TAXATION Real Property Taxation

G.R. No. 120082 September 11, 1996

MACTAN CEBU INTERNATIONAL AIRPORT AUTHORITY, petitioner,

vs.
HON. FERDINAND J. MARCOS, in his capacity as the Presiding Judge of the Regional
Trial Court, Branch 20, Cebu City, THE CITY OF CEBU, represented by its Mayor HON.
TOMAS R. OSMEÑA, and EUSTAQUIO B. CESA, respondents.

DAVIDE, JR., J.:

For review under Rule 45 of the Rules of Court on a pure question of law are the
decision of 22 March 19951of the Regional Trial Court (RTC) of Cebu City, Branch
20, dismissing the petition for declaratory relief in Civil Case No. CEB-16900 entitled
"Mactan Cebu International Airport Authority vs. City of Cebu", and its order of 4,
May 19952 denying the motion to reconsider the decision.

We resolved to give due course to this petition for its raises issues dwelling on the
scope of the taxing power of local government-owned and controlled corporations.

The uncontradicted factual antecedents are summarized in the instant petition as

follows:

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 Mactan International Airport 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 . . . (Sec. 3, RA 6958). It is also mandated to:

a) encourage, promote and develop

international and domestic air traffic in the
Central Visayas and Mindanao regions as a
means of making the regions centers of
international trade and tourism, and
accelerating the development of the means of
transportation and communication in the
country; and

b) upgrade the services and facilities of the

airports and to formulate internationally
acceptable standards of airport
accommodation and service.

Since the time of its creation, petitioner 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, Officer-in-Charge,

Office of the Treasurer of the City of Cebu, demanded payment for realty
taxes on several parcels of land belonging to the petitioner (Lot Nos. 913-G,
743, 88 SWO, 948-A, 989-A, 474, 109(931), I-M, 918, 919, 913-F, 941, 942,
947, 77 Psd., 746 and 991-A), located at Barrio Apas and Barrio
Kasambagan, Lahug, Cebu City, in the total amount of P2,229,078.79.

Petitioner objected to such demand for payment as baseless and unjustified,

claiming in its favor the aforecited Section 14 of RA 6958 which exempt 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:

Sec. 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 barangay shall not extend to the levy of
the following:

a) . . .

xxx xxx xxx

o) Taxes, fees or charges of any kind on the

National Government, its agencies and
instrumentalities, and local government units.
(Emphasis 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 Governmental Code that took effect on January 1, 1992:

Sec. 193. Withdrawal of Tax Exemption Privilege. — Unless otherwise

provided in this Code, tax exemptions or incentives granted to, or presently
enjoyed by all persons whether natural or juridical, including government-
owned or controlled corporations, except local water districts, cooperatives
duly registered under RA No. 6938, non-stock, and non-profit hospitals and
educational institutions, are hereby withdrawn upon the effectivity of this
Code. (Emphasis supplied)

xxx xxx xxx

Sec. 234. Exemptions from Real Property taxes. — . . .

(a) . . .
 xxx xxx xxx

(c) . . .

Except as provided herein, any exemption from payment of

real property tax previously granted to, or presently enjoyed
by all persons, whether natural or juridical, including
government-owned or controlled corporations are hereby
withdrawn upon the effectivity of this Code.

As the City of Cebu was about to issue a warrant of levy against the
properties of petitioner, the latter was compelled to pay its tax account "under
protest" and thereafter filed a Petition for Declaratory Relief with the Regional
Trial Court of Cebu, Branch 20, on December 29, 1994. 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. 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.

Respondent City, however, asserted that MACIAA is not an instrumentality of

the government but merely a government-owned corporation performing
proprietary functions As such, all exemptions previously granted to it were
deemed withdrawn by operation of law, as provided under Sections 193 and
234 of the Local Government Code when it took effect on January 1, 1992.3

The petition for declaratory relief was docketed as Civil Case No. CEB-16900.

In its decision of 22 March 1995,4 the trial court dismissed the petition in light of its
findings, to wit:

A close reading of the New Local Government Code of 1991 or RA 7160

provides the express cancellation and withdrawal of exemption of taxes by
government owned and controlled corporation per Sections after the
effectivity of said Code on January 1, 1992, to wit: [proceeds to quote
Sections 193 and 234]

Petitioners claimed that its real properties assessed by respondent City

Government of Cebu are exempted from paying realty taxes in view of the
exemption granted under RA 6958 to pay the same (citing Section 14 of RA
6958).

However, RA 7160 expressly provides that "All general and special laws,
acts, city charters, decress [sic], executive orders, proclamations and
administrative regulations, or part or parts thereof which are inconsistent with
any of the provisions of this Code are hereby repealed or modified
accordingly." ([f], Section 534, RA 7160).
 With that repealing clause in RA 7160, it is safe to 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.

This Court's ruling finds expression to give impetus and meaning to the
overall objectives of the New Local Government Code of 1991, RA 7160. "It
is hereby declared the policy of the State that the territorial and political
subdivisions of the State shall enjoy genuine and meaningful local autonomy
to enable them to attain their fullest development as self-reliant communities
and make them more effective partners in the attainment of national goals.
Towards this end, the State shall provide for a more responsive and
accountable local government structure instituted through a system of
decentralization whereby local government units shall be given more powers,
authority, responsibilities, and resources. The process of decentralization
shall proceed from the national government to the local government units. . .
.5

Its motion for reconsideration having been denied by the trial court in its 4 May 1995
order, the petitioner filed the instant petition based on the following assignment of
errors:

I RESPONDENT JUDGE ERRED IN FAILING TO RULE

THAT THE PETITIONER IS VESTED WITH GOVERNMENT
POWERS AND FUNCTIONS WHICH PLACE IT IN THE
SAME CATEGORY AS AN INSTRUMENTALITY OR
AGENCY OF THE GOVERNMENT.

II RESPONDENT JUDGE ERRED IN RULING THAT

PETITIONER IS LIABLE TO PAY REAL PROPERTY TAXES
TO THE CITY OF CEBU.

Anent the first assigned error, the petitioner asserts that although it is a government-
owned or controlled corporation it is mandated to perform functions in the same
category as an instrumentality of Government. An instrumentality of Government is
one created to perform governmental functions primarily to promote certain aspects
of the economic life of the people.6 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,"7and that it is an attached agency of the Department of Transportation and
Communication (DOTC),8 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 of fees or charges of any kind on the national
government its agencies and instrumentalities."
As to the second assigned error, the petitioner contends that being an instrumentality
of the National Government, respondent City of Cebu has no power nor authority to
impose realty taxes upon it in accordance with the aforesaid Section 133 of the LGC,
as explained in Basco vs. Philippine Amusement and Gaming Corporation;9

Local governments have no power to tax instrumentalities of the National

Government. PAGCOR is a government owned or controlled corporation with
an original character, PD 1869. All its shares of stock are owned by the
National Government. . . .

PAGCOR has a dual role, to operate and regulate gambling casinos. The
latter joke is governmental, which places it in the category of an agency or
instrumentality of the Government. Being an instrumentality of the
Government, PAGCOR should be and actually is exempt from local taxes.
Otherwise, its operation might be burdened, impeded or subjected to control
by a mere Local government.

The states have no power by taxation or otherwise, to retard, impede, burden

or in any manner control the operation of constitutional laws enacted by
Congress to carry into execution the powers vested in the federal
government. (McCulloch v. Maryland, 4 Wheat 316, 4 L Ed. 579).

This doctrine emanates from the "supremacy" of the National Government

over local government.

Justice Holmes, speaking for the Supreme Court, make references to the
entire absence of power on the part of the States to touch, in that way
(taxation) at least, the instrumentalities of the United States (Johnson v.
Maryland, 254 US 51) and it can be agreed that no state or political
subdivision can regulate a federal instrumentality in such a way as to prevent
it from consummating its federal responsibilities, or even to seriously burden
it in the accomplishment of them. (Antieau Modern Constitutional Law, Vol. 2,
p. 140)

Otherwise mere creature of the State can defeat National policies thru
extermination of what local authorities may perceive to be undesirable
activities or enterprise using the power to tax as "a toll for regulation" (U.S. v.
Sanchez, 340 US 42). The power to tax which was called by Justice Marshall
as the "power to destroy" (McCulloch v. Maryland, supra) cannot be allowed
to defeat an instrumentality or creation of the very entity which has the
inherent power to wield it. (Emphasis supplied)

It then concludes that the respondent Judge "cannot therefore correctly say that the
questioned provisions of the Code do not contain any distinction between a
governmental function as against one performing merely proprietary ones such that
the exemption privilege withdrawn under the said Code would apply to allgovernment
corporations." For it is clear from Section 133, in relation to Section 234, of the LGC
that the legislature meant to exclude instrumentalities of the national
government from the taxing power of the local government units.

In its comment respondent City of Cebu alleges that as local a government unit and a
political subdivision, it has the power to impose, levy, assess, and collect taxes within
its jurisdiction. Such power is guaranteed by the Constitution10 and enhanced further
by the LGC. While it may be true that under its Charter the petitioner was exempt
from the payment of realty taxes,11 this exemption was withdrawn by Section 234 of
the LGC. In response to the petitioner's claim that such exemption was not repealed
because being an instrumentality of the National Government, Section 133 of the
LGC prohibits local government units from imposing taxes, fees, or charges of any
kind on it, respondent City of Cebu points out that the petitioner is likewise a
government-owned corporation, and Section 234 thereof does not distinguish
between government-owned corporation, and Section 234 thereof does not
distinguish between government-owned corporation, and Section 234 thereof does
not distinguish between government-owned or controlled corporations performing
governmental and purely proprietary functions. Respondent city of Cebu urges this
the Manila International Airport Authority is a governmental-owned corporation, 12 and
to reject the application of Basco because it was "promulgated . . . before the
enactment and the singing into law of R.A. No. 7160," and was not, therefore,
decided "in the light of the spirit and intention of the framers of the said law.

As a general rule, the power to tax is an incident of sovereignty and is unlimited in its
range, acknowledging 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 the
constituency who are to pay it. Nevertheless, effective limitations thereon may be
imposed by the people through their Constitutions.13 Our Constitution, for instance,
provides that the rule of taxation shall be uniform and equitable and Congress shall
evolve a progressive system of taxation.14 So potent indeed is the power that it was
once opined that "the power to tax involves the power to destroy."15 Verily, taxation is
a destructive power which interferes with the personal and property for the support of
the government. Accordingly, tax statutes must be construed strictly against the
government and liberally in favor of the taxpayer.16 But since taxes are what we pay
for civilized society,17 or are the lifeblood of the nation, the law frowns against
exemptions from taxation and statutes granting tax exemptions are thus
construed strictissimi juris against the taxpayers and liberally in favor of the taxing
authority.18 A claim of exemption from tax payment must be clearly shown and based
on language in the law too plain to be mistaken.19 Elsewise stated, taxation is the
rule, exemption therefrom is the exception.20 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 its operations.21

The power to tax is primarily vested in the Congress; however, in our jurisdiction, it
may be exercised by local legislative bodies, no longer merely by virtue of a valid
delegation as before, but pursuant to direct authority conferred by Section 5, Article X
of the Constitution.22 Under the latter, the exercise of the power may be subject to
such guidelines and limitations as the Congress may provide which, however, must
be consistent with the basic policy of local autonomy.

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.23
The LGC, enacted pursuant to Section 3, Article X of the constitution provides for the
exercise by local government units of their power to tax, the scope thereof or its
limitations, and the exemption from taxation.

Section 133 of the LGC prescribes the common limitations on the taxing powers of
local government units as follows:

Sec. 133. Common Limitations on the Taxing Power 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:

(a) Income tax, except when levied on banks and other

financial institutions;

(b) Documentary stamp tax;

(c) Taxes on estates, "inheritance, gifts, legacies and other

acquisitions mortis causa, except as otherwise provided
herein

(d) Customs duties, registration fees of vessels and wharfage

on wharves, tonnage dues, and all other kinds of customs
fees charges and dues except wharfage on wharves
constructed and maintained by the local government unit
concerned:

(e) Taxes, fees and charges and other imposition upon goods
carried into or out of, or passing through, the territorial
jurisdictions of local government units in the guise or charges
for wharfages, tolls for bridges or otherwise, or other taxes,
fees or charges in any form whatsoever upon such goods or
merchandise;

(f) Taxes fees or charges on agricultural and aquatic products

when sold by marginal farmers or fishermen;

(g) Taxes on business enterprise certified to be the Board of

Investment as pioneer or non-pioneer for a period of six (6)
and four (4) years, respectively from the date of registration;

(h) Excise taxes on articles enumerated under the National

Internal Revenue Code, as amended, and taxes, fees or
charges on petroleum products;

(i) Percentage or value added tax (VAT) on sales, barters or

exchanges or similar transactions on goods or services
except as otherwise provided herein;

(j) Taxes on the gross receipts of transportation contractor

and person engage in the transportation of passengers of
 freight by hire and common carriers by air, land, or water,
except as provided in this code;

(k) Taxes on premiums paid by ways reinsurance or

retrocession;

(l) Taxes, fees, or charges for the registration of motor

vehicles and for the issuance of all kinds of licenses or
permits for the driving of thereof, except, tricycles;

(m) Taxes, fees, or other charges on Philippine product

actually exported, except as otherwise provided herein;

(n) Taxes, fees, or charges, on Countryside and Barangay

Business Enterprise and Cooperatives duly registered under
R.A. No. 6810 and Republic Act Numbered Sixty nine
hundred thirty-eight (R.A. No. 6938) otherwise known as the
"Cooperative Code of the Philippines; and

(o) TAXES, FEES, OR CHARGES OF ANY KIND ON THE

NATIONAL GOVERNMENT, ITS AGENCIES AND
INSTRUMENTALITIES, AND LOCAL GOVERNMENT
UNITS. (emphasis supplied)

Needless to say the last item (item o) is pertinent in this case. The "taxes, fees or
charges" referred to are "of any kind", hence they include all of these, unless
otherwise provided by the LGC. The term "taxes" is well understood so as to need no
further elaboration, especially in the light of the above enumeration. The term "fees"
means charges fixed by law or Ordinance for the regulation or inspection of business
activity,24 while "charges" are pecuniary liabilities such as rents or fees against person
or property.25

Among the "taxes" enumerated in the LGC is real property tax, which is governed by
Section 232. It reads as follows:

Sec. 232. Power to Levy Real Property Tax. — A province or city or a

municipality within the Metropolitan Manila Area may levy on an annual ad
valorem tax on real property such as land, building, machinery and other
improvements not hereafter specifically exempted.

Section 234 of LGC provides for the exemptions from payment of real property taxes
and withdraws previous exemptions therefrom granted to natural and juridical
persons, including government owned and controlled corporations, except as
provided therein. It provides:

Sec. 234. Exemptions from Real Property Tax. — The following are
exempted from payment of the real property tax:

(a) Real property owned by the Republic of the Philippines or

any of its political subdivisions except when the beneficial use
 thereof had been granted, for reconsideration or otherwise, to
a taxable person;

(b) Charitable institutions, churches, parsonages or convents

appurtenants thereto, mosques nonprofits or religious
cemeteries and all lands, building and improvements actually,
directly, and exclusively used for religious charitable or
educational purposes;

(c) All machineries and equipment that are actually, directly

and exclusively used by local water districts and government-
owned or controlled corporations engaged in the supply and
distribution of water and/or generation and transmission of
electric power;

(d) All real property owned by duly registered cooperatives as

provided for under R.A. No. 6938; and;

(e) Machinery and equipment used for pollution control and

environmental protection.

Except as provided herein, any exemptions from payment of

real property tax previously granted to or presently enjoyed
by, all persons whether natural or juridical, including all
government owned or controlled corporations are hereby
withdrawn upon the effectivity of his Code.

These exemptions are based on the ownership, character, and use of the property.
Thus;

(a) Ownership Exemptions. Exemptions from real property

taxes on the basis of ownership are real properties owned by:
(i) the Republic, (ii) a province, (iii) a city, (iv) a municipality,
(v) a barangay, and (vi) registered cooperatives.

(b) Character Exemptions. Exempted from real property taxes

on the basis of their character are: (i) charitable institutions,
(ii) houses and temples of prayer like churches, parsonages
or convents appurtenant thereto, mosques, and (iii) non profit
or religious cemeteries.

(c) Usage exemptions. Exempted from real property taxes on

the basis of the actual, direct and exclusive use to which they
are devoted are: (i) all lands buildings and improvements
which are actually, directed and exclusively used for religious,
charitable or educational purpose; (ii) all machineries and
equipment actually, directly and exclusively used or by local
water districts or by government-owned or controlled
corporations engaged in the supply and distribution of water
and/or generation and transmission of electric power; and (iii)
all machinery and equipment used for pollution control and
environmental protection.
 To help provide a healthy environment in the midst of the modernization of
the country, all machinery and equipment for pollution control and
environmental protection may not be taxed by local governments.

2. Other Exemptions Withdrawn. All other exemptions

previously granted to natural or juridical persons including
government-owned or controlled corporations are withdrawn
upon the effectivity of the Code.26

Section 193 of the LGC is the general provision on withdrawal of tax exemption
privileges. It provides:

Sec. 193. Withdrawal of Tax Exemption Privileges. — Unless otherwise

provided in this code, tax exemptions or incentives granted to or presently
enjoyed by all persons, whether natural or juridical, including government-
owned, or controlled corporations, except local water districts, cooperatives
duly registered under R.A. 6938, non stock and non profit hospitals and
educational constitutions, are hereby withdrawn upon the effectivity of this
Code.

On the other hand, the LGC authorizes local government units to grant tax exemption
privileges. Thus, Section 192 thereof provides:

Sec. 192. Authority to Grant Tax Exemption Privileges. — Local government

units may, through ordinances duly approved, grant tax exemptions,
incentives or reliefs under such terms and conditions as they may deem
necessary.

The foregoing sections of the LGC speaks of: (a) the limitations on the taxing powers
of local government units and the exceptions to such limitations; and (b) the rule on
tax exemptions and the exceptions thereto. The use of exceptions of provisos in
these section, as shown by the following clauses:

(1) "unless otherwise provided herein" in the opening

paragraph of Section 133;

(2) "Unless otherwise provided in this Code" in section 193;

(3) "not hereafter specifically exempted" in Section 232; and

(4) "Except as provided herein" in the last paragraph of

Section 234

initially hampers a ready understanding of the sections. Note, too, that the
aforementioned clause in section 133 seems to be inaccurately worded. Instead of
the clause "unless otherwise provided herein," with the "herein" to mean, of course,
the section, it should have used the clause "unless otherwise provided in this Code."
The former results in absurdity since the section itself enumerates what are beyond
the taxing powers of local government units and, where exceptions were intended,
the exceptions were explicitly indicated in the text. For instance, in item (a) which
excepts the income taxes "when livied on banks and other financial institutions", item
(d) which excepts "wharfage on wharves constructed and maintained by the local
government until concerned"; and item (1) which excepts taxes, fees, and charges
for the registration and issuance of license or permits for the driving of "tricycles". It
may also be observed that within the body itself of the section, there are exceptions
which can be found only in other parts of the LGC, but the section interchangeably
uses therein the clause "except as otherwise provided herein" as in items (c) and (i),
or the clause "except as otherwise provided herein" as in items (c) and (i), or the
clause "excepts as provided in this Code" in item (j). These clauses would be
obviously unnecessary or mere surplus-ages if the opening clause of the section
were" "Unless otherwise provided in this Code" instead of "Unless otherwise
provided herein". In any event, even if the latter is used, since under Section 232
local government units have the power to levy real property tax, except those
exempted therefrom under Section 234, then Section 232 must be deemed to qualify
Section 133.

Thus, reading together Section 133, 232 and 234 of the LGC, 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 of the
National Government, its agencies and instrumentalties, and local government units";
however, pursuant to Section 232, provinces, cities, 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 used thereof has been granted, for consideration or otherwise, to
a taxable person", as provided in item (a) of the first paragraph of Section 234.

As to tax exemptions or incentives granted to or presently enjoyed by natural or

juridical persons, including government-owned and controlled corporations, Section
193 of the LGC prescribes the general rule, viz., they are withdrawn upon the
effectivity of the LGC, except upon the effectivity of the LGC, except those granted to
local water districts, cooperatives duly registered under R.A. No. 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 the real property taxes are concerned by
limiting the retention only to those enumerated there-in; all others not included in the
enumeration lost the privilege upon the effectivity of the LGC. Moreover, even as the
real property is 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 taxable
person for consideration or otherwise.

Since the last paragraph of Section 234 unequivocally withdrew, upon the effectivity
of the LGC, exemptions from 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. Any claim to the
contrary can only be justified if the petitioner can seek refuge under any of the
exceptions provided in Section 234, but not under Section 133, as it now asserts,
since, as shown above, the said section is qualified by Section 232 and 234.

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.

I must show that the parcels of land in question, which are real property, are any one
of those enumerated in Section 234, either by virtue of ownership, character, or use
of the property. Most likely, it could only be the first, but not under any explicit
provision of the said section, for one exists. In light of the petitioner's theory that it is
an "instrumentality of the Government", it could only be within be first item of the first
paragraph of the section by expanding the scope of the terms Republic of the
Philippines" to embrace . . . . . . "instrumentalities" and "agencies" or expediency we
quote:

(a) real property owned by the Republic of the Philippines, or

any 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.

This view does not persuade us. In the first place, the petitioner's claim that it is an
instrumentality of the Government is based on Section 133(o), which expressly
mentions the word "instrumentalities"; and in the second place it fails to consider the
fact that the legislature used the phrase "National Government, its agencies and
instrumentalities" "in Section 133(o),but only the phrase "Republic of the Philippines
or any of its political subdivision "in Section 234(a).

The terms "Republic of the Philippines" and "National Government" are not
interchangeable. The former is boarder and synonymous with "Government of the
Republic of the Philippines" which the Administrative Code of the 1987 defines as the
"corporate governmental entity though which the functions of the government are
exercised through at the Philippines, including, saves as the contrary appears from
the context, the various arms through which political authority is made effective in the
Philippines, whether pertaining to the autonomous reason, the provincial, city,
municipal or barangay subdivision or other forms of local government."27 These
autonomous regions, provincial, city, municipal or barangay subdivisions" are the
political subdivision.28

On the other hand, "National Government" refers "to the entire machinery of the
central government, as distinguished from the different forms of local
Governments."29 The National Government then is composed of the three great
departments the executive, the legislative and the judicial.30

An "agency" of the Government refers to "any of the various units of the Government,
including a department, bureau, office instrumentality, or government-owned or
controlled corporation, or a local government or a distinct unit therein;"31 while an
"instrumentality" refers to "any agency of the National Government, not integrated
within the department framework, vested with special functions or jurisdiction by law,
endowed with some if not all corporate powers, administering special funds, and
enjoying operational autonomy; usually through a charter. This term includes
regulatory agencies, chartered institutions and government-owned and controlled
corporations".32
If Section 234(a) intended to extend the exception therein to the withdrawal of the
exemption from payment of real property taxes under the last sentence of the said
section to the agencies and instrumentalities of the National Government mentioned
in Section 133(o), then it should have restated the wording of the latter. Yet, it did not
Moreover, that Congress did not wish to expand the scope of the exemption in
Section 234(a) to include real property owned by other instrumentalities or agencies
of the government including government-owned and controlled corporations is further
borne out by the fact that the source of this exemption is Section 40(a) of P.D. No.
646, otherwise known as the Real Property Tax Code, which reads:

Sec 40. Exemption from Real Property Tax. — The exemption shall be as
follows:

(a) Real property owned by the Republic of

the Philippines or any of its political
subdivisions and any government-owned or
controlled corporations so exempt by is
charter: Provided, however, that this
exemption shall not apply to real property of
the above mentioned entities the beneficial
use of which has been granted, for
consideration or otherwise, to a taxable
person.

Note that as a reproduced in Section 234(a), the phrase "and any government-owned
or controlled corporation so exempt by its charter" was excluded. The justification for
this restricted exemption in Section 234(a) seems obvious: to limit further tax
exemption privileges, specially in light of the general provision on withdrawal of
exemption from payment of real property taxes in the last paragraph of property
taxes in the last paragraph of Section 234. These policy considerations are
consistent with the State policy to ensure autonomy to local governments33 and the
objective of the LGC that they enjoy genuine and meaningful local autonomy to
enable them to attain their fullest development as self-reliant communities and make
them effective partners in the attainment of national goals.34 The power to tax is the
most effective instrument to raise needed revenues to finance and support myriad
activities of local government units for the delivery of basic services essential to the
promotion of the general welfare and the enhancement of peace, progress, and
prosperity of the people. It may also be relevant to recall that the original reasons for
the withdrawal of tax exemption privileges granted to government-owned and
controlled corporations and all other units of government were that such privilege
resulted in serious tax base erosion and distortions in the tax treatment of similarly
situated enterprises, and there was a need for this entities to share in the
requirements of the development, fiscal or otherwise, by paying the taxes and other
charges due from them.35

The crucial issues then to be addressed are: (a) whether the parcels of land in
question belong to the Republic of the Philippines whose beneficial use has been
granted to the petitioner, and (b) whether the petitioner is a "taxable person".

Section 15 of the petitioner's Charter provides:

 Sec. 15. Transfer of Existing Facilities and Intangible Assets. — All existing
public airport facilities, runways, lands, buildings and other properties,
movable or immovable, belonging to or presently administered by the
airports, and all assets, powers, rights, interests and privileges relating on
airport works, or air operations, including all equipment which are necessary
for the operations of air navigation, acrodrome control towers, crash, fire, and
rescue facilities are hereby transferred to the Authority: Provided however,
that the operations control of all equipment necessary for the operation of
radio aids to air navigation, airways communication, the approach control
office, and the area control center shall be retained by the Air Transportation
Office. No equipment, however, shall be removed by the Air Transportation
Office from Mactan without the concurrence of the authority. The authority
may assist in the maintenance of the Air Transportation Office equipment.

The "airports" referred to are the "Lahug Air Port" in Cebu City and the "Mactan
International AirPort in the Province of Cebu",36 which belonged to the Republic of the
Philippines, then under the Air Transportation Office (ATO).37

It may be reasonable to assume that the term "lands" refer to "lands" in Cebu City
then administered by the Lahug Air Port and includes the parcels of land the
respondent City of Cebu seeks to levy on for real property taxes. This section
involves a "transfer" of the "lands" among other things, to the petitioner and not just
the transfer of the beneficial use thereof, with the ownership being retained by the
Republic of the Philippines.

This "transfer" is actually an absolute conveyance of the ownership thereof because

the petitioner's authorized capital stock consists of, inter alia "the value of such real
estate owned and/or administered by the airports."38 Hence, the petitioner is now the
owner of the land in question and the exception in Section 234(c) of the LGC is
inapplicable.

Moreover, 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 forgoing 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. Reliance on Basco

vs. Philippine Amusement and Gaming Corporation39 is unavailing since it was
decided before the effectivity of the LGC. Besides, 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.
 WHEREFORE, the instant petition is DENIED. The challenged decision and order of
the Regional Trial Court of Cebu, Branch 20, in Civil Case No. CEB-16900 are
AFFIRMED.

No pronouncement as to costs.

SO ORDERED.

G.R. No. 199752 February 17, 2015

LUCENA D. DEMAALA, Petitioner,

vs.
COMMISSION ON AUDIT, represented by its Chairperson Commissioner MA. GRACIA
M. PULIDO TAN,Respondent.

DECISION

LEONEN, J.:

Through this Petition for Certiorari, Lucena D. Demaala (Demaala) prays that the September
22, 2008 Decision (Decision No. 2008-087)1 and the November 16, 2011 Resolution
(Decision No. 2011-083)2 of the Commission on Audit be reversed and set aside.

The Commission on Audit’s Decision No. 2008-0873 denied Demaala’s appeal and affirmed
with modification Local Decision No. 2006-0564 dated April 19, 2006 of the Commission on
Audit’s Legal and Adjudication Office (LAO). LAO Local Decision No. 2006-056, in turn,
affirmed Notice of Charge (NC) No. 2004-04-101.5 NC No. 2004-04-101 was dated August
30, 2004 and issued by Rodolfo C. Sy (Regional Cluster Director Sy), Regional Cluster
Director of the Legal Adjudication Sector, Commission on Audit Regional Office No. IV,
Quezon City.

The Commission on Audit’s Decision No. 2011-083 denied the Motion for Reconsideration
filed by Demaala.6

The Sangguniang Panlalawigan of Palawan enacted Provincial Ordinance No. 332-A, Series
of 1995,entitled "An Ordinance Approving and Adopting the Code Governing the Revision of
Assessments, Classification and Valuation of Real Properties in the Province of Palawan"
(Ordinance).7 Chapter 5, Section 48 of the Ordinance provides for an additional levy on real
property tax for the special education fund at the rate of one-half percent or 0.5% as follows:
Section 48- Additional Levy on Real Property Tax for Special Education Fund. There is
hereby levied an annual tax at the rate of one-half percent (1/2%) of the assessed value
property tax. The proceeds thereof shall exclusively accrue to the Special Education Fund
(SEF).8

In conformity with Section 48 of the Ordinance, the Municipality of Narra, Palawan, with
Demaala as mayor, collected from owners of real properties located within its territory an
annual tax as special education fund at the rate of 0.5% of the assessed value of the
property subject to tax. This collection was effected through the municipal treasurer.9
 On post-audit, Audit Team Leader Juanito A. Nostratis issued Audit Observation
Memorandum (AOM) No. 03-005 dated August 7, 2003 in which he noted supposed
deficiencies in the special education fund collected by the Municipality of Narra.10 He
questioned the levy of the special education fund at the rate of only 0.5% rather than at 1%,
the rate stated in Section 23511 of Republic Act No. 7160, otherwise known as the Local
Government Code of 1991 (Local Government Code).12

After evaluating AOM No. 03-005, Regional Cluster Director Sy issued NC No. 2004-04-101
dated August 30, 200413 in the amount of ₱1,125,416.56. He held Demaala, the municipal
treasurer of Narra, and all special education fund payors liable for the deficiency in special
education fund collections.

This Notice of Charge reads:

NC No. 2004-04-101
Date: August 30, 2004

NOTICE OF CHARGE

The Municipal Mayor

Narra, Palawan

Attention: Municipal Accountant

We have reviewed and evaluated Audit Obersvation Memorandum (AOM) No. 03-005 dated
August 7, 2003 and noted the following deficiencies:

Reference FACTS AND/OR

AMOUNT
PAYOR Persons LIABLE REASONS FOR
No. Date CHARGED
CHARGE

1,125,416.56 Lucena D. Demaala The additional levy for SEF

- Municipal Mayor should be one per cent (1%)
- for allowing the instead of 0.5% as provided
reduced rate of in RA 5447 dated
Please see attached additional real September 25, 1968
schedule property taxes
Municipal Treasurer
- for collecting
understated taxes
1,125,416.56 All payors

Charge not appealed within six (6) months as prescribed under Sections 49, 50 and 51 of PD
No. 1445 shall become final and executory.

RODOLFY C. SY (sgd.)
Regional Cluster Director14

The Municipality of Narra, through Demaala, filed the Motion for Reconsideration15 dated
December 2, 2004. It stressed that the collection of the special education fund at the rate
of0.5% was merely in accordance with the Ordinance. On March 9, 2005, Regional Cluster
Director Sy issued an Indorsement denying this Motion for Reconsideration.16

Following this, the Municipality of Narra, through Demaala, filed an Appeal17 with the
Commission on Audit’s Legal and Adjudication Office. In Local Decision No. 2006-
05618 dated April 19, 2006, this appeal was denied.

The Municipality of Narra, through Demaala, then filed a Petition for Review19 with the
Commission on Audit.

In Decision No. 2008-08720 dated September 22, 2008, the Commission on Audit ruled
against Demaala and affirmed LAO Local Decision No. 2006-056 with the modification that
former Palawan Vice Governor Joel T. Reyes and the other members of the Sangguniang
Panlalawigan of Palawan who enacted the Ordinance21 were held jointly and severally liable
with Demaala, the municipal treasurer of Narra, and the special education fund payors.22

The dispositive portion of this Decision reads:

WHEREFORE, premises considered, the instant appeal is hereby DENIED for lack of merit.
Accordingly, LAO Local Decision No. 2006-056 is AFFIRMED with modification, to include
Former Vice-Governor and Presiding Officer Joel T. Reyes,Chairman Pro-Tempore Rosalino
R. Acosta, Majority Floor Leader Ernesto A. Llacuna, Asst. Majority Floor Leader Antonio C.
Alvarez, Asst. Minority Floor Leader Haide B. Barroma, Hon. Leoncio N. Ola, Hon. Ramon A.
Zabala, Hon. Belen B. Abordo, Hon. Valentin A. Baaco, Hon. Claro Ordinario, Hon. Derrick
R. Pablico, Hon. Laine C. Abogado and Hon. Joel B. Bitongon among the persons liable in
the Notice of Charge. They shall be jointly and severally liable with Mayor Lucena D.
Demaala, together with the Municipal Treasurer and all the payors of the under-collected real
property tax in the total amount of ₱1,125,416.56.

The Audit Team Leader is directed to issue a Supplemental Notice of Charge to include the
members of the Sangguniang Panlalawigan as among the persons liable.23

Thereafter, Demaala, who was no longer the mayor of the Municipality of Narra, filed a
Motion for Reconsideration.24Former Vice Governor Joel T. Reyes and the other members of
the Sangguniang Panlalawigan of Palawan who were held liable under Decision No. 2008-
087 filed a separate Motion for Reconsideration.25 The Commission on Audit’s Decision No.
2011-08326 dated November 16, 2011 affirmed its September 22, 2008 Decision.

Demaala then filed with this court the present Petition for Certiorari.27

Respondent Commission on Audit, through the Office of the Solicitor General, filed its
Comment28 on April 20, 2012. Petitioner Demaala filed her Reply29 on September 6, 2012.
Thereafter, the parties filed their respective Memoranda.30

II

For resolution in this case are the following issues:

First, whether respondent committed grave abuse of discretion amounting to lack or excess
of jurisdiction in holding that there was a deficiency in the Municipality of Narra’s collection of
the additional levy for the special education fund. Subsumed in this issue is the matter of
whether a municipality within the Metropolitan Manila Area, a city, or a province may have an
additional levy on real property for the special education fund at the rate of less than 1%.

Second, assuming that respondent correctly held that there was a deficiency, whether
respondent committed grave abuse of discretion amounting to lack or excess or jurisdiction
in holding petitioner personally liable for the deficiency.

We find for petitioner.

Setting the rate of the additional levy for the special education fund at less than 1% is within
the taxing power of local government units. It is consistent with the guiding constitutional
principle of local autonomy.

III

The power to tax is an attribute of sovereignty. It is inherent in the state. Provinces, cities,
municipalities, and barangays are mere territorial and political subdivisions of the state. They
act only as part of the sovereign. Thus, they do not have the inherent power to tax.31 Their
power to tax must be prescribed by law.

Consistent with the view that the power to tax does not inhere in local government units, this
court has held that a reserved temperament must be adhered to in construing the extent of a
local government unit’s power to tax. As explained in Icard v. City Council of Baguio:32

It is settled that a municipal corporation unlike a sovereign state is clothed with no inherent
power of taxation. The charter or statute must plainly show an intent to confer that power or
the municipality, cannot assume it. And the power when granted is to be construed in
strictissimi juris. Any doubt or ambiguity arising out of the term used in granting that power
must be resolved against the municipality. Inferences, implications, deductions – all these –
have no place in the interpretation of the taxing power of a municipal
corporation.33 (Emphasis supplied)

Article X, Section 5 of the 1987 Constitution is the basis of the taxing power of local
government units:

Section 5. Each local government unit shall have the power to create its own sources of
revenues and to levy taxes, fees and charges subject to such guidelines and limitations as
the Congress may provide, consistent with the basic policy of local autonomy. Such taxes,
fees, and charges shall accrue exclusively to the local governments. (Emphasis supplied)

The taxing power granted by constitutional fiat to local government units exists in the wider
context to "ensure the autonomy of local governments."34 As Article II, Section 25 of the 1987
Constitution unequivocally provides:

Section 25. The State shall ensure the autonomy of local governments.

Article II, Section 25 is complemented by Article X, Section 2:

Section 2. The territorial and political subdivisions shall enjoy local autonomy.
The 1935 Constitution was entirely silent on local autonomy, albeit making a distinction
between executive departments, bureaus, and offices on the one hand, and local
governments on the other. It provided that the President had control over the former but
merely "exercise[d] general supervision"35 over the latter. Article VII, Section 10(1) of the
1935 Constitution provided: SEC. 10. (1) The President shall have control of all the executive
departments, bureaus, or offices, exercise general supervision over all local governments as
may be provided by law, and take care that the laws be faithfully executed.

Similarly, the 1935 Constitution was silent on the taxing power of local government units.

The 1973 Constitution provided for local autonomy. Article II, Section 10 of the 1973
Constitution read:

SEC. 10. The State shall guarantee and promote the autonomy of local government units,
especially the [barangays], to ensure their fullest development as self-reliant communities.

Any trend in the 1973 Constitution towards greater autonomy for local government units "was
aborted in 1972 when Ferdinand Marcos placed the entire country under martial law
[thereby] stunt[ing] the development of local governments by centralizing the government in
Manila."36 While local autonomy was provided for in the 1973 Constitution, its existence was
confined to principle and theory. Practice neutered all of Article XI of the 1973 Constitution
(on local government), including Section 5 which provided for the taxing power of local
government units. Article XI, Section 5 reads:

SEC. 5. Each local government unit shall have the power to create its own sources of
revenue and to levy taxes, subject to such limitations as may be provided by law.

Article X, Section 5 of the 1987 Constitution is more emphatic in empowering local

government units in the matter of taxation compared with Article XI, Section 5 of the 1973
Constitution. In addition to stating that local government units have the power to tax (subject
to Congressional guidelines and limitations), Article X, Section 5 of the 1987 Constitution
adds the phrase "consistent with the basic policy of local autonomy." Further, it is definite
with the use of funds generated by local government units through the exercise of their
taxing powers, providing that "[s]uch taxes, fees, and charges shall accrue exclusively to the
local governments."37

Apart from administrative autonomy, an equally vital facet of local governance under the
1987 Constitution is fiscal autonomy. In Pimentel v. Aguirre:38

Under existing law, local government units, in addition to having administrative autonomy in
the exercise of their functions, enjoy fiscal autonomy as well. Fiscal autonomy means that
local governments have the power to create their own sources of revenue in addition to their
equitable share in the national taxes released by the national government, as well as the
power to allocate their resources in accordance with their own priorities. It extends to the
preparation of their budgets, and local officials in turn have to work within the constraints
thereof. They are not formulated at the national level and imposed on local governments,
whether they are relevant to local needs and resources or not. Hence, the necessity of a
balancing of viewpoints and the harmonization of proposals from both local and national
officials, who in any case are partners in the attainment of national goals.39

IV
The taxing powers of local government units must be read in relation to their power to effect
their basic autonomy.

Consistent with the 1987 Constitution’s declared preference, the taxing powers of local
government units must be resolved in favor of their local fiscal autonomy. In City
Government of San Pablo v. Reyes:40

The power to tax is primarily vested in Congress. However, in our jurisdiction, it may be
exercised by local legislative bodies, no longer merely by virtue of a valid delegation as
before, but pursuant to direct authority conferred by Section 5, Article X of the Constitution.
Thus Article X, Section 5 of the Constitution reads:

Sec. 5 — Each Local Government unit shall have the power to create its own sources of
revenue and to levy taxes, fees and charges subject to such guidelines and limitations as the
Congress may provide, consistent with the basic policy of local autonomy. Such taxes, fees
and charges shall accrue exclusively to the Local Governments.

The important legal effect of Section 5 is that henceforth, in interpreting statutory provision
on municipal fiscal powers, doubts will have to be resolved in favor of municipal
corporations.41 (Emphasis supplied)

Similarly, in San Juan v. Civil Service Commission,42 this court stated:

We have to obey the clear mandate on local autonomy. Where a law is capable of two
interpretations, one in favor of centralized power in Malacañang and the other beneficial to
local autonomy, the scales must be weighed in favor of autonomy.43

The Local Government Code was enacted pursuant to the specific mandate of Article X,
Section 3 of the 1987 Constitution44 and its requirements of decentralization. Its provisions,
including those on local taxation, must be read in light of the jurisprudentially settled
preference for local autonomy.

The limits on the level of additional levy for the special education fund under Section 235 of
the Local Government Code should be read as granting fiscal flexibility to local government
units.

Book II of the Local Government Code governs local taxation and fiscal matters. Title II of
Book II governs real property taxation.

Section 235 of the Local Government Code allows provinces and cities, as well as
municipalities in Metro Manila, to collect, on top of the basic annual real property tax, an
additional levy which shall exclusively accrue to the special education fund:

Section 235. Additional Levy on Real Property for the Special Education Fund. - A province
or city, or a municipality within the Metropolitan Manila Area, may levy and collect an annual
tax of one percent (1%) on the assessed value of real property which shall be in addition to
the basic real property tax. The proceeds thereof shall exclusively accrue to the Special
Education Fund (SEF). (Emphasis supplied)
The special education fund is not an original creation of the Local Government Code. It was
initially devised by Republic Act No. 5447.45 The rate of 1% is also not a detail that is original
to the Local Government Code. As discussed in Commission on Audit v. Province of
Cebu:46 The Special Education Fund was created by virtue of R. A. No. 5447, which is [a]n
act creating a special education fund to be constituted from the proceeds of an additional
real property tax and a certain portion of the taxes on Virginia-type cigarettes and duties on
imported leaf tobacco, defining the activities to be financed, creating school boards for the
purpose, and appropriating funds therefrom, which took effect on January 1, 1969. Pursuant
thereto, P.D. No. 464, also known as the Real Property Tax Code of the Philippines,
imposed an annual tax of 1% on real property which shall accrue to the SEF.47 (Citations
omitted)

The operative phrase in Section 235’s grant to municipalities in Metro Manila, cities, and
provinces of the power to impose an additional levy for the special education fund is prefixed
with "may," thus, "may levy and collect an annual tax of one percent (1%)."

In Buklod nang Magbubukid sa Lupaing Ramos, Inc. v. E.M. Ramos and Sons, Inc.48 the
meaning of "may" was discussed as follows:

Where the provision reads "may," this word shows that it is not mandatory but discretionary.
It is an auxiliary verb indicating liberty, opportunity, permission and possibility. The use of the
word "may" in a statute denotes that it is directory in nature and generally permissive
only.49 Respondent concedes that Section 235’s grant to municipalities in Metro Manila, to
cities, and to provinces of the power to impose an additional levy for the special education
fund makes its collection optional. It is not mandatory that the levy be imposed and collected.
The controversy which the Commission on Audit created is not whether these local
government units have discretion to collect but whether they have discretion on the rate at
which they are to collect.

It is respondent’s position that the option granted to a local government unit is limited to the
matter of whether it shall actually collect, and that the rate at which it shall collect (should it
choose to do so) is fixed by Section 235. In contrast, it is petitioner’s contention that the
option given to a local government unit extends not only to the matter of whether to collect
but also to the rate at which collection is to be made.

We sustain the position of petitioner.

Section 235’s permissive language is unqualified. Moreover, there is no limiting qualifier to

the articulated rate of 1% which unequivocally indicates that any and all special education
fund collections must be at such rate.

At most, there is a seeming ambiguity in Section 235. Consistent with what has earlier been
discussed however, any such ambiguity must be read in favor of local fiscal autonomy. As in
San Juan v. Civil Service Commission,50 the scales must weigh in favor of the local
government unit.

Fiscal autonomy entails "the power to create . . . own sources of revenue."51 In turn, this
power necessarily entails enabling local government units with the capacity to create
revenue sources in accordance with the realities and contingencies present in their specific
contexts. The power to create must mean the local government units’ power to create what is
most appropriate and optimal for them; otherwise, they would be mere automatons that are
turned on and off to perform prearranged operations.
Devolving power but denying its necessary incidents and accessories is tantamount to not
devolving power at all. A local government unit with a more affluent constituency may thus
realize that it can levy taxes at rates greater than those which local government units with
more austere constituencies can collect. For the latter, collecting taxes at prohibitive rates
may be counterproductive. High tax rates can be a disincentive for doing business, rendering
it unattractive to commerce and thereby stunting, rather than facilitating, their development.
In this sense, insisting on uniformity would be a disservice to certain local government units
and would ultimately undermine the aims of local autonomy and decentralization.

VI

Of course, fiscal autonomy entails "working within the constraints."52 To echo the language of
Article X, Section 5 of the 1987 Constitution, this is to say that the taxing power of local
government units is "subject to such guidelines and limitations as the Congress may
provide."53 It is the 1% as a constraint on which the respondent Commission on Audit is
insisting.

There are, in this case, three (3) considerations that illumine our task of interpretation: (1) the
text of Section 235, which, to reiterate, is cast in permissive language; (2) the seminal
purpose of fiscal autonomy; and (3) the jurisprudentially established preference for weighing
the scales in favor of autonomy of local government units. We find it to be in keeping with
harmonizing these considerations to conclude that Section 235’s specified rate of 1% is a
maximum rate rather than an immutable edict. Accordingly, it was well within the power of
the Sangguniang Panlalawigan of Palawan to enact an ordinance providing for additional
levy on real property tax for the special education fund at the rate of 0.5% rather than at 1%.

VII

It was an error amounting to grave abuse of discretion for respondent to hold petitioner
personally liable for the supposed deficiency.

Having established the propriety of imposing an additional levy for the special education fund
at the rate of 0.5%, it follows that there was nothing erroneous in the Municipality of Narra’s
having acted pursuant to Section 48 of the Ordinance. It could thus not be faulted for
collecting from owners of real properties located within its territory an annual tax as special
education fund at the rate of 0.5% of the assessed value subject to tax of the property.
Likewise, it follows that it was an error for respondent to hold petitioner personally liable for
the supposed deficiency in collections.

Even if a contrary ruling were to be had on the propriety of collecting at a rate less than 1%,
it would still not follow that petitioner is personally liable for deficiencies.

In its Memorandum, respondent cited the 1996 case of Salalima v. Guingona54 as a

precedent for finding local officials liable for violations that have to do with the special
education fund.

Moreover, in Decision No. 2008-087, respondent asserted that there was "no cogent reason
to exclude [petitioner] from liability since her participation as one of the local officials who
implemented the collection of the reduced levy rate. . . led to the loss on reduction [sic] of
government income."55 It added that, "[c]orollary thereto, the government can also go against
the officials who are responsible for the passage of [the Ordinance],"56 i.e., the members of
the Sangguniang Panlalawigan of the Province of Palawan.
Respondent’s reliance on Salalima and on petitioner’s having been incidentally the mayor of
Narra, Palawan when supposedly deficient collections were undertaken is misguided.

Per respondent’s own summation of Salalima, in that case, this court:

held that the governor, vice-governor and members of the Sangguniang Panlalawigan are
collectively responsible with other provincial officials in the administration of fiscal and
financial transactions of the province pursuant to Sections 304 and 305 of RA 7160 for
denying the other beneficiaries of their share of the SEF. These local officials cannot claim
ignorance of the law as to the sharing scheme of the real property tax and the SEF as the
same is clearly provided in RA 7160.57 (Emphasis supplied)

Salalima involved several administrative Complaints filed before the Office of the President
against the elective officials of the Province of Albay. One of these — OP Case No. 5470 —
was a Complaint for malversation, and "consistent [and] habitual violation of pars. (c) and (d)
of Section 60 of [the Local Government Code]"58 which was filed by Tiwi, Albay Mayor Naomi
Corral against Albay Governor Romeo Salalima, Vice-Governor Danilo Azaña, and other
Sangguniang Panlalawigan members.

This Complaint was precipitated by the refusal of the provincial officials of Albay to make
available to the Municipality of Tiwi, Albay its share in the collections of the special education
fund. This was contrary to Section 272 of the Local Government Code59 which requires equal
sharing between provincial and municipal school boards. Specifically, it was found that the
Sangguniang Panlalawigan passed Ordinance No. 09-92, which declared as forfeited in
favor of the Province of Albay (and to the exclusion of the municipalities in Albay) all
payments made by the National Power Corporation to the former pursuant to a
memorandum of agreement through which the National Power Corporation settled its real
property tax obligations.

As regards the personal liability of the respondents in that case, the Office of the President
was quoted to have anchored on the following disquisition its imposition of the penalty of
suspension on the respondent provincial officials:

It cannot be denied that the Sangguniang Panlalawigan has control over the Province’s
‘purse’ as it may approve or not resolutions or ordinances generating revenue or imposing
taxes as well as appropriating and authorizing the disbursement of funds to meet operational
requirements or for the prosecution of projects.

Being entrusted with such responsibility, the provincial governor, vice-governor and the
members of the Sangguniang Panlalawigan, must always be guided by the so-called
‘fundamental’ principles enunciated under the Local Government Code[.] . . .

All the respondents could not claim ignorance of the law especially with respect to the
provisions of P.D. No. 464 that lay down the sharing scheme among local government units
concerned and the national government, for both the basic real property tax and additional
tax pertaining to the Special Education Fund. Nor can they claim that the Province could
validly forfeit the ₱40,724,471.74 paid by NPC considering that the Province is only entitled
to a portion thereof and that the balance was merely being held in trust for the other
beneficiaries.

As a public officer, respondent Azaña (and the other respondents as well) has a duty to
protect the interests not only of the Province but also of the municipalities of Tiwi and Daraga
and even the national government. When the passage of an illegal or unlawful ordinance by
the Sangguniang Panlalawigan is imminent, the presiding officer has a duty to act
accordingly, but actively opposing the same by temporarily relinquishing his chair and
participating in the deliberations. If his colleagues insist on its passage, he should make
known his opposition thereto by placing the same on record. No evidence of any sort was
shown in this regard by respondent Azaña.

Clearly, all the respondents have, whether by act or omission, denied the other beneficiaries
of their rightful shares in the tax delinquency payments made by the NPC and caused the
illegal forfeiture, appropriation and disbursement of funds not belonging to the Province,
through the passage and approval of Ordinance No. 09-92 and Resolution Nos. 178-92 and
204-92.

The foregoing factual setting shows a wanton disregard of law on the part of the respondents
tantamount to abuse of authority. Moreover, the illegal disbursements made can qualify as
technical malversation.60

It is evident that the circumstances in Salalima are not analogous to the circumstances
pertinent to petitioner.

While Salalima involved the mishandling of proceeds which was "tantamount to abuse of
authority" and which "can qualify as technical malversation," this case involves the collection
of the additional levy for the special education fund at a rate which, at the time of the
collection, was pursuant to an ordinance that was yet to be invalidated.

Likewise, Salalima involved the liability of the provincial officials who were themselves the
authors of an invalid ordinance. In this case, the Municipality of Narra — as subordinate to
the Province of Palawan — merely enforced a provincial ordinance. Respondent, in its own
Memorandum, acknowledged that it was not even petitioner but the municipal treasurer who
actually effected the collection at a supposedly erroneous rate.61

Also, Salalima entailed the imposition of the administrative penalty of suspension. In this
case, respondent is not concerned with the imposition of administrative penalties but insists
that petitioner must herself (jointly and severally with the other persons named) pay for the
deficiency in collections.

We find it improper to hold petitioner personally liable for the uncollected amount on account
of the sheer happenstance that she was the mayor of Narra, Palawan, when the Ordinance
was enforced.

VIII

The actions of the officials of the Municipality of Narra are consistent with the rule that
ordinances are presumed valid. In finding liability, respondent suggests that officers of the
1âwphi1

Municipality should not comply with an ordinance duly passed by the Sangguniang
Panlalawigan.

It is true that petitioner, as the local chief executive, was charged with fidelity to our laws.
However, it would be grossly unfair to sustain respondent's position. It implacably dwells on
supposed non-compliance with Section 235 but turns a blind eye on the context which
precipitated the collection made by the Municipality of Narra at the reduced rate of 0.5%.
The mayor's actions were done pursuant to an ordinance which, at the time of the collection,
was yet to be invalidated.

It is basic that laws and local ordinances are "presumed to be valid unless and until the
courts declare the contrary in clear and unequivocal terms."62 Thus, the concerned officials of
the Municipality of Narra, Palawan must be deemed to have conducted themselves in good
faith and with regularity when they acted pursuant to Chapter 5, Section 48 of Provincial
Ordinance No. 332-A, Series of 1995, and collected the additional levy for the special
education fund at the rate of 0.5o/o. Accordingly, it was improper for respondent to attribute
personal liability to petitioner and to require her to personally answer to the deficiency in
special education fund collections. WHEREFORE, the Petition is GRANTED .. Decision No.
2008-087 dated September 22, 2008 and Decision No. 2011-083 dated November 16, 2011
of respondent Commission on Audit are ANNULLED and SET ASIDE.

SO ORDERED.

G.R. No. 166102, August 05, 2015

MANILA ELECTRIC COMPANY, Petitioner, v. THE CITY ASSESSOR AND CITY TREASURER OF
LUCENA CITY, Respondents.

DECISION

LEONARDO-DE CASTRO, J.:

Before the Court is a Petition for Review on Certiorari under Rule 45 of the Rules of Court filed by
Manila Electric Company (MERALCO), seeking the reversal of the Decision1 dated May 13, 2004 and
Resolution2dated November 18, 2004 of the Court of Appeals in CA-G.R. SP No. 67027. The
appellate court affirmed the Decision3 dated May 3, 2001 of the Central Board of Assessment
Appeals (CBAA) in CBAA Case No. L-20-98, which, in turn, affirmed with modification the
Decision4 dated June 17, 19985 of the Local Board of Assessment Appeals (LBAA) of Lucena City,
Quezon Province, as regards Tax Declaration Nos. 019-6500 and 019-7394, ruling that MERALCO is
liable for real property tax on its transformers, electric posts (or poles), transmission lines,
insulators, and electric meters, beginning 1992.

MERALCO is a private corporation organized and existing under Philippine laws to operate as a
public utility engaged in electric distribution. MERALCO has been successively granted franchises to
operate in Lucena City beginning 1922 until present time, particularly, by: (1) Resolution No.
366 dated May 15, 1922 of the Municipal Council of Lucena; (2) Resolution No. 1087 dated July 1,
1957 of the Municipal Council of Lucena; (3) Resolution No. 26798 dated June 13, 1972 of the
Municipal Board of Lucena City;9(4) Certificate of Franchise10 dated October 28, 1993 issued by the
National Electrification Commission; and (5) Republic Act No. 920911 approved on June 9, 2003 by
Congress.12

On February 20, 1989, MERALCO received from the City Assessor of Lucena a copy of Tax
Declaration No. 019-650013 covering the following electric facilities, classified as capital investment,
of the company: (a) transformer and electric post; (b) transmission line; (c) insulator; and (d)
electric meter, located in Quezon Ave. Ext., Brgy. Gulang-Gulang, Lucena City. Under Tax
Declaration No. 019-6500, these electric facilities had a market value of P81,811,000.00 and an
assessed value of P65,448,800.00, and were subjected to real property tax as of 1985.

MERALCO appealed Tax Declaration No. 019-6500 before the LBAA of Lucena City, which was
docketed as LBAA-89-2. MERALCO claimed that its capital investment consisted only of its
substation facilities, the true and correct value of which was only P9,454,400.00; and that MERALCO
was exempted from payment of real property tax on said substation facilities.

The LBAA rendered a Decision14 in LBAA-89-2 on July 5, 1989, finding that under its franchise,
MERALCO was required to pay the City Government of Lucena a tax equal to 5% of its gross
earnings, and "[s]aid tax shall be due and payable quarterly and shall be in lieu of any and all taxes
of any kind, nature, or description levied, established, or collected x x x, on its poles, wires,
insulators, transformers and structures, installations, conductors, and accessories, x x x, from which
taxes the grantee (MERALCO) is hereby expressly exempted."15 As regards the issue of whether or
not the poles, wires, insulators, transformers, and electric meters of MERALCO were real properties,
the LBAA cited the 1964 case of Board of Assessment Appeals v. Manila Electric Company16 (1964
MERALCO case) in which the Court held that: (1) the steel towers fell within the term "poles"
expressly exempted from taxes under the franchise of MERALCO; and (2) the steel towers were
personal properties under the provisions of the Civil Code and, hence, not subject to real property
tax. The LBAA lastly ordered that Tax Declaration No. 019-6500 would remain and the poles, wires,
insulators, transformers, and electric meters of MERALCO would be continuously assessed, but the
City Assessor would stamp on the said Tax Declaration the word "exempt." The LBAA decreed in the
end:cra lawlawlib rary

WHEREFORE, from the evidence adduced by the parties, the Board overrules the claim of the [City
Assessor of Lucena] and sustain the claim of [MERALCO].

Further, the Appellant (Meralco) is hereby ordered to render an accounting to the City Treasurer of
Lucena and to pay the City Government of Lucena the amount corresponding to the Five (5%) per
centum of the gross earnings in compliance with paragraph 13 both Resolutions 108 and 2679,
respectively, retroactive from November 9, 1957 to date, if said tax has not yet been paid.17chanrobles law

The City Assessor of Lucena filed an appeal with the CBAA, which was docketed as CBAA Case No.
248.In its Decision18 dated April 10, 1991, the CBAA affirmed the assailed LBAA judgment.
Apparently, the City Assessor of Lucena no longer appealed said CBAA Decision and it became final
and executory.

Six years later, on October 29, 1997, MERALCO received a letter19 dated October 16, 1997 from
the City Treasurer of Lucena, which stated that the company was being assessed real property tax
delinquency on its machineries beginning 1990, in the total amount of P17,925,117.34, computed
as follows: chanRoble svirtual Lawli bra ry

TAX ASSESSED COVERED TAX DUE PENALTY TOTAL

DEC. # VALUE PERIOD
019-6500 P65,448,800.00 1990-94 P3,272,440.00 P2,356,156.80 P5,628,596.80
019-7394 78,538,560.00 1995 785,385.60 534,062.21 1,319,447.81
1996 785,385.60 345,569.66 1,130,955.26
lst-3rd/1997 589,039.20 117,807.84 706,847.04
4th 1997 196,346.40 (19,634.64) 176,711.76
BASIC---- P8,962,558.67
SEF---- 8,962,558.67
TOTAL TAX DELINQUENCY---- P17,925,117.34

The City Treasurer of Lucena requested that MERALCO settle the payable amount soon to avoid
accumulation of penalties. Attached to the letter were the following documents: (a) Notice of
Assessment20 dated October 20, 1997 issued by the City Assessor of Lucena, pertaining to Tax
Declaration No. 019-7394, which increased the market value and assessed value of the machinery;
(b) Property Record Form;21 and (c) Tax Declaration No. 019-6500.22

MERALCO appealed Tax Declaration Nos. 019-6500 and 019-7394 before the LBAA of Lucena City
on December 23, 1997 and posted a surety bond23 dated December 10, 1997 to guarantee payment
of its real property tax delinquency. MERALCO asked the LBAA to cancel and nullify the Notice of
Assessment dated October 20, 1997 and declare the properties covered by Tax Declaration Nos.
019-6500 and 019-7394 exempt from real property tax.

In its Decision dated June 17, 1998 regarding Tax Declaration Nos. 019-6500 and 019-7394, the
LBAA declared that Sections 234 and 534(f) of the Local Government Code repealed the provisions
in the franchise of MERALCO and Presidential Decree No. 55124 pertaining to the exemption of
MERALCO from payment of real property tax on its poles, wires, insulators, transformers, and
meters. The LBAA refused to apply as res judicata its earlier judgment in LBAA-89-2, as affirmed by
the CBAA, because it involved collection of taxes from 1985 to 1989, while the present case
concerned the collection of taxes from 1989 to 1997; and LBAA is only an administrative body, not
a court or quasi-judicial body. The LBAA though instructed that the computation of the real property
tax for the machineries should be based on the prevailing 1991 Schedule of Market Values, less the
depreciation cost allowed by law. The LBAA ultimately disposed: cra lawlawlib rary

WHEREFORE, in view of the foregoing, it is hereby ordered that: chanRoblesvi rtua lLaw lib rary

1) MERALCO's appeal be dismissed for lack of merit; ChanRob les Virtualawl ibra ry

2) MERALCO be required to pay the realty tax on the questioned properties, because they are not
exempt by law, same to be based on the 1991 level of assessment, less depreciation cost allowed
by law.25
chanro bles law

MERALCO went before the CBAA on appeal, which was docketed as CBAA Case No. L-20-98. The
CBAA, in its Decision dated May 3, 2001, agreed with the LBAA that MERALCO could no longer claim
exemption from real property tax on its machineries with the enactment of Republic Act No. 7160,
otherwise known as the Local Government Code of 1991, thus: cralawlawlib rary

Indeed, the Central Board of Assessment Appeals has had the opportunity of ruling in [MERALCO's]
favor in connection with this very same issue. The matter was settled on April 10, 1991 where this
Authority ruled that "wires, insulators, transformers and electric meters which are mounted on poles
and can be separated from the poles and moved from place to place without breaking the material
or causing [the] deterioration of the object, are deemed movable or personal property". The same
position of MERALCO would have been tenable and that decision may have stood firm prior to the
enactment of R.A. 7160 but not anymore in this jurisdiction. The Code provides and now sets a
more stringent yet broadened concept of machinery, x x x: chanRoble svirtual Lawlib ra ry

xxxx

The pivotal point where the difference lie between the former and the current case is that by the
very wordings of [Section 199(0)], the ground being anchored upon by MERALCO concerning the
properties in question being personal in nature does not hold anymore for the sole reason that these
come now within the purview and new concept of Machineries. The new law has treated these in an
unequivocal manner as machineries in the sense that they are instruments, mechanical contrivances
or apparatus though not attached permanently to the real properties of [MERALCO] are actually,
directly and exclusively used to meet their business of distributing electricity.

xxxx

Clearly, [Section 234 of the Local Government Code] lists down the instances of exemption in real
property taxation and very apparent is the fact that the enumeration is exclusive in character in
view of the wordings in the last paragraph. Applying the maxim "Expressio Unius est Exclusio
Alterius", we can say that "Where the statute enumerates those who can avail of the exemption, it
is construed as excluding all others not mentioned therein". Therefore, the above-named company
[had] lost its previous exemptions under its franchise because of non-inclusion in the enumeration
in Section 234. Furthermore, all tax exemptions being enjoyed by all persons, whether natural or
juridical, including all government-owned or controlled corporations are expressly withdrawn, upon
effectivity of R.A. 7160.

In the given facts, it has been manifested that the Municipal Board of Lucena passed Resolution No.
108 on July 1, 1957 extending the franchise of MERALCO to operate in Lucena city an electric light
system for thirty-five years, which should have expired on November 9, 1992 and under Resolution
No. 2679 passed on June 13, 1972 by the City Council of Lucena City awarding [MERALCO] a
franchise to operate for twenty years an electric light, heat and power system in Lucena City, also
to expire in the year 1992. Under those franchises, they were only bound to pay franchise taxes and
nothing more.

Now, granting arguendo that there is no express revocation of the exemption under the franchise of
[MERALCO] since, unquestionably [MERALCO] is a recipient of another franchise granted this time
by the National Electrification Commission as evidenced by a certificate issued on October 28, 1993,
such conferment does not automatically include and/or award exemption from taxes, nor does it
impliedly give the franchisee the right to continue the privileges like exemption granted under its
previous franchise. It is just a plain and simple franchise. In countless times, the Supreme Court
has ruled that exemption must be clear in the language of the law granting such exemption for it is
strictly construed and favored against the person invoking it. In addition, a franchise though in the
form of a contract is also a privilege that must yield to the sublime yet inherent powers of the state,
one of these is the power of taxation.

Looking into the law creating the National Electrification Administration (Commission), P.D. 269 as
amended by P.D. 1645, nowhere in those laws can we find such authority to bestow upon the
grantee any tax exemption of whatever nature except those of cooperatives. This we believe is
basically in consonance with the provisions of the Local Government Code more particularly Section
234.

Furthermore, Section 534(f) of R.A. 7160 which is taken in relation to Section 234 thereof states
that "All general and special laws, acts, city charters, decrees, executive orders, proclamations and
administrative regulations or part or parts thereof which are inconsistent with any of the provisions
of this Code are hereby repealed or modified accordingly". Anent this unambiguous mandate, P.D.
551 is mandatorily repealed due to its contradictory and irreconcilable provisions with R.A. 7160.26
chanrobles law

Yet, the CBAA modified the ruling of the LBAA by excluding from the real property tax deficiency
assessment the years 1990 to 1991, considering that: cralawlawl ibra ry

In the years 1990 and 1991, the exemption granted to MERALCO under its franchise which
incidentally expired upon the effectivity of the Local Government Code of 1991 was very much in
effect and the decision rendered by the Central Board of Assessment Appeals (CBAA) classifying its
poles, wires, insulators, transformers and electric meters as personal property was still controlling
as the law of the case. So, from 1990 to 1991, it would be inappropriate and illegal to make the
necessary assessment on those properties, much more to impose any penalty for nonpayment of
such.

But, assessments made beginning 1992 until 1997 by the City Government of Lucena is legal, both
procedurally and substantially. When R.A. 7160, which incorporated amended provisions of the Real
Property Tax Code, took effect on January 1, 1992, as already discussed, the nature of the
aforecited questioned properties considered formerly as personal metamorphosed to machineries
and the exemption being invoked by [MERALCO] was automatically withdrawn pursuant to the letter
and spirit of the law. x x x.27 chanrobles law

Resultantly, the decretal portion of said CBAA Decision reads: cralawlawl ibra ry

WHEREFORE, in view of the foregoing, the Decision appealed from is hereby modified. The City
Assessor of Lucena City is hereby directed to make a new assessment on the subject properties to
retroact from the year 1992 and the City Treasurer to collect the tax liabilities in accordance with
the provisions of the cited Section 222 of the Local Government Code.28 chanrob leslaw

The CBAA denied the Motion for Reconsideration of MERALCO in a Resolution29 dated August 16,
2001.

Disgruntled, MERALCO sought recourse from the Court of Appeals by filing a Petition for Review
under Rule 43 of the Rules of Court, which was docketed as CA-G.R. SP No. 67027.

The Court of Appeals rendered a Decision on May 13, 2004 rejecting all arguments proffered by
MERALCO. The appellate court found no deficiency in the Notice of Assessment issued by the City
Assessor of Lucena: cralawlawlib rary

It was not disputed that [MERALCO] failed to provide the [City Assessor and City Treasurer of
Lucena] with a sworn statement declaring the true value of each of the subject transformer and
electric post, transmission line, insulator and electric meter which should have been made the basis
of the fair and current market value of the aforesaid property and which would enable the assessor
to identify the same for assessment purposes. [MERALCO] merely claims that the assessment made
by the [City Assessor and City Treasurer of Lucena] was incorrect but did not even mention in their
pleading the true and correct assessment of the said properties. Absent any sworn statement given
by [MERALCO], [the City Assessor and City Treasurer of Lucena] were constrained to make an
assessment based on the materials within [their reach].30 chan roble slaw

The Court of Appeals further ruled that there was no more basis for the real property tax exemption
of MERALCO under the Local Government Code and that the withdrawal of said exemption did not
violate the non-impairment clause of the Constitution, thus: cralawlawli bra ry

Although it could not be denied that [MERALCO] was previously granted a Certificate of Franchise by
the National Electrification Commission on October 28, 1993 x x x, such conferment does not
automatically include an exemption from the payment of realty tax, nor does it impliedly give the
franchisee the right to continue the privileges granted under its previous franchise considering that
Sec. 534(f) of the Local Government Code of 1991 expressly repealed those provisions which are
inconsistent with the Code.

At the outset, the Supreme Court has held that "Section 193 of the LGC prescribes the general rule,
viz., tax exemptions or incentives granted to or presently enjoyed by natural or juridical persons are
withdrawn upon the effectivity of the LGC except with respect to those entities expressly
enumerated. In the same vein, We must hold that the express withdrawal upon effectivity of the
LGC of all exemptions except only as provided therein, can no longer be invoked by MERALCO to
disclaim liability for the local tax." (City Government of San Pablo, Laguna vs. Reyes, 305 SCRA
353, 362-363)

In fine, [MERALCO's] invocation of the non-impairment clause of the Constitution is accordingly

unavailing. The LGC was enacted in pursuance of the constitutional policy to ensure autonomy to
local governments and to enable them to attain fullest development as self-reliant communities. The
power to tax is primarily vested in Congress. However, in our jurisdiction, it may be exercised by
local legislative bodies, no longer merely by virtue of a valid delegation as before, but pursuant to
[a] direct authority conferred by Section 5, Article X of the Constitution. The important legal effect
of Section 5 is that henceforth, in interpreting statutory provisions on municipal fiscal powers,
doubts will be resolved in favor of the municipal corporations. (Ibid. pp. 363-365)31 chanro blesl aw

MERALCO similarly failed to persuade the Court of Appeals that the transformers, transmission lines,
insulators, and electric meters mounted on the electric posts of MERALCO were not real properties.
The appellate court invoked the definition of "machinery" under Section 199(o) of the Local
Government Code and then wrote that: cralawlawlib ra ry

We firmly believe and so hold that the wires, insulators, transformers and electric meters mounted
on the poles of [MERALCO] may nevertheless be considered as improvements on the land,
enhancing its utility and rendering it useful in distributing electricity. The said properties are
actually, directly and exclusively used to meet the needs of [MERALCO] in the distribution of
electricity.

In addition, "improvements on land are commonly taxed as realty even though for some purposes
they might be considered personalty. It is a familiar personalty phenomenon to see things classed
as real property for purposes of taxation which on general principle might be considered personal
property." (Caltex (Phil) Inc. vs. Central Board of Assessment Appeals, 114 SCRA 296, 301-302)32 chan rob leslaw

Lastly, the Court of Appeals agreed with the CBAA that the new assessment of the transformers,
electric posts, transmission lines, insulators, and electric meters of MERALCO shall retroact to 1992.

Hence, the Court of Appeals adjudged: cra lawlawlib ra ry

WHEREFORE, premises considered, the assailed Decision [dated] May 3, 2001 and Resolution
dated August 16, 2001 are hereby AFFIRMED in toto and the present petition is hereby
DENIED DUE COURSE and accordingly DISMISSED for lack of merit.33
chanrobles law

In a Resolution dated November 18, 2004, the Court of Appeals denied the Motion for
Reconsideration of MERALCO.

MERALCO is presently before the Court via the instant Petition for Review on Certiorari grounded on
the following lone assignment of error: cra lawlawlib ra ry
THE COURT OF APPEALS COMMITTED A GRAVE REVERSIBLE ERROR IN AFFIRMING IN TOTO THE
DECISION OF THE CENTRAL BOARD OF ASSESSMENT APPEALS WHICH HELD THAT THE SUBJECT
PROPERTIES ARE REAL PROPERTIES SUBJECT TO REAL PROPERTY TAX; AND THAT ASSESSMENT
ON THE SUBJECT PROPERTIES SHOULD BE MADE TO TAKE EFFECT RETROACTIVELY FROM 1992
UNTIL 1997, WITH PENALTIES; THE SAME BEING UNJUST, WHIMSICAL AND NOT IN ACCORD WITH
THE LOCAL GOVERNMENT CODE.34 chanrobles law

MERALCO argues that its transformers, electric posts, transmission lines, insulators, and electric
meters are not subject to real property tax, given that: (1) the definition of "machinery" under
Section 199(o) of the Local Government Code, on which real property tax is imposed, must still be
within the contemplation of real or immovable property under Article 415 of the Civil Code because
it is axiomatic that a statute should be construed to harmonize with other laws on the same subject
matter as to form a complete, coherent, and intelligible system; (2) the Decision dated April 10,
1991 of the CBAA in CBAA Case No. 248, which affirmed the Decision dated July 5, 1989 of the
LBAA in LBAA-89-2, ruling that the transformers, electric posts, transmission lines, insulators, and
electric meters of MERALCO are movable or personal properties, is conclusive and binding; and (3)
the electric poles are not exclusively used to meet the needs of MERALCO alone since these are also
being utilized by other entities such as cable and telephone companies.

MERALCO further asserts that even if it is assumed for the sake of argument that the transformers,
electric posts, transmission lines, insulators, and electric meters are real properties, the assessment
of said properties by the City Assessor in 1997 is a patent nullity. The collection letter dated October
16, 1997 of the City Treasurer of Lucena, Notice of Assessment dated October 20, 1997 of the City
Assessor of Lucena, the Property Record Form dated October 20, 1997, and Tax Declaration No.
019-6500 simply state a lump sum market value for all the transformers, electric posts,
transmission lines, insulators, and electric meters covered and did not provide an inventory/list
showing the actual number of said properties, or a schedule of values presenting the fair market
value of each property or type of property, which would have enabled MERALCO to verify the
correctness and reasonableness of the valuation of its properties. MERALCO was not furnished at all
with a copy of Tax Declaration No. 019-7394, and while it received a copy of Tax Declaration No.
019-6500, said tax declaration did not contain the requisite information regarding the date of
operation of MERALCO and the original cost, depreciation, and market value for each property
covered. For the foregoing reasons, the assessment of the properties of MERALCO in 1997 was
arbitrary, whimsical, and without factual basis - in patent violation of the right to due process of
MERALCO. MERALCO additionally explains that it cannot be expected to make a declaration of its
transformers, electric posts, transmission lines, insulators, and electric meters, because all the
while, it was of the impression that the said properties were personal properties by virtue of the
Decision dated July 5, 1989 of the LBAA in LBAA-89-2 and the Decision dated April 10, 1991 of the
CBAA in CBAA Case No. 248.

Granting that the assessment of its transformers, electric posts, transmission lines, insulators, and
electric meters by the City Assessor of Lucena in 1997 is valid, MERALCO alternatively contends
that: (1) under Sections 22135 and 22236 of the Local Government Code, the assessment should
take effect only on January 1, 1998 and not retroact to 1992; (2) MERALCO should not be held
liable for penalties and interests since its nonpayment of real property tax on its properties was in
good faith; and (3) if interest may be legally imposed on MERALCO, it should only begin to run on
the date it received the Notice of Assessment on October 29, 1997 and not all the way back to
1992.

At the end of its Petition, MERALCO prays: cralawlawlib rary

WHEREFORE, it is respectfully prayed of this Honorable Court that the appealed Decision dated May
13, 2004 of the Court of Appeals, together with its Resolution dated November 18, 2004 be
reversed and set aside, and judgment be rendered x x x nullifying and cancel[l]ing the Notice of
Assessment, dated October 20, 1997, issued by respondent City Assessor, and the collection letter
dated October 16, 1997 of respondent City Treasurer.

Petitioner also prays for such other relief as may be deemed just and equitable in the premises.37
chanrobles law

The City Assessor and City Treasurer of Lucena counter that: (1) MERALCO was obliged to pay the
real property tax due, instead of posting a surety bond, while its appeal was pending, because
Section 231 of the Local Government Code provides that the appeal of an assessment shall not
suspend the collection of the real property taxes; (2) the cases cited by MERALCO can no longer be
applied to the case at bar since they had been decided when Presidential Decree No. 464, otherwise
known as the Real Property Tax Code, was still in effect; (3) under the now prevailing Local
Government Code, which expressly repealed the Real Property Tax Code, the transformers, electric
posts, transmission lines, insulators, and electric meters of MERALCO fall within the new definition
of "machineries," deemed as real properties subject to real property tax; and (4) the Notice of
Assessment dated October 20, 1997 covering the transformers, electric posts, transmission lines,
insulators, and electric meters of MERALCO only retroacts to 1992, which is less than 10 years prior
to the date of initial assessment, so it is in compliance with Section 222 of the Local Government
Code, and since MERALCO has yet to pay the real property taxes due on said assessment, then it is
just right and appropriate that it also be held liable to pay for penalties and interests from 1992 to
present time. Ultimately, the City Assessor and City Treasurer of Lucena seek judgment denying the
instant Petition and ordering MERALCO to pay the real property taxes due.

The Petition is partly meritorious.

The Court finds that the transformers, electric posts, transmission lines, insulators, and electric
meters of MERALCO are no longer exempted from real property tax and may qualify as "machinery"
subject to real property tax under the Local Government Code. Nevertheless, the Court declares null
and void the appraisal and assessment of said properties of MERALCO by the City Assessor in 1997
for failure to comply with the requirements of the Local Government Code and, thus, violating the
right of MERALCO to due process.

By posting a surety bond before

filing its appeal of the assessment with
the LBAA, MERALCO substantially complied
with the requirement of payment under
protest in Section 252 of the Local
Government Code.

Section 252 of the Local Government Code mandates that "[n]o protest shall be entertained unless
the taxpayer first pays the tax." It is settled that the requirement of "payment under protest" is a
condition sine qua non before an appeal may be entertained.38 Section 231 of the same Code also
dictates that "[a]ppeal on assessments of real property x x x shall, in no case, suspend the
collection of the corresponding realty taxes on the property involved as assessed by the provincial
or city assessor, without prejudice to subsequent adjustment depending upon the final outcome of
the appeal." Clearly, under the Local Government Code, even when the assessment of the real
property is appealed, the real property tax due on the basis thereof should be paid to and/or
collected by the local government unit concerned.

In the case at bar, the City Treasurer of Lucena, in his letter dated October 16, 1997, sought to
collect from MERALCO the amount of P17,925,l 17.34 as real property taxes on its machineries, plus
penalties, for the period of 1990 to 1997, based on Tax Declaration Nos. 019-6500 and 019-7394
issued by the City Assessor of Lucena. MERALCO appealed Tax Declaration Nos. 019-6500 and 019-
7394 with the LBAA, but instead of paying the real property taxes and penalties due, it posted a
surety bond in the amount of PI 7,925,117.34.

By posting the surety bond, MERALCO may be considered to have substantially complied with
Section 252 of the Local Government Code for the said bond already guarantees the payment to the
Office of the City Treasurer of Lucena of the total amount of real property taxes and penalties due
on Tax Declaration Nos. 019-6500 and 019-7394. This is not the first time that the Court allowed a
surety bond as an alternative to cash payment of the real property tax before protest/appeal as
required by Section 252 of the Local Government Code. In Camp John Hay Development
Corporation v. Central Board of Assessment Appeals39 the Court affirmed the ruling of the CBAA and
the Court of Tax Appeals en bane applying the "payment under protest" requirement in Section 252
of the Local Government Code and remanding the case to the LBAA for "further proceedings subject
to a full and up-to-date payment, either in cash or surety, of realty tax on the subject properties
x x x."

Accordingly, the LBAA herein correctly took cognizance of and gave due course to the appeal of Tax
Declaration Nos. 019-6500 and 019-7394 filed by MERALCO.
Beginning January 1, 1992,
MERALCO can no longer claim
exemption from real property tax of
its transformers, electric posts,
transmission lines, insulators, and
electric meters based on its
franchise.

MERALCO relies heavily on the Decision dated April 10, 1991 of the CBAA in CBAA Case No. 248,
which affirmed the Decision dated July 5, 1989 of the LBAA in LBAA-89-2. Said decisions of the
CBAA and the LBAA, in turn, cited Board of Assessment Appeals v. Manila Electric Co.,40 which was
decided by the Court way back in 1964 (1964 MERALCO case). The decisions in CBAA Case No. 248
and the 1964 MERALCO case recognizing the exemption from real property tax of the transformers,
electric posts, transmission lines, insulators, and electric meters of MERALCO are no longer
applicable because of subsequent developments that changed the factual and legal milieu for
MERALCO in the present case.

In the 1964 MERALCO case, the City Assessor of Quezon City considered the steel towers of
MERALCO as real property and required MERALCO to pay real property taxes for the said steel
towers for the years 1952 to 1956. MERALCO was operating pursuant to the franchise granted
under Ordinance No. 44 dated March 24, 1903 of the Municipal Board of Manila, which it acquired
from the original grantee, Charles M. Swift. Under its franchise, MERALCO was expressly granted
the following tax exemption privilege: cral awlawlib rary

Par 9. The grantee shall be liable to pay the same taxes upon its real estate, buildings, plant (not
including poles, wires, transformers, and insulators), machinery and personal property as other
persons are or may be hereafter required by law to pay. x x x Said percentage shall be due and
payable at the times stated in paragraph nineteen of Part One hereof, x x x and shall be in lieu of all
taxes and assessments of whatsoever nature, and by whatsoever authority upon the privileges,
earnings, income, franchise, and poles, wires, transformers, and insulators of the grantee from
which taxes and assessments the grantee is hereby expressly exempted, x x x.41 chan robles law

Given the express exemption from taxes and assessments of the "poles, wires, transformers, and
insulators" of MERALCO in the aforequoted paragraph, the sole issue in the 1964 MERALCO
case was whether or not the steel towers of MERALCO qualified as "poles" which were exempted
from real property tax. The Court ruled in the affirmative, ratiocinating that:cralawlawlib rary

Along the streets, in the City of Manila, may be seen cylindrical metal poles, cubical concrete poles,
and poles of the PLDT Co. which are made of two steel bars joined together by an interlacing metal
rod. They are called "poles" notwithstanding the fact that they are not made of wood. It must be
noted from paragraph 9, above quoted, that the concept of the "poles" for which exemption is
granted, is not determined by their place or location, nor by the character of the electric current it
carries, nor the material or form of which it is made, but the use to which they are dedicated. In
accordance with the definitions, a pole is not restricted to a long cylindrical piece of wood or metal,
but includes "upright standards to the top of which something is affixed or by which something is
supported." As heretofore described, respondent's steel supports consist of a framework of four
steel bars or strips which are bound by steel cross-arms atop of which are cross-arms supporting
five high voltage transmission wires (See Annex A) and their sole function is to support or carry
such wires.

The conclusion of the CTA that the steel supports in question are embraced in the term "poles" is
not a novelty. Several courts of last resort in the United States have called these steel supports
"steel towers", and they have denominated these supports or towers, as electric poles. In their
decisions the words "towers" and "poles" were used interchangeably, and it is well understood in
that jurisdiction that a transmission tower or pole means the same thing.

xxxx

It is evident, therefore, that the word "poles", as used in Act No. 484 and incorporated in the
petitioner's franchise, should not be given a restrictive and narrow interpretation, as to defeat the
very object for which the franchise was granted. The poles as contemplated thereon, should be
understood and taken as a part of the electric power system of the respondent Meralco, for the
conveyance of electric current from the source thereof to its consumers, x x x.42 chanrobles law

Similarly, it was clear that under the 20-year franchise granted to MERALCO by the Municipal Board
of Lucena City through Resolution No. 2679 dated June 13, 1972, the transformers, electric posts,
transmission lines, insulators, and electric meters of MERALCO were exempt from real property tax.
Paragraph 13 of Resolution No. 2679 is quoted in full below: cra lawlawlib ra ry

13. The grantee shall be liable to pay the same taxes upon its real estate, building, machinery, and
personal property (not including poles, wires, transformers, and insulators) as other persons
are now or may hereafter be required by law to pay. In consideration of the franchise and rights
hereby granted, the grantee shall pay into the City Treasury of Lucena a tax equal to FIVE (5%)
PER CENTUM of the gross earnings received from electric current sold or supplied under this
franchise. Said tax shall be due and payable quarterly and shall be in lieu of any and all taxes of
any kind, nature or description levied, established, or collected by any authority whatsoever,
municipal, provincial, or national, now or in the future, on its poles, wires, insulators, switches,
transformers and structures, installations, conductors, and accessories, placed in and over
and under all the private and/or public property, including public streets and highways, provincial
roads, bridges, and public squares, and on its franchise rights, privileges, receipts, revenues and
profits, from which taxes the grantee is hereby expressly exempted. (Emphases supplied.) chan robles law

In CBAA Case No. 248 (and LBAA-89-2), the City Assessor assessed the transformers, electric
posts, transmission lines, insulators, and electric meters of MERALCO located in Lucena City
beginning 1985 under Tax Declaration No. 019-6500. The CBAA in its Decision dated April 10, 1991
in CBAA Case No. 248 sustained the exemption of the said properties of MERALCO from real
property tax on the basis of paragraph 13 of Resolution No. 2679 and the 1964 MERALCO case.

Just when the franchise of MERALCO in Lucena City was about to expire, the Local Government
Code took effect on January 1, 1992, Sections 193 and 234 of which provide: c ralawlawl ibra ry

Section 193. Withdrawal of Tax Exemption Privileges. - Unless otherwise provided in this Code, tax
exemptions or incentives granted to, or presently 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 nonprofit hospitals and
educational institutions, are hereby withdrawn upon the effectivity of this Code.

Section 234. Exemptions from Real Property Tax. - The following are exempted from payment of the
real property tax: chanRob lesvi rtua lLawl ibra ry

(a) 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;ChanRobles Vi rt ualawlib ra ry

(b) Charitable institutions, churches, parsonages or convents appurtenant thereto, mosques,

nonprofit or religious cemeteries and all lands, buildings, and improvements actually, directly, and
exclusively used for religious, charitable or educational purposes; ChanRoble sVirt ualawlib ra ry

(c) All machineries and equipment that are actually, directly and exclusively used by local water
districts and government-owned or controlled corporations engaged in the supply and distribution of
water and/or generation and transmission of electric power; ChanRoble sVirt ualawli bra ry

(d) All real property owned by duly registered cooperatives as provided for under R.A. No. 6938;
and

(e) Machinery and equipment used for pollution control and environmental protection.

Except as provided herein, any exemption from payment of real property tax previously granted to,
or presently enjoyed by, all persons, whether natural or juridical, including all government-owned or
controlled corporations are hereby withdrawn upon the effectivity of this Code. chanro bles law

The Local Government Code, in addition, contains a general repealing clause under Section 534(f)
which states that "[a]ll general and special laws, acts, city charters, decrees, executive orders,
proclamations and administrative regulations, or part or parts thereof which are inconsistent with
any of the provisions of this Code are hereby repealed or modified accordingly."

Taking into account the above-mentioned provisions, the evident intent of the Local Government
Code is to withdraw/repeal all exemptions from local taxes, unless otherwise provided by the Code.
The limited and restrictive nature of the tax exemption privileges under the Local Government Code
is consistent with the State policy to ensure autonomy of local governments and the objective of the
Local Government Code to grant genuine and meaningful autonomy to enable local government
units to attain their fullest development as self-reliant communities and make them effective
partners in the attainment of national goals. The obvious intention of the law is to broaden the tax
base of local government units to assure them of substantial sources of revenue.43

Section 234 of the Local Government Code particularly identifies the exemptions from payment of
real property tax, based on the ownership, character, and use of the property, viz.: cral awlawlibra ry

(a) Ownership Exemptions. Exemptions from real property taxes on the basis of ownership are real
properties owned by: (i) the Republic, (ii) a province, (iii) a city, (iv) a municipality, (v) a barangay,
and (vi) registered cooperatives.

(b) Character Exemptions. Exempted from real property taxes on the basis of their character are:
(i) charitable institutions, (ii) houses and temples of prayer like churches, parsonages or convents
appurtenant thereto, mosques, and (iii) nonprofit or religious cemeteries.

(c) Usage exemptions. Exempted from real property taxes on the basis of the actual, direct and
exclusive use to which they are devoted are: (i) all lands, buildings and improvements which are
actually directly and exclusively used for religious, charitable or educational purposes; (ii) all
machineries and equipment actually, directly and exclusively used by local water districts or by
government-owned or controlled corporations engaged in the supply and distribution of water
and/or generation and transmission of electric power; and (iii) all machinery and equipment used
for pollution control and environmental protection.

To help provide a healthy environment in the midst of the modernization of the country, all
machinery and equipment for pollution control and environmental protection may not be taxed by
local governments.

2. Other Exemptions Withdrawn. All other exemptions previously granted to natural or juridical
persons including government-owned or controlled corporations are withdrawn upon the effectivity
of the Code.44chanroble slaw

The last paragraph of Section 234 had unequivocally withdrawn, upon the effectivity of the Local
Government Code, exemptions from payment of real property taxes granted to natural or juridical
persons, including government-owned or controlled corporations, except as provided in the same
section.

MERALCO, a private corporation engaged in electric distribution, and its transformers, electric posts,
transmission lines, insulators, and electric meters used commercially do not qualify under any of the
ownership, character, and usage exemptions enumerated in Section 234 of the Local Government
Code. It is a basic precept of statutory construction that the express mention of one person, thing,
act, or consequence excludes all others as expressed in the familiar maxim expressio unius est
exclusio alterius.45 Not being among the recognized exemptions from real property tax in Section
234 of the Local Government Code, then the exemption of the transformers, electric posts,
transmission lines, insulators, and electric meters of MERALCO from real property tax granted under
its franchise was among the exemptions withdrawn upon the effectivity of the Local Government
Code on January 1, 1998.

It is worthy to note that the subsequent franchises for operation granted to MERALCO, i.e., under
the Certificate of Franchise dated October 28, 1993 issued by the National Electrification
Commission and Republic Act No. 9209 enacted on June 9, 2003 by Congress, are completely silent
on the matter of exemption from real property tax of MERALCO or any of its properties.

It is settled that tax exemptions must be clear and unequivocal. A taxpayer claiming a tax
exemption must point to a specific provision of law conferring on the taxpayer, in clear and plain
terms, exemption from a common burden. Any doubt whether a tax exemption exists is resolved
against the taxpayer.46MERALCO has failed to present herein any express grant of exemption from
real property tax of its transformers, electric posts, transmission lines, insulators, and electric
meters that is valid and binding even under the Local Government Code.

The transformers, electric posts,

transmission lines, insulators, and electric
meters of MERALCO may qualify as
"machinery" under the Local Government
Code subject to real property tax.

Through the years, the relevant laws have consistently considered "machinery" as real property
subject to real property tax. It is the definition of "machinery" that has been changing and
expanding, as the following table will show:
chanRoble svi rtual Lawli bra ry

Real Property Incidence of Real Property

Definition of Machinery47
Tax Law Tax
The Assessment Section 2. Incidence of real Section 3. Property exempt from
Law property tax.- Except in tax. - The exemptions shall be as
(Commonwealth chartered cities, there shall be follows:
Act No. 470) levied, assessed, and collected, xxxx
an annual ad valorem tax on real (f) Machinery, which term shall
Effectivity: property, including land, embrace machines, mechanical
January 1, 1940 buildings, machinery, and other contrivances, instruments,
improvements not hereinafter appliances, and apparatus
specifically exempted. attached to the real estate, used
for industrial agricultural or
manufacturing purposes, during
the first five years of the
operation of the machinery.
Real Property Section 38. Incidence of Real Section 3. Definition of Terms. -
Tax Code Property Tax. - There shall be When used in this Code -
levied, assessed and collected in
Effectivity: June all provinces, cities and xxxx
1, 1974 municipalities an annual ad
valorem tax on real property, (m) Machinery - shall embrace
such as land, buildings, machines, mechanical
machinery and other contrivances, instruments,
improvements affixed or appliances and apparatus
attached to real property not attached to the real estate. It
hereinafter specifically includes the physical facilities
exempted. available for production, as well
as the installations and
appurtenant service facilities,
together with all other
equipment designed for or
essential to its manufacturing,
industrial or agricultural
purposes.
Real Property Section 38. Incidence of Real Section 3. Definition of Terms.
Tax Code, as Property Tax. - There shall be When used in this Code -
amended by levied, assessed and collected in xxxx
Presidential all provinces, cities and
 Decree No. municipalities an annual ad
1383 valorem tax on real property,
such as land, buildings,
Effectivity: May machinery and other
25, 1978 improvements affixed or
attached to real property not
hereinafter specifically
exempted.
Local Section 232. Power to Levy Real
Government Property Tax. — A province or
Code city or a municipality within the
Metropolitan Manila Area may
Effectivity: levy an annual ad valorem tax on
January 1, 1992 real property such as land,
building, machinery, and other
improvement not hereinafter
specifically exempted.
MERALCO is a public utility engaged in electric distribution, and its transformers, electric posts,
(m) Machinery - shall embrace
machines, equipment,
mechanical contrivances,
instruments, appliances and
apparatus attached to the real
estate. It shall include the
physical facilities available for
production, as well as the
installations and appurtenant
service facilities, together with all
those not permanently attached
to the real estate but are
actually, directly and essentially
used to meet the needs of the
particular industry, business, or
works, which by their very
nature and purpose are designed
for, or essential to
manufacturing, commercial,
mining, industrial or agricultural
purposes.
Section 199. Definitions. - When
used in this Title:
xxxx
(o) "Machinery" embraces
machines, equipment,
mechanical contrivances,
instruments, appliances or
apparatuswhich may or may
not be attached, permanently
or temporarily, to the real
property. It includes the
physical facilities for production,
the installations and appurtenant
service facilities, those which
are mobile, self-powered or
self- propelled, and those not
permanently attached to the real
property which are actually,
directly, and exclusively used to
meet the needs of the particular
industry, business or activity and
which by their very nature and
purpose are designed for, or
necessary to its manufacturing,
mining,logging, commercial,
industrial or
agricultural purposes[.]
transmission lines, insulators, and electric meters constitute the physical facilities through which
MERALCO delivers electricity to its consumers. Each may be considered as one or more of the
following: a
"machine,"48 "equipment,"49 "contrivance,"50 "instrument,"51 "appliance,"52 "apparatus,"53 or
"installation."54

The Court highlights that under Section 199(o) of the Local Government Code, machinery, to be
deemed real property subject to real property tax, need no longer be annexed to the land or
building as these "may or may not be attached, permanently or temporarily to the real property,"
and in fact, such machinery may even be "mobile."55 The same provision though requires that to be
machinery subject to real property tax, the physical facilities for production, installations, and
appurtenant service facilities, those which are mobile, self-powered or self-propelled, or not
permanently attached to the real property (a) must be actually, directly, and exclusively used to
meet the needs of the particular industry, business, or activity; and (2) by their very nature and
purpose, are designed for, or necessary for manufacturing, mining, logging, commercial, industrial,
or agricultural purposes. Thus, Article 290(o) of the Rules and Regulations Implementing the Local
Government Code of 1991 recognizes the following exemption: cra lawlawlib rary

Machinery which are of general purpose use including but not limited to office equipment,
typewriters, telephone equipment, breakable or easily damaged containers (glass or cartons),
microcomputers, facsimile machines, telex machines, cash dispensers, furnitures and fixtures,
freezers, refrigerators, display cases or racks, fruit juice or beverage automatic dispensing machines
which are not directly and exclusively used to meet the needs of a particular industry, business or
activity shall not be considered within the definition of machinery under this Rule. (Emphasis
supplied.)c han robles law

The 1964 MERALCO case was decided when The Assessment Law was still in effect and Section 3(f)
of said law still required that the machinery be attached to the real property. Moreover, as the Court
pointed out earlier, the ruling in the 1964 MERALCO case - that the electric poles (including the
steel towers) of MERALCO are not subject to real property tax - was primarily based on the express
exemption granted to MERALCO under its previous franchise. The reference in said case to the Civil
Code definition of real property was only an alternative argument: cralaw lawlib rary

Granting for the purpose of argument that the steel supports or towers in question are
not embraced within the term poles, the logical question posited is whether they
constitute real properties, so that they can be subject to a real property tax. The tax law
does not provide for a definition of real property; but Article 415 of the Civil Code does, by
stating the following are immovable property: c ralawlawl ibra ry

(1) Land, buildings, roads, and constructions of all kinds adhered to the soil; ChanRoble sVirtualawli bra ry

xxxx

(3) Everything attached to an immovable in a fixed manner, in such a way that it cannot be
separated therefrom without breaking the material or deterioration of the object; ChanRob les Vi rtualawl ib rary

xxxx

(5) Machinery, receptacles, instruments or implements intended by the owner of the tenement for
an industry or works which may be carried in a building or on a piece of land, and which tends
directly to meet the needs of the said industry or works; ChanRobles Vi rtua lawlib rary

xxxx
The steel towers or supports in question, do not come within the objects mentioned in paragraph 1,
because they do not constitute buildings or constructions adhered to the soil. They are not
constructions analogous to buildings nor adhering to the soil. As per description, given by the lower
court, they are removable and merely attached to a square metal frame by means of bolts, which
when unscrewed could easily be dismantled and moved from place to place. They can not be
included under paragraph 3, as they are not attached to an immovable in a fixed manner, and they
can be separated without breaking the material or causing deterioration upon the object to which
they are attached. Each of these steel towers or supports consists of steel bars or metal strips,
joined together by means of bolts, which can be disassembled by unscrewing the bolts and
reassembled by screwing the same. These steel towers or supports do not also fall under paragraph
5, for they are not machineries or receptacles, instruments or implements, and even if they were,
they are not intended for industry or works on the land. Petitioner is not engaged in an industry or
works on the land in which the steel supports or towers are constructed.56(Emphases supplied.) c hanro bles law

The aforequoted conclusions of the Court in the 1964 MERALCO case do not hold true anymore
under the Local Government Code.

While the Local Government Code still does not provide for a specific definition of "real property,"
Sections 199(o) and 232 of the said Code, respectively, gives an extensive definition of what
constitutes "machinery" and unequivocally subjects such machinery to real property tax. The Court
reiterates that the machinery subject to real property tax under the Local Government Code "may
or may not be attached, permanently or temporarily to the real property;" and the physical facilities
for production, installations, and appurtenant service facilities, those which are mobile, self-powered
or self-propelled, or are not permanently attached must (a) be actually, directly, and exclusively
used to meet the needs of the particular industry, business, or activity; and (2) by their very nature
and purpose, be designed for, or necessary for manufacturing, mining, logging, commercial,
industrial, or agricultural purposes.

Article 415, paragraph (1) of the Civil Code declares as immovables or real properties "[l]and,
buildings, roads and constructions of all kinds adhered to the soil." The land, buildings, and roads
are immovables by nature "which cannot be moved from place to place," whereas the constructions
adhered to the soil are immovables by incorporation "which are essentially movables, but are
attached to an immovable in such manner as to be an integral part thereof."57 Article 415,
paragraph (3) of the Civil Code, referring to "[ejverything attached to an immovable in a fixed
manner, in such a way that it cannot be separated therefrom without breaking the material or
deterioration of the object," are likewise immovables by incorporation. In contrast, the Local
Government Code considers as real property machinery which "may or may not be attached,
permanently or temporarily to the real property," and even those which are "mobile."

Article 415, paragraph (5) of the Civil Code considers as immovables or real properties "[machinery,
receptacles, instruments or implements intended by the owner of the tenement for an industry or
works which may be carried on in a building or on a piece of land, and which tend directly to meet
the needs of the said industry or works." The Civil Code, however, does not define "machinery."

The properties under Article 415, paragraph (5) of the Civil Code are immovables by destination, or
"those which are essentially movables, but by the purpose for which they have been placed in an
immovable, partake of the nature of the latter because of the added utility derived
therefrom."58 These properties, including machinery, become immobilized if the following requisites
concur: (a) they are placed in the tenement by the owner of such tenement; (b) they are destined
for use in the industry or work in the tenement; and (c) they tend to directly meet the needs of said
industry or works.59 The first two requisites are not found anywhere in the Local Government Code.

MERALCO insists on harmonizing the aforementioned provisions of the Civil Code and the Local
Government Code. The Court disagrees, however, for this would necessarily mean imposing
additional requirements for classifying machinery as real property for real property tax purposes not
provided for, or even in direct conflict with, the provisions of the Local Government Code.

As between the Civil Code, a general law governing property and property relations, and the Local
Government Code, a special law granting local government units the power to impose real property
tax, then the latter shall prevail. As the Court pronounced in Disomangcop v. The Secretary of the
Department of Public Works and Highways Simeon A. Datumanong60: cralawlawlib rary

It is a finely-imbedded principle in statutory construction that a special provision or law prevails

over a general one. Lex specialis derogant generali. As this Court expressed in the case of Leveriza
v. Intermediate Appellate Court, "another basic principle of statutory construction mandates that
general legislation must give way to special legislation on the same subject, and generally be so
interpreted as to embrace only cases in which the special provisions are not applicable, that specific
statute prevails over a general statute and that where two statutes are of equal theoretical
application to a particular case, the one designed therefor specially should prevail." (Citations
omitted.)chan roble slaw
The Court also very clearly explicated in Vinzons-Chato v. Fortune Tobacco Corporation61 that: cralawlawl ibra ry

A general law and a special law on the same subject are statutes in pah materia and should,
accordingly, be read together and harmonized, if possible, with a view to giving effect to both. The
rule is that where there are two acts, one of which is special and particular and the other general
which, if standing alone, would include the same matter and thus conflict with the special act, the
special law must prevail since it evinces the legislative intent more clearly than that of a general
statute and must not be taken as intended to affect the more particular and specific provisions of
the earlier act, unless it is absolutely necessary so to construe it in order to give its words any
meaning at all.

The circumstance that the special law is passed before or after the general act does not change the
principle. Where the special law is later, it will be regarded as an exception to, or a qualification of,
the prior general act; and where the general act is later, the special statute will be construed as
remaining an exception to its terms, unless repealed expressly or by necessary implication.
(Citations omitted.) chanro bles law

Furthermore, in Caltex (Philippines), Inc. v. Central Board of Assessment Appeals,62 the Court
acknowledged that "[i]t is a familiar phenomenon to see things classed as real property for
purposes of taxation which on general principle might be considered personal property[.]"

Therefore, for determining whether machinery is real property subject to real property tax, the
definition and requirements under the Local Government Code are controlling.

MERALCO maintains that its electric posts are not machinery subject to real property tax because
said posts are not being exclusively used by MERALCO; these are also being utilized by cable and
telephone companies. This, however, is a factual issue which the Court cannot take cognizance of in
the Petition at bar as it is not a trier of facts. Whether or not the electric posts of MERALCO are
actually being used by other companies or industries is best left to the determination of the City
Assessor or his deputy, who has been granted the authority to take evidence under Article 304 of
the Rules and Regulations Implementing the Local Government Code of 1991.

Nevertheless, the appraisal and

assessment of the transformers, electric
posts, transmission lines, insulators, and
electric meters of MERALCO as machinery
under Tax Declaration Nos. 019-6500 and
019-7394 were not in accordance with the
Local Government Code and in violation of
the right to due process of MERALCO and,
therefore, null and void.

The Local Government Code defines "appraisal" as the "act or process of determining the value of
property as of a specific date for a specific purpose." "Assessment" is "the act or process of
determining the value of a property, or proportion thereof subject to tax, including the discovery,
listing, classification, and appraisal of the properties[.]"63 When it comes to machinery, its appraisal
and assessment are particularly governed by Sections 224 and 225 of the Local Government Code,
which read: cralawlaw lib rary

Section 224. Appraisal and Assessment of Machinery. - (a) The fair market value of a brand-new
machinery shall be the acquisition cost. In all other cases, the fair market value shall be determined
by dividing the remaining economic life of the machinery by its estimated economic life and
multiplied by the replacement or reproduction cost.

(b) If the machinery is imported, the acquisition cost includes freight, insurance, bank and other
charges, brokerage, arrastre and handling, duties and taxes, plus cost of inland transportation,
handling, and installation charges at the present site. The cost in foreign currency of imported
machinery shall be converted to peso cost on the basis of foreign currency exchange rates as fixed
by the Central Bank.

Section 225. Depreciation Allowance for Machinery. - For purposes of assessment, a depreciation
allowance shall be made for machinery at a rate not exceeding five percent (5%) of its original cost
or its replacement or reproduction cost, as the case may be, for each year of use: Provided,
however, That the remaining value for all kinds of machinery shall be fixed at not less than twenty
percent (20%) of such original, replacement, or reproduction cost for so long as the machinery is
useful and in operation. chanrob leslaw

It is apparent from these two provisions that every machinery must be individually appraised and
assessed depending on its acquisition cost, remaining economic life, estimated economic life,
replacement or reproduction cost, and depreciation.

Article 304 of the Rules and Regulations Implementing the Local Government Code of 1991
expressly authorizes the local assessor or his deputy to receive evidence for the proper appraisal
and assessment of the real property: c ralawlawl ibra ry

Article 304. Authority of Local Assessors to Take Evidence. - For the purpose of obtaining
information on which to base the market value of any real property, the assessor of the province,
city, or municipality or his deputy may summon the owners of the properties to be affected or
persons having legal interest therein and witnesses, administer oaths, and take deposition
concerning the property, its ownership, amount, nature, and value.
chanrobles law

The Local Government Code further mandates that the taxpayer be given a notice of the
assessment of real property in the following manner: c ralawlawli bra ry

Section 223. Notification of New or Revised Assessment. - When real property is assessed for the
first time or when an existing assessment is increased or decreased, the provincial, city or municipal
assessor shall within thirty (30) days give written notice of such new or revised assessment to the
person in whose name the property is declared. The notice may be delivered personally or by
registered mail or through the assistance of the punong barangay to the last known address of the
person to served. chan roble slaw

A notice of assessment, which stands as the first instance the taxpayer is officially made aware of
the pending tax liability, should be sufficiently informative to apprise the taxpayer the legal basis of
the tax.64 In Manila Electric Company v. Barlis,65 the Court described the contents of a valid notice
of assessment of real property and differentiated the same from a notice of collection: cralawlawl ibra ry

A notice of assessment as provided for in the Real Property Tax Code should effectively inform the
taxpayer of the value of a specific property, or proportion thereof subject to tax, including the
discovery, listing, classification, and appraisal of properties. The September 3, 1986 and October
31, 1989 notices do not contain the essential information that a notice of assessment must specify,
namely, the value of a specific property or proportion thereof which is being taxed, nor does it state
the discovery, listing, classification and appraisal of the property subject to taxation. In fact, the
tenor of the notices bespeaks an intention to collect unpaid taxes, thus the reminder to the taxpayer
that the failure to pay the taxes shall authorize the government to auction off the properties subject
to taxes x x x. chanrobleslaw

Although the ruling quoted above was rendered under the Real Property Tax Code, the requirement
of a notice of assessment has not changed under the Local Government Code.

A perusal of the documents received by MERALCO on October 29, 1997 reveals that none of them
constitutes a valid notice of assessment of the transformers, electric posts, transmission lines,
insulators, and electric meters of MERALCO.

The letter dated October 16, 1997 of the City Treasurer of Lucena (which interestingly precedes the
purported Notice of Assessment dated October 20, 1997 of the City Assessor of Lucena) is a notice
of collection, ending with the request for MERALCO to settle the payable amount soon in order to
avoid accumulation of penalties. It only presented in table form the tax declarations covering the
machinery, assessed values in the tax declarations in lump sums for all the machinery, the periods
covered, and the taxes and penalties due again in lump sums for all the machinery.

The Notice of Assessment dated October 20, 1997 issued by the City Assessor gave a summary of
the new/revised assessment of the "machinery" located in "Quezon Avenue Ext., Brgy. Gulang-
Gulang, Lucena City," covered by Tax Declaration No. 019-7394, with total market value of
P98,173,200.00 and total assessed value of P78,538,560.00. The Property Record Form basically
contained the same information. Without specific description or identification of the machinery
covered by said tax declaration, said Notice of Assessment and Property Record Form give the false
impression that there is only one piece of machinery covered.

In Tax Declaration No. 019-6500, the City Assessor reported its findings under "Building and
Improvements" and not "Machinery." Said tax declaration covered "capital investment-commercial,"
specifically: (a) Transformer and Electric Post; (b) Transmission Line, (c) Insulator, and (d) Electric
Meter, with a total market value of P81,811,000.00, assessment level of 80%, and assessed value
of £65,448,800.00. Conspicuously, the table for "Machinery" - requiring the description, date of
operation, replacement cost, depreciation, and market value of the machinery - is totally blank.

MERALCO avers, and the City Assessor and the City Treasurer of Lucena do not refute at all, that
MERALCO has not been furnished the Owner's Copy of Tax Declaration No. 019-7394, in which the
total market value of the machinery of MERALCO was increased by PI6,632,200.00, compared to
that in Tax Declaration No. 019-6500.

The Court cannot help but attribute the lack of a valid notice of assessment to the apparent lack of
a valid appraisal and assessment conducted by the City Assessor of Lucena in the first place. It
appears that the City Assessor of Lucena simply lumped together all the transformers, electric
posts, transmission lines, insulators, and electric meters of MERALCO located in Lucena City under
Tax Declaration Nos. 019-6500 and 019-7394, contrary to the specificity demanded under Sections
224 and 225 of the Local Government Code for appraisal and assessment of machinery. The City
Assessor and the City Treasurer of Lucena did not even provide the most basic information such as
the number of transformers, electric posts, insulators, and electric meters or the length of the
transmission lines appraised and assessed under Tax Declaration Nos. 019-6500 and 019-7394.
There is utter lack of factual basis for the assessment of the transformers, electric posts,
transmission lines, insulators, and electric meters of MERALCO.

The Court of Appeals laid the blame on MERALCO for the lack of information regarding its
transformers, electric posts, transmission lines, insulators, and electric meters for appraisal and
assessment purposes because MERALCO failed to file a sworn declaration of said properties as
required by Section 202 of the Local Government Code. As MERALCO explained, it cannot be
expected to file such a declaration when all the while it believed that said properties were personal
or movable properties not subject to real property tax. More importantly, Section 204 of the Local
Government Code exactly covers such a situation, thus: cralawlawli bra ry

Section 204. Declaration of Real Property by the Assessor. -When any person, natural or juridical,
by whom real property is required to be declared under Section 202 hereof, refuses or fails for any
reason to make such declaration within the time prescribed, the provincial, city or municipal
assessor shall himself declare the property in the name of the defaulting owner, if known, or against
an unknown owner, as the case may be, and shall assess the property for taxation in accordance
with the provision of this Title. No oath shall be required of a declaration thus made by the
provincial, city or municipal assessor.
chanroble slaw

Note that the only difference between the declarations of property made by the taxpayer, on one
hand, and the provincial/city/municipal assessor, on the other, is that the former must be made
under oath. After making the declaration of the property himself for the owner, the
provincial/city/municipal assessor is still required to assess the property for taxation in accordance
with the provisions of the Local Government Code.

It is true that tax assessments by tax examiners are presumed correct and made in good faith, with
the taxpayer having the burden of proving otherwise.66 In this case, MERALCO was able to
overcome the presumption because it has clearly shown that the assessment of its properties by the
City Assessor was baselessly and arbitrarily done, without regard for the requirements of the Local
Government Code.

The exercise of the power of taxation constitutes a deprivation of property under the due process
clause, and the taxpayer's right to due process is violated when arbitrary or oppressive methods are
used in assessing and collecting taxes. 67 The Court applies by analogy its pronouncements
in Commissioner of Internal Revenue v. United Salvage and Towage (Phils.), Inc.,68 concerning an
assessment that did not comply with the requirements of the National Internal Revenue Code: cralawlawl ibra ry
On the strength of the foregoing observations, we ought to reiterate our earlier teachings that "in
balancing the scales between the power of the State to tax and its inherent right to prosecute
perceived transgressors of the law on one side, and the constitutional rights of a citizen to due
process of law and the equal protection of the laws on the other, the scales must tilt in favor of the
individual, for a citizen's right is amply protected by the Bill of Rights under the Constitution." Thus,
while "taxes are the lifeblood of the government," the power to tax has its limits, in spite of all its
plenitude. Even as we concede the inevitability and indispensability of taxation, it is a requirement
in all democratic regimes that it be exercised reasonably and in accordance with the prescribed
procedure. (Citations omitted.) chan robles law

The appraisal and assessment of the transformers, electric posts, transmission lines, insulators, and
electric meters of MERALCO under Tax Declaration Nos. 019-6500 and 019-7394, not being in
compliance with the Local Government Code, are attempts at deprivation of property without due
process of law and, therefore, null and void.

WHEREFORE, premises considered, the Court PARTLY GRANTS the instant Petition and AFFIRMS
with MODIFICATION the Decision dated May 13, 2004 of the Court of Appeals in CA-G.R. SP No.
67027, affirming in toto the Decision dated May 3, 2001 of the Central Board of Assessment Appeals
in CBAA Case No. L-20-98. The Court DECLARES that the transformers, electric posts, transmission
lines, insulators, and electric meters of Manila Electric Company are NOT EXEMPTED from real
property tax under the Local Government Code. However, the Court also DECLARES the appraisal
and assessment of the said properties under Tax Declaration Nos. 019-6500 and 019-7394
as NULL and VOID for not complying with the requirements of the Local Government Code and
violating the right to due process of Manila Electric Company, and ORDERS the CANCELLATION of
the collection letter dated October 16, 1997 of the City Treasurer of Lucena and the Notice of
Assessment dated October 20, 1997 of the City Assessor of Lucena, but WITHOUT PREJUDICE to
the conduct of a new appraisal and assessment of the same properties by the City Assessor of
Lucena in accord with the provisions of the Local Government Code and guidelines issued by the
Bureau of Local Government Financing.

SO ORDERED. chan

G.R. No. 184203 November 26, 2014

CITY OF LAPU-LAPU, Petitioner,

vs.
PHILIPPINE ECONOMIC ZONE AUTHORITY, Respondent.

x-----------------------x

G.R. No. 187583

PROVINCE OF BATAAN, represented by GOVERNOR ENRIQUE T. GARCIA, JR., and

EMERLINDA S. TALENTO, in her capacity as Provincial Treasurer of
Bataan, Petitioners,
vs.
PHILIPPINE ECONOMIC ZONE AUTHORITY, Respondent.

DECISION

LEONEN, J.:

The Philippine Economic Zone Authority is exempt from payment of real property taxes.
These are consolidated1 petitions for review on certiorari the City of Lapu-Lapu and the
Province of Bataan separately filed against the Philippine Economic Zone Authority (PEZA).

In G.R. No. 184203, the City of Lapu-Lapu (the City) assails the Court of Appeals’
decision2 dated January 11, 2008 and resolution3 dated August 6, 2008, dismissing the City’s
appeal for being the wrong mode of appeal. The City appealed the Regional Trial
Court,Branch 111, Pasay City’s decision finding the PEZA exempt from payment of real
property taxes.

In G.R. No. 187583, the Province of Bataan (the Province) assails the Court of Appeals’
decision4 dated August 27, 2008 and resolution5 dated April 16, 2009, granting the PEZA’s
petition for certiorari. The Court of Appeals ruled that the Regional Trial Court, Branch 115,
Pasay City gravely abused its discretion in finding the PEZA liable for real property taxes to
the Province of Bataan.

Facts common to the consolidated petitions

In the exercise of his legislative powers,6 President Ferdinand E. Marcos issued Presidential
Decree No. 66 in 1972, declaring as government policy the establishment of export
processing zones in strategic locations in the Philippines. Presidential Decree No. 66 aimed
"to encourage and promote foreign commerce as a means of making the Philippines a center
of international trade, of strengthening our export trade and foreign exchange position, of
hastening industrialization,of reducing domestic unemployment, and of accelerating the
development of the country."7

To carry out this policy, the Export Processing Zone Authority (EPZA) was created to
operate, administer, and manage the export processing zones established in the Port of
Mariveles, Bataan8 and such other export processing zones that may be created by virtue of
the decree.9

The decree declared the EPZA non-profit in character10 with all its revenues devoted to its
development, improvement, and maintenance.11 To maintain this non-profit character, the
EPZA was declared exempt from all taxes that may be due to the Republic of the Philippines,
its provinces, cities, municipalities, and other government agencies and
instrumentalities.12 Specifically, Section 21 of Presidential Decree No. 66 declared the EPZA
exempt from payment of real property taxes:

Section 21. Non-profit Character of the Authority; Exemption from Taxes. The Authority shall
be non-profit and shall devote and use all its returns from its capital investment, as well as
excess revenues from its operations, for the development, improvement and maintenance
and other related expenditures of the Authority to pay its indebtedness and obligations and in
furtherance and effective implementation of the policy enunciated in Section 1 of this Decree.
In consonance therewith, the Authority is hereby declared exempt:

....

(b) From all income taxes, franchise taxes, realty taxes and all other kinds of taxes and
licenses to be paid to the National Government, its provinces, cities, municipalities and other
government agenciesand instrumentalities[.]
In 1979, President Marcos issued Proclamation No. 1811, establishing the Mactan Export
Processing Zone. Certain parcels of land of the public domain located in the City of Lapu-
Lapuin Mactan, Cebu were reserved to serve as site of the Mactan Export Processing Zone.

In 1995, the PEZA was created by virtue of Republic Act No. 7916 or "the Special Economic
Zone Act of 1995"13 to operate, administer, manage, and develop economic zones in the
country.14 The PEZA was granted the power to register, regulate, and supervise the
enterprises located in the economic zones.15 By virtue of the law, the export processing zone
in Mariveles, Bataan became the Bataan Economic Zone16 and the Mactan Export
Processing Zone the Mactan Economic Zone.17

As for the EPZA, the law required it to "evolve into the PEZA in accordance with the
guidelines and regulations set forth in an executive order issued for [the] purpose."18

On October 30, 1995, President Fidel V. Ramos issued Executive Order No. 282, directing
the PEZA to assume and exercise all of the EPZA’s powers, functions, and responsibilities
"as provided in Presidential Decree No. 66, as amended, insofar as they are not inconsistent
with the powers, functions, and responsibilities of the PEZA, as mandated under [the Special
Economic Zone Act of 1995]."19 All of EPZA’s properties, equipment, and assets, among
others, were ordered transferred to the PEZA.20

Facts of G.R. No. 184203

In the letter21 dated March 25, 1998, the City of Lapu-Lapu, through the Office of the
Treasurer, demanded from the PEZA 32,912,350.08 in real property taxes for the period
from 1992 to 1998 on the PEZA’s properties located in the Mactan Economic Zone.

The City reiterated its demand in the letter22 dated May 21, 1998. It cited Sections 193 and
234 of the Local Government Code of 1991 that withdrew the real property tax exemptions
previously granted to or presently enjoyed by all persons. The City pointed out that no
provision in the Special Economic Zone Act of 1995 specifically exempted the PEZA from
payment of real property taxes, unlike Section 21 of Presidential Decree No. 66 that explicitly
provided for EPZA’s exemption. Since no legal provision explicitly exempted the PEZA from
payment of real property taxes, the City argued that it can tax the PEZA.

The City made subsequent demands23 on the PEZA. In its last reminder24 dated May 13,
2002, the City assessed the PEZA 86,843,503.48 as real property taxes for the period from
1992 to 2002.

On September 11, 2002, the PEZAfiled a petition for declaratory Relief25 with the Regional
Trial Court of Pasay City, praying that the trial court declare it exempt from payment ofreal
property taxes. The case was raffled to Branch 111.

The City answered26 the petition, maintaining that the PEZA is liable for real property taxes.
To support its argument, the City cited a legal opinion dated September 6, 1999 issued by
the Department of Justice,27 which stated that the PEZA is not exempt from payment of real
property taxes. The Department of Justice based its opinion on Sections 193 and 234 of the
Local Government Code that withdrew the tax exemptions, including real property tax
exemptions, previously granted to all persons.

A reply28 was filed by the PEZA to which the City filed a rejoinder.29
Pursuant to Rule 63, Section 3 of Rules of Court,30 the Office of the Solicitor General filed a
comment31 on the PEZA’s petition for declaratory relief. It agreed that the PEZA is exempt
from payment of real property taxes, citing Sections 24 and 51 of the Special Economic Zone
Act of 1995.

The trial court agreed with the Solicitor General. Section 24 of the Special Economic Zone
Act of 1995 provides:

SEC. 24. Exemption from National and Local Taxes. – Except for real property taxes on land
owned by developers, no taxes, local and national, shall be imposed on business
establishments operating within the ECOZONE. In lieu thereof, five percent (5%) of the gross
income earned by all business enterprises within the ECOZONE shall be paid and remitted
as follows:

a. Three percent (3%) to the National Government;

b. Two percent (2%) which shall be directly remitted by the business establishments
to the treasurer’s office of the municipality or city where the enterprise is located.

Section 51 of the law, on the other hand, provides:

SEC. 51. Ipso-Facto Clause. – All privileges, benefits, advantages or exemptions granted to
special economic zones under Republic Act No. 7227, shall ipso-facto be accorded to
special economic zones already created or to be created under this Act. The free port status
shall not be vested upon new special economic zones.

Based on Section 51, the trial court held that all privileges, benefits, advantages, or
exemptions granted tospecial economic zones created under the Bases Conversion and
Development Act of 1992 apply to special economic zones created under the Special
Economic ZoneAct of 1995.

Since these benefits include exemption from payment of national or local taxes, these
benefits apply to special economic zones owned by the PEZA.

According to the trial court, the PEZA remained tax-exempt regardless of Section 24 of the
Special Economic Zone Act of 1995. It ruled that Section 24, which taxes real property
owned by developers of economic zones, only applies to private developers of economic
zones, not to public developers like the PEZA. The PEZA, therefore, is not liable for real
property taxes on the land it owns.

Characterizing the PEZA as an agency of the National Government, the trial court ruled that
the City had no authority to tax the PEZA under Sections 133(o) and 234(a) of the Local
Government Code of 1991.

In the resolution32 dated June 14, 2006, the trial court granted the PEZA’s petition for
declaratory relief and declared it exempt from payment of real property taxes.

The City filed a motion for reconsideration,33 which the trial court denied in its
resolution34 dated September 26, 2006.

The City then appealed35 to the Court of Appeals.

The Court of Appeals noted the following issues the City raised in its appellant’s brief: (1)
whether the trial court had jurisdiction over the PEZA’s petition for declaratory relief; (2)
whether the PEZA is a government agency performing governmental functions; and (3)
whether the PEZA is exempt from payment of real property taxes.

The issues presented by the City, according to the Court of Appeals, are pure questions of
law which should have been raised in a petition for review on certiorari directly filed before
this court. Since the City availed itself of the wrong mode of appeal, the Court of Appeals
dismissed the City’s appeal in the decision36 dated January 11, 2008.

The City filed a motion for extension of time to file a motion for reconsideration,37 which the
Court of Appeals denied in the resolution38 dated April 11, 2008.

Despite the denial of its motion for extension, the City filed a motion for reconsideration.39 In
the resolution40 dated August 6, 2008, the Court of Appeals denied that motion.

In its petition for review on certiorari with this court,41 the City argues that the Court of
Appeals "hid under the skirts of technical rules"42 in resolving its appeal. The City maintains
that its appeal involved mixed questions of fact and law. According to the City, whether the
PEZA performed governmental functions "cannot completely be addressed by law but [by]
the factual and actual activities [the PEZA is] carrying out."43

Even assuming that the petition involves pure questions of law, the City contends that the
subject matter of the case "is of extreme importance with [far-reaching] consequence that [its
magnitude] would surely shape and determine the course ofour nation’s future."44 The Court
of Appeals, the City argues, should have resolved the case on the merits.

The City insists that the trial court had no jurisdiction to hear the PEZA’s petition for
declaratory relief. According to the City, the case involves real property located in the City of
Lapu-Lapu. The petition for declaratory relief should have been filed before the Regional
Trial Court of the City of Lapu-Lapu.45

Moreover, the Province of Bataan, the City of Baguio, and the Province of Cavite allegedly
demanded real property taxes from the PEZA. The City argues that the PEZA should have
likewise impleaded these local government units as respondents in its petition for declaratory
relief. For its failure to do so, the PEZA violated Rule 63, Section 2 of the Rules of Court, and
the trial court should have dismissed the petition.46

This court ordered the PEZA to comment on the City’s petition for review on certiorari.47

At the outset of its comment, the PEZA argues that the Court of Appeals’ decision dated
January 11, 2008 had become final and executory. After the Court of Appeals had denied the
City’s appeal, the City filed a motion for extension of time to file a motion for reconsideration.
Arguing that the time to file a motion for reconsideration is not extendible, the PEZA filed its
motion for reconsideration out of time. The Cityhas no more right to appeal to this court.48

The PEZA maintains that the City availed itself of the wrong mode of appeal before the Court
of Appeals. Since the City raised pure questions of law in its appeal, the PEZA argues that
the proper remedy is a petition for review on certiorari with this court, not an ordinary appeal
before the appellate court. The Court of Appeals, therefore, correctly dismissed outright the
City’s appeal under Rule 50, Section 2 of the Rules of Court.49
On the merits, the PEZA argues that it is an agency and instrumentality of the National
Government. It is therefore exempt from payment of real property taxes under Sections
133(o) and 234(a) of the Local Government Code.50 It adds that the tax privileges under
Sections 24 and 51 of the Special Economic Zone Act of 1995 applied to it.51

Considering that the site of the Mactan Economic Zoneis a reserved land under
Proclamation No. 1811, the PEZA claims that the properties sought to be taxed are lands of
public dominion exempt from real property taxes.52

As to the jurisdiction issue, the PEZA counters that the Regional Trial Court of Pasay had
jurisdiction to hear its petition for declaratory relief under Rule 63, Section 1 of the Rules of
Court.[53]] It also argued that it need not implead the Province of Bataan, the City of Baguio,
and the Province of Cavite as respondents considering that their demands came after the
PEZA had already filed the petition in court.54

Facts of G.R. No. 187583

After the City of Lapu-Lapu had demanded payment of real property taxes from the PEZA,
the Province of Bataan followed suit. In its letter55 dated May 29, 2003, the Province, through
the Office of the Provincial Treasurer, informed the PEZA that it would be sending a real
property tax billing to the PEZA. Arguing that the PEZA is a developer of economic zones,
the Province claimed that the PEZA is liable for real property taxes under Section 24 of the
Special Economic Zone Act of 1995.

In its reply letter56 dated June 18, 2003, the PEZA requested the Province to suspend the
service of the real property tax billing. It cited its petition for declaratory relief against the City
of Lapu-Lapu pending before the Regional Trial Court, Branch 111, Pasay City as basis.

The Province argued that serving a real property tax billing on the PEZA "would not in any
way affect [its] petition for declaratory relief before [the Regional Trial Court] of Pasay
City."57 Thus, in its letter58 dated June 27, 2003, the Province notified the PEZAof its real
property tax liabilities for June 1, 1995 to December 31, 2002 totalling ₱110,549,032.55.

After having been served a tax billing, the PEZA again requested the Province to suspend
collecting its alleged real property tax liabilities until the Regional Trial Court of Pasay
Cityresolves its petition for declaratory relief.59

The Province ignored the PEZA’s request. On January 20, 2004, the Province served on the
PEZA a statement of unpaid real property tax for the period from June 1995 to December
2004.60

The PEZA again requested the Province to suspend collecting its alleged real property
taxes.61 The Province denied the request in its letter62 dated January 29, 2004, then servedon
the PEZA a warrant of levy63 covering the PEZA’s real properties located in Mariveles,
Bataan.

The PEZA’s subsequent requests64 for suspension of collection were all denied by the
Province.65 The Province then served on the PEZA a notice of delinquency in the payment of
real property taxes66 and a notice of sale of real property for unpaid real property tax.67 The
Province finally sent the PEZA a notice of public auction of the latter’s properties in
Mariveles, Bataan.68
On June 14, 2004, the PEZA filed a petition for injunction69 with prayer for issuance of a
temporary restraining order and/or writ of preliminary injunction before the Regional Trial
Court of Pasay City, arguing that it is exempt from payment ofreal property taxes. It added
that the notice of sale issued by the Province was void because it was not published in a
newspaper ofgeneral circulation asrequired by Section 260 of the Local Government Code.70

The case was raffled to Branch 115.

In its order71 dated June 18, 2004, the trial court issued a temporary restraining order against
the Province. After the PEZA had filed a ₱100,000.00 bond,72 the trial court issued a writ of
preliminary injunction,73 enjoining the Province from selling the PEZA’s real properties at
public auction.

On March 3, 2006, the PEZA and Province both manifested that each would file a
memorandum after which the case would be deemed submitted for decision. The parties
then filed their respective memoranda.74

In the order75 dated January 31, 2007, the trial court denied the PEZA’s petition for injunction.
The trial court ruled that the PEZA is not exempt from payment of real property taxes.
According to the trial court, Sections 193 and 234 of the Local Government Code had
withdrawn the real property tax exemptions previously granted to all persons, whether
natural or juridical.76 As to the tax exemptions under Section 51 of the Special Economic
Zone Act of 1995, the trial court ruled that the provision only applies to businesses operating
within the economic zones, not to the PEZA.77

The PEZA filed before the Court of Appeals a petition for certiorari78 with prayer for issuance
of a temporary restraining order.

The Court of Appeals issued a temporary restraining order, enjoining the Province and its
Provincial Treasurer from selling PEZA's properties at public auction scheduled on October
17, 2007.79 It also ordered the Province to comment on the PEZA’s petition.

In its comment,80 the Province alleged that it received a copy of the temporary restraining
order only on October 18, 2007 when it had already sold the PEZA’s properties at public
auction. Arguing that the act sought to be enjoined was already fait accompli, the Province
prayed for the dismissal of the petition for certiorari.

The PEZA then filed a supplemental petition for certiorari, prohibition, and
mandamus81 against the Province, arguing that the Provincial Treasurer of Bataan acted with
grave abuse of discretion in issuing the notice of delinquency and notice of sale. It
maintained that it is exempt from payment of real property taxes because it is a government
instrumentality. It added that its lands are property of public dominion which cannot be sold
at public auction.

The PEZA also filed a motion82 for issuance of an order affirming the temporary restraining
order and a writ of preliminary injunction to enjoin the Province from consolidating title over
the PEZA’s properties.

In its resolution83 dated January 16, 2008,the Court of Appeals admitted the supplemental
petition for certiorari, prohibition, and mandamus. It required the Province to comment on the
supplemental petition and to file a memorandum on the PEZA’s prayer for issuance of
temporary restraining order.
The Province commented84 on the PEZA’s supplemental petition, to which the PEZA replied.85

The Province then filed a motion86 for leave to admit attached rejoinder with motion to
dismiss. In the rejoinder with motion to dismiss,87 the Province argued for the first time that
the Court of Appeals had no jurisdiction over the subject matter of the action.

According to the Province, the PEZA erred in filing a petition for certiorari. Arguing that the
PEZA sought to reverse a Regional Trial Court decision in a local tax case, the Province
claimed that the court with appellate jurisdiction over the action is the Court of Tax Appeals.
The PEZA then prayed that the Court of Appeals dismiss the petition for certiorari for lack of
jurisdiction over the subject matter of the action.

The Court of Appeals held that the issue before it was whether the trial court judge gravely
abused his discretion in dismissing the PEZA’s petition for prohibition. This issue, according
to the Court of Appeals, is properly addressed in a petition for certiorari over which it has
jurisdiction to resolve. It, therefore, maintained jurisdiction to resolve the PEZA’s petition for
certiorari.88

Although it admitted that appeal, not certiorari, was the PEZA’s proper remedy to reverse the
trial court’s decision,89the Court of Appeals proceeded to decide the petition for certiorari in
"the broader interest of justice."90

The Court of Appeals ruled that the trial court judge gravely abused his discretion in
dismissing the PEZA’s petition for prohibition. It held that Section 21 of Presidential Decree
No. 66 and Section 51 of the Special Economic Zone Act of 1995 granted the PEZA
exemption from payment of real property taxes.91 Based on the criteria set in Manila
International Airport Authority v. Court of Appeals,92 the Court of Appeals found that the
PEZA is an instrumentality of the national government. No taxes, therefore, could be levied
on it by local government units.93

In the decision94 dated August 27, 2008, the Court of Appeals granted the PEZA’s petition for
certiorari. It set aside the trial court’s decision and nullified all the Province’s proceedings
with respect to the collection of real property taxes from the PEZA.

The Province filed a motion for reconsideration,95 which the Court of Appeals denied in the
resolution96 dated April 16, 2009 for lack of merit.

In its petition for review on certiorari with this court,97 the Province of Bataan insists that the
Court of Appeals had no jurisdiction to take cognizance of the PEZA’s petition for certiorari.
The Province maintains that the Court of Tax Appeals had jurisdiction to hear the PEZA’s
petition since it involved a local tax case decided by a Regional Trial Court.98

The Province reiterates that the PEZA is not exempt from payment of real property taxes.
The Province points out that the EPZA, the PEZA’s predecessor, had to be categorically
exempted from payment of real property taxes. The EPZA, therefore, was not inherently
exempt from payment of real property taxes and so is the PEZA. Since Congress omitted
from the Special Economic Zone Act of 1995 a provision specifically exempting the PEZA
from payment of real property taxes, the Province argues that the PEZA is a taxable entity. It
cited the rule in statutory construction that provisions omitted in revised statutes are deemed
repealed.99
With respect to Sections 24 and 51 of the Special Economic Zone Act of 1995 granting tax
exemptions and benefits, the Province argues that these provisions only apply to business
establishments operating within special economic zones,100 not to the PEZA.

This court ordered the PEZA tocomment on the Province’s petition for review on
certiorari.101 In its comment,102 the PEZA argues that the Court of Appeals had jurisdiction to
hear its petition for certiorari since the issue was whether the trial court committed grave
abuse of discretion in denying its petition for injunction. The PEZA maintains thatit is exempt
from payment of real property taxes under Section 21 of Presidential Decree No. 66 and
Section 51 of the Special Economic Zone Act of 1995.

The Province filed its reply,103 reiterating its arguments in its petition for review on certiorari.
On the PEZA’s motion,104 this court consolidated the petitions filed by the City of Lapu-Lapu
and the Province of Bataan.105

The issues for our resolution are the following:

I. Whether the Court of Appeals erred in dismissing the City of Lapu-Lapu’s appeal
for raising pure questions of law;

II. Whether the Regional Trial Court, Branch 111, Pasay City had jurisdiction to hear,
try, and decide the City of Lapu-Lapu’s petition for declaratory relief;

III. Whether the petition for injunction filed before the Regional Trial Court, Branch
115, Pasay City, is a local tax case appealable to the Court of Tax Appeals; and

IV. Whether the PEZA is exempt from payment of real property taxes.

We deny the consolidated petitions.

I.

The Court of Appeals did not err in

dismissing the City of Lapu-Lapu’s
appeal for raising pure questions of law

Under the Rules of Court, there are three modes of appeal from Regional Trial Court
decisions. The first mode is through an ordinary appeal before the Court of Appeals where
the decision assailed was rendered in the exercise of the Regional Trial Court’s original
jurisdiction. Ordinary appeals are governed by Rule 41, Sections 3 to 13 of the Rules of
Court. In ordinary appeals, questions of fact or mixed questions of fact and law may be
raised.106

The second mode is through a petition for review before the Court of Appeals where the
decision assailed was rendered by the Regional Trial Court in the exercise of its appellate
jurisdiction. Rule 42 of the Rules of Court governs petitions for review before the Court of
Appeals. In petitions for review under Rule 42, questions of fact, of law, or mixed questions
of fact and law may be raised.107

The third mode is through an appealby certiorari before this court under Rule 45 where only
questions of law shall be raised.108
A question of fact exists when there is doubt as to the truth or falsity of the alleged
facts.109 On the other hand, there is a question of law if the appeal raises doubt as to the
applicable law on a certain set of facts.110

Under Rule 50, Section 2, an improper appeal before the Court of Appeals is dismissed
outright and shall not be referred to the proper court:

SEC. 2. Dismissal of improper appeal to the Court of Appeals. – An appeal under Rule 41
taken from the Regional Trial Court to the Court of Appeals raising only questions of law
shall be dismissed, issues purely of law not being reviewable by said court. Similarly, an
appeal by notice of appeal instead of by petition for review from the appellate judgment of a
Regional Trial Court shall be dismissed.

An appeal erroneously taken to the Court of Appeals shall not be transferred to the
appropriate court but shall be dismissed outright.

Rule 50, Section 2 repealed Rule 50, Section 3 of the 1964 Rules of Court, which provided
that improper appeals to the Court of Appeals shall not be dismissed but shall be certified to
the proper court for resolution:

Sec. 3. Where appealed case erroneously, brought. — Where the appealed case has been
erroneously brought to the Court of Appeals, it shall not dismiss the appeal, but shall certify
the case to the proper court, with a specific and clear statement of the grounds therefor.

With respect to appeals by certiorari directly filed before this court but which raise questions
of fact, paragraph 4(b) of Circular No. 2-90 dated March 9, 1990 states that this court
"retains the option, in the exercise of its sound discretion and considering the attendant
circumstances, either itself to take cognizance of and decide such issues or to refer them to
the Court of Appeals for determination." In Indoyon, Jr. v. Court of Appeals,111 we said that
this court "cannot tolerate ignorance of the law on appeals."112 It is not this court’s task to
determine for litigants their proper remedies under the Rules.113

We agree that the City availed itself of the wrong mode of appeal before the Court of
Appeals. The City raised pure questions of law in its appeal. The issue of whether the
Regional Trial Court of Pasay had jurisdiction over the PEZA’s petition for declaratory relief is
a question of law, jurisdiction being a matter of law.114 The issue of whether the PEZA is a
government instrumentality exempt from payment of real property taxes is likewise a
question of law since this question is resolved by examining the provisions of the PEZA’s
charter as well as other laws relating to the PEZA.115

The Court of Appeals, therefore, did not err in dismissing the City’s appeal pursuant to Rule
50, Section 2 of the Rules of Court.

Nevertheless, considering the important questions involved in this case, we take cognizance
of the City’s petition for review on certiorari in the interest of justice.

In Municipality of Pateros v. The Honorable Court of Appeals,116 the Municipality of Pateros

filed an appeal under Rule 42 before the Court of Appeals, which the Court of Appeals
denied outright for raising pure questions of law. This court agreed that the Municipality of
Pateros "committed a procedural infraction"117 and should have directly filed a petition for
review on certiorari before this court. Nevertheless, "in the interest of justice and in order to
write finisto [the] controversy,"118 this court "opt[ed] to relax the rules"119 and proceeded to
decide the case. This court said:

While it is true that rules of procedure are intended to promote rather than frustrate the ends
of justice, and while the swift unclogging of the dockets of the courts is a laudable objective,
it nevertheless must not be met at the expense of substantial justice.

The Court has allowed some meritorious cases to proceed despite inherent procedural
defects and lapses. Thisis in keeping with the principle that rules of procedure are mere tools
designed to facilitate the attainment of justice, and that strict and rigid application ofrules
which should result in technicalities that tend to frustrate rather than promote substantial
justice must always be avoided. It is a far better and more prudent cause of action for the
court to excuse a technical lapse and afford the parties a review of the case to attain the
ends of justice, rather than dispose of the case on technicality and cause grave injustice to
the parties, giving a false impression of speedy disposal of cases while actually resulting in
more delay, if not a miscarriage of justice.120

Similar to Municipality of Pateros, we opt to relax the rules in this case. The PEZA operates
or otherwise administers special economic zones all over the country. Resolving the
substantive issue of whether the PEZA is taxable for real property taxes will clarify the taxing
powers of all local government units where special economic zones are operated. This case,
therefore, should be decided on the merits.

II.

The Regional Trial Court of Pasay had no

jurisdiction to hear, try, and decide the
PEZA’s petition for declaratory relief
against the City of Lapu-Lapu

Rule 63 of the Rules of Court governs actions for declaratory relief. Section 1 of Rule 63
provides:

SECTION 1. Who may file petition. – Any person interested under a deed, will, contract or
other written instrument, or whose rights are affected by a statute, executive order or
regulation, ordinance, or any other governmental regulation may, before breach or violation,
thereof, bring an action in the appropriate Regional Trial Court to determine any question of
construction or validity arising, and for a declaration of his rights or duties, thereunder.

An action for reformation of an instrument, to quiet title to real property or remove clouds
therefrom, or to consolidate ownership under Article 1607 of the Civil Code, may be brought
under this Rule.

The court with jurisdiction over petitions for declaratory relief is the Regional Trial Court, the
subject matter of litigation in an action for declaratory relief being incapable of pecuniary
estimation.121 Section 19 of the Judiciary Reorganization Act of 1980 provides:

SEC. 19. Jurisdiction in Civil Cases. – Regional Trial Courts shall exercise exclusive original
jurisdiction:

(1) In all civil actions in which the subject of litigation is incapable of pecuniary estimation[.]
Consistent with the law, the Rules state that a petition for declaratory relief is filed "in the
appropriate Regional Trial Court."122

A special civil action for declaratory relief is filed for a judicial determination of any question
of construction or validity arising from, and for a declaration of rights and duties, under any of
the following subject matters: a deed, will, contract or other written instrument, statute,
executive order or regulation, ordinance, orany other governmental regulation.123 However, a
declaratory judgment may issue only if there has been "no breach of the documents in
question."124 If the contract or statute subject matter of the action has already been breached,
the appropriate ordinary civil action must be filed.125 If adequate relief is available through
another form of action or proceeding, the other action must be preferred over an action for
declaratory relief.126

In Ollada v. Central Bank of the Philippines,127 the Central Bank issued CB-IED Form No. 5
requiring certified public accountants to submit an accreditation under oath before they were
allowed to certify financial statements submitted to the bank. Among those financial
statements the Central Bank disallowed were those certified by accountant Felipe B.
Ollada.128 Claiming that the requirement "restrained the legitimate pursuit of one’s trade,"129

Ollada filed a petition for declaratory relief against the Central Bank.

This court ordered the dismissal of Ollada’s petition "without prejudice to [his] seeking relief
in another appropriate action."130 According to this court, Ollada’s right had already been
violated when the Central Bank refused to accept the financial statements he prepared.
Since there was already a breach, a petition for declaratory relief was not proper. Ollada
must pursue the "appropriate ordinary civil action or proceeding."131 This court explained:

Petitioner commenced this action as, and clearly intended it to be one for Declaratory Relief
under the provisions of Rule 66 of the Rules of Court. On the question of when a special civil
action of this nature would prosper, we have already held that the complaint for declaratory
relief will not prosper if filed after a contract, statute or right has been breached or violated. In
the present case such is precisely the situation arising from the facts alleged in the petition
for declaratory relief. As vigorously claimed by petitioner himself, respondent had already
invaded or violated his right and caused him injury — all these giving him a complete cause
of action enforceable in an appropriate ordinary civil action or proceeding. The dismissal of
the action was, therefore, proper in the lightof our ruling in De Borja vs. Villadolid, 47 O.G. (5)
p. 2315, and Samson vs. Andal, G.R. No. L-3439, July 31, 1951, where we held that an
action for declaratory relief should be filed before there has been a breach of a contract,
statutes or right, and that it is sufficient tobar such action, that there had been a breach —
which would constitute actionable violation. The rule is that an action for Declaratory Relief is
proper only if adequate relief is not available through the means of other existing forms of
action or proceeding (1 C.J.S. 1027-1028).132

It is also required that the parties to the action for declaratory relief be those whose rights or
interests are affected by the contract or statute in question.133 "There must be an actual
justiciable controversy or the ‘ripening seeds’ of one"134 between the parties. The issue
between the parties "must be ripe for judicial determination."135 An action for declaratory relief
based on theoreticalor hypothetical questions cannot be filed for our courts are not advisory
courts.136

In Republic v. Roque,137 this court dismissed respondents’ petition for declaratory relief for
lack of justiciable controversy. According to this court, "[the respondents’] fear of prospective
prosecution [under the Human Security Act] was solely based on remarks of certain
government officials which were addressed to the general public."138

In Velarde v. Social Justice Society,139 this court refused to resolve the issue of "whether or
not [a religious leader’s endorsement] of a candidate for elective office or in urging or
requiring the members of his flock to vote for a specific candidate is violative [of the
separation clause]."140 According to the court, there was no justiciable controversy and
ordered the dismissal of the Social Justice Society’s petition for declaratory relief. This court
explained: Indeed, SJS merely speculated or anticipated without factual moorings that, as
religious leaders, the petitioner and his co-respondents below had endorsed or threatened to
endorse a candidate or candidates for elective offices; and that such actual or threatened
endorsement "will enable [them] to elect men to public office who [would] in turn be forever
beholden to their leaders, enabling them to control the government"[;] and "pos[ing] a clear
and present danger ofserious erosion of the people’s faith in the electoral process[;] and
reinforc[ing] their belief that religious leaders determine the ultimate result of elections,"
which would then be violative of the separation clause.

Such premise is highly speculative and merely theoretical, to say the least. Clearly, it does
not suffice to constitute a justiciable controversy. The Petition does not even allege any
indication or manifest intent on the part of any of the respondents below to champion an
electoral candidate, or to urge their so-called flock to vote for, or not to vote for, a particular
candidate. It is a time-honored rule that sheer speculation does not give rise to an actionable
right.

Obviously, there is no factual allegation that SJS’ rights are being subjected to any
threatened, imminent and inevitable violation that should be prevented by the declaratory
relief sought. The judicial power and duty of the courts to settle actual controversies involving
rights that are legally demandable and enforceable cannot be exercised when there is no
actual or threatened violation of a legal right.

All that the 5-page SJS Petition prayed for was "that the question raised in paragraph 9
hereof be resolved." In other words, it merely sought an opinion of the trial court on whether
the speculated acts of religious leaders endorsing elective candidates for political offices
violated the constitutional principle on the separation of church and state. SJS did not ask for
a declaration of its rights and duties; neither did it pray for the stoppage of any threatened
violation of its declared rights. Courts, however, are proscribed from rendering an advisory
opinion.141 In sum, a petition for declaratory relief must satisfy six requisites:

[F]irst, the subject matter of the controversy must be a deed, will, contract or other written
instrument, statute, executive order or regulation, or ordinance; second, the terms of said
documents and the validity thereof are doubtful and require judicial construction; third, there
must have been no breach of the documents in question; fourth, there must be an actual
justiciable controversy or the "ripening seeds" of one between persons whose interests are
adverse; fifth, the issue must be ripe for judicial determination; and sixth, adequate relief is
not available through other means or other forms of action or proceeding.142 (Emphases
omitted)

We rule that the PEZA erred in availing itself of a petition for declaratory relief against the
City. The City had already issued demand letters and real property tax assessment against
the PEZA, in violation of the PEZA’s alleged tax-exempt status under its charter. The Special
Economic Zone Act of 1995, the subject matter of PEZA’s petition for declaratory relief, had
already been breached. The trial court, therefore, had no jurisdiction over the petition for
declaratory relief. There are several aspects of jurisdiction.143 Jurisdiction over the subject
matter is "the power to hear and determine cases of the general class to which the
proceedings in question belong."144 It is conferred by law, which may either be the
Constitution or a statute.145 Jurisdiction over the subject matter means "the nature of the
cause of action and the relief sought."146 Thus, the cause of action and character of the relief
sought as alleged in the complaint are examined to determine whether a court had
jurisdiction over the subject matter.147 Any decision rendered by a court without jurisdiction
over the subject matter of the action is void.148

Another aspect of jurisdiction is jurisdiction over the person. It is "the power of [a] court to
render a personal judgment or to subject the parties in a particular action to the judgment
and other rulings rendered in the action."149A court automatically acquires jurisdiction over the
person of the plaintiff upon the filing of the initiatory pleading.150With respect to the defendant,
voluntary appearance in court or a valid service of summons vests the court with jurisdiction
over the defendant’s person.151 Jurisdiction over the person of the defendant is indispensable
in actions in personam or those actions based on a party’s personal liability.152 The
proceedings in an action in personam are void if the court had no jurisdiction over the person
of the defendant.153

Jurisdiction over the resor the thing under litigation is acquired either "by the seizure of the
property under legal process, whereby it is brought into actual custody of the law; or as a
result of the institution of legal proceedings, in which the power of the court is recognized
and made effective."154 Jurisdiction over the res is necessary in actions in rem or those
actions "directed against the thing or property or status of a person and seek judgments with
respect thereto as against the whole world."155 The proceedings in an action in rem are void if
the court had no jurisdiction over the thing under litigation.156

In the present case, the Regional Trial Court had no jurisdiction over the subject matter of
the action, specifically, over the remedy sought. As this court explained in Malana v.
Tappa:157

. . . an action for declaratory relief presupposes that there has been no actual breach of the
instruments involved or of rights arising thereunder. Since the purpose of an action for
declaratory relief is to secure an authoritative statement of the rights and obligations of the
parties under a statute, deed, or contract for their guidance in the enforcement thereof, or
compliance therewith, and not to settle issues arising from an alleged breach thereof, it may
be entertained only before the breach or violation of the statute, deed, or contract to which it
refers. A petition for declaratory relief gives a practical remedy for ending controversies that
have not reached the state where another relief is immediately available; and supplies the
need for a form of action that will set controversies at rest before they lead to a repudiation of
obligations, an invasion of rights, and a commission of wrongs.

Where the law or contract has already been contravened prior to the filing of an action for
declaratory relief, the courts can no longer assume jurisdiction over the action. In other
words, a court has no more jurisdiction over an action for declaratory relief if its subject has
already been infringed or transgressed before the institution of the action.158 (Emphasis
supplied)

The trial court should have dismissed the PEZA’s petition for declaratory relief for lack of
jurisdiction.
Once an assessment has already been issued by the assessor, the proper remedy of a
taxpayer depends on whether the assessment was erroneous or illegal.

An erroneous assessment "presupposes that the taxpayer is subject to the tax but is
disputing the correctness of the amount assessed."159 With an erroneous assessment, the
taxpayer claims that the local assessor erred in determining any of the items for computing
the real property tax, i.e., the value of the real property or the portion thereof subject to tax
and the proper assessment levels. In case of an erroneous assessment, the taxpayer must
exhaust the administrative remedies provided under the Local Government Code before
resorting to judicial action.

The taxpayer must first pay the real property tax under protest. Section 252 of the Local
Government Code provides:

SECTION 252. Payment Under Protest. -(a) No protest shall be entertained unless the
taxpayer first paysthe tax. There shall be annotated on the tax receipts the words "paid
under protest". The protest in writing must be filed within thirty (30) days from payment of the
tax to the provincial, city treasurer or municipal treasurer, in the case of a municipality within
Metropolitan Manila Area, who shall decide the protest within sixty (60) days from receipt.

(b) The tax or a portion thereof paidunder protest, shall be held in trust by the
treasurer concerned.

(c) In the event that the protest is finally decided in favor of the taxpayer, the amount
or portion of the tax protested shall be refunded to the protestant, or applied as tax
credit against his existing or future tax liability.

(d) In the event that the protest is denied or upon the lapse of the sixty day period
prescribed in subparagraph (a), the taxpayer may avail of the remedies as provided
for in Chapter 3, Title II, Book II of this Code.

Should the taxpayer find the action on the protest unsatisfactory, the taxpayer may appeal
with the Local Board of Assessment Appeals within 60 days from receipt of the decision on
the protest:

SECTION 226. Local Board of Assessment Appeals. - Any owner or person having legal
interest in the property who is not satisfied with the action of the provincial, city or municipal
assessor in the assessment of his property may, within sixty (60) days from the date of
receipt of the written notice of assessment, appeal to the Board of Assessment Appeals of
the provincial or city by filing a petition under oath in the form prescribed for the purpose,
together with copies of the tax declarations and such affidavits or documents submitted in
support of the appeal.

Payment under protest and appeal to the Local Board of Assessment Appeals are
"successive administrative remedies to a taxpayer who questions the correctness of an
assessment."160 The Local Board Assessment Appeals shall not entertain an appeal "without
the action of the local assessor"161 on the protest.

If the taxpayer is still unsatisfied after appealing with the Local Board of Assessment
Appeals, the taxpayer may appeal with the Central Board of Assessment Appeals within 30
days from receipt of the Local Board’s decision:
SECTION 229. Action by the Local Board of Assessment Appeals. - (a) The Board shall
decide the appeal within one hundred twenty (120) days from the date of receipt of such
appeal. The Board, after hearing, shall render its decision based on substantial evidence or
such relevant evidence on record as a reasonable mind might accept as adequate to support
the conclusion. (b) In the exercise ofits appellate jurisdiction, the Board shall have the power
to summon witnesses, administer oaths, conduct ocular inspection, take depositions, and
issue subpoena and subpoena duces tecum. The proceedings of the Board shall be
conducted solely for the purpose of ascertaining the facts without necessarily adhering to
technical rules applicable in judicial proceedings.

(c) The secretary of the Board shall furnish the owner of the property or the person having
legal interest therein and the provincial or city assessor with a copy of the decision of the
Board. In case the provincial or city assessor concurs in the revision or the assessment, it
shall be his duty to notify the owner of the property or the person having legal interest therein
of such factusing the form prescribed for the purpose. The owner of the property or the
person having legal interest therein or the assessor who is not satisfied with the decision of
the Board, may, within thirty (30) days after receipt of the decision of said Board, appeal to
the Central Board of Assessment Appeals, as herein provided. The decision of the Central
Board shall be final and executory. (Emphasis supplied)

On the other hand, an assessment is illegal if it was made without authority under the
law.162 In case of an illegal assessment, the taxpayer may directly resort to judicial action
without paying under protest the assessed tax and filing an appeal with the Local and Central
Board of Assessment Appeals.

In Ty v. Trampe,163 the Municipal Assessor of Pasig sent Alejandro B. Ty a notice of

assessment with respect to Ty’s real properties in Pasig. Without resorting to the
administrative remedies under the Local Government Code, Ty filed before the Regional
Trial Court a petition, praying that the trial court nullify the notice of assessment. In assessing
the real property taxes due, the Municipal Assessor used a schedule of market values solely
prepared by him. This, Ty argued, was void for being contrary to the Local Government Code
requiring that the schedule of market values be jointly prepared by the provincial, city, and
municipal assessors of the municipalities within the Metropolitan Manila Area.

This court ruled that the assessmentwas illegal for having been issued without authority of
the Municipal Assessor. Reconciling provisions of the Real Property Tax Code and the Local
Government Code, this court held that the schedule of market valuesmust be jointly prepared
by the provincial, city, and municipal assessors of the municipalities within the Metropolitan
Manila Area.

As to the issue of exhaustion of administrative remedies, this court held that Ty did not err in
directly resorting to judicial action. According to this court, payment under protest is required
only "where there is a question as to the reasonableness of the amount assessed."164 As to
appeals before the Local and Central Board of Assessment Appeals, they are "fruitful only
where questions of fact are involved."165

Ty raised the issue of the legality of the notice of assessment, an issue that did not go into
the reasonableness of the amount assessed. Neither did the issue involve a question of fact.
Ty raised a question of law and, therefore, need not resort to the administrative remedies
provided under the Local Government Code.
In the present case, the PEZA did not avail itself of any of the remedies against a notice of
assessment. A petition for declaratory relief is not the proper remedy once a notice of
assessment was already issued.

Instead of a petition for declaratory relief, the PEZA should have directly resorted to a judicial
action. The PEZA should have filed a complaint for injunction, the "appropriate ordinary civil
action"166 to enjoin the City from enforcing its demand and collecting the assessed taxes from
the PEZA. After all, a declaratory judgment as to the PEZA’s tax-exempt status is useless
unless the City isenjoined from enforcing its demand.

Injunction "is a judicial writ, process or proceeding whereby a party is ordered to do or refrain
from doing a certain act."167 "It may be the main action or merely a provisional remedy for and
as incident in the main action."168 The essential requisites of a writ of injunction are: "(1) there
must be a right in esseor the existence of a right to be protected; and (2) the act against
which the injunction is directed to constitute a violation of such right."169

We note, however, that the City confused the concepts of jurisdiction and venue in
contending that the Regional Trial Court of Pasay had no jurisdiction because the real
properties involved in this case are located in the City of Lapu-Lapu.

On the one hand, jurisdiction is "the power to hear and determine cases of the general class
to which the proceedings in question belong."170 Jurisdiction is a matter of substantive
law.171 Thus, an action may be filed only with the court or tribunal where the Constitution or a
statute says it can be brought.172 Objections to jurisdiction cannot be waived and may be
brought at any stage of the proceedings, even on appeal.173 When a case is filed with a court
which has no jurisdiction over the action, the court shall motu propriodismiss the case.174

On the other hand, venue is "the place of trial or geographical location in which an action or
proceeding should be brought." 175 In civil cases, venue is a matter of procedural law.176 A
party’s objections to venue must be brought at the earliest opportunity either in a motion to
dismiss or in the answer; otherwise the objection shall be deemed waived.177 When the venue
of a civil action is improperly laid, the court cannot motu propriodismiss the case.178

The venue of an action depends on whether the action is a real or personal action. Should
the action affect title to or possession of real property, or interest therein, it is a real action.
The action should be filed in the proper court which has jurisdiction over the area wherein the
real property involved, or a portion thereof, is situated.179 If the action is a personal action, the
action shall be filed with the proper court where the plaintiff or any of the principal plaintiffs
resides, or where the defendant or any of the principal defendants resides, or in the case of a
non-resident defendant where he may be found, at the election of the plaintiff.180

The City was objecting to the venue of the action, not to the jurisdiction of the Regional Trial
Court of Pasay. In essence, the City was contending that the PEZA’s petition is a real action
as it affects title to or possession of real property, and, therefore, the PEZA should have filed
the petition with the Regional Trial Court of Lapu-Lapu City where the real properties are
located. However, whatever objections the City has against the venue of the PEZA’s action
for declaratory relief are already deemed waived. Objections to venue must be raised at the
earliest possible opportunity.181 The City did not file a motion to dismiss the petition on the
ground that the venue was improperly laid. Neither did the City raise this objection in its
answer.
In any event, the law sought to be judicially interpreted in this case had already been
breached. The Regional Trial Court of Pasay, therefore, had no jurisdiction over the PEZA’s
petition for declaratory relief against the City.

III.

The Court of Appeals had no jurisdiction

over the PEZA’s petition for certiorari
against the Province of Bataan

Appeal is the remedy "to obtain a reversal or modification of a judgment on the merits."182 A
judgment on the merits is one which "determines the rights and liabilities of the parties based
on the disclosed facts, irrespective of the formal, technical or dilatory objections."183 It is not
even necessary that the case proceeded to trial.184 So long as the "judgment is general"185 and
"the parties had a full legal opportunity to be heard on their respective claims and
contentions,"186 the judgment is on the merits.

On the other hand, certiorari is a special civil action filed to annul or modify a proceeding of a
tribunal, board, or officer exercising judicial or quasi-judicial functions.187 Certiorari, which in
Latin means "to be more fully informed,"188was originally a remedy in the common law. This
court discussed the history of the remedy of certiorari in Spouses Delos Santos v.
Metropolitan Bank and Trust Company:189

In the common law, from which the remedy of certiorari evolved, the writ of certiorari was
issued out of Chancery, or the King’s Bench, commanding agents or officers of the inferior
courts to return the record of a cause pending before them, so as to give the party more sure
and speedy justice, for the writ would enable the superior court to determine froman
inspection of the record whether the inferior court’s judgment was rendered without authority.
The errors were of such a nature that, if allowed to stand, they would result in a substantial
injury to the petitioner to whom no other remedy was available. If the inferior court acted
without authority, the record was then revised and corrected in matters of law. The writ of
certiorari was limited to cases in which the inferior court was said to be exceeding its
jurisdiction or was not proceeding according to essential requirements of law and would lie
only to review judicial or quasi-judicial acts.190

In our jurisdiction, the term "certiorari" is used in two ways. An appeal before this court
raising pure questions of law is commenced by filing a petition for reviewon certiorari under
Rule 45 of the Rules of Court. An appeal by certiorari, which continues the proceedings
commenced before the lower courts,191 is filed to reverse or modify judgments or final
orders.192 Under the Rules, an appeal by certiorarimust be filed within 15 days from notice of
the judgment or final order, or of the denial of the appellant’s motion for new trial or
reconsideration.193

A petition for certiorari under Rule 65, on the other hand, is an independent and original
action filed to set aside proceedings conducted without or in excess of jurisdiction or with
grave abuse of discretion amounting to lack or excess of jurisdiction.194 Under the Rules, a
petition for certiorari may only be filed if there is no appeal or any plain, speedy, or adequate
remedy in the ordinary course of law.195 The petition must be filed within 60 days from notice
of the judgment, order, or resolution.196

Because of the longer period to file a petition for certiorari, some litigants attempt to file
petitions for certiorari as substitutes for lost appeals by certiorari. However, Rule 65 is clear
that a petition for certiorari will not prosper if appeal is available. Appealis the proper remedy
even if the error, or one of the errors, raised is grave abuse of discretion on the part of the
court rendering judgment.197 If appeal is available, a petition for certiorari cannot be filed.

In this case, the trial court’s decision dated January 31, 2007 is a judgment on the merits.
Based on the facts disclosed by the parties, the trial court declared the PEZA liable to the
Province of Bataan for real property taxes. The PEZA’s proper remedy against the trial
court’s decision, therefore, is appeal.

Since the PEZA filed a petition for certiorari against the trial court’s decision, it availed itself
of the wrong remedy. As the Province of Bataan contended, the trial court’s decision dated
January 31, 2007 "is only an error of judgment appealable to the higher level court and may
not be corrected by filing a petition for certiorari."198 That the trial court judge allegedly
committed grave abuse of discretion does not make the petition for certiorari the correct
remedy. The PEZA should haveraised this ground in an appeal filed within 15 days from
notice of the assailed resolution.

This court, "in the liberal spirit pervading the Rules of Court and in the interest of substantial
justice,"199 has treated petitions for certiorari as an appeal: "(1) if the petition for certiorari was
filed within the reglementary period within which to file a petition for review on certiorari; (2)
when errors of judgment are averred; and (3) when there is sufficient reason to justify the
relaxation of the rules."200 Considering that "the nature of an action is determined by the
allegationsof the complaint or the petition and the character of the relief sought,"201 a petition
which "actually avers errors of judgment rather than errors than that of jurisdiction"202 may be
considered a petition for review.

However, suspending the application of the Rules has its disadvantages. Relaxing
procedural rules may reduce the "effective enforcement of substantive rights,"203 leading to
"arbitrariness, caprice, despotism, or whimsicality in the settlement of disputes."204 Therefore,
for this court to suspend the application of the Rules, the accomplishment of substantial
justice must outweigh the importance of predictability of court procedures.

The PEZA’s petition for certiorari may be treated as an appeal. First, the petition for certiorari
was filed withinthe 15-day reglementary period for filing an appeal. The PEZA filed its petition
for certiorari before the Court of Appeals on October 15, 2007,205 which was 12 days from
October 3, 2007206 when the PEZA had notice of the trial court’s order denying the motion for
reconsideration.

Second, the petition for certiorari raised errors of judgment. The PEZA argued that the trial
court erred in ruling that it is not exempt from payment of real property taxes given Section
21 of Presidential Decree No. 66 and Sections 11 and 51 of the Special Economic Zone Act
of 1995.207

Third, there is sufficient reason to relax the rules given the importance of the substantive
issue presented in this case.

However, the PEZA’s petition for certiorari was filed before the wrong court. The PEZA
should have filed its petition before the Court of Tax Appeals.

The Court of Tax Appeals has the exclusive appellate jurisdiction over local tax cases
decided by Regional Trial Courts. Section 7, paragraph (a)(3) of Republic Act No. 1125, as
amended by Republic Act No. 9282, provides:
Sec. 7. Jurisdiction. – The [Court of Tax Appeals] shall exercise:

a. Exclusive appellate jurisdiction to review by appeal, as herein provided:

....

3. Decisions, orders or resolutions of the Regional Trial Courts in local tax cases
originally decided or resolved by them in the exercise of their original or appellate
jurisdiction[.]

The local tax cases referred to in Section 7, paragraph (a)(3) of Republic Act No. 1125, as
amended, include cases involving real property taxes. Real property taxation is governed by
Book II of the Local Government Code on "Local Taxation and Fiscal Matters." Real property
taxes are collected by the Local Treasurer,208 not by the Bureau of Internal Revenue in
charge of collecting national internal revenue taxes, fees, and charges.209

Section 7, paragraph (a)(5) of Republic Act No. 1125, as amended by Republic Act No.
9282, separately provides for the exclusive appellate jurisdiction of the Court of Tax Appeals
over decisions of the Central Board of Assessment Appeals involving the assessment or
collection of real property taxes:

Sec. 7. Jurisdiction. – The [Court of Tax Appeals] shall exercise:

a. Exclusive appellate jurisdiction to review by appeal, as herein provided:

....

5. Decisions of the Central Board of Assessment Appeals in the exercise of its appellate
jurisdiction over cases involving the assessment and taxation of real property originally
decided by the provincial or city board of assessment appeals[.]

This separate provision, nevertheless, does not bar the Court of Tax Appeals from taking
cognizance of trial court decisions involving the collection of real property tax cases.
Sections 256210 and 266211 of the Local Government Code expressly allow localgovernment
units to file "in any court of competent jurisdiction" civil actions to collect basic real property
taxes. Should the trial court rule against them, local government units cannot be barred from
appealing before the Court of Tax Appeals – the "highly specialized body specifically created
for the purpose of reviewing tax cases."212

We have also ruled that the Court of Tax Appeals, not the Court of Appeals, has the
exclusive original jurisdiction over petitions for certiorari assailing interlocutory orders issued
by Regional Trial Courts in a local tax case. We explained in The City of Manila v. Hon.
Grecia-Cuerdo213 that while the Court of Tax Appeals has no express grant of power to issue
writs of certiorari under Republic Act No. 1125,214 as amended, the tax court’s judicial power
as defined in the Constitution215 includes the power to determine "whether or not there has
been grave abuse of discretion amounting to lack or excess of jurisdiction on the part of the
[Regional Trial Court] in issuing an interlocutory order of jurisdiction in cases falling within the
exclusive appellate jurisdiction of the tax court."216 We further elaborated:

Indeed, in order for any appellate court to effectively exercise its appellate jurisdiction, it must
have the authority to issue, among others, a writ of certiorari. In transferring exclusive
jurisdiction over appealed tax cases to the CTA, it can reasonably be assumed that the law
intended to transfer also such power as is deemed necessary, if not indispensable, in aid of
such appellate jurisdiction. There is no perceivable reason why the transfer should only be
considered as partial, not total.

....

If this Court were to sustain petitioners' contention that jurisdiction over their certiorari
petition lies with the CA, this Court would be confirming the exercise by two judicial bodies,
the CA and the CTA, of jurisdiction over basically the same subject matter – precisely the
split-jurisdiction situation which is anathema to the orderly administration of justice.The Court
cannot accept that such was the legislative motive, especially considering that the law
expressly confers on the CTA, the tribunal with the specialized competence over tax and
tariff matters, the role of judicial review over local tax cases without mention of any other
court that may exercise such power. Thus, the Court agrees with the ruling of the CA that
since appellate jurisdiction over private respondents' complaint for tax refund is vested in the
CTA, it follows that a petition for certiorari seeking nullification of an interlocutory order
issued in the said case should, likewise, be filed with the same court. To rule otherwise
would lead to an absurd situation where one court decides an appeal in the main case while
another court rules on an incident in the very same case.

Stated differently, it would be somewhat incongruent with the pronounced judicial abhorrence
to split jurisdiction to conclude that the intention of the law is to divide the authority over a
local tax case filed with the RTC by giving to the CA or this Court jurisdiction to issue a writ of
certiorari against interlocutory orders of the RTC but giving to the CTA the jurisdiction over
the appeal from the decision of the trial court in the same case. It is more in consonance with
logic and legal soundness to conclude that the grant of appellate jurisdiction to the CTA over
tax cases filed in and decided by the RTC carries withit the power to issue a writ of certiorari
when necessary in aid of such appellate jurisdiction. The supervisory power or jurisdiction of
the CTA to issue a writ of certiorari in aid of its appellate jurisdiction should co-exist with, and
be a complement to, its appellate jurisdiction to review, by appeal, the final orders and
decisionsof the RTC, in order to have complete supervision over the acts of the
latter.217 (Citations omitted)

In this case, the petition for injunction filed before the Regional Trial Court of Pasay was a
local tax case originally decided by the trial court in its original jurisdiction. Since the PEZA
assailed a judgment, not an interlocutory order, of the Regional Trial Court, the PEZA’s
proper remedy was an appeal to the Court of Tax Appeals.

Considering that the appellate jurisdiction of the Court of Tax Appeals is to the exclusion of
all other courts, the Court of Appeals had no jurisdiction to take cognizance of the PEZA’s
petition. The Court of Appeals acted without jurisdiction in rendering the decision in CA-G.R.
SP No. 100984. Its decision in CA-G.R. SP No. 100984 is void.218

The filing of appeal in the wrong court does not toll the period to appeal. Consequently, the
decision of the Regional Trial Court, Branch 115, Pasay City, became final and executory
after the lapse of the 15th day from the PEZA’s receipt of the trial court’s decision.219 The
denial of the petition for injunction became final and executory.

IV.
 The remedy of a taxpayer depends on the
stage in which the local government unit
is enforcing its authority to impose real
property taxes

The proper remedy of a taxpayer depends on the stage in which the local government unit is
enforcing its authority to collect real property taxes. For the guidance of the members of the
bench and the bar, we reiterate the taxpayer’s remedies against the erroneous or illegal
assessment of real property taxes.

Exhaustion of administrative remedies under the Local Government Code is necessary in

cases of erroneous assessments where the correctness of the amount assessed is assailed.
The taxpayer must first pay the tax then file a protest with the Local Treasurer within 30 days
from date of payment of tax.220 If protest is denied or upon the lapse of the 60-day period to
decide the protest, the taxpayer may appeal to the Local Board of Assessment Appeals
within 60 days from the denial of the protest or the lapse of the 60-day period to decide the
protest.221 The Local Board of Assessment Appeals has 120 days to decide the appeal.222

If the taxpayer is unsatisfied withthe Local Board’s decision, the taxpayer may appeal before
the Central Board of Assessment Appeals within 30 days from receipt of the Local Board’s
decision.223

The decision of the Central Board of Assessment Appeals is appealable before the Court of
Tax Appeals En Banc.224 The appeal before the Court of Tax Appeals shall be filed following
the procedure under Rule 43 of the Rules of Court.225

The Court of Tax Appeals’ decision may then be appealed before this court through a
petition for review on certiorari under Rule 45 of the Rules of Court raising pure questions of
law.226

In case of an illegal assessment where the assessment was issued without authority,
exhaustion of administrative remedies is not necessary and the taxpayer may directly resort
to judicial action.227 The taxpayer shall file a complaint for injunction before the Regional Trial
Court228 to enjoin the local government unit from collecting real property taxes.

The party unsatisfied with the decision of the Regional Trial Court shall file an appeal, not a
petition for certiorari, before the Court of Tax Appeals, the complaint being a local tax case
decided by the Regional Trial Court.229 The appeal shall be filed within fifteen (15) days from
notice of the trial court’s decision.

The Court of Tax Appeals’ decision may then be appealed before this court through a
petition for review on certiorari under Rule 45 of the Rules of Court raising pure questions of
law.230

In case the local government unit has issued a notice of delinquency, the taxpayer may file a
complaint for injunction to enjoin the impending sale of the real property at public auction. In
case the local government unit has already sold the property at public auction, the taxpayer
must first deposit with the court the amount for which the real property was sold, together
with interest of 2% per month from the date ofsale to the time of the institution of action. The
taxpayer may then file a complaint to assail the validity of the public auction.231 The decisions
of the Regional Trial Court in these cases shall be appealable before the Court of Tax
Appeals,232 and the latter’s decisions appealable before this court through a petition for review
on certiorari under Rule 45 of the Rules of Court.233

V.

The PEZA is exempt from payment of

real property taxes

The jurisdictional errors in this case render these consolidated petitions moot. We do not
review void decisions rendered without jurisdiction.

However, the PEZA alleged that several local government units, including the City of Baguio
and the Province of Cavite, have issued their respective real property tax assessments
against the PEZA. Other local government units will likely follow suit, and either the PEZA or
the local government units taxing the PEZA may file their respective actions against each
other.

In the interest of judicial economy234 and avoidance of conflicting decisions involving the
same issues,235 we resolve the substantive issue of whether the PEZA is exempt from
payment of real property taxes.

Real property taxes are annual taxes levied on real property such as lands, buildings,
machinery, and other improvements not otherwise specifically exempted under the Local
Government Code.236 Real property taxes are ad valorem, with the amount charged based on
a fixed proportion of the value of the property.237 Under the law, provinces, cities, and
municipalities within the Metropolitan Manila Area have the power to levy real property taxes
within their respective territories.238

The general rule is that real properties are subject to real property taxes. This is true
especially since the Local Government Code has withdrawn exemptions from real property
taxes of all persons, whether natural or juridical:

SEC. 234. Exemptions from Real Property Tax. – The following are exempted from payment
of real property tax:

(a) 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;

(b) Charitable institutions, churches, parsonages or convents appurtenant thereto,

mosques, nonprofit or religious cemeteries and all lands, buildings, and
improvements actually, directly, and exclusively used for religious, charitable or
educational purposes;

(c) All machineries and equipment that are actually, directly and exclusively used by
local water districts and government-owned or – controlled corporations engaged in
the supply and distribution of water and/or generation and transmission of electric
power;

(d) All real property owned by duly registered cooperatives as provided under R.A.
No. 6938; and
 (e) Machinery and equipment usedfor pollution control and environmental protection.

Except as provided herein, any exemption from payment of real property taxes previously
granted to, or presently enjoyed by, all persons, whether natural or juridical, including
government-owned or -controlled corporations are hereby withdrawn upon the effectivity of
this Code. (Emphasis supplied)

The person liable for real property taxes is the "taxable person who had actual or beneficial
use and possession [of the real property for the taxable period,] whether or not [the person
owned the property for the period he or she is being taxed]."239

The exceptions to the rule are provided in the Local Government Code. Under Section
133(o), local government units have no power to levy taxes of any kind on the national
government, its agencies and instrumentalities and local government units:

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

....

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

Specifically on real property taxes, Section 234 enumerates the persons and real property
exempt from real property taxes:

SEC. 234. Exemptions from Real Property Tax. – The following are exempted from payment
of real property tax:

(a) 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;

(b) Charitable institutions, churches, parsonages or convents appurtenant thereto,

mosques, nonprofitor religious cemeteries and all lands, buildings, and
improvements actually, directly, and exclusively used for religious, charitable or
educational purposes;

(c) All machineries and equipment that are actually, directly and exclusively used by
local water districts and government-owned or – controlled corporations engaged in
the supply and distribution of water and/or generation and transmission of electric
power;

(d) All real property owned by duly registered cooperatives as provided under R.A.
No. 6938; and

(e) Machinery and equipment used for pollution control and environmental protection.

Except as provided herein, any exemption from payment of real property tax previously
granted to, or presently enjoyed by, all persons, whether natural or juridical, including all
government-owned or -controlled corporations are hereby withdrawn upon the effectivity of
this Code. (Emphasis supplied)

For persons granted tax exemptions or incentives before the effectivity of the Local
Government Code, Section 193 withdrew these tax exemption privileges. These persons
consist of both natural and juridical persons, including government-owned or controlled
corporations:

SEC. 193. Withdrawal of Tax Exemption Privileges. – Unless otherwise provided in this
code, tax exemptions or incentives granted to or presently enjoyed by all persons, whether
natural or juridical, including government-owned or controlled corporations, except local
water districts, cooperatives duly registered under R.A. 6938, non stock and non profit
hospitals and educational institutions, are hereby withdrawn upon effectivity of this Code.

As discussed, Section 234 withdrew all tax privileges with respect to real property taxes.
Nevertheless, local government units may grant tax exemptions under such terms and
conditions asthey may deem necessary:

SEC. 192. Authority to Grant Tax Exemption Privileges. – Local government units may,
through ordinances duly approved, grant tax exemptions, incentives or reliefs under such
terms and conditions as they may deem necessary.

In Mactan Cebu International Airport Authority v. Hon. Marcos,240 this court classified the
exemptions from real property taxes into ownership, character, and usage exemptions.
Ownership exemptions are exemptions based on the ownership of the real property. The
exemptions of real property owned by the Republic of the Philippines, provinces, cities,
municipalities, barangays, and registered cooperatives fall under this
classification.241 Character exemptions are exemptions based on the character of the real
property. Thus, no real property taxes may be levied on charitable institutions, houses and
temples of prayer like churches, parsonages, or convents appurtenant thereto, mosques,
and non profitor religious cemeteries.242

Usage exemptions are exemptions based on the use of the real property. Thus, no real
property taxes may be levied on real property such as: (1) lands and buildings actually,
directly, and exclusively used for religious, charitable or educational purpose; (2)
machineries and equipment actually, directly and exclusively used by local water districts or
by government-owned or controlled corporations engaged in the supply and distribution of
water and/or generation and transmission of electric power; and (3) machinery and
equipment used for pollution control and environmental protection.243

Persons may likewise be exempt from payment of real properties if their charters, which
were enacted or reenacted after the effectivity of the Local Government Code, exempt them
payment of real property taxes.244

V.

(A) The PEZA is an instrumentality of the national government

An instrumentality is "any agency of the National Government, not integrated within the
department framework, vested with special functions or jurisdiction by law, endowed with
some if not all corporate powers, administering special funds, and enjoying operational
autonomy, usually through a charter."245
Examples of instrumentalities of the national government are the Manila International Airport
Authority,246 the Philippine Fisheries Development Authority,247 the Government Service
Insurance System,248 and the Philippine Reclamation Authority.249 These entities are not
integrated within the department framework but are nevertheless vested with special
functions to carry out a declared policy of the national government.

Similarly, the PEZA is an instrumentality of the national government. It is not integrated

within the department framework but is an agency attached to the Department of Trade and
Industry.250 Book IV, Chapter 7, Section 38(3)(a) of the Administrative Code of 1987 defines
"attachment": SEC. 38. Definition of Administrative Relationship.– Unless otherwise
expressly stated in the Code or in other laws defining the special relationships of particular
agencies, administrative relationships shall be categorized and defined as follows:

....

(3) Attachment.– (a) This refers to the lateral relationship between the department or its
equivalent and the attached agency or corporation for purposes of policy and program
coordination. The coordination may be accomplished by having the department represented
in the governing board of the attached agency or corporation, either as chairman or as a
member, with or without voting rights, if this is permitted by the charter; having the attached
corporation or agency comply with a system of periodic reporting which shall reflect the
progress of the programs and projects; and having the department or its equivalent provide
general policies through its representative in the board, which shall serve as the framework
for the internal policies of the attached corporation or agency[.]

Attachment, which enjoys "a larger measure of independence"251 compared with other
administrative relationships such as supervision and control, is further explained in Beja, Sr.
v. Court of Appeals:252

An attached agency has a larger measure of independence from the Department to which it
is attached than one which is under departmental supervision and control or administrative
supervision. This is borne out by the "lateral relationship" between the Department and the
attached agency. The attachment is merely for "policy and program coordination." With
respect to administrative matters, the independence of an attached agency from
Departmental control and supervision is further reinforced by the fact that even an agency
under a Department’s administrative supervision is free from Departmental interference with
respect to appointments and other personnel actions "in accordance with the
decentralization of personnel functions" under the Administrative Code of 1987. Moreover,
the Administrative Code explicitly provides that Chapter 8 of Book IV on supervision and
control shall not apply to chartered institutions attached to a Department.253

With the PEZA as an attached agency to the Department of Trade and Industry, the 13-
person PEZA Board is chaired by the Department Secretary.254 Among the powers and
functions of the PEZA is its ability to coordinate with the Department of Trade and Industry
for policy and program formulation and implementation.255 In strategizing and prioritizing the
development of special economic zones, the PEZA coordinates with the Department of
Trade and Industry.256

The PEZA also administers its own funds and operates autonomously, with the PEZA Board
formulating and approving the PEZA’s annual budget.257 Appointments and other personnel
actions in the PEZA are also free from departmental interference, with the PEZA Board
having the exclusive and final authority to promote, transfer, assign and reassign officers of
the PEZA.258

As an instrumentality of the national government, the PEZA is vested with special functions
or jurisdiction by law. Congress created the PEZA to operate, administer, manage and
develop special economic zones in the Philippines.259 Special economic zones are areas with
highly developed or which have the potential to be developed into agro-industrial, industrial
tourist/recreational, commercial, banking, investment and financial centers.260 By operating,
administering, managing, and developing special economic zones which attract investments
and promote use of domestic labor, the PEZA carries out the following policy of the
Government: SECTION 2. Declaration of Policy. — It is the declared policy of the
government to translate into practical realities the following State policies and mandates in
the 1987 Constitution, namely:

(a) "The State recognizes the indispensable role of the private sector, encourages
private enterprise, and provides incentives to needed investments." (Sec. 20, Art. II)

(b) "The State shall promote the preferential use of Filipino labor, domestic materials
and locally produced goods, and adopt measures that help make them competitive."
(Sec. 12, Art. XII) In pursuance of these policies, the government shall actively
encourage, promote, induce and accelerate a sound and balanced industrial,
economic and social development of the country in order to provide jobs to the
people especially those in the rural areas, increase their productivity and their
individual and family income, and thereby improve the level and quality of their living
condition through the establishment, among others, of special economic zones in
suitable and strategic locations in the country and through measures that shall
effectively attract legitimate and productive foreign investments.261

Being an instrumentality of the national government, the PEZA cannot be taxed by local
government units.

Although a body corporate vested with some corporate powers,262 the PEZA is not a
government-owned or controlled corporation taxable for real property taxes.

Section 2(13) of the Introductory Provisions of the Administrative Code of 1987 defines the
term "government-owned or controlled corporation":

SEC. 2. General Terms Defined. – Unless the specific words of the text, or the context as a
whole, or a particular statute, shall require a different meaning:

....

(13) Government-owned or controlled corporation refers to any agency organized as a stock

or non-stock corporation, vested with functions relating to public needs whether
governmental or proprietary in nature, and owned by the Government directly or through its
instrumentalities either wholly, or, where applicable as in the case of stock corporations, to
the extent of at least fifty-one (51) per cent of its capital stock: Provided, That government
owned or controlled corporations may be further categorized by the Department of the
Budget, the Civil Service Commission, and the Commission on Audit for purposes of the
exercise and discharge of their respective powers, functions and responsibilities with respect
to such corporations.
Government entities are created by law, specifically, by the Constitution or by statute. In the
case of government-owned or controlled corporations, they are incorporated by virtue of
special charters263 to participate in the market for special reasons which may be related to
dysfunctions or inefficiencies of the market structure. This is to adjust reality as against the
concept of full competition where all market players are price takers. Thus, under the
Constitution, government-owned or controlled corporations are created in the interest of the
common good and should satisfy the test of economic viability.264 Article XII, Section 16 of the
Constitution provides:

Section 16. The Congress shall not, except by general law, provide for the formation,
organization, or regulation of private corporations. Government-owned or controlled
corporations may be created or established by special charters in the interest of the common
good and subject to the test of economic viability.

Economic viability is "the capacity to function efficiently in business."265 To be economically

viable, the entity "should not go into activities which the private sector can do better."266

To be considered a government-owned or controlled corporation, the entity must have been

organized as a stock or non-stock corporation.267

Government instrumentalities, on the other hand, are also created by law but partake of
sovereign functions. When a government entity performs sovereign functions, it need not
meet the test of economic viability. In Manila International Airport Authority v. Court of
Appeals,268 this court explained:

In contrast, government instrumentalities vested with corporate powers and performing

governmental orpublic functions need not meet the test of economic viability. These
instrumentalities perform essential public services for the common good, services that every
modern State must provide its citizens. These instrumentalities need not be economically
viable since the government may even subsidize their entire operations. These
instrumentalities are not the "government-owned or controlled corporations" referred to in
Section 16, Article XII of the 1987 Constitution.

Thus, the Constitution imposes no limitation when the legislature creates government
instrumentalities vested with corporate powers but performing essential governmental or
public functions. Congress has plenary authority to create government instrumentalities
vested with corporate powers provided these instrumentalities perform essential government
functions or public services. However, when the legislature creates through special charters
corporations that perform economic or commercial activities, such entities — known as
"government-owned or controlled corporations" — must meetthe test of economic viability
because they compete in the market place.

....

Commissioner Blas F. Ople, proponent of the test of economic viability, explained to the
Constitutional Commission the purpose of this test, as follows:

MR. OPLE: Madam President, the reason for this concern is really that when the government
creates a corporation, there is a sense in which this corporation becomes exempt from the
test of economic performance. We know what happened in the past. If a government
corporation loses, then it makes its claim upon the taxpayers' money through new equity
infusions from the government and what is always invoked is the common good. That is the
reason why this year, out of a budget of ₱115 billion for the entire government, about ₱28
billion of this will go into equity infusions to support a few government financial institutions.
And this is all taxpayers' money which could have been relocated to agrarian reform, to
social services like health and education, to augment the salaries of grossly underpaid public
employees. And yet this is all going down the drain.

Therefore, when we insert the phrase "ECONOMIC VIABILITY" together with the "common
good," this becomes a restraint on future enthusiasts for state capitalism to excuse
themselves from the responsibility of meeting the market test so that they become viable.
And so, Madam President, I reiterate, for the committee's consideration and I am glad that I
am joined in this proposal by Commissioner Foz, the insertion of the standard of
"ECONOMIC VIABILITY OR THE ECONOMIC TEST," together with the common good.

....

Clearly, the test of economic viability does not apply to government entities vested with
corporate powers and performing essential public services. The State is obligated to render
essential public services regardless of the economic viability of providing such service. The
noneconomic viability of rendering such essential public service does not excuse the State
from withholding such essential services from the public.269 (Emphases and citations omitted)

The law created the PEZA’s charter. Under the Special Economic Zone Act of 1995, the
PEZA was established primarily to perform the governmental function of
operating,administering, managing, and developing special economic zones to attract
investments and provide opportunities for preferential use of Filipino labor.

Under its charter, the PEZA was created a body corporate endowed with some corporate
powers. However, it was not organized as a stock270 or non-stock271 corporation. Nothing in
the PEZA’s charter provides that the PEZA’s capital is divided into shares.272 The PEZA also
has no members who shall share in the PEZA’s profits.

The PEZA does not compete with other economic zone authorities in the country. The
government may even subsidize the PEZA’s operations. Under Section 47 of the Special
Economic Zone Act of 1995, "any sum necessary to augment [the PEZA’s] capital outlay
shall be included in the General Appropriations Act to be treated as an equity of the national
government."273

The PEZA, therefore, need not be economically viable. It is not a government-owned or

controlled corporation liable for real property taxes.

V. (B)

The PEZA assumed the non-profit character, including the tax exempt status, of the EPZA

The PEZA’s predecessor, the EPZA, was declared non-profit in character with all its
revenues devoted for its development, improvement, and maintenance. Consistent with this
non-profit character, the EPZA was explicitly declared exempt from real property taxes under
its charter. Section 21 of Presidential Decree No. 66 provides:

Section 21. Non-profit Character of the Authority; Exemption from Taxes. The Authority shall
be non-profit and shall devote and use all its returns from its capital investment, as well as
excess revenues from its operations, for the development, improvement and maintenance
and other related expenditures of the Authority to pay its indebtedness and obligations and in
furtherance and effective implementation of the policy enunciated in Section 1 of this Decree.
In consonance therewith, the Authority is hereby declared exempt:

....

(b) From all income taxes, franchise taxes, realty taxes and all other kinds of taxes and
licenses to be paid to the National Government, its provinces, cities, municipalities and other
government agencies and instrumentalities[.]

The Special Economic Zone Act of 1995, on the other hand, does not specifically exempt the
PEZA from payment of real property taxes.

Nevertheless, we rule that the PEZA is exempt from real property taxes by virtue of its
charter. A provision in the Special Economic Zone Act of 1995 explicitly exempting the PEZA
is unnecessary. The PEZA assumed the real property exemption of the EPZA under
Presidential Decree No. 66.

Section 11 of the Special Economic Zone Act of 1995 mandated the EPZA "to evolve into the
PEZA in accordance with the guidelines and regulations set forth in an executive order
issued for this purpose." President Ramos then issued Executive Order No. 282 in 1995,
ordering the PEZA to assume the EPZA’s powers, functions, and responsibilities under
Presidential Decree No. 66 not inconsistent with the Special Economic Zone Act of 1995:

SECTION 1. Assumption of EPZA’s Powers and Functions by PEZA. All the powers,
functions and responsibilities of EPZA as provided under its Charter, Presidential Decree No.
66, as amended, insofar as they are not inconsistent with the powers,functions and
responsibilities of the PEZA, as mandated under Republic Act No. 7916, shall hereafter be
assumed and exercised by the PEZA. Henceforth, the EPZA shall be referred to as the
PEZA.

The following sections of the Special Economic Zone Act of 1995 provide for the PEZA’s
powers,functions, and responsibilities:

SEC. 5. Establishment of ECOZONES. – To ensure the viability and geographical dispersal

of ECOZONES through a system of prioritization, the following areas are initially identified as
ECOZONES, subject to the criteria specified in Section 6:

....

The metes and bounds of each ECOZONE are to be delineated and more particularly
described in a proclamation to be issued by the President of the Philippines, upon the
recommendation of the Philippine Economic Zone Authority (PEZA), which shall be
established under this Act, in coordination with the municipal and / or city council, National
Land Use Coordinating Committee and / or the Regional Land Use Committee.

SEC. 6. Criteria for the Establishment of Other ECOZONES. – In addition to the ECOZONES
identified in Section 5 of this Act, other areas may be established as ECOZONES in a
proclamation to be issued by the President of the Philippines subject to the evaluation and
recommendation of the PEZA, based on a detailed feasibility and engineering study which
must conform to the following criteria:

(a) The proposed area must be identified as a regional growth center in the Medium-
Term Philippine Development Plan or by the Regional Development Council;

(b) The existence of required infrastructure in the proposed ECOZONE, such as

roads, railways, telephones, ports, airports, etc., and the suitability and capacity of
the proposed site to absorb such improvements;

(c) The availability of water source and electric power supply for use of the
ECOZONE;

(d) The extent of vacant lands available for industrial and commercial development
and future expansion of the ECOZONE as well as of lands adjacent to the
ECOZONE available for development of residential areas for the ECOZONE
workers;

(e) The availability of skilled, semi-skilled and non-skilled trainable labor force in and
around the ECOZONE;

(f) The area must have a significant incremental advantage over the existing
economic zones and its potential profitability can be established;

(g) The area must be strategically located; and

(h) The area must be situated where controls can easily be established to curtail
smuggling activities.

Other areas which do not meet the foregoing criteria may be established as ECOZONES:
Provided, That the said area shall be developed only through local government and/or
private sector initiative under any of the schemes allowed in Republic Act No. 6957 (the
build-operate-transfer law), and without any financial exposure on the part of the national
government: Provided, further, That the area can be easily secured to curtail smuggling
activities: Provided, finally, That after five (5) years the area must have attained a substantial
degree of development, the indicators of which shall be formulated by the PEZA.

SEC. 7. ECOZONE to be a Decentralized Agro-Industrial, Industrial, Commercial / Trading,

Tourist, Investment and Financial Community. - Within the framework of the Constitution, the
interest of national sovereignty and territorial integrity of the Republic, ECOZONE shall be
developed, as much as possible, into a decentralized, self-reliant and self-sustaining
industrial, commercial/trading, agro-industrial, tourist, banking, financial and investment
center with minimum government intervention. Each ECOZONE shall be provided with
transportation, telecommunications, and other facilities needed to generate linkage with
industries and employment opportunitiesfor its own inhabitants and those of nearby towns
and cities.

The ECOZONE shall administer itself on economic, financial, industrial, tourism development
and such other matters within the exclusive competence of the national government.
The ECOZONE may establish mutually beneficial economic relations with other entities
within the country, or, subject to the administrative guidance of the Department of Foreign
Affairs and/or the Department of Trade and Industry, with foreign entities or enterprises.

Foreign citizens and companies owned by non-Filipinos in whatever proportion may set up
enterprises in the ECOZONE, either by themselves or in joint venture with Filipinos in any
sector of industry, international trade and commerce within the ECOZONE. Their assets,
profits and other legitimate interests shall be protected: Provided, That the ECOZONE
through the PEZA may require a minimum investment for any ECOZONE enterprises in
freely convertible currencies: Provided, further, That the new investment shall fall under the
priorities, thrusts and limits provided for in the Act.

SEC. 8. ECOZONE to be Operated and Managed as Separate Customs Territory. – The

ECOZONE shall be managed and operated by the PEZA as separate customs territory.

The PEZA is hereby vested with the authority to issue certificate of origin for products
manufactured or processed in each ECOZONE in accordance with the prevailing rules or
origin, and the pertinent regulations of the Department of Trade and Industry and/or the
Department of Finance.

SEC. 9. Defense and Security. – The defense of the ECOZONE and the security of its
perimeter fence shall be the responsibility of the national government in coordination with the
PEZA. Military forces sent by the national government for the purpose of defense shall not
interfere in the internal affairs of any of the ECOZONE and expenditure for these military
forces shall be borne by the national government. The PEZA may provide and establish the
ECOZONES’ internal security and firefighting forces.

SEC. 10. Immigration. – Any investor within the ECOZONE whose initial investment shall not
be less than One Hundred Fifty Thousand Dollars ($150,000.00), his/her spouse and
dependent children under twenty-one (21) years of age shall be granted permanent resident
status within the ECOZONE. They shall have freedom of ingress and egress to and from the
ECOZONE without any need of special authorization from the Bureau of Immigration.

The PEZA shall issue working visas renewable every two (2) years to foreign executives and
other aliens, processing highly-technical skills which no Filipino within the ECOZONE
possesses, as certified by the Department of Labor and Employment. The names of aliens
granted permanent resident status and working visas by the PEZA shall be reported to the
Bureau of Immigration within thirty (30) days after issuance thereof.

SEC. 13. General Powers and Functions of the Authority. – The PEZA shall have the
following powers and functions:

(a) To operate, administer, manage and develop the ECOZONE according to the
principles and provisions set forth in this Act;

(b) To register, regulate and supervise the enterprises in the ECOZONE in an

efficient and decentralized manner;

(c) To coordinate with local government units and exercise general supervision over
the development, plans, activities and operations of the ECOZONES, industrial
estates, export processing zones, free trade zones, and the like;
 (d) In coordination with local government units concerned and appropriate agencies,
to construct,acquire, own, lease, operate and maintain on its own or through
contract, franchise, license, bulk purchase from the private sector and build-operate-
transfer scheme or joint venture, adequate facilities and infrastructure, such as light
and power systems, water supply and distribution systems, telecommunication and
transportation, buildings, structures, warehouses, roads, bridges, ports and other
facilities for the operation and development of the ECOZONE;

(e) To create, operate and/or contractto operate such agencies and functional units
or offices of the authority as it may deem necessary;

(f) To adopt, alter and use a corporate seal; make contracts, lease, own or otherwise
dispose of personal or real property; sue and be sued; and otherwise carry out its
duties and functions as provided for in this Act;

(g) To coordinate the formulation and preparation of the development plans of the
different entities mentioned above;

(h) To coordinate with the National Economic Development Authority (NEDA), the
Department of Trade and Industry (DTI), the Department of Science and Technology
(DOST), and the local government units and appropriate government agencies for
policy and program formulation and implementation; and

(i) To monitor and evaluate the development and requirements of entities in

subsection (a) and recommend to the local government units or other appropriate
authorities the location, incentives, basic services, utilities and infrastructure required
or to be made available for said entities.

SEC. 17. Investigation and Inquiries. – Upon a written formal complaint made under oath,
which on its face provides reasonable basis to believe that some anomaly or irregularity
might have been committed, the PEZA or the administrator of the ECOZONE concerned,
shall have the power to inquire into the conduct of firms or employees of the ECOZONE and
to conduct investigations, and for that purpose may subpoena witnesses, administer oaths,
and compel the production of books, papers, and other evidences: Provided, That to arrive at
the truth, the investigator(s) may grant immunity from prosecution to any person whose
testimony or whose possessions of documents or other evidence is necessary or convenient
to determine the truth in any investigation conducted by him or under the authority of the
PEZA or the administrator of the ECOZONE concerned.

SEC. 21. Development Strategy of the ECOZONE. - The strategy and priority of
development of each ECOZONE established pursuant to this Act shall be formulated by the
PEZA, in coordination with the Department of Trade and Industry and the National Economic
and Development Authority; Provided, That such development strategy is consistent with the
priorities of the national government as outlined in the medium-term Philippine development
plan. It shall be the policy of the government and the PEZA to encourage and provide
Incentives and facilitate private sector participation in the construction and operation of public
utilities and infrastructure in the ECOZONE, using any of the schemes allowed in Republic
Act No. 6957 (the build-operate-transfer law).

SEC. 22. Survey of Resources. The PEZA shall, in coordination with appropriate authorities
and neighboring cities and municipalities, immediately conduct a survey of the physical,
natural assets and potentialities of the ECOZONE areas under its jurisdiction.
SEC. 26. Domestic Sales. – Goods manufactured by an ECOZONE enterprise shall be made
available for immediate retail sales in the domestic market, subject to payment of
corresponding taxes on the raw materials and other regulations that may be adopted by the
Board of the PEZA. However, in order to protect the domestic industry, there shall be a
negative list of Industries that willbe drawn up by the PEZA. Enterprises engaged in the
industries included in the negative list shall not be allowed to sell their products locally. Said
negative list shall be regularly updated by the PEZA.

The PEZA, in coordination with the Department of Trade and Industry and the Bureau of
Customs, shall jointly issue the necessary implementing rules and guidelines for the effective
Implementation of this section.

SEC. 29. Eminent Domain. – The areas comprising an ECOZONE may be expanded or
reduced when necessary. For this purpose, the government shall have the power to acquire,
either by purchase, negotiation or condemnation proceedings, any private lands within or
adjacent to the ECOZONE for:

a. Consolidation of lands for zone development purposes;

b. Acquisition of right of way to the ECOZONE; and

c. The protection of watershed areas and natural assets valuable to the prosperity of
the ECOZONE.

If in the establishment of a publicly-owned ECOZONE, any person or group of persons who

has been occupying a parcel of land within the Zone has to be evicted, the PEZA shall
provide the person or group of persons concerned with proper disturbance compensation:
Provided, however, That in the case of displaced agrarian reform beneficiaries, they shall be
entitled to the benefits under the Comprehensive Agrarian Reform Law, including but not
limited to Section 36 of Republic Act No. 3844, in addition to a homelot in the relocation site
and preferential employment in the project being undertaken.

SEC. 32. Shipping and Shipping Register. – Private shipping and related business including
private container terminals may operate freely in the ECOZONE, subject only to such
minimum reasonable regulations of local application which the PEZA may prescribe.

The PEZA shall, in coordination with the Department of Transportation and Communications,
maintain a shipping register for each ECOZONE as a business register of convenience for
ocean-going vessels and issue related certification.

Ships of all sizes, descriptions and nationalities shall enjoy access to the ports of the
ECOZONE, subject only to such reasonable requirement as may be prescribed by the PEZA
In coordination with the appropriate agencies of the national government.

SEC. 33. Protection of Environment. - The PEZA, in coordination with the appropriate
agencies, shall take concrete and appropriate steps and enact the proper measure for the
protection of the local environment.

SEC. 34. Termination of Business. - Investors In the ECOZONE who desire to terminate
business or operations shall comply with such requirements and procedures which the PEZA
shall set, particularly those relating to the clearing of debts. The assets of the closed
enterprise can be transferred and the funds con be remitted out of the ECOZONE subject to
the rules, guidelines and procedures prescribed jointly by the Bangko Sentral ng Pilipinas,
the Department of Finance and the PEZA.

SEC. 35. Registration of Business Enterprises. - Business enterprises within a designated

ECOZONE shall register with the PEZA to avail of all incentives and benefits provided for in
this Act.

SEC. 36. One Stop Shop Center. - The PEZA shall establish a one stop shop center for the
purpose of facilitating the registration of new enterprises in the ECOZONE. Thus, all
appropriate government agencies that are Involved In registering, licensing or issuing
permits to investors shall assign their representatives to the ECOZONE to attend to
Investor’s requirements.

SEC. 39. Master Employment Contracts. - The PEZA, in coordination with the Department of
Tabor and Employment, shall prescribe a master employment contract for all ECOZONE
enterprise staff members and workers, the terms of which provide salaries and benefits not
less than those provided under this Act, the Philippine Labor Code, as amended, and other
relevant issuances of the national government.

SEC. 41. Migrant Worker. - The PEZA, in coordination with the Department of Labor and
Employment, shall promulgate appropriate measures and programs leading to the expansion
of the services of the ECOZONE to help the local governments of nearby areas meet the
needs of the migrant workers.

SEC. 42. Incentive Scheme. - An additional deduction equivalent to one- half (1/2) of the
value of training expenses incurred in developing skilled or unskilled labor or for managerial
or other management development programs incurred by enterprises in the ECOZONE can
be deducted from the national government's share of three percent (3%) as provided In
Section 24.

The PEZA, the Department of Labor and Employment, and the Department of Finance shall
jointly make a review of the incentive scheme provided In this section every two (2) years or
when circumstances so warrant.

SEC. 43. Relationship with the Regional Development Council. - The PEZA shall determine
the development goals for the ECOZONE within the framework of national development
plans, policies and goals, and the administrator shall, upon approval by the PEZA Board,
submit the ECOZONE plans, programs and projects to the regional development council for
inclusion in and as inputs to the overall regional development plan.

SEC. 44. Relationship with the Local Government Units. - Except as herein provided, the
local government units comprising the ECOZONE shall retain their basic autonomy and
identity. The cities shall be governed by their respective charters and the municipalities shall
operate and function In accordance with Republic Act No. 7160, otherwise known as the
Local Government Code of 1991.

SEC. 45. Relationship of PEZA to Privately-Owned Industrial Estates. – Privately-owned

industrial estates shall retain their autonomy and independence and shall be monitored by
the PEZA for the implementation of incentives.
SEC. 46. Transfer of Resources. - The relevant functions of the Board of Investments over
industrial estates and agri-export processing estates shall be transferred to the PEZA. The
resources of government owned Industrial estates and similar bodies except the Bases
Conversion Development Authority and those areas identified under Republic Act No. 7227,
are hereby transferred to the PEZA as the holding agency. They are hereby detached from
their mother agencies and attached to the PEZA for policy, program and operational
supervision.

The Boards of the affected government-owned industrial estates shall be phased out and
only the management level and an appropriate number of personnel shall be retained.

Government personnel whose services are not retained by the PEZA or any government
office within the ECOZONE shall be entitled to separation pay and such retirement and other
benefits theyare entitled to under the laws then in force at the time of their separation:
Provided, That in no case shall the separation pay be less than one and one-fourth (1 1/4)
month of every year of service.

The non-profit character of the EPZA under Presidential Decree No. 66 is not inconsistent
with any of the powers, functions, and responsibilities of the PEZA. The EPZA’s non-profit
character, including the EPZA’s exemption from real property taxes, must be deemed
assumed by the PEZA.

In addition, the Local Government Code exempting instrumentalities of the national

government from real property taxes was already in force274 when the PEZA’s charter was
enacted in 1995. It would have been redundant to provide for the PEZA’s exemption in its
charter considering that the PEZA is already exempt by virtue of Section 133(o) of the Local
Government Code.

As for the EPZA, Commonwealth Act No. 470 or the Assessment Law was in force when the
EPZA’s charter was enacted. Unlike the Local Government Code, Commonwealth Act No.
470 does not contain a provision specifically exempting instrumentalities of the national
government from payment of real property taxes.275 It was necessary to put an exempting
provision in the EPZA’s charter.

Contrary to the PEZA’s claim, however, Section 24 of the Special Economic Zone Act of
1995 is not a basis for the PEZA’s exemption. Section 24 of the Special Economic Zone Act
of 1995 provides:

Sec. 24. Exemption from National and Local Taxes. — Except for real property taxes on land
owned by developers, no taxes, local and national, shall be imposed on business
establishments operating within the ECOZONE. In lieu thereof, five percent (5%) of the gross
income earned by all business enterprises within the ECOZONEshall be paid and remitted
as follows:

(a) Three percent (3%) to the National Government;

(b) Two percent (2%) which shall be directly remitted by the business establishments
to the treasurer's office of the municipality or city where the enterprise is located.
(Emphasis supplied)

Tax exemptions provided under Section 24 apply only to business establishments operating
within economic zones. Considering that the PEZA is not a business establishment but an
instrumentality performing governmental functions, Section 24 is inapplicable to the PEZA.
Also, contrary to the PEZA’s claim, developers ofeconomic zones, whether public or private
developers, are liable for real property taxes on lands they own. Section 24 does not
distinguish between a public and private developer. Thus, courts cannot distinguish.276 Unless
the public developer is exempt under the Local Government Code or under its charter
enacted after the Local Government Code’s effectivity, the public developer must pay real
property taxes on their land.

At any rate, the PEZA cannot be taxed for real property taxes even if it acts as a developer
or operator of special economic zones. The PEZA is an instrumentality of the national
government exempt from payment of real property taxes under Section 133(o) of the Local
Government Code. As this court said in Manila International Airport Authority, "there must be
express language in the law empowering local governments to tax national government
instrumentalities. Any doubt whether such power exists is resolved against local
governments."277

V. (C)

Real properties under the PEZA’s title are owned by the Republic of the Philippines

Under Section 234(a) of the LocalGovernment Code, real properties owned by the Republic
of the Philippines are exempt from real property taxes:

SEC. 234. Exemptions from Real Property Tax. – The following are exempted from payment
of real property tax:

(a) 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[.]

Properties owned by the state are either property of public dominion or patrimonial property.
Article 420 of the Civil Code of the Philippines enumerates property of public dominion:

Art. 420. The following things are property of public dominion:

(1) Those intended for public use, such as roads, canals, rivers, torrents, ports and
bridges constructed by the State, banks, shores, roadsteads, and others of similar
character;

(2) Those which belong to the State, without belonging for public use, and are
intended for some public service or for the development of the national wealth.

Properties of public dominion are outside the commerce of man. These properties are
exempt from "levy, encumbrance or disposition through public or private sale."278 As this court
explained in Manila International Airport Authority:

Properties of public dominion, being for public use, are not subject to levy, encumbrance or
disposition through public or private sale. Any encumbrance, levy on execution or auction
sale of any property of public dominion is void for being contrary to public policy. Essential
public services will stop if properties of public dominion are subject to encumbrances,
foreclosures and auction sale[.]279
On the other hand, all other properties of the state that are not intended for public use or are
not intended for some public service or for the development of the national wealth are
patrimonial properties. Article 421 of the Civil Code of the Philippines provides:

Art. 421. All other property of the State, which is not of the character stated in the preceding
article, is patrimonial property.

Patrimonial properties are also properties of the state, but the state may dispose of its
patrimonial property similar to private persons disposing of their property. Patrimonial
properties are within the commerce of man and are susceptible to prescription, unless
otherwise provided.280

In this case, the properties sought to be taxed are located in publicly owned economic zones.
These economic zones are property of public dominion. The City seeks to tax properties
located within the Mactan Economic Zone,281 the site of which was reserved by President
Marcos under Proclamation No. 1811, Series of 1979. Reserved lands are lands of the public
domain set aside for settlement or public use, and for specific public purposes by virtue of a
presidential proclamation.282 Reserved lands are inalienable and outside the commerce of
man,283 and remain property of the Republic until withdrawn from publicuse either by law or
presidential proclamation.284 Since no law or presidential proclamation has been issued
withdrawing the site of the Mactan Economic Zone from public use, the property remains
reserved land.

As for the Bataan Economic Zone, the law consistently characterized the property as a port.
Under Republic Act No. 5490, Congress declared Mariveles, Bataan "a principal port of
entry"285 to serve as site of a foreign trade zone where foreign and domestic merchandise
may be brought in without being subject to customs and internal revenue laws and
regulations of the Philippines.286

Section 4 of Republic Act No. 5490 provided that the foreign trade zone in Mariveles, Bataan
"shall at all times remain to be owned by the Government":

SEC. 4. Powers and Duties.– The Foreign Trade Zone Authority shall have the following
powers and duties:

a. To fix and delimit the site of the Zone which at all times remain to be owned by the
Government, and which shall have a contiguous and adequate area with well defined and
policed boundaries, with adequate enclosures to segregate the Zone from the customs
territory for protection of revenues, together with suitable provisions for ingress and egress of
persons, conveyance, vessels and merchandise sufficient for the purpose of this Act[.]
(Emphasis supplied)

The port in Mariveles, Bataan then became the Bataan Economic Zone under the Special
Economic Zone Act of 1995.287 Republic Act No. 9728 then converted the Bataan Economic
Zone into the Freeport Area of Bataan.288

A port of entry, where imported goods are unloaded then introduced in the market for public
consumption, is considered property for public use. Thus, Article 420 of the Civil Code
classifies a port as property of public dominion. The Freeport Area of Bataan, where the
government allows tax and duty-free importation of goods,289 is considered property of public
dominion. The Freeport Area of Bataan is owned by the state and cannot be taxed under
Section 234(a) of the Local Government Code.
Properties of public dominion, even if titled in the name of an instrumentality as in this case,
remain owned by the Republic of the Philippines. If property registered in the name of an
instrumentality is conveyed to another person,the property is considered conveyed on behalf
of the Republic of the Philippines. Book I, Chapter 12, Section 48 of the Administrative Code
of 1987 provides:

SEC. 48. Official Authorized to Convey Real Property. – Whenever real property of the
government is authorized by law to be conveyed, the deed of conveyance shall be executed
in behalf of the government by the following:

....

(2) For property belonging to the Republic of the Philippines, but titled in the name of any
political subdivision orof any corporate agency or instrumentality, by the executive head of
the agency or instrumentality. (Emphasis supplied)

In Manila International Airport Authority, this court explained:

[The exemption under Section 234(a) of the Local Government Code] should be read in
relation with Section 133(o) of the same Code, which prohibits local governments from
imposing "[t]axes, fess or charges of any kind on the National Government, its agencies and
instrumentalitiesx x x." The real properties owned by the Republic are titled either in the
name of the Republic itself or in the name of agencies or instrumentalities of the National
Government.The Administrative Code allows real property owned by the Republic to be titled
in the name of agencies or instrumentalities of the national government. Such real properties
remained owned by the Republic of the Philippines and continue to be exempt from real
estate tax.

The Republic may grant the beneficialuse of its real property to an agency or instrumentality
of the national government. This happens when title of the real property is transferred to an
agency or instrumentality even as the Republic remains the owner of the real property. Such
arrangement does not result in the loss of the tax exemption/ Section 234(a) of the Local
Government Code states that real property owned by the Republic loses its tax exemption
only if the "beneficial use thereof has been granted, for consideration or otherwise, to a
taxable person." . . .290 (Emphasis in the original; italics supplied)

Even the PEZA’s lands and buildings whose beneficial use have been granted to other
persons may not be taxed with real property taxes. The PEZA may only lease its lands and
buildings to PEZA-registered economic zone enterprises and entities.291 These PEZA-
registered enterprises and entities, which operate within economic zones, are not subject to
real property taxes. Under Section 24 of the Special Economic Zone Act of 1995, no taxes,
whether local or national, shall be imposed on all business establishments operating within
the economic zones: SEC. 24. Exemption from National and Local Taxes. – Except for real
property on land owned by developers, no taxes, local and national, shall be imposed on
business establishments operating within the ECOZONE. In lieu thereof, five percent (5%) of
the gross income earned by all business enterprises within the ECOZONE shall be paid and
remitted as follows:

a. Three percent (3%) to the National Government;

b. Two percent (2%) which shall be directly remitted by the business establishments to the
treasurer’s office of the municipality or city where the enterprise is located.292 (Emphasis
supplied)

In lieu of revenues from real property taxes, the City of Lapu-Lapu collects two-fifths of 5%
final tax on gross income paid by all business establishments operating withinthe Mactan
Economic Zone:

SEC. 24. Exemption from National and Local Taxes. – Except for real property on land
owned by developers, no taxes, local and national, shall be imposed on business
establishments operating within the ECOZONE. In lieu thereof, five percent (5%) of the gross
income earned by all business enterprises within the ECOZONE shall be paid and remitted
as follows:

a. Three percent (3%) to the National Government;

b. Two percent (2%) which shall be directly remitted by the business establishments
to the treasurer’s office of the municipality or city where the enterprise is
located.293 (Emphasis supplied)

For its part, the Province of Bataan collects a fifth of the 5% final tax on gross income paid by
all business establishments operating within the Freeport Area of Bataan:

Section 6. Imposition of a Tax Rate of Five Percent (5%) on Gross Income Earned. - No
taxes, local and national, shall be imposed on business establishments operating withinthe
FAB. In lieu thereof, said business establishments shall pay a five percent (5%) final tax on
their gross income earned in the following percentages:

(a) One per centum (1%) to the National Government;

(b) One per centum (1%) to the Province of Bataan;

(c) One per centum (1%) to the treasurer's office of the Municipality of Mariveles; and

(d) Two per centum (2%) to the Authority of the Freeport of Area of
Bataan.294 (Emphasis supplied)

Petitioners, therefore, are not deprived of revenues from the operations of economic zones
within their respective territorial jurisdictions.

The national government ensured that loeal government units comprising economic zones
shall retain their basic autonomy and identity.295

All told, the PEZA is an instrumentality of the national government. Furthermore, the lands
1âw phi 1

owned by the PEZA are real properties owned by the Republic of the Philippines. The City of
Lapu-Lapu and the Province of Bataan cannot collect real property taxes from the PEZA.

WHEREFORE, the consolidated petitions are DENIED.

SO ORDERED.