G.R. No. 230648 . October 06, 2021
NATIONAL POWER CORPORATION, PETITIONER, VS. THE PROVINCE OF PAMPANGA AND PIA MAGDALENA D. QUIBAL, RESPONDENTS.

FACTS

The National Power Corporation (NPC), a government-owned and controlled corporation created under Republic Act (RA) No. 6395, as amended, received an Assessment Letter dated June 24, 2009 from the Provincial Treasurer of Pampanga demanding payment of local franchise tax pursuant to the Provincial Tax Code. NPC protested the assessment, arguing that with the effectivity of RA No. 9136 or the Electric Power Industry Reform Act (EPIRA Law) in 2001, its power generation is no longer considered a public utility operation requiring a franchise and thus it cannot be subject to franchise tax under Section 137 of the Local Government Code (LGC). The Provincial Treasurer did not act on the protest. NPC appealed to the Regional Trial Court (RTC), which ruled in favor of the Province of Pampanga, declaring NPC liable for franchise tax. The RTC found that NPC, as a generation company selling electricity in Pampanga through the Power Sector Assets and Liabilities Management Corporation (PSALM), is liable. NPC elevated the case to the Court of Tax Appeals (CTA). The CTA Second Division set aside the RTC decision, ruling that while NPC may be liable for franchise tax relative to its retained missionary electrification function under Section 70 of the EPIRA Law (performed through the Small Power Utilities Group or SPUG), the Assessment Letter was defective as it did not indicate the amount of tax due or the period covered, making a proper determination impossible. The case was remanded to the RTC for further proceedings. The CTA En Banc affirmed this decision. NPC filed a petition for review on certiorari with the Supreme Court, arguing deprivation of due process due to the defective assessment and that its missionary electrification function is not for profit and should not be subject to franchise tax.

ISSUE

Whether the National Power Corporation (NPC) is liable for local franchise tax imposed by the Province of Pampanga on its missionary electrification function, and whether the assessment issued against it is valid.

RULING

The Supreme Court denied the petition. It held that NPC is liable for local franchise tax in relation to its missionary electrification function. The Court reiterated its rulings in National Power Corporation v. City of Cabanatuan and National Power Corp. v. Province of Isabela that NPC may be held liable for franchise tax if it possesses a secondary or special franchise and exercises its rights or privileges under that franchise within the local government’s territory. While the EPIRA Law transferred NPC’s transmission and generation functions, Section 70 of the same law explicitly retained NPC’s missionary electrification function through SPUG. This function involves the sale of electricity, which constitutes a business activity enjoying a franchise under RA No. 6395 , and is therefore subject to the local franchise tax under Section 137 of the LGC. The Court rejected NPC’s argument that the function is non-profit, stating that the imposition of a tax on gross receipts does not require a profit motive.
Regarding the validity of the assessment, the Court ruled that while the Assessment Letter was indeed defective for failing to state the specific amount due and the period covered as required under Section 195 of the LGC, NPC’s right to due process was not violated. The essence of due process is the opportunity to be heard. NPC was able to, and did, protest the assessment before the Provincial Treasurer and fully litigated the issue before the RTC and the CTA. Furthermore, the defense of a void assessment was deemed waived for having been raised belatedly only in its motion for reconsideration before the CTA En Banc. The Court affirmed the remand of the case to the RTC for the proper determination of whether NPC performed its missionary electrification function within Pampanga and the computation of the correct tax liability based on sufficient evidence.