NPC Should Pay the Gross Billing Price, Inclusive of the P0.30 Specific Tax, on Fuel Oil Deliveries

April 13, 1998 BIR RULING NO. 040-98 145-000-00-40-98 Shell Philippines Petroleum Corporation 156 Valero St., Salcedo Village 1227 Makati City Attention: Mr . Arturo C . Tanyag Gentlemen : This refers to your letter dated December 2, 1996, in effect requesting this Office for a ruling on whether or not the National Power Corporation (NPC) should pay the gross billing price, inclusive of the P0.30 specific tax, on your fuel oil deliveries to the former. LexLib It is represented that Shell Philippines Petroleum Corporation (SPPC) is a BOI-registered enterprise engaged in the manufacture of lubricating oil base stocks, paraffin wax and bitumen with refining facilities at Malaya, Pililla, Rizal; that the said products are produced from heavy fuel oil which SPPC purchased from Pilipinas Shell Petroleum Corporation (PSPC); that the residual oil (around 60%) is sold by SPPC to NPC for its Malaya power plant located beside your refinery; that upon implementation of RA No. 8184, fuel oil became taxable at P0.30 per liter effective August 14, 1996; that since that date, PSPC's billings on feedstock deliveries to SPPC included the P0.30 per liter specific tax; that in turn, your selling price of fuel oil to NPC included the P0.30 per liter specific tax earlier billed by PSPC on fuel oil/feedstock purchased from it; and that NPC refused to pay the specific tax element being billed by SPPC invoking its exemption under its charter as a power generation company. Additional facts supplied by our Regulatory Operations Monitoring Division disclosed that the NPC Malaya Plant is operated not by NPC itself but by a third party under the Rehabilitate, Operate and Maintain (ROM) contract with NPC; that NPC does not by itself generate electricity from the said Plant but only becomes the exclusive offtaker of the generated power of the plant operator; that in the contract between NPC and the independent contractor, it was stipulated that all petroleum requirements by the contractor shall be supplied by NPC excise-tax free and payments thereof shall be made as direct offsets against offtake of generated power; and that deliveries of petroleum products to the independent contractor directly by the oil companies were all billed under the name of NPC as the purchaser, in effect making the latter as a mere conduit between the contractor and the oil companies for the said transactions. prLL In reply, please be informed that under Section 13, paragraphs (a) and (d) of R.A. No. 6395 (NPC Charter), as amended by P.D. No. 380, NPC is exempt from such taxes, duties, fees, imposts and other charges imposed directly or indirectly on all petroleum products used by NPC in its operation . However, that provision may not be relied upon by NPC in order to make its independent contractor similarly exempt from the payment of specific tax by assuming the responsibility of supplying tax-free petroleum products to be used by the latter in its operation. The indirect tax exemption of NPC under its charter covers only its purchase of petroleum products to be used by it in its operation. The law being clear, it should be understood as written. Accordingly, you are correct in your gross billings to NPC which include the P0.30 specific tax on the latter's fuel oil purchases from SPPC and which are already tax-paid. Moreover, since NPC's tax exemption does not include the aforedescribed transactions, it cannot file a claim for tax refund with this Office. This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation, it will be disclosed that the facts are different, then this ruling shall be considered null and void. dctai Very truly yours, (SGD.) LIWAYWAY VINZONS-CHATO Commissioner of Internal Revenue