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

CE CASECNAN WATER AND ENERGYCOMPANY, INC.,
Petitioner-Appellant,
CBAA CASE NOS. L-68, L-73 & L-78
-versus-(LBAA Case Nos. 001-05, 001-06
& 001-06-A)
LOCAL BOARD OF ASSESSMENT APPEALS OF THE PROVINCE OF NUEVA ECIJA,
Appellee,

-and-

THE PROVINCE OF NUEVA ECIJA, THE PROVINCIAL GOVERNOR, PROVINCIAL ASSESSOR, PROVINCIAL TREASURER, AND ASST. PROVINCIAL TREASUREROF THE PROVINCE OF NUEVA ECIJA,
Respondents-Appellees.

NATIONAL IRRIGATION ADMINIS-TRATION and THE DEPARTMENT OF FINANCE,
As Necessary Parties.
X- – – – — – – – – – – – – – – – – – – – – – – /

D E C I S I O N

This case is a consolidation of three (3) Appeals made by Petitioner-Appellant from the Decisions of the Local Board of Assessment Appeals for the Province of Nueva Ecija(“LBAA”) whichdismissed all three Petitioner-Appellant’s Appeals thereat for lack of merit. The said Appeals are as follows, to wit:
[1] CBAA Case No. L-68, from the Decision of the LBAA rendered on January 26, 2006 in LBAA Case No. 001-05;

[2] CBAA Case No. L-73, from the Decision of the LBAA rendered on October 8, 2006 in LBAA Case No. L-73; and

[3] CBAA Case No. L-78, from the Decision of the LBAA rendered on February 9, 2007 in LBAA Case No. 001-06-A.

BACKGROUND FACTS

On June 26, 1995, CE CASECNAN WATER AND ENERGY COMPANY, INC. (“CE Casecnan”, for brevity) entered into a Build-Operate-Transfer contract with the NATIONAL IRRIGATION ADMINISTRATION (“NIA”, for short) denominated as “Amended and Restated Casecnan 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”).
On September 29, 2003, CE Casecnan and NIA executed a “Supplemental Agreement Regarding the Amended and Restated Casecnan Project Agreement” (“Supplemental Agreement”) with respect to the Project, which was approved by the DOF.
Pursuant to the Agreement, CE Casecnan constructed, financed and now operates the Project.
The Project is a combined irrigation and power generation facility intended to harness the full potential of the Pantabangan Dam in Gapan, Nueva Ecija, by diverting approximately 800 million 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

CBAA CASE NO. L-68:

1. On April 11, 2003, the Office of Respondent ProvincialAssessor received a document entitled “Casecnan Project Real Property Declaration” dated 29 September 2005. Said document was signed by David Baldwin, former president of herein appellant.

2. Attached to said document (Annex “R”) was a notarized document entitled “CE Casecnan Water and Energy Co., Inc. – List of Property and Plant Equipment” which had a total value of P3,829,260,940.13, as per appellant’s declaration.

3. Subsequently, nine (9) declarations of real property were issued under the name of the appellant as “OWNER” by respondent Assessor which wereindicated as Tax Declaration Nos. 93-18009-00489 to 18009-00496 and 93-18009-00498. The nine declarations of real property contained an annotation stating:

“Idiniklarasapagbubuwissailalimng R.A. 7160, lakipangsinumpaangsalaysayni David A. Baldwin-Presidenteng CE Casecnan Water and Energy Co., Inc., at NotaryadoniNotaryoPubliko Marietta B. Saludaganuongika 10 ngAbril, 2003 salungsodng Makati.”

4. On 2 August 2005, a “Notice of Assessment of Real Property” was sent to Mr. David A. Baldwin by respondent Assessor. On even date, a “Statement of Real Property Tax Account” and “Order of Payment” were sent to the appellant by the Office of the Respondent Provincial Treasurer. The “Order of Payment” sought the payment of TWO HUNDRED FORTY EIGHT MILLION, SIX HUNDRED SEVENTY SIX THOUSAND, THREE HUNDRED FORTY NINE AND 60/100 PESOS (PhP248,676,349.60) as RPT for the years 2003-2005.

5. Petitioner-Appellant admits to have received on September 5, 2005 copies of the documents mentioned in the immediately preceding paragraph.

6. On September 30, 2005, the appellant filed its Appeal before the LBAA to “nullify as incorrect, invalid and/or void the real property tax assessments in the total amount of P248,676,349.60 made by the respondents-appellees Provincial Treasurer and Provincial Assessor on CE Casecnan’s real properties in the Municipality of Pantabangan, Nueva Ecija.” The Appeal was docketed as LBAA Case No. 001-05.

7. After receipt by the appellant of the “Order of Payment” directing the payment of the amount of P248,676,349.60 as RPT for the years 2002-2005, the appellant paid the said amount under protest on December 28, 2005.

8. The respondents-appellees filed their Answer to the Appeal on January 18, 2006.

9. On January 26, 2006, the respondent LBAA rendered is decision, the dispositive portion of which reads:

“In sum, this Board finds the grounds raised by CASECNAN in its appeal to be lacking in merit, in law and fact. Such being the case, it has no other recourse but to DISMISS the instant appeal of CASECNAN, and to declare the tax assessment made by the PROVINCE to be correct, valid and justified.”

10.On January 27, 2006, the appellant filed a written protest questioning the collection of the amount of P248,676,349.60 by the appellee Treasurer and likewise prayed for a refund of the amount paid. The protest was not resolved by the appellee Treasurer’s Office within the 60-day period prescribed under Section 252 of the LGC.

11. On February 23, 2006, the appellant filed an Appeal with this Boardto question the above Decision of the LBAA, which Appeal was docketed as CBAA Case No. L-68. Appellant raised the following as its grounds for the Appeal:

I. THE APPEALED NUEVA ECIJA LBAA DECISION (ANNEX “A”) IS VOID FOR VIOLATION OF CASECNAN’S RIGHT TO DUE PROCESS AND THE LBAA RULES.

II. THE NUEVA ECIJA LBAA SERIOUSLY ERRED IN NOT HOLDING THAT THE ASSESSMENT IS INCORRECT, INVALID OR VOID DUE TO THE ABSENCE OF A DULY PROMULGATED SCHEDULE OF FAIR MARKET VALUES.

III. THE NUEVA ECIJA LBAA SERIOUSLY ERRED IN HOLDING THAT THE MACHINERIES AND EQUIPMENT COVERED BY THE ASSESSMENT ARE NOT EXEMPT FROM REAL PROPERTY TAXATION.

IV. THE NUEVA ECIJA LBAA SERIOUSLY ERRED IN NOT HOLDING THAT THE SUBTERRANEAN TRANSBASIN TUNNEL COVERED BY THE ASSESSMENT IS NOT SUBJECT TO REAL PROPERTY TAXATION.

V. THE NUEVA ECIJA LBAA SERIOUSLY ERRED IN HOLDING THAT CE CASECNAN IS NOT ENTITLED TO ANY ALLOWANCE FOR DEPRECIATION ON THE MACHINERIES AND EQUIPMENT COVERED BY THE ASSESSMENT ON THE GROUND THAT THE PROPERTIES WERE DECLARED BY CE CASECNAN FOR THE FIRST TIME AND WERE ALSO ASSESSED FOR REAL PROPERTY TAXATION FOR THE FIRST TIME.

VI. THE NUEVA ECIJA LBAA SERIOUSLY ERRED IN HOLDING THAT CE CASECNAN IS NOT ENTITLED TO A 10% ASSESSMENT LEVEL ON THE REMAINING PROPERTIES COVERED BY THE ASSESSMENT THAT ARE NOT OTHERWISE EXEMPT FROM REAL PROPERTY TAXATION.

VII. THE NUEVA ECIJA LBAA SERIOUSLY ERRED IN NOT HOLDING THAT NIA IS THE PARTY LIABLE TO PAY THE REAL PROPERTY TAXES ON THE PROJECT.

CBAA CASE NO. L-73:

12.On March 23, 2006, as admitted by appellant in its Appeal, the appellee Provincial Treasurer sent a letter to the appellant demanding payment of real property taxes (RPT) for the year 2006 amounting to FORTY-THREE MILLION SIX HUNDRED THIRTY-ONE THOUSAND TWENTY-EIGHT AND64/100 PESOS (PhP43,631,028.64), on or before March 31, 2006 in order for the appellant to avail of the discounts for prompt payment.

13. On March 31, 2006, the appellant “paid under protest” the RPT for 2006.

14. On April 27, 2006, the appellant filed a Protest with the Provincial Treasurer’s Office to question the collection of the 2006 RPT and to seek a refund of the amount paid. The appellees filed their comment to the protest which was replied to by the appellant. However, the protest was not resolved by the Provincial Treasurer’s Office.

15. On August 4, 2006, the appellant filed an Appeal with the LBAA to question the collection of the 2006 RPT and asked for the refund of the amount paid. A comment was filed by the appelleeswhich was responded to by the appellant.

16. On October 8, 2006, the LBAA rendered its Decision, the dispositive portion of which reads:

“WHEREFORE, in the light of all the foregoing, let the instant Appeal of CE CASECNAN dated August 4, 2006 be DISMISSED, for lack of merit.”

17. The appellant appealed the Decision to this Board on December 13, 2006 raising the following grounds:

I. TheLBAA seriously erred in holding that Respondents-Appellees are authorized to collect real property taxes (RPT) from CE Casecnan notwithstanding the pendency of CBAA Case L-68, and in not finding that the protested collection of the 2006 RPT assessment is illegal, baseless and premature in view of the CE Casecnan’s pending appeal in CBAA Case No. L-68.

A. Respondents-Appellees are deemed to have admitted that CBAA Case No. L-68 involved substantial and prejudicial issues.

B. CBAA Case No. L-68 involves substantial prejudicial grounds/issues which are determinative of the validity/legality of the protested collection of the 2006 RPT assessment.

C. CBAA Case No.L-68 involves substantial prejudicial grounds which are determinative of whether or not the 2006 RPT assessment, on which the protested collection is based, is correct or valid.

II. TheLBAA seriously erred in upholding Respondents-Appellees’ collection of the 2006 RPT on the basis of irrelevant or inapplicable legal provisions or principles.

A. There is no dispute that CBAA Case No.L-68 involves prejudicial issues determinative of the right to collect any RPT from CE Casecnan.

B.Sections 129, 231 and 252 of the LGC and Section 2A.34 of the Revenue Code of Respondent-Appellee Province are irrelevant and inapplicable.

C. The LBAA seriously erred in upholding the Respondents-Appellees’ assessment and collection of 2006 RPT from CE Casecnan (a) on the ground that unless declared void, invalid and baseless, by final judgment, the assessment made by the Respondent-Appellees is lawful and with basis and (b) on the basis of the principle of presumption of regularity of official duty.

D. The lifeblood theory of taxation does not authorize Respondents-Appellees’ assessment and illegal collection of 2006 RPT.

III. The LBAA seriously erred in not finding that under existing laws, taxes paid under protest are held “in trust” by Respondent-AppelleeProvincial Treasurer.

CBAA CASE NO. L-78:

18. On May 19, 2006, the appellant filed an appeal before the LBAA docketed as LBAA Case No. 001-06-A. The appeal reiterated the same grounds stated in its January 27, 2006 protest. A Comment, Reply, Rejoinder and Sur-rejoinder were filed. On February 27, 2007, the LBAA rendered the Decision, the dispositive portion of which reads as follows:

“WHEREFORE, facts and circumstances considered, the instant Appeal of the CE Casecnan Water and Energy Company, Inc. dated May 16, 2006 is hereby DISMISSED for lack of merit.”

19. On March 23, 2007, Petitioner-Appellant appealed the above Decision to this Board which docketed the appeal as CBAA Case No. L-78.

20. On May 7, 2012, this Board received NIA’s Memorandum dated April 30, 2012. NIA merely confirmed what had been stated by CE Casecnan in the latter’s pleadings under the proposition that “NIA is the beneficial owner of the Project and actually uses the Project and the real properties on it.”

21. On May 14, 2012, Petitioner-Appellant filed its Memorandum of even date.

22. On May 24, 2012, Respondents-Appellees filed their Memorandum dated May 16, 2012.

23. On July 9, 2012, CE Casecnan filed its “Reply to Respondents-Appellees’ Memorandum” of even date. In this “Reply”, CE Casecnan merely refuted Respondents-Appellees’ refutations in the latter’s memorandum dated May 12, 2012. CE Casecnan ended up in repetitiously repeating what it had stated in its appeals and memorandum.

24. In its Memorandum dated May 14, 2012, CE Casecnan prays that the CBAA renders a Decision:

“[a] in CBAA Case No. L-68, ANNULLING and SETTING ASIDE the LBAA of Nueva Ecija’sDecision dated January 26, 2006 in LBAA Case No. 001-05, and RULING instead that: (i) the Project properties are exempt from RPT in accordance with Section 234(c) of the LGC; (ii) the subterranean transbasin tunnel covered by the 2002-2005 Notice of Assessment is not subject to RPT; (iii) assuming the Project properties are not exempt from RPT, CE Casecnan is entitled to allowance for depreciation on the machinery and equipment covered by the 2002-2005 Notice of Assessment; and (iv) assuming the Project properties are not exempt from RPT, CE Casecnan is entitled to a ten percent (10%) assessment level on the remaining properties covered by the 2002-2005 Notice of Assessment that are not otherwise exempt from RPT;

“[b] in CBAA Case No. L-73, ANNULLING and SETTING ASIDEthe LBAA of Nueva Ecija’s Decision dated October 8, 2006 in LBAA Case No. 001-06, and instead ORDERING respondent-appellee Provincial Treasurer of Nueva Ecija to REFUNDthe RPT for the year 2006 in the amount of PhP43,631,028.64 paid by CE Casecnan under protest; and

“[c] in CBAA Case No. L-78, ANNULLING and SETTING ASIDE the LBAA of Nueva Ecija’sDecision dated February 9, 2007 in LBAA Case No. 001-06-A and instead ORDERING respondent-appellee Provincial Treasurer of Nueva Ecija to REFUND the RPT for the years 2002-2005 in the amount of PhP248,676,349.60 paid by CE Casecnan under protest.

“Other just and equitable relief is likewise prayed for.”

Petitioner-Appellant raised the following “Arguments” in its Memorandum dated May 14, 2012 and in its Reply dated July 9, 2012, to wit:
I. The LBAA of Nueva Ecija’sDecision dated January 26, 2006, subject of CBAA Case No. L-68, is void for violation of CE Casecnan’s right to due process and the LBAA Rules.

II.The LBAA of Nueva Ecija seriously erred in not holding that the Respondents’ assessment are incorrect, invalid or void due to the absence of a duly promulgated Schedule of Fair Market Values.+

III.Assuming that there was a valid assessment against CE Casecnan, it is NIA, not CE Casecnan, which is the entity liable to pay RPT for the Project, if any.

IV. The Supreme Court’s ruling in “NPC v. CBAA” and “NPC v. Province of Quezon” are not applicable here.

V. Assuming that there was a valid 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 NIA.

VI. Assuming that there was a valid assessment against CE Casecnan, the LBAA of Nueva Ecija seriously erred in not holding that the subterranean transbasin tunnel covered by the 2002-2005 Notice of Assessment is not subject to RPT.

VII. Assuming that there was a valid assessment against CE Casecnan, the LBAA of Nueva Ecija seriously erred in holding that CE Casecnan is not entitled to any allowance for depreciation on the machinery and equipment covered by the 2002-2005 Notice of Assessment on the ground that the properties were declared by CE Casecnan for the first time and were also assessed for RPT for the first time.

VIII. Assuming that there was a valid assessment against CE Casecnan, the LBAA of Nueva Ecija seriously erred in holding that CE Casecnan is not entitled to a ten percent (10%) assessment level on the remaining properties covered by the 2002-2005 Notice of Assessment that are not otherwise exempt from RPT.

IX. The LBAA seriously erred in holding that Respondents-Appellees are authorized to collect real property taxes (“RPT”) from CE Casecnan notwithstanding the pendency of CBAA Case L-68, and in not finding that the protested collection of the 2006 RPT assessment is illegal, baseless and premature in view of the CE Casecnan’s pending appeal in CBAA Case No. L-68.

X. The LBAA seriously erred in not finding that under existing laws, taxes paid under protest are held “in trust” by Respondent-Appellee Provincial Treasurer.

The last two “arguments” were raised by CE Casecnan in CBAA Case No. L-73 but were not included in its memorandum for the consolidated cases. However, since respondents dealt with them in their own Memorandum, CE Casecnanrevived them again in its Reply.
A perusal of the three (3) appeals and the Memorandum for the consolidated cases would reveal that the “arguments” or errors raised in all these cases could be, as they are hereby, revised and arranged as issues, to wit:
1. Whether or not the decision in Nueva EcijaLBAA Case No. 001-05 is void for being rendered in violation of the appellant’s right to due process and the LBAA Rules.

2. Whether or not the Nueva Ecija LBAA erred in not holding that the assessment is incorrect, invalid or void due to the absence of a duly promulgated schedule of fair market values.

3. Whether or not the Nueva Ecija LBAA erred in holding that the machineries and equipment covered by the assessment are not exempt from real property taxation.

4. Assuming there was a valid assessment, whether it is NIA or CE Casecnan which is liable to pay the RPT.

5. Whether or not the Nueva Ecija LBAA seriously erred in holding that CE Casecnan is not entitled to a 10% assessment level on the remaining properties covered by the assessment that are not otherwise exempt from real property taxation.

6. Whether or not the Nueva Ecija LBAA seriously erred in not holding that the subterranean transbasin tunnel covered by the assessment is not subject to real property taxation.

7. Whether or not the Nueva Ecija LBAA seriously erred in holding that CE Casecnanis not entitled to any allowance for depreciation on the machineries and equipment covered by the assessment on the ground that the properties were declared by CE Casecnan for the first time and were also assessed for real property taxation for the first time.

8. The LBAA seriously erred in holding that Respondents-Appellees are authorized to collect real property taxes (“RPT”) from CE Casecnan notwithstanding the pendency of CBAA Case L-68, and in not finding that the protested collection of the 2006 RPT assessment is illegal, baseless and premature in view of the CE Casecnan’s pending appeal in CBAA Case No. L-68.

9. The LBAA seriously erred in not finding that under existing laws, taxes paid under protest are held “in trust” by Respondent-Appellee Provincial Treasurer.

DISCUSSIONS

Issue No. 1:
WHETHER OR NOT THE DECISION IN NUEVA ECIJA LBAA CASE NO. 001-05 IS VOID FOR BEING RENDERED IN VIOLATION OF THE APPELLANT’S RIGHT TO DUE PROCESS AND THE LBAA RULES.

Petitioner-Appellant’s Arguments

Petitioner-Appellant argues that the Decision in LBAA Case No. 001-05 was rendered by the LBAA without a hearing, in violation of the provisions of Section 229 of the LGC and Section 1 of Rule VI and Section 2 of Rule VII, both of the LBAA Rules, thus denying Petitioner-Appellant’s right to due process.
Section 229 of the LGC provides as follows:

“SEC. 229.Action by the Local Board of Assessment Appeals. – (a) The Board shall decide the appeal within one hundred twenty (120) days from the date of receipt of such appeal. The Board, after hearing, shall render its decision based on substantial evidence or such relevant evidence on record as a reasonable mind might accept as adequate to support the conclusion.

“(b) In the exercise of its appellate jurisdiction, the Board shall have the power to summon witnesses, administer oaths, conduct ocular inspections, take depositions, and issue subpoenaand subpoena ducestecum. The proceedings of the Board shall be conducted solely for the purpose of ascertaining the facts without necessarily adhering to technical rules applicable in judicial proceedings.

“x xx.” (emphasis supplied)

On the other hand, Section 1 of Rule VI and Section 2 of Rule VII, both of the LBAA Rules provide, thus:
“RULE VI
“DECISION

“Section 1.Period to Decide.- The Local Board shall decide the appeal within one hundred twenty (120) days from the date of receipt of such appeal. The Board, after hearing, shall render its decision based on substantial evidence or such relevant evidence on record as a reasonable mind might accept as adequate to support the conclusion.” (emphasis supplied)

“RULE VII
“POWERS AND DUTIES OF LOCAL BOARDS

“Section 1.Duties. – The Local Board shall conduct hearings on all appealed cases and render decisions thereon within the periods prescribed by law. . .” (emphasis supplied)

Petitioner-Appellant also cited the Supreme Court rulings Bacus v. Ople and Halili v. Court of Industrial Relations, thus:
Bacus v. Ople

“The principle of due process furnishes a standard to which governmental action should conform is (sic) order to impress it with the stamp of validity. Fidelity to such standard must of necessity be the overriding concern of government agencies exercising quasi-judicial functions. Although a speedy administration of action implies a speedy trial, speed is not the chief objective of a trial. Respect of the rights of all parties and the requirements of procedural due process equally apply in proceedings before administrative agencies with quasi-judicial perspective in administrative decision making and for maintaining the vision which led to the creation of the administrative office. (Citing Amberto V. Court of Appeals, 89 SCRA 240 and Baguio Country Club Corporation v. National Labor Relations Commission, 118 SCRA 557).”

Halili v. Court of Industrial Relations

“It is a settled rule that in administrative proceedings, or cases coming before administrative tribunals exercising quasi-judicial powers, due process requires not only notice and hearing, but also the consideration by the administrative tribunal of the evidence presented; the existence of evidence to support the decision; its substantiality; a decision based thereon or at least contained in the record and disclosed to the parties, such decision by the administrative tribunal resting on its own independent consideration of the law and facts of the controversy; and such decisions acquainting the parties with the various issues involved and the reasons thereof (Citing AngTibay v. Court, 69 Phil. 635, cited on p. 84, Philippine Constitutional Law, Fernando, 1984 ed.)”

CBAA’S FINDINGS/RULING

Petitioner-Appellant’s right to due process was not violated in LBAA Case No. 001-05.

CE Casecnan is the petitioner-appellant in LBAA Case No. 001-05. It goes without saying that Petitioner-Appellant initiated the case by filing an appeal with the LBAA of Nueva Ecija on September 30, 2005, attaching thereto certain documents in support of the same appeal. Respondents-Appellees filed their comment to the appeal on January 18, 2006, a copy of which, appellant acknowledged to have received on January 24, 2006. When the LBAA’s Decision dated January 26, 2006 came out, Petitioner-Appellant cried foul: that it was denied its right to be heard.
“”To be heard” does not mean verbal argumentation alone inasmuch as one may be heard just as effectively through written explanations, submissions or pleadings.” The LBAA is an administrative body having quasi-judicial powers tasked to determine the correctness of the assessment imposed upon a taxpayer by the local assessor. Section 229 (b) of the R.A. 7160, otherwise known as the Local Government Code of 1991, provides that “the proceedings of the Board shall be conducted solely for the purpose of ascertaining the facts without necessarily adhering to technical rules applicable in judicial proceedings.” The bulk of evidence required in a case involving real property taxation is documentary in nature. Oral testimony may be useful in explaining some ambiguous assertions/statements in the pleadings but it cannot override documentary evidence.
In George De Bisschop vs. Emilo L. Galang, the Supreme Court ruled:
“The fact should not be lost sight of that we are dealing with an administrative proceeding and not with a judicial proceeding. As Judge Cooley, the leading American writer on Constitutional Law, has well said, due process of law is not necessarily judicial process; much of the process by means of which the Government is carried on, and the order of society maintained, is purely executive or administrative, which is as much due process of law, as is judicial process. While a day in court is a matter of right in judicial proceedings, in administrative proceedings, it is otherwise since they rest upon different principles. * * * In certain proceedings, therefore, of an administrative character, it may be stated, without fear of contradiction, that a right to a notice and hearing are not essential to due process of law.” (Cornejo vs. Gabriel and Provincial Board of Rizal, 41 Phil. 188, 193-194) (Emphasis supplied)

The LBAA’s Decision in LBAA Case No. 001-05 contained findings of fact and of law as adduced from appellant’s appeal and from respondents’ Comment/Answer. In any case, if there had been any infirmities in the proceedings before the LBAA, such infirmities had been cured by the series of hearings conducted before this Board. In Assistant Executive Secretary vs. Court of Appeals, the Supreme Court ruled:
“Even assuming that there was absence of notice and opportunity to be present in the administrative proceedings prior to the rendition of the 10 February 1969 and 13 May 1969 Decisions by the Office of the President, such procedural defect was cured when MENDOZA elevated his letter protest to the Office of the President, which subjected the controversy to appellate review but eventually denied reconsideration. Having thus been given a chance to be heard with respect to this protest there is sufficient compliance with the requirements of due process.”

Issue No. 2:
WHETHER OR NOT THE NUEVA ECIJA LBAA ERRED IN NOT HOLDING THAT THE ASSESSMENT IS INCORRECT, INVALID OR VOID DUE TO THE ABSENCE OF A DULY PROMULGATED SCHEDULE OF FAIR MARKET VALUES.

Petitioner-Appellant’s Arguments

Petitioner-Appellant argues that the questioned assessments are incorrect, invalid or void because (a) the same questioned assessments were not based on any Schedule of Fair Market Values required under the provisions of Section 212 of the LGC, but were merely based on the Declaration of Real Property submitted by Petitioner-Appellant pursuant to the requirements of the LGC.
Said Section 212 of the LGC provides:

“SEC. 212.Preparation of Schedule of Fair Market Values. – Before any general revision of property assessment is made pursuant to the provisions of this Title, there shall be prepared s schedule of fair market values by the provincial, city or municipal assessors of the municipalities within the Metropolitan Manila Area for the different classes of real property situated in their respective local government units for enactment by ordinance of the sanggunian concerned. The schedule of fair market values shall be published in a newspaper of general circulation in the province, city of municipality concerned, or in the absence thereof, shall be posted in the provincial capitol, city or municipal hall and in two other conspicuous public places therein.”

CBAA’S FINDINGS/RULING

The LBAA did not err in holding that the questioned assessments are valid even in the absence of a Schedule of Fair Market Values.

The appellant insists that the LBAA erred in not holding that the 2002-2006 assessments are null and void “because the appraised market values of the subject properties are not based on any Schedule of Fair Market Values duly promulgated through a valid ordinance enacted by the Province of Nueva Ecija.” It likewise asserted that “a careful review of both the 2002-2005 Assessment (Annex “F” of Appeal)and of the affidavit of Baldwin (Annex “R” of Appeal) shows that the Respondent Provincial Assessor merely adopted the market value in Baldwin’s Affidavit.”
Respondents admit that the 2002-2005 and 2006 assessments of appellant’s properties were indeed based on the market values stated in the affidavit of appellant’s former president, David Baldwin. The said assessments, however, were made by the Provincial Assessor on the strength of the provisions of Section 220 of the LGC, thus:
“SEC. 220.Valuation of Real Property. – In case where (a) real property is declared and listed for taxation purposes for the first time; (b) there is an ongoing general revision of property classification and assessment; or (c) a request is made by the person in whose name the property is declared, the provincial, city or municipal assessor or his duly authorized deputy shall, in accordance with the provisions of this Chapter, make a classification, appraisal and assessment of the real property listed and described in the declaration irrespective of any previous assessment or taxpayer’s valuation thereon: Provided, however, That the assessment of real property shall not be increased oftener than once every three (3) years except in case of new improvements substantially increasing the value of said property or of any change in its actual use.”

As stated by Petitioner-Appellant, the commercial operation of the Project commenced on December 11, 2001. The questioned assessments started with the calendar year 2002. It is, therefore, safe to assume that the subject properties were declared and listed for taxation purposes for the first time.
On pages 15-16 of their Memorandum dated May 16, 2012, Respondents-Appellees stated:
“There is no gainsaying the fact that the project is a (sic) not an ordinary infrastructure that can be easily found within the province of Nueva Ecija. In fact, the rarity and novelty of the project is not lost to the appellant and the NIA when in “Whereas Clause” of the Amended and Restated Casecnan Project Agreement, the following is stated:

‘WHEREAS, pursuant to Section 5of the BOT Act, NIA published an “invitation for Proposals” for three consecutive weeks in a newspaper of general circulation, and no comparative or competitive proposals were received during the sixty (60) working day period mandated by the BOT Act, which period expired on September 30, 1994.’

“It can therefore be fairly inferred through this clause that the project has no comparable structure anywhere in the Philippines, hence no schedule of fair market value would suffice to describe the market value of the project. In such factual setting, the opinion of Atty. CiprianoCabaluna is worthy to note when he said: ‘Real property shall be valued for taxation purposed (sic) on the basis on (sic) the schedule of market values prepared for the city or municipality. As far as property application, such schedule shall be controlling except where the property to be assessed is not the same kind as classified in the schedule, or where the value is not fixed. The same shall be valued at its market value independently of said schedule.’ (Page 113, Real Property Taxation (Annotated), © 2002.)

“It bears stressing that the equipment and machineries subject of this appeal and covered under Tax Declaration No. 93-18009-00498 cannot be based on a schedule of fair market values because their valuation is covered by Section 224 of the LGC which depends for its market value the acquisition cost of the equipment. Since the appellee Provincial Assessor had no other means of determining the market value of the equipment and machineries at the time the assessment was made, she had to rely on the affidavit of Mr. Baldwin which can be given credence at that time as Mr. Baldwin had the competence to state the values of their properties and there being no evidence to the contrary then existing, respecting its true and actual value. (The values of appellant’s properties had since been re-assessed after the filing of CBAA Case No. L-78.) For the appellant to insist that the listing of fair market values stated by Mr. Baldwin is inaccurate would be admitting that their former president committed falsehood, thus the appellant is estopped from making assertions that contest or question the market values of their properties.”

We fully agree with the above observations by respondents.Besides, a “Schedule of Fair Market Values” is only required as basis for a “general revision of property assessment”. Thus, Section 212 of R.A. 7160 provides:
“SEC. 212.Preparation of Schedule of Fair Market Values. – Before any general revisions of property assessment is madepursuant to this Title, there shall be prepared a schedule of fair market values by the provincial, city of municipal assessors of the municipalities within the Metropolitan Manila Area for the different classes of real property situated in their respective local government units for enactment by ordinance of the sanggunian concerned. The schedule of fair market values shall be published in a newspaper of general circulation in the province, city or municipality concerned, or in the absence thereof, shall be posted in the provincial capitol, city or municipal hall and in two other conspicuous places therein.”
Issue No. 3:
WHETHER OR NOT THE NUEVA ECIJA LBAA ERRED IN HOLDING THAT THE MACHINERIES AND EQUIPMENT COVERED BY THE ASSESSMENT ARE NOT EXEMPT FROM REAL PROPERTY TAXATION.

Petitioner-Appellant’s Arguments

Petitioner-Appellant says that:

“In Mactan Cebu International Airport Authority v. Marcos (261 SCRA 667 [1996]), the Supreme Court explained the nature of the tax exemptions in Section 234 as follows:

‘These exemptions are based on the ownership, character, and use of the property. Thus:

‘(a) Ownership Exemptions. Exemptions from real property taxes on the basis of ownership are real properties owned by (i) the Republic; (ii) a province, (iii) a city, (iv) a municipality, (v) a barangay, and (vi) registered cooperatives.

‘(b) Character Exemptions.Exempted from real property taxes on the basis of their character are: (i) charitable institutions, (ii) houses and temples of prayer like churches, parsonages or convents appurtenant thereto, mosques, and (iii) non-profit or religious cemeteries.

‘(c) Usage exemptions.Exempted from real property taxes on the basis of the actual, direct and exclusive use to which they are devoted are: (i) all lands, buildings and improvements which are actually, directly and exclusively used for religious, charitable or educational purposes; (ii) all machineries and equipment actually, directly and exclusively used by local water districts or by government-owned or controlled corporation (sic) engaged in the supply and distribution of water and/or generation and transmission of electric power; and (iii) all machinery and equipment used for pollution control and environmental protection.’ (underscoring supplied)

“Based on the foregoing, the test in Section 234 (c) is usage andnot ownership. Where usage is the test, ownership is immaterial.

“Section 234 (c) will apply where NIA actually, directly, and exclusively uses the machinery and equipment in the supply and distribution of water and/or generation and transmission of electric power. This involves a determination of the meaning of the phrase “actually, directly and exclusively used.” The meaning of these terms are as follows:

“(a) “use” – The word “use” should not be considered only in an active sense, i.e., “to carry out.” It can also mean “to avail oneself of” and “to utilize” (Black’s Law Dictionary, at p. 1541 [6th ed. 1990]). Hence, it may mean to benefit from or take advantage of. With respect to property, the word “use” has been defined in relation to “enjoyment”. (See id. Black’s Law Dictionary also defines “use” as “[t]hat enjoyment of property which consists in its employment, occupation, exercise or practice.”) “Use” means that the user is to enjoy, hold, occupy or have in some manner benefit of the thing used (Words and Phrases, vol. 43 (A), at p. 242). The Concise Oxford Dictionary defines “use” as cause to act or serve for a purpose; bring into service, avail oneself of (Conaise Oxford Dictionary, at p. 1352 [1990]).

“(b) “actually” – the word “actually” is opposed to “seemingly, pretendedly or feignedly (Black’s Law Dictionary, at p. 34 [6th ed. 1990]).

“(c) “directly” – The word “directly” means something “immediate or proximate” (Black’s Law Dictionary, at p. 459 [6th ed. 1990]).

“(d) “exclusively” – The Supreme Court has interpreted this word as not meaning “purely” or “solely”:

‘In the case of Bishop of Nueva Segovia v. Provincial Board of IlocosNorte, 51 Phil. 352 [1972], this Court included in the exemption a vegetable garden in an adjacent lot and another lot formerly used as a cemetery. It was clarified that the term “used exclusively” considers incidental use also. Thus, the exemption from payment of land tax in favor of the convent includes, not only the land actually occupied by the building but also the adjacent garden devoted to the incidental use of the parish priest. The lot which is not used for commercial purposes but serves solely as a sort of lodging place, also qualifies for exemption because this constitutes incidental use in religious functions . . . .

It must be stressed, however, that while this Court allows a more liberal and non-restrictive interpretation of the phrase “exclusively used for educational purposes” as provided for in Article VI, Section 22, paragraph 3 of the 1935 Philippine Constitution, reasonable emphasis has always been made that exemption extends to facilities which are incidental to and reasonably necessary for the accomplishment of the main purpose (Abra Valley College, Inc. v. Aquino, 162 SCRA 106 [1988]). (underscoring supplied)’

“One of the main purposes of the Project is to “divert certain water in the Casecnan Watershed and transfer that water into the Pampanga Watershed at the Pantabangan Reservoir for the NIA’s subsequent irrigation use in the Central Luzon Valley. Another main purpose of the Project is the generation of electric power and the delivery of such power to NIA. NIA has agreed to accept all water delivered from the CE Casecnan watershed to the Pantabangan Reservoir and all electrical energy generated by the Project. In fact, CE Casecnan is obligated to dedicate the entire electrical output of the Project (net of Project usage) to NIA and deliver all water diverted by the Project to the Pantabangan Reservoir.

“With respect to the Project, the requisite of “actual, direct, and exclusive use” by NIA is complied with because:

“While the machinery and equipment are being operated by CE Casecnan, NIA avails itself, and enjoys the benefit of the machinery and equipment since they are the means by which water and electricity are delivered to NIA. The use by NIA is actual because, as a matter of fact, NIA avails itself of the benefits of the machinery and equipment.

“It is direct use because the machinery and equipment are directly or proximately employed for the delivery of water and electricity to NIA.

“The use is exclusive because the machinery and equipment are used primarily for the purpose of supplying water and generating electricity.

“Thus, NIA has actual, direct, and exclusiveuse of the subject properties for the Project by virtue of the BOT Agreement.

“Under its charter, NIA is directed to operate, maintain, and administer all national irrigation systems, including the Project. Thus:

‘Sec. 2.Powers and Objectives. – NIA shall have the following powers and objectives:

(a) To investigate and study all available and possible water resources in the Philippines, primarily for irrigation purposes; to plan, design, construct and/or improve all types of irrigation projects and appurtenant structures; to operate, maintain, and administer all national irrigation system; the authority to supervise the operation, maintenance and repair, or otherwise, administer temporarily, all communal and pump irrigation systems constructed, improved and/or repaired wholly or partially with government funds; and to delegate the partial or full management of national irrigation systems to duly organized cooperatives or associations, under such terms and conditions which the NIA Board of Directors may impose; xxx. (Section 2, Pres. Decree No. 552 [1974]) (emphasis supplied)

“Exercising its mandate, NIA entered into the BOT Agreement, the provisions of which clearly manifest the intention of the parties to confer upon NIA a significant and central role in the construction and operation of the Project. This is evident in the following provisions of the BOT Agreement, among others:

“CE Casecnan must observe the operating criteria, guidelines, and other parameters established by NIA and the National Power Corporation (“NPC”):

‘SECOND SCHEDULE

OPERATING PARAMETERS

The Operator shall operate the Project in accordance with the operating criteria and guidelines of NPC. The Operator shall cooperate with NIA and NPC in establishing emergency plans, including but not limited to recovery from a local or widespread electrical blackout, voltage reduction to effect load curtailment, and other emergencies that may arise. xxx.’

“NIA is empowered to choose, as it did so choose, the site for the Project, thus:

‘THE SITE. (a) NIA shall provide to the Operator, its employees, contractors, sub-contractors, advisors, and designees, at no cost to the Operator or any of such other persons, the site and all necessary rights-of-way, easements, and access to the Site, for the period from the date of this Agreement until the Transfer Date and shall secure necessary access for the Operator to and from the Site between the date hereof and the Effective Date for the purpose of permitting the Operator to undertake any preliminary studies or other work. xxx.’

“CE Casecnan is required to submit to NIA copies of engineering design plans for the Project and NIA must describe to CE Casecnan any flaws perceived in such design.

“NIA has the right to monitor the progress and quality of the design, construction, and installation work:

‘MONITOR PROGRESS. NIA shall be entitled at its own cost to monitor the progress and quality of the design, construction, and installation work. xxx.’

“CE Casecnan must dedicate the entire electrical output of the Project for the benefit of the NIA:

‘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).

‘DELIVERY. NIA agrees to accept all water delivered from the Casecnan Watershed to the Pantabangan Reservoir by the Project and all electrical energy generated by the Project and to pay the fees as specified in the Fifth Schedule (Delivery of Water and Electrical Energy). The Operator shall dedicate the entire electrical output of the Project (net of the Project usage) to NIA and shall deliver all water diverted by the Project to the Pantabangan Reservoir.’ (emphasis supplied)

“CE Casecnan must insure the Project against accidental damage from all normal risks and to a level reasonable acceptable to NIA.

“NIA has various responsibilities with respect to the Project, including the following: (1) NIA is responsible for all claims by third parties relating to the land provided for the Project Site and all necessary rights-of-way and easements; (2) NIA ensures that there is available at the Project Site on a continuing and uninterrupted basis electrical energy, and for this purpose, the NIA must cause NPC to at all times supply and deliver all start-up, stand-by and back-up electrical energy required for the project; (3) NIA must cause NPC to ensure that the transmission line is installed and connected and is capable of operating; (4) NIA must cause NPC to maintain and repair the transmission lines; (5) NIA must ensure that CE Casecnan retains, on a continuing basis, complete and quiet possession of the Project Site and all other land required for the purpose of constructing, maintaining and operating the Project; and (6) NIA is responsible for the maintenance of the Casecnan Watershed.

“These rights and obligations are consistent with NIA’s mandate under its charter ‘to operate, maintain, and administer all national irrigation systems’.

“In City of Baguio v. Busuego, the Supreme Court held that the party enjoying possession, use, and control over the property is liable for the RPT, notwithstanding the retention by another person of the naked ownership. In that case, the City of Baguio instituted a realty tax collection suit against the purchaser notwithstanding that the title to the property was still with the seller. In the contractual stipulation between the purchaser and the seller, the former [the purchaser on instalments] obligated himself to pay the real estate taxes pending completion of the payments, while the latter [the seller who was exempt from taxes] retained title. The Supreme Court held that the contractual stipulation was valid in the absence of any law to the contrary, and affirmed the local government’s assessment for real property taxes against the beneficial owner, or the purchaser in that case. City of Baguio v. Busuegowas cited in Testate Estate of Concordia Lim v. City of Manila (182 SCRA 482 [1990]), which reaffirmed that in City of Baguio v. Busuego, the realty tax liability imposed was held to be valid on the basis of the contractual obligation and the fact that beneficial use had been given to the purchaser.

“In addition, NIA’s admission of beneficial ownership is consistent with the nature of the BOT Agreement which, as distinguished from a Build-Own-Operate scheme, is essentially a financing scheme. Sections 2[b] and 2[d] of Republic Act No. 6957 as amended by Republic Act No. 7718 (“BOT Law”) provide as follows:

‘(b) Build-operate-and-transfer.A contractual arrangement whereby the project proponent undertakes the construction, including financing, of a given infrastructure facility, and the, operation and maintenance thereof. The project proponent operates the facility over the fixed term during which it is allowed to charge facility users appropriate tolls, fees, rentals, and charges not exceeding those proposed in its bid or as negotiated and incorporated in the contract to enable the project proponent to recover its investment, and operating and maintenance expenses in the project. The project proponent transfers the facility to the government agency or local government unit concerned at the end of the fixed term which shall not exceed fifty (50) years. Provided, That in case of an infrastructure or development facility whose operation requires a public utility franchise, the proponent must be Filipino or, if a corporation, must be duly registered with the Securities and Exchange Commission and owned up to at least sixty percent (60%) by Filipinos.

‘The build-operate-and-transfer shall include a supply-and-operate situation which is a contractual arrangement whereby the supplier of equipment and machinery for a given infrastructure facility, if the interest of the Government so requires, operates the facility providing in the process technology transfer and training to Filipino nationals.

‘(d) Build-own-and-operate.A contractual arrangement whereby a project proponent is authorized to finance, construct, own, operate and maintain an infrastructure or development facility from which the proponent is allowed to recover its total investment, operating and maintenance costs plus a reasonable return thereon by collecting tolls, fees, rentals or other charges from facility users: Provided, That all such projects, upon recommendation of the Investment Coordination Committee (ICC) of the National Economic and Development Authority (NEDA), shall be approved by the President of the Philippines. Under this project, the proponent which owns the assets of the facility may assign its operation and maintenance to a facility operator. (emphasis supplied)

“Furthermore, the relevant portion of Section 6 of the BOT Law provides as follows:

‘Section 6.Repayment Scheme.For the financing, construction, operation and maintenance of any infrastructure projects undertaken through the build-operate-and-transfer arrangement or any of its variations pursuant to the provisions of this Act, the project proponent shall be repaid by authorizing it to charge and effect reasonable tolls, fees, and rentals for the use of the project facility not exceeding those incorporated in the contract and, where applicable, the proponent may likewise be repaid in the form of a share in the revenue of the project or other non-monetary payments, such as, but not limited to, the grant of a portion or percentage of the reclaimed land, subject to the constitutional requirements with respect to the ownership of land: xxx.’ (emphasis supplied)

“”BOT” is the terminology for a model or structure that uses private investment to undertake the infrastructure development that has historically been the preserve of the public sector. In essence, the BOT scheme involves the financing by the private sector (rather than by the government) of infrastructure projects but at the same time giving the government control over the project:

The BOT approach to financing infrastructure projects has many potential advantages … and is a viable alternative in most countries to the more traditional approach using sovereign borrowings or budgetary resources. Unlike in a fully privatized approach, the government retains strategic control over the project, which is transferred back to the public sector at the end of the concession period. (emphasis supplied)

“Being essentially a financing arrangement between NIA and CE Casecnan, the fees paid or payable by NIA to CE Casecnan under the BOT Agreement are mere repayments for CE Casecnans investment in, and the financing of, the Project. At the end of the Cooperation Period (i.e., the concession period), at which time CE Casecnan is expected to have recovered its investment in the Project, CE Casecnan is required to transfer to NIA all its rights, title, and interest in and to all assets comprising the Project. Thus, the holding by CE Casecnan of title to the assets comprising the Project is akin to a security arrangement in favor of a lender to ensure recovery of its investment (plus the agreed rate of return) prior to transfer of legal title to the Government.

“CE Casecnan is aware of the ruling in National Power Corporation v. Central Board of Assessment Appeals, et al. (577 SCRA 418) (the “NAPOCOR Case”), promulgated by the Supreme Court’s Second Division. That ruling, however, is not applicable here.

“The facts and ruling in the NAPOCOR Case are summarized in National Power Corporation v. Province of Quezon, et al. (611 SCRA 71, 74 to 77) (the “Second NAPOCOR Case”) as follows:

Background Facts

The Province of Quezon assessed Mirant Pagbilao Corporation (Mirant) for unpaid real property taxes in the amount of P1.5 Billion for the machineries located in its power plant in Pagbilao, Quezon. Napocor, which entered into a Build-Operate-Transfer (BOT) Agreement (entitled Energy Conversion Agreement) with Mirant, was furnished a copy of the tax assessment.

Napocor (nota bene, not Mirant) protested the assessment before the Local Board of Assessment Appeals (LBAA), claiming entitlement to the tax exemptions provided under Section 234 of the Local Government Code (LGC), which states:

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

“xxxx

“(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;

“(e) Machinery and equipment used for pollution control and environmental protection.

“xxxx

Assuming that it cannot claim the above tax exemptions, Napocor argued that it is entitled to certain tax privileges, namely:

a. the lower assessment level of 10% under Section 218 (d) of the LGC for government-owned and controlled corporations engaged in the generation and transmission of electric power, instead of the 80% assessment level for commercial properties imposed in the assessment letter; and

b. anallowance for depreciation of the subject machineries under Section 225 of the LGC.

In the Court’s Decision of July 15, 2009, we ruled that Napocor is not entitled to any of these claimed tax exemptions and privileges on the basis primarily of the defective protest filed by the Napocor. We found that Napocor did not file a valid protest against the realty tax assessment because it did not possess the requisite legal standing. When a taxpayer fails to question the assessment before the LBAA, the assessment becomes final, executory, and demandable, precluding the taxpayer from questioning the correctness of the assessment or from invoking any defense that would reopen the question of its liability on the merits.

Under Section 226 of the LGC, any owner or person having legal interest in the property may appeal an assessment for real property taxes to the LBAA. Since Section 250 adopts the same language in enumerating who may pay the tax, we equated those who are liable to pay the tax to the same entities who may protest the tax assessment. A person legally burdened with the obligation to pay for the tax imposed on the property has the legal interest in the property and the personality to protest the tax assessment.

To prove that it had legal interest in the taxed machineries, Napocor relied on:

1. the stipulation in the BOT Agreement that authorized the transfer of ownership to Napocor after 25 years;

2. its authority to control and supervise the construction and operation of the power plant; and

3. its obligation to pay for all taxes that may be incurred, as provided in the BOT Agreement.

Napocor posited that these indicated that Mirant only possessed naked title to the machineries.

We denied the first argument by ruling that legal interest should be one that is actual and material, direct and immediate, not simply contingent or expectant. We disproved Napocor’s claim of control and supervision under the second argument after reading the full terms of the BOT Agreement, which, contrary to Napocor’s claims, granted Mirant substantial power in the control and supervision of the power plant’s construction and operation.

For the third argument, we relied on the Court’s rulings in Baguio v. Busuego and Lim v. Manila. In these cases, the Court essentially declared that contractual assumption of tax liability alone is insufficient to make one liable for taxes. The contractual assumption of tax liability must be supplemented by an interest that the party assuming the liability had on the property; the person from whom payment is sought must have also acquired the beneficial use of the property taxed. In other words, he must have the useand possession of the property – an element that was missing in Napocor’s case.

We further stated that the tax liability must be a liability that arises from law, which the local government unit can rightfully and successfully enforce, not the contractual liability that is enforceable only between the parties to the contract. In the present case, the Province of Quezon is a third party to the BOT Agreement and could thus not exact payment from Napocor without violating the principle of relativity of contracts. Corollarily, for reasons of fairness, the local government units cannot be compelled to recognize the protest of a tax assessment from Napocor, an entity against whom it cannot enforce the tax liability.

At any rate, even if the Court were to brush aside the issue of legal interest to protest, Napocor could still not successfully claim exemption under Section 234 (c) of the LGC because to be entitled to the exemption under that provision, there must be actual, direct and exclusive use of machineries. Napocor failed to satisfy these requirements. (emphasis and italics in the original; citations omitted)
“The Supreme Court’s ruling in the NAPOCOR Case and the Second NAPOCOR Case that the private corporation there was liable for payment of the RPT was based on its factual finding that it was the private corporation – not the GOCC (i.e., NAPOCOR) – which had actual, direct, and exclusive use of the properties subject of the RPT. In the NAPOCOR Case, the Supreme Court, citing FELS Energy, Inc. v. Province of Batangas (516 SCRA 186), ruled that:
‘We note, in the first place, that the present case is not the first occasion where NAPOCOR claimed real property tax exemption for a contract partner under Sec. 234 (c) of the LGC. In FELS Energy, Inc. v. The Province of Batangas(that was consolidated with NAPOCOR v. Local Board of Assessment Appeals of Batangas, et al.), the Province of Batangas assessed real property taxes against FELS Energy, Inc. – the owner of a barge used in generating electricity under an agreement with NAPOCOR. Their agreement provided that NAPOCOR shall pay all of FELS’ real estate taxes and assessments. We concluded in that case that we could not recognize the tax exemption claimed, since NAPOCOR was not the actual, direct and exclusive user of the barge as required by Sec. 234 (c). xxx(emphasis supplied)
“That the basis for Supreme Court’s ruling (that the private corporation in the NAPOCOR Case was liable for payment of the RPT) was based on the factual finding that it was the private corporation which had actual, direct, and exclusive use of the properties subject of the RPT was confirmed: [a] when the Supreme Court ruled in the NAPOCOR Case that “NAPOCOR’s use of the machineries and equipment is the critical issue, since its claim under Sec. 234(c) of the LGC is premised on actual, direct and exclusive use” (577 SCRA 418, at 434), and [b] when it ruled that the private corporation “is the actual user of its machineries and equipment. [The private corporation’s] ownership and use of the machineries and equipment are actual, direct, and immediate, while NAPOCOR’s is contingent and, at this stage of the BOT Agreement, not sufficient to support its claim for tax exemption (Id. At 437).
“The rulings in the NAPOCOR Case and the Second NAPOCOR Case do not apply here because, as discussed above, CE Casecnan has proved by [a] the documentary evidence formally offered by CE Casecnan which this Honorable Board admitted (CE Casecnan’s Exhibits “A, A-1 to A22” [Engr. Sarmago’sPowerpoint Presentation titled “CE Casecnan Water and Energy Company, Inc.: Casecnan Irrigation and Hydroelectric Power Generation Project.”], etc., (Amended and Restated Project Agreement dated June 26, 1995); (Supplemental Agreement dated September 29, 2003); etc., [b] the testimonial evidence of CE Casecnan’s witnesses, and [c] NIA’s own admissions, that NIA has actual, direct, and exclusive use of the subject properties for the Project. The Respondents have not refuted CE Casecnan’s evidence, nor have they cited any circumstance or authority to warrant ignoring NIA’s own admissions regarding use of the subject properties.”

CBAA’S FINDINGS/RULING

The machinery and equipment covered by the questioned assessments are subject to the real property tax.
CE Casecnan says that it is aware of the Supreme Court’s rulings in National Power Corporation vs. Central Board of Assessment Appeals, et al. and in National Power Corporation vs. Province of Quezon, et al. However, CE Casecnan says that the same rulings do not apply to this case for the following reasons:
“. . . as discussed above, CE Casecnan has proved by [a] the documentary evidence formally offered by CE Casecnan which this Honorable Board admitted (CE Casecnan’s Exhibits “A, A-1 to A22” [Engr. Sarmago’sPowerpoint Presentation titled “CE Casecnan Water and Energy Company, Inc.: Casecnan Irrigation and Hydroelectric Power Generation Project.”], etc., (Amended and Restated Project Agreement dated June 26, 1995); (Supplemental Agreement dated September 29, 2003); etc., [b] the testimonial evidence of CE Casecnan’s witnesses, and [c] NIA’s own admissions, that NIA has actual, direct, and exclusive use of the subject properties for the Project. The Respondents have not refuted CE Casecnan’s evidence, not have they cited any circumstance or authority to warrant ignoring NIA’s own admissions regarding use of the subject properties.”

“With respect to the Project, the requisite of “actual, direct, and exclusive use” by NIA is complied with because:

“While the machinery and equipment are being operated by CE Casecnan, NIA avails itself, and enjoys the benefit of the machinery and equipment since they are the means by which water and electricity are delivered to NIA. The use by NIA is actual because, as a matter of fact, NIA avails itself of the benefits of the machinery and equipment.

“It is direct use because the machinery and equipment are directly or proximately employed for the delivery of water and electricity to NIA.

“The use is exclusive because the machinery and equipment are used primarily for the purpose of supplying water and generating electricity.”

The Supreme Court, in National Power Corporation vs. Province of Quezon, et al., supra, held:
“The test of exemption is in the nature of the use, not ownership, of the subject machineries.

“. . . To successfully claim exemption under Section 234(c) of the LGC, the claimant must prove two elements:

“a. machineries and equipment are actually, directly, and exclusively used by local water districts and government-owned or –controlled corporations;

“b. the local water districts and government-owned and controlled corporations claiming exemptions must be engaged in the supply and distribution of water and/or generation and transmission of electric power.”(emphasis supplied)

The words “actually”, “directly” and “exclusively”refer to the word“used”. Actually, directly and exclusivelyare adverbs describing the verb used, describing how the machinery and equipment are being used. To emphasize, the following questions may be asked:
(a) Between CE Casecnan and NIA, which entity is actually using the Project?

(b) Between CE Casecnan and NIA, which entity is directly using the Project?

(c) Between CE Casecnan and NIA, which entity is exclusively using the Project?

The answer to each and all of the above questionsis, of course, CE Casecnan. NIA may be keeping an eye on the operations of the machinery and equipment from the sidelinesbut, definitely, not actually or directly involved in said operations.
In Article 1 of theCasecnanAgreement dated June 26, 1995, the word “OPERATOR” is defined as “CE CASENAN WATER AND ENERGY COMPANY, INC. . . .”Following are provisions of the Agreement which are pertinent to the ownership, management, operations, maintenance, and repair of the Project:
2.11 OWNERSHIP OF 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.

2.9 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).

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.

The Casecnan Agreement is akin to an “Exclusive Distributorship” wherein CE Casecnan, as manufacturer/producer, delivers all its sellable produce to NIA, as exclusive distributor thereof.
With respect to the real property taxes on the Project, the “Supplemental Agreement Regarding the Amended and Restated Casecnan Project Agreement” dated September 29, 2003(the “Supplemental Agreement”) provides, among others:
ARTICLE 2
AMENDMENTS TO THE PROJECT AGREEMENT

2.1 Amendments to definitions. Article 1 of the Project Agreement is hereby amended by adding thereto the following new definitions:

“Article 11 Taxes” means any and all present and future taxes (including without limitation real estate and personal property taxes, assessments, and other charges in respect of the Project equipment, structures and improvements (all of the foregoing, “Real Property Taxes”), stamp taxes, registration fees and business taxes,), duties, levies, imposts, or other fees or charges, and other levies or any kind whatsoever imposed, collected or claimed by or paid or payable to or at the direction or for the account of any Governmental Authority to which the Operator, the Project, any component parts of the Project or the Project documents are or may at any time be or become subject and all amounts by which the Operator (whether as direct obligor or withholding agent) is required to increase its payments to the holders of the Operator’s Current Indebtedness (including without limitation all amounts which the Operator is required to pay or remit as withholding taxes on interest payments to the holders of the Operator’s Current Indebtedness), provided however that Article 11 Taxes shall not include (1) any Philippine value-added taxes (which shall be reimbursed in accordance with normal VAT regulations), (ii) any taxes imposed or calculated on the basis of the net income of the Operator, and (iii) the levy of 1 centavo per kWh of generation pursuant to Energy Regulation 1-94.

xxx

2.2 Amendment to Article 11. Article 11 of the Project Agreement is hereby amended by deleting it in its entirety and replacing it with the following:

ARTICLE 11
TAXES

11.1 RESPONSIBILITIES. (a) 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.

(b) (i) On or about the 10th day of each January, April, July and October, the Operator shall advise NIA of the Article 11 Taxes (other than interest withholding taxes in respect of the Operator’s Current Indebtedness) which it then anticipates having to pay within the current calendar quarter, provided that NIA acknowledges that such advice shall be indicative only and the failure to so advise NIA of any Article 11 Tax which is in fact paid by CE Casecnan shall not reduce or alter NIA’s obligation to pay such tax if invoiced in accordance with paragraph (c) below.

(ii) On or about the 10th day of each January, April, July and October, the Operator shall advise NIA of the bond interest withholding taxes in respect of the Operator’s Current Indebtedness, which it then anticipates invoicing NIA on the immediately succeeding quarter, respectively, provided that NIA acknowledges that such advice shall be indicative only and the failure to so advise NIA of any Article 11 Tax which is in fact paid by CE Casecnan shall not reduce or alter NIA’s obligation to pay such tax if invoiced in accordance with paragraph (c) below.

(c) Together with the invoices delivered by the Operator pursuant to Section 7.6 of the Project Agreement on each January 25, April 25, July 25 and October 25, the Operator will deliver to NIA an invoice (separate from the invoices in relation to water and energy) in respect of any Article 11 Taxes (other than interest withholding taxes with respect to the Operator’s Current Indebtedness) which have been paid by the Operator in the immediately preceding calendar quarter, and NIA shall pay to the Operator the amount of such invoice within ninety (90) days after the delivery of such invoice. Interest withholding taxes with respect to the Operator’s Current Indebtedness shall be invoiced on each January 25, April 25, July 25 and October 25 and NIA shall pay to the Operator the amount of such invoice within ninety (90) days after the delivery of such invoice. The Operator shall provide to NIA documentation evidencing the payment of all such taxes included within the invoiced amount.

(d) Attached hereto as the Tenth Schedule is the Operator’s current estimate of the Article 11 Taxes which will become due and payable through the remainder of the Cooperation Period. Inaccuracies in the Tenth Schedule shall not in any way reduce or alter NIA’s obligation to reimburse the Operator for any and all Article 11 Taxes actually paid by the Operator, as provided in this Article 11.

(e) CE Casecnan shall not pay any Real Property Taxes unless and until it shall have been directed to do so in writing by NIA, with the concurrence of the Department of Finance, provided that CE Casecnan may pay such Real Property Taxes under protest if CE Casecnan has not received such a direction to pay and faces the risk of imminent assessment of penalties for non-payment and CE Casecnan has notified NIA in writing of such imminent risk, unless NIA, with the concurrence of the Department of Finance, agrees in writing (prior to any such penalties accruing) to be responsible for any such penalties in which event CE Casecnan shall not so pay. If paid by CE Casecnan, suchReal Property Taxes shall be reimbursed as provided for in paragraph (c) above. (Emphasis supplied)

Per Supplemental Agreement, “NIA shall not pay any Article 11 Taxes for or on behalf of the Operator.”But, 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.
There is nothing in the Casecnan Agreement and the Supplemental Agreement that states that NIA is the“beneficial owner” – whatever this phrase means – of the Project. Clause 2.11 of Article 2 of the Casecnan Agreement provides that “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.”
From the foregoing, it is evident that, during the “Cooperation Period”, CE Casecnan is the owner and has actual possession of the subject properties and is actually, directly, and exclusively using the same properties in the supply and distribution of water and generation and transmission of electric power to NIA.
Such being the case, the subject machinery and equipment are not exempt from payment of the real property tax under Section 234(c) of the LGC for being actually, directly, and exclusively used by CE Casecnan, an entity which is neither a local water district nor a government-owned or –controlled corporation.
Issue No. 4:
ASSUMING THERE WAS A VALID ASSESSMENT, WHETHER IT IS NIA OR CE CASECNAN WHICH IS LIABLE TO PAY THE RPT.

Petitioner-Appellant’s Arguments

CE Casecnan says that, based on the admissions of NIA, the latter is the entity liable for the RPT, if any such tax is validly assessed.
CBAA’S FINDINGS/RULING

CE Casecnan is directly liable for the real property due on said machinery and equipment.

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 or 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. Such Agreement, however, is a private contract by and between CE Casecnan and NIA and, being so, is enforceable only by and between themselves.
Issue No. 5:
WHETHER OR NOT THE NUEVA ECIJA LBAA SERIOUSLY ERRED IN HOLDING THAT CE CASECNAN IS NOT ENTITLED TO A 10% ASSESSMENT LEVEL ON THE REMAINING PROPERTIES COVERED BY THE ASSESSMENT THAT ARE NOT OTHERWISE EXEMPT FROM REAL PROPERTY TAXATION.

Petitioner-Appellant’s Arguments

“Section 216 of the LGC provides as follows:

‘Section 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)

“The Project is used and operated by NIA as shown by [a] the documentary evidence formally offered by CE Casecnan which this Honorable Board admitted, [b] the testimonial evidence by CE Casecnan’s witnesses, and [c] NIA’s own admissions. Although legal title to the subject properties is not yet held by a GOCC at this time, it is manifest that NIA is the beneficial owner of those properties. This has been expressly recognized and admitted by NIA when it stated that “NIA is the beneficial owner and in actual use of the subject real properties purposely for the supply and distribution of water and/or generation and transmission of electric power” and that its (i.e., NIA’s) “liability is well defined by the explicit terms of the contracts executed by and between NIA and CE Casecnan, Inc.

“Section 218(d) of the LGC shows that actual use and not ownership determines the applicability of the ten percent (10%) special assessment level as follows:

‘Section 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 the sangguniangbayan of a municipality within the Metropolitan Manila Area, at the rates not exceeding the following: xxx

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

Actual Use Assessment Level

xxxxxx

Government-owned or controlled
Corporations engaged in the supply
And distribution of water and/or
Generation and transmission of
electric power 10%

“Based on the foregoing and given NIA’s express admission of liability for any RPT assessed on the Project (assuming without conceding that any such taxes are due), all other properties in the Project not otherwise excluded should be subject to a special assessment level of only ten percent (10%).

CBAA’S FINDINGS/RULING

While it actually, directly and exclusively uses the lands, buildings and other improvements thereon, CE Casecnan is not entitled to have these properties classified as Special Classes of Real Property for the reason that CE Casecnan is a private entity, not a water district nor a government-owned or controlled corporation.
Issue No. 6:
WHETHER OR NOT THE NUEVA ECIJA LBAA SERIOUSLY ERRED IN NOT HOLDING THAT THE SUBTERRANEAN TRANSBASIN TUNNEL COVERED BY THE ASSESSMENT IS NOT SUBJECT TO REAL PROPERTY TAXATION.

Petitioner-Appellant’s Arguments

“The 2002-2005 Notice of Assessment includes the subterranean transbasin tunnel within the depths of the Caraballomountains, which is part of the public domain. CE Casecnan constructed a subterranean transbasin tunnel within the depths of the Caraballomountains in order to re-channel the flow of the Casecnan and Taan rivers.

“The Respondent’s own witness admitted that some of the properties of the Project were constructed within the Caraballomountains.

“The assessment of the subterranean transbasin tunnel, which is part of the public domain, is void having been imposed beyond the taxing powers of the Respondents. In this regard, DOF Assessment Regulations No. 3-75 provides:
‘The real property owned by the Republic of the Philippines or its political subdivisions which are taxable in the name of the person who is using it, refer to their patrimonial or private properties under the Civil Code and excludes real property for the public use and for public service, which are beyond the commerce of man, and to lands of public domain granted, sold or leased under Com. Act No. 141 and the Forestry Laws.’ (emphasis supplied)

“In Bislig Bay Lumber Co. v. Provincial Government of Surigao (100 Phil. 303 [1956]),which involved a road constructed by a timber concessionaire in the area, the Supreme Court ruled that the road is not subject to RPT, as follows:

‘In the first place, it cannot be disputed that the ownership of the road that was constructed by appelleebelongs to the government by right of accession not only because it is inherently incorporated or attached to the timberland. . . but also because upon the expiration of the concession said road would ultimately pass to the national government. . .In the second place, while the road was constructed by appellee primarily for its use and benefit, the privilege is not exclusive, for . . . appellee cannot prevent the use of portions, of the concession for homesteading purposes. It is also duty bound to allow the free use of forest within the vicinity of the land. In other words, the government has practically reserved the rights to use the road to promote its varied activities. Since as above shown, the road in question cannot be considered as an improvement which belongs to appellee, although in part for its benefit, it is clear that the same cannot be the subject of assessment within the meaning of Section 2 of C.A. No. 470.’ (underscoring supplied)

“In the same manner that the subject road in Bislig Bay belonged to the Government, the subterranean transbasin tunnel constructed by CE Casecnan belongs to the Government as part of the public domain. Thus, the subterranean transbasin tunnel covered by the 2002-2005 Notice of Assessment should not be subject to RPT.

CBAA’S FINDINGS/RULING

Respondents-Appelleestried to justify the assessment of the subterranean transbasin tunnel by invoking the “beneficial use” theory under Section 234(a) of the LGC. On the other hand, CE Casecnan argues that the tunnel is not subject to real property tax because the Caraballomountains, within the depths of which the tunnel is built, is part of the public domain.
Both the respondents and the appellant seem to forget that the object of the tax assessment is not the Caraballomountains, but the tunnel built in and on it. The tunnel is not a property owned by the Republic, much less, part of the public domain. The respondent assessor, however, could not be far wrong if she assessed the parts of the Caraballomountains which are occupied by the tunnel under Section 234(a) of the LGC.
We believe, therefore, that the tax assessment on the subterranean transbasin tunnel, being considered “machinery” under Section 199(o) of the LGC, isvalid.
Issue No. 7:
WHETHER OR NOT THE NUEVA ECIJA LBAA SERIOUSLY ERRED IN HOLDING THAT CE CASECNAN IS NOT ENTITLED TO ANY ALLOWANCE FOR DEPRECIATION ON THE MACHINERIES AND EQUIPMENT COVERED BY THE ASSESSMENT ON THE GROUND THAT THE PROPERTIES WERE DECLARED BY CE CASECNAN FOR THE FIRST TIME AND WERE ALSO ASSESSED FOR REAL PROPERTY TAXATION FOR THE FIRST TIME.

Petitioner-Appellant’s Arguments

“It is undisputed that the 2002-2005 Notice of Assessment did not provide depreciation allowance for machinery, in violation of Section 225 of the LGC. Section 225 of the LGC provides:

SECTION 225.Depreciation Allowance of (sic) Machinery. – For purposes of assessment, a depreciation allowance shall be made for machinery at a rate not exceeding five percent (5%) of its originally (sic) cost or its replacement or reproduction cost, as the case may be, for each year of use. Provided, however, That the remaining value for all kinds of machinery shall be fixed at not less than twenty percent (20%) of such original, replacement, or reproduction cost for so long as the machinery is useful and in operation. (Underscoring supplied)

“The 2002-2005 Notice of Assessment shows that the properties it coversare comprised mostly entirely of machinery and equipment (i.e., around PhP3 Billion or about 99% of the total assessed value). However, in appraising the market values of the machinery and equipment, the Respondents failed to take into consideration any allowance for depreciation in total disregard of Section 225 of the LGC.

“The alleged RPT of ‘P248,676,349.60’ for ‘Years 2002-2005’ was computed by simply multiplying the amount of PhP62,169,087.40’ by ‘4 years’, without providing for ‘a depreciation allowance … for machinery at a rate not exceeding five percent (5%) of its original cost or its replacement or reproduction cost, as the case may be, for each year of use’. If depreciation allowance had been considered by the Respondents, the amount of RPT ‘for each year of use’ would not be identical during the four (4)-year period from 2002-2005.

“Thus, the appraised values of the machinery and equipment are overstated or padded to the extent that allowance for depreciation was not considered.

“However, the LBAA of Nueva Ecija concurred with the Respondents’ position and held that allowance for depreciation cannot be considered because the properties were declared by CE Casecnan for the first time and were also assessed for the first time, and that only ‘subsequent assessments are subject to depreciation.’

“This assertion is without any legal basis.

“Section 225 of the LGC makes clear that depreciation allowance of machinery shall be made for each year of use. There is nothing in the law or any regulation that says or can be interpreted to mean that ‘only subsequent assessments are subject to depreciation.’

“Considering that the Project’s commercial operations commenced on December 11, 2001, allowance for depreciation on the machinery and equipment covered by the 2002-2005 Notice of Assessment should have been taken into account for each year of use.

CBAA’S FINDINGS/RULING

Section 225 of the LGC provides:

“SEC. 225.Depreciation Allowance for Machinery. –For purposes of assessment, a depreciation allowance shall be made for machinery at a rate not exceeding five percent (5%) of its original cost or its replacement or reproduction cost, as the case may be, for each year of use: Provided, however, That the remaining value for all kinds of machinery shall be fixed at not less than twenty percent (20%) of such original, replacement, or reproduction cost for so long as the machinery is useful and in operation.”

Respondents say that “Considering that the design life of the machineries, as stated in the agreement is fifty (50) years, the appellant is not prejudiced by the non-application as the depreciation may be applied on subsequent years until the remaining value of the machinery is twenty percent on the fiftieth year of its design life.”
At a depreciation rate of 5% per annum, a piece of machinery would be fully depreciated in twenty (20) years. Section 225 of the LGC, however, provides “That the remaining value for all kinds of machinery shall be fixed at not less than twenty percent (20%) of such original, replacement or reproduction cost so long as the machinery is useful and in operation.
Respondents believe that CE Casecnan would not mind if the depreciation allowances (total of 80% of the cost) were applied in the lastsixteen(16) years, instead of the first sixteen (16)years of the fifty-year life of the machinery.
This idea means that,for the first thirty (30) years (i.e., for the years 2002 to 2031), the tax due would be based steadily on One Hundred Percent (100%) of the original or replacement or reproduction cost; and for the last sixteen (16) years immediately preceding the 50th year of the machinery’s estimated useful life (i.e., for the years 2032 to 2047) the real property tax due for year 2032 would be basedon95% of the cost;for year 2033, 90% of the cost;for year 2034, 85% of the cost, and so on until 2047 (and thereafter)when the tax due would be based on twenty percent (20%) of the cost. This scenario is not supported by Section 225 of the LGC and quite unfair to the taxpayer.
We believe that, as provided by Section 225 of the LGC, a depreciation allowance should be made for the subject machinery and equipment for every year of use starting the year 2002. However, such allowances shall be computed, reflected and recognized only in assessment(s) subsequent to that (assessment) effective the year 2002.
Issue No. 8:
WHETHER OR NOT THE LBAA SERIOUSLY ERRED IN HOLDING THAT RESPONDENTS-APPELLEES ARE AUTHORIZED TO COLLECT REAL PROPERTY TAXES (“RPT”) FROM CE CASECNAN NOTWITHSTANDING THE PENDENCY OF CBAA CASE L-68, AND IN NOT FINDING THAT THE PROTESTED COLLECTION OF THE 2006 RPT ASSESSMENT IS ILLEGAL, BASELESS AND PREMATURE IN VIEW OF THE CE CASECNAN’S PENDING APPEAL IN CBAA CASE NO. L-68.

CBAA’S FINDINGS/RULING

This particular issue is precisely what CE Casecnan stated as one of its “arguments”. As an argument, it is bereft of merit in view of the provisions of Section 231 of the LGC, thus:
“SEC. 231.Effect of Appeal on the Payment of Real Property Tax.–Appeal on assessments of real property made under the provisions of this Code shall, in no case, suspend the collection of the corresponding realty taxes on the property involved as assessed by the provincial or city assessor, without prejudice to subsequent adjustment depending upon the final outcome of the appeal.”

Issue No. 9:
WHETHER OR NOT THE LBAA SERIOUSLY ERRED IN NOT FINDING THAT UNDER EXISTING LAWS, TAXES PAID UNDER PROTEST ARE HELD “IN TRUST” BY RESPONDENT-APPELLEE PROVINCIAL TREASURER.

Petitioner-Appellant’s Arguments

CE Casecnan states that the LBAA seriously erred in not finding that under existing laws, taxes paid under protest are held “in trust” by Respondent-Appellee Provincial Treasurer, citing Section 252(b) of the LGC.
CBAA’S FINDINGS/RULING
This argument or statement is without merit. To appreciate fully the implications of Section 252 of the LGC, the same is reproduced below, 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 in favor 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.”

Considering the provisions of Section 231 of the LGC, Section 252(b) of the Code [in relation to paragraphs (c) and (d) of the same Section], could only mean that the treasurer concerned shall hold in trust the tax paid under protest until the protest is decided by said treasurer or untilthe period to decide the protest shall have lapsed, whichever comes first.
The records do not show that Respondent Provincial Treasurer ever decided any of the protests brought to his Office by CE Casecnan. Neither do the records show that CE Casecnan ever appealed the treasurer’s inactions on said protests. The treasurer is not required by law to hold in trust the protested payment indefinitely.
WHEREFORE, premises considered, the Respondent-Appellee Provincial Assessor is hereby ORDEREDto recognize the allowances for depreciation of the subject machinery and equipmentas provided for in Section 225 of the LGC: the allowance for depreciation for the year 2002 should be recognized and reflected in the assessment for 2003, and so on.
Otherwise, CE Casecnan’s Appeals in CBAA Case Nos. L-68, L-73 and L-78 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