Republic of the Philippines



– versus –

CBAA CASE NO. L-93 LBAA Case No. 07-01 Province of Bulacan


– and –




NORZAGARAY, BULACAN, Respondents-Appellees.


This resolves petitioner-appellant’s Motion for Reconsideration dated

October 6, 2010 in connection with this Board’s Decision dated August 26,

2010, Respondents-Appellees filed their Comment/Opposition thereto on

November 23, 2010 and Petitioner-Appellant filed its Reply on December 8,


Movant alleges that its appeal covered two (2) assessments, namely:

(1) “Land Assessments”, consisting of Camp Site Land, Spilling Land and Power House Land; and

(2) “Machineries Assessments”, covering the Main Dam, Spillway, two (2) Division Tunnels Draft Tube Gates, etc.;

that on August 26, 2010, this Board issued its Decision, the dispositive portion

of which reads:

“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.” (Records, p. 164);

and that it is submitting the instant Motion for Reconsideration on the following

grounds, namely:

1. The Honorable Board, on the assumption that NPC is liable for the Land Assessment, failed to resolve the issue on the exact computation of the alleged real property tax liabilities of NPC under the Land Assessment;

2. The Honorable Board did not adopt a basic tenet in taxation that tax statutes must be construed strictly against the government and liberally in favor of the taxpayer;

3. The definition provided under Item (o), Section 199, R.A. 7160, is too broad and is all encompassing to include structures which are classified as physical facilities, installations and appurtenant service facilities;

4. The properties listed under the Machineries Assessment are machineries/structures actually, directly and exclusively used for the generation of electricity; and

5. The subject machineries/structures are all utilized for pollution control and environmental protection.

In support of its first ground, movant claims that the Land Assessment

was the subject of extensive negotiations between the parties in an effort to

settle the same; that in the latter part of the settlement process, the proposed

Compromise Agreement included both the “Land Assessments and

Machineries Assessments”; and that the amicable settlement did not

materialize because respondents-appellees did not agree to the payment

proposed by petitioner-appellant’s counsel, the Office of the Solicitor General.

Movant further states that during their negotiations, respondents-

appellees agreed to reduce the amount due from appellant NPC for Land

Assessments to P6,485,422.60; that the original real property assessment was

P18,475,003.20; and that in the judgment of the Bulacan LBAA, which was

affirmed by this Board, appellant NPC was ordered to pay the total assessment

of P18,475,003.20 as real property taxes; that this is erroneous because,

granting that NPC is liable to pay real estate taxes, this Board should have

ordered appellant NPC to pay only P6,485,422.60, the amount appearing in the

amended Statement of Account for the Land Assessment issued by the

Municipality of Norzagaray dated June 1, 2007 (Annex “E”, Appeal)

Anent petitioner-appellant’s second ground, movant states that indeed

taxation is the rule; that our jurisdiction is replete with jurisprudence on

exemption for taxation which essentially states that tax statutes granting tax

exemptions are generally construed strictissimi juris against the taxpayers and

liberally in favor of the taxing authority; that, however, the general rules is not

without exceptions; that one in particular is a tax exemption granted to national

agencies of the government which is liberally construed in favor of the grantee;

that in the MIAA vs. CA, (G.R. No. 155650, July 20, 2006), the Supreme Court

held that government instrumentalities vested with corporate powers and

performing essential public services are exempt from payment of any taxes,

fees or charges of any kind imposed by local government under Section 133(o)

of the Local Government Code; and that this Board failed to consider a basic

tenet in taxation, that is, that tax statutes must first be construed strictly against

the government and liberally in favor of the taxpayer; that if this is the rule

followed, respondents-appellees, as the taxing authority, should prove first that

the properties listed in the “Machineries Assessment” are taxable; that this was

not done by respondents-appellees who relied on the strictissimi juris

construction rule on tax exemption; and that with respondents-appellees’ failure

to prove the taxability of the properties listed under the “Machineries

Assessment”, these properties cannot be excluded from the coverage of the

term “Machineries” in the Local Government Code that are exempt under

Section 234(c) thereof.

Relative to petitioner-appellant’s third ground, it argues that petitioner-

appellant’s properties listed in the Machineries Assessment are covered by the

term “Machineries” in Sec. 199(o) of the LGC and thereby exempted from real

property taxes provided for in Sec. 234(c) thereof.

From the definition of “machinery” in Sec. 199(o) of the LGC, it is

understood that the term “machinery” includes physical facilities, installations

and appurtenant service facilities which may or may not be attached to the real

property. This Board, in denying petitioner-appellant’s appeal, relied primarily

on the argument that the properties listed in the “Machineries Assessment” are

considered “structures” and not “machineries”. It is petitioner-appellant’s

contention that the term “machineries” in the Local Government Code is broad

and all encompassing to include “structures” which are physical facilities,

installations and appurtenant service facilities.

In connection with the fourth ground, petitioner-appellant alleges that this

Board denied its appeal on ground that NPC failed to prove that the

machineries and equipment listed in the “Machineries Assessments” are

actually, directly and exclusively used for the generation and transmission of

electric power; that while it may be argued that these machineries/equipment

listed in the “Machineries Assessment” are likewise being utilized for other

purposes, the overwhelming fact is that they are clearly incidental properties

which are reasonably necessary for the accomplishment of said purpose of

producing energy; that whether the listed properties are adjudged as

indispensable properties or but mere incidental ones is of no moment

considering that as incidental properties, they are still regarded as “exclusively”

used because they are reasonably necessary for the accomplishment of the

purpose of generating electric power; that regarding the aspect of “actual use”,

Sec. 199(b) defines “actual use” as “the purpose for which the property is

principally or predominantly utilized by the person in possession thereof”; and

that without any doubt, the properties listed in the Machineries Assessments

are indeed machineries/structures that are actually, directly and exclusively

used in generating electric power and therefore, tax exempt.

With respect to petitioner-appellant’s last ground, it also alleges that in its

questioned Decision, this Board mentioned the other usages of the properties

listed in the Machineries Assessments, which among others, are:

(a) For irrigation of agricultural lands of Central Luzon;

(b) To let go or release water from the reservoir once the volume of water exceeds its capacity or overshoots its maximum level; and

(c) To prevent flooding and probable loss of lives and properties;

that with this Board’s extensive discussion concerning the irrigation and flood

prevention aspects of the properties listed in the Machineries Assessments,

coupled with the pollution control and environmental protection discussion of

Engr. Rodolfo German in his testimony, it is apparent that these properties may

likewise be exempted under Sec. 234(c) of the LGC about machinery and

equipment used for pollution control and environmental protection; and that as

long as these properties have some usage which contribute to pollution control

and environmental protection, they can be exempted from real property


Petitioner-Appellant then prays that:

a) The questioned Decision be reconsidered: and

b) In the event that NPC is found liable for the land assessments, NPC be ordered to pay real property taxes in the total amount of P6,485,422.60 only and not P18,475,003.20, the former being the latest and final amendment issued by respondents on June 1, 2007.

In their Comment/Opposition, respondents-appellees submit that there is

no basis for appellant NPC to claim that its real property tax liability should be

only P6,485,422.60; that respondent Municipal Government of Norzagaray,

Bulacan agreed to be paid said reduced amount in consideration of a possible

amicable settlement being explored by the parties which, however, failed to

materialize; and that since the discussion relative to the intended Compromise

Agreement bogged down, it necessarily follows that the revised assessment of

P18,475,003.20, is the amount now demandable from petitioner-appellant.

Likewise, respondents-appellees argue that movant’s submission that it

is exempt from the payment of taxes to be imposed by the local government

pursuant to the provisions of Sec. 133(o) of the Local Government Code, it

being an instrumentality of the national government, is misplaced; that in the

case of National Power Corporation vs. City of Cabanatuan, G.R. No. 149110,

April 9, 2003, it was held that:

“x x x x x x x x x

x x x x x x x x x

Petitioner (NPC) was created to ‘undertake the development of hydro-electric generation of power and the production of electricity from nuclear, geothermal and other sources, as well as the transmission of electric power on a nationwide basis. Pursuant to this mandate, petitioner (NPC) generates power and sells electricity in bulk. Certainly, these activities do not partake of the sovereign function of the government. They are purely private and commercial undertakings, albeit imbued with public interest. The public interest involved in these activities, however, does not distract from the true nature of the petitioner (NPC) as a commercial enterprise, in the same league with similar public utilities like telephone and telegraph companies, railroad companies, water supply and irrigation companies, gas, coal or like companies, water plants, ice plant among others; all of which are declared by this Court as ministrant or proprietary functions of government aimed at advancing the general interest of society.” (Underscoring supplied).

and that based on the foregoing pronouncement by the Supreme Court, NPC is

not a government instrumentality that can lawfully claim tax exemption using as

basis Section 133(o) of the Local Government Code.

Respondent-Appellees furthermore point out that:

“11. With respect to the properties included in the “Machineries Assessment”, the Honorable Board correctly ruled that, based on the evidence presented by both parties and on the results of the ocular inspection conducted by the members of the Honorable Board, they are actually water conveyance structures that cannot, by any stretch of the imagination, be considered or classified as falling within the definition of the term ‘machinery’ under Section 199(o) of the Local Government Code. As testified to by the witnesses presented by both parties, these structures deliver or divert the water impounded in the main reservoir to the water turbines and back to the mainstream of the Angat River”.

“12. As water conveyance structures, it is beyond any doubt that these properties or structures are permanently adhered to the ground. They actually form integral parts or components of the dam itself without which the dam would not function. For purposes of determining whether or not they are machineries, they cannot be viewed or examined separately from the dam itself as NPC would want the Honorable Board to do. Individually, these structures would have no purpose and serve no actual use unlike a piece of machinery that could work, function and operate on its own or by itself. Clearly then, these structures cannot properly be classified as machineries.” (Records, pp. 224-225)
Respondents-Appellees then pray that petitioner-appellant’s Motion for

Reconsideration be denied.

After an assessment of the arguments raised by the parties, this Board is

not persuaded to reconsider or disturb its assailed Decision dated August 26,


There is no merit in petitioner-appellant’s contention that this Board

should have stated in its questioned Decision that, if ever NPC is deemed liable

to pay the “Land Assessments”, the same should be only P6,485,422.60,

instead of the original assessment of P18,475,003.20. the latter amount is

decreed in the LBAA Decision dated April 14, 2008, which this Board affirmed.

Respondents-Appellees correctly point out that the original assessment

for the land was intended to be reduced by respondents-appellees when the

parties were still discussing a possible amicable settlement. This Board is

aware that in discussions with the end in view of terminating a controversy,

concessions are extended by the parties in favor of each other to expedite the

resolution of their dispute. Unfortunately, however, the proposed Compromise

Agreement did not push through so the revised assessment of P18,475,003.20

remains as it was not amended or replaced by any subsequent official and

revisionary assessment.

The Board will no longer tackle the other grounds raised by appellant-

movant in its Motion for Reconsideration as they have been extensively

discussed by the Board in its assailed Decision.

WHEREFORE, in view of the above considerations, petitioner-appellant’s

Motion for Reconsideration, for lack of merit, is hereby DENIED.


Manila, Philippines, October 14, 2011.