LEGAL RESEARCH 1

LATEST CASES REGARDING

Payment of Franchise Tax by Power

Producers to Local Government Unit

Submitted to:

Atty. Paul Vincent G. Villegas

Researchers:

Jangail Valerie B. Damasco

Hannah Patricia Garcia

Jhya P. Aurelio

Roderick V. Salaan Jr
 G.R. No. 213157. August 10, 2016.*

NATIONAL GRID CORPORATION OF THE PHILIPPINES,

petitioner, vs. OFELIA M. OLIVA, in her official capacity as the City
Treasurer of Cebu City, respondent.

G.R. No. 213558. August 10, 2016.*

OFELIA M. OLIVA, in her official capacity as the City Treasurer of

Cebu City, petitioner, vs. NATIONAL GRID CORPORATION OF THE
PHILIPPINES, respondent.

Facts:

On September 24, 2009, NGCP received from the Office of the City
Treasurer of Cebu City, three (3) Final Notices of Demand, all dated
September 16, 2009, addressed to National Power Corporation/Transco.
Pursuant to Sec. 252 of the Local Government Code, petitioner NGCP paid
the total amount demanded under protest on November 11, 2009 for
P2,792,862.41. The written protest was filed on the same day at the office
of the City Treasurer of Cebu City.
April 26, 2010, NGCP filed its Motion to Admit Petition with the LBAA
of Cebu City. The City Attorney, however, opposed in his Comment on
ground that the NGCP’s Petition was filed out of time and prayed the Local
Board to dismiss the same accordingly.
NGCP filed a notice of appeal with memorandum on appeal12 dated 9
December 2010 with the CBAA. NGCP argued that (1) its petition before
the LBAA was timely filed; (2) it had the legal personality to file the petition
before the LBAA; and (3) NGCP is exempt from payment of the real
property taxes subject matter of the second and final notices of demand
dated 16 and 21 September 2009 in the total amount of P2,792,862.41.
The CBAA dismissed NGCP’s appeal. The CBAA found NGCP liable
for real property taxes on the subject properties for the year 2009 only. The
CBAA stated that the petition of NGCP mailed on 11 March 2010 in the
Quezon City Post Office for the LBAA of Cebu City was timely filed. The
LBAA’s Order dismissing NGCP’s appeal was based on a technicality and
did not resolve the merits of the case. The CBAA also stated that NGCP
has the legal personality to institute an appeal. The CBAA cited Section
22613 of the Local Government Code and pronounced that NGCP has a
legal interest in the properties of NPC/TRANSCO because NGCP is
TRANSCO’s concessionaire for electric transmission.
CTA Presiding Justice Roman G. Del Rosario (PJ Del Rosario) wrote
a concurring and dissenting opinion, to which Associate Justice Ma. Belen
M. Ringpis-Liban concurred. PJ Del Rosario stated that Sections 216 and
218(d) of the Local Government Code cannot be made to apply to the real
properties under NGCP’s control because even though NGCP is engaged
in the transmission of electricity, it is not a government-owned or -controlled
corporation. He also concurred with the opinion that NGCP should not be
made liable for real property taxes for the years 2001 to 2008.
The NGCP23 and the City Treasurer of Cebu City24 filed their
respective motions for partial reconsideration. The CTA EB denied the
motions for partial reconsideration of both parties. It found no reason to
reverse or modify its decision. The CTA EB also reminded the City
Treasurer of Cebu City that taxes are not debts, and that NGCP cannot be
made liable for real property taxes incurred by NPC/TRANSCO.
In G.R. No. 213558, OIC Cuevas raised one issue: The Court of Tax
Appeals committed reversible error in ruling that the City of Cebu should
refund in favor of NGCP the amount of P2,454,389.74. The Court’s ruled
the petition has merit. We remand the case to the CBAA for the
assessment and computation of the correct amount of real property taxes
on the subject properties for two different periods: the years 2001 to 2008
for NPC/TRANSCO, and the year 2009 for NGCP. For the years 2001 to
2008, the CBAA should determine whether NPC/TRANSCO owned and
used the subject properties in connection with the transmission of
electricity, and assess the subject properties in accordance with the Local
Government Code. For the year 2009, the CBAA should determine whether
the subject properties are used in connection with NGCP’s franchise.
Properties used in connection with NGCP’s franchise are exempt from tax,
in accordance with NGCP’s franchise. Properties not used in connection
with NGCP’s franchise should be assessed and subjected to real property
tax, in accordance with the Local Government Code.
The CTA EB partly granted NGCP’s petition in its Decision
promulgated on 13 November 2013. Like the CBAA, the CTA EB found
NGCP liable for real property taxes on the subject properties only for the
year 2009.

Issues:

1. Whether or Not the NGCP Is Liable for Payment of Real Property

Tax. If Yes, Whether or Not Their Payment On the Subject Properties
for 2001 To 2008 Were Valid.

2. Whether or Not the Correct Amount of Taxes Was Paid and

Collected.

Ruling:

Yes, National Grid Corporation of the Philippines; Section 9 of

Republic Act (RA) No. 9511 clearly stated that the National Grid
Corporation of the Philippines’ (NGCP’s) “in lieu of all taxes” clause
includes taxes imposed by the local government on properties used in
connection with NGCP’s franchise.
Tax exemptions must be clear and unequivocal, and must be directly
stated in a specific legal provision. Tax exemptions must be clear and
unequivocal, and must be directly stated in a specific legal provision. In the
present case, Section 9 of RA 9511 provided for NGCP’s tax liabilities and
exemptions.
The CTA EB, however, noted that NGCP paid real property tax on the
subject properties for 2001 to 2008, when NPC and TRANSCO were the
owners of record of the subject properties. The CTA EB held that NGCP
was liable only for the real property tax incurred for the year 2009. The CTA
EB reduced NGCP’s liability from P2,792,862.41 to P338,472.67, and
ordered the City Treasurer of Cebu City to refund NGCP the amount of
P2,454,389.74.
WHEREFORE, the Petition for Review is hereby PARTLY
GRANTED. Accordingly, the Decision dated May 30, 2011, and Order
dated November 16, 2011 issued by the Central Board of Assessment
Appeals are hereby REVERSED and SET ASIDE. Respondent City
Treasurer of Cebu City] is hereby ORDERED TO REFUND in favor of
petitioner [NGCP] the amount of P2,454,389.74.
In the case (G.R NO. 213558), the amount of taxes assessed by the
City Assessor of Cebu City, collected by the City Treasurer of Cebu City,
and paid by NGCP was incorrect. The correct assessment, as well as its
corresponding amount, is subject to the determination by the CBAA.
After the CBAA’s determination of the real property tax due, done in
accordance with the guidelines we set forth
above, the City Treasurer of Cebu City should refund the excess payment,
if any, to NGCP. NGCP, in turn, should seek relief from NPC/TRANSCO to
the extent that NPC/TRANSCO has benefited from NGCP’s payment to the
City Treasurer of Cebu City.
WHEREFORE, we GRANT the petition. The Decision promulgated
on 13 November 2013 and the Resolution promulgated on 23 June 2014 by
the Court of Tax Appeals En Banc in C.T.A. E.B. Case No. 849 are SET
ASIDE.

References:

1 Under Rule 45 of the 1997 Rules of Civil Procedure.

2 Rollo (G.R. No. 213157), pp. 39-59
3 Id., at pp. 60-63
4 Under Rule 45 of the 1997 Rules of Civil Procedure.
5 Rollo (G.R. No. 213558), pp. 139-159
6 Id., at pp. 183-186
7 Rollo (G.R. No. 213157), p. 131; id., at p. 44
8 Rollo (G.R. No. 213157), pp. 170-186; Rollo (G.R. No. 213558), pp. 80-96
9 Rollo (G.R. No. 213157), pp. 200-201; Rollo (G.R. No. 213558), pp. 111-112
10 Rollo (G.R. No. 213157), pp. 171-172.
11 Id., at p. 131; Rollo (G.R. No. 213558), p. 44.
12 Id., at pp. 132-163; Id., at pp. 45-76.
13 Sec. 226. Local Board of Assessment Appeals
14 Section 9. Tax Provisions
15 Section 234. Exemptions from Real Property Tax
16 Section 216 of the Local Government Code reads: Special Classes of Real
Property.
17 Section 218(d) of the Local Government Code
18 Rollo (G.R. No. 213157), pp. 187-199; Rollo (G.R. No. 213558), pp. 98-110
19 Id., at pp. 200-201; Id., at pp. 111-112.
20 Id., at pp. 202-224; Id., at pp. 113-135.
21 Supra note 14.
22 Rollo (G.R. No. 213157), p. 54; Rollo (G.R. No. 213558), p. 154.
23 Id., at pp. 275-288; Id., at pp. 160-173.
24 Id., at pp. 289-296; Id., at pp. 174-181.
25 Id., at pp. 17-18.
26 Rollo (G.R. No. 213558), p. 9.
27 Section 2 of RA No. 6395
28 Section 234(c) of RA No. 7160
29 Supra note 17.
30 Section 8 of RA No. 9136
31 Section 1 of RA No. 9511
32 447 Phil. 571, 588-598; 399 SCRA 442, 465-474 (2003).
33 Id., at pp. 591-595; pp. 468-471
34 Rollo (G.R. No. 213157), pp. 52-53; Rollo (G.R. No. 213558), pp. 152-153
35 Supra note 16.
36 Supra note 17.
37 Section 217
38 Section 218 of the Local Government Code
39 Supra note 14.

40 Supra note 37.

41 Supra note 38.
 National Power Corporation v Provincial Government of Bataan
GR No. 180654 April 21, 2014

Facts:
On March 28, 2003 petitioner National Power Corporation (NPC)
received a notice of franchise tax delinquency from the respondent
Provincial Government of Bataan for P45.9 million covering the years 2001-
2003. When NPC chose to reserve its right to contest the computation
pending the decision of the Supreme Court1, the Province then sent notices
of tax due to the NPC. The NPC replied, however, that the Province has no
right to further assess because NPC had ceased to be liable for the
payment of that tax after Congress enacted Republic Act (R.A.) 9136, also
known as the Electric Power Industry Reform Act (EPIRA) that took effect
on June 26, 2001. Ignoring the NPC’s view, the Province issued a "Warrant
of Levy"2 on 14 real properties that it used to own in Limay, Bataan. In
March 2004 the Province caused their sale at public auction with itself as
the winning bidder.
On July 7, 2004 the NPC filed with the Regional Trial Court (RTC) of
Mariveles, Bataan, a petition for declaration of nullity of the foreclosure sale
with prayer for preliminary mandatory injunction against the Province, the
provincial treasurer, and the Sangguniang Panlalawigan.
On November 3, 2005 the RTC dismissed the NPC’s petition, stating that
the franchise tax was not based on ownership of property but on the NPC’s
exercise of the privilege of doing business within Bataan. The NPC
appealed the RTC Decision to the Court of Appeals (CA) but the Province
moved to dismiss the same for lack of jurisdiction of that court over the
subject matter of the case because it was essentially a local tax case
questioning the validity of the Province’s imposition of the local franchise
tax, therefore, be lodged with the Court of Tax Appeals (CTA). On
November 27, 2007 the CA granted the Province’s motion and dismissed
the petition on the ground cited.3
On January 18, 2008, NPC filed by registered mail a Petition for
Review on Certiorari4, assailing the correctness of the Court of Appeals'
dismissal of its appeal for lack of jurisdiction. NPC prayed that "judgment
be rendered reversing and setting aside the Court of Appeals' Resolution
dated November 27, 2007 and in lieu thereof, directing said Court to
reinstate and give due course to petitioner's appeal in CA-G.R. CV No.
87218." 5

Issues:

1. Whether or not NPC is the real party in interest

2. Whether or not the foreclosure sale on March 2, 2004 is valid.

Held:

1. Yes. NPC is a real party interest, which stands to gain or lose from
the judgment that the trial court may render. “A real party in interest is the
party who stands to be benefited or injured by the judgment in the suit, or
the party entitled to the avails of the suit.”6 NPC ‘s complaint has sought
two things: a.) the nullification of the foreclosure sale and also b.) a
declaration from the trial court that it is exempt from local franchise tax.
Despite the claim for exemption by NPC, the respondents pursued its
collection of the franchise tax delinquency by issuing the warrant of levy
and conducting the sale at public auction to enforce collection of the said
delinquency against NPC. Thus, NPC had to assail the correctness of the
local franchise tax assessments made against it by instituting the complaint
with the Regional Trial Court, otherwise, the assessment would become
conclusive and unappealable.7

2. No. The foreclosure sale on March 2, 2004 is null and void

because it is quite apparent that at the time of the levy and auction of the
14 properties sometime in January 2004 and March 2004, respectively, the
properties were by virtue of EPIRA already owned by TRANSCO. Thus, the
foreclosure sale of properties must be declared null and void.

As regards NPC’s electric transmission function, under Section 8 of

Republic Act No. 9136 or the EPIRA, all transmission assets of NPC were
to be transferred to TRANSCO within six (6) months from the effectivity of
EPIRA, or by December 26, 2001.8 The EPIRA Implementing Rules and
Regulations further required NPC, PSALM Corporation, and TRANSCO to
“take such measures and execute such documents to effect the transfer of
the ownership and possession of the transmission and subtransmission
facilities of NPC and all other assets related to transmission operations.
Upon such transfer, the nationwide franchise of NPC for the operation of
the transmission system and the Grid shall transfer from NPC to Transco.” 9

References:

1. National Power Corporation v. City of Cabanatuan GR No. 149110

2. Rollo, p. 470.
3. 733 Phil. 34, 36-38 (2014) [Per J. Abad, Third Division]
4. Rollo, pp. 370-419.
5. Id. at 418.
6. Rules of Court, Rule 3, Section 2
7. Local Government Code, Section 195
8. Republic Act No. 9136, Sec. 8
9. IRR of Republic Act No. 9136, Rule 22, Section 1
 CITY OF IRIGA, Petitioner, vs. CAMARINES SUR III ELECTRIC
COOPERATIVE, INC. (CASURECO III), Respondent.
G.R. No. 192945 September 5, 2012

Facts:
Respondent CASURECO III is an electric cooperative duly organized
and existing by virtue of Presidential Decree (PD) 269,1 as amended, and
registered with the National Electrification Administration (NEA). It is
engaged in the business of electric power distribution to various end-users
and consumers within the City of Iriga and the municipalities of Nabua,
Bato, Baao, Buhi, Bula and Balatan of the Province of Camarines Sur,
otherwise known as the “Rinconada area.”2
Sometime in 2003, petitioner City of Iriga required CASURECO III to
submit a report of its gross receipts for the period 1997-2002 to serve as
the basis for the computation of franchise taxes, fees and other
charges. The latter complied and was subsequently assessed taxes.
On January 7, 2004, petitioner made a final demand on CASURECO
III to pay the franchise taxes due for the period 1998-2003 and real
property taxes due for the period 1995-2003. CASURECO III, however,
refused to pay said taxes on the ground that it is an electric cooperative
provisionally registered with the Cooperative Development Authority (CDA),
and therefore exempt from the payment of local taxes.
On March 15, 2004, petitioner filed a complaint for collection of local
taxes against CASURECO III before the RTC, citing its power to tax under
the Local Government Code (LGC) and the Revenue Code of Iriga City.5
It alleged that as of December 31, 2003, CASURECO III’s franchise
and real property taxes liability, inclusive of penalties, surcharges and
interest, amounted to Seventeen Million Thirty-Seven Thousand Nine
Hundred Thirty-Six Pesos and Eighty-Nine Centavos (P17,037,936.89) and
Nine Hundred Sixteen Thousand Five Hundred Thirty-Six Pesos and Fifty
Centavos (P916,536.50), respectively.6
In its Answer, CASURECO III denied liability for the assessed taxes,
asserting that the computation of the petitioner was erroneous because it
included 1) gross receipts from service areas beyond the latter’s territorial
jurisdiction; 2) taxes that had already prescribed; and 3) taxes during the
period when it was still exempt from local government tax by virtue of its
then subsisting registration with the CDA.7 On appeal, the Court of Appeals
(CA) reversed the RTC on the ground that CASURECO is a non-profit
entity which does not fall within the purview of businesses enjoying a
franchise.

Issues:
1. Whether or not an electric cooperative registered under PD 269 but
not under RA 69388 is liable for the payment of local franchise taxes.
2. Whether or not the situs of taxation is the place where the
franchise holder exercises its franchise regardless of the place where
its services or products are delivered.

HELD:
1. Yes. CASURECO III is not exempt from payment of franchise tax.
PD 269, which took effect on August 6, 1973, granted electric cooperatives
registered with the NEA, like CASURECO III, several tax privileges, one of
which is exemption from the payment of “all national government, local
government and municipal taxes and fees, including franchise, filing,
recordation, license or permit fees or taxes.”
On March 10, 1990, Congress enacted into law RA 6938,10 otherwise
known as the “Cooperative Code of the Philippines,” and RA
693911 creating the CDA. The latter law vested the power to register
cooperatives solely on the CDA, while the former provides that electric
cooperatives registered with the NEA under PD 269 which opt not to
register with the CDA shall not be entitled to the benefits and privileges
under the said law.
On January 1, 1992, the LGC took effect, and Section 193 thereof
withdrew tax exemptions or incentives previously enjoyed by “all persons,
whether natural or juridical, including government-owned or controlled
corporations, except local water districts, cooperatives duly registered
under R.A. No. 6938, non-stock and non-profit hospitals and educational
institutions.”
Therefore, CASURECO III can no longer invoke PD 269 to evade
payment of local taxes. Moreover, its provisional registration with the CDA
which granted it exemption for the payment of local taxes was extended
only until May 4, 1992. Thereafter, it can no longer claim any exemption
from the payment of local taxes, including the subject franchise tax.
Indisputably, petitioner has the power to impose local taxes. The
power of the local government units to impose and collect taxes is derived
from the Constitution itself which grants them “the power to create its own
sources of revenues and to levy taxes, fees and charges subject to such
guidelines and limitation as the Congress may provide.”13 This explicit
constitutional grant of power to tax is consistent with the basic policy of
local autonomy and decentralization of governance. With this power, local
government units have the fiscal mechanisms to raise the funds needed to
deliver basic services to their constituents and break the culture of
dependence on the national government. Thus, consistent with these
objectives, the LGC was enacted granting the local government units, like
petitioner, the power to impose and collect franchise tax, to wit:
SEC. 137. Franchise Tax.—Notwithstanding any exemption
granted by any law or other special law, the province may impose a tax on
businesses enjoying a franchise, at a rate not exceeding fifty percent (50%)
of one percent (1%) of the gross annual receipts for the preceding calendar
year based on the incoming receipt, or realized, within its territorial
jurisdiction.
SEC. 151. Scope of Taxing Powers.—Except as otherwise
provided in this Code, the city, may levy the taxes, fees, and charges which
the province or municipality may impose: Provided, however, That the
taxes, fees and charges levied and collected by highly urbanized and
independent component cities shall accrue to them and distributed in
accordance with the provisions of this Code. The rates of taxes that the city
may levy may exceed the maximum rates allowed for the province or
municipality by not more than fifty percent (50%) except the rates of
professional and amusement taxes. By virtue of PD 269, NEA granted
CASURECO III a franchise to operate an electric light and power service
for a period of fifty (50) years from June 6, 1979,14 and it is undisputed that
CASURECO III operates within Iriga City and the Rinconada area. It is,
therefore, liable to pay franchise tax notwithstanding its non-profit nature.
2. Yes. CASURECO III is liable for franchise tax on gross receipts
within Iriga City and Rinconada area.It should be stressed that what the
petitioner seeks to collect from CASURECO III is a franchise tax, which as
defined, is a tax on the exercise of a privilege. As Section 13715 of the LGC
provides, franchise tax shall be based on gross receipts precisely because
it is a tax on business, rather than on persons or property.16 Since it
partakes of the nature of an excise tax,17 the situs of taxation is the place
where the privilege is exercised, in this case in the City of Iriga, where
CASURECO III has its principal office and from where it operates,
regardless of the place where its services or products are delivered. Hence,
franchise tax covers all gross receipts from Iriga City and the Rinconada
area.
WHEREFORE, the petition is GRANTED.

References:

1. Presidential Decree No. 269,

2. Rollo, p. 43.
3. Republic Act No. 6938,
4. Rollo, p. 43.
5. Records, p. 2.
6. Rollo, p. 44.
7. Records, p. 26.
8. Republic Act No. 6938 (March 10, 1990),

9. Presidential Decree No. 269 (August 6, 1973), Section 39.

10. Republic Act No. 6938 (March 10, 1990), amended by Republic Act 9520
11 Republic Act 6939 (March 10, 1990),
12 Local Government Code, Section 193