Commissioner of Internal Revenue vs. Semirara Mining and Power Corporation

The Local Government Code did not repeal Section 16 of Presidential Decree No. 972 in its entirety; it merely amended that provision by withdrawing the exemption from local taxes, leaving intact the exemption from national taxes, including VAT and excise taxes on importations.

Semirara Mining and Power Corporation is a coal operator holding a Coal Operating Contract with the government under Presidential Decree No. 972, the Coal Development Act of 1976, which grants incentives to operators, including tax exemptions. The Commissioner of Internal Revenue is the government official charged with enforcing national internal revenue taxes. The dispute concerns the interaction between the tax exemption in Section 16 of Presidential Decree No. 972 and the Local Government Code's repealing and tax-exemption-withdrawal provisions, specifically whether the Local Government Code withdrew SMPC's exemption from national taxes such as VAT and excise tax.

Semirara Mining and Power Corporation (SMPC) is a coal operator holding a Coal Operating Contract with the government under Presidential Decree No. 972, the Coal Development Act of 1976. On February 9, 2013, pursuant to Revenue Regulations No. 2-2012, the Bureau of Internal Revenue assessed and demanded that SMPC pay VAT on importation on its partial shipment of fuel. In a letter dated August 15, 2013, SMPC filed a protest against the assessment, invoking its tax exemption privilege under Presidential Decree No. 972 and BIR Ruling No. DA-002-2006 in view of its Coal Operating Contract with the government. On September 3, 2013, SMPC paid under protest the assessed amount of PHP 27,341,714.00.

SMPC then filed a Petition for Declaratory Relief before the Regional Trial Court of Makati City against the Commissioner of Internal Revenue, the Secretary of Finance, and the Commissioner of Customs. SMPC sought a judicial declaration that Revenue Regulations No. 2-2012 does not apply to it and that its direct importation of fuel for its own use and consumption is not subject to VAT and excise tax. After trial, the RTC granted SMPC's Petition for Declaratory Relief, ruling that, in light of the tax exemption granted under Presidential Decree No. 972 and the Coal Operating Contract, Revenue Regulations No. 2-2012 does not apply to SMPC's direct importation of petroleum and petroleum products.

Thereafter, on May 29, 2015, SMPC filed a formal claim with the BIR for the refund of the alleged illegally collected VAT. When the Commissioner of Internal Revenue failed to act on the refund claim within the reglementary period, SMPC filed a Petition for Review before the Court of Tax Appeals on September 1, 2015. The assessment, protest, payment, and importation were not disputed; SMPC imported the fuel for its own use and consumption under its Coal Operating Contract. The controversy turned on the legal effect of the Local Government Code on SMPC's tax exemption.

• Express Repeal by Section 534(e), LGC: The CIR argued that Section 16 of Presidential Decree No. 972 was expressly repealed by Section 534(e) of the Local Government Code.
• Withdrawal of All Tax Exemptions by Section 193, LGC: The CIR maintained that Section 193 of the Local Government Code withdrew all existing tax exemptions granted prior to its enactment, including exemptions from national taxes, thereby making SMPC liable for excise tax and VAT on all importations.
• Strict Literal Interpretation: The CIR relied on a strict literal interpretation of Section 193, which uses the phrase "tax exemptions or incentives" without qualification as to whether it applies only to local taxes.
• Non-Impairment Clause: In its Answer before the CTA, the CIR asserted that Revenue Regulations No. 2-2012 does not violate the non-impairment clause of the 1987 Constitution.

• Tax Exemption Under PD 972 and COC: SMPC invoked its tax exemption privilege under Presidential Decree No. 972 and BIR Ruling No. DA-002-2006 in view of its Coal Operating Contract with the government.
• Non-Applicability of Revenue Regulations No. 2-2012: SMPC sought a judicial declaration that Revenue Regulations No. 2-2012 does not apply to it and that its direct importation of fuel for its own use and consumption is not subject to VAT and excise tax.
• Refund of Illegally Collected VAT: SMPC claimed a refund or issuance of a tax credit certificate for PHP 27,341,714.00, representing VAT allegedly illegally collected from or erroneously paid by it on its importation or partial shipment of diesel.

• Repeal of Section 16, PD 972: Whether SMPC's exemption from VAT and excise tax under Section 16 of Presidential Decree No. 972 has been repealed by the Local Government Code.
• Scope of Section 193, LGC: Whether Section 193 of the Local Government Code withdrew all existing tax exemptions, including exemptions from national taxes, or only exemptions from local taxes.

• Repeal of Section 16, PD 972: No. The Local Government Code did not repeal Section 16 of Presidential Decree No. 972; it merely amended it by withdrawing only the exemption from local taxes. SMPC's exemption from national taxes, including VAT and excise taxes on importations, remains effective.
• Scope of Section 193, LGC: Only local taxes. Section 193's withdrawal of tax exemption privileges pertains to exemptions from local taxes, consistent with the Local Government Code's scope under Section 128 and its policy of local autonomy.

• Repeal of Section 16, PD 972: Section 534(e) of the Local Government Code states that enumerated provisions, including Section 16 of Presidential Decree No. 972, are "repealed or amended insofar as they are inconsistent with the provisions of this Code." The use of both "repealed" and "amended" requires distinguishing the terms. Black's Law Dictionary defines repeal as complete abrogation by a subsequent statute, while amendment is an alteration leaving some part of the original standing. Thus, Section 534(e) does not necessarily repeal Section 16 in its entirety. The Court must determine whether the entirety of Section 16 is inconsistent with the Local Government Code. Because only the local tax exemption portion is inconsistent with the Local Government Code's local taxation provisions, only that portion was amended or withdrawn. Therefore, the national tax exemption remains.
• Scope of Section 193, LGC: The CIR relies on a literal reading of Section 193, which withdraws "tax exemptions or incentives" without qualification. However, the Court found ambiguity as to whether the withdrawal extends to national revenue taxes, because the Local Government Code's taxation provisions are limited to the exercise by local government units of their taxing and revenue-raising powers. Statutes must be read as a whole. The Local Government Code implements the constitutional mandate for local autonomy and decentralization; Section 128 limits the scope of the Local Government Taxation title to provinces, cities, municipalities, and barangays; Section 192 authorizes local government units to grant tax exemptions through ordinances; and Section 193 is located in the same title. Manila Electric Company vs. The City Assessor of Lucena City recognized that the Local Government Code's evident intent is to withdraw or repeal all exemptions from local taxes unless otherwise provided by the Code, to broaden the tax base of local government units. Thus, Section 193 withdraws only local tax exemptions. Consequently, Section 16 of Presidential Decree No. 972 was amended only as to local taxes, and SMPC's national tax exemption remains effective.

• Repeal vs. Amendment — Repeal is the complete abrogation of a prior law by a subsequent statute, either express or implied; amendment is an alteration of an existing law leaving some part of the original standing. The Court applied this distinction to Section 534(e) of the Local Government Code, holding that Section 16 of Presidential Decree No. 972 was not repealed in its entirety but only amended insofar as it was inconsistent with the Local Government Code.
• Statutes Construed as a Whole — A law must not be read in truncated parts; its provisions must be read in relation to the whole law to produce a harmonious whole. The Court applied this rule to Section 193 of the Local Government Code, reading it together with Sections 128 and 192, the Local Government Code's declaration of policy, and its decentralization objectives.
• Scope of Tax Exemption Withdrawal Under the LGC — Section 193 of the Local Government Code withdraws tax exemptions or incentives only from local taxes, not from national taxes. The Local Government Code's local taxation provisions govern the exercise by local government units of their taxing and other revenue-raising powers, and the withdrawal is intended to broaden the tax base of local government units and grant them discretion over local tax exemptions.
• Tax Exemption of Coal Operators Under PD 972 — Section 16 of Presidential Decree No. 972 grants operators with coal operating contracts incentives, including exemption from all taxes except income tax and exemption from tariff duties and compensating tax on importation of machinery, equipment, spare parts, and materials required for coal operations, subject to conditions. The Court held that the Local Government Code did not repeal the national tax exemption, so SMPC's exemption from VAT and excise taxes on importations remains effective.

• "Repeal" of a law means its complete abrogation by the enactment of a subsequent statute, whereas the "amendment" of a statute means an alteration in the law already existing, leaving some part of the original still standing. — This passage defines the distinction between repeal and amendment that the Court used to reject the CIR's claim of total repeal.
• "Therefore, on its face, Section 534(e) does not necessarily repeal Section 16 of Presidential Decree No. 972 in its entirety. In determining whether Section 16 of Presidential Decree No. 972 has been repealed by the LGC, there is a need to determine whether the entirety of the said provision is inconsistent with the provisions of the LGC." — This passage states the interpretive approach the Court adopted in assessing the effect of the Local Government Code's repealing clause.
• "It is clear, therefore, that the withdrawal of tax exemption privileges under Section 193 of the LGC pertains to exemptions from local taxes, intended to broaden the tax base of LGUs and grant them discretion on which persons and transactions may be exempt, consistent with the State policy of ensuring local autonomy." — This passage articulates the ratio on the limited scope of Section 193 of the Local Government Code.
• "Based on the foregoing, the Court rules that the LGC did not repeal, but merely amended, Section 16 of Presidential Decree No. 972, withdrawing only the exemption from local taxes. Consequently, SMPC's exemption from national taxes, including VAT and excise taxes on its importations under Section 16 of Presidential Decree No. 972, remains effective." — This passage states the Court's final holding and the basis for affirming the refund.

• Taganito Mining Corporation vs. Commissioner of Internal Revenue, 900 Phil. 157, 165-166 (2021) — Cited for the rule that a law must not be read in truncated parts and that its provisions must be read in relation to the whole law to produce a harmonious whole.
• Fort Bonifacio Development Corporation vs. Commissioner of Internal Revenue, 617 Phil. 358 (2009) — Cited in Taganito for the same statutory construction principle.
• Manila Electric Company vs. The City Assessor of Lucena City, 765 Phil. 605, 630 (2015) — Cited for the holding that the Local Government Code's evident intent is to withdraw or repeal all exemptions from local taxes unless otherwise provided by the Code, consistent with local autonomy and broadening the tax base of local government units.
• Iloilo I Electric Cooperative, Inc. vs. Executive Secretary Bersamin, 956 Phil. 908, 917 (2024) — Cited for the basic rule that when a law is clear and unambiguous, the court applies it according to its clear language; the Court nevertheless found ambiguity in Section 193's scope.
• Congressman Mandanas vs. Exec. Sec. Ochoa, 835 Phil. 97, 143 (2018) — Cited for the constitutional mandate of local autonomy and the delegation of taxing power to local government units.

• Section 16, Presidential Decree No. 972 (Coal Development Act of 1976) — Grants incentives to operators with coal operating contracts, including exemption from all taxes except income tax and exemption from tariff duties and compensating tax on importation of machinery, equipment, spare parts, and materials required for coal operations, subject to conditions. The Court held that the national tax exemption remains effective despite the Local Government Code.
• Section 534(e), Republic Act No. 7160 (Local Government Code) — Repealing clause providing that enumerated provisions, including Section 16 of Presidential Decree No. 972, are repealed or amended insofar as inconsistent with the Local Government Code. The Court held this did not expressly repeal Section 16 in its entirety.
• Section 193, Republic Act No. 7160 (Local Government Code) — Withdrawal of tax exemption privileges. The Court held it withdraws only exemptions from local taxes, not national taxes.
• Section 128, Republic Act No. 7160 (Local Government Code) — Scope of local government taxation: governs the exercise by provinces, cities, municipalities, and barangays of their taxing and other revenue-raising powers. Used to limit Section 193 to local taxes.
• Section 192, Republic Act No. 7160 (Local Government Code) — Authority of local government units to grant tax exemptions, incentives, or reliefs through ordinances. Used to show Section 193 concerns local tax exemptions.
• Section 3(d), Republic Act No. 7160 (Local Government Code) — Operative principle of decentralization: local government units have the power to create and broaden their own sources of revenue. Cited as context for local autonomy.
• Section 2(a), Republic Act No. 7160 (Local Government Code) — Declaration of policy on local autonomy and decentralization. Cited as context.
• Rule 45, Rules of Court — Governs the Petition for Review on Certiorari filed by the CIR before the Supreme Court.
• Revenue Regulations No. 2-2012 — BIR regulation under which SMPC was assessed VAT on importation; SMPC protested its application and sought a declaration that it does not apply to its direct importation of fuel.
• 1987 Constitution — Cited for the constitutional mandate to provide a more responsive and accountable local government structure through decentralization and for delegating the power to tax to local government units.

• Justice Caguioa (Chairperson)
• Justice Inting
• Justice Gaerlan
• Justice Dimaampao