[453] CITY OF LAPU-LAPU v PEZA

G.R. No. 184203 | November 26, 2014 | LEONEN, J.

PETITIONER: CITY OF LAPU-LAPU
RESPONDENT: PHILIPPINE ECONOMIC ZONE AUTHORITY

G.R. No. 187583 | November 26, 2014 | LEONEN, J.

PETITIONERS: PROVINCE OF BATAAN, represented by GOVERNOR ENRIQUE T. GARCIA, JR., and EMERLINDA S. TALENTO, in
her capacity as Provincial Treasurer of Bataan
RESPONDENT: PHILIPPINE ECONOMIC ZONE AUTHORITY

SUMMARY: The City of Lapu-Lapu demanded real property taxes from PEZA. PEZA subsequently filed a petition for declaratory relief
with the RTC of Pasay to rule that it was exempt from paying taxes. The Province of Bataan followed suit. It served a real property tax
billing and later on conducted a public auction since it was not able to collect from PEZA. RTC Pasay (Branch 111) found PEZA exempt
from payment of real property taxes. The City of Lapu-Lapu (the City) appealed to the CA. CA dismissed the appeal for being the wrong
mode of Appeal. RTC Pasay (Branch 115) found PEZA liable for real property taxes to the Province of Bataan. The CA ruled that Branch
115 gravely abused its discretion.
On appeal to the SC, the Court ruled that: 1) The CA did not err in dismissing the City’s appeal on the ground that it raised purely
questions of law; 2) The RTC of Pasay (Br 111) did not have jurisdiction to hear PEZA’s petition for declaratory relief; 3) The CA did not
have jurisdiction over the petition for Certiorari filed by the PEZA against Branch 115; 4) PEZA is exempt from real property taxes; and
5) the State owns the real properties under the PEZA’s title. Despite the procedural lapses, the SC found it appropriate to rule on the
merits in the interest of judicial economy and avoidance of conflicting decisions involving the same issues.

FACTS:
• Consolidated petitions filed by the City of Lapu-Lapu and Province of Bataan separately against the PEZA.
o RTC Pasay found PEZA exempt from payment of real property taxes. The City of Lapu-Lapu (the City) appealed to the CA.
CA dismissed the appeal for being the wrong mode of Appeal.
o RTC Pasay found PEZA liable for real property taxes to the Province of Bataan. The CA ruled that the RTC gravely abused its
discretion.
• Pres. Marcos issued PD 66 in 197, declaring as government policy the establishment of export processing zones in strategic locations
in the Philippines. To carry out this policy, the Export Processing Zone Authority (EPZA) was created for the Port of Mariveles,
Bataan. The decree declared EPZA non-profit in character with all its revenues devoted to its development, improvement and
maintenance (Sec. 21, PD66). To maintain such character, the EPZA was declared exempt from all taxes that may be due to the State,
its provinces, cities, municipalities, and other government agencies and instrumentalities.
• 1979 – Pres. Marcos issued PN 1811, establishing the Mactan Export Processing Zone, wherein certain parcels of land of the public
domain located in Lapu-Lapu were reserved to serve as the site of the said Zone.
• 1995 – PEZA was created by virtue of RA 7916 (Special Economic Zone Act of 95) to operate, administer, manage, and develop
economic zones in the country. It was granted the power to register, regulate, and supervise the enterprises located in the economic
zones. The export processing zones in Bataan and Mactan became the Bataan Economic Zone and Mactan Economic Zone
respectively.
• The law required the EPZA to evolve into the PEZA.
• Oct. 20, 1995 – Pres. FVR issued EO 282 directing PEZA to assume and exercise all of EPZA’s powers, etc.

City of Lapu-Lapu Case

• Mar. 25, 98 – the City, through the Office of the Treasurer, demanded from PEZA P32,912,350 in real property taxes for 1992-1998
on the PEZA’s properties located in the Mactan Economic Zone.
• May 21 – reiterated its demand. Cited Secs. 193 and 234 of the LGC of 1991 that withdrew the real property tax exemptions
previously granted to or presently enjoyed by all persons. No provision in the SEZA specifically exempted PEZA from payment of
such, unlike in Sec. 21 of PD 66.
• City further assessed PEZA for P86,843,503 as real property taxes for 1992-2002.
• Sept. 11, 2002 – PEZA filed a petition for declaratory relief with the RTC of Pasay.
• City answered, maintaining that the PEZA is liable for real property taxes. Cited e legal opinion issued by the DOJ stating that the
PEZA is not exempt. DOJ based this on the LGC.
• PEZA filed a reply, City filed a rejoinder.
 • Prusuant to Rule 53, Sec 3 of ROC, the OSG filed a comment and agreed that the PEZA is exempt from payment, citing Secs. 241 and
512 of the SEZA.
• RTC: Based on Sec. 51, All privileges, benefits, advantages, or exemptions granted to the special economic zones created under the
Bases Conversion and Development Act of 1992 apply to special economic zones created under the SEZA. Since these benefits
include exemption from payment of national or local taxes, these benefits apply to special economic zones owned by the PEZA. The
PEZA remained tax-exempt regardless of Sec. 21 of the SEZA. Sec. 24 applies only to private developers of economic zones, not to
public developers like the PEZA.
o The City had no authority to tax the PEZA under the LGC since the PEZA is an agency of the National Government.
• June 14, 2006 – RTC granted PEZA’s petition for declaratory relief and declared it exempt from payment of real property taxes.
• The City filed an MR, but was denied.
• The city appealed to the CA.
• The City raised the following issues in its brief: 1) whether the RTC has jurisdiction over PEZA’s petition for declaratory relief; 2)
whether the PEZA is a government agency performing governmental functions; 3) whether the PEZA is exempt from payment of
real property taxes.
• CA: The issues presented by the City are pure questions of law which should have been raised in a petition for review on certiorari
directly filed with the SC. Since the City availed itself of the wrong mode of appeal, the CA dismissed the appeal.
• MR denied.

Province of Bataan case

• Province informed PEZA that it would be sending a real property tax billing. Since PEZA is a developer of economic zones, it is
liable for real property taxes under Sec. 24 of SEZA.
• PEZA requested to suspend the service of the billing and cited its petition for declaratory relief against the City of Lapu-Lapu
pending before the Pasay City RTC. The province argued that serving the billing would not affect said petition for declaratory relief.
The billing amounted to P110, 549, 032.55.
• After having been served by such, the PEZA again requested to suspend collection until the RTC resolves the petition. This was
ignored and the Province served a statement of unpaid real property tax for June 1995-December 2004.
• PEZA requested again, denied again. The Province served the PEZA a warrant of levy covering the PEZA’s real properties located
in Mariveles, Bataan.
• The subsequent requests for suspension of collection were all denied by the Province. The Province served a notice of delinquency
in the payment and a notice of sale of real property for unpaid real property tax. The Province finally sent the PEZA a notice of
public auction of the latter’s properties in Bataan.
• June 14, 2004 – PEZA filed a petition for injunction with prayer for TRO and/or writ of preliminary injunction before the Pasay City
RTC, arguing that it is exempt from payment of real property taxes. The notice of sale issued by the Province was void because it
was not published in a newspaper of general circulation as required by Sec. 260 of the LGC. Raffled to Branch 115
• RTC: Issued TRO. A writ of preliminary injunction was also issued after the PEZA had filed a P100k bond.
• Jan. 31, 2007 – RTC denied PEZA’s petition for injunction. PEZA not exempt. Secs. 193 and 234 of the LGC had withdrawn the real
property tax exemptions. As to the exemption under Sec. 51 of SEZA, the provision only applies to businesses operating within the
economic zones and not to the PEZA.
• PEZA filed before CA a petition for certiorari with prayer for issuance of a TRO.
• CA issued TRO.
• Province alleged that it received a copy of the TRO only on Oct. 18 when it had alreay soled the PEZA’s properties at public auction.
The act sought to be enjoined was already fait accompli. The province prayed for the dismissal of the petition for certiorari.
• PEZA filed a supplemental petition for certiorari, prohibition, and mandamus against the Province, arguing that the Provincial
Treasurer of Bataan acted with grave abuse of discretion in issuing the notice of delinquency and notice of sale. PEZA is exempt
from payment of real property taxes because it is a government instrumentality. Its lands are property of public dominion which
cannot be sold at public auction.
• CA admitted the supplemental petition for certiorari, prohibition, and mandamus.
• Province commented, PEZA replied.

1 SEC. 24. Exemption from National and Local Taxes.—Except for real property taxes on land owned by developers, no taxes, local and national, shall be
imposed on business establishments operating within the ECOZONE. In lieu thereof, five percent (5%) of the gross income earned by all business
enterprises within the ECOZONE shall be paid and remitted as follows:
a. Three percent (3%) to the National Government;
b. Two percent (2%) which shall be directly remitted by the business establishments to the treasurer’s office of the municipality or city where the
enterprise is located.

2 SEC. 51. Ipso Facto Clause.—All privileges, benefits, advantages or exemptions granted to special economic zones under Republic Act No. 7227, shall
ipso facto be accorded to special economic zones already created or to be created under this Act. The free port status shall not be vested upon new special
economic zones.
 • Province filed a motion for leave to admit attached rejoinder with MTD. The Province argued for the first time that the CA had no
jurisdiction over the subject matter of the action. The PEZA erred in filing a petition for certiorari. It should have sought to reverse
the RTC decision in a local tax case. The court with appellate jurisdiction over the action is the Court of Tax Appeals.
• CA: the issue before it was whether the trial court judge gravely abused his discretion in dismissing PEZA’s petition for prohibition,
over which it has jurisdiction to resolve. Although the CA admitted that appeal, not certiorari, was the PEZA’s proper remedy to
reverse the trial court’s decision, the CA proceeded to decide the petition for certiorari in “the broader interest of justice.” CA ruled
that the trial court judge gravely abused his direction in dismissing PEZA’s petition for prohibition. Sec. 21 of PD 66 and Sec. 51 of
SEZA granted the PEZA exemption from payment of real property taxes. PEZA is an instrumentality of the national government
(Manila Intl Airport Authority v. CA). No taxes, therefore, could be levied on it by LGUs.
• Aug. 27, 2008 – CA granted petition for certiorari and nullified TC’s decision and all the proceedings with respect to the collection
of real property taxes from PEZA. MR denied for lack of merit.

ISSUES and RULING:

• WON the CA erred in dismissing the City’s appeal for raising pure questions of law – NO.
o Under the ROC, there are 3 modes of appeal from RTC decisions:
• Ordinary appeal before the CA where the decision assailed was rendered in the exercise of RTC’s original jurisdiction
• Petition for review before the CA where the decision assailed was rendered by the RTC in the exercise of its appellate
jurisdiction. In petitions for review under Rule 42, questions of fact, of law, or mixed questions of fact and law may be
raised.
• Appeal by certiorari before the SC under Rule 45 where only questions of law shall be raised. A question of fact exists
when there is doubt as to the truth or falsity of the alleged facts. There is a question of law if the appeal raises doubt as
to the applicable law on a certain set of fact.
o Under Rule 50, Sec 23, an improper appeal before the CA is dismissed outright and shall not be referred to the proper court.
This repealed Rule 50, Sec. 3 of the 1964 ROC which provided that improper appeals to the CA shall not be dismissed but shall
be certified to the proper court for resolution.
o With respect to appeals by certiorari directly filed before the SC but which raise questions of fact, par. 4(b) of Circ. No. 2-90
dated Mar. 9 1990 states that the SC “retains the option, in the exercise of its sound discretion and considering the attendant
circumstances, either itself to take cognizance of and decide such issues or to refer them to the CA for determination.
o Indayon, Jr. v. CA: the SC cannot tolerate ignorance of the law on appeals. It it not the SC’s task to determine for litigants their
proper remedies under the rules.
o The City availed itself of the wrong mode of appeal before the CA. It raised pure questions of law in its appeal. The issue
of whether the RTC of Pasay had jurisdiction over the PEZA’s petition for declaratory relief is a question law, jurisdiction
being a matter of law.
o Municipality of Pateros v. CA: CA denied outright the appeal for raising pure questions of law. SC agreed, but in the interest of
justice and in order to write finis to the controversy, it opted to relax the rules and proceeded to decide the case.
o Despite the procedural lapse, the SC decided the case on the merits.

• WON the RTC of Pasay had jurisdiction to hear, try, and decide the PEZA’s petition for declaratory relief against the City of
Lapu-Lapu – NO.
o Rule 63 governs actions for declaratory relief. The court with jurisdiction over petitions for declaratory relief is the RTC, the
subject matter of litigation being incapable of pecuniary estimation (Sec. 19, Judiciary Reorganization Act).
o Consistent with the law, the Rules state that a petition for declaratory relief is filed “in the appropriate Regional Trial Court.”
o A declaratory judgment may issue only if there has been “no breach of the documents in question.” If the contract or statute
subject matter of the action has already been breached, the appropriate ordinary civil action must be filed. If adequate
relief is available through another form of action or proceeding, the other action must be preferred over an action for
declaratory relief.
o It is also required that the parties to the action for declaratory relief be those whose rights or interests are affected by the
contract or statute in question. The issue between the parties must also be ripe for judicial determination. An action for
declaratory relief based on theoretical or hypothetical questions cannot be filed because Philippine courts are not advisory
courts.
o Requisites for a petition for declaratory relief:
• Subject matter of the controversy must be a deed, will, contract or other written instrument, statute, EO or regulation, or
ordinance
• Terms of said documents and the validity thereof are doubtful and require judicial construction

3 SEC. 2. Dismissal of improper appeal to the Court of Appeals. —An appeal under Rule 41 taken from the Regional Trial Court to the Court of Appeals
raising only questions of law shall be dismissed, issues purely of law not being reviewable by said court. Similarly, an appeal by notice of appeal instead of
by petition for review from the appellate judgment of a Regional Trial Court shall be dismissed.
An appeal erroneously taken to the Court of Appeals shall not be transferred to the appropriate court but shall be dismissed outright.
 • There must have been no breach of the documents in question
• Actual justiciable controversy or “ripening seeds” of one between persons whose interests are adverse
• Issue must be ripe for judicial determination
• Adequate relief is not available through other means or other forms of action or proceeding
o PEZA erred in availing itself of a petition for declaratory relief against the City. The City had already issued demand letters
and real property tax assessment against the PEZA, in violation of the PEZA’s alleged tax-exempt status under its charter. The
SEZA (subject matter of petition) had already been breached. The trial court should have dismissed the PEZA’s petition for
declaratory relief for lack of jurisdiction.
o Once an assessment has already been issued, the proper remedy of a taxpayer depends on whether the assessment was
erroneous or illegal.
o “Payment under protest” prescribed by Sec. 252 of the LGC. Should be appealed to the Local Board Assessment Appeals as
successive administrative remedies to a taxpayer who questions the correctness of an assessment. The taxpayer may then
appeal to the Central Bard of Assessment Appeals and such decision shall be final and executory.
o An assessment is illegal if it was made without authority under the law. In cases of such, the taxpayer may directly resort to
judicial action without paying under protest. The petitioner in Ty v. Trampe did not err in directly filing with the RTC. Payment
under protest is required only “where there is a question as to the reasonableness of the amount assessed.” As to appeals
before the Local and Central Board of Assessment Appeals, they are fruitful only where questions of fact are involved.
o In the present case, the PEZA did not avail itself of any of the remedies against a notice of assessment. A petition for declaratory
relief is not the proper remedy once a notice of assessment was already issued. PEZA should have directly resorted to a judicial
action and filed a complaint for injunction, the “appropriate ordinary civil action” to enjoin the City from enforcing its demand
and collecting the assessed taxes from PEZA.
o HOWEVER, the City confused the concepts of jurisdiction and venue in contending that the RTC of Pasay had no jurisdiction
because the real properties involved in this case are located in the City of Lapu-Lapu. When the venue of a civil action is
improperly laid, the court cannot motu proprio dismiss the case.
o The City was objecting to the venue of the action, not to the jurisdiction of the RTC of Pasay. However, whatever objections
the City has against the venue are already deemed waived since it did not file its MTD on the ground that the venue was
improperly laid. Neither did the City raise this objection in its answer.

DISPOSITIVE: WHEREFORE, the consolidated petitions are DENIED.