G.R. No. 215955 - Metropolitan Waterworks and Sewerage System vs. Central Board of Assessment Appeals

Case Summary (G.R. No. 215955)

Petitioner

MWSS, created by RA No. 6234 to ensure potable water supply and to operate sewerage systems, was identified by Executive Order No. 596 and by RA No. 10149 as a “government instrumentality vested with corporate powers” (a government corporate entity), a classification relied on to assert exemption from local real property taxation.

Respondents

Respondents are the local assessment and collection authorities of Pasay City (City Assessor, City Treasurer, and the local LBAA), and the CBAA which reviewed the local administrative determinations. Pasay City assessed MWSS real property taxes for taxable year 2008 and issued corresponding computations.

Key Dates

Relevant procedural and statutory milestones cited in the record include MWSS’s creation under RA No. 6234 (1971), the 1997 MWSS–Maynilad concession, the 2008 real property tax computations issued by Pasay City, administrative determinations by the LBAA and CBAA (2012–2013), CA resolutions (2014), and the Supreme Court’s final resolution reversing the CA (pet. granted in part).

Applicable Law

Primary legal provisions applied are the 1987 Constitution (Art. X, Sec. 5) as the governing constitutional limit on local taxing powers; RA No. 7160 (Local Government Code of 1991), specifically Sections 133(o) (common limitations on taxing powers), 205(d) (listing of properties whose beneficial use granted to taxable person), 206 (proof of exemption), 226 (appeals to LBAA), 252 (payment under protest), 234(a) (withdrawal/exceptions to prior real property tax exemptions), and 253 (claim for refund procedure); PD No. 464 (Real Property Tax Code) provisions on exemptions and assessment by actual use; Executive Order No. 596 and RA No. 10149 for MWSS’s classification; and precedents including Manila International Airport Authority v. CA, Ty v. Hon. Trampe, National Power Corp. decisions, and the prior MWSS v. Quezon City ruling.

Facts

Pasay City sent MWSS computations demanding P166,629.36 for 2008. MWSS protested, asserting it is a tax-exempt government instrumentality. Pasay City officials did not act on MWSS’s protest, prompting administrative appeals. Pasay’s administrative authorities concluded MWSS was a GOCC or that statutory provisions withdrew earlier exemptions; the CBAA treated the matter as administratively final for procedural reasons. MWSS challenged the administrative dismissals and sought judicial relief.

LBAA Ruling

The LBAA found MWSS to be a government-owned or controlled corporation (GOCC), not a government instrumentality, and held that the MIAA doctrine did not apply; it also reasoned that MWSS’s concession to Maynilad effected a transfer of beneficial use to a taxable person, rendering the assessments reasonable and collectible.

CBAA Ruling

The CBAA affirmed finality of assessment on procedural grounds—failure to question the assessment before the city assessor under Section 226—declined to address the substantive tax-exemption issue as moot, and later denied reconsideration while acknowledging MWSS’s classification as a government instrumentality but treating PD No. 464/Section 234(a) as removing the real property exemption for MWSS.

CA Ruling

The Court of Appeals dismissed MWSS’s appeal for failure to exhaust administrative remedies under Sections 206 and 252 of the LGC, requiring proof of exemption and payment under protest, and declined further relief; its denial of MWSS’s motion for reconsideration was subsequently appealed to the Supreme Court.

Issue Presented

Two central legal questions were presented: (1) whether the CA erred in dismissing MWSS’s appeal for failure to exhaust administrative remedies; and (2) whether Pasay City was authorized to assess and collect real property taxes from MWSS’s properties.

Ruling on Administrative Exhaustion

The Supreme Court held that the CA erred in dismissing the petition on purely procedural exhaustion grounds because the controverted issue—whether a local government may assess and collect real property taxes from a government instrumentality—is a pure question of law. Where only legal questions are involved, the exhaustion doctrine does not bar judicial resolution (Ty v. Hon. Trampe and related precedents). MWSS was not contesting assessment computation or valuation facts, but the authority of local authorities to tax it; hence judicial action was proper.

Classification of MWSS and Tax Exemption

Relying on MIAA, Executive Order No. 596, and RA No. 10149, the Court reaffirmed MWSS’s classification as a government instrumentality vested with corporate powers. Under Section 133(o) and Section 234(a) of the LGC (and corresponding PD No. 464 provisions), such instrumentalities are generally exempt from local real property tax, subject to the established exception when beneficial use is granted to a taxable person. The Court held that MWSS’s tax exemption therefore remains valid unless and until beneficial use is proven to have been granted to a taxable entity.

Effect of Concession/Beneficial Use

The Court recognized that the exemption for government-owned property ceases when beneficial use is granted, for consideration or otherwise, to a taxable person. “Beneficial use” equates to actual use or possession—i.e., the purpose for which the property is principally used. Although Pasay City alleged MWSS’s properties were turned over to Maynilad under a concession, the record did not sufficiently prove that all MWSS properties in Pasay were beneficially used by a taxable person. Because these are factual determinations, the Court could not resolve them on the present record and declined to impute automatic loss of exemption based merely on the existence of a concession agreement.

Liability and Assessment Principles

The Court reiterated the principle that real property asse

Case Syllabus (G.R. No. 215955)

Title, Source and Procedural Posture

Full case identifiers: 119 O.G. No. 23, 4166 (June 5, 2023), Second Division; G.R. No. 215955, January 13, 2021.
Nature of petition: Petition for Review on Certiorari under Rule 45 of the Revised Rules of Court.
Parties: Metropolitan Waterworks and Sewerage System (MWSS) as Petitioner; Central Board of Assessment Appeals (CBAA), Pasay City Local Board of Assessment Appeals (LBAA), Pasay City, and the Pasay City Treasurer and City Assessor as Respondents.
Relief sought: Review of Court of Appeals Resolutions dated June 3, 2014 and December 11, 2014 in CA-G.R. SP No. 129182, concerning the imposition of real property tax assessments on properties of MWSS in Pasay City.

Facts

MWSS was created by Republic Act No. 6234 on June 19, 1971, “to insure an uninterrupted and adequate supply and distribution of potable water” and to operate and maintain sewerage systems; it was vested with supervision and control over waterworks and sewerage systems within Metro Manila, Rizal, and part of Cavite (RA No. 6234, Secs. 1 and 2(c)).
In 1997, under RA No. 8041 (National Water Crisis Act of 1995), MWSS entered into a concessionaire agreement with Maynilad Water Services, Inc. (Maynilad) to service the West Zone of the Metropolitan Area, which includes Pasay City.
On February 21, 2008, MWSS received Real Property Tax Computations from the Pasay City Treasurer for taxable year 2008, demanding total real property taxes of P166,629.36.
Allegedly on the same day, MWSS filed a Protest Letter dated February 3, 2008 addressed to then Pasay City Mayor Wenceslao “Peewee” Trinidad, arguing MWSS’s status as a public utility and government instrumentality and claiming exemption from real property tax; MWSS anchored this position on its prior litigation (CA-G.R. SP No. 100733) and on Manila International Airport Authority v. Court of Appeals (MIAA).
Due to inaction by the Pasay City Treasurer, MWSS appealed to the Local Board of Assessment Appeals (LBAA).

LBAA and CBAA Proceedings and Rulings

LBAA findings:
- Observed MWSS’s alleged non-compliance with Section 252 of the Local Government Code (payment under protest) and held that such failure made the assessment final and not appealable.
- Nonetheless reached the substantive issue and ruled MWSS to be a government-owned or controlled corporation (GOCC), not a government instrumentality; thus, MIAA doctrine on instrumentality tax exemption was held inapplicable.
- Noted that the 1997 concession agreement effectively turned over actual use of MWSS properties to taxable persons (concessionaires), rendering assessment of real property taxes against MWSS “reasonable and collectible.”
CBAA findings and ruling (Decision dated August 30, 2012; MR denied February 27, 2013):
- Affirmed the assessment’s finality, but on the ground that MWSS failed to question the legality of the assessment before the city assessor under Section 226 of the LGC (not on Section 252).
- Did not discuss merits as matter deemed moot and academic due to procedural finality.
- In denying MWSS’s motion for reconsideration, the CBAA acknowledged MWSS’s classification as a government instrumentality under RA No. 10149 (GOCC Governance Act of 2011) and thus the general rule that such instrumentalities cannot be subjected to local taxes, fees and charges under Section 133(o) of the LGC.
- CBAA concluded that this recognition did not affect real property taxation: Section 40(a) of PD No. 464 (as reflected in Section 234(a) of the LGC) governs exemptions from real property tax and, by its terms and the proviso of Section 234, exemptions previously granted were withdrawn upon effectivity of the LGC; thus MWSS’s charter-based exemption under Section 18 (RA No. 6234) was held already withdrawn by Section 234 of the LGC.

Court of Appeals Resolutions

CA Resolution dated June 3, 2014:
- Dismissed MWSS’s appeal for failure to exhaust administrative remedies under Sections 206 and 252 of the LGC, which require proof of exemption and payment under protest.
- Affirmed the CBAA dispositions dated August 30, 2012 and February 27, 2013.
CA Resolution dated December 11, 2014:
- Denied MWSS’s motion for reconsideration.
MWSS elevated the matter to the Supreme Court via the present petition.

Issues Presented to the Supreme Court

Whether the Court of Appeals erred in dismissing MWSS’s appeal for alleged failure to exhaust administrative remedies.
Whether Pasay City is authorized to assess and collect real property taxes from MWSS.

Governing Statutes, Provisions and Authorities Cited

Republic Act No. 6234 (Charter of MWSS), particularly Section 1 (purposes) and Section 18 (tax exemption for imported articles for exclusive use).
Republic Act No. 7160 (Local Government Code of 1991; LGC), notably:
- Section 133(o) — common limitations on taxing power (exemption for National Government, its agencies and instrumentalities).
- Section 205(d) — listing of real property owned by the Republic and instrumentalities, the beneficial use of which has been granted to a taxable person, to be listed in the name of the possessor/grantee.
- Section 206 — proof of exemption of real property from taxation (documentary evidence filing within 30 days).
- Section 217/198 — actual use as basis for assessment (fundamental principles).
- Section 226 — appeal to the Local Board of Assessment Appeals (procedural provision).
- Section 234(a) — exemptions from real property tax (Republic and political subdivisions; proviso on beneficial use granted to taxable person).
- Section 252 — payment under protest (requirement for protest to be entertained).
- Section 253 — repayment of excessive collections: procedure and two-year period for filing claim for refund or credit.
Presidential Decree No. 464 (Real Property Tax Code of 1974), Section 40(a) and Section 8(4) — provisions on exemptions and listing where beneficial use granted to taxable person.
Precedents cited in source:
- Manila International Airport Authority v. Court of Appeals (MIAA), 528 Phil. 181 (2006).
- Metropolitan Waterworks and Sewerage System v. The Local Government of Quezon City (2018 MWSS Case), G.R. No. 194388, November 7, 2018, 884 SCRA 493.
- Ty v. Hon. Trampe, 321 Phil. 81 (1995) — exhaustion of administrative remedies doctrine.
- National Power Corp. cases (Province of Quezon; Municipal Government of Navotas) — principles on actual use, beneficial user liability, and when administrative remedies apply.
- City of Baguio v. Busuego, 188 Phil. 218 (1980) — beneficial user tax liability.
- Allied Banking Corp. v. The Quezon City G