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