Maceda vs Macaraig

G.R. No. 88291 June 8, 1993

FACTS:

A Chronological review of the relevant NPC laws, especially with respect to its tax exemption
provisions, at the risk of being repetitious is, therefore, in order. Commonwealth Act 120 created
NAPOCOR as a public corporation to undertake the development of hydraulic power and the
production of power from other sources. On June 4, 1949, Republic Act No. 357 was enacted
authorizing the President of the Philippines to guarantee, absolutely and unconditionally, as
primary obligor, the payment of any and all NPC loans. He was also authorized to contract on
behalf of the NPC with the International Bank for Reconstruction and Development (IBRD) for
NPC loans for the accomplishment of NPC's corporate objectives and for the reconstruction and
development of the economy of the country. It was expressly stated that:

Any such loan or loans shall be exempt from taxes, duties, fees, imposts, charges, contributions
and restrictions of the Republic of the Philippines, its provinces, cities and municipalities. On the
same date, R.A. No. 358 was enacted expressly authorizing the NPC, for the first time, to incur
other types of indebtedness, aside from indebtedness incurred by flotation of bonds. As to the
pertinent tax exemption provision, the law stated as follows:

To facilitate payment of its indebtedness, the National Power Corporation shall be exempt from
all taxes, duties, fees, imposts, charges, and restrictions of the Republic of the Philippines, its
provinces, cities and municipalities. On June 2, 1954, R.A. No. 987 was enacted specifically to
withdraw NPC's tax exemption for real estate taxes. On September 10, 1971, R.A. No. 6395 was
enacted revising the charter of the NPC, C.A. No. 120, as amended. A new section was added to
the charter, now known as Section 13, R.A. No. 6395, which declares the non-profit character and
tax exemptions of NPC as follows:

The Corporation shall be non-profit and shall devote all its returns from its capital investment, as
well as excess revenues from its operation, for expansion. To enable the Corporation to pay its
indebtedness and obligations and in furtherance and effective implementation of the policy
enunciated in Section one of this Act, the Corporation is hereby declared exempt: library

(a) From the payment of all taxes, duties, fees, imposts, charges costs and service fees in any court
or administrative proceedings in which it may be a party, restrictions and duties to the Republic of
the Philippines, its provinces, cities, and municipalities and other government agencies and
instrumentalities;

(b) From all income taxes, franchise taxes and realty taxes to be paid to the National Government,
its provinces, cities, municipalities and other government agencies and instrumentalities; virtual
law library

(c) From all import duties, compensating taxes and advanced sales tax, and wharfage fees on
import of foreign goods required for its operations and projects; and
(d) From all taxes, duties, fees, imposts and all other charges its provinces, cities, municipalities
and other government agencies and instrumentalities, on all petroleum products used by the
Corporation in the generation, transmission, utilization, and sale of electric power. On January 22,
1974, P.D. No. 380 was issued giving extra powers to the NPC to enable it to fulfill its role under
aforesaid P.D. No. 40. PD 380 (1974) specified that NAPOCORs exemption includes all taxes,
etc. imposed directly or indirectly. PD 938 integrated the exemptions in favor of GOCCs
including their subsidiaries; however, empowering the President or the Minister of Finance, upon
recommendation of the Fiscal Incentives Review Board (FIRB) to restore, partially or completely,
the exemptions withdrawn or revised. The FIRB issued Resolution 10-85 (7 February 1985)
restoring the duty and tax exemptions privileges of NAPOCOR for period 11 June 1984- 30 June
1985. Resolution 1-86 (1January 1986) restored such exemption indefinitely effective 1 July
1985. EO 93 (1987) again withdrew the exemption. FIRB issued Resolution 17-87 (24 June
1987) restoring NAPOCORs exemption, which was approved by the President on 5 October 1987.

Since 1976, oil firms never paid excise or specific and ad valorem taxes for petroleum products
sold and delivered to NAPOCOR. Oil companies started to pay specific and ad valorem taxes on
their sales of oil products to NAPOCOR only in 1984. NAPOCOR claimed for a refund (P468.58
million). Only portion thereof, corresponding to Caltex, was approved and released by way of a
tax credit memo. The claim for refund of taxes paid by PetroPhil, Shell and Caltex amounting to
P410.58 million was denied. NAPOCOR moved for reconsideration, starting that all deliveries of
petroleum products to NAPOCOR are tax exempt, regardless of the period of delivery.

ISSUES:

1. Whether NAPOCOR cease to enjoy exemption from indirect tax when PD 938 stated the
exemption in general terms
2. Whether or not oil companies have to absorb the taxes they add to the bunker fuel oil they
sell to NPC in view of the indirect tax exemption of the NAPOCOR

RULING:

1. Yes, it should be noted that section 13, R.A. No. 6395, provided for tax exemptions for the
following items:

13(a) : court or administrative proceedings; chanrobles virtual law library

13(b) : income, franchise, realty taxes; chanrobles virtual law library

13(c) : import of foreign goods required for its operations and projects; chanrobles virtual law
library

13(d) : petroleum products used in generation of electric power.

P.D. No. 938 lumped up 13(b), 13(c), and 13(d) into the phrase "ALL FORMS OF TAXES,
ETC.,", included 13(a) under the "as well as" clause and added PNOC subsidiaries as qualified for
tax exemptions.
This is the only conclusion one can arrive at if he has read all the NPC laws in the order of
enactment or issuance as narrated above. President Marcos must have considered all the NPC
statutes from C.A. No. 120 up to its latest amendments, P.D. No. 380, P.D. No. 395 and P.D. No.
759, AND came up with a very simple Section 13, R.A. No. 6395, as amended by P.D. No. 938.
virtual law library

One common theme in all these laws is that the NPC must be enable to pay its indebtedness which,
as of P.D. No. 938, was P12 Billion in total domestic indebtedness, at any one time, and U$4
Billion in total foreign loans at any one time. The NPC must be and has to be exempt from all
forms of taxes if this goal is to be achieved. l law library

The tax exemption on foreign loans found in Section 8(b), R.A. No. 6395 and further amended by
P.D. No. 380 which provides: The loans, credits and indebtedness contracted this subsection and
the payment of the principal, interest and other charges thereon, as well as the importation of
machinery, equipment, materials, supplies and services, by the Corporation, paid from the
proceeds of any loan, credit or indebtedness incurred under this Act, shall also be exempt from all
direct and indirect taxes, fees, imposts, other charges and restrictions, including import restrictions
previously and presently imposed, and to be imposed by the Republic of the Philippines, or any of
its agencies and political subdivisions.

P.D. No. 938 did not amend the same and so the tax exemption provision in Section 8 (b), R.A.
No. 6395, as amended by P.D. No. 380, still stands. Since the subject matter of this particular
Section 8 (b) had to do only with loans and machinery imported, paid for from the proceeds of
these foreign loans, THERE WAS NO OTHER SUBJECT MATTER TO LUMP IT UP WITH, and
so, the tax exemption stood as is - with the express mention of "direct and indirect" tax exemptions.
And this "direct and indirect" tax exemption privilege extended to "taxes, fees, imposts, other
charges . . . to be imposed" in the future - surely, an indication that the lawmakers wanted the NPC
to be exempt from ALL FORMS of taxes - direct and indirect. virtual law library

It is crystal clear, therefore, that NPC had been granted tax exemption privileges for both direct
and indirect taxes under P.D. No. 938.

2. On the second issue, according to the Court, tax exemptions are undoubtedly to be
construed strictly but not so grudgingly as knowledge that many impositions taxpayers
have to pay are in the nature of indirect taxes. To limit the exemption granted the National
Power Corporation to direct taxes notwithstanding the general and broad language of the
statue will be to thwart the legislative intention in giving exemption from all forms of taxes
and impositions without distinguishing between those that are direct and those that are not.
(Emphasis supplied)

In view of all the foregoing, the Court rules and declares that the oil companies which supply
bunker fuel oil to NPC have to pay the taxes imposed upon said bunker fuel oil sold to NPC. By
the very nature of indirect taxation, the economic burden of such taxation is expected to be passed
on through the channels of commerce to the user or consumer of the goods sold. Because, however,
the NPC has been exempted from both direct and indirect taxation, the NPC must beheld exempted
from absorbing the economic burden of indirect taxation. This means, on the one hand, that the oil
companies which wish to sell to NPC absorb all or part of the economic burden of the taxes
previously paid to BIR, which could they shift to NPC if NPC did not enjoy exemption from
indirect taxes. This means also, on the other hand, that the NPC may refuse to pay the part of the
"normal" purchase price of bunker fuel oil which represents all or part of the taxes previously paid
by the oil companies to BIR. If NPC nonetheless purchases such oil from the oil companies -
because to do so may be more convenient and ultimately less costly for NPC than NPC itself
importing and hauling and storing the oil from overseas - NPC is entitled to be reimbursed by the
BIR for that part of the buying price of NPC which verifiably represents the tax already paid by
the oil company-vendor to the BIR.