Title
Supreme Court
National Power Corporation vs. City of Cabanatuan
Case
G.R. No. 149110
Decision Date
Apr 9, 2003
NPC, a government corporation, challenged Cabanatuan City's franchise tax, claiming tax exemption under its charter. The Supreme Court ruled NPC liable, holding that the Local Government Code repealed its exemption, affirming local taxing authority.

Case Summary (G.R. No. 149110)

Petitioner

National Power Corporation (NPC), wholly owned by the Philippine Government, non-profit in character, granted broad powers to generate, transmit and sell electricity under its charter.

Respondent

City of Cabanatuan, through its Sangguniang Panlungsod, which enacted Ordinance No. 165-92 imposing a local franchise tax of 75% of 1% of gross receipts.

Key Dates

– 1992: NPC’s gross receipts in Cabanatuan amounted to ₱107,814,187.96.
– January 1, 1992: Effectivity of the Local Government Code of 1991 (RA 7160).
– March 12, 2001: Court of Appeals Decision holding NPC liable for the franchise tax.
– July 10, 2001: CA Resolution denying NPC’s motion for reconsideration.
– April 9, 2003: Supreme Court Decision affirming the CA ruling.

Applicable Law

• 1987 Constitution, Article X, Sections 3 and 5 (local autonomy and taxing powers).
• Republic Act No. 7160 (Local Government Code of 1991), particularly Sections 131(d), 131(m), 133(o), 137, 151, 192 and 193.
• Commonwealth Act No. 120, as amended by RA 6395 (NPC Charter).
• Basco v. Philippine Amusement and Gaming Corporation (1991) and Mactan Cebu International Airport Authority v. Marcos (1996).

Facts

  1. NPC sells bulk electric power in Cabanatuan, earning over ₱107 million in 1992.
  2. The city assessed NPC a franchise tax of ₱808,606.41 (75% of 1% of 1992 gross receipts).
  3. NPC refused payment, relying on RA 6395 Section 13 exempting it from all taxes, fees or charges.
  4. The city sued for collection, seeking the tax, a 25% surcharge and 2% monthly interest.

Trial Court Ruling

The Regional Trial Court dismissed the city’s suit on three grounds:

  1. RA 6395 is a special law not repealed by the general LGC (RA 7160).
  2. Implied repeal by Section 193 of RA 7160 is disfavored.
  3. Under Basco, local governments cannot tax national government instrumentalities.

Court of Appeals Ruling

The Court of Appeals reversed, holding that:

  1. Section 193 of the LGC expressly withdrew all tax exemptions enjoyed by GOCCs, including NPC.
  2. Sections 137 and 151 authorize cities to impose franchise taxes “notwithstanding any exemption granted by any law or other special law.”
  3. NPC must pay the existing assessment, future annual taxes, a 25% surcharge, and ₱10,000 litigation expenses.

Issues on Appeal

A. Whether Sections 137 and 151 of the LGC apply only to private entities.
B. Whether the LGC (a general law) may not repeal the special-law tax exemptions granted NPC’s charter.
C. Whether NPC’s police-power exemption from taxation prevails over the LGC.

Supreme Court Analysis

  1. The 1987 Constitution devolves taxing powers to LGUs subject to guidelines in the LGC.
  2. The LGC expanded LGU tax bases, including taxing GOCCs when specifically authorized.
  3. Basco’s prohibition on taxing government instrumentalities was pre-LGC; the LGC’s express provisions supersede it.
  4. By defining “franchise” (secondary or special) in Section 131(m) and empowering cities in Sections 137 and 151 to tax “businesses enjoying a franchise notwithstanding any exemption,” Congress intentionally included entities like NPC.
  5. NPC possesses both primary and secondary franchises under its charter and exercises its privileges within Cabanatuan’s jurisdiction.
  6. NPC performs proprietary, business-like functions—generation and distribution of electricity—and is distinct from the Philippine Gove

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