National Power Corp. vs. Lanao del Sur

G.R. No. 96700 (November 19, 1996)

Facts:

The National Power Corporation (NPC) is the owner of several real properties located in Saguiaran, Lanao del Sur, which are part of its Agus II Hydroelectric Power Plant Complex. These properties were assessed for real estate taxes amounting to over P154 million for the period from June 14, 1984, to December 31, 1989. The basis for this assessment was the alleged withdrawal of NPC's tax exemption status.

On August 7, 1990, the provincial treasurer of Lanao del Sur sent a demand letter to NPC for the payment of the assessed real property taxes. A second demand letter followed on August 21, 1990, warning NPC of potential legal action if the taxes were not paid. Subsequently, a Notice of Auction Sale was served to NPC on December 14, 1990, with the auction scheduled for January 22, 1991. The notice was duly posted and published in local newspapers.

On January 18, 1991, NPC filed a petition for prohibition with the Supreme Court, seeking to prevent the auction sale and to annul the sale of its properties. The Court issued a temporary restraining order on January 21, 1991, but the auction proceeded as scheduled, with the Province of Lanao del Sur as the sole bidder. A certificate of sale was issued and registered shortly after the auction, despite the Court's restraining order being received by the provincial officials later that day.

The legal basis for NPC's claim of tax exemption stems from various laws and resolutions, including Commonwealth Act No. 120, Republic Act No. 358, and Republic Act No. 6395, which collectively exempted NPC from all forms of taxes, including real property taxes. However, Presidential Decree No. 1931, issued on June 11, 1984, withdrew tax exemptions for government-owned corporations, although it allowed for the restoration of such exemptions by the President or the Minister of Finance upon recommendation from the Fiscal Incentives Review Board (FIRB).

Legal Issues:

1. Whether NPC was still entitled to its tax exemption status during the period in question (June 14, 1984, to December 31, 1989).
2. Whether the auction sale of NPC's properties was valid given the alleged tax delinquency.
3. The validity of FIRB resolutions that purportedly restored NPC's tax exemptions.

Arguments:

• Petitioner's Arguments (NPC):

  • NPC contended that it never lost its tax exemption status, as the exemptions were temporarily withdrawn but subsequently restored by FIRB resolutions. It argued that the auction sale was unlawful since it was based on an erroneous belief that NPC was liable for real property taxes.
  • NPC cited various laws and resolutions that granted it tax exemptions, asserting that the properties in question were exempt from real property taxes.

• Respondents' Arguments (Province of Lanao del Sur):

  • The respondents argued that NPC's tax exemption was effectively revoked by PD 1931 and that the FIRB resolutions restoring the exemptions were invalid. They claimed that the FIRB lacked the authority to restore tax exemptions and that the resolutions were unconstitutional.
  • Respondents maintained that NPC was liable for the assessed real property taxes and that the auction sale was a legitimate means of collecting the delinquent taxes.

Court's Decision and Legal Reasoning:

The Supreme Court ruled in favor of NPC, granting the petition and declaring the auction sale null and void. The Court found that NPC's tax exemptions had been validly restored through FIRB resolutions, which were signed by the Minister of Finance in his capacity as Chairman of the FIRB. The Court emphasized that the restoration of tax exemptions was consistent with the legislative intent to support NPC's mandate for total electrification of the Philippines.

The Court also held that the properties were exempt from real property taxes under Section 40(a) of the Real Property Tax Code, which exempts real property owned by government entities from taxation. Since the assessment and auction sale were based on the erroneous belief that NPC was liable for taxes, the Court concluded that there was no delinquency to justify the sale.

The Court further noted that the actions of the respondents in proceeding with the auction sale despite the restraining order were improper and demonstrated a disregard for the judicial process.

Significant Legal Principles Established:

1. The validity of FIRB resolutions restoring tax exemptions can be upheld if they are signed by the Minister of Finance, who has the authority to approve such resolutions.
2. Government-owned corporations like NPC are entitled to tax exemptions under specific laws, and such exemptions cannot be arbitrarily revoked without due process.
3. The auction sale of properties based on erroneous tax assessments is null and void, as it violates the legal protections afforded to exempt entities.