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CIR vs Petron

Case Digest GR 185568 March 12 2012

Full Text

For the taxable years of 1995-1998, Petron Corp paid its tax liabilities with the Tax Credit
Certificates (TCC) it received from different BOI-registered companies as consideration for the
delivery of petroleum products to these companies. Petrons acceptance and use of the TCCs has
been continuously approved by the Department of Finance as well as the BIR Collection
Program Division through its surrender and subsequent issuance of Tax Debit Memos (TDMs).
In a post-audit conducted by the DOF, it was found out that the TCCs issued to the TCC
transferors were fraudulently obtained and fraudulently transferred to Petron. Thus, the TCCs
and TDMs issued to Petron were cancelled by the DOF.

Now, the CIR issued an assessment against Petron for deficiency excise taxes for the taxable
years 1995-1998, inclusive of surcharges and interests, on the ground that the TCCs which
Petron used to pay its taxes were cancelled and therefore has the effect of nonpayment of taxes.
The CIR also alleged that Petron has the intent to evade its taxes, thus making the returns it filed

In the stipulation of facts between the parties, one of the judicial admissions was that Petron
never participated in the procurement and issuance of the TCCs to its transferors. Also, before
the CTA En Banc, it was held that Petron was an innocent purchaser in good faith and for value.

Issue: W/N the post-audit report has the effect of a suspensive condition that would
determine the validity of the TCCs

No. It is a well-settled rule in jurisprudence that TCCs are valid and effective from their issuance
and are not subject to a post-audit as a suspensive condition for their validity. Thus, Petron has
the right to rely on the validity and effectivity of the TCCs that were assigned to it. In finally
determining their effectivity in the settlement of Petrons excise tax liabilities, the validity of
those TCCs should not depend on the results of the DOFs post-audit findings.

As an exception, the transferee/assignee may be held liable if proven to have been a party to the
fraud or to have had knowledge of the fraudulent issuance of the subject TCCs. But here, the
parties entered into a joint stipulation of facts stating that Petron did not participate in the
procurement or issuance of those TCCs. Thus, the exception to the rule is not applicable as
Petron was an innocent transferee for value of the TCCs.

Issue 2: W/N the doctrine of non-applicability of estoppel to the government apply in this

No. As a general rule, the principle of estoppel does not apply to the government, especially on
matters of taxation. Taxes are the nations lifeblood through which government agencies
continue to operate and with which the State discharges its functions for the welfare of its
constituents. The exception however is that this rule cannot be applied it if it would work
injustice against an innocent party.

Petron has not been proven to have had any participation in or knowledge of the CIRs allegation
of fraudulent transfer and utilization of the TCCs. Petrons status as an innocent purchaser for
value has been established and even stipulated upon by the CIR. Petron was thereby amply
protected from the adverse findings subsequently made by the DOF agency. ##