G.R. No. 210191 - National Power Corp. vs. Province of Pangasi

National Power Corporation (NPC) is a government-owned and controlled corporation under R.A. No. 6395, mandated to generate and transmit electric power nationwide.
On May 20, 1994, NPC entered into an Energy Conversion Agreement (ECA) with CEPA Pangasinan Electric Limited (later Mirant Sual Corporation, now Team Energy) for a Build-Operate-Transfer (BOT) Sual Coal-Fired Thermal Power Plant. Under Article 11.1 of the ECA, NPC assumed payment of “all real estate taxes and assessments … in respect of the Site, … Pipelines, the buildings and improvements thereon, the Infrastructure and the Power Station.”
On December 3, 1994, a Memorandum of Agreement (MOA) was executed among NPC, PEC (Mirant’s predecessor), the Province of Pangasinan, the Municipality of Sual, and Barangay Pangascasan. The MOA provided, inter alia, that NPC would conform with the Local Government Code’s regulations on realty tax payment upon project site acquisition.

Mirant commenced operations in 1998; NPC paid real property taxes on land, buildings, machinery, and equipment from 1998 to the first quarter of 2003. Machinery and equipment were declared under Mirant’s Tax Declaration No. 3694.
In the second quarter of 2003, NPC ceased tax payments, invoking exemptions under R.A. No. 7160 (Local Government Code).
The Municipal Treasurer of Sual issued a Notice of Assessment dated September 10, 2003. NPC filed a petition for exemption with the Local Board of Assessment Appeals (LBAA Case No. P-03-001), seeking (a) recall of the assessment; (b) exemption of machinery and equipment under Section 234(c) of R.A. 7160; and (c) special assessment under Section 216 if exemption failed.

LBAA Resolution (April 15, 2004) dismissed NPC’s petition for lack of timely filing (Section 206), estoppel due to prior tax payments, and lack of ownership by NPC. It held the properties subject to an 80% assessment level.
NPC appealed to the Central Board of Assessment Appeals (CBAA Case No. L-52). After an updated tax bill, NPC filed a second petition (LBAA Case No. P-06-001), which was likewise dismissed (July 18, 2007). NPC appealed this dismissal as CBAA Case No. L-81.
CBAA Order (April 2, 2009) consolidated the appeals. Decision (April 12, 2012) dismissed both appeals, ruling NPC had no personality to claim exemption because Mirant was the actual owner, user, and beneficiary of the subject facilities. A Motion for Reconsideration was denied (July 31, 2012).

NPC petitioned for certiorari under Rule 45 (CTA EB Case No. 937). On November 11, 2013, the Court of Tax Appeals En Banc affirmed the LBAA and CBAA rulings.
The CTA held: (a) ownership and beneficial use of the plant remained with Mirant until transfer; (b) NPC lacked legal interest to claim exemptions under Sections 234(c), 234(e), and 225, or special assessment under Section 216 of R.A. 7160; (c) the MOA did not constitute acknowledgment of NPC’s ownership or use; and (d) contractual undertaking by NPC to pay real property taxes could not override statutory exemption rules.

Whether the machinery and equipment are exempt from real property tax under Section 234(c) or Section 234(e) of R.A. No. 7160.
Whether the subject properties qualify as a “special class” under Section 216 of R.A. No. 7160 for a lower assessment level.
Whether NPC is entitled to a depreciation allowance under Section 225 of R.A. No. 7160.
Whether NPC has the legal personality and interest to claim tax exemptions, privileges, or allowances on the subject properties.