Commissioner of Internal Revenue vs. Pilipinas Shell Petroleum Corporation

DECISION

MINDARO-GRUllA, J.:

Submitted for decision is a Petition For Review for the Court En Bane filed by petitioner Commissioner of Internal Revenue (CIR) on October 5, 2009 pursuant to Section 18 of Republic Act No. 1125, as amended by Republic Act No. 9282, of the Decision 1 dated April 30,C 1 Penned by Associa te Justice Olga Polanco-Enriquez with Associate Justices Juonito C. Castaneda, Jr. and Erlindo P. Uy, concurring, EB Docket, pp. 65- 107 C/R vs. Pilipinos Shell Petroleum Corporation CT A EB Case No. 535 (CTA Case No. 6547)

2009 and the Resolution 2 dated August 18, 2009 rendered by the former Second Division of this Court in CTA Case No. 6547. The dispositive portions of which, respectively read as follows: Decision dated 30 April 2009:

WHEREFORE, premises considered, the instant Petition for Review is hereby GRANTED. The Collection Letters and Warrant of Distraint and/or Levy ore CANCELLED and declared without force and effect for lock of legal bosis.

WHEREFORE, premises considered, respondent

Commissioner

of

Internal

Revenue's

"Motion for Reconsideration" is hereby DENIED for lock of merit.

Petroleum

Corporation (PSPC) is a corporation duly organized and existing under( 2 Ibid, EB Docket, pp. 109-1 12 :

\, C/R vs. Pilipinas Shell Petroleum Corporation CT A EB Case No. 535 (CTA Case No. 6547)

DECISION

Page 3 o f 47 the laws of the Philippines, with principal business address at Shell House, 156 Valero St., Salcedo Village, 1227 Makoti City. From 1988 to 1997, PSPC paid some of its excise tax liabilities with Tax Credit Certificates (TCCs) duly assigned and transferred to it by other Board of Investment (BOI)-registered entities, after having secured prior approval from the Department of Finance (DOF) One Stop Shop Inter-Agency Tax Credit and Duty Drawback Center (Center). The Center is a composite body run by fo ur government agencies, namely: the DOF, Bureau of Internal Revenue (BIR) , Bureau of Customs (BOC) , and BOI .3 The process and procedures relating to said TCC transfers and utilization thereo f are as follows: 4 a.

PSPC

and the other

BOI-registered

en tities (the "transferor") executed Deeds of Assignment over the TCCs, subject to the due approval by the relevant government agencies;

b.

PSPC was advised of BOI's or the Center's approval of the transfer when the transferor presented to it the TCC, with an annotation by the BOI or the Center of such approval at the reverse side of the TCC;

c.

PSPC then requested the BOI or the Center for authority to utilize the transferred TCCs as payment of its tax liabilities and thereafter, Tax Debit Memos (TDMs) were issued by the BOI or the Center to signify such authority; f...

3 Paragraphs 3 and 4, Amended Joint Stipulation o f Fac ts and Issues filed on Oc lober 23, 2003, pp. 273-27 4, Division Docket.

4 Paragraph 5, Amended Joint Stipula tion o f Fac ts and Issues filed on October 23, 2003, pp. 27 4-27 5, Division Docket.

CIR vs. Pilipinas Shell Petroleum Corporation C T A EB Case No. 535 (CT A Case No. 6547) d .

Thereafter, PSPC presented the BOI's or the Center's TOMs and the corresponding TCCs to the BIR with written requests for the BIR to accept the transferred TCCs as payment of its excise tax liabilities. The BIR then issued its own TOMs in exchange for the TCCs which it then retained to signify its acceptance o f the said TCCs as valid tax payments by PSPC; e.

PSPC then requested the BIR Regional District Office to issue on . "Authority to Accept Payment of Excise Taxes" ("ATAPET"), which served as the return for excise taxes being paid by PSPC, as well as on instruction to the BIR's Authorized Agent Bonks to accept PSPC's payments in the form of BIR TOMs and PSPC's c hec ks.

Following the procedure as set forth above, PSPC's acceptance of TCC transfers, and utilization of the same in payment of taxes, were never subjected to any question, challenge or dispute until April 22, 1998, when the BIR s sent a Collection Letter to PSPC demanding payment of allegedly unpaid excise taxes .6 Simply put, the foregoing Collection Letter became the subject of several protests which led to various cases before this Honorable Court such as CT A Case No. 5728, CT A Case No. 6003 and CT A Case No. 6547 (the instant case).

PSPC questioned the Collection Letter administratively before the CIR and, subsequently, it filed a Petition for Review before this Court which was docketed as CTA Case No. 5728. L s Revenue District Officer of Revenue District No. 50 of the BIR. 6 Paragraph 6, Amended Joint Stipulation of Facts and Issues filed on October 23, 2003, p. 275, Division Docket.

CIR vs. Pilipinos Shell Petroleum Corporation C TA EB Cose No. 535 (C TA Case No. 6547)

DECISION

Poge 5 o f 47 On July 23, 1999, this Court rendered a Decision in said CTA Case No. 5728 in favor of PSPC ruling, inter alia, that the transfers to and utilization by PSPC of the TCCs in question are valid and legal, and that the BIR's attempt to collect supposedly delinquent taxes and penalties from PSPC without an assessment or pre-assessment notice constitutes a denial of due process.

Thereafter, the CIR appealed the foregoing Decision of the Court a quo before the Court of Appeals through a Petition for Review docketed as CA-G.R. SP No. 55329, and the said appeal remains pending to dote.

Meantime, the Center, in a series of letters to PSPC dated August 31 / September 1 ,s and October 18, 1999, 9 revived the issue relating to the transfers to, and utiliza tion by, PSPC of certain TCCs subject of CTA Case No. 5728.

In the said letters, the Center required PSPC to submit copies o f soles invoices and delivery receipts showing consummation o f sale transac tions of PSPC's produc ts to certain TCC transferors, purportedly in connection with an ongoing post-audit of TCC issuances and transfers under pain of cancellation o f the TCC transfers should PSPC fails to comply with the requirement. 1o L 7 Exhibit "A", Division Docket, pp. 30 1-302. s Exhibit "B", Division Docket, p . 303.

9 Exhibit "C", Division Docket, pp. 304-3 15. 10 Paragraph 10, Amended Join t Stipula tion of Facts and Issues filed on Oc tober 23, C/R vs. Pilipinos Shell Petroleum Corporation CTA EB Case No. 535 (CTA Case No. 65 ~ 7 )

On November 3, 1999, the Center received PSPC's letter dated October 29, 1999 11 explaining, among others, that the requirement for it to submit the documents mentioned in the Center's letters, and the threatened sanction on PSPC if it failed to comply, has no legal basis as the applicable lows, rules and regulations 12 at the time of the transfer of the subject TCCs to PSPC merely require that both transferor and transferee be BOI-registered entities.I J However, on the same date that the Center received PSPC 's Reply doted October 29, 1999, the Center wrote PSPC a letter 14 regarding the cancellation of the previously issued TDMs and their related TCCs and TCC transfers. Is In a Letter doted November 4, 1999, 16 PSPC asked the Center to reconsider the cancellation of the TDMs, related TCCs and their tronsfersY PSPC 's plea for reconsideration later proved to be futile. L:. 2003, pp. 275-276, Division Dockel.

II Exhibit "D", Division Docket, pp. 316-327. 12 Rule VII of the Rules and Regula tions implementing Execu tive Order No. 226. otherwise known os the Omnibus Investments Code of 1987 os amended (the "IRRs" ), os supplemented by the Memorandum of Agreement (MOA) doted October 5, 1982 (the " 1982 MOA") between the DOF and BOI. 13 Paragraph 11 , Amended Joint Stipulation of Facts and Issues filed on October 23, 2003, p. 27 6, Division Dockel.

14 Letter doted 03 November 1999, PSPC's Exhibit "E", Division Docket. pp. 328-332. 15 Paragraph 12, Amended Joint Stipula tion of Facts and Issues filed on October 23. 2003, p . 27 6, Division Docket.

16 Exhibit "F", Division Docket, pp. 333-348. 17 Paragraph 13, Amended Joint Stipulation of Facts and Issues filed on October 23, 2003, p. 27 6, Division Docket.

C/R vs. Pifipinos Sheff Petroleum Corporation CTA EB Case No. 535 (CTA Case No. 6547)

On November 22, 1999, PSPC received a letter dated November 15, 1999 from the CIR which purports to be an assessment for deficiency excise tax, arising from the cancellation of the subject TCCs/TDMs.l s On December 2, 1999, PSPC protested the foregoing assessment. Upon the denial of said protest, PSPC filed a Petition for Review before this Court, docketed as CTA Case No. 6003.19 On August 2, 2004, the CTA Division rendered a Decision granting PSPC's petition for review and ordered the cancellation of the assessment issued by the CIR dated November 15, 1999. A subsequent Motion for Reconsideration filed by the CIR was likewise denied by the same CTA Division in a Resolution dated January 20, 2005.

The CIR

thereafter elevated the case before the CTAfn Bone (CTA EB No. 64). On April 28, 2006, the CTA En Bone reversed the foregoing Decision and Resolution of the CT A Division and ordered PSPC to pay the amount of P570,577,401 .6 1 as deficiency excise tax for the taxable years 1992 and 1994 to 1997, inclusive of 25% surcharge and 20% interest. L.

18 Paragraph 14, Amended Joint Stipulation of Facts and Issues filed on October 23, 2003, p . 27 6, Division Docket.

19 Paragraph 15, Amended Joint Stipulation of Facts and Issues filed on October 23, 2003, p. 27 6, Division Docket.

CIR vs. Pifipinos Shelf Petroleum Corporation CTA EB Case No. 535 (CTA Case No. 6547)

The case was then elevated to the Supreme Court in the case entitled Pilipinas Shell Petrole um C orporation vs. C ommissioner of Internal Revenue , docketed as G.R. No. 172598.

In a Decision

promulgated on December 21, 2007, the Supreme Court ruled in favor of PSPC and reversed the Decision of the CTA En Bane. The dispositive portion of which reads:

"WHEREFORE, the petition is GRANTED. The April 28, 2006 CT A En Bane Decision in CT A EB No. 64 is hereby REVERSED and SET ASIDE, and the August 2, 2004 CT A Decision in CT A Case No. 6003 disallowing the assessment is hereby REINSTATED. The assessment of respondent for deficiency excise taxes against petitioner for 1992 and 1994 to 1997 inclusive contained in the April 22, 1998 letter of respondent is canceled and declared without force and effect for lack of legal basis.

No

pronouncement as to costs."

On July 1, 2002, while CTA Case No. 6003 was still pending before the CTA Division, PSPC received a Collection Letter2o dated June 17, 2002 (the "June 17, 2002 Collection Letter"), wherein the CIR seeks to collect from PSPC the total sum of Two Hundred Thirty Four Million Five Hundred Fifty Five Thousand Two Hundred Seventy Five and 48/100 Pesos (P234,555,275.48). representing allegedly unpaid taxes, inclusive of surcharge and interest, which had already been paid by PSPC using several TCCs/TDMs. The June 17, 2002 Collection Letter modifies, with respect to the TCCs covered, an earlier collection letter dated January 30, 2002 (the "January 30, 2002 Collection Letter").21 C... 2o Exhibit "1", Division Docket, p . 373.

21 Paragraph 16, Amended Joint Stipulation of Facts and Issues filed on October 23, C/R vs. Pilipinas Shell Petroleum Corporation CTA EB Case No. 535 (CTA Case No. 65-17)

On July 1 1, 2002, PSPC filed an administrative Protest dated July 10, 2002 (the "Protest") 22 to the June 17, 2002 Collection Letter before the CIR.23 Without acting on the Protest, however, the CIR served a Warrant of Distraint and/or Levy dated September 27, 200224 (the "Warrant") on PSPC, which is tantamount to a denial of the Protest made by PSPC on the June 17, 2002 Collection Letter.2s Hence, on October 14, 2002, PSPC filed a Petition for Review before this Court which is docketed as CTA Case No. 6547 (the instant case).

Also, in the Joint Stipulation of Facts and Issues dated March 6, 200326 and the Amended Joint Stipulation of Facts and Issues dated October 22, 2003,27 the parties stipulated, as follows: a.

CIR and/or the BIR based its Collection Letter solely on findings made by the DOF/Center;

b.

The BIR never served PSPC a notice for preliminaryC 2003, p. 27 6, Division Docket.

22 Exhibit "J", Division Docket, pp. 376-384. 23 Paragraph 17, Amended Joint Stipulation of Facts and Issues filed on October 23, 2003, p. 277, Division Dockel.

24 Exhibit "K", Division Docket. p . 385.

25 Paragraph 18, Amended Joint Stipulation of Facts and Issues filed on October 23, 2003, Division Docket, p. 277.

26 Filed on 07 March 2003, Division Docket. pp. 1 48- 155. 27 Filed on 23 October 2003, Division Docket, pp. 277-28 1.

CIR vs. Pilipinos Shell Petroleum Corporation CTA EB Case No. 535 (CTA Case No. 6547)

DECISION

Poge 10 of 47

conference nor was any preliminary conference under Revenue Regulation No. 12-99 (RR No . 12-99) ever held between PSPC and the BIR prior to issuance o f the said Collection Letters; c .

Similarly, there was no preliminary assessment notice (PAN) pursuant toRR No. 12-99 issued by the BIR against PSPC; d .

The ATAPET's issued by the BIR for the taxes covered by the TCCs involved in this case serve as con firmation of the correctness o f the amount of excise taxes paid by PSPC during the taxable years in question;

e.

Fifteen ( 15) out of the twenty (20) TCCs subject of the June 17, 2002 Collection Letter ore not port of those purportedly ca ncelled by the letter of the Center doted November 3, 1999; f.

Most o f the TCCs subject of the June 17, 2002 Collection Letter ore already the subject of CT A Case No. 5728, presently on appeal before the Court o f Appeals (CA-G.R. SP No. 55329); g.

More than three (3) years hove passed since the deadline for filing excise tax returns for taxpayers 1992, 1994, 1995, 1996 and 1997;

h.

The BIR never conducted any preliminary investigation pursuant to Revenue Memorandum Order No. 15-95 doted June 9, 1995 to establish any indica tion of fraud in this case; i.

All the TCCs con tain the fo llowing provision:

·Liability Clouse·

Both the transferor and the transferee shall be jointly and severally liable for any fraudulent oc t or (_ C/R vs. Pilipinos Shell Petroleum Corporation CTA EB Case No. 535 (CTA Case No. 6547) violation of the pertinent lows. rules and regulations relating to the transfer of this TAX CR EDIT CERTIFICATE.'

j.

In the list (Annex "G-2", Amended Petition) attached to the June 17, 2002 Collec tion letter (Annex "G- 1", Amended Petition), the BIR erroneously listed Alliance Thread Company, Inc. as the transferor of TCCs Nos. 5482, 4931, 5460, and 5337. Based on available records, the correct transferors of said TCCs are as follows:

TCC No.

5482 4931 5460 5337

Transferor

Allstor Spinning, Inc.

Filstor Textile Industrial Corporation

Filstor Textile Industrial Corporation

FLB Interna tional Fiber Corporation On April 30, 2009, the former Second Division of this Court rendered a Decision28 in favor of PSPC and ordered the cancellation of the disputed Collection Letters and Warrant of Distraint and/or Levy. Considering that the instant case involves the same issues and defenses raised in a case decided by the Supreme Court in Pilipinas Shell Petroleum Corporation vs. Commissioner of Internal Revenue (G.R. No. 172598, December 21, 2007), the Court a quo applied the aforesaid ruling in the case at bench based on the doc trine of Stare Decisis et non quieta movere.

The CIR filed a Motion for Reconsideration on May 15, 2009 and which was subsequently denied for lack of merit in a Resolution29 dated August 18, 2009. L 2s EB Docket, pp. 65- 107.

29 EB Docket, pp. 109- 11 2.

C/R vs. Pilipinos Shell Petroleum Corporation CT A EB Case No. 535 (CTA Case No. 6547)

Undaunted, the CIR filed a Petition for Review3o before the Court En Bane on October 5, 2009.31 The issues presented are as follows:

1 .

Whether or not the Court a quo erred in recognizing the principle of store decisis;

2.

Whether or not the Court a quo erred in not resolving the issue of the validity of the TCCs, despite overwhelming proof that the TCCs were void ab initio;

3.

Whether or not the Court a quo erred in ruling that the subject TCCs can be used by PSPC in payment of its excise tax liabilities;

4.

Whether or not the Court a quo erred in declaring PSPC as an innocent transferee in good faith and thus, cannot be prejudiced by the fraudulent procurement of TCCs; 5.

Whether or not the Court a quo erred in holding that only five (5) out of twenty (20) TCCs subject of the Collection Letter and Warrant of Distraint and/or Levy were actually cancelled by the Center;

6.

Whether or not the Court a quo erred in ruling that CIR and the Center are estopped from seeking invalidation of the TCCs, including their transfer and utilization; 7.

Whether or not the Court a quo erred in holding that the period within which to collect PSPC's unpaid excise taxes has already prescribed;

8.

Whether or not the Court a quo erred in holding that PSPC was denied of due process in the collection of excise taxes; C..

3o EB Doc ket, pp. 7-63.

31 Resolving the CIR's Motion for Extension of Time to file Petition for Review doted September 14, 2009, the CTA En Bone, in a minute resolution, granted a final and non- extendible period of fifteen ( 15) days from September 17, 2009 or until October 2, 2009 within w hic h to file the Petition for Review . O n October 7, 2009, the CIR filed a Manifestalion and Motion explaining his failure to personally file the Petition for Review beyond the period granted by the Resolution doted 15 September 2009 due to typhoon "Pepeng". In a Resolution doled 15 October 2009, the CTA En Bane noted CIR 's Manifestation in the interest of substantial justice, EB Docket, p. 168.

CIR vs. Pilipinos Shell Petroleum Corporation CTA EB Case No. 535 (CTA Case No. 6547)

9.

Whether or not the Court a quo erred in holding that the CIR cannot validly impose surcharges and interests against PSPC 's tax liabilities.

The principal issue is whether PSPC is liable to pay deficiency excise taxes in the amount o f P234,555,275.48, inclusive of surcharge and interests, by reaso n o f the cancellatio n by the Center of the TCCs and TOMs used in the payment o f said excise tax liabilities for the taxable years 1995- 1998.32 The principal issue is answered negatively. The d octrine o f stare decisis was correc tly applied by the Court a quo in the instant case. In Lazatin, et at. vs. Hon. Desierto, et af.,33 the Supreme Court extensively discussed the concept and ratio nale of the doctrine o f stare decisis in our jurisdic tio n, thus: The doctrine of stare decisis et no() quieta movere (to adhere to precedents and not to unsettle things which ore established) is embodied in Article 8 of the Civil Code of the Philippines which provides, thus:

ART. 8. Judicial decisions applying or interpreting !he lows or the Constitution shall form a port of the legal system of the Philippines.

It was further explained in Fermin v. People [G.R. No. 157 643, March 28, 2008, 550 SCRA 132] as follows: The doctrine of stare decisis enjoins adherence to judicial precedents. It requires courts in a country{. 32 Exhibit "1", Division Docket, p. 373.

33 G.R. No. 147097, June 5, 2009.

CIR vs. Pilipinos Shell Pe trole um Corpora tion CTA EB Case No . 535 (CTA Case No. 65-17)

D E CISION

to follow the rule established in a decision of the Supreme Court thereof. That d ecision becomes a judicial precedent to be followed in subseque nt cases by all courts in the land. The doctrine o f stare decisis is based on the princ iple that once a questio n of law has been examined and d ecided , it should be deemed settled and closed to further argument.

[/d.

at 145, c iting

Castillo

v.

Sandiganbayan, 427 Phil.

785, 793 (2002).

(Emphasis supplied) .]

Page 14 of 47

In Chinese Yo ung Men's Christian Association of the Philippine Islands v. Remington Steel Corporation [G .R. No. 159422, Marc h 28, 2008, 550 SC RA 180]. the Court expounded on the importance of the foregoing doctrine, stating that: The doctrine of stare decisis is one of policy grounded on the necessity for securing certainty and stability o f judic ial decisions, thus: Time and again, the court has held that it is a very desirable and necessary judicial practice that w hen a court has laid down a principle o f law as a pplic able to a certain state o f facts, it will adhere to that princ iple and a p ply it to a ll future c ases in whic h the facts are substantially the some. Stare decisis et non quieta movere.

Stand by the

decisions a nd disturb not w hat is settled . Stare decisis simply means that for the sake of certainty, a conclusion reached in one case should be applied to those that follow if the facts are substantially the same, even thoug h the parties may be different.

It proceeds from the first principle o f justice that. absent any powerful countervailing considerations, like cases ought to be decided alike. Thus, w here the same questions relating to the same event hove been put forward by the parties similarly situated as in a previous c ase litigated and decided by a compe te nt court. the rule of stare decisis is a bar to any attempt to relitigate the same issue. [/d . at 197-198 . . (Emphasis supplied).]

The doctrine has assumed suc h value in our judicial system that the Court has ruled that "[a]bandonment thereof ( CIR vs. Pilipinos Shell Petroleum Corporation CTA EB Case No. 535 (CTA Case No. 6547)

DECISION

Page 15 o f 47 must be based only on strong and compelling reasons, otherwise, the becoming virtue of predictability which is expected from this Court would be immeasurably affected and the public's confidence in the stability of the solemn pronouncements diminished." [Pepsi-Cola Produc ts, Phil., Inc. v. Pagdangonan, G.R. No. 167866, Oclober 12, 2006, 504 SCRA 549, 564.] Verily, only upon showing that circumstances attendant in a particular case override the grea t benefits derived by our judicial system from the doctrine of stare decisis, can the courls be justified in setting aside the same. Similarly, in a recent case · entitled Petron Corporation v.

Commissioner of Internal Revenue,34 the Supreme Court in applying the principle of store decisis definitely ruled that: Once a case has been decided one way, the rule is settled that any other case involving exactly the same point at issue should be decided in the same manner under the principle stare decisis et non quieta movere. xxx [Emphasis supplied.] To reiterate, the d octrine o f store decisis requires the courts to follow the rule established in a dec ision of the Supreme Court, which decision becomes a judic ial precedent to be followed in subsequent cases by all courts in the land. It is based on the principle that once a question o f law has b een examined and d ecided, it should be deemed settled and closed to further argument. 35

Abandonment

thereof must be based only on strong and compelling reasons.36 /... 34 G.R. No. 180385, July 28, 20 10.

35 Fermin vs. People, G .R. No. 157 643, March 28, 2008, 550 SCRA 132. 36 Pepsi-Colo Products, Phil. , Inc. v. Pagdanganan, G.R . No. 167866, O c tober 12, 2006, 504 SCRA 549, 564.

CIR vs. Pilipinos Shell Petroleum Corporation CTA EB C a se No . 535 (CTA Case No. 6547)

In the instant case, the CIR argues that the novelty of the issues presents an exception to the doctrine of store decisis . The CIR states that the huge amount involved in the instant case constitutes as a "compelling reason" for the Court a quo to abandon the application of the doctrine of store decisis.

PSPC asserts that the issues in the instant case are not novel and that the Court a quo correctly adhered to the case of Pilipinos She:ll Petroleum Corporation vs. Commissioner of Internal Revenue (G.R. No. 172598) decided by the Supreme Court under the doctrine of store decisis.

The CIR's argument is misplaced.

As correctly observed by the Court a quo, there is nothing novel in the instant case as the some is a mere sequel to CT A Case No. 6003 (CTA EB No. 64), entitled "Pilipinos Shell Petroleum Corporation vs. Commissioner of Internal Revenue", which was elevated to the

Supreme Court in

the c ase entitled "Pilipinos

Shell Petroleum

Corporation vs. Commissioner of Internal Revenue", docketed as G.R. No 172598 (the "Shell Case"). C..

C/R vs. Pilipinos She ll Petroleum Corporation CTA EB Case No. 535 (CTA Case No. 6547)

It must be underscored that the Shell Case promulgated on December 21, 2007 has become final in view of the denial with finality by the Supreme Court of the CIR's Mo tion for Reconsideration through a Resolution dated February 20, 2007.

Subsequently, in a Resolution dated April 30, 2008, the Supreme Court denied the CIR's Second Motion for Reconsideration for being a prohibited pleading. Finally, an Entry of Judgment was made on March 17, 2008. The rationale laid down by the Supreme Court in the Shell case con be summarized as follows:

a. The TCCs duly issued by the Center is not subject to post- audit as a suspensive condition, and are thus immediately effective and valid from the date of their issuance; b . The conditions found on the face of the TCCs clearly show that the post-audit contemplated in the TCCs does not pertain to their genuineness or validity, but on computational discrepancies that may have resulted from the transfer and utilization o f the TCC;

c. The prevailing low 37 at the time o f the issuance o f the subject TCCs merely requires that the TCC transferee, like PSPC, be BOI-registered company and does not require the company to be a capital equipment provider or a supplier of raw material and/or component supplier to the transferors in order to qualify as a qualified TCC transferee. Similarly, the August 29, 1989 Memorandum of Agreement ("1989 MOA") between the DOF and BOI remains an internal agreement between these agencies and could no t have validly and effectively amended the October 5, ( 37 The Implementing Rules ond Regulations o f Executive Order No. 226, w hic h incorporated the October 5, 1982 Memorandum o f Agreemen t between the MOF and BOI.

C/R vs. Pilipinas Shell Petroleum Corporation CTA EB Case No. 535 (CTi\ Case No. 6547)

1982 Memorandum of Agreement ("1982 MOA") between the DOF and BOI as it has neither been elevated to the level of nor incorporated as an amendment in the IRR of EO 226, and for lack of due publication as required under Chapter 2 of Book VII, EO 292, otherwise known as the Administrative Code of 1987. Hence, it cannot prejudice TCC transferees, like PSPC, by · imposing a requirement more than that imposed by the 1982 MOA i.e., BOI registration;

d. The transferee in good faith and for value may not be unjustly prejudiced by the fraud committed by the claimant or transferor in the procurement or issuance of the TCC from the Center.

Thus, PSPC, as an innocent purchaser for value of the TCCs in dispute, may not be prejudiced and made to suffer for any alleged fraud in the issuance of the TCCs;

e. Section 222(a) of the NIRC does not apply as PSPC has neither been shown nor proven to have 'committed any fraudulent act in the transfer and utilization of the subject TCCs.

Hence, the three (3)-year period within which to assess and collect allegedly deficiency excise taxes covered by the disputed TCCs has already prescribed pursuant to Section 203.of the NIRC;

f.

A taxpayer, like PSPC, cannot be faulted in relying on the Center's approval for the transfers of the subject TCCs and its acceptance of the TCCs for the payment of its excise tax liabilities, and the BIR's acceptance of the subject TCCs as payment for its excise tax liabilities; g . The subject TCCs cannot be cancelled by the Center as these had already been cancelled and used up after their acceptance as payment for PSPC's excise tax liabilities. What has been used up, debited, and cancelled cannot anymore be declared to be void, ineffective, and cancelled anew;

h. The real issue in the instant petition does not dwell on the validity of the TCCs procured by the transferor from the Center but on whether fraud or breach of law attended the transfer of said TCCs by the transferor to the transferee; {._ CIR vs. Pilipinos Shell Petroleum C orporation CT A EB Case No. 535 (CT 1\ Case No. 6547) i. While the Center has authority to cancel the TCCs, it must bear in mind the nature of the TCC's immediate effectiveness and validity for which cancellation may only be exercised before a transferred TCC has been fully utilized or cancelled by the BIR after due application of the available tax credit to the internal revenue tax liabilities of an innocent transferee for value, unless the claimant or transferee was involved in the perpetration of the fraud in the TCC's issuance, transfer, or utilization; j.

While the State in the performance of governmental function is not estopped by the neglect or omission of its agents, and nowhere is this truer than in the field of taxation, yet this principle cannot be applied to work injustice against an innocent party, like PSPC;

k. The Center's Excom Resolution No. 03-05-99, pursuant to which the disputed TCCs and their corresponding TOMs were cancelled, cannot be validly enforced against PSPC due to non-publication and non-filing with the National

Administrative

Register

of the U.P.

Law

Center

in accordance with Sees. 3, 4, and 5, Chapter 2 of Book VII, EO 292;

I.

No surcharge and interest can be imposed against PSPC; and

m. PSPC's right to substantive and procedural due process was violated due to the CIR's non-compliance with statutory provisos and revenue regulations, and thereby depriving PSPC of due process in contesting the formal assessment levied against it.

It is noteworthy to emphasize that the Supreme Court similarly applied the foregoing ruling in a recent case entitled Pefron Corporation v. Commissioner of Infernal Revenue (the "Petron Case")38 C.. 38 G.R. No. 180385, July 28. 20 10.

C/R vs. Pilipinos Shell Petroleum Corporation CTA EB Case No. 535 (CTA Case No. 6547) based on the doctrine of stare decisis et non quieta movere. In the said case, the Supreme Court reiterated the rule that the TCCs ore not subject to post-audit as a suspensive condition for it is immediately valid and effective after its issuance. Moreover, the Supreme Court held that the TCCs used in payment of Petron 's excise tax liabilities ore valid and effective, and cannot be unduly cancelled by the Center, absent any proof of fraud on the port of Petron in the procurement and issuance of the subject TCCs.

A perusal of the records of the instant case reveals that the legal rights and relations of the parties, the facts, the applicable lows, the causes of action, and the issues ore exactly the same as those in the decided case of Pilipinas Shell Petroleum Corporation vs. Commissioner of Internal Revenue , supra. Hence, as the issue has been settled, the Supreme Court decision in the Shell case must be respected. As the Court a quo puts it, the principal issue in the aforesaid Shell Case and in the instant case ore exactly the same, i.e., the propriety of the CIR's assessment and collection of alleged deficiency excise taxes, surcharge and interest from PSPC, by reason of the cancellation by the DOF Center of TCCs previously transferred to PSPC by other SOl-registered companies, which PSPC utilized to settle its excise tax liabilities. Similarly, the facts as presented in both cases (She// ( CIR vs. Pilipinos Shell Petroleum Corporation CTA EB Case No. 535 (CTA Case No. 6547) case and the instant case) ore substantially the some, viz:

1.

PSPC

The TCCs were issued, transferred, and utilized by in the some manner and under the some circumstances;

2.

The issuance, transfers, and utlizotion of the TCCs were subjected to the some stringent approval processes of the Center and BIR;

3.

Five (5) of the TCCs included in the instant case were port of the list of the cancelled TCCs in CTA Case No. 6003, and like the rest of the TCCs in the instant case, they were cancelled through the some process;

4.

The grounds for cancellation of the TCCs, their transfers and utlizotion by PSPC, ore the some in the instant case.

Finally, the CIR has not shown any strong and compelling reason to convince this Court that the doctrine of stare decisis should not be applied in the instant case. Contrary to the CIR 's contention, the huge amount of the alleged excise tax deficiency in the instant case is not a compelling reason to justify the non-application of the doctrine of stare decisis.

In the case of Commissioner of Internal Revenue v. Algue. lnc.,39 the Supreme Court hod occasion to remind us of the need to balance the conflicting interests of the government and the taxpayers in this wise: l 39 G .R. No. L-18896, 1 7 February 1988, 158 SCRA 9, 11 .

CIR vs. Pilipinos Shell Petroleum Corporation CT A EB Case No. 535 (CTA Case No. 6547)

DECISION

Page 22 o f 47 Taxes are the lifeblood of the government and so should be collec ted without unnecessary hindrance. On the other hand, such collection should be made in accordance with law as any arbitrariness will negate the very reason for government itself.

It is therefore necessary to reconcile the apparently conflic ting interest of the au thorities and the taxpayers so that the real purpose of taxation, which is the promotion of common good, may be achieved. [Emphasis supplied.] Thus, the application o f the doctrine o f stare decisis in the instant case is proper. The cancellation by the Center of the TCCs transferred to PSPC by BOI-registered companies, which were issued with corresponding TOMs by the Center and BIR, and BIR's ATAPETs, used by PSPC in payment of its excise tax liabilities, cannot be invalidated. Hence, PSPC cannot be held liable for the deficiency excise taxes in the amount of P234,555,275.48, inclusive of surcharge and interests based on the reasons discussed hereinbelow. PSPC is on innocent transferee in good faith and for value; hence, it cannot be prejudiced by the fraudulent procurement of TCCs.

The CIR argues that PSPC is not an innocent transferee in good faith because on assignment of c redit involves no transfer of ownership but merely effects the transfer o f rights which the assignor has at the [.

C/R vs. Pifipinos Sheff Petroleum Corporation CTA EB Case No. 535 (CTA Case No. 6547)

DECISION

Poge 23 of 47

time to the assignee. Hence, PSPC, being on ossingee, merely stepped into the shoes of the assignor and should therefore suffer the consequences of the fraudulent procurement of the TCCs. Moreover, the CIR argues that PSPC was aware of the conditions attached to the transfer of the TCCs: that the TCCs ore subject to post- audit as indicated therein. Therefore, when PSPC used the TCC in the payment of its excise tax liabilities at the time when the post-audit was yet to be conducted, it did so at its own risk. This Court disagrees.

First, the Supreme Court in the Shell Cose 40,olreody ruled with finality that the TCCs ore valid and effective from their issuance and ore not subject to post-audit as a suspensive condition, thus: "The inescapable conclusion is that the TCCs are not subject to post-audit as a suspensive condition, and are thus valid and effective from their issuance. As such, in the present case, if the TCCs have already been applied as partial payment for the tax liability of PSPC, a post-audit of the TCCs cannot simply annul them and the tax payment made through said TCCs. Payment has already been made and is as valid and effective as the issued TCCs. The subsequent post-audit cannot void the TCCs and allow the respondent to declare that utilizing canceled TCCs results in nonpayment on the part of PSPC. As will be discussed, respondent and the Center expressly recognize the TCCs as valid payment of PSPC's tax liability.( 40 Supra, pp.342-347 CIR vs. Pilipinas Shell Petroleum Corporation CT A EB Cose No . 535 (CTA Case No. 6547)

DECISION

Page 24 o f 47 Second, the o nly conditions the TCCs ore subjected to ore those found on its face. And these ore: 1.

Post-a udit a nd subsequent adjustment in the event o f comp utational discrepa ncy;

2.

A reduc tion for any outsta nding account/obligation o f herein claimant w ith the BIR and/or BOC; and 3.

Revalidation w ith the Center in cose the TCC is not utilized or a p plied w ithin one (1) year from dote o f issua nce/dote o f lost utilization.

The a bove conditions c learly show that the post-audit contemplated in the TCCs does not pertain to their genuineness or validity, but on computational discrepancies that may have resulted from the transfer and utilization of the TCC. This is shown by a c lose reading of the first and second conditions above; the third condition is self explana tory. Since a tax c redit parta kes of w hat is owed by the State to a taxpayer, if the taxpayer has o n outsta nding liability with the BIR or the BOC, the m oney value of the tax credit covered by the TCC is primarily a pplied to suc h internal revenue liabilities of the holder as provided under condition number two. Elsewise p ut, the TCC issued to a claima nt is applied first and foremost to a ny outstanding lia bility the c laima nt may hove w ith the government. Thus, it may happen ,that upon post-audit, a TCC o f a taxpayer may be reduced for whatever liability the taxpayer may hove w ith the BIR w hic h remains unpaid due to inad vertence or computational errors, and suc h reduc tio n necessarily a ffects the ba la nce o f the monetary value o f the tax credit o f the TCC.

XXX

Third, the post-aud it the Center conduc ted on the tra nsferred TCCs, delving into their issuance a nd validity on alleged viola tions by PSPC of the August 29, 1989 MOA between the DOF a nd BOI, is c ompletely misplaced . As ma y be reca lled, the Center required PSPC to submit copies o f pertinent soles invoices and delivery receipts covering sole transac tions of PSPC products to the TCC assig nors/transferors purportedly in connection with o n ongoing post audit. As c orrectly pro tested by PSPC but w hich was com pletely ignored by the Center, PSPC is not required by law to be a capital equipment provider or a supplier of raw material and/ or component supplier to the ( C/R vs. Pilipinos Shell Petroleum Corporation CTA EB Case No. 535 (CTA Case No. 6547)

DECISION

Page 25 o f 47 transferors. What the low requires is that the transferee be o SOl-registered company similar to the SOl-registered transferors.

XXX

Fourth, we likewise fail to see the liability clause a t the dorsal portion of the TCCs to be a suspensive condition relative to the result of the post-audit. Said liability clause indica tes:

LIABILITY CLAUSE

Both the TRANSFEROR and the TRANSFEREE shall be jointly and severally liable for any fraudulent oct or viola tion o f the pertinent lows, rules and regulations relating to the transfer of this TAX CREDIT CERTIFICATE." (Emphasis supplied.) The above clause to our mind clearly provides only for the solidary liability relative to the transfer o f the TCCs from the original grantee to a transferee. There is nothing in the above c lause that provides for the liability of the transferee in the even t that the validity of the TCC issued to the original grantee by the Center is impugned or where the TCC is declared to have been fraudulently procured by the said original grantee. Thus, the solidary liability, if any, applies only to the sale of the TCC to the transferee by the original grantee. Any fraud or breach of law or rule relating to the issuance of the TCC by the Center to the transferor or the original grantee is the latter's responsibility and liability. The transferee in good faith and for value may not be unjustly prejudiced by the fraud committed by the claimant or transferor in the procurement or issuance of the TCC from the Center.

It is not only unjust but well-nigh violative o f the constitutional right not to be deprived of one 's property without due process of law. . Thus, a re-assessment o f tax liabilities previously paid through TCCs by a tra nsferee in good faith and for value is utterly confiscatory, more so when surcharges and interests are likewise assessed.

A transferee in good faith and for value of a TCC who has relied on the Center's representation of the genuineness and validity of the TCC transferred to it may not be legally required to pay again the tax covered by the TCC which has been belatedly declared null and void, that is, after the TCCs have been fully utilized through settlement of internal revenue tax liabilities. Conversely, when the transferee is party to the fraud as when it did not obtain the TCC for value or was a party to or has knowledge of its fraudulent issuance, said transferee is liable for the taxes and for the fraud committed as provided for by law. &..., CIR vs. Pilipinos Shell Petroleum Corporation CT A EB Case No. 535 (CTA C ase No. 6547)

In the instant case, a close review of the factual milieu and the records reveals that PSPC is a transferee in good faith and for value. No evidence was adduced that PSPC participated in any way in the issuance of the subject TCCs to the corporations who in turn conveyed the same to PSPC. It has likewise been shown that PSPC was not involved in the processing for the approval of the transfers of the subject TCCs from the various BOI-registered transferors." [Emphasis supplied] The

Supreme

Court

a lready ruled that the post-audit contemplated in the TCCs does not pertain to their genuineness or validity, but on computational discrepancies that may hove resulted from the transfer and utilization of the TCC. Significantly, the Supreme Court added that the solidary liability provided at the dorsal portion of the TCCs applies only to the sole of the TCC to the transferee by the original grantee.

Therefore, the Supreme Court concluded that a transferee in good faith and for value may not be unjustly prejudiced by the fraud committed by the claimant or transferor in the procurement or issuance of the TCC from the Center. Hence, the CIR's argument that PSPC was aware of the conditions attached to the transfer of the TCCs, i.e., the TCCs ore subject to post-audit as indicated therein, must necessarily foil.

Second, in a futile attempt to convince this Court that the Center's subsequent cancellation of the subject TCCs by reason of its fraudulent issuance resulted to non-payment of PSPC's excise tax( CIR vs. Pilipinos Shell Petroleum Corporation CTA EB Case No. 535 (CTA Case No. 6547) liabilities, the CIR mistakenly relied on the pronouncement in the case of Proton Pilipinas Corporation v. Republic of the Philippines (the "Proton Case''). ~ 1 Significantly, the CIR 's reliance in the Proton Case was brushed aside by the Supreme Court in the Petron Cose, 42 the substantial portion of which reads:

"In urging the affirmance of the assailed decision, respondent c alls our attention to the pronouncement in the case of Proton Pilipinas Corporation vs. Republic of the Philippines [G.R. No. 165027, 504 SCRA 528, October 16, 2006) that the resultant non-payment of customs duties and taxes by reason of the cancellation of the TCCs for having been found as fake and spurious is the obligation of the taxpayer. Rather than the legal implications and consequences of the cancellation of TCCs, however, the Proton Pi/ipinas case dealt with procedural matters such as the effect of the Sandiganbayan's jurisdiction over the criminal case involving the issuance of the TCCs to the collection case instituted by the government before the Regional Trial Court (RTC), the existence of litis pendencia as a consequence of the pendency of the criminal and civil cases filed under the circumstances and the prejudicial question arising therefrom. Sharing the same factual and legal milieu as the case at benc h, more in point is the Pilipinas Shell case whic h ruled that the rights of a transferee in good faith ca nnot be prejudiced by the Center's turnaround from its previous approval of the assignments o f the TCCs." [Emphasis supplied.) In light of the foregoing, the Proton Case cited by the CIR is wholly inapplicable in the instant case as it , merely dealt with procedural matters such as the scope of the Sandiganbayan's jurisdiction, the existence of litis pendencia and prejudicial question. The core issue in the instant case was adeptly discussed and ruled ( 41 G.R. No. 165027, 504 SCRA 528, Oc tober 16, 2006. 42 Supra no te 38.

C/R vs. Pilipinos Shell Petroleum Corporatio n CTA EB Case No. 535 (CTA C ase No. 65-1 7) upon by the Supreme Court in the Shell Case above-cited where it vividly discussed the nature of the TCC' s immediate effectiveness and validity vis-a-vis the Center's authority to cancel the same in the Shell C ase43, viz:

"Sec. 3, letter I. of AO 266, in relation to letters a. and g., does give ample authority to the Center to cancel the TCCs it issued. Evidently, the Center cannot corry out its mandate if it cannot cancel the TCCs it may hove erroneously issued or those that were fraudulently issued. It is axiomatic that when the low and its implementing rules ore silent on the matter of cancellation while granting explicit authority to issue, on inherent and incidental power resides on the issuing authority to cancel that which was issued. A caveat however is required in that while the Center has authority to do so, it must bear in mind the nature of the TCC's immediate effectiveness and validity for which cancellation may only be exercised before a transferred TCC has been fully utilized or canceled by the BIR after due application of the available tax credit to the internal revenue tax liabilities of an innocent transferee for value, unless of course the claimant or transferee was involved in the perpetration of the fraud in the TCC 's issuance, transfer, or utilization. The utilization of the TCC will not shield a guilty party from the consequences of the fraud committed."

Accordingly, it is crystal clear that the Center may only cause the cancellation of TCCs before and not after a transferred TCC has been fully utilized or cancelled by the BIR after due application of the available tax credit to the tax liabilities of an innocent transferee for value. Hence, it is imperative for this Court to determine whether PSPC is an innocent transferee in good faith and for va~ue in the instant case presented before us. L 43 Supra, pp. 355-356 CIR vs. Pilipinos Shell Petroleum Corporation CTA EB Case No. 535 (CTA Case No. 65~7)

A further perusal of the records reveals that PSPC is an innocent transferee in good faith and for value. As correctly found by the Court a quo, there was no evidence presented which shows PSPC's participation in the procurement and issuance of the subject TCCs by the Center to the original grantees. Neither has it shown that PSPC was involved in the processing for the approval of the transfers of the subject TCCs from the various BOI-registered transferors. In order to prove that the TCCs were fraudulently transferred to PSPC by the original grantees, the CIR then presented various memoranda approving the requests for transfer of subject TCCs (Exhibits 11 to 22), Deeds' of Assignment of TCCs (Exhibits 11-B to 22-B) and Sales Agreements (Exhibits 11 -C to 22-C) allegedly executed by PSPC and TCC transferors. The CIR alleged that the Center approved the TCC transfers on the basis of the representation that the TCCs shall be in payment for petroleum products purchased by the TCC transferors from PSPC pursuant to the aforesaid Sales Agreements. 44 Consequently, as there were no deliveries of petroleum products from PSPC to the TCC transferors as disclosed in the post-audit report and as admitted by Mr. Pacifico Cruz, PSPC's former General Manager of Treasury and Taxation (tsn., November 24, 2003, p. 23), the said transfers C.. 44 Division Docket, p. 1475.

CIR vs. Pilipinos Shell Petroleum Corporation CTA EB Case No. 535 (CTA Case No. 6547) to PSPC were mode in contraventio n to Rule VII of the Rules of Regulations implementing the provisions o f E.O. No. 226 and the 1989 MOA between the DOF and BOI, which requires that the TCC transferee should b e a domestic capitol equipment supplier or a row material and/or component supplier of the transferor. 45 It is on this premise that the CIR concluded that there was a misrepresentation mode to the Center because the Iotter would not hove approved the transfers of the subject TCCs were it not for such misrepresentation, thereby making the TCC transfers froudulent.46 The Supreme Court in the Shell Case has explicitly held that "PSPC is not required by low to be a capitol equipment provider or a supplier of row material and/or component supplier to the transferors. What the low requires is that the transferee be a BOI-registered company similar to the BOI-registered tronsferors." 47 Thus, PSPC, a BOI- registered company, is a qualified transferee of the subject TCCs. On the claim o f alleged misrepresentation, the Court a quo, in brushing aside the th eory o f the C IR, mode the following observations: 45 1bid.

46 Ibid.

"But, unlike in the She ll Case, respondent, in the case at bench, presented photocopies o f the

Sales

Agreements

(Exhibits "11-C" to "1 6-C", and "18-C " to "22-C") to show that ( 47 Pilipinas Shell Pe troleum Corpora tion v. Commissioner o f Internal Revenue, G .R. No. 172598, 541 SCRA 316, December 21, 2007, p. 344.

CIR vs. Pilipinos Shell Petroleum Corpora tion C TA EB Case No . 535 (CTA Case No. 65-17) the subject TCCs were transferred to petitioner in consideration of its d eliveries of pe troleum products to TCC transferors. However, a c are ful reading of the Sales Agreements shows lha t there is no thing sta ted therein that the said Sales Agreements were executed in consideratio n of d eliveries o f pe troleum products by petitio ner to its TCC transferors. O n cross-examina tion, petitioner's witness, Pacifico R. Cruz, testified tha t the c onsidera tion for lhe transfer of the TCCs to pe titioner is no t the d elivery of pe troleum produc ts. but petitioner paid 90% o f the face value o f the TCCs (TSN dated Novem ber 24, 2003, p. 23). Pacifico R. Cruz further testified that pe titioner d elivered produc ts to the TCC transferors, but no t in exchange for the TCCs. Also. in his Affidavit dated July ll . 2007, Pacifico R. Cruz c ategoric ally de nied having executed nor sig ned said Sales Agreements (Exhibits "0 00'' to "000- 1 · ~ and · TSN d a ted July 16. 2007, p . 10). The testimony o f Pacifico R. Cruz was corroborated by the testimonies of pe titioner's o ther rebuttal w itnesses, Gerardo C. Valentin. Jr .. and Florinda D. Soriano, former subordina te and Secretary, respectively, of Pacifico R. Cruz. w ho are both familiar with his sig nature for ha ving worked with him in PSPC for many years. Bo th ca tegorically sta ted tha t the sig natures appearing in the Sales

Agreements (Exhibits " 11 -C" to

" 1 6 - C'~ and "1 8-C " to "22-C"] , a llegedly signed by Pacifico R. Cruz, are not his true and genuine sig natures (Exhib its "PPP" and "PPP- 1 ", a nd "QQQ" and "QQQ- 1 ", respectively, a nd TSN d ated Marc h 26, 2008, pp. 1.1 and 26}. In support o f their a llegations. Gerardo C. Valentin, Jr., and Florind a D. Soria no presented documents bearing the genuine sig natures o f Pacifico R. Cruz (Exhibits "PPP-2" to "PPP-6" a nd the ir sub m arkings]. The rule is tha t the ha ndwriting of a person may be proved by a witness who believes it to be the handwriting o f suc h person because he has seen the person write. or has seen writing purporting to be his, upon w hic h the witness has ac ted or been c harged , and has thus acquired knowledge o f the handwriting of suc h person (Sec tio n 2, Rule 132 o f the Revised Rules of Court]. Thus, We give c red ence to the tes timonies of Gerard o C. Valentin, Jr .. a nd Florinda D. Soriano , m ore so that respondent failed to present countervailing evidence to refute their testimonies. In additio n. considering tha t no less than Section 22, Rule 132 of lhe Revised Rules o f Court also explic itly authorizes the Court. by itself. to make a comparison o f the disputed ha ndwriting 'with writings admitted or treated as g enuine by the party against w hom the evidence is o ffered or proved to be ( CIR vs. Pilipinos Shell Petroleum Corporation CTA EB Case No . 535 (CTA Case No. 651\7)

DECISION

, Page 32 o f47 genuine to the sa tisfac tion o f the judge' (G & M Philippines, Inc. vs. C uambot, 507 SCRA 567-568), the Court d eems it necessary to com pare the sig na tures of Pacifico R. Cruz appearing on the purported Deeds of Assig nment with his signatures appearing on the documents enumera ted below, claimed by Pacifico R. Cruz to be his genuine signatures.

A cursory perusal and comparison of the a lleged sig na tures

of Pacifico

R.

Cruz a ppearing o n said Soles Agreements with the sig na tures o f Pacifico R. Cruz appearing o n the records o f this case, such as: ( 1) Minutes o f the Hearing (O rig ina l Docket, p. 1145); (2) Deeds of Assignment, doted April 20, 1996, August 5, 1996, February 26, 1996, and Marc h 13, 1997 (Exhibits "S" to "V"); (3) Affidavit doted July 11 , 2007 o f Pacifico R. Cruz (Exhibits "000'' and "000- 1 '); (4) Applic ation for Leave doted November 28, 1996 o f Pacifico R. Cruz (Exhib its "PPP-2" and "PPP-2-a"); (5) Pacifico R. Cruz' Resignation Letter d o ted December 3 1, 1986 from PSPC (Exhibits "PPP-3" a nd "PPP-3-a"); (6) Waiver o f the Defense of Prescriptio n under the Statute o f Limitations o f the NIRC (Exhib its "PPP-4" and "PPP-4-a'} ; (7) Le tter doted June 1995 of petitioner, bearing Pacifico R. Cruz' signa ture under the "Received by" portion (Exhibits "PPP-5" and "PPP-5-a"); and (8) Letter doted December 7, 1996 o f Pacifico R. Cruz to CIR Liwoywoy V. Cho to (Exhibits "PPP-6" a nd "PPP-6-a''), readily shows glaring disparities.

At the outset, a mere Iaymon w ill immediately notice tha t the nome Pacifico R. Cruz is c learly readable on the contested Deeds of Assignment, as compared w ith the sig na tures appearing o n the above genuin@ documents (O rigina l Docket,

p. 1145; Exhib its "S" to ''V'~ Exhibits "000" to "PPP-5" and the ir subm a rkings) executed by Pacifico R. Cruz, w hic h con hardly be read.

Second, the stroke of the ca pitol Letter "P" on the contested Deeds of Assig nment starts from the bottom, a nd without a ny to il, whereas, on the other genuine documents, the capito l letter "P" has a to il from w hic h the stroke starts. Third, the capito l letter "P", sma ll letter "f", a nd capitol letters "R" and "C" on the contested Deeds of Assig nment ore of the some heig ht, w hile on the o ther genuine documents, the capito l letter "P" is the only dominan t or visibly capita lized letter. Fourth, bo th letters "i" hove periods on the contested Deeds o f Assig nment, w hile only the firs t le tter "i" has a period on the other genuine documents. Fifth, the toil of the letter "f" o n the contested Deeds of Assig nment is more rounded, w hile on the o ther documents they ore visib ly pointed. Sixth. the loop of the capito l letter "C" on the contested Deeds o f Ass igr;~me nt starts from the top going down, w hereas, in the other genuine documents, the loop o f ( CIR vs. Pilipinas Shelf Pe troleum Corporation CTA EB Case No. 535 (CTA Case No. 6547)

DECISION

Page 33 o f 47 the le tter "c" starts from the middle going up. Seventh, as to the distance o f the letters, on the contested Deeds o f Assignment, they ore more spread ou t, w hile on the other genuine documents, the letters ore more constricted . From the foregoing, it is evident tha t the sig natures "Pacifico R. Cruz" appearing on the contested Deed s o f Assignment were signed, not by Pacifico R. Cruz, but by ano ther person. It is clear, therefore, tha t the Deeds of Assignment were not executed by petitioner. Thus, petitioner c annot be considered to hove participated in the approval of the transfer of the subject TCCs by presenting the Deeds o f Assig nment. Considering that the subject TCCs were transferred to pe titioner for valuable consideration and pe titio ner did not participate in the commission o f a ny fraud in the procurement o f the subject TCCs, nor in the perpe tration of any fraudulent oc t in the tra nsfer o f the subject TCCs, the ruling of the Supreme Court in the Shell Case, that petitio ner is a transferee in good faith and for value remains a binding precedent." 4B A c are ful sc rutiny o f the record s o f the c ase revea ls that the sig natures "Pacifico R. C ruz" a ppearing o n the conteste d

Sales

Agreements (Exhib its "CCC" to "HHH" and "JJJ" to "NNN") , and no t the Deed s o f Assig nme nt as a b ove-cite d in the assaile d Decisio n, were sig ne d , no t by Mr. Pacifico R. C ruz, but b y ano the r person.

Neverthe less, we see no cogent reaso n to d eviate fro m the said findings o f the Court a q uo th a t PSPC was an innocent transfe ree in g ood faith a nd fo r value.

To e mphasize , the Sales Agreements p resente d b y th e C IR sufficie ntly estab lishe d that PSPC had no p artic ipatio n in the executio n the reof as the signatures "Pac ifico R. ~ 48 Pilipinas Shell Petroleum Corpora tion v. Commissio ner o f Infernal Revenue, CTA Case No. 6547, April 30, 2009, EB Docket, pp. 93-98.

CIR vs. Pilipinas Shell Petroleum Corporation CTA EB Case No. 535 (CTA Case No. 6547)

Cruz", allegedly representing PSPC, appearing on these documents were not the genuine signature of Mr. Pacifico R. Cruz as compared with the signatures appearing on the genuine documents (Original Docket, p. 1145; Exhibits "S" to ''V", Exhibits "000" to "PPP-5'' and their submarkings) executed by Mr. Pacifico R. Cruz as sufficiently explained by the Court a quo.

To reiterate, PSPC did not participate in the fraudulent issuance of the subject TCCs, if any, to the original grantees nor in the perpetration of any fraudulent act in the transfer thereof; thus, the ruling of the Court a quo that PSPC is a transferee in good faith and for value is hereby affirmed.

The issues on the validity of the subject TCCs and the utilization thereof by PSPC have been rendered moot by the findings of this Court that PSPC is an innocent transferee in good faith and for value. The CIR posits that the Court a quo should have resolved the core issue in the instant case - the validity of the TCCs transferred to and utilized by PSPC, due to overwhelming proof that the same were fraudulently obtained; thus, they are void ab initio and could not be validly used in the payment of PSPC's excise tax liabilities.( C/R vs. Pilipinos Shell Petroleum Corporatio n CT A EB Case No. 535 (CTA Case No. 6547)

Again, the CIR 's argument must necessarily fail.

The Supreme

Court, in addressing this issue in the Shell case, 49 held that: "On the issue of fraudule nt proc urement of the TCCs, it has been asseverated that fraud was committed by the TCC c laimants who were the transferors of the subject TCCs. We see no need to rule on this issue in view of our finding that the real issue in this petition does not dwell on the validity of the TCCs procured by the transferor from the Center but on whether fraud or breach of law attended the transfer of said TCCs by the transferor to the transferee.

The finding of the CTA En Bane that there was fraud in the procurement of the subject TCCs is, therefore, irrelevant and immaterial to the instant petition. Moreover, there ore pending criminal cases arising from the alleged fraud. We leave the matter to the anti-graft court especially considering the failure of the affiants to the affidavits to appear, making these hearsay evidenc e." [Emphasis supplied.]

Therefore, contrary to the CIR's stance, the real issue to be resolved in the instant petition is not on the validity in the procurement of the subject TCCs from the Center but rather on whether fraud or breach of low attended the transfer of said TCCs by the transferors to PSPC.

This Court sees no cogent reason to belabor on the issues of validity of the subject TCCs and the utilization thereof by PSPC as the some hove been rendered moot by the findings of this Court that PSPC is on innocent transferee in good faith and for value.[ 49 Supra, p . 353.

C/R vs. Pilipinos Shell Petroleum Corpora tion CTA EB Case No. 535 (CTA Case No. 6547)

As to the issue on the actual number of TCCs that were actually cancelled by the Center, the some is mooted by the pronouncement of the Supreme Court in the Shell Case that the PSPC's payments using the subject TCCs ore valid.

The CIR vehemently argues that the Center cancelled all the twenty (20) TCCs subject of the June 17, 2002 Collection Letter as shown in various Cancellation Memoranda approved by the Center's Executive Director, Alberto R. Solonga. so In response thereto, PSPC claims that o ther than the list of purportedly cancelled TCCs/TDMs attached to the Center's Letter doted November 3, 1999, it has not received any notice of any additional TCC/TDM that has been subsequently cancelled by the Center.sl Considering the Supreme Court's pronouncement in the Shell Case on the validity of payments mode by PSPC using the TCCs/TDMs transferred to it by the TCC transferors coupled with the fact that these TCCs cannot be subsequently cancelled by the Center as the some were already used up, debited , and cancelled after its application to PSPC's excise tax liabilities, the issue on the actual number o f TCCs ( 5o CIR's Exhibits No. "2" to "8".

5 1 EB Doc ke t. p p . 269-270.

C/R vs. Pilipinas Shell Petroleum Corpora tion C T A EB Case No. 535 (CTA Case No. 65-1 7)

DECISION

Page 37 o f 47 cancelled by the Center has been rendered moot and academic. Settled is the rule that "[a] case becomes moot and academic when there is no more actual controversy between the parties or no useful purpose con be served in passing upon the merits." 52 On estoppel, the CIR and the Center ore estopped fro m seeking invalidation of the TCCs, including their transfer and utilizatio n. The CIR assails that he is not estopped from seeking invalidation o f the TCCs, including its transfer and utilizatio n without running afoul to the well-established judic ial precedents holding that the Government cannot be stopped from collecting taxes by the mistake, negligence, or omissio n o f its agents.

Again, adherence to the principle o f store decisis is proper. This issue was similarly settled in the aforesaid Shell Case, sJ where the Supreme Court held that:

"While we agree with respondent that the State in the performance of governmental function is not estopped by the neglect or omission of its agents, and nowhere is this truer than in the field of taxation, yel this principle cannot be applied to work injustice against an innocent party. In the case at bar, PSPC's rig hts as on innocent transferee for value must be protected. Therefore, !he remedy for respondent is to go after '- 52 Ocampo v. House of Representatives Electoral Tribunal, G.R. No. 158466, 15 June 2004 citing Enrile v. Senate Electoral Tribunal, G.R. No. 132986, May 19, 2004. 53 Supra, p . 356 CIR vs. Pilipinas Shell Petroleum C orporation CTA EB Case No. 535 (CTA Case No. 654 7) the claimant companies who allegedly perpetrated the fraud." [Emphasis supplied.]

Evidently, having established that PSPC is an innocent transferee in good faith and for value of the subject TCCs and therefore, an innocent party, PSPC's rights must be protected. The CIR cannot sweepingly invoke the general rule that the State in the performance of governmental function is not estopped by the neglect or omission of its agents as the same cannot be applied to work injustice against an innocent party, like PSPC in this case. Hence, the CIR and the Center are estopped from seeking invalidation of the subject TCCs, including their transfer and utilization.

On the issue of prescription, the period within which to collect PSPC's unpaid excise taxes has prescribed.

The CIR vehemently argues that PSPC filed a false excise tax return because the TCCs utilized in the payment of excise taxes were subsequently cancelled by the Center; hence, the applicable provision of law in the instant case is Section 222 of the Tax Code, which provides a ten ( 1 0)-year prescriptive period from the discovery of the falsity of PSPC's returns for the CIR to assess and collect deficiency taxes. Therefore, since the reckoning point is the date of the various ( • CIR vs. Pilip inos Shell Pe troleum Corporation CTA EB Case No . 535 (CTA Case No. 6547)

DECISION

Page 39 o f 47 Cancellatio n M e m oranda (Octo b er 24, 1999 and sometime in March with resp e ct to Mannequin Internatio nal Corp.) whic h contain the post- audit report, the June 17, 2002 Colle ctio n Letter was w e ll within the 10- year p e rio d o f prescriptio n.

We ore no t persuade d.

The Supreme C o urt in the Shell C ase, s4 ruled that the ten ( 1 0)- year perio d o f prescriptio n unde r Sec. 222 (o) o f the NIRC d o es not apply absent any fraudule nt o ct o n the port o f PSPC in the transfer and utilization of the subjec t TCCs.

Hence, the three (3)-yeor period o f prescriptio n under Sec. 203 o f the NIRC has set in, thus: 54 s "[l]t is clear tha t PSPC is a transferee in good faith and for value o f the subject TCCs a nd may not be prejudiced with a re-assessment o f excise tax lia bilities it has already settled when due with the use of the subject TCCs. Logically, there fore, the excise tax returns filed by PSPC duly covered by the TOM a nd ATAPETs issued by the BIR confirming the full payment a nd satisfac tion of the excise tax liabilities of PSPC, have no t been fraudulently filed. Consequently, as PSPC is a transferee in good faith and for value, Sec. 222(a} of the NIRC does not apply in the instant case as PSPC has neither been shown nor proven to have committed any fraudulent act in the transfer and utilization of the subject TCCs.

With more reason, therefore, that the three-year prescriptive period for assessment under Art. 203 o f the NIRC has already set in and bars respondent from assessing a new PSPC for the excise taxes already paid in 1992 and 1994 to 1997. Besides, even if the period for assessment has not prescribed, still, there is no valid ground for the assessment as the excise tax liabilities o f PSPC have been d uly se ttled and paid." [Emphasis s u pp lied.]~ upro, p. 349.

CIR vs. Pilipinas Shell Petroleum Corporation CTA EB Case No. 535 (CTA Case No. 6547)

Considering the earlier pronouncement that PSPC is a transferee in good faith and for value of the subject TCCs, the foregoing ruling of the Supreme Court equally applies. Absent any fraudulent act on the port of PSPC in the issuance and subsequent transfer thereto of the subject TCCs from the original grantees or TCC transferors, the applicable provision is Sec. 203 and not Sec. 222(a) of the NIRC, which provides a three (3) -yeor period of prescription for assessment and collection of internal revenue taxes.

Failure to adhere with the said period necessarily bars the CIR from reassessing PSPC for excise taxes already paid for the taxable years in question. On due process, PSPC was denied of due process in the collection of excise taxes.

The CIR emphasized that PSPC was not denied of due process in the collection of the unpaid excise taxes because the procedures under RR No. 12-99 is not applicable in the instant case as the Collection Letter is not an assessment for deficiency excise tax but rather, a demand for payment of unpaid excise tax liabilities. In addition, PSPC was given the opportunity to dispute the Collection Letter before the Warrant of Distraint and/or Levy was issued to enforce( CIR vs. Pilipinos Shell Pe tro le um Corporation CTA EB C ase No. 535 (CTA Case No. 6547)

DE C ISION

Pag e 41 o f 47 the collection of deficiency excise taxes. Also, the CIR is justified to rely solely on the findings of the Center' s post-audit examination of the TCCs considering that the C e nter is a sp ecialized government agency tasked to determine fraudulently o btaine d TCCs. This argument is untenab le.

The Supreme Court in the Shell Cose,ss expressly held that PSPC's substantive and procedural due proc ess were equally violated for failure of the CIR to observe the statutory and procedural requirements provide d unde r the NIRC and applicable regulations, thus: "While this has likewise been mooted by our discussion above, it would not be amiss to state that PSPC's rights to substantive and procedural due process have indeed been violated. The fac ts show that PSPC was not accorded due process before the assessment was levied on it. The Center required PSPC to submit certain sales documents relative to supposed delivery of IFOs by PSPC to the TCC transferors. PSPC contends that it could no t submit these documents as the transfer of the subject TCCs did not require that it be a supplier of materials and/or component supplies to the transferors in a letter dated Oc tober 29, 1999 whic h was received by the Center on November 3, 1999. On the same day, the Center informed PSPC o f the ca ncellation o f the subject TCCs and the TDM covering the applica tion of the TCCs to PSPC's excise tax liabilities. The objections of PSPC were brushed aside by the Center and the assessment was issued by respondent on November 15, 1999, without following the statutory and procedural requirements clearly provided under the NIRC and applicable regulations.

What is applic able is RR 12-99, whic h superseded RR 12-85, pursua nt to Sec. 244 in rela tion to Sec. 245 o f the NIRC implementing Sees. 6, 7, 204, 228, 247, 248, and 249 on the ( 55 Supra, pp . 358-360.

C IR vs. Pilipinos Shell Petroleum Corporation CT A EB Case No . 535 (CTA Case No. 6547)

DECISION

Page 42 o f 47 assessme nt o f na tional internal revenue taxes. fees, a nd charges.

The procedures delineated in the said statutory provisos a nd RR 12-99 were not followed by respo ndent, depriving PSPC of due process in contesting the formal assessment levied against it. Respondent ignored RR 12-99 and did not issue PSPC a notice for informal conference and a preliminary assessment notice, as required. PSPC's November 4, 1999 motion for reconsidera tion of the purported Center findings a nd cancellation ·of the subject TCCs a nd the TOM was not even acted upon. , PSPC was merely informed that it is liable for the a mount o f excise taxes it declared in its excise tax returns for 1992 and 1994 to 1997 covered by the subject TCCs via the forma l letter o f demand a nd assessment notice. For being formally defective, the November 15, 1999 formal letter o f demand and assessment notice is void. xxx In short, respondent merely relied on the findings of the Center which did not give PSPC ample opportunity to air its side. While PSPC indeed protested the formal assessment, such does not denigrate the fact that it was deprived o f statutory a nd procedural due process to contest the assessment before it was issued. xxx " [Emphasis supplied .]

Thus, the Sup re m e Court clearly d elineated the reasons why PSPC's substa ntive a nd p rocedura l d ue process w e re vio lated. First, the Cente r required PSPC to submit certain sa les d ocum e nts re lative to supposed d e livery o f IFOs by PSPC to the TCC transfero rs, w hic h is no t required by the p revailing sta tutory p rovisio ns in the transfe r o f the subject TCCs.

Second, no No tice for Info rmal Confe re nce and Preliminary Assessm e nt No tice were issued to PSPC in vio latio n o f Revenue Regula tio ns No. 12-99, thereby d epriving PSPC o f d ue p rocess in con testin g the fo rmal assessment levied a gainst it. Third, the C IR" C/R vs. Pilipinas Shell Petroleum Corporation CTA EB Case No. 535 (CTA Case No. 6547) . DECISION

Page 43 of 47

merely relied on the findings of the Center, which did not give PSPC ample opportunity to air its side.

It is undisputed that the factual circumstance and procedure in effecting the assessment and collection of deficiency excise tax liabilities in the Shell Case was similarly adopted herein by the CIR. Hence, the aforesaid ruling squarely applies following the doctrine of stare decisis.

In the instant case, the Center required PSPC to submit certified copies of the sales invoices and delivery receipts to prove its sale and delivery of Industrial Fuel Oil to the TCC transferors in the Letters dated August 31 , 199956 and September 1, 1999,57 respectively.

In a Letter

dated October 29, 1999,58 PSPC reasoned that the submission of sales invoices and delivery receipts has no legal basis as the applicable rule at the time of the transfer of TCCs merely requires TCC transferee to be a BOI-registered company. Thereafter, the Center informed PSPC in a Letter dated November 3, 1999 59 that the subject TCCs/TDMs were cancelled in accordance with Excom Resolution No. 03-05-99. PSPC's subsequent letter dated November 4, 1999 60 went on unheeded. C.. 56 Exhibit "A", Division Docket, pp. 301-302. 57 Exhibit "B", Division Docket, p . 303.

58 Exhibit "D ", Division Docket, pp. 316-327. 59 Exhibit "E", Division Docke t, p . 328.

60 Exhibit "F", Division Docke t, pp. 333-348.

CIR vs. Pilipinos Shell Petroleum Corporation CT A EB Case No. 535 (CTA Case No. 6547)

Instead, the CIR issued a Collection Letter dated January 30, 200261 informing PSPC its obligation to pay deficiency excise tax liabilities in the amount of P691 ,508,005.82, in view of the Center's cancellation of the TCCs/TDMs it previously utilized in payment of its excise tax liabilities pursuant to Excom Resolution No. 03-05-99.

Subsequently, the CIR issued another Collection Letter dated June 17, 200262 reducing the deficiency excise tax in the amount of P234,555,275.48. Again, the basis for the collection is the inclusion of the subject TCCs/TDMs in the Center's Excom Resolution No. 03-05-99.

The Supreme Court in the Shell Case ruled that the Center's Excom Resolution No. 03-05-99 is invalid and unenforceable for lack of publication and requisite filing with the National Administrative Register of the U .P. Law Center pursuant to Sections 3, 4 and 5, Chapter 2 of Book VII, of EO 292, otherwise known as the Administrative Code of 1987. 63 Thus, the Center's basis for cancellation of the subject TCCs/TDMs was clearly without any legal basis. Significantly, the ,CIR admitted that ( 1) he merely based the Collection Letter solely on the findings made by the DOF/Center;64 (2) ~ 61 Exhibit "H", Divisio n Docket, p. 357.

62 Exhibit "1", Division Docket, p. 373.

63 Supra no te 43, p p. 356-357.

64 Paragraph 19, Am ended Joint Stipulation of Fac ts and Issues filed on October 23, 2003, Divisio n Docke t, p. 277.

CIR vs. Pilipinos Shelf Petroleum Corporation CTA EB Case No. 535 (CTA Case No. 6547) no Notice for Preliminary Conference and Preliminary Assessment Notice were served to PSPC nor preliminary conference ever held between PSPC and BIR prior to the issuance of the Collection Letters.6s Clearly then, the CIR merely relied on the findings of the Center in issuing the Collection Letters without making his own findings or conducting an investigation relative thereto. Notably, the CIR ignored the provisions of RR 12-99 which requires the issuance of a notice for informal conference and a preliminary assessment notice, thereby depriving PSPC of its opportunity to ventilate its side before the issuance of the Collections Letters above-cited. Undoubtedly, PSPC 's denial of both substantive and procedural due process is clear and unmistakable.

On the surcharges and interests, the CIR cannot validly impose them against PSPC's tax liabilities.

The CIR stood firm in its position that it can validly impose surcharges and interests against PSPC 's tax liabilities pursuant to Sections 248 and 249 of the Tax Code. ( 65 Paragraphs 20 and 21, Amended Joint Stipulation of Facts and Issues filed on October 23, 2003, Division Docket, p. 277.

CIR vs. Pifipinos Shelf Petroleum Corporation CT A EB Case No. 535 (C T A Case No. 65if7)

Since PSPC has duly settled its excise tax liabilities by utilizing the subject va lid and genuine TCCs/TDMs, obtained in good faith and for value, and in accordance with the applicable laws and rules, the CIR has no legal basis to impose the surcharges and interests.

WHEREFORE, the instant Petition for Review is hereby DENIED for · lack of merit. The assailed Decision dated April 30, 2009 and assailed Resolution dated August 18, 2009 are AFFIRMED.

WE CONCUR:

W1At ~- M~.Gwtt.

CIEliTO N. MINDARO-GRULLA

Associate Justice

t_ ... - ~- [2~ ERNESTO D. ACOSTA

Presiding Justice

~.u"L c.~~~ ~ .f6ANITo~c . CASTANEDA, 'Ji.

Associate Justice

.

E~.

UY

Associate Justice

~ CAESAR A. CASANOVA

Associate Justice

C/R vs. Pilipinos Shell Petroleum Corporation CT A EB Case No. 535 (CTA Case No. 6547)

DECISION

~

OlGA PA~IQUEZ

Associa te Justice Page 47 o f 47

ESP ERA

~/-~~-~ AMELIA R. COTANGCO-MANALASTAS Associa te Justice

CERTIFICATION

Pursuant to Article VIII, Section 13 of the Constitution, it is hereby certified tha t the conclusions in the above Decision were reached in consultation among the members of the Court En Bane before the case was assigned to the writer o f the opinion o f the Court En Ba ne. ~~~ ~

ERNESTO DACOSTA

Presiding Justice