G.R. No. 261472 – NATIONAL FOOD AUTHORITY, represented by ATTY. MA. THERESA S. VILLAFUERTE, CPA, in her capacity as Department Manager of NFA Legal Affairs Department, petitioner, vs. CITY GOVERNMENT OF TAGUM, CITY ASSESSOR and CITY TREASURER OF TAGUM, PROVINCE OF DAVAO DEL NORTE, respondents.

LAZARO-JAVIER, J.

Rule Synopsis

Taxes cannot be charged against the Republic of the Philippines from which the power to tax emanates in the first place. For the “power to destroy” ought not be used against the very entity that wields it.

Facts

The National Food Authority (NFA) is a government corporation under the supervision and control of the Department of Agriculture. Its primary mandate is the acquisition, maintenance, and distribution of rice buffer stock.

NFA owns several real properties, i.e., land, buildings, and machineries in Tagum City, Davao del Norte. Upon the passage of the Local Government Code (LGC) of 1991, several local government units (LGUs) imposed real property taxes (RPT) on NFA’s real properties. NFA was initially constrained to pay due to the withdrawal of its tax exemptions under Section 234 of the LGC. In 2006, in MIAA v. Court of Appeals (G.R. No. 155650, 20 July 2006), the Supreme Court ruled that a government instrumentality is exempt from local taxation. Upon the request of NFA, the Office of the Government Corporate Counsel (OGCC) issued two (2) legal opinions finding that the MIAA ruling also applies to the NFA, being a government instrumentality. Relying on said legal opinions, the then NFA Administrator instructed its regional and provincial offices to cease paying real property and other local taxes levied against NFA properties. In 2008, the NFA-Region XI Regional Director formally applied for exemption from real property taxes to the Offices of the City Mayor, City Assessor, and City Treasurer. In 2016, the City Treasurer issued Notices of Delinquency to NFA, demanding payment of real property taxes of P2.64 million. NFA filed a Petition for Prohibition (with application for Temporary Restraining Order and/or Issuance of Writ of Preliminary Injunction) with the Regional Trial Court (RTC) for Tagum City.

The RTC dismissed NFA’s petition which the Court of Tax Appeals (CTA) Second Division affirmed. The Second Division also denied NFA’s Motion for Reconsideration. NFA then filed a Petition for Review with the CTA En Banc which the latter dismissed, ruling that the RTC had no jurisdiction over the case and that the tax exemption issue was a question of fact appealable to the Local Board of Assessment Appeals (LBAA). The CTA En Banc also denied NFA’s Motion for Reconsideration.

Issues

Does the Regional Trial Court for Tagum City, Branch 31 have jurisdiction over the Petition for Prohibition initiated by NFA?
Is “payment under protest” in Section 252, LGC of 1991, as amended, an absolute requirement for assailing real property taxes?
Is NFA a government instrumentality?
Is NFA exempt from payment of real property taxes?

Ruling and Discussion

The Decision and Resolution of the CTA are reversed. The RTC and the CTA erred in sustaining the power of the City of Tagum to levy on and collect real property taxes from NFA.

Yes. The RTC has jurisdiction over the Petition for Prohibition initiated by NFA. NFA properly availed of the extraordinary remedy of prohibition before the trial court.

The rule on exhaustion of administrative remedies does not apply when the controversy does not involve questions of fact but only of law. The protest contemplated under Section 252 of the LGC is required when there is question as to the reasonableness or correctness of the amount assessed, while an appeal to the LBAA under Section 226 of the LGC is fruitful only where questions of fact are involved.

The issue of whether a local government entity is authorized to assess and collect real property taxes from a government entity is a pure question of law. As such, the proper recourse is a judicial action.

The resolution of whether NFA is a government instrumentality is a pure question of law, the resolution of which does not require the presentation of evidence. As a creation of law, does it conform to the definition of a government instrumentality?
No. “Payment under protest” in Section 252, LGC of 1991, as amended, is not an absolute requirement for assailing real property taxes.

Given that the proper recourse is a judicial action when the taxpayer questions the very authority and power to impose and collect real property taxes, it follows therefore that Sections 226 and 252 of the Local Gov’t. Code, on the “payment under protest” rule as a condition sine qua non to the availment of administrative remedies does not apply to the present case.

Nonetheless, the requirement of “payment under protest” is per se unjust when the taxpayer is claiming tax exemption. The question that may be brought before the city or provincial board of assessment appeals is one that relates to the reasonableness or legality of the realty tax that is assessed against a taxpayer. It would be unjust to require the realty owner to first pay the tax, which he precisely questions, before he can lodge an appeal to the Court of Tax Appeals (citing Treasurer-Assessor v. University of the Philippines, G.R. No. L-20550, 30 April 1971).
Yes. NFA is a government instrumentality.

NFA is a government instrumentality. While it is not integrated within the department framework, it is vested with special functions or jurisdiction and endowed with some corporate powers. It administers special funds and enjoys operational autonomy under a charter.

For an agency to be classified as a government instrumentality vested with corporate powers, the following elements must concur: (a) it performs governmental functions; and (b) it enjoys operational autonomy. NFA passes these twin criteria.

(a) NFA performs special governmental functions, i.e., the acquisition, maintenance, and distribution of rice buffer stock. It shall maintain an optimal level of national rice inventory to be sourced solely from local farmers and to distribute rice during emergency/calamity situations and sustain the disaster relief program of the government during natural or man-made calamities. It thus performs essential public service.

(b) NFA is vested with corporate powers under Presidential Decree No. 4, as amended.

(c) NFA is not a GOCC. It was not organized as a stock or non-stock corporation.

(d) NFA is operationally autonomous. NFA is not integrated within the department framework, only under the supervision and control of the Department of Agriculture. The NFA Council is the governing NFA body corporate.
Yes. NFA is exempt from payment of real property taxes.

The exercise of the taxing powers of local government units does not extend to government instrumentalities under Section 133(o) of the LGC. It recognizes the basic principle that local governments cannot tax the national government, which historically merely delegated to local governments the power to tax.

Given the mandate and purpose of NFA, its status as a government instrumentality, its properties are thus properties of public dominion intended for public use or service. As such, they are exempt from real property tax under Section 234 (a) of the LGC. Properties of public dominion are outside the commerce of man. These properties are exempt from levy, encumbrance, or disposition through public or private sale. Any such encumbrance, levy on execution or auction sale is void for being contrary to public policy.

Nevertheless, the exemption from real property under Section 234 (a) of the LGC is not available when the beneficial use has been granted to, for and in consideration or otherwise, to a taxable person. As there are no allegations here that the beneficial use of the real properties of NFA belongs to a taxable person, its land, buildings, and machineries in Tagum City are exempt from real property tax under Section 133 (o) and Section 234 (a) of the LGC.

dispositive

Petition granted. Decision and Resolution of the CTA reversed.