COMMISSIONER OF INTERNAL REVENUE v. PILIPINAS SHELL PETROLEUM CORPORATION

~~ Republic of the Philippines COURT OF TAX APPEAlS Quezon City EN BANC COMMISSIONER OF INTERNAl CTA EB CASE NO. 535 REVENUE , (CTA Case No. 6547) Petitioner, -versus- Prese nt : ACOSTA , P.J. , CASTANEDA , JR. BAUTISTA , UY , CASANOVA, PAlANCA - ENRIQUEZ, FABON-VICTORINO, MINDARO - GRUllA, PIUPINAS SHEll PETROlEUM COTANGCO-MANAlASTAS, JJ . CORPORATION, Respondent. Promulgated: X-------------------------------------------------F--E-B----2--2---2-0-1-1--d---~ /-1-/H --~-~ -~---~~--~--~f~'~ { DECISION MINDARO - GRUllA, J.: Submitted for decision is a Petition For Review for the Court En Bane filed by petitioner Commissioner of Internal Revenue (CIR) on October 5, 2009 pursuant to Section 18 of Republic Act No . 1125, as amended by Republic Act No. 9282, of the Decision 1 dated April 30, C 1 Penned by Associa te Justice Olga Polanco-Enriquez with Associate Justices Juonito C. Castaneda, Jr. and Erlindo P. Uy, concu rring , EB Docket, pp. 65- 107

C/R vs. Pilipinos Shell Petroleum Corporation Page 2 of 47 CTA EB Case No . 535 (CTA C ase No. 654 7) D E CISION 2009 and the Resolution 2 dated August 18, 2009 rendered by the former Second Division of this Court in CTA Case No. 6547. The dispositive portions of which, respectively read as follows: Decision dated 30 April 2009: WHEREFORE , premises considered, the instant Petition for Review is hereby GRANTED . The Collection Letters and Warrant of Distraint and/or Levy ore CANCELLED and declared without force and effect for lock of legal bosis. SO ORDERED . Resolution dated 18 August 2009: WHEREFORE , premises considered, respondent Commissioner of Internal Revenue's "Motion for Reconsideration" is hereby DENIED for lock of merit. SO ORDERED. The antecedent facts as culled from the records and Decision of the Court a quo are as follows: Petitioner is the duly appointed Commissioner of Internal Revenue (CIR) vested with the authority to exercise the functions of said office, including, inter alia, the power to administer and enforce National Internal Revenue Laws. The CIR holds office at the Bureau of Internal Revenue (BIR) Building, Agham Road, Diliman , Quezon City. On the other hand, respondent Pilipinas Shell Petroleum Corporation (PSPC) is a corporation duly organized and existing under( 2 Ibid, EB Docket, pp. 109-1 12

: Page 3 o f 47 \, C/R vs. Pilipinas She ll Petroleum Corpora tion CTA EB Case No . 535 (CTA Case No. 654 7) DECISION the laws of the Philippines, with principal business address at Shell House, 156 Valero St., Salcedo Village, 1227 Makoti City. From 1988 to 1997, PSPC paid so me of its excise ta x liabilities with Tax Credit Certificates (TCCs) duly assigned and transferred to it by other Board of Investment (B OI)-registered entities, after having secured prior approval from the Department of Finance (DOF) One Stop Shop Inter-Agen cy Ta x Credit and Duty Drawback Center (Center). The Center is a co mposite body run by fo ur government agencies, namely: the DOF, Bureau of Internal Revenue (BIR) , Bureau of Customs (BOC) , and BOI .3 The process and procedu res relating to said TCC transfe rs and utilization there o f are as fo llows: 4 a. PSPC and th e other BOI-registered en tities (the "transferor") execu ted Deeds o f Assig nme nt o ver the TCCs, subjec t to the due approval by the releva nt government agencies; b . PSPC was advised o f BOI' s or the Center's approval o f th e transfer when the tran sferor presented to it th e TCC, with an annota tio n by the BOI or the Ce nter o f such approval a t the reverse side o f the TCC; c. PSPC the n requested the BOI or the Ce nter for authority to utilize the transferred TCCs as paymen t o f its ta x liabilities and th erea fter, Ta x Debit Memos (TDMs) were issued by th e BOI or the Ce nter to signify suc h authority; f... 3 Paragraphs 3 and 4, Amended Joint Stipulation o f Fac ts and Issues fil ed on Oc l ober 23, 2003, pp. 273-27 4, Division Docket. 4 Paragraph 5, Ame nded Joint Stipula tion o f Fac ts and Issues filed on Oc tober 23, 2003, pp . 27 4-27 5, Division Docke t.

CIR vs. Pilipinas Shell Petroleum Corporation Page 4 of 4 7 C TA EB Case No. 535 (CTA Case No. 6547 ) DE C ISION d . Thereafter, PSPC presented the BOI's or the Center's TOMs and the corresponding TCCs to the BIR with written requests for the BIR to accept the transferred TCCs as payment of its excise tax liabilities. The BIR then issued its own TOMs in exchange for the TCCs which it th e n retained to signify its acceptance o f the said TCCs as valid tax payments by PSPC; e. PSPC then requ ested the BIR Regional District Office to issue on . "Authority to Accept Payment of Excise Taxes" ("ATAPET"), which served as the return for excise taxes being paid by PSPC, as well as on instruction to the BIR's Authorized Agent Bonks to accept PSPC's payments in the form of BIR TOMs and PSPC's c hec ks . Following the procedure as set forth above, PSPC's acceptance of TCC transfers, and utilization of the same in payment of ta xes, were never subjected to any question , chal lenge or dispute until April 22, 1998, when the BIR s se nt a Collection Letter to PSPC demanding payment of allegedly unpaid excise taxes .6 Simply put, the foregoing Collection Letter became the subject of several protests which led to various cases before this Honorable Court such as CTA Case No. 5728, CTA Case No. 6003 and CTA Case No. 6547 (the instant case). PSPC questioned the Collection Letter administratively before the CIR and, subsequently, it filed a Petition for Review before this Court L which was docketed as CTA Case No. 5728. s Revenue District Offi cer of Revenue District No. 50 of the BIR. 6 Paragraph 6, Amended Joint Stipulation of Facts and Issues fil ed on Oc tober 23, 2003, p. 275, Division Docket.

CIR vs. Pilipinos Shell Petroleum Co rpora tion Poge 5 o f 47 C TA EB Cose N o. 535 (C TA Case No. 6547) DECISION On July 23, 1999, this Court rendered a Decision in said CTA Case No. 5728 in favor of PSPC ruling , inter alia, that the transfers to and utilization by PSPC of the TCCs in qu esti o n are valid and legal, and that the BIR's attempt to collect supposedly delinquent ta xes and penalties from PSPC without an assessment or pre-assessment notice constitutes a denial of due process. Thereafter, the CIR appea le d the foregoing Decision of the Court a quo before the Court of Appeals through a Petition for Review docketed as CA-G.R. SP No. 55329, and the said appeal remains pending to dote. Meantime, the Center, in a series of letters to PSPC dated August 31 / September 1,s and October 18, 1999, 9 revived th e issue relating to th e transfers to, and utiliza tio n by, PSPC of certain TCCs su bject of CTA Case No . 5728. In the said le tters, the Center required PSPC to submit cop ies o f soles in voices and delivery receipts showing consummation o f sa le transa c ti o ns o f PSPC's produ c ts to certain TCC transferors, purportedly in connection w ith an ongoing post-audit of TCC issuan ces and transfers under pain of cancellation o f the TCC L transfers should PSPC fails to comply with the requirement. 1o 7 Exhibit "A", Division Docket, pp. 30 1-302. s Exhibit "B", Division Docket, p . 303. 9 Exhibit "C", Division Docket, pp. 304-3 15. 10 Paragraph 10, Amended Join t Stipul a ti on o f Fac ts and Issues fil ed on Oc tobe r 23,

C/R vs. Pilipinos She ll Petroleum Corpora tion Page 6 o f 47 CTA EB Case No. 535 (CTA Case No. 65 ~ 7 ) DECISION On November 3, 1999, the Center received PSPC's letter dated October 29, 1999 11 explaining, among others, that the requirement for it to submit the documents mentioned in the Center's letters, and the threatened sanction on PSPC if it failed to comply, has no legal basis as the applicable lows, rules and regulations 12 at the time of the transfer of the subject TCCs to PSPC merely require that both transferor and transferee be BOI-registered entities.I J However, on the same date that the Center received PSPC 's Reply doted October 29, 1999, the Center wrote PSPC a letter 14 regarding the cancellation of the previously issued TDMs and their related TCCs and TCC transfers. Is In a Letter doted November 4, 1999, 16 PSPC asked the Center to recon sider the cancellation o f the TDMs, related TCCs and their tronsfers Y PSPC 's plea fo r reco nsideration later proved to be futile. L:. 2003, pp. 275-276, Division Dockel. II Exhibit "D " , Division Docket, pp. 316-327. 12 Rule VII o f th e Rules and Regula tions implemen ting Execu ti ve Order No . 226. o th erwise known os th e Omnibus In ves tmen ts Code o f 1987 os amended (th e " IRRs" ), os supplemen ted by th e Memorandum o f Agreement (M OA) doted Oc tobe r 5, 1982 (th e " 1982 MOA") between the DOF and BOI. 13 Paragraph 11 , Amended Joint Sti pu lation o f Fac ts and Issues fil ed on Oc tober 23, 2003, p. 27 6, Division Dockel. 14 Le tter doted 03 November 1999, PSPC's Exhibit "E" , Division Docket. pp. 328-332. 15 Paragraph 12, Amended Joint Stipul a ti on o f Facts and Issues fil ed on Oc tober 23. 2003, p . 27 6, Division Docket. 16 Exhibit "F", Division Docket, pp. 333-348. 17 Paragraph 13, Amended Joint Stipu lation of Facts and Issues fil ed on October 23, 2003, p. 27 6, Division Docket.

C/R vs. Pifipinos Sheff Petroleum Corporation Page 7 of 47 CTA EB Case No. 535 (CTA Case No. 6547) DECISION On November 22, 1999, PSPC received a letter dated November 15, 1999 from the CIR which purports to be an assessment for deficiency excise tax, arising from the cancellation of the subject TCCs/TDMs.l s On December 2, 1999, PSPC protested the foregoing assessment. Upon the denial of said protest, PSPC filed a Petition for Review before this Court, docketed as CTA Case No. 6003.19 On August 2, 2004, the CTA Division rendered a Decision granting PSPC's petition for review and ordered the cancellation of the assessment issued by the CIR dated November 15, 1999. A subsequent Motion for Reconsideration filed by the CIR was likewise denied by the same CTA Division in a Resolution dated January 20, 2005. The CIR thereafter elevated the case before the CTAfn Bone (CTA EB No. 64). On April 28, 2006, the CTA En Bone reve rsed the foregoing Decision and Resolution of the CTA Division and ordered PSPC to pay the amount of P570,577,401 .6 1 as deficiency excise tax for the taxable years 1992 and 1994 to 1997, inclusive of 25% surcharge and 20% L. interest. 18 Paragraph 14, Amended Joint Stipulation of Facts and Issues filed on October 23, 2003, p . 27 6, Division Docket. 19 Paragraph 15, Amended Joint Stipulation of Facts and Issues filed on October 23, 2003, p. 27 6, Division Docket.

CIR vs. Pifipinos Shelf Petroleum Corporation Page 8 of 47 CTA EB Case No. 535 (C TA C ase No. 6547) DECISION The case was then elevated to the Supreme Court in the case entitled Pilipinas Shell Petrole um C orporation vs . C ommissioner of Internal Revenue , docketed as G.R. No. 172598. In a Decision promulgated on December 21, 2007, the Supreme Court ruled in favor of PSPC and reversed the Decision of the CTA En Bane. The dispositive portion of which reads: "WHEREFORE, the petition is GRANTED . The April 28, 2006 CTA En Bane Decision in CTA EB No. 64 is hereby REVERSED and SET ASIDE , and the August 2, 2004 CTA Decision in CTA Case No. 6003 disallowing the assessment is hereby REINSTATED . The assessment of respondent for deficiency excise taxes against petitioner for 1992 and 1994 to 1997 inclusive contained in the April 22, 1998 letter of respondent is canceled and declared without force and effect for lack of legal basis. No pronouncement as to costs." On July 1, 2002, while CTA Case No. 6003 was still pending before the CTA Division, PSPC received a Collection Letter2o dated June 17, 2002 (the "June 17, 2002 Collection Letter"), wherein the CIR seeks to collect from PSPC the total sum of Two Hundred Thirty Four Million Five Hundred Fifty Five Thousand Two Hundred Seventy Five and 48/100 Pesos (P234,555,275.48). representing allegedly unpaid taxes, inclusive of surcharge and interest, which had already been paid by PSPC using several TCCs/TDMs. The June 17, 2002 Collection Letter modifies, with respect to the TCCs covered, an earlier collection letter dated January 30, 2002 (the "January 30, 2002 Collection Letter"). 21 C... 2o Exhibit "1" , Division Docket, p . 373. 21 Paragraph 16, Amended Joint Stipulation of Facts and Issues filed on October 23,

C/R vs . Pilipinas Shell Petroleum Corporation Page 9 of 47 CTA EB Case No . 535 (CTA Case No. 65-1 7) DE C ISION On July 11, 2002, PSPC filed an administrative Protest dated July 10, 2002 (the "Protest") 22 to the June 17, 2002 Collection Letter before the CIR.23 Without acting on the Protest, however, the CIR served a Warrant of Distraint and/or Levy dated September 27, 200224 (the "Warrant") on PSPC, which is tantamount to a denial of the Protest made by PSPC on the June 17, 2002 Collection Letter.2s Hence, on October 14, 2002, PSPC filed a Petition for Review before this Court which is docketed as CTA Case No. 6547 (the instant case). Also, in the Joint Stipulation of Facts and Issues dated March 6, 200326 and the Amended Joint Stipulation of Facts and Issues dated October 22, 2003,27 the parties stipulated, as follows: a. CIR and/or the BIR based its Collection Letter solely on findings made by the DOF/Center; b. The BIR never served PSPC a notice for preliminaryC 2003, p. 27 6, Division Docket. 22 Exhibit "J", Division Docket, pp . 376-384. 23 Paragraph 17, Amended Joint Sti pulation of Facts and Issues fil ed on October 23, 2003, p. 277, Division Dockel. 24 Exhibit "K" , Division Docket. p . 385. 25 Paragraph 18, Amended Joint Sti pula tion of Facts and Issues filed on October 23, 2003, Division Docket , p. 277. 26 Filed o n 07 March 2003, Division Docket. pp . 148- 155. 27 Filed on 23 Oc tob er 2003, Division Doc ket , pp . 277-28 1.

CIR vs . Pilipinos Shell Petroleum Corporation Poge 10 of 47 CTA EB Case No. 535 (C TA Case No. 6547 ) DECISION co nfe re nce no r was any preliminary co nfe re nce und e r Revenue Regulation No. 12-99 (RR No . 12-99 ) ever he ld between PSPC and th e BIR prior to issuance o f th e sa id Collectio n Lette rs; c . Similarly, th e re was no preliminary assessment notice (PAN) pursuant toRR No. 12-99 issue d by th e BIR against PSPC; d . Th e ATAPET's issued by th e BIR for the taxes covered by the TCCs involved in this case serve as con firmation of th e correc tn ess o f th e amount o f excise taxes paid by PSPC during th e taxable years in question; e . Fifteen (15) ou t o f th e twe nty (20) TCCs subject of the June 17, 2002 Coll ection Letter o re not port of th ose purportedly ca nce lled by th e le tter o f the Cen te r doted November 3, 1999; f. Most o f th e TCCs subject of th e June 17, 2002 Collection Le tter ore already th e subjec t of CTA Case No. 5728, presently on appeal before th e Cou rt o f Appeals (CA-G.R. SP No . 55329 ); g. More than three (3) years hove passed since the deadline for filing excise tax returns for ta xpayers 1992, 1994, 1995, 1996 and 1997; h. The BIR never conducted any preliminary inves tiga tio n pursuant to Revenue M emorandum Ord e r No. 15-95 doted June 9, 1995 to es tablish any indica tion o f fraud in this case; i. All th e TCCs con tain the fo llowing provision: �Liability Clouse� Both the tran sfe ro r and th e transferee shall be jointly and severally liable for any fraudulent oc t or (_

C/R vs. Pilipinos Shell Petroleum Corpora tion Page 11 of 47 CTA EB Case No. 535 (CTA Case No. 6547) DECISION vio latio n o f the pertinent lows. rul es and regulati ons rela tin g to th e transfer of this TAX CR EDIT C ERTIFI CATE .' j. In the list (Annex "G-2", Amended Petition) attached to the June 17, 2002 Co llec tio n letter (Annex "G- 1", Amended Petition), the BIR erroneously listed Alliance Thread Co mpany, Inc. as the transferor of TCCs Nos. 5482, 4931, 5460, and 5337. Based on available records, the correct transferors of said TCCs are as follows: TC C No. Transf e r or 5482 Allstor Spinnin g, Inc. Filstor Textile Industrial Corpora tion 4931 Filstor Textile Industrial Corpo ration FLB Inte rn a tio nal Fiber Corporation 5460 5337 On April 30, 2009, the fo rmer Second Division of this Court rendered a Decision 28 in favor of PSPC and ordered the cancellation of the disputed Collection Letters and Warrant of Distraint and/or Levy. Considering that the instant case involves the same issues and defenses raised in a case dec ided by the Supreme Court in Pilipinas Shell Petroleum Corporation vs. Commissioner of Internal Revenue (G.R. No. 172598, December 2 1, 2007), the Court a quo applied the aforesaid ruling in the case at bench based on the doc trine of Stare Decisis et non quieta movere. The CIR filed a Motion fo r Reco nsideration on May 15, 2009 and which was subsequently denied for lack of merit in a Resolution29 dated L August 18, 2009. 2s EB Docket , pp. 65- 107. 29 EB Docket, pp. 109- 11 2.

C/R vs. Pilipinos Shell Petroleum Corpo ratio n Page 12 of 47 CTA EB Case No. 535 (CTA Case No. 6547) DECISION Undaunted, the CIR filed a Petition for Review3o before the Court En Bane on October 5, 2009.31 The issues presented are as follows: 1. Whether or not the Court a quo erred in recognizing the principle of store decisis; 2. Whether or not the Court a quo erred in not resolving the issue of the validity of the TCCs, despite overwhelming proof that the TCCs were void ab initio; 3. Whether or not the Court a quo erred in ruling that the subject TCCs can be used by PSPC in payment of its excise tax liabilities; 4. Whether or not the Court a quo erred in declaring PSPC as an innocent transferee in good faith and thus, cannot be prejudiced by the fraudulent procurement of TCCs; 5. Whether or not the Court a quo erred in holding that only five (5) out of twenty (20) TCCs subject of the Collection Letter and Warrant of Distraint and/or Levy were actually cancelled by the Center; 6. Whether or not the Court a quo erred in ruling that CIR and the Center are estopped from seeking invalidation of the TCCs, including their transfer and utilization; 7. Whether or not the Court a quo erred in holding that the period within which to collect PSPC's unpaid excise taxes has already prescribed; 8. Whether or not the Court a quo erred in holding that PSPC was denied of due process in the collection of excise taxes; C.. 3o EB Doc ket, pp. 7-63 . 31 Resolving the CIR's Motion for Extension of Time to file Petition for Review doted September 14, 2009, the CTA En Bone , in a minute resolution , granted a final and non- extendible period o f fifteen (15) days fro m September 17, 2009 o r until October 2, 2009 within w hic h to file the Petitio n fo r Review . O n October 7, 2009, the CIR filed a Manifestalio n and Motio n explaining his failure to personally fil e the Petition for Review beyond the period granted by the Resolution doted 15 September 2009 due to typhoon "Pepeng". In a Reso lution doled 15 October 2009, th e CTA En Bane noted CIR 's Manifestation in the interest of substantial justice, EB Docket, p. 168.

CIR vs. Pilipinos Shell Petroleum Corporation Page 13 of 47 CTA EB Case No . 535 (CTA Case No. 6547) DECISION 9. Whether or not th e Court a quo erred in holding that the CIR ca nnot validly impos e surcharges and inte rests against PSPC 's tax liabilities. The principal issue is whether PSPC is liable to pay deficiency excise ta xes in the amount o f P234,555,275 .48, inclusive of surcharge and interests, by reas o n o f the ca ncellati o n by the Center of the TCC s and TOMs used in the payment o f sa id excise ta x liabilities for the ta xable years 1995- 1998.32 The principal issue is answered negative ly . The d oc trine o f stare decisis was co rre c tly applied by the Cou rt a qu o in the instant case. In Lazatin, et at. vs. Hon . Desierto, et af.,33 the Supreme Cou rt extensively discussed the co ncept and rati o nale of the doctrine o f stare decisis in ou r jurisdic tio n, thus: The doctrine o f stare decisis e t no() quieta movere (to adhere to precedents and not to unsettle things which ore established ) is embodied in Article 8 o f the Civil Code o f the Philippines which provides, th us: ART. 8. Judicial decisions applying or interpreting !he lows or the Constitution shall form a port o f the lega l system o f the Philippines. It was furth er expla ined in Fermin v. People [G.R. No. 157643, March 28, 2008, 550 SCRA 132] as follows: The doctrine of stare decisis enjoins adherence to judicial precedents. It requires courts in a country{. 32 Exhibit "1", Division Docket, p. 373. 33 G.R. No. 147097, June 5, 2009.

CIR vs. Pilip in os She ll Pe tro le um Corpora tio n Page 14 o f 47 CTA EB Case No . 535 (CTA Case No. 65-1 7) D E CISION to follow the rule established in a decision of the Suprem e Court thereof. That d ecisio n b ecomes a judici al preced e nt to be fo llow e d in subseque nt cases by all courts in th e land . Th e d oc trin e o f stare d ecisis is base d o n th e princ iple that o nce a ques tio n o f law has bee n examin ed and d e cid e d , it sho uld b e d eem e d se ttl e d and cl osed to furth e r argume nt. [/d. at 145, c iting C astillo v. Sandiganbayan, 427 Phil. 785, 793 (2002). (Emphasis supplie d) .] In C hinese Yo ung Me n 's C hristian Associatio n o f the Philippine Islands v. Remingto n Steel Corp oratio n [G .R . No. 159422, Marc h 28, 2008, 550 SC RA 180]. th e Court exp o und e d o n th e impo rtan ce o f th e fo re g o ing d octrin e, stating that : Th e d oc trin e o f sta re d ecisis is o ne o f p o lic y g ro und e d o n th e necessity fo r securing certainty and stability o f judic ial d ecisio ns, thu s: Tim e and a gain, th e court has he ld that it is a very desirable and necessary judicial practice that w he n a court has la id d own a prin c iple o f law as a pplic able to a certain state o f facts, it will adhe re to that prin c iple and a p ply it to a ll future c ases in whic h th e fac ts are substantially th e som e . Sta re d ecisis e t no n quie ta m o vere. Stand by th e d ecisio ns a nd disturb no t w hat is se ttle d . Stare d ecisis simply m e ans that for the sake of certainty, a conclusion reached in one case should be applied to those that follow if the facts are substantially the same , eve n tho ug h th e parties may be differe nt. It p roceeds fro m th e first principle o f justice that. absent any powerful countervailing considerations, like cases ought to be decided alike . Thu s, w he re th e same questio ns re lating to th e same eve nt ho ve been put fo rward by th e parties similarly situate d as in a pre vio us c ase litig ate d and d ecide d by a compe te nt court. the rule of stare decisis is a bar to any attempt to relitigate the same issue . [/d . at 197- 198 . .(Emphasis supp lied ).] Th e d oc trine has assume d suc h valu e in o ur judicial syste m that th e Co urt has rul ed that "[a]bandonment thereof (

CIR vs. Pilipinos Shell Petroleum C orporation Page 15 o f 47 CTA EB Case No. 535 (CTA Case No. 6547) DECISION must be based only on strong and compelling reasons , o th erwise, th e becoming virtue o f predictability which is expected from this Court would be immeasurably affected and the public's con fid e nce in th e stability of th e solemn pronouncements diminished." [Pepsi-Cola Produ c ts, Phil., Inc. v. Pagdangonan, G.R. No. 167866, Oc lober 12, 2006, 504 SCRA 549 , 564.] Verily, on ly upon showing that c ircu mstances attendant in a particular case overrid e the grea t benefits derived by our judicial sys tem from th e doctrine of stare decisis, can th e courls be justified in setting aside the same. Similarly, in a re cent case � entitled Petron Corporation v. Commissioner of Internal Revenue,34 the Supreme Court in applying the principle of store decisis definitely ruled that: Once a case has been decided one way, the rule is settled that any other case involving exactly the same point at issue should be decided in the same manner under the principle stare decisis et non quieta movere. xxx [Emphasis supplied .] To reiterate , the d oc trine o f store decisis requires the cou rts to follow the rule established in a dec ision of the Supreme Court, which decision becomes a judic ial precedent to be followed in subsequent cases by all cou rts in the land. It is based on the principle that once a question o f law has b een examined and d ecided , it should be deemed settled and closed to further argument. 35 Abandonment thereof must be based only on strong and compelling reasons.36 /... 34 G.R. No. 180385, July 28, 20 10. 35 Fermin vs. People, G .R. No. 157643, March 28, 2008, 550 SCRA 132 . 36 Pepsi-Colo Products, Phil. , Inc. v. Pagdanganan, G.R . No. 167866, O c tober 12, 2006, 504 SCRA 549, 564.

CIR vs. Pilipinos Shell Petroleum Corpo ratio n Page 16 of 47 CTA EB C a se No . 535 (C TA Case No . 6547) DECISION In the instant case, the CIR argues that the novelty of the issues presents an exception to the doctrine of store decisis . The CIR states that the huge amount involved in the instant case constitutes as a "compelling reason" for the Court a quo to abandon the application of the doctrine of store decisis. PSPC asserts that the issues in the instant case are not novel and that the Court a quo correctly adhered to the case of Pilipinos She:ll Petroleum Corporation vs. C ommissioner of Internal Revenue (G.R . No. 172598) decided by the Supreme Court under the doctrine of store decisis . The CIR's argument is misplaced. As correctly observed by the Court a quo, there is nothing novel in the instant case as the som e is a mere sequel to CTA Case No . 6003 (CTA EB No . 64), entitled "Pilipinos Shell Petroleum Corporation vs. Commissioner of Internal Revenue", which was elevated to the Supreme Court in the c ase entitled "Pilipinos Shell Petroleum Corporation vs. Commissioner of Internal Revenue", docketed as G.R. No 172598 (the "Shell Case"). C..

C/R vs. Pilipinos She ll Petroleum Co rp ora tion Page 17 of 47 CTA EB Case No. 535 (CTA Case No. 6547 ) DECISION It must be underscored that the Shell Case promulgated on December 21, 2007 has become final in view of the denial with fina lity by the Supreme Court of the CIR's M o tion for Reconsideration through a Reso lution dated February 20, 2007. Subsequently, in a Reso lution dated April 30, 2008, the Supreme Court denied the CIR's Second Motion for Reconsideration for being a prohibited pleading. Finally, an Entry of Judgment was made on March 17, 2008. The rationale laid down by the Supreme Court in the Shell case con be summarized as follows: a. The TCCs duly issued by the Center is not subject to post- audit as a suspensive condition, and are thus immediately effective and valid from the date of their issuance; b . The conditions found on the face of the TCCs clearly show that the post-audit contemplated in the TCCs does not pertain to their genuineness or validity, but on computational discrepancies that may have resulted from the transfer and utilization o f th e TCC; c. The prevailing low 37 at th e time o f the issuance o f the subject TCCs merely requires that the TCC transferee, like PSPC, be BOI-registered com pany and does not require the company to be a capital equipment provider or a supp lier of raw material and/or component supplier to the transferors in order to qualify as a qualified TCC transferee. Similarly, the August 29, 1989 Memorandum of Agreement ("1989 MOA") between the DOF and BOI remains an internal agreement between these agencies and could no t have validly and effectively amended the October 5, ( 37 The Implemen ting Rules ond Regulations o f Executive O rd e r No . 226, w hi c h incorporated th e Oc tober 5, 1982 Memorandum o f Agreemen t between the MOF and BOI.

C/R vs . Pilipinas Shell Petroleum C orporation Pag e 18 of 47 CTA EB C ase No. 535 (C Ti\ Case No . 6547) DECISION 1982 Memorandum of Agreement ("1982 MOA") between the DOF and BOI as it has neither been elevated to the level of nor incorporated as an amendment in the IRR of EO 226, and for lack of due publication as required under Chapter 2 of Book VII, EO 292, otherwise known as the Administrative Code of 1987. Hence, it cannot prejudice TCC transferees, like PSPC, by � imposing a requirement more than that imposed by the 1982 MOA i.e., BOI registration; d. The transferee in good faith and for value may not be unjustly prejudiced by the fraud committed by the claimant or transferor in the procurement or issuance of the TCC from the Center. Thus, PSPC, as an innocent purchaser for value of the TCCs in dispute, may not be prejudiced and made to suffer for any alleged fraud in the issuance of the TCCs; e. Section 222(a) of the NIRC does not apply as PSPC has neither been shown nor proven to have 'committed any fraudulent act in the transfer and utilization of the subject TCCs. Hence, the three (3) -year period within which to assess and collect allegedly deficiency excise taxes covered by the disputed TCCs has already prescribed pursuant to Section 203 .of the NIRC; f. A ta xpayer, like PSPC, cannot be faulted in relying on the Center's approval for the transfers of the subject TCCs and its acceptance of the TCCs for the payment of its excise tax liabilities , and the BIR's acceptance of the subject TCCs as payment for its excise ta x liabilities; g . The subject TCCs cannot be cancelled by the Center as these had already been cancelled and used up after their acceptance as payment for PSPC's excise tax liabilities. What has been used up, debited, and cancelled cannot anymore be declared to be void, ineffective, and cancelled anew; h. The real issue in the instant petition does not dwell on the validity of the TCCs procured by the transferor from the Center but on whether fraud or breach of law attended the transfer of said TCCs by the transferor to the transferee; {._

CIR vs. Pilipinos Shell Petroleum C orporatio n Page 19 of 47 C TA EB Case No . 535 (C T1\ C ase No. 6547) DECISION i. While the Center has authority to cancel the TCCs, it must bear in mind the nature of the TCC's immediate effectiveness and validity for which cancellation may only be exercised before a transferred TCC has been fully utilized or cancelled by the BIR after due application of the available tax credit to the internal revenue tax liabilities of an innocent transferee for value, unless the claimant or transferee was involved in the perpetration of the fraud in the TCC's issuance, transfer, or utilization; j. While the State in the performance of governmental function is not estopped by the neglect or omission of its agents, and nowhere is this truer than in the field of taxation, yet this principle cannot be applied to work injustice against an innocent party, like PSPC; k. The Center's Excom Resolution No . 03-05-99, pursuant to which the disputed TCCs and their corresponding TOMs were cancelled, cannot be validly enforced against PSPC due to non-publication and non-filing with the National Administrative Register of the U.P. Law Center in accordance with Sees. 3, 4, and 5, Chapter 2 of Book VII, EO 292; I. No surcharge and interest can be imposed against PSPC; and m. PSPC's right to substantive and procedural due process was violated due to the CIR's non-compliance with statutory provisos and revenue regulations, and thereby depriving PSPC of due process in contesting the formal assessment levied against it. It is noteworthy to emphasize that the Supreme Court similarly applied the foregoing ruling in a recent case entitled Pefron Corporation v. Commissioner of Infernal Revenue (the "Petron Case")38 C.. 38 G .R. No. 180385, July 28. 20 10.

C/R vs. Pilipinos Shell Petro leum Corporatio n Page 20 of 47 CTA EB Case No. 535 (C TA Case No. 6547) DECIS I ON based on the doctrine of stare decisis et non quieta movere. In the said case, the Supreme Court reiterated the rule that the TCCs ore not subject to post-audit as a suspensive condition for it is immediately valid and effective after its issuance. Moreover, the Supreme Court held that the TCCs used in payment of Petron 's excise tax liabilities ore va lid and effective, and cannot be unduly cancelled by the Center, absent any proof of fraud on the port of Petron in the procurement and issuance of the subject TCCs. A perusal of the records of the instant case reveals that the legal rights and relations of the parties, the facts, the applicable lows, the causes of action, and the issues ore exactly the same as those in the decided case of Pilipinas Shell Petroleum Corporation vs. Commissioner of Internal Revenue , supra. Hence, as the issue has been settled, the Supreme Court decision in the Shell case must be respected. As the Court a quo puts it, the principal issue in the aforesaid Shell Case and in the instant case ore exactly the same, i.e., the propriety of the CIR's assessment and collection of alleged deficiency excise taxes, surcharge and interest from PSPC, by reason of the cancellation by the DOF Center of TCCs previously transferred to PSPC by other SOl -registered companies, which PSPC utilized to settle its excise tax liabilities. Similarly, the facts as presented in both cases (She// (

CIR vs. Pilipinos Shell Petroleum Corporation Page 21 of 47 CTA EB Case No. 535 (CTA Case No. 6547) DECISION case and the instant case) ore substantia lly the some, viz: 1. The TCCs were issued, transferred, and utilized by PSPC in the some manner and under the some circumstances; 2. The issuance, transfers, and utlizotion of the TCCs were subjected to the some stringent approval processes of the Center and BIR; 3. Five (5) of the TCCs included in the instant case were port of the list of the cancelled TCCs in CTA Case No . 6003, and like the rest of the TCCs in the instant case, they were cancelled through the some process; 4. The grounds for cancellation of the TCCs , their transfers and utlizotion by PSPC , ore the some in the instant case. Finally, the CIR has not shown any strong and compelling reason to convince this Court that the doctrine of stare decisis should not be applied in the instant case. Contrary to the CIR 's contention, the huge amount of the alleged exc ise tax deficiency in the instant case is not a compelling reason to justify the non-application of the doctrine of stare decisis. In the case of Commissioner of Internal Revenue v. Algue. lnc .,39 the Supreme Cou rt hod occasion to remind us of the need to balance the conflicting interests of the government and the taxpayers in this wise: l 39 G .R . No. L-18896, 17 February 1988, 158 SCRA 9, 11 .

CIR vs. Pilipinos Shell Petroleum Corporatio n Page 22 o f 47 CT A EB Case No. 535 (CTA Case No. 6547) DECISION Ta xes are the lifeblood o f the government and so should be collec ted without unnecessary hindrance. O n the o ther hand , such collection should be made in accordance with law as any arbitrariness will negate the very reason for government itself. It is there fore necessary to reco ncile the apparently co nflic ting interest o f the au thorities and the taxpa yers so that th e real purpose o f taxa tion, which is the promotion o f commo n good, may be achieved . [Emphasis supplied .] Thus, the application o f the doctrine o f stare decisis in the instant case is proper. The ca ncellation by the Center of the TCCs transferred to PSPC by BOI-registered companies, which were issued with corresponding TOMs by the Center and BIR, and BIR's ATAPETs, used by PSPC in payment o f its excise ta x liabilities, cannot be invalidated. Hence, PSPC cannot be held liable for the deficiency excise taxes in the amount of P234,555,275 .48, inclusive of surcharge and interests based on the reasons discussed hereinb e low. PSPC is on inn oce nt transferee in good faith and fo r value; hence, it cannot be prejudiced by the fraudulent procurement of TCC s. The CIR argues that PSPC is not an innocent transferee in good faith because on assignment of c redit inv o lves no transfer of ownership but m e re ly e ffects the transfe r o f rights which the assignor has at the [.

C/R vs. Pifipinos Sheff Petroleum Corporation Poge 23 of 47 CTA EB Case No. 535 (CTA Case No. 6547) DECISION time to the assignee. Hence, PSPC, being on ossingee, merely stepped into the shoes of the assignor and should therefore suffer the consequences of the fraudulent procurement of the TCCs . Moreover, the CIR argues that PSPC was aware of the conditions attached to the transfer of the TCCs: that the TCCs ore subject to post- audit as indicated therein . Therefore, when PSPC used the TCC in the payment of its excise ta x liabilities at the time when the post-audit was yet to be conducted, it did so at its own risk. This Court disagrees. First, the Supreme Court in the Shell Cose 40,olreody ruled with fina lity that the TCCs ore valid and effective from their issuance and ore not subject to post-audit as a suspensive condition, thus: "The inescapable conclusion is that the TCCs are not subject to post-audit as a suspensive condition , and are thus valid and effective from their issuance. As such, in the present case, if the TCCs have already been applied as partial payment for the tax liability o f PSPC, a post-audit o f the TCCs canno t simply annul them and the tax payment made through sa id TCCs. Payment has already been made and is as valid and effective as the issued TCCs. The subsequent post-audit canno t void the TCCs and allow the respondent to declare that utilizing canceled TCCs results in nonpayment on the part of PSPC. As will be discussed, respondent and the Center expressly recognize the TCCs as valid payment o f PSPC's tax liability.( 40 Supra, pp.342-347

CIR vs. Pilip in as She ll Pe tro leum Corpora tion Page 24 o f 47 C TA EB Cose No . 535 (CTA Case No. 6547) DECISION Second, th e o nly co nd itio ns th e TCCs ore subjecte d to o re th ose fo und o n its face. And th ese o re: 1. Pos t-a udit a nd subsequ e nt adjustme nt in th e eve nt o f com p utatio na l d iscre p a ncy; 2. A red uc tio n for an y o utsta nding a ccount/o blig atio n o f he re in cl aimant w ith th e BIR a nd/o r BOC; and 3. Reva lid a tio n w ith th e Ce nte r in cose th e TCC is no t utilize d o r a p pl ied w ithin o ne (1) ye ar fro m d ote o f issua nce / d ote o f lost utiliza tio n. Th e a bove co nditio ns c le arly sho w that the post-audit contemplated in the TCCs does not pertain to their genuineness or validity, but on computational discrepancies that may have resulted from the transfer and utilization of the TCC. This is shown by a c lose re ading o f th e first and second co nditio ns above; th e third co nd itio n is self explana tory. Since a ta x c re dit parta kes o f w hat is owed by th e State to a taxp ayer, if th e taxpa yer has o n ou tsta nd ing liability w ith th e BIR or th e BOC, th e m o ney va lue o f th e tax c re dit cove re d by th e TCC is primarily a pplied to suc h inte rna l re ve nue liabilities o f th e ho lde r as provid e d under co nditio n num ber two. Elsewise p ut, th e TCC issued to a cla ima nt is applie d first and fo re m os t to a ny o utstandin g lia bility th e c la ima nt may hove w ith th e governme nt. Thu s, it m ay happe n ,that upon p os t-aud it, a TCC o f a taxpa yer m ay be red uced for whatever liability th e taxpa ye r m ay hove w ith the BIR w hic h re m a ins unpaid due to ina d verte nce o r com pu tatio na l e rro rs, and suc h re duc tio n necessaril y a ffects th e b a la nce o f th e m o ne tary va lue o f the tax c re dit o f th e TCC. XXX Third, th e post-a ud it th e Ce nte r co nduc ted o n th e tra nsferred TCCs, d e lving into their issua nce a nd va lidity o n alleged vio la tio ns by PSPC o f the Au g ust 29, 1989 M OA be twee n th e DO F a nd BOI, is c o mple te ly misplaced . As m a y b e reca lled, th e Cente r req uired PS PC to submit copies o f pertin e nt so les in voices and delivery receip ts covering sole tran sac tio ns o f PS PC produc ts to th e TCC assig nors/tran sfe rors purpo rte dly in co nnectio n w ith o n o ngoin g pos t audit . As c orrec tly p ro teste d by PS PC but w hic h was com p le te ly igno re d b y th e Ce nte r, PSPC is not required by law to be a capital equipment provider or a supplier of raw material and / or component supplier to the (

C/R vs. Pilipinos Shell Petroleum Corporation Page 25 o f 47 CTA EB Case No. 535 (CTA Case No. 6547) DECISION transferors. What th e low requires is that the tran sferee be o SOl-registered company similar to th e SOl-registered transferors . XXX Fourth, we likewise fail to see the liability clause a t th e dorsal portion o f th e TCCs to be a suspe nsive co ndition relative to th e result o f th e post-audit . Said liability clause indica tes: LIABILITY CLA USE Bo th th e TRANSFEROR and the TRANSFEREE sha ll be jointly and severally liable for any fraudulent oc t or viola ti on o f the pertinent lows, rules and regulations relating to the tran sfer of this TAX CREDIT CERTIFICATE ." (Emphasis supplied .) The above clause to our mind clearly provides only for th e solidary liability relative to the transfer o f th e TCCs from th e original g rantee to a transferee. There is no thing in the above c lause that provides for th e liability of the transfe ree in th e even t that th e validity o f th e TCC issued to the o riginal grantee by th e Ce nter is impugned or where th e TCC is declared to have been fraudulently procured by th e said original grantee. Thus, the solidary liability, if any, applies only to the sale of the TCC to the transferee by the original grantee. Any fraud o r breach of law or rule relating to the issuance o f th e TCC by th e Center to the transferor or the origina l gran tee is the latter's responsibility and liability. The transferee in good faith and for value may not be unjustly prejudiced by the fraud committed by the claimant or transferor in the procurement or issuance of the TCC from the Center. It is no t o nly unjust but well-nigh violative o f th e constitutional right not to be deprived o f o ne 's property without due process of law. . Thus, a re-assessment o f tax liabilities previously paid through TCCs by a tra nsfe re e in good faith and for va lue is utterly confisca tory, more so when surcharges and interests are likewise assessed. A transferee in good faith and for value of a TCC who has relied on the Center's representation of the genuineness and validity of the TCC transferred to it may not be legally required to pay again the tax covered by the TCC which has been belatedly declared null and void , that is, after the TCCs have been fully utilized through settlement of internal revenue tax liabilities. Conversely, when the transferee is party to the fraud as when it did not obtain th e TCC for value o r was a par ty to or has knowledge of its fraudulent issuance, said tran sferee is lia b le for th e taxes and for th e fraud committed as provided for by law. &...,

CIR vs. Pilipinos Shell Petroleum C orpo ratio n Page 26 of 47 CT A EB Case No. 535 (C TA C ase No . 654 7) DECISION In the instant case, a close review of the factual milieu and the records reveals that PSPC is a transferee in good faith and for value. No evidenc e was adduced that PSPC participated in any way in the issuanc e of the subject TCCs to the corporations who in turn conveyed the same to PSPC. It has likewise been shown that PSPC was not involved in the processing for the approval of the transfers of the subject TCCs from the various BOI-registered transferors ." [Emphasis supplied] Th e Supreme Court a lready ruled that the post-audit contemp lated in the TCCs does not pertain to their genuineness or va lidity, but on computational discrepancies that may hove resulted from the transfer and utilization of the TCC. Significantly, the Supreme Court added that the solidary liability provided at the dorsal portion of the TCCs applies only to the sole of the TCC to the transferee by the original grantee. Therefore, the Supreme Court concluded that a transferee in good faith and for value may not be unjustly prejudiced by the fraud committed by the claimant or transferor in the procurement or issuance of the TCC from the Center. Hence, the CIR's argument that PSPC was aware of the conditions attached to the transfer of the TCCs, i.e ., the TCCs ore subject to post-audit as indicated therein, must necessarily foil. Second, in a futile attempt to convince this Court that the Center's subsequent cancellation of the subject TCCs by reason of its fraudulent issuance resulted to non-payment of PSPC's excise tax(

CIR vs. Pilipinos Shell Petroleum Corp o ratio n Page 27 of 47 CTA EB Case No. 535 (CTA Case No. 6547) DECISION liabilities, the CIR mistakenly relied on the pronouncement in the case of Proton Pilipinas Corporation v. Republic of the Philippines (the "Proton Case''). ~ 1 Significantly, the CIR 's reliance in the Proton Case was brushed aside by the Supreme Court in the Petron Cose, 42 the substantial portion of which reads: "In urging th e affirmance of the assailed dec ision, respondent c alls our attention to th e pronouncement in the c ase of Proton Pilipinas Corporation vs. Republic of the Philippines [G.R. No . 165027, 504 SCRA 528, October 16, 2006) that the resultant non-payment of customs duties and taxes by reason of the ca nce llation of the TCCs for having been found as fake and spurious is the obligation of the taxpayer. Rather than the legal implications and consequences of the cancellation of TCCs, however, the Proton Pi/ipinas case dealt with procedural matters such as the effect of the Sandiganbayan 's jurisdiction over the criminal case involving the issuance of the TCCs to the collection case instituted by the government before the Regional Trial Court (RTC) , the existence of litis pendencia as a consequence of the pendency of the criminal and civil cases filed under the circumstances and the prejudicial question arising therefrom . Sharing the same factual and legal milieu as the case at benc h, more in point is the Pilipinas Shell case whi c h ruled that th e rights of a transferee in good faith ca nnot be prejudiced by th e Ce nter's turnaround from its previous approval of th e assignments o f th e TCCs." [Emphasis supplied.) In light of th e fo regoing, the Proton Case cited by the CIR is wholly inapplicable in the instant case as it , merely dealt with procedural matters such as the scope of the Sandiganbayan's jurisdiction, the existence of litis pendencia and prejudicial question . The core issue in the instant case was adeptly discussed and ruled ( 41 G.R. No. 165027, 504 SCRA 528, Oc tober 16, 2006. 42 Supra n o te 38 .

C/R vs. Pilipinos Shell Petroleum Corpo ratio n Pag e 28 of 47 CTA EB Case No . 535 (C TA C ase No . 65-1 7) DECISION upon by the Supreme Court in the Shell Case above-cited where it vivid ly discussed the nature of the TCC' s immediate effec tiv eness and validity vis-a-vis the Center's authority to cancel the same in the Shell C ase 43, viz: "Sec. 3, letter I. of AO 266, in relation to letters a. and g., does give ample authority to the Cen ter to cancel the TCCs it issued. Evidently, the Center cannot corry out its mandate if it canno t cancel the TCCs it may hove erroneously issued or those that were fraudulently issued . It is axiomatic that when the low and its implementing rules ore silent on the matter of c ancellation while granting explicit authority to issue, on inherent and incidental power resides on the issuing authority to c ance l that which was issued. A caveat however is required in that while the Center has authority to do so, it must bear in mind the nature of the TCC 's immediate effectiveness and validity for which cancellation may only be exercised before a transferred TCC has been fully utilized or canceled by the BIR after due application of the available tax credit to the internal revenue tax liabilities of an innocent transferee for value , unless of course the claimant or transferee was involved in the perpetration of the fraud in the TCC 's issuance, transfer, or utilization. The utilization of the TCC will not shield a guilty party from the consequences o f the fraud committed." Accordingly, it is crystal clear that the Center may only cause the cancellation of TCCs before and not after a transferred TCC has been fully utilized or cancelled by the BIR after due application of the available tax credit to the tax liabilities of an innocent transferee for value. Hence, it is imperative for this Court to determine whether PSPC is an innocent transferee in good faith and for va~ue in the instant case L presented before us. 43 Supra, pp . 355-356

CIR vs. Pilipinos Shell Petroleum Corporation Page 29 of 47 CTA EB Case No. 535 (CTA Case No. 65~7) DECISION A further perusal of the records reveals that PSPC is an innocent transferee in good faith and for value. As correctly found by the Court a quo, there was no evidence presented which shows PSPC's participation in the procurement and issuance of the subject TCCs by the Center to the original grantees. Neither has it shown that PSPC was involved in the processing for the approval of the transfers of the subject TCCs from the various BOI-registered transferors. In order to prove that the TCCs were fraudu lently transferred to PSPC by the original grantees, the CIR then presented various memoranda approving the requests for transfer of subject TCCs (Exhibits 11 to 22), Deeds' of Assignment of TCCs (Exhibits 11-B to 22-B) and Sales Agreements (Exhibits 11 -C to 22-C) allegedly executed by PSPC and TCC transferors . The CIR alleged that the Center approved the TCC transfers on the basis of the representation that the TCCs shall be in payment for petroleum products purchased by the TCC transferors from PSPC pursuant to the aforesaid Sales Agreements. 44 Consequently, as there were no deliveries of petroleum products from PSPC to the TCC transferors as disclosed in the post-audit report and as admitted by Mr. Pacifico Cruz, PSPC's former General Manager of Treasury and Taxation (tsn., November 24, 2003, p. 23), the said transfers C.. 44 Division Docket, p. 1475.

CIR vs. Pilipinos Shell Petroleum Corporation Page 30 o f 47 CTA EB Case No. 535 (CTA Case No. 6547) DECISION to PSPC were mode in co ntrave ntio n to Rule VII of the Rules of Regulations implementin g th e provisions o f E.O. No. 226 and the 1989 MOA betwee n the DOF and BOI, which requires that the TCC transferee should b e a domestic capitol equipment supplier or a row material and/or component supplier of the transferor. 45 It is on this premise that the CIR co ncluded that there was a misrepresentation mode to th e Center because the Iotter would not hove approved the transfers of the subject TCCs were it not for such misrepresentation , thereby making the TC C transfe rs froudulent. 46 The Suprem e Court in the Shell Case has explicitly held that "PSPC is not required by low to be a capitol equipment provider or a supplier of row mate rial and/or co mponent supplier to th e transferors. What th e low req uires is that th e transferee be a BOI-reg iste red company similar to th e BOI-registered tronsferors." 47 Thus , PSPC, a BOI- registered compa ny, is a qualified transferee o f the subject TCCs . On the claim o f alleged misrepresentation, the Cou rt a quo, in brushing aside the th eory o f th e C IR , mode the fo llowing observations: "But, unlike in th e She ll Case, respondent, in th e case at bench, presented photocopies o f th e Sa les Agreements (Exhib its "11-C" to "1 6-C", and "18-C " to "22-C ") to show that ( 45 1bid . 46 Ibid. 47 Pilipinas Shell Pe tro leum Corpora ti on v. Commissioner o f Internal Revenue, G .R . No . 172598, 541 SCRA 316, December 21, 2007, p. 344.

CIR vs. Pilipinos Shell Pe tro leum Corpo ra tio n Page 3 1 o f 47 C TA EB Case No . 535 (C TA C ase No . 65-17) DE C ISION th e subject TCCs w e re tra nsfe rred to p e titio ne r in co nside ratio n o f its d e liveries o f pe tro le um pro d uc ts to TCC transfe ro rs. However, a c are ful rea ding o f th e Sa les Ag reem e nts show s lh a t th e re is no thin g sta te d th e re in that the said Sales Agree m e nts were exe cu ted in co nside ratio n o f d e liveries o f p e tro leu m pro d ucts by p e titio ne r to its TCC transfe ro rs. O n c ross-exa mina ti o n, p e titio ner's witn ess, Pa c ifico R. Cruz, tes tifie d th a t th e c o nside ra tio n fo r lhe tran sfe r o f th e TCCs to p e titio ne r is no t th e d e livery o f pe tro le um pro duc ts. but pe titio ne r paid 90% o f th e fa ce va lue o f th e TCCs (TSN da te d No ve m ber 24, 2003, p. 23). Pa ci fico R. C ru z furth e r tes tifie d that p e titio ne r d e live re d produc ts to th e TCC tran sfe ro rs, but no t in exchange fo r th e TCCs. Al so. in his Affidavit date d July ll . 2007, Paci fico R. C ru z c ategoric ally d e nie d having executed no r sig ne d sa id Sa les Ag reem e nts (Exhibits "0 00'' to "000- 1� ~ and � TSN d a te d July 16. 2007, p . 10) . Th e testim o ny o f Pa ci fico R. C ru z was corroborated by th e tes tim o nies o f p e titio ne r's o th e r re butta l w itn esses, Gerard o C. Val e ntin. Jr.. and Flo rinda D. Sorian o, fo rm e r subordina te and Secre tary, respec tiv e ly, o f Pacifico R. Cruz. w ho are both familiar w ith his sig nature fo r ha vin g worked w ith him in PSPC fo r many ye ars. Bo th ca tegorica lly sta te d th a t th e sig natures appearing in th e Sales Ag ree m e nts (Exhib its " 11 -C" to " 1 6- C'~ and "1 8-C " to "22-C"] , a llegedly sig ned b y Pacifico R. C ru z, are no t his tru e and ge nuine sig natures (Exhib its "PPP" and "PPP- 1", a nd "QQQ" and "QQQ- 1", respective ly, a nd TSN d ate d Marc h 26, 2008, pp. 1.1 and 26}. In support o f th e ir a llegatio ns. Gerard o C. Val e ntin, Jr., a nd Florind a D. Soria no prese nte d d ocume nts b e aring th e ge nuine sig natures o f Pacifico R. Cruz (Exhibits "PPP-2" to "PPP-6" a nd the ir sub m a rkin gs] . The rule is th a t th e ha ndwriting o f a p erso n may be p roved b y a witn ess wh o b e lie ves it to be th e handwriting o f suc h p e rson b ecause he has see n th e p e rson write. or has seen w ritin g purportin g to be his, upo n w hic h the witness has ac ted or bee n c harged , and has thu s acquire d kn owl edge o f th e ha ndwritin g o f su c h p e rson (Sec tio n 2, Rule 132 o f th e Re vised Rules o f Co urt]. Thu s, We g ive c re d e nce to th e tes timonies o f Gerard o C. Va le ntin, Jr.. a nd Florinda D. Sorian o , m o re so th a t resp o nde nt fail e d to prese nt counte rvailing evidence to re fute th e ir te stimo nies. In additio n. co nsiderin g th a t no less than Secti o n 22, Rul e 132 of lh e Revise d Rules o f Cou rt also explic itly authorizes th e Court. by itself. to make a comparison o f th e dispute d ha ndw ritin g 'w ith w ritin gs admitt e d or tre ated as g e nuine by the party aga inst w ho m th e evid e nce is o ffe red or proved to b e (

CIR vs. Pilipinos She ll Pe tro leum Corporation Page 32 o f47 C TA EB Case No . 535 (C TA Case No. 651\7) DECISION , ge nuin e to th e sa tisfac ti on o f th e j ud ge' (G & M Philippin es, Inc. vs. C ua m bo t, 507 SCRA 567-568), th e Co urt d eem s it necessary to com pare th e sig na tures o f Pacifico R. C ruz appearing o n th e p urported Deeds o f Assig nmen t with his sig na tures ap p earing o n th e docume nts e numera ted below, cl a imed by Paci fi co R. Cruz to b e his ge nuine signatures. A cursory perusa l and com pariso n o f th e a lleged sig na tures o f Pacifico R. Cruz a ppearing o n sa id So les Ag ree m e nts w ith th e sig na tures o f Pacifico R. C ruz ap p e aring o n th e record s o f this case, suc h as: (1) Minutes o f th e He aring (O rig in a l Docke t, p. 1145); (2) Deeds o f Assig nment, do te d April 20, 1996, August 5, 1996, Februa ry 26, 1996, and Marc h 13, 1997 (Exhibits "S" to "V"); (3) Affidavit dote d July 11 , 2007 o f Pacifico R. C ru z (Exhib its "000'' a nd "000- 1'); (4) Appli c atio n fo r Leave do te d Novem ber 28, 1996 o f Pacifico R. C ruz (Exhib its "PPP-2" a nd "PPP-2-a"); (5) Pacifico R. C ru z' Resignatio n Le tte r d o ted Decem ber 3 1, 1986 fro m PSPC (Exhibits "PPP-3" a nd "PPP-3-a"); (6) Waiver o f th e De fe nse o f Prescriptio n unde r th e Statute o f Limitatio ns o f th e NI RC (Exhib its "PPP-4" and "PPP-4-a'} ; (7) Le tte r do ted Ju ne 1995 o f pe titioner, b e aring Pacifico R. Cruz' sig na ture under the "Received by" p ortio n (Exhibits "PPP-5" a nd "PPP-5-a"); and (8) Le tter do ted Decem ber 7, 1996 o f Pacifico R. C ru z to CIR Liwoywoy V. C ho to (Exhibits "PPP-6" a nd "PPP-6-a' ') , readily shows g laring d isparities . A t th e ou tse t, a m ere Iaymo n w il l imme diate ly no tice th a t th e no m e Pacifico R. C ruz is c learly rea dable o n th e co ntes ted Deed s of Assign m e nt, as com p ared w ith th e sig na tures a p pearin g o n th e above genuin@ d ocum e nts (O rig in a l Docke t, p. 1145; Ex hib its "S" to ''V'~ Exhib its "000" to "PPP-5" a nd th e ir subm a rkin gs) executed by Pacifico R. C ruz, w hic h co n hard ly be rea d. Seco nd, th e stroke o f th e c a p ito l Le tte r "P" o n th e co ntes ted Deeds of Assig nme nt starts fro m th e bottom, a nd w itho ut a ny to il, whereas, o n th e o th e r ge nuine docume nts, th e capito l le tte r "P" has a to il from w hic h th e stro ke starts. Third, th e capi to l le tte r "P", sm a ll le tte r "f", a nd ca pitol le tt ers "R" and "C" o n th e co ntested Deeds of Assig nme nt ore o f th e so m e heig ht, w hil e on th e o th e r ge nuine docume nts, th e capito l le tte r "P" is the on ly dominan t o r visibly capita lize d le tte r. Fo urth , b o th le tte rs "i" hove p eriods on th e con tes ted Deed s o f Assig nme nt, w hile o nly th e firs t le tter "i" has a period o n th e o th e r genuine documen ts. Fifth , th e to il of th e le tte r "f" o n th e co ntested Deeds o f Assig nme nt is m o re rounded , w hile o n th e o th e r docum e nts th ey ore visib ly pointed. Six th. th e loop o f th e capito l le tter "C" o n th e contes ted Deeds o f Ass igr;~me nt starts fro m th e top going down, w he reas, in th e othe r ge nuin e d ocume nts, th e loop o f(

CIR vs. Pilipin as She lf Pe tro leum Corporation Page 33 o f 47 CTA EB Case No. 535 (CTA Case No. 6547 ) DECISION th e le tte r "c" starts from th e middle going up . Seve nth, as to the distan ce o f th e le tters, o n th e co ntested De eds o f Assignme nt, th ey ore m ore sprea d ou t, w hile o n th e o th er g e nuine d oc ume nts, th e le tters ore m o re constricte d . Fro m th e foregoing, it is evident th a t th e sig natures "Pa ci fico R. Cruz" appearing o n th e conteste d Deed s o f Assignme nt were sig ned , no t by Pa c ifico R. Cruz, but by an o th er p e rso n. It is clear, th ere fore, th a t th e Deeds o f Assignme nt w ere no t execu te d by p e titio ner. Thu s, p e titio ner c anno t b e co nsidere d to hove p artic ipa te d in th e appro va l o f th e tran sfe r o f th e subjec t TCCs by p rese nting th e Deed s o f Assig nme nt. Co nsiderin g that th e subject TCCs w ere transferre d to pe titio ner for va luable co nsideratio n and p e titio ner did no t particip ate in th e commissio n o f a ny fraud in th e proc ure me nt o f th e subject TCCs, no r in the perpe tratio n o f an y fraudu le nt o c t in th e tra nsfer o f th e subject TCCs, th e rul ing o f th e Supre me Court in th e She ll Case, that p e titio ner is a tran sferee in good faith and for value rema ins a b ind ing preced e nt." 4B A c are fu l sc rutin y o f th e record s o f th e c ase reve a ls that th e sig natures "Pa ci fi co R. C ruz" a pp e arin g o n th e co ntes te d Sales Agreements (Exhib its " CCC" to "HHH" and "JJJ " to "NNN") , and n o t the Dee d s o f Assig nm e nt as a b ove-cite d in th e ass ai le d Dec isio n , were sig n e d , n o t by Mr. Pac ifico R. C ru z, but b y an o th e r perso n. Neverth e less, we see n o coge nt re aso n to d eviate fro m the said findings o f th e Court a q uo th a t PSPC was an inn oce nt tran sfe ree in g ood faith a nd fo r va lu e. To e mphasize , th e Sa les Agree men ts p rese nte d b y th e C IR sufficie ntly esta b lish e d that PSPC had no p artic ipatio n in th e exec utio n th e reo f as th e signatures "Pa c ifi co R. ~ 48 Pili pinas Shell Pe troleum Corpora tion v. Commissio n e r o f Inf erna l Revenue, C TA Case No. 6547, April 30, 2009, EB Docke t, pp. 93-98.

CIR vs. Pilipinas Sh e ll Petroleum C o rp o ration Page 34 of 47 CTA EB Case No. 535 (CTA Case No. 6547) DECISION Cruz", allegedly representing PSPC, appearing on these documents were not the genuine signature of Mr. Pacifico R. Cruz as compared with the signatures appearing on the genuine documents (Original Docket, p. 1145; Exhibits "S" to ''V", Exhibits "000" to "PPP-5'' and their submarkings) executed by Mr. Pacifico R. Cruz as sufficiently explained by the Court a quo. To reiterate, PSPC did not participate in the fraudulent issuance of the subject TCCs, if any, to the original grantees nor in the perpetration of any fraudulent act in the transfer thereof; thus, the ruling of the Court a quo that PSPC is a transferee in good faith and for value is hereby affirmed. The issues on the validity of the subject TCCs and the utilization thereof by PSPC have been rendered moot by the findings of this Court that PSPC is an innocent transferee in good faith and for value. The CIR posits that the Court a quo should have resolved the core issue in the instant case - the validity of the TCCs transferred to and utilized by PSPC, due to overwhelming proof that the same were fraudulently obtained; thus, they are void ab initio and could not be validly used in the payment of PSPC's excise tax liabilities.(

C/R vs . Pilipinos Shell Petroleum Corpo ratio n Page 35 of 47 CTA EB Case No. 535 (CTA C ase No. 6547) DECISION Again, the CIR 's argument must necessarily fail. The Supreme Court, in addressing this issue in the Shell case, 49 held that: "On the issue of fraudul e nt proc urement of the TCCs, it has b e en asseverated that fraud was committed by the TCC c laimants who were the transferors of th e subject TCCs . We see no need to rule on this issue in view of our finding that the real issue in this petition does not dwell on the validity of the TCCs procured by the transferor from the Center but on whether fraud or breach of law attended the transfer of said TCCs by the transferor to the transferee. The finding of the CTA En Bane that there was fraud in the procurement of the subject TCCs is, therefore, irrelevant and immaterial to the instant petition . Moreover, there ore pending crimina l cases arising from the alleged fraud. We leave the matter to the anti-graft court especially considering the failure of the affiants to the affidavits to appear, making these hearsay evidenc e." [Emphasis supplied.] Therefore, contrary to the CIR's stance, the real issue to be resolved in the instant petition is not on the va lidity in the procurement of the subject TCCs from the Center but rather on whether fraud or breach of low attended the transfer of said TCCs by the transferors to PSPC. This Court sees no cogent reason to belabor on the issues of validity of the subject TCCs and the utilization thereof by PSPC as the some hove been rendered moot by the findings of this Court that PSPC is on innocent transferee in good faith and for value.[ 49 Supra, p . 353.

C/R vs . Pilipinos Shell Petroleum Co rp o ra tio n Page 36 of 47 CTA EB Case No. 535 (CTA Case No. 6547) DECISION As to the issue on the actual number of TCCs that were actually cancelled by the Center, the some is mooted by the pronouncement of the Supreme Court in the Shell Case that the PSPC's payments using the subject TCCs ore valid. The CIR vehemently argues that the Center cancelled all the twenty (20) TCCs subject of the June 17, 2002 Collection Letter as shown in various Cancellation Memoranda approved by the Center's Executive Director, Alberto R. Solonga. so In response thereto, PSPC claims that o ther than the list of purportedly cancelled TCCs/TDMs attached to the Center's Le tter doted November 3, 1999, it has not received any notice of any additional TCC/TDM that has been subsequently cancelled by the Center. sl Considering the Supreme Court's pronouncement in the Shell Case on the validity of payments mode by PSPC using the TCCs/TDMs transferred to it by the TCC transferors coupled with the fact that these TCCs cannot be subsequently cancelled by the Center as the some were already used up, debite d , and cancel led after its application to PSPC's e xci se ta x liabilities, th e issue on the actual number o f TCCs ( 5o CIR's Exhibit s No. " 2" to "8 ". 5 1 EB Doc ke t. p p . 269-270.

C/R vs. Pilipinas Shell Petroleum Corpo ra tion Page 37 o f 47 C TA EB Case No. 535 (CTA C ase No. 65-1 7) DECISION ca nce lled by the Ce nter has been rendered moot and academic. Settled is th e rul e that "[a] case becomes moot and academic when there is no more actual con troversy between the parties o r no useful purpose con b e se rved in passing upon th e merits." 52 On es toppe l, th e CIR and the Center ore estopped fro m seeking invalidati o n of the TCCs , inclu d ing th e ir transfer and utilizatio n. The CIR assails that he is no t es topped from seeking invalidation o f the TCCs, including its transfer and utilizatio n without running afoul to the well-established judic ial precedents holding that the Government ca nn o t be stopped from coll ecti ng ta xes by the mistake, neg lig e nce, or omissio n o f its agents. Again, adherence to the p rin ciple o f store decisis is proper. This issu e was similarly se ttl ed in th e aforesaid Shell Case, sJ where the Supreme Court held that: "While we agree with respondent that the State in the performance of governmen tal function is not estopped by the neg lect or omission o f its agen ts, and nowhere is this truer th an in th e field of taxa tion, yel this principle cannot be applied to work injustic e aga inst an innocent party. In th e case at bar, PSPC's rig hts as on inn oc en t transferee for value must be protec ted. Therefore, !he remedy for respondent is to go after '- 52 Ocampo v. House of Representatives Electoral Tribunal, G.R. No. 158466, 15 June 2004 citing Enrile v. Senate Electoral Tribunal, G.R. No. 132986, May 19, 2004. 53 Supra, p . 356

CIR vs. Pilipinas Shell Petroleum C orporatio n Page 38 of 47 CTA EB Case No. 535 (C TA Case No. 654 7) D EC ISION the claimant companies who allegedly perpetrated the fraud." [Emphasis supplied .] Evidently, having established that PSPC is an innocent transferee in good faith and for value of the subject TCCs and therefore, an innocent party, PSPC's rights must be protected. The CIR cannot sweepingly invoke the general rule that the State in the performance of governmental function is not estopped by the neglect or omission of its agents as the same cannot be applied to work injustice against an innocent party, like PSPC in this case. Hence, the CIR and the Center are estopped from seeking invalidation of the subject TCCs, including their transfer and utilization. On the issue of prescription , the period within which to collect PSPC's unpaid excise taxes has prescribed. The CIR vehemently argues that PSPC filed a false excise tax return because the TCCs utilized in the payment of excise taxes were subsequently cancelled by the Center; hence, the applicable provision of law in the instant case is Section 222 of the Tax Code, which provides a ten (10)-year prescriptive period from the discovery of the falsity of PSPC's returns for the CIR to assess and collect deficiency taxes . Therefore, since the reckoning point is the date of the various (

� Page 39 o f 47 CIR vs . Pilip in os She ll Pe tro leum Corporation C TA EB Case No . 535 (CTA Case No. 654 7) DECISION Cancellati o n M e m o randa (Oc to b e r 24, 1999 and so metime in March with re sp e ct to Mannequin In ternati o nal Corp .) whi c h co ntain the post- audit report, the Jun e 17, 2002 Co ll e cti o n Le tter was w e ll within the 10- y ear p e ri o d o f presc ripti o n . We ore n o t persuad e d. The Suprem e C o urt in th e Shell C ase, s4 ru led that th e ten (10)- year perio d o f presc ripti o n und e r Sec. 222 (o) o f th e NIRC d o es not apply absent any fraudul e nt o ct o n the port o f PSPC in the transfer and utilization of th e subje c t TCCs. Hen ce , the thre e (3)-ye or period o f prescripti o n und e r Sec. 203 o f th e NIRC has set in , thus : "[l]t is clear th a t PSPC is a transferee in g ood faith and for valu e o f th e subjec t TCCs a nd may no t b e prejudiced with a re-assessm e nt o f excise tax lia bilities it has alre ady se ttl ed wh e n due w ith th e use o f th e subject TCCs . Logic ally, th ere fo re, th e excise tax re turns fil e d by PS PC duly covere d by th e TOM a nd ATAPETs issued by th e BIR confirming th e full p a ym e nt a nd satisfa c tio n o f th e excise tax liabilities o f PSPC, have no t been fraudul e ntly fil ed. Co nseq ue ntly, as PSPC is a transferee in good faith and for value, Sec . 222(a} of the NIRC does not apply in the instant case as PSPC has neither been shown nor proven to have committed any fraudulent act in the transfer and utilization of the subject TCCs. With m ore reaso n, th e re fore, that th e three-year prescri p ti ve period for assessm e nt under Art . 203 o f th e NIRC has a lready se t in a nd bars resp o nd e nt fro m assessing a new PSPC for th e excise taxes a lready paid in 1992 and 1994 to 1997. Besides, eve n if th e p erio d for assessm e nt has no t prescribed, still , th ere is no va lid g ro und fo r th e assessm e nt as th e excise tax liabilities o f PSPC ha ve b ee n d uly se ttl ed and paid ." [Em p hasis s u pp li ed. ]~ s54 up ro, p . 349.

CIR vs . Pilipinas Shell Petroleum C orporation Page 40 of 47 CTA EB Case No . 535 (C TA C ase No . 6547) DE C ISION Considering the earlier pronouncement that PSPC is a transferee in good faith and for value of the subject TCCs, the foregoing ruling of the Supreme Court equally applies. Absent any fraudulent act on the port of PSPC in the issuance and subsequent transfer thereto of the subjec t TCCs from the original grantees or TCC transferors, the applicable provision is Sec. 203 and not Sec. 222(a) of the NIRC, which provides a three (3) -yeor period of prescription for assessment and collection of internal revenue taxes. Failure to adhere with the said period necessarily bars the CIR from reassessing PSPC for excise taxes already paid for the taxable years in question. On due process, PSPC was denied of due process in the collection of excise taxes. The CIR emphasized that PSPC was not denied of due process in the collection of the unpaid excise taxes because the procedures under RR No . 12-99 is not applicable in the instant case as the Collection Letter is not an assessment for deficiency excise tax but rather, a demand for payment of unpaid excise tax liabilities. In addition, PSPC was given th e opportunity to dispute the Collection Letter before the Warrant of Distraint and/or Levy was issued to enforce (

CIR vs . Pilipinos Shell Pe tro le um Corporatio n Pa g e 41 o f 47 C TA EB C ase No. 535 (CTA Case No. 6547 ) DE C ISION the collection of deficiency e xc is e ta xes. A lso, the CIR is justified to rely solely on the findings of th e Ce nter' s post-audit examination of the TCCs considering that the C e nte r is a sp ec ialized government agency tasked to determine fraudulentl y o btain e d TCCs. This argument is untena b le. Th e Supreme Court in th e Shell Cos e ,ss expressly held that PSPC's substantive and procedural du e proc ess were equally violated for failure of th e CIR to observ e the statutory and procedural requirements provide d unde r the NIRC and applicabl e regulations, thus: "While this has likewise been m ooted by our discussion above, it would not be amiss to state that PSPC 's rights to substantive and procedural due process have indeed been violated . The fa c ts show that PSPC was not acc orded due process before the assessm e nt was le vied on it . The Center re quire d PSPC to submit certain sales documents relative to supposed delivery of IFOs by PSPC to the TCC transferors. PSPC co nt e nds that it could no t submit th e se documents as the tran sfer o f th e subjec t TCCs did no t re quire that it be a supplier of mat erials and/or compo ne nt supplies to the transferors in a le tt er dated O c to b er 29, 1999 whic h was received by the Ce nt er o n No vember 3, 1999 . O n th e same day, the Center info rm ed PSPC o f th e ca ncellatio n o f th e subject TCCs and the TDM covering th e applica tio n o f th e TCCs to PSPC's excise tax liabilities . The objections of PSPC were brushed aside by the Center and the assessment was issued by respondent on November 15, 1999, without following the statutory and procedural requirements clearly provided under the NIRC and applicable regulations. What is applic able is RR 12-99 , whic h superseded RR 12-85, pursua nt to Sec . 244 in re la tio n to Sec . 245 o f the NIRC imp le m e nting Sees. 6, 7, 204, 228, 247, 248, and 249 on the ( 55 Supra, pp . 358-360 .

C IR vs . Pilipinos Shell Petro leum Corporation Page 42 o f 47 CT A EB Case No . 535 (CTA Case No. 6547) DECISION assessme nt o f na tio na l intern a l reve nue ta xes. fees, a nd charges. Th e p roced ures d elineated in th e said statuto ry provisos a nd RR 12-99 were no t fo llowed by resp o nde nt, depri ving PSPC o f due process in co ntestin g th e form a l assess me nt levied a ga in st it. Respondent ignored RR 12- 99 and did not issue PSPC a notice for informal conference and a preliminary assessment notice, as required. PSPC's No ve mber 4, 1999 m o ti o n fo r reconsidera tio n o f th e purported Cente r findin gs a nd ca ncella tio n �o f th e subject TCCs a nd th e TOM w as no t eve n acted upon. , PSPC was m e rely informed th a t it is liable fo r th e a m o unt o f excise taxes it d eclared in its excise tax re turn s for 1992 and 1994 to 1997 covered by th e subject TCCs via th e forma l le tter o f dem a nd a nd assessmen t no ti ce. For b e ing formally d e fec tive, th e Novem ber 15, 1999 forma l le tter o f d e mand and assessm e nt no tice is void . xxx In sho rt , respondent merely relied on the findings of the Center which did not give PSPC ample opportunity to air its side. Whil e PSPC indeed protes ted th e fo rmal assessm e nt, suc h does no t denig ra te the fact th a t it was d e prived o f statutory a nd proced ura l due process to co ntest th e assessm e nt b e fo re it was issued. xxx " [Emp hasis supplied .] Th us, th e Su p re m e Court clearly d e lineated th e reaso ns wh y PSPC's subs ta ntive a n d p rocedura l d u e p rocess w e re v io lated . First, the Ce nte r req uired PSPC to submit ce rtain sa le s d ocu m e nts re lativ e to suppose d d e livery o f IFOs by PSPC to th e TCC transfe ro rs, w hic h is n o t re quired by th e p revai lin g sta tu tory p rovisio ns in th e tran sfe r o f th e subjec t TCCs . Second, no No tice for Info rmal Co nfe re n ce and Prelimin ary Assess m e nt No ti ce were issue d to PSPC in v io latio n o f Rev en ue Regu la ti o ns No. 12-99, th e reby d epri vin g PSPC o f d u e p rocess in co n tes tin g th e fo rma l assessmen t levied a gain st it. Third , th e C IR "

C/R vs . Pilipinas Shell Petroleum Corp oration Page 43 of 47 CTA EB C as e No. 535 (C TA C ase No. 6547) . DECISION merely relied on the findings of the Center, which did not give PSPC ample opportunity to air its side. It is undisputed that the factual circumstance and procedure in effecting the assessment and collection of deficiency excise tax liabilities in the Shell Case was similarly adopted herein by the CIR. Hence , the aforesaid ruling squarely applies fol lowing the doctrine of stare decisis. In the instant case, the Center required PSPC to submit certified copies of the sales invoices and delivery receipts to prove its sale and delivery of Industrial Fuel Oil to the TCC transferors in the Letters dated August 31 , 199956 and September 1, 1999,57 respectively. In a Letter dated October 29, 1999,58 PSPC reasoned that the submission of sa les invoices and delivery receipts has no legal basis as the applicable rule at the time of the transfer of TCCs merely requires TCC transferee to be a BOI-registered company . Thereafter, the Center informed PSPC in a Letter dated November 3, 1999 59 that the subject TCCs/TDMs were cancelled in accordance with Excom Resolution No. 03-05-99. PSPC's subsequent letter dated November 4, 1999 60 went on unheeded . C.. 56 Exhibit "A", Divisio n Doc ket, pp. 30 1-302 . 57 Exhibit " B", Divisio n Doc ke t, p . 303. 58 Exhibit "D ", Divisio n Docke t, pp. 3 16-327. 59 Exhibit "E" , Divisi o n Doc ke t, p . 328. 60 Exhibit "F" , Divisio n Doc ke t, pp . 333-348.

CIR vs. Pilipinos Shell Petro le um C o rpo ration Page 44 of 47 CTA EB C ase No. 535 (CTA Case No. 6547) DECISION Instead, the CIR issued a Collection Letter dated January 30, 200261 informing PSPC its obligation to pay deficiency excise tax liabilities in the amount of P691 ,508,005.82, in view of the Center's cancellation of the TCCs/TDMs it previously utilized in payment of its excise tax liabilities pursuant to Excom Resolution No. 03-05-99. Subsequently, the CIR issued another C o llection Letter dated June 17, 200262 reducing the deficiency e xcise ta x in the amount of P234,555,275.48. Again , the basis for the collection is the inclusion of the subject TCCs/TDMs in the Center's Excom Resolution No. 03-05-99. The Supreme Court in the Shell Case ruled that the Center's Excom Resolution No . 03-05-99 is invalid and unenforceable for lack of publication and requisite filing with the National Administrative Register of the U.P. Law Center pursuant to Sections 3, 4 and 5, Chapter 2 of Book VII, o f EO 292, oth erwise known as the Administrative Code of 1987. 63 Thus, the Center's basis for cancellation of the subject TCCs/TDMs was cl e arly with o ut any legal basis . Significantly, the ,CIR admitted that (1) he merely based the Collection Letter solely on the findings made by the DOF/Center;64 (2) ~ 61 Exhibit " H", Di visio n Doc ke t, p. 357. 62 Exhibit " 1", Divisio n Doc ket, p. 373. 63 Supra no te 43, p p. 356-357. 64 Para g raph 19, Am e nd e d Jo int Stipulatio n o f Fa c ts and Issues fil e d o n Oc to ber 23, 2003, Divisio n Doc ke t, p. 277.

CIR vs. Pilipinos Shelf Petroleum Corporation Page 45 of 47 CTA EB Case No. 535 (CTA Case No. 6547) DECI S ION no Notice for Preliminary Conference and Preliminary Assessment Notice were served to PSPC nor preliminary conference ever held between PSPC and BIR prior to the issuance of the Collection Letters .6s Clearly then, the CIR merely relied on the findings of the Center in issuing the Collection Letters without making his own findings or conducting an investigation relative thereto. Notably, the CIR ignored the provisions of RR 12-99 which requires the issuance of a notice for informal conference and a preliminary assessment notice, thereby depriving PSPC of its opportunity to ventilate its side before the issuance of the Collections Letters above-cited. Undoubtedly, PSPC 's denial of both substantive and procedural due process is clear and unmistakable. On the surcharges and interests, the CIR cannot validly impose them against PSPC's tax liabilities . The CIR stood firm in its position that it can validly impose surcharges and interests against PSPC 's tax liabilities pursuant to Sections 248 and 249 of the Tax Code. ( 65 Paragraphs 20 and 21, Amended Joint Stipulation of Facts and Issues filed on Oc tober 23, 2003, Division Docket, p. 277.

CIR vs. Pifipinos Shelf Petroleum Corporation Page 46 of 47 C TA EB Case No. 535 (C TA C ase No. 65if7) DECISION Since PSPC has duly settled its excise tax li abilities by utilizing the subject va li d and genuine TCCs/TDMs, obtained in good faith and for va lue, and in accordance with the applicable laws and rules, the CIR has no legal basis to impose the surcharges and interests. WHEREFORE , the instant Petition for Review is hereby DENIED for � lack of merit. The assai led Decision dated Apri l 30, 2009 and assailed Resolution dated August 18, 2009 are AFFIRMED. SO ORDERED. W1At ~- M~.Gwtt. WE CONCUR: CIEliTO N. MINDARO-GRULLA Associate Justice t_..- ~- [2~ ERNESTO D. ACOSTA Presiding Justice ~.u"L c.~~~ ~ ~ .f6ANITo~c . CASTANEDA,'Ji. CAESAR A. CASANOVA Associate Justice Associate Justice . E~. UY Associate Justice

C/R vs. Pilipinos Sh e ll Petro leum Corporation Page 47 o f 47 C TA EB Case No. 535 (C TA Case No. 6547) DECISION O~ lGA PA~IQUEZ ESP ERA Associa te Ju stice ~/-~~-~ AMELIA R. COTANGCO-MANALASTAS Associa te Justi ce CERTIFICATION Pursua nt to Arti cle VIII , Section 13 o f th e Constitutio n, it is he re by certifi e d th a t th e conclusio ns in the above Decisio n were reac he d in consultatio n amo ng th e m embers o f th e Court En Ba ne befo re th e case w as assig ne d to the write r o f th e o pinio n o f th e Co urt En Ba ne. ~~~ ~ ERNESTO DACOSTA Presid ing Justice