NATIONAL POWER CORPORATION v. CENTRAL BOARD OF ASSESSMENT APPEALS (CBAA), LOCAL BOARD OF ASSESSMENT APPEALS (LBAA) of LA UNION, PROVINCIAL ASSESSOR and TREASURER OF LA UNION, and MUNICIPAL ASSESSOR, BAUANG, LA UNION

REPUBLIC OF T}IE PHILfPPINES COURT OF TAX APPEALS QUEZON CITY EN BANC ********* NATIONAL POWER CORPORATION, Petitioner-Appellant, - versus - C.T.A. E.B. NO. 51 (CBAA Case No. L-32) CENTRAL BOARD OF ASSESSMENT APPEALS (CBAA), LOCAL BOARD OF ASSESSMENT APPEALS OF LA UNION, (LBAA) PROVINCIAL ASSESSOR, and TREASURER of LA UNION and MUNICIPAL ASSESSOR, BAUANG, LA UNION, Respondents-Appellees. x---------------------- ----------- x IN RE: PETITION TO DECLARE NATIONAL POWER CORPORATION EXEMPT FROM THE REVISED AND RETROACTIVE REAL PROPERTY TAX ASSESSMENT ON THE PROPERTY COVERED BY TAX DECLARATION NOS. 30026 TO 30033 ISSUED BY THE MUNICIPAL/ PROVINCIAL ASSESSORS OF THE MUNICIPALITY OF BAUANG, PROVINCE OF LA UNION BAUANG PRIVATE POWER CORP., C.T.A. E.B. CASE NO. 58 (CBAA Case'No. L-32) Petitioner, - versus - Present: SANGGUNIANG PANLALAWIGAN Acosta~ P.J.~ LA UNION, PROVINCIAL TREASURER, LA UNION, MUNICIPAL ASSESSOR, Castaneda, Jr., BAUANG, LA UNION, PROVINCIAL Bautista, ASSESSOR, LA UNION, LOCAL BOARD Uy, OF ASSESSMENT APPEALS (LBAA} OF Casanova, and LA UNION, and THE CENTRAL BOARD Palanca-Enriquez, JJ. OF ASSESSMENT APPEALS (CBAA), Promulgated: Respondents. FEB t 3 �2006 x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - _______ (-il%Jc~0({/_'c-_-tf~:

DECISION C.T.A. E. B. NOS. 51 & 58 Page 2 DECISION CASANOVA, J.: These are Petitions for Review before the Court of Tax Appeals en I anc filed by petitioner-appellant National Power Corporation and petitioner Bauang Corporation on December 15, 2004 and January 3, 2005, respectively, unde Republic Act No. 9282, seeking for reversal of the Decision and subsequent Resolution re dered by the Central Board of Assessment Appeals in CBAA Case No. L-32, of the same titlesr to wit: I 1. Decision dated January 29, 2004 dismissing petitioner- appellant's Appeal and petitioner's Appeal-In-Intervention for la~k of merit and accordingly confirmed the assailed Decision of the I Local Board of Assessment Appeals in LBAA Case No. 01-99 whiCh denied petitioner NAPOCOR's petition; and 2. Resolution dated October 20, 2004 denying petitioners' I Motions for Reconsideration of the aforementioned Decision. � I The undisputed facts as culled from the records of the case are briefly narrated as follows: On January 11, 1993, petitioner-appellant National Power Corporatio~ (NAPOCOR) I and First Private Power Corporation (FPPC) entered into a contract under the ,Build Operate and Transfer (BOT) Agreement, wherein FPPC, as the Contractor, "shall cause lthe formation of a subsidiary or Philippine Corporation to be called as Bauang Private Power Corporation I (hereinafter "BPPC") for the purpose of undertaking certain works in respect of the building and operating of the Power Station and perform other undertakings sp~ified in this Agreement." The Agreement or contract was for the construction of a 115 Megawatt Bauang Diesel Power Plant, situated in Payocpoc Sur, Bauang, La Union, ~or the period commencing from July 25, 1994 and to end upon the transfer date thereof, with BPPC undertaking the designing, building and operating the said power plant. {Anhex C, Petition for Review, CTA EB. Nos. 51 & 58) Accordingly, the operation of the power JDiant is for the purpose of converting the fuel supplied by petitioner-appellant NAPOCOR to ~titioner BPPC

DECISION C.T.A. E.B. NOS. 51 & 58 Page 3 into electricity, with the former taking in back all the electricity generated by BPPC, as required by petitioner-appellant. In 1995, the Municipal Assessors of Bauang, La Union, issued Tax De laration Nos. 2506 and 25022 to 25029 in the name of BPPC, declaring all machineries and equipment as exempt from real property taxes. However, in a letter dated July 22, 1997 ad ressed to the Provincial and Municipal Assessors of Bauang, La Union, the then Acting May r of Bauang, La Union questioned the legality of the exemption of BPPC from the pa ment of real property taxes. On February 6, 1998, the then Regional Director of the Bureau of Loc I Government Finance (BLGF), Ms. Carmelita Reyes, through her 6t11 Indorsement, opined hat petitioner BPPC is a private corporation. Subsequently, in July 16, 1998, the BLGF De uty Executive Director and OIC Ms. Angelina M. Magsino, issued her 1 11 Indorsement r ling that the machineries and equipment of BPPC are subject to real property taxes and or ered that the assessors take action to the same. In view of the ruling issued by the BLGF, and in accordance with Arti le 314 of the Rules and Regulations Implementing the Local Government Code a 1991, the Provincial/Municipal Assessors then issued the assailed revised assessment retroactive to 1995 Tax Declaration Nos. 30026 to 30033 and 30037, which cancelled the earlier issued Tax Declarations of Real Property of BPPC and, in effect, re-assess the subject machineries and equipment as liable for real property taxes. Consequent! , a Notice of Assessment and Tax Bill was issued against Bauang Private Power Corp. ass sing it of real property taxes for the machineries and equipment, as stated under declarations, in the amount of Two Hundred Eighty Eight Million Five Hu dred Eighty Two Thousand Eight Hundred Forty Five Pesos (P288,582,84S.OO) for the years 1995 to 1998, exclusive of the 2% interest per month on unpaid amounts.

DEOSION C.T.A. EB. NOS. 51 & 58 Page 4 In this r~ard, on October 5, 1998, petitioner-appellant .National Pow r Corporation, filed a petition before the Local Board of Assessment Appeals (LBAA) e itlecl "In Re: Petition to Declare Exempt from Payment of Property Tax on the Revised and Retroactive to 1995 Tax Declaration Nos~ 30026, 30027, 30028, 30029, 30030, 30031, 300 2, 30033 and 30037, National Power Corporation, petitioner." NAPOCOR claimed that the m chineries and equipment covered under the tax declarations are actually, directly, and exclu ively used by it and therefore, by the provisions of law, are exempt from the payment o real property taxes. On November 19, 1999, a Motion to Withdraw Petition was granted by the LBM due to a series of conferences and ~tings between the petitioner-appellant and petitioner and the Local Government Units of Bauang, La Union, for the purpose of arrivin at a possible amic:apl~ settlement of the case. However, the failure to arrive at an agreea le settlement caused the reinstatement of the original petition. On the other hand, petitioner Bauang Private Power Corporation filed a Petition for Prohibition with the Regional Trial Court of La Union, which issued an Order d ed December 11, 2000 granting the Writ of Preliminary Injunction. In view of this, respond nts-appellees challenged the said Order and filed a Petition for Certiorari with the Cou of Appeals, docketed as C.A.-G.R. SP No. 66937. On October 26, 2001, the L.BAA rendered a decision denying th petition for exemption, and holding therein that NAPOCOR. does not own nor does it actually or exclusively use the subj~ machineries and eql!ipment. Accordingly, what etermines the liability of a person or entity in the payment of real property taxes is the own rship and use of the property subject of taxation, which cannot be determined by mere agr ment of the parties. Petitioner-appellant NAPOCOR then appealed the LBAA's decision t the Central Board of Assessment Appeals (CBAA).

DECISION C.T.A. E:B. NOS. 51 & 58 Page 5 On March 31, 2003, the Court of Appeals lOt~ Division rendered its D ision in C.A.- G.R. SP No. 66937, dismissing the Petition for Certiorari filed by the respond nts..appellees, Sangguniang Panlalawigan of La Union and the Provindal Treasurer of La Unton. A Motion for Reconsid~ration was likewise denied. On May 23, 2003, or almost two (2) years after the LBAA render its decision, petitioner BPPC fil~ its Appeal-in-Intervention with the CBAA, alleging tha it has a real interest in the outcome of the matter in litigation between petitioner-appel ant NAPOCOR (lnd respondents-appellees because Tax Declaration Nos. 30026 to 300 3 and 30037 covering the subject machineries and equipment are all issued in its name. On January 29, 2004, the CBAA rendered the assailed Decision dismi sing petitioner NAPOCOR's appeal. Hence, these Petitions for Review en bane filed by petitioner-appellan NAPOCOR on December 15, 2004 and petitioner BPPC on January 3, 2005. In its petition, petitioner.,.appellant NAPOCOR submits the following a uments: 1. The CBAA erred in rulin9 that petitioner is not the actual direct, and exclusive user of the Bauang Diesel Power Plant; 2. The CBAA erred in ruling that petitioner's real pro exemption was withdrawn by the Local Government Code 3. The CBAA erred in ruling that petitioner must be engaged in both generation and transmission of power before ex:emptio under Section 234 (c) of the LGC applies; 4. The CBAA erred in not construing the exemptions with pet tioner's charter and the BOT Law; and 5. Assuming the 215 Megawatts Bauang Diesel Power lant is t;:D<able, the CBAA nonetheless erred in refusing to rem nd the case to the LBAA for the PUrPose of.determining the adju ments on the real .estc!te taxes due on the account of the use oft e 10% assessment level and the exclusion of pollution r ucing machines.

DECISION C.T.A. E. B. NOS. 51 & 58 Page 6 On the other hand, petitioner BPPC in CTA En Bane Case No. 58 raised the following arguments: 1. The CBAA committed reversible error and/or grave abu e of discretion in not finding that the machinery and equip ent subject of the assessment are exempt from taxation; 2. The CBAA committed reversible error and/or grave abu e of discretion in finding the petitioner liable for real property adopting an improper interpretation of the terms "actual, and exclusive use"; 3. The CBAA committed reversible error and/or grave abu e of discretion in ruling that the machinery and equipment ar not "actually and directly used" by NAPOCOR; and 4. The CBAA committed reversible error and/or grave ab se of discretion in not finding that, assuming arguendo th t the properties are subject to taxation, the rate applied should nly be ten percent ( 10%). By way of Comment, respondents-appellees, assign the following as heir Counter- Arguments, thus: 1. Petitioner has no legal personality to file petition to decl re tax exempt properties registered in the name of BPPC and to i stitute the instant petition as well; 2. CBAA had no jurisdiction to entertain the appeal of pe itioner NAPOCOR; 3. CBAA correctly ruled that NAPOCOR is not the actual, dir ct and exclusive user of the Bauang Diesel Power Plant; 4. Contrary to petitioner's assertions, CBAA did not rule o even mention that NPC's real property tax exemption was withdrr wn by the Local Government Code; 5. CBAA correctly ruled that petitioner NPC must be engaged n both the generation and transmission of power to be exempted under Section 234 (c) of the Local Government Code; 6. CBAA correctly construed the exemptions in the Local Gove nment Code vis-a-vis NPC's charter and the BOT Law; and 7. There was no need to remand the case back to the L AA for purpose of determining the adjustments of the real estate t x due.

DECISION C.T.A. E.B. NOS. 51 & 58 Pag~ 7 Based on the pleadings of the parties, the issues in this c;ase may be summed p as follows: 1. Wheth~r or not ~itioner 8PPC has ~sonably filed its pr test to the qqestion~ REM~ and R~tro.a(;rt:ive to 1995 Tax Asses ments for thema<:;hineries and ~uipment iSsued in its name to th LBM and subsequently to this Court; and 2. Whether or .not the sul;>ject machineries and ~uipment c under Revised TCI)( ~laration Nos. 30026 to 30033 and 0037 � are actually, directly and exclusively used by petitioner�ap ellant NAPOCOR in the generation-and transmission of electric wer and thus, are not subject to real property taxes. Anent the first issue, it is not disputed that respondents-appellees issu Revised Tax Declarations No. 30026 to 30033 and 30037 in the name of petitioner Bauang Private Power Corporation (BPPC), and subsequently issued a Notice of Assessment to BPPC assessing it of real property taxes for the machineries and equipment being used in the Buil , Operate and Transfer Agreement (BOT Agreement) with petitioner..appellant NAPOCO in the total amount of P288,582,845.00 for the period covering 1995 to 1998. The su 1ect Notice of Assessment was admitt~ly received by petitioner BPPC on August 7, 1998. However, instead of filing an appeal with the LBAA, as provided for by aw, petitioner BPPC formally notified NAPOCOR of the notice on August 181 1998. On ober 51 1998, petitioner-appellant filed a ''Petition to Declare � NAPOCOR Exempt from th Revised and Retroactive to 1995 Real Property Tax Assessment on the Property Co erecl by Tax Declaration Nos~ 30026 to 30033 and 30037 Issued by the Municipai/Provinci I Assessors of the Municipality of Bauang, La Union~' with the LBM. Section 226 of the Lcx:al Government Code of 1991 provides: "SEC. 226. -.o<~aH';lQ"rd Qf A$$E!S$m(U1t Appeals. - Any o ner or person haVing lege:tl intereSt in .the property who is not satisfi d with the actiQn of th~ provin<;ial, city or mlJnicipal assessor n the assessm~nt ()f his .pro~rt;y may, ll!fi~hl silfty .(60) days fro . the date Qf ~P~ ':9' ttl~"""~"' r-ou~ ofil$~ssment, ap ec:11 to th~ lk)ard Qf .~mef1t ApJ]eC)I$ in the province or ity by flUng a ~~tio11 _.nder oath in the form prescribed r the pqrpose, together with copies of the tax declarations an such affidavits or documents submitted in support of the appeal." (E 'fJhasis supplied)

DECISION C.T.A. E. B. NOS . 51 & 58 Page 8 Verily, the owner or the person having a legal interest in the property ubject of the assessment is given a period of sixty (60) days from receipt of the wri assessment within which to file its appeal with the Local Board of Assess ent Appeals (LBAA). When petitioner BPPC received the notice of assessment on August 7 1998, it had until October 6, 1998 (not October 3, 1998 as alleged by the respondents) w thin which to file an appeal with the LBAA on the ground that it does not agree with the fi dings of real property tax assessments by the provincial/municipal assessors. However, p titioner BPPC did not file any appeal with the LBAA, as required by law, but instead m rely informed petitioner-appellant NAPOCOR of the said assessment notice. In this regard, on October 5, 1998, petitioner-appellant NAPOCOR fil a petition to declare itself exempt from the real property taxes covered under the subject ta declarations which were issued in the name of petitioner BPPC. The law is very clear. It specifically provides that, when the owner o any person having a legal interest in the property who is not satisfied with the ssessment, may file an appeal within a period of sixty (60) days to the LB . Under the provisions of the Rules of Procedure before the Local Board of Assessment Ap eals, it is also provided that the owner, administrator or person who is not satisfied with the ssessment of his property may, within sixty (60) days from the date of receipt of the wri en notice of assessment, appeal to the LBAA {Section 2 (a), Rule IQ. Likewise, Section 4 of the same Rules provides that "any action of the Provincial, City or Municipal As essor in the assessment of real property, and any action or inaction of the Provincial or Ci Treasurer, or Municipal Treasurer, on taxpayer's claim for refund of taxes paid under prote , or on claims for reduction or adjustment of taxes paid or for tax credits on illegally r erroneously collected realty taxes and such other real property taxes or special levies u Book II of R.A. 7160", may be appealed to the LBAA. Thus, an appeal to e LBAA must necessarily involve the questioning of the correctness of the assessment of th

DECISION C.T.A. E.B. NOS. 51 & 58 Page 9 this regard, an assessment is defined as "the act or process of determining t e value of a property, or proportion thereof subject to tax, including the discovery, listing, classification and appraisal of the property" (Section 199 (f), Local Government Code of 199 ). In the instant case, petitioner BPPC, against whom the tax declaration were issued and the notice of assessment addressed, did not file an appeal to contest o question the assessment made by the provincial/municipal assessors. It was instead through the intervention of petitioner-appellant NAPOCOR that an alleged appeal was mad . Although it appears that there was a recourse made within the sixty (60) day period allow d by law, the requisites as to the proper party and appeal were not substantially complied wi h. First and foremost, petitioner-appellant is not the registered owner f the subject machineries and equipment. It is clear from the pleadings of the petitioner PPC that the tax declarations were issued in its name. It has likewise been admitted b BPPC that it received the Notice of Assessment and Tax Bill issued against it. While tax d larations are not conclusive proofs of ownership, however, in the absence r convincing evidence to prove otherwise, the same may be considered. Admittedly therefore, petitioner BPPC is the registered owner o the subject machineries and equipment. This is further confirmed by Section 2.08 of the BOT Agreement, which provides that "From the date hereof until the Transfer Dat , Contractor machine Station which have been supplied by it or at its costs and it shall operate a d manage the Power Station for the purpose of converting the fuel of NAPOCOR into electric ty." Likewise, Section 14.01 provides that "On Transfer Date, Contractor (BPPC) shall transfer to NAPOCOR free from any lien and encumbrances all its right, title and nterest in and to the fixtures, fittings, plant, and equipment (including testing equipment an special tools) and all improvements comprising the Power Station."

DECISION C.T.A. E. B. NOS. 51 & 58 Page 10 Accordingly, until the Transfer Date of the power station, NAPOCOR oes not own any of the subject properties and equipment. Hence, NAPOCOR has no legal right, title or interest in the subject real properties. Unless and until there is a transfer f all the real properties in the name of NAPOCOR, petitioner-appellant has no cause of ction and no legal personality to question the assessment issued against BPPC in the gui . of a Petition for Exemption and to file this case. As correctly pointed out by respond petitioner-appellant NAPOCOR, is at the least, an interloper in this case. By express mandate of law, the owner or the person having a legal i terest in the property subject of the assessment, should have filed an appeal with the LB to question the assessment received, which, petitioner BPPC failed to do. In this instant c se, petitioner BPPC merely filed an Appeal-In-Intervention when the case was already el vated to the Central Board of Assessment Appeals (CBAA). Although, petitioner BPPC int rvened in the case, it still failed to follow the correct processes as required by the Rules overning the Appeals to the CBAA, more specifically, Section 7 of Rule N, which provid that "if the corresponding realty taxes are not paid, the Central Board may nevertheles entertain an appeal by requiring the appellant to file a bond to guarantee the payment of he said taxes if found to be due, subject to the approval by the Central Board. " Assuming, for the sake of argument, that petitioner-appellant has a I the property subject of the assessment as to fall within the provisions of t e law, it still failed to file the correct appeal before the LBAA. The petition filed by petiti ner-appellant NAPOCOR is not the appeal contemplated by law, rather, it was an effort on its part to enforce an alleged legal right under the provisions of the BOT Agreement hich makes it liable to pay the real property taxes, as well as, the provisions of the Loc I Government Code of 1991 granting exemptions to machineries and equipment actual! , directly and exclusively used by a government-owned or controlled corporation, such a itself, in the generation and transmission of electric power. It must be emphasized that t e existence of the fact of exemption is not for the LBAA to decide, but rather, should be proven by

DECISION C.T.A. E. B. NOS. 51 & 58 Page 11 competent and sufficient evidence before the Provincial, City or Municipal A sessor within thirty (30) days from the declaration of real property (Section 206, Local Gov. mment Code of 1991}, whose action is appealable to the LBAA and the CBAA, if necessary. Petitioner-appellant cannot simply bypass the authority granted o concerned administrative agencies. When the law provides for remedies against the action of an administrative board, body, or officer, as in the case at bar, relief to the court can be made only after exhausting all remedies provided therein (Lopez vs. City of Man a, 303 SCRA 448). Thus, for failure of the petitioner BPPC to seasonably file its appeal be re the LBAA, it has lost its right to appeal. "Perfection of an appeal in the manner and wit in the period laid down by law is not only mandatory but jurisdictional, and failure to pe an appeal legally required has the effect of rendering final and executory the judgmen of the court below and deprives the appellate court of jurisdiction to entertain the appeal' (Government ofthe Philippines [Director ofLands} vs. Antonio, et. a!., 15 SCRA 119}. As regards the issue on the taxability of the machineries and equipme t in question, this Court considers it necessary to discuss the same to enlighten the pa ies as to the nature of the subject machineries and equipment, without declaring, owever, that petitioner-appellant NAPOCOR has the personality to bring this case before Us. Anent this issue, petitioner-appellant relies on the case of Mactan Ceb International Airport Authority vs. Marcos (261 SCRA 667), where the Honorable Supreme ourt classified the exemptions from real property taxes according to: 1. Ownership exemptions - Exemptions from real property xes on the basis of ownership are real properties owned by i) the Republic, (ii) a province, (iii) a city, (iv) a municipality (v) a barangay, and (vi) registered cooperatives. 2. Character exemptions- Exempted from real property taxes on the basis of their character are (i) charitable institutions, (ii) houses and temples of prayer like churches/ parsonages or c nvents appurtenant thereto, mosques, and (iii) non-profit or r ligious cemeteries.

DECISION C.T.A. E. B. NOS. 51 & 58 Page 12 3. Usage exemptions- Exempted from real property taxes n the basis of the actual, direct and exclusive use to which th y are devoted are (i) all lands, buildings and improvements whi h are actually, directly and exclusively used for religious, chari le or educational purposes; (ii) all machineries and equipment a ually, directly and exclusively used by local water districts r by government-owned or controlled corporations engaged n the supply and distribution of water and/or generatio and transmission of electric power; and (iii) all machine and equipment used for pollution control and environ ental protection . Accordingly, petitioner-appellant submits that under Sections 198 (b) the Local Government Code, the determination of both who is the taxable ent and who is exempt from real property taxation revolves on who is the "actual user". The entity in actual use of a given real property is considered the entity liable for real p operty taxes. However, if the machineries and equipment taxed are actually, directly and e elusively used by a GOCC in the generation and transmission of electric power, such roperties are exempted from taxation. Verily, Section 199 (b) of the same Code defines" ctual use" as ''the purpose for which the property is principally or predominantly utilized by the person in possession thereof." Petitioner-appellant further submits that in the case of The Sangguniang Panlalawigan of La Union & the Provincial Treasurer of La Union vs. Honor ble Presiding Judge Rosemary Molina Alim, La Union Bauang Private Power Corporation (BP C) & National Power Corporation (NAPOCOR), C.A.-G.R. SP No. 66937 (March 31, 2003) the Court of Appeals had ruled that the NPC is the actual, direct and exclusive user of eal properties under a BOT Agreement. This Court is not convinced. It is not disputed that petitioner BPPC was organized pursuant to he Fast Track Build, Operate and Transfer Agreement (BOT Agreement) between petit oner-appellant NAPOCOR and the First Private Power Corporation (FPPC) on January 11, 1993. Its organization was primarily to engage in the business of generating electric I power which

DECISION C.T.A. E. B. NOS. 51 & 58 Page 13 the company sells to the petitioner-appellant NAPOCOR on a wholesa e basis (;lh Indorsement dated July 16, 1998 to the Provincial Assessor of La Union). Under the said BOT Agreement, the Contractor (herein BPPC) i "given the opportunity to inspect the site, if he finds it physically suitable for the con truction and operation of a bunker-fired diesel generating power station, shall caus the design, development, construction, completion, testing and commissioning of a bunk r-fired diesel generating power station with Black Start capability, capable of operating at level within the Operating Parameters and in accordance with Specifications and the Proje Scope." To reiterate, Section 2.08 of the BOT Agreement provides that " From t e date hereof until the Transfer Date, Contractor shall, directly or indirectly, own the Power tation and all the fixtures, fittings, machinery and equipment on the Site or used in conn ion with the Power Station which have been supplied by it or at its costs and it shall operat and manage the Power Station for the purpose of converting the fuel of NAPOCOR into el ricity", while, Section 14.01 provides that "On Transfer Date, Contractor (BPPC) shall transfer to NAPOCOR free from any lien and encumbrances all its right, title and i terest in and to the fixtures, fittings, plant, and equipment (including testing equipment an special tools) and all improvements comprising the Power Station." Further, the provisions of Section 17 on Buyout gives a clear picture o the nature of the agreement, and that is, petitioner BPPC and not NAPOCOR owns the r I properties. Verily, under the provisions of the BOT Agreement, it is petitioner BP C which owns the subject machineries and equipment in the construction of the Power Stati The foregoing express provisions of the BOT Agreement disprove petiti ner-appellant and petitioner's arguments that the machineries and equipment are actuall , directly and exclusively used by NAPOCOR. To emphasize, the BOT Agreement clearly tipulated that petitioner-appellant NAPOCOR shall have a right over the machineries and uipment only after the same have been transferred upon the Transfer Date, or at t e end of the cooperation period of fifteen (15) years. By the nature of the agreemen and work of

DECISION C.T.A. E.B. NOS. 51 & 58 Page 14 petitioner BPPC, the properties in question are actually, directly and exclusive! used by it in the conversion of bunker fuel to electricity for petitioner-appellant for a fee (Sections 11, BOT Agreement). Moreover, the law is clear. Section 234 (c) of the Local Government ode of 1991 provides that: "SEC. 234. Exemptions from Real Property Tax. exempted from payment of real property tax: (a) X X X (b) X X X (c) All machineries and equipment that are actually, di and exclusively used by local water districts government-owned and controlled corporati ns engaged in the supply and distribution of water and or generation and transmission of electric power; XXX XXX xxx" (Emphasis and underscoring Ours) Therefore, contrary to the averments of the petitioners that NAPOCO need not be engaged in both the generation and transmission of electric power for the exemption to apply, the law categorically exempts from the payment of real property axes only all machineries and equipment which are actually, directly and exclusively used by a GOCC in the generation and transmission of electric power. In other words, to be ex mpt from the real property taxes, the following must concur: 1. all machineries and equipments are actually, direct y and exclusively used; 2. by a GOCC 3. in the generation AND transmission of electric power. It is admitted that petitioner BPPC is engaged in the generation of ele ric power for the exclusive supply to petitioner-appellant NAPOCOR. However, BPPC can not fall under the provisions of the law considering that petitioner BPPC is not a govern ent-owned or controlled corporation. BPPC is an independent power station currently perating and maintaining the Power Station pursuant to the BOT Agreement, subject to he transfer of s the same after upon the Transfer Date (pars. 3.2 & 3.3, Petitioner BA Petition for Review).

DECISION C.T.A. E. B. NOS . 51 & 58 Page 15 The argument of petitioner BPPC, that its exemption from the payme t of the real property taxes on the subject properties had been agreed upon by the prov sions Section 2.03 of the BOT Agreement, calls for a better reading and understanding of th laws. It must be emphasized that tax exemptions cannot be agreed up n by a mere contract between the parties. It must be expressly granted by the Constituti n, statute or franchise. A tax exemption, once granted, may likewise not be transferred o assigned for the same is a personal privilege granted to the grantee (Manila Gas Corp vs Collecto~ 71 Phil513). As held in the case of Philippine Long Distance Company vs. City f Davao, G.R. No. 143867, March 25, 2003, to wit: ''Tax exemptions should be granted only by clear and unequivocal pr vision of law on the basis of language too plain to be mistaken. They can ot be extended by mere implication or inference. Thus, it was held in Home In urance & Trust Co. v. Tennessee 25 that a law giving a corporation all the " owers, rights reservations, restrictions, and liabilities" of another company d s not give an exemption from taxation which the latter may possess. In Roch ster R. Co. v. Rochester, 26 the U.S. Supreme Court, after reviewing cases in olving the effect of the transfer to one company of the powers and privil es of another in conferring a tax exemption possessed by the latter, held that a statute authorizing or directing the grant or transfer of the "privilege " of a corporation which enjoys immunity from taxation or regulation should not be interpreted as including that immunity. Thus: We think it is now the rule, notwithstanding earlier decision and dicta to the contrary, that a statute authorizing a directing the grant or transfer of the ''privileges" of a corporation which enjoys immunity from taxation or regulation should not be interpreted as including that immunity. We, therefore, conclude that the words "the estate, property, rights, privileges, and franchises" did not embrace within thei meaning the immunity from the burden ofpaving enjoyed b the Brighton Railroad Company. Nor is there anything in this, or any other statute, which tends to show that the legislatun used the words with any larger meaning than they would haVi standing alone. The meaning is not enlarger/, as faint! suggested, by the expression in the statute that they are to b held by the successor "fully and entirely, and without chang and diminution," - words of unnecessary emphasis, withou which all included in "estate, property, rights, privileges, an franchises" would pass, and with which nothing more couh pass. On the contrary, it appears, as clearly as it did in th Phoenix Fire Insurance Company Case, that the legislatun intended to use the words "rights, franchises, and privileges ' in the restricted sense. . . "

DECISION C.T.A. E.B. NOS. 51 & 58 Page 16 "Accordingly, tax statutes must be construed strictly against the go ernment and liberally in favor of the taxpayer. But since taxes are what we pay for a civili are the lifeblood of the nation, the law frowns against exemptions from statutes granting tax exemptions are thus construed strictissimi juris again the taxpayer and liberally in favor of the taxing authority. A claim for exemption from tax p yments must be clearly shown and based on the language of the law too plain to be mista n. Else wise stated, taxation is the rule, exemption therefrom is the exception." actan Cebu International Airport Authority vs. Marcos, 261 SCRA 667) For all the reasons above discussed and inasmuch as petitioner PC failed to properly appeal the assessment within the time and manner prescribed by aw, then the assessment had already attained finality. WHEREFORE, both Petitions for Review are hereby DISMISSED for I ck of merit. SO ORDERED. Associate J stice WE CONCUR: 0~ \p . ~ ERNESTO D. ACOSTA Presiding Justice Q-~'4--C!!... ~~~-~ ~~~~c'r1 CIJuANITO C. CASTANEDA{aR: . q�GA PALAN -ENRIQUEZ Associate Justice Associate Justice . AEs~~iUcYe

DECISION C.T.A. E. B. NOS. 51 & 58 Page 17 CERTIFICATION Pursuant to Article VIII, Section 13 of the Constitution, it is hereby ce ified that the conclusions in the above Decision were reached in consultation before he case was assigned to the writer of the opinion of the Court En Bane ~tp . c.__,A- ERNESTO . ACOSTA Presidin Justice