G.R. No. 114231 . May 18, 2001.
MANILA ELECTRIC COMPANY, petitioner, vs. NELIA A. BARLIS, in her capacity as Officer-in-Charge/Acting Municipal Treasurer of Muntinlupa, substituting EDUARDO A. ALON, former Municipal Treasurer of Muntinlupa, Metro Manila, respondent.

FACTS

From 1968 to 1972, petitioner Manila Electric Company (MERALCO) erected four power generating plants in Sucat, Muntinlupa. It filed tax declarations for these properties when the Real Property Tax Code took effect and paid real property taxes from 1975 to 1978. On December 29, 1978, MERALCO sold the power plants, including the land, to the National Power Corporation (NAPOCOR). In 1985, the municipal government of Muntinlupa discovered that MERALCO had allegedly misdeclared or failed to declare for taxation several equipment and machineries in the power plants for the period January 1, 1976, to December 29, 1978. The Municipal Assessor issued corresponding tax declarations to MERALCO on November 19, 1985. After MERALCO did not respond, the Municipal Treasurer issued collection notices on September 3, 1986, demanding payment of the deficiency taxes. MERALCO did not pay. After hearings, the Bureau of Local Government Finance-Department of Finance issued a Letter-Endorsement on August 14, 1989, declaring MERALCO liable for the deficiency taxes. The Municipal Treasurer then sent a supplemental collection notice on October 31, 1989, demanding payment of P36,000,000.00 in unpaid taxes, and a formal demand letter on November 20, 1989. MERALCO again did not pay. Consequently, the Municipal Treasurer issued warrants of garnishment on October 10, 1990, attaching MERALCO’s bank deposits to satisfy the tax delinquency. MERALCO filed a Petition for Prohibition with a prayer for a writ of preliminary injunction and/or temporary restraining order (TRO) before the Regional Trial Court (RTC) of Makati to enjoin the enforcement of the warrants. The RTC issued a TRO and later modified it. MERALCO filed an Amended Petition. The Municipal Treasurer filed a Motion to Dismiss on grounds of lack of jurisdiction, citing Section 64 of the Real Property Tax Code which prohibits courts from entertaining suits assailing tax validity until the tax is paid under protest, and lack of cause of action due to MERALCO’s failure to question the assessment before the Local Board of Assessment Appeals. The RTC denied the motion. The Municipal Treasurer assailed this order via a Petition for Certiorari to the Supreme Court, later endorsed to the Court of Appeals. The Court of Appeals granted the petition, declaring the RTC order void for lack of jurisdiction, insufficient cause of action, and failure to exhaust administrative remedies. MERALCO’s motion for reconsideration was denied.

ISSUE

1. Whether or not the RTC has jurisdiction over a petition for prohibition seeking to set aside warrants of garnishment over MERALCO’s bank deposits without payment under protest of the tax assessed as required under Section 64 of the Real Property Tax Code.
2. Whether or not the Petition for Prohibition had no cause of action due to MERALCO’s failure to exhaust available administrative remedies, specifically by questioning the notice of assessment before the Local Board of Assessment Appeals.

RULING

The Supreme Court denied the petition, affirming the Court of Appeals’ decision. On the first issue, the Court held that the RTC had no jurisdiction. Section 64 of the Real Property Tax Code explicitly prohibits any court from entertaining any suit assailing the validity of a tax assessment until the taxpayer has paid the tax under protest. MERALCO’s petition for prohibition, which sought to annul the warrants of garnishment, was essentially a suit challenging the validity of the tax assessment and collection. Since MERALCO did not pay the tax under protest, the RTC was barred from taking cognizance of the case. The Court rejected MERALCO’s argument that it was not the “taxpayer” referred to in Section 64 because it was no longer the owner of the properties. The liability for real property taxes attaches to the property and is chargeable against the person who owned it during the period of delinquency. MERALCO was the owner during the tax period in question and was therefore the taxpayer liable for the deficiency taxes. On the second issue, the Court held that MERALCO failed to exhaust administrative remedies. The proper recourse for a taxpayer questioning a real property tax assessment is to appeal first to the Local Board of Assessment Appeals, as provided under Sections 30 and 36 of the Real Property Tax Code. MERALCO did not do so. The Court found that the notices sent by the Municipal Treasurer, although termed “collection notices,” were in effect notices of assessment that informed MERALCO of the tax due and its right to appeal. MERALCO’s failure to avail of this administrative remedy deprived the RTC of jurisdiction over the petition. Furthermore, the Court noted that the issuance of the warrants of garnishment was a valid enforcement action for tax delinquency under the Real Property Tax Code, and the properties exempt from such garnishment under Section 69 did not include bank deposits. Therefore, the RTC’s order denying the motion to dismiss was issued without jurisdiction.