Department of Energy vs. Commissioner of Internal Revenue

The Court held that all disputes, claims, and controversies solely between executive agencies, including contested tax assessments, must be submitted to administrative settlement by the Secretary of Justice or the Solicitor General pursuant to P.D. No. 242. The CTA correctly declined jurisdiction because P.D. No. 242 operates as a special law that expressly carves out intra-governmental disputes from the general appellate jurisdiction granted to the CTA under R.A. No. 1125 and the NIRC. Judicial review may only be invoked after the Executive has exhausted the prescribed administrative settlement process, ensuring that the President’s constitutional power of control is respected before the courts assume cognizance.

The Bureau of Internal Revenue issued a Preliminary Assessment Notice on December 7, 2018, assessing the Department of Energy for P18,378,759,473.44 in deficiency excise taxes. The BIR subsequently issued a Formal Letter of Demand and Formal Assessment Notice, which the DOE received on December 17, 2018. The DOE contested the assessment, asserting it was not the owner, lessee, concessionaire, or operator of the mining claim under Section 130(A)(1) of the NIRC, and that the subject condensates qualified as exempt liquefied natural gas. On July 17, 2019, the BIR declared the assessment final, executory, and demandable, alleging the DOE failed to file a formal protest within the 30-day reglementary period. The BIR issued Warrants of Distraint and/or Levy and Garnishment on September 19, 2019, prompting the DOE to challenge the collection measures as premature and violative of due process.

• The BIR issued a PAN on December 7, 2018, assessing the DOE for deficiency excise taxes. The DOE received a corresponding FLD/FAN on December 17, 2018, and filed a response on December 21, 2018, denying liability and asserting statutory exemption for condensates.
• On July 17, 2019, the BIR notified the DOE that the assessment had become final and demandable due to the DOE’s alleged failure to file a formal protest within the prescribed 30-day period. The DOE replied on July 31, 2019, maintaining it had not received the FLD/FAN and that only the PAN was served.
• The BIR issued Warrants of Distraint/Levy and Garnishment on September 19, 2019. The DOE reiterated its defenses in October 2019, alleging deprivation of due process and reiterating its non-liability and exemption arguments.
• Subsequent proceedings clarified that the FLD/FAN was served on an unauthorized DOE employee, causing internal routing delays and preventing timely protest. The BIR subsequently filed a money claim with the COA while the DOE pursued judicial relief before the CTA.

• The DOE maintained that the CTA retains exclusive appellate jurisdiction over tax disputes pursuant to R.A. No. 1125 and the NIRC, arguing these statutes prevail over P.D. No. 242.
• Petitioner contended that the PSALM v. CIR ruling was factually limited to contractual disputes and should not govern contested tax assessments.
• The DOE asserted that not all inter-agency controversies fall under P.D. No. 242, citing Orion Water District v. GSIS, and argued that the CTA possesses the specialized expertise necessary to adjudicate complex tax issues.
• The DOE claimed that the BIR’s premature issuance of collection warrants without proper service of the FLD/FAN deprived it of due process and statutory protest rights.

• The CIR, through the BIR, maintained that the tax assessment became final and demandable due to the DOE’s failure to timely protest the FLD/FAN within the reglementary period.
• The CIR asserted that the DOE’s failure to exhaust the administrative settlement procedure mandated by P.D. No. 242 rendered the judicial petition premature and unripe.
• The respondent’s position, as upheld by the lower court, was that intra-governmental tax disputes fall outside the CTA’s jurisdiction and must be resolved administratively by the Executive Department before judicial intervention may be sought.

• Procedural Issues: Whether the CTA has jurisdiction to entertain a petition for review challenging tax collection warrants issued by the BIR against another national government agency.
• Substantive Issues: Whether P.D. No. 242 applies to tax assessment disputes between executive agencies, thereby requiring mandatory administrative settlement by the Secretary of Justice or Solicitor General prior to judicial recourse, and whether the PSALM v. CIR doctrine governs the present controversy.

• Procedural: The Court held that the CTA correctly dismissed the petition for lack of jurisdiction. Because the dispute involves solely government entities, it falls outside the CTA’s general appellate jurisdiction and must first undergo administrative settlement under P.D. No. 242. The Court emphasized that judicial intervention is premature while the dispute remains subject to the President’s constitutional power of control over executive agencies, rendering the case unripe for adjudication.
• Substantive: The Court ruled that all disputes, claims, and controversies solely between executive agencies, including contested tax assessments, must be submitted to administrative settlement by the Secretary of Justice or the Solicitor General. P.D. No. 242 prevails over R.A. No. 1125 and the NIRC as a special law that expressly carves out intra-governmental disputes from general tax jurisdiction. The Court rejected the DOE’s attempt to limit PSALM v. CIR to contractual disputes, holding that the doctrine applies to all inter-agency controversies arising from statutes, contracts, or agreements. The Court reasoned that the President’s power of control necessitates administrative resolution to avoid litigation where the government is the sole real party-in-interest, and that the Executive possesses the requisite capacity to harmonize competing agency mandates and tax laws before judicial review may be invoked.

• Generalia specialibus non derogant (Special Law Prevails over General Law) — A special law that applies to particular persons or a specific category of cases prevails over a general law that applies to all persons or a broad class. The Court applied this principle to classify P.D. No. 242 as the special law governing disputes solely between government agencies, thereby operating as an exception to the general jurisdictional grants of the CTA under R.A. No. 1125 and the NIRC.
• Presidential Power of Control over the Executive Department — The Constitution vests the President with control over all executive departments, bureaus, and offices, authorizing the Chief Executive to alter, modify, or nullify subordinate actions. The Court relied on this doctrine to mandate administrative resolution of intra-governmental disputes, reasoning that the President is the ultimate constitutional arbiter of conflicting executive mandates before judicial intervention may occur.
• Doctrine of Exhaustion of Administrative Remedies — Parties must first avail themselves of the prescribed administrative process before seeking judicial relief. The Court treated the P.D. No. 242 settlement procedure as a mandatory prerequisite that renders court action premature, ensuring that administrative agencies are given the opportunity to rectify errors and harmonize conflicting mandates.

• "As regards private entities and the BIR, the power to decide disputed assessments, refunds of internal revenue taxes, fees or other charges, penalties in relation thereto, or other matters arising under the NIRC or other laws administered by the BIR is vested in the CIR subject to the exclusive appellate jurisdiction of the CTA, in accordance with Section 4 of the NIRC; and (2) Where the disputing parties are all public entities (covers disputes between the BIR and other government entities), the case shall be governed by PD 242." — The Court reaffirmed this jurisdictional framework from PSALM v. CIR to clearly demarcate the CTA’s appellate authority over private taxpayers from the Executive’s administrative jurisdiction over intra-governmental disputes.
• "Given that the President, as Chief Executive, has control over all the agencies in dispute, it is only proper and logical that he first be given a chance to resolve the dispute before resort to the courts. Only after the President has decided or settled the dispute can the court's jurisdiction be invoked." — This passage anchors the exhaustion requirement in the constitutional separation of powers, establishing that the President’s supervisory authority must be respected before the Judiciary assumes cognizance.

• Power Sector Assets and Liabilities Management Corp. v. Commissioner of Internal Revenue — Cited as the controlling precedent establishing that P.D. No. 242 governs all disputes solely between government entities and operates as an exception to the CTA’s appellate jurisdiction. The Court declined to revisit the doctrine and applied it directly to the present tax controversy.
• Philippine National Oil Co. v. Court of Appeals — Distinguished to clarify that its holding was obiter because that case involved a private party. The Court noted that PNOC erroneously characterized R.A. No. 1125 as a special law, whereas PSALM definitively established P.D. No. 242 as the controlling statute for inter-agency disputes.
• Orion Water District v. Government Service Insurance System — Distinguished to demonstrate that P.D. No. 242 applies to genuine disputes involving obscure questions of law or ambiguous contracts, and does not govern cases involving clear statutory violations or disputes with erring officials.
• City of Manila v. Teotico and Bagatsing v. Ramirez — Cited to illustrate the statutory construction principle that a special provision must yield to a general provision when both address the same subject matter, reinforcing the classification of P.D. No. 242 as the paramount law for intra-governmental controversies.

• Article VII, Section 17 of the 1987 Constitution — Vests the President with control over all executive departments, bureaus, and offices, forming the constitutional foundation for requiring administrative settlement of disputes between executive agencies.
• Presidential Decree No. 242, Sections 1 to 3 — Mandates administrative settlement of all disputes, claims, and controversies solely between government offices and agencies, assigning jurisdiction to the Secretary of Justice, Solicitor General, or Government Corporate Counsel based on the nature of the issues.
• Revised Administrative Code of 1987, Book IV, Chapter 14, Sections 66 to 68 — Incorporates P.D. No. 242 into the statutory framework, detailing the procedural hierarchy for administrative adjudication of inter-agency disputes.
• National Internal Revenue Code of 1997, Section 4 — Grants the Commissioner of Internal Revenue authority to decide tax cases, subject to the CTA’s exclusive appellate jurisdiction, which the Court read as the general rule applicable to disputes involving private taxpayers.
• Republic Act No. 1125, as amended by R.A. No. 9282, Section 7 — Defines the CTA’s exclusive appellate jurisdiction over tax disputes, which the Court held yields to P.D. No. 242 in cases involving solely government entities.

• Alfredo Benjamin S. Caguioa, J. — Concurred to reinforce that prevailing jurisprudence recognizes the Secretary of Justice’s exclusive jurisdiction over tax disputes between government agencies. Justice Caguioa elaborated on statutory construction principles, emphasizing that P.D. No. 242 is unequivocally the special law and that its application does not encroach on legislative taxing power or diminish the CTA’s jurisdiction over private taxpayers. He clarified that the administrative process under P.D. No. 242 is a mandatory prerequisite, not a substitute for judicial review, and that aggrieved agencies may ultimately seek review by the Court of Appeals after exhausting the administrative hierarchy.

• Japar B. Dimaampao, J. — Dissented on the ground that the Court should revert to the PNOC v. CA doctrine, which held that R.A. No. 1125, as a special law, constitutes an exception to P.D. No. 242. Justice Dimaampao argued that the power to tax is inherently legislative, and delegating administrative resolution of tax disputes to the Secretary of Justice risks supplanting Congress’s delegated taxing authority. He maintained that P.D. No. 242’s phrase “disputes, claims and controversies” should be construed narrowly to exclude tax assessments, which are not ordinary civil obligations. Furthermore, he emphasized that subsequent amendments to the CTA’s jurisdiction and the 1997 NIRC demonstrate legislative intent to keep tax disputes within the CTA’s exclusive appellate jurisdiction, regardless of the parties’ governmental status.