The Commission on Audit (COA) possesses broad powers under the 1987 Constitution to examine, audit, and settle all government accounts, and to promulgate rules for the prevention and disallowance of irregular, unnecessary, excessive, extravagant, or unconscionable expenditures, which includes the authority to disallow claims not sanctioned by law, such as certain reimbursements from the Oil Price Stabilization Fund (OPSF).

The case revolves around the Oil Price Stabilization Fund (OPSF), created by P.D. No. 1956, as amended by E.O. No. 137. The OPSF was established to minimize frequent price changes of crude oil and petroleum products due to exchange rate adjustments or world market price changes, and to reimburse oil companies for cost increases and certain cost underrecoveries. The Department of Energy (formerly Ministry of Energy/Office of Energy Affairs) administered the OPSF, with the Department of Finance determining specific reimbursable "other factors" leading to cost underrecovery.

• On February 2 and March 9, 1989, COA directed Caltex to remit P1,287,668,820.00 (unremitted collections for OPSF from 1986-1988) and to desist from offsetting taxes against claims, holding audit of claims in abeyance.
• Caltex proposed (May 31, 1989) a simultaneous payment to OEA and reimbursement from OEA for P1.287 billion.
• COA Decision No. 921 (June 7, 1989) accepted the proposal with a 15% retention by OEA, but prohibited future offsetting.
• On August 18, 1989, COA informed OEA of disallowances in Caltex's claims amounting to P387,683,535, covering recovery of financing charges (P162,728,475), product sales (P48,402,398), inventory losses (P14,034,786), sales to Atlas/Marcopper (P32,097,083), sales to NPC (P558), and OEA disallowances (P130,420,235).
• COA reasoned that financing charges were not legally recoverable from OPSF; sales to international vessels/airlines had an incorrect effectivity date for OPSF impost; inventory losses (ad valorem taxes) should be claimed from BIR; and LOI 1416 (exempting distressed mining companies) had no legal basis for OPSF exemption.
• Caltex filed requests for reconsideration, arguing the claims were authorized by DOF/ERB issuances and that administrative interpretations should be respected.
• COA Decision No. 1171 (February 16, 1990) affirmed disallowance for financing charges (arguing oil companies gained from credit extension), inventory losses (payable to BIR, not OPSF), and sales to Marcopper/Atlas (LOI 1416 was issued before OPSF and didn't contemplate OPSF imposts). It allowed recovery for product/export sales.
• Caltex then filed the instant petition before the Supreme Court.

• COA erred in disallowing recovery of financing charges from the OPSF, as these were authorized by DOF Circular 1-87 and OEA Order No. 87-05-096, and fall under "other factors" determined by the Ministry of Finance for cost underrecovery under E.O. No. 137.
• COA erred in disallowing Caltex's claim for reimbursement of underrecovery arising from sales to NPC.
• COA erred in denying Caltex's claims for reimbursement on sales to Atlas and Marcopper, which were based on LOI 1416 exempting distressed mining companies from taxes and imposts.
• COA erred in preventing Caltex from exercising its legal right to offset its remittances against its reimbursements vis-a-vis the OPSF, a practice previously allowed.
• COA erred in disallowing Caltex's claims (P130,420,235.00) which were still allegedly pending resolution by the OEA and DOF, making COA's action premature.
• COA's power is limited to promulgating accounting and auditing rules, not to disallow expenditures based on its own interpretation of laws contrary to executive agencies.

• COA has the constitutional power to disapprove irregular or unnecessary government expenditures, and Caltex's claims were not allowed by law.
• P.D. No. 1956 and E.O. No. 137 do not allow reimbursement of financing charges from the OPSF; "other factors" under E.O. No. 137, by ejusdem generis, must be similar to government-mandated price reductions.
• DOF Circular No. 1-87, allowing reimbursement of financing charges, violates P.D. No. 1956 and E.O. No. 137.
• Regarding sales to Atlas and Marcopper, LOI 1416 was issued before OPSF existed, did not contemplate OPSF imposts, and OPSF was not created to aid distressed mining companies. Furthermore, LOI 1416 was never published and thus has no binding effect.
• The P130,420,235.00 claim was already disallowed by OEA for lack of substantiation before submission for COA pre-audit.
• There can be no offsetting of taxes (OPSF contributions being taxes) against claims a taxpayer has against the government, as they are not mutual creditors and debtors.

• Whether the COA has the authority to disallow claims for reimbursement from the OPSF already approved by the fund administrator (OEA/DOF).
• Whether Caltex is entitled to reimbursement from the OPSF for financing charges.
• Whether Caltex is entitled to reimbursement from the OPSF for underrecoveries arising from sales to the National Power Corporation (NPC).
• Whether Caltex is entitled to reimbursement from the OPSF for uncollected imposts on sales to Atlas and Marcopper mining companies based on LOI 1416.
• Whether COA prematurely disallowed claims allegedly still pending with OEA/DOF.
• Whether Caltex has the right to offset its remittances due to the OPSF against its claims for reimbursement from the said fund.

• The Supreme Court affirmed COA's decision except for the disallowance of Caltex's claim for reimbursement of underrecovery from sales to NPC, which was allowed.
• COA has the constitutional power to examine, audit, and settle government accounts, and to disallow illegal, irregular, unnecessary, excessive, extravagant, or unconscionable expenditures, not merely to promulgate rules.
• Financing charges are not reimbursable from the OPSF because they do not result from the "reduction of domestic prices of petroleum products" as required by P.D. 1956, as amended. The "other factors" provision cannot be interpreted as an unrestricted authority for DOF, and DOF Circular 1-87 allowing such reimbursement is invalid.
• Claims arising from sales to NPC are reimbursable, as NPC was granted tax exemption, and R.A. No. 6952 later explicitly allowed reimbursement for cost underrecovery from fuel oil sales to NPC.
• Claims arising from sales to Atlas and Marcopper are not reimbursable. LOI 1416, which purportedly exempted these mining companies, was issued before OPSF's creation, did not contemplate OPSF imposts, and was never published, rendering it ineffective. Tax exemptions are strictly construed.
• The disallowance of P130,420,235.00 was upheld as Caltex failed to prove it was still pending; records showed OEA had already excluded this amount for lack of substantiation.
• Offsetting of OPSF contributions (which are taxes) against Caltex's claims is not allowed. Taxes are not subject to compensation as the government and taxpayer are not mutually creditors and debtors. OPSF contributions are for a public purpose and collected under police power.

• Power of the Commission on Audit (COA) — Under the 1987 Constitution, the COA has the power, authority, and duty to examine, audit, and settle all accounts pertaining to government revenue, receipts, expenditures, or uses of funds and property, and to promulgate accounting and auditing rules, including those for the prevention and disallowance of irregular, unnecessary, excessive, extravagant, or unconscionable expenditures. The Court affirmed COA's authority to disallow claims it found contrary to law, despite prior approval by administrative agencies.
• Ejusdem Generis — A rule of statutory construction where general words following an enumeration of specific persons or things are construed to apply only to persons or things of the same kind or class as those specifically mentioned. The Court found this rule not strictly applicable to the "other factors" in Section 8 of P.D. 1956 (as amended by E.O. 137) because the two preceding enumerated items did not share a common characteristic. Instead, the controlling criterion for "other factors" is that the cost underrecovery must result from the "reduction of domestic prices of petroleum products."
• Undue Delegation of Legislative Power — The principle that legislative power cannot be delegated without a sufficient standard to guide the delegate. The Court rejected petitioner's interpretation that the Department of Finance had "unrestricted authority" to define "other factors" for OPSF reimbursement, as this would constitute undue delegation due to lack of standards.
• Strict Construction of Tax Exemptions (Strictissimi Juris) — Tax exemptions are highly disfavored and must be strictly construed against the taxpayer and liberally in favor of the taxing authority. The party claiming exemption must prove it is covered by the exempting law by clear legislative intent. Applied in denying Caltex's claim based on LOI 1416 for sales to mining companies.
• Requirement of Publication for Laws to be Effective — Laws, including presidential decrees and executive orders of general application, must be published in the Official Gazette or a newspaper of general circulation to be effective, as per Article 2 of the Civil Code and the ruling in Tañada vs. Tuvera. LOI 1416 was held ineffective for lack of publication.
• Non-Compensation or Set-Off of Taxes — Taxes are not subject to legal compensation or set-off against debts owed by the government to the taxpayer. The government and the taxpayer are not mutually creditors and debtors in such a scenario. Taxes are essential for government operations and their collection cannot be hindered by such claims. OPSF contributions were classified as taxes.
• Taxation as an Implement of Police Power — Taxes may be levied not just for revenue generation but also for regulatory purposes under the state's police power, such as stabilizing a threatened industry vital to public interest. The OPSF was deemed a valid exercise of police power to stabilize oil prices.

• "The Commission on Audit must ultimately be responsible for the enforcement of these rules and regulations, the failure to comply with these regulations can be a ground for disapproving the payment of a proposed expenditure."
• "Taxes cannot be the subject of compensation because the government and taxpayer are not mutually creditors and debtors of each other and a claim for taxes is not such a debt, demand, contract or judgment as is allowed to be set-off."
• "Taxation is no longer envisioned as a measure merely to raise revenue to support the existence of the government; taxes may be levied with a regulatory purpose to provide means for the rehabilitation and stabilization of a threatened industry which is affected with public interest as to be within the police power of the' state."

• Guevarra vs. Gimenez and Ramos vs. Aquino — Cited by petitioner for the limited role of the Auditor General under the 1935 Constitution. The Court ruled these are no longer controlling due to the expanded powers of COA under the 1973 and 1987 Constitutions.
• Tañada vs. Tuvera — Referenced to establish the requirement of publication for laws, presidential issuances of general application (like LOI 1416) to be effective. LOI 1416 was deemed ineffective for lack of publication.
• Francia vs. IAC and Fernandez — Cited by respondents to support the argument that taxes cannot be offset against claims a taxpayer has against the government.
• Commissioner of Internal Revenue vs. Algue, Inc. — Referenced for the principle that money due to the government (taxes/dues) is its lifeblood and should be collected without hindrance, supporting the non-offsetting of taxes.
• Lutz vs. Araneta and Gaston vs. Republic Planters Bank — Cited to support the doctrine that taxation can be used as an implement of police power for regulatory purposes and to stabilize industries affected with public interest.

• 1987 Constitution, Article IX-D, Section 2(1) and 2(2) — Defines the powers, authority, and duties of the Commission on Audit, including auditing government accounts and promulgating rules for disallowing irregular expenditures. This was central to upholding COA's actions.
• Presidential Decree No. 1956, Section 8 (as amended by Executive Order No. 137) — The legal basis for the Oil Price Stabilization Fund (OPSF), outlining its sources and uses. The interpretation of what constitutes "cost underrecovery" and "other factors" under this provision was a key issue.
• Letter of Instruction (LOI) No. 1416 — Purportedly suspended payment of taxes by distressed copper mining companies. The Court held it ineffective for lack of publication and inapplicable to OPSF imposts.
• Civil Code, Article 2 — Requires publication of laws for their effectivity. Applied to render LOI 1416 ineffective.
• Civil Code, Article 1279 — Outlines the requisites for legal compensation. The Court found these requisites not met for offsetting OPSF dues with Caltex's claims.
• Republic Act No. 6952, Section 2 — Establishes the Petroleum Price Standby Fund and explicitly allows reimbursement for fuel oil sales to NPC and prohibits payment to oil companies with outstanding government obligations without prior offset. Referenced to support allowing NPC claims and denying general offsetting.
• Department of Finance Circular No. 1-87 — Allowed oil companies to recover financing charges from OPSF. The Court found this circular to be an invalid extension of P.D. 1956 as amended.
• Revised Administrative Code, Section 21, Book V, Title I-B — Provides for "Retention of Money for Satisfaction of Indebtedness to Government." Petitioner cited this for offsetting, but the Court found it inapplicable to allow a private person to compel set-off against the government.