Maceda v. Macaraig

Posted May 31, 1991

By Anonymous

7 min read

Maceda v. Macaraig

Case Title and Citation

ERNESTO M. MACEDA, petitioner, vs. HON. CATALINO MACARAIG, JR., in his capacity as Executive Secretary, Office of the President; HON. VICENTE R. JAYME, in his capacity as Secretary of the Department of Finance; HON. SALVADOR MISON, in his capacity as Commissioner, Bureau of Customs; HON. JOSE U. ONG, in his capacity as Commissioner of Internal Revenue; NATIONAL POWER CORPORATION; the FISCAL INCENTIVES REVIEW BOARD; Caltex (Phils.) Inc.; Pilipinas Shell Petroleum Corporation; Philippine National Oil Corporation; and Petrophil Corporation, respondents. G.R. No. 88291, May 31, 1991
Supreme Court - EN BANC
Ponente: Justice Gancayco

Facts

The National Power Corporation (NPC) was created by Commonwealth Act No. 120 on November 3, 1946, to develop hydro power and later expand to other power sources; NPC is a non-profit government-owned corporation.
NPC’s charter and amendments provided extensive tax exemption privileges, including exemptions from taxes, duties, imposts, and charges, with later amendments in RA 6395 (1971), PD 380 (1974), PD 938 (1976), and PD 1931 (1984).
PD 1931 withdrew all tax exemptions for government-owned corporations, but provided that the President or the Minister of Finance, upon FIRB recommendation, could restore exemptions.
FIRB Resolutions: No. 10-85 (Feb. 7, 1985) restoring NPC’s exemptions from June 11, 1984 to June 30, 1985; No. 1-86 (Jan. 7, 1986) extending restoration to July 1, 1985 and broadening exemptions; No. 17-87 (Jun. 24, 1987) restoring NPC exemptions, including those for domestic purchases of petroleum and petroleum products, effective March 10, 1987, with specific limitations.
EO No. 93 (Dec. 17, 1986) withdrew most tax incentives but authorized FIRB to restore exemptions with President’s approval.
The petition centers on NPC’s entitlement to refunds and the legality of tax credits and duty refunds granted to NPC and assigned to oil companies (Caltex, Shell, Petrophil) for periods affected by the withdrawal and restoration of exemptions.
The Blue Ribbon Committee (Senate) report No. 474 investigated alleged tax manipulations by oil firms and NPC; it urged cancellation of certain refunds and to recover amounts paid.
The petition contends that NPC did not enjoy indirect tax exemption post-PD 938 and seeks to stop processing/refunding of NPC tax and duty refunds, and to declare certain FIRB actions, executive orders, and BIR/BOC rulings illegal or void.
The Court initially noted petitioner’s standing as a taxpayer and later treated the matter as a direct challenge to the legality of the NPC exemptions, FIRB actions, and resulting refunds/credit arrangements.
The main issue was whether NPC’s indirect tax exemption for petroleum products was withdrawn by PD 938, and whether FIRB resolutions adequately restored such exemptions, with EO 93 providing the framework for delegation and restoration.

Issues

Has NPC ceased to enjoy indirect tax and duty exemption for petroleum products under PD No. 938?
Did FIRB Resolution Nos. 10-85 (Feb. 7, 1985) and 1-86 (Jan. 7, 1986) restore NPC’s tax exemption privileges, including indirect taxes, effective June 11, 1984 and July 1, 1985 respectively?
Is FIRB Resolution No. 17-87 (June 24, 1987), restoring NPC’s tax exemption privileges effective March 10, 1987, valid and properly issued, and what is the extent of the exemption granted?

Ruling

No — PD No. 938 did not withdraw NPC’s indirect tax exemption; the exemption from all forms of taxes (including indirect taxes on petroleum products used by NPC) is maintained under the NPC charter and amendments, and has been interpreted to include indirect taxes.
Yes — FIRB Resolutions No. 10-85 and No. 1-86 restored NPC’s tax exemption privileges, including indirect taxes, though their status depended on presidential approval and the broader statutory framework; such restoration was held effective for the periods stated.
Yes — FIRB Resolution No. 17-87, restoring NPC’s tax exemption privileges effective March 10, 1987, was valid and effective, with EO 93 providing authority for FIRB to restore exemptions subject to presidential approval.

Reasoning / Ratio Decidendi

The Court traced the NPC exemptions through changes in the charter: Commonwealth Act No. 120 (1946), RA 358 (1949), RA 6395 (1971), PD 380 (1974), PD 938 (1976), and PD 1931 (1984). PD 938’s language encompassing “all forms of taxes, duties, imposts and all other charges” was interpreted to preserve NPC’s exemption broadly, including indirect taxes on petroleum products used in NPC operations.
The majority rejected a strictissimi juris approach to exemptions benefiting a government instrumentality, emphasizing liberal construction in favor of NPС’s exemptions to support public policy objectives (electric power generation and rural electrification).
The Court concluded that FIRB Resolutions 10-85 and 1-86 were products of the FIRB’s mandate under PD 1931 and, given the later Executive Order 93 framework, could be validly implemented with presidential approval, thereby restoring NPC exemptions in broad terms, including indirect taxes.
FIRB Resolution 17-87, approved by the President, was found valid, and EO 93 authorized the FIRB to restore exemptions and set criteria for them; the Court cited Albay to support the validity of the delegation framework and the President’s approval requirement for final effectiveness.
The majority treated the tax exemption as a national policy instrument necessary to enable NPC to fulfill its mandate to generate and supply electricity; the taxes on oil products were therefore considered exemptions to support public welfare and price stability for consumers.
The dissent argued that exemptions constitute a loss of revenue and must be strictly construed; it questioned whether the FIRB had authority to restore exemptions beyond what Congress authorized, and whether indirect taxes could be legitimately claimed as exempt within the statutory amendments. The dissent cautioned against broad extensions that could undermine tax collection and set problematic precedents for suppliers and other entities.

Doctrine / Legal Principle

Liberal construction of government exemptions: Exemptions granted to government instrumentalities may be interpreted more broadly to achieve public objectives, especially where the statutory framework explicitly intends broad exemptions (e.g., PD 938’s “all forms of taxes” language).
Direct vs. indirect tax distinctions: The line between direct and indirect taxes is not determinative where exemptions are framed as “all taxes” for a government entity in its operations; shifting of tax burdens to avoid general taxation must be carefully examined in the context of public policy.
Delegation of legislative power: Executive Order No. 93, coupled with FIRB authority, constitutes delegated power to restore exemptions, provided presidential approval is obtained. The legislative intent supports flexibility to adjust exemptions in light of national policy, subject to constitutional constraints and standards of review.
National interest standard: When evaluating tax exemptions for government instrumentalities, considerations include national development objectives, energy policy, and consumer price effects. In this case, the exemption was deemed essential to NPC’s functioning and public welfare.

Disposition

The petition is DISMISSED for lack of merit. The NPC tax and duty exemption, including indirect taxes on petroleum products, was upheld; FIRB Resolutions Nos. 10-85, 1-86, and 17-87 were found valid in restoring NPC’s exemptions, including indirect taxes, under EO 93 and the relevant statutory framework. The challenged tax refunds/credit arrangements were not declared illegal on the ground presented, given the affirmed exemption status and restoration sequence.

Concurring / Dissenting Opinions

Separate opinions exist:
- Dissent by Justice Cruz, joined by Justice Sarmiento, arguing that FIRB Resolutions Nos. 10-85 and 1-86 did not validly restore exemptions without presidential approval, and that EO 93 and FIRB authority were improperly used to restore indirect tax exemptions; Cruz also emphasizes the potential revenue losses and the need for strict construction of exemptions.
- Dissent by Justice Sarmiento, outlining concerns about the legitimacy of using FIRB to restore exemptions not explicitly authorized by the legislature, the constitutional issues surrounding delegation of legislative power, and the potential revenue impact on the state.
- Dissent by Justice Paras, J. noting concerns about the scope of exemptions, the legality of the tax refund scheme, and the redistribution of tax burdens.
Chief Justice Fernan did not participate; Justice Padilla took no part.

Significance / Notes

Establishes that NPC’s exemption from indirect taxes on petroleum products is consistent with the NPC charter and the amendments extending broad tax exemptions, effectively supporting NPC’s role in power generation and distribution.
Confirms the legality of FIRB resolutions and the presidential approval framework for restoring tax exemptions, reinforcing a mechanism for adjusting incentives in light of policy needs.
Highlights a critical policy balance: preserving government revenue while enabling essential public utilities to operate affordably; the majority’s approach privileges public welfare objectives, whereas the dissent warns of potential revenue losses and precedent-setting implications for the tax system.
The decision impacts NPC’s relationships with suppliers and downstream tax credit arrangements, and has implications for future claims by similar entities seeking exemptions under changing fiscal regimes.

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