Case Summary (G.R. No. 241302)
Facts of the Case and Background of the BOT Contract
On November 13, 1994, CE Casecnan entered into a BOT contract with the NIA whereby the company agreed to finance, build, operate, and deliver water and generate net electrical energy for the Pantabangan Reservoir. The Project consisted of irrigation and hydroelectric power facilities diverting waters from Nueva Vizcaya to Nueva Ecija and supplementing Luzon’s power grid. CE Casecnan was responsible for all project financing, design, and operation.
Tax Assessment and Initial Disputes
Beginning in 2002, the Provincial Assessor of Nueva Vizcaya initiated the assessment of CE Casecnan's real properties, machinery, and equipment for real property tax purposes. CE Casecnan promptly provided the requested documents. The Municipality of Alfonso Castaneda later requested CE Casecnan to settle RPT dues for 2003 and 2004, which CE Casecnan referred to NIA based on their agreement stipulating that fees paid are for NIA’s account. NIA, however, filed a protest to the Local Board of Assessment Appeals (LBAA), which was denied on December 1, 2004.
Payment Under Protest and Administrative Appeals
CE Casecnan received final demand letters for unpaid taxes totaling over Php 238 million for 2003 to 2005 and, due to nonresponse from NIA, paid the amount under protest. They then sought reimbursement from NIA, in line with their contract. CE Casecnan filed a protest challenging the assessment, which was dismissed by the Provincial Treasurer. An appeal filed before the LBAA was likewise denied, with the LBAA finding no exemption applied since CE Casecnan was neither a Local Water District (LWD) nor a Government-Owned or -Controlled Corporation (GOCC), despite the properties being directly used in generation and distribution of power and water.
Determination on Exemption Under Local Government Code (LGC)
Section 234(c) of the LGC exempts machineries and equipment directly and exclusively used by LWDs and GOCCs engaged in water supply or electric power transmission from RPT. The assessments against CE Casecnan were deemed valid by the LBAA and Consolidated Board of Assessment Appeals (CBAA), because CE Casecnan did not fall under the categorization of LWD or GOCC.
Validity of Tax Ordinances and Assessment Levels
The CBAA initially dismissed appeals filed by NIA and CE Casecnan but later modified its decision, declaring the tax assessments invalid due to the Province’s failure to enact tax ordinances for 2003 and 2004. These ordinances establish assessment levels and schedules of fair market value necessary for proper RPT assessment. The Court of Tax Appeals (CTA) affirmed that no valid tax ordinance existed for those years, a position supported by testimony from the Provincial Assessor.
Petitioners’ Challenge and the Question of EO No. 173
The Province of Nueva Vizcaya filed a Petition for Review on Certiorari to the Supreme Court contesting the CTA’s application of Executive Order (EO) No. 173, which condones and reduces RPT and penalties on power generation facilities operated under BOT contracts with GOCCs. The Province argued EO No. 173 should not apply because CE Casecnan had already paid the taxes assessed, and they claimed the tax ordinance No. 2000-003 is applicable for years beyond 2002.
Applicability and Effect of Executive Order No. 173
EO No. 173 recognizes the unique situation of Independent Power Producers (IPPs) under BOT contracts with GOCCs and reduces their real property tax liability by setting a uniform assessment level and condoning penalties and interest for all years up to 2014. The Supreme Court held that CE Casecnan, as an IPP under contract with a GOCC (NIA), is covered by EO No. 173. Importantly, EO No. 173 applies to all tax liabilities regardless of payment status at the time of its effectivity, allowing CE Casecnan to claim refund for the excess tax paid.
Local Government Power to Levy Taxes and Validity of Assessment
The Court emphasized the constitutional and statutory basis for local governments to create their own revenue sources, including RPT, as granted by Article X, Section 5 of the 1987 Constitution and governed by the Local Government Code. Although the Province failed to update the tax ordinances for years 2003 to 2005, such failure did not invalidate the assessments, which could be computed based on the existing prior ordinances.
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Case Syllabus (G.R. No. 241302)
Case Background and Parties Involved
- The case is a Petition for Review on Certiorari under Rule 45 seeking to reverse and set aside the Court of Tax Appeals (CTA) En Banc Decision in C.T.A. EB Case No. 1381.
- Petitioners: Province of Nueva Vizcaya, Provincial Treasurer of Nueva Vizcaya, Office of the Municipal Assessor and Treasurer, Municipality of Alfonso Castaneda.
- Respondent: CE Casecnan Water and Energy Company, Inc. (CE Casecnan).
- Necessary Parties: National Irrigation Administration (NIA) and Department of Finance.
- The CTA En Banc affirmed with modifications the Decision of the Central Board of Assessment Appeals (CBAA) and remanded the case to determine the amount to be refunded to CE Casecnan with consideration of Executive Order (EO) No. 173.
Facts of the Case
- On November 13, 1994, CE Casecnan and NIA entered a Build-Operate-Transfer (BOT) contract where CE Casecnan undertook delivery of diverted water and net electrical energy.
- On June 26, 1995, an amended project agreement designated CE Casecnan responsible for financing, design, construction, operation, and generating electricity by transporting water from the Casecnan Watershed.
- The Project functions as a combined irrigation and hydroelectric power plant supplementing Luzon's energy grid.
- The Provincial Assessor's Office requested detailed infrastructure cost estimates for real property tax (RPT) assessment; CE Casecnan complied.
- CE Casecnan received tax assessments and demands from local government units for 2003-2005 but forwarded demands to NIA, which instead filed a protest.
- The Local Board of Assessment Appeals (LBAA) denied NIA's protest and subsequently denied CE Casecnan's appeal after it paid RPT under protest.
- CE Casecnan filed protests with local treasurers and boards, which were dismissed.
- Appeals by both NIA and CE Casecnan were consolidated and dismissed by the CBAA but were later modified to declare the assessments null due to absence of tax ordinance.
- CE Casecnan petitioned the CTA, seeking exemption from RPT and a refund for payments under protest, invoking EO No. 173.
- The CTA remanded the case to CBAA to compute refund amount considering EO No. 173.
- Petitioners questioned applicability of EO No. 173 and validity of tax assessments, also raising for the first time its constitutionality.
Issues Presented
- Validity of real property tax assessments against CE Casecnan for years 2003 to 2005.
- Applicability of Section 234(c) of the Local Government Code (LGC) for exemption of machinery and equipment used by CE Casecnan.
- Whether EO No. 173 applies to RPT liabilities already paid by CE Casecnan.
- Constitutionality and validity of EO No. 173 regarding reduction and condonation of RPT.
- Whether absence of updated tax ordinance nullifies RPT assessments.
Ruling and Reasoning on Real Property Tax Assessments Validity
- The Court ruled that the assessment issued by the Provincial Assessor was valid despite the absence of updated assessment levels or schedules of fair market value for tax years 2003-2005.
- Local governments have the constitutional power under Article X, Section 5 of 1987 Constitution to levy taxes and create revenue sources.
- The Province of Nueva Vizcaya had enacted Tax Ordinance Nos. 99-002 and 2000-003 applicable to prior years and could levy tax us