National Power Corporation v. Isabela
REITERATIONFacts
The Antecedents: The Province of Isabela filed an action for sum of money against the National Power Corporation (NPC) for unpaid franchise tax for the year 1994, amounting to P7,116,949.00, plus legal interest and damages. NPC's Magat River Hydro-Electric Plant is located within Isabela's territory. NPC had paid franchise tax for 1992 and 1993 but refused to pay for 1994, citing a boundary dispute with the Province of Ifugao, where the plant's main structures are allegedly located. NPC also argued that the court lacked jurisdiction and that administrative remedies were not exhausted. Procedural History: The Province of Ifugao intervened, claiming the plant is within its territory and seeking payment of the franchise tax for 1994 and subsequent years, as well as reimbursement of the taxes paid by NPC for 1992 and 1993 to Isabela. The Regional Trial Court (RTC) ruled in favor of both Isabela and Ifugao, ordering NPC to deposit the 1994 franchise tax in escrow. The Court of Appeals (CA) affirmed the RTC decision, holding that NPC is not exempt from franchise tax under the Local Government Code (LGC) and that the deposit in escrow was proper despite the unresolved boundary dispute. The Petition: NPC filed a petition for review on certiorari, assailing the CA's decision, primarily arguing that it is exempt from franchise tax under its charter (Rep. Act No. 6395) and that the LGC did not repeal this exemption. It also contended that Section 137 of the LGC does not apply to it as it is not a private corporation or a business for profit, and that as an instrumentality of the National Government, it is exempt from local taxation under Section 133(o) of the LGC.
Issue(s)
Whether the National Power Corporation (NPC) is liable for franchise tax under the Local Government Code of 1991. Whether Section 193 of the Local Government Code of 1991 expressly repealed the tax exemption granted to NPC under its charter (Rep. Act No. 6395). Whether NPC, as a government-owned and controlled corporation and an instrumentality of the National Government, is exempt from local taxation under Section 133(o) of the Local Government Code of 1991. Whether NPC qualifies as a "business enjoying a franchise" under Section 137 of the Local Government Code of 1991.
Ruling
The petition is denied. The Decision of the Court of Appeals dated October 21, 2004, is affirmed. The National Power Corporation is liable for the payment of franchise tax under the Local Government Code.
Ratio Decidendi
On the issue of NPC's liability for franchise tax and the withdrawal of its tax exemption: The Court reiterated its ruling in National Power Corporation v. City of Cabanatuan. Section 193 of the Local Government Code of 1991 expressly withdrew tax exemptions and incentives granted to all entities, including government-owned or controlled corporations, except for specific exceptions not applicable to NPC. The LGC's provisions, particularly Sections 137 and 193, clearly manifest the legislative intent to withdraw tax privileges previously enjoyed under existing laws or charters. Therefore, NPC's claim of exemption under its charter is no longer valid. On whether Section 193 of the Local Government Code of 1991 expressly repealed the tax exemption granted to NPC under its charter (Rep. Act No. 6395): The Court reiterated its ruling in National Power Corporation v. City of Cabanatuan. Section 193 of the Local Government Code of 1991 expressly withdrew tax exemptions and incentives granted to all entities, including government-owned or controlled corporations, except for specific exceptions not applicable to NPC. The LGC's provisions, particularly Sections 137 and 193, clearly manifest the legislative intent to withdraw tax privileges previously enjoyed under existing laws or charters. Therefore, NPC's claim of exemption under its charter is no longer valid. On NPC's status as an instrumentality of the National Government and exemption from local taxation: While Section 133(o) of the LGC generally prohibits local government units from taxing the National Government, its agencies, and instrumentalities, this rule admits exceptions. Section 137 of the LGC is one such exception, as it specifically authorizes provinces to impose a franchise tax on businesses enjoying a franchise. The Court clarified that the doctrine in Basco v. Philippine Amusements and Gaming Corporation, which held government-owned corporations exempt from local taxes, was decided prior to the LGC and is no longer controlling in light of the LGC's provisions empowering LGUs to tax even national government instrumentalities in specific instances. The ruling in National Power Corporation v. City of Cabanatuan further clarified that the LGC's provisions override such general exemptions. On whether NPC is a "business enjoying a franchise" under Section 137 of the LGC: The Court held that NPC qualifies as a "business enjoying a franchise." Commonwealth Act No. 120, as amended by Rep. Act No. 6395, constitutes NPC's primary and secondary franchises, granting it powers not available to ordinary corporations. NPC exercises these powers within the territorial jurisdiction of local government units by generating and selling electricity. The Court also characterized NPC's activities as "purely private and commercial undertakings, albeit imbued with public interest," similar to other public utilities, thus falling within the scope of businesses subject to franchise tax.
Main Doctrine
Government-owned and controlled corporations, including the National Power Corporation, are not exempt from local franchise taxes under the Local Government Code of 1991, as Section 193 of the said Code expressly withdrew such tax exemptions, and Section 137 allows the imposition of franchise tax notwithstanding any exemption granted by any law or special law.