ESTATE TAX

Dizon v CTA (Taxation)

Dizon v CTA G.R. No. 140944 April 30, 2008
FACTS:
On November 7, 1987, Jose P. Fernandez (Jose) died. Thereafter, a petition
for the probate of his will was filed with Branch 51 of the Regional Trial Court
(RTC) of Manila (probate court). The probate court then appointed retired
Supreme Court Justice Arsenio P. Dizon (Justice Dizon) and petitioner, Atty.
Rafael Arsenio P. Dizon (petitioner) as Special and Assistant Special
Administrator, respectively, of the Estate of Jose (Estate). Petitioner alleged
that several requests for extension of the period to file the required estate tax
return were granted by the BIR since the assets of the estate, as well as the
claims against it, had yet to be collated, determined and identified.
ISSUES:
1. Whether or not the CTA and the CA gravely erred in allowing the admission
of the pieces of evidence which were not formally offered by the BIR; and
2. Whether the actual claims of the aforementioned creditors may be fully
allowed as deductions from the gross estate of Jose despite the fact that the
said claims were reduced or condoned through compromise agreements
entered into by the Estate with its creditors Or Whether or not the CA erred in
affirming the CTA in the latter's determination of the deficiency estate tax
imposed against the Estate.
RULING:
1. Yes. While the CTA is not governed strictly by technical rules of
evidence, as rules of procedure are not ends in themselves and are primarily
intended as tools in the administration of justice, the presentation of the BIR's
evidence is not a mere procedural technicality which may be disregarded
considering that it is the only means by which the CTA may ascertain and
verify the truth of BIR's claims against the Estate. The BIR's failure to formally
offer these pieces of evidence, despite CTA's directives, is fatal to its cause

2. Yes. The claims existing at the time of death are significant to, and should
be made the basis of, the determination of allowable deductions. Also, as
held in Propstra v. U.S., where a lien claimed against the estate was certain
and enforceable on the date of the decedent's death, the fact that the
claimant subsequently settled for lesser amount did not preclude the estate
from deducting the entire amount of the claim for estate tax purposes. This is
called the date-of-death valuation rule.
Marcos II vs. CA
MARCOS II vs. CA
273 SCRA 47
GR No. 120880, June 5, 1997
"The approval of the court sitting in probate is not a mandatory requirement in
the collection of estate taxes."
"In case of failure to file a return, the tax may be assessed at anytime within
10 years after the omission."
FACTS: Bongbong Marcos sought for the reversal of the ruling of the Court of
Appeals to grant CIR's petition to levy the properties of the late Pres. Marcos
to cover the payment of his tax delinquencies during the period of his exile in
the US. The Marcos family was assessed by the BIR after it failed to file
estate tax returns. However the assessment were not protested
administratively by Mrs. Marcos and the heirs of the late president so that
they became final and unappealable after the period for filing of opposition
has prescribed. Marcos contends that the properties could not be levied to
cover the tax dues because they are still pending probate with the court, and
settlement of tax deficiencies could not be had, unless there is an order by
the probate court or until the probate proceedings are terminated.
Petitioner also pointed out that applying Memorandum Circular No. 38-68,
the BIR's Notices of Levy on the Marcos properties were issued beyond the
allowed period, and are therefore null and void.

Taxation Contents of a Formal Assessment Notice

ISSUE: Are the contentions of Bongbong Marcos correct?
HELD: No. The deficiency income tax assessments and estate tax
assessment are already final and unappealable -and-the subsequent levy of
real properties is a tax remedy resorted to by the government, sanctioned by
Section 213 and 218 of the National Internal Revenue Code. This summary
tax remedy is distinct and separate from the other tax remedies (such as
Judicial Civil actions and Criminal actions), and is not affected or precluded
by the pendency of any other tax remedies instituted by the government.
The approval of the court, sitting in probate, or as a settlement tribunal over
the deceased's estate is not a mandatory requirement in the collection of
estate taxes. On the contrary, under Section 87 of the NIRC, it is the probate
or settlement court which is bidden not to authorize the executor or judicial
administrator of the decedent's estate to deliver any distributive share to any
party interested in the estate, unless it is shown a Certification by the
Commissioner of Internal Revenue that the estate taxes have been paid. This
provision disproves the petitioner's contention that it is the probate court
which approves the assessment and collection of the estate tax.
On the issue of prescription, the omission to file an estate tax return, and
the subsequent failure to contest or appeal the assessment made by the BIR
is fatal to the petitioner's cause, as under Sec.223 of the NIRC, in case of
failure to file a return, the tax may be assessed at anytime within 10 years
after the omission, and any tax so assessed may be collected by levy upon
real property within 3 years (now 5 years) following the assessment of the
tax. Since the estate tax assessment had become final and unappealable by
the petitioner's default as regards protesting the validity of the said
assessment, there is no reason why the BIR cannot continue with the
collection of the said tax.
Commissioner of Internal Revenue vs Azucena Reyes
December 27, 2012

In 1993, Maria Tancino died leaving behind an estate worth P32 million. In
1997, a tax audit was conducted on the estate. Meanwhile, the National
Internal Revenue Code (NIRC) of 1997 was passed. Eventually in 1998, the
estate was issued a final assessment notice (FAN) demanding the estate to
pay P14.9 million in taxes inclusive of surcharge and interest; the estates
liability was based on Section 229 of the [old] Tax Code. Azucena Reyes, one
of the heirs, protested the FAN. The Commissioner of Internal Revenue (CIR)
nevertheless issued a warrant of distraint and/or levy. Reyes again protested
the warrant but in March 1999, she offered a compromise and was willing to
pay P1 million in taxes. Her offer was denied. She continued to work on
another compromise but was eventually denied. The case reached the Court
of Tax Appeals where Reyes was also denied. In the Court of Appeals, Reyes
received a favorable judgment.
ISSUE: Whether or not the formal assessment notice is valid.
HELD: No. The NIRC of 1997 was already in effect when the FAN was
issued. Under Section 228 of the NIRC, taxpayers shall be informed in writing
of the law and the facts on which the assessment is made: otherwise, the
assessment shall be void. In the case at bar, the FAN merely stated the
amount of liability to be shouldered by the estate and the law upon which
such liability is based. However, the estate was not informed in writing of the
facts on which the assessment of estate taxes had been made. The estate
was merely informed of the findings of the CIR. Section 228 of the NIRC
being remedial in nature can be applied retroactively even though the tax
investigation was conducted prior to the laws passage. Consequently, the
invalid FAN cannot be a basis of a compromise, any proceeding emanating
from the invalid FAN is void including the issuance of the warrant of distraint
and/or levy.

Estate of Gabriel vs Commissioner of Internal Revenue

Taxation Assessment Must Be Sent To The Right Party (Taxpayer)
Juliana Gabriel entered into a contract of agency with the Philippine Trust
Company (PhilTrust) for the latter to manager her business affairs. In April
1979, Gabriel died. Two days after her death, PhilTrust filed the income tax
return (ITR) of Gabriel. PhilTrust however did not mention therein that Gabriel
already died. PhilTrust petitioned to be appointed as administrator of her
estate but the probate court assigned an heir instead. Meanwhile, the Bureau
of Internal Revenue (BIR) found that Gabriel has a tax deficiency in the
amount of P318k. Eventually in November 1982, a final assessment notice
(FAN) addressed to Gabriel was sent via registered mail to PhilTrust. At this
point, the BIR was still uninformed about Gabriels death. PhilTrust did not
answer the FAN and so a warrant of distraint and levy was issued against the
property of Gabriel. The administrator of the estate protested the warrant on
the ground that there was an invalid service of assessment. The
Commissioner of Internal Revenue (CIR) maintained that there was a valid
service because a) PhilTrust was the agent of Gabriel, and b) the tax code (of
1977) does not require that the assessment be actually received by the
taxpayer; that all it requires is that the assessment be released, mailed, and
sent to the taxpayer at the address stated in the ITR filed.
ISSUE: Whether or not the CIR is correct.
HELD: No. PhilTrust was no longer the agent of Gabriel when the FAN was
issued in 1982. The contract of agency ceased when Gabriel died in 1979.
Since the agency was extinguished, the estate of Gabriel cannot be bound by
the mistakes and omission of PhilTrust i.e., failure to notify BIR of Gabriels
death and failure to file an answer for the FAN issued.
Anent the second argument of the CIR, although there is really no statutory
requirement that the FAN should be actually received by the taxpayer, the

same should be sent to the taxpayer. In this case, it was sent to PhilTrust.
Also, although there is no specific requirement that the taxpayer should
receive the notice within the prescriptive period (so long as the FAN was
made within such period), due process requires at the very least that such
notice actually be received. An assessment contains not only a computation
of tax liabilities, but also a demand for payment within a prescribed period. It
also signals the time when penalties and interests begin to accrue against the
taxpayer. To enable the taxpayer to determine his remedies thereon, due
process requires that it must be served on and received by the taxpayer.
CIR v. CA and Pajonar
G.R. No. 123206
March 22, 2000
Doctrine: [Judicial Expenses] Expenses on extrajudicial settlement of the
estate are allowed as deductions. They come within the meaning of
administration expenses.
Petitioner: Commissioner of Internal Revenue
Respondents: Court Of Appeals, Court Of Tax Appeals & Josefina P. Pajonar
(as Administratrix Of The Estate Of Pedro P. Pajonar)
Ponente: J. Gonzaga-Reyes
Nature of the Case: Petition for Review on Certiorari on the Decision of the
Court of Appeals affirming the Resolution of the Court of Tax Appeals granting
Josefina P. Pajonar, as administratrix of the estate of Pedro P. Pajonar, a tax
refund in the amount of P76,502.42, representing erroneously paid estate
taxes for the year 1988.
Summary:
By reason of the Bataan Death March during World War II, Pedro Pajonar
became insane. His property was placed under the guardianship of PNB,
while his sister Josefina became the guardian over his person, and eventually
the administratrix of his estate when he died. After his death, his heirs
executed an extrajudicial settlement and paid the estate tax. Thereafter, BIR

assessed the estate of Pedro deficiency taxes. The estate paid under protest
and filed a case with the CTA, which in turn allowed P60,753 representing the
notarial fee for the Extrajudicial Settlement and P50,000 attorney's fees for
guardianship proceedings as among the allowed deductions from the gross
estate.

Issue is WON the notarial fee and attorney's fees allowed as deductions from
the gross estate. YES.

The notarial fee paid for the extrajudicial settlement is a deductible expense
since such settlement effected a distribution of Pedros estate to his lawful
heirs. Similarly, attorney's fees paid to PNB for acting as the guardian of
Pedros property during his lifetime should also be considered as a deductible
administration expense. This is because PNB provided a detailed accounting
of decedent's property and gave advice as to the proper settlement of the
latter's estate, acts which contributed towards the collection of decedent's
assets and the subsequent settlement of the estate.

FACTS:
Pedro Pajonar was a member of the Philippine Scout, Bataan Contingent,
during World War II and was a part of the infamous Death March by
reason of which he suffered shock and became insane. His sister
Josefina became the guardian over his person, while his property was
placed under the guardianship of the Philippine National Bank (PNB) by
RTC of Dumaguete.
After his death, PNB filed an accounting of his property under
guardianship valued at P3,037,672.09 in a Special Proceeding. However,
PNB did NOT file an estate tax return, instead it advised Pedro's heirs to
execute an extrajudicial settlement and to pay the taxes on his estate.
Pursuant to the assessment by the BIR, the estate of Pedro paid taxes in
the amount of P2,557.
Josefina then filed a petition with RTC of Dumaguete for the issuance in
her favor of letters of administration of the estate of her brother. This was
granted and she was appointed as the regular administratrix of Pedros
estate.

The BIR then made a second assessment for deficiency estate tax which
Josefina, in her capacity as administratrix and heir of Pedros estate, paid
under protest. And without waiting for her protest to be resolved by the
BIR, she filed a petition for review with the Court of Tax Appeals (CTA),
praying for the refund of P1,527,790.98, or in the alternative,
P840,202.06, as erroneously paid estate tax.
The CTA ordered the Commissioner of Internal Revenue to refund
Josefina P252,585.59, representing erroneously paid estate tax for the
year 1988. Among the deductions from the gross estate allowed by the
CTA were P60,753 representing the notarial fee for the Extrajudicial
Settlement and the amount of P50,000 as the attorney's fees for
guardianship proceedings.
CIR filed a MR which the CTA denied. It then filed with the CA a petition
for review which was also denied Hence, the present appeal.

ISSUE: WON the notarial fee paid for the extrajudicial settlement of P60,753
and the attorney's fees in the guardianship proceedings of P50,000 may be
allowed as deductions from the gross estate of decedent in order to arrive at
the value of the net estate. YES.
RATIO

Judicial expenses are expenses of administration.

o Administration expenses, as an allowable deduction from the
gross estate of the decedent for purposes of arriving at the value of
the net estate, have been construed by the federal and state courts
of the United States to include all expenses "essential to the
collection of the assets, payment of debts or the distribution of
the property to the persons entitled to it." In other words, the
expenses must be essential to the proper settlement of the estate.
This Court adopts the view under American jurisprudence that expenses
incurred in the extrajudicial settlement of the estate should be allowed as
a deduction from the gross estate. There is no requirement of formal
administration. It is sufficient that the expense be a necessary
contribution toward the settlement of the case.

Although the Tax Code specifies "judicial expenses of the testamentary or

intestate proceedings," there is no reason why expenses incurred in the
administration and settlement of an estate in extrajudicial proceedings
should not be allowed.
o However, deduction is limited to such administration expenses as
are actually and necessarily incurred in the collection of the assets
of the estate, payment of the debts, and distribution of the remainder
among those entitled thereto.
Such expenses may include executor's or administrator's fees,
attorney's fees, court fees and charges, appraiser's fees, clerk
hire, costs of preserving and distributing the estate and storing or
maintaining it, brokerage fees or commissions for selling or
disposing of the estate, and the like.
Deductible attorney's fees are those incurred by the executor or
administrator in the settlement of the estate or in defending or
prosecuting claims against or due the estate.
It is clear then that the extrajudicial settlement was for the purpose of
payment of taxes and the distribution of the estate to the heirs.
The execution of the extrajudicial settlement necessitated the
notarization of the same. Hence the Contract of Legal Services entered
into between Josefina and counsel was presented in evidence for the
purpose of showing that the amount of P60,753.00 was for the
notarization of the Extrajudicial Settlement.
o The notarial fee of P60,753.00 was incurred primarily to settle the
estate of Pedro. Said amount should then be considered an
administration expenses actually and necessarily incurred in the
collection of the assets of the estate, payment of debts and
distribution of the remainder among those entitled thereto.
Attorney's fees, on the other hand, in order to be deductible from the
gross estate must be essential to the collection of assets, payment of
debts or the distribution of the property to the persons entitled to it. The
services for which the fees are charged must relate to the proper
settlement of the estate.
o The amount of P50,000.00 was incurred as attorney's fees in the
guardianship proceedings.

The guardianship proceeding in this case was necessary for the

distribution of the property of the deceased Pedro. PNB was
appointed guardian over the assets of the deceased, and that
necessarily the assets of the deceased formed part of his gross
estate.
PNB provided a detailed accounting of decedent's property and
gave advice as to the proper settlement of the latter's estate, acts
which contributed towards the collection of decedent's assets and
the subsequent settlement of the estate.

DECISION: WHEREFORE, the December 21, 1995 Decision of the Court of

Appeals is AFFIRMED.

REPUBLIC v. GUZMAN
Three essential elements of a donation:
1. Reduction in the patrimony of the donor
2. Increase in the patrimony of the donee
3. Intent to do an act of liberality or animus donandi
It is also required that the donation be made in a public document and that its
acceptance be made in the same deed of donation or in a separate public
document, which has to be recorded as well.
FACTS:
David Rey Guzman, a natural-born American citizen, is the son of the
spouses Simeon Guzman (naturalized American) and Helen Meyers Guzman
(American citizen). In 1968, Simeon died leaving to his heirs, Helen and
David, an estate consisting of several parcels of land in Bulacan.

In 1970, Helen and David executed a Deed of Extrajudicial Settlement of the

Estate, dividing and adjudicating to themselves all of the property, and
registered it to the RD a year after.

It is clear that Helen merely contemplated a waiver of her rights, title, interest
over the lands in favor of David, not a donation. She was also aware that
donation was not possible.

In 1981, Helen executed a Deed of Quitclaim, assigning, transferring and

conveying her share of the properties to David. But since it was not
registered, she executed another Deed of Quitclaim to confirm the first.

Moreover, the essential element of acceptance in the proper form and

registration to make the donation valid is lacking.

In 1994, Atty. Batongbacal wrote the OSG andfurnished it with documents

showing that Davids ownership of of the estate was defective.
He argued that Art. XII of the Constitution only allows Filipinos to acquire
private lands in the country. The only instances when a foreigner may acquire
private property are by hereditary succession and if he was formerly a
natural-born citizen who lost his Filipino citizenship. Moreover, it contends
that the Deeds of Quitclaim executed by Helen were really donations inter
vivos.
Republic filed with RTC a Petition for Escheat praying that of Davids
interest be forfeited in its favor. RTC dismissed. CA affirmed.

The SPA executed by David in favor of Atty. Abela was not his acceptance,
but an acknowledgment that David owns the property referred to and that he
authorizes Atty. Abela to sell the same in his name. Further, there was
nothing in the SPA to show that he indeed accept the donation.
However, the inexistence of a donation does not make the repudiation of
Helen in favor David valid. There is NO valid repudiation of inheritance as
Helen had already accepted her share of the inheritance when she, together
with David, executed a Deed of Extrajudicial Settlement of the Estate,
dividing and adjudicating between them all the properties. By virtue of that
settlement, the properties were registered in their names and for 11 years,
they possessed the land in the concept of owner. Thus, the 2 Quitclaims have
no legal force and effect. Helen still owns of the property.

ISSUE: Whether or not there was a donation inter vivos

HELD: NO.
Not all the elements of a donation are present. The transfer of the properties
by virtue of a Deed of Quitclaim resulted in the
(1) reduction of her patrimony as donor and the (2) consequent increase in
the patrimony of David as donee. However, Helens (3) intention to perform
an act of liberality in favor of David was not sufficiently established.
The 2 Quitclaims reveal that Helen intended to convey to her son certain
parcels of land and to re-affirm it, she executed a waiver and renunciation of
her rights over these properties.

ACCRA v. CIR G.R. No. 120721

Facts:
In 1987 Manuel Abello, Jose Concepcion, Teodoro Regala, and Avelino Cruz
donated P882, 661.31each to the campaign funds of Edgardo Angara, who
was running for a Senate seat. The BIR assessed them P263, 032.66 each
for their contributions, which the petitioners questioned, claiming that political
and electoral contributions are not considered gifts under the NIRC.
Petitioners claimed that the purpose of a political contribution is to influence
the outcome of an election, and not to do an act of liberality.

Issue: Whether or not political contributions may be considered gifts and

assessed donor's tax
Held:
Yes .Donation has the following elements: a) a reduction in the patrimony of
the donor; b) an increase in the patrimony of the donee; and c) the intent to
do an act of liberality or animus donandi .Donative intent cannot be perceived
except by the material and tangible acts which manifest its presence, and is
presumed present when one gives a part of one's patrimony to another
without consideration. It is not negated when the person donating has other
intentions, motives or purposes which do not contradict donative intent. The
fact that petitioners will somehow in the future benefit from the election of the
candidate to whom they contribute in no way amounts to a valuable material
consideration so as to remove political contributions from the purview of a
donation. Sen. Angara was under no obligation to benefit the petitioners. The
proper performance of his duties as a legislator is his obligation as an elected
public servant of the Filipino people and not a consideration for the political
contributions he received. In fine, the purpose for which the sums of money
were given, which was to fund the campaign of Sen. Angara in his bid for a
senatorial seat, cannot be considered as a material consideration so as to
negate a donation. Sec. 91 of the NIRC provides that a tax shall be levied
upon the transfer of a property by any person by gift, whether the transfer is
by trust or otherwise, whether the gift is direct or indirect, and whether the
property is real or personal, tangible or intangible The fact that subsequent to
the donations involved in this case, Congress approved RA 7166providing in
sec 13 thereof that political/electoral contributions, duly reported to the
Comelec ,are not subject to the payment of any gift tax, all the more shows
that the political contributions herein are subject to the payment of gift taxes,
since the same were made prior to the exempting legislation

CIR V. BF GOODRICH PHILS. INC.

G.R. NO. 104171. February 24, 1999
Facts: Private respondent BF Goodrich Philippines Inc. was an American
corporation prior to July 3, 1974. As a condition for approving the
manufacture of tires and other rubber products, private respondent was
required by the Central Bank to develop a rubber plantation. In compliance
therewith, private respondent bought from the government certain parcels of
land in Tumajubong Basilan, in 1961 under the Public Land Act and the Parity
Amendment to the 1935 constitution, and there developed a rubber
plantation.
On August 2, 1973, the Justice Secretary rendered an opinion that ownership
rights of Americans over Public agricultural lands, including the right to
dispose or sell their real estate, would be lost upon expiration on July 3, 1974
of the Parity Amendment. Thus, private respondent sold its Basilan land
holding to Siltown Realty Phil. Inc., (Siltown) for P500,000 on January 21,
1974. Under the terms of the sale, Siltown would lease the property to private
respondent for 25 years with an extension of 25 years at the option of private
respondent.
Private respondent books of accounts were examined by BIR for purposes of
determining its tax liability for 1974. This examination resulted in the April 23,
1975 assessment of private respondent for deficiency income tax which it
duly paid. Siltowns books of accounts were also examined, and on the basis
thereof, on October 10, 1980, the Collector of Internal Revenue assessed
deficiency donors tax of P1,020,850 in relation to said sale of the Basilan
landholdings.
Private respondent contested this assessment on November 24, 1980.
Another assessment dated March 16, 1981, increasing the amount
demanded for the alleged deficiency donors tax, surcharge, interest and

compromise penalty and was received by private respondent on April 9,

1981. On appeal, CTA upheld the assessment. On review, CA reversed the
decision of the court finding that the assessment was made beyond the 5year prescriptive period in Section 331 of the Tax Code.

Issue: Whether or not petitioners right to assess has prescribed.

Held: Applying then Sec. 331, NIRC (now Sec. 203, 1997 NIRC which
provides a 3-year prescriptive period for making assessments), it is clean that
the October 16, 1980 and March 16, 1981 assessments were issued by the
BIR beyond the 5-year statute of limitations. The court thoroughly studied the
records of this case and found no basis to disregard the 5-year period of
prescription, expressly set under Sec. 331 of the Tax Code, the law then in
force.
For the purpose of safeguarding taxpayers from any unreasonable
examination, investigation or assessment, our tax law provides a statute of
limitations in the collection of taxes. Thus, the law or prescription, being a
remedial measure, should be liberally construed in order to afford such
protection. As a corollary, the exceptions to the law on prescription should
perforce be strictly construed.
CIR vs. Fortune Tobacco
September 28, 2011 G.R. No. 180006
Facts: Prior to January 1, 1997, the excises taxes on cigarettes were in the
form of ad valorem taxes, pursuant to Section 142 of the 1977 National
Internal Revenue Code (1977 Tax Code). Beginning January 1, 1997, RA
8240 took effect and a shift from ad valorem to specific taxes was made. A
portion of Section 142(c) of the 1977 Tax Code, as amended by RA 8240,

reads in part:
The specific tax from any brand of cigarettes within the next three (3) years
of effectivity of this Act shall not be lower than the tax [which] is due from
each brand on October 1, 1996. The rates of specific tax on cigars and
cigarettes under paragraphs (1), (2), (3) and (4) hereof, shall be increased by
twelve percent (12%) on January 1, 2000.
To implement the 12% increase in specific taxes mandated under Section
145 of the 1997 Tax Code and again pursuant to its rule-making powers, the
CIR issued RR 17-99, which reads partly:
Provided, however, that the new specific tax rate for any existing brand of
cigars [and] cigarettes packed by machine, distilled spirits, wines and
fermented liquors shall not be lower than the excise tax that is actually being
paid prior to January 1, 2000. Pursuant to these laws, respondent Fortune
Tobacco Corporation paid in advance excise taxes and filed an administrative
claim for tax refund with the CIR for erroneously and/or illegally collected
taxes in the amount of P491 million.
In its decision, the CTA First Division ruled in favor of Fortune Tobacco and
granted its claim for refund. The CTA First Divisions ruling was upheld on
appeal by the CTA en banc. The CIRs motion for reconsideration of the CTA
en bancs decision was denied in a resolution.
Issue: Whether or not Section 1 of RR 17-99 is an unauthorized
administrative legislation on the part of the CIR.

Ruling: Yes. The proviso in Section 1 of RR 17-99 clearly went beyond the
terms of the law it was supposed to implement, and therefore entitles Fortune
Tobacco to claim a refund of the overpaid excise taxes collected pursuant to

this provision.
The rule on uniformity of taxation is violated by the proviso in Section 1, RR
17-99. Uniformity in taxation requires that all subjects or objects of taxation,
similarly situated, are to be treated alike both in privileges and liabilities.
Although the brands all belong to the same category, the proviso in Section 1,
RR 17-99 authorized the imposition of different (and grossly disproportionate)
tax rates. It effectively extended the qualification stated in the third paragraph
of Section 145(c) of the 1997 Tax Code that was supposed to apply only
during the transition period. In the process, the CIR also perpetuated the
unequal tax treatment of similar goods that was supposed to be cured by the
shift from ad valorem to specific taxes.
The Court further said that the omission in the law in fact reveals the
legislative intent not to adopt the higher tax rule. It appears that despite its
awareness of the need to protect the increase of excise taxes to increase
government revenue, Congress ultimately decided against adopting the
higher tax rule.

G.R. No. 184428 November 23, 2011

COMMISSIONER OF INTERNAL REVENUE vs.SAN MIGUEL
CORPORATION

Facts: Respondent San Miguel Corporation, a domestic corporation engaged

in the manufacture and sale of fermented liquor, produces as one of its
products "Red Horse" beer which is sold in 500-ml. and 1-liter bottle variants.
On January 1, 1998, Republic Act (R.A.) No. 8424 or the Tax Reform Act of
1997 took effect. It reproduced, as Section 143 thereof, the provisions of
Section 140 of the old National Internal Revenue Code as amended by R.A.

No. 8240 which became effective on January 1, 1997. Part of Section 143 of
the Tax Reform Act of 1997 reads:
The excise tax from any brand of fermented liquor within the next three (3)
years from the effectivity of Republic Act No. 8240 shall not be lower than the
tax which was due from each brand on October 1, 1996.
The rates of excise tax on fermented liquor under paragraphs (a), (b) and (c)
hereof shall be increased by twelve percent (12%) on January 1, 2000.
Thereafter, on December 16, 1999, the Secretary of Finance issued
Revenue Regulations No. 17-99 increasing the applicable tax rates on
fermented liquor by 12%. This increase, however, was qualified by the last
paragraph of Section 1 of Revenue Regulations No. 17-99 which reads:
Provided, however, that the new specific tax rate for any existing brand of
cigars, cigarettes packed by machine, distilled spirits, wines and fermented
liquors shall not be lower than the excise tax that is actually being paid
prior to January 1, 2000.
For the period June 1, 2004 to December 31, 2004, respondent was
assessed and paid excise taxes amounting to P2,286,488,861.58.
Respondent, however, later contended that the said qualification in the last
paragraph of Section 1 of Revenue Regulations No. 17-99 has no basis in the
plain wording of Section 143 and filed before the BIR a claim for refund or tax
credit of the amount of P60,778,519.56 as erroneously paid excise taxes for
the period of May 22, 2004 to December 31, 2004. Later, said amount was
reduced to P58,213,294.92 because of prescription.
On September 26, 2007, the CTA Second Division granted the petition
and ordered petitioner to refund P58,213,294.92 to respondent or to issue in
the latters favor a Tax Credit Certificate for the said amount for the
erroneously paid excise taxes. The CTA held that Revenue Regulations No.
17-99 modified or altered the mandate of Section 143 of the Tax Reform Act
of 1997. The CTA En Banc affirmed the Decision. Hence, this petition for

review on certiorari.

Issue: Whether or not Section 1 of Revenue Regulations No. 17-99 is an

invalid administrative interpretation of Section 143 of the Tax Reform Act of
1997.

Ruling: Yes. Section 143 of the Tax Reform Act of 1997 is clear and
unambiguous. It provides for two periods: the first is the 3- year transition
period beginning January 1, 1997, the date when R.A. No. 8240 took effect,
until December 31, 1999; and the second is the period thereafter. During the
3-year transition period, Section 143 provides that "the excise tax from any
brand of fermented liquor...shall not be lower than the tax which was due from
each brand on October 1, 1996." After the transitory period, Section 143
provides that the excise tax rate shall be the figures provided under
paragraphs (a), (b) and (c) of Section 143 but increased by 12%, without
regard to whether the revenue collection starting January 1, 2000 may turn
out to be lower than that collected prior to said date. Revenue Regulations
No. 17-99, however, created a new tax rate when it added in the last
paragraph of Section 1 thereof, the qualification that the tax due after the
12% increase becomes effective "shall not be lower than the tax actually paid
prior to January 1, 2000."
It bears reiterating that tax burdens are not to be imposed, nor
presumed to be imposed beyond what the statute expressly and clearly
imports, tax statutes being construed strictissimi juris against the government.
In case of discrepancy between the basic law and a rule or regulation issued
to implement said law, the basic law prevails as said rule or regulation cannot
go beyond the terms and provisions of the basic law.
As there is nothing in Section 143 of the Tax Reform Act of 1997
which clothes the BIR with the power or authority to rule that the new specific

tax rate should not be lower than the excise tax that is actually being paid
prior to January 1, 2000, such interpretation is clearly an invalid exercise of
the power of the Secretary of Finance to interpret tax laws and to promulgate
rules and regulations necessary for the effective enforcement of the Tax
Reform Act of 1997.
DIAGEO PHILIPPINES, INC., Petitioner, v. COMMISSIONER OF INTERNAL
REVENUE,Respondent.
DECISION
PERLAS-BERNABE, J.:
Before the Court is a Petition for Review under Rule 45 of the Rules of Court
assailing the Decision1rllof the Court of Tax Appeals (CTA) En Banc dated
July 2, 2008 in CTA EB No. 260.
The petition seeks the proper interpretation of Section 130(D)2rll of the
National Internal Revenue Code of 1997 (Tax Code), particularly, on the
question of who may claim the refund or tax credit of excise taxes paid on
goods actually exported.
The Factual Antecedents
Petitioner Diageo Philippines, Inc. (Diageo) is a domestic corporation
organized and existing under the laws of the Republic of Philippines and is
primarily engaged in the business of importing, exporting, manufacturing,
marketing, distributing, buying and selling, by wholesale, all kinds of
beverages and liquors and in dealing in any material, article, or thing required
in connection with or incidental to its principal business.3rll It is registered
with the Bureau of Internal Revenue (BIR) as an excise tax taxpayer, with Tax
Identification No. 000-161-879-000.4rll
For the periodNovember 1, 2003 to December 31, 2004, Diageo purchased
raw alcohol from its supplier for use in the manufacture of its beverage and

liquor products. The supplier imported the raw alcohol and paid the related
excise taxes thereon before the same were sold to the petitioner.5rllThe
purchase price for the raw alcohol included, among others, the excise taxes
paid by the supplierin the total amount of P12,007,528.83.6rll
Subsequently, Diageo exported its locally manufactured liquor products to
Japan, Taiwan, Turkey and Thailand and received the corresponding foreign
currency proceeds of such export sales.7rll
Within two (2) years from the time the supplier paid the subject excise taxes,
Diageo filed with the BIR Large Taxpayers Audit and Investigation Division II
applications for tax refund/issuance of tax credit certificates corresponding to
the excise taxes which its supplier paid but passed on to it as part of the
purchase price of the subject raw alcohol invoking Section 130(D) of the Tax
Code.
However, due to the failure of the respondent Commissioner of Internal
Revenue (CIR) to act upon Diageos claims, the latter was constrained to
timely file a petition for review before the CTA.8rll
On December 27, 2005, the CIR filed its Answer assailing Diageos lack of
legal personality to institute the claim for refund because it was not the one
that paid the alleged excise taxes but its supplier.9rllSubsequently, the
CIR filed a motion to dismiss reiterating the same issue.10rll

On February 13, 2007, Diageo filed a petition for review15rll which the
CTAEn Bancin its Decision dated July 2, 2008dismissed,thereby affirming the
ruling of the CTA Second Division.16rll
Citing Rule 3, Section 2,17rll of the Rules of Court, the CTA En Banc held
that the right to a refund or tax credit of the excise taxes under Section
130(D) of the Tax Code is available only to persons enumerated in Sections
130(A)(1)18rll and (2)19rll of the same Code because they are the ones
primarily and legally liable to pay such taxes. As Diageo failed to prove that it
had actually paid the claimed excise taxes as manufacturer-exporter, the CTA
En Banc likewise did not find it as the proper party to claim a refund.Hence,
the instant petition.
Diageo claims to be a real party in interest entitled to recover the subject
refund or tax credit because it stands to be benefited or injured by the
judgment in this suit.20rll It contends that the tax privilege under Section
130(D) applies to every exporter provided the conditions therein set forth are
complied with, namely, (1) the goods are exported either in their original state
or as ingredients or part of any manufactured goods or products; (2) the
exporter submits proof of exportation; and (3) the exporter likewise submits
proof of receipt of the corresponding foreign exchange payment.21It argues
that Section 130(D) does not limit the grant of the tax privilege to
manufacturers/producers-exporters only but to every exporter of locally
manufactured/produced goods subject only to the conditions
aforementioned.22rll

The Ruling of the Court of Tax Appeals

The Issue
11

On July 20, 2006, the CTA Second Division issued a Resolution dismissing
the petition on the ground that Diageo is not the real party in interest to file
the claim for refund. Citing Philippine Acetylene Co., Inc. v. Commissioner of
Internal Revenue,12rll the CTA Second Division ruled that although an
excise tax is an indirect tax which can be passed on to the purchaser of
goods, the liability therefor still remains with the manufacturer or seller,
hence, the right to claim refund is only available to it.13rllDiageo filed a
motion for reconsideration which was subsequently denied in the Resolution
dated January 8, 2007.14rll

The sole issue to be resolved is whether Diageo has the legal personality to
file aclaim for refund or tax credit for the excise taxes paid by its supplier on
the raw alcohol it purchased and used in the manufacture of its exported
goods.
Ruling of the Court
The petition is without merit.

Excise taxes partake of the nature of indirect taxes.

Diageo bases its claim for refund on Section 130 of the Tax Code which
reads:
Section 130.Filing of Return and Payment of Excise Tax on Domestic
Products. xxx
(A) Persons Liable to File a Return, Filing of Return on Removal and
Payment of Tax.(1) Persons Liable to File a Return. Every person liable to pay excise tax
imposed under this Title shall file a separate return for each place of
production setting forth, among others, the description and quantity or volume
of products to be removed, the applicable tax base and the amount of tax due
thereon; Provided however, That in the case of indigenous petroleum, natural
gas or liquefied natural gas, the excise tax shall be paid by the first buyer,
purchaser or transferee for local sale, barter or transfer, while the excise tax
on exported products shall be paid by the owner, lessee, concessionaire or
operator of the mining claim.Should domestic products be removed from the
place of production without the payment of the tax, the owner or person
(D) Credit for Excise tax on Goods Actually Exported.- When goods locally
produced or manufactured are removed and actually exported without
returning to the Philippines, whether so exported in their original state or as
ingredients or parts of any manufactured goods or products, any excise tax
paid thereon shall be credited or refunded upon submission of the proof of
actual exportation and upon receipt of the corresponding foreign exchange
payment: Provided, That the excise tax on mineral products, except coal and
coke, imposed under Section 151 shall not be creditable or refundable even if
the mineral products are actually exported.
A reading of the foregoing provision, however, reveals that contrary to the
position of Diageo, the right to claim a refund or be credited with the excise
taxes belongs to its supplier. The phrase "any excise tax paid thereon shall
be credited or refunded" requires that the claimant be the same person who

paid the excise tax. In Silkair (Singapore) Pte, Ltd. v. Commissioner of

Internal Revenue, the Court has categorically declared that "[t]he proper party
to question, or seek a refund of, an indirect tax is the statutory taxpayer, the
person on whom the tax is imposed by law and who paid the same even if he
shifts the burden thereof to another."23rll
Excise taxes imposed under Title VI of the Tax Code are taxes on
property24rll which are imposed on "goods manufactured or produced in
the Philippines for domestic sales or consumption or for any other disposition
and to things imported."25rll Though excise taxes are paid by the
manufacturer or producer before removal of domestic products from the place
of production26rll or by the owner or importer before the release of
imported articles from the customshouse,27rll the same partake of the
nature of indirect taxes when it is passed on to the subsequent purchaser.
Indirect taxesare defined asthose wherein the liability for the payment of the
tax falls on one person but the burden thereof can be shifted to another
person. When the seller passes on the tax to his buyer, he, in effect, shifts the
tax burden, not the liability to pay it, to the purchaser as part of the price of
goods sold or services rendered.28rll
Accordingly, when the excise taxes paid by the supplier were passed on to
Diageo, what was shifted is not the tax per se but anadditional cost of the
goods sold. Thus, the supplier remains the statutory taxpayer even if Diageo,
the purchaser, actually shoulders the burden of tax.
The statutory taxpayer is the proper
party to claim refund of indirect
taxes.
As defined in Section 22(N) of the Tax Code, a taxpayer means any person
subject to tax. He is, therefore, the person legally liable to file a return and
pay the tax as provided for in Section 130(A). As such, he is the person
entitled to claim a refund.

Relevant isSection 204(C) of the Tax Code which

provides:chanroblesvirtuallawlibrary
Section 204. Authority of the Commissioner to Compromise, Abate, and
Refund or Credit Taxes.- The Commissioner may (C) Credit or refund taxes erroneously or illegally received or penalties
imposed without authority, refund the value of internal revenue stamps when
they are returned in good condition by the purchaser, and, in his discretion,
redeem or change unused stamps that have been rendered unfit for use and
refined their value upon proof of destruction. No credit or refund of taxes or
penalties shall be allowed unless the taxpayer files in writing with the
Commissioner a claim for credit or refund within two (2) years after the
payment of the tax or penalty: Provided, however, that a return filed showing
an overpayment shall be considered as a written claim for credit or refund.
(Emphasis supplied)

Finally, statutes granting tax exemptions are construed stricissimi juris

against the taxpayer and liberally in favor of the taxing authority. A claim of
tax exemption must be clearly shown and based on language in law too plain
to be mistaken.31rll Unfortunately, Diageo failed to meet the burden of
proof that it is covered by the exemption granted under Section 130(D) of the
Tax Code.
In sum, Diageo, not being the party statutorily liable to pay excise taxes and
having failed to prove that it is covered by the exemption granted under
Section 130(D) of the Tax Code, is not the proper party to claim a refund or
credit of the excise taxes paid on the ingredients of its exported locally
produced liquor.
WHIEREFORE, the petition is DENIED and the assailed CTA En Banc
Decision in CTA EB No. 260 dated July 2, 2008 is AFFIRMED
FACTS:

Pursuant to the foregoing, the person entitled to claim a tax refund is the
statutory taxpayer or the person liable for or subject to tax.29rll In the
present case, it is not disputed that the supplier of Diageo imported the
subject raw alcohol, hence, it was the one directly liable and obligated to file a
return and pay the excise taxes under the Tax Code before the goods or
products are removed from the customs house. It is, therefore, the statutory
taxpayer as contemplated by law and remains to be so, even if it shifts the
burden of tax to Diageo. Consequently, the right to claim a refund, if legally
allowed, belongs to it and cannot be transferred to another, in this case
Diageo, without any clear provision of law allowing the same.
Unlike the law on Value Added Tax which allows the subsequent purchaser
under the tax credit method to refund or credit input taxes passed on to it by a
supplier,30rll no provision for excise taxes exists granting non-statutory
taxpayer like Diageo to claim a refund or credit. It should also be stressed
that when the excise taxes were included in the purchase price of the goods
sold to Diageo, the same was no longer in the nature of a tax but already
formed part of the cost of the goods.

PHILIPPINE AIRLINES, INC. had zero taxable income for 2000 but would
have been liable for Minimum Corporate Income Tax based on its gross
income. However, PHILIPPINE AIRLINES, INC. did not pay the Minimum
Corporate Income Tax using as basis its franchise which exempts it from all
other taxes upon payment of whichever is lower of either (a) the basic
corporate income tax based on the net taxable income or (b) a franchise tax
of 2%.
ISSUE:Is PAL liable for Minimum Corporate Income Tax?

HELD:NO. PHILIPPINE AIRLINES, INC.s franchise clearly refers to "basic

corporate income tax" which refers to the general rate of 35% (now 30%). In
addition, there is an apparent distinction under the Tax Code between taxable
income, which is the basis for basic corporate income tax under Sec. 27 (A)

and gross income, which is the basis for the Minimum Corporate Income Tax
under Section 27 (E). The two terms have their respective technical
meanings and cannot be used interchangeably. Not being covered by the
Charter which makes PAL liable only for basic corporate income tax, then
Minimum Corporate Income Tax is included in "all other taxes" from which
PHILIPPINE AIRLINES, INC. is exempted.

taxes thus paid under either scheme shall be inlieu of all other taxes, duties
and other fees.
On January 1, 2005, Republic Act No. 9334 (RA 9334)4 took effect. Of
pertinent relevance in this proceeding is its Sec. 6 which amended Sec. 131
of the 1997 National Internal Revenue Code (NIRC) to read:
SEC. 6.Section 131 of the National Internal Revenue Code of 1997, as
amended, is hereby amended to read as follows:

The CIR also can not point to the Substitution Theory which states that
Respondent may not invoke the in lieu of all other taxes provision if it did not
pay anything at all as basic corporate income tax or franchise tax. The Court
ruled that it is not the fact tax payment that exempts Respondent but the
exercise of its option. The Court even pointed out the fallacy of the argument
in that a measly sum of one peso would suffice to exempt PAL from other
taxes while a zero liability would not and said that there is really no
substantial distinction between a zero tax and a one-peso tax liability. Lastly,
the Revenue Memorandum Circular stating the applicability of the MCIT to
PAL does more than just clarify a previous regulation and goes beyond mere
internal administration and thus cannot be given effect without previous
notice or publication to those who will be affected thereby.
G.R. Nos. 212536-37

August 27, 2014

COMMISSIONER OF INTERNAL REVENUE and COMMISSIONER OF

CUSTOMS, Petitioners, vs. PHILIPPINE AIRLINES, INC
FACTS: On June 11, 1978, PAL was granted under Presidential Decree No.
1590 (PD 1590) a franchise to operate air transport services domestically and
internationally. Section 133 of the decree prescribes the tax component of
PALs franchise. Under it, PAL, during the lifetime of its franchise, shall pay
the government either basic corporate income tax or franchise tax based on
revenues and/or the ratedefined in the provision, whichever is lower and the

"SEC. 131. Payment of Excise Taxes on Imported Articles."(A) Persons Liable.- Excise taxes on imported articles shall be paid by the
owner or importer to the Customs Officers, x x x before the release of such
articles from the customs house, or by the person who is found in possession
of articles which are exempt from excise taxes other than those legally
entitled to exemption.
"In the case of tax-free articles brought or imported into the Philippines by
persons, entities, or agencies exempt from tax which are subsequently sold,
transferred or exchanged in the Philippines to non-exempt persons or
entities, the purchasers or recipients shall be considered the importers
thereof x x x.
"The provision of any special or general law to the contrary notwithstanding,
the importation of x x x cigarettes, distilled spirits, fermented liquorsand wines
x x x, even if destined for tax and duty-free shops, shall be subject to all
applicable taxes, duties, charges, including excise taxes due thereon.This
shall apply to [said items] x x x brought directly into the duly chartered or
legislated freeports x x x, and such other freeports as may hereafter be
established or created by law x x x. (emphasis added.)
Pursuant to the above-quoted tax code provisions, PAL was assessed excise
taxes on its February and March 2007 importation of cigarettes and alcoholic
drinks for its commissary supplies used in its international flights. In due time,
PAL paid the corresponding amounts, as indicated below, under protest:

BOC Official Receipt

Number

Date of Payment

Amount Paid

138110892

February 5, 2007

PhP 1,497,182

1138348761

February 26, 2007

PhP 1,525,480

138773503

March 23, 2007

PhP 1,528,196.85

PAL, thereafter, filed separate administrative claims for refund before the
Bureau of Internal Revenue (BIR) for the alleged excise taxes it erroneously
paid on said dates. Asthere was no appropriate action on the part of the then
Commissioner of Internal Revenue (CIR) and obviously to forestall the
running of the two-year prescriptive period for claiming tax refunds, PAL filed
before the Court of Tax Appeals (CTA) a petition for review, docketed asCTA
Case No. 7868. After the parties had submitted their respective memoranda
following the joinder of issues and the formaloffer of evidence, the CTA
Second Division rendered on June 22, 2012 in CTA Case No. 7868 a
Decision5 finding for PAL, as petitioner, the CIR and the Commissioner of
Customs (COC), as respondents, being ordered to pay PAL by way of refund
the amount of PhP 4,550,858.85. The amount represented the excise taxes
paid in February and March 2007, covering PALs importation of commissary
supplies. Thefalloof the June 22, 2012 judgment reads:
WHEREFORE, premises considered, the instant Petition for Review is
hereby GRANTED. Accordingly, respondents are hereby ORDERED TO
REFUND to petitioner the amount of P4,550,858, representing petitioners
erroneously paid excise taxes.
SO ORDERED.
Therefrom, the CIR and the COC interposed separate motions for
reconsideration, both of which were, however, denied, in a consolidated
Resolution6 of September 20, 2012. This prompted the CIR to elevate the
matter to the CTA en bancon a petition for review, the recourse docketed as
CTA EB No. 942. The COC later followed with his own petition, docketed as
CTA EB No. 944. The cases werethereafter ordered consolidated.

By Decision dated December 9, 2013, the CTAen banc, with two justices
dissenting, dismissed the CIR and COCs petitions, thereby effectively
affirming the judgment of the CTA Second Division. Just as its Second
Division, the CTA en banc, citing an earlier case between the same parties
and involving similar issues, heldin the main that the "in lieu of all taxes"
clause in PALs franchise exempts it from excise tax, an exemption that,
contrary to petitioners unyielding posture, has not been withdrawn by
Congress when it enacted RA9334. Pushing the point, the tax court stated
that Sec. 6 of RA 9334, as couched, cannot be construed as an express
repeal of the "in lieu of all taxes" exemption granted under PALs franchise,
because said Sec. 6, despite its "the provisions of any special law or general
law to the contrary notwithstanding" proviso, has failed to specifically refer to
Sec. 13 of PD 1590 as one of the key provisions intended to be repealed.
Issues:
1. Section 227 of RA 9337, which took effect on July 1, 2005,
abolished the franchise tax under PALs and other domestic airlines
charter and subjected them to corporate income tax and value-added
tax. Nevertheless, the same section provides that PAL shall remain
exempt from any taxes, duties, royalties, etc., as may be provided in
PD 1590.
2. Philippine Air Lines, Inc. v. Commissioner of Internal Revenue,8 in
which the Court has recognized the applicability of the exemption
granted to PAL under its charter and necessarily its right to a refund,
when appropriate.
Still dissatisfied, petitioners separately sought reconsideration, but the CTA
en banc, in its May 2, 2014 Resolution, denied the motions, with the same
adverted justices reiterating their dissent. Hence, this petition, on this core
issue: whether or not PALs importations of alcohol and tobacco products for
its commissary supplies are subject to excise tax.
Petitioners, as to be expected, would dispose of the query in the affirmative,
on the contention that PALs tax exemption it heretofore enjoyed under Sec.

13 of its franchise had been revoked by Congress when, via RA 9334, it

amended Sec. 131 of the NIRC, which, as earlier recited, subjects the
importation of cigars, cigarettes, distilled spirits and wines to all applicable
taxes inclusive of excise tax "the provision of any special or general law to
the contrary notwithstanding."
On the other hand, PAL, citing at every turn the assailed CTA ruling, contends
that its exemption from excise tax, as provided in its franchise under PD
1590, has not been withdrawn by the NIRC of 1997, as amended by RA
9334. And on the postulate thatRA 9334 partakes the nature of a general law
which could not have plausibly repealed a special law, e.g., PD 1590, PAL
would draw attention to Sec. 24 of PD 1590 providing how its franchise or any
of its provisionsmay be modified or amended:
SECTION 24. This franchise, as amended, or any section or provision hereof
may only be modified, amended or repealed expressly by a special law or
decreethat shall specifically modify, amend or repeal this franchise or any
section of provisions. (emphasis added)
HELD: The petition lacks merit.
It is a basic principle of statutory construction that a later law, general in terms
and not expressly repealing or amending a prior special law, will not ordinarily
affect the special provisions of such earlier statute.9 So it must be here.
Indeed, as things stand, PD 1590 has not been revoked by the NIRC of 1997,
as amended. Or to be more precise, the tax privilege of PAL provided in Sec.
13 of PD 1590 has not been revoked by Sec. 131 of the NIRC of 1997, as
amended by Sec. 6 of RA 9334. We said as much in Commissioner of
Internal Revenue v. Philippine Air Lines, Inc:
That the Legislature chose not toamend or repeal [PD] 1590 even after PAL
was privatized reveals the intent of the Legislature to let PAL continue to
enjoy, as a private corporation, the very same rights and privileges under the
terms and conditions stated in said charter.10 x x x To be sure, the manner to
effectively repeal or at least modify any specific provision of PALs franchise

under PD 1590, as decreed in the aforequoted Sec. 24, has not been
demonstrated. And as aptly held by the CTA en banc, borrowing from the
same Commissioner of Internal Revenue case:
While it is true that Sec. 6 of RA9334 as previously quoted states that "the
provisions of any special orgeneral law to the contrary notwithstanding,"such
phrase left alone cannot be considered as an express repeal of the
exemptions granted under PALs franchise because it fails to specifically
identify PD 1590 as one of the acts intended to be repealed. x x x
Noteworthy is the fact that PD 1590 is a special law, which governs the
franchise of PAL. Between the provisions under PD 1590 as against the
provisions under the NIRC of 1997, as amended by 9334, which is a general
law, the former necessary prevails. This is in accordance with the rule that on
a specific matter, the special law shall prevail over the general law, which
shall be resorted only to supply deficiencies in the former. In addition, where
there are two statutes, the earlier special and the later general the terms of
the general broad enough to include the matter provided for in the special
the fact that one is special and other general creates a presumption that the
special is considered as remaining an exception tothe general, one as a
general law of the land and the other as the law of a particular case.11
Any lingering doubt, however, as tothe continued entitlement of PAL under
Sec. 13 of its franchise to excisetax exemption on otherwise taxable items
contemplated therein, e.g., aviation gas, wine, liquor or cigarettes, should
once and for all be put to restby the fairly recent pronouncement in Philippine
Airlines, Inc. v. Commissioner of Internal Revenue.12 In that case, the Court,
on the premise that the "propriety of a tax refund is hinged on the kind of
exemption which forms its basis,"13 declared in no uncertain terms that PAL
has "sufficiently prove[d]" its entitlement to a tax refund of the excise taxes
and that PALs payment of either the franchise tax or basic corporate income
tax in the amount fixed thereat shall be in lieu of all other taxes or duties, and
inclusive of all taxes on all importations of commissary and catering supplies,
subject to the condition of their availability and eventual use. The Court wrote
in thatparticular case involving PALs claim for refund of the excise taxes

imposed on its purchase from Caltex (Phils.), Inc. of imported aviation fuel for
domestic operations, thus:

and oil to the grantee shall be for exclusive use in its transport and
nontransport operations and other activities incidental thereto;

In this case, PALs franchise grants it an exemption from both direct and
indirect taxes on its purchase of petroleum products.1wphi1 Section 13
thereof reads:

2. All taxes, including compensating taxes, duties, charges, royalties,

or fees dueon 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 transport operations and other activities
incidental thereto and are not locally available in reasonable quantity,
quality, or price;

SEC. 13. In consideration of the franchise and rights hereby granted, the
grantee [PAL] 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 grantees annual net
taxable income computed in accordance with the provisions of the
National Internal Revenue 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
nontransport operations; provided, that with respect to international
air-transport service, only the gross passenger, 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 bein
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 x x x, now or in the future, including but not limitedto
the following:
1. All taxes, duties, charges, royalties, or fees due on local purchases
by the grantee of aviation gas, fuel, and oil, whether refined or in
crude form, and whether such taxes, duties, charges, royalties, or
fees are directly due from or imposable upon the purchaser or the
seller, producer, manufacturer, or importer of said petroleum products
but are billed or passed on the grantee either as part of the price or
cost thereof or by mutual agreement or other arrangement; provided,
that all such purchases by, sales or deliveries of aviation gas, fuel,

Based on the above-cited provision, PALs payment of either the basic

corporate income tax or franchise tax, whichever is lower, shall be in lieu of
all other taxes, duties, royalties, registration, license, and other fees and
charges, except only real property tax. The phrase "in lieu of all other taxes"
includes but is not limited to taxes that are "directly due from or imposable
upon the purchaser orthe seller, producer, manufacturer, or importer of said
petroleum products butare billed or passed on the grantee either as part of
the price or cost thereof or by mutual agreement or other arrangement." In
other words, in view of PALs payment of either the basic corporate income
tax or franchise tax, whichever is lower, PAL is exempt from paying: (a) taxes
directly due from or imposable upon it as the purchaser of the
subjectpetroleum products; and (b) the cost of the taxes billed or passed on
to it by the seller, producer, manufacturer, or importer of the said products
either as part of the purchase price or by mutual agreement or other
arrangement. Therefore, given the foregoing direct and indirect tax
exemptionsunder its franchise, and applying the principles as abovediscussed, PAL is endowed with the legal standing to file the subject tax
refund claim, notwithstanding the fact that it is not the statutory taxpayer as
contemplated by law.14 (emphasis ours)
Petitioners, in a bid to foil PALs instant claim for refund, has raised as a
corollary sub-issue the question of PALs non-compliance with the conditions
particularly set by Sec. 13 of PD 1509 for the imported supplies to be exempt

from excisetax. These conditions are: (1) such supplies are imported for the
use of the franchisee in its transport/non-transport operations and other
incidental activities; and (2) they are not locally available in reasonable
quantity, quality and price. Suffice it to state in this regard that the question
thus raised is one of fact, the determination of which is best left to the CTA, it
being a highly specialized body that reviews tax cases.15Without a showing
that the CTAs findings are unsupported by substantial evidence, the
findingsthereof are binding on the Court.16
This being the case, We find no cogent reason to disturb for the nonce the
finding of the CTA en banc, affirmatory of that of its Second Division.

In all then, PAL has presented in context a clear statutory basis for its refund
claim of excise tax, a claim predicated on a statutory grant of exemption from
that forced exaction. It thus behooves the government to refund what it
erroneously collected. To borrow from CIR v. Fortune Tobacco
Corporation,17 if the state expects taxpayers to observe fairness and honesty
in paying their taxes, it must hold itself against the same standard in
refunding erroneous exactions and payment of such taxes.
WHEREFORE, the instant Petition for Review is DENIED. The assailed
Decision of the Court of Tax Appeals en bane dated December 9, 2013 and
its Resolution dated May 2, 2014 are hereby AFFIRMED