SC allows Shell oil firm’s trial for use of ‘fraudulent’ tax credit certificates

MANILA, Philippines — The Supreme Court (SC) has opened the way for oil giant Pilipinas Shell Petroleum Corp. (PSPC) to continue to stand trial over the alleged use of fraudulently acquired tax credit certificates (TCCs) worth P10 million almost two decades ago.

In a 19-page decision, the high court ruled to reverse and set aside the earlier decisions of the Court of Appeals in favor of PSPC and to remand the case filed by the Bureau of Customs (BOC) to the Manila Regional Trial Court Branch 49.

The decision, penned by the recently retired Associate Justice Martin Villarama, Jr., was promulgated on Dec. 9, 2015, but was released only on Friday.

The ruling said the appellate court erred in dismissing the BOC’s case against PSPC, which was among the several collection suits it instituted in an effort to recover huge revenue losses from the so-called “tax credit scam” that proliferated in the 1990s.

It said the appellate court should have not affirmed an order of the regional trial court, granting summary judgment in favor of the oil firm “considering that there exists a genuine issue of the fact.”

The case stemmed from the allegedly fake credit memos issued by the Filipino Way Industries (Filway), which allowed the latter to assign TCCs worth P10,088,912 to PSPC through a Deed of Assignment executed on May 7, 1997.

PSPC used the TCCs to settle its customs duties and taxes on its oil importations with the BOC with prior approval by the Department of Finance’s One Stop Shop-Inter Agency Tax Credit and Duty Drawback Center.

But following the post-audit and investigation of the DOF Center, it was discovered that the credit memos used by Filway were spurious and the export declarations it made in support of its application for TCCs were actually issued to some other corporations.

The DOF Center informed PSPC that the TCCs were canceled. The BOC filed a case before the Manila court for collection of money with damages.

TCCs are refund payments granted to exports and manufacturers of BoI-registered products for export who have actually paid duties and taxes on the raw materials and supplies they used. Under the “tax credit scam,” refunds were made on taxes that were never paid or tax credits granted to some firms that had ceased operations.

In its rulings, the CA and the local court both cited that the “Pilipinas Shell Petroleum Corp v CIR” applied to the current case, in which a finding showed that PSPC was a “transferee in good faith” and that there was no evidence presented that it participated in any way in the issuance of the TCCs to Filway.

But the high court said the oil firm’s status as “transferee in good faith” of the TCCs assigned to it by Filway has yet to be established or proven at the trial.

“The petitioner should be given the opportunity to substantiate its allegations of fraud in the issuance and transfer of the TCCs, which PSPC used to pay for the customs duties and taxes due on its oil importations,” stated the decision.

“If it is shown that the PSPC was a party to the fraud … or has knowledge of its fraudulent issuance, it will be a liable for the taxes and the fraud committed as provided for by law,” it added.

In its petition, the BOC underscored that the collection case it filed against the oil company was founded on the fact that the latter used fraudulently secured TCCs for payment of its customs duties and taxes. The bureau also stressed that the cancellation of the TCCs did not extinguish its liability to the government.

“The matter of whether or not PSPC is a transferee in good faith and for value is a genuine issue to be resolved and must be ventilated in a full trial,” said the BOC.

But PSCP contended that the orders of the RTC attained finality since the BOC availed of the wrong remedy and that it was not liable for fraud, which the bureau had admitted on its own was committed by Filway.

“Considering the Republic’s stake in the outcome of the proceedings [in the case]…we cannot accede to PSPC’s contention that the petitioner’s erroneous appeal has rendered the [orders] final and executory,” said the high court.

It pointed out the limit to the trial court’s authority to render summary judgments, saying the court might do so only when there was clearly genuine issue as to any material fact.

“When the facts as pleaded by the parties are disputed or contested, proceeding for summary judgment cannot take the place of a trial,” said the high court.  SFM