M & S Co., Inc. v. Commissioner of Internal Revenue

FIRST DIVISION [CA-G.R. SP. NO. 34985. April 27, 2000.] M & S COMPANY, INC. , petitioner , vs . COMMISSIONER OF INTERNAL REVENUE & COURT OF TAX APPEALS , respondents . D E C I S I O N SALAS , J p : Before Us is a Petition for Review from the Decision of the CTA (Court of Tax Appeals), thus ( Rollo , p. 43): "WHEREFORE, the petition for review is hereby GRANTED. Respondent is hereby ordered to refund in favor of petitioner the amount of P5,355.35, representing erroneously paid 25% specific tax on locally purchased manufactured oils and diesel fuel oils used in its forest operations. No costs. SO ORDERED." The petitioner faulted the court a quo with the following assignment of errors (Ibid. p.7): "THE RESPONDENT CTA FAILED TO APPLY THE SUPREME COURT'S DECISION IN INSULAR LUMBER CO. VS. COURT OF TAX APPEALS WHICH GRANTED THE CLAIM FOR PARTIAL REFUND OF SPECIFIC TAXES PAID BY THE CLAIMANT WITHOUT QUALIFICATION OR LIMITATION. THE RESPONDENT CTA IGNORED THE INCREASE IN RATES IMPOSED BY SUCCEEDING AMENDATORY LAWS, UNDER WHICH THE PETITIONER PAID THE SPECIFIC TAXES ON MANUFACTURED AND DIESEL FUELS. IN ITS DECISIONS, THE RESPONDENT CTA RULED CONTRARY TO ESTABLISHED TENETS OF LAW WHEN IT LENT ITSELF TO INTERPRETING SECTION 5 OF R.A. 1435, WHEN THE CONSTRUCTION OF SAID LAW IS NOT NECESSARY. SECTIONS 1 AND 2 OF R.A. 1435 ARE NOT THE OPERATIVE PROVISIONS TO BE APPLIED BUT RATHER SECTIONS 142 AND 145 OF THE NATIONAL INTERNAL REVENUE CODE, AS AMENDED. TO RULE THAT THE BASES FOR COMPUTATION OF THE REFUNDED TAXES SHOULD BE SECTIONS 1 AND 2 OF R.A. 1435 RATHER THAN SECTIONS 153 AND 156 OF THE NATIONAL INTERNAL REVENUE CODE IS UNFAIR, ERRONEOUS, ARBITRARY, INEQUITABLE AND OPPRESSIVE." Whether or not the basis for the computation of the refund for taxes should be Sections 1 & 2, of R.A. 1435, and not Sections 153 and 156 of the NIRC (National Internal Revenue Code), to Us, is the only relevant issue. We affirm. Petitioner's claim is one for refund, supposedly pursuant to Section 5 of RA No. 1435 ("an act to provide means for increasing the highway special fund"). The facts are not disputed. The respondent raised defenses that are literally legal. As a matter of fact, he submitted the case for decision only on the basis of the pleadings. The petitioner is a domestic corporation licensed to operate a forest concession under Timber License Agreement No. 51, by the Department of Agriculture and Natural Resources. Pursuant to the agreement, Exh. A, the petitioner was authorized to cut, collect and remove timber in the public forest of Cotabato from October 18, 1965 up to June 30, 1990. From July 1, 1980 to April 30, 1982, the petitioner purchased from Caltex and Petron quantities of refined and manufactured mineral oils, motor fuel, diesel fuel oils, and aviation gas, and were actually used "to run" various machineries and motor vehicles in connection with the operation of its forest concession. The petitioner's suppliers, on the other hand, passed on to it the specific taxes on the mineral oils . . . , that were sold under Sections 153 and 156 (formerly Sections 142 and 145) of the NIRC. Supposedly, from July 1, 1980 to April 30, 1982 the 25% refund for diesel, gasoline, oils and lubricant, AV gas, amounted to a total of P325,308.37. The petitioner filed with the respondent on November 8, 1982, a claim for tax refund pursuant to Section 5, R.A. 1435 , and the Decision of the Supreme Court in the case of Insular Lumber Company vs. Court of Tax Appeals (G.R. No. L-31057, May 29, 1981) . Because the claim for refund was not acted immediately by the respondents, the petitioner went to the court a quo, on December 30, 1982, through a petition for review. The respondents then raised two (2) basic issues: (1) whether or not the 25% refund privilege on specific taxes being paid under Section 5, R. A. 1435, still applies; and (2) if the petitioner is entitled for refund. The petitioner said that it is entitled to a refund of 25% of the specific tax being paid on petron products and actually being used in the operation of its forest concession. To recall, Sections 142 and 145, NIRC, later became Sections 153 and 156, respectively, of the 1977 NIRC. Sections 153 and 156, in turn, were amended by P.D. 1672 that became effective on February 8, 1980. Sections 153 and 156 reads (Ibid, p. 36): Sec. 153. Specific Tax on manufactured oils and other fuels . On refined and manufactured mineral oils and motor fuels, there shall be collected the following taxes which shall attach to the articles hereunder enumerated as soon as they are in existence as such: (a) . . . (b) Lubricating oils, per liter of volume capacity, eighty centavos; cdll (c) Naptha, gasoline and all other similar products of distillation, per liter of volume capacity, ninety-one centavos; Provided that on premium and aviation gasoline, the tax shall be one peso per liter of volume capacity: (d) . . . (e) . . . (f) . . . (g) . . . (h) . . . (i) Greases, waxes and petrolatum per kilogram, fifty centavos; (j) . . . Section 156. 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, per liter of volume capacity, seventeen and one-half centavos, which tax shall attach to this fuel as soon as it is in existence as such." Whether or not the refund should be based on the rates being specified in Sections 1 & 2 of R. A. No. 1435 and not on the increased rates under Sections 153 and 156 of the 1977 Tax Code, is already a settled matter. We rule: the basis of the refund should be Sections 1 & 2. This brings Us to the case of Commissioner of Internal Revenue vs. Rio Tuba Nickel Mining Corporation, 202 SCRA 137, thus: "Private respondent Rio Tuba Nickel Mining Corporation is a domestic corporation engaged in the business of mining with several mining lease contracts entered into with the Republic of the Philippines. During the period from June 1, 1980 to May 31, 1982 and from May, 1982 to March, 1983, Rio Tuba purchased from Petrophil Corporation and other oil companies varied quantities of manufactured mineral oils, motor fuel oils and diesel fuel oils which respondent actually and exclusively used in connection with the exploitation and operation of its mining concessions. Petrophil Corporation and other oil companies paid and passed on to Rio Tuba the specific taxes imposed under Sections 153 and 156 (formerly Sections 142 and 145) of the National Internal Revenue Code of 1977 on the refined and manufactured oils, motor fuels and diesel oils that the said oil companies had sold to the mining firm. On July 7, 1982 and September 23, 1983 and pursuant to Section 5 of Republic Act No. 1435 and the Supreme Court decision in the case of Insular Lumber Co. vs. Court of Tax Appeals, Rio Tuba filed with the Commissioner on Internal Revenue two separate written claims for refund in the amounts of P974,978.50 and P424,303.33, respectively, representing 25% of the specific taxes collected on the refined and manufactured mineral oils, motor fuel and diesel fuel oils that it had utilized in its operations as a mining concessionaire. . . . In the assailed decision dated February 1, 1988, the Court of Tax Appeals reversed the decision of the Commissioner and instead granted Rio Tuba's claims for refund. Accordingly, the Commissioner was ordered to refund to . . . Rio Tuba Nickel Mining Corporation the sums of P695,216.36 and P859,076.90 as specific tax paid, without interest." The Commissioner of Internal Revenue now asserts that the tax refunds granted to Rio Tuba are without legal basis. He raises various arguments which can be simplified into two basic issues, to wit: 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. 1435 presently subsists; and 2. Assuming arguendo that such privilege still exists, whether Rio Tuba is entitled to such refund. The full text of Republic Act No. 1435 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) Naptha, gasoline and all other similar products of distillation, per liter of volume capacity, eight centavos ; . . . xxx xxx xxx 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 . cdll xxx xxx xxx 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 sub-paragraphs 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 System, as required in section twenty six of the Philippine Highway Act of 1953. Section 6. This Act shall take effect upon its approval. Approved. June 14, 1956." xxx xxx xxx . . . We are not prepared to affirm the ruling of the Tax Court. The cases of Commissioner of Internal Revenue vs. Insular Lumber Co. No. L-24221, December 11, 1967, 21 SCRA 1237 and Insular Lumber Co. vs. Court of Tax Appeals No. L-31057, May 29, 1981, 104 SCRA 710, cited by Rio Tuba are not on all fours with the instant petition. For one thing, the factual milieu in earlier cases occurred between 1958 and 1963. Since then, much has taken place . . . And this brings us to the discussion of the reason why Rio Tuba's two claims for refund cannot be allowed. Interestingly enough, the Solicitor General as counsel for the Commissioner, has painstakingly provided us with a detailed overview of the relevant revenue taxes starting with Republic Act 1435 and including the Local Tax Code and the National Internal Revenue Code of 1977 to drive home his main contention that the disputed refund privilege or exemption laid down in RA No. 1435 has been repealed by subsequent laws. But in our opinion the tax measure most decisive of the present issue and the one that clearly demonstrates the intent of the law-making body to legislate the exemption out of existence is Presidential Decree No. 711 issued on July 1, 1975. . . . Section 1 of P.D. 711 states : "All existing special and fiduciary funds are hereby abolished and all assets, liabilities , surpluses and appropriations pertaining to all special and fiduciary funds . . . 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." xxx xxx xxx Thus we find the disputed proviso found in Section 5 of RA No. 1435 was drafted to favor a particular group of taxpayers the miners and 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 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 of justification for the continued special treatment accorded to the miners . . . . 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. xxx xxx xxx . . We are compelled to abide by the maxim that all doubts must be resolved in favor of the taxing authority and that tax exemptions for 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 GRANTED. The questioned decision of the Court of Tax Appeals is SET ASIDE. Private respondent Rio Tuba Mining Corporation's twin claims for refunds of specific taxes paid on manufactured oils are DENIED ." On March 25, 1992, the Supreme Court issued a Resolution (Motion for Reconsideration) modifying the Decision and authorizing refund that is computed on the basis of the rates under Sections 1 & 2 of R.A. No. 1435, but without interest computation, thus (Ibid. p. 9): 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. xxx xxx xxx 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 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 & 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 & 2 of R.A. No. 1435. ACCORDINGLY, the decision in G.R. No. 835583-84 is hereby MODIFIED. The private respondent's CLAIM for REFUND is GRANTED, computed on the basis of the amounts deemed paid under Sections 1 & 2 of R.A. No. 1435, without interest. " There was a second Motion for Reconsideration. In its Resolution dated June 15, 1992, the Court said that the refund is without merit if based on the rate effective at the time the specific tax was paid. The refund privilege being granted to miners for forest concessionaires is not incorporated in Section 142 but is instead in Section 5, R.A. 1545. Section 5 must be construed as based on the specific tax rates being provided for in Section 1, thus ( Rollo , p. 97): "A careful consideration of Rio Tuba's motion for clarification shows that it prays for a "clarification" favorable to it or a modification of our resolution granting the claim for refund but only on the amounts deemed paid under Sections 1 and 2 of RA 1435. The motion for clarification is actually a motion for reconsideration. prLL Rio Tuba's contention that the refund should be based on the rates effective at the time the specific tax was paid is without merit. Section 1 of RA 1435 amended Section 142 of the National Internal Revenue Code providing for increased rates on specific taxes. xxx xxx xxx Section 5 of RA 1435 provided for a refund privilege on specific taxes on manufactured oils paid by miners or forest concessionaires. . . xxx xxx xxx Significantly, the refund privilege granted to miners or forest concessionaires is not incorporated in Section 142 but is found in Section 5 of RA 1435. There is thus an intent on the part of the legislature to use on the specific tax rates provided notwithstanding future rate increase. All the sections of RA 1435 must be read as a whole. In the absence of any express provision of law the refund privilege granted to miners and forest concessionaires in Section 5 must be construed as based on the specific tax rates provided in Section 1. " Finally, in the case of the Commissioner of Internal Revenue vs. Court of Tax Appeals, 252 SCRA 321, the pronouncement was that the tax refund shall be computed on the basis of the rates being prescribed under Sections 1 & 2 of R.A. No. 1435, without interest, thus: "Our Resolution of 25 March 1992 modifying our 30 September 1991 Decision in the Rio Tuba case sets forth the controlling doctrine. In that Resolution, we stated: 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. 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. 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 v. 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 RA 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." We rule, therefore, that since Atlas's claims for refund cover specific taxes paid before 1985, it should be granted the refund based on the rates specified by Sections 1 and 2 of R.A. 1435 and not on the increased rates under Sections 153 and 156 of the Tax Code of 1977. xxx xxx xxx We cannot subscribe to the view of Atlas that the petitioner cannot raise the new theory in its petition that the 25% tax refund should be based on the rates prescribed in Sections 1 and 2 of R.A. No. 1435 and not on the increased rates prescribed under Sections 153 and 156 of the Tax Code of 1977. xxx xxx xxx As modified, the tax refund to be granted to private respondent Atlas Consolidated Mining and Development Corporation in C.T. A. Case No. 2964 shall be computed on the basis of the rates prescribed under Sections 1 and 2 of R. A. 1435 and shall be limited to the payments made by it prior to 21 July 1976. The petitioner shall forthwith revise the computation of the refundable amount which shall be remitted, without interest, to the private respondent within sixty (60) days from the finality of this decision. THE FOREGOING CONSIDERED, the Petition for Review is hereby DISMISSED. SO ORDERED. Montoya and Velasco, Jr . , JJ . , concur.