G.R. No. 171470 - National Power Corp. vs. Central Board of Assessment Appeals

The case involves the National Power Corporation (NAPOCOR), a government-owned and controlled corporation (GOCC), as petitioner, versus the Central Board of Assessment Appeals (CBAA), Local Board of Assessment Appeals (LBAA) of La Union, and local government officials of La Union, respondents.
The issue concerns the real property tax status of machineries and equipment used in a Build-Operate-Transfer (BOT) power plant project in Bauang, La Union.

On January 11, 1993, First Private Power Corporation (FPPC) entered into a BOT agreement with NAPOCOR to construct the 215 Megawatt Bauang Diesel Power Plant.
The BOT agreement provided for the creation of Bauang Private Power Corporation (BPPC), which would own, manage, and operate the power plant and assume FPPC’s obligations.
Under the BOT agreement:

NAPOCOR would provide the site free of cost and pay real estate taxes related to the site, buildings, and improvements.
BPPC would own the plant, fixtures, machinery, and equipment and operate the power station to convert fuel provided by NAPOCOR into electricity.
NAPOCOR would supply all fuel and pay BPPC fees according to a schedule.
The power plant would be transferred to NAPOCOR at the end of the cooperation period without compensation.

Initially, machineries and equipment were declared tax-exempt by the Municipal Assessor of Bauang.
The municipality, prompted by the Bauang Vice Mayor, questioned this and the Bureau of Local Government Finance (BLGF) ruled the properties taxable.
Revised tax declarations assessed BPPC's machineries and equipment real property tax totaling about ₱288 million for 1995-1998.
NAPOCOR filed a petition with LBAA seeking exemption retroactive to 1995, invoking Section 234(c) of the Local Government Code (LGC), which exempts machineries and equipment actually, directly, and exclusively used by GOCCs engaged in power generation and transmission.
The LBAA denied the petition, finding BPPC, a private entity, was the actual user and owner, making the exemption inapplicable.
The CBAA affirmed, emphasizing the definitions of actual, direct, and exclusive use, and noting that tax exemption does not extend to BPPC.
NAPOCOR and BPPC separately filed petitions for review with the Court of Tax Appeals (CTA), which were consolidated.
The CTA dismissed the petitions, ruling:

BPPC did not timely appeal the assessment.
NAPOCOR lacked legal interest as it was not the owner of the machineries and equipment.
BPPC was the actual, direct, and exclusive user of the machineries and equipment.
Tax exemption cannot be extended by contract nor is it transferable.

BPPC’s separate petition was denied by the Supreme Court’s First and Third Divisions.

NAPOCOR filed the present petition before the Supreme Court, asserting it is the actual, direct, and exclusive user of the machineries and equipment and entitled to tax exemption.
NAPOCOR argues that the BOT agreement is a financing agreement where BPPC acts as financier-contractor and NAPOCOR is the beneficial owner and actual user.
It claims its payment of fees under the BOT is consistent with ownership and points to related laws, including the BOT Law and its charter.
NAPOCOR also contends that if taxable, the plant should be classified as "special" property and subject to a reduced assessment level of 10%.
NAPOCOR filed a supplemental petition citing the public interest implications of the auction sale of the machineries and equipment.

Whether NAPOCOR is the actual, direct, and exclusive user of the machineries and equipment under the BOT agreement qualifying for tax exemption under Section 234(c) of the Local Government Code.

Whether the tax exemption under Section 234(c) may be extended or passed on to a private corporation (BPPC) through the BOT contract.

Whether the CTA erred in ruling that tax exemption cannot be granted to machineries and equipment owned and used by BPPC, a private entity.

Whether the machineries and equipment should be classified as "special" real property and thus subject to a reduced assessment level of 10%.

Whether NAPOCOR’s payment of taxes under the BOT agreement affects the real property tax liability and exemption status.