Republic of the Philippines
CENTRAL BOARD OF ASSESSMENT APPEALS M a n i l a
PILIPINAS SHELL PETROLEUM CORPORATION,
CBAA CASE NO. L – 53 -versus-
THE LOCAL BOARD OF ASSESSMENT APPEALS OF THE PROVINCE OF RIZAL,
PROVINCE OF RIZAL, MUNICIPALITY OF PILILLA, PROVINCIAL TREASURER OF RIZAL, MUNICIPAL
PILILLA, OF RIZAL
AND MUNICIPAL ASSESSOR OF PILILLA,
D E C I S I O N
Before this Board is the Appeal of Pilipinas Shell Petroleum Corporation,
Petitioner-Appellant against the Decision of the Local Board of Assessment
Appeals (LBAA) of the Province of Rizal, Appellee, to dismiss, for lack of
jurisdiction, Petitioner-Appellant’s claim for real property tax refund or credit on
certain machineries no longer actually used due to the closure of its refinery in
Malaya, Pililla, Rizal.
Engaged in the business of manufacturing lubricating oil, base stocks,
paraffin wax and bitumen, Petitioner-Appellant’s Pililla refinery closed
operations effective April 2002: “(s)ince 1997, the Pililla refinery has been
operating on a negative cash flow basis.” The following were duly notified: the
municipality of Pililla, Rizal through Hon. Nicomedes Patenia, Municipal Mayor
(letter, dated 21 March 2002, Annex “F”); the Province of Rizal, through Hon.
Rebecca A. Ynares (letter, 23 April 2002, Annex “E”) Provincial Governor,
Respondent-Appellee, Provincial Assessor, Mr. Emmanuel F. Flores, through
Respondent-Appellee, Municipal Assessor of Pililla, Mr. Victorino Pendon
(letter, 8 July 2002, Annex “B”).
Petitioner-Appellant requested the transfer of subject machineries, no
longer actually in use, from the taxable assessment roll to the exempt
assessment roll and the exemption of said machineries from real property taxes
beginning July 1, 2002, the quarter following the cessation of its operations.
Respondents-Appellees opted to “temporarily deny” (Annex “L-1”) said request
“until such time they are completely dismantled and removed from the plant”.
Relative thereto is the letter of Aleli P. Nabong, OIC, Assessment Operation
Evaluation Unit, Office of the Provincial Assessor Province of Rizal, dated
August 6, 2002 to Mr. Emmanuel F. Flores, OIC-Provincial Assessor, Province
of Rizal, which interposed the following:
1. “Mr. Romulo Natividad and Mr. Diomedes Amores conducted an ocular inspection of the machineries on July 24, 2002”.
2. “It was x x x found out that the machineries listed under the status ‘no longer operational’ have actually ceased from functioning but they are still intact and installed in their original position”.
3. While it is true that some machineries are considered as ‘no longer operational’, it is important to note that such machineries still form part of the total machineries installed in the plant and, therefore the same shall also remain as taxable until such time that the baseoil refinery have ceased its operations and production of asphalt, wax and refine oil. Also, the said machineries shall only be exempted from payment of realty tax when all the machineries are dismantled, otherwise the same shall remain as taxable under Section 199 of the Republic Act 7160”.
On September 30, 2002, Petitioner-Appellant paid under protest
P1,044,205.92 real property tax on subject machineries to Respondent-
Appellee, Municipality under Official Receipts Nos. 0026730,
002674―5―6―8―9, and P3,132,617 more under protest payments, for the
fourth quarter of 2002 and the first and second quarters of 2003 with Official
Receipts Nos. 0026940―1―2, 0104731―2―3, 0105379―80 and 81.
Petitioner-Appellant’s written protest, dated October 15, 2002 and filed on
October 18, 2002 was denied by Respondent-Appellee, Provincial Treasurer on
October 28, 2002 and received by Petitioner-Appellant on November 12, 2002.
Petitioner-Appellant appealed said denial with the Local Board of Assessment
Appeals of the province of Rizal, on December 3, 2002, pursuant to Section
252 in relation to Sec. 226 of R.A. 7160, dated December 2, 2002.
The record shows that the LBAA of Rizal acted on the case, found for
Petitioner-Appellant and ruled as follows:
“The Rulings of the Department of Finance issued before and after the enactment of the Local Government Code must be respected and applied in this case. Even the Respondents do not raise any serious objection to the correctness of the DOF’s February 23, 1988 and April 4, 1997 Rulings that, once machinery ‘is no longer actually, directly and essentially used to meet the needs of the particular industry, or works by reason of closure or cessation of production, the same ceases to be taxable during the period of non-use’. Apparently, what the Respondents object to is applying said rulings in cases of voluntary closure or cessation of operations. It is their position that the machinery can only be transferred from the assessment/taxable roll to the exempt roll if it were rendered useless and of no value due to the lawful orders of the government agencies. While it may be true that the DOF Rulings were based on an involuntary closure or cessation of operations, we, however, do not see the rationale in making serious distinctions between voluntary and involuntary closures or cessation of operations in granting the tax relief provided for by law. In either instance, the machinery are not actually used by the taxpayer. The rule on taxation must be uniform for everybody. Regardless of the reasons for the closure or cessation of operations, once machinery is no longer actually used by reason of said closure or cessation of operation, the taxpayer affected has the right to request for its transfer from the assessment/taxable roll to the exempt roll. Clearly, even if the taxing authority cannot merely rely on the intention of the owner of the improvements for taxation purposes, still, as correctly pointed put by the Petitioner, ‘actual use’ of the machinery must prevail over the possessor’s intention to use the machinery.
The foregoing notwithstanding, the automatic transfer of the machinery from the assessment roll to the exemption roll is not a ministerial duty on the part of the taxing authority. The taxing authority must be given the opportunity to determine whether the claim of a particular taxpayer is valid or not. We do not see anything wrong if the taxing authority demand on a certain level of confidence before it can actually declare that machinery are ‘no longer actually use’ and thus, must be exempted from taxation. To declare however, that short of dismantling and actually removing from the ground the subject machinery, it cannot grant its transfer from the assessment roll to the exempt roll, may not be equitable. As correctly pointed out by the Petitioner, the demolition of the machinery is not a requirement for the exemption from real property taxation, and that it would be ‘irrational’ if the machinery first be demolished because ‘upon demolition of the machinery, there is nothing to exempt from taxation’. There would no longer be a machinery or real property subject of taxation. As stressed by the Petitioner, a taxpayer’s recourse after the demolition of its machinery is ‘not to request for exemption from real property taxation, but to apply for the cancellation of the tax declaration.’ If the demolition of machinery becomes a condition precedent for the grant of exemption from real property taxation, then the right of availing the transfer of machinery from the assessment roll to the exempt roll becomes an exercise in futility. The procedure might as well be abolished, for a taxpayer will not apply for ‘exemption’ but for ‘cancellation’ of the tax declaration. It would not be logical for the taxing authority to go into the process of confirming, verifying, and preparing reports and recommendations on a machinery’s ‘actual use’ when all along it would be taxed as an improvement.
The fact that the denial is temporary in nature is an indication that Respondents need to be clarified of the actual status of the machinery/ Had it decide to tax the machinery on the basis of its being attached to the ground, the denial would have been outright and not temporary. Thus, in the DOF
Rulings previously cited, the machinery of both Shell Petroleum and MARCOPPER were exempted from taxation because they were rendered no longer operational because of closure orders by government agencies. They were exempted by the local governments concerned even though they were still attached to the ground. The issue of machinery still attached to the ground never entered the picture. Respondents in fact admit, that, a machinery rendered non-operational by reason of a defect permanent in nature, ‘xxx should therefore be valueless and DEFINITELY NOT TAXABLE after proper determination by the taxing authority who has no means of knowing until after the machinery is actually dismantled and removed from the ground (Capitalization ours, Par.2, P.6, Position Paper for the Respondents, September 5, 2003) xxx’. Machinery must not be confused with a building that even if unused, can still be taxed as an improvements. The machinery must be ‘actually, directly, and exclusively used to meet the needs of the particular industry, business or activity’ to be taxable.
The crux of the matter is therefore factual in nature. While the Petitioner may be correct in asserting that machinery, when ‘no longer actually used for its purpose by reason of closure or cessation of production must be transferred from the assessment roll to the exempt roll’, still, the Respondents cannot be faulted for issuing a temporary denial of the request for transfer to the exempt roll. However, from the records submitted to the Board, it appears that the Petitioner did not only intend to close its Pililla refinery, but actually started to demolish and dismantled a substantial number of its machinery. By a series of overt acts, the latest of which is the actual demolition of eleven (11) of Petitioner’s facilities and the subsequent issuance on August 19, 2003 of a Notice of Cancellation by the Respondent Provincial Assessor of Rizal on the eleven (11) tax declarations/ARP’s representing the said eleven (11) demolished facilities/machinery (Annexes ‘AA’ to ‘FF’, Position Paper. Petitioner, September 5, 2003) Petitioner was justified in claiming that its machinery are no longer in use by reason of closure or cessation of its business operations.”
Short of promulgating its above-ruling, the LBAA of Rizal abandoned the
same for lack of jurisdiction and declared the following:
“While Petitioner may be right in demanding that its machinery should have been transferred from the Taxable Rill to the Exempt Roll, still, this Board cannot rule on the legality of its claim for tax refund for tax credit considering that the same falls within the jurisdiction of the regular courts.”
Appellee Local Board then disposed of the case as follows:
“WHEREFORE, JUDGMENT is hereby rendered:
(a) Directing the Provincial Assessor, Province of Rizal and the Municipal Assessor, Municipality of Pililla, to transfer the remaining Tax Declarations/ARP’s of the machinery belonging to Petitioner Shell Petroleum Corporation not yet delisted or cancelled, from the Assessment Roll to the Exempt Roll, and;
(b) Dismissing the claim for tax refund/tax credit by Petitioner Shell Petroleum Corporation for lack of jurisdiction.
Petitioner-Appellant raised the following issues:
WHETHER THE APPELLEE LBAA HAS JURISDICTION TO DECIDE IF THE REAL PROPERTY TAXES COLLECTED BY RESPONDENTS-APPELLEES MAY BE REFUNDED OR CREDITED IN FAVOR OF PETITIONER-APPELLANT.
WHETHER PETITIONER-APPELLANT’S PHYSICAL FACILITIES FOR PRODUCTION, THE INSTALLATIONS AND APPURTENANT SERVICE FACILITIES, WHICH NECESSARILY INCLUDE BUILDINGS AND IMPROVEMENTS, THAT ARE NO LONGER USED DUE TO THE CESSATION OF OPERATIONS AND CLOSURE OF THE PILILLA REFINERY SHOULD REMAIN SUBJECT TO REAL PROPERTY TAX DURING THE PERIOD THAT THESE ARE NOT ACTUALLY IN USE.
Petitioner-Appellant’s MEMORANDUM, dated November 2, 2005 and
received by this Board on November 3, 2005 introduced a 3rd issue namely:
WHETHER PETITIONER-APPELLANT IS ENTITLED TO THE REFUND OR TAX CREDIT OF THE REAL PROPERTY TAXES PAID UNDER PROTEST
In footnote, the above 3rd issue is explained as follows:
“The appeal to the Honorable Board originally had only two (2) issues – I and II. Due to the directives of the Honorable Board that Petitioner-Appellant present evidence on its claim for refund of tax credit, Petitioner-Appellant was naturally constrained to add, as an issue in this appeal, whether it is entitled to the refund or tax credit of the real property taxes it paid under protest.”
Appellee Local Board disclaimed jurisdiction over the case, relying solely
on the case of Testate Estate of Concordia T. Lim vs. City of Manila (the Lim
case, 182 SCRA 487), wherein the Supreme Court ruled:
“(T)he plaintiff-appellant correctly filed the action for refund/reimbursement with the lower court as it is the courts which have jurisdiction to try cases involving the right to recover sums of money”.
‘Section 30 of the Real Property tax Code is not applicable because what is questioned is the imposition of the tax assessed and who should the burden of the tax. There is no dispute over the amount assessed on the properties for tax purposes. Section 30 pertains to the administrative act of listing and valuation of the property for the purposes of real estate taxation. It provides:
‘Section 30. Local Board of Assessment Appeals – Any owner who is not satisfied with the action of the provincial or city assessor in the assessment of his property may, within sixty days from the date of receipt by him of the written notice of assessment as provided in this Code, appeal to the Board of Assessment Appeals of the province or city, by filing with it a petition under oath using the form prescribed for the purpose, together with copies of the tax declarations and such affidavit or documents submitted in support of the appeal.’
‘In further support of the conclusion that the lower court has jurisdiction to try the instant
case, we note Section 64 of the Real Property Tax Code which provides that a ‘court shall entertain suit assailing the validity of a tax assessed’ after the taxpayer shall have paid under protest xxx’”
Parenthetically, the Real Property Tax Code (P.D. 464) has already been
repealed by the Local Government Code of 1991 (R.A. 7160) as follows:
“Sec. 534, Repealing Clause. – (a) X x x
(b) X x x
(c) X x x Presidential Decree Nos. x x x464 x x x are hereby repealed and rendered of no force and effect”. (Underscoring supplied).
Sec. 64, P.D. 464 (supra), not having been provided for under R.A. 7160
is now “rendered of no force and effect.” Sec. 30 of P.D. 464 however, is now
Se. 226 of R.A. 7160 and worded as follows:
“Sec. 226. Local Board of Assessment Appeals. – Any owner or person having legal interest in the property who is not satisfied with the action of the provincial, city or municipal assessor in the assessment of his property may, within sixty (60) days from the date of receipt of the written notice of assessment, appeal to the Board of Assessment Appeals of the province or city by filing a petition under oath in the form prescribed for the purpose, together with copies of the tax declarations and such affidavits or documents submitted in support of the appeal. (Underscoring supplied).
Hence, the RULES OF PROCEDURE BEFORE THE LOCAL BOARDS
OF ASSESSMENT APPEALS, Section 1, Rule IV thereof reads:
“Section 1. Jurisdiction. – The Local Board shall have original jurisdiction to hear and decide appeals of owners/administrators of real property from the action of the Provincial or City Assessors, or the Municipal Assessors in the Metropolitan Manila Area, in the assessment of their real properties, and from the action of the Provincial or City Treasurers, or Municipal Treasurers in the Metropolitan Manila Area, regarding collection of real property taxes, special levies, or other real property taxes under Title Two, Book II of Republic Act No. 7160”. (Underscoring supplied).
The Estate of Concordia T. Lim, in the Lim case was not covered by Sec.
30, P.D. 464 because it was not the owner of the property when it was
subjected to realty tax. The instant case however is clearly within the purview of
Sec. 30, P.D. 464 (now Sec. 226, R.A. 7160): Petitioner-Appellant Pilipinas
Shell Petroleum Corporation is definitely the owner of the machineries being
The Supreme Court, in the Lim case provided the distinction between the
jurisdiction of the courts and the Boards of Assessment Appeals under Sec. 30
of the Real Property Tax Code (P.D. 464): The courts “have jurisdiction to try
cases involving the right to recover sums of money”, when “what is questioned
is the imposition of the tax assessed and who should shoulder the burden of the
tax”; when “there is no dispute over the amount assessed on the properties for
tax purpose”. Section 30 of the Real Property Tax Code, on the other hand,
which vests jurisdiction on the Board of Assessment Appeals “pertains to the
administrative act of listing and valuation of the property for purposes of real
In the Lim case, the Plaintiff-Appellant Estate was charged the real estate
taxes on properties which it did not have or of which it was not the beneficial
owner: the Deed of Absolute Sale was executed only on April 11, 1979 but
Plaintiff-Appellant was required to pay the real estate taxes due on the
properties for the years 1977, 1978 and the first quarter of 1979. “(W)hat is
questioned is the imposition of the tax assessed and who should shoulder the
burden of the tax”, hence under the jurisdiction of the courts.
The instant case “pertains to the administrative act of listing and valuation
of the property for the purposes of real estate taxation”, hence under the
jurisdiction of the Boards of Assessment Appeals.
Be that as it may, this Board pursuantly took cognizance hence,
exercised jurisdiction over the present case:
The proceeding before this Board, as in the Local Boards of Assessment
Appeals, is to ascertain the facts without necessarily adhering to technical rules
applicable in judicial proceedings. Jurisdiction of the Central board of
Assessment Appeals is provided for in Section 1, Rule III of the RULES OF
PROCEDURE BEFORE THE CENTRAL BOARD OF ASSESSMENT
APPEALS to wit:
“Sec. 1. – Appellate Jurisdiction. – The Central Board shall have exclusive jurisdiction to hear and decide all appeals from the decisions, orders and resolutions of the Local Boards involving contested assessments of real properties, claim for tax refund and/or tax credits or overpayment of taxes.”
Proceeding therefore, to act and hear the present case on the merits, this
Board’s finding expectedly, matched with that of the Board a quo. Sec. 198(b),
R.A. 7160 provides:
“(b) Real property shall be classified for assessment purposes on the basis of its actual use”.
Under Sec. 199(b) defines Actual Use thus:
“(b) ‘Actual Use’ refers to the purpose for which the property is principally or predominantly utilized by the person in possession thereof”.
Under Sec. 199(o), machinery is defined as:
“(o) ‘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 which by their very nature and purpose are designed for, or necessary to its manufacturing, mining, logging, commercial, industrial or agricultural purposes”. (Underscoring supplied).
Following its definition, machinery should essentially be actually, directly
and exclusively used to meet the needs of the particular industry. Lacking any
of the actual, direct and exclusive use thereof, no machinery is constituted.
Machinery that has ceased to operate is not actually used: it is not
according to the purpose for which the property is principally or predominantly
utilized by the person in possession thereof. In fact, it is not utilized at all.
Since real property shall be classified for assessment purposes on the
basis of its actual use and subject machineries are not actually used, clearly,
the same machineries should no longer be “classified for assessment
purposes”. Hence, they are excluded from the payment of realty tax.
In view thereof, this Board while adopting the finding of the LBAA of Rizal
is constrained to set aside the Decision thereof pertinent to its lack of
WHEREFORE, Appellee Local Board’s JUDGMENT: “(a) Directing the
Provincial Assessor, Province of Rizal and the Municipal Assessor, Municipality
of Pililla, to transfer the remaining Tax Declarations/ARP’s of the machinery
belonging to Petitioner Shall Petroleum Corporation not yet delisted or
cancelled, from the Assessment Roll to the Exempt Roll” will not be disturbed
and is hereby approved and adopted by this Board as its own. However: “(b)
Dismissing the claim for tax refund/credit by Petitioner Shell Petroleum
Corporation for lack of jurisdiction”, is hereby reversed and set aside.
Respondents-Appellees Province of Rizal, Municipality of Pililla, Rizal;
Provincial Treasurer of Rizal, and the Municipal Treasurer of Pililla, Rizal are
hereby ordered to refund/or credit to Petitioner-Appellant, Pilipinas Shell
Petroleum Corporation, the real property taxes paid under protest on Petitioner-
Appellant’s machineries during the period that they were not in actual use, from
July 1, 2002 until their cancellation from the Assessment Roll.
Manila, Philippines, October 12, 2006.
(Signed) CESAR S. GUTIERREZ
ANGEL P. PALOMARES Member
(Signed) RAFAEL O. CORTES