CASE DIGEST: FELS v. Province of Batangas (G.R. No. 168557, February 16, 2007)


FACTS: NPC entered into a lease contract with Polar Energy over power barges. NPC agreed to be responsible for the payment of all taxes, fees, charges or levies to which Polar may become subject to in relation to the performance of its obligations under the agreement. Later, Polar assigned its rights under the contract to FELS.

Province of Batangas sent FELS an assessment of real property taxes on the power barges, covering also those due for 1994, amounting to 56 million per annum. FELS told NPC about the assessment and FELS gave NPC full power and authority to represent it in any conference regarding the real property assessment of the Provincial Assessor.

NPC sought reconsideration of the assessment. It was denied and NPC was advised to pay. 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.

The Department of Finance (DOF) rendered an opinion that the power barges were not real property. Despite this, the LBAA ruled that the power plant facilities are considered real property for taxation purposes because they are installed at a specific location with a character of permanency.

Also, the LBAA said that NPC cannot extend its exemption to FELS by mere agreement and FELS, a private corporation that owns the barges, is being taxed, not the NPC. FELS went up to the Central Board of Assessment Appeals (CBAA).

A Notice of Levy and Warrant by Distraint (NLWD) was issued and served against FELS seeking to collect real property taxes amounting to 232 million pesos.

The CBAA lifted the order of levy and distraint before it issued a decision finding the power barges exempt from real property tax. Ruling in favor of FELS and NPC, the CBAA reasoned that the power barges belong to NPC.

No, Province of Batangas wants to nullify the decision of CBAA for having no jurisdiction over the appeal due to failure of FELS to file it within the period provided by law.
ISSUE: Did FELS follow the proper procedure in assailing the decision of the LBAA?

HELD: No, it did not. Instead of appealing to the CBAA, it filed a motion for reconsideration.

Section 226 of R.A. No. 7160 gives the taxpayer 60 days to appeal from a decision of the LBAA to the CBAA. 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 sanctioned by law.

The last action of the local assessor on a particular assessment shall be the notice of assessment; it is this last action which gives the owner of the property the right to appeal to the LBAA. The procedure likewise does not permit the property owner the remedy of filing a motion for reconsideration before the local assessor.

ISSUE: While FELS pursued its claim, NPC filed a petition for review with the Supreme Court. Does this constitute forum shopping?

Yes, this constitutes forum shopping.

To recall, FELS gave NPC the full power and authority to represent it in any proceeding regarding real property assessment. Therefore, when petitioner NPC filed its petition for review docketed as G.R. No. 165113, it did so not only on its behalf but also on behalf of FELS. Moreover, the assailed decision in the earlier petition for review filed in this Court was the decision of the appellate court in CA-G.R. SP No. 67490, in which FELS was the petitioner. Thus, the decision in G.R. No. 165116 is binding on petitioner FELS under the principle of privity of interest. In fine, FELS and NPC are substantially identical parties as to warrant the application of res judicata. FELSs argument that it is not bound by the erroneous petition filed by NPC is thus unavailing.

ISSUE: Are the barges real property, thus, subject to real property taxation?

Yes, they are real property.

Article 415 (9) of the New Civil Code provides that [d]ocks and structures which, though floating, are intended by their nature and object to remain at a fixed place on a river, lake, or coast are considered immovable property. Thus, power barges are categorized as immovable property by destination, being in the nature of machinery and other implements intended by the owner for an industry or work which may be carried on in a building or on a piece of land and which tend directly to meet the needs of said industry or work.

ISSUE: Should the realty tax be paid by FELS despite agreement between NPC and FELS regarding responsibility in payment thereof?

Yes, because the owner of the taxable properties is FELS.

It follows then that FELS cannot escape liability from the payment of realty taxes by invoking its exemption in Section 234 (c) of R.A. No. 7160. The law states that, to be exempt, the machinery must be actually, directly and exclusively used by the GOCC.

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.