J.A.B. Bulao & Associates

CASE 2012-0045: COMMISSIONER OF INTERNAL REVENUE VS. PETRON CORPORATION (G. R. No. 185568, March 21, 2012, SERENO, J.) SUBJECT/S: TAX CREDITS; ESTOPPEL; EFFECT OF STIPULATION DURING PRE-TRIAL. (BRIEF TITLE: CIR VS. PETRON)

 

========================

 

DISPOSITIVE:

 

WHEREFORE, the CIR’s Petition is DENIED for lack of merit. The CTA En Banc Decision dated 03 December 2008 in CTA EB No. 311 is hereby AFFIRMED in toto. No pronouncement as to costs.    

 

SO ORDERED.

 

========================

 

 

SUBJECTS/DOCTRINES/DIGEST:

 

 

WHAT IS A TAX CREDIT?

 

 

ARTICLE 21 OF E.O. 226 DEFINES A TAX CREDIT AS FOLLOWS:

 

        ARTICLE 21.         “Tax credit” shall mean any of the credits against taxes and/or duties equal to those actually paid or would have been paid to evidence which a tax credit certificate shall be issued by the Secretary of Finance or his representative, or the Board, if so delegated by the Secretary of Finance. The tax credit certificates including those issued by the Board pursuant to laws repealed by this Code but without in any way diminishing the scope of negotiability under their laws of issue are transferable under such conditions as may be determined by the Board after consultation with the Department of Finance. The tax credit certificate shall be used to pay taxes, duties, charges and fees due to the National Government; Provided, That the tax credits issued under this Code shall not form part of the gross income of the grantee/transferee for income tax purposes under Section 29 of the National Internal Revenue Code and are therefore not taxable: Provided, further, That such tax credits shall be valid only for a period of ten (10) years from date of issuance.

XXXXXXXXXXXXXXXXXXXX

 

 

TO WHOM ARE TAX CREDIT GRANTED?

 

 

TO ENTITIES REGISTERED WITH THE BOARD OF INVESTMENT (BOI) AND ARE GIVEN FOR TAXES AND DUTIES PAID ON RAW MATERIALS USED FOR THE MANUFACTURE OF THEIR EXPORT PRODUCTS.

 

 

        Under Article 39 (j) of the Omnibus Investment Code of 1987,^[1][32] tax credits are granted to entities registered with the Bureau of Investment (BOI) and are given for taxes and duties paid on raw materials used for the manufacture of their export products.

 

XXXXXXXXXXXXXXXXX

 

 

 

WHAT IS A TAX CREDIT CERTIFICATE?

 

 

 

A TCC IS DEFINED UNDER SECTION 1 OF  REVENUE REGULATION (RR) NO. 5-2000, ISSUED BY THE BIR ON 15 AUGUST 2000, AS FOLLOWS:

 

B.      Tax Credit Certificate — means a certification, duly issued to the taxpayer named therein, by the Commissioner or his duly authorized representative, reduced in a BIR Accountable Form in accordance with the prescribed formalities, acknowledging that the grantee-taxpayer named therein is legally entitled a tax credit, the money value of which may be used in payment or in satisfaction of any of his internal revenue tax liability (except those excluded), or may be converted as a cash refund, or may otherwise be disposed of in the manner and in accordance with the limitations, if any, as may be prescribed by the provisions of these Regulations.

XXXXXXXXXXXXXXXX

 

 

IS TCC TRANSFERRABLE?

 

 

YES SUBJECT TO THE FOLLOWING CONDITIONS:

 

 

1) THE TCC TRANSFER MUST BE WITH PRIOR APPROVAL OF THE COMMISSIONER OR THE DULY AUTHORIZED REPRESENTATIVE;

 

 

2) THE TRANSFER OF A TCC SHOULD BE LIMITED TO ONE TRANSFER ONLY; AND

 

 

3) THE TRANSFEREE SHALL STRICTLY USE THE TCC FOR THE PAYMENT OF THE ASSIGNEE’S DIRECT INTERNAL REVENUE TAX LIABILITY AND SHALL NOT BE CONVERTIBLE TO CASH.^[2][34]

 

 

^{XXXXXXXXXXXXXXXXXXX}

 

 

 FOR HOW LONG WILL A TCC BE VALID?

 

 

10 YEARS SUBJECT TO THE FOLLOWING CONDITIONS:

 

 

(1) IT MUST BE UTILIZED WITHIN FIVE (5) YEARS FROM THE DATE OF ISSUE;

 

 

AND (2) IT MUST BE REVALIDATED

 

RR 5-2000 prescribes the regulations governing the manner of issuance of  TCCs and the conditions for their use, revalidation and transfer. Under the said regulation, a TCC may be used by the grantee or its assignee in the payment of its direct internal revenue tax liability.^[3][33] It may be transferred in favor of an assignee subject to the following conditions: 1) the TCC transfer must be with prior approval of the Commissioner or the duly authorized representative; 2) the transfer of a TCC should be limited to one transfer only; and 3) the transferee shall strictly use the TCC for the payment of the assignee’s direct internal revenue tax liability and shall not be convertible to cash.^[4][34] A TCC is valid only for 10 years subject to the following rules: (1) it must be utilized within five (5) years from the date of issue; and (2) it must be revalidated thereafter or be otherwise considered invalid.^[5][35]

 

 

XXXXXXXXXXXXXXX

 

 

WHO PROCESS THE TCC?

 

 

THE ONE-STOP-SHOP INTER-AGENCY TAX CREDIT AND DUTY DRAWBACK CENTER.

 

 

The processing of a TCC is entrusted to a specialized agency called the “One-Stop-Shop Inter-Agency Tax Credit and DutyDrawbackCenter” (“Center”), created on 07 February 1992 under Administrative Order (A.O.) No. 226. Its purpose is to expedite the processing and approval of tax credits and duty drawbacks.^[6][36] The Center is composed of a representative from the DOF as its chairperson; and the members thereof are representatives of the Bureau of Investment (BOI), Bureau of Customs (BOC) and Bureau of Internal Revenue (BIR), who are tasked to process the TCC and approve its application as payment of an assignee’s tax liability.^[7][37]

 

XXXXXXXXXXXXXXX

 

 

HOW CAN A TCC BE ASSIGNED?

 

 

THROUGH A DEED OF ASSIGNMENT, WHICH THE ASSIGNEE SUBMITS TO THE CENTER (ONE-STOP SHOP)  FOR ITS APPROVAL.

 

 

XXXXXXXXXXXXXX

 

 

 

AFTER A TCC IS APPROVED, HOW WILL IT BE PROCESSED TO SERVE ITS PURPOSE?

 

 

UPON APPROVAL OF THE DEED, THE CENTER WILL ISSUE A DOF TAX DEBIT MEMO (DOF-TDM),^[8][38] WHICH WILL BE UTILIZED BY THE ASSIGNEE TO PAY THE LATTER’S TAX LIABILITIES FOR A SPECIFIED PERIOD. UPON SURRENDER OF THE TCC AND THE DOF-TDM, THE CORRESPONDING AUTHORITY TO ACCEPT PAYMENT OF EXCISE TAXES (ATAPET) WILL BE ISSUED BY THE BIR COLLECTION PROGRAM DIVISION AND WILL BE SUBMITTED TO THE ISSUING OFFICE OF THE BIR FOR ACCEPTANCE BY THE ASSISTANT COMMISSIONER OF COLLECTION SERVICE. THIS ACT OF THE BIR SIGNIFIES ITS ACCEPTANCE OF THE TCC AS PAYMENT OF THE ASSIGNEE’S EXCISE TAXES.

 

 

A TCC may be assigned through a Deed of Assignment, which the assignee submits to the Center for its approval. Upon approval of the deed, the Center will issue a DOF Tax Debit Memo (DOF-TDM),^[9][38] which will be utilized by the assignee to pay the latter’s tax liabilities for a specified period. Upon surrender of the TCC and the DOF-TDM, the corresponding Authority to Accept Payment of Excise Taxes (ATAPET) will be issued by the BIR Collection Program Division and will be submitted to the issuing office of the BIR for acceptance by the Assistant Commissioner of Collection Service. This act of the BIR signifies its acceptance of the TCC as payment of the assignee’s excise taxes.

 

Thus, it is apparent that a TCC undergoes a stringent process of verification by various specialized government agencies before it is accepted as payment of an assignee’s tax liability.

 

 

 

XXXXXXXXXXXXXXX

 

 

CTA FOUND PETRON TO HAVE NO PARTICIPATION IN THE FRAUDULENT PROCUREMENT AND TRANSFER OF TCCS. CIR DISPUTES THIS FINDING BY CONTENDING THAT PETRON WAS NOT A QUALIFIED TRANSFEREE OF THE TCCS BECAUSE PETRON DID NOT SUPPLY PETROLEUM PRODUCTS TO ASSIGNOR COMPANIES. WAS CIR CORRECT?

 

 

NO. THE CIR HAD NO ALLEGATION THAT THERE WAS A DEVIATION FROM THE PROCESS FOR THE APPROVAL OF THE TCCS, WHICH PETRON USED AS PAYMENT TO SETTLE ITS EXCISE TAX LIABILITIES FOR THE YEARS 1995 TO 1998.

 

 

ALSO, THE PARTIES DURING THE CASE PROCEEDINGS STIPULATED THAT PETITIONER (PETRON) DID NOT PARTICIPATE IN THE PROCUREMENT AND ISSUANCE OF THE TCCS, WHICH TCCS WERE TRANSFERRED TO PETRON AND LATER UTILIZED BY PETRON IN PAYMENT OF ITS EXCISE TAXES.^[10][43]  

 

 

SUCH STIPULATION IS JUDICIAL ADMISSION WHICH THE COURT MUST CONSIDER. THIS STIPULATION OF FACT BY THE CIR AMOUNTS TO AN ADMISSION AND, HAVING BEEN MADE BY THE PARTIES IN A STIPULATION OF FACTS AT PRETRIAL, IS TREATED AS A JUDICIAL ADMISSION. UNDER SECTION 4, RULE 129 OF THE RULES OF COURT, A JUDICIAL ADMISSION REQUIRES NO PROOF.^[11][44]  THE COURT CANNOT LIGHTLY SET IT ASIDE, ESPECIALLY WHEN THE OPPOSING PARTY RELIES UPON IT AND ACCORDINGLY DISPENSES WITH FURTHER PROOF OF THE FACT ALREADY ADMITTED. THE EXCEPTION PROVIDED IN RULE 129, SECTION 4 IS THAT AN ADMISSION MAY BE CONTRADICTED ONLY BY A SHOWING THAT IT WAS MADE THROUGH A PALPABLE MISTAKE, OR THAT NO SUCH ADMISSION WAS MADE. IN THIS CASE, HOWEVER, EXCEPTION TO THE RULE DOES NOT EXIST.

 

 

 

In the case at bar, the CIR disputes the ruling of the CTA En Banc, which found Petron to have had no participation in the fraudulent procurement and transfer of the TCCs. Petitioner believes that there was substantial evidence to support its allegation of a fraudulent transfer of the TCCs to Petron.^[12][39] The CIR further contends that respondent was not a qualified transferee of the TCCs, because the latter did not supply petroleum products to the companies that were the assignors of the subject TCCs.^[13][40]  

 

 The CIR bases its contentions on the DOF’s post-audit findings stating that, for the periods covering 1995 to 1998, Petron did not deliver fuel and other petroleum products to the companies (the transferor companies) that had assigned the subject TCCs to respondent. Petitioner further alleges that the findings indicate that the transferor companies could not have had such a high volume of export sales declared to the Center and made the basis for the issuance of the TCCs assigned to Petron.^[14][41] Thus, the CIR impugns the CTA En Banc ruling that respondent was a transferee in good faith and for value of the subject TCCs.^[15][42] 

 

Not finding merit in the CIR’s contention, we affirm the ruling of the CTA En Banc finding that Petron is a transferee in good faith and for value of the subject TCCs.

 

From the records, we observe that the CIR had no allegation that there was a deviation from the process for the approval of the TCCs, which Petron used as payment to settle its excise tax liabilities for the years 1995 to 1998.

 

The CIR quotes the CTA Second Division and urges us to affirm the latter’s Decision, which found Petron to have participated in the fraudulent issuance and transfer of the TCCs. However, any merit in the position of petitioner on this issue is negated by the Joint Stipulation it entered into with Petron in the proceedings before the said Division. As correctly noted by the CTA En Banc, herein parties jointly stipulated before the Second Division in CTA Case No. 6423 as follows:

 

13. That petitioner (Petron) did not participate in the procurement and issuance of the TCCs, which TCCs were transferred to Petron and later utilized by Petron in payment of its excise taxes.^[16][43]  

 

This stipulation of fact by the CIR amounts to an admission and, having been made by the parties in a stipulation of facts at pretrial, is treated as a judicial admission. Under Section 4, Rule 129 of the Rules of Court, a judicial admission requires no proof.^[17][44]  The Court cannot lightly set it aside, especially when the opposing party relies upon it and accordingly dispenses with further proof of the fact already admitted. The exception provided in Rule 129, Section 4 is that an admission may be contradicted only by a showing that it was made through a palpable mistake, or that no such admission was made. In this case, however, exception to the rule does not exist.

 

We agree with the pronouncement of the CTA En Banc that Petron has not been shown or proven to have participated in the alleged fraudulent acts involved in the transfer and utilization of the subject TCCs. Petron had the right to rely on the joint stipulation that absolved it from any participation in the alleged fraud pertaining to the issuance and procurement of the subject TCCs. The joint stipulation made by the parties consequently obviated the opportunity of the CIR to present evidence on this matter, as no proof is required for an admission made by a party in the course of the proceedings.^[18][45] Thus, the CIR cannot now be allowed to change its stand and renege on that admission.

XXXXXXXXXXXXX

 

 

CAN SC REVIEW THE SUFFICIENCY OF EVIDENCE IN THE CASE?

 

 

NO. SC IS ONLY CONFINED TO ERRORS OF LAW UNDER RULE 45.

 

 

Moreover, a close examination of  the arguments proffered by the CIR in their Petition calls for a reevaluation of the sufficiency of evidence in the case. The CIR seeks to persuade this Court to believe that there is substantial evidence to prove that Petron committed a misrepresentation, because the petroleum products were delivered not to the transferor but to other companies.^[19][46] Thus, the TCCs assigned by the transferor companies to Petron were fraudulent. Clearly, a recalibration of the sufficiency of evidence presented by the CIR is needed for a different conclusion to be reached.

 

The fundamental rule is that the scope of our judicial review under Rule 45 of the Rules of Court is confined only to errors of  law and does not extend to questions of fact.^[20][47] It is basic that where it is the sufficiency of evidence that is being questioned, there is a question of fact.^[21][48] Evidently, the CIR does not point out any specific provision of law that was wrongly interpreted by the CTA En Banc in the latter’s assailed Decision. Petitioner anchors it contention on the alleged existence of the sufficiency of evidence it had proffered to prove that Petron was involved in the perpetration of fraud in the transfer and utilization of the subject TCCs, an allegation that the CTA En Banc failed to consider. We have consistently held that it is not the function of this Court to analyze or weigh the evidence all over again, unless there is a showing that the findings of the lower court are totally devoid of support or are glaringly erroneous as to constitute palpable error or grave abuse of discretion.^[22][49] Such an exception does not obtain in the circumstances of this case.

XXXXXXXXXXXXXXXXX

 

 

THE LIABILITY CLAUSE OF THE TCC PROVIDES THAT LIABILITY OF  TRANSFERROR AND TRANSFERREE SHALL BE SOLIDARY. DOES THIS NOT MAKE PETRON, BEING THE TRANSFEREE, LIABLE?

 

 

JURISPRUDENCE (SHELL CASE) HAS ALREADY ESTABLISHED THAT THE SOLIDARY LIABILITY, IF ANY, APPLIES ONLY TO THE SALE OF THE TCC TO THE TRANSFEREE BY THE ORIGINAL GRANTEE.

 

 

SHELL  RECOGNIZED AN EXCEPTION THAT HOLDS THE TRANSFEREE/ASSIGNEE LIABLE IF PROVEN TO HAVE BEEN A PARTY TO THE FRAUD OR TO HAVE HAD KNOWLEDGE OF THE FRAUDULENT ISSUANCE OF THE SUBJECT TCCS.

 

 

 

The CIR claims that Petron was not an innocent transferee for value, because the TCCs assigned to respondent were void. Petitioner based its allegations on the post-audit report of the DOF, which declared that the subject TCCs were obtained through fraud and, thus, had no monetary value.^[23][50] The CIR adds that the TCCs were subject to a post-audit by the Center to complete the payment of the excise tax liability to which they were applied. Petitioner further contends that the Liability Clause of the TCCs makes the transferee or assignee solidarily liable with the original grantee for any fraudulent act pertinent to their procurement and transfer. The CIR assails the contrary ruling of the CTA En Banc, which confined the solidary liability only to the original grantee of the TCCs. Thus, petitioner believes that the correct interpretation of the Liability Clause in the TCCs makes Petron and the transferor companies or the original grantee solidarily liable for any fraudulent act or violation of the pertinent laws relating to the transfers of the TCCs. ^[24][51]   

 

We are not persuaded by the CIR’s position on this matter.

 

The Liability Clause of the TCCs reads:

Both the TRANSFEROR and the TRANSFEREE shall be jointly and severally liable for any fraudulent act or violation of the pertinent laws, rules and regulations relating to the transfer of this TAX CREDIT CERTIFICATE.

 

The scope of this solidary liability, as stated in the TCCs, was clarified by this Court in Shell, as follows:

 

The above clause to our mind clearly provides only for the solidary liability relative to the transfer of the TCCs from the original grantee to a transferee. There is nothing in the above clause that provides for the liability of the transferee in the event that the validity of the TCC issued to the original grantee by the Center is impugned or where the TCC is declared to have been fraudulently procured by the 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 or breach of law or rule relating to the issuance of the TCC by the Center to the transferor or the original grantee 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 not only unjust but well-nigh violative of the constitutional right not to be deprived of one’s property without due process of law. Thus, a re-assessment of tax liabilities previously paid through TCCs by a transferee in good faith and for value is utterly confiscatory, 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 the TCC for value or was a party to or has knowledge of its fraudulent issuance, said transferee is liable for the taxes and for the fraud committed as provided for by law.^[25][52] (Emphasis supplied.)

We also find that the post-audit report, on which the CIR based its allegations, does not have the effect of a suspensive condition that would determine the validity of the TCCs.

 

We held in Petron v. CIR (Petron),^[26][53] which is on all fours with the instant case, that TCCs are valid and effective from their issuance and are not subject to a post-audit as a suspensive condition for their validity. Our ruling in Petron finds guidance from our earlier ruling in Shell, which categorically states that a TCC is valid and effective upon its issuance and is not subject to a post-audit. The implication on the instant case of the said earlier ruling is that Petron has the right to rely on the validity and effectivity of the TCCs that were assigned to it. In finally determining their effectivity in the settlement of respondent’s excise tax liabilities, the validity of those TCCs should not depend on the results of the DOF’s post-audit findings. We held thus in Petron:

As correctly pointed out by Petron, however, the issue about the immediate validity of TCCs and the use thereof in payment of tax liabilities and duties are not matters of first impression for this Court. Taking into consideration the definition and nature of tax credits and TCCs, this Court’s Second Division definitively ruled in the aforesaid Pilipinas Shell case that the post audit is not a suspensive condition for the validity of TCCs, thus:

Art. 1181 tells us that the condition is suspensive when the acquisition of rights or demandability of the obligation must await the occurrence of the condition. However, Art. 1181 does not apply to the present case since the parties did NOT agree to a suspensive condition. Rather, specific laws, rules, and regulations govern the subject TCCs, not the general provisions of the Civil Code. Among the applicable laws that cover the TCCs are EO 226 or the Omnibus Investments Code, Letter of Instructions No. 1355, EO 765, RP-US Military Agreement, Sec. 106 (c) of the Tariff and Customs Code, Sec. 106 of the NIRC, BIR Revenue Regulations (RRs), and others. Nowhere in the aforementioned laws does the post-audit become necessary for the validity or effectivity of the TCCs. Nowhere in the aforementioned laws is it provided that a TCC is issued subject to a suspensive condition.   

           xxx                    xxx                    xxx

. . . (T)he TCCs are immediately valid and effective after their issuance. As aptly pointed out in the dissent of Justice Lovell Bautista in CTA EB No. 64, this is clear from the Guidelines and instructions found at the back of each TCC, which provide:

1.       This Tax Credit Certificate (TCC) shall entitle the grantee to apply the tax credit against taxes and duties until the amount is fully utilized, in accordance with the pertinent tax and customs laws, rules and regulations.

           xxx                    xxx                    xxx

4.       To acknowledge application of payment, theOne-Stop-ShopTaxCreditCentershall issue the corresponding Tax Debit Memo (TDM) to the grantee.

The authorized Revenue Officer/Customs Collector to which payment/utilization was made shall accomplish the Application of Tax Credit at the back of the certificate and affix his signature on the column provided.”   

      The foregoing guidelines cannot be clearer on the validity and effectivity of the TCC to pay or settle tax liabilities of the grantee or transferee, as they do not make the effectivity and validity of the TCC dependent on the outcome of a post-audit. In fact, if we are to sustain the appellate tax court, it would be absurd to make the effectivity of the payment of a TCC dependent on a post-audit since there is no contemplation of the situation wherein there is no post-audit. Does the payment made become effective if no post-audit is conducted? Or does the so-called suspensive condition still apply as no law, rule, or regulation specifies a period when a post-audit should or could be conducted with a prescriptive period? Clearly, a tax payment through a TCC cannot be both effective when made and dependent on a future event for its effectivity. Our system of laws and procedures abhors ambiguity.

 

Moreover, if the TCCs are considered to be subject to post-audit as a suspensive condition, the very purpose of the TCC would be defeated as there would be no guarantee that the TCC would be honored by the government as payment for taxes. No investor would take the risk of utilizing TCCs if these were subject to a post-audit that may invalidate them, without prescribed grounds or limits as to the exercise of said post-audit.  

 

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.^[27][54]

          In addition, Shell and Petron recognized an exception that holds the transferee/assignee liable if proven to have been a party to the fraud or to have had knowledge of the fraudulent issuance of the subject TCCs. As earlier mentioned, the parties entered into a joint stipulation of facts stating that Petron did not participate in the procurement or issuance of those TCCs. Thus, we affirm the CTA En Banc’s ruling that respondent was an innocent transferee for value thereof.

 

XXXXXXXXXXXXXXXX

 

 

CIR CONTENDS THAT SINCE THE TCCS WERE FOUND VOID, GOVERNMENT IS NOT ESTOPPED FROM COLLECTING FROM PETRON. THE STATE SHOULD NOT BE PREJUDICED BY THE NEGLECT OR OMISSION OF GOVERNMENT EMPLOYEES. IS THIS CONTENTION CORRECT?

 

 

NO. THIS GENERAL RULE CANNOT BE APPLIED IF IT WOULD WORK INJUSTICE AGAINST AN INNOCENT PARTY.^[28][57]

 

 

        On the issue of estoppel, petitioner contends that the TCCs, which the Center had continually approved as payment for respondent’s excise tax liabilities, were subsequently found to be void. Thus, the CIR insists that the government is not estopped from collecting from Petron the excise tax liabilities that had accrued to the latter as a result of the voidance of these TCCs. Petitioner argues that the State should not be prejudiced by the neglect or omission of government employees entrusted with the collection of taxes.^[29][55]  

             

We are not persuaded by the CIR’s argument.

 

We recognize the well-entrenched principle that estoppel does not apply to the government, especially on matters of taxation. Taxes are the nation’s lifeblood through which government agencies continue to operate and with which the State discharges its functions for the welfare of its constituents.^[30][56] As an exception, however, this general rule cannot be applied if it would work injustice against an innocent party.^[31][57]

 

Petron, in this case, was not proven to have had any participation in or knowledge of  the CIR’s allegation of  the fraudulent transfer and utilization of  the subject TCCs. Respondent’s status as a transferee in good faith and for value of these TCCs has been established and even stipulated upon by petitioner.^[32][58] Respondent was thereby provided ample protection from the adverse findings subsequently made by the Center.^[33][59] Given the circumstances, the CIR’s invocation of the non-applicability of estoppel in this case is misplaced.

XXXXXXXXXXXXXXX

 

 

CIR CONTENDS THAT  A 25% SURCHARGE AND A 20% INTEREST PER ANNUM MUST BE IMPOSED UPON PETRON FOR RESPONDENT’S EXCISE TAX LIABILITIES AS MANDATED UNDER SECTIONS 248 AND 249 OF THE NATIONAL INTERNAL REVENUE CODE (NIRC).^[34][60]    IS THIS CONTENTION CORRECT?

 

 

 

NO. IN THE LIGHT OF THE MAIN RULING IN THIS CASE, WE AFFIRM THE CTA EN BANC DECISION FINDING PETRON TO BE AN INNOCENT TRANSFEREE FOR VALUE OF THE SUBJECT TCCS. CONSEQUENTLY, THE TAX RETURNS IT FILED FOR THE YEARS 1995 TO 1998 ARE NOT CONSIDERED FRAUDULENT. HENCE, THE CIR HAD NO LEGAL BASIS TO ASSESS THE EXCISE TAXES OR ANY PENALTY SURCHARGE OR INTEREST THEREON, AS RESPONDENT HAD ALREADY PAID THE APPROPRIATE EXCISE TAXES USING THE SUBJECT TCCS.

 

 

 On the final issue it raised, the CIR contends that a 25% surcharge and a 20% interest per annum must be imposed upon Petron for respondent’s excise tax liabilities as mandated under Sections 248 and 249 of the National Internal Revenue Code (NIRC).^[35][60] Petitioner considers the tax returns filed by respondent for the years 1995 to 1998 as fraudulent on the basis of the post-audit finding that the TCCs were void. It argues that the prescriptive period within which to lawfully assess Petron for its tax liabilities has not prescribed under Section 222 (a)^[36][61] of the Tax Code. The CIR explains that respondent’s assessment on 30 January 2002 of respondent’s deficiency excise tax for the years 1995 to 1998 was well within the ten-year prescription period.^[37][62]  

 

In the light of the main ruling in this case, we affirm the CTA En Banc Decision finding Petron to be an innocent transferee for value of the subject TCCs. Consequently, the Tax Returns it filed for the years 1995 to 1998 are not considered fraudulent. Hence, the CIR had no legal basis to assess the excise taxes or any penalty surcharge or interest thereon, as respondent had already paid the appropriate excise taxes using the subject TCCs.

 

 

========================

Republic of the Philippines
Supreme Court
Manila

SECOND DIVISION

 

COMMISSIONER OF INTERNAL REVENUE,                           Petitioner,                      – versus –       PETRON CORPORATION,                           Respondent.

G. R. No. 185568   Present:   CARPIO, J., Chairperson,   BRION, PEREZ, SERENO, and REYES, JJ.   Promulgated:   March 21, 2012

x – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – x

 

D E C I S I O N

 

SERENO, J.:

 

        This is a Petition for Review on Certiorari under Rule 45 of the 1997 Rules of Civil Procedure filed by the Commissioner of Internal Revenue (CIR) assailing the Decision^[38][1] dated 03 December 2008 of the Court of Tax Appeals En Banc (CTA En Banc) in CTA EB No. 311. The assailed Decision reversed and set aside the Decision^[39][2] dated 04 May 2007 of the Court of Tax Appeals Second Division (CTA Second Division) in CTA Case No. 6423, which ordered respondent Petron Corporation (Petron) to pay deficiency excise taxes for the taxable years 1995 to 1998, together with surcharges and delinquency interests imposed thereon.    

 

Respondent Petron is a corporation engaged in the production of petroleum products and is a Board of Investment (BOI) – registered enterprise in accordance with the provisions of  the Omnibus Investments Code of 1987 (E.O. 226) under Certificate of Registration Nos. 89-1037 and D95-136.^[40][3]  

 

The Facts

 

        The CTA En Banc in CTA EB Case No. 311 adopted the findings of fact by the CTA Second Division in CTA Case No. 6423. Considering that there are no factual issues in this case, we likewise adopt the findings of fact by the CTA En Banc, as follows:

        As culled from the records and as agreed upon by the parties in their Joint Stipulation of Facts and Issues, these are the facts of the case.     

During the period covering the taxable years 1995 to 1998, petitioner (herein respondent Petron) had been an assignee of several Tax Credit Certificates (TCCs) from various BOI-registered entities for which petitioner utilized in the payment of its excise tax liabilities for the taxable years 1995 to 1998. The transfers and assignments of the said TCCs were approved by the Department of Finance’s One Stop Shop Inter-Agency Tax Credit and Duty Drawback Center (DOF Center), composed of representatives from the appropriate government agencies, namely, the Department of Finance (DOF), the Board of Investments (BOI), the Bureau of Customs (BOC) and the Bureau of Internal Revenue (BIR).     

          Taking ground on a BOI letter issued on 15 May 1998 which states that ‘hydraulic oil, penetrating oil, diesel fuels and industrial gases are classified as supplies and considered the suppliers thereof as qualified transferees of tax credit,’ petitioner acknowledged and accepted the transfers of the TCCs from the various BOI-registered entities.

          Petitioner’s acceptance and use of the TCCs as payment of its excise tax liabilities for the taxable years 1995 to 1998, had been continuously approved by the DOF as well as the BIR’s Collection Program Division through its surrender and subsequent issuance by the Assistant Commissioner of the Collection Service of the BIR of the Tax Debit Memos (TDMs).

 

          On January 30, 2002, respondent [herein petitioner CIR] issued the assailed Assessment against petitioner for deficiency excise taxes for the taxable years 1995 to 1998, in the total amount of ₱739,003,036.32, inclusive of surcharges and interests, based on the ground that the TCCs utilized by petitioner in its payment of excise taxes have been cancelled by the DOF for having been fraudulently issued and transferred, pursuant to its EXCOM Resolution No. 03-05-99. Thus, petitioner, through letters dated August 31, 1999 and September 1, 1999, was required by theDOFCenterto submit copies of its sales invoices and delivery receipts showing the consummation of the sale transaction to certain TCC transferors.

 

          Instead of submitting the documents required by the respondent, on February 27, 2002, petitioner filed its protest letter to the ‘Assessment’ on the grounds, among others, that:

 

1. The BIR did not comply with the requirements of Revenue Regulations 12-99 in issuing the “assessment” letter dated January 30, 2002, hence, the assessment made against it is void;

 

1. The assignment/transfer of the TCCs to petitioner by the TCC holders was submitted to, examined and approved by the concerned government agencies which processed the assignment in accordance with law and revenue regulations;

 

1. There is no basis for the imposition of the 50% surcharge in the amount of ₱159,460,900.00 and interest penalties in the amount of ₱260,620,335.32 against it;

 

1. Some of the items included in the ‘assessment’ are already pending litigation and are subject of the case entitled ‘Commissioner of Internal Revenue vs. Petron Corporation,’ C.A. GR SP No. 55330 (CTA Case No. 5657) and hence, should no longer be included in the ‘assessment’; and

 

1. The assessment and collection of alleged excise tax deficiencies sought to be collected by the BIR against petitioner through the January 30, 2002 letter are already barred by prescription under Section 203 of the National Internal Revenue Code.

 

On 27 March 2002, respondent, through Assistant Commissioner Edwin R. Abella served a Warrant of Distraint and/or Levy on petitioner to enforce payment of the ₱739,003,036.32 tax deficiencies.

 

Respondent allegedly served the Warrant of Distraint and/or Levy against petitioner without first acting on its letter-protest. Thus, construing the Warrant of Distraint and/or Levy as the final adverse decision of the BIR on its protest of the assessment, petitioner filed the instant petition before this Honorable Court [referring to the CTA Second Division] on April 2, 2002.

 

On April 30, 2002, respondent filed his Answer, raising the following as his Special Affirmative Defenses:       

 

6. In a post-audit conducted by the One-Stop Inter-Agency Tax Credit and Duty Drawback Center (Center) of the Department of Finance (DOF), pursuant to the Center’s Excom Resolution No. 03-05-99, it was found that TCCs issued to Alliance Thread Co., Inc., Allstar Spinning, Inc., Diamond Knitting Corp., Fiber Technology Corp., Filstar Textile Industrial Corp., FLB International Fiber Corp., Jantex Philippines, Inc., Jibtex Industrial Corp., Master Colour System Corp. and Spintex International, Inc. were fraudulently obtained and were fraudulently transferred to petitioner. As a result of said findings, the TCCs and the Tax Debit Memos (TDMs) issued by the Center to petitioner against said TCCs were cancelled by the DOF;

 

7. Prior to the cancellation of the aforesaid TCCs and TDMs, petitioner had utilized the same in the payment of its excise tax liabilities. With such cancellation, the TCCs and TDMs have no value in money or money’s worth and, therefore, the excise taxes for which they were used as payment are now deemed unpaid;

 

8. The cancellation by the DOF of the aforesaid TCCs and TDMs has the presumption of regularity upon which respondent may validly rely;

 

9. Petitioner was informed by the DOF of the post-audit conducted on the TCCs and was given the opportunity to submit documents showing that the TCCs were transferred to it in payment of petroleum products allegedly delivered by it to the TCC transferors upon which the TCC transfers were approved, with the admonition that failure to submit the required documents would result in the cancellation of the transfers. Petitioner was also informed of the cancellation of the TCCs and TDMs and the reason for their cancellation;

 

10. Since petitioner is deemed not to have paid its excise tax liabilities, a pre-assessment notice is not required under Section 228 of the Tax Code;

 

11. The letter dated January 20, 2002 (should be January 30, 2002), demanding payment of petitioner’s excise tax liabilities explicitly states the basis for said demand, i.e., the cancellation of the TCCs and TDMs;

 

12. The government is never estopped from collecting legitimate taxes due to the error committed by its agents (Visayas Cebu Terminal Inc., vs. Commissioner of Internal Revenue, 13 SCRA 257; Atlas Consolidated Mining and Development Corporation vs. Commissioner of Internal Revenue, 102 SCRA 246). The acceptance by the Bureau of Internal Revenue of the TCCs fraudulently obtained and fraudulently transferred to petitioner as payment of its excise tax liabilities turned out to be a mistake after the post-audit was conducted. Hence, said payments were void and the excise taxes may be validly collected from petitioner.     

 

13. As found in the post-audit, petitioner and the TCC transferors committed fraud in the transfer of the TCCs when they made appear (sic) that the transfers were in consideration for the delivery of petroleum products by petitioner to the TCCs transferors, for which reason said transfers were approved by the Center, when in fact there were no such deliveries;

 

14. Petitioner used the TCCs fraudulently obtained and fraudulently transferred in the payment of excise taxes declared in its excise tax returns with intent to evade tax to the extent of the value represented by the TCCs, thereby rendering the returns fraudulent;  

 

15. Since petitioner wilfully filed fraudulent returns, it is liable for the 50% surcharge and 20% annual interest imposed under Sections 248 and 249 of the Tax Code;

 

16. Since petitioner wilfully filed fraudulent returns with intent to evade tax, the prescriptive period to collect the tax is ten (10) years from the discovery of the fraud pursuant to Section 222 of the Tax Code; and

 

17. The case pending in the Court of Appeals (CA-G.R. Sp. No. 55330 [CTA Case No. 5657]), and the case at bar have distinct causes of action. The former involves the invalid transfers of the TCCs to petitioner on the theory that it is not a qualified transferee thereof, while the latter involves the fraudulent procurement of said TCCs and the fraudulent transfers thereof to petitioner.

 

However, on November 12, 2002, respondent filed a Manifestation informing this Court that on May 29, 2002, it had reduced the amount of deficiency excise taxes to ₱720,923,224.74 as a result of its verification that some of the TCCs which formed part of the original “Assessment” were already included in a case previously filed with this Court. In effect, the amount of deficiency excise taxes is recomputed as follows:

 

Transferor	Basic Tax	Surcharge	Interest	Total
Alliance Thread Co. Inc.	₱    12,078,823.00	₱       6,039,411.50	₱     16,147,293.21	₱    34,265,527.21
Allstar Spinning, Inc.	37,265,310.00	18,632,655.00	49,781,486.95	105,679,451.95
Diamond  Knitting Corporation	36,764,587.00	18,382,293.50	49,264,758.35	104,411,638.85
Fiber Technology Corp.	25,300,911.00	12,650,455.50	34,295,655.90	72,247,022.40
Filstar Textile Corp.	40,767,783.00	20,383,891.50	54,802,550.16	115,954,224.66
FLB International Fiber Corp.	25,934,695.00	12,967,347.50	34,977,257.14	73,879,299.64
Jantex Philippines, Inc.	12,036,192.00	6,018,096.00	15,812,547.24	33,866,835.24
Jibtex Industrial Corp.	15,506,302.00	7,753,151.00	20,610,319.52	43,869,772.52
Master Colour system Corp.	33,333,536.00	16,666,768.00	44,822,167.06	94,822,471.06
Spintex International Inc.	14,912,408.00	7,456,204.00	19,558,368.71	41,926,980.71
Total	₱ 253,900,547.00	₱   126,950,273.50	₱    340,072,404.24	₱  720,923,224.74

                       

          During the pendency of the case, but after respondent had already submitted his Formal Offer of Evidence for this Court’s consideration, he filed an ‘Urgent Motion to Reopen Case’ on August 24, 2004 on the ground that additional evidence consisting of documents presented to the Center in support of the TCC transferor’s claims for tax credit as well as document supporting the applications for approval of the transfer of the TCCs to petitioner, must be presented to prove the fraudulent issuance and transfer of the subject TCCs. Respondent submits that it is imperative on his part to do so considering that, without necessarily admitting that the evidence presented in the case of Pilipinas Shell Petroleum Corporation vs. Commissioner of Internal Revenue, to prove fraud is not clear and convincing, he may suffer the same fate that had befallen upon therein respondent when this Court held, among others, that ‘there is no clear and convincing evidence that the Tax Credit Certificates (TCCs) transferred to Shell (for brevity) and used by it in the payment of excise taxes, were fraudulently issued to the TCC transferors and were fraudulently transferred to Shell.’

 

          An ‘Opposition to Urgent Motion to Reopen Case’ was filed by petitioner on September 3, 2004 contending that to sustain respondent’s motion would ‘smack of procedural disorder and spawn a reversion of the proceedings. While litigation is not a game of technicalities, it is a truism that every case must be presented in accordance with the prescribed procedure to insure an orderly administration of justice.’

 

          On October 4, 2004, this Court resolved to grant respondent’s Motion and allowed respondent to present additional evidence in support of his arguments, but deferred the resolution of respondent’s original Formal Offer of Evidence until after the respondent has terminated his presentation of evidence. Subsequent to this Court’s Resolution, respondent then filed on October 20, 2004, a Request for the Issuance of Subpoena Duces Tecum to the Executive Director of the Center or his duly authorized representative, and on October 21, 2004, a Subpoena Ad Testificandum to Ms. Elizabeth R. Cruz, also of the Center.

 

          Petitioner filed a ‘Motion for Reconsideration (Re: Resolution dated October 4, 2004)’ on October 27, 2004, with respondent filing his ‘Opposition’ on November 4, 2004, and petitioner subsequently filing its ‘Reply to Opposition’ on December 20, 2004. Petitioner’s motion was denied by this Court in a Resolution dated February 28, 2005 for lack of merit.

 

          On March 18, 2005, petitioner filed an ‘Urgent Motion to Revert Case to the First Division’ with respondent’s ‘Manifestation’ filed on April 6, 2005 stating that ‘the question of which Division of this Honorable Court shall hear the instant case is an internal matter which is better left to the sound discretion of this Honorable Court without interference by a party litigant’. On April 28, 2005, this Court denied the Motion of petitioner for lack of merit.   

 

          On November 7, 2005, the Court finally resolved respondent’s ‘Formal Offer of Evidence’ filed on May 7, 2004 and ‘Supplemental Formal Offer of Evidence’ filed on August 25, 2005. On November 22, 2005, respondent filed a ‘Motion for Partial Reconsideration’ of the Court’s Resolution to admit Exhibits 31 and 31-A on the ground that he already submitted and offered certified true copies of said exhibits, which the Court granted in its Resolution on January 19, 2006.

 

          However, on February 10, 2006, respondent filed a ‘Motion to Amend Formal Offer of Evidence’ praying that he be allowed to amend his formal offer since some exhibits although attached thereto were inadvertently not mentioned in the Formal Offer of Evidence. Petitioner’s ‘Opposition’ was filed on March 14, 2006. This Court granted respondent’s motion in the Resolution dated April 24, 2006 and considering that the parties already filed their respective Memoranda, this case was then considered submitted for decision.

 

          On May 16, 2006, however, respondent filed an ‘Omnibus Motion’ praying that this Court take judicial notice of the fact that the TCCs issued by the Center, including the TCCs in this instant case, contained the standard ‘Liability Clause’ and that the case be consolidated with CTA Case No. 6136, on the ground that both cases involve the same parties and common questions of law or fact. An ‘Opposition/Comment on Omnibus Motion’ was filed by petitioner on June 26, 2006, and ‘Reply to Opposition/Comment’ was filed by respondent on July 17, 2006.

 

          In a Resolution promulgated on September 1, 2006, this Court granted respondent’s motion only insofar as taking judicial notice of the fact that each of the dorsal side of the TCCs contains the subject ‘liability clause’, but denied respondent’s motion to consolidate considering that C.T.A. Case No. 6136 was already submitted for decision on April 24, 2006.^[41][4]

 

 

The Ruling of the Court of Tax Appeals–Second Division

(CTA Case No. 6423)

 

          On 04 May 2007, the CTA Second Division promulgated a Decision in CTA Case No. 6423, the dispositive portion of which reads:

 

          WHEREFORE, premises considered, the instant Petition for Review is hereby DENIED for lack of merit. Accordingly, petitioner is ORDERED TO PAY the respondent the reduced amount of SIX HUNDRED MILLION SEVEN HUNDRED SIXTY NINE THOUSAND THREE HUNDRED FIFTY THREE AND 95/100 PESOS (P600,769,353.95), representing petitioner’s deficiency excise taxes for the taxable years 1995 to 1998, recomputed as follows:

 

Transferor	Basic Tax	25% Surcharge	20% Interest	Total
Alliance Thread Co. Inc.	₱    12,078,823.00	₱       3,019,705.75	₱     13,456,077.68	₱    28,554,606.43
Allstar Spinning, Inc.	37,265,310.00	9,316,327.50	41,484,572.46	88,066,209.96
Diamond  Knitting Corporation	36,764,587.00	9,191,146.75	41,053,965.29	87,009,699.04
Fiber Technology Corp.	25,300,911.00	6,325,227.75	28,579,713.25	60,205,852.00
Filstar Textile Corp.	40,767,783.00	10,191,945.75	45,668,791.80	96,628,520.55
FLB International Fiber Corp.	25,934,695.00	6,483,673.75	29,147,714.28	61,566,083.03
Jantex Philippines, Inc.	12,036,192.00	3,009,048.00	13,177,122.70	28,222,362.70
Jibtex Industrial Corp.	15,506,302.00	3,876,575.50	17,175,266.27	36,558,143.77
Master Colour system Corp.	33,333,536.00	8,333,384.00	37,351,805.88	79,018,725.88
Spintex International Inc.	14,912,408.00	3,728,102.00	16,298,640.59	34,939,150.59
Total	₱  253,900,547.00	₱      63,475,136.75	₱   283,393,670.20	₱  600,769,353.95

 

In addition, petitioner is ORDERED TO PAY the respondent TWENTY FIVE PERCENT (25%) LATE PAYMENT SURCHARGE AND TWENTY PERCENT (20%) DELIQUENCY INTEREST per annum on the amount of SIX HUNDRED MILLION SEVEN HUNDRED SIXTY NINE THOUSAND THREE HUNDRED FIFTY THREE & 95/100 PESOS (₱600,769,353.95), computed from June 27, 2002 until the amount is fully paid.

 

SO ORDERED.^[42][5]

 

        The CTA Second Division held Petron liable for deficiency excise taxes on the ground that the cancellation by the DOF of the TCCs previously issued to and utilized by respondent to settle its tax liabilities had the effect of nonpayment of the latter’s excise taxes. These taxes corresponded to the value of the TCCs Petron used for payment. The CTA Second Division ruled that payment can only occur if the instrument used to discharge an obligation represents its stated value.^[43][6] It further ruled that Petron’s acceptance of the TCCs was considered a contract entered into by respondent with the CIR and subject to post-audit,^[44][7] which was considered a suspensive condition governed by Article 1181 of the Civil Code.^[45][8] 

 

Further, the CTA Second Division found that the circumstances pertaining to the issuance of the subject TCCs and their transfer to Petron “brim with fraud.”^[46][9] Hence, the said court concluded that since the TCCs used by Petron were found to be spurious, respondent was deemed to have not paid its excise taxes and ought to be liable to the CIR in the amount of ₱600,769,353.95 plus 25% interests and 20% surcharges.^[47][10]

 

Petron filed a Motion for Reconsideration^[48][11] of the Decision of the CTA Second Division, which denied the motion in a Resolution dated 14 August 2007.^[49][12] The court reiterated its conclusion that the TCCs utilized by Petron to pay the latter’s excise tax liabilities did not result in payment after these TCCs were found to be fraudulent in the post-audit by the DOF. The CTA Second Division also affirmed its ruling that Petron was liable for a 25%  late payment surcharge and 20% surcharges under Section 248^[50][13] of the National Internal Revenue Code (NIRC) of 1997.^[51][14]    

 

Aggrieved, Petron appealed the Decision to the CTA En Banc through a Petition for Review, which was docketed as CTA EB No. 311. In its Petition, Petron alleged that the Second Division erred in holding respondent liable to pay the amount of ₱600,769,353.95 in deficiency excise taxes with penalties and interests covering the taxable years 1995-1998. Petron prayed that the said Decision be reversed and set aside, and that CIR be enjoined from collecting the contested excise tax deficiency assessment.^[52][15]

 

The CTA En Banc summed up into one issue the grounds relied upon by Petron in its Petition for Review, as follows:

 

Whether or not the Second Division erred in holding petitioner liable for the amount of ₱600,769,353.95 as deficiency excise taxes for the years 1995-1998, including surcharges and interest, plus 25% surcharge and 20% delinquency interest per annum from June 27, 2002 until the amount is fully paid.^[53][16]     

 

The Ruling of the Court of Tax Appeals En Banc

(CTA EB Case No. 311)

 

On 03 December 2008, the CTA En Banc promulgated a Decision, which reversed and set aside the CTA Second Division on 04 May 2007. The former absolved Petron from any deficiency excise tax liability for taxable years 1995 to 1998. Its ruling in favor of  Petron was anchored on this Court’s pronouncements in Pilipinas Shell Petroleum Corp. v. Commissioner of Internal Revenue (Shell),^[54][17] which found that the factual background and legal issues therein were similar to those in the present case.

 

In resolving the issues, the CTA En Banc adopted the main points in Shell, which it quoted at length as basis for deciding the appeal in favor of  Petron. The gist of the main points of Shell cited by the said court is as follows:

 

a) The issued TCCs are immediately valid and effective and are not subject to a post-audit as a suspensive condition^[55][18]

b) A TCC is subject only to the following conditions:

i) Post-audit in the event of a computational discrepancy

ii) A reduction for any outstanding account with the BIR and/or BOC

iii) A revalidation of the TCC if not utilized within one year from issuance or date of utilization^[56][19]          

c) A transferee of a TCC should only be a BOI-registered firm under the Implementing Rules and Regulations of Executive Order (E.O.) No. 226.^[57][20]

d) The liability clause in the TCCs provides only for the solidary liability of the transferee relative to its transfer in the event it is a party to the fraud.^[58][21]

e) A transferee can rely on the Center’s approval of the TCCs’ transfer and subsequent acceptance as payment of the transferee’s excise tax liability.^[59][22]

f) A TCC cannot be cancelled by the Center, as it was already cancelled after the transferee had applied it as payment for the latter’s excise tax liabilities.^[60][23]

The CTA En Banc also found that Petron had no participation in or knowledge of the fraudulent issuance and transfer of the subject TCCs. In fact, the parties made a joint stipulation on this matter in CTA Case No. 6423 before the CTA Second Division.^[61][24]

 

In resolving the issue of whether the government is estopped from collecting taxes due to the fault of its agents, the CTA En Banc quoted Shell as follows:

 

While we agree with respondent that the State in the performance of government 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.^[62][25] (Emphasis supplied.)         

 

          Finally, the CTA En Banc ruled that Petron was considered an innocent transferee of the subject TCCs and may not be prejudiced by a re-assessment of excise tax liabilities that respondent has already settled, when due, with the use of the TCCs.^[63][26] Petron is thus considered to have not fraudulently filed its excise tax returns. Consequently, the assessment issued by the CIR against it had no legal basis.^[64][27] The dispositive portion of the assailed 03 December 2008 Decision of the CTA En Banc reads:

 

WHEREFORE, the instant petition for Review is hereby GRANTED. Accordingly, the May 4, 2007 Decision and August 14, 2007 Resolution of the CTA Second Division in CTA Case No. 6423 entitled, “Petron Corporation, petitioner vs. Commissioner of Internal Revenue, respondent”, are hereby REVERSED and SET ASIDE. In addition, the demand and collection of the deficiency excise taxes of PETRON in the amount of ₱600,769,353.95 excluding penalties and interest covering the taxable years 1995 to 1998 are hereby CANCELLED and SET ASIDE, and respondent-Commissioner of Internal Revenue is hereby ENJOINED from collecting the said amount from PETRON.

 

SO ORDERED.^[65][28]     

 

 

          The CIR moved for the reconsideration of the CTA En Banc Decision, but the motion was denied in a Resolution dated 14 August 2007.^[66][29]

 

 

The Issues

 

 

          The CIR appealed the Decision of the CTA En Banc by filing a Petition for Review on Certiorari under Rule 45 of the Rules of Court.^[67][30] Petitioner assails the Decision by raising the following issues:

 

The court of tax appeals committed reversible error in holding that respondent petron is not liable for its excise tax liabilities from 1995 to 1998.

 

Arguments

 

I

 

The cta en banc erred in finding that respondent petron was not shown to have participated in the fraudulent acts. The finding of the cta second division that the tax credit certificates were fraudulently transferred by the transferor-companies to respondent is supported by substantial evidence. Respondent was involved in the perpetration of fraud in the tccs’ transfer and utilization.

 

II

 

Respondent cannot validly claim the right of innocent transferee for value. As assignee/transferee of the tccs, respondent merely succeeded to the rights of the tcc assignors/transferors. Accordingly, if the tccs assigned to respondent were void, it did not acquire any valid title over the tccs.

 

III

 

The government is not Estopped from collecting taxes due to the mistakes of its agents.

 

IV

 

Respondent is liable for 25% surcharge and 20% interest per annum pursuant to the provisions of sections 248 and 249 of the NIRC. Moreover, since respondent’s returns were false, the assessment prescribes in ten (10) years from the discovery of the falsity thereof pursuant to section 22 of the same code.^[68][31]

The Court’s Ruling

 

        We DENY the CIR’s Petition for lack of merit.

 

        Article 21 of E.O. 226 defines a tax credit as follows:

        ARTICLE 21.         “Tax credit” shall mean any of the credits against taxes and/or duties equal to those actually paid or would have been paid to evidence which a tax credit certificate shall be issued by the Secretary of Finance or his representative, or the Board, if so delegated by the Secretary of Finance. The tax credit certificates including those issued by the Board pursuant to laws repealed by this Code but without in any way diminishing the scope of negotiability under their laws of issue are transferable under such conditions as may be determined by the Board after consultation with the Department of Finance. The tax credit certificate shall be used to pay taxes, duties, charges and fees due to the National Government; Provided, That the tax credits issued under this Code shall not form part of the gross income of the grantee/transferee for income tax purposes under Section 29 of the National Internal Revenue Code and are therefore not taxable: Provided, further, That such tax credits shall be valid only for a period of ten (10) years from date of issuance.

 

        Under Article 39 (j) of the Omnibus Investment Code of 1987,^[69][32] tax credits are granted to entities registered with the Bureau of Investment (BOI) and are given for taxes and duties paid on raw materials used for the manufacture of their export products.

 

        A TCC is defined under Section 1 of  Revenue Regulation (RR) No. 5-2000, issued by the BIR on 15 August 2000, as follows:

 

B.      Tax Credit Certificate — means a certification, duly issued to the taxpayer named therein, by the Commissioner or his duly authorized representative, reduced in a BIR Accountable Form in accordance with the prescribed formalities, acknowledging that the grantee-taxpayer named therein is legally entitled a tax credit, the money value of which may be used in payment or in satisfaction of any of his internal revenue tax liability (except those excluded), or may be converted as a cash refund, or may otherwise be disposed of in the manner and in accordance with the limitations, if any, as may be prescribed by the provisions of these Regulations.

 

RR 5-2000 prescribes the regulations governing the manner of issuance of  TCCs and the conditions for their use, revalidation and transfer. Under the said regulation, a TCC may be used by the grantee or its assignee in the payment of its direct internal revenue tax liability.^[70][33] It may be transferred in favor of an assignee subject to the following conditions: 1) the TCC transfer must be with prior approval of the Commissioner or the duly authorized representative; 2) the transfer of a TCC should be limited to one transfer only; and 3) the transferee shall strictly use the TCC for the payment of the assignee’s direct internal revenue tax liability and shall not be convertible to cash.^[71][34] A TCC is valid only for 10 years subject to the following rules: (1) it must be utilized within five (5) years from the date of issue; and (2) it must be revalidated thereafter or be otherwise considered invalid.^[72][35]

 

The processing of a TCC is entrusted to a specialized agency called the “One-Stop-Shop Inter-Agency Tax Credit and DutyDrawbackCenter” (“Center”), created on 07 February 1992 under Administrative Order (A.O.) No. 226. Its purpose is to expedite the processing and approval of tax credits and duty drawbacks.^[73][36] The Center is composed of a representative from the DOF as its chairperson; and the members thereof are representatives of the Bureau of Investment (BOI), Bureau of Customs (BOC) and Bureau of Internal Revenue (BIR), who are tasked to process the TCC and approve its application as payment of an assignee’s tax liability.^[74][37]

 

A TCC may be assigned through a Deed of Assignment, which the assignee submits to the Center for its approval. Upon approval of the deed, the Center will issue a DOF Tax Debit Memo (DOF-TDM),^[75][38] which will be utilized by the assignee to pay the latter’s tax liabilities for a specified period. Upon surrender of the TCC and the DOF-TDM, the corresponding Authority to Accept Payment of Excise Taxes (ATAPET) will be issued by the BIR Collection Program Division and will be submitted to the issuing office of the BIR for acceptance by the Assistant Commissioner of Collection Service. This act of the BIR signifies its acceptance of the TCC as payment of the assignee’s excise taxes.

 

Thus, it is apparent that a TCC undergoes a stringent process of verification by various specialized government agencies before it is accepted as payment of an assignee’s tax liability.

 

In the case at bar, the CIR disputes the ruling of the CTA En Banc, which found Petron to have had no participation in the fraudulent procurement and transfer of the TCCs. Petitioner believes that there was substantial evidence to support its allegation of a fraudulent transfer of the TCCs to Petron.^[76][39] The CIR further contends that respondent was not a qualified transferee of the TCCs, because the latter did not supply petroleum products to the companies that were the assignors of the subject TCCs.^[77][40]  

 

 The CIR bases its contentions on the DOF’s post-audit findings stating that, for the periods covering 1995 to 1998, Petron did not deliver fuel and other petroleum products to the companies (the transferor companies) that had assigned the subject TCCs to respondent. Petitioner further alleges that the findings indicate that the transferor companies could not have had such a high volume of export sales declared to the Center and made the basis for the issuance of the TCCs assigned to Petron.^[78][41] Thus, the CIR impugns the CTA En Banc ruling that respondent was a transferee in good faith and for value of the subject TCCs.^[79][42] 

 

Not finding merit in the CIR’s contention, we affirm the ruling of the CTA En Banc finding that Petron is a transferee in good faith and for value of the subject TCCs.

 

From the records, we observe that the CIR had no allegation that there was a deviation from the process for the approval of the TCCs, which Petron used as payment to settle its excise tax liabilities for the years 1995 to 1998.

 

The CIR quotes the CTA Second Division and urges us to affirm the latter’s Decision, which found Petron to have participated in the fraudulent issuance and transfer of the TCCs. However, any merit in the position of petitioner on this issue is negated by the Joint Stipulation it entered into with Petron in the proceedings before the said Division. As correctly noted by the CTA En Banc, herein parties jointly stipulated before the Second Division in CTA Case No. 6423 as follows:

 

13. That petitioner (Petron) did not participate in the procurement and issuance of the TCCs, which TCCs were transferred to Petron and later utilized by Petron in payment of its excise taxes.^[80][43]  

 

This stipulation of fact by the CIR amounts to an admission and, having been made by the parties in a stipulation of facts at pretrial, is treated as a judicial admission. Under Section 4, Rule 129 of the Rules of Court, a judicial admission requires no proof.^[81][44]  The Court cannot lightly set it aside, especially when the opposing party relies upon it and accordingly dispenses with further proof of the fact already admitted. The exception provided in Rule 129, Section 4 is that an admission may be contradicted only by a showing that it was made through a palpable mistake, or that no such admission was made. In this case, however, exception to the rule does not exist.

 

We agree with the pronouncement of the CTA En Banc that Petron has not been shown or proven to have participated in the alleged fraudulent acts involved in the transfer and utilization of the subject TCCs. Petron had the right to rely on the joint stipulation that absolved it from any participation in the alleged fraud pertaining to the issuance and procurement of the subject TCCs. The joint stipulation made by the parties consequently obviated the opportunity of the CIR to present evidence on this matter, as no proof is required for an admission made by a party in the course of the proceedings.^[82][45] Thus, the CIR cannot now be allowed to change its stand and renege on that admission.

 

Moreover, a close examination of  the arguments proffered by the CIR in their Petition calls for a reevaluation of the sufficiency of evidence in the case. The CIR seeks to persuade this Court to believe that there is substantial evidence to prove that Petron committed a misrepresentation, because the petroleum products were delivered not to the transferor but to other companies.^[83][46] Thus, the TCCs assigned by the transferor companies to Petron were fraudulent. Clearly, a recalibration of the sufficiency of evidence presented by the CIR is needed for a different conclusion to be reached.

 

The fundamental rule is that the scope of our judicial review under Rule 45 of the Rules of Court is confined only to errors of  law and does not extend to questions of fact.^[84][47] It is basic that where it is the sufficiency of evidence that is being questioned, there is a question of fact.^[85][48] Evidently, the CIR does not point out any specific provision of law that was wrongly interpreted by the CTA En Banc in the latter’s assailed Decision. Petitioner anchors it contention on the alleged existence of the sufficiency of evidence it had proffered to prove that Petron was involved in the perpetration of fraud in the transfer and utilization of the subject TCCs, an allegation that the CTA En Banc failed to consider. We have consistently held that it is not the function of this Court to analyze or weigh the evidence all over again, unless there is a showing that the findings of the lower court are totally devoid of support or are glaringly erroneous as to constitute palpable error or grave abuse of discretion.^[86][49] Such an exception does not obtain in the circumstances of this case.

 

The CIR claims that Petron was not an innocent transferee for value, because the TCCs assigned to respondent were void. Petitioner based its allegations on the post-audit report of the DOF, which declared that the subject TCCs were obtained through fraud and, thus, had no monetary value.^[87][50] The CIR adds that the TCCs were subject to a post-audit by the Center to complete the payment of the excise tax liability to which they were applied. Petitioner further contends that the Liability Clause of the TCCs makes the transferee or assignee solidarily liable with the original grantee for any fraudulent act pertinent to their procurement and transfer. The CIR assails the contrary ruling of the CTA En Banc, which confined the solidary liability only to the original grantee of the TCCs. Thus, petitioner believes that the correct interpretation of the Liability Clause in the TCCs makes Petron and the transferor companies or the original grantee solidarily liable for any fraudulent act or violation of the pertinent laws relating to the transfers of the TCCs. ^[88][51]   

 

We are not persuaded by the CIR’s position on this matter.

 

The Liability Clause of the TCCs reads:

Both the TRANSFEROR and the TRANSFEREE shall be jointly and severally liable for any fraudulent act or violation of the pertinent laws, rules and regulations relating to the transfer of this TAX CREDIT CERTIFICATE.

 

The scope of this solidary liability, as stated in the TCCs, was clarified by this Court in Shell, as follows:

The above clause to our mind clearly provides only for the solidary liability relative to the transfer of the TCCs from the original grantee to a transferee. There is nothing in the above clause that provides for the liability of the transferee in the event that the validity of the TCC issued to the original grantee by the Center is impugned or where the TCC is declared to have been fraudulently procured by the 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 or breach of law or rule relating to the issuance of the TCC by the Center to the transferor or the original grantee 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 not only unjust but well-nigh violative of the constitutional right not to be deprived of one’s property without due process of law. Thus, a re-assessment of tax liabilities previously paid through TCCs by a transferee in good faith and for value is utterly confiscatory, 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 the TCC for value or was a party to or has knowledge of its fraudulent issuance, said transferee is liable for the taxes and for the fraud committed as provided for by law.^[89][52] (Emphasis supplied.)

We also find that the post-audit report, on which the CIR based its allegations, does not have the effect of a suspensive condition that would determine the validity of the TCCs.

 

We held in Petron v. CIR (Petron),^[90][53] which is on all fours with the instant case, that TCCs are valid and effective from their issuance and are not subject to a post-audit as a suspensive condition for their validity. Our ruling in Petron finds guidance from our earlier ruling in Shell, which categorically states that a TCC is valid and effective upon its issuance and is not subject to a post-audit. The implication on the instant case of the said earlier ruling is that Petron has the right to rely on the validity and effectivity of the TCCs that were assigned to it. In finally determining their effectivity in the settlement of respondent’s excise tax liabilities, the validity of those TCCs should not depend on the results of the DOF’s post-audit findings. We held thus in Petron:

As correctly pointed out by Petron, however, the issue about the immediate validity of TCCs and the use thereof in payment of tax liabilities and duties are not matters of first impression for this Court. Taking into consideration the definition and nature of tax credits and TCCs, this Court’s Second Division definitively ruled in the aforesaid Pilipinas Shell case that the post audit is not a suspensive condition for the validity of TCCs, thus:

Art. 1181 tells us that the condition is suspensive when the acquisition of rights or demandability of the obligation must await the occurrence of the condition. However, Art. 1181 does not apply to the present case since the parties did NOT agree to a suspensive condition. Rather, specific laws, rules, and regulations govern the subject TCCs, not the general provisions of the Civil Code. Among the applicable laws that cover the TCCs are EO 226 or the Omnibus Investments Code, Letter of Instructions No. 1355, EO 765, RP-US Military Agreement, Sec. 106 (c) of the Tariff and Customs Code, Sec. 106 of the NIRC, BIR Revenue Regulations (RRs), and others. Nowhere in the aforementioned laws does the post-audit become necessary for the validity or effectivity of the TCCs. Nowhere in the aforementioned laws is it provided that a TCC is issued subject to a suspensive condition.   

           xxx                    xxx                    xxx

. . . (T)he TCCs are immediately valid and effective after their issuance. As aptly pointed out in the dissent of Justice Lovell Bautista in CTA EB No. 64, this is clear from the Guidelines and instructions found at the back of each TCC, which provide:

1.       This Tax Credit Certificate (TCC) shall entitle the grantee to apply the tax credit against taxes and duties until the amount is fully utilized, in accordance with the pertinent tax and customs laws, rules and regulations.

           xxx                    xxx                    xxx

4.       To acknowledge application of payment, theOne-Stop-ShopTaxCreditCentershall issue the corresponding Tax Debit Memo (TDM) to the grantee.

The authorized Revenue Officer/Customs Collector to which payment/utilization was made shall accomplish the Application of Tax Credit at the back of the certificate and affix his signature on the column provided.”   

      The foregoing guidelines cannot be clearer on the validity and effectivity of the TCC to pay or settle tax liabilities of the grantee or transferee, as they do not make the effectivity and validity of the TCC dependent on the outcome of a post-audit. In fact, if we are to sustain the appellate tax court, it would be absurd to make the effectivity of the payment of a TCC dependent on a post-audit since there is no contemplation of the situation wherein there is no post-audit. Does the payment made become effective if no post-audit is conducted? Or does the so-called suspensive condition still apply as no law, rule, or regulation specifies a period when a post-audit should or could be conducted with a prescriptive period? Clearly, a tax payment through a TCC cannot be both effective when made and dependent on a future event for its effectivity. Our system of laws and procedures abhors ambiguity.

 

Moreover, if the TCCs are considered to be subject to post-audit as a suspensive condition, the very purpose of the TCC would be defeated as there would be no guarantee that the TCC would be honored by the government as payment for taxes. No investor would take the risk of utilizing TCCs if these were subject to a post-audit that may invalidate them, without prescribed grounds or limits as to the exercise of said post-audit.  

 

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.^[91][54]

          In addition, Shell and Petron recognized an exception that holds the transferee/assignee liable if proven to have been a party to the fraud or to have had knowledge of the fraudulent issuance of the subject TCCs. As earlier mentioned, the parties entered into a joint stipulation of facts stating that Petron did not participate in the procurement or issuance of those TCCs. Thus, we affirm the CTA En Banc’s ruling that respondent was an innocent transferee for value thereof.

 

        On the issue of estoppel, petitioner contends that the TCCs, which the Center had continually approved as payment for respondent’s excise tax liabilities, were subsequently found to be void. Thus, the CIR insists that the government is not estopped from collecting from Petron the excise tax liabilities that had accrued to the latter as a result of the voidance of these TCCs. Petitioner argues that the State should not be prejudiced by the neglect or omission of government employees entrusted with the collection of taxes.^[92][55]  

             

We are not persuaded by the CIR’s argument.

 

We recognize the well-entrenched principle that estoppel does not apply to the government, especially on matters of taxation. Taxes are the nation’s lifeblood through which government agencies continue to operate and with which the State discharges its functions for the welfare of its constituents.^[93][56] As an exception, however, this general rule cannot be applied if it would work injustice against an innocent party.^[94][57]

 

Petron, in this case, was not proven to have had any participation in or knowledge of  the CIR’s allegation of  the fraudulent transfer and utilization of  the subject TCCs. Respondent’s status as a transferee in good faith and for value of these TCCs has been established and even stipulated upon by petitioner.^[95][58] Respondent was thereby provided ample protection from the adverse findings subsequently made by the Center.^[96][59] Given the circumstances, the CIR’s invocation of the non-applicability of estoppel in this case is misplaced.

 

 On the final issue it raised, the CIR contends that a 25% surcharge and a 20% interest per annum must be imposed upon Petron for respondent’s excise tax liabilities as mandated under Sections 248 and 249 of the National Internal Revenue Code (NIRC).^[97][60] Petitioner considers the tax returns filed by respondent for the years 1995 to 1998 as fraudulent on the basis of the post-audit finding that the TCCs were void. It argues that the prescriptive period within which to lawfully assess Petron for its tax liabilities has not prescribed under Section 222 (a)^[98][61] of the Tax Code. The CIR explains that respondent’s assessment on 30 January 2002 of respondent’s deficiency excise tax for the years 1995 to 1998 was well within the ten-year prescription period.^[99][62]  

 

In the light of the main ruling in this case, we affirm the CTA En Banc Decision finding Petron to be an innocent transferee for value of the subject TCCs. Consequently, the Tax Returns it filed for the years 1995 to 1998 are not considered fraudulent. Hence, the CIR had no legal basis to assess the excise taxes or any penalty surcharge or interest thereon, as respondent had already paid the appropriate excise taxes using the subject TCCs.

WHEREFORE, the CIR’s Petition is DENIED for lack of merit. The CTA En Banc Decision dated 03 December 2008 in CTA EB No. 311 is hereby AFFIRMED in toto. No pronouncement as to costs.    

 

 

 

SO ORDERED.

 

 

 

 

MARIA LOURDES P. A. SERENO

Associate Justice

 

 

WE CONCUR:

 

 

 

 

ANTONIO T. CARPIO

Associate Justice

Chairperson

 

 

 

 

    ARTURO D. BRION                                JOSE PORTUGAL PEREZ                  

         Associate Justice                                                Associate Justice

 

 

 

 

 

BIENVENIDO L. REYES

Associate Justice

 

 

 

 

A T T E S T A T I O N

 

        I attest that the conclusions in the above Decision had been reached in consultation before the case was assigned to the writer of the opinion of the Court’s Division.

 

                                                    ANTONIO T. CARPIO

                                                        Associate Justice

                                                  Chairperson, Second Division      

 

 

C E R T I F I C A T I O N

 

        Pursuant to Section 13, Article VIII of the Constitution and the Division Chairperson’s Attestation, I certify that the conclusions in the above Decision had been reached in consultation before the case was assigned to the writer of the opinion of the Court’s Division.

 

 

RENATO C. CORONA

                                                                   Chief Justice

 

 

 

CASE 2012-0045: PHILIP SIGFRID A. FORTUN AND ALBERT LEE G. ANGELES VS. GLORIA MACAPAGAL-ARROYO,  AS COMMANDER-IN-CHIEF AND PRESIDENT OF THE REPUBLIC OF THE PHILIPPINES, EDUARDO ERMITA, EXECUTIVE SECRETARY, ARMED FORCES OF THE PHILIPPINES (AFP), OR ANY OF THEIR UNITS, PHILIPPINE NATIONAL POLICE (PNP), OR ANY OF THEIR UNITS, JOHN DOES AND JANE DOES ACTING UNDER THEIR DIRECTION AND CONTROL (G.R. NO. 190293, MARCH 20, 2012, ABAD, J.) AND OTHER RELATED CASES (G.R. NO. 190294, G.R. NO. 190301, G.R. NO. 190302, G.R. NO. 190307, G.R. NO. 190356 AND  G.R. NO. 190380) SUBJECT/S: CONSTITUTIONALITY OF THE PROCLAMATION OF MARTIAL LAW; WHO EXERCISES POWER TO PROCLAIM MARTIAL LAW?; MOOT AND ACADEMIC CASE.

 

============================= 

 

 

DISPOSITIVE:

 

WHEREFORE, the Court DISMISSES the consolidated petitions on the ground that the same have become moot and academic.

 

SO ORDERED.

 

 

=============================

 

 

SUBJECTS/DOCTRINE/ DIGEST

 

 

WHAT IS THE ATTITUDE OF THE COURT IN ENTERTAINING ACTIONS THAT ASSAIL THE CONSITUTIONALITY OF ACTS OF EXECUTIVE OR LEGISLATIVE?

 

 

COURT SHOULD BE CAUTIOUS. PRUDENCE AND RESPECT FOR THE CO-EQUAL DEPARTMENTS OF THE GOVERNMENT DICTATE THAT THE COURT SHOULD BE CAUTIOUS IN ENTERTAINING ACTIONS THAT ASSAIL THE CONSTITUTIONALITY OF THE ACTS OF THE EXECUTIVE OR THE LEGISLATIVE DEPARTMENT.

 

 

        Prudence and respect for the co-equal departments of the government dictate that the Court should be cautious in entertaining actions that assail the constitutionality of the acts of the Executive or the Legislative department.  The issue of constitutionality, said the Court in Biraogo v. Philippine Truth Commission of 2010,^[1][1] must be the very issue of the case, that the resolution of such issue is unavoidable. 

XXXXXXXXXXXXX

 

 

 

WHO EXERCISES THE POWER TO PROCLAIM MARTIAL LAW?

 

 

THE PRESIDENT SHARES SUCH POWER WITH CONGRESS. THE PRESIDENT AND THE CONGRESS ACT IN TANDEM IN EXERCISING THE POWER TO PROCLAIM MARTIAL LAW OR SUSPEND THE PRIVILEGE OF THE WRIT OF HABEAS CORPUS.  THEY EXERCISE THE POWER, NOT ONLY SEQUENTIALLY, BUT IN A SENSE JOINTLY SINCE, AFTER THE PRESIDENT HAS INITIATED THE PROCLAMATION OR THE SUSPENSION, ONLY THE CONGRESS CAN MAINTAIN THE SAME BASED ON ITS OWN EVALUATION OF THE SITUATION ON THE GROUND, A POWER THAT THE PRESIDENT DOES NOT HAVE. 

 

 

        Although the above vests in the President the power to proclaim martial law or suspend the privilege of the writ of habeas corpus, he shares such power with the Congress.  Thus:

 

        1.     The President’s proclamation or suspension is temporary, good for only 60 days;

 

        2.     He must, within 48 hours of the proclamation or suspension, report his action in person or in writing to Congress;

 

        3.     Both houses of Congress, if not in session must jointly convene within 24 hours of the proclamation or suspension for the purpose of reviewing its validity; and

 

        4.     The Congress, voting jointly, may revoke or affirm the President’s proclamation or suspension, allow their limited effectivity to lapse, or extend the same if Congress deems warranted.

 

        It is evident that under the 1987 Constitution the President and the Congress act in tandem in exercising the power to proclaim martial law or suspend the privilege of the writ of habeas corpus.  They exercise the power, not only sequentially, but in a sense jointly since, after the President has initiated the proclamation or the suspension, only the Congress can maintain the same based on its own evaluation of the situation on the ground, a power that the President does not have. 

 

        Consequently, although the Constitution reserves to the Supreme Court the power to review the sufficiency of the factual basis of the proclamation or suspension in a proper suit, it is implicit that the Court must allow Congress to exercise its own review powers, which is automatic rather than initiated.  Only when Congress defaults in its express duty to defend the Constitution through such review should the Supreme Court step in as its final rampart.  The constitutional validity of the President’s proclamation of martial law or suspension of the writ of habeas corpus is first a political question in the hands of Congress before it becomes a justiciable one in the hands of the Court.

 

XXXXXXXXXXXX

 

 

THE PRESIDENT WITHDREW HER PROCLAMATION OF MARTIAL LAW EVEN BEFORE CONGRESS CAN ACT ON IT. SHOULD SC STILL ENTERTAIN THE PETITIONS ON THE CONSTITUTIONALITY OF THE PROCLAMATION?

 

 

NO. BECAUSE THE COURT DOES NOT RESOLVE PURELY ACADEMIC QUESTIONS TO SATISFY SCHOLARLY INTEREST, HOWEVER INTELLECTUALLY CHALLENGING THESE ARE.^[2][5] 

 

 

The Court does not resolve purely academic questions to satisfy scholarly interest, however intellectually challenging these are.^[3][5]  This is especially true, said the Court in Philippine Association of Colleges and Universities  v.  Secretary of Education,^[4][6] where  the  issues  “reach constitutional dimensions, for then there comes into play regard for the court’s duty to avoid decision of constitutional issues unless avoidance becomes evasion.”  The Court’s duty is to steer clear of declaring unconstitutional the acts of the Executive or the Legislative department, given the assumption that it carefully studied those acts and found them consistent with the fundamental law before taking them. “To doubt is to sustain.”^[5][7]

 

………………………..

 

Of course, the Court has in exceptional cases passed upon issues that ordinarily would have been regarded as moot.  But the present cases do not present sufficient basis for the exercise of the power of judicial review.  The proclamation of martial law and the suspension of the privilege of the writ of habeas corpus in this case, unlike similar Presidential acts in the late 60s and early 70s, appear more like saber-rattling than an actual deployment and arbitrary use of political power.  

 

===========================

 

EN BANC

 

 

PHILIP SIGFRID A. FORTUN                      G.R. No. 190293

and ALBERT LEE G. ANGELES,

Petitioners,                    Present:

                                                                     CORONA, C.J., 

                                                                     CARPIO,

                                                            VELASCO, JR.,

                                                            LEONARDO-DE CASTRO,

                                                            BRION,

– versus –                                            PERALTA,

  BERSAMIN,

  DEL CASTILLO,

  ABAD,

  VILLARAMA, JR.,

  PEREZ,

  MENDOZA,

  SERENO,

  REYES, and

  PERLAS-BERNABE, JJ.

GLORIA MACAPAGAL-ARROYO,  as

Commander-in-Chief and President of the Republic of the Philippines, EDUARDO ERMITA, Executive Secretary, ARMED FORCES OF THE PHILIPPINES (AFP), or any of their units, PHILIPPINE NATIONAL POLICE (PNP), or any of their units, JOHN DOES and JANE DOES acting under their direction and control,

                             Respondents.

 

x —————————————————- x

 

DIDAGEN P. DILANGALEN,                 G.R. No. 190294

Petitioner,

 

– versus –

 

EDUARDO R. ERMITA in his capacity as Executive Secretary, NORBERTO GONZALES in his capacity as Secretary of National Defense, RONALDO PUNO in his capacity as Secretary of Interior and Local Government,

                             Respondents.

 

x —————————————————- x

 

NATIONAL UNION OF PEOPLES’         G.R. No. 190301

LAWYERS (NUPL) SECRETARY GENERAL NERI JAVIER COLMENARES, BAYAN MUNA REPRESENTATIVE SATUR C. OCAMPO, GABRIELA WOMEN’S PARTY REPRESENTATIVE LIZA L. MAZA, ATTY. JULIUS GARCIA MATIBAG, ATTY. EPHRAIM B. CORTEZ, ATTY. JOBERT ILARDE PAHILGA, ATTY. VOLTAIRE B. AFRICA, BAGONG ALYANSANG MAKABAYAN (BAYAN) SECRETARY GENERAL RENATO M. REYES, JR. and ANTHONY IAN CRUZ,

Petitioners,

 

– versus –

 

PRESIDENT GLORIA MACAPAGAL-ARROYO, EXECUTIVE SECRETARY EDUARDO R. ERMITA, ARMED FORCES OF THE PHILIPPINES CHIEF OF STAFF GENERAL VICTOR S. IBRADO, PHILIPPINE NATIONAL POLICE DIRECTOR GENERAL JESUS A. VERZOSA, DEPARTMENT OF JUSTICE SECRETARY AGNES VST DEVANADERA, ARMED FORCES OF THE PHILIPPINES EASTERN MINDANAO COMMAND CHIEF LIEUTENANT GENERAL RAYMUNDO B. FERRER,

                             Respondents.

 

x —————————————————- x

 

JOSEPH NELSON Q. LOYOLA,            G.R. No. 190302

Petitioner,

 

– versus –

 

HER EXCELLENCY PRESIDENT GLORIA MACAPAGAL-ARROYO, ARMED FORCES CHIEF OF STAFF GENERAL VICTOR IBRADO, PHILIPPINE NATIONAL POLICE (PNP), DIRECTOR GENERAL JESUS VERZOSA, EXECUTIVE SECRETARY EDUARDO ERMITA,

                             Respondents.

 

x —————————————————- x

 

JOVITO R. SALONGA, RAUL C.          G.R. No. 190307

PANGALANGAN, H. HARRY L. ROQUE, JR., JOEL R. BUTUYAN, EMILIO CAPULONG, FLORIN T. HILBAY, ROMEL R. BAGARES, DEXTER DONNE B. DIZON, ALLAN JONES F. LARDIZABAL and GILBERT T. ANDRES, suing as taxpayers and as CONCERNED Filipino citizens,

Petitioners,

 

– versus –

 

GLORIA MACAPAGAL-ARROYO, in his (sic) capacity as President of the Republic of the Philippines, HON. EDUARDO ERMITA, JR., in his capacity as Executive Secretary, and HON. ROLANDO ANDAYA in his capacity as Secretary of the Department of Budget and Management, GENERAL VICTOR IBRADO, in his capacity as Armed Forces of the Philippines Chief of Staff, DIRECTOR JESUS VERZOSA, in his capacity as Chief of the Philippine National Police,

                             Respondents.

 

x —————————————————- x

 

BAILENG S. MANTAWIL, DENGCO      G.R. No. 190356

SABAN, Engr. OCTOBER CHIO, AKBAYAN PARTY LIST REPRESENTATIVES WALDEN F. BELLO and ANA THERESIA HONTIVEROS-BARAQUEL, LORETTA ANN P. ROSALES, MARVIC M.V.F. LEONEN, THEODORE O. TE and IBARRA M. GUTIERREZ III,

Petitioners,

 

– versus –

 

THE EXECUTIVE SECRETARY, THE SECRETARY OF NATIONAL DEFENSE, THE SECRETARY OF JUSTICE, THE SECRETARY OF INTERIOR AND LOCAL GOVERNMENT, THE SECRETARY OF BUDGET AND MANAGEMENT, and THE CHIEF OF STAFF OF THE ARMED FORCES OF THE PHILIPPINES, THE DIRECTOR GENERAL OF THE PHILIPPINE NATIONAL POLICE,

                             Respondents.

 

x —————————————————- x

 

CHRISTIAN MONSOD and                  G.R. No. 190380

CARLOS P. MEDINA, JR.,

Petitioners,

 

– versus –

 

EDUARDO R. ERMITA, in his                     Promulgated:

capacity as Executive Secretary,

                             Respondent.                              March 20, 2012                 

 

x —————————————————————————————- x

 

DECISION

 

ABAD, J.:

 

 

        These cases concern the constitutionality of a presidential proclamation of martial law and suspension of the privilege of habeas corpus in 2009 in a province inMindanao which were withdrawn after just eight days.

 

The Facts and the Case

 

        The essential background facts are not in dispute.  On November 23, 2009 heavily armed men, believed led by the ruling Ampatuan family, gunned down and buried under shoveled dirt 57 innocent civilians on a highway in Maguindanao.  In response to this carnage, on November 24 President Arroyo issued Presidential Proclamation 1946, declaring a state of emergency in Maguindanao, Sultan Kudarat, andCotabatoCityto prevent and suppress similar lawless violence inCentral Mindanao.

 

Believing that she needed greater authority to put order in Maguindanao and secure it from large groups of persons that have taken up arms against the constituted authorities in the province, on December 4, 2009 President Arroyo issued Presidential Proclamation 1959 declaring martial law and suspending the privilege of the writ of habeas corpus in that province except for identified areas of the Moro Islamic Liberation Front.

 

Two days later or on December 6, 2009 President Arroyo submitted her report to Congress in accordance with Section 18, Article VII of the 1987 Constitution which required her, within 48 hours from the proclamation of martial law or the suspension of the privilege of the writ of habeas corpus, to submit to that body a report in person or in writing of her action. 

 

In her report, President Arroyo said that she acted based on her finding that lawless men have taken up arms in Maguindanao and risen against the government.  The President described the scope of the uprising, the nature, quantity, and quality of the rebels’ weaponry, the movement of their heavily armed units in strategic positions, the closure of the Maguindanao Provincial Capitol, Ampatuan Municipal Hall, Datu Unsay Municipal Hall, and 14 other municipal halls, and the use of armored vehicles, tanks, and patrol cars with unauthorized “PNP/Police” markings.

 

On December 9, 2009 Congress, in joint session, convened pursuant to Section 18, Article VII of the 1987 Constitution to review the validity of the President’s action.  But, two days later or on December 12 before Congress could act, the President issued Presidential Proclamation 1963, lifting martial law and restoring the privilege of the writ of habeas corpus in Maguindanao.

 

        Petitioners Philip Sigfrid A. Fortun and the other petitioners in G.R. 190293, 190294, 190301,190302, 190307, 190356, and 190380 brought the present actions to challenge the constitutionality of President Arroyo’s Proclamation 1959 affecting Maguindanao.  But, given the prompt lifting of that proclamation before Congress could review it and before any serious question affecting the rights and liberties of Maguindanao’s inhabitants could arise, the Court deems any review of its constitutionality the equivalent of beating a dead horse. 

 

        Prudence and respect for the co-equal departments of the government dictate that the Court should be cautious in entertaining actions that assail the constitutionality of the acts of the Executive or the Legislative department.  The issue of constitutionality, said the Court in Biraogo v. Philippine Truth Commission of 2010,^[6][1] must be the very issue of the case, that the resolution of such issue is unavoidable. 

        The issue of the constitutionality of Proclamation 1959 is not unavoidable for two reasons:

 

        One.  President Arroyo withdrew her proclamation of martial law and suspension of the privilege of the writ of habeas corpus before the joint houses of Congress could fulfill their automatic duty to review and validate or invalidate the same.  The pertinent provisions of Section 18, Article VII of the 1987 Constitution state:

 

          Sec. 18.  The President shall be the Commander‑in‑Chief of all armed forces of the Philippinesand whenever it becomes necessary, he may call out such armed forces to prevent or suppress lawless violence, invasion or rebellion. In case of invasion or rebellion, when the public safety requires it, he may, for a period not exceeding sixty days, suspend the privilege of the writ of habeas corpus or place the Philippines or any part thereof under martial law. Within forty‑eight hours from the proclamation of martial law or the suspension of the privilege of writ of habeas corpus, the President shall submit a report in person or in writing to the Congress. The Congress, voting jointly, by a vote of at least a majority of all its Members in regular or special session, may revoke such proclamation or suspension, which revocation shall not be set aside by the President. Upon the initiative of the President, the Congress may, in the same manner, extend such proclamation or suspension for a period to be determined by the Congress, if the invasion or rebellion shall persist and public safety requires it.

 

          The Congress, if not in session, shall, within twenty‑four hours following such proclamation or suspension, convene in accordance with its rules without any need of a call.

 

          x x x x

 

        Although the above vests in the President the power to proclaim martial law or suspend the privilege of the writ of habeas corpus, he shares such power with the Congress.  Thus:

 

        1.     The President’s proclamation or suspension is temporary, good for only 60 days;

 

        2.     He must, within 48 hours of the proclamation or suspension, report his action in person or in writing to Congress;

 

        3.     Both houses of Congress, if not in session must jointly convene within 24 hours of the proclamation or suspension for the purpose of reviewing its validity; and

 

        4.     The Congress, voting jointly, may revoke or affirm the President’s proclamation or suspension, allow their limited effectivity to lapse, or extend the same if Congress deems warranted.

 

        It is evident that under the 1987 Constitution the President and the Congress act in tandem in exercising the power to proclaim martial law or suspend the privilege of the writ of habeas corpus.  They exercise the power, not only sequentially, but in a sense jointly since, after the President has initiated the proclamation or the suspension, only the Congress can maintain the same based on its own evaluation of the situation on the ground, a power that the President does not have. 

 

        Consequently, although the Constitution reserves to the Supreme Court the power to review the sufficiency of the factual basis of the proclamation or suspension in a proper suit, it is implicit that the Court must allow Congress to exercise its own review powers, which is automatic rather than initiated.  Only when Congress defaults in its express duty to defend the Constitution through such review should the Supreme Court step in as its final rampart.  The constitutional validity of the President’s proclamation of martial law or suspension of the writ of habeas corpus is first a political question in the hands of Congress before it becomes a justiciable one in the hands of the Court.

 

Here, President Arroyo withdrew Proclamation 1959 before the joint houses of Congress, which had in fact convened, could act on the same.  Consequently, the petitions in these cases have become moot and the Court has nothing to review.  The lifting of martial law and restoration of the privilege of the writ of habeas corpus in Maguindanao was a supervening event that obliterated any justiciable controversy.^[7][2]

        Two.  Since President Arroyo withdrew her proclamation of martial law and suspension of the privilege of the writ of habeas corpus in just eight days, they have not been meaningfully implemented.  The military did not take over the operation and control of local government units in Maguindanao.  The President did not issue any law or decree affecting Maguindanao that should ordinarily be enacted by Congress.  No indiscriminate mass arrest had been reported.  Those who were arrested during the period were either released or promptly charged in court.  Indeed, no petition for habeas corpus had been filed with the Court respecting arrests made in those eight days.  The point is that the President intended by her action to address an uprising in a relatively small and sparsely populated province.  In her judgment, the rebellion was localized and swiftly disintegrated in the face of a determined and amply armed government presence. 

 

        In Lansang v. Garcia,^[8][3] the Court received evidence in executive session to determine if President Marcos’ suspension of the privilege of the writ of habeas corpus in 1971 had sufficient factual basis.  In Aquino, Jr. v. Enrile,^[9][4] while the Court took judicial notice of the factual bases for President Marcos’ proclamation of martial law in 1972, it still held hearings on the petitions for habeas corpus to determine the constitutionality of the arrest and detention of the petitioners.  Here, however, the Court has not bothered to examine the evidence upon which President Arroyo acted in issuing Proclamation 1959, precisely because it felt no need to, the proclamation having been withdrawn within a few days of its issuance.

 

        Justice Antonio T. Carpio points out in his dissenting opinion the finding of the Regional Trial Court (RTC) of Quezon City that no probable cause exist that the accused before it committed rebellion in Maguindanao since the prosecution failed to establish the elements of the crime.  But the Court cannot use such finding as basis for striking down the President’s proclamation and suspension.  For, firstly, the Court did not delegate and could not delegate to the RTC of Quezon City its power to determine the factual basis for the presidential proclamation and suspension.  Secondly, there is no showing that the RTC of Quezon City passed upon the same evidence that the President, as Commander-in-Chief of the Armed Forces, had in her possession when she issued the proclamation and suspension.

 

The Court does not resolve purely academic questions to satisfy scholarly interest, however intellectually challenging these are.^[10][5]  This is especially true, said the Court in Philippine Association of Colleges and Universities  v.  Secretary of Education,^[11][6] where  the  issues  “reach constitutional dimensions, for then there comes into play regard for the court’s duty to avoid decision of constitutional issues unless avoidance becomes evasion.”  The Court’s duty is to steer clear of declaring unconstitutional the acts of the Executive or the Legislative department, given the assumption that it carefully studied those acts and found them consistent with the fundamental law before taking them. “To doubt is to sustain.”^[12][7]

 

Notably, under Section 18, Article VII of the 1987 Constitution, the Court has only 30 days from the filing of an appropriate proceeding to review the sufficiency of the factual basis of the proclamation of martial law or the suspension of the privilege of the writ of habeas corpus.  Thus –

 

          The Supreme Court may review, in an appropriate proceeding filed by any citizen, the sufficiency of the factual basis of the proclamation of martial law or the suspension of the privilege of the writ of habeas corpus or the extension thereof, and must promulgate its decision thereon within thirty days from its filing. (Emphasis supplied)

 

More than two years have passed since petitioners filed the present actions to annul Proclamation 1959.  When the Court did not decide it then, it actually opted for a default as was its duty, the question having become moot and academic.

 

Justice Carpio of course points out that should the Court regard the powers of the President and Congress respecting the proclamation of martial law or the suspension of the privilege of the writ of habeas corpus as sequential or joint, it would be impossible for the Court to exercise its power of review within the 30 days given it.

 

But those 30 days, fixed by the Constitution, should be enough for the Court to fulfill its duty without pre-empting congressional action.  Section 18, Article VII, requires the President to report his actions to Congress, in person or in writing, within 48 hours of such proclamation or suspension.  In turn, the Congress is required to convene without need of a call within 24 hours following the President’s proclamation or suspension.  Clearly, the Constitution calls for quick action on the part of the Congress.  Whatever form that action takes, therefore, should give the Court sufficient time to fulfill its own mandate to review the factual basis of the proclamation or suspension within 30 days of its issuance.

 

If the Congress procrastinates or altogether fails to fulfill its duty respecting the proclamation or suspension within the short time expected of it, then the Court can step in, hear the petitions challenging the President’s action, and ascertain if it has a factual basis.  If the Court finds none, then it can annul the proclamation or the suspension.  But what if the 30 days given it by the Constitution proves inadequate?  Justice Carpio himself offers the answer in his dissent: that 30-day period does not operate to divest this Court of its jurisdiction over the case.  The settled rule is that jurisdiction once acquired is not lost until the case has been terminated.

 

The problem in this case is that the President aborted the proclamation of martial law and the suspension of the privilege of the writ of habeas corpus in Maguindanao in just eight days.  In a real sense, the proclamation and the suspension never took off.  The Congress itself adjourned without touching the matter, it having become moot and academic.    

 

Of course, the Court has in exceptional cases passed upon issues that ordinarily would have been regarded as moot.  But the present cases do not present sufficient basis for the exercise of the power of judicial review.  The proclamation of martial law and the suspension of the privilege of the writ of habeas corpus in this case, unlike similar Presidential acts in the late 60s and early 70s, appear more like saber-rattling than an actual deployment and arbitrary use of political power.  

 

WHEREFORE, the Court DISMISSES the consolidated petitions on the ground that the same have become moot and academic.

 

SO ORDERED.

 

ROBERTO A. ABAD

                                                    Associate Justice

 

 

WE CONCUR:

 

 

 

RENATO C. CORONA

Chief Justice

 

 

 

 

       ANTONIO T. CARPIO                   PRESBITERO J. VELASCO, JR.    

   Associate Justice                          Associate Justice

 

 

 

TERESITA J. LEONARDO-DE CASTRO       ARTURO D. BRION

                     Associate Justice                                      Associate Justice

 

 

 

                                                                       

       DIOSDADO M. PERALTA               LUCAS P. BERSAMIN

                 Associate Justice                                 Associate Justice       

 

 

 

 

 MARIANO C. DEL CASTILLO                 MARTIN S. VILLARAMA, JR.

              Associate Justice                               Associate Justice

 

 

 

   JOSE PORTUGAL PEREZ                     JOSE CATRAL MENDOZA

             Associate Justice                                           Associate Justice

 

 

 

 

 

 

 

 

 

 

 

MARIA LOURDES P. A. SERENO               BIENVENIDO L. REYES

               Associate Justice                                  Associate Justice

 

 

 

 

ESTELA M. PERLAS-BERNABE

Associate Justice

 

 

 

 

 

CERTIFICATION

 

 

Pursuant to Section 13, Article VIII of the Constitution, it is hereby certified that the conclusions in the above Decision had been reached in consultation before the case was assigned to the writer of the opinion of the Court.

 

 

 

RENATO C. CORONA

          Chief Justice

 

 

 

CASE 1012-0043: BLUE SKY TRADING COMPANY, INC. and/or JOSE TANTIANSU and LINDA TANTIANSU VS. ARLENE P. BLAS and JOSEPH D. SILVANO (G.R. No. 190559, March 7, 2012, REYES, J.) SUBJECT/S: DISMISSAL BASED ON LOSS OF TRUST; INSTANCE WHEN SC CAN RESOLVE FACTUAL ISSUES; SEPARATION PAY VIS A VIS REINSTATEMENT; WHEN MORAL AND EXEMPLARY DAMAGES AND ATTORNEY’S FEES CAN BE AWARDED. (BRIEF TITLE: BLUE SKY TRADING VS. TANTIANSU)

 

 

===================

 

 

DISPOSITIVE:

 

 

        IN VIEW OF THE FOREGOING, the October 26, 2009 Decision and December 14, 2009 Resolution issued by the Court of Appeals, finding that the dismissal from service of respondents Arlene and Joseph was illegal and awarding in their favor full backwages, are AFFIRMED but with the following MODIFICATIONS:

 

        (a)  Blue Sky is directed to pay ECOLA and separation pay to the respondents;

 

        (b) The award in favor of the respondents of  ten percent attorney’s fees made by the National Labor Relations Commission in its November 29, 2007 Decision and which was affirmed by the Court of Appeals in the herein assailed decision and resolution is deleted; and

 

        (c) Pursuant to our ruling in Eastern Shipping Lines, Inc. v. CA,^[1][44] an
interest of 12% per annum is imposed on the total sum of the monetary award to be computed from the date of finality of this Decision until full satisfaction thereof.

 

        The case is remanded to the National Labor Relations Commission  which is hereby ORDERED to COMPUTE the monetary benefits awarded in accordance with this Decision and to submit its compliance thereon within thirty (30) days from notice hereof.

 

        SO ORDERED.

 

 

===================

 

 

SUBJECTS/DOCTRINES/DIGEST

 

 

CAN SC RESOLVE FACTUAL ISSUES IN A PETITION FOR REVIEW ON CERTIORARI UNDER RULE 45?

 

 

AS A GENERAL RULE NO. BUT THERE IS AN EXCEPTION: WHEN THE CA’S FINDINGS ARE  CONTRARY TO THOSE OF  THE TRIAL COURT OR ADMINISTRATIVE BODY EXERCISING QUASI-JUDICIAL FUNCTIONS FROM WHICH THE ACTION ORIGINATED.^[2][30]

 

 

        We deem it proper to first resolve the procedural challenge interposed by the respondents against the instant petition and we find it lacking in merit.

 

          It bears stating that Rule 45 limits us merely to the review of questions of law raised against the assailed CA decision.^[3][29] Further, the Court is generally bound by the CA’s factual findings. The foregoing rules, however, admit of exceptions, among which is when the CA’s findings are  contrary to those of  the trial court or administrative body exercising quasi-judicial functions from which the action originated.^[4][30] The case before us now falls under the aforementioned exception as the LA, NLRC and the CA were at odds as to their findings.

 

XXXXXXXXXXXXXXXXXXX

 

 

SUPPOSE THE EMPLOYER WANTS TO JUSTIFY AN EMPLOYEE’S DISMISSAL ON THE BASIS OF BREACH OF TRUST. WHAT DEGREE OF EVIDENCE IS REQUIRED?

 

 

SUBSTANCIAL EVIDENCE.

 

 

          We note that the petitioners essentially raise the sole question of whether they had proven by substantial evidence the charges of theft against Arlene and Joseph which led to the latter’s termination from service on the ground of loss of trust and confidence.

 

XXXXXXXXXXXXXX

 

 

WHAT IS SUBSTANTIAL EVIDENCE?

 

 

SUBSTANTIAL EVIDENCE IS UNDERSTOOD AS SUCH RELEVANT EVIDENCE AS A REASONABLE MIND MIGHT ACCEPT AS ADEQUATE TO SUPPORT A CONCLUSION, EVEN IF OTHER EQUALLY REASONABLE MINDS MIGHT CONCEIVABLY OPINE OTHERWISE.

 

 

        In Functional, Inc. v. Samuel Granfil,^[5][31] we declared:

 

          The rule is long and well settled that, in illegal dismissal cases like the one at bench, the burden of proof is upon the employer to show that the employee’s termination from service is for a just and valid cause. The employer’s case succeeds or fails on the strength of its evidence and not on the weakness of that adduced by the employee, in keeping with the principle that the scales of justice should be tilted in favor of the latter in case of doubt in the evidence presented by them. Often described as more than a mere scintilla, the quantum of proof is substantial evidence which is understood as such relevant evidence as a reasonable mind might accept as adequate to support a conclusion, even if other equally reasonable minds might conceivably opine otherwise. Failure of the employer to discharge the foregoing onus would mean that the dismissal is not justified and therefore illegal.

 

XXXXXXXXXXXXXXXXXX

 

 

TO EFFECT VALID DISMISSAL BASED ON LOSS OF TRUST AND CONFIDENCE WHAT IS ESSENTIAL?

 

 

THAT BREACH OF TRUST MUST BE WILLFUL, MEANING IT MUST BE DONE INTENTIONALLY, KNOWINGLY, AND PURPOSELY, WITHOUT JUSTIFIABLE EXCUSE.

 

 

          Further, in Baron v. NLRC,^[6][32] we held that for there to be a valid dismissal based on loss of trust and confidence, the breach of trust must be willful, meaning it must be done intentionally, knowingly, and purposely, without justifiable excuse.

 

        In  the case at bar, we agree with the petitioners that mere substantial evidence and not proof beyond reasonable doubt is required to justify the dismissal from service of an employee charged with theft of company property. However, we find no error in the CA’s findings that the petitioners had not adequately proven by substantial evidence that Arlene and Joseph indeed participated or cooperated in the commission of theft relative to the six missing intensifying screens so as to justify the latter’s termination from employment on the ground of loss of trust and confidence.

 

          Blue Sky alleged that Arlene, who was a stock clerk, and Joseph, a warehouse helper, had free access to the missing items. Arlene, who kept the stock cards, was supposed to be monitoring on a daily basis the incoming and outgoing stocks stored in or taken out of the warehouse. Joseph took the stocks from the warehouse to the vehicles for transport or delivery purposes. Arlene and Joseph averred otherwise. They insisted that they were mere lowly employees who did not have actual custody of company property, specifically, of the missing items. Arlene claimed that she was not responsible for conducting inventories and that she released stocks only when urgently necessary and only in the absence of those authorized to do so. Joseph alleged that he only went to the mezzanine, where the missing items were stored, when ordered to do so by his superiors.

 

          We note that the parties disagree as to what tasks were actually and regularly performed by Arlene and Joseph. They are at odds as to the issue of whether or not Arlene and Joseph had custody of the missing screens. We observe though that neither of the parties presented any documentary evidence, such as employment contracts, to establish their claims relative to the actual nature of Arlene and Joseph’s daily tasks. It bears emphasizing though that the photocopies of the identification cards issued by Blue Sky, which were annexed to the respondents’ position paper filed with the LA, indicated that Arlene was assigned at the customer service department while Joseph was part of the warehouse department.^[7][33]

 

        During the entrapment operation conducted by police operatives, Jayde and Helario were caught attempting to sell an ultrasound probe allegedly belonging to Blue Sky. Thereafter, Jayde, Helario and Wilfredo withdrew their complaints for illegal dismissal against the company. Arlene and Joseph, however, pursued their claims. Nonetheless, Blue Sky construed the result of the entrapment operation to mean that there was a conspiracy among the five employees to commit theft of company property. In the reply filed by the petitioners to the respondents’ position paper filed before the LA, the former alleged that in a letter, Jayde, Helario and Wilfredo implicated Arlene and Joseph as participants and conspirators in the commission of theft.^[8][34] However, we note that the petitioners’ allegation was bare since the letter supposedly written by Jayde, Helario and Wilfredo was not offered as evidence. Further, Blue Sky alleged that the ultrasound probe was among the items found missing in the inventory conducted in December 2004. We observe though that the employees were dismissed for alleged theft of six intensifying screens. In the termination notices, no references were made at all to a missing ultrasound probe.

 

          Further, we notice that both parties mentioned a certain “Boy” who conducted the inventory in October 2004. There is no dispute that at that time, the six intensifying screens were still completely accounted for.  Further, Arlene and Joseph claimed that it was Lorna who had control and custody of the stocks as she was the warehouse supervisor. “Boy” and Lorna were not called upon by either of the parties to corroborate their claims. “Boy” and Lorna could have provided important information as to the time line and the manner the intensifying screens were lost. If “Boy” and Lorna remain under Blue Sky’s employ, it is the company which is in a better position to require the two to execute affidavits relative to what they know about the missing screens.

 

        The petitioners also argue that if Arlene and Joseph had not been grossly negligent in the performance of their duties, Blue Sky would not have incurred the loss. We observe though that in the notices sent to Arlene and Joseph, first charging them with theft, and later, informing them of their dismissal from service, gross negligence was not stated therein as a ground. Hence, Arlene and Joseph could not have defended themselves against the charge of gross negligence. They cannot be dismissed on that ground lest due process be violated.

 

        Only the following had been established without dispute: (a) the fact of loss of the six intensifying screens; (b) an entrapment operation was successfully conducted by the police operatives who caught Jayde and Helario in the act of attempting to sell an ultrasound probe which allegedly belonged to Blue Sky; and (c) Jayde, Helario and Wilfredo filed their affidavits of desistance to withdraw their complaints for illegal dismissal against Blue Sky while Arlene and Joseph pursued their complaints.

 

          In its November 29, 2007 Decision, the NLRC found that Arlene and Joseph, a stock clerk and a warehouse helper, respectively, did not have unlimited access to or custody over Blue Sky’s property. The CA, in the decision and resolution assailed herein, while ordering the reinstatement of the November 29, 2007 NLRC Decision, found that Arlene and Joseph exercised custody over company property. Be that as it may, we observe that the nature of Arlene and Joseph’s regular duties while under Blue Sky’s employ and their specific participation in or knowledge of  the theft of  the intensifying screens remain uncertain. Thus, whether or not Arlene and Joseph had actual custody over company property, we agree with the CA that the petitioners had failed to establish by substantial evidence the charges which led to Arlene and Joseph’s dismissal from service.

 

          While we empathize with Blue Sky’s loss and understand that its actions were merely motivated by its intent to protect the interests of the company, no blanket authority to terminate all employees whom it merely suspects as involved in the commission of theft resides in its favor. We thus reiterate the doctrine enunciated in Functional, Inc.^[9][35] that the employer’s case succeeds or fails on the strength of its evidence and not on the weakness of that adduced by the employee, in keeping with the principle that the scales of justice should be tilted in favor of the latter in case of doubt in the evidence presented by them.

 

        Notwithstanding our affirmation of the CA’s finding that the petitioners had failed to discharge the burden of  proof imposed upon them to justify the dismissal of Arlene and Joseph, we deem it proper to modify the assailed decision and resolution in the manner to be discussed hereunder.

 

XXXXXXXXXXXXXXXX

 

 

IS PREVENTIVE SUSPENSION AGAINST AN EMPLOYEE LATER ADJUDGED AS ILLEGALLY DISMISSED PROPER?

 

 

YES, PROVIDED THAT IT DOES NOT EXCEED THE MAXIMUM PERIOD OF 30 DAYS AND THERE WAS A VALID PURPOSE FOR IT. THE PURPOSE IS TO PREVENT AN EMPLOYEE FROM CAUSING HARM OR INJURY TO HIS COLLEAGUES AND TO THE EMPLOYER.

 

 

        We, however, find no merit in the challenge made by Arlene and Joseph against the legality of the preventive suspension imposed by Blue Sky upon them pending the investigation of the alleged theft.

 

          In Mandapat v. Add Force Personnel Services, Inc.,^[10][36] we explained that preventive suspension may be legally imposed on an employee whose alleged violation is the subject of an investigation. The purpose of the suspension is to prevent an employee from causing harm or injury to his colleagues and to the employer. The maximum period of suspension is 30 days, beyond which the employee should either be reinstated or be paid wages and benefits due to him.

 

        In Arlene and Joseph’s case, Blue Sky issued to them notices to explain on February 3, 2005. They submitted their written explanation the day after and they were dismissed from service on February 5, 2005. While we do not agree with Blue Sky’s subsequent decision to terminate them from service, we find no impropriety in its act of  imposing preventive suspension upon the respondents since the period did not exceed the maximum imposed by law and there was a valid purpose for  the same.

 

=================

 

 

WHEN IS SEPARATION PAY PROPER IN LIEU OF REINSTATEMENT PROPER?

 

 

WHEN REINSTATEMENT PROVES IMPRACTICABLE, AND HARDLY IN THE BEST INTEREST OF THE PARTIES, PERHAPS DUE TO THE LAPSE OF TIME SINCE THE EMPLOYEE’S DISMISSAL, OR IF THE EMPLOYEE DECIDES NOT TO BE REINSTATED.

 

 

        If reinstatement proves impracticable, and hardly in the best interest of the parties, perhaps due to the lapse of time since the employee’s dismissal, or if the employee decides not to be reinstated, the latter should be awarded separation pay in lieu of reinstatement.^[11][37]

 

        In the case at bar, Arlene and Joseph were dismissed from service on February 5, 2005. We find that the lapse of more than seven years already renders their reinstatement impracticable. Further, from the stubborn stances of the parties, to wit, the petitioners’ insistence that dismissal was valid on one hand, and the respondents’ express prayer for the payment of separation pay on the other, we find that reinstatement would no longer be in the best interest of the contending parties.

 

 

XXXXXXXXXXXXXXXXXX

 

 

 

THE EMPLOYEES WERE ADJUDGED ILLEGALLY DISMISSED. ARE THEY ALSO ENTITLED TO MORAL DAMAGES, EXEMPLARY DAMAGES AND ATTORNEY’S FEES?

 

 

WHEN THERE IS NO EVIDENCE TO SHOW THAT THE DISMISSAL OF AN EMPLOYEE HAD BEEN CARRIED OUT ARBITRARILY, CAPRICIOUSLY AND MALICIOUSLY AND WITH PERSONAL ILL-WILL, MORAL DAMAGES CANNOT BE AWARDED.^[12][40] IF MORAL DAMAGES CANNOT BE AWARDED, THE CONSEQUENCE IS THAT THERE CAN ALSO BE NO AWARD OF EXEMPLARY DAMAGES AND ATTORNEY’S FEES.^[13][41]

 

 

 

        If there is no evidence to show that the dismissal of an employee had been carried out arbitrarily, capriciously and maliciously and with personal ill-will, moral damages cannot be awarded.^[14][40] If moral damages cannot be awarded, the consequence is that there can also be no award of exemplary damages and attorney’s fees.^[15][41]

 

          In the case at bar, albeit we find Arlene and Joseph’s dismissal from service as illegal, we cannot attribute bad faith on the part of Blue Sky which merely acted with an intent to protect its interest. Hence, we find as lacking in basis the NLRC’s award of ten percent attorney’s fees in the respondents’ favor.

 

XXXXXXXXXXXXXXXXXXXXXX

 

CAN A CORPORATE OFFICER BE HELD LIABLE TOGETHER WITH THE CORPORATION?

 

 

 

NO IF HIS ACTS WERE DONE IN HIS OFFICIAL CAPACITY BECAUSE A CORPORATION, BY LEGAL FICTION, HAS A PERSONALITY SEPARATE AND DISTINCT FROM ITS OFFICERS, STOCKHOLDERS, AND MEMBERS.^[16][42

 

 

XXXXXXXXXXXXXXXX

 

 

WHEN CAN CORPORATE OFFICERS BE HELD SOLIDARILY LIABLE WITH THE CORPORATION?

 

 

IF THE TERMINATION WAS DONE WITH MALICE OR BAD FAITH.^[17][43]

 

 

        As a general rule, a corporate officer cannot be held liable for acts done in his official capacity because a corporation, by legal fiction, has a personality separate and distinct from its officers, stockholders, and members.^[18][42] In illegal dismissal cases, corporate officers may only be held solidarily liable with the corporation if the termination was done with malice or bad faith.^[19][43] We find that the aforementioned circumstance did not obtain in the case of Jose and Linda relative to Arlene and Joseph’s dismissal from service.

 

 

===================

 

 

Republic of thePhilippines

Supreme Court

Manila

 

 

 

SECOND DIVISION

 

BLUE SKY TRADING COMPANY, INC. and/or JOSE TANTIANSU and LINDA TANTIANSU,                                         Petitioners,                                                                                                                                – versus –                                 ARLENE P. BLAS and JOSEPH D. SILVANO,                                         Respondents.

G.R. No. 190559   Present:   CARPIO, J.,          Chairperson, BRION, PEREZ, SERENO, and         REYES, JJ.   Promulgated:   March 7, 2012

 x—————————————————————————————-x

 

DECISION

 

REYES, J.:

 

The Case

 

        Before us is a Petition for Review on Certiorari^[20][1] under Rule 45 of the Rules of Court assailing the October 26, 2009 Decision^[21][2] and the December 14, 2009 Resolution^[22][3] of the Court of Appeals (CA) in CA G.R. SP No. 108432. The dispositive portion of the assailed decision reads:

 

          WHEREFORE, premises considered, the instant Petition is GRANTED. The challenged resolution of the NLRC dated 30 January 2009 is hereby REVERSED and SET ASIDE. Accordingly, the Decision of the NLRC dated 29 November 2007 is hereby REINSTATED.

 

SO ORDERED.^[23][4]

 

 

          The assailed resolution denied the petitioners’ Motion for Reconsideration^[24][5] to the foregoing.

 

Antecedent Facts

 

        Petitioner Blue Sky Trading Company, Inc. (Blue Sky) is a duly registered domestic corporation engaged in the importation and sale of medical supplies and equipment. Petitioner Jose G. Tantiansu, Jr. (Jose) is Blue Sky’s vice president for operations while petitioner Linda G. Tantiansu (Linda) is its assistant corporate secretary. The respondents Arlene P. Blas (Arlene) and Joseph D. Silvano (Joseph) were regular employees of Blue Sky and they respectively held the positions of stock clerk and warehouse helper before they were dismissed from service on February 5, 2005.

 

        On January 29, 2005, Lorna N. Manalastas (Lorna), Blue Sky’s warehouse supervisor, wrote Jose a memorandum^[25][6] informing the latter that six pairs of intensifying screens were missing. Lorna likewise stated that when a certain “Boy” conducted an inventory on October 2004, the screens were still completely accounted for.

 

        On January 31, 2005, Helario Adonis, Jr. (Helario), warehouse personnel, was summoned by Linda, Jose’s wife Alice Tantiansu, and human resources department head Jean B. De La Paz (Jean). Helario was asked to admit his participation in the theft of the missing screens. While he was offered to be paid a separation pay if he would confess complicity with the alleged theft, he pleaded utter innocence.

 

        On February 1, 2005, Jean notified Helario of his termination from service on the ground of his failure to properly account for and maintain a balance of the company’s stock inventories, hence, resulting in Blue Sky’s loss of trust and confidence in him.^[26][7] The day after, Blue Sky promptly filed with the Department of Labor and Employment (DOLE) an establishment termination report^[27][8] indicating therein Helario’s dismissal from service for cause.

 

        On February 3, 2005, Jean issued notices to explain/preventive suspension^[28][9] to Arlene, Joseph, delivery personnel Jayde Tano-an (Jayde) and maintenance personnel/driver Wilfredo Fasonilao (Wilfredo). The notices informed them that they were being accused of gross dishonesty in connection with their alleged participation in and conspiracy with other employees in committing theft against company property, specifically relative to the loss of the six intensifying screens. They were placed under preventive suspension pending investigation and were thus required to file their written explanations within 48 hours from receipt of the notices.

 

        On February 4, 2005, Arlene submitted to Jean a handwritten memorandum denying knowledge or complicity with the theft of the intensifying screens. In part, the memorandum reads:

 

I’m not the supervisor of that dep’t. para tanungin sa lahat ng nangyayari. Second, hindi naman ako ang nag-inventory ng stocks na yan. Third, nag-oout lang ako ng stocks kapag wala sila at kailangan na ang stocks. And lastly, ano ba talaga ang trabaho ko dito, kc all I know is pag-re-record ng stocks but parang lumalabas guard ako na kailangan kong malaman ang lahat ng kilos at galaw ng lahat ng employee dito. Dahil ako lagi ang tinatanong tungkol sa nangyayari sa mezz. Bakit ako lang ba ang tao doon? So it means that, dapat lahat kami ay may memo para mag-explain regarding that matter. Maging fair naman kayo sa akin.

 

          Anyway, regarding sa nawawalang IS, ang alam ko inim-ventory ni Kuya Boy yan last Oct. According to him, complete daw lahat yun. Nang bumaba si Sir Jun mga last week ng Dec. para magpalinis ng stocks, na-found out nya na kulang ang stocks. So we did, we compare the bincard to the stockcard. But tally silang pareho. Kaya, we did we trace it is sa mga possible records like shipment sa Cebuor sales. But wala doon. Ang naiisip naming dahilan ay baka nagpakabit si Ate Lorna ng cassette with IS sa technical and she forgot to report it. Yun lang ang possible reason na alam ko. At wala na akong alam pang iba. x x x^[29][10]

 

 

On the other hand, Joseph proffered the following explanation:

 

          Tungkol po sa nawawalang intensifying screen, wala po akong alam. Kasi po sa messanin[,] pumapasok lang po ako pag may inutos o may pagagawa, tsaka hindi po ako naghahanda ng lumang stocks. Nagbababa po kami ng stock at nag-aakyat sa 2^nd flor pag kami po ay inutusan ng nakakataas sa akin o may katungkulan. Yun lang po ang aking trabaho sa mesanin. Eto lang po ang aking masasabi.^[30][11]

 

 

          Jayde and Wilfredo also filed their written explanations denying any involvement in the theft which took place and professing their dedication and loyalty to Blue Sky.^[31][12]

 

        On February 5, 2005, Jean issued to Arlene, Joseph, Jayde and Wilfredo notices of dismissal for cause^[32][13] stating therein that evidence that they had conspired with each other to commit theft against company property was too glaring to ignore. Blue Sky had lost its trust and confidence on them and as an act of self-preservation, their termination from service was in order.

 

          On February 7, 2005, Blue Sky filed with the DOLE an establishment termination report stating therein the dismissal of Arlene, Joseph, Jayde and Wilfredo.^[33][14]

 

          On February 8, 2005, Arlene, Joseph, Helario, Jayde and Wilfredo filed with the National Labor Relations Commission (NLRC) a complaint for illegal dismissal and suspension, underpayment of overtime pay, and non-payment of emergency cost of living allowance (ECOLA), with prayers for reinstatement and payment of full backwages. The complaint was docketed as NLRC NCR Case No. 00-02-01351-05.

 

        Meanwhile, an entrapment operation was conducted by the police during which Jayde and Helario were caught allegedly attempting to sell to an operative an ultrasound probe worth around P400,000.00 belonging to Blue Sky. On April 22, 2005, Quezon City Inquest Prosecutor Arleen Tagaban issued a resolution^[34][15] recommending the filing in court of criminal charges against Jayde and Helario.

 

          On May 2005, before the complaint which was filed with the NLRC can be resolved, Helario, Jayde and Wilfredo executed affidavits of desistance^[35][16] stating therein that their termination by Blue Sky was for cause and after observance of due process.

 

The Ruling of the Labor Arbiter

 

          On November 17, 2005, Labor Arbiter Gaudencio P. Demaisip, Jr. (LA Demaisip) dismissed the complaint relative to Helario, Jayde and Wilfredo as a consequence of their filing of the affidavits of desistance. As to Arlene and Joseph, LA Demaisip denied their claims of illegal suspension and dismissal and for payment of ECOLA and overtime pay based on the following grounds:

 

[T]he duties of Ms. Blas [Arlene] was to take out stocks. Also, Mr. Silvano’s [Joseph] work consisted of removing, storing, or furnishing of “stocks” or supplies.

 

          Further, Ms. Blas [Arlene] was tasked to make written monitoring of “stocks” or supplies.

 

          Complainants therefore, are charged with the care and custody of respondents’ property. They may not be given such functions or allowed entrance and exit from respondents’ bodega if they were untrustworthy.

 

          Indeed, the functions consisting of removing, storing, furnishing, monitoring and gaining ingress to and egress from the “bodega”, where the “stocks” or supplies are kept, involved trust and confidence.

 

          Article 282 of the Labor Code allows the employer to terminate the services of the employees, among others, for breach of trust and confidence.

 

          Loss of confidence however, apply (sic) to the following: x x x (2) to those situations where the employee is routinely charged with the care and custody of the employer’s money or property such as auditors, cashier; property custodians, or those who regularly handle significant amount of money or property.

 

          The dismissal must rest on actual breach of duty committed by the employee.

 

          Further, proof beyond reasonable doubt is not necessary. It is sufficient if there is some basis for such loss of confidence.

 

          x x x

 

          The basis, for the dismissal of the complainants, is the fact that six (6) pairs of assorted sizes of Intensifying Screen of the company at the bodega were lost x x x.

 

          An entrapment was conducted against Tano-an [Jayde] and Adonis [Helario] x x x:

 

          x x x

 

          Simply put, the contention, about the missing items or supplies, is credible and reliable.

 

          It is not necessary that proof of taking or conspiracy must exist.

 

          The existence of the fact, that items or supplies were missing at the bodega of the company, would suffice to prove loss of confidence.

 

          Complainants failed in their duties to exercise utmost protection, care, or custody of respondent’s property. Hence, their dismissal from the service is warranted.

 

          x x x

 

          Claims for ECOLA and overtime pay were not discussed by the complainants[,] hence, they should be denied.^[36][17]

 

 

        Arlene and Joseph assailed before the NLRC the decision rendered by LA Demaisip.^[37][18]

 

The Rulings of the NLRC

 

          On November 29, 2007, the NLRC ordered the reinstatement of Arlene and Joseph and the payment to them of full backwages and ten percent attorney’s fees. The decision, in part, reads:

 

[T]he respondents [Blue Sky, Jose and Linda] accused complainants [Arlene and Joseph] of theft of company property. It was, thus, incumbent upon the respondents to prove the alleged theft by the appellants [Arlene and Joseph] with clear and substantial evidence. A reading of the record will, however, show that respondents have not presented any evidence to show the involvement of the complaint [sic] Arlene Blas and Joseph Silvano x x x in the theft. To start with, appellants were not caught red handed. No specific acts or deeds were imputed upon appellants to prove the allegation that they committed theft against the respondents. While there may be articles which may have been lost, the respondents have not shown how these were lost and how appellants participated in the theft. The fact that appellants had access to the lost items is not sufficient to prove their guilt. As shown, there were several other persons who had unlimited access to the warehouse where the items stolen were stacked. No witnesses were also presented implicating appellants in the theft.

 

          As it is, all respondents have are general allegations that appellants conspired with the other complainants in stealing the lost items. Allegations, no matter how convincing they may sound, while they remain to be so, cannot be considered as clear and substantial evidence sufficient to justify the dismissal of an employee. While proof beyond reasonable doubt is not required, still respondents should have presented substantial evidence to support the grounds they have relied upon. x x x

 

x x x

 

          Finally, [w]e do not see appellants as holding positions of trust and confidence. Before an employee may be dismissed due to willful breach of trust, he must hold a position of trust and confidence (Estiva [v]s. NLRC, G.R. No. 95145, August 5, 1993). A position of trust and confidence is one where a person is entrusted with confidence on delicate matters, or with the custody, handling, or care and protection of the employer’s property (Panday vs. NLRC, G.R. No. 67664, May 20, 1994) and/or funds (Gonzales vs. NLRC, 335 SCRA 197).

 

          Appellant Arlene Blas is a Stock Clerk while Joseph Silvano is a warehouse helper. While they may have access to the lost items, they were not entrusted with confidence on delicate matters or custody of the employer’s property. They do not have the authority to withdraw, transfer or release items in the warehouse. They are mere low keyed employees who deal with the handling of stocks only when ordered to by their superiors.^[38][19]

 

 

Both parties filed their motions for reconsideration^[39][20] to the foregoing.

 

        Claiming that their relations with Blue Sky had been strained, Arlene and Joseph sought the payment of separation pay, in lieu of reinstatement. Further, they lamented that the NLRC failed to specifically address the issue relative to their monetary claims. Hence, they reiterated the said claims, in addition to service incentive leave and 13^th month pay for the year 2005, arguing that the burden to prove payment of  benefits pertained to Blue Sky which miserably failed in this regard.

 

        On the other hand, Blue Sky averred that substantial evidence existed to support its claim that Arlene and Joseph participated in, or at the least knew about, the theft of the missing screens.

 

        On January 30, 2009, the NLRC issued a resolution reversing its earlier decision and reinstating LA Demaisip’s dismissal of the complaint filed by Arlene and Joseph on the basis of the following:

 

          In our Decision promulgated on November 29, 2007, we advanced the view that complainants Blas [Arlene] and Silvano [Joseph] were ordinary employees not occupying positions of trust, without however taking a profound appreciation of the fact that complainants’ duties as “stock clerk” and “warehouse helper” routinely involved having unlimited access to company’s properties and stocks. The fact that same properties which were subject of losses and thievery as established from the subsequent entrapment operations conducted by the respondents with the assistance of PNP operatives against the two (2) other complainants, namely Jayde [Tano-an] and Helario Adonis, who are presently facing charges for attempting to sell respondents’ property, convinced this Commission to reconsider its previous finding and be in agreement with the respondents’ position.

 

          x x x

 

          While we are not unmindful of the fact that complainants Blas and Silvano were not part of the group who were apprehended during the entrapment operations, however, had they not been remiss in their respective duties [as] “stock clerk” and “warehouse helper” or not aided their former co-workers Tano-an and Adonis, thievery or losses of company’s property could not have been committed.

 

          x x x

 

          The loss of company’s property having been substantially proven, complainants Blas [Arlene] and Silvano [Blas] cannot just make a general denial and wash their hands clean. Their termination not only due to loss of trust but also for gross neglect of duties is therefore found justified. x x x

 

          x x x

 

          Finally, as regards complainants’ claim for alleged unpaid 13^th month pay and service incentive leave pay for 2005, contrary evidence however showed that respondents [Blue Sky] had paid the said claims as shown by the payment of their final monetary benefits which the complainants had duly received.^[40][21]

 

 

          Aggrieved, Arlene and Joseph filed before the CA a Petition for Certiorari^[41][22] under Rule 65 of the Rules of Court to challenge the above quoted NLRC resolution.

 

The Ruling of the CA

 

        In the decision rendered on October 26, 2009, which is now the subject of the instant petition, the CA found merit in the claims advanced by Arlene and Joseph. In reversing the January 30, 2009 Resolution of the NLRC, the CA ratiocinated that:

 

          Prefatorily, the basic requisite for dismissal on the ground of loss of trust and confidence is that the employee concerned must be one holding a position of trust and confidence. A position of trust and confidence is one where a person is entrusted with confidence on delicate matters, or with the custody, handling or care and protection of the employer’s property. And, in order to constitute a just cause for dismissal, the act complained of must be work-related and shows that the employee concerned is unfit to continue to work for the employer.

 

In General Bank and Trust Company vs. Court of Appeals, the Supreme Court laid down the following guidelines for the application of the doctrine of loss of confidence as a justification in the termination of erring employees, viz:

 

          (a)      loss of confidence which should not be simulated;

          (b)      it should not be used as a subterfuge for causes which are improper, illegal or unjustified;

          (c)      it should not be arbitrarily asserted in the face of overwhelming evidence to the contrary; and

          (d)      it must be genuine, not a mere afterthought to justify earlier action taken in bad faith.

 

          x x x

 

          To [o]urmind, the NLRC is correct insofar as it considered the nature of [p]etitioner BLAS and [p]etitioner SILVANO as stock clerk and warehouse helper, respectively, as positions of trust and confidence. On account of their positions in the company, the [p]etitioners were given access to the [r]espondents’ warehouse w[h]ere the company products and goods are kept. Likewise, by the nature of the work the [p]etitioners performed for the [r]espondents, it is logical to conclude that the former were charged with the custody of [r]espondents’ property, thus making their positions as one reposed with trust and confidence.

 

          However, [w]e hold that the [r]espondents failed to sufficiently establish the charge against [p]etitioners which was the basis for its loss of trust and confidence that warranted their dismissal. Concededly, it is settled that proof beyond reasonable doubt is not required in dismissing an employee on the ground of loss of trust and confidence. It is sufficient that there is some basis for such loss of confidence or that there must be some reasonable grounds to believe, if not to entertain the moral conviction that the employee concerned is responsible for the misconduct and that the nature of his participation therein rendered him absolutely unworthy of trust and confidence demanded by his position. However, loss of confidence as a valid cause to terminate an employee must nonetheless
rest on actual breach of duty committed by the employee and not on the employer’s imagined whim or caprice.

 

          Verily, [w]e are convinced that the [r]espondents failed to adduce any substantial proof showing that the [p]etitioners committed an actual breach of their duty which destroyed the trust and confidence reposed upon them by their employer. Clearly, there is no ample evidence to show that [p]etitioners conspired with the thieves in stealing six (6) pairs of intensifying screens from [r]espondents[‘] warehouse. Nor is there any shred of evidence that tends to prove that the [p]etitioners had a direct hand in the larceny committed against the [r]espondents. In fact, the verity of the [p]etitioners’ innocence on the thievery committed against the [r]espondents was recognized by the NLRC in the assailed Resolution, viz:

 

                    x x x

 

          While we are not unmindful of the fact that complainants Blas [Arlene] and Silvano [Joseph] were not part of the group who were apprehended during the entrapment operations, however, had they not been remiss in their respective duties [as] “stock clerk” and “warehouse helper” or not aided their former co-workers Tano-an and Adonis, thievery or losses of company’s property could not have been committed. x x x

 

          x x x

 

          The ratiocination of the NLRC in reversing its initial pronouncement is that the [p]etitioners were “remiss” in their duty is flawed. It bears noting that the NLRC offered no explanation to justify this finding nor is there any scintilla of evidence in the records to support the conclusion that the [p]etitioners had aided, expressly or impliedly, their former co-workers in committing theft against the company.^[42][23] (Citations omitted)

 

 

          The CA denied the petitioners’ motion for reconsideration, hence, the instant petition.

 

The Issues

 

        The petitioners submit the following for resolution:

 

I.

 

WHETHER OR NOT THE EVIDENCE ADDUCED BEFORE THE NLRC BY PETITIONERS ARE SUFFICIENT TO ESTABLISH THE CHARGES WHICH WAS (sic) BASIS FOR THE LOSS OF TRUST AND CONFIDENCE AGAINST RESPONDENTS[-]EMPLOYEES.

 

II.

 

WHETHER OR NOT THE CA WAS CORRECT IN GRANTING THE PETITION FOR CERTIORARI FILED BY RESPONDENTS AND LATER, DENYING PETITIONERS’ MOTION FOR RECONSIDERATION.^[43][24]

 

 

The Petitioners’ Arguments

 

          In Salvador v. Philippine Mining Service Corporation,^[44][25] it was ruled that proof beyond reasonable doubt of the employee’s misconduct or dishonesty is not required to justify loss of confidence, it being sufficient that there is substantial basis for loss of trust. Thus, an employer should not be held liable for dismissing the services of an employee sincerely believed to have at least known or participated in the commission of theft against company property. The employer is not required to present proofs of the employee’s actual taking or unlawful possession of company property. In fact, in Dole Philippines, Inc. v. NLRC, et al.,^[45][26] the court held that where the dismissal for loss of confidence is based on suspected theft of company property on the part of the employee, it remains a valid cause for dismissal even if the employee is subsequently acquitted.

 

          It is immaterial that Arlene and Joseph were not among those who were entrapped attempting to sell an ultrasound probe to a police operative. The nature of their tasks at Blue Sky and the fact of loss of the intensifying screens dictated Arlene and Joseph’s liabilities. Arlene’s daily work routine involved (a) receiving and releasing of stocks; and (b) preparing stock cards
for purposes of checking and monitoring the items in the warehouse. On the other hand, Joseph carried and moved stocks in and out of the warehouse. The six intensifying screens were discovered missing while Arlene, Joseph, Helario, Jayde and Wilfredo were supposedly performing their tasks, hence, the logical inference that they conspired to commit the theft or at least, knowingly allowed it to happen. Had the employees exercised due or even ordinary diligence to protect company property, no loss would have been incurred. Further, the defense interposed by Arlene in her written explanation that she was not employed by Blue Sky as a security guard, showed her utter lack of concern for the company’s welfare, which rendered her undeserving of an employer’s trust and confidence.

 

          Findings of fact of quasi-judicial agencies, like the NLRC, are accorded not only respect but even finality when they are supported by substantial evidence.^[46][27] Thus, the CA erred when it ruled that the NLRC gravely abused its discretion in ordering the dismissal of the respondents’ complaint.

 

The Respondents’ Contentions

 

          In their Comment,^[47][28]  the respondents cited Section 1, Rule 45 of the Rules of Court to argue that only questions of law can be raised in a petition for review on certiorari. In the case at bar, the petitioners raise a factual question, to wit, the alleged sufficiency of the evidence they presented to justify the dismissal of Arlene and Joseph on the basis of loss of trust and confidence. The petitioners thus call for an examination of the probative value of the evidence offered by the parties, which is beyond the province of a petition filed under Rule 45 of the Rules of Court.

 

This Court’s Ruling

 

While a petition for review on certiorari under Rule 45 of the Rules of Court generally precludes us from resolving factual issues, the instant case falls among the exceptions as the LA, the NLRC and the CA were at odds as to their  findings.

 

 

        We deem it proper to first resolve the procedural challenge interposed by the respondents against the instant petition and we find it lacking in merit.

 

          It bears stating that Rule 45 limits us merely to the review of questions of law raised against the assailed CA decision.^[48][29] Further, the Court is generally bound by the CA’s factual findings. The foregoing rules, however, admit of exceptions, among which is when the CA’s findings are  contrary to those of  the trial court or administrative body exercising quasi-judicial functions from which the action originated.^[49][30] The case before us now falls under the aforementioned exception as the LA, NLRC and the CA were at odds as to their findings.

 

Substantial evidence of actual breach by an employee is required from an employer to be able to justify the former’s dismissal from service on the basis of an alleged participation in theft of company property. However, in the case at bar, Blue Sky had failed to discharge the burden of proof imposed upon it.

 

 

          We note that the petitioners essentially raise the sole question of whether they had proven by substantial evidence the charges of theft against Arlene and Joseph which led to the latter’s termination from service on the ground of loss of trust and confidence.

 

        We rule in the negative.

 

        In Functional, Inc. v. Samuel Granfil,^[50][31] we declared:

 

          The rule is long and well settled that, in illegal dismissal cases like the one at bench, the burden of proof is upon the employer to show that the employee’s termination from service is for a just and valid cause. The employer’s case succeeds or fails on the strength of its evidence and not on the weakness of that adduced by the employee, in keeping with the principle that the scales of justice should be tilted in favor of the latter in case of doubt in the evidence presented by them. Often described as more than a mere scintilla, the quantum of proof is substantial evidence which is understood as such relevant evidence as a reasonable mind might accept as adequate to support a conclusion, even if other equally reasonable minds might conceivably opine otherwise. Failure of the employer to discharge the foregoing onus would mean that the dismissal is not justified and therefore illegal.

 

 

          Further, in Baron v. NLRC,^[51][32] we held that for there to be a valid dismissal based on loss of trust and confidence, the breach of trust must be willful, meaning it must be done intentionally, knowingly, and purposely, without justifiable excuse.

 

        In  the case at bar, we agree with the petitioners that mere substantial evidence and not proof beyond reasonable doubt is required to justify the dismissal from service of an employee charged with theft of company property. However, we find no error in the CA’s findings that the petitioners had not adequately proven by substantial evidence that Arlene and Joseph indeed participated or cooperated in the commission of theft relative to the six missing intensifying screens so as to justify the latter’s termination from employment on the ground of loss of trust and confidence.

 

          Blue Sky alleged that Arlene, who was a stock clerk, and Joseph, a warehouse helper, had free access to the missing items. Arlene, who kept the stock cards, was supposed to be monitoring on a daily basis the incoming and outgoing stocks stored in or taken out of the warehouse. Joseph took the stocks from the warehouse to the vehicles for transport or delivery purposes. Arlene and Joseph averred otherwise. They insisted that they were mere lowly employees who did not have actual custody of company property, specifically, of the missing items. Arlene claimed that she was not responsible for conducting inventories and that she released stocks only when urgently necessary and only in the absence of those authorized to do so. Joseph alleged that he only went to the mezzanine, where the missing items were stored, when ordered to do so by his superiors.

 

          We note that the parties disagree as to what tasks were actually and regularly performed by Arlene and Joseph. They are at odds as to the issue of whether or not Arlene and Joseph had custody of the missing screens. We observe though that neither of the parties presented any documentary evidence, such as employment contracts, to establish their claims relative to the actual nature of Arlene and Joseph’s daily tasks. It bears emphasizing though that the photocopies of the identification cards issued by Blue Sky, which were annexed to the respondents’ position paper filed with the LA, indicated that Arlene was assigned at the customer service department while Joseph was part of the warehouse department.^[52][33]

 

        During the entrapment operation conducted by police operatives, Jayde and Helario were caught attempting to sell an ultrasound probe allegedly belonging to Blue Sky. Thereafter, Jayde, Helario and Wilfredo withdrew their complaints for illegal dismissal against the company. Arlene and Joseph, however, pursued their claims. Nonetheless, Blue Sky construed the result of the entrapment operation to mean that there was a conspiracy among the five employees to commit theft of company property. In the reply filed by the petitioners to the respondents’ position paper filed before the LA, the former alleged that in a letter, Jayde, Helario and Wilfredo implicated Arlene and Joseph as participants and conspirators in the commission of theft.^[53][34] However, we note that the petitioners’ allegation was bare since the letter supposedly written by Jayde, Helario and Wilfredo was not offered as evidence. Further, Blue Sky alleged that the ultrasound probe was among the items found missing in the inventory conducted in December 2004. We observe though that the employees were dismissed for alleged theft of six intensifying screens. In the termination notices, no references were made at all to a missing ultrasound probe.

 

          Further, we notice that both parties mentioned a certain “Boy” who conducted the inventory in October 2004. There is no dispute that at that time, the six intensifying screens were still completely accounted for.  Further, Arlene and Joseph claimed that it was Lorna who had control and custody of the stocks as she was the warehouse supervisor. “Boy” and Lorna were not called upon by either of the parties to corroborate their claims. “Boy” and Lorna could have provided important information as to the time line and the manner the intensifying screens were lost. If “Boy” and Lorna remain under Blue Sky’s employ, it is the company which is in a better position to require the two to execute affidavits relative to what they know about the missing screens.

 

        The petitioners also argue that if Arlene and Joseph had not been grossly negligent in the performance of their duties, Blue Sky would not have incurred the loss. We observe though that in the notices sent to Arlene and Joseph, first charging them with theft, and later, informing them of their dismissal from service, gross negligence was not stated therein as a ground. Hence, Arlene and Joseph could not have defended themselves against the charge of gross negligence. They cannot be dismissed on that ground lest due process be violated.

 

        Only the following had been established without dispute: (a) the fact of loss of the six intensifying screens; (b) an entrapment operation was successfully conducted by the police operatives who caught Jayde and Helario in the act of attempting to sell an ultrasound probe which allegedly belonged to Blue Sky; and (c) Jayde, Helario and Wilfredo filed their affidavits of desistance to withdraw their complaints for illegal dismissal against Blue Sky while Arlene and Joseph pursued their complaints.

 

          In its November 29, 2007 Decision, the NLRC found that Arlene and Joseph, a stock clerk and a warehouse helper, respectively, did not have unlimited access to or custody over Blue Sky’s property. The CA, in the decision and resolution assailed herein, while ordering the reinstatement of the November 29, 2007 NLRC Decision, found that Arlene and Joseph exercised custody over company property. Be that as it may, we observe that the nature of Arlene and Joseph’s regular duties while under Blue Sky’s employ and their specific participation in or knowledge of  the theft of  the intensifying screens remain uncertain. Thus, whether or not Arlene and Joseph had actual custody over company property, we agree with the CA that the petitioners had failed to establish by substantial evidence the charges which led to Arlene and Joseph’s dismissal from service.

 

          While we empathize with Blue Sky’s loss and understand that its actions were merely motivated by its intent to protect the interests of the company, no blanket authority to terminate all employees whom it merely suspects as involved in the commission of theft resides in its favor. We thus reiterate the doctrine enunciated in Functional, Inc.^[54][35] that the employer’s case succeeds or fails on the strength of its evidence and not on the weakness of that adduced by the employee, in keeping with the principle that the scales of justice should be tilted in favor of the latter in case of doubt in the evidence presented by them.

 

        Notwithstanding our affirmation of the CA’s finding that the petitioners had failed to discharge the burden of  proof imposed upon them to justify the dismissal of Arlene and Joseph, we deem it proper to modify the assailed decision and resolution in the manner to be discussed hereunder.

 

Blue Sky committed no impropriety in imposing preventive suspension against Arlene and Joseph pending investigation of the theft allegedly committed against the company.

 

 

        We, however, find no merit in the challenge made by Arlene and Joseph against the legality of the preventive suspension imposed by Blue Sky upon them pending the investigation of the alleged theft.

 

          In Mandapat v. Add Force Personnel Services, Inc.,^[55][36] we explained that preventive suspension may be legally imposed on an employee whose alleged violation is the subject of an investigation. The purpose of the suspension is to prevent an employee from causing harm or injury to his colleagues and to the employer. The maximum period of suspension is 30 days, beyond which the employee should either be reinstated or be paid wages and benefits due to him.

 

        In Arlene and Joseph’s case, Blue Sky issued to them notices to explain on February 3, 2005. They submitted their written explanation the day after and they were dismissed from service on February 5, 2005. While we do not agree with Blue Sky’s subsequent decision to terminate them from service, we find no impropriety in its act of  imposing preventive suspension upon the respondents since the period did not exceed the maximum imposed by law and there was a valid purpose for  the same.

 

In lieu of reinstatement, Arlene and Joseph are entitled to an award of separation pay.

 

 

        If reinstatement proves impracticable, and hardly in the best interest of the parties, perhaps due to the lapse of time since the employee’s dismissal, or if the employee decides not to be reinstated, the latter should be awarded separation pay in lieu of reinstatement.^[56][37]

 

        In the case at bar, Arlene and Joseph were dismissed from service on February 5, 2005. We find that the lapse of more than seven years already renders their reinstatement impracticable. Further, from the stubborn stances of the parties, to wit, the petitioners’ insistence that dismissal was valid on one hand, and the respondents’ express prayer for the payment of separation pay on the other, we find that reinstatement would no longer be in the best interest of the contending parties.

 

 

Arlene and Joseph are entitled to the payment of ECOLA, but not to 13^th month, service incentive leave and overtime pay.

 

 

        It is well-settled that in labor cases, the burden of proving payment of monetary claims rests on the employer.^[57][38]

 

        We find nothing in the records to indicate that the petitioners had indeed paid ECOLA to Arlene and Joseph.

 

        In the resolution issued on January 30, 2009, the NLRC found proof by way of the petitioners’ annex to their position paper that Arlene and Joseph already received their 13^th month and service incentive leave pay for the year 2005.^[58][39] The respondents had not specifically refuted the NLRC’s findings, hence, we sustain the same.

 

        Anent the respondents’ claim for overtime pay, we find no ample basis to grant it as they had not offered any proof to show that they in fact rendered such service.

 

The decision rendered by the NLRC on November 29, 2007, which the CA affirmed, did not award in favor of Arlene and Joseph moral and exemplary damages. Consequently, we delete the award in the respondents’ favor of ten percent attorney’s fees.

 

 

        If there is no evidence to show that the dismissal of an employee had been carried out arbitrarily, capriciously and maliciously and with personal ill-will, moral damages cannot be awarded.^[59][40] If moral damages cannot be awarded, the consequence is that there can also be no award of exemplary damages and attorney’s fees.^[60][41]

 

          In the case at bar, albeit we find Arlene and Joseph’s dismissal from service as illegal, we cannot attribute bad faith on the part of Blue Sky which merely acted with an intent to protect its interest. Hence, we find as lacking in basis the NLRC’s award of ten percent attorney’s fees in the respondents’ favor.

 

Jose and Linda cannot be held solidarily liable for the dismissal of Arlene and Joseph in the absence of proof that they acted with malice and bad faith.

 

 

        As a general rule, a corporate officer cannot be held liable for acts done in his official capacity because a corporation, by legal fiction, has a personality separate and distinct from its officers, stockholders, and members.^[61][42] In illegal dismissal cases, corporate officers may only be held solidarily liable with the corporation if the termination was done with malice or bad faith.^[62][43] We find that the aforementioned circumstance did not obtain in the case of Jose and Linda relative to Arlene and Joseph’s dismissal from service.

 

        IN VIEW OF THE FOREGOING, the October 26, 2009 Decision and December 14, 2009 Resolution issued by the Court of Appeals, finding that the dismissal from service of respondents Arlene and Joseph was illegal and awarding in their favor full backwages, are AFFIRMED but with the following MODIFICATIONS:

 

        (a)  Blue Sky is directed to pay ECOLA and separation pay to the respondents;

 

        (b) The award in favor of the respondents of  ten percent attorney’s fees made by the National Labor Relations Commission in its November 29, 2007 Decision and which was affirmed by the Court of Appeals in the herein assailed decision and resolution is deleted; and

 

        (c) Pursuant to our ruling in Eastern Shipping Lines, Inc. v. CA,^[63][44] an
interest of 12% per annum is imposed on the total sum of the monetary award to be computed from the date of finality of this Decision until full satisfaction thereof.

 

        The case is remanded to the National Labor Relations Commission  which is hereby ORDERED to COMPUTE the monetary benefits awarded in accordance with this Decision and to submit its compliance thereon within thirty (30) days from notice hereof.

 

        SO ORDERED.

 

 

 

 

                                 BIENVENIDO L. REYES

                                Associate Justice

 

 

WE CONCUR:

 

 

 

 

ANTONIO T. CARPIO

Associate Justice

 

 

 

 

ARTURO D. BRION Associate Justice

JOSE PORTUGAL PEREZ Associate Justice

 

 

 

 

MARIA LOURDES P. A. SERENO

Associate Justice

 

 

A T T E S T A T I O N

 

        I attest that the conclusions in the above Decision had been reached in consultation before the case was assigned to the writer of the opinion of the Court’s Division.

 

 

 

 

                                ANTONIO T. CARPIO

                                Associate Justice

                                Chairperson, Second Division

 

 

C E R T I F I C A T I O N

 

        Pursuant to Section 13, Article VIII of the Constitution and the Division Chairperson’s Attestation, I certify that the conclusions in the above Decision had been reached in consultation before the case was assigned to the writer of the opinion of the Court’s Division.

 

 

 

 

                                RENATO C. CORONA

                                Chief Justice