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Supreme Court denies govt 'M.R.' in collection claim against Pilipinas Shell

By JOEL R. SAN JUAN Business Mirror
THE Bureau of Internal Revenues intensive tax-collection campaign suffered a major setback after the Supreme Court finally ruled that it has no legal basis to collect supposed deficiency excise taxes from major oil firm Pilipinas Shell Petroleum Corp. in the amount of more than P1 billion. The BIR had sued Shell for buying—and using for tax payments—several tax-credit certificates that were later found to have been fraudulently obtained.
In a two-page resolution, the Courts Second Division denied the BIRs motion filed January 23, 2008, seeking the reconsideration of its December 21, 2007, decision which reversed an earlier en banc ruling of the Court of Tax Appeals directing Shell to pay its excise-tax liabilities for the taxable years 1992 and 1994 to 1997.
In the same ruling, the Court reinstated the decision of the CTA Division enjoining the BIR from collecting its assessment for deficiency excise taxes against Shell covering the said period.
"Acting on the Office of the Solicitor Generals motion for reconsideration of the decision dated December 21, 2007, the Court resolves to deny the motion with finality, the basic issues raised therein having been duly considered and passed upon by the Court in aforesaid decision, and no substantial argument having been adduced to warrant the reconsideration sought," the Court said in its latest ruling.
The main point that ran in Shells favor was the Courts argument that while the use of TCCs is laden with a qualifying provision that the transferees of such TCCs are solidarily liable with the transferors in case of fraud and that these certificates are subject to postaudit, there is a limit to the extent or period up to which such liability and postaudit may apply. Otherwise, the Court said, no investor would want to buy TCCs if the possible liability would hang over its head indefinitely.
The Court, meanwhile, has also denied the BIRs motion to refer the case to the Court en banc.
The controversy arose after the BIR declared that the TCCs used by the oil firm to pay for its excise-tax liabilities were fraudulently obtained.
Records show that from 1988 to 1997, Shell paid part of its excise-tax liabilities with TCCs that it acquired through the Department of Finance One-Stop Shop Interagency Tax Credit and Duty Drawback Center from other Board of Investments -registered companies.
Through the Center, Shell acquired for value various Center-issued TCCs which were correspondingly transferred to it by other BOI-registered companies.
Subsequently, when Shell signified its intent to use the TCCs to pay for its deficiency taxes, such payments were approved by the Center through the issuance of tax debit memoranda ; and the BIR also accepted as payments the TCCs by issuing its own TDM covering said TCCs.
However, on April 22, 1998, the BIR sent a collection letter to Shell for alleged deficiency excise-tax liabilities of P1.70 billion for the taxable years 1992 and 1994 to 1997.
The BIR claimed that Shell is not a qualified transferee of the TCCs it acquired from other BOI-registered companies. The BIR denied Shells protest, prompting it to elevate the case before the CTA.
On August 2, 2004, the CTA Division issued a decision granting Shells petition to cancel BIRs tax assessment.
It held that the BIR failed to prove with convincing evidence that the TCCs transferred to Shell were fraudulently issued. It noted that the BIRs claim of fraud "was merely speculative."
However, on April 28, 2006, the CTA en banc reversed the ruling of the CTA Division and ordered Shell to pay the BIR the amount of P570,577,401 as deficiency excise tax.
It also directed the oil firm to pay 20-percent delinquency interest per year from December 4, 1999 until it has fully paid the total deficiency excise tax.
The CTA en banc affirmed the finding of the DOF that the TCCs had no monetary value; thus, there was a nonpayment of excise taxes by Shell.
It also noted that the TCCs carry a "suspensive condition," that is, their issuance was subject to post audit in order to determine if the holder is indeed qualified to use it.
The tax court added that Shell "was not an innocent purchaser for value of the TCCs" as these certificates contained liability clauses expressly stipulating that the transferees are solidarily liable with transferors for any fraudulent act or violation of pertinent rules and regulations relating to the transfer of the TCC.
In reversing the CTA en bancs decision, the High Court pointed out that the tax court erred in holding that the suspensive condition suspends the effectivity of the TCCs as payment until after the post-audit.
The SC stressed that TCCs are immediately valid and effective after their issuance, thus, if these have already been used as payment for the tax liability, a post-audit cannot annul the payment made.
"Moreover, if the TCCs are considered to be subject to post-audit 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," the SC said.
"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 SC declared.
The Court also noted that based on the records, Shell is considered a transferee "in good faith and for value" since the BIR failed to present evidence that the oil firm is involved in the processing for the approval of the subject TCCs from the different BOI-registered transferors.
It further stressed that Shell secured several approvals before it utilized the transferred TCCs. Shell also relied on the verification by various government agencies concerned of the genuineness and authenticity of the TCCs, as well as the validity of their issuances.
"Thus, it is clear that Shell is a transferee in good faith and for value of the subject TCCs and may not be prejudiced with a reassessment of excise-tax liabilities it has already settled when due with the use of the subject TCCs," the SC said.