MWSS v. QC (Case Digest. G.R. No. 194388)
CASE DIGEST: [ G.R. No. 194388, November 07, 2018 ] METROPOLITAN WATERWORKS SEWERAGE SYSTEM, PETITIONER, VS. THE LOCAL GOVERNMENT OF QUEZON CITY, CITY TREASURER OF QUEZON CITY, CITY ASSESSOR OF QUEZON CITY, SANGGUNIANG PANLUNGSOD NG QUEZON CITY, AND CITY MAYOR OF QUEZON CITY, RESPONDENTS. DECISION. LEONEN, J.:SUMMARY: A government instrumentality exercising corporate powers is not liable for the payment of real property taxes on its properties unless it is alleged and proven that the beneficial use of its properties been extended to a taxable person.
FACTS: Sometime in July 2007, MWSS received several Final Notices of Real Property Tax Delinquency from the Local Government of Quezon City, covering various taxable years, at P237,108,043.83 on the real properties owned by MWSS in Quezon City. The Local Government of Quezon City warned it that failure to pay would result in the issuance of warrants of levy against its properties.
On August 7, 2007, the Treasurer's Office of Quezon City issued Warrants of Levy on the properties due to MWSS's failure to pay.
On September 10, 2007, the Local Government of Quezon City listed properties owned by MWSS for auction sale.
Petition for Certiorari and Prohibition TRO prayer by MWSS. Argued that its real properties in Quezon City were exclusively devoted to public use, and thus, were exempt from real property tax.
CA issued TRO stopping auction sale. Writ of Preliminary Injunction issued.
CA denied petition. Lifted injuction.
CA said MWSS need not exhaust administrative remedies re a purely legal question. CA did not dismiss on this ground.
CA said since MWSS was not a municipal corporation, it could not invoke the immunity granted in Section 133(o) of the Local Government Code. Found that even if MWSS was an instrumentality of the government, it was not performing a purely governmental function. Thus, no immunity.CA said taxed properties were not part of the public dominion, but were even made the subject of concession agreements between MWSS and private concessionaires due to its privatization in 1997. Proprietary functions; thus, subject to real property tax.
QC issued warrants of levy. MWSS went to the SC. SC issued TRO.
ISSUES:
HELD: PETITION GRANTED; MWSS DECLARED EXEMPT.
FIRST ISSUE: The principle of the hierarchy of courts is a judicial policy designed to restrain direct resort to the Supreme Court if relief can be granted or obtained from the lower court. It may also be invoked when a direct resort to the CA is made without going through the RTC.
The Court of Appeals has full discretion on whether to give due course to any petition for certiorari directly filed before it. In this case, it allowed petitioner's direct resort to it on the ground that the issue presented was a pure question of law. No error can be ascribed to it for passing upon the issue.
SECOND ISSUE: Under the Local Government Code, local government units are granted the power to levy taxes on real property not otherwise exempted under the law.
Under Section 234(a), the general rule is that any real property owned by the Republic or its political subdivisions is exempt from the payment of real property tax "except when the beneficial use thereof has been granted, for consideration or otherwise, to a taxable person." The implication is that real property, even if owned by the Republic or any of its political subdivisions, may still be subject to real property tax if the beneficial use of the real property was granted to a taxable person.
A government instrumentality is exempt from the local government unit's levy of real property tax. The government instrumentality must not have been organized as a stock or non-stock corporation, even though it exercises corporate powers, administers special funds, and enjoys operational autonomy, usually through its charter. Its properties are exempt from real property tax because they are properties of the public dominion: held in trust for the Republic, intended for public use, and cannot be the subject of levy, encumbrance, or disposition.
A government-owned and controlled corporation, on the other hand, is not exempt from real property taxes due to the passage of the Local Government Code.
Guided by these parameters, this Court now determines whether petitioner is a government instrumentality exercising corporate powers or a government-owned and controlled corporation.
THIRD ISSUE: MWSS is a government owned and controlled corporation.
Petitioner MWSS was created in 1971 by Republic Act No. 6234, initially without any capital stock. Under its Charter, petitioner was explicitly declared exempt from the payment of real property taxes.
In 1974, however, Presidential Decree No. 425 amended the Charter and converted petitioner into a stock corporation.
MWSS is an attached agency of the Department of Public Works and Highways, but exercises corporate functions and maintains operational autonomy as it was granted certain attributes, powers and functions.
To be categorized as a government-owned and -controlled corporation, a government agency must meet the two (2) requirements prescribed in Article XII, Section 16 of the Constitution: common good and economic viability.
MWSS was created by Congress with the mandate to provide potable water to Metro Manila, Rizal, and a portion of Cavite. Undoubtedly, its creation was for the benefit of the common good. With the passing of the National Water Crisis Act of 1995 and petitioner's subsequent privatization, any contract that petitioner undertakes with private concessionaires must be assessed for its market competitiveness or, otherwise stated, for economic viability.
Under its Charter, petitioner is given the power to "acquire, purchase, hold, transfer, sell, lease, rent, mortgage, encumber, and otherwise dispose" of its real property. Properties held by petitioner under the exercise of this power, therefore, cannot be considered properties of the public dominion.
- Whether there is violation of the principle of hierarchy of courts;
- Whether there is a difference between a government instrumentality and a GOCC;
- Whether MWSS is an instrumentality of the Republic. Otherwise, whether it is a GOCC;
- Whether MWSS is exempt from realty taxes
HELD: PETITION GRANTED; MWSS DECLARED EXEMPT.
FIRST ISSUE: The principle of the hierarchy of courts is a judicial policy designed to restrain direct resort to the Supreme Court if relief can be granted or obtained from the lower court. It may also be invoked when a direct resort to the CA is made without going through the RTC.
The Court of Appeals has full discretion on whether to give due course to any petition for certiorari directly filed before it. In this case, it allowed petitioner's direct resort to it on the ground that the issue presented was a pure question of law. No error can be ascribed to it for passing upon the issue.
SECOND ISSUE: Under the Local Government Code, local government units are granted the power to levy taxes on real property not otherwise exempted under the law.
Under Section 234(a), the general rule is that any real property owned by the Republic or its political subdivisions is exempt from the payment of real property tax "except when the beneficial use thereof has been granted, for consideration or otherwise, to a taxable person." The implication is that real property, even if owned by the Republic or any of its political subdivisions, may still be subject to real property tax if the beneficial use of the real property was granted to a taxable person.
A government instrumentality is exempt from the local government unit's levy of real property tax. The government instrumentality must not have been organized as a stock or non-stock corporation, even though it exercises corporate powers, administers special funds, and enjoys operational autonomy, usually through its charter. Its properties are exempt from real property tax because they are properties of the public dominion: held in trust for the Republic, intended for public use, and cannot be the subject of levy, encumbrance, or disposition.
A government-owned and controlled corporation, on the other hand, is not exempt from real property taxes due to the passage of the Local Government Code.
Guided by these parameters, this Court now determines whether petitioner is a government instrumentality exercising corporate powers or a government-owned and controlled corporation.
Petitioner MWSS was created in 1971 by Republic Act No. 6234, initially without any capital stock. Under its Charter, petitioner was explicitly declared exempt from the payment of real property taxes.
In 1974, however, Presidential Decree No. 425 amended the Charter and converted petitioner into a stock corporation.
MWSS is an attached agency of the Department of Public Works and Highways, but exercises corporate functions and maintains operational autonomy as it was granted certain attributes, powers and functions.
To be categorized as a government-owned and -controlled corporation, a government agency must meet the two (2) requirements prescribed in Article XII, Section 16 of the Constitution: common good and economic viability.
MWSS was created by Congress with the mandate to provide potable water to Metro Manila, Rizal, and a portion of Cavite. Undoubtedly, its creation was for the benefit of the common good. With the passing of the National Water Crisis Act of 1995 and petitioner's subsequent privatization, any contract that petitioner undertakes with private concessionaires must be assessed for its market competitiveness or, otherwise stated, for economic viability.
Under its Charter, petitioner is given the power to "acquire, purchase, hold, transfer, sell, lease, rent, mortgage, encumber, and otherwise dispose" of its real property. Properties held by petitioner under the exercise of this power, therefore, cannot be considered properties of the public dominion.
MWSS is a government owned and controlled corporation. Under the Local Government Code, only its machinery and equipment actually, directly, and exclusively used in the supply and distribution of water can be exempt from the levy of real property taxes. Its powers, functions, and attributes are more akin to that of the National Power Corporation, which was previously held by the Court as a taxable entity.
FOURTH ISSUE: Under Executive Order No. 596, petitioner is categorized with other government agencies that were found to be exempt from the payment of real property taxes.
Under Republic Act No. 10149 or the GOCC Governance Act of 2011, petitioner is exempt from the payment of real property taxes.
Hence, petitioner's real property tax exemption under Republic Act No. 6234[81] is still valid as the proviso of Section 234[82] of the Local Government Code is only applicable to government-owned and -controlled corporations.
Thus, petitioner is not liable to respondent Local Government of Quezon City for real property taxes, except if the beneficial use of its properties has been extended to a taxable person.
Respondents have not alleged that the beneficial use of any of petitioner's properties was extended to a taxable person. In the absence of any allegation to the contrary, petitioner's properties in Quezon City are not subject to the levy of real property taxes.
ADDITIONAL READINGS:
[1] An Act Creating the Metropolitan Waterworks and Sewerage System and Dissolving the National Waterworks and Sewerage Authority; and for Other Purposes.
[2] Rep. Act No. 6234 (1971), sec. 1.
[3] See Rep. Act No. 6234 (1971), sec. 2(c).
[4] Amending Certain Sections of Republic Act Numbered Sixty-Two Hundred Thirty-Four, Entitled "An Act Creating the Metropolitan Waterworks and Sewerage System and Dissolving the National Waterworks and Sewerage Authority, and for Other Purposes."
[5] Presidential Decree No. 425 (1974), sec. 2-A.
[6] LOCAL GOVT. CODE, sec. 133 provides:
Section 133. Common Limitations on the Taxing Powers of Local Government Units. Unless otherwise provided herein, the exercise of the taxing powers of provinces, cities, municipalities, and barangays shall not extend to the levy of the following:
. . . .
(o) Taxes, fees or charges of any kind on the National Government, its agencies and instrumentalities, and local government units.
[7] Rep. Act No. 6234 (1971 ), as amended, sec. 18 provides:
Section 18. Non-Profit Character of the System, Exemption from all Taxes, Duties, Fees, Imposts and Other Charges by Government and Governmental Instrumentalities. - The System shall be non-profit and shall devote all its returns from its capital investment as well as excess revenues from its operations, for expansion and improvement. To enable the System to pay its indebtedness and obligations and the furtherance and effective implementation of the policy enumerated in Section one of this Act, the System is hereby declared exempt:
(a) From the payment of all taxes, duties, fees, imposts, charges and restrictions of the Republic of the Philippines, its provinces, cities, municipalities and other government agencies and instrumentalities including the taxes, duties, fees, imports, and other charges provided for under the Tariff and Customs Code of the Philippines, Republic Act Numbered Nineteen Hundred Thirty-Seven, as amended to further amended by Presidential Decree No. 34, dated October 27, 1972, and costs and service fees in any Court or administrative proceedings in which it may be a party;
(b) From all income taxes, franchise taxes and realty taxes to be paid to the National Government, its provinces, cities, municipalities and the other Government agencies and instrumentalities; and
(c) From all imposts, duties, compensating taxes, and advanced sales tax, and wharfage fees on import of foreign goods required for its operations and projects.
[8] 528 Phil. 181 (2006) [Per J. Carpio, En Banc].
[9] 560 Phil. 738 (2007) [Per J. Azcuna, First Division].
[10] LOCAL GOVT. CODE, sec. 234 provides:
Section 234. Exemptions from Real Property Tax. - The following are exempted from payment of the real property tax:
. . . .
Except as provided herein, any exemption from payment of real property tax previously granted to, or presently enjoyed by, all persons, whether natural or juridical, including all government-owned or -controlled corporations are hereby withdrawn upon the effectivity of this Code.
[11] G.R. No. 202781, January 10, 2017 [Per J. Leonen, En Banc].
[12] De Castro v. Carlos, 109 Phil. 389, 396-397 (2013) [Per C.J. Sereno, En Banc]; People v. Cuaresma, 254 Phil. 418, 426-428 (1989) [Per J. Narvasa, First Division]; Bañez, Jr. v. Concepcion, 693 Phil. 399, 411-414 (2012) [Per J. Bersamin, First Division]; Kalipunan ng Damayang Mahihirap, Inc. v. Robredo, G.R. No. 200903, July 22, 2014, 730 SCRA 322, 332-333 (2014) [Per J. Brion, En Banc]; Ouano v. PGIT International Investment Corp., 434 Phil. 28, 34-35 (2002) [Per J. SandovalGutierrez, Third Division]; and Vergara, Sr. v. Suelto, 240 Phil. 719, 732-733 (1987) [Per J. Narvasa, First Division].
[13] CONST., art. VIII, sec. 5, par. 1.
[14] People v. Cuaresma, 254 Phil. 418, 426-428 (1989) [Per J. Narvasa, First Division].
[15] G.R. No. 205728, January 21, 2015, 747 SCRA 1 [Per J. Leonen, En Banc].
[16] Aala v. Uy, GR. No. 202781, January 10, 2017 15 [Per J. Leonen, En Banc], citing Diocese of Bacolod v. Commission on Elections, G.R. No. 205728, January 21, 2015, 747 SCRA 1 [Per J. Leonen, En Banc].
[17] 528 Phil. 181 (2006) [Per J. Carpio, En Banc].
[18] ADM. CODE, sec. 2. General Terms Defined. - . . .
(10) Instrumentality refers to any agency of the National Government, not integrated within the department framework vested with special functions or jurisdiction by law, endowed with some if not all corporate powers, administering special funds, and enjoying operational autonomy, usually through a charter. . . .
[56] Manila International Airport Authority v. Court of Appeals, 528 Phil. 181, 214-215 (2006) [Per J. Carpio, En Banc].
[19] Lung Center of the Philippines v. Quezon City, G.R. No. 144104, June 29, 2004, 433 SCRA 119, 138 [Per J. Callejo, Sr., En Banc].
[20] 555 Phil. 661 (2007) [Per J. Ynares-Santiago, Third Division].
[21] 623 Phil. 964 (2009) [Per J. Velasco, Jr., Third Division].
[22] 759 Phil. 296 (2015) [Per J. Leonardo-De Castro, First Division].
[23] LOCAL GOVT. CODE, sec. 234.
[24] Rep. Act No. 6234 (1971), sec. 2(a).
[25] Rep. Act No. 6234 (1971), sec. 18.
[26] ADM. CODE, Book IV, Title V, ch. 6, sec. 25 provides:
Section 25. Attached Agencies and Corporations. - Agencies and corporations attached to the Department [of Public Works and Highways] shall continue to operate and function in accordance with their respective charters/laws/executive orders creating them. Accordingly, the Metropolitan Waterworks and Sewerage System, the Local Water Utilities Administration, the National Irrigation Administration, and the National Water Resources Council, among others, shall continue to be attached to the Department; while the Metropolitan Manila Flood Control and Drainage Council, as reorganized, shall be attached to the Department.
[27] Rep. Act No. 6234 (1971), sec. 3, as amended by Pres. Decree No. 425 (1974) and Pres. Decree No. 1406 (1978).
[28] CONST., art. XII, sec. 16 provides:
Section 16. The Congress shall not, except by general law, provide for the formation, organization, or regulation of private corporations. Government-owned or controlled corporations may be created or established by special charters in the interest of the common good and subject to the test of economic viability.
[29] Implementing Rules and Regulations of Rep. Act No. 8041 (1995), Rule 3, sec. 3.1.
[30] Implementing Rules and Regulations of Rep. Act No. 8041 (1995), Rule 3, sec. 3.3.
[31] Implementing Rules and Regulations of Rep. Act No. 8041 (1995), Rule 3, sec. 3.8.
[32] Espiritu v. Municipal Council, 102 Phil. 866, 870 (1958) [Per J. Montemayor, En Banc].
[33] Manila International Airport Authority v. Court of Appeals, 528 Phil. 181, 219 (2006) [Per J. Carpio, En Banc].
[34] Rep. Act No. 6234 (1971), sec. 3(j).
[35] LOCAL GOVT. CODE, sec. 234 provides:
Section 234. Exemptions from Real Property Tax. - The following are exempted from payment of the real property tax:
. . . .
(c) All machineries and equipment that are actually, directly and exclusively used by local water districts and government-owned or -controlled corporations engaged in the supply and distribution of water and/or generation and transmission of electric power[.]
[36] National Power Corporation v. City of Cabanatuan, 449 Phil. 233, 256-257 (2003) [Per J. Puno, Third Division], citing Social Security System Employees Association v. Soriano, 7 SCRA 1016, 1020 (1963) [Per J. Bautista Angelo, En Banc]; Boy Scouts of the Philippines v. NLRC, 196 SCRA 176, 185 (1991) [Per J. Feliciano, Third Division]; Shipside Incorporated v. Court of Appeals, 352 SCRA 334, 350 (2001) [Per J. Melo, Third Division]; Rep. Act No. 6395, sec. 2; and National Waterworks & Sewerage Authority v. NWSA Consolidated Unions, 11 SCRA 766, 774 (1964) [Per J. Bautista Angelo, En Banc].
[37] Rep. Act No. 10149 (2011), sec. 3(n).
[38] Rep. Act No. 6234 (1971), as amended, sec. 18 provides:
Section 18. Non-Profit Character of the System, Exemption from all Taxes, Duties, Fees, Imposts and Other Charges by Government and Governmental Instrumentalities. - The System shall be non-profit and shall devote all its returns from its capital investment as well as excess revenues from its operations, for expansion and improvement. To enable the System to pay its indebtedness and obligations and the furtherance and effective implementation of the policy enumerated in Section one of this Act, the System is hereby declared exempt:
(a) From the payment of all taxes, duties, fees, imposts, charges and restrictions of the Republic of the Philippines, its provinces, cities, municipalities and other government agencies and instrumentalities including the taxes, duties, fees, imports, and other charges provided for under the Tariff and Customs Code of the Philippines, Republic Act Numbered Nineteen Hundred Thirty-Seven, as amended to further amended by Presidential Decree No. 34, dated October 27, 1972, and costs and service fees in any Court or administrative proceedings in which it may be a party;
(b) From all income taxes, franchise taxes and realty taxes to be paid to the National Government, its provinces, cities, municipalities and the other Government agencies and instrumentalities; and
(c) From all imposts, duties, compensating taxes, and advanced sales tax, and wharfage fees on import of foreign goods required for its operations and projects. (Emphasis supplied)
