G.R. No. 192945 - City of Iriga vs. Camarines Sur III Electric Cooperative, Inc.

Case Summary (G.R. No. 192945)

Parties

Petitioner sought collection of local franchise and real property taxes assessed against CASURECO III for various years. CASURECO III opposed payment, asserting tax exemption based on its cooperative status and provisional CDA registration, and contesting the computation and territorial scope of the assessments.

Key Dates and Procedural Posture

PD 269 took effect August 6, 1973; NEA registration and franchise granted to CASURECO III (50-year franchise from June 6, 1979).
RA 6938 and RA 6939 were enacted March 10, 1990 (Cooperative Code and creation of CDA).
RA 9282 (expanding Court of Tax Appeals jurisdiction) took effect April 23, 2004.
City demanded payment January 7, 2004; complaint filed March 15, 2004 before the Regional Trial Court (RTC).
RTC Decision rendered February 7, 2005 (found CASURECO III liable for franchise taxes for 2000–2003; some real property taxes prescribed).
CA reversed in a February 11, 2010 decision and denied timely reconsideration; Supreme Court G.R. petition reviewed subsequently.

Applicable Law and Precedents

Relevant statutory and constitutional provisions cited in the decision include: PD 269 (tax exemptions for NEA-registered electric cooperatives), RA 6938 (Cooperative Code) and RA 6939 (creation of CDA), RA 9282 (expansion of CTA jurisdiction), Local Government Code (LGC) Sections 137, 151, 193 and 194, and Section 5, Article X of the 1987 Constitution. Controlling precedents referenced include National Power Corporation v. City of Cabanatuan (franchise tax described as tax on privilege) and Philippine Rural Electric Cooperatives Association, Inc. (PHILRECA) v. Secretary, DILG (effect of Section 193 LGC withdrawing prior tax exemptions).

Factual Background

CASURECO III provides electric distribution services in Iriga City and the Rinconada area (municipalities including Nabua, Bato, Baao, Buhi, Bula and Balatan). In 2003 the City required gross-receipts reports for 1997–2002; CASURECO III submitted reports and was assessed franchise and real property taxes. The City’s final demand sought franchise taxes for 1998–2003 and real property taxes for 1995–2003. CASURECO III refused payment, contending that (a) part of the gross receipts were from areas outside Iriga’s jurisdiction; (b) some taxes had prescribed; and (c) it was exempt during the period of provisional CDA registration.

RTC Decision

The RTC (Iriga City, Branch 36) held that real property taxes for 1995–1999 had prescribed under LGC Section 194, but found CASURECO III liable for franchise taxes for 2000–2003 based on gross receipts from Iriga City and the Rinconada area. The RTC directed payment of real property and franchise taxes (except the prescribed years) and ordered the City Assessor to classify CASURECO III’s real property per city ordinance.

Court of Appeals Decision and Reasoning

The Court of Appeals reversed the RTC and ruled CASURECO III exempt from local franchise tax. The CA reasoned that CASURECO III is a nonprofit cooperative and therefore not a “business enjoying a franchise” under LGC Section 137; it relied on the statutory definition of “business” in LGC Section 131 as a trade or commercial activity engaged in with a view to profit. Accordingly, the CA relieved CASURECO III from franchise tax liability.

Issues Presented to the Supreme Court

The Supreme Court reformulated the issues as: (1) whether an electric cooperative registered under PD 269 but not registered under RA 6938 remains liable for local franchise taxes; and (2) whether the situs of taxation for franchise tax is the place where the franchise holder exercises its franchise irrespective of where services or products are delivered. CASURECO III additionally raised a procedural contention that the CA’s decision had attained finality because the City’s motion for reconsideration to the CA was filed late.

Procedural Ruling on Proper Mode of Appeal

The Supreme Court found a procedural defect: RA 9282, effective April 23, 2004, expanded the Court of Tax Appeals’ jurisdiction to include appeals from RTC decisions in local tax cases. Because the RTC rendered its decision on February 7, 2005 (after RA 9282’s effectivity), the proper appellate forum for CASURECO III was the CTA, not the CA. The CA therefore lacked jurisdiction and its decision was void. The Court explained that a void judgment has no binding effect, so the CA decision could not have acquired finality even if the City’s motion for reconsideration was untimely.

Legal Analysis — Effect of PD 269, RA 6938, RA 6939 and LGC Section 193

PD 269 originally conferred tax exemptions (including from franchise taxes) to cooperatives registered with NEA. After RA 6938/6939 (1990) established the CDA and conditioned continued cooperative privileges on registration with CDA, and after the LGC (effective January 1, 1992) via Section 193 withdrew prior tax exemptions except for specified entities (including cooperatives duly registered under RA 6938), the Court applied prior precedent (PHILRECA) to conclude that PD 269’s exemptions were effectively withdrawn for NEA-registered cooperatives that did not register under RA 6938. Because CASURECO III’s provisional CDA registration (which temporarily extended exemptions) expired on May 4, 1992, CASURECO III could no longer invoke PD 269 to claim exemption from local taxes for the subject periods.

Legal Analysis — Nature of Franchise Tax and Requisites for Liability

The Court reiterated that a franchise tax is a tax on the privilege conferred by the government to exercise corporate f

Case Syllabus (G.R. No. 192945)

Procedural Posture

Petition filed under Rule 45 of the Revised Rules of Court seeking to set aside the Court of Appeals (CA) Decision dated February 11, 2010 and Resolution dated July 12, 2010 that reversed the Regional Trial Court (RTC) of Iriga City, Branch 36 Decision dated February 7, 2005.
Supreme Court decision rendered September 05, 2012 (G.R. No. 192945) by PERLAS-BERNABE, J., Second Division.
The CA denied petitioner's motion for reconsideration as filed a day late (July 12, 2010 Resolution); CA judgment was subsequently challenged before the Supreme Court.
The Supreme Court found jurisdictional/procedural lapses in the mode of appeal and nevertheless reviewed the merits, ultimately granting the petition and reinstating the RTC decision while setting aside the CA Decision and Resolution.

Facts

CASURECO III is an electric cooperative organized under Presidential Decree (PD) No. 269, registered with the National Electrification Administration (NEA), operating electric power distribution in the City of Iriga and municipalities of Nabua, Bato, Baao, Buhi, Bula and Balatan (the Rinconada area).
In 2003, the City of Iriga required CASURECO III to submit gross receipts reports for 1997–2002 to compute franchise taxes, fees and other charges; CASURECO III complied and was assessed.
On January 7, 2004, the City made a final demand for payment of franchise taxes for 1998–2003 and real property taxes for 1995–2003. CASURECO III refused to pay, asserting exemption as an electric cooperative provisionally registered with the Cooperative Development Authority (CDA).
On March 15, 2004, the City filed a complaint for collection of local taxes in the RTC, alleging as of December 31, 2003 total liabilities of P17,037,936.89 (franchise taxes, penalties, surcharges, interest) and P916,536.50 (real property taxes).
CASURECO III’s Answer denied liability, asserting the City’s computations included (a) gross receipts from areas beyond the City’s territorial jurisdiction, (b) taxes already prescribed, and (c) taxes falling within the period it was exempt due to CDA provisional registration.

Trial Court Ruling (RTC, Feb. 7, 2005)

The RTC held real property taxes for years 1995–1999 had prescribed under Section 194 of the Local Government Code (LGC).
The RTC found CASURECO III liable for franchise taxes for years 2000–2003 based on its gross receipts from Iriga City and the Rinconada area, applying the principle that the situs of taxation is the place where the privilege is exercised.
Dispositive language: CASURECO III ordered liable to pay real property taxes and franchise taxes on receipts, including those from service areas covering Nabua, Bato, Baao and Buhi, for the years 2000 up to the present; realty taxes for 1995–1999 declared prescribed.

Court of Appeals Ruling (Feb. 11, 2010) and Resolution (July 12, 2010)

The CA reversed the RTC, concluding CASURECO III is a non‑profit entity and therefore does not fall within the definition of “businesses enjoying a franchise” under Section 137 of the LGC.
CA relied on the definition of “business” in Section 131 of the LGC as “a trade or commercial activity regularly engaged in as a means of livelihood or with a view to profit,” concluding a non‑profit cooperative is not a business for purposes of franchise tax.
The CA relieved CASURECO III from liability to pay local franchise taxes.
The City’s motion for reconsideration before the CA was denied as filed one day late.

Issues Presented to the Supreme Court

Whether an electric cooperative registered under PD 269 but not under RA 6938 is liable for the payment of local franchise taxes.
Whether the situs of taxation for franchise tax is the place where the franchise holder exercises its franchise regardless of the place where services or products are delivered.
CASURECO III raised a procedural contention that the CA Decision had attained finality because the City’s motion for reconsideration to the CA was filed out of time.

Supreme Court Ruling — Procedural and Jurisdictional Analysis

RA 9282 (effective April 23, 2004) expanded the jurisdiction of the Court of Tax Appeals (CTA) to include appeals from RTC decisions in local tax cases; Section 7(a)(3), RA 9282 is cited.
Because RA 9282 was in effect when the RTC rendered its February 7, 2005 decision, CASURECO III should have appealed to the CTA, not to the CA.
The CA therefore acted without jurisdiction over the subject matter; its decision is v