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Metropolitan Waterworks Sewerage System vs.
The Local Government of Quezon
City G.R. NO. 194388, November 07, 2018 Third Division, Leonen, J.
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 injunction. 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 of the LGC. 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:
1. Whether there is violation of the principle of hierarchy of courts;
2. Whether there is a difference between a government instrumentality and a GOCC; 3. Whether MWSS is an instrumentality of the Republic. Otherwise, whether it is a GOCC; 4. 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 LGC, 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 LGU’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 LGC. 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 RA 6234, initially without any capital stock. Under its Charter, petitioner was explicitly declared exempt from the payment of real property taxes. In 1974, however, PD No. 425 amended the Charter and converted petitioner into a stock corporation. MWSS is an attached agency of the DPWH, 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 EO No. 596, petitioner is categorized with other government agencies that were found to be exempt from the payment of real property taxes. Under RA 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 RA 6234 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.
