Tax For Recit Final.docx

CIR vs Petron Corporation, G.R. No. 185568, March 21, 2012 Facts: Respondent Petron is a corporation engaged in the production of petroleum products and is a Board of Investment (BOI) – registered enterprise in accordance with the provisions of the Omnibus Investments Code of 1987 (E.O. 226) under Certificate of Registration Nos. 89-1037 and D95-136. During the period covering the taxable years 1995 to 1998, Petron had been an assignee of several Tax Credit Certificates (TCCs) from various BOI-registered entities for which it utilized in the payment of its excise tax liabilities for the taxable years 1995 to 1998. The transfers and assignments of the said TCCs were approved by the Department of Finance’s One Stop Shop Inter-Agency Tax Credit and Duty Drawback Center (DOF Center) composed of representatives from the appropriate government agencies. Taking ground on a BOI letter issued on May 15, 1998 which states that ‘hydraulic oil, penetrating oil, diesel fuels and industrial gases are classified as supplies and considered the suppliers thereof as qualified transferees of tax credit, Petron acknowledged and accepted the transfers of the TCCs from the various BOIregistered entities. Such acceptance and use of the TCCs as payment of its excise tax liabilities for the taxable years 1995 to 1998 had been continuously approved by the DOF as well as the BIR’s Collection Program Division. On January 30, 2002, Petitioner CIR issued an Assessment against petitioner for deficiency excise taxes for the taxable years 1995 to 1998 in the total amount of P 739,003,036.32 (739 MILLION THREE THOUSAND THIRTY SIX. THIRTY TWO , inclusive of surcharges and interests on the ground that the TCCs utilized by petitioner in the payment of excise taxes have been cancelled by the DOF for having been fraudulently issued and transferred. Thus, petitioner, through letters dated August 31, 1999 and September 1, 1999, was required by the DOF Center to submit copies of its sales invoices and delivery receipts showing the consummation of the sale transaction to certain TCC transferors. Instead of submitting the said documents, Petron filed a protest on February 27, 2002. On March 27, 2002, CIR served a Warrant of Distraint and/or Levy on petitioner to enforce payment of the tax deficiencies without first acting on its letter-protest. Construing the Warrant of Distraint and/or Levy as the final adverse decision of the BIR on its protest of the assessment, Petron filed the petition before the CTA Second Division on April 2, 2002. On May 4, 2007, the CTA Second Division promulgated a Decision ordering Petron to pay the reduced amount of P600,769,353.95 representing deficiency excise taxes for the taxable years 1995 to 1998 and 25% late payment surcharge and 20% delinquency interest per annum on the said amount, computed from June 27, 2002 until the amount is fully paid. Petron filed a motion for reconsideration but was denied. Aggrieved, Petron appealed the Decision to the CTA En Banc through a Petition for Review. The CTA en banc reversed and set aside the CTA Second Division and absolved Petron from any deficiency excise tax liability for taxable years 1995 to 1998. The CIR moved for the reconsideration of the CTA En Banc Decision, but the motion was denied. Issue: to 1998?

Did CTA commit reversible error in holding that Petron is not liable for its excise tax liabilities from 1995

Ruling: No. Petron is a transferee in good faith and for value of the subject TCCs since the CIR had no allegation that there was a deviation from the process for the approval of the TCCs, which Petron used as payment to settle its excise tax liabilities for the years 1995 to 1998. The CIR’s claim that Petron have participated in the fraudulent issuance and transfer of the TCCs is negated by the Joint Stipulation it entered into with Petron in the proceedings before the CTA which states that Petron did not participate in the procurement and issuance of the TCCs, which TCCs were transferred to Petron and later utilized by Petron in payment of its excise taxes. This stipulation of fact by the CIR amounts to an admission and, having been made by the parties in a stipulation of facts at pretrial, is treated as a judicial admission. The joint stipulation made by the parties consequently obviated the opportunity of the CIR to present evidence on this matter, as no proof is required for an admission made by a party in the course of the proceedings. Thus, the CIR cannot be allowed to change its stand and renege on that admission. Further, the post-audit report on which the CIR based its allegations does not have the effect of a suspensive condition that would determine the validity of the TCCs. As held in Petron v. CIR (G.R. No. 180385, 28 July 2010, 626 SCRA 100), which is on all fours with the instant case, TCCs are valid and effective from their issuance and are not subject to a post-audit as a suspensive condition for their validity. The implication on the instant case of the said earlier ruling is that Petron has the right to rely on the validity and effectivity of the TCCs

that were assigned to it. The validity of those TCCs should not depend on the results of the DOF’s post-audit findings. Taxes are the nation’s lifeblood through which government agencies continue to operate and with which the State discharges its functions for the welfare of its constituents. As an exception, however, this general rule cannot be applied if it would work injustice against an innocent party. Petron, in this case, was not proven to have had any participation in or knowledge of the CIR’s allegation of the fraudulent transfer and utilization of the subject TCCs. Respondent’s status as a transferee in good faith and for value of these TCCs has been established and even stipulated upon by petitioner. Respondent was thereby provided ample protection from the adverse findings subsequently made by the Center. Given the circumstances, the CIR’s invocation of the non-applicability of estoppel in this case is misplaced.

Tax credit” shall mean any of the credits against taxes and/or duties equal to those actually paid or would have been paid to evidence which a tax credit certificate shall be issued by the Secretary of Finance or his representative, or the Board, if so delegated by the Secretary of Finance. ; Tax Credit Certificate means a certification, duly issued to the taxpayer named therein, by the Commissioner or his duly authorized representative, reduced in a Bureau of Internal Revenue (BIR) Accountable Form in accordance with the prescribed formalities, acknowledging that the grantee-taxpayer named therein is legally entitled a tax credit, the money value of which may be used in payment or in satisfaction of any of his internal revenue tax liability (except those excluded), or may be converted as a cash refund, or may otherwise be disposed of in the manner and in accordance with the limitations, if any, as may be prescribed by the provisions of these Regulations

CIR

SUPREME COURT

The CIR claims that Petron was not an innocent

Petron is a transferee in good faith and for value of the subject TCCs.

transferee for value, because the TCCs assigned to respondent were void. Petitioner based its allegations on the post-audit report of the DOF,

A transferee in good faith and for value of a TCC

which declared that the subject TCCs were

who has relied on the Center's representation of

obtained through fraud and, thus, had no

the genuineness and validity of the TCC

monetary value. The CIR adds that the TCCs

transferred to it may not be legally required to

were subject to a post-audit by the Center to

pay again the tax covered by the TCC which has

complete the payment of the excise tax liability to which they were applied.

been belatedly declared null and void, that is, after the TCCs have been fully utilized through settlement of internal revenue tax liabilities.

That there is a fraudulent transfer of the TCCs to qualified

From the records, SC observe that the CIR had

transferee of the TCCs, because Petron did not

no allegation that there was a deviation from the

supply petroleum products to the companies that were the assignors of the subject TCCs.

process for the approval of the TCCs, which

Petron making

the

latter

not

a

The CIR bases its contentions on the DOF’s postaudit findings stating that, for the periods covering 1995 to 1998, Petron did not deliver fuel and other petroleum products to the companies (the transferor companies) that had assigned the subject TCCs to respondent. Petitioner further

Petron used as payment to settle its excise tax liabilities for the years 1995 to 1998. Moreover under the joint stipulation at the pre trial before the CTA second division it was stated that the petitioner (Petron) did not participate in the procurement and issuance of the TCCs, which

alleges that the findings indicate that the transferor companies could not have had such a high volume of export sales declared to the Center and made the basis for the issuance of the TCCs assigned to Petron.

TCCs were transferred to Petron and later utilized by Petron in payment of its excise taxes.” With that CIR amounts to the admission of such facts and it is consider as judicial admission and no proof is required thereto. Thus, the CIR cannot now be allowed to change its stand and renege on that admission. We also find that the post-audit report, on which the CIR based its allegations, does not have the effect of a suspensive condition that would determine the validity of the TCCs. If the TCCs are considered to be subject to postaudit as a suspensive condition, the very purpose of the TCC would be defeated as there would be no guarantee that the TCC would be honored by the government as payment for taxes. No investor would take the risk of utilizing TCCs if these were subject to a post-audit that may invalidate them, without prescribed grounds or limits as to the exercise of said post-audit.

The CIR seeks to persuade this Court to believe that there is substantial evidence to prove that Petron committed a misrepresentation, because the petroleum products were delivered not to the transferor but to other companies making a fruadulent transfer of its TCCS.

judicial review under Rule 45 of the Rules of Court is confined only to errors of law and does not extend to questions of fact. It is basic that where it is the sufficiency of evidence that is being questioned, there is a question of fact.48 Evidently, the CIR does not point out any specific provision of law that was wrongly interpreted by the CTA En Banc in the latter’s assailed Decision

Petitioner further contends that the Liability Clause of the TCCs makes the transferee or assignee solidarily liable with the original grantee for any fraudulent act pertinent to their procurement and transfer.

“Both the TRANSFEROR and the TRANSFEREE

Thus, petitioner believes that the correct interpretation of the Liability Clause in the TCCs makes Petron and the transferor companies or the original grantee solidarily liable for any fraudulent act or violation of the pertinent laws relating to the transfers of the TCCs

shall be jointly and severally liable for any fraudulent act or violation of the pertinent laws, rules and regulations relating to the transfer of this TAX CREDIT CERTIFICATE.”

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 of the constitutional right not to be deprived of one's property without due process of law. Thus, a re-assessment of tax liabilities previously paid through TCCs by a transferee in good faith and for value is utterly confiscatory, more so when surcharges and interests are likewise assessed.

CIR insists that the government is not estopped from collecting from Petron the excise tax liabilities that had accrued to the latter as a result of the voidance of these TCCs. Petitioner argues that the State should not be prejudiced by the neglect or omission of government employees entrusted with the collection of taxes

We are not persuaded by the CIR’s argument. We recognize the well-entrenched principle that estoppel does not apply to the government, especially on matters of taxation. Taxes are the nation’s lifeblood through which government agencies continue to operate and with which the State discharges its functions for the welfare of its constituents.56 As an exception, however, this general rule cannot be applied if it would work injustice against an innocent party.57

CIR contends that a 25% surcharge and a 20% interest per annum must be imposed upon Petron for respondent’s excise tax liabilities as mandated under Sections 248 and 249 of the National Internal Revenue Code (NIRC).

Tax Returns it filed for the years 1995 to 1998 are not considered fraudulent. Hence, the CIR had no legal basis to assess the excise taxes or any penalty surcharge or interest thereon, as respondent had already paid the appropriate excise taxes using the subject TCCs.

.