BIR Ruling [DA-110-99]

February 19, 1999 BIR RULING [DA-110-99] 1st Indorsement February 4, 1999 Respectfully returned to Ms. Concepcion S. Kimpo, Director IV, Revenue Office, Department of Finance the within request of Mr. Emmanuel V. Mendoza, Jr., Fiscal Services Manager, Pilipinas Shell Petroleum Corporation (PSPC), for tax exemption on behalf of the National Power Corporation (NPC) on its local purchase of 229,997 barrels (about 36,553,879 liters) of fuel oil. It appears that Pilipinas Shell Petroleum Corporation had imported 229,997 barrels (about 36,553,879 liters) of fuel oil from Singapore and discharged the same to a Custom Bonded Warehouse (CBW) located at Nonoc Island, Surigao; that the entire volume shall be sold to National Power Corporation and will be delivered to NPC's plants all over the country; that the said importation is part of the volume which PSPC has committed to supply to NPC in the bidding it won last year; and that the same is part of the NPC's fuel requirements. HcACST In various BIR Rulings, this Office had the occasion to rule on the tax exempt privileges, both direct and indirect taxes, of the NPC. This was in consonance with the Supreme Court Decision in the case of Ernesto M. Maceda vs. Hon. Catalino Macaraig, Jr., et al., G.R. No. 88291, June 8, 1993 (223 SCRA 217), for which the High Court ruled in a chronological review of the relevant NPC laws quoted as follows: "Petitioner contends that P.D. No. 938 repealed the indirect tax exemption of NPC as the phrase "all forms of taxes, etc." In its Section 10, amending Section 13, RA No. 6395, as amended by P.D. Nos. 380, does expressly include "indirect taxes". "His point is not well taken. "xxx xxx xxx "Actually, P.D. No. 938 attests to the ingenuousness of then Pres. Marcos no matter what his faults were. It should be noted that Sec. 13, R.A. No. 6395, provided for tax exemption for the following terms: "13(a): . . . "13(b): income, franchise, realty taxes; "13(c): import of foreign goods required for its operations projects; "13(d): petroleum products used in generation of electric power, cSIADa "P.D. No. 938 lumped up 13 (b), 13 (c) and 13 (d) into the phrase "ALL FORMS OF TAXES, ETC." Included 13 (a) under "as well as" clause and added PNOC subsidiaries as qualified for tax exemptions. "xxx xxx xxx "Five (5) years on into the now discredited New Society, the Government decided to rationalize government receipts and expenditures by formulating and implementing a National Budget. The NPC, being a government owned and controlled corporation had to shed off its tax exemption status privileges under P.D. No. 1177. cCSHET "xxx xxx xxx "The NPC tax exemption privileges withdrawn by Section 1, P.D. No. 1931, were, therefore, the same NPC tax exemption privileges withdrawn by Section 23, P.D. No. 1177. NPC could no longer obtain a subsidy for taxes it had to pay. It could, however, under P.D. No. 1931, ask for a total restoration of its tax exemption privileges, which it did, and the same were granted under FIRB Resolution No. 10-85 and 1-86 as approved by the Minister of Finance. "xxx xxx xxx "Under E.O. 93 (S'86) NPC's tax exemption privileges were again clipped by, this time, President Aquino. Its Section 2 allowed the NPC to apply for the restoration of its tax exemption privileges. The same was granted under FIRB Resolution No. 17-87 dated June 24, 1987, which restored NPC's tax exemption privileges effective, starting March 10, 1987, the date of effectivity of E.O. 93 (986). HETDAC "xxx xxx xxx "Thus, after all has been said, it is clear that the NPC had its tax exemption privileges restored from June 11, 1984 up to the present." The foregoing pronouncement was made prior to the effectivity of R.A. No. 8424, otherwise known as the "Tax Reform Act of 1997". Then Secretary De Ocampo, using the power to review granted to the Secretary of Finance under Sec. 4 of Republic Act No. 8424, upheld the above ruling of the Supreme Court that "the NPC is, under its Charter and subsequent laws, exempt from all taxes on its purchases of petroleum products and electricity". (see attached Memo) Consistent with the above pronouncement, this Office, in its various BIR rulings, sustained the exemption from all taxes including value-added tax, of the NPC on its purchases of petroleum products and electricity. Accordingly, this Office is of the opinion that since NPC is exempt from all taxes, PSPC may deliver the aforesaid fuel oil to NPC exempt from excise tax. However, it is recommended that this proposed grant of exemption should be limited only for this particular importation of 229,997 barrels which shall be sold by PSPC to NPC and shall not cover its future importations. Moreover, it is suggested that a collatilla to the effect that any violation of the condition imposed (i.e., exemption shall be for the 229,997 barrels only) will result in the automatic cancellation of the certificate of exemption. SCIAaT For your perusal. (SGD.) BEETHOVEN L. RUALO Commissioner of Internal Revenue