G.R. No. 210501 /G.R. No. 211294/G.R. No. 212490, March 15, 2021.
Case Parties:

COMMISSIONER OF INTERNAL REVENUE, PETITIONER, VS. COURT OF TAX APPEALS (FIRST DIVISION) AND PILIPINAS SHELL PETROLEUM CORPORATION, RESPONDENTS. [ G.R. No. 210501 ]
THE BUREAU OF CUSTOMS AND COLLECTOR OF CUSTOMS OF THE PORT OF BATANGAS, PETITIONERS, VS. PILIPINAS SHELL PETROLEUM CORPORATION, RESPONDENT. [G.R. No. 211294]
PILIPINAS SHELL PETROLEUM CORPORATION, PETITIONER, VS. COURT OF TAX APPEALS (FIRST DIVISION), COMMISSIONER OF INTERNAL REVENUE, BUREAU OF CUSTOMS AND COLLECTOR OF CUSTOMS OF THE PORT OF BATANGAS, RESPONDENTS. [G.R. No. 212490]

FACTS

These consolidated cases originated from CTA Case No. 8535, where Pilipinas Shell Petroleum Corporation (PSPC) assailed the validity of Document No. M-059-2012 and a consequent Demand Letter dated October 1, 2012 from the Collector of the Port of Batangas requiring PSPC to pay P1,994,500,677.47 in deficiency excise taxes, inclusive of interest and penalties, for its alkylate importations between January 2010 and June 2012. PSPC imports alkylate, a raw material and blending component used to produce petroleum products in compliance with the Clean Air Act. Initially, the Bureau of Internal Revenue (BIR) issued Authorities to Release Imported Goods (ATRIGs) stating alkylate was not subject to excise tax, and the Bureau of Customs (BOC) conducted tests confirming alkylate was a component additive, not finished gasoline. However, in September 2011, the BIR began inserting a colatilla in ATRIGs reserving the right to collect excise taxes pending a final resolution. The Department of Energy, in a June 27, 2012 letter, opined alkylate was an intermediate product not subject to excise tax. Despite this, the Collector sought a legal opinion from the Commissioner of Customs, who forwarded the query to the Commissioner of Internal Revenue (CIR). On June 29, 2012, the CIR issued Document No. M-059-2012, opining that alkylate importations are subject to excise tax and VAT based on a BIR laboratory report finding alkylate similar to naphtha. This led to the issuance of Customs Memorandum Circular No. 164-2012 directing the Collector to take action. PSPC filed a petition for review with the CTA, arguing Document No. M-059-2012 was an invalid BIR ruling issued without factual basis and in violation of due process. Subsequently, the Collector, based on a computation provided by the CIR, sent PSPC the October 1, 2012 Demand Letter for the deficiency taxes. PSPC amended its petition to include this demand. The CTA issued a Suspension Order covering the amount in the Demand Letter but declined to issue a general suspension for future shipments. The CIR, BOC, and Collector moved to dismiss, arguing the CTA lacked jurisdiction over Document No. M-059-2012 (claiming it was a mere internal communication) and that PSPC failed to exhaust administrative remedies under the Tariff and Customs Code by not filing a protest against the demand. The CTA denied the motion to dismiss, holding it had jurisdiction as Document No. M-059-2012 was a BIR ruling and the Demand Letter was a tax assessment. The CTA also granted subsequent motions by PSPC for suspension orders on specific, newly assessed shipments. These interlocutory orders were challenged via petitions for certiorari to the Supreme Court by the CIR ( G.R. No. 210501 ), the BOC and Collector (G.R. No. 211294), and by PSPC (G.R. No. 212490) regarding the CTA’s denial of a general suspension for future shipments.

ISSUE

The primary issues are: (1) Whether the CTA correctly assumed jurisdiction over PSPC’s petition assailing Document No. M-059-2012 and the October 1, 2012 Demand Letter; (2) Whether PSPC failed to exhaust administrative remedies by not filing a protest under the Tariff and Customs Code; and (3) Whether the CTA correctly issued the Suspension Orders.

RULING

The Supreme Court DENIED the petitions in G.R. Nos. 210501 and 211294 and GRANTED the petition in G.R. No. 212490. The Court AFFIRMED the CTA’s Resolutions with MODIFICATION, directing the CTA to issue a Writ of Preliminary Injunction enjoining the implementation of Document No. M-059-2012 and the collection of excise taxes on PSPC’s future alkylate importations.
1. On Jurisdiction: The CTA correctly assumed jurisdiction. Document No. M-059-2012, issued by the CIR in response to a query from the Commissioner of Customs, constituted a “ruling” within the meaning of Section 4 of the National Internal Revenue Code (NIRC). It was an official interpretation or opinion on the taxability of alkylate that prejudiced PSPC’s rights. The CTA has jurisdiction over cases involving rulings of the CIR pursuant to its power to review by appeal “other matters arising under the NIRC or other laws administered by the BIR.” Furthermore, the October 1, 2012 Demand Letter was a formal tax assessment, as it definitively determined PSPC’s tax liability. The CTA also has jurisdiction over tax collection cases. The argument that Document No. M-059-2012 was a mere internal communication is untenable, as it was the direct basis for the assessment and demand against PSPC.
2. On Exhaustion of Administrative Remedies: PSPC was not required to exhaust administrative remedies under the Tariff and Customs Code by filing a protest. The principal issue was the validity and constitutionality of Document No. M-059-2012, a BIR ruling. Questions of law, such as the interpretation of tax laws and the validity of administrative issuances, are within the exclusive appellate jurisdiction of the CTA. Exhaustion does not apply when the issue is purely legal, when the administrative action is patently illegal, or when there is urgent need for judicial intervention. The assessment was based on the CIR’s ruling, and requiring a protest would be futile as the Collector was duty-bound to implement the CIR’s directive.
3. On the Propriety of the Injunctive Relief: The Supreme Court held that the CTA correctly issued the Suspension Order for the assessed amount in the October 1, 2012 Demand Letter. However, it erred in refusing to enjoin the collection of taxes on PSPC’s future alkylate importations. The Court found that PSPC established a clear legal right to the injunction. The BIR’s own initial ATRIGs, the BOC’s independent tests, and the DOE’s opinion all indicated alkylate was not a finished product subject to excise tax. Document No. M-059-2012, which contradicted these findings, was issued without prior notice to PSPC and without providing it a copy of the BIR laboratory report, violating PSPC’s right to due process. The implementation of this ruling would cause grave and irreparable injury to PSPC’s operations. Therefore, the CTA has the authority and duty to issue a Writ of Preliminary Injunction to prevent the continued implementation of the void ruling and the collection of taxes on future shipments during the pendency of the main case.