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On January 18, 1993, NPC entered into a lease contract with Polar Energy, Inc.

THIRD DIVISION over 3x30 MW diesel engine power barges moored at Balayan Bay in Calaca,
Batangas. The contract, denominated as an Energy Conversion
Agreement[5] (Agreement), was for a period of five years. Article 10 reads:
FELS ENERGY, INC., G.R. No. 168557
Petitioner, 10.1 RESPONSIBILITY. NAPOCOR shall be responsible for
the payment of (a) all taxes, import duties, fees, charges and
-versus- other levies imposed by the National Government of the
Republic of the Philippines or any agency or instrumentality
thereof to which POLAR may be or become subject to or in
THE PROVINCE OF BATANGAS and relation to the performance of their obligations under this
THE OFFICE OF THE PROVINCIAL agreement (other than (i) taxes imposed or calculated on the
ASSESSOR OF BATANGAS, basis of the net income of POLAR and Personal Income Taxes
Respondents. of its employees and (ii) construction permit fees,
x----------------------------------------------------x environmental permit fees and other similar fees and charges)
NATIONAL POWER CORPORATION, G.R. No. 170628 and (b) all real estate taxes and assessments, rates and other
Petitioner, charges in respect of the Power Barges.[6]
Present:

YNARES-SANTIAGO, J., Subsequently, Polar Energy, Inc. assigned its rights under the
- versus - Chairperson, Agreement to FELS. The NPC initially opposed the assignment of rights, citing
AUSTRIA-MARTINEZ, paragraph 17.2 of Article 17 of the Agreement.
CALLEJO, SR. and
LOCAL BOARD OF ASSESSMENT CHICO-NAZARIO, JJ.
APPEALS OF BATANGAS, LAURO C. On August 7, 1995, FELS received an assessment of real property taxes
ANDAYA, in his capacity as the Assessor on the power barges from Provincial Assessor Lauro C. Andaya
of the Province of Batangas, and the Promulgated: of Batangas City. The assessed tax, which likewise covered those due for 1994,
PROVINCE OF BATANGAS represented amounted to P56,184,088.40 per annum. FELS referred the matter to NPC,
by its Provincial Assessor, February 16, 2007 reminding it of its obligation under the Agreement to pay all real estate taxes.
Respondents. It then gave NPC the full power and authority to represent it in any conference
x--------------------------------------------------------------------------------------------x regarding the real property assessment of the Provincial Assessor.

DECISION In a letter[7] dated September 7, 1995, NPC sought reconsideration of the


Provincial Assessors decision to assess real property taxes on the power barges.
However, the motion was denied on September 22, 1995, and the Provincial
CALLEJO, SR., J.: Assessor advised NPC to pay the assessment.[8] This prompted NPC to file a
petition with the Local Board of Assessment Appeals (LBAA) for the setting aside
Before us are two consolidated cases docketed as G.R. No. 168557 and G.R. of the assessment and the declaration of the barges as non-taxable items; it
No. 170628, which were filed by petitioners FELS Energy, Inc. (FELS) and National also prayed that should LBAA find the barges to be taxable, the Provincial
Power Corporation (NPC), respectively. The first is a petition for review Assessor be directed to make the necessary corrections.[9]
on certiorari assailing the August 25, 2004 Decision[1] of the Court of Appeals
(CA) in CA-G.R. SP No. 67490 and its Resolution[2] dated June 20, 2005; the In its Answer to the petition, the Provincial Assessor averred that the barges were
second, also a petition for review on certiorari, challenges the February 9, 2005 real property for purposes of taxation under Section 199(c) of Republic Act
Decision[3] and November 23, 2005 Resolution[4] of the CA in CA-G.R. SP No. (R.A.) No. 7160.
67491. Both petitions were dismissed on the ground of prescription. Before the case was decided by the LBAA, NPC filed a Manifestation,
informing the LBAA that the Department of Finance (DOF) had rendered an
The pertinent facts are as follows: opinion[10]dated May 20, 1996, where it is clearly stated that power barges are
not real property subject to real property assessment.
On August 26, 1996, the LBAA rendered a Resolution [11] denying the the Province of Batangas is hereby ordered to drop subject
petition. The fallo reads: property under ARP/Tax Declaration No. 018-00958 from the List
WHEREFORE, the Petition is DENIED. FELS is hereby of Taxable Properties in the Assessment Roll. The Provincial
ordered to pay the real estate tax in the amount Treasurer of Batangas is hereby directed to act accordingly.
of P56,184,088.40, for the year 1994.
SO ORDERED.[18]
SO ORDERED.[12]
Ruling in favor of FELS and NPC, the CBAA reasoned that the power barges
The LBAA ruled that the power plant facilities, while they may be classified as belong to NPC; since they are actually, directly and exclusively used by it, the
movable or personal property, are nevertheless considered real property for power barges are covered by the exemptions under Section 234(c) of R.A. No.
taxation purposes because they are installed at a specific location with a 7160.[19] As to the other jurisdictional issue, the CBAA ruled that prescription did
character of permanency. The LBAA also pointed out that the owner of the not preclude the NPC from pursuing its claim for tax exemption in accordance
bargesFELS, a private corporationis the one being taxed, not NPC. A mere with Section 206 of R.A. No. 7160. The Provincial Assessor filed a motion for
agreement making NPC responsible for the payment of all real estate taxes and reconsideration, which was opposed by FELS and NPC.
assessments will not justify the exemption of FELS; such a privilege can only be
granted to NPC and cannot be extended to FELS. Finally, the LBAA also ruled In a complete volte face, the CBAA issued a Resolution[20] on July 31,
that the petition was filed out of time. 2001 reversing its earlier decision. The fallo of the resolution reads:

Aggrieved, FELS appealed the LBAAs ruling to the Central Board of Assessment WHEREFORE, premises considered, it is the resolution of
Appeals (CBAA). this Board that:

On August 28, 1996, the Provincial Treasurer of Batangas City issued a Notice of (a) The decision of the Board dated 6 April 2000 is
Levy and Warrant by Distraint[13] over the power barges, seeking to collect real hereby reversed.
property taxes amounting to P232,602,125.91 as of July 31, 1996. The notice and
warrant was officially served to FELS on November 8, 1996. It then filed a Motion (b) The petition of FELS, as well as the intervention of
to Lift Levy dated November 14, 1996, praying that the Provincial Assessor be NPC, is dismissed.
further restrained by the CBAA from enforcing the disputed assessment during
the pendency of the appeal. (c) The resolution of the Local Board of Assessment
Appeals of Batangas is hereby affirmed,
On November 15, 1996, the CBAA issued an Order[14] lifting the levy and distraint
on the properties of FELS in order not to preempt and render ineffectual, (d) The real property tax assessment on FELS by the
nugatory and illusory any resolution or judgment which the Board would issue. Provincial Assessor of Batangas is likewise hereby
affirmed.
Meantime, the NPC filed a Motion for Intervention [15] dated August 7, 1998 in
the proceedings before the CBAA. This was approved by the CBAA in an SO ORDERED.[21]
Order[16]dated September 22, 1998.

During the pendency of the case, both FELS and NPC filed several motions to FELS and NPC filed separate motions for reconsideration, which were
admit bond to guarantee the payment of real property taxes assessed by the timely opposed by the Provincial Assessor. The CBAA denied the said motions
Provincial Assessor (in the event that the judgment be unfavorable to them). in a Resolution[22] dated October 19, 2001.
The bonds were duly approved by the CBAA.
Dissatisfied, FELS filed a petition for review before the CA docketed as
On April 6, 2000, the CBAA rendered a Decision [17] finding the power barges CA-G.R. SP No. 67490. Meanwhile, NPC filed a separate petition, docketed as
exempt from real property tax. The dispositive portion reads: CA-G.R. SP No. 67491.

WHEREFORE, the Resolution of the Local Board of Assessment On January 17, 2002, NPC filed a Manifestation/Motion for
Appeals of the Province of Batangas is hereby Consolidation in CA-G.R. SP No. 67490 praying for the consolidation of its
reversed. Respondent-appellee Provincial Assessor of petition with CA-G.R. SP No. 67491. In a Resolution[23] dated February 12, 2002,
the appellate court directed NPC to re-file its motion for consolidation with CA- Whether power barges, which are floating and movable, are
G.R. SP No. 67491, since it is the ponente of the latter petition who should resolve personal properties and therefore, not subject to real property
the request for reconsideration. tax.

NPC failed to comply with the aforesaid resolution. On August 25, 2004, B.
the Twelfth Division of the appellate court rendered judgment in CA-G.R. SP No. Assuming that the subject power barges are real properties,
67490 denying the petition on the ground of prescription. The decretal portion whether they are exempt from real estate tax under Section
of the decision reads: 234 of the Local Government Code (LGC).

WHEREFORE, the petition for review is DENIED for lack of C.


merit and the assailed Resolutions dated July 31, Assuming arguendo that the subject power barges are subject
2001 and October 19, 2001 of the Central Board of Assessment to real estate tax, whether or not it should be NPC which should
Appeals are AFFIRMED. be made to pay the same under the law.

SO ORDERED.[24] D.
Assuming arguendo that the subject power barges are real
properties, whether or not the same is subject to depreciation
On September 20, 2004, FELS timely filed a motion for reconsideration seeking just like any other personal properties.
the reversal of the appellate courts decision in CA-G.R. SP No. 67490.
E.
Thereafter, NPC filed a petition for review dated October 19, 2004 before this Whether the right of the petitioner to question the patently null
Court, docketed as G.R. No. 165113, assailing the appellate courts decision in and void real property tax assessment on the petitioners
CA-G.R. SP No. 67490. The petition was, however, denied in this Courts personal properties is imprescriptible.[29]
Resolution[25] of November 8, 2004, for NPCs failure to sufficiently show that the
CA committed any reversible error in the challenged decision. NPC filed a
motion for reconsideration, which the Court denied with finality in a On January 13, 2006, NPC filed its own petition for review before this
Resolution[26] dated January 19, 2005. Court (G.R. No. 170628), indicating the following errors committed by the CA:

Meantime, the appellate court dismissed the petition in CA-G.R. SP No. 67491. I
It held that the right to question the assessment of the Provincial Assessor had THE COURT OF APPEALS GRAVELY ERRED IN HOLDING THAT THE
already prescribed upon the failure of FELS to appeal the disputed assessment APPEAL TO THE LBAA WAS FILED OUT OF TIME.
to the LBAA within the period prescribed by law. Since FELS had lost the right to
question the assessment, the right of the Provincial Government to collect the II
tax was already absolute. THE COURT OF APPEALS GRAVELY ERRED IN NOT HOLDING THAT
THE POWER BARGES ARE NOT SUBJECT TO REAL PROPERTY
NPC filed a motion for reconsideration dated March 8, 2005, seeking TAXES.
reconsideration of the February 5, 2005 ruling of the CA in CA-G.R. SP No. 67491.
The motion was denied in a Resolution[27] dated November 23, 2005.

III
The motion for reconsideration filed by FELS in CA-G.R. SP No. 67490 had been THE COURT OF APPEALS GRAVELY ERRED IN NOT HOLDING THAT
earlier denied for lack of merit in a Resolution[28] dated June 20, 2005. THE ASSESSMENT ON THE POWER BARGES WAS NOT MADE IN
ACCORDANCE WITH LAW.[30]
On August 3, 2005, FELS filed the petition docketed as G.R. No. 168557
before this Court, raising the following issues:
Considering that the factual antecedents of both cases are similar, the Court
A. ordered the consolidation of the two cases in a Resolution[31] dated March 8,
2006.
The remedy of appeal to the LBAA is available from an adverse ruling
In an earlier Resolution dated February 1, 2006, the Court had required the or action of the provincial, city or municipal assessor in the assessment of the
parties to submit their respective Memoranda within 30 days from notice. Almost property. It follows then that the determination made by the respondent
a year passed but the parties had not submitted their respective memoranda. Provincial Assessor with regard to the taxability of the subject real properties falls
Considering that taxesthe lifeblood of our economyare involved in the present within its power to assess properties for taxation purposes subject to appeal
controversy, the Court was prompted to dispense with the said pleadings, with before the LBAA.[33]
the end view of advancing the interests of justice and avoiding further delay.
We fully agree with the rationalization of the CA in both CA-G.R. SP No.
In both petitions, FELS and NPC maintain that the appeal before the LBAA was 67490 and CA-G.R. SP No. 67491. The two divisions of the appellate court cited
not time-barred. FELS argues that when NPC moved to have the assessment the case of Callanta v. Office of the Ombudsman,[34] where we ruled that
reconsidered on September 7, 1995, the running of the period to file an appeal under Section 226 of R.A. No 7160,[35] the last action of the local assessor on a
with the LBAA was tolled. For its part, NPC posits that the 60-day period for particular assessment shall be the notice of assessment; it is this last action which
appealing to the LBAA should be reckoned from its receipt of the denial of its gives the owner of the property the right to appeal to the LBAA. The procedure
motion for reconsideration. likewise does not permit the property owner the remedy of filing a motion for
reconsideration before the local assessor. The pertinent holding of the Court
Petitioners contentions are bereft of merit. in Callanta is as follows:

Section 226 of R.A. No. 7160, otherwise known as the Local Government x x x [T]he same Code is equally clear that the
Code of 1991, provides: aggrieved owners should have brought their appeals before
the LBAA. Unfortunately, despite the advice to this effect
SECTION 226. Local Board of Assessment Appeals. Any contained in their respective notices of assessment, the owners
owner or person having legal interest in the property who is not chose to bring their requests for a review/readjustment before
satisfied with the action of the provincial, city or municipal the city assessor, a remedy not sanctioned by the law. To allow
assessor in the assessment of his property may, within sixty (60) this procedure would indeed invite corruption in the system of
days from the date of receipt of the written notice of appraisal and assessment. It conveniently courts a graft-prone
assessment, appeal to the Board of Assessment Appeals of the situation where values of real property may be initially set
province or city by filing a petition under oath in the form unreasonably high, and then subsequently reduced upon the
prescribed for the purpose, together with copies of the tax request of a property owner. In the latter instance, allusions of
declarations and such affidavits or documents submitted in a possible covert, illicit trade-off cannot be avoided, and in
support of the appeal. fact can conveniently take place. Such occasion for mischief
must be prevented and excised from our system.[36]
We note that the notice of assessment which the Provincial Assessor sent to FELS
on August 7, 1995, contained the following statement:
For its part, the appellate court declared in CA-G.R. SP No. 67491:
If you are not satisfied with this assessment, you may, within
sixty (60) days from the date of receipt hereof, appeal to the x x x. The Court announces: Henceforth, whenever the
Board of Assessment Appeals of the province by filing a local assessor sends a notice to the owner or lawful possessor
petition under oath on the form prescribed for the purpose, of real property of its revised assessed value, the former shall
together with copies of ARP/Tax Declaration and such no longer have any jurisdiction to entertain any request for a
affidavits or documents submitted in support of the appeal.[32] review or readjustment. The appropriate forum where the
aggrieved party may bring his appeal is the LBAA as provided
by law. It follows ineluctably that the 60-day period for making
Instead of appealing to the Board of Assessment Appeals (as stated in the appeal to the LBAA runs without interruption. This is what
the notice), NPC opted to file a motion for reconsideration of the Provincial We held in SP 67490 and reaffirm today in SP 67491.[37]
Assessors decision, a remedy not sanctioned by law.
To reiterate, if the taxpayer fails to appeal in due course, the right of
the local government to collect the taxes due with respect to the taxpayers
property becomes absolute upon the expiration of the period to appeal. [38] It
also bears stressing that the taxpayers failure to question the assessment in the judicial tribunal of concurrent jurisdiction,
LBAA renders the assessment of the local assessor final, executory and touching on the points or matters in issue in the
demandable, thus, precluding the taxpayer from questioning the correctness first suit.
of the assessment, or from invoking any defense that would reopen the question
of its liability on the merits.[39] xxx

In fine, the LBAA acted correctly when it dismissed the petitioners Courts will simply refuse to reopen what has been
appeal for having been filed out of time; the CBAA and the appellate court decided. They will not allow the same parties or their privies to
were likewise correct in affirming the dismissal. Elementary is the rule that the litigate anew a question once it has been considered and
perfection of an appeal within the period therefor is both mandatory and decided with finality. Litigations must end and terminate
jurisdictional, and failure in this regard renders the decision final and sometime and somewhere. The effective and efficient
executory.[40] administration of justice requires that once a judgment has
become final, the prevailing party should not be deprived of
In the Comment filed by the Provincial Assessor, it is asserted that the the fruits of the verdict by subsequent suits on the same issues
instant petition is barred by res judicata; that the final and executory judgment filed by the same parties.
in G.R. No. 165113 (where there was a final determination on the issue of
prescription), effectively precludes the claims herein; and that the filing of the This is in accordance with the doctrine of res
instant petition after an adverse judgment in G.R. No. 165113 constitutes forum judicata which has the following elements: (1) the former
shopping. judgment must be final; (2) the court which rendered it had
jurisdiction over the subject matter and the parties; (3) the
FELS maintains that the argument of the Provincial Assessor is judgment must be on the merits; and (4) there must be
completely misplaced since it was not a party to the erroneous petition which between the first and the second actions, identity of parties,
the NPC filed in G.R. No. 165113. It avers that it did not participate in the subject matter and causes of action. The application of the
aforesaid proceeding, and the Supreme Court never acquired jurisdiction over doctrine of res judicata does not require absolute identity of
it. As to the issue of forum shopping, petitioner claims that no forum shopping parties but merely substantial identity of parties. There is
could have been committed since the elements of litis pendentia or res substantial identity of parties when there is community of
judicata are not present. interest or privity of interest between a party in the first and a
party in the second case even if the first case did not implead
We do not agree. the latter.[43]

Res judicata pervades every organized system of jurisprudence and is


founded upon two grounds embodied in various maxims of common law, To recall, FELS gave NPC the full power and authority to represent it in
namely: (1) public policy and necessity, which makes it to the interest of the any proceeding regarding real property assessment. Therefore, when petitioner
State that there should be an end to litigation republicae ut sit litium; and (2) NPC filed its petition for review docketed as G.R. No. 165113, it did so not only
the hardship on the individual of being vexed twice for the same cause nemo on its behalf but also on behalf of FELS. Moreover, the assailed decision in the
debet bis vexari et eadem causa. A conflicting doctrine would subject the earlier petition for review filed in this Court was the decision of the appellate
public peace and quiet to the will and dereliction of individuals and prefer the court in CA-G.R. SP No. 67490, in which FELS was the petitioner. Thus, the
regalement of the litigious disposition on the part of suitors to the preservation decision in G.R. No. 165116 is binding on petitioner FELS under the principle of
of the public tranquility and happiness.[41] As we ruled in Heirs of Trinidad De privity of interest. In fine, FELS and NPC are substantially identical parties as to
Leon Vda. de Roxas v. Court of Appeals:[42] warrant the application of res judicata. FELSs argument that it is not bound by
the erroneous petition filed by NPC is thus unavailing.
x x x An existing final judgment or
decree rendered upon the merits, without On the issue of forum shopping, we rule for the Provincial Assessor.
fraud or collusion, by a court of competent Forum shopping exists when, as a result of an adverse judgment in one forum,
jurisdiction acting upon a matter within its a party seeks another and possibly favorable judgment in another forum other
authority is conclusive on the rights of the than by appeal or special civil action or certiorari. There is also forum shopping
parties and their privies. This ruling holds in all when a party institutes two or more actions or proceedings grounded on the
other actions or suits, in the same or any other
same cause, on the gamble that one or the other court would make a tax assessment. On the citys motion to dismiss, the Supreme Court of New
favorable disposition.[44] York held that the barges on which were mounted gas turbine power plants
designated to generate electrical power, the fuel oil barges which supplied fuel
Petitioner FELS alleges that there is no forum shopping since the oil to the power plant barges, and the accessory equipment mounted on the
elements of res judicata are not present in the cases at bar; however, as barges were subject to real property taxation.
already discussed, res judicata may be properly applied herein. Petitioners
engaged in forum shopping when they filed G.R. Nos. 168557 and 170628 after Moreover, Article 415 (9) of the New Civil Code provides that [d]ocks
the petition for review in G.R. No. 165116. Indeed, petitioners went from one and structures which, though floating, are intended by their nature and object
court to another trying to get a favorable decision from one of the tribunals to remain at a fixed place on a river, lake, or coast are considered immovable
which allowed them to pursue their cases. property. Thus, power barges are categorized as immovable property by
destination, being in the nature of machinery and other implements intended
It must be stressed that an important factor in determining the by the owner for an industry or work which may be carried on in a building or
existence of forum shopping is the vexation caused to the courts and the on a piece of land and which tend directly to meet the needs of said industry
parties-litigants by the filing of similar cases to claim substantially the same or work.[51]
reliefs.[45] The rationale against forum shopping is that a party should not be
allowed to pursue simultaneous remedies in two different fora. Filing multiple Petitioners maintain nevertheless that the power barges are exempt
petitions or complaints constitutes abuse of court processes, which tends to from real estate tax under Section 234 (c) of R.A. No. 7160 because they are
degrade the administration of justice, wreaks havoc upon orderly judicial actually, directly and exclusively used by petitioner NPC, a government- owned
procedure, and adds to the congestion of the heavily burdened dockets of the and controlled corporation engaged in the supply, generation, and
courts.[46] transmission of electric power.

Thus, there is forum shopping when there exist: (a) identity of parties, or We affirm the findings of the LBAA and CBAA that the owner of the
at least such parties as represent the same interests in both actions, (b) identity taxable properties is petitioner FELS, which in fine, is the entity being taxed by
of rights asserted and relief prayed for, the relief being founded on the same the local government. As stipulated under Section 2.11, Article 2 of the
facts, and (c) the identity of the two preceding particulars is such that any Agreement:
judgment rendered in the pending case, regardless of which party is successful,
would amount to res judicata in the other.[47]
OWNERSHIP OF POWER BARGES. POLAR shall own the
Having found that the elements of res judicata and forum shopping are Power Barges and all the fixtures, fittings, machinery and
present in the consolidated cases, a discussion of the other issues is no longer equipment on the Site used in connection with the Power
necessary. Nevertheless, for the peace and contentment of petitioners, we shall Barges which have been supplied by it at its own cost. POLAR
shed light on the merits of the case. shall operate, manage and maintain the Power Barges for the
purpose of converting Fuel of NAPOCOR into electricity.[52]
As found by the appellate court, the CBAA and LBAA power barges
are real property and are thus subject to real property tax. This is also the
inevitable conclusion, considering that G.R. No. 165113 was dismissed for failure
to sufficiently show any reversible error. Tax assessments by tax examiners are
presumed correct and made in good faith, with the taxpayer having the It follows then that FELS cannot escape liability from the payment of
burden of proving otherwise.[48] Besides, factual findings of administrative realty taxes by invoking its exemption in Section 234 (c) of R.A. No. 7160, which
bodies, which have acquired expertise in their field, are generally binding and reads:
conclusive upon the Court; we will not assume to interfere with the sensible
exercise of the judgment of men especially trained in appraising property. SECTION 234. Exemptions from Real Property Tax. The
Where the judicial mind is left in doubt, it is a sound policy to leave the following are exempted from payment of the real property tax:
assessment undisturbed.[49] We find no reason to depart from this rule in this
case. xxx

In Consolidated Edison Company of New York, Inc., et al. v. The City (c) All machineries and equipment that are actually,
of New York, et al.,[50] a power company brought an action to review property directly and exclusively used by local water districts
and government-owned or controlled corporations achieve their fullest development as self-reliant communities and make them
engaged in the supply and distribution of water effective partners in the attainment of national goals.[59]
and/or generation and transmission of electric
power; x x x In conclusion, we reiterate that the power to tax is the most potent
instrument to raise the needed revenues to finance and support myriad
activities of the local government units for the delivery of basic services essential
Indeed, the law states that the machinery must be actually, directly to the promotion of the general welfare and the enhancement of peace,
and exclusively used by the government owned or controlled corporation; progress, and prosperity of the people.[60]
nevertheless, petitioner FELS still cannot find solace in this provision because
Section 5.5, Article 5 of the Agreement provides: WHEREFORE, the Petitions are DENIED and the assailed Decisions and
Resolutions AFFIRMED.
OPERATION. POLAR undertakes that until the end of
the Lease Period, subject to the supply of the necessary Fuel SO ORDERED.
pursuant to Article 6 and to the other provisions hereof, it will
operate the Power Barges to convert such Fuel into electricity
in accordance with Part A of Article 7.[53]

It is a basic rule that obligations arising from a contract have the force
of law between the parties. Not being contrary to law, morals, good customs,
public order or public policy, the parties to the contract are bound by its terms
and conditions.[54]

Time and again, the Supreme Court has stated that taxation is the rule
and exemption is the exception.[55] The law does not look with favor on tax
exemptions and the entity that would seek to be thus privileged must justify it
by words too plain to be mistaken and too categorical to be
misinterpreted.[56] Thus, applying the rule of strict construction of laws granting
tax exemptions, and the rule that doubts should be resolved in favor of
provincial corporations, we hold that FELS is considered a taxable entity.

The mere undertaking of petitioner NPC under Section 10.1 of the


Agreement, that it shall be responsible for the payment of all real estate taxes
and assessments, does not justify the exemption. The privilege granted to
petitioner NPC cannot be extended to FELS. The covenant is between FELS and
NPC and does not bind a third person not privy thereto, in this case,
the Province of Batangas.

It must be pointed out that the protracted and circuitous litigation has
seriously resulted in the local governments deprivation of revenues. The power
to tax is an incident of sovereignty and is unlimited in its magnitude,
acknowledging in its very nature no perimeter 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 for it.[57] The right of local government units
to collect taxes due must always be upheld to avoid severe tax erosion. This
consideration is consistent with the State policy to guarantee the autonomy of
local governments[58] and the objective of the Local Government Code that
they enjoy genuine and meaningful local autonomy to empower them to
G.R. No. L-17870 September 29, 1962 (a) Hobart Electric Welder Machine, appearing in the
attached photograph, marked Annex "A";
MINDANAO BUS COMPANY, petitioner,
vs. (b) Storm Boring Machine, appearing in the attached
THE CITY ASSESSOR & TREASURER and the BOARD OF TAX APPEALS of Cagayan photograph, marked Annex "B";
de Oro City,respondents.
(c) Lathe machine with motor, appearing in the attached
Binamira, Barria and Irabagon for petitioner. photograph, marked Annex "C";
Vicente E. Sabellina for respondents.
(d) Black and Decker Grinder, appearing in the attached
photograph, marked Annex "D";

(e) PEMCO Hydraulic Press, appearing in the attached


LABRADOR, J.: photograph, marked Annex "E";

This is a petition for the review of the decision of the Court of Tax Appeals in (f) Battery charger (Tungar charge machine) appearing in
C.T.A. Case No. 710 holding that the petitioner Mindanao Bus Company is the attached photograph, marked Annex "F"; and
liable to the payment of the realty tax on its maintenance and repair
equipment hereunder referred to. (g) D-Engine Waukesha-M-Fuel, appearing in the attached
photograph, marked Annex "G".
Respondent City Assessor of Cagayan de Oro City assessed at P4,400
petitioner's above-mentioned equipment. Petitioner appealed the assessment 4. That these machineries are sitting on cement or wooden platforms
to the respondent Board of Tax Appeals on the ground that the same are not as may be seen in the attached photographs which form part of this
realty. The Board of Tax Appeals of the City sustained the city assessor, so agreed stipulation of facts;
petitioner herein filed with the Court of Tax Appeals a petition for the review of
the assessment.
5. That petitioner is the owner of the land where it maintains and
operates a garage for its TPU motor trucks; a repair shop; blacksmith
In the Court of Tax Appeals the parties submitted the following stipulation of and carpentry shops, and with these machineries which are placed
facts: therein, its TPU trucks are made; body constructed; and same are
repaired in a condition to be serviceable in the TPU land
Petitioner and respondents, thru their respective counsels agreed to transportation business it operates;
the following stipulation of facts:
6. That these machineries have never been or were never used as
1. That petitioner is a public utility solely engaged in transporting industrial equipments to produce finished products for sale, nor to
passengers and cargoes by motor trucks, over its authorized lines in repair machineries, parts and the like offered to the general public
the Island of Mindanao, collecting rates approved by the Public indiscriminately for business or commercial purposes for which
Service Commission; petitioner has never engaged in, to date.1awphl.nt

2. That petitioner has its main office and shop at Cagayan de Oro The Court of Tax Appeals having sustained the respondent city assessor's
City. It maintains Branch Offices and/or stations at Iligan City, Lanao; ruling, and having denied a motion for reconsideration, petitioner brought the
Pagadian, Zamboanga del Sur; Davao City and Kibawe, Bukidnon case to this Court assigning the following errors:
Province;
1. The Honorable Court of Tax Appeals erred in upholding
3. That the machineries sought to be assessed by the respondent as respondents' contention that the questioned assessments are valid;
real properties are the following:
and that said tools, equipments or machineries are immovable because, as essential and principle elements of a sugar central,
taxable real properties. without them the sugar central would be unable to function or carry
on the industrial purpose for which it was established. Inasmuch as the
2. The Tax Court erred in its interpretation of paragraph 5 of Article 415 central is permanent in character, the necessary machinery and
of the New Civil Code, and holding that pursuant thereto the equipment installed for carrying on the sugar industry for which it has
movable equipments are taxable realties, by reason of their being been established must necessarily be permanent. (Emphasis ours.)
intended or destined for use in an industry.
So that movable equipments to be immobilized in contemplation of the law
3. The Court of Tax Appeals erred in denying petitioner's contention must first be "essential and principal elements" of an industry or works without
that the respondent City Assessor's power to assess and levy real which such industry or works would be "unable to function or carry on the
estate taxes on machineries is further restricted by section 31, industrial purpose for which it was established." We may here distinguish,
paragraph (c) of Republic Act No. 521; and therefore, those movable which become immobilized by destination because
they are essential and principal elements in the industry for those which may
not be so considered immobilized because they are merely incidental, not
4. The Tax Court erred in denying petitioner's motion for
essential and principal. Thus, cash registers, typewriters, etc., usually found and
reconsideration.
used in hotels, restaurants, theaters, etc. are merely incidentals and are not
and should not be considered immobilized by destination, for these businesses
Respondents contend that said equipments, tho movable, are immobilized by can continue or carry on their functions without these equity comments.
destination, in accordance with paragraph 5 of Article 415 of the New Civil Airline companies use forklifts, jeep-wagons, pressure pumps, IBM machines,
Code which provides: etc. which are incidentals, not essentials, and thus retain their movable nature.
On the other hand, machineries of breweries used in the manufacture of
Art. 415. The following are immovable properties: liquor and soft drinks, though movable in nature, are immobilized because
they are essential to said industries; but the delivery trucks and adding
xxx xxx xxx machines which they usually own and use and are found within their industrial
compounds are merely incidental and retain their movable nature.
(5) Machinery, receptacles, instruments or implements intended by
the owner of the tenement for an industry or works which may be Similarly, the tools and equipments in question in this instant case are, by their
carried on in a building or on a piece of land, and which tend directly nature, not essential and principle municipal elements of petitioner's business
to meet the needs of the said industry or works. (Emphasis ours.) of transporting passengers and cargoes by motor trucks. They are merely
incidentals acquired as movables and used only for expediency to
facilitate and/or improve its service. Even without such tools and equipments,
Note that the stipulation expressly states that the equipment are placed on its business may be carried on, as petitioner has carried on, without such
wooden or cement platforms. They can be moved around and about in equipments, before the war. The transportation business could be carried on
petitioner's repair shop. In the case of B. H. Berkenkotter vs. Cu Unjieng, 61 Phil. without the repair or service shop if its rolling equipment is repaired or serviced
663, the Supreme Court said: in another shop belonging to another.

Article 344 (Now Art. 415), paragraph (5) of the Civil Code, gives the The law that governs the determination of the question at issue is as follows:
character of real property to "machinery, liquid containers,
instruments or implements intended by the owner of any building or
land for use in connection with any industry or trade being carried on Art. 415. The following are immovable property:
therein and which are expressly adapted to meet the requirements of
such trade or industry." xxx xxx xxx

If the installation of the machinery and equipment in question in the (5) Machinery, receptacles, instruments or implements intended by
central of the Mabalacat Sugar Co., Inc., in lieu of the other of less the owner of the tenement for an industry or works which may be
capacity existing therein, for its sugar and industry, converted them carried on in a building or on a piece of land, and which tend directly
into real property by reason of their purpose, it cannot be said that to meet the needs of the said industry or works; (Civil Code of the
their incorporation therewith was not permanent in character Phil.)
Aside from the element of essentiality the above-quoted provision also
requires that the industry or works be carried on in a building or on a piece of
land. Thus in the case of Berkenkotter vs. Cu Unjieng, supra, the "machinery,
liquid containers, and instruments or implements" are found in a building
constructed on the land. A sawmill would also be installed in a building on
land more or less permanently, and the sawing is conducted in the land or
building.

But in the case at bar the equipments in question are destined only to repair
or service the transportation business, which is not carried on in a building or
permanently on a piece of land, as demanded by the law. Said equipments
may not, therefore, be deemed real property.

Resuming what we have set forth above, we hold that the equipments in
question are not absolutely essential to the petitioner's transportation business,
and petitioner's business is not carried on in a building, tenement or on a
specified land, so said equipment may not be considered real estate within
the meaning of Article 415 (c) of the Civil Code.

WHEREFORE, the decision subject of the petition for review is hereby set aside
and the equipment in question declared not subject to assessment as real
estate for the purposes of the real estate tax. Without costs.

So ordered.

Bengzon, C.J., Padilla, Bautista Angelo, Reyes, J.B.L., Paredes, Dizon and
Makalintal, JJ., concur.
Regala, Concepcion and Barrera JJ., took no part.
Mindanao Bus Co. v. City
Assessor Digest
G.R. No. L-17870 29 September 1962
Facts: Petitioner is a public utility company engaged in the transport of
passengers and cargo by motor vehicles in Mindanao with main offices in
Cagayan de Oro (CDO). Petitioner likewise owned a land where it
maintains a garage, a repair shop and blacksmith or carpentry shops.
The machineries are placed thereon in wooden and cement platforms.
The City Assessor of CDO then assessed a P4,400 realty tax on said
machineries and repair equipment. Petitioner appealed to the Board of
Tax Appeals but it sustained the City Assessor's decision, while the Court
of Tax Appeals (CTA) sustained the same.

Note: This is merely a case digest to aid in remembering the important


points of a case. It is still advisable for any student of law to read the full
text of assigned cases.

Issue: Whether or not the machineries and equipments are


considered immobilized and thus subject to a realty tax

Held: The Supreme Court decided otherwise and held that said
machineries and equipments are not subject to the assessment of real
estate tax.

Said equipments are not considered immobilized as they are merely


incidental, not esential and principal to the business of the petitioner. The
transportation business could be carried on without repair or service
shops of its rolling equipment as they can be repaired or services in
another shop belonging to another
FELS ENERGY VS PROVINCE OF province 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
BATANGAS documents submitted in support of the appeal. Instead of appealing to the
Board of Assessment Appeals (as stated in the notice), NPC opted to file a
motion for reconsideration of the Provincial Assessors decision, a remedy not
FACTS sanctioned by law.
NPC entered into a lease contract with Polar Energy, Inc. (POLAR) over diesel [Citing] the case of Callanta v. Office of the Ombudsman, where [the Supreme
engine power barges moored at Balayan Bay in Calaca, Batangas. The Court] ruled that under Section 226 of R.A. No 7160, the last action of the local
contract contained a provision that POLAR may be or become subject to real assessor on a particular assessment shall be the notice of assessment; it is
estate taxes and assessments, rates and other charges in respect of the power this last action which gives the owner of the property the right to appeal to the
barges.Subsequently, POLAR assigned its rights under the Agreement to Fels LBAA. The procedure likewise does not permit the property owner the remedy
Energy, Inc. (FELS). Later, FELS received an assessment of real property of filing a motion for reconsideration before the local assessor. It follows
taxes on the power barges from Provincial Assessor, that the owner or person ineluctably that the 60-day period for making the appeal to the LBAA runs
having legal interest may appeal the matter within 60 days from receipt to the without interruption.
Board of Assessment Appeals of the province. FELS referred the matter to
NPC, which sought reconsideration of the Provincial Assessors decision to
assess real property taxes on the power barges. However, the motion was
denied and the Provincial Assessor advised NPC to pay the assessment. After
sixty (60) days from receipt of assessment from, the NPC filed a petition with
the Local Board of Assessment Appeals (LBAA) for the setting aside of the
assessment and the declaration of the barges as non-taxable items; it also
prayed that should LBAA find the barges to be taxable, the Provincial Assessor
be directed to make the necessary corrections.

ISSUE
WhetherNPCs appeal to LBAA may prosper considering that the timely filing
of MR with the Provincial Assessor tolled the running of reglementay period.

HELD
NO.
Section 226 of R.A. No. 7160, otherwise known as the Local Government
Code of 1991, provides: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
Chavez v. Pea and Amari alienable lands of the public domain. PEA may lease these lands to
private corporations but may not sell or transfer ownership of these lands
Fact: to private corporations. PEA may only sell these lands to Philippine
In 1973, the Comissioner on Public Highways entered into a contract to citizens, subject to the ownership limitations in the 1987 Constitution and
reclaim areas of Manila Bay with the Construction and Development existing laws.
Corportion of the Philippines (CDCP).
2. The 592.15 hectares of submerged areas of Manila Bay remain
PEA (Public Estates Authority) was created by President Marcos under inalienable natural resources of the public domain until classified as
P.D. 1084, tasked with developing and leasing reclaimed lands. These alienable or disposable lands open to disposition and declared no longer
lands were transferred to the care of PEA under P.D. 1085 as part of the needed for public service. The government can make such classification
Manila Cavite Road and Reclamation Project (MCRRP). CDCP and PEA and declaration only after PEA has reclaimed these submerged areas.
entered into an agreement that all future projects under the MCRRP Only then can these lands qualify as agricultural lands of the public
would be funded and owned by PEA. domain, which are the only natural resources the government can
alienate. In their present state, the 592.15 hectares of submerged areas
By 1988, President Aquino issued Special Patent No. 3517 transferring are inalienable and outside the commerce of man.
lands to PEA. It was followed by the transfer of three Titles (7309, 7311
and 7312) by the Register of Deeds of Paranaque to PEA covering the 3. Since the Amended JVA seeks to transfer to AMARI, a private
three reclaimed islands known as the FREEDOM ISLANDS. corporation, ownership of 77.34 hectares110 of the Freedom Islands, such
transfer is void for being contrary to Section 3, Article XII of the 1987
Subsquently, PEA entered into a joint venture agreement (JVA) with Constitution which prohibits private corporations from acquiring any
AMARI, a Thai-Philippine corporation to develop the Freedom Islands. kind of alienable land of the public domain.
Along with another 250 hectares, PEA and AMARI entered the JVA
which would later transfer said lands to AMARI. This caused a stir 4. Since the Amended JVA also seeks to transfer to AMARI ownership of
especially when Sen. Maceda assailed the agreement, claiming that such 290.156 hectares111 of still submerged areas of Manila Bay, such transfer
lands were part of public domain (famously known as the mother of all is void for being contrary to Section 2, Article XII of the 1987 Constitution
scams). which prohibits the alienation of natural resources other than agricultural
lands of the public domain.
Peitioner Frank J. Chavez filed case as a taxpayer praying for mandamus,
a writ of preliminary injunction and a TRO against the sale of reclaimed PEA may reclaim these submerged areas. Thereafter, the government can
lands by PEA to AMARI and from implementing the JVA. Following these classify the reclaimed lands as alienable or disposable, and further
events, under President Estradas admin, PEA and AMARI entered into declare them no longer needed for public service. Still, the transfer of
an Amended JVA and Mr. Chaves claim that the contract is null and void. such reclaimed alienable lands of the public domain to AMARI will be
void in view of Section 3, Article XII of the 1987Constitution which
Issue: prohibits private corporations from acquiring any kind of alienable land
w/n: the transfer to AMARI lands reclaimed or to be reclaimed as part of of the public domain.
the stipulations in the (Amended) JVA between AMARI and PEA violate
Sec. 3 Art. XII of the 1987 Constitution
w/n: the court is the proper forum for raising the issue of whether the
amended joint venture agreement is grossly disadvantageous to the
government.

Held:
On the issue of Amended JVA as violating the constitution:
1. The 157.84 hectares of reclaimed lands comprising the Freedom
Islands, now covered by certificates of title in the name of PEA, are