Republic of the Philippines
Department of Finance
CENTRAL BOARD OF ASSESSMENT APPEALS
7th Floor, EDPC Bldg., BSP Complex
Roxas Boulevard, Manila

NATIONALIRRIGATION ADMINISTRATION,as the Beneficial Owner of the Casecnan Project,
Petitioner-Appellant,
CBAA CASE NO. L-60
-versus- (LBAA CASE NO. 02-2004)

LOCAL BOARD OF ASSESSMENT APPEALSOF THE PROVINCE OF NUEVAVISCAYA,
Appellee,

-and-

THE MUNICIPAL ASSESSOR AND THE MUNICIPAL TREASUREROF ALFONSO CASTAÑEDA,NUEVA VISCAYA,
Respondents-Appellees.
x- – – – – – – – – – – – – – – – – – – – – – – – – – – – -x
CE CASECNAN WATER & ENERGY COMPANY, INC.,
Petitioner-Appellant,
CBAA CASE NO. L-74
-versus- (LBAA CASE NO. 03-2005)

LOCAL BOARD OF ASSESSMENT APPEALS OF THE PROVINCE OF NUEVA VISACAYA,
Appellee,

-and-

PERFECTO B. MARTINEZ, JR., in his capacity as THE PROVINCIAL TREASURER OF NUEVA VISCAYA,
Respondent-Appellee.
x- – – – – – – – – – – – – – – – – – – – – – – – – – – – -x

D E C I S I O N

Acting on a Motion by CE CasecnanWater and Energy Company, Inc. (“CE Casecnan”), this Board, on November 25, 2008, issued an Order consolidating CBAA Cases No. L-60 and No.L-74.
BACKGROUND
On June 26, 1995, CE Casecnan, entered into a Build-Operate-Transfer contract with the NATIONAL IRRIGATION ADMINISTRATION (“NIA”, for short) denominated as Amended and Restated Casecnan Project Agreement(the “Project Agreement”) for the construction and development of the multi-purpose irrigation and power project located in Pantabangan, Nueva Ecija, and Alfonso Castañeda, Nueva Viscaya(the “Project”). The “Project” was constructed, financed and is currently being operated by CE Casecnan.
On September 29, 2003, CE Casecnan and NIA executed a Supplemental Agreement Regarding the Amended and Restated Casecnan Project Agreement (the “Supplemental Agreement”) with respect to the Project, which was approved by the DOF.
The Project is a combined irrigation and hydroelectric power generation facility intended to harness the full potential of the Pantabangan Dam in Gapan, Nueva Ecija, by diverting approximately 801million cubic meters of water annually until 2013, and 700 million cubic meters annually thereafter until 2021, from the rivers of Nueva Viscaya to the Pantabangan Reservoir. The Project irrigates at least 37,200 hectares of farmland in the service area of NIA, covering several towns of Nueva Ecija and some 102,000 hectares of farmland in the Upper Pampanga Integrated Irrigation System in the Pampanga irrigation service of NIA. The Project generates 140-150 megawatts of hydroelectric power. The Project’s power generation capacity supplements the energy supply to the Luzon grid and augments power generation in the existing Pantabangan and Masiway hydroelectric power plants in Nueva Ecija.
The project’scommercialoperationcommencedon December 11, 2001.
ANTECEDENTS

1. On or around September 28, 2003, CE Casecnan received a letter dated September 22, 2003 from the Provincial Assessor of Nueva Viscaya informing CE Casecnanof the initial appraisal and assessment of CE Casecnan’s properties, with the corresponding Tax Declarations attached thereto. The tax declarations were jointly signed by the Municipal Assessor of A. Castañeda and the Provincial Assessor of Nueva Viscaya. Printed on the face of each tax declaration is the following “notice”:

“NOTICE OF ASSESSMENT

Sir/Madam:
This is to notify that your property stated herein has been appraised and assessed pursuant to the provisions of the rules and regulations prescribed by the Department of Finance implementing the provisions of Republic Act 7160- The Local Government Code.”

2. On February 27, 2004, CE Casecnan received another letter dated February 4, 2004 from the Municipal Assessor and the Municipal Treasurer of AlfonsoCastañeda, Nueva Viscaya requesting payments of real property taxes for the years 2003 and 2004, attaching thereto copies of the Tax Declarations, Notices of Delinquency and Real Property Tax Billing for the CY2004 attached thereto.

3. A letter dated March 3, 2004 from Mr. David Baldwin of CE Casecnanwas sent to NIA informing the latter of the receipt by CE Casecnan of the Real Property Tax Assessment for 2004 from the Municipal Assessor.

4. A letter dated March 29, 2004 from Mr. David Baldwin of CE Casecnanwas sent to NIA informing the latter of the receipt by CE Casecnan of the Real Property Tax Assessment for 2004 from the Municipal Assessor.

5. On April 27, 2004, NIA filed through registered mail its undated “Protest” (Appeal) pursuant to Section 226 of R.A 7160 with the Local Board of Assessment Appeals of the Province of Nueva Visacaya (the “LBAA”).

6. On December 14, 2004, NIA received a copy of the LBAA Decision dated December 1, 2004 dismissing NIA’s “Protest”.

7. On January 25, 2005, this Board received NIA‘s Appealwhich was sent via registered mail January 13, 2005; said Appeal was docketedas CBAA Case No. L-60.

8. On March 3, 2005, this Board received Appellees’ Brief dated February 8, 2005 in CBAA Case No. L-60.

9. On March 10, 2005, CE Casecnan received the Final Demand letter from the Provincial Treasurer dated February 1, 2005.

10. On May 10, 2005, this Board received from NIA its Comment to Appellees’ Brief in CBAA Case No. L-60.

11. During the hearing of CBAA Case No. L-60 on May 12, 2005, the Appellees submitted their “Motion to Dismiss Appeal” dated April 14, 2005.

12. On May 23, 2005, this Board received Appellees’ “Motion to Dismiss Appeal” dated May 4, 2005 in CBAA Case No. L-60.

13. On May 25, 2005, CE CASECNAN received a Notice of Delinquency dated May 20, 2005 jointly signed by the Provincial Treasurer and the Municipal Treasurer.

14. On June 9, 2005, this Board received NIA’s COMMENT/OPPOSITION (To the “Motion To Dismiss Appeal” dated May 4, 2005 of Protestees-Appellees) in CBAA Case No. L-60.

15. On June 16, 2005, during the hearing of CBAA Case No. L-60, Appellees submitted their COUNTER-COMMENT dated June 14, 2005 to NIA’s COMMENT-OPPOSITION.

16. On June 17, 2005, CE Casecnanreceived a copy of the Warrant of Levy dated June 17, 2005 jointly signed by the Provincial Treasurer and the Municipal Treasurer.

17. On July 1, 2005, a Notice of Sale of Delinquent Real Property was jointly signed by the Provincial Treasurer and the Municipal Treasurer;

18. On July 2, 2005, NIA filed with this Board NIA’s MANIFESTATON AND MOTION IN LIEU OF REPLY dated June 30, 2005;

19. On August 23, 2005, CE Casecnanfiled its Protest dated August 22, 2005 with the Provincial Treasurer;

20. On October 20, 2005, CE Casecnan filed its Appeal dated October 19, 2005 with the LBAA;

21. On November 7, 2005, CE Casecnanreceived a letter dated October 15, 2005 from Provincial Treasurer denying CE Casecnan’s protest.

22. On December 16, 2005, CE Casecnan filed a Supplemental Appeal dated December 15, 2005 with the LBAA.

23. On November 17, 2006, CE Casecnanreceived a copy of the LBAA Decision dated October 20, 2006 where the LBAA denied CE Casecnan’s Appeal.

24. On December 15, 2006, this Board received from CE Casecnanthe latter’s Notice of Appeal and the Appeal itself which were sent via registered mail on December 13, 2006.

25. On April 10, 2007, this Board received from Respondent Provincial Treasurer his Answer to CE Casecnan’s Appeal.

26. On June 8, 2007, this Board received from CE Casecnana Motion to Consolidate CBAA Case No. L-74 with CBAA Case No. L-60 (NIA’s Appeal).

27. On July 10, 2007, this Board received NIA’s COMMENT/OPPOSITION (To CE Casecnan’s “Motion to Consolidate” dated June 8, 2007) dated June 9, 2007.

28. On November 25, 2008, this Board issued an Order consolidating CBAA Case No. L-60 and CBAA Case No. L-74.

29. On December 3, 2008, CE Casecnanfiled its PRE-TRIAL BRIEF dated December 2, 2008.

30. On December 3, 2008, Appellees filed their APPELLEES’ PRE-TRIAL BRIEF dated December 30, 2008 (sic).

31. On December 3, 2008, NIA filed its PRE-TRIAL BRIEF dated November 28, 2008.

32. On September 26, 2013, this Board received Appellant NIA’s Memorandum dated September 13, 2013 which was sent via registered mail on September 16, 2013.

33. On October 3, 2013, this Board received Appellant CE Casecnan’s Memorandum dated September 23, 2013 which was sent via registered mail on September 23, 2013.

34. On October 8, 2013, this Board received Respondents-Appellees’ Memorandum dated September 26, 2013 which was mailed via registered mail on September 27, 2013.

CBAA CASE NO. L-60

In its Appeal to this Board (CBAA Case No. L-60), NIA assigned the following errors, to wit:
1. THE HONORABLE LOCAL BOARD OF ASSESSMENT APPEALS OF THE PROVINCE OF NUEVA VISCAYA ERRED IN DISMISSING OUTRIGHT THE PROTEST FILED BY HEREIN APPELLANT NIA, NOTWITHSTANDING THE LACK OF A PROPER AND VALID TAX ORDINANCE AND/OR TAX ASSESSMENT MADE BY APPELLEES OFFICE OF THE MUNICIPAL ASSESSOR AND TREASURER OF THE MUNICIPALITY OF A. CASTAÑEDA ON CASECNAN, INC., HEREIN APPELLANT NIA’S TRUSTEE, PURSUANT TO THE “AMENDED AND RESTATED PROJECT AGREEMENT” ENTERED INTO BY AND BETWEEN NIA AND CASECNAN, INC. ON JUNE 26, 1995.
2. THE HONORABLE LOCAL BOARD OF ASSESSMENT APPEALS OF THE PROVINCE OF NUEVA VISCAYA ERRED IN HOLDING HEREIN PROTESTANT NIA, AND IN EFFECT THE REPUBLIC OF THE PHILIPPINES, LIABLE FOR THE ALLEGED TAXES BEING CLAIMED BY HEREIN APPELLEES (PROTESTEES) OFFICE OF THE MUNICIPAL ASSESSOR AND TREASURER OF A. CASTAÑEDA, PROVINCE OF NUEVA VISCAYA, CONSIDERING THE LACK OF LEGAL AND FACTUAL BASIS THEREFOR.

In its Memorandum dated September 13, 2013 and received by this Board on September 26, 2013, NIA raised the following issues, to wit:
A. WHETHER OR NOT THE REPUBLIC OF THE PHILIPPINES, THROUGH NIA AND/OR THE DOF, IS LIABLE FOR RPT.
B. WHETHER OR NOT THE APPELLEES’ ALLEGED INITIAL ASSESSMENT NOTICES ISSUED IN SEPTEMBER 2003 AND FEBRUARY 2004 ARE VALID, LEGAL AND BINDING ON NIA AND/OR THE REPUBLIC OF THE PHILIPPINES, GIVEN ITS RPT EXEMPT STATUS UNDER SECTION 234 (C) OF THE LGC OR SUBJECT ONLY TO THE SPECIAL ASSESSMENT LEVEL OF 10% UNDER SECTION 216 (3) (d) ALSO OF THE LGC.
C. WHETHER OR NOT THE RPT ASSESSMENTS WERE VALID, LEGAL AND BINDING ABSENT ANY DULY APPROVED TAX ORDINANCE FOR THIS PURPOSE.

Simplified,the errorsand/or issues raised by NIA would appear as follows:
I. The LBAA erred ruling that the NIA was liable for the realty taxes on the subject property;
II. The LBAA erred in not declaring the subject assessments as invalid and illegal, absent any duly approved tax ordinance for this purpose;
III. The LBAA erred in not declaring that the subject machinery and equipment were exempt from payment of the real property tax pursuant to Section 234(c) of the LGC; and
IV. The LBAA erred in not declaring that the subject properties, other than the machinery and equipment, are “Special Classes of Real Property” under Section 216 of the LGC, subject only to the ten percent (10%) assessment level under Section 218(d) of the LGC.

DISCUSSION
First and foremost, we have to determine whether or not Appellant NIA had the legal capacity or personality to institute the Appeal (labelled as “Protest” by NIA) before the LBAA.
NIA stated that it filed the “protest” before the LBAA “pursuant to Section 226, Chapter 3, Title II, Book II of R.A. 7160 . . .”
Section 226 of R.A. 7160 otherwise known as The Local Government Code of 1991 (the “LGC”), provides 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.” (Emphasis supplied)

In its Decision dated December 1, 2004, the LBAA concluded that NIA had “the legal personality to bring a Protest over a real property assessment” pursuant to Section 226 of the LGC, thus:
“Beyond doubt, NIA possesses sufficient interest over the subject properties that will bestow on it a personality to bring the instant Protest. This specially becomes obvious if we are to take into consideration the precept of Article 11.1(a) of the Supplemental Agreement between NIA and CASECNAN, the relevant provisions of which are hereby quoted as follows:

‘NIA shall not pay any Article 11 Taxes for or in behalf of the Operator. As part of the recovery of its investment, however, the Operator shall invoice NIA for and NIA shall be responsible for as an additional payment hereunder an amount equal to Article 11 Taxes.’

“Hence, while it is true that CASECNAN is directly liable to pay the real property tax of the subject properties, in the final analysis, the same shall be passed on to NIA. This is so because the real property tax shall be considered as part of the investment expense of CASECNAN which may be charged from the operation of the Project. Stated differently, NIA stands to be adversely affected should it be finally adjudicated that CASECNAN is liable to pay the assessed real property tax. As such, it possesses sufficient “legal interest” being referred to in Section 226 of the Local Government Code, and this will clothe NIA the personality to cry foul over its perceived erroneous real property tax assessment before this Board.”

We do not agree.
Under the Project Agreement, CE Casecnanshall own, and be responsible for the management, operations, maintenance, and repair of, the Project for a period of twenty (20) years from the Completion Date until the Transfer Date, thus:

“2.11 OWNERSHIP OF THE PROJECT.From the date of this Agreement until the Transfer Date, the Operator shall own the Project and all structures, fixtures, fittings, machinery, and equipment on the Site or used in connection with the Project that have been supplied by it or at its cost.”

“5.1 THE OPERATOR’S RESPONSIBILITIES.The Operator shall, at its own cost, be responsible for the management, operation, maintenance, and repair of the Project until the Transfer Date and shall ensure during such period that the Project operates within the Operating Parameters.”

“1.1 DEFINITIONS. In this Agreement and in the recitals hereto:

“COMPLETION DATE” means the day upon which the Operator certifies that the Project has been completed and successfully tested or would have been completed and successfully tested if NIA had performed its obligations hereunder relating to start-up electrical energy and the taking of electrical energy (Sections 2.9, 4.3, and 6.1) and the Transmission Line (Sections 2.8 and 13.1) in a timely manner and that the Project is capable of operation in accordance with the Operating Parameters;

“COOPERATION PERIOD” means the period of twenty (20) years of commercial operation during which the Operator shall deliver electrical power and energy and water to NIA, which Cooperation Period shall commence on the first day immediately succeeding the Completion Date.”

The Project commenced commercial operations on December 11, 2001. NIA, therefore, shall become the owner of the said Project only twenty (20) years thereafter, or on December 11, 2021, the Transfer Date.
The Supreme Court, in National Power Corporation v. Province of Quezon and Municipality of Pagbilao, ruled:
“In Cariño v. Ofilado, we declared that legal interest should be an interest that is actual and material, direct and immediate, not simply contingent or expectant. The concept of the directness and immediacy involved is no different from that required in motions for intervention under Rule 19 of the Rules of Court that allow one who is not a party to the case to participate because of his or her direct and immediate interest, characterized by either gain or loss from the judgment that the court may render. In the present case, the NPC’s ownership of the plant will happen only after the lapse of the 25-year period; until such time arrives, the NPC’s claim of ownership is merely contingent, i.e., dependent on whether the plant and its machineries exist at that time. Prior to this event, the NPC’s real interest is only in the continued operation of the plant for the generation of electricity. This interest has not been shown to be adversely affected by the realty taxes imposed and is an interest that NPC can protect, not by claiming an exemption that is not due to Mirant, but by paying the taxes it (NPC) has assumed for Mirant under the ECA.” (Emphasis supplied)

NIA did not have any actual and material, direct and immediate interest in the subject properties. Therefore, we believe, and so hold, that NIA did not have the legal personality or standing to institute the “protest” before the LBAA under the provisions of Sec. 226 of the LGC.
In view of the above, there is no point in looking into the merits of the errors and/or issues raised by NIA. However, if only to clarify certain matters, we have obliged to discuss said errors/issues.
NIA’s 1st Error/Issue:
THE LBAA ERRED RULING THAT THE NIA WAS LIABLE FOR THE REALTY TAXES ON THE SUBJECT PROPERTY.
The dispositive portion of the LBAA Decision dated December 1, 2004 states:
“The above premises considered,this Board is left with no other option but to hold a ruling adverse to the Protestant. Accordingly, the instant Protest is hereby DISMISSED and protestant is hereby ordered to pay the corresponding taxes due the protestees.” (Emphasis supplied)

It was erroneous for the LBAA to “order” NIA “to pay the corresponding taxes due the protestee.” As discussed above, NIA does not own nor has it any legal interest in the subject properties. At the level of the LBAA, the appeal, when dismissed, amounts to nothing, as if no appeal was made at all. No consequences proceed from nothing.
Perhaps, the LBAA meant that NIA should reimburse CE Casecnanfor the latter’s payment of the realty taxes due on the subject properties as provided in Article 11 of the Project Agreement.
Article 11 of the Project Agreement, as amended by Article 2.2 of the Supplemental Agreement, clearly state in Article 11.1(a) that “NIA shall not pay any Article 11 Taxes for or on behalf of the Operator. As part of the recovery of its investment, however, the Operator shall invoice NIA for and NIA shall be responsible for as an additional payment hereunder an amount equal to all Article 11 Taxes.” This means that NIA shall not pay, for or on behalf of CE CASECNAN, ‘Article 11 Taxes’ directly to any collecting agency or LGU but, if and when CE Casecnanis found liable for such taxes and pays for them, CE Casecnanshall bill or invoice NIA for reimbursements of such payments as part of the recovery of CE Casecnan’s investment or expenses.
Real property taxes are included in the ‘Article 11 Taxes’. Thus, Article 1 of the Project Agreement, as amended by Article 2.1 of the Supplemental Agreement, states:
“Article 11 Taxes” means any and all present or future taxes including without limitation real estate and personal property taxes, assessments, and other charges in respect of the Project equipment, structures and improvements . . .” (Emphasis supplied)

Even then, the Project Agreement is a private contract enforceable only by and between NIA and CE Casecnan.
The Supreme Court, in a similar case, ruled:
“On liability for taxes, the NPC indeed assumed responsibility for the taxes due on the power plant and its machineries, specifically, “all real estate taxes and assessments, rates and other charges in respect of the site, the buildings and improvements thereon and the [power plant].” At first blush, this contractual provision would appear to make the NPC liable and give it standing to protest the assessment. The tax liability we refer to above, however, is the liability arising from law that the local government unit can rightfully and successfully enforce, not the contractual liability that is enforceable between the parties to a contract as discussed below. By law, the tax liability rests on Mirant based on its ownership, use, and possession of the plant and its machineries.” (Emphasis supplied.)
NIA’s 2nd Error/Issue:
THE LBAA ERRED IN NOT DECLARING THE SUBJECT ASSESSMENTS AS INVALID AND ILLEGAL, ABSENT ANY DULY APPROVED TAX ORDINANCE FOR THIS PURPOSE.
NIA argues that “what Castaneda did was contrary to Sections 186 to 189, Chapter V, of the LGC and Article 222, Rule XXX, Rules and Regulations Implementing The Local Government Code of 1991 which specifically provides that the power to impose taxes is only by virtue of and pursuant to an appropriate tax ordinance or revenue measure, thus:
“Section 186.Power to Levy Other Taxes, Fees or Charges. – Local government units may exercise the power to levy taxes, fees, or charges on any base or subject not otherwise specifically enumerated herein or taxed under the provision(sic) of the National Internal Revenue Code, as amended, or other applicable laws: Provided, That the taxes, fees, or charges shall not be unjust, excessive, oppressive, confiscatory or contrary to declared national; (sic) policy: Provided, further, That the ordinance levying such taxes, fees or charges shall not be enacted without any prior public hearing conducted for the purpose.

“Sec. 187.Procedure for Approval and Effectivity of Tax ordinances and Revenue Measures; Mandatory Public Hearings. – The Procedure for approval of local tax ordinances and revenue measure (sic) shall be in accordance with the provisions of this Code. Provided, that public hearings shall be conducted for the purpose prior to the enactment thereof. Provided further, that any question on the constitutionality or legality of tax ordinances ore (sic) revenue measures may be raised on appeal within thirty (30) days from the effectivity thereof to the Secretary of Justice who shall render a decision within sixty (60) days from the date of receipt of the appeal; Provided, however, that such appeal shall not have the effect of suspending the effectivity of the ordinance and the accrual and payment of the tax, fee or charge levied therein; Provided, finally, That within thirty (30) days after the (sic) receipt of the decision or the lapse of the sixty-day period without the Secretary of Justice along (sic) upon the appeal, the aggrieved party may file appropriate proceeding with a court of competent jurisdiction.
“Section 188.Publication of Tax Ordinance (sic) and Revenue Measures. – Within then (10) days after their approval, certified true copies of all provincial, city, and municipal tax ordinances or revenue measures shall be published in full for three (3) consecutive days in a newspaper of local circulation; the same may be posed (sic) in at least two (2) conspicuous and publicly accessible places.
“Sec. 189.Furnishing of Copies of Tax Ordinances and Revenue Measures. – Copies of all provincial, city, and municipal and barangay tax ordinances and revenue measures shall be furnished the respective local treasurers for public dissemination.
“x xx (Underscoring supplied)

“Art. 222. Local Taxing Authority. – The power to impose a tax, fee or charge or to generate revenue under the Code shall be exercised by the sanggunian of the LGU concerned through an appropriate tax ordinance or revenue measure.

“x xx (Underscoring supplied)”

Appellant NIA must be very confused. Sections 186 to 189 of the LGC, as well as Article 222 of the Implementing Rules and Regulations of R.A. 7160, pertain to “Local Government Taxation” (Title One, Book II of the LGC) which governs local taxes, fees, and charges. The case at bar relates to real property taxes which are governed by “Real Property Taxation” (Title Two, Book II of the LGC).
The provisions of Local Government Taxation (Title One, Book II) were substantially taken from the provisions of the “Local Tax Code” promulgated under PD 231 which took effect on July 1, 1973 and subsequently amended by PD 426 which took effect upon its issuance on May 30, 1974.
The provisions of the Real Property Taxation (Title Two, Book II), in turn, were substantially taken from the provisions of the “Real Property Tax Code”, PD 464, which was promulgated by the President on May 20, 1974 and took effect on June 1, 1974.
The provisions of PD 231, as amended, were never intended to have overlapping effects with the provisions of PD 464 as far as real property taxation is concerned, just as the provisions of Title One, Book II of the LGC were never meant to encroach on or upon the domain of Title Two, Book II of the LGC.

NIA’s 3rd Error/Issue:

THE LBAA ERRED IN NOT DECLARING THAT THE SUBJECT MACHINERY AND EQUIPMENT WERE EXEMPT FROM PAYMENT OF THE REAL PROPERTY TAX PURSUANT TO SECTION 234(C) OF THE LGC.

NIA argues that “The Project’s machineries and equipment are exempted under Section 234(c) of the LGC.” Said Section 234(c) provides, thus:
“SEC. 234.Exemptions from Real Property Tax.–The following are exempted from payment of the real property tax:

“xxxxxxxxx

“(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;

“xxxxxxxxx”

As already discussed, CE Casecnanowns, manages, operates, maintains and repairs the Project for a period of twenty (20) years from December 11, 2001. This means that CE Casecnanwill continue to own the Project until December 11, 2021 when the “Cooperation Period” ends. The real property taxes, subject matters of this appeal, accrued for the calendar years 2003 and 2004, well within the said “Cooperation Period.”
During the “Cooperation Period”, the relationship between CE Casecnanand NIA is that of Producer and Sole Distributor, with CE Casecnanas the Producer and NIA as the Sole Distributor. This is so provided under Article 2.9 of the Amended and Restated Casecnan Project Agreement, thus:
“ELECTRICAL ENERGY AND WATER DELIVERY. The Operator will transport water from the Casecnan Watershed to the Pantabangan Reservoir and, in the process of such transport, generate electrical energy, and NIA shall accept all electrical energy generated by the Project and all water delivered to the Pantabangan Reservoir by the Project and shall pay to the Operator the fees provided in Part B of Article 7 and in the Fifth Schedule (Delivery of Water and Electrical Energy).”

Section 234(c) of the Code clearly requires that, in order to be exempt from real property tax, the machineries and equipment must be actually, directly, and exclusively used by local water districts and government-owned or –controlled corporation in the supply and distribution of water and/or generation and transmission of electric power.
While there is no doubt that the subject machineries and equipment are actually, directly, and exclusively used in the supply and distribution of water and/or generation and transmission of electric power, there is equally no doubt that the subject machineries and equipment are NOT actually, directly and exclusively used by a local water district nor a government-owned or government–controlled corporation. CE Casecnan Water and Energy Co., Inc., which is the actual, direct and exclusive userof said facilities, is neither a local water district nor a government-owned or government-controlled corporation.
Therefore, the subject machineries and equipment are NOT EXEMPT from the real property tax under Section 234(c) of R.A. 7160.
NIA’s 4th Error/Issue:
THE LBAA ERRED IN NOT DECLARING THAT THE SUBJECT PROPERTIES, OTHER THAN THE MACHINERY AND EQUIPMENT, ARE “SPECIAL CLASSES OF REAL PROPERTY” UNDER SECTION 216 OF THE LGC, SUBJECT ONLY TO THE TEN PERCENT (10%) ASSESSMENT LEVEL UNDER SECTION 218(D) OF THE LGC.
NIA states that “All properties not excluded or exempt are subject to the special assessment level of 10% under Section 216 (3) (d) of the LGC.”
Sections 216 and 218 of the LGC provide, thus:
“SEC. 216.Special Classes of Real Property. – All lands, buildings, and other improvements thereon actually, directly and exclusively used for hospitals, cultural, or scientific purposes, and those owned and used by local water districts, and government-owned or controlled corporations rendering essential public services in the supply and distribution of water and/or generation and transmission of electric power shall be classified as special.” (Emphasis supplied)

“SEC. 218.Assessment Levels. – The assessment levels to be applied to the fair market value of real property to determine its assessed value shall be fixed by ordinances of the sangguniangpanlalawigan, sangguniangpanlungsod or sangguniangbayan of a municipality within the Metropolitan Manila Area, at the rates not exceeding the following:

xxxxx

“(d) On Special Classes: The assessment levels for all lands, buildings, machineries and other improvements:

Actual Use Assessment Level
Cultural 15%
Scientific 15%
Hospital 15%
Local Water District 10%
Government-owned or controlled
corporations engaged in the supply
and distribution of water and/or
generation and transmission of
electric power 10%”
(Emphasis supplied)

Sections 216 of the Code requires that, in order to be classified as “Special Classes” of real property, the lands, buildings, and other improvements thereon must be (1) actually, directly and exclusively used for hospitals, cultural, or scientific purposes and/or (2) owned and used by local water districts, and government-owned or –controlled corporations rendering essential public services in the supply and distribution of water and/or generation and transmission of electric power.
As in the 3rdError or Issue, there is also no question that the subject lands, buildings, and other improvements thereon are actually, directly, and exclusively used in the supply and distribution of water and/or generation and transmission of electric power. However, the corporation which owns and is actually, directly and exclusively using the same machineries and equipment is CE Casecnan Water and Energy Co., Inc. which is not a government-owned or government–controlled corporation nor a local water district, but a private entity.
Therefore, the said lands, buildings, and other improvements thereon do not fall under the classification of “Special Classes of Real Property”.
CBAA CASE NO. L-74
In its Appeal to this Board (CBAA Case No. L-74) , CE Casecnan raised the following grounds for its instant Appeal, to wit:
1. THE LBAA ERRED IN DENYING CE CASECNAN’S LBAA APPEAL ON GROUNDS WHICH WERE NOT RAISED IN CE CASECNAN’S LBAA APPEAL.

2. THE LBAA ERRED IN RULING THAT CE CASECNAN IS LIABLE FOR REAL PROPERTY TAX.

3. ASSUMING THAT THERE WAS A VALID TAX ASSESSMENT AGAINST CE CASECNAN, THE MACHINERY AND EQUIPMENT USED IN THE PROJECT ARE EXEMPT FROM TAXATION BECAUSE THEY ARE ACTUALLY, DIRECTLY AND EXCLUSIVELY USED BY THE NIA.

4. ALL OTHER PROPERTIES NOT EXCLUDED ARE SUBJECT TO RATE OF TEN PER CENT (10%).

CE Casecnan’s First Assigned Error/Issue:
THE LBAA ERRED IN DENYING CE CASECNAN’S LBAA APPEAL ON GROUNDS WHICH WERE NOT RAISED IN CE CASECNAN’S LBAA APPEAL.
In Par. No. 34 of its Appeal (CBAA Case No. L-74), CE Casecnan stated thus:
“34. The LBAA clearly erred in ruling that CE Casecnan should have filed first a protest under Section 226 of the LGC. Even Assuming that this conclusion is correct, the pronouncement is baseless and inapplicable in this case because the basis of CE Casecnan’s LBAA Appeal is on its non-liability for real property tax, not on the invalidity of the assessment. CE Casecnan never raised as an issue the validity or invalidity of the assessment.”

On August 23, 2005, CE Casecnan filed its Protest dated August 22, 2005 with the Provincial Treasurer “to protest the tax collection efforts of the Province of Nueva Viscaya, the Municipality of Alfonso Castañeda, and their corresponding officers . . . This protest is being filed pursuant to Section 252 of the Local Government Code.” The “protest” is based on the following grounds, namely:
1. The NIA, not CE Casecnan, is liable to pay real property taxes, if any;

2. The Appeal of NIA with the CBAA (CBAA Case No. L-60, involving the same circumstances present in CBAA Case No. L-74) is still pending resolution by the CBAA;

3. The Project is exempt from taxation because they are actually, directly and exclusively used by the NIA and any property not so exempt is subject to a ten percent (10%) assessment level.

CE Casecnan says that it was erroneous for the LBAA to rule “that CE Casecnan should have filed first a protest under Section 226 of the LGC” because CE Casecnan never raised as an issue the validity or invalidity of the assessment.
Section 252 of R.A. 7160 provides, thus:
“SEC. 252.Payment Under Protest. – (a) No protest shall be entertained unless the taxpayer first pays the tax. There shall be annotated on the tax receipts the words “paid under protest”. The protest in writing must be filed within thirty (30) days from payment of the tax to the provincial, city treasurer or municipal treasurer, in the case of a municipality within Metropolitan Manila Area, who shall decide the protest within sixty (60) days from receipt.

(b) The tax or a portion thereof paid under protest shall be held in trust by the treasurer concerned.

(c) In the event that the protest is finally decided infavor of the taxpayer, the amount or portion of the tax protested shall be refunded to the protestant, or applied as tax credit against his existing or future tax liability.

(d) In the event that the protest is denied or upon the lapse of the sixty-day period prescribed in subparagraph (a), the taxpayer may avail of the remedies as provided for in Chapter 3, Title Two, Book II of this Code.”

The remedies provided for in Chapter 3, Title Two, Book II of the Code refers to Appeals to the LBAA and, thereafter, the CBAA (Sections 226-231). Section 226 of the LGC provides:
“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.”

As contemplated under Section 226, the term Assessment is “the act or process of determining the value of property, or portion thereof subject to tax, including the discovery, listing, classification, and appraisal of properties.” This “act or process” is the sole duty and function of the assessor.
Assessment includes the act or process of determining whether a real property is subject to – or exempt from – the payment of the real property tax. Thus, Section 206 of the LGC provides:
“Sec. 206.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 Title shall file with the provincial, city or municipal assessor within thirty (30) days from the date of the declaration of real property sufficient documentary evidence in support of such claim including corporate charters, title of ownership, articles of incorporation, by-laws, contracts, affidavits, certifications and mortgage deeds, and similar documents.

“If the required evidence is not submitted within the period herein prescribed, the property shall be listed as taxable in the assessment roll. However, if the property shall be proven to be tax-exempt, the same shall be dropped from the assessment roll.”

Section 252, above-quoted, does not exactly lay out the “grounds” or “reasons” under or for which any protest may be lodged against the treasurer. It would, however, be quite absurd to blame or condemn the treasurer for the actions of the assessor.
As stated, the assessor has the sole duty and responsibility to make assessments of real property. Upon the other hand, the collection of real property taxes is the ministerial duty of the treasurer. To arrive at the tax due on an assessment, the treasurer merely “calculates” or “computes” the tax due thereon by applying the applicable rate (approved by the sanggunian concerned) against the assessed value determined by the assessor. The treasurer does not take notice of the assessment until the assessor furnishes the treasurer with the assessment roll.
The provisions of Section 252 of the LGC, therefore, would apply only in a case where the taxpayer-appellant believes that the assessment made by the assessor is satisfactory or correct, but that the treasurer’s computation or calculation of the tax due thereon is erroneous or illegal.
CE Casecnan’s Protest under Section 252 of the LGC was “to protest the tax collection efforts of the Province of Nueva Viscaya, the Municipality of Alfonso Castañeda, and their corresponding officers . . .” As already stated, the treasurer is mandated by law to collect the real property taxes based on the assessments made by the assessor. The proximate cause, therefore, of CE Casecnan’s Appeal was the action of the Assessor in the assessment of subject properties by classifying them as subject to real property tax. Without such assessment made by the assessor, there would have been no taxes to calculate or compute in the first place.
In this case, the Provincial Treasurer is improperly impleaded as the respondent in CE Casecnan’s Appeal since the treasurer did not make the questioned assessment nor does he have the power or authority to cancel or otherwise revise the same.
In light of the provisions of Section 252(d) and, for that matter, Section 253, par. 2, of the LGC, the provisions of Section 226 thereof should be read as follows:
“SEC. 226.Local Board of Assessment Appeals. – Any owner or person having legal interest in the subject property (a) who is not satisfied with the action of the assessor in the assessment of his property, or (b) who is not satisfied with the action or inaction of the treasurer on his claim for refund or credit of taxes paid under protest, or (c) who is not satisfied with the action or inaction of the treasurer on his claim for refund or credit of taxes paid but found to be illegal or erroneous by competent authority, may appeal to the Local Board of Assessment Appeals of the province or city, or municipality within the Metropolitan Manila Area, where the subject property is situated, within the following periods:

(a) If the subject matter of the appeal is the perceived error or errors in the assessment of the property concerned, the appeal to the Local Board of Assessment Appeals, with the concerned assessor as the respondent, shall be filed within sixty (60) days from the appellant’s receipt of the written notice of assessment from the assessor; or

(b) If the subject matter of the appeal is the denial by the treasurer of a claim for refund or credit of realty taxes paid under protest, without questioning the validity or correctness of the assessment made by the assessor, the appeal shall be filed with the Local Board of Assessment Appeals, with the treasurer as the respondent, within sixty (60) days after appellant’s receipt of the written notice from the treasurer denying the claim, if such denial is made by the treasurer within sixty (60) days after the treasurer’s receipt of the claim for refund or credit; or, if the treasurer fails to act on the claim within sixty (60) days from his receipt thereof, the appeal shall be filed with the Local Board of Assessment Appeals within sixty (60) days after the lapse of sixty (60) days from the date the claim was filed with the treasurer; or

(c) If the appeal refers to the denial by the treasurer of a claim for refund or credit of realty taxes, or any other tax levied under Title Two, Book II of R.A. 7160, paid but later found to be illegal or erroneous by competent authority, the appeal shall be filed with the Local Board of Assessment Appeals, with the treasurer as the respondent, within sixty (60) days after appellant’s receipt of the written notice from the treasurer denying the claim, if such denial is made by the treasurer within sixty (60) days after the treasurer’s receipt of the claim for refund or credit; or, if the treasurer fails to act on the claim within sixty (60) days from his receipt thereof, the appeal shall be filed with the Local Board of Assessment Appeals within sixty (60) days after the lapse of sixty (60) days from the date the claim was filed with the treasurer.”

On or around September 28, 2003, CE Casecnan received a letter dated September 22, 2003 from the Provincial Assessor of Nueva Viscaya informing the former of the initial appraisal and assessment of CE Casecnan’s properties, with the corresponding Tax Declarations containing “Notices of Assessment”printed thereon.
Under the provisions of Section 226 of the LGC, CE Casecnan had sixty (60) days from the date of receipt of the written notices of assessment within which to appeal the assessment to the LBAA. The records do not show that CE Casecnan ever made such an appeal. In fact, CE Casecnan admitted that it did not think the assessment was invalid.
Since CE Casecnan failed to exercise its right to appeal as provided in Section 226 of the LGC, the subject assessment had become final and unappealable.
CE Casecnan’s Second Assigned Error/Issue:
THE LBAA ERRED IN RULING THAT CE CASECNAN IS LIABLE FOR REAL PROPERTY TAX.

In Par. No. 22 of CE Casecnan’s LBAA Appeal dated October 19, 2005 (CBAA Case Folder No. 1, p. 268), CE Casecnan stated:
“22. In fact, even the LBAA has ordered the NIA – not CE Casecnan – to pay the subject real property taxes. The dispositive portion of the LBAA Decision dated December 1, 2004 clearly provides:

‘Accordingly, the instant Protest is hereby DISMISSED and the protestant [the NIA] is hereby ordered to pay the corresponding taxes due the protestees.’”

This error or issue has been thoroughly discussed on page 11 of this Decision under “NIA’s 1st Error/Issue”.
Besides, in Testate Estate of Concordia T. Lim v. City of Manila, the Supreme Court ruled:
“In real estate taxation, therefore, the unpaid tax attaches to the property and is chargeable against the taxable person who had actual or beneficial use and possession of it regardless of whether nor not he is the owner.” (Emphasis supplied)

In the instant case, it is CE Casecnan which has the actual use and possession of the subject properties. CE Casecnan, therefore, is the one liable for the real property tax on the subject properties. Of course, pursuant to the provisions of Article 11 of the Casecnan Agreement, CE Casecnan may, after paying the RPT due on the Project, invoice NIA for reimbursement. But, as already stated, the terms and conditions of such Agreement are enforceable only by and between NIA and CE Casecnan.
CE Casecnan’s Third Assigned Error/Issue:ASSUMING THAT THERE WAS A VALID TAX ASSESSMENT AGAINST CE CASECNAN, THE MACHINERY AND EQUIPMENT USED IN THE PROJECT ARE EXEMPT FROM TAXATION BECAUSE THEY ARE ACTUALLY, DIRECTLY AND EXCLUSIVELY USED BY THE NIA.
CE Casecnan’s Fourth Assigned Error/Issue:
ALL OTHER PROPERTIES NOT EXCLUDED ARE SUBJECT TO RATE OF TEN PER CENT (10%).
The third (3rd) and fourth (4th) errors or issues raised by CE Casecnan were thoroughly discussed under CBAA Case No. 60, pages 15-18 hereof.
WHEREFORE, premises considered, the instant Appeal of National Irrigation Administration (NIA), docketed as CBAA Case No. L-60, and that of CE Casecnan Water and Energy Co., Inc., docketed as CBAA Case No. L-74, are hereby DISMISSED.
SO ORDERED.

Manila, Philippines, December 5, 2013.

SIGNED
OFELIA A. MARQUEZ
Chairman

SIGNED SIGNED
ROBERTO D. GEOTINA CAMILO L. MONTENEGRO
Member Member