THE Supreme Court has thrown out the bid of the Bureau of Internal Revenue (BIR) to collect around P3 billion in alleged tax liabilities from giant oil companies Pilipinas Shell Petroleum Corp. and Petron Corp., following the invalidation of their respective tax credit certificates (TCCs).
In a 26-page decision penned by Chief Justice Teresita Leonardo-de Castro, the SC’s First Division upheld the separate decisions issued by the Court of Appeals (CA) which declared Pilipinas Shell and Petron as qualified transferees of TCCs.
The Court held that the issues concerning the transferred TCCs’ validity, the oil companies’ qualifications as transferees of said TCCs, and the their valid use of the TCCs to pay for their excise tax liabilities for the years 1998 and 2002 had been finally settled in its decision in the 2007 Shell case and 2010 Petron case. As such, these are barred from being relitigated under the doctrine of “res judicata” in the concept of “conclusiveness of judgment.”
The SC noted, “In the instant petitions, petitioner asserts his right to collect excise tax deficiencies which respondents had previously settled using the transferred TCCs, impugning the TCCs’ validity on account of fraud, as well as respondents’ qualifications as transferrees of said TCCs.”
It added, “However, respondent already raised the same arguments and the Court definitively ruled thereon in its final and executory decisions in the 2007 Shell case and 2010 Petron case.”
The SC also dismissed the petition for BIR’s violation of the respondents’ right to due process for failing to observe the prescribed procedure for collection of unpaid taxes through summary administrative remedies.
It explained that the Court cannot allow the BIR to collect any excise tax deficiency from the two oil companies by mere issuance of the 1998 and 2002 collection letters.
Due process violated
“Petitioners had failed to comply with the prescribed procedure for collection of unpaid taxes through summary administrative remedies and, thus, violated respondents’ right to due process,” it added. Under the Tax Code, the SC said there are two types of remedies to enforce the collection of unpaid taxes—summary administrative remedies such as the distraint and/or levy of taxpayers’ property; or judicial remedies, such as the filing of a criminal or civil action against erring taxpayer.
It added that in the case of Shell, the collection letters were already followed by the BIR’s issuance of warrants of garnishment and distraint and/or levy against it.
The SC said the BIR proceeded with the collection of the oil companies’ alleged unpaid taxes without a previous valid assessment.
“Absent a previously issued assessment supporting the 1998 and 2002 collection letters, it is clear that petitioner’s attempts to collect through said collection letters, as well as the subsequent warrants of garnishment and distraint and/or levy are void and ineffectual,” the SC said. “If an invalid assessment bears no valid fruit, with more reason will no such fruit arise if there was no assessment in the first place,” the Court declared.
The BIR has insisted that the August 29, 1989, amendment of the October 5, 1982, memorandum of agreement between the Board of Investments and the then Ministry of Finance, and also of Rule VII of the rules and regulations implementing the Omnibus Code required transferees of TCCs to be not only BOI-registered firms, but also domestic producers of the raw materials and components being supplied.
The BIR insisted that Pilipinas Shell and Petron do not qualify as lawful and valid transferees of the TCCs since the bunker fuel and other fuel products they supplied to its transferors do not constitute either domestic capital equipment or a raw material and/or component of the transferors’ finished products.
The appellate court, however, held the 1989 amendment to the MOA between the BOI and the finance department cannot be validly used in nullifying the TCCs since it was not incorporated into the implementing rules of the Omnibus Investment Code, nor filed with the University of the Philippines Law Center, or published as mandated by the Administrative Code of 1987.
Image credits: Alysa Salen