Commissioner of Internal Revenue v. Philippine Airlines
REITERATIONFacts
The Antecedents: Presidential Decree No. 1590 (PD 1590), enacted on June 11, 1978, granted Philippine Airlines, Inc. (PAL) a franchise with a tax privilege under Section 13, stating that its payment of either basic corporate income tax or a 2% franchise tax (whichever is lower) shall be "in lieu of all other taxes, duties, royalties, registration, license, and other fees and charges of any kind, nature, or description." This privilege specifically included "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... provided, that such articles or supplies or materials are imported for the use of the grantee in its transport and transport operations and other activities incidental thereto and are not locally available in reasonable quantity, quality, or price." Subsequently, Republic Act No. 8424 (RA 8424), the "Tax Reform Act of 1997," and Republic Act No. 9334 (RA 9334), which took effect on January 1, 2005, amended Section 131 of the National Internal Revenue Code (NIRC) of 1997, increasing excise tax rates on alcohol and tobacco products and removing certain exemptions. Following the effectivity of RA 9334, PAL's importations of alcohol and tobacco products, intended for its commissary supplies during international flights, were subjected to excise taxes. For articles arriving between October 3, 2007, and December 22, 2007, PAL was assessed excise taxes totaling P6,329,735.21. Procedural History: On September 5, 2008, PAL paid the assessed excise taxes under protest. On March 5, 2009, PAL filed an administrative claim for refund with the Bureau of Internal Revenue (BIR), asserting its entitlement to tax privileges under Section 13 of PD 1590. Due to the impending expiration of the two-year prescriptive period for filing a judicial claim and the BIR's inaction, PAL filed a judicial claim for refund with the Court of Tax Appeals (CTA) on September 2, 2010, docketed as CTA Case No. 8153. The CTA Second Division, in its Decision dated January 17, 2013, partially granted PAL's claim, ordering a refund of P2,094,985.21 for alcohol importations, finding that PAL proved its exemption. However, it denied the refund for tobacco products, ruling that PAL failed to prove that these products were not locally available in reasonable quantity, quality, or price. Both parties filed motions for reconsideration, which were denied by the CTA Second Division on June 4, 2013. Consequently, both parties appealed to the CTA En Banc via separate petitions, which were consolidated as CTA EB Nos. 1029, 1031, and 1032. On April 30, 2014, the CTA En Banc dismissed the consolidated petitions, affirming in toto the CTA Second Division's decision. Motions for reconsideration were again denied by the CTA En Banc on December 16, 2014. The Petition: The Commissioner of Internal Revenue (CIR) and Commissioner of Customs (COC) filed the instant petition for review on certiorari before the Supreme Court. Petitioners argued that Section 131 of the NIRC, as amended by Section 6 of RA 9334, effectively revoked PAL's tax privilege under Section 13 of PD 1590 with respect to excise tax on its alcohol and tobacco importations. Alternatively, they contended that, even if the tax privilege remained, PAL failed to adequately prove that the conditions under Section 13 of PD 1590 (i.e., non-local availability in reasonable quantity, quality, or price) were met for its imported supplies.
Issue(s)
Whether PAL's alcohol and tobacco importations for its commissary supplies are subject to excise tax. Whether Section 131 of the National Internal Revenue Code (NIRC) of 1997, as amended by Section 6 of Republic Act No. 9334 (RA 9334), revoked PAL's tax privilege under Section 13 of Presidential Decree No. 1590 (PD 1590). Whether PAL adequately proved that the conditions under Section 13 of PD 1590 were met in this case.
Ruling
The instant petition for review on certiorari is DENIED. The assailed Decision and Resolution of the Court of Tax Appeals En Banc, dated April 30, 2014 and December 16, 2014, respectively, in CTA EB Nos. 1029, 1031 and 1032 are AFFIRMED.
Ratio Decidendi
On Issue 1: The Court ruled in the negative, affirming that PAL's importations of alcohol and tobacco products for its commissary supplies are not subject to excise tax, provided the conditions under its franchise are met. This conclusion is based on the continued validity of PAL's tax exemption under Presidential Decree No. 1590 (PD 1590) despite subsequent general tax laws. The Court reiterated its consistent pronouncements in previous cases involving the same parties and issues. Therefore, the excise taxes imposed on PAL's alcohol importations were erroneously collected, entitling PAL to a refund for those specific items. On Issue 2: The Court ruled that PAL's tax privilege under Section 13 of PD 1590 has not been revoked by Section 131 of the National Internal Revenue Code (NIRC) of 1997, as amended by Section 6 of Republic Act No. 9334 (RA 9334). This issue is not novel, and the Court has consistently held that PD 1590, being a special law, was not repealed by the NIRC, a general law. The phrase "the provision of any special or general law to the contrary notwithstanding" in RA 9334 is not considered an express repeal of PD 1590 because it fails to specifically identify PD 1590 as one of the acts intended to be repealed. The principle of statutory construction dictates that a special law prevails over a general law, with the general law only supplying deficiencies in the former. The Court further noted that Republic Act No. 9337 (RA 9337) abolished the franchise tax and subjected PAL to corporate income tax and value-added tax (VAT), but explicitly stated that PAL "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." This confirms the continued validity of PAL's "in lieu of all other taxes" privilege, subject to its payment of corporate income tax and VAT. On Issue 3: The Court reiterated that the matter of PAL's compliance with the conditions set by Section 13 of PD 1590 for its imported supplies to be exempt from excise tax is a factual determination. These conditions require that the supplies are imported for use in PAL's transport/non-transport operations and other incidental activities, and that they are not locally available in reasonable quantity, quality, or price. Such factual determinations are best left to the Court of Tax Appeals (CTA), which is a highly specialized body that reviews tax cases and conducts trial de novo. The CTA Second Division found that PAL sufficiently proved compliance for its alcohol importations but failed to do so for its tobacco importations. The Supreme Court, without any showing that the CTA's findings were unsupported by substantial evidence, held that its findings are binding on this Court. Therefore, the CTA's partial grant of refund for alcohol and denial for tobacco was upheld.
Main Doctrine
The primary legal doctrine established and applied in this case is the principle of statutory construction that a special law is not repealed by a later general law unless there is an express repeal or an irreconcilable inconsistency. Specifically, the Court affirmed that Presidential Decree No. 1590 (PD 1590), which grants Philippine Airlines, Inc. (PAL) a franchise with an "in lieu of all other taxes" clause, was not revoked by subsequent general tax laws like the National Internal Revenue Code (NIRC) of 1997, as amended by Republic Act No. 9334 (RA 9334). This means that PAL's payment of either the basic corporate income tax or franchise tax (whichever is lower) exempts it from all other taxes, duties, royalties, registration, license, and other fees and charges, including excise taxes on its importations of commissary and catering supplies, provided certain conditions are met. The rationale is that a general repealing clause, such as "the provision of any special or general law to the contrary notwithstanding," is insufficient to effect a repeal of a specific tax exemption granted by a special law, as it lacks the specificity required to demonstrate legislative intent to repeal the special statute.