NPC V Province of Isabela

SUPREME COURT REPORTS ANNOTATED VOLUME 491 1/16/20, 8:45 PM
10
NATIONAL POWER CORPORATION, petitioner, vs.

PROVINCE OF ISABELA, represented by HON.
BENJAMIN G. DY, Provincial Governor, respondent.
Taxation; In National Power Corporation v. City of

Cabanatuan, 401 SCRA 259 (2003), petitioner was declared not
exempt from paying franchise tax.·The case is on all fours with the
case of National Power Corporation v. City of Cabanatuan, 401
SCRA 259, 277 (2003), where this very same issue was settled by
the Court. In the Cabanatuan case, petitioner likewise refused to
pay franchise tax to the City of Cabanatuan by invoking the tax
exemption provided under its charter. It argued that Section 137 of
the LGC does not apply to it because its stocks are wholly owned by
the National Government, and its charter characterizes it as a „non-
profit‰ organization. The Court, however, declared that petitioner is
not exempt from paying franchise tax.
Same; Tax exemptions should be granted only by clear and
unequivocal provision of law on the basis of language too plain to be
_______________
* FIRST DIVISION.
170
170 SUPREME COURT REPORTS ANNOTATED
National Power Corporation vs. Province of Isabela
mistaken; They cannot be extended by mere implication or inference.
http://www.central.com.ph/sfsreader/session/0000016fae5ca2e7fe2c70ac003600fb002c009e/p/ATX209/?username=Guest Page 1 of 18
·Indeed, taxation is the rule and exemption is the exception. The

burden of proof rests upon the party claiming exemption to prove
that it is, in fact, covered by the exemption so claimed. Tax
exemptions should be granted only by clear and unequivocal
provision of law on the basis of language too plain to be mistaken.
They cannot be extended by mere implication or inference. In this
case, petitioner relies solely on the exemption granted to it by its
charter, arguing that its exemption from franchise tax remained
despite the enactment of the LGC.
Same; Court already declared in City Government of San Pablo,
Laguna v. Reyes that the franchise tax may still be imposed despite
any exemption enjoyed under special laws.·Even prior to the
Cabanatuan case, the Court already declared in City Government of
San Pablo, Laguna v. Reyes, 305 SCRA 353, 362 (1999), that the
franchise tax may still be imposed despite any exemption enjoyed
under special laws, explaining thus: x x x The legislative purpose to
withdraw tax privileges enjoyed under existing law or charter is
clearly manifested by the language used in Sections 137 and 193
categorically withdrawing such exemption subject only to the
exceptions enumerated. Since it would be not only tedious and
impractical to attempt to enumerate all the existing statutes
providing for an express, albeit general, withdrawal of such
exemptions or privileges. No more unequivocal language could have
been used.
Same; Court also declared in the Cabanatuan case that
petitioner qualifies as a „business enjoying a franchise.‰·
Nonetheless, petitioner seeks to avoid paying the franchise tax by
arguing further that it is not liable therefor under Section 137 of
the LGC because said tax applies only to a „business enjoying a
franchise.‰ It contends that it is not a private corporation or a
business for profit. Again, we do not agree. The Court also declared
in the Cabanatuan case that petitioner qualifies as a „business
enjoying a franchise.‰
Same; Although as a general rule, Local Government UnitÊs
(LGUs) cannot impose taxes, fees or charges of any kind on the
National Government, its agencies and instrumentalities, this rule
admits of an exception, i.e., when specific provisions of the LGC
authorize the LGUs to impose taxes, fees or charges on the
aforementioned entities.·Petitioner nevertheless contends that
respondent cannot impose a franchise tax on it because it is an
instrumentality of the
171
VOL. 491, JUNE 16, 2006 171
National Government. It also cites the case of Basco v. Philippine

Amusements and Gaming Corporation, 197 SCRA 52, 63-64 (1991),
which held that a government-owned and controlled corporation
whose shares of stock are owned by the national government is
exempt from local taxes. This contention, however, is without merit.
Although as a general rule, LGUs cannot impose taxes, fees or
charges of any kind on the National Government, its agencies and
instrumentalities, this rule admits of an exception, i.e., when
specific provisions of the LGC authorize the LGUs to impose taxes,
fees or charges on the aforementioned entities. Section 137 of the
LGC is one of those exceptions. It authorizes the province to impose
a tax on business enjoying a franchise, at a rate not exceeding fifty
percent (50%) of one percent (1%) of the gross annual receipts for
the preceding calendar year based on the incoming receipt, or
realized, within its territorial jurisdiction.
PETITION for review on certiorari of a decision of the

Court of Appeals.
The facts are stated in the opinion of the Court.
The Solicitor General for petitioner.
Johnas M. Lamorena for respondent Province of
Isabela.
CALLEJO, SR., J.:

1
This is a petition for review on certiorari of the Decision of
the Court of Appeals (CA) dated October 21, 2004
affirming the decision of the Regional Trial Court (RTC) of
Ilagan, Isabela, Branch 17, which ordered petitioner
National Power Corporation (NPC) to immediately
deposit in escrow with the Land Bank of the Philippines
the franchise tax due.
The antecedents are as follows:
Respondent Province of Isabela filed an action for
sum of money against petitioner NPC, a government-
owned and
_______________
1 Penned by Associate Justice Edgardo P. Cruz with Associate Justices

Godardo A. Jacinto and Jose C. Mendoza, concurring; Rollo, pp. 44-54.
172

controlled corporation engaged in the generation and sale

of electric power.
Respondent alleged in the complaint that petitionerÊs
Magat River Hydro-Electric Plant is located within its
territory and that, for this reason, it imposed
2
a franchise
tax on petitioner pursuant to Section 137 of Republic Act
No. 7160 (Local Government Code of 1991). It averred that
petitioner paid the franchise tax for the years 1992 and
1993 in the amount of P9,473,275.00 but failed and refused
to pay, despite demands, the franchise tax for the year 1994
in the amount of P7,116,949.00. Respondent likewise
sought the payment of 3 legal interest amounting to
P854,033.88 plus damages.
In its Answer, petitioner averred that the Magat River
Hydro-Electric Plant is constructed on the land owned by
the National Irrigation Administration, which is situated
at Susoc, Sto. Domingo, Potia, Ifugao. It admitted that it
paid franchise tax to the respondent for the years 1992 and
1993, but that it did so only upon respondentÊs
representation that the Magat Hydro-Electric Plant is
located within its territorial jurisdiction. It alleged that,
due to the boundary dispute between the respondent and
the Province of Ifugao, it is in a quandary as to whom it
should pay the franchise tax. Petitioner averred that the
lower court had no jurisdiction over the subject matter of
the action by virtue of Presidential Decree No. 242
prescribing the procedure for the administrative settlement
or adjudication of disputes, claims, and controversies
between or among government offices, agencies and
instrumentalities, including government-owned and
controlled corporations. Moreover, respondent did not

exhaust adminis-
_______________
2 Section 137. Franchise Tax.·Notwithstanding any exemption

granted by any law or other special law, the province may impose a tax
on business enjoying a franchise, at a rate not exceeding fifty percent
(50%) of one percent (1%) of the gross annual receipts for the preceding
calendar year based on the incoming receipt, or realized, within its
territorial jurisdiction.
3 Records, p. 2.
173
VOL. 491, JUNE 16, 2006 173

trative remedies by first settling its boundary dispute with

the Province of Ifugao. The controversy on the payment
of franchise tax could be settled in an action for
interpleader, which petitioner intended 4
to file against
respondent and the Province of Ifugao.
With leave of court, the Province of Ifugao filed a
Complaint-in-Intervention, later amended, against both
petitioner and respondent, claiming that the Magat Hydro-
Electric Power Plant from which petitioner derives its
income subject to franchise tax is situated within its
territory. All the principal structures of the power plant
are within its jurisdiction; only those incidental structures
which have nothing to do with the production of
hydroelectric power are located within the respondentÊs
territory. It alleged that it is the one actually maintaining
the power plant, as it maintains the watershed that
ensures the continuous flow of water to plantÊs reservoir. It
averred that, through misrepresentation, respondent
succeeded in claiming and receiving payment of franchise
tax from the petitioner for the years 1992 and 1993. The
intervenor also claimed that it is not precluded from
asserting its lawful claim despite the undue payment of
the franchise tax to the respondent. It maintained that
respondent has no legal basis to assert a claim over the
5
franchise tax over the power plant. It prayed that
judgment be rendered·
1. Ordering the National Power Corporation to

pay unto intervenor the sum of P7,116,949.00
representing the franchise tax for 1994 and all
franchise tax accruing thereafter;
2. Ordering the Province of Isabela to pay unto
intervenor the aggregate amount of P9,473,275.00
representing the franchise tax for the years 1992
and 1993 plus legal interest;
3. Ordering defendants to pay jointly and severally
attorneyÊs fee and litigation expenses.
_______________
4 Id., at pp. 13-15.

5 Id., at p. 185.
174

Other reliefs
6
just and equitable under the
premises.
In answer to the amended complaint-in-intervention,

respondent asserted that the Magat Hydro-Electric Power
Plant is located within its territory. It averred that the
power plant is an expansion of the Magat River Irrigation
System, constructed in 1957 and located in Ramon,
Isabela, and the Siffu River Irrigation System, located
along the boundaries of San Mateo and Ramon, Isabela.
All communications received and sent during the
construction of the power plant were addressed to the
respondent and not the intervenor. If the power plant is
located within the intervenorÊs territorial boundary, it
should have laid its claim over it during its construction in
1974. Petitioner and the intervenor are guilty of laches and
estoppel because they have known way back in 1976 that
the location of the power plant is within respondentÊs

territory. In fact, this has 7
been well publicized all
throughout the Philip-pines.
Petitioner, for its part, asserts in its answer to the
complaint-in-intervention that it is a non-profit
corporation pursuant to Section 13 of Rep. Act No. 6395
(its charter); as such, it is not covered by the Local
Government Code, and therefore not obliged to pay
franchise tax. The imposition of the franchise tax 8 on
appellant would run counter to Section 13 of its charter.
In a Decision dated July 30, 1997, the RTC ruled in
favor of respondent and the intervenor, thus:
„WHEREFORE, for and in consideration of all the foregoing,

judgment is hereby rendered in favor of the plaintiffs and against
the defendant: declaring the defendant National Power
Corporation liable for payment of Franchise Tax and ordering
said defendant, to immediately deposit, in escrow, in favor of the
plaintiffs, with the
_______________
6 Id., at pp. 185-186.

7 Id., at pp. 191-194.
8 Id., at pp. 199-200.
175
VOL. 491, JUNE 16, 2006 175

Land Bank of the Philippines, Ilagan Branch, the amount of

P7,116,949.00, representing Franchise Tax for the year 1994, plus
legal interest amounting to P854,033.00 for the same year 1994;
and to pay the costs of this suit.
9
SO ORDERED.‰
Petitioner then filed an appeal with the CA. On October 21,

2004, the CA rendered a decision affirming the RTC
Decision. Citing the case of 10National Power
Corporation v. City of Cabanatuan, the CA ruled that
the petitioner is not exempt from paying the franchise tax.
It held that Section 193 of the Local Government Code
withdrew the tax exemption provided under the petitionerÊs

charter. Petitioner, however, contended that the court a quo
had no basis in ordering it to pay franchise tax to
respondent since the latterÊs territorial dispute with the
intervenor has not yet been resolved; the RTC likewise had
no jurisdiction because respondent failed to exhaust
administrative remedies before filing the complaint. In
answer to this argument, the appellate court pointed out
that the court a quo did not order petitioner to pay the
franchise tax specifically to respondent, but merely to
deposit the amount in escrow pending final determination
in the proper forum of which province is entitled thereto.
Thus, the CA upheld the dismissal of the complaint-in-
intervention as against respondent since the matter refers
to a boundary dispute and11the legal steps for its resolution
should have been followed.
Petitioner, through the Office of the Solicitor General,
filed this petition for review with only the Province of
Isabela as respondent. It ascribes the following error to
the CA:
THE COURT OF APPEALS ERRED IN HOLDING THAT THE

NATIONAL POWER CORPORATION IS LIABLE FOR THE
_______________
9 Rollo, pp. 67-68.

10 449 Phil. 233, 256; 401 SCRA 259, 277 (2003).
11 Rollo, pp. 49-53.
176

PAYMENT OF FRANCHISE TAX UNDER THE LOCAL

12
GOVERNMENT CODE.
Petitioner urges this Court to take a second look at its

ruling in National
13
Power Corporation v. City of
Cabanatuan, which held it liable for franchise tax by
virtue of the LGC. It contends that Section 193 thereof did
not withdraw the tax exemption provided under Section 13
of its charter, Rep. Act No. 6395, which provides:
Section 13. Non-profit Character of the Corporation; Exemption

from All Taxes, Duties, Fees, Imposts and Other Charges by the
Government and Government Instrumentalities.·The Corporation
shall be non-profit and shall devote all its returns from its capital
investment as well as excess revenues from its operation, for
expansion. To enable the Corporation to pay its indebtedness and
obligations and in furtherance and effective implementation of the
policy enunciated in Section One of this Act, the Corporation,
including its subsidiaries, is hereby declared, exempt from the
payment of all forms of taxes, duties, fees, imposts as well as costs
and service fees including filing fees, appeal bonds, supersedeas
bonds, in any court or administrative proceedings.
Petitioner stresses that there was no provision in the LGC

expressly repealing the said provision; neither was there
an implied repeal thereof. It points out that repeals by
implication are not favored. Moreover, a general law, such
as the LGC, cannot repeal a special law, such as Rep. Act
No. 6395, unless it 14
clearly appears that the legislature
intended to do so. Petitioner argues that, in this case,
there was clearly no intention to repeal; on the contrary,
the intention to exempt it from local taxes is clearly
manifest in said Section 13. This is bolstered by the
Declaration of Policy which provides that „the total
electrification of the Philippines through the development
of power from all sources to meet the needs of indus-
_______________
12 Id., at p. 20.
13 Supra note 10, at p. 259; p. 280.
14 Rollo, pp. 24-25.
177
VOL. 491, JUNE 16, 2006 177

trial development and dispersal, and the needs of rural

electrification are primary objectives of the nation which
shall be pursued coordinately and supported by all

instrumentalities of the government, including its financial
institutions.‰ In addition,
15
petitioner cites the case of
Maceda v. Macaraig, Jr. to show the intent of lawmakers
to exempt it from all forms of taxes. Petitioner further
maintains that it is a government-owned and controlled
corporation with an original charter and its shares of
stock are owned by the National
16
Government; as such, it
is exempt from local taxes.
In any case, petitioner argues that, assuming that
Section 13 of its charter has been repealed by Section 193
of the LGC, it will still not be liable for franchise tax for
the following reasons:
First. Section 137 of the LGC is not applicable to it, as
the said provision empowers local government units to
impose franchise tax only with respect to private
individuals and corporations. Thus, Section 137 of the
Code provides:
SECTION 137. Franchise Tax.·Notwithstanding any exemption

granted by any law or other special law, the province may impose
a tax on business enjoying a franchise, at a rate not exceeding fifty
percent (50%) of one percent (1%) of the gross annual receipts for
the preceding calendar year based on the incoming receipt, or
realized, within its territorial jurisdiction.
Petitioner stresses that, under the LGC, „business‰ means

a trade or commercial activity regularly engaged 17
in as a
means of livelihood or with a view to a profit. On the
other hand, „franchise‰ means a right or privilege, affected
with public interest which is conferred upon private
persons or corporations, under such terms and conditions
as the government and its political subdivisions may
impose in the interest
_______________
15 G.R. No. 88291, June 8, 1993, 223 SCRA 217.

16 Rollo, pp. 25-27.
17 Section 131 (d), Rep. Act No. 7160.
178

18
of public welfare, security and safety. Petitioner thus
asserts that it cannot be held liable to pay franchise tax
because it is neither a private corporation nor a business
created for profit.
Second. Petitioner contends that the authority of
respondent to tax does not extend to it. Section 133 (o) of
the LGC states that
Section 133. Common Limitations on the Taxing Powers of the 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:
xxxx
(o) Taxes, fees, or charges of any kind on the National
Government, its agencies and instrumentalities, and local
government units.
Petitioner claims that it is an instrumentality of the

National Government, which is beyond the authority of
local government units to tax. It points out that it remits
the profits derived from its operations to the National
Government; Congress approves its yearly budget, which
forms part of the General Appropriations Act; and all of its
indebtedness, foreign or
19
domestic, is guaranteed by the
National Government.
Finally, petitioner posits that to require it to pay
franchise tax could have deleterious effects on its
operations. It would compel petitioner to borrow from
domestic and foreign financial institutions to meet both its
operational expenses and the franchise tax. Ultimately, it is
the national government that will pay the tax, and the
burden shouldered by the Filipino people.
Respondent, for its part, maintains that petitioner has
failed to overcome the presumption that it is taxable. It
stresses that tax exemptions are highly disfavored and
construed strictissimi juris against the taxpayer and
liberally in
_______________
18 Section 131 (m), Rep. Act No. 7160.

19 Rollo, pp. 28-35.
179
VOL. 491, JUNE 16, 2006 179

favor of the taxing power. Petitioner, as the taxpayer, had

the burden of proving that it is exempt from paying the
franchise tax. Respondent avers that petitioner cannot find
solace in the tax exemption privilege provided in its charter
because this has already been withdrawn by the LGC.
Contrary to petitionerÊs assertion, respondent contends
that such tax exemption privilege has been expressly
repealed by the LGC, and20
cites the City Government of San
Pablo, Laguna v. Reyes where the Court declared that the
legislative purpose to withdraw tax privileges enjoyed
under existing law is clearly manifested by the language
used in Sections 137 and 193 which categorically withdrew
such exemptions subject only to the exceptions
enumerated.
Respondent avers that petitionerÊs status as a non-profit
government corporation does not exempt it from liability
to pay franchise tax to local government units. Petitioner,
as a corporation created to undertake ministrant or
proprietary function, has long been treated in this
jurisdiction as akin to a private commercial corporation.
Its dealings are considered to be purely private and
commercial21
undertakings although imbued with public
interest.
The fundamental issue to be resolved in this case is
whether or not petitioner is subject to franchise tax under
the LGC.
The petition has no merit. The case is on all fours with
the case of 22National Power Corporation v. City of
Cabanatuan, where this very same issue was settled by
the Court. In the Cabanatuan case, petitioner likewise
refused to pay franchise tax to the City of Cabanatuan by
invoking the tax exemption provided under its charter. It
argued that Section 137 of the LGC does not apply to it
because its stocks are wholly owned by the National
Government, and its charter characterizes it
_______________
20 364 Phil. 842, 854; 305 SCRA 353, 362 (1999).

21 Rollo, pp. 85-86.
22 Supra note 10.
180

as a „non-profit‰ organization. The Court, however,

declared that petitioner is not exempt from paying
franchise tax.
Indeed, taxation is the rule and exemption is the
exception. The burden of proof rests upon the party
claiming exemption to prove23 that it is, in fact, covered by
the exemption so claimed. Tax exemptions should be
granted only by clear and unequivocal provision of law on
the basis of language too plain to be mistaken.24
They cannot
be extended by mere implication or inference. In this case,
petitioner relies solely on the exemption granted to it by its
charter, arguing that its exemption from franchise tax
remained despite the enactment of the LGC.
The Court also addressed this issue in the Cabanatuan
case where it held that the LGC has expressly withdrawn
such exemption, thus:
x x x [S]ection 193 of the LGC withdrew, subject to limited

exceptions, the sweeping tax privileges previously enjoyed by
private and public corporations. Contrary to the contention of
petitioner, Section 193 of the LGC is an express, albeit general,
repeal of all statutes granting tax exemptions from local taxes. It
reads:
Sec. 193. Withdrawal of Tax Exemption Privileges.·Unless otherwise

provided in this Code, tax exemptions or incentives granted to, or
presently enjoyed by all persons, whether natural or juridical, including
government-owned or controlled corporations, except local water districts,
cooperatives duly registered under R.A. No. 6938, non-stock and non-
profit hospitals and educational institutions, are hereby withdrawn upon

the effectivity of this Code. (italics supplied)
It is a basic precept of statutory construction that the express

mention of one person, thing, act, or consequence excludes all
others as expressed in the familiar maxim expressio unius est
exclusio alterius. Not being a local water district, a cooperative
registered under
_______________
23 Cyanamid Philippines, Inc. v. Court of Appeals, 379 Phil. 689, 703; 322
SCRA 639, 654 (2000).
24Philippine Long Distance Telephone Company, Inc. v. City of Davao, 447
Phil. 571, 585-586; 399 SCRA 442, 453 (2003).
181
VOL. 491, JUNE 16, 2006 181

R.A. No. 6938, or a non-stock and non-profit hospital or educational

institution, petitioner clearly does not belong to the exception. It is
therefore incumbent upon the petitioner to point to some provisions
of the LGC that expressly grant it exemption from local taxes.
But this would be an exercise in futility. Section 137 of the LGC
clearly states that the LGUs can impose franchise tax „notwith-
standing any exemption granted by any law or other special law.‰
This particular provision of the LGC does not admit any exception.
25
xxx
Even prior to the Cabanatuan case, the Court already

declared
26
in City Government of San Pablo, Laguna v.
Reyes that the franchise tax may still be imposed despite
any exemption enjoyed under special laws, explaining thus:
„x x x The legislative purpose to withdraw tax privileges enjoyed

under existing law or charter is clearly manifested by the language
used in Sections 137 and 193 categorically withdrawing such
exemption subject only to the exceptions enumerated. Since it
would be not only tedious and impractical to attempt to enumerate
all the existing statutes providing for an express, albeit general,
withdrawal of such exemptions or privileges. No more unequivocal
27
language could have been used.‰
Nonetheless, petitioner seeks to avoid paying the franchise

tax by arguing further that it is not liable therefor under
Section 137 of the LGC because said tax applies only to a
„business enjoying a franchise.‰ It contends that it is not a
private corporation or a business for profit. Again, we do
not agree. The Court also declared in the Cabanatuan case
that petitioner qualifies as a „business enjoying a
franchise‰:
In section 131 (m) of the LGC, Congress unmistakably defined a

franchise in the sense of a secondary or special franchise. This is to
_______________
25 National Power Corporation v. City of Cabanatuan, supra note 10, at

pp. 259-260; p. 280.
26 Supra note 20.
27 Id., at p. 854; p. 362.
182

avoid any confusion when the word franchise is used in the concept
of taxation. As commonly used, a franchise tax is „a tax on the
privilege of transacting business in the state and exercising
corporate franchises granted by the state.‰ It is not levied on the
corporation simply for existing as a corporation, upon its
property or its income, but on its exercise of the rights or privileges
granted to it by the government. Hence, a corporation need not
pay franchise tax from the time it ceased to do business and
exercise its franchise. It is within this context that the phrase „tax
on businesses enjoying a franchise‰ in Section 137 of the LGC
should be interpreted and understood. Verily, to determine whether
the petitioner is covered by the franchise tax in question, the
following requisites should concur: (1) that petitioner has a
„franchise‰ in the sense of a secondary or special franchise; and (2)
that it is exercising its rights or privileges under this franchise
within the territory of the respondent city government.
Petitioner fulfills the first requisite. Commonwealth Act No. 120,
as amended by Rep. Act No. 6395, constitutes petitionerÊs primary

and secondary franchises. It serves as the petitionerÊs charter,
defining its composition, capitalization, the appointment and the
specific duties of its corporate officers, and its corporate life span.
As its secondary franchise, Commonwealth Act No. 120, as
amended, vests the petitioner [with x x x certain] powers which are
not available to ordinary corporations x x x
xxxx
Petitioner also fulfills the second requisite. It is operating within
the respondent city governmentÊs territorial jurisdiction pursuant to
the powers granted to it by Commonwealth Act No. 120, as
28
amended. x x x
Petitioner was likewise characterized therein as a private

enterprise for profit, on the following ratiocination:
„Petitioner was created to „undertake the development of

hydroelectric generation of power and the production of electricity
from nuclear, geothermal and other sources, as well as the
transmission of
_______________
28 National Power Corporation v. City of Cabanatuan, supra note 10, at

pp. 252-255; pp. 274-276.
183
VOL. 491, JUNE 16, 2006 183

electric power on a nationwide basis. Pursuant to this mandate,

petitioner generates power and sells electricity in bulk. Certainly,
these activities do not partake of the sovereign functions of the
government. They are purely private and commercial undertakings,
albeit imbued with public interest. The public interest involved in
its activities, however, does not distract from the true nature of the
petitioner as a commercial enterprise, in the same league with
similar public utilities like telephone and telegraph companies,
railroad companies, water supply and irrigation companies, gas,
coal or light companies, power plants, ice plant among others; all
of which are declared by this Court as ministrant or proprietary
functions of government aimed at advancing the general interest of
29
society.‰
Petitioner nevertheless contends that respondent cannot

impose a franchise tax on it because it is an
instrumentality of the National Government. It also cites
the case of Basco
30
v. Philippine Amusements and Gaming
Corporation which held that a government-owned and
controlled corporation whose shares of stock are owned
by the national government is exempt from local taxes.
This contention, however, is without merit. Although as
a general rule, LGUs cannot impose taxes, fees or charges
of any kind on the National Government, its agencies and
instrumentalities, this rule admits of an exception, i.e.,
when specific provisions of the LGC authorize the LGUs to
impose 31taxes, fees or charges on the aforementioned
entities. Section 137 of the LGC is one of those
exceptions. It authorizes the province to impose a tax on
business enjoying a franchise, at a rate not exceeding fifty
percent (50%) of one percent (1%) of the gross annual
receipts for the preceding calendar year based on the
incoming receipt, or realized, within its territorial
jurisdiction.
_______________
29 Id., at p. 257; p. 278.

30 274 Phil. 323, 339; 197 SCRA 52, 63-64 (1991).
31 National Power Corporation v. City of Cabanatuan, supra note 10,
at p. 250; p. 272.
184

Thus, the doctrine laid down in the Basco case is no longer

true. In the Cabanatuan case, the Court noted primarily
that the Basco case was decided prior to the effectivity of
the LGC, when no law empowering the local government
units to tax instrumentalities
32
of the National Government
was in effect. It further explained that in enacting the
LGC, Congress empowered the LGUs to impose certain
taxes even on instrumentalities of the National

Government.
WHEREFORE, premises considered, the petition is
DENIED. The Decision of the Court of Appeals dated
October 21, 2004, is AFFIRMED.
SO ORDERED.
Panganiban (C.J., Chairperson), Ynares-Santiago,

Austria-Martinez and Chico-Nazario, JJ., concur.
Petition denied, judgment affirmed.
Note.·One of the most significant provisions of the

LGC is the removal of the blanket exclusions of
instrumentalities and agencies of the national government
from the coverage of local taxation. (National Power
Corporation vs. City of Cabanatuan, 401 SCRA 259 [2003])
··o0o··
_______________
32 Id.
185
VOL. 491, JUNE 16, 2006 185

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SUPREME COURT REPORTS ANNOTATED VOLUME 491 1/16/20, 8:45 PM

NATIONAL POWER CORPORATION, petitioner, vs.

Taxation; In National Power Corporation v. City of

170 SUPREME COURT REPORTS ANNOTATED

National Power Corporation vs. Province of Isabela

mistaken; They cannot be extended by mere implication or inference.

·Indeed, taxation is the rule and exemption is the exception. The

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National Power Corporation vs. Province of Isabela

National Government. It also cites the case of Basco v. Philippine

PETITION for review on certiorari of a decision of the

CALLEJO, SR., J.:

1 Penned by Associate Justice Edgardo P. Cruz with Associate Justices

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controlled corporation engaged in the generation and sale

controlled corporations. Moreover, respondent did not

2 Section 137. Franchise Tax.·Notwithstanding any exemption

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trative remedies by first settling its boundary dispute with

1. Ordering the National Power Corporation to

4 Id., at pp. 13-15.

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In answer to the amended complaint-in-intervention,

the location of the power plant is within respondentÊs

„WHEREFORE, for and in consideration of all the foregoing,

6 Id., at pp. 185-186.

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Land Bank of the Philippines, Ilagan Branch, the amount of

Petitioner then filed an appeal with the CA. On October 21,

withdrew the tax exemption provided under the petitionerÊs

THE COURT OF APPEALS ERRED IN HOLDING THAT THE

9 Rollo, pp. 67-68.

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PAYMENT OF FRANCHISE TAX UNDER THE LOCAL

Petitioner urges this Court to take a second look at its

of its charter, Rep. Act No. 6395, which provides:

Section 13. Non-profit Character of the Corporation; Exemption

Petitioner stresses that there was no provision in the LGC

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trial development and dispersal, and the needs of rural

shall be pursued coordinately and supported by all

SECTION 137. Franchise Tax.·Notwithstanding any exemption

Petitioner stresses that, under the LGC, „business‰ means

15 G.R. No. 88291, June 8, 1993, 223 SCRA 217.

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Section 133. Common Limitations on the Taxing Powers of the Local

Petitioner claims that it is an instrumentality of the

18 Section 131 (m), Rep. Act No. 7160.

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favor of the taxing power. Petitioner, as the taxpayer, had

Government, and its charter characterizes it

20 364 Phil. 842, 854; 305 SCRA 353, 362 (1999).

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as a „non-profit‰ organization. The Court, however,

x x x [S]ection 193 of the LGC withdrew, subject to limited

Sec. 193. Withdrawal of Tax Exemption Privileges.·Unless otherwise

profit hospitals and educational institutions, are hereby withdrawn upon

It is a basic precept of statutory construction that the express