Republic of the Philippines

CENTRAL BOARD OF ASSESSMENT APPEALS M a n i l a

NATIONAL POWER COPORATION, Petitioner-Appellant,

CBAA CASE NO. L-93

Re: LBAA Case No. 07-01

– versus –

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

– and –

THE PROVINCE OF BULACAN, THE MUNICIPALITY OF NORZAGARAY, BULACAN, AND GLORIA P. STA. MARIA, MUNICIPAL ASSESOR OF NORZAGARAY, BULACAN,
Respondents-Appellees. x————————————————x

D E C I S I O N

This is an appeal filed by petitioner-appellant National Power

Corporation (NPC) from the “JUDGMENT” rendered by the Local Board of

Assessment Appeals (LBAA) of the Province of Bulacan on August 14, 2008

dismissing the petition for tax exemption of herein appellant, and upholding the

assessments made by co-appellee, Municipal Assessor of Norzagaray,

Bulacan, et al.

The dispositive portion of the assailed decision of the Bulacan LBAA

states, viz:

“WHEREFORE, the present petition is denied. The petitioner National Power Corporation is directed to pay respondent Municipality of Norzagaray, Bulacan, its tax liabilities amounting to P18,475.003.20 over the “Land Assessments” (sic), covering January 1, 1997 to December 31, 2006.

Also for the period beginning January 1, 1996 to December 31, 2005, the amount of P113,960,000.00 should also be paid by petitioner to Municipality of Norzagaray, Bulacan, over the “Machineries Assessment.”

Hence, this appeal.

THE FACTS OF THE CASE

On December 12, 2006, appellant NPC, owner and operator of the

Angat Hydro-Electric Power Plant (AHPP) located at Hilltop, San Lorenzo,

Norzagaray, Bulacan, received a Notice of Assessment from the Municipal

Assessor of the said municipality for the following properties of AHPP, the so

called “machineries assessment”, to wit:

1) ARP/Tax Dec. No. 00180 – Main Dam
2) “ “ “ 00181 – Spillway with 3 Taintor Gates 3) “ “ “ 00182 – Two Units Diversion Canal 4) “ “ “ 00183 – Tailrace Tunnel
5) “ “ “ 00184 – Penstock
6) “ “ “ 00185 – Auxiliary Draft Tube Gates 7) “ “ “ 00186 – Draft Tube Gates and Hoists 8) “ “ “ 00187 – Power Tunnel
9) “ “ “ 00188 – Power Intake Structure 10) “ “ “ 00189 – Surge Tunnel
11) “ “ “ 00190 – Power Intake Service & Bulkhead Gates

Likewise on December 14, 2006, NPC received another Notice of

Assessment, this time for the so called “land assessment” made up of the

following:

1) ARP/Tax Dec. No. 00191 – Campsite-Land 2) “ “ “ 00192 – Spillway-Land
3) “ “ “ 00193 – Powerhouse-Land

When the Municipality of Norzagaray tried to demand and collect the

corresponding real property taxes over these assessed properties, and after all

negotiations to settle the matter amicably failed, NPC challenged the

assessments before the LBAA of Bulacan, assigning two errors.

NPC contended that the assessor erred when she assigned a higher

assessment level to the “land assessments” contrary to that prescribed for

GOCC’s under Sec. 218 of the LGC which states:

x x x

(d) On special classes: the assessment levels for all lands, buildings, machineries and other improvements:

Actual Use Cultural

Assessment Level 15%

x x x x x x x x x x x x x x x x x x

Government-owned or controlled corporations engaged in the supply and distribution of water and/or generation and transmission of
electric power 10%

NPC also claimed that it is an error to tax the above-listed properties

under the termed “machineries assessments” being exempt from taxation

under Section 234 par. (c) of the LGC, which provides:

Section 234. Exemptions from real property tax:

(a) Real property owned by x x x (b) x x x
(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.

The “land assessment” issue became moot and academic when the

appellee Municipal Assessor readily admitted that she committed an honest

mistake in assigning a higher assessment level to the lands in question. She

immediately rectified the error and revised the land tax declarations to conform

with the prescribed level for GOCC’s under Sec. 218 of the LGC which is 10%

to the satisfaction and conformity of the appellant.

What remains now and the only issue to be resolved by this Board is:

“WHETHER OR NOT THE ELEVEN (11) ABOVE LISTED PROPERTIES UNDER THE “MACHINERIES ASSESSMENT” ARE MACHINERIES AND EQUIPMENT ACTUALLY, DIRECTLY, AND EXCLUSIVELY USED FOR GENERATION AND TRANSMISSION OF ELECTRICAL POWER, UNDER SEC. 234(c) OF THE LGC.”

If they are, they are tax-exempt, otherwise they are taxable.

THE FINDINGS AND CONCLUSIONS OF THE BOARD

The instant appeal, being a claim for tax exemption, falls under Section

206 of the LGC which 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,

bylaws, 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.

As can be gleaned on the above stated proviso, the law contemplates a

situation where an assessee, meaning a person whose real property has been

declared for taxation purposes, who claims that said property is tax exempt is

given thirty (30) days to file before the Assessor’s Office concerned sufficient

documentary evidence to support his/her claim for tax-exemption. Failing to

do so within 30 days, said property will be listed as taxable in the assessment

rolls.

This, however, is curative for the law clarifies that in the event that said

property is proven to be so tax exempt in some later time or future date, said

property will be considered tax-exempt and dropped from the list of taxable

properties.

But it must be emphasized that when the law uses the words “be

proven” it necessarily means that proof be presented by the claimant.

What kind of proof?

Cooley, the foremost authority on taxation has this pronouncement:

“The burden is on the claimant to establish his right to exemption and an

alleged grant of exemption will be strictly construed and cannot be made out

by inference or implication but must be beyond reasonable doubt.” (Cooley,

Law on Taxation, Sec. 672, pp. 1404-1407)

Section 206 therefore of the LGC is an expression of these well

established rules in property taxation, that taxability is always presumed, and

that is incumbent on the claimant to prove to the taxing authority that his

property is indeed tax exempt. Taxation being the rule, and exemption the

exception, the assessor can well afford to be passive, to just sit around, wait

and see if the claimant can prove beyond any shadow of doubt that his

property is so exempt. It is the appellant-claimant that must play the active

role, exerting extraordinary effort and diligence to convince the taxing

authorities that it is entitled to a relief from the common burden of property

taxation. This is also in line with the “strictissimi juris” rule in construing tax

exempting provisions of laws.

The appeal of NPC is anchored on the tax exemptions enumerated in

Sec. 234 of the LGC, specifically par. c which provides, “the following are

exempted from payment of real property tax:

(a) x x x (b) x x x
(c) All machineries and equipment that are actually, directly and exclusively used by local water districts and government-owned or controlled corporations engaged in the supply and distribution of water and/or generation and transmission of electric power.

There is no question that appellant NPC is a government owned and

controlled corporation engaged in power generation and transmission. This is

of public knowledge and admitted by both appellant and appellees. What is

contentious and the only issue to be resolved in this appeal is whether or not

the questioned properties are machineries and equipment actually, directly,

and exclusively used by NPC in the generation and transmission of electric

power.

In the case of Mactan Cebu International Airport Authority vs. Hon.

Ferdinand Marcos, et al., G.R. No. 120082, Sept. 11, 1996 (Mactan case), the

Supreme Court divided the enumerated real property tax exemptions under

Section 234 of the LGC into three (3) groups based on (1) ownership (2)

character and (3) usage. Paragraph c of Sec. 234 falls under the latter, or

usage exemptions in which actual, direct, and exclusive use of the property

sought to be exempted are the main criteria.

The phrase “actually, directly and exclusively used” is not an empty

requirement. It has deep and solid constitutional moorings. It must be noted

that under the old 1935 Constitution, (Art. VI, Sec. 22, Par. 3) the only

requirement to be exempt was exclusive use. Under the 1973 and the present

1987 Constitution, it was changed to actual, direct, and exclusive use which is

the basis for the conditions laid down under Sec. 234 of the LGC.

In the Lung Center of the Philippines vs. Quezon City, et al., G.R. No.

144104, June 29, 2004, the Highest Court ruled that “under the 1973 and 1987

Constitutions and Rep. Act No. 7160, (the Local Government Code of 1991), in

order to be entitled to the exemption, the petitioner (in this case, the NPC) is

burdened to prove, by clear and unequivocal proof, that (a) it is a charitable

institution; (in this case, a GOCC) (b) it is real properties (in this case, the

machineries and equipment) are actually, directly, and exclusively used for

charitable purposes. (In this case, for generation and transmission of electric

power.)

Furthermore, the Supreme Court likewise held, “the term usage means

direct, immediate and actual application of the property itself to the

exempting purpose. Section 199 of R. A. No. 7160 defines actual use as the

purpose for which the property is principally or predominantly utilized by the

person in possession thereof. It contemplates concrete, as distinguished from

mere potential, use. Thus, a claim for exemption under sec. 234(e) of R.A.

No. 7160 should be supported by evidence that the property sought to

be exempt is actually, directly and exclusively used for pollution and

environmental protection, (the Provincial Assessor of Marinduque vs. The

Honorable Court of Appeals and Marcopper Mining Corp., G.R. No. 170532,

April 30, 2009)”. In the case on appeal, the property sought to be exempt

should be actually, directly and exclusively used for generation and

transmission of electric power.

Further still, the same high court ruled in Commissioner of Internal

Revenue vs. Acesite Hotel Corp., 516 SCRA 93, 103 that “the burden is upon

the taxpayer to prove, by clear and convincing evidence, that his claim for

exemption has legal and factual basis.

It is important to stress in this appeal that the claimant-appellant has to

overcome four (4) presumptions favoring the appellee to avail of the tax

exempting privilege. They are as follows:

1. The presumption of taxability under Sec. 206 of the LGC

The law provides that the claimant should present sufficient documentary evidence to bolster his claim, or prove beyond reasonable doubt that the properties should be exempted from real property taxation. Incidentally, the records do not show that the appellant observed the requirements under section 206 of the LGC.

2. The presumption of regularity in the performance of official duties

Official records will reveal that the appellee assessor did not include in her assessments machineries and equipment incontestably are actually, directly, and exclusively devoted to generation and transmission of electric power such as the water turbines, water pumps, generators/alternators, transformers, transmitters, high tension cables and the like. The questioned properties, to the best of her knowledge and ability, are not used in such a way, or that they are not machineries and equipment. Erroneous or not the presumption of correctness of the assessment is in her favor and the burden to prove her incorrect lies in the claimant-appellant.

3. The presumption that the court/board of origin is in a better position to ascertain the facts

Decisions of the lower boards and/or administrative bodies are given great weight and respect if not finality in the appellate courts. When the appellee LBAA of Bulacan adjudged that the appellant failed to prove that the questioned properties are being used actually, directly, and exclusively used for generation and transmission of electric power, the appellant should have exerted maximum effort to prove on appeal that such is not a fact. The appellant should have described clearly the detailed roles of the eleven (11) properties, one by one, in the generation and transmission of electric power.

4. The “strictissimi juris” rule in construing tax-exempting provisions of law

This means that tax-exempting provision of laws should be interpreted strictly against the taxpayer and liberally in favor of the taxing authorities. In case of doubt resulting from multiple and/or double edged interpretations, the doubt should be

resolved in favor of taxability. It means that in the presence of the smallest iota of evidence pointing to the contrary, the claim for exemption should be denied. There must be no room for the slightest of doubt in establishing clear and convincing evidence that it is the kind of property, used in the prescribed manner for the specified tax exempting purpose in order that the claim for exemption be granted.

In this light, is the appellant entitled to the tax exempting privilege? Was

it able to prove beyond reasonable doubt, through sufficient and convincing

factual, documentary, and testimonial evidence that the eleven (11) properties

are machineries and equipment used actually, directly and exclusively for

generation and transmission of electric power?

The answer is in the negative. No, the appellant totally failed to

prove that the eleven questioned properties are machineries and equipment

(the kind of property), used actually, directly, and exclusively (the manner

prescribed) for generation and transmission of electric power. (The specific

tax exempting purpose) to merit tax exemption.

On this principal reason alone, this Board could have opted to

immediately and summarily dismiss the appeal were it not for the averment of

the petitioner-appellant that it was denied due process when the Board below

failed to give the appellant the opportunity to present evidence and prove its

case. Failure to observe the clause is an issue that strikes deep and true to

the heart of every appellate body more so with the CBAA, who holds the issue

dearly and religiously.

It is customary therefore for the CBAA, in the performance of its duty

to ascertain the facts, to give every party a day in court, unless the same is

frivolous, so belatedly and whimsically done, as to affect substantive rights.

To satisfy its search for truth, and to afford the appellant every chance to prove

its cause, the CBAA conducted hearings and ocular inspection, received

documentary evidence and testimonies of witnesses. The following are the

findings of this Board as to whether or not the eleven (11) questioned

properties of the AHPP are machineries and equipment used actually, directly,

and exclusively in the generation and transmission of electric power:

A. The Main Dam (ARP/Tax Declaration No. 00180)

It is an immovable massive wall of earth and rockfill with an inclined

earthcore with a height of 131 meters and length of 568 meters. Its structural

design and operational use is not in any way connected to power generation

and transmission. Its main purpose is to receive, hold and impound water

coming from the Angat and Umiray rivers besides water from run-offs and rain

water in a gigantic reservoir. In turn this big body of water is used primarily to

irrigate the agricultural lands of Central Luzon, provide domestic water supply

system for Metro Manila and neighboring towns thru the MWSS, and to

generate hydroelectric power.

B. The Spillway (TD No. 00181)

This is a massive structure made of reinforced concrete designed to let

go or release water from the reservoir once the volume of water exceeds its

capacity or overshoots its maximum level. It has inclined chute with retaining

walls and concrete flip buckets as well as a drainage gallery. It has no

equipment or mechanical contrivances.

C. Three (3) Taintor Gates (TD No. 00181)

These massive steel structures, firmly and permanently attached to the

spillway are what their name implies. Their main function is to allow water to

flow/spill when opened to the spillways once the volumes of water in the

reservoir reach its maximum level. These gates are then closed once the

volume of water is down to normal and allowable levels. Together with the

spillway, they act as outlets to gradually let out water to prevent flooding and

probable loss if lives and property in the event that the dam is breached due to

tremendous pressure from an abnormal high volume of water.

D. The two (2) Diversion Canals (TD No. 00182)

These concrete lined canals, one functioning and the other plugged

were used to divert water coming from the rivers during the construction of the

dam and reservoir. These diversion canals were already in existence long

before the water turbines and power generators can produce any amount of

electricity.

The spillway with the taintor gates and the diversion canals are auxiliary

components of the main dam. Together, they are utilized for varied purposes,

mainly for irrigation of the agricultural lands in the neighboring provinces,

provide the domestic water needs of Metro Manila, and as a hydropower

facility. The volume of water used for irrigation and water supply system is

greater than what is being used for power generation.

By their structural design and composition, therefore, the dam and its

components are structures and/or taxable improvements.

Granting, arguendo, that they are machineries, still tax exemption would

be unavailing considering that the dam and its component auxiliaries are multi-

purpose, negating the requirements of actuality and exclusivity in use.

The rest of the subject properties are either water conveyance

structures, or utilized for preventive maintenance, periodic check ups and

repairs, and as safety measures.

The power tunnel (TD 00187) conveys water from the reservoir to the

penstocks (TD No. 00184) down to the main and auxiliary power units where

the water turbines and generators are located. After energizing the turbines,

the “used” water is let out thru the tail race (TD No. 00183) and surge tunnel

(TD No. 00189). The “used” water is then channeled downstream to the Angat

River, the Bustos Dam of the NIA for irrigation purposes, and the Ipo Dam of

the MWSS for the water supply of the greater Manila Area.

On the other hand, the power intake structures (TD No. 00188), the draft

tube gates and hoists (TD No. 00190) are primarily used as safety and

preventive mechanisms during repairs and maintenance, periodic and

emergency check-ups, by controlling the amount of water in the units, taking

water in or letting water out (dewatering) in order that the aforementioned civil

works can be done.

The fact-finding ocular inspection therefore revealed that the contested

properties are either structures or improvements, and not machineries and

equipment used actually, directly, and exclusively for power generation and

transmission.

Aside from the fact-finding ocular inspection, this Board likewise

conducted hearings to enable the parties to present their testimonial and

documentary evidence.

The petitioner-appellant presented the well-experienced and

knowledgeable Plant Manager of the Angat Hydroelectric Power Plant himself

in the person of Eng. Rodolfo German. Unfortunately for the appellant, the

testimony of Eng. German tends to favor more the cause of the appellee. In

several instances in the course of his testimony, the appellant’s witness stated

that the questioned properties are “structures.” The witness testified that

these structures are used for retention, conservation, diversion, utilization, as

well as management and control of water in different aspects.

The testimony failed to show the actual and direct use of the properties

to the exempting purpose. Equally damning is the admission that these

facilities are also used for irrigation, flood control and water supply system for

the Greater Manila Area. This negates the “exclusively used” requisite to fall

under the prescribed exempting manner. Nowhere in the whole testimony of

Eng. German was it mentioned, much more given emphasis that those

properties are machineries actually, directly, and exclusively used for

generation and transmission of electric power.

The lame attempt of the appellant to overemphasize the statement of its

witness that “no water, no power” fails to impress and holds no water.

Failing to elicit a concrete and clear testimony from the witness that the subject

properties are actually, directly and exclusively used in the generation and

transmission of electric power, appellant tried to equate this rather vague and

somewhat inane remark to power generation. Granting that the power alluded

is electric power, it must be pointed out that while it is true that the huge

volume of water rushing down from the reservoir turns the water turbines that

converts mechanical energy thru generators to electricity, water is not being

taxed in this case. Water is not one of those subjected to the assessment.

Granting for the sake of argument, and allowing one’s imagination to run

ridiculously wild, that water is some form of machinery that turns the turbines,

still water cannot be entitled to exemption as it is also used in irrigation, and

domestic water supply, hence not exclusively used for power generation.

Moreover, authorities and jurisprudence are one in saying that bare and

vague assertions, implications, and inferences are not enough to merit the

surrender of the state’s inherent power of taxation. The basis for tax

exemption must be clear, unambiguous and indubitable.

On the other hand, the testimony of the respondents-appellees lone

witness in the person of Eng. Gilbert Pascual, a Professor/Instructor of

Hydrology and Hydraulics at the Bulacan State University, was more

categorical and straightforward. His systematic presentation explaining that

the dam complex includes all the other questioned properties as auxiliary

components of the dam are all immovables, firmly and permanently attached

to the ground, made either of concrete and steel, or both are really structures

and/or improvements by their design, composition, and function, are indeed

persuasive.

The appellee’s witness likewise testified convincingly that the dam

complex, being a multi-purpose facility, can and is performing other functions

like providing water for irrigation, flood control and mitigation, and more

importantly, the source of potable water, aside from, and at a lesser extent,

power generation. This means that the dam and its components and

appurtenances are not being used solely and exclusively for power generation.

The witness likewise quoted and cited authorities and references to bolster his

conclusion.

Incidentally both the testimony of appellant’s witness and appellee’s

witness jived at the very material aspect of the case – that the subject

properties are structures and not machineries and that they perform functions

other than power generation. While both elucidated that the subject properties

are indeed vital, essential, and necessary for power generation, still they are

not being used actually, directly and exclusively for the exempting purpose that

is generation and transmission of electric power. To give specific details of

their testimony regarding these matters would be kilometric. Suffice it is to

state that these declarations are reflected in the official transcript of

stenographic notes taken during the January 26, 2010 hearing.

Submitting the case for resolution, petitioner-appellant prepared a two

set memorandum while the respondent-appellee made a formal offer of

documentary evidence. Since the memoranda introduced new matters for the

Board’s consideration, we will delve first on the appellee’s submitted exhibits.

Main bulk of these documentary evidence are supportive of the

appellees witness claim that all the subject properties are structures and not

machineries. The references and textbook materials, complete with graphics,

authored by leading authorities in hydrology and hydraulics lend credence to

the material allegation of the witness that the dam is the main structure while

the other subject properties are likewise separate structures but all are

auxiliary components of the main dam. That all these are hydraulic structures

common to all dams whose main functions are water conservation and

utilization thru proper management and control of water applying principles of

hydrology and hydraulics. The main dam cannot and will not exist and

function properly in the absence of these vital auxiliary components. The

power station on the other hand may exist and function even without the

spillways, taintor gates, diversion canals, surge tunnels, water gates and

valves, etc. although they are necessary especially for the other functions of

the dam complex like flood mitigation, water supply, and irrigation, as well as

safety measures and for preventive maintenance.

The records will show that these very material and relevant evidence

both testimonial and documentary, were not seriously denied much more

vehemently contradicted by the appellant.

Simply put, this Board finds that the Angat hydroelectric facility, owned

and operated by the appellant consists of two groups or components. One

group is the conservation and hydraulic structures subject of this appeal being

assessed and taxed by appellee. The other consists of the machineries and

equipment that are the ones actually, directly, and exclusively used for power

generation and transmission. The latter group is made up of the water

turbines, water pumps, generators, transformers, transmitters, etc., were

exempted and excluded from the assessments by the appellee.

The roles played by these two groups/components elucidate the kind of

property they are and their actual usage in the general scheme of the multi-

purpose facility, to wit:

The main dam holds and retains the water from the Angat and Umiray rivers storing the water in a big reservoir. Water is released through a series of tunnel like pipelines of varying sizes and diameters. All these underground concrete and/or steel pipelines are firmly and permanently

attached/embedded in the soil. This water conveyance system starts with the reservoir releasing water to a big power tunnel.

The power tunnel splits into the two penstocks. One penstock delivers

water to the main units of the power station and the other to the auxiliary units.

The volume of water running down from the penstocks turns the water turbines

in the main and auxiliary units. The water turbines then convert mechanical

energy to electrical energy by the use of the power generators. The

transformers stabilize the electric current, and thru the transmitters deliver the

electricity produced to the power lines.

The water used at the power station main and auxiliary units to turn the

water turbines is released thru the tailrace tunnels downstream, connected to

surge tunnels. These open surge tunnels are used to drain and divert surface

run-off water, likewise and more importantly, to ventilate the tailrace, thus

preventing pressure to build up. The used water coming from the main power

units passing thru the tailrace and surge tunnels is channeled to the Bustos

Dam for irrigation purposes by the National Irrigation Administration (NIA).

The used water from the auxiliary units is conveyed to the MWSS facilities at

Ipo Dam for Greater Manila Area’s domestic water supply.

It can be gleaned that this series of interconnected concretized and/or

steel lined tunnels and canals, all rendered permanent and immobilized being

buried underground or imbedded in the soil are all water conveyance

structures. All of them have nothing to do with direct and actual power

generation and transmission.

The power intake structures together with the draft tube gates are used

more for taking water in or letting water out mostly during periodic and/or

emergency inspections and check-up, likewise repair and maintenance. All

these are of reinforced concrete or steel plate welded gates. These facilities

instead of generating power actually cut down power production by closing the

supply of water to the main and auxiliary units where the turbines and

generators are located. The process called “dewatering” empties the

chambers of water in order that inspection, check-ups, maintenance and

repairs can be done during these standard procedures. There is a cessation of

operation or what they call a “shut down” during these activities. These

auxiliary components therefore play a role other than power generation, just

like the spillways, taintor gates, and diversion canals are used for flood

mitigation and/or prevention, and as safeguards and preventive measures to

protect the integrity of the dam, and not for power generation and

transmission.

While it is true that all the properties sought to be exempted by the

appellant are indeed vital, essential, and necessary for the operation of the

Angat Hydroelectric Power Plant, still they are not used actually, directly, and

exclusively for power generation and transmission. The last requirement

therefore for tax exemption is lacking.

In this connection, it is important to harmonize the provisions of Sec.

218 and Section 234 (c) of the LGC with regard to land, buildings, machineries

and improvements used by GOCC’s in the generation and transmission of

electric power. The oft-adverted “seeming and/or apparent” vague and/or

conflicting provisions, must be reconciled and settled to end once and for all

the feigned ignorance or sometimes intentional misinterpretation and

application of the two sections to suit one’s interest and/or convenience.

In Section 218 under par. (d) on special classes of properties, lands,

buildings, machineries, and other improvements are included in the

enumeration. All that is needed to merit an assessment level of ten (10%)

percent is that they be actually used in the enumerated purpose. The

questioned properties are included in this special class.

On the other hand, Sec. 234 (c) the subject is limited to machineries and

equipment not only used actually, but directly and exclusively for power

generation and transmission. It follows therefore that in the case at bar, only

the water turbines, generators and the like are exempted while the rest of the

real properties of NPC are taxable, albeit at a special/lower rate.

The tax exemption of NPC having been withdrawn by the LGC, NPC is

granted a special privilege of lower assessment level for rendering a service

imbued with public policy, under Section 218 of the LGC.

The assignment of an assessment level, presupposes taxability, the

same being a percentage or fraction of the fair market value of the property,

resulting in its assessed value which is the basis of the levied tax. It goes

without saying therefore that Sec. 218 implies taxability while Sec. 234 confers

tax exemption. To construe otherwise is to promote disharmony and render

both provisions senseless and devoid of meaning.

The appellant in its memorandum relied heavily on the decision of this

board in the case of NPC vs Province of Pampanga, et al., (CBAA Case No. L-

36 dated July 15, 2005). The over reliance is quite misplaced and fails to

impress. The subject properties are totally dissimilar. What was exempted by

this Board in the Pampanga case was the specially designed and constructed

structure housing the power generating machineries of NPC. This structure

not only houses but provides shelter, protection, and security for the main

plant’s power generating machineries and equipment. Most of all is that the

control rooms are in that building/structure. The presence of the security office

and working stations for repairs and maintenance are incidentals. Another

main reason for that decision favoring the appellant NPC was the failure of the

appellee to contradict and/or deny the allegation of NPC that the subject

property is exempt from the real property tax in other assessment jurisdictions.

In the same vein, appellant’s claim that it is exempt from paying all kinds

of taxes for being a government instrumentality is likewise untenable. NPC’s

belated assertion that it is included in those exempted by the Supreme Court

in its ruling in the MIAA vs. CA Case, G.R. No. 155650, July 20, 2006, is a

farfetched afterthought. In that case, the court prescribed the

distinction between a government owned/controlled corporation and a

government instrumentality, stating that they are not synonymous. Appellant

NPC cannot now make a turnaround after admitting in its appeals before the

LBAA and the CBAA, as well in its memorandum that it is a GOCC duly

organized and existing under and by virtue of R.A. No. 6395, or the NPC

charter.

In the light of all foregoing, after affording the appellant of its desired day

in court, it is clear that the claim for tax exemption by the appellant has no

factual and legal leg to stand on. It failed to prove beyond reasonable doubt

that the subject properties sought to be exempted are (1) machineries and

equipment (2) used actually, directly, and exclusively for the generation and

transmission of electrical power.

WHEREFORE, this Board holds and concludes that the petition for tax

exemption has no factual and legal basis, hence DENIED. The appeal

therefore is DISMISSED, the assessments of the eleven (11) subject

properties upheld, and the decision of the LBAA is AFFIRMED.

SO ORDERED.

Manila, Philippines, August 26, 2010.

(Signed) CESAR S. GUTIERREZ
Chairman

(Signed)
ANGEL P. PALOMARES Member

(Signed) RAFAEL O. CORTES
Member