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

LUZON HYDRO CORPORATION AND NATIONAL POWER CORPORATION,
Petitioners-Appellants,

-versus- CBAA CASE NOS. L-57 & L-59
(LBT5AA Case No. 1)
LOCAL BOARD OF ASSESSMENT APPEALS OF THE PROVINCE OF BENGUET,
Appellee,

-and-

BANGGAY T. ALWIS, Municipal Assessor of Bakun, Benguet, ERLINDA ESTEPA, Provincial Assessor of Benguet, MANUEL C. BAGAYAO, Municipal Treasuer of Bakun, Benguet, and MAURICIO B. AMBANLOC, Provincial Treasurer of Benguet,
Respondents-Appellees.
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O R D E R

On July 3, 2012, this Board rendered a Decision in the above-entitled case dismissing both the Appeal under CBAA Case No L-57 and the Petition for Review under CBAA Case No. L-59.

Not satisfied, Petitioners-Appellants filed separate Motions for Reconsideration: the National Power Corporation (NPC), by registered mail on August 2, 2012, and the Luzon Hydro Corporation (LHC), also by registered mail, on August 30, 2012.

Alleging that it received a copy of the assailed Decision on July 24, 2012, NPC raised the following ground for reconsideration in its Motion:
“The weir, dessander and tunnel of the Bakun AC Power Plant are either: (i) exempted from payment of real property tax under Section 234(c) of RA 7160, or (ii) classified as Special Class and thus subject to the 10% assessment level under Section 216 of RA 7160.”

NPC argued that “Under Section 234(c) of RA 7160, the machinery and equipment procured for NPC on a BOT basis are exempted from payment of real property tax.” To support this statement, NPC discussed about matters on:
(1) taxes being classified according to subject matter;

(2) the fact that real property tax attaches to the property itself, not to a particular person;

(3) how the laws on real property taxation do not name the person who shall pay the tax or from whom the tax is to be collected;

(4) Section 250 of RA 7160 being the only provision naming the person who shall pay the real property tax;

(5) the right of persons having legal interest in the property to appeal under Sec. 226 of RA 7160;

(6) the assessment and classification of real property;

(7) how machinery and equipment for pollution control and environmental protection are classified under the “usage exemption” without regard to the owner or user thereof; and

(8) the tax exemption history of the NPC.

NPC says that “If these machinery and equipment are taxable, they should be classified as Special Class and thus subject to the 10% assessment level under Section 216 of RA 7160” and that “Actual use is the test with respect to Special Classes of Real Properties. Who owns or who uses the real property is not relevant”, citing Section 217 of RA 7160 which provides:
“Section 217. Actual Use of Real Property as Basis for Assessment. – Real property shall be classified, valued and assessed on the basis of its actual use regardless of where located, whoever owns is, and whoever uses it.”

On the other hand, LHC, alleging that it received a copy of the questioned Decision on August 15, 2012, moved for the reconsideration of same for the following reasons, to wit:
I. The weir, desander and tunnel (collectively, the “Real Property”) of the Bakun Hydro Plant (“BHP”) subject of the disputed assessments are exempt from real property tax (“RPT”) because NPC is the actual, direct and exclusive user of these properties and therefore, the same are exempt under Section 234(c) of the Local Government Code of 1991 (the “LGC”).

II. Assuming that the exemption under Section 234(c) of the LGC does not apply, the Real Property should be considered under the “special class” of property subject to a 10% assessment level under Sections 216 and 218 of the LGC.

III. Assuming that the Real Property is subject to RPT, Petitioner is not the party liable therefor.

Anent Reason No. I, LHC states that “This Honorable Board correctly held that there is no question that the Real Property is actually, directly, and exclusively used in the generation and transmission of electric power. It further correctly held that there is no doubt that NPC is a GOCC. However, this Honorable Board erroneously concluded without any explanation or justification for such conclusion, that the Real Property is actually, directly, and exclusively used by Petitioner, when such is obviously not the case.”
In Paragraph Nos. 10-12 of its instant Motion, LHC stated thus:

“10. Lastly, it is undisputed that whatever electricity is generated from BHP inures to the sole and exclusive benefit of NPC as the beneficial owner of the BHP. Section 8.1 of the PPA provides:

‘8.1 Supply. NPC agrees to take and pay for all electricity available from the Power Station in accordance with the procedures set out in the Sixth Schedule and the Operating Parameters. The Operator shall dedicate the entire Power station output (net of Power Station usage) to NPC.’ (Emphasis supplied)

“11. Given the foregoing, it is evident that the use and ownership of the BHP still lies with NPC. Whatever operations Petitioner may be said to have with respect to the BHP is only by reason of the BOT arrangement, which is not enough to remove the BHP from the actual, direct and exclusive use of NPC. In fact, Petitioner’s operations as a contractor under the PPA and the BOT agreement are purely under the employ of NPC as principal, and therefore, any usage thereof by Petitioner may be imputed directly to NPC.

“12. Given the foregoing, the Honorable CBAA erred in its ruling. With the actual, direct and exclusive use of the Real Property being lodged with NPC, the exemption under Section 234(c) of the LGC must apply in this case. Thus, the Real Property is exempt from real property tax.”

Like its co-petitioner NPC, the LHC, under its Reason No. II, states that “Assuming that the exemption under Section 234(c) of the LGC does not apply, the Real Property should be considered under the “special class” of property subject to a 10% assessment level under Sections 216 and 218 of the LGC.” LHC points out that, “unlike Section 234(c) which requires actual, exclusive and direct use of the subject property by a GOCC engaged in the generation and transmission of electricity, the provision on special classes of real property under Section 216 requires only ownership and use.

Under its Reason No. III, LHC says that “Assuming that the Real Property is subject to RPT, Petitioner is not the party liable therefor.”

LHC still insists that the owner of the subject properties is NPC and that, “under the Article 8.6 of the PPA, ‘NPC shall be responsible for the payment of real estate taxes and assessments, rates and other charges in respect of the Site, the structures and improvements thereon and the Power Station.’”

As a new matter, LHC says that “The contractual arrangement in the PPA on NPC’s liability for RPT is akin to a contractual tax exemption for which Petitioner may rightfully invoke the non-impairment clause in Section 10, Article III of the 1987 Constitution, citing the Supreme Court’s ruling in Manila Electric Company vs. Province of Laguna, thus:
“‘Contractual tax exemptions, in the real sense of the term and where the non-impairment clause of the Constitution can rightly be invoked, are those agreed to by the taxing authority in contracts, such as those contained in government bonds or debentures, lawfully entered into by them under enabling laws in which the government, acting in its private capacity, sheds its cloak of authority and waives its governmental immunity. Truly, tax exemptions of this kind may not be revoked without impairing the obligations of contracts.’ (Emphasis supplied)”

As clearly stated in the above-quoted portion of the Supreme Court’s Decision, the tax exemptions which may not be revoked without impairing the obligations of contracts are “those agreed to by the taxing authority in contracts, such as those contained in government bonds or debentures, lawfully entered into by them under enabling laws in which the government, acting in its private capacity, sheds its cloak of authority and waives its governmental immunity.” The PPA (Power Purchase Agreement) entered into by and between NPC and LHC is a private contract or arrangement which is binding only to the parties thereto. The taxing authority has no part in said PPA.

Respondents filed their Comment by way of registered mail on October 17, 2012, which Comment reached this Board on October 30, 2012. Respondents quoted a portion of the Supreme Court’s Decision in National Power Corporation v. City of Cabanatuan (G.R. No. 149110, 9 April 2003) which states:
“Taxes are the lifeblood of the government, for without taxes, the government can neither exist nor endure. A principal attribute of sovereignty, the exercise of taxing power derives its source from the very existence of the state whose social contract with its citizens obliges it to promote public interest and common good. The theory behind the exercise of the power to tax emanates from necessity; without taxes, government cannot fulfil its mandate of promoting the general welfare and well-being of the people.”

Respondents also quoted the Supreme Court in the case of Smart Communications Inc. v. City of Davao, thus:
“The Court further held that tax exemptions are highly disfavoured and that a tax exemptions (sic) must be expressed in the statute in clear language that leaves no doubt of the intention of the legislature to grant such exemptions. And, even in the instances when it is granted, the exemptions must be interpreted in strictissimi juris against the taxpayer and liberally in favor of the taxing authority.”

Petitioner LHC filed its Reply to Respondent’s Comment via registered mail on November 22, 2012. Said Reply reached this Board on November 29, 2012. We could not find any matter in the said Reply which was not previously presented and discussed.

Both Motions for Reconsideration are devoid of merit. We find no cogent reason to change the assailed Decision.

WHEREFORE, premises considered, the instant Motions for Reconsideration by both Petitioners-Appellants National Power Corporation (NPC) and Luzon Hydro Power Corporation (LHC) are hereby DENIED.

SO ORDERED.

Manila, Philippines, March 22, 2013.

SIGNED
OFELIA A. MARQUEZ
Chairman

SIGNED SIGNED
ROBERTO D. GEOTINA CAMILO L MONTENEGRO
Member Member