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Manila Standard Today: High court orders Shell: Pay up

By Rey E. Requejo
Friday, March 14, 2008

The Supreme Court has ordered Pilipinas Shell Petroleum Corp. to pay its tax liability arising from its use of fraudulent tax credit certificates 10 years ago.

According to the Court, the collection of the taxes may proceed even as Shell is challenging the Customs bureau’s decision to nullify the tax credit, which Shell used to settle portion of its import duty obligations in 1997.

The First Division through Associate Justice Renato Corona dismissed Shell’s petition assailing the decision of the Bureau of Customs to cancel the TCCs. Shell bought the TCCs from another company but finance department officials found out that the TCCs were fraudulently issued and transferred.

Chief Justice Reynato Puno and Associate Justices Antonio Carpio, Adolfo Azcuna and Teresita Leonardo de Castro concurred with the ruling.

The high court cleared the way for the collection of the tax despite the pending case filed by Shell before the Court of Tax Appeals.

“[The government] cannot and should not await the resolution of that case before it collects petitioner’s outstanding customs duties and taxes for such delay will unduly restrain the performance of its functions. Moreover, if the ultimate outcome of the CTA case turns out to be favorable to petitioner [Shell], the law affords it the adequate remedy of seeking a refund,” the Court said.

The high court directed the Manila Regional Trial Court to proceed with the hearing on a portion of the amount covered by the TCCs amounting to P10 million which Shell bought from Filipino Way Industries.

The transfer of the TCCs to Shell was approved by the Board of Investments and the One Stop Shop Inter-Agency Tax Credit and Duty Drawback Center.

Some of these TCCs were subsequently accepted as payment by the Bureau of Customs for petitioner’s taxes and import duties in 1997 and 1998.

On Nov. 3, 1999, then Finance Secretary Edgardo Espiritu informed petitioner that its TDMs and TCCs were fraudulently issued and transferred, and had to be canceled. Espiritu asked petitioner to immediately pay the Customs and the Bureau of Internal Revenue the value of the canceled TCCs as well as penalties, surcharges and interests.

Shell questioned the action of the finance department and asserted that there was no legal and factual basis to invalidate the TCCs.

Shell said that it was an assignee in good faith since it observed the procedure prescribed by the center.

Despite Shell’s objections, then Customs Commissioner Nelson Tan demanded payment in the amount of P209,129,141.

This prompted Shell to file a formal protest on Dec. 23, 1999. However, Customs did not act on this protest. Consequently, the firm filed a petition for review questioning the legality of the cancellation of the TCCs in the Court of Tax Appeals.

On April 3, 2002, the Customs bureau filed a complaint for collection in the Manila RTC Branch 19 claiming that the TCCs petitioner purchased from Filipino Way Industries amounting to P10,088,912 were spurious and were used by petitioner to pay customs duties and taxes on its importations in 1997.

In view of the invalidation, petitioner still owed respondent the amount of P10,088,912 in unpaid customs duties and taxes.

Shell immediately moved to dismiss the collection case. It contended that the RTC had no jurisdiction over the subject matter and that the complaint for collection was prematurely filed in view of its pending petition for review in the CTA. On June 7, 2002, the RTC denied petitioner’s motion and instead ordered it to file an answer.

The petitioner questioned the jurisdiction of the RTC, saying that since it has a pending petition for review in the CTA, the RTC had no jurisdiction over the subject matter pursuant to Yabes vs. Flojo case.

In the said ruling, the RTC acquires jurisdiction over a collection case only if an assessment made by the commissioner of Internal Revenue has become final and incontestable.

Aggrieved Shell filed a petition for certiorari in the CA assailing the June 7, 2002 and June 28, 2002 orders of the RTC.

This petition was denied by the appellate court in a decision dated Oct. 23, 2003.

The CA stressed that the Custom’s assessment had already become final and conclusive. Hence, its written demand for payment was not an assessment that could still be protested under the Tariff and Customs Code of the Philippines.

It ruled that the jurisdiction over the subject matter was well within the jurisdiction of the RTC, not the CTA.

Shell contended that the RTC had no jurisdiction over the collection case inasmuch as the CTA had not yet decided the petition for review. Therefore, the RTC should have dismissed the collection case and transferred it to the CTA, the oil firm said.

In denying Shell’s suit, the SC explained that “the filing of the collection case was a proper remedy and that the subject matter [of the P10-million portion] falls within the jurisdiction of the RTC.”

The high court noted that the BIR filed its complaint for collection on April 3, 2002. The governing law at that time was Republic Act 1125 or the old CTA Law.

Under that law, when the tax court had limited jurisdiction, the SC said the CTA had no jurisdiction over the subject matter and it was the RTC that had jurisdiction under Section 19 (6) of the Judiciary Reorganization Act of 1980.

http://www.manilastandardtoday.com/?page=politics1_mar14_2008

 

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