Philippine Airlines, Inc. v. Commissioner of Internal Revenue

SPECIAL THIRD DIVISION [C.T.A. CASE NOS. 7677, 7685 & 7746. April 25, 2013.] PHILIPPINE AIRLINES, INC. , petitioner , vs . COMMISSIONER OF INTERNAL REVENUE AND COMMISSIONER OF CUSTOMS, respondent . AMENDED DECISION COTANGCO-MANALASTAS , J p : For resolution is respondent Commissioner of Internal Revenue's Motion for Reconsideration 1 filed on September 12, 2012. Respondent seeks reconsideration of this Court's Decision ordering respondents Commissioner of Internal Revenue and Commissioner of Customs to refund petitioner's erroneously paid excise taxes, to wit : CaAIES " WHEREFORE , premises considered, the Petitions for Review in the three (3) above captioned cases are hereby GRANTED . Accordingly, respondents Commissioner of Internal Revenue and Commissioner of Customs are hereby ORDERED TO REFUND to petitioner PAL the total amount of SIXTEEN MILLION FIVE HUNDRED NINETY THOUSAND NINE HUNDRED SIXTY NINE PESOS AND 48/100 (P16,590,969.48), representing petitioner PAL's erroneously collected excise taxes on its importation of commissary supplies for the period April 2005 to April 2006." 2 Respondent's motion is based on the following grounds: 1. Section 13 of Presidential Decree (PD) No. 1590, granting tax exemptions to petitioner, was expressly repealed by Republic Act (RA) No. 9334; and 2. Assuming that Section 13 of PD No. 1590 was not amended by RA No. 9334, petitioner failed to prove that the alleged commissary supplies are not locally available in reasonable quantity, quality or price. In its Comment 3 filed on October 5, 2012, petitioner counter-argued that: 1. Pursuant to Section 24 of PD No. 1590, before the petitioner's franchise can be amended, altered or repealed by competent authority, the latter must have a special law or decree enacted or issued "that shall specifically modify, amend, or repeal this franchise or any section or provision thereof"; and 2. The Judicial Affidavit of Mr. Victor Santos, Assistant Vice President Catering and In-flight Sub-department of petitioner, proved that the alcohol and tobacco products imported were not available locally at reasonable prices. After a judicious evaluation of the arguments of both parties, and a second hard look on the evidence on record and applicable law and jurisprudence in this case, the Court is constrained to reconsider the findings in the assailed Decision with respect to the issue on whether the commissary supplies are not locally available in reasonable quantity, quality or price. ECTIcS Anent the first ground, respondent argues that Section 16 of PD No. 1590 categorically states that "[T]his franchise is granted with the understanding that it shall be subject to amendment, alteration, or repeal by competent authority when the public interest so requires." Thus, petitioner has no vested right in the tax exemption granted to it. However, we find that Section 16 of PD No. 1590 should be read together with Section 24 of the same decree which provides: "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 or provision thereof." Pursuant to the above provisions, petitioner's franchise is subject to amendment, alteration, or repeal by competent authority. However, there must be a special law or decree specifically modifying, amending or repealing PD No. 1590 or any section or provision thereof. A careful reading of RA No. 9334 shows that there is nothing in the said law specifically modifying, amending or repealing the tax exemption of petitioner under Section 13 of PD No. 1590. Respondent likewise cited the case of Cagayan Electric Power & Light Co., Inc. vs. Commissioner of Internal Revenue and Court of Tax Appeals (G.R. No. L-60126, September 25, 1985) to bolster its claim that RA No. 9334 expressly repealed Section 13 of PD No. 1590. In the said case, Cagayan Electric Power & Light Co, Inc. (CEPLCI) is a holder of a franchise, RA No. 3247, under which its payment of 3% tax on its gross earnings from the sale of electric current is "in lieu of all taxes and assessments of whatever authority." However, with the enactment of RA No. 5431, it amended section 24 of the old Tax Code by subjecting to income tax all corporate taxpayers not expressly exempted therein. Section 24 (d) specifically states that "(d) The provisions of existing special or general laws to the contrary notwithstanding, all corporate taxpayers not specifically exempt under Sections twenty-four (c) (1) and twenty-seven of this Code shall pay the rates provided in this section." Hence, the Supreme Court held that the amendment had the effect of withdrawing CEPLCI's exemption from income tax. Applying the said ruling, respondent argues that since the same proviso "[T]he provisions of existing special or general laws to the contrary notwithstanding" is found in Section 6 of RA No. 9334, then the same result should follow that Section 13 of PD 1590 was repealed by RA No. 9334. We are not persuaded. DCcIaE Even though both petitioner and CEPLCI are franchise holders covered by a special law, a reading of RA No. 3247 shows that it does not contain a provision similar to PD No. 1590 which requires that before the franchise or any section or provision thereof may be modified, amended, or repealed, there must be a special law or decree that specifically modify, amend, or repeal said franchise or any section or provision thereof. On the other hand, petitioner cited the case of Philippine Airlines, Inc. vs. Secretary of Finance and the Commissioner of Internal Revenue (G.R. No. 115852, August 25, 1994, 235 SCRA 630, consolidated with Tolentino vs. Secretary of Finance , G.R. No. 115455, October 30, 1995, et al.). In the said case, Section 103 of the then Tax Code was amended by RA No. 7716 to read as follows: "Sec. 103. Exempt transactions . The following shall be exempt from the value-added tax: "(q) Transactions which are exempt under special laws, except those granted under Presidential Decree Nos. 66, 529, 972, 1491, and 1590 , . . ." (emphasis ours) The Supreme Court held that RA No. 7716 expressly amended PAL's franchise by specifically excepting it from the grant of VAT exemption. Applying the foregoing, since RA No. 9334 did not contain a provision expressly modifying, amending or repealing the provision of PD No. 1590, unlike RA 7716, then it did not amend or repeal Section 13 of PD No. 1590. We reiterate that under Section 22 of RA No. 9337, while the petitioner's franchise was specifically amended by abolishing its franchise tax, holding the petitioner liable to the corporate income tax and requiring petitioner to register and account for value-added tax on its sale of goods, property or services and lease of property, it also provided that "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." Section 22 of RA No. 9227, enacted following RA No. 9334, clearly shows that the legislature did not intend to withdraw the privilege granted under PD No. 1590. aACHDS Likewise, the same issue had already been decided in favor of PAL in CTA Consolidated Cases No. 7665 and 7713 dated April 17, 2012, CTA Case No. 7843 dated May 18, 2012, CTA Case No. 7868 dated June 22, 2012, CTA Case No. 7935 dated December 20, 2012 and CTA Case No. 8153 dated January 17, 2013. Anent the second ground, we find respondent's argument that petitioner failed to prove that the alleged commissary supplies are not locally available in reasonable quantity, quality or price to be partly meritorious. In order to prove that the imported alcohol and tobacco products were not locally available at a reasonable quantity, quality or price, petitioner presented the judicial affidavit of Mr. Victor Santos, 4 Assistant Vice President in charge of the Catering and In-flight Sub-department of the petitioner. In his testimony, Mr. Santos stated that importing alcoholic products are much cheaper for the petitioner than purchasing them locally. Mr. Santos explained that for the cigarettes, there are no local suppliers big enough to supply the various foreign brands petitioner is importing. Moreover, if ever there are local suppliers, their selling price would definitely be higher than the importation cost of petitioner because of the customs duties and excise taxes they add on cigarettes should the same be imported by them directly. Petitioner submitted in evidence the Table of Comparison Between Cost of Importing and Cost of Locally Purchasing Commissary and Catering Supplies, 5 invoices issued to PAL for its purchase of the subject articles, 6 Philippine Wine Merchants' Price List for 2005 7 and 2006, 8 and Monthly Philippine Dealing Systems rates for the year 2005-2006. 9 Upon a re-examination of the items on the table made by Mr. Santos, we note that only the local prices for JW Black, Remy Martin VSOP, Piper Heidsieck Brut, J&B Rare Whisky, Camus XO Superieur, Australian wines, Cutty Sark Scotch, and Remy Martin XO Excellence were available as reflected on the 2005 and 2006 Philippine Wine Merchants' price list. As for the cigarettes, other than the testimony of the said witness, there is nothing in the documentary evidence presented by petitioner which would support a conclusion that the subject cigarettes are not locally available in reasonable quantity, quality or price. Also, the Court observes that petitioner failed to present the sales invoices or official receipts for its purchase or importation of the following articles from which the local prices can be compared: TcDIaA C.T.A. Case No. 7677 IMPORT EXHIBIT ARTICLE IMPORTED & QUANTITY ENTRY NO. NO. 4068 I to I-2 Whisky JW Black, 48 cases 4113 J to J-2 Remy Martin VSOP, Piper Heidsieck Brut, 125 cartons 7254 M to M-2 JW Black and J&B Rare Whisky, 148 cases 5238 N to N-2 J&B Rare, 131 Cases 7247 P to P-2 Pinot Grigio Tamas Estates Monterey (Wines), 160 cases 7252 Q to Q-2 Hardy Wines, 200 cases 3837 R to R-2 J&B Rare, 186 cases, JW Whisky, 175 cases 7250 S to S-2 Piper Heidsieck Cuvee Brut, 50 cases 7248 W to W-2 Camus XO Superieur, 26 cases 4061 X to X-2 Cabernet Sauvignon, 195 cartons C.T.A. Case No. 7685 IMPORT EXHIBIT ARTICLE IMPORTED & QUANTITY ENTRY NO. NO. 14322 DD to DD-2 Australian Wines, 1,183 & 490 cartons 7279 HH to HH-2 Piper Heidsieck Brut, 85 cases 7693 II to II-2 Cutty Sark Scotch Whisky, 60 cases 7694 KK to KK-2 Tamas Estate Pinot Grigio, 160 cases 7272 LL to LL-2 Cabernet Sauvignon, 195 cases 10385 MM to MM-2 Remy Martin VSOP, 46 cases, Remy Martin XO, 8 cases C.T.A. Case No. 7746 IMPORT EXHIBIT ARTICLE IMPORTED & QUANTITY ENTRY NO. NO. 12763 RR to TT Wines, 3051 cases It must be noted that the Court may not consider the comparison made by petitioner between the unit cost of the articles as per Informal Import Declaration Entry Number and the local prices of the same articles considering that, per testimony of Mr. Santos, 10 the said unit costs are based on the valuations given by the Bureau of Customs from which they assessed and collected the excise tax due and thus, are not the actual cost or price of the subject imported articles. Accordingly, only the payment of excise tax on the following importations, which was sufficiently supported by sales invoices, Bureau of Customs Official Receipts, Authority to Release Imported Goods and other documentary evidence, may be refunded: IMPORT DATE OF ATRIG No. ARTICLE BOC EXCISE ENTRY IMPORTATION IMPORTED & OFFICIAL TAX PAID NO. QUANTITY RECEIPT NO. C.T.A. Case No. 7677 7251 May 6, 2005 54528 Wente Cabernet 126361243 30,660.00 (Exh. T) (Exh. T-2) Sauvignon (Exh. Y-1) 11 2001, 195 cartons C.T.A. Case No. 7685 10384 June 15, 2005 55128 Remy Martin 127859855 27,095.00 (Exh. OO) (Exh. OO-2) XO, 8 cases (Exh. PP-1) 12 TOTAL 57,755.00 ======= A claimant has the burden of proof to establish the factual basis of his or her claim for tax credit or refund. 13 Tax refunds are in the nature of tax exemptions. As such, they are regarded as derogation of sovereign authority and to be construed strictissimi juris against the person or entity claiming the exemption. 14 As required by PD No. 1590, in order to claim exemption from excise taxes, petitioner must prove that the articles imported are not locally available in reasonable quantity, quality or price. However, petitioner was able to discharge such burden of proof as regards the portions that were duly substantiated. Hence, petitioner's claim for refund of erroneously paid excise tax should be granted only in the amount of P57,755.00. WHEREFORE , premises considered, respondent Commissioner of Internal Revenue's Motion for Reconsideration is hereby PARTIALLY GRANTED . The August 24, 2012 Decision of this Court is hereby MODIFIED . Accordingly, respondents Commissioner of Internal Revenue and Commissioner of Customs are hereby ORDERED TO REFUND to petitioner the total reduced amount of FIFTY SEVEN THOUSAND SEVEN HUNDRED FIFTY FIVE PESOS (P57,755.00) , representing petitioner's erroneously collected excise taxes on its importation of commissary supplies for the period April 2005 to April 2006. HSEcTC SO ORDERED . (SGD.) AMELIA R. COTANGCO-MANALASTAS Associate Justice Lovell R. Bautista, J., concurs. Footnotes 1. Rollo , C.T.A. Case Nos. 7677, 7685 & 7746, pp. 1165-1177. 2. Rollo , pp. 1163-1164. 3. Rollo , pp. 1199-1208. 4. Exhibit "GGGG" . 5. Exhibit "GGGG-3" . 6. Exhibits "K-3", "L-3", "O-3", "T-3", "U-3", "V-3", "GG-3", "JJ-3", "NN-3", "NN-4", "OO-3", "WW-3", "BBB-3", "GGG-3", "LLL-3", and "QQQ-3" . 7. Exhibit "EEEE" . 8. Exhibit "FFFF" . 9. Exhibit "GGGG-2" . 10. Rollo , p. 756 (Exhibit "GGGG") . 11. Payment part of Bureau of Customs Official Receipt No. 126361243 dated September 9, 2005 in the total amount of P7,407,151.00 (Exhibits "Y" and "Y-1") . 12. Payment part of Bureau of Customs Official Receipt No. 127859855 dated October 27, 2005 in the total amount of P4,033,434.00 (Exhibits "PP" and "PP-1") . 13. Citibank, N.A. vs. Court of Appeals and the Commissioner of Internal Revenue , G.R. No. 107434, October 10, 1997. 14. Commissioner of Internal Revenue vs. S.C. Johnson & Son, Inc., G.R. No. 127105, June 25, 1999 .