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Chevron Philippines, Inc. (Formerly Caltex Philippines, Inc.) Bases Conversion Development Authority and Clark Development Corporation

The Supreme Court upheld the imposition of royalty fees by the Clark Development Corporation (CDC) on fuel suppliers delivering to clients within the Clark Special Economic Zone. The CDC issued guidelines levying fees of 50 cents to 1 peso per liter to regulate the flow of fuel and ensure safety. While the fees generate revenue, the Court found the primary purpose was regulation within the police powers of the state. Furthermore, CDC has exclusive rights to distribute fuel in the zone under its agreement, but this does not negate the valid regulatory purpose of the royalty fees. The fees were imposed to manage the petroleum industry safely rather than for income generation.

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459 views2 pages

Chevron Philippines, Inc. (Formerly Caltex Philippines, Inc.) Bases Conversion Development Authority and Clark Development Corporation

The Supreme Court upheld the imposition of royalty fees by the Clark Development Corporation (CDC) on fuel suppliers delivering to clients within the Clark Special Economic Zone. The CDC issued guidelines levying fees of 50 cents to 1 peso per liter to regulate the flow of fuel and ensure safety. While the fees generate revenue, the Court found the primary purpose was regulation within the police powers of the state. Furthermore, CDC has exclusive rights to distribute fuel in the zone under its agreement, but this does not negate the valid regulatory purpose of the royalty fees. The fees were imposed to manage the petroleum industry safely rather than for income generation.

Uploaded by

Renzo Jamer
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd
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CHEVRON PHILIPPINES, INC. (Formerly CALTEX PHILIPPINES, INC.

)
vs.
BASES CONVERSION DEVELOPMENT AUTHORITY and CLARK DEVELOPMENT
CORPORATION
G.R. No. 173863
September 15, 2010
FACTS:
On June 28, 2002, the Board of Directors of respondent issued and approved Policy
Guidelines on the Movement of Petroleum Fuel to and from the Clark Special Economic Zone.
In one of its provisions, it levied royalty fees to suppliers delivering Coastal fuel from outside
sources for Php0.50 per liter for those delivering fuel to CSEZ locators not sanctioned by CDC
and Php1.00 per liter for those bringing-in petroleum fuel from outside sources. The petitioner
who is a fuel supplier to Nanox Philippines received a Statement of Account from CDC billing
them to pay the royalty fees amounting to Php115,000 for its fuel sales from Coastal depot to
Nanox Philippines from August 1 to September 21, 2002. Petitioner, contending that nothing in
the law authorizes CDC to impose royalty fees based on a per unit measurement of any
commodity sold within the special economic zone, protested against the CDC and Bases
Conversion Development Authority (BCDA). They alleged that the royalty fees imposed had no
reasonable relation to the probably expenses of regulation and that the imposition on a per unit
measurement of fuel sales was for a revenue generating purpose, thus, akin to a “tax”. BCDA
denied the protest. The Office of the President dismissed the appeal as well for lack of merit.
Upon appeal, CA dismissed the case. CA held that in imposing the royalty fees, CDC was
exercising its right to regulate the flow of fuel into CSEZ under the vested exclusive right to
distribute fuel within CSEZ pursuant to its Joint Venture Agreement (JVA) with Subic Bay
Metropolitan Authority (SBMA) and Coastal Subic Bay Terminal, Inc. (CSBTI). The appellate
court also found that royalty fees were assessed on fuel delivered, not on the sale, by petitioner
and that the basis of such imposition was petitioner’s delivery receipts to Nanox Philippines. The
fact that revenue is incidentally also obtained does not make the imposition a tax as long as the
primary purpose of such imposition is regulation.

When elevated in SC, petitioner argued that: 1) CDC has no power to impose fees on sale of fuel
inside CSEZ on the basis of income generating functions and its right to market and distribute
goods inside the CSEZ as this would amount to tax which they have no power to impose, and
that the imposed fee is not regulatory in nature but rather a revenue generating measure; 2) even
if the fees are regulatory in nature, it is unreasonable and are grossly in excess of regulation
costs.

Respondents contended that the purpose of royalty fees is to regulate the flow of fuel to and from
the CSEZ and revenue (if any) is just an incidental product. They viewed it as a valid exercise of
police power since it is aimed at promoting the general welfare of public; that being the CSEZ
administrator, they are responsible for the safe distribution of fuel products inside the CSEZ.

Issue:
Whether the act of CDC in imposing royalty fees can be considered as valid exercise of the
police power.
Held:
Yes. SC held that CDC was within the limits of the police power of the State when it imposed
royalty fees.  Also, SC held that the subject royalty fee was imposed for regulatory purposes and
not for generation of income or profits. The Policy Guidelines was issued to ensure the safety,
security, and good condition of the petroleum fuel industry within the CSEZ. The questioned
royalty fees form part of the regulatory framework to ensure “free flow or movement” of
petroleum fuel to and from the CSEZ. The fact that respondents have the exclusive right to
distribute and market petroleum products within CSEZ pursuant to its JVA with SBMA and
CSBTI does not diminish the regulatory purpose of the royalty fee for fuel products supplied by
petitioner to its client at the CSEZ.

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