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 BOI-
registered 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:

Did CTA commit reversible error in holding that Petron is not liable for its excise tax liabilities from 1995
to 1998?

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
transferee for value, because the TCCs assigned
to respondent were void. Petitioner based its
allegations on the post-audit report of the DOF,
which declared that the subject TCCs were
obtained through fraud and, thus, had no
monetary value. The CIR adds that the TCCs
were subject to a post-audit by the Center to
complete the payment of the excise tax liability
to which they were applied.
That there is a fraudulent transfer of the TCCs to
Petron making the latter not a qualified
transferee of the TCCs, because Petron did not
supply petroleum products to the companies that
were the assignors of the subject TCCs.
The CIR bases its contentions on the DOF’s post-
audit 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 is a transferee in good faith and for value
of the subject TCCs.
A transferee in good faith and for value of a TCC
who has relied on the Center's representation of
the genuineness and validity of the TCC
transferred to it may not be legally required to
pay again the tax covered by the TCC which has
been belatedly declared null and void, that is,
after the TCCs have been fully utilized through
settlement of internal revenue tax liabilities.
From the records, SC observe that 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.
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.
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.
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.
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
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 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. 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.
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
“Both the TRANSFEROR and the TRANSFEREE
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

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
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).
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.
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
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.