Caltex, Inc. vs. Commissioner of Internal Revenue, et al.

DECISION —

on YD po Wholesale posted prices ~ average ~— P0.487 Contribution to Oil Price Stabilization Fund — average -~ PO.311 Ad valorem Tax . ~ PO0.007 Company net back ~~ (.006) On the basis of this price increase in the petroleum products, respondent issued on August 15, 1990 a demand letter together with Assessment No. FAN-1~87-90-001769 for | the payment of P336,868,580.14, alleged 1987 windfall profit tax. The same was scaived leo the petitioner on August 20, 1990. The deficiency tax assessment was computed as follows:

Total Inventory Gains ~- P259,218,292.41 Surtax due 65% 168,419,890.07 Add: 25% of surcharge 42,122,972.52 20% interest from 8-16-87 to 8-15-90 126,325,717.55 Respondent computed the inventory gains based solely on the inventory list of finished products of petitioner as ot August 15, 1987 which Ate submitted by petitioner's counsel Gd Senator Neptali A. Gonzales, then Chairman, Committee on Finance, . Senate of the Philippines, in a letter dated March 27, 1990, as follows:

Jet A 24,865,882.00 Premium 49,586,297.00 Regular — 13,458,652.00 Kerosene 18,714,060.00 Diesel 126,367,077.006 Fuel Oil 82,004,511.00 020

LPG ~

Thinners 1,310,882.00 ‘ Asphalts 1,835,413.00 (Unlocated Difference) In liters Based on its reading of the inventory list, the BIR computed the inventory gains realized by petitioner as a result of the August 14, 1987 ERB price increase order by multiplying the said inventory list by the individual components of the August 14, 1987 price increase, as follows:

Direct Co. Ad Valorem Premiun P 991,725.94. P 917,346.49 P62,553,113.67 P 64,462,186.10 Regular 134,686.52 123,819.60 17, 466,638.57 17,725,044.69 Jet (AF) (1,939,538.80) (1,790,343.50) 22,379,293.80 18,649,411.50 Kerosene (2,432,827.80) ( 769,187.87) 19,614,206.29 16,412,230.62 Diesel 10,109,366.16 3,197,087.05 97,770,207.47 111,076,660.68 Fuel Oil §, 494,302.24 - 31,571,736.74 26,077,434.50 L.P. Gas - - - - Asphalts ( 128,478.91) 40,562.63 2, 366,030.90 2,196,989.86 Thinners ~ ( 187,305.84) 145,245.73 1,820,552.92 1,518,001.95 Unlocated 1,097 ,582.77 Total 22, On August protest with the In support of its protest, it did not realize of the as a result assessment wa arbitrary pel Commissioner 1987 price 13 petitioner petitioner nd that in effect, increase;

filed its of Internal Revenue.

alleged that any extraordinary gain or profit that the under

DECI SI ON

CTA CASE NO. 47 11 - 4 - previou s BIR regulation s , th e Augu s t 14, 1987 price increase ord e r of th e ERB would hav e resulted in an inv e ntory lo ss .

On January 17, 1992, petitionet' received re s pond e nt' s l e tter dat e d December 13' 1991, d e nying its protest with finality. Hen ce, the instant Petition for Review. Th e issues by the parti es for res o lution are as follows: ( 1) l-Jhethet" p • 0 .

1889 authot"izes the impositio n s urta x or extraordinary gain s tax on pric e increases s ub s equent to it s promulg ati on;

(2) Ass uming, i'.!t'gue ndo, that P.O.

1889 will apply to inct'e a s es s ub se quent to the date of its p t' o m u 1 g a t i o n , will the term "whol esale po ste d price" include the amo unt s required to be remitted to the Oil Price Sta bili zat ion Fund (OP S F) and the ad valore m tax; and ( 3 ) Wh e ther th e petitioner may be held liable for s urcharge and interest. Petitioner alleged that P.O. 1889 may not be ma d e to appl.y to oil price increa s es s ub s equent to the date of it s promulgation on November 3, 1983 fo~ 522

DECI S ION

CTA CASE NO . 4711 . - 5 - to do so would create an irreconciliable incon s i ste n c y betwe e n Sectio n s 1 and 3 of the same law.

It will also run c ounter to the previous a ppli catio n of P.O.'s 1709 and 1867 wh ich the BIR itself applied the windfall profit ta x to price increases prior or contempot·aneous to their pt·o mulg atio n in co n so nanc e with Section 3 of the sa id laws.

On the sec ond i ss ue, petitio ner alleged t hat the term "whole sa le po ste d price " means authorized pric e net of taxes and OPSF consistent with the previou s interpretations and with the nature of P.O. 1889.

Considering that the authorized price incr ease of eighty (80) centavos per the August 14, 1987 order of th e ERB wa s a llocated as follows: (a) Reduction in company net back (.005) (b) Increase in paym e nt to OPSF .798 (c) Incr ease in ad valorem tax .007 Total P.800 No part of the pri ce increase went to the petitioner and therefot· e there is no basis to impose the windfall profit t ax . Pet i t i o n er fur t h e rm o r e st at es that th e r e c an b e n o '· 11 r c h d I" g e ail d ' n 1- e e ·~ t-: r_ ha t rr a j b e ; rn pose d n t he 523 •

DECISI ON

CT A CASE NO.

4 711 - 6 - absence of any legal pro visio n which will determine the du e date for payment of the s urtax which was complicated mor e by the f a ilure of the respondent to issue a ny implementing 1Aegulation applicable to the 14 Augu st 1987 price increase. On the other h a nd, res pondent for his part, in s i ste d t hat p • 0 .

1889 s hould apply on the computation of windfall pro ·fit r·ealized by oil companie s by r·eas on of the August 14, 1987 price in crease.

Moreo ver, Sect ion 2 of the sa id law c le a tAly define s what co nstitut es ~xtraordinary gain a nd considering that undetA Sec tion 8 of P.O .

1956 extraordinary gain reali ze d by oil companies is not the s our ce nor one of the s ource s of price sta bili zatio n fund, there is no legal basi s for the ERB to secure the fund from the extraordinary gain. An impl e menti ng r e gul ati on is nece ss ary only if the law is a mbiguou s and s u sce ptible to different int e rpret a tion and this is not s o in thi s case. As it i s the law c l ear ly d ef ine s what constitutes extraordinary gain.

On t h e issu e of s ur c harge and interest, respondent b e l ieve s that Se ctio n 2 48(3) a nd Sec tion 524

DECISI ON

CTA CA SE NO .

4 7 1 1 - 7 - 249 of t h e Tax Code ap ply in the impo s ition of these p e nal ties.

For failu re of p e tit i on er to pay the s urt ax within 30 d ays from t h e promulgation of t~1e pri ce i ncrease the sai d p e n a ltie s s hould b e imposed a utomatically.

It i s n ecessary for the resolution of the first i ss u e to exa mi n e caref ully the applicable law s involved.

As co ,- r·ec tly c i te .d by the r es pondent, the ap pli cable law i s Preside nti a l De c ree No.

1889 and it s impl e menti ng regulation. How eve r, for a better und ersta ndin g of the sa id l aw , we find it a dvi s able to look into t h e perti n e n t pro visio n s of prior s imilar l aws.

Th e fir s t s urt ax l aw was Presidential Decree No.

170 9 i ss u e d on August 13, 1980.

Thi s law impo se d a 2 0 % s urt ax on extrao rdin ar y gain rea li ze d by oil com p a ni es as res ult o ·f pri ce a nd s pec ific taxe s increase a uthori ze d for petrol e um produ c t s .

Extraordin a r·y gai n wa s meas u red by the dif fere nce betw ee n t h e a ppro ve d whole sa l e po ste d prices of refin e d petr ol e um pr od u c t s i mmediatel y before the a u thorized pr ic e in c r eas e a nd the n ew po sted prices mul tip li ed by t: h e i ' t.1 m b 8 r· of uni ts of.

pet l' o l eum 525

DECI SI ON

CTA CA SE NO. 47 11 - 8 - product s existing as of the day of effect ivity of th e pri ce inc t' eases.

Th e s urtax was not an allowable deduction for income tax purpo ses .

The s urta x s h a ll be paid within thirty (30) day s from t h e p r om u 1 g a t i o n o f t h e d e c t' e e a n d .s h a 11 a p p 1 y to ex tr aor dinary gain s t' ealized beginning Augu s t 1, 1979.

Th e BIR i ss u ed Revenue Regulation No. 7 - 80 to implement the sai d decree . Thi s regulation defines whol esa l e po s t e d pr·ice as t h e wholesale pric es, ex refinery, o ·f all p e troleum product s a s set by the Board of Energy exclusive of s pecific taxes, s pecial fund le v y a nd consumer cost e quali zation fund co mpon ent s.

Thi s law was a ppl ie d to aut horized pri ce increa ses of Augu s t 1, 1979, February 9, 1980, June 1 , 1980 and Augu s t 3, 1980. 0 n J u 1 y 1 , 1 9 8 3 , P r· e s i d e n .t i a 1 0 e c r e e N o .

1 8 6 7 was i ss u e d .

Thi s l aw likewi se imposed a s urtax on extraordinary gain s on the s ame basi s but t he rate wa s incr ease d to 65% . Computation of extraordinary gain and the provi s ion on the time, manner and place of payment we t- e si mil ar t o the first decree. Th e s urta x was not a l s o deductible for income tax put- po ses.

Howev e r, the decre e was mad e to take eff ect immediately a nd did not spec ify any 526

- 9 - par"ti c ul a r pri ce increa se . Hevenue Hegulation No. 7 - 83 wa s i ss ued in implementation of this decree to cover the a u t hori ze d price increase of July 1, 1983. Extraor dinar"y gain wa s c omputed ba sed on the increa se in industry net back. Industry net back mea n s reve nu e f I" om sa le of petr"ole um products ex cluding specific ta xes and s pecial fund imposts. How e~er , unbonded s tock s (tax paid) is deter mined by the increase in the indu stry net back plus or minu s the c h ange on s pecific tax as the case may be. Finally, on No vembe r" . 3, 1983, Presidential Decr ee No.

1889 wa s i ss u ed in the s ame manner as p • D .

1867, th e s ur tax on extraor dinary gain was (increas e d to) also 65% but unlike the two previou s decr ees the sai d " s ur tax s hall be allowed as part of the cost of petro l e um product so ld on or after No ve mb er 3, 1983.

Th e co mput atio n of extraordinary gain i s lik e wi se ba se d on the difference between t h e wh ol esa l e po s ted pr-- i ces before and after the price increases mul tiplied by t: h e number of units of pet r· o J. e u m p I" o duct s ox i s tin g a's o f th e d ay of the The aarne i.s 1 i 1 ~,

• S E'

+-:.)

'';;.,.:ing t:he p :" r ;1, u 1 g d ;_ 1 on ; n e J. ,) ' l 1:a k e 527 effect immediately. In implementation of this decree, the BIR issued three Revenue Regulations namely: Revenue Regulation No. 12-84 to implement June 7, 1984 price increase; Revenue Regulation No. 13-84 to implement price increase of May 18, 1984 and Revenue Regulation No. 22-84 to implement October 20, 1984 price increase, The computation of extraordinary gain arising from the increase . in industry net back shall Ba determined on the average by multiplying the inentacy of petroleum products as of the date of the increase by the authorized price increase per liter while gains due to increase in ad valorem tax shall be determined by multiplying the inventory of unbonded (tax paid) stocks as of the date of the authorized price increase by the increase in ad valorem and/or specific tax increases. | The surtax was made payable within 30 days after the date of the effectivity of the price increase.

With the foregoing laws and implementing eayitiathone as our background, we are now ready to resolve the first issue - whether or not Presidential Decree No. 1889 “authorizes ‘the imposition of surtax or extraordinary gain tax on price increases subsequent to its promulgation.

028 DECISION CTA CASE NO . 4711 - 11 - We agree with t h e p e titioner that with res pect to P.O.' s 1 7 09 and 1867 the sa me were designed to go v ern pri ce incr eases prior to or contemporaneo u s to th e ir pt"o mulg atio n . In the case of the first decre e , the l aw itse lf s tate s that the law shall apply to extra ordin ary gains realized beginning Augu st 1, 1979.

P . O. 1709 was promulgated on August ' 13, 1980.

The pro v i s ion of law itse lf made it retroacti ve on e y ea r before it s pro mu lgation. Wit h re s pect to P . O. 186 7 promulgated on July 19, 1983 it wa s made to apply to pri ce increases a u thorized o n July 1, 1983 .

Unl i k e the fir s t decree, t his law was pro s pective in e ffe c t but the intention mu s t have bee n to a pply it to the recent July 1983 p rice increase s with the i ss uance of Revenue Regulation No. 7- 83 which petitioner did not question but a b ide by it s implementation. Ho wever, this i s not s o in t h e ca s e of P.O t 1889.

Wh e n the s ame wa s promulgated on November 3, 1983 there were no price increases prior to its promulgati o n nor wa s t h e r e a recent price increase. Th e law sta te s that it s h a ll tak e e ffect immediately or pro s pect iv el y. (.1 c c o t" ' ·' i n q 1 y , i t w a s m a d e t o a p p 1 y to s u b s ea~ n l price L.he f :. : c ing ye;lt· 529

DECISIO N

CTA CA SE NO .

47 1 1 - 12 - 1984 and as me n ti o,n e d a bove three revenue r eg ulation s wer- e issued in implementation of these price increases that year. The application of sai d decr ee to the 1984 pri ce increases is correct by the rules on stat utory co nstruct ion that laws unless otherwise provided s hall ha ve prospective effect.

Thi s time we cannot agree with the petitioner that P.O. 1889 s hould ha ve been a pplied only to prior or contemporaneous pri ce increases si milar to the first two decrees becau se at the time of its promulgation there was not even one prior or c ontemporaneous price increase.

Th e last price increase being that on July 1, 1983 t,.J hi c h was covered by P . O.

1867 as di scu s sed above.

To apply the interpretation of the petition er that P.O. 1889 s hould apply only to prior or co nt e mpor-aneous price incr-ease is to r-e nder it useless or without e ff ect.

Thi s is against the prin ciple in stat utory co nstr uction that "it shall be pr es um e d that the legislature intended to e nact a valid and permanent stat ute which would have the mo st b e neficial ef ·fect that its language per-mits" . Thi s r- u 1 e is in conso nanc e also 1.-Ji th the p1·esu mp tf. o n s again.--:;t.

i mpractical r 'TI"' .:J n i n g 1 e s s 1 8 q i. s l .~~ t l 0 f) '.,J h "ch is ·mpossibLe r 530 incapable of execution or performance. (Handbook on Statutory Construction by Ruperto G. Martin, 1972 ed., pp. 126-127).

Moreover, as the fact will show P.D. 1889 Was iapienented the following year by the BIR. In other words, the said decree was applied already to price increase subsequent to its promulgation and petitioner did not question its implementation.

We mow come to the next question of the petitioner whether the application of P.D. 1889 to oil price increase subsequent to the date of its promulgation on November 3, 1983 would create an irreconciliable inconsistency between Sections 1 and 3 of the said law. For ready reference, quoted hereunder are the provisions of the law involved:

Section 1. Surtax on Extraordinary obvasonsononsnensceeeuseconeensnnovesanseecsuarees meet eotevs rdtenevederrcsnssegemeneddee eurestouensageennatessnessnevarttey Gains; Rate of Surtax. -~ In addition to the income tax imposed under Title II of the National Internal Revenue Code, there is hereby imposed a surtax of sixty-five (65%) per cent on extra~-ordinary gains realized by oil companies as a result of price increases authorized for petroleum products, which surtax shall be allowed as oBrseremosnonetesoneseneasecensenstoveessvonsonnenivorscatecsrssentevettamatednausensnntdserorsrtiveessnseeets rcgesann Hf enaeetasnaaeenaanteedsseentveed snes 007408 (Underscoring supplied.)

Section 3. Time, Manner and Place of Payment. ~— The surtax herein imposed shall be paid within thirty (30) days following the promulgation of this Decree. The rules and regulations authorized under ool

DECISI ON

CTA CASE NO . 4711 - 14 - Sectio n 5 h e r eof in sta llment payment s . A r·eturn s h all of paym e nt with Internal Reve nue.

be t h e rnay provide for filed at the time Co mrni ss i one r of The first pr ovis ion pr ovides the a utho riza tion for t h e i mp osition of 65% s urtax on ext r aor din ar y gain s rea li ze d by oil co mp a ni es as a r es ult of price increa ses.

Th e only qualification is that the sai d " s urt ax shall b e allowed as part of the costs of petroleum product so ld on or after No ve mb er 3 ' 1983".

The sai d qu a lifi cat ion to our mind ha s two s ignificance insofar as t h e s urt ax imposition is concet'ned.

One, the s urta x i s now d e du cti ble from the gross i n co me or t'ece ipts of t h e oil companies c on s id e ring t h at cost of produ ctio n i s a d e ductible item to a t' rive at th e taxab l e income and sec ond, this manner of treati ng a s urt ax s h a ll b e a pplied to sale of petroleum pr oducts on or afte r' Nove mb e r 3, 1983.

F I' o rn t h is provision, we can i nf er the inte n tion o·f the lawmaker to ap ply the l aw to all future price increases which will generate extrao r·dinary gain.

This is a logical interpretation for ho w could we allow the d e duction o ·f th e s ur·tax as part of cos t production if in tt1e 532 DECISION CTA CASE NO . 4711 - 15 - first place we will not allow it to be impo se d on s ub seq u ent price increases that generate ext raordinary gain s. The sec ond provi si on mere ly states the time, mann er and place of payment.

What con fu ses the petition e r is the requirement that the s aid s urtax s hall b e paid wit hin t hi rty day s following the promulgati o n of this decree.

Thi s ma de the p et ition e r conc lud es that as in t h e case of t he pre v iou s la ws this latter law s hall apply only to ext r ao r- dinar-y gains a r· i si ng out of pr ior increases a lr ea dy a uthori ze d and ca nnot a pply to extraordinar y gain s a ri s ing out o ·f pri ce increase s t hat a c cru e d s ub se qu e nt to its promulg at ion. If we will const rue Sec tion 3 in th e sa me wa y petitioner doe s it, thi s will render t h e l aw in e ffective for as point e d abo ve, there was no oil price increa ses that occurr e d prior to th e promulgation of P.O. 1889 that had not b ee n covere d by the prior law s .. Thi s will run co un ter to a n ot h e r esta bli s h e d juri s prudenc e in <:::t<'ii.::UL O t'V c o ns -•-• . .<c.tirJt• " wh e r-e t he 1 a r' a u c1 g 8 ' f ·- ~; ~ 1 e 1.-J j -::

s · · s c; e p l i b l e o f t w o o r m o r e c 0 .~ c· •• t u c; ' j 0 n s .

i. n e f f e c t i. '• « o · a n cl r; n o t h f' 1 which ~.,..,tll 533

DECI S ION

CTA CASE NO .

4 7 11 I - 16 - tend to giv e e ffect to the e vident intent of the l e gi s latur e , th e latter c on s truction mu s t be made, there being a pr es umption against ineffectivene ss of s tatute s " (U S v . Toribio, 15 Phil 85).

As already m e ntion f~ d abov e , th e law wa s applied in th e 1984 pri ce in c r eases and p e titioner did not que s tion such appli c ation .

The intention mu s t have been to really give th e l a w pro s pe c tive application.

This conclu s ion i s further s uppot"ted by the fact t hat P . O.

1889 und e r Section 7 provides that the law " s hall tal< e eff e ct imm e diately" - a pht"ase generally construed a s pro s pective application of a law. Note that re s pondent is s ued implementing regulations to cover the 1984 oil price increase.

Under t h ese regulation s th e s urta x was made payable thirty ( 30) days aft e r the date of the effectivity of the re s olution of the Board of Energy authorizing the pt"ice incr e a s e.

Had the s ame procedure been done in the 1987 price increa s e perhap s no such confusion as to it s eff e cti v ity may have o c curred. Thi s bring s us to the question whethet" or not the failur e of th e t"e s pondent to i s sue an impl e menting r e gul a ti o n to cover the 1987 price incre ase in va lidat es the application of P.O. 1889 to the 1987 p r i ce in crease . 534 DECISION CTA CASE NO . 4711 - 17 - We believe that it h as neve t" been a rule that the i ss uance of an implementing t"egulation is an indi s pen s able requirem e nt before a ny law could take effect.

On the contrary the effectivity of a law is govet"ned by th e dat e of effectivity provision which is an e ss ential and s tandard part of a statute. It determin es the time when t h e law s hall take e ffect. ,, (M a t- tin, op c.ft·., p.

27).

On the other h a nd, t h e provi s ion c oncerning the grant of aut hot"ity to t h e co n cerned agency to i ss ue t"ules and t"egulations is primarily de s igned to facilitate the s mooth impl e mentation of th e law.

It supplies the neces s a t"Y detail s whi ch rn ay not b e pr esent in t h e law to ca rry out it s objective or to clarify ce rtain a mbigu ou s provision s or provisions which are s u sceptible to diffet"ent interpretation. It does not control the life of the stat ute s.

It s non issuance does not invalidate the existe n ce of the law unl e ss the pro vi s ion of t h e law itself s tates in a cl e ar manner th at th e c oncern e d age n cy has to i ss u e fi rs t a n impl e me n t ing reg ulation b e fore it C 0 U 1 rj o;

a') c1 to i ~ ... s i m ~ · l P me '1 .- •· i on T ,., i. s ' J ·~ 'J G i n t h e 1": 2- '2 e u f P • f' • 535 - 18 - 1889.

Section 5 of the said d ec r ee mere ly requires th e Mini ste r of Finance upon recommendation of the Co mmi ssio ner of Internal Revenue and in consultation with the Mini ster of Energy to promulg ate rul es and regulation s.

~1ot- eove r , the facts of the case will s how that respondent issued no t only one implementing r egu l at ion but three l'·eve nue t"e gulations to impl e ment P. D. 1889 . Exce pt for a s light c hange the r e gul atio n s are ba sically the sa me.

Among other pro v i s ion s it c l ar ifi es the ambig uity i n the pro v i s ion of Sec tion 3 t h e sa id decree by pro v iding s pecifica lly that the surtax s hall be pai d wit h in t hirty (30) day s afte r t he effectivity of the pri ce increase.

This pro vis ion was uniformly a dop te d in the three price increases i n 1984 an d we see n o legal ob stacle to it s app li catio n to t h e 1987 p rice increase.

In fact, as in the · case of other laws, one implementing l''e gul atio n is s uffi cie nt to provide guidelines to bot h t h e government age ncy co ncerned a nd t h e pri vate p e rsons a ffecte d . In vie w of al l t he fo t-e going, we beli eve P . O .

1 8 8 9 i s a p p 1 i c a b 1 e a n ' r·1 a y _ e ,- v e a s 1 e g a 1 b a 5 i 5 i; o a u t h •) r· i z e t h e i r;1 pus i t l 0 -, C' f s u •· c a >• 1'..1 r c < t ·- t1 o r d i n a ~ ~ .. 536

- 19 - We come now to the sec ond issue, whether or not the term "whole sale .po ste d price" includes the amounts t·e quit·e d to be r·emitted to the Oil Price Stabilization Fund (OP S F) and the ad valorem tax. For our purpose _ we quote her eunder p e rtin e n t provi s ion s of P . O. 1889. S e c t i o n 2 .

.~ . .9. . .':!.! .. 1?. .. ':J. .. :f:: .. 9. .. :t:: . ~.5?. .. !J ........................ ?. .. :f. ..

~ .. ~ .. :t:: ... r.: .. 9. .. ?. ... r.: .. 9. .. ~ . '::1 .. 9. ... ':: . .Y ............ ~ ... C!l ... ~.D ... 5.'. • T h e e x t r a o t' d i n a r y gain s s hall be mea s ured by the difference between the approved r,.,Jholesale posted pri ces of refined petroleum products immediately b e for e the authorized price inc t-eases a nd the n ew po s ted prices multipli e d by the number of units of pet roleum product s ex i st ing as of the day of effectivity of the pri ce increa ses .

Extraordinary gains s hall also refer to the aggre gate in c rea ses in the value of cr ud e oil a nd ba se stocks. By r,Jholesale po ste d p r i c·e " s hall mea n the the whole sa l e prices, ex refinery, of all petroleum produ c t s as set by th e Board of Energy exc lu s ive of ( i ) Specif ic taxes (ii) Special Fund Levies (iii) Consumer Cost Equalization Fund Components" pur s u a nt to Sec tion 3(c) Reve nue Regulation No. 7- 80 issued in implementation of P.O. 1709. In v iew of this definitio n, petitioner arg ues that in the computation of the e x tt· ao t· dinat· y gain the i ncrease in ad valorem t ax a nd t h e po rt .i..on co rr_es ponding to 537

DECI SI ON

CTA CA SE NO . 471 1 - 2 0 - the Oil Pri ce Sta bili zation Fund s hould be excluded a nd o nly the oil industry net bach s hould be included.

The arg um ent is not a b s olut e ly c orrect.

The Oil Price Stabilization Fund or it s pr e dece ss or the Con s umer Price Equ a li zat ion Fund is a s pecial fund establis h ed by t h e Board of Energy to reimbur se the oil co mp anies for costs incurred in the purcha se of crude oil at pri ces in excess of the re ·ference pric e.

Reference price of cr ude oil mean s the price . ..

of cru d e oi l including the corresponding c u s toms dutie s, insurance a nd Bo ard of En e rgy fee as esta bli s h ed by the Board of Energy (now Energy Re gul ato r-y Board) for pur- po ses of com puting t h e a moun t of r-ei mbur se me nt that may be claimed by an oil co mp any from the Co n s umer Cost Equalization Fund now Oil Price Stabilizatio n Fund. While it is true t hat t h e amount collected by the oil c ompanies for the fund is remitted to t h e Office of Energy Affairs that ma nages the fund as a trust account in the g e neral fund per Pre side nti a l De cree No .

1956 and Executive Order No .

137' n evert hel ess, the oil companies later· on are r-eimbursed from this ' fund to allow t h e m to recover· their increased cost of 538

= oF — acquiring crude oil. Petitioner concentrated to argue on the aspect that the OPSF collections are remitted to the government and never dwelt on the reimbursement aspect which redound to its benefit as in this particular case.

We quote hereunder the pertinent dispositive portion of the Order dated August 14, 1987 of the Energy Regulatory Board authorizing the subject price increase on August 15, 1987:

WHEREFORE, the herein applicants are hereby directed to REDUCE their netback by POINT FIVE (¢(P.005) CENTAVOS average per liter, and authorized to provisionally INCREASE the wholesale posted prices of their petroleum products by an average of FORTY-EIGHT POINT SEVEN (P0.487) CENTAVOS per liter, plus THIRTY-ONE POINT ONE (P0.311) CENTAVOS per liter which applicants are hereby directed to pay. to the OPSF. To this total amount of SEVENTY-NINE POINT THREE (P0.793) CENTAVOS shall be added the resultant increase of P.007 per liter average on the Ad Valorem: tax adverted to above.

‘Of this total increase of EIGHTY (PO0.86) CENTAVOS per liter Which shall be reflected in the retail prices, 48.7 centavos have previously ,been allocated among the various petroleum products under BOE Resolutions Nos. 87-02 and 87-03 for purposes of reimbursement from the OPSF although not reflected in the retail prices. This Order, therefore, allocates only THIRTY-ONE POINT OME (P.311) CENTAVOS per liter and POINT FIVE (P.005) CENTAVOS per liter .netback reduction among all petroleum products marketed locally in the following manner:

a PD. ioe

OIL PRICE

STABILIZATION

NETBACK FUND

Premium Gasoline -92 -4373 Regular Gasoline -O1 8366 Avturbo C207 85 ~ Kerosene (.13) -5343 Diesel Oil - 08 -58499 Fuel Oil (.967) — Feedstock (.067) _

LPG - 06 -6018

Asphalt ; (.07) -5296 Average (.005) A The amount of P.007 representing the ad valorem tax effect “allocate itself" among the petroleum products upon the application of the ad valorem tax rates.

The amount of increase as above allocated shall be correspondingly reflected as an upward adjustment in the retail price of each product sold anywhere in the country, without prejudice to the issuance by this Board of a resolution fixing/rationalizing the retail prices throughout the Philippines of all petroleum products covered by these applications.

Clearly pursuant to said order of the ERB it authorized the provisional increase of the wholesale posted price of the oil companies' petroleum products by an average of forty-eight point seven (P0.487) centavos per liter. The purpose of which is to allow the oil companies reimbursement from the OPSF. In other words, contrary Go the representation made by the petitioner, this amount 040

DECISION —-

goes to the oil companies to enable them to recover increase in cost of production which they could not directly recover from the OPSF. As the fund was already depleted in 1987 (ERB Order, p. 21). Only the average amount of thirty-one point one (P.311) centavos per liter were directed to be paid to the OPSF. Petitioner's counsel may not have fully appreciated the facts by representing to this court that the entire amount of P.798 goes to the OPSF. This is giving the petitioner's counsel the benefit of the doubt that there has been no intention on their part to make any misrepresentation of fact.

Therefore, the incrbaus in wholesale posted price is P0.487.

We now come to the issue of whether or not the average increase in ad valorem tax in the amount of P.007 per liter should be included in the computation of extraordinary gain.

While in general as defined under previous Revenue Regulation 7-80, the wholesale posted price éxciuada specific tax or for that matter, now ad valorem tax, this treatment has been changed by subsequent regulations particularly that implementing P.D. 1889. The three implementing © 04] regulations namely, Revenue Regulation Nos. 12-84, 13-84 and 22-84 computed the imposition of the sixty~five (65%) per cent surtax on the total extraordinary gains deemed realized as a result of price and internal revenue tax increases suthoedzed for petroleum products (Sec. 5). Gains due to increase in specific tax and ad valorem tax are made to apply only to inventory of unbonded (tax paid) petroleum product as of the date of the authorized price increase (Section 4). The inclusion of increase in internal revenue tax as basis in computing for extraordinary gain of unbonded stocks is very logical in as much internal revenue taxes on this inventory of unbonded petroleum products have already been paid. Ad valorem or specific taxes on petroleum products are paid within 15 days from the date of removal thereof from the place of production. (Section 127(a) NIRC). When these products are withdrawn from the refinery, they are transferred and stored by the oil companies in their bar aeiie unbonded installation and depots all over the country ready for deliveries to their respective dealers. Unbonded installations or depots means the oil compary does not put up anymore a surety bond in 042 favor of the BIR to guarantee payment of internal revenue tax because the said taxes due on the products stored therein are paid already. So that whenever there are price increases which include an increase in the taxes due, the oil companies are benefited by the increase in taxes insofar as these unbonded stocks are concerned because when the oil companies -sell these unbonded stocks to their dealers the sale is based on the new price increase which includes the new tax rate. This new tax rate is not paid anymore to the BIR considering that excise taxes are paid only once and this is upon removal of the products from the place of production or within fifteen (15) days thereafter in the case of petroleum products.

However, with respect to bonded stocks and those which are still in their place of production, we believe the increase in the tax rate should not be included in the computation of extraordinary gain because the oil company is not benefited by said Lnaunase . The payment of excise tax on the products to be withdrawn shalt be based already on the new tax rate to be remitted entirely to the BIR.

On the third issue whether or not petitioner 043 may be held liable for surcharge and interest, this court could not agree with the petitioner that there is no legal provision which will determine the due date for payment of the surtax. As discussed ubove, the srévisten of P.D. 1889 and its implementing revenue regulations shall apply. It is to be noticed that since the enactment of the first surtax decree, namely, P.D. 1709, followed by P.D. 1867 and finally by P.D. 1889 as well as the issuance of the corresponding implementing regulations, the time for payment of the surtax has always been within 30 days after the effectivity of the new price increase on petroleum products. These are the same regulations being cited by the petitioner in its various pleadings to justify the non-imposition of surtax on contribution to OPSF and increase im ad valorem tax. Petitioner is however repudiating or ignoring the sie regulation if the same will work against its interest. We do not see any reason why the same regulation and practice of paying surtax within 30 days after the effectivity of the new price increase would not apply in the instant case.

The same. problem arose in the most recent case Petitioner oe be nna, oe 044 > A _ i i

Mobil Philippines, Inc., et al... Respondents, G.R.

No. 124920, April 28, 1994. In this Paddy. Mobil ‘philippines argued that there was no prescribed time for payment of the additional ad valorem taxes which became due by reason of the increases in cost recovery of petroleum products. If there was no prescribed time for payment, it follows as a matter of strict logic that no liability for delay is payment of such ‘additional ad valorem taxes could arise'. On this kind of argument, the Supreme Court The principal difficulty with the basic contention of Mobil is that it Mobil to pay such taxes.

a result to be absurd:

> U ¥ > for the additional ad valorem taxes were clearly due on the additional value undeniably accruing to Mobil's benefit in respect of previously withdrawn product but not yet Gisposed of by the time the increase in cost delivery o f oil companies was authorized by the BOE resolutions.

ares xxx xx x thus, if Section 110 were to be read as literally and strictly as the Court. of Appeals and Mobil believe it would, then 045 the BIR would have quite justified in computing the period of delay or default from the time of actual physical removal of the product involved, upon the theory that the liquidation of the amount of ad valorem taxes due retroacts to the time of physical removal of the product from the refinery. But the BIR did not do. so: instead, it considered, as already seen, ‘sevversanuecsonnanas racntonsvocsenuneatocanesunestonsessenvaseescerramtottentesbeeseressantensnenrotaeceasnanentbenreet tort senssneuerserecssnninees MMniceteecttenseecewerseeteccontecs seen tees ensounguansennorvonsnnnngAentrarsninsonuenerecasanvatenncveccssovestusnvuets se ennausvansiaeaancaessoneeuspbsencesvestonssedVWetangeau isconbecenussnepenensenarettenannntee a ioceseettfnsssuvenndsneestQhetneass tectonsehérbpeccestoonboreresteats sersauneianneesnocnonennenienevacssnrnsutsanveersonenususssuvedrtesesgepesmomnansarseesetcanencanveuicanestenéeaDeatenssonsnenererssdneasteensetoatracensecseetcsearaseseensnscaneestesnescacsoffvecesusascetseoretbassnestoutnnansierssreersoeeretes esvasentonvrsennteuconsnacrocsnvcenneuasetsriienneceeorsttioncasiteteestineasanoaresessvseraree DOr sneeannnnensanacestaristeeetntnvenrtsuseeanencenmerseuevonierwugtddnestes raps tanen envascenenanene ce dee/Hentth noveeneveuatereeeetneate aveenotusroseonnourecnsuuosnnnvantoranenenengenavecssovueceuuverstseuassoreeeesVousonanoneguurgeseseniestnsuennanaettnqscsvunas trisccesvoesenea ouenvuntenssaagubenetoagcesecdcesncesstvonecensurss ceraehostoqsuuacseebenuaseretesbossanes eee ‘WnouacanseveetanquacessuesteonrntsevamunnanecetsetesDhsrorsvoctontns hustvosegaseaessses nerseceMvasencsnans Of sannarnsctecensarssenqabetssentsneuieesannrsretsetenyteensstveriaansnest neessseasiesserntepesarses tteensnaubrosengysetoeesveneesest Thus, the BIR considered the impracticability of computing the full or adjusted ad valorem taxes in this case as constituting a justification or excuse for deferring payment of such additional ad valorem taxes. That justification disappeared as soon as the BOE Resolutions were issued and the increased wholesale posted prices were determined.

sanonanesseaceeenseuvgtevnsenevapenssennntenurtetensesssnvonenworesnenwseeeenttsuouscasnnecrsuuueavanreasuunessescaecugnessevsnnseuauisivoreecepuesans nisvesep silanated sbusesaraptaressasanuevcesciconess tvetssronensbveeveasstscenevvetrtneerineet innses, setcessnonrovsqnanerseca ees cenuntn event rasonensesevenssatesebmnessageacceusroveetezes eet gtoocanconseersteHdusvetanyyacuseososqusnseseeatzartetscsuemenszsaecsssnscatenesaunassvensteastessnunt levees eceanenansaesussuscseseesonengtsorbanneanyeott iets I veafovesanesescnsersesnntssvooregnesenseratcsbeersonenenennsettoneetesnesesetsureneesenestteseanin mesneen raraecaneneensnsse ni erovanennnatocnnsorenseusesesancanennsbetonnansananessenccdenasnssonnvannuiesentesosesspaceevaconnenvesttaccesereredioesretvasenss4assonese#eecugtsereneearansesuuusmebeusuatsenseanpsorsusndedensessoveesenniuayyenetritvenensseen tOPGcarevebeneeronsy east sviwosnsuneteanesasorasnecutcsoggnoearvumassaacust or gansragnevessansdensaunruanertsaesnsevarseneseraecregnbseavasness#vessattenccantssteseconsnneasenitgnenssetttueanunsenbstvenciecnecesthonacssuteletebensorasteapensoquenestettesseseerensengeeasedereet.

it was possible to sreeenanvonsonenvisecassssreesnqusnuessessteceusens ret werd rateveseharetsnvectiannsersuerteyessernenseranrspersds tshendeeeseteets situation. (Underscoring WG asensavessonnvenesananeusnrtnaccuvencerabesausmasetveniganessenentongneetsenemeaaheransettearsapescunnenaestuee sen4sesaannQeceastaseanneethnate supplied.)

We find the same pronouncement by the Supreme - Court” as applicable in the instant case. The imposition by the BIR of surcharge and interest for failure on the part of the petitioner to aay. the surtax within 30 days after the effectivity of the (546 authorized price increase on August 15, 1987 is likewise justified under the circumstances.

In view of all the foregoing, the extra- ordinary gain due petitioner should be computed pursuant to P.D. 1889 and its implementing regulations as follows:

(1) Gains arising RPO the increase in oil industry net back or the wholesale posted price shall be determined on the average by multiplying the inventory of petroleum products as of August 15, 1987 by P.487;

(2) Gains due. Se increase in ad valorem Chk . shall be determined by multiplying the _inventory of uribondwd (tax paid) petroleum products as of August 15, 1987 by P.007;

(3) Twenty-five (25%) per centum surcharge pursuant to Section 248(1) & (3) -and twenty (20%) ger centum interest pursuant to Section 249 of the Tax Code should also be added to the surtax.

Accordingly, computation of surtax liability on the extraordinary gains realized by petitioner as defined under F.D. 1889 is,.shown, as follows:

047

Inventory gains:

a) Due to increase in oil industry net back or increase in wholesale posted price item inventory ‘ Jet A 24,865,882 Premium 49,586,297 Regular 13,458,652 Kerosene 18,714,060 Diesel 126,367,007 Fuel oil 82,004,511

LPG _

Thinners | 1,310,882 Asphalts 1,835,413 Unlocated difference _ 1,374,056 Total 319,518,191 Multiply by | PO.487 P155,605,359.02 b ) Due to increase in ad valorem tax .

Unbonded item -Ory Jet & 5,844,114 Premium 14,083,137 Regular 3,169,066 Kerosene 15,301,295 Diesel 80,283,490 Fuel oil 54,760,921 LPG 4,877,029 Thinners 68,520 Asphalts 76,800 Total 178,464,372 Multiply by J! PO .007 on 14249,250:60 | TOTAL P156.854,609.62 Surtax due (156,854,609.62 x 65%) P101,955,496.25 Add: 25% surcharge ;

“ §(101,955,496.25 x 25%) 25,488,874.06 Amount due and collectible *Plis 20% interest from the date prescribed for payment which is within thirty (30) days after August 15, 1987 the effectivity date of the price increase until the amount is fully paid pursuant to Sec. 249 of the Tax Code, as amended.

548

- 31 -

WHEREFORE.

the Court hereby orders the petitioner to pay the total amount of P127.444.370.31 plus 20% interest from September 15. 1987 until it is fully paid. The assessment issued by the re s pondent is accordingly modified.

CO NCUR:

GRUBA J u dg~ RA:do~~E~~ Associate Ju ~;:l" 549 ~Q,~ ERNESTO D. ACOSTA · P resi d ing Judge ...

I I ' I I

CERTIFICATION I hereby certify that this decision was reached “| after due consultation among the members of ‘the Court of Tax Appeals in accordance with Section 13, Article VIII of the Constitution.

= Q. Gheoke.

ERNESTO D. ACOSTA Presiding Judge Court of Tax Appeals 000