CALTEX PHILIPPINES, INC. vs.

COMMISSION ON AUDIT

DAVIDE, JR., J. May 8, 1992 G.R. No. 92585

Summary TAX vs. DEBT. Caltex filed a complaint questioning COA’s authority to declare certain disallowances in its claims for reimbursement in
relation to the OPSF. The court mostly affirmed COA’s ruling and held that Caltex could not offset the remittances it claimed with the
reimbursement it sought, since the relationship between Caltex and the Government is not a creditor-debtor relationship.

Doctrine - Taxation is no longer envisioned as a measure merely to raise revenue to support the existence of the government; taxes may be
levied with a regulatory purpose to provide means for the rehabilitation and stabilization of a threatened industry which is affected
with public interest as to be within the police power of the State.
- A taxpayer may not offset taxes due from the claims that he may have against the government. Taxes cannot be the subject of
compensation because the government and taxpayer are not mutually creditors and debtors of each other, and a claim for taxes is
not such a debt, demand, contract, or judgment as is allowed to be set-off.
- CIR v. Algue: Money due the government, such as taxes, is its lifeblood and should be collected without hindrance.

Facts - COA asked Caltex to remit to the OPSF (Oil Price Stabilization Fund) the additional tax collected on petroleum products authorized
under Sec. 81, PD 1956. Pending such remittance, Caltex’s reimbursement claims were held in abeyance.
- After COA denied Caltex’s request for early release of its reimbursement certificates, Caltex submitted a proposal for the payment
of collections and the recovery of claims, since outright payment would seriously impair its cash position.
- COA accepted this proposal. COA then sent a letter to the Office of Energy Affairs, authorizing it to pay Caltex’s claims initially
allowed in audit. There were, however, disallowances from which Caltex could not recover, including recovery of financing charges,
certain product sales, inventory losses, and sales to Atlas/Marcopper. Caltex sought reconsideration, which COA denied.
- Hence this petition filed by Caltex questioning COA’s authority to disallow Caltex’s claims for reimbursement from the OPSF.

Issues/ 1) W/N COA ERRED IN DISALLOWING RECOVERY OF FINANCING CHARGES FROM THE OPSF [NO]
Ratio
- Financing charges aren’t included in cost underrecovery under PD 1956. Caltex also failed to prove it incurred a loss.
- The framers of the Constitution conferred upon COA broader and more extensive powers as a watchdog of the Government.

2) W/N COA ERRED IN DISALLOWING THE CLAIM FOR REIMBURSEMENT OF UNDERRECOVERY ARISING FROM SALES TO NPC [YES]

- Underrecovery arising from sales to NPC are reimbursable because NPC was granted full exemption from the payment of taxes.
- Issuances supporting this: Fiscal Incentives Regulatory Board's Resolution No. 17-87 and Republic Act No. 6952.

3) W/N COA ERRED IN DISALLOWING CLAIMS FOR REIMBURSEMENT ON SALES TO ATLAS AND MARCOPPER [NO]

- LOI 1416 relied upon by Caltex was never properly published. Moreover, Caltex failed to prove the tax exemption it claimed.

4) W/N COA ERRED IN DISALLOWING CLAIMS WHICH ARE STILL PENDING RESOLUTION BEFORE OEA AND DOF [NO]

- Caltex failed to substantiate its contention that the amount it claimed was still pending before OEA and DOF.

5) [DOCTRINAL] W/N COA ERRED IN PREVENTING CALTEX FROM EXERCISING ITS LEGAL RIGHT TO OFFSET ITS REMITTANCES
AGAINST ITS REIMBURSEMENT VIS-A-VIS THE OPSF [NO --- SEE DOCTRINE!!!]

- OPSF contributions are for a public purpose. The oil industry is greatly imbued with public interest as it vitally affects the general
welfare. Any unregulated increase in oil prices could hurt the lives of a majority of the people and cause economic crisis of untold
proportions. It would have a chain reaction in terms of, among others, demands for wage increases and upward spiralling of the

1 Sec. 8. There is hereby created a Trust Account in the books of accounts of the Ministry of Energy to be designated as Oil Price Stabilization Fund (OPSF) for the purpose of minimizing
frequent price changes brought about by exchange rate adjustments and/or changes in world market prices of crude oil and imported petroleum products. The Oil Price Stabilization Fund
may be sourced from any of the following: a) Any increase in the tax collection from ad valorem tax or customs duty imposed on petroleum products subject to tax under this Decree arising
from exchange rate adjustment, as may be determined by the Minister of Finance in consultation with the Board of Energy; b) Any increase in the tax collection as a result of the lifting of tax
exemptions of government corporations, as may be determined by the Minister of Finance in consultation with the Board of Energy; c) Any additional amount to be imposed on petroleum
products to augment the resources of the Fund through an appropriate Order that may be issued by the Board of Energy requiring payment by persons or companies engaged in the business
of importing, manufacturing and/or marketing petroleum products; d) Any resulting peso cost differentials in case the actual peso costs paid by oil companies in the importation of crude oil
and petroleum products is less than the peso costs computed using the reference foreign exchange rate as fixed by the Board of Energy.
The Fund herein created shall be used for the following: 1) To reimburse the oil companies for cost increases in crude oil and imported petroleum products resulting from exchange rate
adjustment and/or increase in world market prices of crude oil; 2) To reimburse the oil companies for possible cost under-recovery incurred as a result of the reduction of domestic prices of
petroleum products. The magnitude of the underrecovery, if any, shall be determined by the Ministry of Finance. "Cost underrecovery" shall include the following: i. Reduction in oil
company take as directed by the Board of Energy without the corresponding reduction in the landed cost of oil inventories in the possession of the oil companies at the time of the price
change; ii. Reduction in internal ad valorem taxes as a result of foregoing government mandated price reductions; iii. Other factors as may be determined by the Ministry of Finance to result
in cost underrecovery. The Oil Price Stabilization Fund (OPSF) shall be administered by the Ministry of Energy.
 cost of basic commodities. The stabilization then of oil prices is of prime concern which the State, via its police power, may properly
address. Besides, PD 1956 explicitly provides that the source of OPSF is taxation.
- In relation to the OPSF, oil companies merely act as agents for the Government in the latter's collection since the taxes are, in
reality, passed unto the end-users – the consuming public. Thus, petitioner has the primary obligation to account for and remit the
taxes collected to the administrator of the OPSF. This duty stems from the fiduciary relationship between the two.
- No compensation under NCC 1279 2 is legally feasible. Firstly, the Government and the petitioner cannot be said to be mutually
debtors and creditors of each other. Secondly, there is no proof that petitioner's claim is already due and liquidated. That
compensation had been the practice in the past can set no valid precedent. Such a practice has no legal basis.
- RA 6952 does not authorize oil companies to offset their claims against their OPSF contributions. Instead, it prohibits the
government from paying any amount from the Petroleum Price Standby Fund to oil companies which have outstanding obligations
with the government, without said obligation being offset first subject to the rules on compensation in the Civil Code.

Holding COA decision AFFIRMED except that portion thereof disallowing petitioner's claim for reimbursement of underrecovery arising from
sales to the National Power Corporation, which is hereby allowed.

Prepared by: Berry Carolino (Tax | Cabreros)

2 NCC 1279. In order that compensation may be proper, it is necessary that: (1) each one of the obligors be bound principally, and that he be at the same time a principal creditor of the
other; (2) both debts consist in a sum of :money, or if the things due are consumable, they be of the same kind, and also of the same quality if the latter has been stated; (3) the two (2) debts
be due; (4) they be liquidated and demandable; (5) over neither of them there be any retention or controversy, commenced by third persons and communicated in due time to the debtor.