Tuesday, February 21, 2012

Hydro vs. CTA (1990)

Facts: National Irrigation Administration had an agreement for construction of Magat River Multipurpose Project with Hydro. Under the contract, Hydro was allowed to buy new construction equipment, spareparts and tools from abroad. NIA undertook to pay all import taxes, duties and fees. By the terms of the contract, these were to be deductible from the proceeds of the contract price. Hydro shall repay NIA in full the value of teh construction equipment out of the same proceeds before eventual transfer or taking ownership of equipment upon termination of the contract. 

NIA reneged and failed to pay its tax obligations. Meantime Hydro paid the construction equipment such that NIA executed deeds of sale covering them and transferring ownership to Hydro. 

Upon such transfer of ownership of the equipment, Hydro was assessed by bureau of Customs such customs duty and compensating tax amounting to Php2 M. It was also assessed an additional 3% ad valorem duty of 281k as per EO 860. hydro paid this under protest. 

Collector of customs ruled for Hydro and ordered refund: NIA and Hydro already had a contract and it would be unfair to impose 3% additional duty ad valorem which was not obtaining at the time of agreement nor at arrival of shipment. Scheme may be viewed in same light as sales of commodities to be delivered at some future date, whose prices at time of delivery may be way above or below the sale price. Hydro may not be deprived of its vested rights before promulgation of EO 860 prescribing additional 3% duty ad valorem. 

Commissioner of Customs: affirmed; the equipment imported in ''78-'79 and sold to Hydro by virtue of previous agreement are subject to duties and taxes but NOT the additional 3% ad valorem duty under EO 860 which only took effect on Dec. 21, 1982. 

Deputy Minister of Finance reversed. Hence this recourse. 

Issue: Whether or not EO 860 may be applied retroactively

Held: No. EO 860 which was the basis for imposing the 3% ad valorem duty took effect on Dec 21, 1982. importations were effected in 1978 and 1979 by NIA. CTA denied Hydro's claim for refund because it was incumbent upon Hydro to show that sale of equipment to it were made before Dec 21, 1982, when the EO was effective in order that it shall not be subject to 35 Additional ad valorem tax. Failing this, its claim fails. 

a. Subsequent execution of deeds of sale not relevant and material in consideration of application of EO 860 coz the Deeds of Sale were mere formalities in implementation of contract executed on Aug 1978, which should be reckoned an d construed as the actual date of sale. 

This must be so because the contract of purchase and sale of the NIA0financed/owned equipment to Hydro took place in '78 when Contract was signed by NIA and Hydro where the parties provided for financing, procurement, delivery, repayment, transfer of possession and ownership. 

This scheme contemplated a contract of sale within purview of Art. 1458 of civil code. Collector of customs also shared this view when he declared that there being a meeting of minds between NIA and Hydro upon object of contract and upon the price, sale was perfect in '78. it is a perfect sale subject to a suspensive condition, the full payment by Hydro of the consideration for the subejct of the contract is the operative act to compel NIA to effect transfer of absolute ownership to hydro. 

Under Art. 1187 of NCC, effectivity of such contract reverts back to the constitution of the contract-Aug 1978. 

Art. 1187. the effects of a conditional obligation to give, once the condition has been fulfilled, shall retroact tot the day of the constitution of the obligation. 

b. It is a cardinal rule that laws shall have no retroactive effect unless contrary is provided. 

Except for statement providing for its immediate execution, EO 860 does not provide for its retroactivity. Moreover, the deputy minister of finance in his 1st indorsement to Central Bank clarified that letters of credit opened prior to EO 860 not subject to its provisions. 

Consequently, the importation here which arrived in 1977 and 1978 not subject to the 3% additional ad valorem duty the same being imposed only on those whose letter of credit were opened after the promulgation of EO 860.

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