7/7/2021 NATIONAL POWER CORPORATION v.

PROVINCIAL GOVERNMENT OF BATAAN

THIRD DIVISION

[ G.R. No. 180654, April 21, 2014 ]

NATIONAL POWER CORPORATION PETITIONER, VS. PROVINCIAL

GOVERNMENT OF BATAAN, SANGGUNIANG PANLALAWIGAN OF BATAAN,
PASTOR B. VICHUACO (IN HIS OFFICIAL CAPACITY AS PROVINCIAL
TREASURER OF BATAAN) AND THE REGISTER OF DEEDS OF THE PROVINCE
OF BATAAN, RESPONDENTS.

DECISION
ABAD, J.:
This case is about the distinction between an action contesting a local tax assessment
and an action seeking to enjoin the local government from enforcing a tax assessment
against a person who claims that the taxable business does not belong to him.

The Facts and the Case

On March 28, 2003 petitioner National Power Corporation (NPC) received a notice of
franchise tax delinquency from the respondent Provincial Government of Bataan (the
Province) for P45.9 million covering the years 2001, 2002, and 2003. The Province
based its assessment on the
NPC's sale of electricity that it generated from two power
plants in Bataan. Rather than pay the tax or reject it, the NPC chose to reserve its right
to contest the computation pending the decision of the Supreme Court in National
[1]
Power Corporation v. City of
Cabanatuan, a case where the issue of the NPC's
exemption from the payment of local franchise tax was then pending.

On May 12 and 14, 2003 the Province again sent notices of tax due to the NPC, calling
its attention to the Court's Decision in National Power Corporation v. City of
Cabanatuan that held the NPC liable for the payment of local franchise tax. The NPC
replied, however, that
it had ceased to be liable for the payment of that tax after
Congress enacted Republic Act (R.A.) 9136, also known as the Electric Power Industry
Reform Act (EPIRA) that took effect on June 26, 2001. The new law relieved the NPC
of the function of generating and supplying
electricity beginning that year.
Consequently, the Province has no right to further assess it for the 2001, 2002, and
2003 local franchise tax.

Ignoring the NPC's view, the Province issued a "Warrant of Levy" on 14 real properties
that it used to own in Limay, Bataan. In March 2004 the Province caused their sale at
public auction with itself as the winning bidder. Shortly after, the NPC received a copy
of the
Certificate of Sale of Real Property covering the auctioned properties for
P60,477,285.22, the amount of its franchise tax delinquency.

On July 7, 2004 the NPC filed with the Regional Trial Court (RTC) of Mariveles,

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Bataan, a petition for declaration of nullity of the foreclosure sale with prayer for
preliminary mandatory injunction against the Province, the provincial treasurer, and
the Sangguniang
Panlalawigan.

The NPC alleged that the foreclosure had no legal basis since R.A. 7160 which
authorized the collection of local franchise tax had been modified by the EPIRA. The
latter law provided that power generation is not a public utility operation requiring a
franchise, hence, not
taxable. What remains subject to such tax is the business of
transmission and distribution of electricity since these required a national franchise.
As it happened, NPC had ceased by operation of the EPIRA in 2001 to engage in
power transmission, given that all its facilities
for this function, including its
nationwide franchise, had been transferred to the National Transmission Corporation
(TRANSCO).

Thus, the NPC asked the RTC to issue a preliminary injunction, enjoining the transfer
of title and the sale of the foreclosed lands to Bataan and, after trial, to make the
injunction permanent, declare NPC exempt from the local franchise tax and annul the
foreclosure sale.

On November 3, 2005 the RTC dismissed the NPC's petition, stating that the
franchise tax was not based on ownership of property but on the NPC's exercise of the
privilege of doing business within Bataan. Further, the NPC presented no evidence
that it had ceased to operate its
power plants in that jurisdiction.

The NPC appealed the RTC Decision to the Court of Appeals (CA) but the Province
moved to dismiss the same for lack of jurisdiction of that court over the subject matter
of the case. The Province pointed out that, although the NPC denominated its suit
before the RTC as one for
declaration of nullity of foreclosure sale, it was essentially a
local tax case questioning the validity of the Province's imposition of the local
franchise tax. Any appeal from the action should, therefore, be lodged with the Court
of Tax Appeals (CTA). On November 27, 2007 the
CA granted the Province's motion
and dismissed the petition on the ground cited.

Issue

The issue in this case is whether or not the CA erred in failing to rule that the NPC no
longer owned or operated the business subject to local franchise tax and that the
Province cannot execute on former NPC properties that had been taken from it and
transferred to other
government corporations.

Ruling of the Court

The RTC found that the NPC failed to present evidence that it no longer owned or
operated the business subject to local franchise tax and that the properties the
Province levied on did not belong to it. But proving these things did not require the
presentation of evidence in
this case since these events took place by operation of law,
particularly the EPIRA. Thus, Section 8 of the EPIRA provides:

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SEC. 8. Creation of the National Transmission Company. There is hereby

created a National Transmission Corporation, hereinafter referred to as
TRANSCO, which shall assume the electrical transmission function of the
National Power Corporation (NPC), and have
the power and functions
hereinafter granted. The TRANSCO shall assume the authority and responsibility
of NPC for the planning, construction and centralized operation and
maintenance of its high voltage transmission facilities, including grid
interconnections and ancillary
services.

Within six (6) months from the effectivity of this Act, the transmission and
subtransmission facilities of NPC and all other assets related to transmission
operations, including the nationwide franchise of NPC for the operation of the
transmission system and the grid, shall be
transferred to the TRANSCO. The
TRANSCO shall be wholly owned by the Power Sector Assets and Liabilities
Management Corporation (PSALM Corp.).

The subtransmission functions and assets shall be segregated from the

transmission functions, assets and liabilities for transparency and disposal:
Provided, That the subtransmission assets shall be operated and maintained by
TRANSCO until their disposal to qualified
distribution utilities which are in a
position to take over the responsibility for operating, maintaining, upgrading,
and expanding said assets. All transmission and subtransmission related
liabilities of NPC shall be transferred to and assumed by the PSALM Corp.

TRANSCO shall negotiate with and thereafter transfer such functions, assets,
and associated liabilities to the qualified distribution utility or utilities connected
to such subtransmission facilities not later that two (2) years from the effectivity
of this act or the start of
open access, whichever comes earlier: x x x.

xxxx

The above created the TRANSCO and transferred to it the NPC's electrical
transmission function with effect on June 26, 2001. The NPC, therefore, ceased to
operate that business in Bataan by operation of law. Since the local franchise tax is
imposed on the privilege of operating
a franchise, not a tax on the ownership of the
transmission facilities, it is clear that such tax is not a liability of the NPC.

Nor could the Province levy on the transmission facilities to satisfy the tax assessment
against the NPC since, as Section 8 above further provides, the latter ceased to own
those facilities six months from the effectivity of the EPIRA. Those facilities have since
belonged to
TRANSCO.

The legislative emasculation of the NPC also covered its former power generation
function, which was the target of the Province's effort to collect the local franchise tax
for 2001, 2002, and 2003. Section 49 of the EPIRA provides:

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SEC. 49. Creation of Power Sector Assets and Liabilities Management

Corporation. There is hereby created a government-owned and controlled
corporation to be known as the "Power Sector Assets and Liabilities Management
Corporation," hereinafter referred to as
the "PSALM Corp.," which shall take
ownership of all existing NPC generation assets, liabilities, IPP contracts, real
estate and all other disposable assets. All outstanding obligations of the NPC
arising from loans, issuances of bonds, securities and other instruments of
indebtedness shall be transferred to and assumed by the PSALM Corp. within
one hundred eighty (180) days from the approval of this Act.

Section 49 above created the Power Sector Assets and Liabilities Management
Corporation (PSALM Corp.) and transferred to it all of the NPC's "generation assets"
which would include the Bataan Thermal Plant. Clearly, the NPC had ceased running
its former power transmission and
distribution business in Bataan by operation of law
from June 26, 2001. It is, therefore, not the proper party subject to the local franchise
tax for operating that business. Parenthetically, Section 49 also transferred "all
existing x x x liabilities" of the NPC to PSALM Corp.,
presumably including its unpaid
liability for local franchise tax from January 1 to June 25, 2001. Consequently, such
tax is collectible solely from PSALM Corp.

An indispensable party is one who has an interest in the controversy or subject matter
and in whose absence there cannot be a determination between the parties already
before the court which is effective, complete or equitable.[2] Here, since the subject
properties belong to PSALM Corp. and TRANSCO, they are certainly indispensable
parties to the case that must be necessarily included before it may properly go
forward. For this reason, the proceedings below that held the NPC liable for the local
franchise tax is a nullity. It
did not matter where the RTC Decision was appealed,
whether before the CA or the CTA.

WHEREFORE, the Court GRANTS the petition of the National Power Corporation
and SETS ASIDE the Resolution of the Court of Appeals in CA-G.R. CV 87218 dated
November 27, 2007. It further REMANDS the case to the Regional Trial Court so
that the Power
Sector Assets and Liabilities Management Corporation and the
National Transmission Corporation may be impleaded as proper parties.

SO ORDERED.

Velasco, Jr., (Chairperson), Brion,* Peralta, Abad, and Leonen, JJ., concur.

May 7, 2014

N O T I C E OF J U D G M E N T
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Sirs/Mesdames:

Please take notice that on ___April 21, 2014___ a Decision, copy attached
herewith, was rendered by the Supreme Court in the above-entitled case, the original
of which was received by this Office on May 7, 2014 at 11:25 a.m.

Very truly yours,

LUCITA ABJELINA SORIANO

Division Clerk of Court

By:

(SGD)

WILFREDO V. LAPITAN

Deputy Division Clerk of Court

* Designated Additional Member, in lieu of Associate Justice Jose C. Mendoza, per

Raffle dated October 9, 2013.

[1] 449 Phil. 233 (2003).

[2] Lagunilla v. Velasco, G.R. No. 169276, June 16, 2009, 589 SCRA 224.

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