G.R. No.

166102, August 05, 2015

MANILA ELECTRIC COMPANY, v. THE CITY ASSESSOR AND CITY TREASURER

OF LUCENA CITY,

FACTS:

Ruling that MERALCO is liable for real property tax on its transformers, electric
posts (or poles), transmission lines, insulators, and electric meters, beginning
1992.

MERALCO is a private corporation organized and existing under Philippine laws to

operate as a public utility engaged in electric distribution. MERALCO has been
successively granted franchises to operate in Lucena City beginning 1922 until present
time, particularly, by: (1) Resolution No. 366 dated May 15, 1922 of the Municipal
Council of Lucena; (2) Resolution No. 1087 dated July 1, 1957 of the Municipal Council
of Lucena; (3) Resolution No. 26798 dated June 13, 1972 of the Municipal Board of
Lucena City;9 (4) Certificate of Franchise10 dated October 28, 1993 issued by the
National Electrification Commission; and (5) Republic Act No. 920911 approved on June
9, 2003 by Congress.12

On February 20, 1989, MERALCO received from the City Assessor of Lucena a copy of
Tax Declaration No. 019-650013 covering the following electric facilities, classified as
capital investment, of the company: (a) transformer and electric post; (b) transmission
line; (c) insulator; and (d) electric meter, located in Quezon Ave. Ext., Brgy. Gulang-
Gulang, Lucena City. Under Tax Declaration No. 019-6500, these electric facilities had a
market value of P81,811,000.00 and an assessed value of P65,448,800.00, and were
subjected to real property tax as of 1985.

MERALCO appealed Tax Declaration No. 019-6500 before the LBAA of Lucena City,
which was docketed as LBAA-89-2. MERALCO claimed that its capital investment
consisted only of its substation facilities, the true and correct value of which was only
P9,454,400.00; and that MERALCO was exempted from payment of real property tax on
said substation facilities.

The LBAA rendered a Decision14 in LBAA-89-2 on July 5, 1989, finding that under its
franchise, MERALCO was required to pay the City Government of Lucena a tax equal to
5% of its gross earnings, and "[s]aid tax shall be due and payable quarterly and shall
be in lieu of any and all taxes of any kind, nature, or description levied, established, or
collected x x x, on its poles, wires, insulators, transformers and structures, installations,
conductors, and accessories, x x x, from which taxes the grantee (MERALCO) is hereby
expressly exempted."15 As regards the

ISSUE: whether or not the poles, wires, insulators, transformers, and electric
meters of MERALCO were real properties,
the LBAA cited the 1964 case of Board of Assessment Appeals v. Manila Electric
Company16 (1964 MERALCO case) in which the Court held that: (1) the steel towers fell
within the term "poles" expressly exempted from taxes under the franchise of
MERALCO; and (2) the steel towers were personal properties under the provisions of
the Civil Code and, hence, not subject to real property tax. The LBAA lastly ordered that
Tax Declaration No. 019-6500 would remain and the poles, wires, insulators,
transformers, and electric meters of MERALCO would be continuously assessed, but the
City Assessor would stamp on the said Tax Declaration the word "exempt." The LBAA
decreed in the end: cralawlawlibrary

WHEREFORE, from the evidence adduced by the parties, the Board overrules the claim
of the [City Assessor of Lucena] and sustain the claim of [MERALCO].

Further, the Appellant (Meralco) is hereby ordered to render an accounting to the City
Treasurer of Lucena and to pay the City Government of Lucena the amount
corresponding to the Five (5%) per centum of the gross earnings in compliance with
paragraph 13 both Resolutions 108 and 2679, respectively, retroactive from November
9, 1957 to date, if said tax has not yet been paid.17
chanrobleslaw

The City Treasurer of Lucena requested that MERALCO settle the payable amount soon
to avoid accumulation of penalties. Attached to the letter were the following
documents: (a) Notice of Assessment20 dated October 20, 1997 issued by the City
Assessor of Lucena, pertaining to Tax Declaration No. 019-7394, which increased the
market value and assessed value of the machinery; (b) Property Record Form;21 and (c)
Tax Declaration No. 019-6500.22

MERALCO appealed Tax Declaration Nos. 019-6500 and 019-7394 before the LBAA of
Lucena City on December 23, 1997 and posted a surety bond23 dated December 10,
1997 to guarantee payment of its real property tax delinquency. MERALCO asked the
LBAA to cancel and nullify the Notice of Assessment dated October 20, 1997 and
declare the properties covered by Tax Declaration Nos. 019-6500 and 019-7394
exempt from real property tax.

In its Decision dated June 17, 1998 regarding Tax Declaration Nos. 019-6500 and 019-
7394, the LBAA declared that Sections 234 and 534(f) of the Local Government Code
repealed the provisions in the franchise of MERALCO and Presidential Decree No.
55124 pertaining to the exemption of MERALCO from payment of real property tax on its
poles, wires, insulators, transformers, and meters. The LBAA refused to apply as res
judicata its earlier judgment in LBAA-89-2, as affirmed by the CBAA, because it
involved collection of taxes from 1985 to 1989, while the present case concerned the
collection of taxes from 1989 to 1997; and LBAA is only an administrative body, not a
court or quasi-judicial body. The LBAA though instructed that the computation of the
real property tax for the machineries should be based on the prevailing 1991 Schedule
of Market Values, less the depreciation cost allowed by law. The LBAA ultimately
disposed:cralawlawlibrary

WHEREFORE, in view of the foregoing, it is hereby ordered that: chanRoblesvirtualLawlibrary

1) MERALCO's appeal be dismissed for lack of merit; ChanRoblesVirtualawlibrary

2) MERALCO be required to pay the realty tax on the questioned properties, because
they are not exempt by law, same to be based on the 1991 level of assessment, less
depreciation cost allowed by law.25 chanrobleslaw

MERALCO went before the CBAA on appeal, which was docketed as CBAA Case No. L-
20-98. The CBAA, in its Decision dated May 3, 2001, agreed with the LBAA that
MERALCO could no longer claim exemption from real property tax on its machineries
with the enactment of Republic Act No. 7160, otherwise known as the Local
Government Code of 1991, thus: cralawlawlibrary

Indeed, the Central Board of Assessment Appeals has had the opportunity of ruling in
[MERALCO's] favor in connection with this very same issue. The matter was settled on
April 10, 1991 where this Authority ruled that "wires, insulators, transformers and
electric meters which are mounted on poles and can be separated from the poles and
moved from place to place without breaking the material or causing [the] deterioration
of the object, are deemed movable or personal property". The same position of
MERALCO would have been tenable and that decision may have stood firm prior to the
enactment of R.A. 7160 but not anymore in this jurisdiction. The Code provides and
now sets a more stringent yet broadened concept of machinery, x x x: chanRoblesvirtualLawlibrary

The pivotal point where the difference lie between the former and the current
case is that by the very wordings of [Section 199(0)], the ground being
anchored upon by MERALCO concerning the properties in question being
personal in nature does not hold anymore for the sole reason that these come
now within the purview and new concept of Machineries. The new law has
treated these in an unequivocal manner as machineries in the sense that they
are instruments, mechanical contrivances or apparatus though not attached
permanently to the real properties of [MERALCO] are actually, directly and
exclusively used to meet their business of distributing electricity.

Clearly, [Section 234 of the Local Government Code] lists down the instances of
exemption in real property taxation and very apparent is the fact that the enumeration
is exclusive in character in view of the wordings in the last paragraph. Applying the
maxim "Expressio Unius est Exclusio Alterius", we can say that "Where the statute
enumerates those who can avail of the exemption, it is construed as excluding all
others not mentioned therein". Therefore, the above-named company [had] lost its
previous exemptions under its franchise because of non-inclusion in the enumeration in
Section 234. Furthermore, all tax exemptions being enjoyed by all persons, whether
natural or juridical, including all government-owned or controlled corporations are
expressly withdrawn, upon effectivity of R.A. 7160.

In the given facts, it has been manifested that the Municipal Board of Lucena passed
Resolution No. 108 on July 1, 1957 extending the franchise of MERALCO to operate in
Lucena city an electric light system for thirty-five years, which should have expired on
November 9, 1992 and under Resolution No. 2679 passed on June 13, 1972 by the City
Council of Lucena City awarding [MERALCO] a franchise to operate for twenty years an
electric light, heat and power system in Lucena City, also to expire in the year 1992.
Under those franchises, they were only bound to pay franchise taxes and nothing more.
Now, granting arguendo that there is no express revocation of the exemption under the
franchise of [MERALCO] since, unquestionably [MERALCO] is a recipient of another
franchise granted this time by the National Electrification Commission as evidenced by a
certificate issued on October 28, 1993, such conferment does not automatically include
and/or award exemption from taxes, nor does it impliedly give the franchisee the right
to continue the privileges like exemption granted under its previous franchise. It is just
a plain and simple franchise.

In countless times, the Supreme Court has ruled that exemption must be clear in the
language of the law granting such exemption for it is strictly construed and favored
against the person invoking it. In addition, a franchise though in the form of a contract
is also a privilege that must yield to the sublime yet inherent powers of the state, one
of these is the power of taxation.

Looking into the law creating the National Electrification Administration (Commission),
P.D. 269 as amended by P.D. 1645, nowhere in those laws can we find such authority
to bestow upon the grantee any tax exemption of whatever nature except those of
cooperatives. This we believe is basically in consonance with the provisions of the Local
Government Code more particularly Section 234.

Furthermore, Section 534(f) of R.A. 7160 which is taken in relation to Section 234
thereof states that "All general and special laws, acts, city charters, decrees, executive
orders, proclamations and administrative regulations or part or parts thereof which are
inconsistent with any of the provisions of this Code are hereby repealed or modified
accordingly". Anent this unambiguous mandate, P.D. 551 is mandatorily repealed due
to its contradictory and irreconcilable provisions with R.A. 7160.26
chanrobleslaw

Yet, the CBAA modified the ruling of the LBAA by excluding from the real property tax
deficiency assessment the years 1990 to 1991, considering that: cralawlawlibrary

In the years 1990 and 1991, the exemption granted to MERALCO under its franchise
which incidentally expired upon the effectivity of the Local Government Code of 1991
was very much in effect and the decision rendered by the Central Board of
Assessment Appeals (CBAA) classifying its poles, wires, insulators,
transformers and electric meters as personal property was still controlling as
the law of the case. So, from 1990 to 1991, it would be inappropriate and
illegal to make the necessary assessment on those properties, much more to
impose any penalty for non�payment of such.

But, assessments made beginning 1992 until 1997 by the City Government of
Lucena is legal, both procedurally and substantially. When R.A. 7160, which
incorporated amended provisions of the Real Property Tax Code, took effect on
January 1, 1992, as already discussed, the nature of the aforecited questioned
properties considered formerly as personal metamorphosed to machineries
and the exemption being invoked by [MERALCO] was automatically withdrawn
pursuant to the letter and spirit of the law. x x x.27 chanrobleslaw
Resultantly, the decretal portion of said CBAA Decision reads: cralawlawlibrary

WHEREFORE, in view of the foregoing, the Decision appealed from is hereby modified.
The City Assessor of Lucena City is hereby directed to make a new assessment on the
subject properties to retroact from the year 1992 and the City Treasurer to collect the
tax liabilities in accordance with the provisions of the cited Section 222 of the Local
Government Code.28 chanrobleslaw

The CBAA denied the Motion for Reconsideration of MERALCO in a Resolution29 dated
August 16, 2001.

Disgruntled, MERALCO sought recourse from the Court of Appeals by filing a Petition for
Review under Rule 43 of the Rules of Court, which was docketed as CA-G.R. SP No.
67027.

The Court of Appeals rendered a Decision on May 13, 2004 rejecting all arguments
proffered by MERALCO. The appellate court found no deficiency in the Notice of
Assessment issued by the City Assessor of Lucena: cralawlawlibrary

It was not disputed that [MERALCO] failed to provide the [City Assessor and City
Treasurer of Lucena] with a sworn statement declaring the true value of each of the
subject transformer and electric post, transmission line, insulator and electric meter
which should have been made the basis of the fair and current market value of the
aforesaid property and which would enable the assessor to identify the same for
assessment purposes. [MERALCO] merely claims that the assessment made by the
[City Assessor and City Treasurer of Lucena] was incorrect but did not even mention in
their pleading the true and correct assessment of the said properties. Absent any sworn
statement given by [MERALCO], [the City Assessor and City Treasurer of Lucena] were
constrained to make an assessment based on the materials within [their reach].30 chanrobleslaw

The Court of Appeals further ruled that there was no more basis for the real
property tax exemption of MERALCO under the Local Government Code and
that the withdrawal of said exemption did not violate the non-impairment
clause of the Constitution, thus: cralawlawlibrary

Although it could not be denied that [MERALCO] was previously granted a

Certificate of Franchise by the National Electrification Commission on October
28, 1993 x x x, such conferment does not automatically include an exemption
from the payment of realty tax, nor does it impliedly give the franchisee the
right to continue the privileges granted under its previous franchise
considering that Sec. 534(f) of the Local Government Code of 1991 expressly
repealed those provisions which are inconsistent with the Code.

At the outset, the Supreme Court has held that "Section 193 of the LGC prescribes the
general rule, viz., tax exemptions or incentives granted to or presently enjoyed by
natural or juridical persons are withdrawn upon the effectivity of the LGC except with
respect to those entities expressly enumerated. In the same vein, We must hold that
the express withdrawal upon effectivity of the LGC of all exemptions except only as
provided therein, can no longer be invoked by MERALCO to disclaim liability for the local
tax." (City Government of San Pablo, Laguna vs. Reyes, 305 SCRA 353, 362-363)
In fine, [MERALCO's] invocation of the non-impairment clause of the Constitution is
accordingly unavailing. The LGC was enacted in pursuance of the constitutional policy to
ensure autonomy to local governments and to enable them to attain fullest
development as self-reliant communities. The power to tax is primarily vested in
Congress. However, in our jurisdiction, it may be exercised by local legislative bodies,
no longer merely by virtue of a valid delegation as before, but pursuant to [a] direct
authority conferred by Section 5, Article X of the Constitution. The important legal
effect of Section 5 is that henceforth, in interpreting statutory provisions on municipal
fiscal powers, doubts will be resolved in favor of the municipal corporations. (Ibid. pp.
363-365)31 chanrobleslaw

MERALCO similarly failed to persuade the Court of Appeals that the transformers,
transmission lines, insulators, and electric meters mounted on the electric posts of
MERALCO were not real properties. The appellate court invoked the definition of
"machinery" under Section 199(o) of the Local Government Code and then wrote that: cralawlawlibrary

We firmly believe and so hold that the wires, insulators, transformers and
electric meters mounted on the poles of [MERALCO] may nevertheless be
considered as improvements on the land, enhancing its utility and rendering it
useful in distributing electricity. The said properties are actually, directly and
exclusively used to meet the needs of [MERALCO] in the distribution of
electricity.

In addition, "improvements on land are commonly taxed as realty even though

for some purposes they might be considered personalty. It is a familiar
personalty phenomenon to see things classed as real property for purposes of
taxation which on general principle might be considered personal property."
(Caltex (Phil) Inc. vs. Central Board of Assessment Appeals, 114 SCRA 296,
301-302)32 chanrobleslaw

Lastly, the Court of Appeals agreed with the CBAA that the new assessment of the
transformers, electric posts, transmission lines, insulators, and electric meters of
MERALCO shall retroact to 1992.

Hence, the Court of Appeals adjudged: cralawlawlibrary

WHEREFORE, premises considered, the assailed Decision [dated] May 3, 2001 and
Resolution dated August 16, 2001 are hereby AFFIRMED in toto and the
present petition is hereby DENIED DUE COURSE and accordingly DISMISSED
for lack of merit.33
chanrobleslaw

In a Resolution dated November 18, 2004, the Court of Appeals denied the Motion for
Reconsideration of MERALCO