Hydro Resources Contractors Corporation v CTA

Facts:

National Irrigation Administration (NIA) entered into an agreement with Hydro Resources for the construction of the Magat River Multipurpose Project in Isabela. Under their contract, Hydro was allowed to procure new construction equipment, the payment for which will be advanced by NIA. Hydro shall repay NIA the costs incurred and the manner of repayment shall be through deductions from each monthly payment due to Hydro. Hydro shall repay NIA the full value of the construction before the eventual transfer of ownership.

Upon transfer, Hydro was assessed an additional 3% ad valorem duty which it paid under protest. The Collector of Customs then ordered for the refund of the ad valorem duty in the form of tax credit. This was then reversed by the Deputy Minister of Finance.

Issue:

Whether or not the imposition of the 3% ad valorem tax on importations is valid.

Held:

No. EO 860 which was the basis for the imposition of the ad valorem duty took effect December 1982. The importations were effected in 1978 and 1979 by NIA. It is a cardinal rule that laws shall have no retroactive effect unless contrary is provided. EO 860 does not provide for its retroactivity. The Deputy Minister of Finance even clarified that letters of credit opened prior to the effectivity of EO 860 are not subject to its provisions.

In the case, the procurement of the equipment was not on a tax exempt basis as the import liabilities have been secured to paid under a financial scheme. It is a matter of implementing a pre-existing agreement, hence, the imported articles can only be subject to the rates of import duties prevailing at the time of entry or withdrawal from the customs’ custody.