Shell Philippines, Inc. vs. Central Bank of the Philippines

An administrative regulation issued to implement a tax statute must be in harmony with the statute and cannot amend, extend, or subvert it; in case of discrepancy, the basic law prevails. Where the tax was in fact and in law due, its premature collection does not warrant refund, and interest cannot be awarded absent a statutory provision clearly or expressly authorizing it or arbitrariness in the collection.

Shell Philippines, Inc. exported seria residues, a by-product of petroleum refining, while the Central Bank administered the stabilization tax imposed by RA 6125 on certain exports. RA 6125, approved May 1, 1970, imposed a stabilization tax on the gross F.O.B. peso proceeds of specified exports and provided that any export product whose aggregate annual F.O.B. value exceeded US$5 million in any calendar year would be subject to the rates of tax in force during the fiscal year following its reaching that aggregate value. Central Bank Circular No. 309, issued in August 1970, stated that the stabilization tax would begin to apply on January 1 following the calendar year during which the export product reached the aggregate F.O.B. value of more than US$5 million, with the applicable rates prescribed in Schedule (b) of Section 1 of RA 6125 for the fiscal year following the reaching of that aggregate value.

Shell Philippines, Inc. exported seria residues, a by-product of petroleum refining, and during 1971 its exports of that product reached an aggregate F.O.B. value of more than US$5 million. Under RA 6125, any export product whose aggregate annual F.O.B. value exceeded US$5 million in any calendar year was subject to the rates of tax in force during the fiscal year following its reaching that aggregate value. Central Bank Circular No. 309, issued in August 1970, provided that the stabilization tax would begin to apply on January 1 following the calendar year during which the export product reached the aggregate F.O.B. value of more than US$5 million, and that the applicable rates would be those prescribed in Schedule (b) of Section 1 of RA 6125 for the fiscal year following the reaching of that aggregate value.

On January 7, 1972, the Monetary Board issued Resolution No. 47, subjecting petroleum pitch and other petroleum residues to the stabilization tax effective January 1, 1972. Under Central Bank Circular No. 309, implemented by Resolution No. 47, Shell had to pay the stabilization tax beginning January 1, 1972, and it did so under protest.

On September 14, 1972, Shell filed suit against the Central Bank before the Court of First Instance of Manila, praying that Monetary Board Resolution No. 47 be declared null and void and that the Central Bank be ordered to refund the stabilization tax it paid during the first semester of 1972. Shell’s position was that, under RA 6125, it had to pay the stabilization tax only from July 1, 1972.

The material facts were undisputed: Shell’s 1971 seria residue exports exceeded the US$5 million aggregate F.O.B. value, and the controversy concerned only whether the tax was collectible from January 1, 1972 or July 1, 1972. The trial court found no ambiguity in the governing provision and applied “calendar year” and “fiscal year” in their ordinary and commonly understood meanings; the Senate deliberations merely corroborated that the tax commences on the following fiscal year after the aggregate value is reached.

• Senate Deliberations: Petitioner Central Bank argued that the trial court erred in regarding the deliberations of the Senate on the stabilization tax in favor of Shell Philippines, Inc. and in giving undue weight to those deliberations.
• Rule-Making Authority: Petitioner maintained that the trial court failed to consider the authority granted to the Central Bank to promulgate rules and regulations in the implementation of the stabilization tax law.

• Timing of the Tax: Respondent Shell Philippines, Inc. maintained that, pursuant to RA 6125, it had to pay the stabilization tax only from July 1, 1972, not January 1, 1972.
• Validity and Refund: Respondent prayed that Monetary Board Resolution No. 47 be declared null and void and that the Central Bank be ordered to refund the stabilization tax it paid during the first semester of 1972.

• Senate Deliberations: Whether the trial court erred in considering the Senate deliberations on the stabilization tax law.
• Rule-Making Authority and Validity of Resolution No. 47: Whether the Central Bank’s authority to promulgate rules and regulations permitted Monetary Board Resolution No. 47 to impose the stabilization tax effective January 1, 1972, or whether the resolution is void for conflicting with RA 6125.
• Refund: Whether the tax refund granted by the trial court was proper.
• Interest: Whether Shell is entitled to interest on the prematurely collected tax.

• Senate Deliberations: No. The trial court found no ambiguity in the governing provision and applied it in its ordinary sense; the Senate deliberations merely corroborated the legislative intent, and courts may examine legislative intent when interpreting an act of Congress.
• Rule-Making Authority and Validity of Resolution No. 47: No. The Central Bank’s authority was limited to carrying into effect what RA 6125 provided; it could not amend or expand the statute. Resolution No. 47 is void insofar as it imposed the tax effective January 1, 1972, because RA 6125 deferred the tax to the fiscal year following the year the US$5 million aggregate F.O.B. value was reached.
• Refund: No. Although the tax was collected prematurely, Shell was liable for the tax and the tax paid was in fact and in law due; the refund granted by the trial court was not proper.
• Interest: No. Interest cannot be awarded absent a statutory provision clearly or expressly authorizing it or arbitrariness in the collection; no arbitrariness was shown.

• Senate Deliberations: The records and the trial court’s decision do not support the claim that undue weight was given to the Senate deliberations. The trial court found no ambiguity in the provision of law governing the dispute and applied it in its ordinary sense. The cited Senate deliberations merely corroborated the fact that the tax commences on the following fiscal year after the aggregate value is reached. Even if the lower court was influenced by the Senate deliberations, courts may examine and follow the intent of the legislature when an act of Congress has to be interpreted.

• Rule-Making Authority and Validity of Resolution No. 47: Although RA 6125 granted the Central Bank authority to promulgate rules and regulations, that authority is limited only to carrying into effect what the law being implemented provides. Administrative regulations adopted under legislative authority must be in harmony with the provisions of the law and should be for the sole purpose of carrying into effect its general provisions; the law itself cannot be extended by such regulations. An administrative agency cannot amend an act of Congress. The rule-making power must be confined to details for regulating the mode or proceeding to carry into effect the law as enacted; it cannot be extended to amending or expanding statutory requirements or to embracing matters not covered by the statute. Rules that subvert the statute cannot be sanctioned. In case of discrepancy between the basic law and a rule or regulation issued to implement it, the basic law prevails because the rule or regulation cannot go beyond the terms and provisions of the basic law. RA 6125 provides that any export product whose aggregate annual F.O.B. value exceeds US$5 million in any calendar year shall be subject to the rates of tax in force during the fiscal year following its reaching that aggregate value. The tax accrues when the aggregate annual F.O.B. value of the export product has exceeded US$5 million during any calendar year, but the imposition of the tax is deferred until the fiscal year following its reaching that aggregate value; it is only then that the rates in force are ascertained. Shell exported seria residue with an F.O.B. value of more than US$5 million in 1971. Under RA 6125, the tax should have been collected beginning July 1, 1972, not January 1, 1972. Resolution No. 47, which imposed the tax effective January 1, 1972, ran counter to RA 6125 and was void to that extent.

• Refund: Shell was liable to pay the tax, and the Central Bank merely collected the tax prematurely. There was no controversy over the rate of tax in force when payment became due. The tax paid was in fact and in law due to the government, so the refund granted by the trial court was not proper.

• Interest: Interest on the prematurely collected tax was not awarded because, in the absence of a statutory provision clearly or expressly directing or authorizing payment of interest on the amount to be refunded to the taxpayer, the Government cannot be required to pay interest. Interest may be awarded only when the collection of the tax sought to be refunded was attended with arbitrariness. No arbitrariness was indicated in the questioned act of the Central Bank.

• Administrative Rule-Making Power — Administrative regulations adopted under legislative authority by a particular department must be in harmony with the provisions of the law and should be for the sole purpose of carrying into effect its general provisions. The law itself cannot be extended by such regulations. An administrative agency cannot amend an act of Congress. The rule-making power is confined to details for regulating the mode or proceeding to carry into effect the law as enacted; it cannot amend or expand statutory requirements or embrace matters not covered by the statute. Rules that subvert the statute cannot be sanctioned. In this case, the Central Bank’s Circular No. 309 and Monetary Board Resolution No. 47 could not impose the stabilization tax effective January 1, 1972, because RA 6125 deferred the tax to the fiscal year following the year the US$5 million aggregate F.O.B. value was reached.

• Basic Law Prevails Over Implementing Regulation — In case of discrepancy between the basic law and a rule or regulation issued to implement it, the basic law prevails because the rule or regulation cannot go beyond the terms and provisions of the basic law. The Court applied this principle to invalidate Monetary Board Resolution No. 47 insofar as it conflicted with RA 6125.

• Tax Accrual and Deferment Under RA 6125 — Under RA 6125, the tax accrues when the aggregate annual F.O.B. value of the export product has exceeded US$5 million during any calendar year. The imposition of the tax is deferred until the fiscal year following its reaching that aggregate value, and it is only then that the rates in force are ascertained. Because Shell’s 1971 seria residue exports exceeded US$5 million, the tax should have been collected beginning July 1, 1972, not January 1, 1972.

• Refund of Prematurely Collected Tax — Where the taxpayer was liable for the tax and the tax paid was in fact and in law due to the government, the fact that the tax was collected prematurely does not make the refund proper. The Court disallowed the refund even as it declared the implementing resolution void to the extent it imposed the tax before the statutory period.

• Interest on Tax Refunds — In the absence of a statutory provision clearly or expressly directing or authorizing payment of interest on the amount to be refunded to the taxpayer, the Government cannot be required to pay interest. Interest may be awarded only when the collection of the tax sought to be refunded was attended with arbitrariness. No arbitrariness was shown in the Central Bank’s act.

• "Administrative regulations adopted under legislative authority by a particular department must be in harmony with the provisions of the law, and should be for the sole purpose of carrying into effect its general provisions. By such regulations, of course, the law itself cannot be extended." — This passage states the controlling limit on administrative rule-making and was quoted by the Court in rejecting the Central Bank’s reliance on its authority to promulgate implementing rules.

• "In case of discrepancy between the basic law and a rule or regulation issued to implement said law, the basic law prevails because said rule or regulation cannot go beyond the terms and provisions of the basic law." — This is the Court’s canonical formulation of the hierarchy between a statute and its implementing regulation, applied to invalidate Monetary Board Resolution No. 47 to the extent it conflicted with RA 6125.

• "It is, therefore, undeniable that the respondent was liable to pay the tax and that the Central Bank merely collected the said tax prematurely. There is likewise no controversy over the rate of tax in force when payment became due. Thus, the tax refund granted by the trial court was not proper because the tax paid was in fact, and in law due to the government at the correct time." — This passage supplies the ratio for disallowing the refund despite the premature collection of the stabilization tax.

• "We decline to grant to the respondent an amount equivalent to the interest on the prematurely collected tax because of the well entrenched rule that in the absence of a statutory provision clearly or expressly directing or authorizing payment of interest on the amount to be refunded to the taxpayer, the Government cannot be required to pay interest." — This excerpt states the rule on interest for tax refunds and explains why no interest was awarded in this case.

• People vs. Maceren, 79 SCRA 450, 458 and 460 — Cited for the rule that administrative regulations adopted under legislative authority must be in harmony with the provisions of the law and cannot extend it; an administrative agency cannot amend an act of Congress. The Court quoted this in invalidating Monetary Board Resolution No. 47.
• Santos vs. Estenzo, 109 Phil. 419, 422 — Cited for the principle that an administrative agency cannot amend an act of Congress.
• People vs. Lim, 108 Phil. 1091 — Cited for the rule that in case of discrepancy between the basic law and a rule or regulation issued to implement it, the basic law prevails.
• Victorias Milling Co., Inc. vs. Social Security Commission, 114 Phil. 555, 558 — Cited for the rule that a rule or regulation should be within the scope of the statutory authority granted by the legislature to the administrative agency.
• Atlas Fertilizer Corp. vs. Commission on Internal Revenue, 100 SCRA 556 — Cited for the rule that interest may be awarded only when the collection of the tax sought to be refunded was attended with arbitrariness.

• Section 1, Republic Act No. 6125 — Imposed a stabilization tax on the gross F.O.B. peso proceeds of exports, including logs, copra, centrifugal sugar, and copper ore and concentrates, and provided that any export product whose aggregate annual F.O.B. value exceeds US$5 million in any calendar year shall be subject to the rates of tax in force during the fiscal year following its reaching that aggregate value. The Court relied on this provision to hold that the tax on Shell’s 1971 seria residue exports was collectible from July 1, 1972, not January 1, 1972.
• Section 2, Presidential Decree No. 230 — Took effect July 1, 1973; amended the Tariff and Customs Code, created Title III in Book I on Export Tariff, expressly repealed Section 1 of RA 6125, and transferred the assessment and collection of the export duty from the Central Bank to the Bureau of Customs, with the Commissioner of Customs to promulgate implementing rules subject to the approval of the Secretary of Finance. The Court noted that notwithstanding this repeal, the issue had to be resolved on the merits because affirmative relief had been granted to Shell.

Feliciano, Bidin and Cortes, JJ., concur. Fernan, J., took no part.