G.R. No.

194388, November 07, 2018

METROPOLITAN WATERWORKS SEWERAGE SYSTEM

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,
PONENTE – Justice Leonen

FACTS OF THE CASE:

In July 2007, Metropolitan Waterworks and Sewerage System received several

Final Notices of Real Property Tax Delinquency from the Local Government of
Quezon City, covering various taxable years, in the total amount of
P237,108,043.83 on the real properties owned by Metropolitan Waterworks and
Sewerage System 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 Metropolitan Waterworks and Sewerage System's failure
to pay the “delinquent” real property tax.

On September 10, 2007, the Local Government of Quezon City had a Notice of
Sale of Delinquent Real Properties published, which stated that the real properties
would be sold at a public auction on September 27, 2007. The list included
properties owned by Metropolitan Waterworks and Sewerage System.
On September 26, 2007, Metropolitan Waterworks and Sewerage System filed
before the Court of Appeals a Petition for Certiorari and Prohibition with Prayer
for the Issuance of a Temporary Restraining Order and/or Writ of Preliminary
Injunction. It argued that its real properties in Quezon City were exclusively
devoted to public use, and thus, were exempt from real property tax.

The Court of Appeals issued a Temporary Restraining Order on September 27,

2007, enjoining the Local Government of Quezon City from proceeding with the
scheduled auction of the properties. On November 14, 2007, the Court of Appeals
conducted oral arguments. On December 19, 2007, it issued a Writ of Preliminary
Injunction.

On October 19, 2010, the Court of Appeals rendered a Decision denying the
Petition for lack of merit and lifting the Writ of Preliminary Injunction.

The Court of Appeals found that since Metropolitan Waterworks and Sewerage
System was not a municipal corporation, it could not invoke the immunity granted
in Section 133(o) of the Local Government Code. In particular, it found that even
if Metropolitan Waterworks and Sewerage System was an instrumentality of the
government, it was not performing a purely governmental function. As such, it
cannot invoke immunity from real property taxation.

The Court of Appeals likewise found that the taxed properties were not part of the
public dominion, but were even made the subject of concession agreements
between Metropolitan Waterworks and Sewerage System and private
concessionaires due to its privatization in 1997. It concluded that since the
properties were held by Metropolitan Waterworks and Sewerage System in the
exercise of its proprietary functions, they were still subject to real property tax.
The dispositive portion of the Court of Appeals October 19, 2010 Decision stated:

“WHEREFORE, in view of the foregoing premises, judgment is hereby rendered

by us DENYING the instant petition for lack of merit. The Writ of Preliminary
Injunction issued herein is hereby ordered LIFTED.

SO ORDERED.”

On November 9, 2010, Warrants of Levy were issued by the Quezon City

Treasurer over Metropolitan Waterworks and Sewerage System's properties.
Hence, on November 18, 2010, Metropolitan Waterworks and Sewerage System
filed its Petition for Certiorari with Prayer for the Issuance of a Temporary
Restraining Order and/or Writ of Preliminary Injunction.

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 or a GOCC; and
4. Whether MWSS is exempt from realty taxes.

RULING:

The Court held that they may allow original jurisdiction on the following grounds:

(1) when genuine issues of constitutionality are raised that must be

addressed immediately;

(2) when the case involves transcendental importance;

(3) when the case is novel;

(4) when the constitutional issues raised are better decided by this Court;

(5) when time is of the essence;

(6) when the subject of review involves acts of a constitutional organ;

 (7) when there is no other plain, speedy, adequate remedy in the ordinary
course of law;

(8) when the petition includes questions that may affect public welfare,
public policy, or demanded by the broader interest of justice;

(9) when the order complained of was a patent nullity; and

(10) when the appeal was considered as an inappropriate remedy.

The Court found no error in the doctrine of the hierarchy of courts when the Court
of Appeals allowed the petitioner’s direct resort to it on the ground that the issue
presented was a pure question of law.

The Court held that the Executive and Legislative Branches, have already
categorized petitioner not as a government-owned and controlled corporation but
as a Government Instrumentality with Corporate Powers/Government Corporate
Entity like the Manila International Airport Authority and the Philippine Fisheries
Development Authority. Privileges enjoyed by these Government Instrumentalities
with Corporate Powers/Government Corporate Entities should necessarily also
extend to petitioner. Hence, petitioner's real property tax exemption under
Republic Act No. 6234 is still valid as the proviso of Section 234 of the Local
Government Code is only applicable to government-owned and -controlled
corporations.

Taxation power of the Local Government Unit under the Local Government set
two limitations, one of which is the following:

“Section 234. Exemptions from Real Property Tax. - The following are
exempted from payment of the real property tax:

(a) Real property owned by the Republic of the Philippines or any of its
political subdivisions except when the beneficial use thereof has been
granted, for consideration or otherwise, to a taxable person;
 (b) Charitable institutions, churches, parsonages or convents appurtenant
thereto, mosques, non-profit or religious cemeteries and all lands, buildings,
and improvements actually, directly, and exclusively used for religious,
charitable or educational purposes;

(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;

(d) All real property owned by duly registered cooperatives as provided for
under R.A. No. 6938; and

(e) Machinery and equipment used for pollution control and environmental
protection.”

The second limitation likewise provides for its own exceptions. 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.

The Court also cited Section 18 of RA 6234 of the MWSS Charter which explicitly
declared it as tax exempt.

A government-owned and -controlled corporation or GOCC is defined under

Section 2(13) of the Administrative Code, as:

(13) Government-owned or controlled corporation refers to any agency organized

as a stock or non-stock corporation, vested with functions relating to public needs
whether governmental or proprietary in nature, and owned by the Government
directly or through its instrumentalities either wholly, or, where applicable as in the
case of stock corporations, to the extent of at least fifty-one (51) per cent of its
capital stock.

The entity must also meet the two (2) conditions prescribed under Article XII,
Section 16 of the Constitution:

ARTICLE XII

National Economy and Patrimony

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.

Based on the limitations set by law on LGU’s taxation powers and the
classification of MWSS as a government instrumentality with corporate powers,
the latter is exempted from real property taxation. MWSS was created as a
government instrumentality with corporate powers by special charters in the
interest of common good.

The Court held that the real properties of the Metropolitan Waterworks and
Sewerage System located in Quezon City are DECLARED EXEMPT from the real
estate tax imposed by the Local Government of Quezon City. All the real estate tax
assessments, including the final notices of real estate tax delinquencies, issued by
the Local Government of Quezon City on the real properties of the Metropolitan
Waterworks and Sewerage System located in Quezon City are declared VOID,
except for the portions that are alleged and proven to have been leased to private
parties.