503 Phil. 134
CARPIO, J.:
ITM is a pioneer textile manufacturer which produces textiles and allied products, with its factory situated on a 20-hectare lot in Marilao, Bulacan. As a textile manufacturing exporter registered with the Board of Investment, it is entitled to tax refunds based on tax rebates as an incentive to a manufacturer of registered export products. In its operations, ITM uses electricity which is supplied by Meralco. Meralco accepts from its customers certificates of tax credits which it applies as payment for their electric bills.
On September 8, 1987, Meralco and ITM entered into an agreement whereby Meralco agreed to the proposal of ITM for the assignment of its tax credits in payment of its electric bills.
However, after the corresponding deeds of assignment had been signed, Meralco began sending conflicting statements of accounts to ITM. Meralco has applied a portion of the tax credits for the payment of supposed accumulated interest charges at the rate of 16.75% to 17.5% per annum, thereby diminishing the value of the assigned tax credits. ITM contested the payment of the interest charges. It insisted that Meralco should apply the tax credits to the payment of its accounts without any interest deduction charges.
On November 18, 1987, Meralco presented a "differential billing" to ITM in the amount of P2,531,500.45 corresponding to the "unregistered energy consumption" of ITM for the period of December 27, 1985 to November 18, 1987 as a result of ITM's alleged tampering with the metering device in its premises. Meralco claimed that "the current leads for all elements were found with pricked holes near the BCTs." ITM denied the charge of tampering. Nevertheless, Meralco proceeded to disconnect the power supply to ITM for its failure to pay the differential billing. ITM was thus constrained to make a fast arrangement with Meralco for the immediate restoration of electricity to keep the plant in operation. ITM paid the amount of P506,300.09 to Meralco under protest and undertook to pay the balance on installments of P226,218.88 per month.
On February 19, 1988, Meralco conducted another inspection and claimed to have discovered another instance of tampering. It demanded payment from ITM of a differential billing of P1,707,051.47 for the period January 22, 1986 to February 19, 1988, with a threat to disconnect ITM's electric service if the same was not paid. ITM again denied the charge of tampering. It blamed Meralco for not installing a single metering system in the ITM premises, as had been previously agreed in a court-approved compromise in another case, to obviate charges of tampering.
On March 20, 1989, Meralco informed ITM that it had an outstanding bill in the amount of P6,929,001 which included interest charges and other charges for alleged violation of their contract.
Thereupon, ITM filed a complaint against Meralco for injunction, specific performance and damages, with a prayer for a temporary restraining order. It prayed that Meralco be ordered to return to ITM all interest deductions on its tax credits and to disregard the differential billings as without basis. It also asked for the award of damages and attorney's fees.[4]
WHEREFORE, judgment is hereby rendered in favor of [ITM] and against [Meralco] ordering the following:Meralco filed its notice of appeal to the appellate court on 29 July 1994.The counterclaim of Meralco is hereby dismissed for lack of legal and/or factual basis.
- The interest charges unilaterally imposed by [Meralco] against [ITM] in the assignment of its tax credit certificates [are] hereby declared null and void for lack of legal basis. The amount of P3,814,816.61 imposed and collected by [Meralco] by way of interest charges shall be applied to future electrical bills of [ITM] in favor of [Meralco];
- The claim of [Meralco] for Differential Billing in the amount of P2,531,500.45 under Account No. 9496-1422-18 is hereby declared null and void for lack of legal and/or factual basis;
- The amount of deposit made by [ITM] under protest pursuant to a Promissory Note in the amount of P506,300.09 and such other deposits made in compliance therewith, shall be applied to the future electric bills of [ITM in favor of Meralco];
- The claim of [Meralco] for Differential Billing in the amount of P1,707,051.47 under Account No. 9496-1622-16 is likewise hereby declared null and void for want of legal and/or factual basis; and
- [Meralco] is hereby ordered to pay a reasonable amount of P50,000 as and for attorney's fees.
SO ORDERED.[5]
The agreement simply stipulates: first, that ITM will pay its electric bills regularly when they become due, and second, ITM's tax credits will be applied to its electric bills when the tax credits have already been assigned to Meralco and the corresponding deeds of assignment have been approved by all government agencies concerned.[7]The appellate court also found no basis to hold ITM liable for the payment of differential billings to Meralco. The appellate court found that:
The presence of pricked holes on the secondary lead wires near the BCTs (bushing current transformer), for lack of substantial evidence, cannot be imputed to ITM. Notably, Meralco inspectors have not found any shorting device in ITM's plant. The argument of Meralco that even without the presence of any shorting pin, the circumstance (meaning, the presence of the "pricked holes") nonetheless shows tampering for the purpose of preventing the accurate registration of electrical consumption, is purely conjectural. In fact, as testified to by Vicente Saria, a Meralco inspector, without a shorting device, the consumption would still be normal even if there are pricked holes on the lead wires.[8]In addition, the appellate court also observed that after Meralco inspected and corrected ITM's electric meters, there was even a reduction in ITM's recorded electric consumption.
- Meralco did not have basis to impose the subject "interest charges";
- Meralco did not have basis to recover from ITM the P2,531,500.45 covered by the subject differential bill under Account No. 9496-1422-18;
- Meralco did not have basis to recover from ITM the P1,707,051.47 covered by the subject differential bill under Account No. 9496-1622-16;
- Meralco should apply ITM's P506,300.09 deposit to ITM's future electric bills; and
- Meralco should pay ITM attorney's fees.[9]
WHEREAS, in a letter offer dated xxx of the ASSIGNOR to the ASSIGNEE, the latter agreed to offset the value of the tax credit duly issued under the former's name against its current receivables accounts;Under the Deed of Assignment, it is ITM's obligation to ensure that Meralco can utilize the full value of the tax credits assigned. There is nothing in the Deeds of Assignment which states that Meralco's current receivable account with ITM includes interest charges for Meralco's late payment of franchise taxes. ITM has no obligation to pay interest on Meralco's late payment of franchise taxes.
WHEREAS, by reason of its registration with the Board of Investment as a registered export producer, ASSIGNOR, is entitled to a refund or tax credit based on Tax Rebate under standard Rate imposed by law as an incentive for the manufacture of registered export products;
WHEREAS, on the following stated dates, ASSIGNOR was granted by the Board of Investments a total tax credit of xxx with the corresponding tax credit certificate numbers:
xxx
Photocopy of said tax credit certificates are attached and made a part hereof;
WHEREAS, ASSIGNOR warrants that said tax credits are genuine, valid and subsisting, and that it has no account and/or administrative case with any government revenue agency;
WHEREAS, ASSIGNOR waives all its rights to use the aforesaid Tax Credit Certificates enumerated above amounting to xxx issued by the Board of Investments and that ASSIGNOR agrees to assist ASSIGNEE in effecting the transfer/assignment by providing all the necessary documents required by the Board of Investments;
WHEREAS, in accordance with the understanding and agreement in connection with the settlement of ASSIGNEE's current receivable account, ASSIGNOR agrees to assign in favor of ASSIGNEE the aforesaid tax credits so as to fully utilize the value thereof against future franchise tax payables.
NOW, THEREFORE, for and in consideration of the foregoing premises and covenants herein contained, ASSIGNOR hereby assigns, transfers and conveys in favor of the ASSIGNEE that aforesaid tax credits mentioned above up to the amount of xxx stipulated; ASSIGNEE shall corresponding issue the appropriate credit note to ASSIGNOR to evidence timely settlement of its current account.[15]
Mr. Cesar R. MarceloAccording to the letter-agreement, Meralco granted ITM's request to pay its electric bills thru assignment of tax credit certificates provided that: (1) ITM would take care of its metering facilities to avoid the same being tampered; (2) ITM would pay its electric bills regularly when they become due; and (3) ITM's tax credits would be applied to its electric bills when the tax credits have already been assigned to Meralco and the corresponding deeds of assignment have been approved by all government agencies concerned. Like the Deeds of Assignment, there is nothing in the letter-agreement which states that ITM would be held liable for Meralco's payment of interest charges for late payment of franchise taxes.
Vice President - Finance
Imperial Textile Mills, Inc.
Km 21 McArthur Hi-way
Marilao, Bulacan
Dear Mr. Marcelo:
This has reference to your letter dated August 5, 1987 requesting for the transfer of your Company's tax credits to the Manila Electric Company (MERALCO) as payment [for] electricity consumed.
Please be informed that upon representations made by your Mr. Robert Ong with MERALCO, we did not interpose any objection to your request on the condition that henceforth you will take care of your metering facilities to avoid the same being tampered with thereby preventing any loss of electric energy on the part of MERALCO in your Company's plants and premises. It is likewise understood that you are to pay your electric bills regularly when the same are due and your tax credits will only be applied to your bills when these tax credits have been duly assigned to MERALCO and the deed of assignment have [sic] been approved by all government agencies concerned.
We have actually started working out the documentary requirements to effect the requested transfer but we will only release the same after receipt of your written confirmation that you are agreeable to the above-stated conditions. It is understood and agreed that you are duly authorized to execute this document and signify your conformity to this agreement.
We shall expect your early reply in this regard.Very truly yours,
(signed)
L.D. TORRES
Vice President & Head
Legal Services Dept.
CONFORME:
IMPERIAL TEXTILE MILLS, INC.
By: (signed)
CESAR R. MARCELO
Vice President - Finance[16]
Mr. G.F. Martinez, of Tax & Tariff Section, informed the body that acceptance of Tax Credit Certificates (TCCs) thru the signing of Deed of Assignment by Meralco shall not mean an outright payment of ITM's electric bills. The reckoning point of determining the date of payment, thru Tax Credit transfers, of ITM's electric bills is the date of the actual application and utilization of duly transferred Tax Credits against Meralco's payment of franchise tax.As of 20 March 1989, Meralco has charged ITM a total of P3,814,816.61 as interest charges for delay in the application of tax credits.[18] Meralco charged ITM interest at the rate of 14.50% to 18.00% per annum.[19] However, the letter-agreement and the deeds of assignment do not authorize Meralco to charge ITM interest for delay in the approval of the tax credits. Neither do they authorize Meralco to pass on to ITM the penalty that Meralco would have to pay for late payment of its franchise tax.
He specified that the period of interest charges is reckoned from ten (10) days after presentation of the Statement of Account up to the date of utilization or application of Tax Credit Certificates (TCCs) against Meralco's payment of franchise tax which falls on the 20th day of every month, and not upon TCC's date of assignment/transfer in favor of Meralco. Mr. Martinez reasoned out that not all TCCs are approved by the government body on total face value. As a consequence, it is advisable that ITM transfer of duly approved TCCs in favor of Meralco be done five days before the 20th day of the month to give Tax & Tariff Section reasonable time for processing.
On the question why Meralco charges interest for late payment of GP customers, Mr. Martinez explained that NPC charges Meralco with interest for the latter's late payment. It is in the same breadth that Meralco deems reasonable to recover the interest cost.[17]
First, the current leads for all elements in the electric metering installation in ITM's premises had holes pricked thereon.To justify its conclusion that there was tampering of the electric meter covered by Account No. 9496-1622-16 to prevent the accurate registration of ITM's energy consumption, Meralco alleged the following facts:
Second, these holes were unnaturally pricked in pairs. In other words, the existence of holes pricked on the current leads of the electric metering installation and the positions in which said holes were found indicate that the said leads were intentionally pricked for the purpose of disrupting the registration of ITM's electric energy consumption by inserting a shorting device.
Third, if shorting devices are inserted in these holes, only the registration of ITM's actual electric energy consumption, and not its supply of electricity, will be affected. Thus, the insertion of shorting devices is a good scheme to prevent the registration of electric energy consumption since continuous electric supply is maintained.
Fourth, ITM's monthly average consumption from December 1985 to November 1987 was 207,067 Kilowatts per hour (Kwh). Within the 23-month period before the 17 November 1987 inspection, however, ITM's electric energy consumption went down to as suspiciously low as 34,400 Kwh in January 1986.
Fifth, the Demand Charts for the period 27 December 1985 to 18 November 1987, show very little or absolutely no usage of electricity for long periods of time which is totally inconsistent with ITM's daily 24 hour textile manufacturing operations.[21]
First, the BCT of the electric metering installation could not be sealed and the current leads for the lower element had holes pricked thereon near the BCT. The foregoing findings were confirmed in a subsequent laboratory test conducted at Meralco's meter laboratory.Meralco offered the following evidence to prove that ITM tampered with two of its electric meters to prevent the accurate registration of ITM's energy consumption:
Second, shorting the BCT by placing a device in holes pricked on the secondary current leads is one of the most common method[s] of tampering electric metering installations for the purpose of affecting its capability to register electric energy consumption.
Third, as in the case of Account No. 9496-1422-18, if shorting devices are inserted in these holes, only the registration of ITM's actual electric energy consumption, and not its supply of electricity, will be affected. x x x
Fourth, ITM's monthly average consumption from January 1986 to February 1988 was 218,190 Kwh. Within the 19 month period before the 19 February 1988 inspection, ITM's electric energy consumption went down to as suspiciously low as 12,000 Kwh in January 1986.
Fifth, the Demand Charts for the period 27 December 1985 to 24 February 1985 show very little usage of electricity for long periods of time which is totally inconsistent with ITM's daily 24 hour textile manufacturing operations.[22]
Instead of refuting Meralco's allegation of ITM's tampering of electric meters, ITM countered by faulting Meralco for failure to replace the multi-metering system with a single metering system in accordance with a court-approved compromise agreement.[23] ITM asserts that the occurrences of alleged tampering could have been avoided had Meralco complied with the compromise agreement. ITM further alleges that Meralco's inspectors did not discover any removable shorting device during their inspections on 18 November 1987 and 19 February 1988.
- Photographs of the holes pricked on the secondary lead wires of ITM's electric metering installations of Account Nos. 9496-1422-18 and 9496-1622-16, taken during the inspection of Meralco. (Exhs. "1" to "1-f-3" and "5" to "5-a")
- Service Inspection Reports dated 18 November 1987 and 19 February 1988 with findings of the existence of pricked holes on secondary current leads. (Exhs. "4" and "8")
- Polyphase Meter Test Memos with the findings that the BCT's were being shorted by means of a removable shorting device as indicated by pricked holes on all the secondary current leads near the BCTs. (Exhs. "9" to "10" and "53")
- Meralco's Billing Records for ITM under Account Nos. 9496-1422-18 and 9496-1622-16. (Exhs. "11" to "11-f" and "54")
- Demand Charts for Account No. 9496-1422-18 for the period 26 August 1985 to 18 November 1987. (Exhs. "12" to "50")
- Demand Charts for Account No. 9496-1622-16 for the period 27 December 1985 to 24 February 1988. (Exhs. "55" to "55-t")
- Meralco's Detailed Computation of Losses under Account No. 9496-1422-18. (Exhs. "51" and "51-a")
- Meralco's Detailed Computation of Losses under Account No. 9496-1622-16. (Exhs. "56" and "56-a")
Date | Billing Rendered Demand P.F. KWH Amount | Corrected Billing Demand P.F. KWH Amount | Difference KWH Amount |
NOV 25 86 | 500.0 97.0 132,400 261,177.91 | 500.0 85.7 207,067 411,223.91 | 74,667 150,046.00 |
DEC 26 86 | 500.0 97.2 141,600 284,076.60 | 500.0 85.7 207,067 419,999.26 | 65,467 135,922.66 |
JAN 26 87 | 500.0 95.0 160,000 323,471.78 | 500.0 85.7 207,067 420,274.01 | 47,067 96,802.23 |
FEB 25 87 | 500.0 97.8 181,600 354,668.65 | 500.0 85.7 207,067 414,343.65 | 25,467 59,675.00 |
MAR 27 87 | 500.0 94.9 216,800 425,951.53 | 500.0 85.7 216,800 432,791.06 | 0 6,839.53 |
APR 24 87 | 500.0 93.8 188,800 384,174.28 | 500.0 85.7 207,067 426,471.66 | 18,267 42,297.38 |
MAY 26 87 | 500.0 93.9 227,200 462,102.17 | 500.0 85.7 227,200 469,542.02 | 0 7,439.85 |
JUN 25 87 | 500.0 95.9 202,400 411,017.90 | 500.0 85.7 207,067 433,089.99 | 4,667 22,072.09 |
JUL 27 87 | 500.0 94.9 209,200 439,343.63 | 500.0 85.7 209,200 446,405.93 | 0 7,062.30 |
AUG 26 87 | 500.0 97.4 188,000 391,536.41 | 500.0 85.7 207,067 442,781.82 | 19,067 51,245.41 |
SEP 25 87 | 500.0 94.1 223,200 440,380.70 | 500.0 85.7 223,200 447,480.74 | 0 7,100.04 |
OCT 26 87 | 500.0 93.1 183,200 360,920.90 | 500.0 85.7 207,067 412,141.85 | 23,867 51,220.95 |
NOV 24 87 | 500.0 94.6 198,800 374,660.45 | 500.0 85.7 203,951 390,152.81 | 5,151 15,492.36 |
TOTAL | 2,453,200 4,913,482.91 | 2,736,887 5,566,698.71 | 283,687 P653,215.80 |
Date | Billing Rendered Demand P.F. KWH Amount | Corrected Billing Demand P.F. KWH Amount | Difference KWH Amount |
NOV 25 86 | 500.0 93.8 152,400 302,525.38 | 500.0 99.7 218,190 419,541.79 | 65,790 117,016.41 |
DEC 26 86 | 500.0 94.9 166,800 336,474.20 | 500.0 99.7 218,190 428,505.75 | 51,390 92,031.54 |
JAN 26 87 | 500.0 94.0 165,600 334,226.84 | 500.0 99.7 218,190 428,808.38 | 52,590 94,581.53 |
FEB 25 87 | 500.0 92.5 204,400 402,726.60 | 500.0 99.7 218,190 422,751.89 | 13,790 20,025.28 |
APR 24 87 | 500.0 88.0 195,600 403,772.29 | 500.0 99.7 218,190 435,144.26 | 22,590 31,371.97 |
OCT 26 87 | 500.0 96.3 212,400 409,802.79 | 500.0 99.7 218,190 420,527.04 | 5,790 10,724.25 |
DEC 24 87 | 500.0 99.3 193,200 383,387.22 | 500.0 99.7 218,190 430,807.09 | 24,990 47,419.87 |
JAN 25 88 | 500.0 93.8 135,600 271,270.25 | 500.0 99.7 218,190 425,691.38 | 82,590 154,421.13 |
FEB 24 88 | 500.0 100.0 194,400 358,313.63 | 500.0 99.7 212,225 389,782.03 | 17,825 31,468.40 |
TOTAL | 1,620,400 3,202,499.20 | 2,175,935 3,801,559.61 | 337,345 P599,060.41[29] |