and direct use of the

power station building, a function not only related but necessary for the operation

of the industry, which is generation of electric power. Areas designed for ordinary

repairs and maintenance are common in all industrial endeavors. Unlike others,

power generation is a round the clock activity which cause extraordinary wear

and tear to the machineries, and having these working areas around is not only a

practical, convenient and economical way of insuring that the machineries are in

good running condition, minimizing disruption of so great a necessity. The

presence of these areas do not alter or affect the predominant use and character

of the property.

We also believe that the office building and control house should be tax-

exempt. Power generation and distribution is a complex system. The control

house, where the control panels and the monitoring equipments are located, is

the “brains” of the system. It is the command post directing, regulating and

monitoring the performance and operation of the machineries usually thru

sophisticated and high tech computers and integrated electronics, under

prescribed and regulated atmosphere and temperatures. And these are manned

by skilled personnel who must have office amenities conducive to a 24 hour

grind. These electronic panels and monitors cannot be left unattended.

The presence of security guards in those places is a must for all industrial

establishments of this importance. Guarding and securing them from thieves,

vandals, pilferers, disgruntled personnel and criminal elements are part and

parcel of day to day operations. We need not elaborate the repercussions and

consequences of a successful terrorist attack on these properties. Media

accounts show that power stations are the favorite targets of rebels and

saboteurs. In short, protection and security is a necessity for the successful

Reference: Book XII, pp. 1-8

operation of any industry. The presence therefore of working stations for security

guards enhance the importance of the property and do not deprive the building of

their principal and direct use.

We believe and so hold that this is the intent of the legislators in exempting

equipment together with the machineries. Legislations involving life’s basic

necessities like water and power are imbued with public policy and must be

viewed and construed as such. And this must be the rationale behind the Highest

Court’s interpretation of the term in the above-cited case.

This interpretation is, however limited to the machineries and equipment of

GOCC’s engaged in the supply and distribution of water and/or generation and

transmission of electric power to the exclusion of other government or private

entities. Furthermore it must be pointed out, risking repetitiveness to be

emphatic, that the equipment must go hand in hand and taken together with the

machineries. This means that the equipment is related to, or connected with, if

not a part of the machinery actually and directly used in the operation of the

industry.

Finally, it was submitted by the Petitioner-Appellant that the properties

subject of this appeal are considered tax-exempt in other assessment

jurisdictions. This was not denied nor contradicted by the Respondent-Appellees.

WHEREFORE, and in view of the foregoing, the instant petition is hereby

granted, the assailed decision of the Local Board of Pampanga is reversed and

set aside. The Assessors are directed to stamp Tax Declaration Nos. 13026-507

and 13027-1435-1 as exempt and transfer them from the taxable rolls to the

exempt rolls.

SO ORDERED.

Manila, Philippines, July 15, 2005.

(Signed) CESAR S. GUTIERREZ
Chairman

Reference: Book XII, pp. 1-8

(Signed)
ANGEL P. PALOMARES Member

(Signed) RAFAEL O. CORTES
Member

Reference: Book XII, pp. 1-8