THE Supreme Court (SC) has denied the petition of the Bureau of Internal Revenue (BIR) to compel Pilipinas Shell Petroleum Corp. and Petron Corp. to pay their alleged delinquent tax liabilities as the tax collector deemed as invalid the oil firms’ tax credit certificates (TCC).
In the 26-page decision promulgated on July 9 and signed by then Associate Justice Teresita Leonardo-De Castro, the SC denied the BIR’s petition over its claim of more than P3 billion from Pilipinas Shell and Petron for alleged unpaid excise taxes.
It upheld the previous decision of the Court of Tax Appeals for Pilipinas Shell in 2007 and Petron in 2010, which validated the issued TCCs, saying the two could not have excise tax deficiencies for 1998 and 2002 as they “have validly paid for and settled their excise tax liabilities using the transferred TCCs.”
“The Court’s aforementioned findings in the 2007 Shell Case and 2010 Petron Case are conclusive and binding upon this Court in the petitions at bar. Res judicata by conclusiveness of judgment bars the Court from re-litigating the issues on TCCs’ validity and respondents’ qualifications as transferees in the case,” the decision read.
The decision also said that the BIR violated the rights of the oil companies to due process because of its failure to observe the proper procedure for unpaid taxes.
The 1998 and 2002 collection letters issued by the BIR for the year 1992 to 1997 are not sufficient to collect any tax deficiency, it said.
The 1998 collection letters demanded Pilipinas Shell and Petron to pay delinquent tax liabilities amounting to P1,705,028,008.06 and P1,107,542,547.08, respectively, while the 2002 collection letter sought from Pilipinas Shell the amount of P234,555,275.48 in unpaid excise tax liabilities. The letters claimed that the two only partly paid for the excise tax as the TCCs were invalid.
According to the Tax Code, as cited by the decision, the collection of unpaid taxes could only be done through summary administrative remedies such as distraint and/or levy of taxpayer’s property or judicial remedies through filing of a criminal or civil case against the delinquent taxpayer.
Although the BIR intended to pursue summary administrative remedies with warrants of garnishment and distraint and/or levy following the collection letter in the case of Pilipinas Shell, the SC found out that there were no assessments issued against the oil companies prior to the collection letters.
“The BIR’s power to collect taxes must yield to the fundamental rule that no person shall be deprived of his/her property without due process of law. The rule is that taxes must be collected reasonably and in accordance with the prescribed procedures,” the decision read.
The decision also cited Section 318 of the 1977 National Internal Revenue Code, which states that the BIR has five years to assess companies after they filed their tax returns and that no court proceeding should begin after the expiration of the prescribed period.
The oil companies filed their returns for the covered years 1992 to 1997. The period would have prescribed from 1997 to 2002.
“Without valid assessment, the five-year prescriptive period to assess continued to run and had, in fact, expired in these cases . . . Resultantly, this also bars petitioner from undertaking any summary administrative remedies, i.e., distraint and/or levy, against respondents for collection of the same taxes,” the decision stated.
It also said that “none of petitioner’s collection efforts constitute a valid institution of a judicial remedy for collection of taxes without an assessment, and any such judicial remedy is now barred by prescription.”
Pilipinas Shell and Petron sold oil and fuel products on different occasion during 1988 to 1996 to Board of Investment (BoI)-registered entities, which used TCCs issued in their names for purchases. To proceed with the payment, the entities made deeds of assignment to transfer the TCCs to the oil companies.
The Department of Finance (DoF) approved the deeds of assignment. Pilipinas Shell and Petron then sought the DoF’s permission to use the TCCs for their excise tax liabilities. The department then issued tax debit memoranda (TDMs) addressed to the BIR allowing the companies to settle their taxes.
The oil companies used the TDMs to pay for their excise taxes for the years 1992 to 1997, which the BIR accepted.
The 1998 collection letters stated that the oil companies had been paying part of their excise tax through TCCs that bear the name of other companies, which is a violation of Rule IX of the BoI rules and regulations.
The BIR also insisted in the petition that Pilipinas Shell and Petron were not qualified transferees of the TCCs as they were not suppliers of domestic capital equipment or of raw material and/or components to their transferors. — Vann Marlo M. Villegas

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