Case Summary (G.R. No. 215955)
Facts
MWSS, created as a government instrumentality with corporate powers, administers waterworks and sewerage systems in Metro Manila. In 1997, MWSS entered into a concession agreement with Maynilad for the West Zone, including Pasay City. In February 2008, Pasay City demanded payment of real property taxes amounting to PHP 166,629.36. MWSS protested, invoking its tax-exempt status under Section 133(o) and Section 234(a) of the LGC as construed in Manila International Airport Authority v. CA (MIAA). When Pasay City failed to act, MWSS appealed to the LBAA.
LBAA Ruling
The LBAA held that MWSS is a GOCC, not a government instrumentality, and thus not entitled to exemption under the MIAA doctrine. It further reasoned that MWSS’s concession to Maynilad constituted actual and beneficial use by a taxable entity, rendering the assessment reasonable and collectible.
CBAA Ruling
The CBAA affirmed the assessment’s finality for failure to question the assessment before the city assessor under Section 226 of the LGC. It declined to address the merits as moot. On reconsideration, the CBAA acknowledged MWSS’s status as a government instrumentality exempt under Section 133(o), but ruled that Section 234(a) withdrew prior real property tax exemptions for GOCCs, rendering MWSS liable.
CA Ruling
The Court of Appeals dismissed MWSS’s appeal for failure to exhaust administrative remedies under Sections 206 and 252 of the LGC. It held that MWSS did not timely file proof of exemption nor pay under protest, and affirmed the CBAA resolutions.
Issues
- Whether the CA erred in dismissing the petition for non-exhaustion of administrative remedies.
- Whether Pasay City may assess and collect real property taxes from MWSS.
Exhaustion of Administrative Remedies
The controversy involves a pure question of law—whether a local government may tax a national government instrumentality—and not a challenge to the reasonableness or amount of the assessment. Under Ty v. Trampe, exhaustion of administrative remedies is not required when only legal questions are involved. Sections 252 and 226 govern protests against amounts and fact-based assessments, not jurisdictional challenges. Judicial relief is proper.
Tax Exemption of MWSS
MWSS is a “government instrumentality vested with corporate powers” as recognized by the Supreme Court (MIAA), EO No. 596, and RA No. 10149. The LGC’s Section 133(o) bars local taxation of national government instrumentalities, and Section 234(a) exempts their real property unless beneficial use is granted to a taxable person. The proviso in Section 234(a) applies only to GOCCs, not to governmental instrumentalities like MWSS. Thus, MWSS’s properties in Pasay City remain tax-exempt under the 1987 Constitution’s grant of local taxing power “subject to such guidelines and limitations as the Congress may provide.”
Beneficial Use and Liability of Taxable Concessionaire
Tax exemption ceases for real property when its beneficial use is granted to a taxable person. Beneficial use means actual possession and predominant use of the property. Under Section 205(d) of the LGC, such property must be assessed and billed in the name of the possessor or grantee. Although MWSS alleged that all its Pasay City properties were turned over to Maynilad, the record lacks proof of such beneficial use. Consequently, MWSS remai
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