MONTERO // 3A TAX DIGESTS

AGATEP ALARCON ARCAINA AUSTRIA BAADERA BANTA BELLO BUGAY CARAAN COLOQUIO CUALOPING DE LUIS DIPLOMA FAJARDO GO GUZMAN
LAYNO LIM, J. LIM, Q. LUNA OCAMPO ONG PASCUAL REYES ROCILLO TRIAS TUAZON VANSLEMBROUCK VILLARIN, L. VILLARIN, P. VILLARIVERA

NATIONAL POWER CORPORATION vs. PROVINCIAL

of Bataan for P45.9M covering the years 2001-2003. The assessment

GOVERNMENT OF BATAAN (Go)

was based on NPCs sale of electricity that it generated from two power

[GR. No. 180654; April 21, 2014]

EPIRA = NPC is not liable anymore

Corporation vs. City of Cabanatuan, a case concerning NPCs exemption

Facts: The Government of Bataan sent NPC a notice of franchise tax

that because of the passage of the EPIRA law, it is no longer

replied however that it is not liable anymore. Because of the passage of

payment and eventually levied, and sold NPCs real property in a

R.A. 9136, also known as the Electric Power Industry Reform Act

public auction.

WON NPC is liable to pay the local franchise tax NO

Held:

In ruling for NPC, the Court noted that because of the passage

from the payment of local franchise tax.

The Government of Bataan again sent notices to NPC since the SC held
in the Cabanatuan case that NPC is liable for local franchise tax. NPC

liable to pay local franchise tax. Still, the Government demanded

Issue:

plants in Bataan.
NPC did not pay the tax, but chose to reserve its right to contest the
computation pending the decision of the SC in National Power

Recit-Ready:
delinquency for the years 2001-2003. NPC did not pay claiming

NPC received a notice of franchise tax delinquency from the Government

(EPIRA) on June 26, 2001, NPC was relieved of the function of

generating and supplying electricity beginning that year.

Despite this, the Government of Bataan issued a Warrant of Levy on 14
real properties, and sold these in a public auction. NPC filed with the RTC
a petition for declaration of nullity of the foreclosure sale with prayer for

of the EPIRA law, NPC ceased to be liable for payment of the

preliminary mandatory injunction against the Government.

o The NPC alleged that the foreclosure has no legal basis

local franchise tax by operation of law. The EPIRA law

since R.A. 7160, which authorized the collection of local

transferred all the electrical transmission functions of NPC to

TRANSCO. Since the local franchise tax is imposed on the

franchise tax, has been modified by the EPIRA.

EPIRA provided that power generation is not a public utility

operation requiring a franchise, hence, not taxable.

What remains taxable is the business of transmission and

privilege of operating a franchise, not a tax on the ownership of

the transmission facilities, it is clear that such tax is not a liability
of the NPC. Moreover, EPIRA transferred all the liabilities of NPC
to PSALM Corp., presumably including its unpaid liability for local
franchise tax. Consequently, such tax is collectible from PSALM
Corp. and not NPC.

Facts:

distribution of electricity since these required a national

franchise. But still, NPC has ceased to engage in power
transmission, since all its facilities for this function had been
transferred to the National Transmission Corporation
(TRANSCO).

MONTERO // 3A TAX DIGESTS

AGATEP ALARCON ARCAINA AUSTRIA BAADERA BANTA BELLO BUGAY CARAAN COLOQUIO CUALOPING DE LUIS DIPLOMA FAJARDO GO GUZMAN
LAYNO LIM, J. LIM, Q. LUNA OCAMPO ONG PASCUAL REYES ROCILLO TRIAS TUAZON VANSLEMBROUCK VILLARIN, L. VILLARIN, P. VILLARIVERA

The RTC dismissed the petition, stating that NPC failed to present proof

o EPIRA created TRANSCO and transferred to it NPCs electrical

that it no longer owned or operated the business subject to local franchise

transmission function; NPC therefore has ceased to operate that

tax.

business in Bataan by operation of law. Since the local franchise tax

is imposed on the privilege of operating a franchise, not a tax on

Issue:

the ownership of the transmission facilities, it is clear that such

WON NPC is liable to pay the local franchise tax

NO

tax is not a liability of the NPC.

o The Government cannot likewise levy on the transmission facilities to
satisfy the tax assessment against the NPC since the law also

Held/Ratio:

transferred these to TRANSCO.

o With the foregoing, NPC is not the proper party subject to the local

NO. The Court emphasized that NPC was not required to produce evidence
since the events took place by operation of law, particularly Sec. 8 of the
EPIRA.
1

franchise tax for operating that business.

o Moreover, Sec. 49 of EPIRA 2 transferred "all existing xx x liabilities" of

the NPC to PSALM Corp., presumably including its unpaid liability for

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

local franchise tax from January 1 to June 25, 2001. Consequently,

National Transmission Corporation, hereinafter referred to as TRANSCO, which shall

such tax is collectible solely from PSALM Corp.

assume the electrical transmission function of the National Power Corporation (NPC), and
have the power and functions hereinafter granted. The TRANSCO shall assume the
authority and responsibility of NPC for the planning, construction and centralized operation
and maintenance of its high voltage transmission facilities, including grid interconnections
and ancillary services.
Within six (6) months from the effectivity of this Act, the transmission and subtransmission
facilities of NPC and all other assets related to transmission operations, including the
nationwide franchise of NPC for the operation of the transmission system and the grid, shall
be transferred to the TRANSCO. The TRANSCO shall be wholly owned by the Power
Sector Assets and Liabilities Management Corporation (PSALM Corp.).
The subtransmission functions and assets shall be segregated from the transmission
functions, assets and liabilities for transparency and disposal: Provided, That the
subtransmission assets shall be operated and maintained by TRANSCO until their disposal
to qualified distribution utilities which are in a position to take over the responsibility for
operating, maintaining, upgrading, and expanding said assets. All transmission and
subtransmission related liabilities of NPC shall be transferred to and assumed by the
PSALM Corp.

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

SEC. 49. Creation of Power Sector Assets and Liabilities Management Corporation.
There is hereby created a government-owned and -controlled corporation to be known as
the "Power Sector Assets and Liabilities Management Corporation," hereinafter referred to
as the "PSALM Corp.," which shall take ownership of all existing NPC generation
assets, liabilities, IPP contracts, real estate and all other disposable assets. All
outstanding obligations of the NPC arising from loans, issuances of bonds,
securities and other instruments of indebtedness shall be transferred to and
assumed by the PSALM Corp. within one hundred eighty (180) days from the approval of
this Act.