G.R. No. 17024 - Bearneza vs. Dequilla

Case Summary (G.R. No. 17024)

Procedural History

BPC filed a declaratory relief petition in the RTC, later supplemented as a petition for injunction after Batangas City withheld BPC’s business permit and threatened closure of the power plant. NPC intervened. The RTC dismissed the petition, holding that BPC was liable for business taxes, that NPC’s tax exemption was withdrawn by the Local Government Code (LGC, R.A. No. 7160), and that the six-year local tax holiday commenced on BOI registration. BPC and NPC filed consolidated petitions for review under Rule 45 to the Supreme Court challenging the RTC decision.

Relevant Dates and Registrations

BOI registration: BOI issued a certificate registering BPC as a pioneer enterprise (certificate dated September 23, 1992, with later BOI designation of July 16, 1993 as the start date for income tax holiday due to delayed commercial operation). Batangas City’s initial tax demand letter: October 12, 1998; city treasurer modified the claim on April 15, 1999 to cover 1998–1999; BPC claimed its six-year holiday should run from July 16, 1993 (BOI-certified start of commercial operation). NPC–Enron BOT Agreement: June 29, 1992. Local Government Code (R.A. No. 7160) effective January 1, 1992.

Applicable Law and Precedents Cited

Primary statutory provisions: Section 133(g) and 133(o) and Section 193 of R.A. No. 7160 (Local Government Code), and Section 534 (repealing clause) as referenced. NPC’s charter (R.A. No. 6395, Section 13) and Executive Order No. 226 (Omnibus Investment Code) Section 1, Article 39, Title III (income tax holiday commencement) are also cited. Constitutional basis: 1987 Constitution, Article X, Section 5 (granting taxing power to LGUs). Precedents relied upon or discussed include Basco v. PAGCOR and National Power Corporation v. City of Cabanatuan.

Core Factual Dispute

Two principal factual-legal disputes framed the litigation: (1) whether BPC’s six-year local tax holiday under Section 133(g) of the LGC commenced at BOI registration or at the date of actual commercial operation certified by the BOI; and (2) whether NPC retained a tax-exemption privilege under its charter such that it was not liable to pay local business taxes it had assumed under the BOT agreement. A jurisdictional issue was also raised concerning the RTC’s authority to entertain BPC’s supplemental petition for injunction against Batangas City.

Parties’ Main Contentions on Appeal

BPC and NPC argued that the tax holiday should run from the BOI-certified commencement of commercial operations (July 16, 1993), not the BOI registration date, and that NPC had assumed responsibility for the taxes under the BOT agreement, thereby precluding BPC’s liability. NPC additionally argued that its charter’s tax-exemption remained in force and that the LGC did not repeal or withdraw such special-law exemptions, and it contended the RTC lacked jurisdiction to issue the injunction against Batangas City. Batangas City countered that local tax exemption under Section 133(g) begins at BOI registration and that as the entity doing business in the city, BPC was the proper subject of tax assessment; the city also maintained it was not bound by the NPC–BPC private BOT arrangement.

Trial Court’s Rulings

The RTC (Makati) dismissed the petition for injunction and ruled that: (1) BPC was liable for business taxes to Batangas City; (2) NPC’s blanket tax exemption had been withdrawn by the LGC; and (3) the six-year tax holiday for BOI-certified pioneer enterprises under Section 133(g) of the LGC runs from the date of BOI registration, not from the date of actual commercial operations.

Supreme Court Issues for Resolution

The Supreme Court identified the issues as: (1) commencement date of BPC’s six-year local tax holiday (BOI registration date versus BOI-certified commercial operation date); (2) whether the RTC had jurisdiction to decide the supplemental petition for injunction against Batangas City; and (3) whether NPC’s tax-exemption privileges under its charter were withdrawn by Section 193 of the LGC.

Supreme Court Analysis — Tax Holiday Commencement

The Court held that Section 133(g) of the LGC, which bars LGUs from levying taxes on BOI-certified pioneer enterprises for six years “from the date of registration,” governs local taxes such as Batangas City’s business tax. The Court rejected reliance on Executive Order No. 226, which pertains to national income tax holidays and expressly fixes commencement from commercial operation; EO 226’s six-year rule applies to national income taxation and is not controlling for local tax exemption under the LGC. Therefore, for purposes of local taxation, the six-year tax holiday starts on BOI registration; the Court concluded BPC’s local tax holiday ran from its BOI registration and expired accordingly.

Supreme Court Analysis — Jurisdictional Estoppel

On the jurisdictional contention, the Court found NPC estopped from challenging the RTC’s jurisdiction to entertain BPC’s supplemental petition for injunction because NPC had not raised that objection in the trial court and had participated in the proceedings. The principle applied is that a party who submits a case to a court and accepts judgment if favorable cannot later attack the court’s jurisdiction when the decision is adverse.

Supreme Court Analysis — NPC’s Tax-Exemption Status

The Court held that the

Case Syllabus (G.R. No. 17024)

Parties and Nature of the Case

Petitioner: Batangas Power Corporation (BPC), originally Enron Power Development Corporation’s assignee under a Fast Track BOT Project with National Power Corporation (NPC).
Co-petitioner / intervenor in consolidated petitions: National Power Corporation (NPC).
Respondents: Batangas City Government (the City), represented by City Legal Officer Teodulfo A. Deguito and City Treasurer Benjamin Pargas; Hon. Ricardo R. Rosario, Presiding Judge, RTC, Branch 66, Makati City (in the NPC petition docketed separately).
Nature of action(s): Consolidated petitions for review under Rule 45 of the Rules of Civil Procedure seeking to set aside rulings of the Regional Trial Court (RTC) of Makati in Civil Case No. 00-205; original relief sought was declaratory relief with subsequent supplemental conversion to an action for injunction.
Reliefs sought by BPC: Declaratory relief that it was not bound to pay Batangas City business taxes; upon supplemental petition, injunctive relief to enjoin Batangas City from withholding issuance of business permit and from closing the power plant.
Reliefs / contentions by NPC: Challenges to RTC rulings that it lost tax exemption under Section 193 of R.A. No. 7160 (Local Government Code, LGC); NPC also intervened in local tax claim dispute acknowledging assumption of BPC’s tax obligations under the 1992 BOT Agreement but refusing to pay on basis of NPC’s claimed tax-exempt status.

Relevant Agreements and Regulatory Acts

1992 Fast Track BOT Agreement (June 29, 1992) between Enron Power Development Corporation and NPC:
- Enron agreed to supply a power station and transfer the plant to NPC after ten years of operation.
- Section 11.02 of the BOT Agreement provided that NPC shall be responsible for the payment of all taxes that may be imposed on the power station, except income taxes and permit fees.
- Enron assigned its obligation under the BOT Agreement to BPC.
Board of Investments (BOI) registration and certification:
- BPC registered with the BOI on September 13, 1992 (per source).
- BOI issued a certificate of registration to BPC as a pioneer enterprise entitled to a six-year tax holiday on September 23, 1992 (per source).
- BOI, in correspondence cited by BPC, designated July 16, 1993 as the start of BPC’s income tax holiday, citing force majeure, and BOI referenced Article 7(14) of Executive Order No. 226 in support of such designation.
National laws implicated:
- Republic Act No. 7160 (Local Government Code; LGC), effectivity January 1, 1992.
- Section 133(g) of the LGC: proscribes LGUs from levying taxes on BOI-certified pioneer enterprises for a period of six years from the date of registration (as applied by the Court in this case).
- Section 133(o) of the LGC: an exemption provision referenced by petitioners (text in source notes that it exempts “a national government, its agencies and instrumentalities” from imposition of taxes, fees or charges of any kind).
- Section 193 of the LGC (quoted in the source): withdrawal of tax exemption privileges upon effectivity of the Code unless otherwise provided; Section 534 (repealing clause) repeals inconsistent general and special laws.
- Executive Order No. 226 (1987 Omnibus Investment Code, as amended): contains income tax holiday provisions commencing from date of commercial operation (cited by parties and BOI).
- Republic Act No. 6395 (NPC Law), Section 13: provides NPC tax exemption under its charter (cited by NPC as basis for claimed exemption).

Factual Background and Chronology

Early 1990s national power crisis: prolonged outages and need to attract investors for power generation; government incentives included NPC’s assumption of investor taxes under BOT agreements.
June 29, 1992: Enron and NPC entered into a Fast Track BOT Project; Section 11.02 obligated NPC to pay taxes on the power station (except income taxes and permit fees).
Enron assigned its obligations to BPC (date not specified in source beyond assignment occurring after BOT Agreement).
September 13, 1992: BPC registered with the BOI as a pioneer enterprise.
September 23, 1992: BOI issued certificate of registration to BPC as pioneer enterprise entitled to six-year tax holiday.
Construction completed and BPC operated the power station located in Batangas City.
BPC’s claimed commercial operation start date: July 16, 1993 (as certified by BOI and relied upon by BPC).
October 12, 1998: Batangas City, through Legal Officer Teodulfo A. Deguito, demanded payment of business taxes and penalties commencing from 1994 under Ordinance XI (1992 Batangas City Tax Code); initial amount assessed included P34,551,543.96 (source footnote).
BPC refused to pay, asserting tax-exempt status as BOI-certified pioneer enterprise per Section 133(g) of the LGC.
April 15, 1999: City Treasurer Benjamin S. Pargas modified the city’s tax claim, demanding payment only for years 1998–1999 and acknowledging BPC’s six-year tax holiday expired on September 22, 1998 (six years after BOI registration on September 23, 1992).
BPC maintained its tax holiday commenced on date of commercial operation (July 16, 1993) and furnished BOI letter designating that date for income tax holiday; alternatively BPC asserted NPC should be liable under BOT Agreement.
Deadlock persisted; Batangas City maintained its claim against BPC as entity doing business in the city and asserted it was not privy to NPC’s assumption of tax payments under BOT Agreement.
August 26, 1999: NPC intervened, admitting assumption of BPC’s tax obligations under BOT but refusing payment on ground that payment would be an indirect tax on NPC, which claimed tax exemption under its charter (Section 13, R.A. No. 6395).
BPC filed declaratory relief in Makati RTC (Civil Case No. 00-205) against Batangas City and NPC; docketed to RTC Branch 66, Makati (presided by Judge Ricardo R. Rosario).
February 23, 2000: While case pending, Batangas City refused to issue BPC a permit to operate unless assessed business taxes (close to P29M) were paid; BPC filed a supplemental petition converting its declaratory relief into a petition for injunction to enjoin withholding of permit and closure of plant; the Makati RTC admitted the supplemental petition despite City’s jurisdictional objection.
February 27, 2002: Makati RTC dismissed petition for injunction and ruled that BPC is liable to pay business taxes; that NPC’s tax exemption was withdrawn with passage of R.A. No. 7160; and that the six-year tax holiday for pioneer enterprises under Section 133(g) of the LGC starts on date of BOI registration, not on date of actual operations.

Procedural History in the Supreme Court

BPC and NPC filed separate petitions for review on certiorari with the Supreme Court under Rule 45 (consolidated), docketed as G.R. No. 152675 (BPC) and G.R. No. 152771 (NPC).
Issues raised by petitioners challenged RTC findings on tax liability of BPC, the commencement date of the 6-year tax holiday, NPC’s retained tax exemption under its charter, and jurisdictional issues regarding the supplemental petition for injunction.
The petitions were consolidated because they impugned the same Makati RTC decision, involved the same parties and raised related issues (consolidation noted in October 2, 2002 Resolution).

Issues Presented for Resolution

Whether BPC’s six-year tax holiday commenced from the date of BOI registration as a pioneer enterprise or from the date of actual commercial operation as certified by the BOI.
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