Supreme Court upholds Court of Tax Appeals in P18-B BIR tax row with DOE

THE Supreme Court has declared that it is the Secretary of Justice or the Solicitor General who has the authority to settle the dispute between the Department of Energy (DOE) and the Bureau of Internal Revenue (BIR)  over the latter’s demand for payment of deficiency excise taxes of P18.37 billion.

In an 18-page decision  penned by Associate Justice Maria Filomena D. Singh, the SC’s Third Division junked the petition for review filed by the DOE seeking the reversal of the November 4, 2021 decision issued by the Court of Tax Appeals (CTA),  denying  its plea to set aside the warrants of distraint and/or levy and garnishment issued by the BIR on September 19, 2019.

The CTA held that it has no jurisdiction over the case since it is a purely intra-governmental dispute.

The DOE  then elevated the issue before the Supreme Court, asserting that the CTA erred in dismissing its petition on the ground of lack of jurisdiction.

The DOE insisted that CTA has jurisdiction over the case as Republic Act 1125 (An Act Creating the Court of Tax Appeals) prevails over Presidential Decree No. 242 Prescribing the Procedure for Administrative Settlement or Adjudication of Disputes, Claims and Controversies Between or Among Government Offices, Agencies and Instrumentalities, Including Government-Owned and -Controlled Corporations, and for Other Purposes.

The CTA has the expertise and experience to resolve tax issues, the DOE stressed.

The energy department maintained that not all disputes involving government agencies fall under the coverage of PD 242.

However, the SC junked DOE’s petition, declaring that “all disputes, claims and controversies, solely between or among executive agencies, including disputes on tax assessments,  must perforce be submitted to administrative settlement by the Secretary of Justice or the Solicitor General, as the case may be.”

“The CTA correctly steered clear of the case as it lacked jurisdiction over this dispute between the DOE and the BIR,” the high tribunal added.

The SC further ruled that PD 242 should prevail against laws defining general jurisdiction of the CTA, such as RA 1125, as amended, and the National Internal Revenue Coder.

PD 242, according to the SC, deals specifically with the resolution of disputes, claims and controversies where the parties involved are the agencies and instrumentalities of the government.

“PD 242 should be read as an exception to the general rule set in RA 1125 and the NIRC that the CTA has jurisdiction over tax disputes involving laws administered by the BIR,” the SC explained.

“This is consistent with the fundamental rule that special laws prevail over general laws,” it added.

Furthermore, the SC said the President, as Chief Executive, has control over all government agencies; thus, it is only proper that he first be given a chance to resolve a dispute before resorting to courts.

“Because of such broad power vested in the President over the acts of subordinates in the Executive Department, it is not only constitutionally infirm, but likewise downright impractical, to allow the judiciary to take cognizance of a matter which can still be undone, modified, or otherwise subjected to the discretion of the Executive,” it added.

The dispute stemmed from the BIR’s issuance of a preliminary assessment notice (PAN) for deficiency excise taxes amounting to P18.37 billion to DOE on December 7, 2018 and gave the latter 15 days to settle it.

Ten days later, the BIR issued a formal letter of demand for the assessment amount.

On December 21, 2018, the DOE responded to the BIR and insisted that it is not liable for the amounts since the department is not among those being compelled to pay excise taxes under Section 130(A)(I) of the National.

The DOE maintained that it is not the “owner, lessee, concessionaire or operator of the mining claim,” and that it merely grants mining rights or service contracts on behalf of the State.

The DOE further contended that the subject transactions involve condensates, which are classified as natural gas, that are exempt from excise taxes under BIR Revenue Regulations No. 1-2018 dated January 5, 2018.

On September 19, 2019, the BIR issued the warrants of distraint and/or levy and garnishment which the DOE said were issued prematurely and without due process.

On October 18, 2019, the DOE filed a petition for review (with urgent motion for suspension of collection of taxes) with the CTA assailing the said warrants.

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