The Bureau of Internal Revenue has lost its P3.81- billion tax case against the Power Sector Assets and Liabilities Management Corp. involving the sale of Pantabangan-Masiway Plant and Magat Hydroelectric Power Plant in 2006.
Voting 12-2, the SC granted the PSALM’s petition seeking to overturn the decision of the Court of Appeals issued on Sept. 27, 2010 which declared null and void a resolution issued by the Department of Justice directing the BIR to refund PSALM the amount of P3.81 billion representing the deficiency valued added-tax that it paid to the tax agency under protest for the sale of the said power plants.
The high court instead reinstated the decision of the DOJ, which was issued in 2008.
In a 29-page decision written by Associate Justice Antonio Carpio, the SC ruled that the CA erred when it ruled that the Justice secretary of the DOJ has no jurisdiction to rule on the issue on whether the sale of said power plants is subject to VAT.
The SC noted that under Presidential Decree No. 242, “all disputes and claim between government agencies and offices, including government-owned or controlled corporations, shall be administratively settled or adjudicated by the Secretary of Justice, Solicitor General or the Government Corporate Counsel, depending on the issues and government agencies involved.”
The tribunal also ruled that the sale of the power plants by PSALM to private entities is not subject to VAT since it was made pursuant to its mandate under the Electric Power Industry Reform Act of 2001 (EPIRA Law).
Under Section 50 of the EPIRA law, PSALM’s principal purpose is to manage the orderly sale, disposition, and privatization of generations assets, real estate and other disposable assets, and contracts of the National Power Corporation with the objective of liquidating all its financial obligations and stranded contract costs, the SC ruled.
The high court also agreed with PSALM that the sale of the power plants was not done in pursuit of any commercial or profitable activity, where VAT is imposable.
The SC noted that under Section 105 of the Tax Code, VAT may be imposed on any person “who, in the court of trade or business, sells, barters, exchanges, leases goods or properties, renders services and imports goods.””¨
“The sale of the power plants is not in pursuit of a commercial or economic activity but a governmental function mandated by law to privatize NPC generation assets,” the SC said.
PSALM is limited to selling only assets and independent power producer (IPP) contracts of NPC, the SC pointed out.
“Similarly, the sale of the power plants in this case is not subject to VAT since the sale was made pursuant to PSALM’s mandate to privatize NPC assets, and was not undertaken in the course of trade of business,” the tribunal said.
“In selling the power plants, PSALM was merely exercising a governmental function for which it was created under the EPIRA law,” it added.
Records showed that PSALM conducted public biddings for the privatization of the Pantabangan-Masiway Hydroelectric Power Plant and Magat Hydroelectric Power Plant.
On August 28, 2007, the BIR sent the National Power Corporation a demand letter for the payment of the deficiency VAT for the sale of the said power plants. The NPC, in turn, endorsed the said letter to Psalm considering that the proceeds of the sale are with the latter.
On August 30, 2007, Psalm, BIR, and the NPC executed a memorandum of agreement wherein they agreed that the resolution of tax issues will be submitted to appropriate courts or body.
Psalm subsequently filed a petition with the DOJ for adjudication of the issue of whether or not the sale of the two power plants is subject to VAT.
The DOJ, in its March 13, 2008 decision, affirmed the position of Psalm that the sale of the said power plants was done in accordance with its mandate under the Electric Power Industry Reform Act of 2001, thus, the tax assessment should be declared null and void.
The DOJ also directed the BIR to refund the P3.81 billion that Psalm paid under protest.
Chief Justice Ma. Lourdes Sereno, Associate Justices Presbitero Velasco, Jr., Teresita Leonardo de Castro, Diosdado Peralta, Jose Catral Mendoza, Marvic Leonen, Francis Jardeleza, Alfredo Benjamin Caguioa, Samuel Martiresm Noel Tijam and Andres Reyes Jr. concurred with the ruling.
Associate Justice Lucas Bersamin Associate Justice Mariano del Castillo dissented, while Associate Justice Estela Perlas-Bernade abstained from voting.