Case Summary (G.R. No. 207140)
Notices of Real Property Tax Assessment and NPC's Contentions
NPC received Notices of Assessment from Norzagaray's Municipal Assessor for two categories: Machineries Assessment covering January 1, 1996, to December 31, 2005, and Land Assessment covering January 1, 1997, to December 31, 2006. These assessments imposed real property taxes totaling approximately PHP 113,960,000.00 for machineries and PHP 82,845,188.60 for land prior to revision. NPC challenged the assessments on grounds that: (1) the machineries were exempt under Section 234(c) of the LGC as they are actually, directly, and exclusively used for generating and transmitting electric power; and (2) the land assessment used an incorrect higher rate of 40%, contrary to Section 218(d) of the LGC prescribing 10% for GOCCs.
Administrative Proceedings and Legal Requirements under the Local Government Code
The LBAA of Bulacan ruled against NPC, emphasizing that the payment of tax under protest as mandated by Section 252(a) of the LGC is a mandatory prerequisite to any protest or appeal. Failure to pay under protest vitiated the protest and stripped the LBAA and subsequent bodies of jurisdiction. The CBAA upheld this ruling after reviewing factual matters, specifically NPC's failure to prove exclusive use of the machineries for power generation, highlighting that the facilities serve multiple purposes including irrigation, flood control, and water supply. The CTA En Banc affirmed the decisions but noted NPC’s failure to pay taxes under protest, deeming the appeal premature and NPC's cause of action unripe.
Requirement of Payment Under Protest and Distinction Between Questions of Fact and Law
The Court clarified that claims for exemption from RPT involve factual inquiries into the correctness or reasonableness of the assessment rather than the assessor’s power to impose the tax. Therefore, compliance with Section 252(a) of the LGC requiring payment under protest is a condition sine qua non to invoke administrative or judicial review through the Board of Assessment Appeals. This procedural rule guards against premature litigation and ensures administrative remedies are exhausted.
The Court distinguished this case from precedents like Ty v. Hon. Trampe and Olivarez v. Marquez, where taxpayers questioned the assessor’s authority to levy taxes or legal validity of tax ordinances—matters involving pure questions of law and thus cognizable by a regular trial court without payment under protest. Here, NPC contested the factual correctness of the RPT assessments.
Exhaustion of Administrative Remedies and Its Flexibility
The Court recognized that exhaustion of administrative remedies, while a relative and flexible doctrine, is nevertheless generally necessary to give administrative bodies the opportunity to resolve issues involving factual determinations. Exceptions may apply when requiring exhaustion is unreasonable or when the issue of non-exhaustion is moot. In this case, although NPC failed to pay tax under protest, the LBAA and CBAA nonetheless evaluated the merits of NPC’s claim, rendering remand unnecessary and justifying the Court’s resolution on the merits due to the protracted duration and practical considerations including the issuance of a warrant of levy.
Definition and Criteria for "Machineries" Subject to Exemption
The Court expounded the legal definition of "machinery" under Sections 199(o) of the LGC and related implementing rules. "Machinery" encompasses machines, equipment, mechanical contrivances, instruments, or apparatus, whether attached permanently or temporarily to real property, including physical facilities, installations, and appurtenant service facilities. To qualify for RPT exemption under Section 234(c) of the LGC, the machinery and equipment must be: (1) actually, directly, and exclusively used for the supply and distribution of water or generation and transmission of electric power; and (2) necessary or indispensable for that purpose based on their nature and use. The Court further clarified that mere dominant or principal use is insufficient, as the use must be exclusive.
Application to the Machineries Assessment
The assessed properties in the Machineries Assessment included the main dam, spillway with gates, diversion tunnels, tailrace and surge tunnels, penstocks, power intake structures, and various gates and hoists. The Court relied substantially on the findings of the administrative bodies that these properties serve multiple purposes beyond power generation, such as irrigation, flood control, water supply to Metro Manila, and safety functions. Testimonies revealed these structures as “water conveyance” and “multi-purpose” facilities, not exclusively dedicated to power generation and transmission as required to qualify for exemption.
The water turbines, pumps, generators, transformers, and transmitters, which are actually directly and exclusively used in power generation, were not assessed and were granted exemption. The Court found no reversible error in the determination that the challenged properties fall outside the statutory exemption criteria.
Rejection of Pollution Control and Environmental Protection Exemption Claims
NPC also contended exemption under Section 234(e) of the LGC, which exempts machineries used for pollution control and environmental protection. The Court emphasized that such a claim requires proof of actual, direct, and exclusive use for the qualifying purposes. NPC neither raised this claim formally before the administrative bodies nor presented evidence substantiating it. The Court held that arguments made only in motions for reconsideration or in subsequent stages without evidentiary support are insufficient and that the burden of proof of exemption lies on the claimant.
Land Assessment and Status of GOCC Exemptions
Regarding the Land Assessment, the Court ruled that NPC, as a GOCC, is not exempt from RPT under the LGC. Although NPC is a government instrumentality organized under Republic Act No. 6395, the Court cited its earlier jurisprudence that the LGC repealed tax exemption previously enjoyed by NPC and similar corporations. The properties are classified as special classes of real property subject to a 10% assessment level as provided under Sections 216 and 218(d) of the LGC.
The Court sustained the revised, lower land tax assessment amounting to PHP 6,485,422.60 as corrected by the Municipal Assessor, rejecting the original higher amount.
Legal Remedies Concerning Illegal vs. Erroneous Assessments
The Court highlighted the distinction in remedies available to taxpayers disputing RPT: where the issue concerns alleged illegal or unauthorized assessment (a pure question of law), judicial action by filing a complaint for injunction before the Regional Trial Court is proper. Conversely, if the dispute concerns the correctness or reasonableness of the tax amount, the taxpayer must first pay the tax under protest and exhaust administrative remedies with the Boards of Assessment Appeals.
NPC’s recourse to appeal before the LBAA without payment under protest was thus premature, but given the pr
Case Syllabus (G.R. No. 207140)
Background and Parties Involved
- The petitioner, National Power Corporation (NPC), a government-owned and controlled corporation (GOCC), owns and operates the Angat Hydro-Electric Power Plant in Norzagaray, Bulacan.
- Respondents include the Provincial Government of Bulacan, Gloria P. Sta. Maria (Municipal Assessor of Norzagaray), and the Municipality of Norzagaray.
- The Municipal Assessor issued Notices of Assessment to NPC for real property taxes (RPT) covering periods from 1996 to 2006 for both land and machinery/structures associated with the power plant.
- NPC questioned the assessments, asserting exemptions under the Local Government Code (LGC) and contended errors in assessment rates.
Notices of Assessment and Tax Claims
- Two main assessments were issued:
- Machineries Assessment: Taxation on structures associated with the power plant for the period January 1, 1996, to December 31, 2005, amounting to PHP 113,960,000.00.
- Land Assessment: Taxation on land for the period January 1, 1997, to December 31, 2006, initially amounting to over PHP 82 million and later revised to PHP 18,475,003.20.
- NPC alleges these properties should be exempt from RPT as:
- Machineries are actually, directly, and exclusively used in power generation or transmission per Section 234(c) of the LGC.
- Land assessment wrongly applied a 40% assessment rate instead of 10%, the prescribed rate for GOCCs.
Legal Issue of Payment Under Protest Requirement
- Section 252(a) of the LGC mandates that no protest of real property tax assessment shall be entertained unless the taxpayer first pays the tax under protest.
- The local treasurer will not act on a protest without prior payment, and the Local Board of Assessment Appeals (LBAA) cannot take cognizance of appeals absent compliance with this payment.
- NPC did not pay the tax under protest before appealing, leading to contention over the validity of its protests and appeals.
- NPC's defense relied on jurisprudence (Ty v. Hon. Trampe) arguing that payment under protest is not required when questioning the assessor’s authority or power to impose the tax.
Rulings of the Local Boards and Court of Tax Appeals (CTA)
- The LBAA ruled payment under protest as a condition sine qua non, dismissed NPC’s initial petition for lack of compliance but proceeded to evaluate NPC's exemption claims on the merits.
- The Central Board of Assessment Appeals (CBAA) affirmed the assessments after factual examination, concluding NPC failed to prove that the machineries were used exclusively for power generation and transmission.
- The CTA En Banc affirmed the CBAA decisions, denied relief for NPC, and held that NPC’s failure to pay the tax under protest rendered its administrative protest premature and its appeal before the LBAA premature, thus NPC failed to exhaust administrative remedies.
- CTA further emphasized that claims for exemption from RPT pertain to correctness of the assessment—a factual issue to be handled by the LBAA—and do not challenge the assessor’s authority, hence payment under protest is mandatory.
Clarification of Legal Principles on Tax Exemption and Administrative Remedies
- Claims of exemption from real property tax raise questions of fact regarding the correctness or reasonableness of an assessment, distinguishing them from challenges to the assessor's legal authority.
- The Local Boards of Assessment Appeals are the proper administrative venues to resolve factual disputes about exemptions and assessments; judicial remedies follow proper exhaustion of such administrative remedies.
- Non-exhaustion of administrative remedies by failure to pay tax under protest renders judicial petition premature.
- Exceptions apply when the challenge is strictly to the assessor's legal authority; in such cases, taxpayers may seek judicial relief without complying wit