The Supreme Court has affirmed that while the Board of Investments (BOI) has the authority to grant and withdraw investment incentives, such actions must be supported by substantial evidence and adhere to due process. This decision underscores that the withdrawal of an Income Tax Holiday (ITH) must be based on factual and legal grounds, ensuring fairness and predictability for businesses operating in the Philippines. The ruling emphasizes that administrative bodies must provide a clear and justified basis for their decisions, protecting the rights of registered enterprises.

Beneficiation or Bust: Did SR Metals Earn Its Tax Holiday?

The case revolves around SR Metals, Inc., a mining corporation engaged in nickel ore production in Agusan Del Norte. In 2008, the BOI granted SR Metals an ITH incentive as a new producer of beneficiated nickel ore. This incentive allowed SR Metals to be exempt from income taxes from 2008 to 2012. However, the Sangguniang Bayan of Tubay requested the cancellation of SR Metals’ BOI registration, alleging that the company was directly shipping unprocessed ore and had not established a beneficiation plant as stated in its registration. Following this, the BOI withdrew SR Metals’ ITH incentive, citing the company’s failure to establish another line (beneficiation plant) and infuse new investments in fixed assets.

SR Metals contested this decision, arguing that it had complied with the requirements under the 2007 Investment Properties Plan (IPP) by making substantial investments in fixed assets and submitting progress reports. The Court of Appeals (CA) sided with SR Metals, annulling the BOI’s resolutions and reinstating the ITH incentive. The CA found that there was no requirement in the 2007 IPP for SR Metals to construct a beneficiation plant to avail of the ITH incentive and that SR Metals had, in fact, infused new investments and submitted progress reports. The BOI then elevated the case to the Supreme Court, questioning whether SR Metals’ commitment included establishing a beneficiation plant, whether the ITH incentive was a matter of right, and whether due process was observed in the withdrawal of the incentive.

The Supreme Court began by addressing procedural issues raised by SR Metals. The company questioned the authority of the BOI’s Officer-in-Charge (OIC) to sign the verification and certification of non-forum shopping, arguing that the OIC lacked the explicit authorization. The Court ruled that considering the OIC was designated in the interest of service during the Managing Head’s absence, any doubt should be resolved in favor of the government. The Court emphasized that dismissing the case on such a technicality would be imprudent, especially when the OIC acted to protect government interests.

The Court also addressed SR Metals’ contention that the BOI failed to attach material portions of the case records. The Supreme Court clarified that the determination of what pleadings are material is up to the Court. It found that the essential documents, including the assailed Decision and Resolution, letters, issuances, and SR Metals’ submissions, were attached. This decision aligns with the principle that procedural rules should be liberally construed to promote justice, speed, and efficiency. The Court noted that any deficiency was cured by the elevation of the CA records.

Turning to the substantive issues, the Supreme Court addressed the question of due process. While the BOI may not have strictly followed the procedure for cancellation of registration outlined in the 2004 BOI Revised Rules, the Court found that SR Metals was essentially afforded due process. The Court stated that, “Due process in administrative proceedings is defined as ‘the opportunity to explain one’s side or the opportunity to seek a reconsideration of the action or ruling complained of.’” Records showed that SR Metals was informed of the allegations, given a chance to reply, submit evidence, and seek reconsideration. The Court clarified that while procedural rules are important, their rigid application should not frustrate substantial justice.

The core of the case rested on whether the withdrawal of the ITH incentive was justified. The BOI argued that SR Metals failed to comply with the terms and conditions attached to its Certificate of Registration, specifically the establishment of a beneficiation plant. However, the Court sided with the CA, finding that the withdrawal lacked legal and evidentiary support. “The cardinal rule is that any decision or ruling promulgated by an administrative body must have something to support itself.” In its Application for Registration, SR Metals sought to be considered a new producer of beneficiated silicate ore based on its newly granted Mineral Production Sharing Agreement (MPSA) and newly adopted beneficiation process. It did not explicitly commit to building a new beneficiation plant.

Moreover, the terms and conditions of the Project Approval Sheet, the Certificate of Registration, and the 2007 IPP did not mandate the construction of a new plant. The Court highlighted that a commitment to build a beneficiation plant did not necessarily require a new industrial building; it could be an assemblage of equipment and machineries used for the beneficiation process. SR Metals provided evidence of its investment in such equipment, including a Kleeman Mobile Process Screen, Commander Power Screen, Terex Mobile Crusher, and other machinery, totaling P1,151,666,643.01. This investment and the submission of progress reports contradicted the BOI’s claims of non-compliance. Thus, the Supreme Court affirmed the CA’s decision, holding that the withdrawal of the ITH incentive was without basis.

FAQs

What was the key issue in this case?	The key issue was whether the Board of Investments (BOI) had sufficient legal and factual basis to withdraw the Income Tax Holiday (ITH) incentive granted to SR Metals, Inc. The dispute centered on whether SR Metals failed to comply with the terms and conditions of its registration as a new producer of beneficiated nickel ore.
Did SR Metals commit to constructing a beneficiation plant?	While SR Metals committed to utilizing a beneficiation process, it did not explicitly commit to constructing a new physical plant or building for this purpose. The company’s application focused on its newly adopted beneficiation process rather than the construction of a new facility.
What constitutes due process in administrative proceedings?	Due process in administrative proceedings requires that the party affected has the opportunity to explain their side or seek reconsideration of the action taken against them. It ensures fairness by allowing the party to be informed of the allegations and to present evidence in their defense.
What did the 2007 Investment Properties Plan (IPP) require?	The 2007 IPP outlined the requirements for projects to be considered new, which included establishing another line with new facilities and making new investments in fixed assets and working capital. However, it did not explicitly mandate the construction of a new building for a beneficiation plant.
What evidence did SR Metals present to show compliance?	SR Metals presented evidence of significant investments in equipment and machinery used for the beneficiation process, totaling over P1.1 billion. It also submitted progress reports to the BOI, demonstrating its ongoing efforts to meet the requirements of its registration.
Why did the Supreme Court side with SR Metals?	The Supreme Court sided with SR Metals because the BOI’s withdrawal of the ITH incentive was not supported by substantial evidence. SR Metals had sufficiently demonstrated compliance with the terms of its registration and the requirements of the 2007 IPP.
What is the significance of this ruling for businesses?	The ruling reinforces the importance of due process and the need for administrative bodies to base their decisions on solid legal and factual grounds. It provides assurance to businesses that investment incentives will not be arbitrarily withdrawn.
Can the BOI withdraw incentives at will?	No, the BOI cannot withdraw incentives at will. Any withdrawal must be based on established procedures, substantial evidence, and a clear violation of the terms and conditions attached to the registration of the enterprise.

In conclusion, the Supreme Court’s decision in Board of Investments v. SR Metals, Inc. reinforces the principles of due process and the need for substantial evidence in administrative decisions, especially those affecting investment incentives. The ruling protects the rights of registered enterprises and promotes a stable and predictable investment climate in the Philippines.

For inquiries regarding the application of this ruling to specific circumstances, please contact ASG Law through contact or via email at frontdesk@asglawpartners.com.

Disclaimer: This analysis is provided for informational purposes only and does not constitute legal advice. For specific legal guidance tailored to your situation, please consult with a qualified attorney.
Source: BOARD OF INVESTMENTS VS. SR METALS, INC., G.R. No. 219927, October 03, 2018