The Court of Appeals (CA) has blocked the government’s attempt to collect over P2.8 billion in tax liabilities from Pilipinas Shell Petroleum Corp. and Petron Corp., throwing out the argument of the Bureau of Internal Revenue (BIR) that the two oil firms were not qualified transferees of tax credit certificates (TCCs).
In affirming the ruling of the Court of Tax Appeals, the appellate court said the BIR failed to present legitimate reasons for its decision to revoke the TCCs that Shell and Petron received from various companies registered with the Board of Investments (BOI).
“We can only conclude, therefore, that the TCCs were validly transferred and used by respondents herein toward the payment of their tax liabilities, and that respondents are not liable for deficiency taxes, surcharges or interests,” the appeals court said.
“The fundamental considerations of justice and fairness thus estop petitioner (BIR) from collecting on respondent corporations’ purported deficiency and tax liabilities,” it added.
The 17-page resolution, written by Associate Justice Ramon Cruz, upheld the July 23, 1999, decision of the tax court which revoked the two separate orders of the BIR that nullified the validity of the TCCs.
According to court records, Shell and Petron separately received TCCs from BOI-listed companies as payment for bunker oil and other fuel products they purchased from the two oil giants from 1992 to 1997.
Shell and Petron subsequently used the tax documents to settle their excise tax liabilities with the government amounting to P1.705 billion and P1.107 billion, respectively, in 1998.
The Department of Finance approved the payment with TCCs, but the BIR separately sent letters to Shell and Petron in April 1998 informing them that the TCCs were invalid.
The BIR argued that the amendment in the Oct. 5, 1982, memorandum of agreement between the BOI and the then Ministry of Finance required transferees of TCCs to be domestic producers of raw materials and components being supplied to BOI-registered companies.
The BIR said Shell and Petron “do not qualify as lawful and valid transferee of the TCCs” as the bunker fuel and other oil products they supply to its transferors “do not constitute either domestic capital equipment or a raw material or component of the transferors’ finished products.”