BIR Ruling

July 25, 1966 1st Indorsement Respectfully returned to the Commissioner of Internal Revenue, Manila. This refers to the recommendation of that Bureau for the revocation of the ruling of this Department contained in its 1st Indorsement dated May 10, 1965 holding that the importations of Filipinas Orient Airways, Inc. are exempt from the payment of customs duties and taxes. Such recommendation was made on account of the request of Caltex (Philippines), Inc. for a reconsideration of BIR Ruling No. 65-116, holding that imported aviation gasoline and other fuel oils used in domestic flights are exempt from specific tax, which was issued by that Bureau in consonance with the ruling of this Department just cited. cdll Caltex (Philippines), Inc. interposes the reason as follows: That the said ruling of that Bureau is extremely unfair to the domestic manufacturers of airline fuels because the airline franchise holders will not be inclined to purchase fuels from domestic manufacturers as the same are subject to the payment of specific tax, instead, they will import their fuel requirement as they may do so free of tax. Supplementing the above contention of Caltex (Phil.), Inc., that Office stated that the said ruling of this Department finds no justification in law and jurisprudence; that it is not only repugnant to law but also prejudicial to the local petroleum industry; and that Bureau had been guided by the ruling of the Supreme Court in the case of Panay Electric Co. vs. Collector of Internal Revenue (G.R. No. L-6753, July 30, 1955) and Consuelo P. Borja vs. Collector of Internal Revenue (G.R. No. L-12134, Nov. 20, 1961) that the importations of such franchise grantees are subject to the corresponding internal revenue taxes. This Department has already pointed out and lengthily discussed in its 1st Indorsement dated May 10, 1965 that the ruling of the Supreme Court in the cases of Consuelo P. Borja Electric Plant and the Panay Electric Company are not applicable to Filipinas Orient Airways, Inc. for the reason that the exemption provision of laws granting franchise to said Consuelo P. Borja and the Panay Electric Company on the one hand and the franchise of Fairways on the other hand are not identical or similar. Act 3810 granting franchise to Consuelo P. Borja is subject to the rules and conditions established in Act 3636 otherwise known as the Model Electric Light and Power Franchise Act. Portion of Section 10 of the said Act 3636 provisions: cdpr "Grantee shall pay the same taxes as are now or may hereafter be required by law from other individuals, co-partnership, private or public or quasi-public associates . . . on his (its) real estate, building, plants, machinery; and other personal property, except property declared exempt in this Section. . ." Similar provision as in the abovecited law is nowhere found in Republic Act No. 4147 the franchise charter of Fairways. Section 12 of said Act is partly quoted hereunder, to wit: "In consideration of the franchise and right granted, the grantee shall pay to the National Government during the life of this franchise a tax of 2% of the gross revenue or gross earnings derived by the grantee from its operation under this franchise. Such tax shall be payable quarterly and shall be in lieu of all taxes of any kind, nature or description, levied, established or collected by any municipal, provincial or national authority; . . .". After a brief comparison of the aforecited pertinent provisions of laws, this Department again pointed out in its ruling in the said 1st indorsement dated May 10, 1965 that what is expressly exempted in the franchise of Consuelo P. Borja Electric Plant and the Panay Electric Company is the tax on installation and not on importations, since they are expressly required by their charters to pay on their "real estate, building, plants, machinery and other personal property the same taxes as are now or may hereafter be required by the law from other persons". It is not clear from the franchise of Panay Electric Company and Consuelo P. Borja that they are entitled to tax exemptions on their importations, hence, the court applied the principle and legal philosophy underlying the imposition of compensating tax. But such rule could not be applied to the case of Fairways since it may be clearly inferred from its charter that it is exempt from the payment of customs duty and taxes on its importations. Of course, this Department is aware of the effect of its ruling on our domestic manufacturers of airline fuels in that while they are subject to specific tax on fuels sold to airliners used for domestic operations, franchise grantees like the Fairways may import its fuel for domestic operation free from specific tax. But as the exemption provision of Republic Act No. 41447 granting franchise to Fairways is clear and unequivocal and which requires no interpretation, this Department cannot rule otherwise. prcd In view of the foregoing, the ruling of this Department contained in its 1st indorsement dated May 10, 1965 exempting all the importations of Filipinas Orient Airways, Inc. from the payment of customs duty and internal revenue taxes stands, and the request of that Bureau in behalf of Caltex (Phil.), Inc. for the revocation of said ruling is hereby denied. (SGD.) EDUARDO Z. ROMUALDEZ Secretary