BIR Ruling [DA-333-97]

October 9, 1997 BIR RULING [DA-333-97] MEMORANDUM FOR : The Commissioner This refers to the letter dated August 12, 1996 by Atty. Liberador V. Villegas, General Counsel of Petron Corporation requesting reconsideration of our Preliminary Notice of Assessment dated July 19, 1996 in the amount of P21,471,267.20 representing 25% surcharge, 20% interest and compromise penalties for late payment of excise tax differential due to the increase in specific tax resulting from the upgrading of its tax-paid Kerosene to Jet fuel, with offer to pay the interest portion thereof in the amount of P1,213,965.36. It appears that under Section 145 of the Tax Code, as amended, the excise tax for kerosene is P0.50 per liter of volume capacity, whereas the excise tax for jet fuel is P2.38 per liter of volume capacity. When kerosene was lifted from Petron's Bataan Refinery, the correct amount of excise tax was paid. These tax-paid kerosene were then stored at the Petron's Storage Tank in different parts of the country. Upon order by airline companies, the tax-paid kerosene were treated with special additives and pumped directly to the aircraft. On March 23, 1990, Petron wrote Atty. Ramon T. Mationg, then Chief of the Excise Tax Division, requesting for the guidelines of remitting the excise tax differential and proposing that payment shall be made on or before the fifteenth (15th) day of the month following the month when the upgraded kerosene were sold to the aviation company. Said mode of payment was proposed because the documents evidencing the sale to the aircraft have to be transmitted from the bulk plants site to the Head Office in Makati. Moreover, the checks covering the payment of the tax differential have to be processed in the Head Office. It appears that Mr. Mationg did not reply to that letter and the BIR inspectors who were assigned at Petron's Head Office or bulk plants have virtually acquiesced to said mode of payment by Petron. CEIHcT Since the theory of this assessment is that payment of excise tax differential was not made within 15 days from the date of tax upgrading, delay was incurred; hence, the proposed 1994-1995 assessment in the amount of P21,471,267.20 consisting of 20% surcharge, 20% interest and compromise penalties. Consequently, the issue is whether this incremental assessments consisting entirely of 25% surcharge, 20% interest and compromise penalties is reasonable and justified considering that the basic excise tax differential have already been paid and settled every 15th day of the month following the month of sale. In the case of Imus Electric Co., Inc. vs. CTA 19 SCRA 612, 613, it was ruled that the 25% surcharge was dispensed with where delay in payment is attributable to the taxpayer's good faith due to a misunderstanding of the pertinent rules and regulations. Applying such rule in the instant case where no regulation at all prescribed the due date for the payment of the excise tax differential, it appears unjustified to impose the 25% surcharge for delay; thus, if surcharge cannot be justified, neither the 20% interest or compromise penalties can be justified. However, considering that Petron has offered to pay the amount of P1,213,965.56 as compromise settlement, it is respectfully recommended that said offer be accepted pursuant to Section 204 (1) (a) of the Tax Code, as amended, and consider this case closed and terminated. DCcTHa Respectfully Submitted: (SGD.) MILAGROS V. REGALADO Chief, Law Division CONCURRING: (SGD.) ALICIA L. TOMACRUZ Head Revenue Executive Assistant Director II, Legal Service APPROVED: (SGD.) LIWAYWAY VINZONS-CHATO Commissioner of Internal Revenue