G.R. No. 152675 & G.R. No. 152771; April 28, 2004
Batangas Power Corporation, petitioner, vs. Batangas City and National Power Corporation, respondents. (Consolidated with National Power Corporation, petitioner, vs. Hon. Ricardo R. Rosario, et al., respondents.)

FACTS

During the 1990s power crisis, the National Power Corporation (NPC) entered into a Build-Operate-Transfer (BOT) Agreement with Enron Power Development Corporation, later assigned to Batangas Power Corporation (BPC), to construct and operate a power plant in Batangas City. Section 11.02 of the BOT Agreement stipulated that NPC would assume responsibility for payment of all taxes on the power station, except income taxes. BPC, registered as a pioneer enterprise with the Board of Investments (BOI), claimed a six-year local business tax holiday. Batangas City later demanded business tax payments from BPC, contending the tax holiday commenced from BPC’s BOI registration date in September 1992 and had thus expired. BPC refused, arguing the holiday started from its commercial operation in July 1993 and, alternatively, that NPC was liable under the BOT Agreement.
NPC intervened, admitting its contractual obligation but refusing payment, asserting its tax-exempt status under its charter. BPC filed a petition for declaratory relief, later converted to an injunction, to prevent Batangas City from withholding its business permit. The Regional Trial Court dismissed the petition, ruling BPC was liable for the taxes, NPC’s tax exemption was withdrawn by the Local Government Code (LGC), and the tax holiday started from BOI registration.

ISSUE

The primary issues were: (1) whether NPC’s tax exemption under its charter survived the enactment of the LGC; (2) when BPC’s six-year local tax holiday as a pioneer enterprise commenced; and (3) who, between BPC and NPC, was ultimately liable to pay the local business taxes to Batangas City.

RULING

The Supreme Court affirmed the RTC with modification. First, it ruled that NPC’s tax exemption was withdrawn by the LGC. Section 193 of the LGC expressly withdraws tax exemptions of all persons and juridical entities, including government-owned and controlled corporations, unless specifically exempted. NPC, not being among the enumerated exceptions like local water districts, lost its exemption. The Court clarified that the LGC, being a later and more comprehensive law, impliedly repealed NPC’s special charter provision.
Second, the Court held that BPC’s six-year tax holiday under Section 133(g) of the LGC commenced from its registration as a pioneer enterprise with the BOI on September 23, 1992, not from the start of commercial operations. The law is clear and does not provide for a different starting point based on BOI’s designation for income tax purposes. Therefore, the holiday expired on September 22, 1998, making BPC liable for business taxes thereafter.
Finally, on the issue of liability, the Court ruled that while BPC, as the entity doing business in the city, is the direct taxpayer, NPC is ultimately liable under the BOT Agreement. NPC’s assumption of tax liability is a valid contractual obligation. Since the LGC had already withdrawn NPC’s tax exemption when the BOT Agreement was signed in 1992, NPC could not invoke its former exempt status to avoid this contractual duty. Thus, Batangas City must collect the tax from BPC, but BPC has a right to reimbursement from NPC. The petitions were dismissed.