GR 171586; (July, 2009) (Digest)
G.R. No. 171586 ; July 15, 2009
NATIONAL POWER CORPORATION, Petitioner, vs. PROVINCE OF QUEZON and MUNICIPALITY OF PAGBILAO, Respondents.
FACTS
The National Power Corporation (NPC), a government-owned and controlled corporation, entered into an Energy Conversion Agreement (ECA) with Mirant Pagbilao Corporation under a build-operate-transfer scheme. Mirant constructed and operated a coal-fired power plant on NPC-owned land in Pagbilao, Quezon. Under Article 11.1 of the ECA, NPC assumed responsibility for the payment of all real estate taxes and assessments on the site and the power station. The Municipality of Pagbilao assessed real property taxes on the power plant and its machineries. NPC filed a petition before the Local Board of Assessment Appeals (LBAA), claiming exemption under Section 234(c) and (e) of the Local Government Code (LGC) for machineries used in power generation and for pollution control. The LBAA dismissed the petition, a decision affirmed by the Central Board of Assessment Appeals (CBAA) and later the Court of Tax Appeals (CTA) en banc.
ISSUE
The primary issue is whether NPC can claim the real property tax exemptions under Section 234 of the LGC for properties owned by but not directly used by NPC, where the tax liability was contractually assumed from a private entity.
RULING
The Supreme Court denied the petition and upheld the tax assessment. The Court ruled that tax exemptions are strictly construed against the claimant, and the burden of proof rests on NPC. For the exemption under Section 234(c) of the LGC to apply, the machineries must be “actually, directly, and exclusively used” by the government-owned corporation itself. Here, the machineries were owned by Mirant, a private entity, and were operated by Mirant, not NPC. NPC’s contractual assumption of tax liability did not transform Mirant’s use into NPC’s direct and exclusive use. The exemption is personal to the entity directly using the property for the stated purpose, not transferable by contract. Furthermore, the Court found that NPC, by voluntarily assuming Mirant’s tax liability under the ECA, stepped into the shoes of a taxpayer and could not claim an exemption that did not originally belong to Mirant. The contractual assumption did not extend NPC’s statutory tax exemption to cover the private entity’s assets. Therefore, the property was correctly assessed for real property taxes.