Filpride Resources Incorporated Duly vs. Bureau of Internal Revenue and Commissioner of Internal Revenue

DECISION

CASANOVA, C., J.:

Before Us is a Petition for Review seeking the refund or issuance of a Tax Credit Certificate in the amount of P4,781,311.60 representing alleged overpayment of excise taxes from fuel sold by petitioner to the National Power Corporation (NPC) covering the period January 2002 to July 2002 pursuant to Section 135 (c) of the National Internal Revenue Code of 1997 in relation to Republic Act No. 6395, as amended, otherwise known as the NPC Charter$--

Petitioner is a domestic corporation organized and existing under the Philippine Laws with office address at 304 J.P. Rizal St., Mandaluyong City. 1 It is engaged in the business of buying and selling, including importation of oil and other petroleum products for various customers.

It is a registered taxpayer with the Bureau of Internal Revenue (SIR) with certificate of registration bearing Taxpayer Identification Number 002-216-589-000. 2 Respondent is the duly appointed Commissioner of Internal Revenue vested with the authority to refund any internal revenue erroneously or excessively assessed or collected or any penalty claimed to have been collected without authority or any sum alleged to have been excessively or wrongfully collected, with office address at SIR National Office, Agham Rd., Diliman, Quezon City. 3 In the course of its business operations, petitioner had the opportunity to enter into a sale transaction with NPC for the supply of diesel fuel to its various power plants located in the Philippines" by virtue of an "Open Purchase Order" in lieu of the standard 2001-2002 Contract of Supply/Delivery of Oil Based Fuel. 5 By virtue of the "Open Purchase Order'', petitioner caused the importation of 4,667,000. liters of diesel fuel from January to February 20026 which was subjected to an excise tax at the rate of Pl.63 to a liter and paid the corresponding duties and excise taxes in the total amount of P8,707,459.80/ detailed as follows: On January 4, 2002, upon full payment of the corresponding customs duties and excise taxes in the amount of P1,581,855.00, the Bureau of Customs released in favor of petitioner the 1 51 batch of imported diesel fuel consisting of some Eight Hundred Fifty Thousand (850,000) liters; On January 30, 2002, petitioner paid the Bureau of Customs the amount of P1,520,494.80 representing the corresponding customs duties and excise taxes for the importation of 817,000 liters of diesel products. This volume represented the 2nd batch of imported diesel productsig__ 1 Par. 1, Joint Stipulation of Facts and Issues. 2 Par. 3, Petition for Review. 3 Paragraph 2, Joint Stipulation of Facts and Issues. 4 Paragraph 4(c), Joint Stipulation of Facts and Issues. 5 Exhibit "H".

6 Exhibits "C-2", "C-4", "C-6" and "C-8". 7 Exhibits "C-1", "C-3", "C-5" and "C-7".

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C.T A CASE NO. 6830

The 3'd batch of imported diesel products with a volume of 1,000,000 liters was released to petitioner on February 13, 2002 by the Bureau of Customs on upon the former's payment of the amount of P1,868,825.00 for the customs duties and excise taxes due thereon; and On February 27, 2002, the Bureau of Customs released to petitioner 2,000,000 liters of imported diesel products upon payment of corresponding customs duties and excise taxes in the amount of P3,736,285.00. This volume represented petitioner's 4th batch of imported diesel products. To summarize:

Batch of Date of Volume of Exhibit Amount of Exhibit Importation Release by the Imported Customs Bureau of Diesel Duties and Excise Customs Products Taxes (In Liters) 1st 01/04/02 850,000 C-2 P1,581,855.00 C-1 2nd 01/ 30/02 817,000 C-4 P1,520,494.80 C-3 3'd 02/13/02 1,000,000 C-6 P1,868,825.00 C-5 4th 02/27/02 2,000,000 C-8 P3, 736,285.00 C-7 TOTAL ~,661,000 ea,zoz,~s9.ao From the foregoing importations of diesel products, petitioner allegedly sold and delivered a total of 2,933,320 liters of diesel fuel to NPC's various power plants on various dates.

On the strength of the statutory exemption from payment of all forms of taxes, duties, fees and imposts granted to NPC pursuant to Republic Act No. 6395, petitioner consequently sought the refund of the alleged overpayment of excise taxes it paid for the diesel products it sold to NPC. It then filed, on separate dates,8 four (4) administrative claims for the issuance of tax credit certificate arising from the overpayment of excise taxes on sales of fuel to the National Power Corporation covering the period from January 2002 to July 2002. In a letter dated November 8, 2002,9 petitioner informed BIR of its intention to correct some errors on the volumes declared in its letter-claims and arrived at the total claim of P4,781,311.60 as follows~ 6 May 19, 2002, May 31, 2002, July 5, 2002.and November 5, 2002 (Exhibits "AA", "BB", "CC" and DO). 9 Exhibit "G".

. ... ' .

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" .._, Application #11,010,730 liters@ 1.63/liter Application #2 795,060 liters @ 1.63/liter Application #3 859,740 liters @ 1.63/liter Application #4 267,790 liters @·1.63/liter Total p 1,647,489.90 1,295,947.80 1,401,376.20 436,497.70 P4,781,311.60 The above administrative claims for refund remained unresolved at the Bureau of Internal Revenue level. Such inaction prompted petitioner to elevate said claims with this Court on December 4, 2003, in order to toll the running of the two (2)-year prescriptive period.

Respondent, in his Answer filed on February 5, 2004, interposed the following Special and Affirmative Defenses: "5.

The claim for refund is still under examination by the respondent's Bureau;

6. The burden of proof is upon the petitioner to prove that it is entitled to the claim for refund;

7.

The grant of a claim for refund tantamount to an exemption from taxation which is construed strictly against the claimant and in favor of the taxing authority; and 8.

The taxes sought to be refunded were paid in accordance with law; the burden of proof to the contrary is upon the petitioner-claimant to show with clear and unambiguous provision of law supporting the same." This case was submitted for Decision on August 16, 2006 sans the memorandum of respondent.

wit:

The parties jointly stipulated on the foregoing issues for resolution of this Court, to I.

Whether or not petitioner supplied and delivered fuel to NAPOCOR coming from its importation;

II.

Whether or not petitioner paid the corresponding excise taxes for every liter of imported fuel which the latter sold and delivered to NAPOCOR~

III.

Whether or not the sale transaction between petitioner and NAPOCOR is tax exempt;

IV.

Whether or not petitioner is entitled to a tax credit certificate and/or tax refund or reimbursement for the excise taxes it paid for the imported fuel products sold and delivered to NAPOCOR. Petitioner bases its cause on Section 135(c) of the National Internal Revenue Code of 1997, as amended, quoted hereunder for easy reference: "Section 135. Petroleum Products Sold to Internal Carriers, and Exempt Entities or Agencies. -Petroleum products sold to the following are exempt from excise tax: XXX XXX XXX

(c) Entities which are by law exempt from direct and indirect taxes. ~~ As correctly pointed out by petitioner, entitlement to the claim for refund based on the afore-quoted provision of law is conditioned on the following, viz:

(1) That petroleum products were sold to a tax exempt entity or entities; and

(2) That excise taxes were actually paid on these petroleum products. Tax-Exempt Character of NPC It has long been settled that NPC is categorically exempt from payment of all taxes, whether direct or indirect, pursuant to its Charter, Republic Act No. 6395, as amended. And the respondent himself does not dispute this fact. 10 Section 13 of Republic Act No. 6395 (NPC Charter), as amended, reads: "Section 13. Non-profit Character of the Corporation: Exemption from All Taxes, Duties, Imposts and Other Charges by the Government and Government Instrumentalities.- The Corporation shall be non-profit and shall devote all its returns from its capital investment, as well as excess revenues from its operations, for expansion. To enable the Corporation to pay its indebtedness and obligations in furtherance and effective implementation of the policy enundated in Section one of this Act, the Corporation, including its subsidiaries, is hereby declared exempt from the payment of all forms of taxes, duties, fees, imposts as well as costs and service fees including filing fees, appeal bonds, supersedeas bonds, in any C9!J~ or administrative proceedings." (Emphasis Supplied~ · • ..) / ~)

The Supreme Court, in the case of Ernesto M. Maceda vs. catalina Macaraig, et al., 197 SCRA 771, May 31, 1991, has even affirmed NPC's tax exemption, thus: "The NPC is a non-profit public corporation created for the general good and welfare wholly owned by the government of the Republic of the Philippines.

From the very beginning of its corporate existence, the NPC enjoyed preferential tax treatment to enable the Corporation to pay the indebtedness and obligation and in the furtherance and effective implementation of the policy enunciated in Section one of "Republic Act No.

6395 XXX

XXX XXX XXX It is noted that in the earlier law, R.A. No. 358, the exemption was worded in general terms, as to cover "all taxes, duties, fees, imposts, charges, etc., xxx." However, the amendment under Republic Act No. 6395 enumerated the details covered by the exemption. Subsequently, P.O. No. 380, made even more specific the details of the exemption of NPC to cover, among others, both direct and indirect taxes on all petroleum products used in its operation. Presidential Decree No. 938 amended the tax exemption by simplifying the same law in general terms. It succinctly exempts NPC from "all forms of taxes, duties, fees, imposts as well as costs and service fees including filing fees, appeal bonds, supersedeas bonds, in any court or administrative proceedings." The use of the phrase "all forms" of taxes demonstrate the intention of the law to give NPC all tax exemptions it has been enjoying before. The rationale for this exemption is that being non-profit the NPC 'shall devote all its returns from its capital investments as well as excess revenues from its operation, for expansion. Xxx XXX XXX XXX It is evident from the provisions of P.O. No. 938 that its purpose is to maintain the tax exemption of NPC from all forms of taxes including direct taxes as provided for under R.A. No. 6395 and P .D. No. 380 if it is to attain its goals."

Evidently, petitioner is the one directly liable for the payment of excise taxes on the importation of petroleum products it sold to NPC. But by the nature of indirect taxation, however, petitioner may then shift the burden of such taxation, by letting such economic burden to pass through the channels of commerce to the user or consumer of the products sold, NPC herein. But since NPC is exempt from both direct and indirect taxation, it must likewise be exempt from absorbing the burden of indirect taxation. This is when Article 13~ 1..

,_) . -~ u of the National Internal Revenue Code of 1997, as amended, comes to play and operates to grant tax exemption to petroleum product suppliers who are unable to shift the economic burden of taxation to the end user. Whether petitioner supplied and delivered fuel to NPC coming from its importations and whether the corresponding excise taxes due thereon were paid After a careful examination of the records in this case, the Court finds that indeed NPC executed several "Purchase Orders" (PO) dated October 16, 2001 11 as well as three (3) "Open Purchase Orders" (OPO) dated January 2002 12 for the supply of diesel fuel. The sale, release, and delivery of such diesel fuel to NPC was on a staggered basis depending on the required quantity and the name of the NPC power plant site as stated in the PO and OPO, summarized as follows:

Exhibit OP/PO No.

Delivery Point Ordered Purchase Order J 417-SOI Araceli 45,000 L 402-SOI Basco 572,000 M 414-SOI Busuanga 700,000 0 405-SOI Calayan 33,000 p 407-SOI Casiguran 362,000 Q 415-SOI Cuilion 89,000 R 413-SOI Cuyo 563,000 s 411- SOl El Nido 94,000 T 404- SOl Itbayat 35,000 u

409- SOI

Jomalig 24,000 v 406- SOl Palanan 26,000 w 410- SOl Patnanungan 45,000 X 408- SOl Polilio 376,000 y 403- SOl Sabtang 28,000 z 412- SOl San Vicente 56,000 Open Purchase Order I

559 IMG

Plantsite 42,000 K

265 IMG

Plantsite 42,000 N

266 IMG

Plantsite 42,000 Total .3,11~,000 ~

Petitioner made a total importation of 4,667,000 liters of diesel oil13 and paid the corresponding duties and excise taxes in the total amount of P8J07,459.80, 14 summarized as follows:

1/30/2002 817,000 C-4 8735749 1,520,494.80 C-3 2/13/2002 1,000,000 C-6 8737425 1,868,825.00 C-5 212712002 2,000,000 C-8 8738447 3, 736,285.00 C-7 Total 4,667,000 p 8l07,459.80 It should be noted that petitioner paid an excise tax of Pl.63 per liter of the imported diesel fuel. 15 This fact was even stipulated upon by the parties in their Joint Stipulation of Facts and Issue. 16 Moreover, records of this case reveal that in the course of its operation, petitioner $ has sold and delivered a total of )2,932,225 liters of diesel fuel to National Power Corporation on va.rious dates from January to July 2002,17 detailed as follows: Exhibit E-1-1 E-1-2

E-1 -4

E-1-7

E-1 -8

E-1-1 0

E-1 -12

E-1-13

E-1 -14

E-1-16 E-1-17

E-1 -19

E-1-21 E-1-23 E-1-25 E-1-27 E-1-29 E-1-30 E-1-32 E-1-34

E-1 -36

E-1-38 13 Exhibits "C-2", "C-4", "C-6" and "C-8". 14 Exhibits "C-1", "C-3", "C-5" and "C-7". Invoice No.

19043 19006 18987 19118 18984 18979 19079 19083 19087 19115 19125 18964 18993 19063 19108 19137 19192 19198 19199 19010 19026 18982 Date March 19, 2002 March 4, 2002 February 19, 2002 May 2, 2002 February 19, 2002 February 7, 2002 April 12, 2002 April 16, 2002 April16, 2002 May 2, 2002 May 13, 2002 January 11, 2002 March 6, 2002 April 1, 2002 April 19, 2002 May 22, 2002 July 20, 2002 July 12, 2002 July 12, 2002 March 5, 2002 March 18, 2002 February 7, 2002 Volume (in Liters) 42,000 42,000 19,950 19,950 42,000 68,880 68,880 68,880 68,880 68,880 68,880 105,000 105,000 105,000 105,000 105,000 62,790 16,000 25,830 42,000 10,500 14 , 91~ 15 See the rate of tax as shown in the BOC IEIRD in relation to the LBP Official Receipts; Exhibits "C-1" to "C-8". 16 Paragraph 4(d), Joint Stipulation of Facts and Issues. 17 Exhibits "E-1-1" to "E-1-123".

_.,

E-1 -40

19088 April 16, 2002 14,910 E-1-42 18965 January 11 , 2002 23,100 E-1-43

1901 7

March 13, 2002 11 ,550 E-1-44 19000 March 2, 2002 23,100 E-1-45 19062 April 1, 2002 21,210 E-1-47 19078 April 12, 2002 25,200 E-1-49 19095 April 19, 2002 19,11 0 E-1-50 19099 April 20, 2002 11 ,550 E-1-51 19122 May 7, 2002 25,200 E-1-53 19127 May 13, 2002 25,200

E-1 -55

19138 May 22, 2002 5,460 E-1-56 19153 May 31, 2002 12,600 E-1-57 19154 May 31 , 2002 12,600 E-1-59 19160 May 20, 2002 12,600 E-1-61 19170 June 20, 2002 18,900

E-1 -62

19162 June 1 0, 2002 18,060 E-1-63 191 75 June 25, 2002 4,200 E-1-64 19181 July 1, 2002 12,600 E-1-65 19189 July 1 0, 2002 12,600

E-1 -66

19190 July 12, 2002 7,560 E-1-68 19621 July 26, 2002 10,500 E-1-69 19628 July 31 , 2002 6,300 E-1-71 18973 January 17, 2002 21 ,000 E-1-72 18974 February 1, 2002 21,000

E-1 -73

19117 May 2, 2002 42,000 E-1-76 18971 January 24, 2002 93,870 E-1-78 19007 March 4, 2002 52,500 E-1-81 19036 March 20, 2002 41,370 E-1-83 19093 April 19, 2002 63,000 E-1-84 19098 April 20, 2002 31,500 E-1-85 19131 May 16, 2002 93,870 E-1-86 19121 May 2, 2002 93,870 E-1-89 19157 May 20, 2002 93,870 E-1-90 18976 February 2, 2002 42,000 E-1-92 19067 April 6, 2002 52,500 E-1-93 18981 February 7, 2002 22,470 E-1-95 19085 Apri116, 2002 22,470 E-1-97 19060 March 27, 2002 17,220 E-1-98 -19057 April 1, 2002 12,600 E-1-100 19103 Apri119, 2002 29,820

E-1- 102

19058 April 1, 2002 16,380 E-1-104 19325 June 7, 2002 42,420 E-1-105 19324 July 7, 2002 29,820 E-1-107 19161 May 20, 2002 89,880 E-1-109 19116 May 2, 2002 89,880 E-1-111 19059 March 20, 2002 86,100

E-1 -112

19055 April 1, 2002 3,780 E-1-113 19029 March 18, 2002 10,500 E-1-115 19028 March 18, 2002 10,500 E-1-117 18980 February 7, 2002 11 ,918 E-1-119 19084 April 16, 2002 11,977 E-1-121 19065 April 6, 2002 42,000 E-1-123 18978 February 4, 2002 29,820 Total 2,932,225 ~ . ' , ( '-) .: J

The aforementioned sales were supported by various official receipts submitted by petitioner.18 The claim for refund was filed within the two (2)-vear prescriptive provided under Section 229 in relation to Section 130{AJ{2) of the National Internal Revenue Code of 1997 Section 229 of the National Internal Revenue Code (NIRC) of 1997 provides: "SEC. 229. Recovery of Tax Erroneously or Illegally Collected. - No suit or proceeding shall be maintained in any court for the recovery of any national internal revenue tax hereafter alleged to have been erroneously or illegally assessed or collected, or of any penalty claimed to have been collected without authority, or of any sum alleged to have been excessively or in any manner wrongfully collected, until a claim for refund or credit has been duly filed with the Commissioner; but such suit or proceeding may be maintained, whether or not such tax, penalty, or sum has been paid under protest or duress.

In any case, no such suit or proceeding shall be filed after the expiration of two (2) years from the date of payment of the tax or penalty regardless of any supervening cause that may arise after payment: Provided, however, That the Commissioner may, even without a written claim therefore, refund or credit any tax, where on the face of the return upon which payment was made, such payment appears clearly to have been erroneously paid."

In relation thereto, Section 130(A)(2) of the 1997 NIRC provides: "SEC. 130. Filing of Return and Payment of Excise Tax on Domestic Products.- (A) Persons Liable to File a Return/ Filing of Return on Removal and Payment of Tax - XXX XXX XXX (2) Time for Filing of Return and Payment of the Tax. - Unless otherwise specifically allowed, the return shall be filed and the excise tax paid by the manufacturer or producer before removal of domestic products from place of production: xxx'~ 18 Part of Exhibits "E-1-1" to "E-1-124". ' ( ) I ') t) 1..."

As per evidence on record, petitioner paid the subject claimed excise taxes on January 4, 2002, January 30, 2002, February 13, 2002 and February 27, 2002. 19 On these excise taxes paid, petitioner filed four (4) separate administrative claims for refund with the BIRon May 30, 2002, June 3, 2002, July 3, 2002 and November 5, 2002. 2° Counting from January 4, 2002, the date when petitioner first paid the excise taxes due on the sale of the subject diesel fuel, the administrative claims for refund as well as the present petition fall within the period allowed by law. Petitioner's entitlement to the refund of excise taxes it paid on petroleum · products it sold to NPC The removal of diesel fuel as a result of each of the sale transactions, as enumerated above, are reflected in petitioner's "Schedule of Receipts and Removal" covering the period from January 1 to July 31, 2002. From this Schedule, this Court notes that there were overstatements in the recording of the removal/withdrawn liters of diesel fuel as reflected in the "Schedule of Receipts and Removal" when compared with liters of diesel fuel which were actually sold as reflected in the invoices. The details of discrepancies between the recorded removed liters from "Schedule of Receipts and Removal," and the invoices are shown hereunder: As reflected in the "Schedule of Receipts and Removal" (Exhibit F) 12,390 12,390 31 ,900 63,000 19 Exhibits "C" tD "C-8". 20 See Exhibits "G" to "G-2". As reflected In the Invoice 11 ,918 11 ,977 31 ,500 62,790 , ' ,' I ,),) .l.

Exhibit E-1-117 E-1-119 E-1-84 E-1-129 Total Overstatement 472 41 3 400 210 ~ .J

In sum, petitioner was able to establish that it made a total importation of 4,667,000 liters of diesel oil; that it paid a total amount of P8,707,459.80 duties and excise taxes on the subject importation; the rate of excise tax paid was P1.63 per liter of imported diesel fuel; that it sold and delivered a total of 2,932,225 liters of diesel fuel to the National Power Corporation covering the period from January to July 31, 2002, as evidenced by various invoices and official receipts; 21 and that it f{led its claims within the two (2)-year prescriptive period provided for by law. Hence, petitioner is entitled to the issuance of a tax credit certificate in the amount of P4,779,526.75, computed as follows: Amount of claim Less: Overstatement of the claimed volume of liters sold to NPC or Unsubstantiated claim as per Petition for Review (1,010,730+ 795,060+859, 740+267,790) liter As per actual sales to NPC Difference Multiply by the tax rate of excise tax per liter Allowable Amount 2,933,320 2.932.225 1,095 1.63 P4,781,311.60 1, 784.85 P4.779.526.75 IN VIEW OF THE FOREGOING, the Petition for Review is hereby GRANTED but in the reduced amount of P4,779,526.75. Accordingly, respondent is ORDERED TO REFUND or ISSUE A TAX CREDIT CERTIFICATE in favor of the petitioner in the amount of P4,779,526.75 representing overpaid excise taxes from fuel sold by petitioner to National Power Corporation covering the period January 2002 to July 2002.

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WE CONCUR:

L-IP . 0&.-vA- ERNESTO D. ACOSTA Presiding Justice CERTIFICATION Pursuant to Article VIII, Section 13 of the Constitution, it is hereby certified that the conclusions in the above Decision were reached in consultation before the case was assigned to the writer of the opinion of the Court's Division. Q_- \)1 • c'-'Vv"- ERNESTo D. ACOSTA Presiding Justice Chairman, First Division