Philippine Airlines, Inc. v. Court of Tax Appeals

FORMER SPECIAL FOURTH DIVISION [CA-G.R. SP No. 57165. October 18, 2001.] PHILIPPINE AIRLINES, INC. , petitioner , vs . HON. COURT OF TAX APPEALS, THE COMMISSIONER OF INTERNAL REVENUE AND THE COMMISSIONER OF CUSTOMS , respondents . D E C I S I O N GUERRERO , J p : Before Us is a petition under Rule 43 of the 1997 Rules of Civil Procedure seeking the reversal of the Court of Tax Appeals (CTA, for brevity) decision 1 dated 14 October 1999 and its resolution dated 20 January 2000 denying petitioner's motion for reconsideration in CTA Case No. 5684. The CTA decision denied petitioner's claim for the refund of excise taxes collected by the respondent Commissioner of the Bureau of Internal Revenue (BIR, for brevity) through his deputized agent, the respondent Commissioner of the Bureau of Customs (BOC, for brevity). In our resolution dated 13 March 2000, We directed the respondents to comment on the petition. They have not submitted one. The antecedents: Petitioner Philippine Airlines, Inc. (petitioner, for short) is the grantee of a franchise to establish, operate and maintain air transport services in the Philippines and between the Philippines and other countries under Presidential Decree No. 1590 dated 11 June 1978 (PD 1590). 2 Section 18 of PD 1590 exempts PAL from the payment of all taxes on its importation of aviation gas used in its transport and non-transport operations. The pertinent portion of Section 18, PD 1590, reads as follows: "SEC. 13 In consideration of the franchise and rights hereby granted, the grantee shall pay to the Philippine Government during the life of this franchise whichever of subsections (a) and (b) hereunder will result in a lower tax: '(a) The basic corporate income tax based on the grantee's annual net taxable income computed in accordance with the provisions of the National In ternal re venue Code; or '(b) A franchise tax of two per cent (2%) of the gross revenues derived by the grantee from all sources, without distinction as to transport or non-transport operations; provided that with respect to international air-transport service, only the gross passengers, mail and freight revenues from its outgoing flights shall be subject to this tax. "The tax paid by the grantee under either of the above alternatives shall be in lieu of all other taxes, duties, royalties, registration, license, and other fees and charges of any kind, nature, or description imposed, levied, established, assessed or collected by any municipal, city, provincial, or national authority or government agency, now or in the future, including but not limited to the following: xxx xxx xxx '(2) all taxes, including compensating taxes, duties, charges, royalties, or fees due on all importations by the grantee of aircraft, engines, equipment, machinery, spare parts, accessories, commissary and catering supplies, aviation gas, fuel and oil, whether refined or in crude form and other articles, supplies or materials; provided that such articles or supplies or materials are imported for the use of the grantee in its transport and non-transport operations and other activities incidental thereto and are not locally available in reasonable quantity, quality, or price; . . " Petitioner imported jet fuel for use in its transport operations which were discharged at the Port of Lucanin in Bataan on 26 December 1995 and on 03 and 22 February 1996. Prior to the importation of the said aviation fuel, petitioner obtained an authority to import from the Energy Industry Administration Bureau (EIAB) of the Department of Energy. The EIAB evaluated petitioner's application for authority to import the jet fuel to determine whether the petroleum products to be imported were available locally in reasonable quantity, quality, or price. The EIAB consulted the local oil companies during the evaluation process and prior to the approval of petitioner's application. Finding that the petroleum products petitioner wished to import were not available locally in reasonable quantity, quality, or price, the EIAB authorized it to import the same. In a letter-authority dated 24 July 1995, 3 the EIAB authorized petitioner to import fifteen (15) million liters of jet fuel good for six (6) months starting August 1995. In another letter-authority dated January 31, 1996, the EIAB authorized petitioner to import another fifteen (15) million liters of jet fuel for another six-month period starting February 1996. 4 The EIAB also issued a Certificate of Compliance dated February 1, 1996 addressed to the Customs Collector and the respondent BIR Commissioner stating that the application of petitioner for importation of petroleum products complied with the requirements of the EIAB. 5 Notwithstanding the authority to import granted by the EIAB to petitioner, the BIR, through the BOC, assessed and collected excise taxes on the aforementioned three (3) importations. Petitioner paid the sums of: P12,272,520.00 on October 18, 1996, as evidenced by Bureau of Customs Official Receipt No. 59861356 6 ; (2) P11,345,941.00 on November 6, 1996 as evidenced by Bureau of Customs Official Receipt No. 59861584 7 ; and (3) P11,345,941.00 on February 5, 1997 as evidenced by Bureau of Customs Official Receipt No. 59864445 8 , or the total amount of P34,964,402.00 as excise taxes for the three (3) importations. On 23 September 1998, petitioner filed with the BIR a claim for refund of the excise taxes in the sum of P34,964,402.00 that it paid for the above-mentioned imported jet fuel pursuant to Section 204 (c) of the National Internal Revenue Code (NIRC). 9 Within the 2-year prescriptive period provided for in Section 229 of the NIRC, petitioner filed in the CTA on 16 October 1998 a petition for review praying that the BIR and the BOC be ordered to refund the sum of P34,964,402.00 in excise taxes that was erroneously collected from petitioner by the said agencies. 10 The BIR responded to petitioner's petition for review through its answer dated 18 November 1998, alleging the following defenses: (1) that the exemption granted to petitioner under PD 1590 had been withdrawn by Executive Order No. 93, and (2) that the fuel imported by petitioner is subject to excise tax under Section 145 (now Section 148) of the Tax Code hence its tax payments were nor refundable. 11 For its part, the BOC filed an answer dated 22 December 1998, alleging the defenses that: (1) the CTA could not take cognizance of PAL's petition because the same was prematurely filed, and (2) petitioner failed to comply with the provisions of Section 2308 of the Tariff and Customs Code since it did not file a formal protest for the customs duties sought to be refunded. 12 On 30 March 1999, the parties in CTA Case No. 5684 entered into a stipulation of facts. 13 On 14 October 1999, the Court of Tax Appeals rendered its decision. 14 although the CTA upheld the tax exemption of petitioner under PD 1590, it denied the claim for refund on the ground that petitioner failed to "prove compliance with the conditions stated in its own franchise and in LOI No. 684." The relevant portion of Letter of Instructions No. 684 that the CTA was referring to reads as follows: acAESC "1. The importation of aircraft, engines, equipment, machinery, spare parts, commissary and catering supplies, aviation gas, fuel and oil, whether crude or refined, and such other articles or supplies by and for the use of Philippine Airlines as prescribed under its franchise, as amended, shall be allowed informal entry free of duty and released immediately subject to the presentation, within fifteen (15) days from date of release, of a statement under oath stating: (a) That such articles or supplies are not locally available in reasonable quantity, quality, and price; and (b) That they are necessary for in incidental to the operation of Philippine Airlines and its other business activities." The CTA ruled that "(t)here was no showing that Petitioner ever complied with the submission of a statement under oath required by LOI No. 684." Therefore, according to the CTA, petitioner was not entitled to "a release of its importation without payment of taxes". Accordingly, the CTA dismissed PAL's petition for review "for insufficiency of evidence." Petitioner moved for reconsideration of the CTA decision, arguing, among others, that the submission of a "statement under oath" is not a condition for the grant of tax exemption to petitioner under PD 1590. Therefore, failure to submit said sworn statement did not result in the loss of its tax exemption privileges or its right to claim for a refund. 15 In its resolution dated 20 January 2000 16 , the CTA denied petitioner's motion for reconsideration, maintaining that "the enabling act PD 1590 requires as a condition for the grant of tax exemption that such articles or supplies are (1) imported for the use of the grantee in its transport and non-transport operations and (2) are not locally available in reasonable quantity, quality or price". Hence, this petition wherein petitioner raises the following grounds: "THE COURT OF TAX APPEALS COMMITTED GRAVE AND REVERSIBLE ERROR WHEN IT DISMISSED PAL'S PETITION FOR INSUFFICIENCY OF EVIDENCE AND HELD THAT PAL IS NOT ENTITLED TO THE REFUND OF THE EXCISE TAXES ON ITS IMPORTED JET FUEL COLLECTED BY THE BIR, THROUGH THE BOC, CONSIDERING THAT: A. THE FACTUAL QUESTION OF WHETHER OR NOT JET FUEL WAS AVAILABLE LOCALLY IN REASONABLE QUANTITY, QUALITY, OR PRICE WAS NEVER PLACED IN ISSUE BY THE BIR OR THE BOC IN THEIR ANSWERS TO PAL'S PETITION FOR REVIEW; B. PAL'S COMPLIANCE OR NON-COMPLIANCE WITH THE 'STATEMENT UNDER OATH' REQUIREMENT OF LETTER OF INSTRUCT IONS NO. 6 84 WAS NEVER RAISED AS AN ISSUE BY THE BIR OR THE BOC; C. A JUDGMENT THAT GOES BEYOND THE ISSUES AND PURPORTS TO ADJUDICATE SOMETHING UPON WHICH THE PARTIES WERE NOT HEARD IS IRREGULAR AND INVALID SINCE IT AMOUNTS TO A DENIAL OF DUE PROCESS; AND D. THE APPROVAL BY THE EIAB OF PAL'S APPLICATION FOR AUTHORITY TO IMPORT JET FUEL WAS A FACTUAL DETERMINATION THAT JET FUEL OF THE SAME QUANTITY, QUALITY, OR PRICE WAS NOT AVAILABLE LOCALLY. OTHERWISE, PAL WOULD NOT HAVE BEEN AUTHORIZED TO IMPORT JET FUEL IN THE FIRST PLACE." Petitioner asserts in its memorandum before this Court that the issues to be resolved in this case are the following: "1. Whether or not the Court of Tax Appeals committed grave and reversible error when it dismissed PAL's petition for refund for insufficiency of evidence, and held that PAL failed to establish that the imported jet fuel were not locally available in reasonable quantity, quality or price notwithstanding that this question of fact was never raised as an issue by the BIR or the BOC in the proceedings below. "2. Whether or not the Court of Tax Appeals erred when it concluded that PAL is not entitled to the refund of the erroneously collected excise taxes notwithstanding the fact that a factual determination had already been made by the proper Government agency (the EIAB) that no jet fuel was locally available in reasonable quantity, quality or price, and thus authorized PAL to import the same." 17 The petition is meritorious. Petitioner is correct in saying that the BIR and the BOC never raised the factual question of whether or not the jet fuel that petitioner was authorized to import was available locally in reasonable quantity, quality and price. The said respondents also did not put in issue petitioner's compliance or non-compliance with the "statement under oath" requirement of Letter of Instructions No. 684 in their answers to the petition before the CTA. The CTA itself enumerated the issues to be resolved before it as follows: "1. Whether or not the instant petition for review was filed prematurely as there is as yet no decision of the Commissioner of Customs appealable before this Court. 2. Whether or not the fuel imported by the Petitioner is subject to excise tax under Section 145 (now Section 148) of the Ta x Co de; and 3. Whether or not the exemption granted to Petitioner under Presidential Decr ee No. 15 90 had already been withdrawn by Executive Order No. 93 at the time the subject excise taxes were paid. If not, was Petitioner able to meet the requirements set forth in the said presidential decree so as to be entitled to the relief sought?" 18 We note from the records that there is absolutely no mention of the "statement under oath required by LOI No. 684" in the answers of the BIR and the BOC. Even the issues enumerated by the CTA do not include the question of whether or not the petitioner had complied with the supposed requirement of submitting a "statement under oath required by LOI No. 684". There is no allegation whatsoever in the answers of the BIR and the BOC that petitioner failed to comply with any condition set forth in its franchise (PD 1590) and, therefore, was disqualified from claiming a tax refund. Consequently, this matter was none issue in the proceedings before the CTA. The rule is that "courts of justice have no jurisdiction or power to decide a question not in issue." 19 "A judgment going outside the issues and purporting to adjudicate something upon which the parties were not heard is not merely irregular, but extrajudicial and invalid." 20 In a fairly recent case, it was held that considerations of due process really prevent the use of an issue against a party that has not been given sufficient notice of its presentation, and thus has not been given the opportunity to refute. 21 The CTA ran afoul of the foregoing legal doctrines when it ruled that "there was no showing that Petitioner ever complied with the submission of a statement under oath required by LOI No. 684," and when it further held that petitioner was not entitled to "a release of its importation without payment of taxes" because of its supposed non-compliance with LOI No. 684. The CTA clearly erred when it dismissed petitioner's petition for review "for insufficiency of evidence" on a point that was not in issue at all. The CTA justified its ruling that petitioner is not entitled to claim for tax refund in this manner: "We now determine whether Petitioner was able to meet the requirements set forth under its franchise. Under Section 13 of Petitioner's franchise, Petitioner is exempted from the payment of all taxes, including compensating taxes, duties, charges, royalties, or fees due on all importations by the grantee of aviation gas, fuel and oil, whether refined or in crude form, provided that: 1. Such articles or supplies or materials are imported for the use of the grantee in its transport and non-transport operations and other activities incidental thereto; and 2. They are not locally available in reasonable quantity, quality or price. On the other hand, the provisions of LO I No. 6 84 (p. 105, CTA records) state that the importation of the aviation gas fuel and oil, whether crude or refined, shall be allowed informal entry free of duty and released immediately subject to the presentation, within fifteen (15) days from date of release, of a statement under oath stating compliance with the above requirements. According to Petitioner, the information that the imported aviation fuel involved were actually used in its transport (domestic) operations was relayed by it to the Respondent BIR in its September 23, 1998 letter requesting for the refund of the total amount of P34,964,402.00. There was no showing that Petitioner ever complied with the submission of a statement under oath required by L OI No. 6 84. From this mere allegation, there is a clear indication that Petitioner failed to submit the sworn statement required by the said letter of instruction, which could have entitled Petitioner to a release of its importation without payment of taxes. Consequently while Petitioner's legal bases for tax exemption may be overwhelming, this Court is constrained to deny its claim for its failure to prove compliance with the conditions stated in its own franchise and in LO I No. 6 84. WHEREFORE, in view of the foregoing, the instant petition for Review, is hereby DISMISSED for insufficiency of evidence." 22 It is obvious that the CTA is laboring under the mistaken impression that "the submission of a statement under oath required by LOI No. 684" is a condition precedent for the effectivity of petitioner's tax exemption. Stated differently, it is the position of the CTA that the statement under oath required by LOI 684 is a requirement under Section 13 of petitioner's franchise such that if not complied with, petitioner loses its tax exemption. We do not agree. The pertinent portions of the petitioner franchise (PD 1590) and LOI No. 684 are again quoted below for purposes of this discussion: "SEC. 13 In consideration of the franchise and rights hereby granted, the grantee shall pay to the Philippine Government during the life of this franchise whichever of subsections (a) and (b) hereunder will result in a lower tax: '(a) The basic corporate income tax based on the grantee's annual net taxable income computed in accordance with the provisions of the National Int ernal Reve nue Code; or '(b) A franchise tax of two per cent (2%) of the gross revenues derived by the grantee from all sources, without distinction as to transport or non-transport operations; provided that with respect to international air-transport service, only the gross passengers, mail, and freight revenues from its outgoing flights shall be subject to this tax. "The tax paid by the grantee under either of the above alternatives shall be in lieu of all other taxes, duties, royalties, registration, license, and other fees and charges of any kind, nature, or description imposed, levied, established, assesses or collected by any municipal, city, provincial, or national authority or government agency, now or in the future, including but not limited to the following: xxx xxx xxx '(2) All taxes, including compensating taxes, duties, charges, royalties, or fees due on all importations by the grantee of aircraft, engines, equipment, machinery, spare parts, accessories, commissary and catering supplies, aviation gas, fuel and oil, whether refined or in crude form and other articles, supplies or materials; provided, that such articles or supplies or materials are imported for the use of the grantee in its transport and non-transport operations and other activities incidental thereto and are not locally available in reasonable quantity, quality, or price; . . ." Section 13 of PAL, Franchise ; (emphasis ours) xxx xxx xxx "1. The importation of aircraft, engines, equipment, machinery, spare parts, commissary and catering supplies, aviation gas, fuel and oil, whether crude or refined, and such other articles or supplies by and for the use of Philippine Airlines as prescribed under its franchise, as amended, shall be allowed informal entry free of duty and released immediately subject to the presentation, within fifteen (15) days from date of release, of a statement under oath stating: (a) That such articles or supplies are not locally available in reasonable quantity, quality, and price; and (b) That they are necessary for or incidental to the operation of Philippine Airlines and its other business activities ." (LOI No. 684, emphasis supplied) The language of PD 1590 and LOI No. 684 do not support the CTA position. PD 1590 says that petitioner is exempt from "(a)ll taxes, including compensating taxes, duties, charges, royalties, or fees due on all importations by the grantee of aircraft, engines, equipment, machinery, spare parts, accessories, commissary and catering supplies aviation gas, fuel and oil, whether refined or in crude form and other articles, supplies or materials; provided, that such articles or supplies or materials are imported for the use of the grantee in its transport and non-transport operations and other activities incidental thereto and are not locally available in reasonable quantity, quality, or price." What PD 1590 requires petitioner to prove is that the imported fuel are for the use of PAL "in its transport and non-transport operations and other activities incidental thereto and are not locally available in reasonable quantity, quality, or price." If it does so, it is exempt from the taxes that would otherwise be due on said imported fuel. PD 1590 does not say that the petitioner can only, or exclusively, comply with this requirement by submitting the statement under oath required by LOI No. 684. In other words, the statement under oath required by LOI No. 684 is not only means of complying with the requirement of PD 1590 that the imported fuel will be used by PAL "in its transport and non-transport operations and other activities incidental thereto and are not locally available in reasonable quantity, quality, or price." The language of LOI No. 684 also does not support the position taken by the CTA. What is the reason for requiring petitioner to submit a statement under oath: "(s) That such articles or supplies are not locally available in reasonable quantity, quality, and price; and (b) That they are necessary for or incidental to the operation of Philippine Airlines and its other business activities?" The statement under oath is required so that the imported shipment "shall be allowed informal entry free of duty and released immediately" subject to the presentation, within fifteen (15) days from date of release, of the statement under oath. It is obvious that the statement under oath is required merely to facilitate the release of the imported articles or supplies free of duty. It is not a pre-condition for the effectivity of the tax exemption itself. Otherwise, PD 1590 or LOI No. 684 should have said so. We cannot read into the law a condition that is not found in the law itself. In this case, petitioner paid the excise taxes apparently because the shipment could not be released "free of duty" without the statement under oath. This did not preclude petitioner however, from claiming a tax refund should it be able to show that the imported jet fuel that were subjected to tax were not locally available in reasonable quantity, quality, and price, and that they were necessary for or incidental to its operations. the documents submitted by petitioner with its petition show that its importations of the jet fuel subject of this case had previously been approved by the concerned agency of the government (EIAB) after a factual determination that no jet fuel was locally available in reasonable quantity, quality, or price. There is also no dispute that said imported jet fuel were used by PAL in its operations. We agree with petitioner that the BIR and the BOC knew that the EIAB approval of PAL's application for authority to import jet fuel was equivalent to a factual determination that the jet fuel needed by PAL was not available locally in reasonable quantity, quality, or price. It was for this reason that they never raised petitioner's compliance with the said requirements as an issue in the proceedings before the CTA or even before this Court. This being the case, We hold that the jet fuel imported by PAL were tax exempt, and PAL is entitled to the refund of the excise taxes erroneously collected by the respondents. WHEREFORE, premises considered, the petition is hereby GRANTED. The decision of the Court of Tax Appeals dated 14 October 1999 and its resolution dated 20 January 2000 in CTA Case No. 5684 are reversed and set aside; and respondents Commissioners of the Bureau of Internal Revenue and/or the Bureau of Customs are ordered to refund the amount of P84,964,402.00 to petitioner or, in the alternative, grant petitioner a tax credit for the same amount. SO ORDERED. Rosario, Jr . and Santos, JJ . , concur. Footnotes 1. Annex A, Petition; Rollo, pp. 27-36 2. Annex C, Petition, Rollo, pp. 41-48 3. Annex D, Petition, Rollo, pp. 49-50 4. Annex D-1, Id., p. 51 5. Annex E, Id. , pp. 52-53 6. Annex F, Id., p. 54 7. Annex F-1, Id., p. 55 8. Annex F-2, Id., p. 56 9. Annex G, Id., pp. 57-64 10. Annex H, Petition, Rollo, pp. 65-68 11. Annex I, Id., pp. 69-71 12. Annex J, Id., pp. 72-73 13. Annex K, Id., pp. 74-75 14. Annex A, Id., pp. 27-36 15. Annex L, Petition, Rollo, pp. 81-88 16. Annex B, Id., pp. 37-40 17. Rollo, p. 109 18. Decision at p. 5; Rollo, p. 31 19. Lim Toco vs. Go Fay, 80 Phil. 166; Ramon v. Ortuzar, 89 Phil. 730, 742; Belandres vs. Lopez Sugar Central Mill Co., Inc, 97 Phil. 100, 103 20. Salvante vs. Cruz, 88 Phil. 236, 244; Lazo vs. Republic Surety & Insurance Co., Inc., 31 SCRA 329; 334 [1970]; Cebu Portland Cement Co. vs. Dumon, G.R. No. 26738, November 2, 1974; Viajar vs. Court of Appeals, 168 SCRA 405, 411 [1998]; Sarmiento vs. Court of Appeals, G.R. No. 83138, October 17, 1989; Pe vs. Intermediate Appellate Court, G.R. No. 74781, March 13, 199_; Bernas vs. Court of Appeals, G.R. No. 85041, August 5, 1993. 21. Pimentel, Jr. vs. Aguirre, 336 SCRA 201 22. Rollo, pp. 35-36