KEPCO PHILIPPINES CORPORATION v. CIR, GR No.

179356, 2009-12-14

Facts:

Korea Electric Power Corporation (KEPCO) Philippines Corporation (petitioner) is an independent

power producer engaged in selling electricity to the National Power Corporation (NPC).

After its incorporation and registration with the Securities and Exchange Commission on June 15,
1995, petitioner forged a Rehabilitation Operation Maintenance and Management Agreement with
NPC for the rehabilitation and operation of Malaya Power Plant Complex in Pililia,... Rizal.

On September 30, 1998, petitioner filed with the Commissioner of Internal Revenue (respondent)
administrative claims for tax refund in the amounts of P4,895,858.01 representing unutilized input
Value Added Tax (VAT) payments on domestic purchases of goods and services for the

3rd quarter of 1996 and P4,084,867.25 representing creditable VAT withheld from payments received
from NPC for the months of April and June 1996.

Petitioner filed before respondent on December 28, 1998 still another claim for refund representing
unutilized input VAT payments attributable to its zero-rated sale transactions with NPC, including
input VAT payments on domestic goods and services in the amount of

P13,191,278.00 for the 4th quarter of 1996. Petitioner also filed the same claim before the CTA on
December 29, 1998, docketed as CTA Case No. 5704.

two petitions before the CTA for a refund in the total amount of P22,172,003.26 were consolidated.

Ruben R. Rubio, concluded that the claimed amount of P20,550,953.93 was properly substantiated
for VAT purposes and subject of a valid refund.

CTA granted petitioner partial refund with respect to unutilized input VAT payment on domestic
goods and services qualifying as capital goods purchased for the 3rd and 4th quarters of

1996 in the amount of P8,325,350.35. All other claims were disallowed.

Petitioner filed an urgent motion for reconsideration, claiming an additional amount of

P5,012,875.67.

the CTA denied petitioner's motion,... etitioner appealed under Rule 43 of the Rules of Court before
the Court of Appeals,[3] praying only for the refund of P3,455,199.54, claiming that the purchases
represented thereby were used in the rehabilitation of the Malaya Power Plant Complex which...
should be considered as capital expense to fall within the purview of capital goods.

Issues:

petitioner faults the appellate court for not considering the purchases amounting to P3,455,199.54 as
falling under the definition of "capital goods."

Ruling:

The petition is bereft of merit.

Section 4.106-1 (b) of Revenue Regulations No. 7-95 defines capital goods and its scope in this wise:...
xxxx
(b) Capital Goods. - Only a VAT-registered person may apply for issuance of a tax credit certificate or
refund of input taxes paid on capital goods imported or locally purchased. The refund shall be
allowed to the extent that such input taxes have not been applied against output... taxes. The
application should be made within two (2) years after the close of the taxable quarter when the
importation or purchase was made.

Refund of input taxes on capital goods shall be allowed only to the extent that such capital goods
are used in VAT taxable business. If it is also used in exempt operations, the input tax refundable
shall only be the ratable portion corresponding to taxable operations.

"Capital goods or properties" refer to goods or properties with estimated useful life greater that one
year and which are treated as depreciable assets under Section 29 (f),[4] used directly or indirectly in
the production or sale of taxable goods... or services.

For petitioner's purchases of domestic goods and services to be considered as "capital goods or
properties," three requisites must concur. First, useful life of goods or properties must exceed one
year; second, said goods or properties are treated as depreciable... assets under Section 34 (f) and;
third, goods or properties must be used directly or indirectly in the production or sale of taxable
goods and services.

From petitioner's evidence, the account vouchers specifically indicate that the disallowed purchases
were recorded under inventory accounts, instead of depreciable accounts.

That petitioner failed to indicate under its fixed assets or depreciable assets account, goods and...
services allegedly purchased pursuant to the rehabilitation and maintenance of Malaya Power Plant
Complex, militates against its claim for refund.

As correctly found by the CTA, the goods or properties must be recorded and treated as depreciable
assets under Section 34 (F) of... the NIRC.

Petitioner further contends that since the disallowed items are treated as capital goods in the
general ledger and accounting records, as testified on by its senior accountant, Karen Bulos, before
the CTA, this should have been given more significance than the account vouchers... which listed the
items under inventory accounts.

The account vouchers presented by petitioner confirm that the purchases cannot qualify as capital
goods for they are held as inventory items and not charged to any depreciable asset account.
Petitioner has proffered no explanation why the disallowed items were not listed under...
depreciable asset accounts.

It is settled that tax refunds are in the nature of tax exemptions. Laws granting exemptions are
construed strictissimi juris against the taxpayer and liberally in favor of the taxing authority.[5]
Where the taxpayer claims a refund, the CTA as a... court of record is required to conduct a formal
trial (trial de novo) to prove every minute aspect of the claim.

By the very nature of its functions, the CTA is dedicated exclusively to the resolution of tax problems
and has consequently developed an expertise on the subject. Absent a showing of abuse or reckless
exercise of authority,[7] the Court appreciates no... ground to disturb the appellate court's Decision
affirming that of the CTA.

IN FINE, petitioner having failed to establish that the disallowed items should be classified as capital
goods, the assailed Decision of the Court of Appeals must be upheld.

WHEREFORE, the petition is DENIED.

 REAL PROPERTY TAX CASE DIGESTS

DAVAO SAW MILL vs. APRONIANO G. CASTILLO and DAVAO LIGHT & POWER CO., INC. G.R. No. L-
40411

Facts:

Davao Saw Mill Co., Inc., is the holder of a lumber concession from the Government of the Philippine
Islands. However, the land upon which the business was conducted belonged to another person. On
the land the sawmill company erected a building which housed the machinery used by it. Some of the
implements thus used were clearly personal property, the conflict concerning machines which were
placed and mounted on foundations of cement. In the contract of lease between the sawmill
company and the owner of the land there appeared the following provision: That on the expiration
of the period agreed upon, all the improvements and buildings introduced and erected by the party
of the second part shall pass to the exclusive ownership of the lessor without any obligation on its
part to pay any amount for said improvements and buildings; which do not include the machineries
and accessories in the improvements.

In another action wherein the Davao Light & Power Co., Inc., was the plaintiff and the Davao, Saw,
Mill Co., Inc., was the defendant, a judgment was rendered in favor of the plaintiff in that action
against the defendant; a writ of execution issued thereon, and the properties now in question were
levied upon as personalty by the sheriff. No third party claim was filed for such properties at the time
of the sales thereof as is borne out by the record made by the plaintiff herein

It must be noted also that on number of occasion, Davao Sawmill treated the machinery as personal
property by executing chattel mortgages in favor of third persons. One of such is the appellee by
assignment from the original mortgages.

The lower court rendered decision in favor of the defendants herein. Hence, this instant appeal.

Issue:

whether or not the machineries and equipments were personal in nature.

Ruling/ Rationale:

Yes. The Supreme Court affirmed the decision of the lower court.

Machinery which is movable in its nature only becomes immobilized when placed in a plant by the
owner of the property or plant, but not when so placed by a tenant, a usufructuary, or any person
having only a temporary right, unless such person acted as the agent of the owner.

CITY OF BAGUIO vs. DE LEON

GR No. L-24756, October 31, 1968

FACTS: The City of Baguio passed an ordinance imposing a license fee on any person, entity or
corporation doing business in the City. The ordinance sourced its authority from RA No. 329, thereby
amending the city charter empowering it to fix the license fee and regulate businesses, trades and
occupations as may be established or practiced in the City. De Leon was assessed for P50 annual fee
it being shown that he was engaged in property rental and deriving income therefrom. The latter
assailed the validity of the ordinance arguing that it is ultra vires for there is no statury authority
which expressly grants the City of Baguio to levy such tax, and that there it imposed double taxation,
and violates the requirement of uniformity.

ISSUE: Are the contentions of the defendant-appellant tenable?

HELD: No. First, RA 329 was enacted amending Section 2553 of the Revised Administrative Code
empowering the City Council not only to impose a license fee but to levy a tax for purposes of
revenue, thus the ordinance cannot be considered ultra vires for there is more than ample statury
authority for the enactment thereof.

Second, an argument against double taxation may not be invoked where one tax is imposed by the
state and the other is imposed by the city, so that where, as here, Congress has clearly expressed its
intention, the statute must be sustained even though double taxation results.

And third, violation of uniformity is out of place it being widely recognized that there is nothing
inherently obnoxious in the requirement that license fees or taxes be exacted with respect to the
same occupation, calling or activity by both the state and the political subdivisions thereof.

REYES v. ALMANZOR

GR Nos. L-49839-46

FACTS: Petitioners JBL Reyes et al. owned a parcel of land in Tondo which are leased and occupied as
dwelling units by tenants who were paying monthly rentals of not exceeding P300. Sometimes in
1971 the Rental Freezing Law was passed prohibiting for one year from its effectivity, an increase in
monthly rentals of dwelling units where rentals do not exceed three hundred pesos (P300.00), so
that the Reyeses were precluded from raising the rents and from ejecting the tenants. In 1973,
respondent City Assessor of Manila re-classified and reassessed the value of the subject properties
based on the schedule of market values, which entailed an increase in the corresponding tax rates
prompting petitioners to file a Memorandum of Disagreement averring that the reassessments made
were "excessive, unwarranted, inequitable, confiscatory and unconstitutional" considering that the
taxes imposed upon them greatly exceeded the annual income derived from their properties. They
argued that the income approach should have been used in determining the land values instead of
the comparable sales approach which the City Assessor adopted.

ISSUE: Is the approach on tax assessment used by the City Assessor reasonable?

HELD: No. The taxing power has the authority to make a reasonable and natural classification for
purposes of taxation but the government's act must not be prompted by a spirit of hostility, or at the
very least discrimination that finds no support in reason. It suffices then that the laws operate
equally and uniformly on all persons under similar circumstances or that all persons must be treated
in the same manner, the conditions not being different both in the privileges conferred and the
liabilities imposed.

Consequently, it stands to reason that petitioners who are burdened by the government by its Rental
Freezing

Laws (then R.A. No. 6359 and P.D. 20) under the principle of social justice should not now be
penalized by the same government by the imposition of excessive taxes petitioners can ill afford and
eventually result in the forfeiture of their properties.
PECSON V. CA

GR NO. 105360

FACTS:

Petitioner was the owner of a parcel of land wherein he built an apartment complex. Due to his
failure to pay for realty taxes, his land was sold in a public auction and was sold to spouses Nuguid.
He moved for the setting aside of the auction but was denied.

ISSUE:

Whether or not Art. 448 and 546 applies in the case at bar

HELD:

Article 448 doesn't apply to a case where the owner of the land is the builder who then later loses
ownership of the land by sale or auction. Nevertheless, the provision therein on indemnity may
be applied by analogy considering that the primary intent of this provision is to avoid a state of
forced ownership. The current market value of the improvements which should be made the
basis of reimbursement to the builder in good faith. The right to retain the improvements while
the corresponding indemnity is not paid implies the tenancy or possession in fact of the land on
which it is built, planted or sown and retention of ownership of the improvements, and
necessarily, the income therefrom.

MATHAY JR, v MACALINGCAG G.R. No. 97618

Facts:

Mathay, Jr., describing himself as "a member of Congress, and registered owner of lands in Quezon
City and resident of Metro Manila," instituted in this Court a special civil action of prohibition against
Victor Macalincag, then the Undersecretary of Finance, the City Assessor and the City Treasurer of
Quezon City. The essential foundation of the petitioner's thesis of the nullity of the schedule of
market values is that it was prepared by the respondent City Assessor alone, independently of the
other City Assessors within the Metropolitan Manila Area, this being inpatent violation of the explicit
requirement of Section 9 of Presidential decree No. 921. Six (6)days later, a similar action was
initiated in this Court by Rufino S. Javier on the same ground. The SC referred the case to CBAA and
issued TRO and cease and desist orders.

Issue:

Whether the Schedule of Market Values was valid

Held:

No. Granting for the sake of argument, that E.O. No. 392 was a valid repealing act that abolished the
Metropolitan Manila Commission, yet the said Executive Order did not in any manner affect the life
of P.D. 921 nor the assessment districts and committee created therein under Section 9 thereof nor
its provision regarding the preparation of schedule of market values for real properties within the
Metropolitan Manila Area. So that, whether it is named Metro Manila Commission or Metro Manila
Authority, P.D. 921 remains effective until validly repealed bysubsequent legislation through
Congress. This Board considers untenable the allegation in this Comment submitted to the Supreme
Court for Respondent Hon. Undersecretary Victor C. Macalincag, that the Respondent City Assessor
has authority to prepare alone the questioned Schedule of Market Values for the reason that Section
9 of P.D. 921 refers to a general revision and has no application to selective revaluation or
assessment of properties in a certain local government unit. There is nothing in the provision of
Section 9 where we should distinguish between a general revision or revaluation or reassessment in
the preparation of the Schedule of Market Values for Metropolitan Manila, as basis for the appraisal
and assessment of taxation purposes of real properties located in the area.

Patalinghug v CA

GR No 104786, January 27, 1994

FACTS:

A funeral home was constructed in Davao City. Per ordinance, the same should not be less than 50
meters away from residential lots. A building owned by Tepoot is both used as a dwelling and as a
business is located within 50 meters of the funeral home. Under its tax declaration, the commercial
property is labeled as residential tax purposes.

ISSUE:

Is the construction illegal?

RULING:

No. Mr. Tepoot’s building is, whether or not it is residential or not, is a factual determination which
we should not disturb. A tax declaration is not conclusive of the nature of the property for zoning
purposes.

TY vs. TRAMPE

GR NO. 117577

FACTS: Petitioner Alejandro B. Ty and MVR Picture Tube, Inc., both registered owners of lands and
buildings in the then Municipality of Pasig, assailed the legality of the increase of real estate taxes
imposed by and being collected in Pasig from the year 1994. Petitioners argue that the schedule of
market values and the assessments prepared solely by municipal assessor in accordance with LGC
were null and void. They further argued that the said Code did not expressly repealed nor impliedly
repealed P.D. 921, which still required, in the preparation of said schedule, joint action by all the city
and municipal assessors in the Metropolitan Manila area. On the other hand, respondents contend
that the tax assessments prepared solely by respondent assessor were valid and legal because the
LGC impliedly repealed PD 921.

ISSUE: Were the increased real estate taxes imposed by and being collected in Pasig, valid and legal?
DECISION: NO. The schedule of values prepared solely by the respondent municipal assessor is illegal
and void because P.D. 921 is still the prevailing law. It is clear that the two laws are NOT co-extensive
and mutually inclusive in their scope and purpose. While R.A. 7160 covers almost all governmental
functions delegated to local government units all over the country, P.D. 921 embraces only the
Metropolitan Manila area and is limited to the administration of financial services therein, especially
the assessment and collection of real estate taxes. Sec. 9 of P.D. 921 requires that the schedule of
values of real properties in the Metropolitan Manila area shall be prepared jointly by the city
assessors in the districts created therein; while Sec. 212 of R.A. 7160 states that the schedule shall be
prepared "by the provincial, city and municipal assessors of the municipalities within the
Metropolitan Manila Area for the different classes of real property situated in their respective local
government units for enactment by ordinance of the Sanggunian concerned.

MACTAN CEBU INTERNATIONAL AIRPORT AUTHORITY v. FERDINAND J. MARCOS, GR No. 120082

Facts:

Petitioner Mactan Cebu International Airport Authority (MCIAA)

Since the time of its creation,... enjoyed the privilege of exemption from payment of realty taxes in
accordance with Section 14 of its Charter

Office of the Treasurer of the City of Cebu, demanded payment for realty taxes on several parcels of
land belonging to the petitioner

Petitioner objected to such demand for payment as baseless and unjustified, claiming in its favor the
a forecited Section 14 of RA 6958 which exempts it from payment of realty taxes. It was also
asserted that it is an instrumentality of the government performing... governmental functions, citing
Section 133 of the Local Government Code of 1991 which puts limitations on the taxing powers of
local government units

Section 133. Common Limitations on the Taxing Powers of Local Government Units. -- Unless
otherwise provided herein, the exercise of the taxing powers of provinces, cities, municipalities, and
baRangays shall not extend to the levy of the... following:

Taxes, fees or charges of any kind on the National Government, its agencies and instrumentalities,
and local government units. (underscoring supplied)

Respondent City refused to cancel and set aside petitioner's realty tax account, insisting that the
MCIAA is a government-controlled corporation whose tax exemption privilege has been withdrawn
by virtue of Sections 193 and 234 of the Local Government Code... petitioner... was compelled to pay
its tax account "under protest" and thereafter filed a Petition for Declaratory Relief with the
Regional Trial Court of Cebu

MCIAA basically contended that the taxing powers of local government units do not extend to the
levy of taxes or fees of any kind on an instrumentality of the national government. Petitioner insisted
that while it is indeed a government-owned corporation, it... nonetheless stands on the same footing
as an agency or instrumentality of the national government by the very nature of its powers and
functions.
trial court dismissed the petition... infer and state that the tax exemption provided for in RA 6958
creating petitioner had been expressly repealed by the provisions of the New Local Government
Code of 1991.

So that petitioner in this case has to pay the assessed realty tax of its properties effective after
January 1, 1992 until the present.

Issues:

respondent City of Cebu has no power nor authority to impose realty taxes upon it... whether the
petitioner is a "taxable person."

Ruling:

Considering its task "not merely to efficiently operate and manage the Mactan-Cebu International
Airport, but more importantly, to carry out the Government... policies of promoting and developing
the Central Visayas and Mindanao regions as centers of international trade and tourism, and
accelerating the development of the means of transportation and communication in the country,"...
and that it is an attached... agency of the Department of Transportation and Communication
(DOTC),... the petitioner "may stand in [sic] the same footing as an agency or instrumentality of the
national government." Hence, its tax exemption privilege under Section 14 of its Charter

"cannot be considered withdrawn with the passage of the Local Government Code of 1991
(hereinafter LGC) because Section 133 thereof specifically states that the `taxing powers of local
government units shall not extend to the levy of taxes or fees or charges of any kind on the...
national government, its agencies and instrumentalities.'"

There can be no question that under Section 14 of R.A. No. 6958 the petitioner is exempt from the
payment of realty taxes imposed by the National Government or any of its political subdivisions,
agencies, and instrumentalities. Nevertheless, since taxation is the rule and... exemption therefrom
the exception, the exemption may thus be withdrawn at the pleasure of the taxing authority. The
only exception to this rule is where the exemption was granted to private parties based on material
consideration of a mutual nature, which then becomes... contractual and is thus covered by the non-
impairment clause of the Constitution.

we conclude that as a general rule, as laid down in Section 133, the taxing powers of local
government units cannot extend to the levy of, inter alia, "taxes, fees and charges of any kind on the
National

Government, its agencies and instrumentalities, and local government units"; however, pursuant to
Section 232, provinces, cities, and municipalities in the Metropolitan Manila Area may impose the real
property tax except on, inter alia, "real property owned by the Republic of... the Philippines or any of
its political subdivisions except when the beneficial use thereof has been granted, for consideration
or otherwise, to a taxable person," as provided in item (a) of the first paragraph of Section 234.

upon the effectivity of the LGC, exemptions from payment of real property taxes granted to natural
or juridical persons, including government-owned or controlled corporations, except as provided in
the said section,... and the petitioner is, undoubtedly, a government-owned corporation, it
necessarily follows that its exemption from such tax granted it in Section 14 of its Charter, R.A. No.
6958, has bEen withdrawn.

In short, the petitioner can no longer invoke the general rule in Section 133 that the taxing powers of
the local government units cannot extend to the levy of:
(o) taxes, fees or charges of any kind on the National Government, its agencies or
instrumentalities, and local government units.

the petitioner cannot claim that it was never a "taxable person" under its Charter. It was only
exempted from the payment of real property taxes. The grant of the privilege only in respect of this
tax is conclusive proof of the legislative intent to... make it a taxable person subject to all taxes,
except real property tax.

Finally, even if the petitioner was originally not a taxable person for purposes of real property tax, in
light of the foregoing disquisitions, it had already become, even if it be conceded to be an "agency"
or "instrumentality" of the Government, a taxable person for such... purpose in view of the
withdrawal in the last paragraph of Section 234 of exemptions from the payment of real property
taxes, which, as earlier adverted to, applies to the petitioner.

Accordingly, the position taken by the petitioner is untenable. nothing can prevent Congress from
decreeing that even instrumentalities or agencies of the Government performing governmental
functions may be subject to tax. Where it is done precisely to fulfill a constitutional mandate and
national policy, no one can doubt its wisdom.

RAUL H. SESBREÑO, v. CENTRAL BOARD OF ASSESSMENT APPEALS and THE CITY ASSESSOR OF
CEBU CITY, GR NO. 106588

FACTS:

On April 3, 1980, petitioner purchased from Estrella Benedicto Tan two (2) parcels of land covered by
Transfer Certificate of Title No. T-55917 issued by the Register of Deeds of Cebu City 3 and described
in the deed of sale as follows:

"A parcel of land (Lot 308 of the Cadastral Survey of Cebu), with the improvements thereon, situated
in the City of Cebu (formerly Municipality of Cebu), containing an area of Forty Nine (49) square
meters, more or less . . .

A parcel of land (Lot 309 of the Cadastral Survey of Cebu), with the improvements thereon, situated
in the City of Cebu, containing an area of Forty Eight (48) square meters, more or less . . ."

The conveyance included "a residential house of strong materials constructed on the lots above-
mentioned" located in Cebu City.

Thereafter, petitioner declared the real property constructed on the said lots for purposes of tax
assessment as a residential house of strong materials with a floor area of sixty (60) square meters.
Effective in the year 1980, the declared property was assessed by Respondent City Assessor of Cebu
City under Tax Declaration No. 02-20454 at a market value of P60,000.00 and an assessed value of
P36,900.00.

During a tax-mapping operation conducted in February 1989, the field inspectors of the Cebu City
Assessor discovered that the real property declared has excess portion not declared by the
petitioner that's why when they re-assessed the property value, it increased to P499,860.00, of
which the petitioner protested for being "excessive and unconscionable".

The petitioner claims that Respondent CBAA err in considering the issue of back taxes, the same
being closely related to an error properly raised. The Respondent CBAA applied Section 25 of PD 464
which had authorized the imposition of back taxes.

The petitioner claims that Section 25 of PD 464 "refers solely to real estate declared for the first time
and does not apply to the area which, upon revision, has been shown to be in excess of that which
was formerly declared." The CBAA held that the area in excess of that declared by the taxpayer was
deemed declared for the first time upon its discovery.

ISSUE:

Is Respondent CBAA gravely erred in misinterpreting or misapplying Section 24 and 25 of P.D. 464.

HELD:

No, the CBAA is correct in interpreting and applying Section 24 and 25 of P.D. 464.

If Section 24 is the only applicable provision in cases where a taxpayer has eluded the payment of the
correct amount of taxes for more than nine (9) years, as in this case, Section 25 of PD 464 which
requires the payment of back taxes will be rendered superfluous and nugatory. Such interpretation
could not have been intended by the law. It is a familiar rule in statutory construction that" (t)he
legal provision being therefore susceptible of two interpretations, we adopt the one in consonance
with the presumed intention of the legislature to give its enactments the most reasonable and
beneficial construction, the one that will render them operative and effective and harmonious with
other provisions of law."

Section 24 merely lays down the general rule that assessments under PD 464 are to be given
prospective application. It cannot be construed in such a manner as to eliminate the imposition of
back taxes. If Section 24, instead of Section 25, were made to apply as suggested by petitioner, he
would in effect be excused from the payment of back taxes on the undeclared excess area of his
property. The Court, clearly, cannot allow a taxpayer to evade his obligation to the government by
letting him pay taxes on a property based on its gross undervaluation at P60,000.00, when the same
had then a current market value of P449,860.00.

Lopez v. City of Manila (GR No. 127139; Feb. 19, 1999)

FACTS:

Section 219 of Republic Act 7160 (R.A. 7160) or the Local Government Code of 1991 requires the
conduct of the general revision of real property.

The revision of real property assessments prescribed therein was not yet enforced in the City of
Manila. Upon receipt of Memorandum Circular No. 04-95 from the Bureau of Local Government
Finance relating to the failure of most of the cities and municipalities of Metropolitan Manila,
including the City of Manila, to conduct the general revision of real property and after obtaining the
necessary funds from the City Council, the City Assessor began the process of general revision based
on the updated fair market values of the real properties.

The City Assessor’s Office submitted the proposed schedule of fair market values to the City Council
for its appropriate action. The council then enacted Manila Ordinance No. 7894 which was
approved. With the implementation of the ordinance, the tax on the land owned by the petitioner
was increase hence he filed a special proceeding for the declaration of nullity of the City of Manila
Ordinance No. 7894 for being “unjust, excessive, oppressive or confiscatory.”

Manila Ordinance No. 7905 took effect thereafter, reducing by fifty percent (50%) the assessment
levels (depending on the use of property, e.g., residential, commercial) for the computation of tax
due. The new ordinance amended the assessment levels provided by Section 74, paragraph (A) of
Manila Ordinance No. 7794..

Despite the amendment brought about by Manila Ordinance No. 7905, the controversy proceeded.

The trial court dismissed the case for failure of the petitioner to exhaust administrative remedies.

ISSUE:

W/N the doctrine of exhaustion of administrative remedies may be dispensed with in the instant case

HELD:
NO. As a general rule, where the law provides for the remedies against the action of an
administrative board, body, or officer, relief to courts can be sought only after exhausting all
remedies provided. The reason rests upon the presumption that the administrative body, if given the
chance to correct its mistake or error, may amend its decision on a given matter and decide it
properly. Therefore, where a remedy is available within the administrative machinery, this should be
resorted to before resort can be made to the courts, not only to give the administrative agency the
opportunity to decide the matter by itself correctly, but also to prevent unnecessary and premature
resort to courts.

“One of the reasons for the doctrine of exhaustion is the separation of powers which enjoins upon
the judiciary a becoming policy of non-interference with matters coming primarily within the
competence of other department. x x x

There are however a number of instances when the doctrine may be dispensed with and judicial
action validly resorted to immediately. Among these exceptional cases are: (1) when the question
raised is purely legal, (2) when the administrative body is in estoppel; (3) when the act complained of
is patently illegal; (4) when there is urgent need for judicial intervention; (5) when the claim involved
is small; (6) when irreparable damage will be suffered; (7) when there is no other plain, speedy and
adequate remedy; (8) when strong public interest is involved; (9) when the subject of controversy is
private land; and (10) in quo-warranto proceeding (citation omitted).

In the court’s opinion, however, the instant petition does not fall within any of the exceptions above-
mentioned.

CAGAYAN ROBINA SUGAR MILLING CO. VS. CA G.R. No. 122451, Oct. 12, 2000

Facts:

This petition assails the decision of the CA denying petitioner’s motion for review the decision of the
Central Board of Assessment Appeals. The CBAA dismissed petitioner’s appeal from the Resolution
of the Local Board of Assessment Appeals, which fixed the market value of petitioner’s properties in
Piat, Cagayan at P260,327,060.

The Assets Privatization Trust (APT) offered for sale all the assets and properties of Cagayan Sugar
Corporation (CASUCO), which was foreclosed and transferred to APT by the DBP. Petitioner as
highest bidder acquired the property for P464,000,000. Among the properties were sugar mill
machineries. The provincial assessor of Cagayan issued a Notice of Assessment of Real Property with
a market value of P391,623,520 and assessed value of P313,298,820. The petitioner appealed on the
ground that it was excessive, erroneous and unjust. LBAA fixed the value of machineries at
P260,327,060 for assessment purposes.

Petitioner contends that the formula provided by Section 28 of P.D. 464 must be applied:

Remaining Economic Life x Replacement Cost = Current Market Value

Economic Life
Issue: Did the respondent err in finding the assessment of petitoner’s machineries proper and
correct under the Real Property Tax Code (P.D. No. 464)?

Held:

No. The real property being taxed is for 1990 and the law applicable is P.D. 464 and not the Local
Government Code (RA 7160). Section 28 of the Real Property Tax Code provides for the formula for
computing the current market value but it must be read in consonance with Section 3 (n) which
defines market value. Under the latter provision, the LBAA and CBAA were not precluded from
adopting various approaches to value determination including adopting the APT floor bid price for
petitioner’s properties. Tax assessment of tax examiners are presumed correct and made in good
faith. Petitioner failed to show that the use of APT floor price pursuant to Section 3 (n) of PD 464
was incorrect and done in bad faith. The method used cannot be deemed erroneous since there is no
rigid rule for the valuation of the property. Petitioner has not also shown that the current value of its
property will be significantly lower if its proposed formula is adopted.

Additionally, petitioner filed its appeal to the CBAA out of time in violation of Section 34 of P.D. 464
where the owner is not satisfied of the decision of the LBAA, he may within 30 days from receipt of
decision appeal to the CBAA. Petitioner received the decision on April 18, 1992 and only filed its
appeal on November 25, 1992, beyond the period to perfect the appeal. Petition is dismissed.

Light Rail Transit Authority vs Central Board of Assessment Appeals

342 SCRA 692 [GR No. 127316 October 12, 2000]

Facts:

The LRTA is a government-owned and controlled corporation created and organized under EO 603,
dated July 12, 1980 primarily responsible for the construction, operation, maintenance and/or lease of
light rail transit system in the Philippines, giving due regard to the reasonable requirements of the
public transportation of the country. LRTA acquired real properties, constructed structional
improvements, such as buildings, carriage ways, passenger terminal stations and installed various
kinds of machinery and equipment and facilities for the purpose of its operations. For an effective
maintenance, operation and management, it entered into a contract of management with the
MERALCO transit organization in which the latter undertook to manage, operate and maintain the
light rail transit system owned by the LRTA subject to the specific stipulations contained in said
agreement, including payments of a management fee and real property taxes. That it commenced its
operations in 1984, and that sometime that year, respondent-appellee city of assessor of manila
assessed the real properties of petitioner consisting of lands, buildings, carriage ways and passenger
terminal stations machinery and equipment which he considered real property under the real
property tax code, to commence with the year 1985. That petitioner paid its real property taxes on all
its real property holdings, except the carriage ways and passenger terminal stations including the
land where it constructed on the ground that the same are not real properties under the real
property tax code, and if the same are real property, these are for public use/purpose, therefore
exempt from realty taxation which claim was denied by the respondent-appellee city assessor of
Manila.

Issue:

Whether or not petitioner’s carriage ways and passenger terminal stations are subject to real
property tax.

Held:

No. Under the real property tax code, real property owned by the Republic of the Philippines or any
of its political subdivisions and any government-owned or controlled corporation so exempt by its
charter, provided, however, that this exemption shall not apply to real property of the above named
entities the beneficial use of which has been granted, for consideration or otherwise, to a taxable
person.

EO 603, the charter of petitioner, does not provide for any real estate tax exemption in its favor. Its
exemption is limited to direct and indirect taxes, duties or fees in connection with the importation of
equipment not locally available.

Even granting that the national government indeed owns the carriage ways and terminal stations,
the exemption would not apply because their beneficial use has been granted to petitioner, a taxable
entity.

Taxation is the rule and exemption is the exception. Any claim for tax exemption is strictly construed
against the claimant. LRTA has not shown its eligibility for exemption; hence, it’s subject to tax.

Mactan Cebu International Airport Authority vs City of Cebu

261 SCRA 667 [GR No. 120082 September 11, 1996]

Facts:

Petitioner Mactan Cebu International Airport Authority (MCIAA) was created by virtue of Republic
Act No. 6958 mandated to principally undertake the economical, efficient and effective control,
management and supervision of the MCIAA in the province of Cebu and the Lahug airport in Cebu
City, and such other airports as may be established in the province of Cebu. Since the time of its
creation, petitioners MCIAA enjoyed the privilege of exemption from payment of realty taxes in
accordance with section 14 of its charter:

Sec 14 Tax Exemptions – The authority shall be exempt from realty taxes imposed by the national
government or any of its political subdivisions, agencies and instrumentalities.
On October 11, 1994, however, Mr. Eustaquio B. Cesa, demanded payment for realty taxes on several
parcels of land belonging to the petitioner, located at Barrio Apas and Barrio Kasambagan, Lahug,
Cebu City, in the total amount of Php2,229,078.79. Petitioner objected to such demand for payment
as baseless and unjustified, claiming in its favor the aforecited in section 14 of RA 6958 which
exempts it from payment of realty taxes. It was also asserted that it is an instrumentality of the
government performing governmental functions, citing section 133 of the local government code of
1991 which puts limitations on the taxing power of local government code.

Issue: Whether or not MCIAA is exempt from realty taxes.

Held:

Yes. As a general rule, the power to tax is an incident of sovereignty and is unlimited in its range,
acknowledge in its very nature no limits, so that security against its abuse is to be found only in the
responsibility of the legislature which imposes the tax on constituency who are to pay it.
Nevertheless, effective limitations thereon may be imposed by the people through their
constitutions. Our constitution, for instance, provides that the rule of taxation shall be uniform and
equitable and congress shall evolve a progressive system of taxation. So potent indeed is the power
that it was once opined that the power to tax involves the power to destroy. Verily, taxation is a
destructive power which interferes with the personal and property rights of the people and takes
from them a portion of their property for the support of the government. Accordingly, tax statutes
must be construed strictly against the government liberally in favor of the taxpayer. But since taxes
are what we pay for civilized society, as are the life blood of the nation, the law frowns against
exemptions from taxation and statutes granting tax exemptions are thus construed strictissimi juris
against the taxpayer and liberally in favor of the taxing authority. A claim of exemption from tax
payments must be clearly shown and based on language in the law too plain to be mistaken.
Elsewise stated, taxation is the rule, exemption there from is the exception. However, if the grantee
of the exemption is a political subdivision or instrumentality, the rigid rule of construction does not
apply because the practical effect of the exemption is merely to reduce the amount of money that
has to be handled by the government in the course of taxation.

The petitioner cannot claim that it was never a taxable person under its charter. It was only
exempted from the payment of real property taxes. It was only exempted from the payment of real
property taxes. The grant of the privilege only in respect of this tax is conclusive proof of the
legislative intent to make it a taxable person subject to all taxes except real property tax.

Finally, even if the petitioner was originally not a taxable person for purposes of real property tax, in
light of the foregoing disquisitions, it had already become, even if it be conceded to be an agency or
instrumentality of the government, a taxable person for such purpose in view of the withdrawal in
the last paragraph of section 234 of exemptions from the payment of real property taxes, which, as
earlier adverted to, applies to the petitioner.

As to tax exemptions or incentives granted to or presently enjoyed by natural or juridical persons,

including government-owned or controlled corporations, section 193 of the LGC prescribes the
general rule, viz, they are withdrawn upon the effectivity of the LGC, except those granted to local
water districts, cooperatives duly registered under RA 6938, non-stock and non-profit hospitals and
educational institutions, and unless otherwise provided in the LGC. The latter proviso could refer to
section 234 which enumerates the properties exempt from real property tax. But the last paragraph
of section 234 further qualifies the retention of the exemption in so far as real property taxes are
concerned by limiting the retention only to those enumerated therein; all others not included in the
enumeration lost the privilege upon the effectivity of the LGC. Morever, as to even on real property
owned by the Republic of the Philippines or any of its political subdivisions covered by item (a) of the
first paragraph of section 234, the exemption is withdrawn if the beneficial use of such property has
been granted to a taxable person for consideration or otherwise.

LOCAL TAXATION DIGESTS

The Province of Bulacan vs Court of Appeals

299 SCRA 442 [GR No. 126232 November 27, 1998]

Facts: On June 26, 1992, the Sangguniang Panlalawigan passed provincial ordinance no. 3 known as
“Ordinance Enacting The Revenue Code Of The Bulacan Province” which was to take effect on July 1,
1992 Section 21 of the ordinance provides as follows:

Sec 21. Imposition of Tax – There is hereby levied and collected a tax of 10% of the fair market value in
the locality per cubic meter of ordinary stores, sand, gravel, earth and other quarry resources, such
but not limited to marble, granite, volcanic cinders, basalt, tuff and rock phosphate, extracted from
public lands or from beds of seas, lakes, rivers, streams, creeks and other public waters within its
territorial jurisdiction.

Pursuant thereto, the provincial treasurer of Bulacan in a letter dated November 11, 1992, assessed
private respondent Republic Cement Corporation Php2,524,692.13 for extracting lime stones, shale
and silica from several parcels of private land in the province during the third quarter of 1992 until
the second quarter of 1993. Believing that the province, on the bases of the above-said ordinance,
had no authority to impose taxes on quarry resources extracted from private lands, Republic Cement
formally contested the same on December 23, 1993. The same was, however, denied by the
provincial treasurer on January 17, 1994. Republic Cement, consequently filed a petition for
declaratory relief with the Regional Trial Court (RTC) of Bulacan on February 14, 1993. The province
filed a motion to dismiss Republic Cement’s petition which was granted by the trial court on May 13,
1993, which ruled that declaratory relief was improper, allegedly because a breach of the ordinance
had been committed by Republic Cement.

Issue: Whether or not provincial ordinance no. 3 is valid to allow the petitioner to impose taxes on
ordinary stones, sand, gravel, earth, and other quarry resources.
Held: No. On the basis of section 134 of Republic Act No. 7169, the local government code, ruled that
a province was empowered to impose taxes only on sand, gravel, and other quarry resources
extracted from public lands, its authority to tax being limited to by said provision only to those taxes,
fees and charges provided in article 1, chapter 2, title I of Book II of the local government code.

As correctly pointed out by petitioners, section 186 of the same code allows petitioners to levy taxes
other than those specifically enumerated under the code, subject to the conditions specified therein.

The tax imposed by the province of Bulacan is an excise tax, being a tax upon the performance,
carrying or an excise of an activity. Under section 133 of the local government code, a province may
not, therefore, levy excise taxes on articles already taxed by the National Internal Revenue Code
(NIRC).

The NIRC levies a tax on all quarry resources, regardless of origin, whether extracted from public or
private land. Thus, a province may not ordinarily impose taxes on stones, sand,gravel, earth and
other quarry resources, as the same are already taxed under NIRC. The province can, however,
impose a tax on stones, sand, gravel, earth and other quarry resources extracted from public lands
because it is expressly empowered to do so under the local government code. As to stones, sand,
gravel, earth and other quarry resources extracted from private land, however it may not do so,
because of the limitation provided by section 133 of the code in relation to section 151 of the NIRC.

Given the above disquisition, petitioners cannot claim that the appellate court unjustly deprived
them of the power to create their sources of revenue, their assessment of taxes against Republic
Cement being ultra vires, traversing as it does the limitations set by the local government code.

Furthermore, section 21 of provincial ordinance no. 3 is practically only a reproduction of section 138
of the local government code. A cursory reading of both could show that both refer to ordinary sand,
gravel, stone, earth and other quarry resources extracted from public lands. Even if we disregard the
limitation set by section 133 of the local government code, petitioners, may not impose taxes on
stone, sand, gravel, earth and other quarry resources extracted from private lands. Petitioners may
not involve the regalian doctrine to extend coverage of their ordinance to quarry resources
extracted from private lands, for taxes, being burdens, are not to be presumed beyond what the
applicable statute expressly and clearly declares, tax statutes being construed strictissimi juris
against the government.