The Supreme Court has stopped the Bureau of Internal Revenue from collecting the P9.57 billion in value-added tax it imposed on the Power Sector Asset and Liabilities Management Corp. for the sale of power generating assets in 2008.
In a 16-page decision penned by Associate Justice Antonio Carpio, the SC’s Second Division granted the petition filed by PSALM seeking for the reversal of the decision rendered by the Court of Tax Appeals on Dec. 2, 2014 which found the latter liable to pay the said amount.
The High Court disagreed with the CTA’s findings that the generating assets of PSALM, such as the Masinloc, Ambuklao-Binga and Pantabangan power plants, fall under “all kinds of goods and properties” subject to VAT under Section 106 of the National Internal Revenue Code of 1997.
The BIR had argued that the previous exemption of National Power Corp. from VAT under Section 13 of Republic Act No. 6395, the law that created the agency, was repealed by Section 24 of Republic Act No. 9337 or the Reformed Value Added Tax Law.
As a consequence, the CIR asserted that the VAT exemption accorded to PSALM under BIR Ruling No. 020-02 is also deemed revoked since PSALM is a successor-in-interest of NPC.
Besides, the BIR pointed out that prior to the sale, NPC still owned the power plants and not PSALM, which is just considered as the trustee of the NPC properties.
Thus, the sale made by NPC or its successors-in-interest of its power plants should be subject to the 10 percent VAT beginning Nov. 1, 2005 and 12 percent VAT beginning Feb. 1, 2007, the bureau said.
However, the tribunal held that the BIR’s position is anchored on the wrong premise that PSALM is a successor-in-interest of NPC.
The SC said the PSALM is not a successor-in-interest of NPC.
The high court stressed that under its charter, the NPC is mandated to “undertake the development of hydroelectric generation of power and the production of electricity from nuclear, geothermal and other sources, as well as the transmission of electric power on a nationwide basis.”
On the other hand, PSALM is a government-owned and -controlled corporation, was created under the Electric Power Industry Reform Act of 2001 to manage the orderly sale and privatization of NPC’s assets with the objective of liquidating all of NPC’s financial obligations in an optimal manner.
“Clearly, NPC and PSALM have different functions. Since PSALM is not a successor-in- interest of NPC, the repeal by RA 9337 of NPC’s VAT exemption does not affect PSALM,” the SC said.
The SC ruled that the sale of the generating assets – the Masinloc, Ambuklao-Binga and Pantabangan power plants – is not subject to VAT, since the sale was pursuant to the mandate of PSALM under the EPIRA to privatize NPC assets.
“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,” it added.
Furthermore, the tribunal said the sale of power plants is not the same as the sale of electricity by generation companies, transmission, and distribution companies, which is subject to VAT .