The Supreme Court (SC) has affirmed the Court of Tax Appeals’ (CTA) 2022 decision that denied the P136.4 million refund sought by Oceanagold (Philippines), Inc. from the Bureau of Internal Revenue (BIR) for alleged erroneously paid excise taxes from June to December 2014.

Also affirmed by the SC was its own 2022 resolution that denied Oceanagold’s claim for P68.5 million refund or issuance of tax credit certificate from the BIR for the alleged erroneously paid excise taxes for February to March 2013 and for April to June 2013.

The SC’s full court decision was written by Associate Justice Maria Filomena D. Singh and made public on Thursday, June 18.

Case records show that on June 20, 1994, a Financial and Technical Assistance Agreement (FTAA) was executed by then Executive Secretary Teofisto Guingona and Bryce G. Roxburgh, then president of Arimco Mining Corporation.

The FTAA was eventually assigned to Oceanagold. Known as the Didipio Gold-Copper Project (Didipio Project), the FTAA involves the large-scale exploration, subsequent development, and commercial utilization of mineral deposits over a contract in the provinces of Nueva Vizcaya and Quirino.

After conducting mineral exploration activities, Oceanagold identified a portion of the Exploration Contract Area as being suitable for the Didipio Project and subsequently filed a Partial Declaration of Mining Feasibility (PDMF) with the Department of Environment and Natural Resources (DENR) which approved it on Oct. 11, 2005.

On Feb. 13, 2007, Oceanagold filed with the Bureau of Internal Revenue (BIR) a request for exemption from payment of excise tax on mineral during the recovery period.

On May 4, 2007, the BIR declared Oceanagold exempt from the payment of excise tax from the date of approval of its mining project feasibility study up to the end of the recovery period, “which period shall be reckoned from the date of commercial operation and shall be for a maximum period of five years, or until the date of recovery of pre-operating expenses and exploration and development expenditures, whichever comes earlier.”

In 2008, Oceanagold stopped its operations due to escalating costs and uncertainty in financial markets.

Two years later in 2010, the firm resumed its operation and in 2012 successfully mined and stockpiled about 800,000 metric tons of ore for further processing. It also started milling operations to produce copper concentrates with the first sale and delivery expected in April 2013.

In September 2012, the BIR issued a mission order authorizing revenue officers to search Oceanagold’s premises for articles subject to excise tax and detain packages containing taxable articles. The order also prevented the firm from making removals of copper concentrates without payment of excise tax.

The order led to the seizure of 800,000 metric tons of mineral ores prompting Oceanagold to pay excise taxes under protest.

In 2015, the BIR denied Oceanagold’s plea to refund or issue tax credit certificate on the P68.5 million in excise taxes in 2013.

With the denial, it appealed before the CTA which affirmed the BIR’s ruling. The firm elevated the case to the SC which upheld the CA’s decision.

In a resolution, the SC ruled that Oceanagold failed to prove that it paid the excises taxes within the recovery period.

The SC said: “Although Oceanagold is given latitude in setting the reckoning point of the five-year recovery period, there is specific and strict timetable for the conduct of pre-operation activities, including the period within which Oceanagold should start commercial production.”

It pointed out: “Oceanagold cannot delay pre-operation activities without following the conditions specified in the FTAA. In this case, there is insufficient evidence that Oceanagold complied with the conditions that would justify the suspension of the performance of its obligations under the FTAA, and consequently, the deferment of the reckoning point of the recovery period.”

On Oceanagold’s appeal from the CTA’s adverse ruling on its plea for a refund of P136.4 million, the SC did not agree with the firm’s arguments that its failure to strictly comply with timetable under the FTAA constitutes a mere slight breach of contract.

The SC said:

“Oceanagold would have been granted leeway under the terms of the FTAA had it sufficiently proven that it was compelled to halt operations due to escalating costs or uncertainties in the financial market and that the same is tantamount to force majeure under Section 20.4 of the FTAA.

“However, as ruled by the CTA En Banc, Oceanagold failed to present adequate evidence to substantiate its claims. Without such proof, it cannot now invoke the Court to take judicial notice as a last resort, and claim that ‘it may take as many as 11 years before a FTAA contractor can start commercial production.’

“Allowing such a proposition would render the timelines in the FTAA meaningless and open the door to untold abuse of the recovery period provision.

“In sum, Oceanagold cannot be permitted to breach or manipulate the terms of the FTAA by arbitrarily postponing the commencement of commercial operations. Such an approach would effectively delay the start of the recovery period, resulting in an undue deferment of the government's rightful share of revenues.

“While fostering a favorable investment climate in the mining industry is vital, this cannot come at the expense of the State's fiscal stability or its long-term development objectives, not to mention the depletion of its finite resources. Hence, strict compliance with the terms of the FTAA is imperative in order to benefit from its fiscal incentives.

“Accordingly, the Motion for Reconsideration in G.R. No. 251453 and the Petition for Review on Certiorari in G.R. No. 263004 are denied. The Resolution, dated February 15, 2022, of the Court in G.R. No. 251453 stands affirmed. The Decision, dated May 31, 2022, and the Resolution, dated September 1, 2022, of the Court of Tax Appeals En Banc in CTA EB No. 2492, are also affirmed.”