Commissioner of Internal Revenue v. CMS Logging, Inc.

SECOND DIVISION [CA-G.R. SP No. 24275. August 24, 1993.] (C.T.A. Cases Nos. 1874 and 1895) COMMISSIONER OF INTERNAL REVENUE , petitioner , vs . CMS, LOGGING, INCOR PORATED and THE COURT OF TAX APPE ALS , respondents . D E C I S I O N KAPUNAN , J p : Before Us is a Petition for Review filed by the Commissioner of Internal Revenue seeking to reverse the decision of the Court of Tax Appeals granting a tax refund or credit in favor of private respondent CMS Logging, Inc. in the amounts of P3,358.20 and P14,876.56 or an aggregate amount of P18,234.76, representing 25% of specific tax paid on petroleum products purchased from Caltex (Philippines), Inc. and used in CMS Logging's operations for the period covering September 1, 1965 to December 31, 1965 and January 1, 1966 to May 31, 1967, respectively. The controversy stemmed from petitioner's denial of private respondent's request for tax credit or refund of the said amount of P3,358.20 and P14,876.56 embodied in the latter's requests dated July 5, 1967 (Records, CTA Case No. 1874, pp. 11-12) and October 18, 1967 (Records, CTA Case No. 1895, pp. 11-12), respectively. Considering that similar prior respectively. Considering that similar prior demands were already denied by petitioner and were then pending before the Tax Court, private respondent filed two separate petitions for review with the Court of Tax Appeals for the refund or tax credit of the amounts of P3,358.20, and P14,876.56, docketed as CTA Cases Nos. 1874 and 1895, respectively. In his identical answers to both petitions for review, petitioner contended that the privilege of partial tax refund granted under Sec. 5 of Republic Act No. 1435 to those using oils in their logging operations, like partial tax refund of specific tax paid on oils used in agriculture and aviation granted under Sec. 12 of the same law, is limited to a period of five (5) years counted from June 14, 1956, the date R.A. No. 1435 took effect, or until June 14, 1956, the date R.A. No. 1435 took effect, or until June 14, 1961 (Records, CTA Case No. 1874, pp. 22-24; CTA Case No. 1895, pp. 31-33). The only issue in the two cases as formulated by the Court of Tax Appeals is: "whether or not the 25% specific tax exemption on petroleum products used by forest concessionaires in their logging operations is limited to a period of five years from the effectivity of Republic Act No. 1435 on June 14, 1956 or until June 14, 1961". On May 12, 1989, the Court of Tax Appeals rendered a joint decision, the dispositive portion of which reads: "WHEREFORE, the instant petitions for review filed by petitioner are hereby GRANTED. Respondent is hereby ordered to refund or grant a tax credit in favor of petitioner the sums of P3,358.20, corresponding to the period from September 31, 1965 in C.T.A. Case No. 1874; and P14,876.56, corresponding to the period from January 1, 1966 to May 31, 1967 in C.T.A. Case No. 1895, representing specific taxes paid on the purchases of petroleum products used in its forest operations. "Without pronouncement as to costs. "SO ORDERED." In deciding in favor of private respondent, the Court of Tax Appeals reiterate its previous ruling in the cases of CMS Logging Inc. vs. Commissioner of Internal Revenue, C.T.A. Cases Nos. 1569, 1674 and 1804 decided on a August 30, 1969, and Atlas Consolidated Mining vs. Commissioner of Internal Revenue, C.T.A. Cases 1638 and 1708 decided on August 15, 1968, wherein said court said: "The partial refund of specific taxes paid for oils used in agriculture and aviation, during a limited period, appears in Section 142 of the Revenue Code while the partial refund of specific tax paid for oils used by miners and forest concessionaires, without limitation as to time, is in Section 5 of the Act. To judge from their placement and their tenor, they are clearly disparate provisions. We cannot find any plausible reason for reading the limitation of the operative period provided for oils used in agriculture and aviation into the provision on the refund to miners and forest concessionaires. Note that Section 5 of the Act has to provide expressly that the procedure for refund provided in subparagraphs 1 and 2 of Section 142 of the Revenue Code are applicable to refunds to miners and forest concessionaires otherwise it would be deficient on this point since the provisions in Section 142 of the Revenue Code are not supposed to supplement the deficiencies in the provision granting partial refund to miners and forest concessionaires Needless to say this express reference to Section 142 of the Revenue Code cannot be expanded in tenor to scope to include things not stated therein, like the limitation as to the operative period of the refund. "The debates in Congress in connection with Republic Act 1435, the pertinent excerpt of which we are quoting hereunder, are elucidating: "xxx xxx xxx "Thus, we see from the foregoing except that the reason for the refund of specific taxes paid when oil for fuel and lubrication is used in agriculture and a aviation is different from that advanced for the grant of similar privileges to miners and forest concessionaires. With respect to the first the purpose is to foster agriculture and aviation for a limited period. As for the second the reason advanced is that the miners and forest concessionaires, from the very nature of their industries, which, parenthetically, is of permanent character, do not use public roads as often as other users and to place on them equal burden in the maintenance of roads and bridges transgresses on the sense of fairness of Congress. Based on fundamentally different reasons as they are, it is not at all surprising that the privileges of one has different conditions from those of the other." Taking exceptions to the decision of the Court of Tax Appeals, the Commissioner of Internal Revenue filed the instant petition for review with the Supreme Court, docketed as G.R. Nos. 88338-29. After private respondent filed its comment on the petition, the Supreme Court referred the cases to this Court for determination and disposition in a resolution dated January 23, 1991. The petition alleges, as grounds therefor, that: "1. THE TAX COURT ERRED IN RULING THAT CMS LOGGING IS ENTITLED TO THE REFUND CLAIMED. "2. THE COURT OF TAX APPEALS ERRED IN HOLDING THAT THE PRIVILEGE OF A PARTIAL REFUND OF SPECIFIC TAX PAID ON PURCHASES OF PETROLEUM USED IN CMS LOGGING'S FOREST OPERATING AS PROVIDED UNDER SECTION 5 OF R.A. 1435 STILL SUBSISTS." The Supreme Court has already squarely ruled on the issue raised in the case at bar in its decision in Commissioner of Internal Revenue vs. Rio Tuba Nickel Mining Corporation (202 SCRA 137 [1991]) as modified in its Resolution promulgated on March 25, 1992 (207 SCRA 549). In said Resolution, it held that mining and logging companies are entitled to the refund privilege granted by R.A. No. 1435 on specific taxes paid up to 1985 on manufactured and diesel fuel oils. In CIR vs. Rio Tuba Nickel Mining Corp ., the Court of Tax Appeals sustained the claim for refund of the mining company of certain amounts representing 25% of the specific taxes collected on the refund and manufactured mineral oils, motor fuel and diesel fuel oils that it utilize in its operations as a mining concessionaire during the period from June 1, 1980 to May 31, 1982 and from May, 1982 to March, 1983. The Commissioner of Internal Revenue had previously denied Rio Tuba's claim for refund giving the following reason: "It appears that your claim is principally anchored on the provisions of Republic Act No. 1435, Section 5 of which authorizes the refund of 25% of the specific tax paid on petroleum products if used in mining or logging. Said provision, should however be read in conjunction with the provision of Section 4 of that law. It is our view that in order to avail of the benefits of partial tax refund mentioned in said Act, there must also be a municipal or city ordinance which imposes an additional tax of not exceeding 25% of the regular specific tax levied under Section 142 and 145 of the Tax Code. In other words, refund will arise only after the enactment of the required ordinance levying the additional tax and subsequent payment thereof. In fine, it is no longer the national tax that is being refunded but only 25% local additional tax. "With the issuance however of Presidential Decree Nos. 231 and 426 dated June 28, 1973 and March 30, 1984, respectively, cities and municipalities can no longer levy any additional tax on articles subject to the specific tax. Consequently, and as the refund sought entirely depends on the exercise of such power, partial refund of specific tax payments on the petroleum products used in logging or mining can no longer be authorized. Furthermore, Presidential Decree No. 711 which took effect on July 1, 1975 abolished all special and fiduciary funds. Since Republic Act No. 1435 was passed by Congress precisely to provide the means of increasing the Highway special Fund, said Decree has in effect repealed said Act; hence, the same can no longer be invoked as the basis for instituting claims for refund of alleged overpaid specific tax." The basic issues raised by the Commissioner of Internal Revenue before the Supreme Court, which are the very same issue ventilated in the present case, were: "1. Whether the privilege of a partial refund of specific tax paid on manufactured oils used in mining concessions as provided under Section 5, R.A. No. 1435 presently subsists; and "2. Assuming arguendo that such privilege still exists, whether Rio Tuba is entitled to such refund." The full text of R.A. 1435 upon which Rio Tuba's based its claim for refund, and which is the very same law now invoked by herein private respondent, states: "Section 1. Section one hundred and forty-two of the National Internal Revenue Code, as amended, is further amended to read as follows: "Sec. 142. Specific Tax on manufactured oils and other fuels. On refined and manufactured mineral oils and motor fuels, there shall be collected the following taxes: "(a) Kerosene or petroleum, per liter of volume capacity, two and one-half centavos; "(b) Lubricating oils, per liter of volume capacity, seven centavos; "(c) Naphtha, gasoline and all other similar products of distillation, per liter of volume capacity, eight centavos; and "(d) On denatured alcohol to be used for motive power, per liter of volume capacity, one centavo; Provided, That if the denatured alcohol is mixed with gasoline, the specific tax on which has already been paid, only the alcohol content shall be subject to the tax herein prescribed. "For the purpose of this subsection, the removal of denatured alcohol of not less than one hundred eighty degrees proof (ninety per centum absolute alcohol) shall be deemed to have been removed for motive power, unless shown to the contrary. "Whenever any of the oils mentioned above are, during the five years from June eighteen, nineteen hundred and fifty-two, used in agriculture and aviation, fifty per centum of the specific tax paid thereon shall be refunded by the Collector of Internal Revenue upon the submission of the following: "(1) A sworn affidavit of the producer and two disintegrated persons proving that the said oils were actually used in agriculture, or in lieu thereof. "(2) Should the producer belong to any producers association or federation, duly registered with the Securities and Exchange Commission, the affidavit of the president of the association or federation, attesting to the fact that the oils were actually used in agriculture. "(3) In the case of aviation oils, sworn certificate satisfactory to the Collector proving that the said oils were actually used in aviation: Provided, That no such refunds shall be granted in respect to the oils used in aviation by citizens and corporations of foreign countries which do not grant equivalent refunds or exemptions in respect to similar oils used in aviation by citizens and corporations of the Philippines. "Section 2. Section one hundred and forty-five of the National Internal Revenue Code, as amended, is further amended to read as follows: "Sec. 145. Specific Tax on Diesel fuel oil . On fuel oil, commercially known as diesel fuel oil, and on all similar fuel oils, having more or less the same generating power, there shall be collected, per metric ton, one peso. "Section 3. The proceeds of the increased taxes accruing to the Highway Special Fund, as a result of the amendment of Sections one hundred and forty-two and one hundred and forty-five of the National Internal Revenue Code as above provided, shall be set aside exclusively for amortizing loans or bonds that may have been authorized for the construction, reconstruction or improvement of highways including bridges as well as for liquidating toll bridges constructed from revolving funds authorized under Act Numbered Thirty-five hundred, as amended, whenever such liquidation is recommended by the Secretary of Public Works and Communications and approved by the President. "Section 4. Municipal Boards or councils may, notwithstanding the provisions of sections one hundred and forty-two and one hundred and forty-five of the National Internal Revenue Code, as hereinabove amended, levy an additional tax of not exceeding twenty-five per centum of the rates fixed in said sections, on manufactured oils sold or distributed within the limits of the city or municipality; Provided, That municipal taxes heretofore levied by cities through city ordinances on gasoline, airplane fuel, lubricating oil and other fuels, are hereby ratified and declared valid. The method of collecting said additional tax shall be prescribed by the municipal board or council concerned. "Section 5. The proceeds of the additional tax on manufactured oils shall accrue to the road and bridge funds of the political subdivision for whose benefit the tax is collected: Provided, however, that whenever any oils mentioned above are used by miners or forest concessionaires in their operations, twenty-five per centum of the specific tax paid thereon shall be refunded by the Collector of Internal Revenue upon submission of proof of actual use of oils and under similar conditions enumerated in subparagraphs one and two of section one thereof, amending section one hundred forty-two of the Internal Revenue Code: Provided, further That no new road shall be constructed unless the routes or location thereof shall have been approved by the Commissioner of Public Highways after a determination that such road can be made part of an integral and articulated route in the Philippine Highway Act of 1953. "Section 6. This Act shall take effect upon its approval. "Approve, June 14, 1956." The Supreme Court held in its original decision in the case of Rio Tuba that the proviso in Sec. 5 of R.A. 1435 standing alone is enough basis for the grant of refund, there being nothing in said proviso which states that before a miner can be entitled to the 25% tax refund of specific taxes paid on the oils it used in its operations, there must first be a municipal or city ordinance levying additional tax not exceeding 25% of the rates fixed in Sections 142 and 145 of the Tax Code. However, the Supreme Court ruled that Rio Tuba is not entitled to tax refund because Presidential Decree No. 711 issued on July 1, 1975, Section 1 of which provides that: "All existing special and fiduciary funds are hereby abolished and all assets, liabilities, surpluses and appropriations pertaining to all special and fiduciary funds as authorized by the corresponding acts, laws, or decrees creating decrees creating such special and fiduciary funds, as well as the financing and operations thereof, are hereby transferred to the General fund of the National Government; provided that the personnel whose salaries and/or wages are drawn from such special and fiduciary funds shall be paid out of the General Fund subject to the provisions of Section 2 hereof." abolished all existing special and fiduciary funds, rendering the proviso in Section 5 of RA 1435 an anachronism. It goes without saying, then, that Rio Tuba's request for refund could no longer be granted because it covered transactions after the proviso in Sec. 5 of RA 1435 was impliedly repealed by P.D. 711. The Supreme Court thus stated: "Thus we find that the disputed proviso found in Section 5 of RA No. 1435 was drafted to favor a particular group of taxpayers the miners and the lumbermen-because it was 'unfair' to subject them to the increased rates and in effect make them subsidize the construction of highways from which they did not directly benefit. This is the raison d'etre for the grant of partial tax exemption under RA No. 1435. Now, if, by virtue of PD No. 711, the funds that have accrued from the various special funds are channeled to the so-called General Fund, then there is no need or justification for the continued special treatment accorded to the miners. With PD No. 711, any government project can be the beneficiary of such funds as long as it is for the general welfare of the masses. Given the present concept of the general fund and its wide application, then the proviso in Section 5 of RA No. 1435 has truly become an anachronism. It is inevitable that, sooner or later, the miners will stand to benefit from any of the government endeavors and it will no longer be correct to asseverate that the imposition of the increased rates in specific taxes to augment the general fund for government undertakings is 'unfair' to the miners because they are not directly convenienced. "While we generally do not favor repeal by implication, it cannot be denied that situations can and do arise wherein we are left with no other alternative but to concede the point that an earlier law has been impliedly repealed or revoked by a later law because of an obvious inconsistency. "Tax measures, in recent years, have proliferated to alarming proportions. More often than not, they serve to worsen the already growing confusion in the minds of our taxpayers. There is much to be said about the strong and persuasive arguments of both sides but we are compelled to abide by the maxim that all doubts must be resolved in favor of the taxing authority and that tax exemptions (or tax refunds for that matter) must be strictly construed and can only be given force when the grant is clear and categorical. We therefore hold that the tax refunds in the amounts of P695,216.36 and P859,076.90 in favor of private respondent Rio Tuba must be set aside. "WHEREFORE, the instant petition is hereby GRANTED. The questioned decision of the Court of Tax Appeals is SET ASIDE. Private respondent Rio Tuba Mining Corporations' twin claims for refunds of specific taxes paid on manufactured oils are DENIED. No costs. "SO ORDERED." However, upon motion for reconsideration of Rio Tuba, the Supreme Court in its Resolution in its Resolution of March 25, 1992 modified its decision, saying that it cannot now state with definiteness that it was P.D. 711 which impliedly repealed Section 5 of RA 1435; that it can, however, safely conclude that the same section "is now an anachronism because the Highway Special Fund, after 1985, no longer exists"; that its decision as modified allows mining and logging companies to the refund privilege granted by RA 1435 on manufactured and diesel fuel oils. We reproduce hereunder the Resolution in full: "Private respondent Rio Tuba Nickel Mining Corporation (Rio Tuba) seeks a reconsideration of the Court's decision in G.R. Nos. 83583-84 dated September 30, 1991 denying its claim for refund of specific taxes paid on manufactured oils and diesel fuel oil. "The Court ruled in the decision that Section 5 of Republic Act (R.A.) No. 1435, which granted to lumber and mining companies the privilege of refund of twenty five (25%) percent of specific taxes paid by them when such oils are used in their operations, was impliedly repealed by Presidential Decree (P.D.) No. 711 which abolished all special and fiduciary funds. "Under R.A. No. 1435, the specific taxes on manufactured oils and diesel fuel oil accrued to the Highway Special Fund. The Court stated that miners and lumbermen were accorded refund privileges under R.A. No. 1435 because they seldom use the national highways since they have their own roads and it was unfair to subject them to the increased tax rates and in effect make them subsidize the construction of highways from which they did not directly benefit. According to the Court, since by virtue of P.D. No. 711, all funds that have accrued from the various special funds are channeled to the so-called General Fund, there is, therefore, no need nor justification for the continued special treatment of these miners and loggers. Thus, reasoned the Court, since under P.D. No. 711 any government project can be the beneficiary of such funds as long as it is for the general welfare of the masses and it is inevitable that sooner or later the miners and loggers will stand to benefit from these government benefits, then the refund privilege in R.A. No. 1435 has become an anachronism. The Court ruled that the refund privilege granted to miners and loggers under R.A. 1435 was impliedly repealed by P.D. No. 711. "This decision was premised on the assumption that the Highway Special Fund was one of those funds abolished and transferred to the General Fund by P.D. No. 711 which took effect on July 1, 1975. "Despite the mandate of P.D. No. 711, however, several special funds were still retained and the highway Special Fund was one of them. "Proof that some of these special and fiduciary funds were retained may be extracted from the provisions of P.D. No. 1741 dated October 31, 1980 which governs the computation of National Internal Revenue allotments to local government units. Section 2 of said decree provides: 'SEC. 2. Magnitude of Assistance . A maximum of twenty per cent (20%) of national internal revenue taxes shall be available for national assistance to local government units. Provided, That the national revenue used as basis in computation shall exclude receipts accruing to Special or national revenue used as basis in computation shall exclude receipts accruing to Special or Fiduciary Funds and to Special Accounts in the General Fund, amounts authorized by law to be used by the collecting agency, and amounts recorded as income of the General Fund but which are charged to appropriations in the Central or other Appropriations Laws.' "The Internal Revenue Allotments annually prepared by the Bureau of Internal Revenue in accordance with the foregoing decree showed that the Highway Special Fund continued its existence up to 1985 and was channeled to the General Fund only in 1986. "It is not clear why the Highway Special Fund was maintained for 10 years after the effectivity of P.D. No. 711 or why it was abolished in 1986. The stark fact remains that it retained its status as a special fund up to 1985. "With the foregoing consideration, we cannot therefore state with definiteness that it was P.D. No. 711 which impliedly repealed Section 5 of R.A. No. 1435. We can however safely conclude that Section 5 of R.A. No. 1435 is now an anachronism because the Highway Special Fund, after 1985, no longer exists. "The rationale for the Court's decision denying the private respondent's twin claims for refund was that the specific taxes on these manufactured oils paid by the mining and lumber companies no longer accrued to the Highway Special Fund. But given the added circumstance that the Highway Special Fund which was financed by these specific taxes still continued up to 1985, it will be highly inequitable for the private respondent it we were rule that no refund of specific taxes paid up to 1985 which actually accrued to the Highway Special Fund (not the General Fund) may be given. The private respondent still did not directly benefit from the projects supported by the Highway Special Fund. "We therefore, modify our decision in this case and rule that mining and logging companies are entitled to the refund privilege granted by R.A. No. 1435 on specific taxes paid up to 1985 on manufactured and diesel fuel oils. "Since the private respondent's claim for refund covers specific taxes paid from 1980 to July 1983 then we find that the private respondent is entitled to a refund. It should be made clear, however, that Rio Tuba is not entitled to the whole amount it claims as refund. "The specific taxes on oils which Rio Tuba paid for the aforesaid period were no longer based on the rates specified by Sections 1 and 2 of R.A. No. 1435 but on the increased rates mandated under Sections 153 and 156 of the National Internal Revenue Code of 1977. We note, however, that the latter law does not specifically provide for a refund to these mining and lumber companies of specific taxes paid on manufactured and diesel fuel oils. "In Insular Lumber Co. vs. Court of Tax Appeals, (104 SCRA 710 [1981]), the Court held that the authorized partial refund under section 5 of R.A. No. 1435 partakes of the nature of a tax exemption and therefore cannot be allowed unless granted in the most explicit and categorical language. Since the grant of refund privileges must be strictly construed against the taxpayer, the basis for the refund shall be the amounts deemed paid under Sections 1 and 2 of R.A. No. 1435. "ACCORDINGLY, the decision in G.R. Nos. 83583-84 is hereby MODIFIED. The private respondent's CLAIM for REFUND is GRANTED, computed on the basis of the amounts deemed paid under Sections 1 and 2 of R.A. No. 1435, without interest. "SO ORDERED." WHEREFORE, in view of the ruling in Commissioner of Internal Revenue vs. Rio Tuba Nickel Mining Corporation holding that mining and logging corporations are entitled to refund privilege granted by R.A. 1435 on specific taxes paid up to 1985 in manufactured diesel and fuel oils, and considering that the refund or tax credit involved in the case at bar pertains to the periods from September 1, 1965 to December 31, 1965 and from July 1, 1966 to May 31, 1967, the petition for review is DENIED for lack of merit. SO ORDERED. Benipayo and Austria-Martinez, JJ ., concur.