Philippine Supreme Court Jurisprudence > Year 2014 > August 2014 Decisions > G.R. Nos. 212536-37, August 27, 2014 - COMMISSIONER OF INTERNAL REVENUE AND COMMISSIONER OF CUSTOMS, Petitioners, v. PHILIPPINE AIRLINES, INC., Respondent.:

This is a Petition for Review on Certiorari under Rule 45 assailing and seeking to set aside the December 9, 2013 Decision¹ and May 2, 2014 Resolution² of the Court of Tax Appeals en banc in CTA EB No. 942 and 944,which granted the claim of respondent Philippine Airlines, Inc. (PAL) for refund of excise taxes it paid in connection with its importation in 2007 of certain items for its commissary and catering supplies.

The antecedent facts are simple and undisputed.

On June 11, 1978, PAL was granted under Presidential Decree No. 1590 (PD 1590)a franchise to operate air transport services domestically and internationally. Section 13³ of the decree prescribes the tax component of PAL�s franchise.� Under it, PAL, during the lifetime of its franchise, shall pay the government either basic corporate income tax or franchise tax based on revenues and/or the rate defined in the provision, whichever is lower and the taxes thus paid under either scheme shall be in lieu of all other taxes, duties and other fees.

On January 1, 2005, Republic Act No. 9334 (RA 9334)⁴ took effect.Of pertinent relevance in this proceeding is its Sec.6 which amended Sec. 131 of the 1997 National Internal Revenue Code (NIRC) to read:chanRoblesvirtualLawlibrary

SEC. 6. Section 131 of the National Internal Revenue Code of 1997, as amended, is hereby amended to read as follows:cralawlawlibrary

�SEC. 131. Payment of Excise Taxes on Imported Articles. -

�(A) Persons Liable. - Excise taxes on imported articles shall be paid by the owner or importer to the Customs Officers, x x x before the release of such articles from the customs house, or by the person who is found in possession of articles which are exempt from excise taxes other than those legally entitled to exemption.

�In the case of tax-free articles brought or imported into the Philippines by persons, entities, or agencies exempt from tax which are subsequently sold, transferred or exchanged in the Philippines to non-exempt persons or entities, the purchasers or recipients shall be considered the importers thereof x x x.

�The provision of any special or general law to the contrary notwithstanding, the importation of x x x cigarettes, distilled spirits, fermented liquors and wines x x x, even if destined for tax and duty-free shops, shall be subject to all applicable taxes, duties, charges, including excise taxes due thereon. This shall apply to [said items] x x x brought directly into the duly chartered or legislated freeports x x x, and such other freeports as may hereafter be established or created by law x x x. (emphasis added.)

Pursuant to the above-quoted tax code provisions, PAL was assessed excise taxes on its February and March 2007 importation of cigarettes and alcoholic drinks for its commissary supplies used in its international flights. In due time, PAL paid the corresponding amounts, as indicated below, under protest:cralawlawlibrary

BOC Official Receipt Number	Date of Payment	Amount Paid
138110892	February 5, 2007	PhP 1,497,182
1138348761	February 26, 2007	PhP 1,525,480
138773503	March 23, 2007	PhP 1,528,196.85

PAL, thereafter, filed separate administrative claims for refund before the Bureau of Internal Revenue (BIR) for the alleged excise taxes it erroneously paid on said dates. As there was no appropriate action on the part� of the then Commissioner of Internal Revenue (CIR)� and obviously to forestall the running of the two-year� prescriptive period for claiming tax refunds, PAL filed before the Court of Tax Appeals (CTA)a petition for review, docketed as CTA Case No. 7868.

After the parties had submitted their respective memoranda following the joinder of issues and the formal offer of evidence, the CTA Second Division rendered on June 22, 2012 in CTA Case No. 7868 a Decision⁵ finding for PAL, as petitioner, the CIR and the Commissioner of Customs (COC), as respondents, being ordered to pay PAL by way of refund the amount of PhP 4,550,858.85.� The amount represented the excise taxes paid in February and March 2007, covering PAL�s importation of commissary supplies. The fallo of the June 22, 2012 judgment reads:chanRoblesvirtualLawlibrary

WHEREFORE, premises considered, the instant Petition for Review is hereby GRANTED. Accordingly, respondents are hereby ORDERED TO REFUND to petitioner the amount of P4,550,858, representing petitioner�s erroneously paid� excise taxes.

SO ORDERED.chanrobleslaw

Therefrom, the CIR and the COC interposed separate motions for reconsideration, both of which were, however, denied, in a consolidated Resolution⁶ of September 20, 2012. This prompted the CIR to elevate the matter to the CTA en banc on a petition for review, the recourse docketed as CTA EB No. 942.� The COC later followed with his own petition, docketed as CTA EB No. 944.� The cases were thereafter ordered consolidated.

By Decision dated December 9, 2013, the CTA en banc, with two justices dissenting, dismissed the CIR and COC�s petitions, thereby effectively affirming the judgment of the CTA Second Division. Just as its Second Division, the CTA en banc, citing an earlier case between the same parties and involving similar issues, held in the main that the �in lieu of all taxes� clause in PAL�s franchise exempts it from excise tax, an exemption that, contrary to petitioners� unyielding posture, has not been withdrawn by Congress when it enacted RA 9334.� Pushing the point, the tax court stated that Sec. 6 of RA 9334, as couched, cannot be construed as an express repeal of the �in lieu of all taxes� exemption granted under PAL�s franchise, because said Sec. 6, despite its �the provisions of any special law or general law to the contrary notwithstanding� proviso, has failed to specifically refer to Sec. 13 of PD 1590 as one of the key provisions intended to be repealed.

Anent PAL�s entitlement to the exemption claimed, and consequently the refund, the CTA took note of the following issuances:cralawlawlibrary

1. Section 22⁷ of RA 9337, which took effect on July 1, 2005, abolished the franchise tax under PAL�s and other domestic airlines� charter and subjected them to corporate income tax and value-added tax. Nevertheless, the same section provides that PAL shall remain exempt from any taxes, duties, royalties, etc., as may be provided in PD 1590.
   
   
2. Philippine Air Lines, Inc. v. Commissioner of Internal Revenue,⁸in which the Court has recognized the applicability of the exemption granted to PAL under its charter and necessarily its right to a refund, when appropriate.

Still dissatisfied,petitioners separately sought reconsideration, but the CTA en banc, in its May 2, 2014 Resolution, denied the motions, with the same adverted justices reiterating their dissent.

Hence, this petition, on this core issue: whether or not PAL�s importations of alcohol and tobacco products for its commissary supplies are subject to excise tax.

Petitioners, as to be expected, would dispose of the query in the affirmative, on the contention that PAL�s tax exemption it heretofore enjoyed under Sec. 13 of its franchise had been revoked by Congress when, via RA 9334, it amended Sec. 131 of the NIRC, which, as earlier recited, subjects the importation of cigars, cigarettes, distilled spirits and wines to all applicable taxes inclusive of excise tax �the provision of any special or general law to the contrary notwithstanding.�

On the other hand, PAL, citing at every turn the assailed CTA ruling, contends that its exemption from excise tax, as provided in its franchise under PD 1590, has not been withdrawn by the NIRC of 1997, as amended by RA 9334. And on the postulate that RA 9334 partakes the nature of a general law which could not have plausibly repealed a special law, e.g., PD 1590, PAL would draw attention to Sec. 24 of PD 1590 providing how its franchise or any of its provisions may be modified or amended:chanRoblesvirtualLawlibrary

SECTION 24. This franchise, as amended, or any section or provision hereof may only be modified, amended or repealed expressly by a special law or decree that shall specifically modify, amend or repeal this franchise or any section of provisions. (emphasis added)

The petition lacks merit.

It is a basic principle of statutory construction that a later law, general in terms and not expressly repealing or amending a prior special law, will not ordinarily affect the special provisions of such earlier statute.⁹So it must be here.

Indeed, as things stand, PD 1590 has not been revoked by the NIRC of 1997, as amended. Or to be more precise, the tax privilege of PAL provided in Sec. 13 of PD 1590 has not been revoked by Sec.131 of the NIRC of 1997, as amended by Sec. 6 of RA 9334. We said as much in Commissioner of Internal Revenue v. Philippine Air Lines, Inc:chanRoblesvirtualLawlibrary

That the Legislature chose not to amend or repeal [PD] 1590 even after PAL was privatized reveals the intent of the Legislature to let PAL continue to enjoy, as a private corporation, the very same rights and privileges under the terms and conditions stated in said charter.¹⁰ x x x

To be sure, the manner to effectively repeal or at least modify any specific provision of PAL�s franchise under PD 1590, as decreed in the aforequoted Sec. 24, has not been demonstrated. And as aptly held by the CTA en banc, borrowing from the same Commissioner of Internal Revenue case:chanRoblesvirtualLawlibrary

While it is true that Sec. 6 of RA 9334 as previously quoted states that �the provisions of any special or general law to the contrary notwithstanding,� such phrase left alone cannot be considered as an express repeal of the exemptions granted under PAL�s franchise because it fails to specifically identify PD 1590 as one of the acts intended to be repealed. x x x

Noteworthy is the fact that PD 1590 is a special law, which governs the franchise of PAL. Between the provisions under PD 1590 as against the provisions under the NIRC of 1997, as amended by 9334, which is a general law, the former necessary prevails. This is in accordance with the rule that on a specific matter, the special law shall prevail over the general law, which shall be resorted only to supply deficiencies in the former. In addition, where there are two statutes, the earlier special and the later general � the terms of the general broad enough to include the matter provided for in the special � the fact that one is special and other general creates a presumption that the special is considered as remaining an exception to the general, one as a general law of the land and the other as the law of a particular case.¹¹

Any lingering doubt, however, as to the continued entitlement of PAL under Sec. 13 of its franchise to excise tax exemption on otherwise taxable items contemplated therein, e.g., aviation gas, wine, liquor or cigarettes,� should once and for all be put to rest by the fairly recent pronouncement in Philippine Airlines, Inc. v. Commissioner of Internal Revenue.¹² In that case, the Court, on the premise� that the �propriety of a tax refund is hinged on the kind of exemption which forms its basis,�¹³ declared in no uncertain terms that PAL has �sufficiently prove[d]� its entitlement to a tax refund of the excise taxes and that PAL�s payment of either the franchise tax or basic corporate income tax in the amount fixed thereat shall be in lieu of all other taxes or duties, and inclusive of all taxes on all importations of commissary and catering supplies, subject to the condition of their availability and eventual use. The Court wrote in that particular case involving PAL�s claim for refund of the excise taxes imposed on its purchase from Caltex (Phils.), Inc. of imported aviation fuel for domestic operations, thus:chanRoblesvirtualLawlibrary

In this case, PAL�s franchise grants it an exemption from both direct and indirect taxes on its purchase of petroleum products. Section 13 thereof reads:

SEC. 13. In consideration of the franchise and rights hereby granted, the grantee [PAL] shall pay to the Philippine Government during the life of this franchise whichever of subsections (a) and (b) hereunder will result in a lower tax:cralawlawlibrary

(a) The basic corporate income tax based on the grantee�s annual net taxable income computed in accordance with the provisions of the National Internal Revenue Code; or

(b)� A franchise tax of two per cent (2%) of the gross revenues derived by the grantee from all sources, without distinction as to transport or nontransport operations; provided, that with respect to international air-transport service, only the gross passenger, mail, and freight revenues from its outgoing flights shall be subject to this tax.

The tax paid by the grantee under either of the above alternatives shall be in lieu of all other taxes, duties, royalties, registration, license, and other fees and charges of any kind, nature, or description, imposed, levied, established, assessed, or collected xxx, now or in the future, including but not limited to the following:cralawlawlibrary

1. All taxes, duties, charges, royalties, or fees due on local purchases by the grantee of aviation gas, fuel, and oil, whether refined or in crude form, and whether such taxes, duties, charges, royalties, or fees are directly due from or imposable upon the purchaser or the seller, producer, manufacturer, or importer of said petroleum products but are billed or passed on the grantee either as part of the price or cost thereof or by mutual agreement or other arrangement; provided, that all such purchases by, sales or deliveries of aviation gas, fuel, and oil to the grantee shall be for exclusive use in its transport and nontransport operations and other activities incidental thereto;chanroblesvirtuallawlibrary

2. All taxes, including compensating taxes, duties, charges, royalties, or fees due on all importations by the grantee of aircraft, engines, equipment, machinery, spare parts, accessories, commissary and catering supplies, aviation gas, fuel, and oil, whether refined or in crude form and other articles, supplies, or materials; provided, that such articles or supplies or materials are imported for the use of the grantee in its transport and transport operations and other activities incidental thereto and are not locally available in reasonable quantity, quality, or price;chanroblesvirtuallawlibrary

x x x x

Based on the above-cited provision, PAL�s payment of either the basic corporate income tax or franchise tax, whichever is lower, shall be in lieu of all other taxes, duties, royalties, registration, license, and other fees and charges, except only real property tax. The phrase �in lieu of all other taxes� includes but is not limited to taxes that are �directly due from or imposable upon the purchaser or the seller, producer, manufacturer, or importer of said petroleum products but are billed or passed on the grantee either as part of the price or cost thereof or by mutual agreement or other arrangement.� In other words, in view of PAL�s payment of either the basic corporate income tax or franchise tax, whichever is lower, PAL is exempt from paying: (a) taxes directly due from or imposable upon it as the purchaser of the subject petroleum products; and (b) the cost of the taxes billed or passed on to it by the seller, producer, manufacturer, or importer of the said products either as part of the purchase price or by mutual agreement or other arrangement. Therefore, given the foregoing direct and indirect tax exemptions under its franchise, and applying the principles as above-discussed, PAL is endowed with the legal standing to file the subject tax refund claim, notwithstanding the fact that it is not the statutory taxpayer as contemplated by law.¹⁴ (emphasis ours)chanrobleslaw

Petitioners, in a bid to foil PAL�s instant claim for refund, has raised as a corollary sub-issue the question of PAL�s non-compliance with the conditions particularly set by Sec. 13 of PD 1509 for the imported supplies to be exempt from excise tax. These conditions are: (1)such supplies are imported for the use of the franchisee in its transport/non-transport operations and other incidental activities; and (2) they are not locally available in reasonable quantity, quality and price. Suffice it to state in this regard that the question thus raised is one of fact, the determination of which is best left to the CTA, it being a highly specialized body that reviews tax cases.¹⁵ Without a showing that the CTA�s findings are unsupported by substantial evidence, the findings thereof are binding on the Court.¹⁶cralawred

This being the case, We find no cogent reason to disturb for the nonce the finding of the CTA en banc, affirmatory of that of its Second Division.

In all then, PAL has presented in context a clear statutory basis for its refund claim of excise tax, a claim predicated on a statutory grant of exemption from that forced exaction.� It thus behooves the government to refund what it erroneously collected. To borrow from CIR v. Fortune Tobacco Corporation,¹⁷ if the state expects taxpayers to observe fairness and honesty in paying their taxes, it must hold itself against the same standard in refunding erroneous exactions and payment of such taxes.

WHEREFORE, the instant Petition for Review is DENIED. The assailed Decision of the Court of Tax Appeals en banc dated December 9, 2013 and its Resolution dated May 2, 2014 are hereby AFFIRMED.

SO ORDERED.

Carpio,^* Peralta, Mendoza,^** and Reyes, JJ., concur.

Endnotes:

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^* Acting member per Special Order No. 1756 dated August 20, 2014.

^** Acting member per Special Order No. 1762 dated August 20, 2014.

¹Rollo, pp. 12-24.Penned by Associate Justice Juanito C. Casta�eda, Jr. and concurred in by Associate Justices Lovell R. Bautista, Erlinda P. Uy, Caesar A. Casanova, Esperanza R. Fabon-Victorino, Cielito N. Mindaro-Grulla, and Amelia R. Cotangco-Manalastas, with Presiding CTA Justice Roman G. Del Rosario and Associate Justice Ma. Belen M. Ringpis-Liban dissenting.

² Id. at 163-166.

³Section 13. In consideration of the franchise and rights hereby granted, the grantee shall pay to the Philippine Government during the life of this franchise whichever of subsections (a) and (b) hereunder will result in a lower tax:cralawlawlibrary

(a) The basic corporate income tax based on the grantee�s annual net taxable income computed in accordance with the provisions of the National Internal Revenue Code; or

(b) A franchise tax of two per cent (2%) of the gross revenues derived by the grantee from all sources, without distinction as to transport or nontransport operations; xxx

The tax paid by the grantee under either of the above alternatives shall be in lieu of all other taxes, duties, royalties, registration, license, and other fees and charges of any kind, nature, or description, imposed, levied, established, assessed, or collected by any municipal, city, provincial, or national authority or government agency, now or in the future, including but not limited to the following:

x x x x

2. All taxes, including compensating taxes, duties, charges, royalties, or fees due on all importations by the grantee of aircraft, engines, equipment, machinery, spare parts, accessories, commissary and catering supplies, aviation gas, fuel, and oil, xxx and other articles, supplies, or materials; provided, that such articles or supplies or materials are imported for the use of the grantee in its transport and transport operations and other activities incidental thereto and are not locally available in reasonable quantity, quality, or price.

⁴ An Act Increasing the Excise Tax Rates Imposed on Alcohol and Tobacco Products, Amending for the Purpose sections 131, 141, 142, 143, 144, 145 and 288 of the National Internal Revenue Code of 1997.

⁵ Rollo, pp. 522-537.

⁶ Id. at 538-547.

⁷SEC. 22. Franchises of Domestic Airlines. - The provisions of P.D. No. 1590 on the franchise tax of Philippine Airlines, Inc., R.A. No. 7151 on the franchise tax of Cebu Air, Inc., R.A. No. 7583 on the franchise tax of Aboitiz Air Transport Corporation, R.A. No. 7909 on the franchise tax of Pacific Airways Corporation, R.A. No. 8339 on the franchise tax of Air Philippines, or any other franchise agreement or law pertaining to a domestic airline to the contrary notwithstanding:

(A) The franchise tax is abolished;
(B) The franchisee shall be liable to the corporate income tax;
(C) The franchisee shall register for value-added tax under Section 236, and to account under Title IV of the National Internal Revenue Code of 1997, as amended, for value-added tax on its sale of goods, property or services and its lease of property; and
(D) The franchisee shall otherwise remain exempt from any taxes, duties, royalties, registration, license, and other fees and charges, as may be provided by their respective franchise agreement.

⁸ G.R. No. 198759, July 1, 2013, 700 SCRA 322.

⁹Commissioner of Internal Revenue v. Central Luzon Drug Corporation, G. R. No. 159647, April 15, 2005, 456 SCRA 414.

¹⁰ G.R. No. 180066, July 7, 2009, 592 SCRA 237, 261.

¹¹ Id.

¹² G.R. No. 198759, July 1, 2013, 700 SCRA 322.

¹³ Id. at 336.

¹⁴ Id. at 337-339.

¹⁵Commissioner of Internal Revenue v. United International Pictures, AB, G.R. No. 169565, January 21, 2009, 577 SCRA 1, 5.

¹⁶ Id.

¹⁷ G.R. Nos. 167274-75, July 21, 2008, 559 SCRA 160.