THE Bureau of Internal Revenue (BIR) has lost its bid to collect P9.57 billion in value-added tax (VAT) it imposed on the Power Sector Assets and Liabilities Management Corp. (PSALM) for the sale of power-generating assets in 2008.
In a 16-page decision penned by Associate Justice Antonio Carpio, the Court’s Second Division granted PSALM’s petition seeking the reversal of the Court of Tax Appeals (CTA) decision on December 2, 2014, which found it liable to pay the said amount.
The Court did not give credence to the CTA’s findings that the generating assets of PSALM —the Masinloc, Ambuklao-Binga and Pantabangan power plants—fall under “all kinds of goods and properties” subject to VAT under Section 106 of the National Internal Revenue Code of 1997 (NIRC).
The BIR, on the other hand, argued that the previous exemption of the National Power Corp. (NPC) from VAT under Section 13 of Republic Act 6395, the law that created the agency, was repealed by Section 24 of RA 9337, or the Reformed Value-Added Tax Law.
As a consequence, the BIR claimed, the VAT exemption accorded to PSALM under BIR Ruling No. 020-02 is also deemed revoked since PSALM is a successor-in-interest of NPC. Furthermore, the BIR pointed out that prior to the sale, NPC still owned the power plants and not PSALM, which is just considered the trustee of the NPC properties.
Thus, the sale made by NPC or its successors-in-interest of its power plants should be subject to the 10-percent VAT beginning November 1, 2005, and 12 percent VAT beginning February 1, 2007.
However, the SC held that the BIR’s position is anchored on the wrong premise that PSALM is a successor-in-interest of NPC.
It pointed out that PSALM is not a successor-in-interest of NPC.
The High Court explained that under its charter, NPC is mandated to “undertake the development of hydroelectric generation of power and the production of electricity from nuclear, geothermal and other sources, as well as the transmission of electric power on a nationwide basis.”
On the other hand, PSALM, a government-owned and -controlled corporation, was created under the Electric Power Industry Reform Act of 2001 (Epira) to manage the orderly sale and privatization of NPC’s assets with the objective of liquidating all of NPC’s financial obligations in an optimal manner.
“Clearly, NPC and PSALM have different functions. Since PSALM is not a successor-in-interest of NPC, the repeal by RA 9337 of NPC’s VAT exemption does not affect PSALM,” the SC said.
The SC held that the sale of the generating assets is not subject to VAT, since the sale was pursuant to the mandate of PSALM under the Epira to privatize NPC assets.
“The sale of the power plants is not in pursuit of a commercial or economic activity but a governmental function mandated by law to privatize NPC generation assets,” it added.
Furthermore, the Court said the sale of power plants are not the same as the sale of electricity by generation companies, transmission, and distribution companies, which is subject to VAT.