SC orders BIR to refund P3.81-B VAT it collected from Psalm

The Supreme Court has ordered the Bureau of Internal Revenue (BIR) to refund P3.81 billion in tax paid by the Power Sector Assets and Liabilities Management Corp. (Psalm).

In a  29-page decision made public Wednesday, voting 12-2, the high court granted Psalm’s petition to reverse a Court of Appeals decision dated Sept. 27, 2010, which in turn nullified a 2008 resolution by the Department of Justice (DOJ) granting the refund.

In 2008, the DOJ ruled in favor of Psalm, ordering the BIR to refund the P3.81 billion it collected from the corporation as deficiency value added-tax (VAT) for the sale in 2016 of two power plants – the Pantabangan-Masiway Plant and Magat Hydroelectric Power Plant.

The high court, through Senior Associate Justice Antonio Carpio, said the Court of Appeals erred when it ruled that the DOJ had no jurisdiction on the issue, which would mean that the Justice secretary could not decide whether the sale of the power plants would be subject to VAT.

Citing Presidential Decree No. 242, the high court said: “All disputes and claims between government agencies and offices, including government-owned or controlled corporations, shall be administratively settled or adjudicated by the Secretary of Justice, Solicitor General or the Government Corporate Counsel, depending on the issues and government agencies involved.”

The high court added that Psalm sold the power plants to private entities as part of its mandated under the Electric Power Industry Reform Act of 2001 (Epira Law) – which exempted it from VAT.

Citing Section 50 of the Epira law, the high court said: “Psalm’s principal purpose is to manage the orderly sale, disposition, and privatization of the generations assets, real estate and other disposable assets, and contracts of the National Power Corporation with the objective of liquidating all its financial obligations and stranded contract costs.”

It also agreed with Psalm that the sale of the power plants was not done in pursuit of any commercial or profitable activity.

Citing the National Internal Revenue Code (NIRC), the Supreme Court said VAT could be imposed on any person “who, in the court of trade or business, sells, barters, exchanges, leases goods or properties, renders services and imports goods.”

“The sale of the power plants is not in pursuit of a commercial or economic activity but a governmental function mandated by law to privatize NPC generation assets,” the high court said.

According to the court, Psalm was limited to selling only assets and independent power producer (IPP) contracts of NPC.

“Similarly, the sale of the power plants in this case is not subject to VAT since the sale was made pursuant to Psalm’s mandate to privatize NPC assets, and was not undertaken in the course of trade of business,” the court said.

“In selling the power plants, Psalm was merely exercising a governmental function for which it was created under the EPIRA law,” it added.

According to records, Psalm conducted public biddings for the privatization of the Pantabangan-Masiway Hydroelectric Power Plant and Magat Hydroelectric Power Plant.

On Aug. 28, 2007, the BIR sent the National Power Corp. (NPC) a demand letter for the payment of the deficiency VAT for the sale of the said power plants.

In turn, The NPC endorsed the said letter to Psalm, considering that it got the proceeds of the sale.

On Aug. 30, 2007, Psalm, BIR, and NPC executed a memorandum of agreement leaving it up to the appropriate courts to resolve the tax issues.

Psalm then filed a petition with the DOJ for adjudication of the issue of whether or not the sale of the two power plants would be subject to VAT.

In its March 13, 2008 decision, the DOJ affirmed the position of Psalm that the sale of the power plants was done in accordance with its mandate under the Epira Law. So the tax assessment should be declared null and void.

The DOJ also directed the BIR to refund the P3.81 billion that Psalm paid under protest.

Concurring with the Supreme Court ruling were Chief Justice Ma. Lourdes Sereno, Associate Justices Presbitero Velasco Jr., Teresita Leonardo de Castro, Diosdado Peralta, Jose Catral Mendoza, Marvic Leonen, Francis Jardeleza, Alfredo Benjamin Caguioa, Samuel Martiresm Noel Tijam and Andres Reyes Jr.

Associate Justice Lucas Bersamin joined the dissenting opinion of Associate Justice Mariano del Castillo

Associate Justice Estela Perlas-Bernade took no part in the decision. /atm