POWER SECTOR ASSETS AND LIABILITIES MANAGEMENT CORPORATION (PSALM) vs. COMMISSIONER OF INTERNAL REVENUE G.R. No. 198146, August 8, 2017

Facts:
Through the EPIRA Law, PSALM was created to facilitate the sale and privatization of the National Power Corporation. Two power plants was sold by PSALM. The BIR assessed the petitioner with VAT for the said sale. Petitioner then paid the assessed tax in protest and raised the issue with the DOJ. The DOJ rendered its judgement in favor of the Petitioner. The respondent appealed to the CA who reversed DOJ’s resolution. Petitioner then appealed to the SC, hence this case.

Issue: Whether the sale of the power plants is subject to VAT?

Held:
No, The phrase ‘in the course of trade or business’ means the regular conduct or pursuit of a commercial or an economic activity, including transactions incidental thereto, by any person regardless of whether or not the person engaged therein is a nonstock, nonprofit private organization (irrespective of the disposition of its net income and whether or not it sells exclusively to members or their guests), or government entity. The sale of the power plants is not “in the course of trade or business” as contemplated under Section 105 of the NIRC, and thus, not subject to VAT.

The sale of the power plants is not in pursuit of a commercial or economic activity but a governmental function mandated by law to privatize NPC generation assets. PSALM was created primarily to liquidate all NPC financial obligations and stranded contract costs in an optimal manner. The purpose and objective of PSALM are explicitly stated in Section 50 of the EPIRA law.

PSALM is limited to selling only NPC assets and IPP contracts of NPC. The sale of NPC assets by PSALM is not “in the course of trade or business” but purely for the specific purpose of privatizing NPC assets in order to liquidate all NPC financial obligations. PSALM is tasked to sell and privatize the NPC assets within the term of its existence.