Silkair (Singapore) Pte., Ltd. v. Commissioner of Internal Revenue

[C.T.A. CASE NO. 6217. November 5, 2003.] SILKAIR (SINGAPORE) PTE, LTD. , petitioner , vs . THE COMMISSIONER OF INTERNAL REVENUE , respondent . D E C I S I O N This case involves a claim for refund in the amount of P4,239,374.81 allegedly representing excise taxes erroneously paid by petitioner on its purchases of aviation jet fuel from Petron Corporation for the period January 1, 1999 to June 30, 1999. Petitioner is a foreign corporation organized under the laws of Singapore with a Philippine Representative Office with address at Suite 302, Cebu Holdings Center, Cardinal Rosales Avenue, Cebu City (par. 1, Facts Admitted) . It is engaged in business as an international airline carrier plying only the Singapore-Cebu-Singapore and Singapore-Davao-Singapore routes (page 7, TSN, January 29, 2002). On November 12, 1993, the Civil Aeronautics Board (CAB) issued Resolution No. 202(93) approving petitioner's petition for the issuance of a regular operating permit (Exhibit M) . For the period October 25, 1999 to July 1, 1999, the CAB likewise issued operating permits allowing petitioner to fly the Singapore-Cebu-Singapore and Singapore-Davao-Singapore routes (Exhibits N, O, P, Q & R) . From January 1, 1999 to June 30, 1999, petitioner allegedly purchased aviation jet fuel from Petron Corporation for use on its international flights and paid the corresponding specific taxes (excise taxes) in the sum of P4,239,374.81. The payment was allegedly advanced by Singapore Airlines, Ltd. to Petron Corporation on behalf of the petitioner (page 12, TSN, January 29, 2002) . Relying on BIR Ruling No. 339-92 dated December 1, 1992, wherein it was held that the Cebu link of the route Singapore/Cebu/Singapore is an international flight by an international carrier and the petroleum products purchased by petitioner and consumed in such flights shall not be subject to excise taxes pursuant to Section 132 (now 135) of the Tax Code, petitioner, on January 2, 2001, filed a formal claim for refund with the Bureau of Internal Revenue of its alleged erroneous excise tax payment of P4,239,374.81 (Exhibit W). On the following day, or on January 3, 2001, petitioner elevated its claim before this court via a Petition for Review pursuant to Section 230 (now 229) of the Tax Code. Respondent, in his Answer filed on February 9, 2001, denied petitioner's assertions and prayed for the dismissal of the instant petition. In their Joint Stipulation of Facts and Issues filed on July 30, 2001 and approved by this court on August 9, 2001, the parties agreed to limit the issues to be resolved in this case as follows: 1. Whether or not petitioner is exempt from the payment of excise tax on its purchase of aviation jet fuel as an online international carrier as provided under Section 135 of the Tax Code; 2. Whether or not the laws of Singapore grants similar excise tax exemptions to Philippine carriers on their purchases of petroleum products for use in its international flights; 3. Whether or not purchases of jet fuel by petitioner from Petron Corporation and the payment of excise taxes thereon are duly substantiated; 4. Whether or not BIR Ruling No. 339-92 dated December 1, 1992 is applicable to the issues involved in the instant case; and 5. Whether or not petitioner is entitled to a tax credit certificate/refund in the amount of P4,239,374.81 representing excise taxes paid on its purchases of jet fuel from Petron Corporation for the period January 1, 1999 to June 30, 1999. During the trial, petitioner presented testimonial and documentary evidence. To further strengthen its case, petitioner in its memorandum, cited CTA Cases Nos. 5382, 5430, 5655, 5710 and 5891 wherein this court allegedly granted petitioner's claims for refund and acknowledged that petitioner is an online international carrier, plying an international route, whose purchases of aviation jet fuel from Petron Corporation, used and consumed for said international flights, are not subject to excise tax. The factual milieu presented in those cases which allegedly does not materially differ with the case at bar, falls within the exemption provided by Section 135 (formerly 132) of the Tax Code. Petitioner further avers that the present case covered a new route, Singapore-Davao-Singapore, in addition to the Singapore-Cebu-Singapore route but that the said additional route, being an international flight, does not avoid the analogous application of the court's ruling in the aforecited cases. Respondent, on the other hand, argues that petitioner is not entitled to the claimed refund on the following grounds: "1. Petitioner failed to show that it has submitted to the Commissioner of Internal Revenue duly authenticated documents issued by duly authorized officials of Singapore attesting to the fact that said country grants similar tax exemptions on petroleum products sold to Philippine carriers pursuant to Section 132 (now 135) of the Tax Code; 2. Petitioner failed to prove that the sale of the petroleum products was directly made from a domestic oil company to the international carrier. The excise tax on petroleum products is the direct liability of the manufacturer/producer and when added to the cost of the goods sold to the buyer, it is no longer a tax but part of the price which the buyer has to pay to obtain the article; 3. Assuming but without admitting that a foreign law is applicable in the present case, the same must be proven as a fact; 4. Taxes paid and collected by the BIR are presumed to have been made in accordance with law, and the burden of proof to prove otherwise is upon the petitioner." (respondent's memorandum, pages 175-179, CTA Records) After a careful perusal of all the records relative to the case at bar in relation to the existing laws and jurisprudence applicable thereto, this court rules against petitioner. Petitioner anchors its claim on the following provisions of Section 135 in relation to Section 229 of the 1997 Tax Code: "SEC. 135. Petroleum Products Sold to International Carriers and Exempt Entities or Agencies. Petroleum products sold to the following are exempt from excise tax: (a) International carriers of Philippine or foreign registry on their use or consumption outside the Philippines: Provided, That the petroleum products sold to these international carriers shall be stored in a bonded storage tank and may be disposed of only in accordance with the rules and regulations to be prescribed by the Secretary of Finance, upon recommendation of the Commissioner; (b) Exempt entities or agencies covered by tax treaties, conventions and other international agreements for their use or consumption: Provided, however, That the country of said foreign international carrier or exempt entities or agencies exempts from similar taxes petroleum products sold to Philippine carriers, entities or agencies; and (c) Entities which are by law exempt from direct and indirect taxes. (emphasis supplied) "SEC. 229. Recovery of Tax Erroneously or Illegally Collected. No suit or proceeding shall be maintained in any court for the recovery of any national internal revenue tax hereafter alleged to have been erroneously or illegally assessed or collected, or of any penalty claimed to have been collected without authority, or of any sum alleged to have been excessively or in any manner wrongfully collected, until a claim for refund or credit has been duly filed with the Commissioner; but such suit or proceeding may be maintained, whether or not such tax, penalty, or sum has been paid under protest or duress. "In any case, no such suit or proceeding shall be filed after the expiration of two (2) years from the date of payment of the tax or penalty regardless of any supervening cause that may arise after payment: Provided, however, That the Commissioner may, even without a written claim therefor, refund or credit any tax, where on the face of the return upon which payment was made, such payment appears clearly to have been erroneously paid. Clearly, from the foregoing, in order to be entitled to the refund sought for, petitioner must prove: 1. that it actually paid the claimed specific (excise) taxes of P4,239,374.81; 2. that it is exempted from the payment of such specific (excise) taxes as provided for under Section 135 of the Tax Code; and 3. that the claim for refund was filed within the two-year prescriptive period as provided for under Section 229 of the Tax Code. With regard to the first requisite, petitioner submitted documentary exhibits such as: 1) a Letter dated June 16, 1992 from Chak Teck Sem, General Manager in the Philippines of Singapore Airlines addressed to Mr. Go of Petron Corporation (Exhibit A) ; 2) Excise Tax Returns filed by Petron Corporation (Exhibits B to H) ; 3) Certification from Petron Corporation that it paid excise taxes in the amount of P4,239,374.81 to the BIR on Jet-A-1 fuel product deliveries to Singapore Airlines from January to June 1999 (Exhibit I) and 4) Aviation Delivery Receipts/Invoices and Cash Receipts issued by Petron Corp. to Singapore Airlines (Exhibit K, including sub-markings K-1 to K-265) . A scrutiny of the preceding exhibits shows petitioner's receipt and payment of delivered aviation fuel, inclusive of excise taxes, through the accommodation of Singapore Airlines and the corresponding remittance of said excise taxes by Petron Corporation to the BIR. However, as correctly noted by the commissioned auditing firm, SyCip, Gorres, Velayo & Co., in its report dated November 26, 2001, (Exhibit L-2) , petitioner was able to properly substantiate only the amount of P4,198,417.61 out of the total claimed specific (excise) tax payments of P4,239,374.71. As to whether or not the claim was filed within the two-year prescriptive period, this court partly rules in favor of petitioner. Pursuant to the earlier quoted provisions of Section 229 of the Tax Code, the reckoning of the two-year prescriptive period for the refund of erroneously paid tax shall be from the date of payment of the tax . Accordingly, we need to look into the provisions of Section 130(A)(2) of the Tax Code, thus: "SEC. 130. Filing of Return and Payment of Excise Tax on Domestic Products. "(A) Persons Liable to File a Return, Filing of Return on Remov al and Payment of Tax . xxx xxx xxx "(2) Time for Filing of Return and Payment of the Tax. Unless otherwise specifically allowed, the return shall be filed and the excise tax paid by the manufacturer or producer before removal of domestic products from place of production: Provided, That the excise tax on locally manufactured petroleum products and indigenous petroleum levied under Sections 148 and 151(A)(4), respectively, of this Title shall be paid within ten (10) days from the date of removal of such products for the period from January 1, 1998 to June 30, 1998; within five (5) days from the date of removal of such products for the period from July 1, 1998 to December 31, 1998; and, before removal from the place of production of such products from January 1, 1999 and thereafter : . . ." The aviation fuel purchased by the petitioner from Petron Corporation is a locally manufactured petroleum product subject to excise tax under Section 148(g) of the Tax Code. Following the aforequoted provisions of Section 130(A)(2) of the Tax Code, Petron Corporation remitted to the Bureau of Internal Revenue on the following dates the specific (excise) taxes it passed on to petitioner: Payment For liftings Exhibit Date covering B 12/28/98 12/22/98 C 1/25/99 1/23/99 D 2/12/99 2/11/99 E 3/19/99 3/18/99 F 4/15/99 4/14/99 G 5/25/99 5/23/99 H 6/10/99 6/9/99 As can be gleaned from the above schedule, the specific tax remittance on December 28, 1998 pertains to aviation jet fuel removed by Petron Corporation from its place of production on December 22, 1998. The next remittance on January 25, 1999 covers aviation jet fuel removals on January 23, 1999. It may then be safely assumed that the specific taxes of P517,943.43 corresponding to the aviation jet fuel sold and delivered by Petron Corporation to petitioner from January 3, 1999 to January 22, 1999 were included in the remittance of December 28, 1998. Below is the breakdown of the amount of P517,943.43: Aviation Delivery Specific Exhibit Date Receipt/Invoice Tax Paid K-6 1/3/99 202839 6,239.00 K-7 1/4/99 202872 9,505.30 K-8 1/5/99 202887 8,184.10 K-9 1/7/99 202914 25,469.80 K-10 1/8/99 202925 11,890.80 K-11 1/9/99 202935 24,478.90 K-12 1/10/99 202942 17,395.80 K-13 1/11/99 202963 31,378.50 K-14 1/12/99 202976 16,148.00 K-15 1/13/99 202986 10,863.20 K-16 1/14/99 203809 26,130.40 K-17 1/15/99 203825 27,304.80 K-18 1/16/99 203837 33,433.70 K-19 1/18/99 203865 19,340.90 K-20 1/19/99 203890 11,817.40 K-21 1/20/99 203901 2,532.30 K-22 1/21/99 203923 7,486.80 K-26 1/2/99 203030 22,298.92 K-27 1/3/99 203037 30,306.86 K-28 1/6/99 203060 38,549.68 K-29 1/10/99 203077 22,687.94 K-30 1/13/99 203094 35,279.71 K-31 1/17/99 203118 33,327.27 K-32 1/20/99 203128 36,791.75 K-36 1/22/99 203932 9,101.60 P517,943.43 ========= Since the Petition for Review was filed on January 3, 2001, the two-year prescriptive period started to run on January 4, 1999 and any excise tax payment made prior to January 4, 1999 had already prescribed. Hence, the specific taxes of P517,943.43 included in the remittance of December 28, 1998 are barred by prescription. Only the remaining substantiated specific taxes of P3,680,474.18 (P4,198,417.61 less P517,943.43) fall within the two-year prescriptive period. What now remains to be resolved is whether or not petitioner is exempted from the payment of the specific taxes of P3,680,474.18. In a similar case involving the same parties and issues entitled Silkair [Singapore] PTE, Ltd. vs. Commissioner of Internal Revenue, CTA Case No. 6130, dated July 28, 2003, this court laid down the following conditions in order that the petroleum products sold to an international air carrier will be exempted from the payment of excise taxes: a. that the petroleum products sold to international carriers of Philippine or foreign registry shall be for their use or consumption outside the Philippines; b. that the petroleum products sold to these international carriers shall be stored in a bonded storage tank and may be disposed of only in accordance with the rules and regulations to be prescribed by the Secretary of Finance, upon recommendation of the Commissioner; and c. that the country of said foreign international carrier exempts from similar taxes petroleum products sold to Philippine carriers. There is no doubt that petitioner is an international carrier and that the aviation jet fuel it purchased from Petron Corporation for the subject period of claim with the related specific taxes of P3,680,474.18 were used or consumed outside the Philippines. Likewise, as to whether the country of said foreign international carrier exempts from similar taxes petroleum products sold to Philippine carriers, the court rules in the affirmative, thus: ". . . the Court finds that Petitioner had substantially complied with the reciprocity clause mentioned in Section 132 (now 135) of the Tax Code when it presented in evidence the Air Transport Agreement between the Government of the Republic of the Philippines and the Government of the Republic of Singapore executed on July 11, 1974 (Exh. J) specifically Art. 4(2) of the same (Exh. J-1), quoted below, . . . : "AIR TRANSPORT AGREEMENT BETWEEN THE GOVERNMENT OF THE REPUBLIC OF THE PHILIPPINES AND THE GOVERNMENT OF THE REPUBLIC OF SINGAPORE The Government of the Republic of the Philippines and the Government of the Republic of Singapore, hereinafter described as the Contracting Parties, Being parties to the Convention on International Civil Aviation and the International Air Services Transit Agreement both opened for signature at Chicago on the 7th day of December, 1944, and Desiring to conclude an agreement for the purpose of establishing and operating air services between and beyond their respective territories, Hereby agree as follows: xxx xxx xxx ARTICLE 4 xxx xxx xxx 2. Fuel, lubricants, spare parts, regular equipment and aircraft stores introduced into, or taken on board aircraft in the territory of one Contracting Party by, or on behalf of, a designated airline of the other Contracting Party and intended solely for use in the operation of the agreed services shall, with the exception of charges corresponding to the service performed, be exempt from the same customs duties, inspection fees and other duties or taxes imposed in the territory of the first Contracting Party, even when these supplies are to be used on the parts of the journey performed over the territory of the Contracting Party in which they are introduced into or taken on board. The materials referred to above may be required to be kept under customs supervision and control." xxx xxx xxx Moreover, the aforequoted Air Transport Agreement between the Philippines and Singapore is not a mere moral obligation but creates a legally binding obligation between the Philippines and Singapore. It forms part of the laws of the countries involved in accordance with most fundamental rule in international law, known as pacta sunt servanda international agreements must be performed in good faith. Hence, both parties must fulfill the obligations undertaken." (CTA Case No. 6130, supra) However, with reference to the second requisite, no evidence was adduced by petitioner to establish the fact that the aviation jet fuel it purchased from Petron Corp. with the related specific taxes of P3,680,474.18 came from the latter's bonded storage tank. Such failure on the part of petitioner is fatal to its claim. Petitioner should have presented convincing proof that its aviation jet fuel purchases with the related specific taxes of P3,680,474.18 fall the within the exemption provided for under Section 135 of the Tax Code. Considering the oft-repeated dictum that refund of taxes partakes the nature of a tax exemption and is construed in strictissimi juris against the taxpayer and in favor of the taxing authority (Commissioner of Internal Revenue vs. Rio Tuba Nickel Mining Corporation and the Court of Tax Appeals, G.R. Nos. L-83583-84, March 25, 1992, 207 SCRA 549; Commissioner of Internal Revenue vs. Tokyo Shipping Co., Ltd. 244 SCRA 332), this court rules to deny the instant petition. While it is true that in the previous cases involving the same parties and subject matter, namely; CTA DATE ENTRY OF PERIOD CASE NO. TITLE PROMULGATED JUDGMENT INVOLVED 5891 Silkair (Singapore) PTE. LTD., January 17, 2002 February 14, 2002 July Dec 1997 vs. The Commissioner of Internal Revenue 5710 Silkair (Singapore) PTE. LTD., March 8, 2001 July 5, 2001 Jan Jun 1997 vs. Commissioner of Internal Revenue 5655 Silkair (Singapore) PTE. LTD., May 24, 2000 June 14, 2000 Jul Dec 1996 vs. The Commissioner of Internal Revenue 5430 Silkair (Singapore) PTE. LTD., August 20, 1999 November 4, 1999 Oct '94 Apr '95 vs. The Commissioner of Internal Revenue 5382 Silkair (Singapore) PTE. LTD., June 7, 1999 June 25, 1999 Mar Sep 1994 vs. The Commissioner of Internal Revenue this court granted petitioner's claim for refund, nevertheless, the above cases are inapplicable to the present case. Since the periods involved in the said cases were from March 1994 to December 1997, the governing law was Section 132 of the Tax Code, prior to its amendment under Republic Act No. 8424, otherwise known as the Tax Reform Act of 1997, to wit: "SEC. 132. Petroleum products sold to foreign international carriers. Petroleum products sold to an international carrier for its use and consumption outside of the Philippines shall not be subject to excise taxes, Provided: That the country of said carrier exempts from similar taxes petroleum products sold to Philippine carriers. To be entitled to the exemption for the payment of the excise tax, the old Tax Code mentioned only one condition, that is, that the country of said carrier exempts from similar taxes petroleum products sold to Philippine carriers. However, Section 135 of the present Code provided two other requirements, as earlier mentioned. In view of the foregoing, the instant Petition for Review is hereby DENIED. SO ORDERED. (SGD.) LOVELL R. BAUTISTA Associate Judge I CONCUR: (SGD.) JUANITO C. CASTAEDA, JR. Associate Judge Separate Opinions DISSENTING OPINION With due respect to the opinion of the majority, I beg to disagree with their opinion that because petitioner failed to prove that the fuel delivered by Petron came from the latter's bonded storage tank, the claim should be denied. Oil companies were maintaining bonded storage tank as manufacturer, pursuant to Section 158 of the National Internal Revenue Code. In other words, said requirement is addressed to the oil company and it will be unfair to require it from the International Airline. Granting for purposes of argument, that it is a must requirement under Section 135 (A), however, the tax exemption can still be justified under Section 135 (b), "exempt entities or agencies covered by tax treaties, conventions and other international agreements for their use or consumption" . The condition set by this provision is that the country of the said foreign international carrier or exempt entities or agencies exempts from similar taxes petroleum products sold to Philippine carriers, entities or agencies. There is no requirement that the fuel sold should come from a bonded storage tank. The Philippines has an existing Air Transport Agreement with the Republic of Singapore, cited in the body of the decision, which provides under Article 4 as follows: xxx xxx xxx ARTICLE 4 xxx xxx xxx "2. Fuel, lubricants, spare parts, regular equipment and aircraft stores introduced into, or taken on board aircraft in the territory of one Contracting Party by, or on behalf of, a designated airline of the other Contracting Party and intended solely for use in the operation of the agreed services shall, with the exception of charges corresponding to the service performed, be exempt from the same customs duties, inspection fees and other duties or taxes imposed in the territory of the first Contracting Party, even when these supplies are to be used on the parts of the journey performed over the territory of the Contracting Party in which they are introduced into or taken on board. The materials referred to above may be required to be kept under customs supervision and control." This agreement clearly provides the tax exemption of fuel and lubricants taken on board aircraft in the territory of one contracting party or on behalf of a designated airline of the other contracting party. This also shows the reciprocal enjoyment of the privilege of the designated airline of the contracting parties. This Air Transport Agreement clearly satisfies the requirement under Section 135 (b). As held by this court in a previous case involving the same parties, CTA Case No. 5655 (cited also in the decision). I quote: "Moreover, the aforequoted Air Transport Agreement between the Philippines and Singapore is not a mere moral obligation but create a legally binding obligation between the Philippines and Singapore. It forms part of the laws of the countries involved in accordance with most fundamental rule in international law, known as pacta sunt servanda international agreements must be performed in good faith. Hence, both parties must fulfill the obligations undertaken." (CTA Case No. 5655, supra )" The denial of this claim based on the ground stated by the majority opinion, is a clear disregard of this international bilateral agreement and will certainly have repercussion on our own Airline based on the reciprocity arrangement. (SGD.) ERNESTO D. ACOSTA Presiding Judge