G.R. No. 229706 - National Power Corp. vs. Power Sector Assets and Liabilities Management Corp.

Case Summary (G.R. No. 229706)

Factual Background

The Municipal Treasurer of Sual assessed NPC for local business taxes based on the number of kilowatt hours generated and sold for years 2006 to 2009. NPC protested on the ground that its power generation function ceased by operation of law upon the effectivity of EPIRA on 26 June 2001. The protest was denied and NPC appealed to the RTC in Civil Case No. 19076. Meanwhile, the Municipal Treasurer filed a third-party complaint against PSALM, asserting that PSALM had acquired NPC’s generation assets by operation of law under EPIRA and that a superior tax lien under Sec. 173 of the LGC attached to those assets. The Municipal Treasurer relied on Municipal Ordinance No. 121, certifications of kilowatt hours from the Department of Energy, and prior jurisprudence including National Power Corporation v. Cabanatuan and NPC Drivers and Mechanics Association (NPC DAMA) to support the claim.

Procedural History

The third-party complaint against PSALM was filed on 06 June 2011. PSALM moved to dismiss for lack of cause of action and later filed an answer on 20 February 2013 raising special and affirmative defenses. The RTC denied PSALM’s motion to dismiss by Order dated 03 March 2014 and denied its motion for reconsideration on 10 September 2014. PSALM sought relief from the Court of Appeals. The CA, by Decision dated 21 July 2016, set aside the RTC Order and dismissed the third-party complaint. The CA denied NPC’s motion for reconsideration by Resolution dated 27 January 2017. NPC then filed a petition under Rule 45 in the Supreme Court, which promulgated its decision on 15 March 2023.

The Parties’ Contentions

The Municipal Treasurer contended that local business taxes assessed against NPC for 2006–2009 were recoverable from PSALM because PSALM had assumed NPC’s assets and liabilities under Sec. 49 of EPIRA, and because Sec. 173 of the LGC created a superior lien enforceable against the properties that PSALM acquired. PSALM denied proper service of the notices of assessment and argued that it assumed only the assets and liabilities of NPC that existed as of the effectivity of EPIRA on 26 June 2001. PSALM further argued that NPC and PSALM were separate entities, that NPC continued to exist for missionary electrification under Sec. 70 of EPIRA, and that the liability for the generation activity during 2006–2009, if any, did not belong to PSALM. PSALM also invoked statutory definitions in the LGC and its IRR to dispute that NPC was a contractor liable to business tax, and pointed to TeaM Energy under the Energy Conversion Agreement as the party performing the relevant generation activity. NPC likewise argued that it could not be held liable for local business taxes for acts performed after EPIRA took effect.

Ruling of the Regional Trial Court

The RTC denied PSALM’s motion to dismiss. The RTC applied the well-settled rule that a motion to dismiss for lack of cause of action is resolved on the facts alleged in the complaint and concluded that, if the Municipal Treasurer’s allegations were hypothetically admitted, the court could render a valid judgment against PSALM. The RTC treated questions of service and ownership as issues of fact inappropriate for resolution on a motion to dismiss and invoked the preference to decide cases on their merits rather than on technical grounds.

Ruling of the Court of Appeals

The CA reversed the RTC. It held that PSALM had assumed only those liabilities of NPC that existed at the time EPIRA took effect on 26 June 2001. The CA found that the local business taxes for 2006–2009 accrued after EPIRA’s effectivity and thus were not existing liabilities transferred to PSALM. The CA also ruled that no tax lien can attach to properties that no longer belonged to the taxpayer at the time the tax became due. On these bases, the CA concluded that the RTC gravely abused its discretion in denying the motion to dismiss and dismissed the third-party complaint against PSALM.

Issue Presented

Whether the Court of Appeals gravely erred in finding that the RTC gravely abused its discretion in refusing to dismiss the third-party complaint against PSALM and in ruling that PSALM was not liable for the local business taxes assessed against NPC for the years 2006–2009.

Ruling of the Supreme Court

The Supreme Court denied the petition and affirmed the CA. The Court held that the CA correctly applied EPIRA and related jurisprudence in concluding that PSALM did not assume liabilities that arose after EPIRA’s effectivity date of 26 June 2001. The Court emphasized that NPC’s power generation function ceased by operation of law on that date except for missionary electrification permitted under Sec. 70. The Court agreed that the assessments issued in 2010 for taxable years 2006–2009 concerned the generation function and therefore addressed acts that NPC could not lawfully perform after 26 June 2001. The Court further held that the lien claimed by the Municipal Treasurer could not attach to assets that were no longer owned by NPC when the taxes became due.

Legal Basis and Reasoning

The Court grounded its conclusion in the text, purpose, and structure of EPIRA. Section 49 expressly transferred to PSALM the ownership of existing NPC generation assets and the transferee role for outstanding obligations of NPC, and Sections 50 and 51 defined PSALM’s limited purpose, powers, and twenty-five-year term. The Court relied on its prior exposition in NPC DAMA that the phrase “existing liabilities” in Sec. 49 limits the liabilities transferred to those that existed at EPIRA’s effectivity. The Court explained that the 180-day transfer provision for obligations arising from instruments of indebtedness does not permit transfer of liabilities incurred after the effectivity date. The Court distinguished NPC DAMA, where the liability transferred was proven to have existed at EPIRA’s effectivity, from the present case where the alleged tax liabilities accrued years later. The Court further relied on Bataan in holding that a local government’s foreclosure or lien could not attach to properties already transferred by operation of law to another government entity; by parity of reasoning, a lien for taxes that became

Case Syllabus (G.R. No. 229706)

Parties and Procedural Posture

NATIONAL POWER CORPORATION filed a Petition for Review on Certiorari under Rule 45, Rules of Court challenging the Court of Appeals' decision dismissing a third-party complaint.
POWER SECTOR ASSETS AND LIABILITIES MANAGEMENT CORPORATION was impleaded as third-party defendant by the Office of the Municipal Treasurer of Sual in an RTC action originally filed by NATIONAL POWER CORPORATION.
The Regional Trial Court of Lingayen, Pangasinan, Branch 38, denied PSALM's motion to dismiss the third-party complaint in Civil Case No. 19076 by Order dated 03 March 2014.
The Court of Appeals set aside the RTC Order and dismissed the third-party complaint against PSALM in its Decision dated 21 July 2016 and denied reconsideration by Resolution dated 27 January 2017.
The Supreme Court, through the instant petition, reviewed whether the CA gravely erred in finding RTC grave abuse in refusing to dismiss the third-party complaint.

Key Factual Allegations

The Municipal Treasurer assessed NATIONAL POWER CORPORATION local business taxes for calendar years 2006, 2007, 2008, and 2009 by Notices of Assessment dated 09 September 2010.
NATIONAL POWER CORPORATION protested the assessments on the ground that its power generation function ceased by operation of law upon the effectivity of Republic Act No. 9136 (EPIRA) on 26 June 2001.
The Municipal Treasurer filed a Third-Party Complaint dated 06 June 2011 against PSALM alleging that PSALM had acquired NPC properties and was subject to the local tax lien under Section 173, RA 7160 (LGC).
The Notices of Assessment invoked this Court's ruling in National Power Corporation v. Cabanatuan and referenced a Department of Energy letter certifying NPC's kilowatt-hours for the assessment period.
The Third-Party Complaint quantified the local business tax claim as P327,538,133.22 and sought monthly interest of two percent under Section 168, RA 7160.
PSALM averred that it was a separate entity from NPC, that it assumed only NPC assets and liabilities existing as of EPIRA's effectivity, and that it was not served a Notice of Assessment.

Statutory Framework

Republic Act No. 9136 (EPIRA) vested in PSALM the ownership of existing NPC generation assets, real estate, IPP contracts and "all outstanding obligations of NPC" within limits set by the statute, as expressed in Section 49.
Section 50 of EPIRA defined PSALM's principal purpose and provided a limited corporate life for the liquidation of transferred obligations.
Section 51 of EPIRA enumerated PSALM's powers to privatize assets, liquidate debts, and administer transferred properties.
Section 55 of EPIRA listed PSALM's property, and Section 56 specified what constituted claims against PSALM, including transferred NPC liabilities.
Section 70, EPIRA preserved NPC's missionary electrification function through SPUG notwithstanding divestment.
RA 7160 (LGC) established the local government's lien under Section 173 and authorized surcharges and interest under Section 168.
Definitions relevant to local business tax liability were drawn from Section 131 of the LGC and Article 220(h) of the Implementing Rules and Regulations.

Issues Presented

Whether the Court of Appeals gravely erred in finding that the Regional Trial Court gravely abused its discretion in refusing to dismiss the third-party complaint against PSALM.
Whether PSALM could be held liable or its assets subjected to a local tax lien for bu