Case Summary (G.R. No. 260912)
Factual Background
The controversy arose from the BIR’s issuance of a Preliminary Assessment Notice against the DOE, demanding payment of over Php 18 billion in deficiency excise taxes. The DOE denied liability, asserting that it was not subject to excise taxes under the NIRC because it was neither an owner nor operator of mining claims, and contended that the subject matter (condensates) was exempt from excise tax. The BIR declared the assessment final, noting DOE’s failure to file timely protests, and subsequently issued warrants of distraint, levy, and garnishment. The DOE challenged these before the CTA.
Procedural Posture Before the CTA
The CTA Second Division dismissed the DOE’s petition for lack of jurisdiction, invoking the Supreme Court ruling in Power Sector Assets and Liabilities Management Corporation v. Commissioner of Internal Revenue ("PSALM v. CIR"), which held that the CTA lacks jurisdiction over disputes exclusively between government agencies, referring such matters to administrative settlement under P.D. No. 242. The DOE’s motion for reconsideration was denied, and the CTA En Banc affirmed the dismissal and denial of reconsideration. The DOE then filed a petition before the Supreme Court under Rule 45.
Issue Presented
Whether the CTA En Banc erred in dismissing the DOE’s petition for lack of jurisdiction, particularly on the question of the proper tribunal to resolve tax disputes solely among executive agencies: the CTA or administrative settlement under the Secretary of Justice or Solicitor General pursuant to P.D. No. 242.
Applicable Law: Constitutional and Statutory Framework
- 1987 Constitution, Article VII, Section 17 grants the President control over all executive departments.
- P.D. No. 242, and its incorporation into the 1987 Administrative Code, prescribes administrative settlement of disputes strictly between or among government agencies and instrumentalities, excluding certain constitutional bodies.
- R.A. No. 1125 (as amended), and the NIRC provide jurisdiction to the CTA over tax disputes involving the BIR’s assessment decisions, generally construed as a special law.
Supreme Court’s Ruling: Jurisdiction and the Administrative Settlement Procedure
The Supreme Court upheld the jurisdictional dismissal by the CTA, ruling that tax disputes exclusively involving government agencies fall under administrative settlement procedures under P.D. No. 242 and the 1987 Administrative Code, not the CTA. This ruling reaffirmed the doctrine in PSALM v. CIR that:
- For disputes involving private entities and the BIR, jurisdiction lies with the Commissioner of Internal Revenue (CIR) and the CTA on appeal.
- For disputes solely between government agencies (including GOCCs), the settlement process mandated by P.D. No. 242 applies, with the Secretary of Justice or Solicitor General adjudicating or settling the claims administratively.
Hierarchy of Laws: Special Law Prevails Over General Law
The Court emphasized that P.D. No. 242 is a special law specifically designed to address disputes among government bodies, which must prevail over more general laws including R.A. No. 1125 and NIRC provisions conferring appellate jurisdiction to the CTA. The principle of “specialia generalibus non derogant” (special laws do not derogate from general laws) was cited and illustrated with precedent cases where specific statutory schemes prevailed over broader ones in applicable contexts.
Scope and Application of P.D. No. 242
- P.D. No. 242 prescribes administrative settlement or adjudication for disputes involving interpretation and application of statutes, contracts, or agreements solely among government agencies, instrumentalities, and GOCCs.
- The administrative settlement procedure aims to avoid costly litigation and multiplicity of suits involving government entities who, in the end, represent the same sovereign interest, the Government.
- This process is consistent with the constitutional power of the President to control the Executive Department, including agencies such as the BIR and DOE.
President’s Power of Control and Executive Department’s Unity
The Court underscored the President's constitutional power of control over the entire executive branch, including the BIR and DOE, which authorizes the Executive Department to harmonize and resolve intra-government disputes administratively before any judicial forum intervenes. Premature judicial involvement would risk intruding on executive discretion, create inefficiencies, and deny the President’s capacity to exercise cohesive governance.
Tax Disputes Involving Executive Agencies: A Unique Character
The Court recognized the special nature of tax disputes where the funds involved are public monies pooled for general government use. Although the executive agencies are required to pay taxes, internal disputes regarding tax assessments must first be administratively settled to safeguard government efficiency and resource management, without compromising Congress’s power to tax or the BIR’s enforcement duties.
Clarification on the Jurisdiction of the Court of Tax Appeals
The Court clarified that it is not challenging the technical expertise of the CTA in tax matters but reiterated that jurisdiction is determined by statutory rules and the nature of the parties involved:
- Where parties include private entities, the CTA has jurisdiction over tax disputes.
- Where parties are exclusively government agencies, jurisdiction lies in administrative settlement under P.D. No. 242.
The Court further explained that the rule of exhaustion of administrative remedies applies, requiring parties to undergo administrative settlement first before resorting to judicial relief.
Response to DOE’s Arguments Regarding Jurisdictional Precedents
- The DOE argued that P.D. No. 242 should not apply to tax disputes or that the decision in PSALM was limited to contract disputes between agencies. The Court rejected this, holding that PSALM governs all disputes solely between government entities without exception, including tax disputes.
- The DOE cited other cases (e.g., Orion Water District v. GSIS) to claim some inter-government disputes may go to the CTA, but the Court distinguished these cases as outside the scope of P.D. No. 242 or involving private parties, thus not controlling precedent for purely intra-governmental tax disputes.
- Dissenting justices pointed to cases proceeding in the CTA involving government agencies without issues of jurisdiction raised, but the Court noted the absence of such jurisdictional challenges means those cases are not binding on the jurisdiction question here.
Statutory Construction and Precedent: The Triangulation of P.D. No. 242, R.A. 1125, and NIRC
The Court emphasized:
- P.D. No. 242, being a special law specifically addressing intra-government disputes, controls over R.A. 1125 and the NIRC, which are general laws relating to tax disputes generally.
- This special law exception permits administrative resolution first to avoid multiplicity and inefficiency.
- Legislative intent and established jurisprudence support this hierarchy, respecting the President’s executive authority while ensuring judicial remedies remain available after administrative remedies are exhausted.
Final Holding
The Supreme Court denied the DOE’s Petition for Review, affirming the CTA En Banc’s dismissal of the case for lack of jurisdiction. Tax disputes solely between government agencies must be submitted to administrative settlement under P.D. No. 242 and the Administrative Code of 1987, with the Secretary of Justice or Solicitor General having jurisdiction, rather than the CTA.
Concurring Opinion by Justice Alfredo Benjamin S. Caguioa
Justice Caguioa concurred with the majority, emphasizing the exclusive jurisdiction of the Secretary of Justice over disputes solely between government agencies under P.D. No. 242 and the Administrative Code provisions, particularly:
- Section 1 of P.D. No. 242 and Sections 66-68 of the Administrative Code specify administrative settlement or adjudication mechanisms by the Secretary of Justice or Solicitor General depending on questions of law or mixed questions of fact and law.
- The CTA’s exclusive appellate jurisdiction under R.A. No. 1125 and the NIRC pertains only to disputes involving private entities and the BIR, not to purely intra-government disputes.
- He supported the harmonization of statutes as declared in PSALM and subsequent decisions that administrative settlement is mandatory before judicial invocation, consistent with the President's constitutional power of control over the Executive Branch.
- He rejected dissenting arguments regarding legislative supremacy in tax collection, clarifying that administrative settlement does not diminish Congress's power but complements executive supervision and judicial review.
- He acknowledged that tax disputes require interpretation and application of statutes, bringing them within the administrative settlement regime under P.D. No. 242 for intra-governmental disputes.
Summary of Concurring Position
Justice Caguioa’s opinion stressed statutory and constitutional support for administrative settlement of tax disputes among government entities, proper jurisdictional allocation respecting executive control, and doctrinal consistency with recent jurisprudence particularly PSALM.
Dissenting Opinion by Justice Japar B. Dimaampao
Justice Dimaampao dissented, arguing strongly that:
- The Court’s PSALM ruling overruling prior jurisprudence such as PNOC was incorrect; the CTA retains exclusive appellate jurisdiction over tax disputes under R.A. 1125 and the NIRC despite P.D. No. 242.
- Tax disputes are fundamentally different from ordinary government controversies due to the paramount legislative nature of taxing power vested in Congress, and the limited, delegated power to tax collection agencies under the Executive.
- Submission of tax disputes to administrative set
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Case Syllabus (G.R. No. 260912)
Facts of the Case
- The Bureau of Internal Revenue (BIR) issued a Preliminary Assessment Notice (PAN) on December 7, 2018, assessing the Department of Energy (DOE) for deficiency excise taxes totaling approximately P18.38 billion.
- DOE was required to pay within 15 days but contested liability, arguing it was not among those liable under Section 130(A)(1) of the National Internal Revenue Code (NIRC), as it does not operate mining claims but only grants mining rights for the State.
- DOE further claimed the subject materials, condensates classified as liquefied natural gas, were exempt from excise taxes according to BIR Revenue Regulations No. 1-2018.
- The BIR issued a Formal Letter of Demand (FLD/FAN) on December 17, 2018, which DOE claimed it did not receive.
- On July 17, 2019, BIR declared the assessment final and demandable due to DOE’s failure to file a formal protest within the 30-day period.
- The Commissioner of Internal Revenue (CIR) issued two Warrants of Distraint, Levy, and Garnishment on September 19, 2019, prompting DOE to file a Petition for Review with the Court of Tax Appeals (CTA).
- DOE raised due process concerns and reiterated its tax exemption claims and argued the excise tax liability did not apply to it.
Proceedings Before the Court of Tax Appeals
- The CTA Second Division dismissed the Petition for Review for lack of jurisdiction, citing the Supreme Court ruling in Power Sector Assets and Liabilities Management Corporation v. Commissioner of Internal Revenue (PSALM v. CIR), holding that intra-government disputes concerning tax assessments between government agencies are not subject to CTA jurisdiction.
- DOE's Motion for Reconsideration was likewise denied, maintaining that the dispute is a purely intra-governmental issue.
- Subsequently, the BIR filed a Money Claim before the Commission on Audit (COA).
- On February 28, 2020, DOE elevated the matter to the CTA En Banc.
- On November 4, 2021, the CTA En Banc affirmed the dismissal for lack of jurisdiction for failure to secure the required affirmative vote.
- DOE’s Motion for Reconsideration was denied on May 24, 2022.
Issue Presented
- Whether the Court of Tax Appeals En Banc erred in dismissing DOE’s Petition for Review for lack of jurisdiction, specifically concerning tax disputes solely between national government agencies.
- Whether the CTA or the Executive branch, via the Secretary of Justice or the Solicitor General, has jurisdiction over intra-government tax disputes.
- The DOE asserted that Republic Act No. 1125 provides the CTA exclusive jurisdiction over the case and challenged the application of PSALM v. CIR to the present context.
Supreme Court’s Holding
- The Court held the CTA En Banc correctly dismissed the Petition due to lack of jurisdiction over disputes solely between governmental agencies, including tax assessment controversies.
- The proper forum for intra-government disputes is administrative settlement before the Secretary of Justice or Solicitor General, pursuant to Presidential Decree No. 242 (P.D. No. 242), incorporated in the Revised Administrative Code.
- P.D. No. 242 prevails over the general laws granting jurisdiction to the CTA under Republic Act No. 1125 and the NIRC, as special laws take precedence over general ones.
- The ruling in PSALM v. CIR remains binding and provides that disputes solely among government entities fall under P.D. No. 242.
- The Court rejected DOE’s contention that PSALM was factually distinct; the ruling applies to all disputes, claims, or controversies among government agencies, regardless of factual nuances.
- The Court clarified that not all inter-government disputes fall under P.D. No. 242; however, tax assessment disputes solely between government entities do.
- The President’s constitutional power of control over the Executive Department calls for resolving internal disputes administratively to ensure efficiency and avoid premature litigations.
- The administrative settlement process is a mandated administrative remedy prior to judicial recourse and does not diminish legislative taxing powers.
- The Court emphasized the unique character of tax disputes between government entities as public funds implications warrant administrative settlement first.
- The Court ruled that factual inquiries are not suitable for a Rule 45 Petition for Review, which is limited to questions of law.
Rationale on Statutory Interpretation and Jurisdiction
- P.D. No. 242 is a special law governing intra-government disputes and overrides general laws granting CTA jurisdiction.
- The NIRC and R.A. No. 1125 are general laws granting the CTA appellate jurisdiction over tax disputes but explicitly exclude disputes solely among government agencies covered by P.D. No. 242.
- The special law exception avoids clogging of courts with intra-government litigation where the government is the real party in interest.
- PD 242 requires administrative settlement first, respecting the President’s constitutional power of control over the Executive.
- Previous Supreme Court cases such as City of Manila v. Teotico and Bagatsing v. Ramirez illustrate that special laws (P.D. No. 242) prevail over general laws (R.A. No. 1125).
- The administrative settlement procedure aims to avoid cases where opposite government lawyers fight for essentially the government’s own interest.
- The doctrine is consistent with separation of powers, the principle of exhaustion of administrative remedies, and loyal adherence to legislative intent.
- The Court reaffirmed the binding nature of the PSALM ruling that clarified and harmonized conflicts between jurisdictional laws.