MWSS vs. QC Digest

MWSS V. QC (CASE DIGEST. G.R. NO.
194388)
CASE DIGEST: [ G.R. No. 194388, November 07, 2018 ] METROPOLITAN WATERWORKS SEWERAGE
SYSTEM, PETITIONER, 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, RESPONDENTS. DECISION. LEONEN, J.:
SUMMARY: A government instrumentality exercising corporate powers is not liable for the payment of
real property taxes on its properties unless it is alleged and proven that the beneficial use of its
properties been extended to a taxable person.
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 injuction.
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(o) of the Local Government Code. 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 Local Government Code, 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 local government unit'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 Local Government Code.
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 Republic Act No. 6234, initially without any capital stock. Under
its Charter, petitioner was explicitly declared exempt from the payment of real property taxes.
In 1974, however, Presidential Decree No. 425 amended the Charter and converted petitioner into a
stock corporation.
MWSS is an attached agency of the Department of Public Works and Highways, 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 Executive Order No. 596, petitioner is categorized with other government
agencies that were found to be exempt from the payment of real property taxes.
Under Republic Act 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 Republic Act No. 6234[81] 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.

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MWSS V. QC (CASE DIGEST. G.R. NO.

CA issued TRO stopping auction sale. Writ of Preliminary Injunction issued.

CA denied petition. Lifted injuction.

QC issued warrants of levy. MWSS went to the SC. SC issued TRO.

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.

THIRD ISSUE: MWSS is a government owned and controlled corporation.

To be categorized as a government-owned and -controlled corporation, a government agency must

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