[ G.R. Nos. 245330-31. April 01, 2024 ] 952 Phil. 1
THIRD DIVISION
[ G.R. Nos. 245330-31. April 01, 2024 ]
COMMISSIONER OF INTERNAL REVENUE AND COMMISSIONER OF CUSTOMS, PETITIONERS, VS. PHILIPPINE AIRLINES, INC., RESPONDENT. D E C I S I O N
DIMAAMPAO, J.:
This Petition for Review on Certiorari[1] oppugns the Decision[2] and the Resolution[3] of the Court of Tax Appeals (CTA) En Banc in CTA EB Nos. 1488 and 1494, which affirmed respondent Philippine Airlines, Inc. (PAL)’s entitlement to refund of the specific taxes it paid for the importation of Jet A-1 aviation fuel between April to June of 2015, and which denied both Motions for Reconsideration[4] filed by petitioners Commissioner of Internal Revenue (CIR) and Commissioner of Customs (COC).
The facts of this case are uncomplicated.
Under its statutory franchise,[5] PAL is exempt from the payment of taxes and duties 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,"[6] as long as such articles, supplies, or materials are “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."[7] The Bureau of Internal Revenue (BIR) confirmed PAL’s exemption in its BIR Ruling No. 13-99.[8]
On January 29, 2003, however, the BIR issued BIR Ruling No. 001-2003,[9] which revoked the earlier issuance. Relying on the Certification dated December 20, 2002 of the Department of Energy (DOE), stating that aviation gas, fuel, and oil for use in domestic operation of domestic airline companies are locally available in reasonable quantity, quality, and price, the BIR declared that PAL’s importations would no longer be tax-exempt “for as long as there is such available domestic supply of petroleum products."[10]
Thereafter, on various dates between April to June of 2005, PAL imported Jet A-1 fuel and paid the corresponding specific taxes due thereon under protest.[11]
PAL then lodged a request for refund with the CIR for the specific taxes it paid in the total amount of PHP 258,629,496.00. When its request remained unacted, PAL filed a judicial claim for refund before the CTA on May 7, 2007, through a Petition for Review.[12]
Both the CIR and the COC filed their respective Answers[13] to the Petition and raised similar special and affirmative defenses, to wit: (1) PAL failed to exhaust all administrative remedies; (2) BIR Ruling No. 001-2003 is a valid interpretation of the provisions of the Tax Code; (3) PAL failed to appeal BIR Ruling No. 001-2003 to the Secretary of Finance in accordance with the Tax Code; (4) in essence, PAL asked the CTA to overturn the factual determinations of the DOE in pursuing its refund claim, which cannot be allowed under the doctrine of separation of powers; and (5) the specific taxes purportedly paid in May and June of 2005 were not properly documented.[14]
The case then proceeded to trial.[15] After the formal offer of evidence and submission of memoranda by the parties, the case was deemed submitted for decision. However, PAL filed a Motion to Reopen Trial and/or Leave of Court to File Supplemental Memorandum,[16] which was granted by the CTA Second Division in its January 20, 2015 Resolution.[17] Thereafter, the case was again submitted for resolution.
In its original Decision,[18] the CTA Second Division partially granted the Petition and ordered the CIR and the COC to refund or issue a tax credit certificate in favor of PAL in the reduced amount of PHP 88,542,854.00.[19] The CTA found that PAL was able to satisfy the conditions provided under Section 13 of Presidential Decree No. 1590, which would qualify its importations for tax exemption. Nevertheless, the CTA ratiocinated that it could not grant the full amount claimed by PAL given that certain official receipts evidencing payment of specific taxes were denied admission for PAL’s failure to present the original receipts.[20]
Thereafter, the CIR and the COC filed their separate Motions for Partial Reconsideration,[21] whereas PAL filed a Motion for Partial Reconsideration of Decision and/or to Reopen the Case for Presentation of Evidence on May 13, 2016.[22] In its Resolution,[23] the CTA Second Division resolved to grant respondent’s Motion, while denying CIR and COC’s similar bids for reconsideration.
PAL then presented an additional witness and other documentary exhibits in the subsequent hearings conducted by the CTA.[24]
In the meantime, the CIR filed a Petition for Review[25] before the CTA En Banc, docketed as CTA EB No. 1488. The COC likewise filed its own Petition,[26] which was docketed as CTA EB No. 1494. The two cases were then consolidated given that they arose from the same assailed rulings of the CTA Second Division in CTA Case No. 7632.[27]
Eventually, the CTA Second Division issued its September 9, 2016 Amended Decision[28], which increased the amount originally ordered to be refunded to PAL from PHP 88,542,854.00 to PHP 258,629,494.00.
The CIR moved for reconsideration from the Amended Decision, but this was rejected by the CTA Second Division in its January 9, 2017 Resolution.[29] Consequently, the CIR filed a Supplement to the Petition for Review[30] before the CTA En Banc to inveigh against the Amended Decision.
The Petitions, including the Supplement filed by the CIR, were given due course and the parties were directed to submit their respective memoranda. Thereupon, the case was deemed submitted for decision.[31]
In the challenged Decision, the CTA En Banc denied the Petitions for lack of merit and affirmed the assailed rulings of the CTA Second Division, as modified by its Amended Decision.[32] The CTA En Banc declared that PAL was able to sufficiently prove the existence of the requisites laid down under Section 13 of Presidential Decree No. 1590 in order for its importations to qualify for tax exemption. With regard to the requisite that the imported articles or goods must be used in PAL’s transport and non-transport operations, the CTA En Banc held that the Authority to Release Imported Goods (ATRIGs) submitted by PAL constituted sufficient proof thereof. ATRIGs were issued by the CIR and/or his duly authorized representatives, upon verification and processing of the importation documents submitted by taxpayers and may be regarded as entries in official records which constitute prima facie evidence of the facts therein stated. Thus, the contents in the subject ATRIGs — to the effect that the Jet A-1 aviation fuel “will be used exclusively for domestic flight operation” or “will be used exclusively for daily domestic flight operation” — must be given weight. The ATRIGs were also further supported by the testimony of the witnesses presented by PAL.[33] As to the other requisite that aviation fuel was not legally available in reasonable quantity, quality, or price during the time of importation, the CTA En Banc agreed with PAL that the Certification issued by the Air Transportation Office (ATO) to that effect was in line with its general powers under its charter. Likewise, the Certification also stood as prima facie evidence of the facts stated therein. The CTA En Banc rejected the CIR and the COC’s argument that only the DOE was in a position to determine the local availability of Jet A-1 aviation fuel.[34] The CTA En Banc also found no error on the part of the CTA Second Division when it granted PAL’s motion to reopen the trial for presentation of additional evidence. It emphasized that the proceedings before the CTA were not strictly governed by the technical rules of evidence.[35]
Both the CIR and the COC moved for reconsideration, but their motions were denied in the disputed Resolution.[36]
Hence, the CIR and the COC, through the Office of the Solicitor General (OSG), instituted the present Petition,[37] arguing that the CTA En Banc erred in concluding that PAL was able to prove that the imported aviation fuel would be used for its transport and non-transport operations, and that it was not locally available in reasonable quantity, quality, or price.[38] They likewise maintained that in upholding the CTA Second Division’s grant of PAL’s motion to reopen the case for presentation of evidence, the CTA En Banc violated the well-settled rule that tax refunds are strictly construed against the taxpayer.[39]
Issue
In sooth, the main issue tendered for this Court’s resolution is whether or not the CTA En Banc erred in upholding PAL’s entitlement to a refund of the specific taxes it paid for the importation of Jet A-1 aviation fuel between April to June of 2005.
The Court’s Ruling
The Petition must fail.
At the core of this controversy is the proper interpretation and application of Section 13 (2) of Presidential Decree No. 1590, which reads:
SECTION 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:
. . . .
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:
. . . .
(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. (Emphases supplied)
As succinctly opined by the CTA En Banc, the foregoing provision lays down three requisites that must concur before PAL’s importations may be considered tax-exempt:[40]
PAL paid its corporate income tax covering the period when the subject importations were made;
The articles, supplies, or materials are imported for PAL’s use in its transport and non-transport operations and other activities incidental thereto; and
The imported articles, supplies, or materials are not locally available in reasonable quantity, quality, or price.
While PAL’s charter was passed in 1978, there had yet to be clear-cut jurisprudence to qualify or interpret the second and third requisites, or to declare what would suffice as competent proof that the imported articles are “for the use of the grantee in its transport and non-transport operations and other activities incidental thereto,” and that these are “not locally available in reasonable quantity, quality, or price.”
Whenever compliance with these two requisites were raised as issues before the Court, it uniformly declared that these were questions of fact that were best left to the determination of the CTA as a highly specialized body, as may be seen in the cases of Commissioner of Internal Revenue v. Philippine Airlines, Inc.,[41] Rep. of the Phils. v. Philippine Airlines, Inc. (PAL),[42] and Commissioner of Internal Revenue v. Philippine Airlines, Inc.[43] Thus, for as long as the CTA’s findings were supported by substantial evidence, the Court deigned to pass upon such issues.
In the case at bench, the CIR and the COC do not dispute the existence of the first requisite and only contend that PAL failed to prove the second and third conditions.[44] Specifically, they asseverate that the CTA En Banc abused its authority when it misapprehended the evidence presented by PAL with respect to these two requisites.[45] Thus, they argue that this constitutes an exception to the general rule prohibiting questions of fact in a petition for review on certiorari under Rule 45 of the Rules of Court.[46]
Undoubtedly, “when an appeal essentially calls for the re-examination of the probative value of the evidence presented by the appellant, the same raises a question of fact,"[47] as in this case. It is settled that only questions of law may be raised in a petition under Rule 45 given that the resolution of factual issues is the function of the lower courts, whose findings are accorded respect by this Court.[48] “In fact, the rule finds greater significance with respect to the findings of specialized courts such as the CTA, the conclusions of which are not lightly set aside because of the very nature of its functions which is dedicated exclusively to the resolution of tax problems and has accordingly developed an expertise on the subject, unless there has been an abuse or improvident exercise of authority."[49]
However, this rule admits of exceptions such as when the CTA’s findings “were not supported by substantial evidence or that it abused its authority."[50] The “party filing the petition, however, has the burden of showing convincing evidence that the appeal falls under one of the exceptions. A mere assertion is not sufficient."[51]
The Court holds that the PAL was able to adduce sufficient proof of compliance with the second and third requisites.
On the second requisite, the CIR and the COC argue that the purported statements in the ATRIGs relied upon by the CTA En Banc – that the importations “will be used exclusively for domestic flight operation/s” or “daily domestic flight operations”– were self-serving declarations absent proof that the aviation fuel were actually used in its domestic flight operations. They insist that the information contained in the ATRIGs, having been merely supplied by the importer or its representative, were not within the personal knowledge of either the CIR or its representative. Consequently, the ATRIGs could not be regarded as entries in official records constituting prima facie evidence of the facts stated therein as concluded by the CTA En Banc.[52] Similarly, they argued that the testimonies and other documentary evidence cited by the CTA did not serve to prove that the aviation fuel was actually used in PAL’s transport operations.[53]
The bone of contention for the second requisite rests on whether or not the subject ATRIGs may constitute entries in official records under Section 44 (now Section 46),[54] Rule 130 of the Rules of Court, which reads:
SECTION 46. Entries in Official Records. — Entries in official records made in the performance of his or her duty by a public officer of the Philippines, or by a person in the performance of a duty specially enjoined by law, are prima facie evidence of the facts therein stated.
Jurisprudence provides for the following requisites for the above quoted exception to the hearsay rule to apply:[55]
(a) that the entry was made by a public officer, or by another person specially enjoined by law to do so;
(b) that it was made by the public officer in the performance of his duties, or by such other person in the performance of a duty specially enjoined by law; and
(c) that the public officer or other person had sufficient knowledge of the facts by him stated, which must have been acquired by him personally or through official information.
The CIR and the COC insist that the third requisite is absent given that the contents of the ATRIGs are based merely on the documents and representations of the importer or their broker, hence, the BIR official preparing the same would have no personal knowledge of the facts therein.
This is inaccurate.
The application and subsequent issuance of an ATRIG is not a mechanical process. As provided under Revenue Memorandum Order No. 35-2002, the BIR officer must coordinate with the Bureau of Customs (BOC) if an ocular inspection of the imported articles is necessary or for purposes of laboratory analysis. The BIR officer may likewise refer an application to the Legal Division of the Regional Office or to the Law Division of the National Office if it involves legal issues on the taxability or exemption of the imported articles. Whenever there are doubts on the representations made on the application, the BIR officer may require further substantiation, documentation, or certification from other regulatory offices to authenticate the statements made by the importer. In short, various verification and processes are done prior to the issuance of an ATRIG, which presumably arms the BIR officer with sufficient knowledge of the facts contained therein.
To be clear, such entries are only prima facie evidence of the facts stated therein; they are not conclusive.[56] The trustworthiness of such documents is based on the presumption of regularity of performance of official duty,[57] which is itself a mere disputable presumption.[58] However, given the prima facie case established by the ATRIGs, the burden of evidence shifted to the petitioners to rebut the same with controverting proof.[59] However, as the CTA En Banc correctly observed, no such controverting evidence was presented.[60]
Moreover, PAL’s compliance with the second requisite likewise appears to be corroborated by the testimony of its witnesses which the CTA found to be competent and credible.[61] It is oft-repeated that the Court gives the highest respect to the trial court’s evaluation of the testimonies of witnesses since it is in the best position to note their demeanor, conduct, and attitude under grueling examination.[62] There is no compelling reason to overturn such conclusion in this case.
On the third requisite, CIR and COC vehemently rejected the ATO Certification offered by PAL. They maintain that the ATO (now the Civil Aviation Authority of the Philippines [CAAP]), is not vested with the power and duty to certify as to the local availability of Jet A-1 aviation fuel under its charter.[63] In contradistinction, the DOE is expressly empowered under Republic Act No. 8479 to “monitor… international crude oil prices, as well as follow the movements of domestic oil prices,” to “monitor the quality of petroleum products,” and to “maintain a periodic schedule of present and future total industry inventory of petroleum products for the purpose of determining the level of supply."[64] Moreover, the CTA erred in its appreciation of the data provided by the DOE in terms of the local supply of petroleum products. The CIR and the COC averred that “there was never a time when there was insufficient aviation fuel in the country” since local refining companies are capable of increasing their production based on demand.[65]
On this score, the Court reiterates that the determination of the sufficiency of the proof presented as compliance with statutory conditions to avail of tax exemptions are factual in nature best left to the discretion of the CTA.[66] Here, the CTA En Banc affirmed that the evidence adduced by respondent showed that Jet A-1 aviation fuel was not available in reasonable quantity, quality, or price at that time.[67] Barring any indication that this finding was not supported by substantial evidence, it is binding on the Court.[68]
Regardless, petitioners’ arguments primarily focus on the local availability of Jet A-1 fuel in reasonable quantity. On this point, there is a need to clarify the third requisite.
When Section 13(2) conditions the tax exemption of PAL’s importations of the articles lack of local availability in reasonable quantity, quality, or price, it is logically a safeguard to ensure that PAL is able to keep its operating costs low. Certainly, if PAL’s operating materials are not available locally in competitive quality, quantity, or price, it would have no choice except to import to continue operating at a certain standard as the Philippines’ flagship carrier. The rationale is easy to deduce. High operating costs would ultimately become the burden of PAL’s passengers and clientele. It bears emphasizing that “[t]ax exemptions are granted for specific public interests that the Legislature considers sufficient to offset the monetary loss in the grant of exemptions."[69]
Indeed, the parties focus mainly on the “quantity” aspect of this condition; however, the proviso actually contemplates that PAL may also prove that the articles or supplies imported are not locally available in reasonable quality or price. The separator used is the word “or’’, which is a disjunctive article indicating an alternative and a disassociation of the enumerated terms.[70] This means that to qualify for exemption, PAL need only prove that the locally available article is either insufficient in quantity, or is of subpar quality, or is severely overpriced compared to its imported variant. Even one of the foregoing qualifications would entitle PAL to exemption. Otherwise, this would result in an absurdity when the proviso is applied, such as when aviation fuel is locally available for a reasonable price and quantity, but it is sub-standard in quality. This could not have been the intent of the provision. “It is a general rule of statutory construction that a law should not be so construed as to produce an absurd result. The law does not intend an absurdity or that an absurd consequence shall flow from the enactment. Statutes should receive a sensible construction, such as will give effect to the legislative intention and so as to avoid an unjust or an absurd conclusion."[71]
In this case, even if there had been sufficient quantity of locally available Jet A-1 fuel as the CIR and the COC claimed, PAL was able to adduce proof that had it sourced its aviation fuel locally between April to June of 2005, it would have paid a significantly higher sum.[72] As the CTA Second Division observed, the domestic cost of Jet A-1 fuel would have been either PHP 329,955,751.00 or PHP 564,148,535.00 more had PAL bought from either Petron Corporation or Pilipinas Shell Petroleum Corporation.[73] Hence, even if we were to assume that the CIR and the COC were correct in stating that there was sufficient supply of fuel at that time, it would not have been available at a reasonable price to PAL.
In sum, PAL was able to adduce substantial evidence to prove its entitlement to the conditional tax exemption of its importation of Jet A-1 fuel from April to June of 2005. Accordingly, the CTA’s grant of refund must stand.
On the final argument raised by the CIR and the COC regarding the CTA’s purported repugnant leniency in favor of PAL when it granted the latter’s motion to reopen the case for presentation of evidence, suffice to say that “the law creating the CTA specifically provides that proceedings before it shall not be governed strictly by the technical rules of evidence and that the paramount consideration remains the ascertainment of truth. We ruled that procedural rules should not bar courts from considering undisputed facts to arrive at a just determination of a controversy."[74]
ACCORDINGLY, the Petition for Review on Certiorari is hereby DENIED. The July 26, 2018 Decision and the February 20, 2019 Resolution of the Court of Tax Appeals En Banc in CTA EB Nos. 1488 and 1494 are AFFIRMED.
SO ORDERED.
Gaerlan and Singh, JJ., concur. Caguioa (Chairperson), J., see concurring opinion. Inting, J., with separate concurring opinion.