Customs cites government's revenue needs; Shell counters that oil supply and price hikes are at stake

MANILA, Philippines - The Bureau of Customs (BOC) can now proceed with the seizure of imported raw materials of Pilipinas Shell Petroleum Corp. after the tax court did not favor the country's second biggest oil company's motion for injunction. 

On Tuesday, the Court of Tax Appeals denied Shell's efforts to stop BOC from seizing some P43 billion-worth of the company's imports to pay for alleged P7.34 billion-worth of backtaxes. 

The tax court earlier issued a 60-day temporary restraining order (TRO) barring the BOC from enforcing the seizures. The said TRO lapses today, February 9.

Shell has been disputing BOC's P7.34-billion tax assessment on the company's imports of CCG and LCCG from 2004 to 2009. It explained that the imports in question--catalytic cracked gasoline (CCG) and light CCG--are raw materials for the production of unleaded gasoline for which duties have been paid for.

Customes had accused the oil firm of misdeclaring the goods, demanding the payment of excise taxes levied on finished products intended for domestic consumption.

Gov't revenue or inflation?

"The damage in [Shell's] property rights, must in the meantime, take a back seat to the paramount need of the state for funds to sustain governmental functions," the tax court said in a 4-page resolution.

"Compared to the damage to the State, which may be caused by reduced financial resources, the damage to the petitioner is negligible," it added.

The justices who signed the resolution had mixed views on the tax dispute.

Justices Erlinda Uy and Esperanza Fabon-Victorino sided with the government, stressing its need for additional funds.

But Presiding Justice Ernesto Acosta, the most senior member of the division hearing the case, rendered a 13-page dissenting opinion.

"The threatened action of [the Bureau of Customs] are damaging not only to [Shell's] interests but also to the whole community considering the undesirable effects of rising prices of basic consumer needs, possible unemployment of a large number of people, and the extinguishment of opportunities for businesses dependent on [Shell's] operations," Acosta said in the resolution.

The Bureau of Internal Revenue (BIR) has backed the BOC's tax claim, reversing its earlier position that Shell's imports were not subject to excise taxes.

The BIR and BOC are the country's main revenue collecting agencies.

Refineries

Shell legal counsel John Balisnomo said the company will exhaust all available legal remedies until they stop "these oppressive measures."

"The split in the CTA can result in the unlawful confiscation of Shell's importations by the BOC. This will have dire consequences not only for Shell but for the national economy," he said in a statement released on Tuesday.

"Unless the seizures are stopped, Shell will not be able to supply fuel to its dealers and to our vital industries such as transportation, power, and other public utilities. The Shell refinery in Batangas faces the prospect of closing down. Hundreds of jobs may be lost," he added.

Shell's refinery plant in Batangas is one of the 2 remaining refineries in the country. The other is owned by Petron Corp, which is controlled by diversifying conglomerate San Miguel Corporation.

Groups back Shell on tax row  

Last week, the House of Representatives' Ways and Means committee scored the BIR for insisting to impose excise taxes on Shell's fuel imports despite a finding by the Department of Energy (DOE) that these are just raw materials.

The committee said this was "a naked, arbitrary and whimsical abuse of administrative power by the Commissioner of Internal Revenue and a usurpation of the power to tax solely vested in Congress by the Constitution."

BIR Commissioner Joel Tan-Torres issued the controversial ruling imposing excise taxes on Shell's CCG and light CCG imports after the BOC slapped the oil firm with a deficiency tax assessment.

Before this, the BIR consistently ruled since 2004 that CCG and LCC were "not finished gasoline products intended for use by end consumers" and were not subject to excise tax upon importation.

Business groups have also expressed concern over the sudden change in the BIR's decision.