The government has lost its bid to recover some P580 million in excise taxes due from Petron Corp. after the Supreme Court (SC) ruled that the oil giant complied with the procedures laid down for the transfer and use of its tax credit certificates (TCCs) from 1995 to 1997.

In a 23-page decision promulgated last July 28, the SC’s First Division reversed the 2007 ruling of the Court of Tax Appeals (CTA) ordering Petron to pay the Bureau of Internal Revenue (BIR) the amount after declaring its TCCs null and void.

The tax deficiency was incurred after the TCCs Petron had used to pay for its taxes were cancelled by the Department of Finance (DoF) on grounds that they were “fraudulently issued and obtained.”

The CTA ordered Petron to pay P580,236,552 representing deficiency excise taxes for the taxable years 1995 to 1997, consisting of P284.3 million in basic taxes, a 25 percent late payment surcharge and interest of P295.39 million.

But the SC held that “Petron has more than amply proved its good faith by complying with the procedures laid down for the transfer and use” of the nullified TCCs.

It also said the BIR can no longer take back the tax credits it had already approved even if the TCCs were subsequently found to have been fraudulently obtained after witnesses alleging the fraud were not available for cross examination.

The High Court declared that the CTA “reversibly erred” in relying on the affidavits executed by former officers of the companies from where Petron acquired the TCCs.

“Without said erstwhile general managers/officers being presented on the witness stand to affirm the truth and veracity of their statements, the affidavits executed are, however, correctly impugned by (Petron) as hearsay for lack of opportunity to cross examine said affiants,” said in a decision penned by Associate Justice Jose P. Perez.

It added: “Almost always incomplete and often inaccurate, sometimes from partial suggestion, or for want of suggestion and inquiries, the infirmity of affidavits as species of evidence is a matter of judicial experience and are thus considered inferior to the testimony given in open court.

“Unless the affiant is placed on the witness stand to testify thereon, the rule is settled that affidavits are inadmissible as evidence under the hearsay rule.”

The decision was concurred in by Chief Justice Renato C. Corona and Associate Justices Presbitero J. Velasco Jr., Teresita Leonardo De Castro, and Mariano C. Del Castillo.

It was traced that Petron had acquired the TCCs from garment companies owned by Faustino Chingkoe, who is facing more than 80 counts of graft charges along with former officials of the now defunct DoF One-Stop Shop Credit and Drawback Center (the Center) with the Sandiganbayan, in relation to the issuance and use of TCCs.

The companies include Diamond Knitting Corp., Filstar Textile Industrial Corp., Alliance Thread Co., Inc., Fiber Tech Corporation, Jantex Philippines, Inc., and Master Colour System Corp.

The deeds of assignment executed by the firms in connection with the transfer of the TCCs to Petron were approved the Center, a tax credit window composed of representatives from the DoF, Board of Investments, Bureau of Customs and BIR.

The SC said that with the approval of deeds of assignment by the grantees, “the Center unequivocally affirmed not only the validity of the TCCs but also the transfer thereof in favor of Petron to whom it issued the requisite DoF-TDMs (tax debit memos).”

TDMs serve as the official receipt from the BIR evidencing the taxpayer’s payment or satisfaction of his tax obligation.