PHILIPPINE AIRLINES, INC. (PAL) v. COMMISSIONER OF INTERNAL REVENUE AND COMMISSIONER OF CUSTOMS

REPUBLIC OF THE PHILIPPINES COURT OF TAX APPEALS QUEZON CITY SECOND DIVISION PHILIPPINE AIRLINES, INC. CTA CASE NO. 7632 Petitioner, Members: CASTANEDA, JR., Chairperson -versus- CASANOVA, and COTANGCO-MANALASTAS,JJ. COMMISSIONER OF INTERNAL Promulgated: REVENUE AND COMMISSIONER MAY 0 3 2016 OF CUSTOMS, / Respondents. X- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - X DECISION COTANGCO-MANALASTAS,~ : STATEMENT OF THE CASE The case involves a Petition for Review filed by Philippine Airlines, Inc. to seck the refund of the total amount of Two Hundred Fifty-Eight Million Six Hundred Twenty-Nine Thousand Four Hundred Ninety-Six Pesos (P258,629,496.00), allegedly representing specific taxes imposed on its importations of tlct A-1 aviation fuel ("tJct A-1 fuel" for brevity) for domestic flight operations during the period of April to June 2005. STATEMENT OF FACTS Petitioner Philippine Airlines, Inc. (PAL) is a domestic v corporation organized in accordance with the laws of the Rcpu blic of the Philippines, with principal office at 9th Floor, PAL Center, Legazpi St., Legazpi Village, Makati City. 1 1 Par. 1, Facts, Joint Stipulation of Facts a nd Issues pSFI) , docket., p . 4 5 7.

DECISION CTA Case No. 7632 Respondent Commissioner of Internal Revenue (CIR) is the Commissioner of the Bureau of Internal Revenue (BIR), which is the government agency in charge of the assessment and collection of all national internal revenue taxes, fees and charges, including the excise tax of P3.67 per liter of volume capacity on Jet A- 1 fuel imposed by Section 148 of the National Internal Revenue Code (NIRC) of 1997, as amended. She holds office at the BIR National Office Building, Agham Road, Diliman, Quezon City. Respondent Commissioner of Customs (COC) is the Commissioner of the Bureau of Customs, which is the government agency in charge of the assessment and collection of customs duties and all other lawful revenues from imported articles, including the excise tax of P3.67 per liter on imported Jet A-1 fuel imposed by Section 148 of the NIRC of 1997, as amended, as delegated and authorized by respondent CIR through an Authority to Release Imported Goods (ATRIG) duly issued by the latter and addressed to the former, in accordance with Section 12(a) of the NIRC of 1997, as amended. He holds principal office at the Bureau of Customs, Port Area, Manila. On January 29, 2003, then BIR Commissioner issued BIR Ruling No. 001-2003 addressed to petitioner, to Ccbu Air Inc., to Air Philippines Corporation, and to Pacific Airways Corporation. This Ruling revoked BIR Ruling No. 0 13-99 and accordingly imposed a tax burden on the airlines concerned. The pertinent portions of BIR Ruling No. 001-2003 read: "This refers to the rulings of this Office that have been separately issued to you, namely: 1. BIR Ruling No. 013-99 issued to PAL on January 29, 1999; XXX XXX XXX In the light of the Certification of the v Department of Energy dated December 20, 2002 that aviation gas, fuel and oil for use in domestic operation of domestic airline companies arc locally

DECISION CfA Case No. 7632 available in reasonable quantity, quality and price, it is the considered opinion of this Office that there is now an absence of the second condition required for the airlines to continue to enjoy tax exemption on their importations of petroleum products for domestic operations as stated in Section 13 of PAL's Charter (PD 1590, as amended by LOT 1483) and which condition applies ipso facto to the other airlines. Accordingly your importations may not be given the same treatment as before for as long as there is such available domestic supply of petroleum products. This Ruling, therefore, supersedes the above-stated rulings and all such other rulings that may be contrary to the intent of this Ruling, and constitutes the final decision of this Office on the matter." (Emphasis supplied) BIR Ruling No. 001-2003 essentially states that pursuant to the December 20, 2002 Certification of the Department of Energy (DOE), one of the conditions allowing the tax-free importation of aviation fuel, as specified under Section 13 of petitioner's franchise, Presidential Decree (PD) No. 1590, i.e., that the petroleum product must not be "locally available 1n reasonable quantity, quality, or price" is no longer present. On various dates, or from April to ~June 2005, petitioner made importations of Jet A- 1 fuel and paid the corresponding specific taxes under protest. On January 2, 2007,2 petitioner filed with respondent CTR a written request for refund of the said specific taxes in the total amount of P258,629,496.00. However, respondent failed to act on petitioner's refund claim. Consequently, petitioner filed the instant Petition for Review on May 7, 2007 before this Court. Respondent CIR filed her Answcr3 on ~June 20, 2007, and raised the following Special and Affirmative Defenses:~ 7. Exhibit "G", docket, p. 78. 3 Answer, docket, pp. 210 215.

DECISION CTA Case No. 7632 "SPECIAL AND AFFIRMATIVE DEFENSES Respondent repleads the foregoing allegations and allege the following as affirmative and special defenses: 1. The Petition for Review is bereft of merit. Petitioner clearly failed to exhaust all administrative remedies before elevating this case to this Honorable Court. 1. 1 Petitioner did not appeal to the Office of the President of the Rcpublic of the Philippines the Certification of the Department of Energy dated December 20, 2002 that aviation fuel for use in domestic operation is locally available in reasonable quantity, quality and price before Petitioner questioned its legality before this Honorable Court. Petitioner's precipitate act violates Section 10) of Rule 16 of the 1997 Rules of Civil Procedure which provides as follows: XXX XXX XXX 1.2 Petitioner, likewise, failed to appeal to the Office of the Secretary of Finance BIR Ruling No. 001-2003 dated January 29, 2003 before questioning its legality before this Honorable Court in violation of Section 4 of the National Internal Revenue Code of 1997 (NIRC of 1997) which provides as follows: XXX XXX XXX 2. BTR Ruling No. 001-2003 dated January 29, v 2003 is a valid interpretation of the provisions of the NTRC of 1997.

DECISION CTA Case No. 7632 3. In effect, petitioner is asking this Honorable Court to override the factual determination made by the Secretary of Department of Energy, in order for petitioner to claim for refund. This is precisely one of the evils sought to be avoided by Section 1(j) of Rule 16 of the Rules of Court. Respect for the factual determination of a co-equal branch of Government under the time-honored principle of Separation of Powers should stay this Honorable Court from exercising jurisdiction over this petition. XXX XXX XXX 5. The amount of P258,629,496.00 specific tax being claimed by petitioner which was allegedly paid under protest sometime in May and lJ unc, 2005 was not properly documented; XXX XXX xxx" On the other hand, respondent COC filed his Answer4 on lJuly 3, 2007, interposing the following Special and Affirmative Defenses: "SPECIAL AND AFFIRMATIVE DEFENSES 5. Petitioner failed to exhaust administrative remedies before seeking relief from the Honorable Court. 5.1. Petitioner argues that the Department of Energy (DOE) Certification dated December 20, 2002 which in essence stated that aviation gas, fuel and oil for usc in domestic operation of domestic airline companies are locally available in reasonable quantity, quality and price, and which became the basis of BIR Ruling No. 001-2003 removing tax v benefits from importation of aviation gas, fuel and oil, was issued without giving the affected airline companies notice and 4 Docket, pp. 218 224.

DECISION CTA Case No. 7632 an opportunity to be heard. Hence, petitioner prays for the Honorable Court to declare the said Certification as 'not valid since it was issued without due process' and 'having no factual basis as far as pctitioncr 1s concerned and, therefore, not correct.' 5.2. In essence, petitioner is asking the Honorable Court to override the factual determination of the DOE, which it cannot do without violating the principle of separation of powers and respect due to the factual determination of a co-equal branch of Government. 5.3. Besides, DOE Is not even impleaded as a party in this case. For this Honorable Court to reverse its findings without giving it notice and opportunity to be heard smacks of violation of the sacred right to due process. 5.4. The proper recourse is for petitioner to appeal the action of the DOE to the Office of the President (OP). Verily, this Honorable Court is not the proper forum for petitioner to contest the administrative finding of the DOE. 5.5. For failing to appeal to the OP, petitioner failed to exhaust administrative remedies that make the present petition dismissible under Section 1ti), Rule 16 of the 1997 Rules of Civil Procedure which states: XXX XXX XXX 6. Similarly, petitioner failed to appeal the V issuance by the Bureau of Internal Revenue of BIR Ruling No. 001-2003 dated ~January 29, 2003, to

DECISION CTA Case No. 7632 the Secretary of Finance pursuant to Section 4 of the National Internal Revenue Code of 1997, which states: XXX XXX XXX 7. Petitioner's resort to the present petition is unavailing because it seeks to reverse respondents' actions that are only results of prior factual determinations of another government agency. 7. 1. Thus, the DOE issued the Certification dated December 20, 2002 which essentially states that aviation gas, fuel and oil for usc in domestic operation of domestic airline companies are locally available in reasonable quantity, quality and price. Pursuant thereto, the BIR issued BIR Ruling No. 001-2003 dated \January 29, 2003, the pertinent portion of which reads: XXX XXX XXX Consistent with the DOE Certification, the BIR imposed specific taxes on petitioner's fuel importations. The Bureau of Customs presumably collected those taxes at the respective ports where the fuels were on different dates delivered. 7.2. Evidently, respondents' actions are rooted on the DOE certification, which, absent any ruling to the contrary, v remains a valid administrative issuance of the government agency tasked with the management of the energy sector. XXX XXX XXX

DECISION CTA Case No. 7632 9. Finally, if it were true that petitioner paid specific taxes to the Bureau of Customs, the latter merely acted as a collection agency that does not have power and jurisdiction to adjudicate any issue arising from any tax impositions and other rules and regulations promulgated by the BIR in the exercise of its quasi-judicial functions. Hence, petitioner cannot maintain a cause of action against it." During the hearing on October 4, 2007, the Court ordered the parties to submit their ~Joint Stipulation of Facts and Issues,s which they submitted on October 18, 2007. Thereafter, the case was set for presentation of evidence. Petitioner presented the following witnesses: Mr. Elvis A. Yao6 - Senior Assistant Vice President of the Fuel Management Department of petitioner; Ms. Evelyn L. Taghap7 - Manager, Tax Services and Compliance Division of petitioner; Ms. Myra Celeste 0. Dabaloss- Independent Certified Public Accountant (CPA); Ms. Glendalyn Dela Cruz9 - Senior Science Research Specialist of the Oil Industry Competition and Monitoring Division of the DOE; and Secretary Mario V. Tiaoqui 10 - former Secretary of the DOE. Petitioner likewise formally offered its documentary evidence on September 25, 2012. 11 On January 2, 2013, the Court issued a Resolution12 denying admission of Exhibits "A- 2" "D" "D- 1" "D-2" '"K"D-4-"3,""' K"D-6-"4,""'N""G' ,""0""G, -"1P""', "G-6" "H -5" "H- 8",''\J'-5", '\J-7'" , "K", "Q", "'R", "S"', "T- 1" "T-2" "T-2-a" "T-2-b" "T-2-c" ""BTB-2--1d-"a'","T"-C2C-e-"1'","T"-C2C-r-'1' -"aY"-, 1",' "Z", "'AA-1", "'AA-1-a", ' "BB-1", ' "DD- 1" ' "Dd- 1 -a" ' "EE- 1" ' "E E- 1 R-a7""'' "FF- 1" ' "FF- 1-a"'"R.R- 1'" "F-1" H-1.", " I-1" "J-1 "' "F7 to "AAA" ' "KK" ' "RR" ' "VV"' '" ' V "DDD", "CCC", "EEE", and "FFF", and admitting the rest of the exhibits. 5 Minutes of the Hearing, docket, p. 281. 6 Minutes of the Hearing, docket, p. tJ6tJ�. 7 Minutes of the Hearing, docket, p. tJ83. 8 Minutes of the Hearing, docket, p. 510. 9 Minutes of the Hearing, docket, pp. 868 and 89tJ. 1o Minutes of the Hearing, docket, p. 1027. 11 Formal Offer of Evidence, docket, pp. 1072 1107. 12 Docket, pp. 1160 1164.

DECISION CTA Case No. 7632 On January 21, 2013, petitioner filed its "Omnibus Motion (A) For Partial Reconsideration of the Court's Resolution dated 02 January 20 13; (B) For a Commissioner's Hearing to Compare Provisionally Marked Exhibits with the Original; (C) For Recall of Witness and Re-Identification of Exhibits; and (D) For Remarking of Documents not Found in the Records of the Case". 13 On March 14, 2013, the Court issued a Resolution 111 admitting Exhibits "VV", "AAA" and "KK", bpsueubtti-tdmioeannreykriinfniglgesEd'xi"htCsiCbPiCrtos" f' "f"eFEr-E1o"Ef'"E"'xH"cF-l1Fu"Fd'"e"'dIa-1En"vd'id""cRJn-R1cc""1.' 5"CDoonDnDMse"aqarucnehdnt1liy1ts,' 2013; which the Court noted in the Resolution 16 dated May 10, 2013. On the other hand, respondents presented Director Zenaida Y. Monsada1 7 Director of the Oil Industry Management Bureau of the DOE, and Assistant Director General Saturnino Dela Cruz of the Flight Standards Inspectorate Service of the Civil Aviation Authority of the Philippines (CAAP)18 as witnesses; whose testimonies in CTA Civil Case Nos. 7966, 7990, and 8020 were adopted by the Couri. On February 27, 2014, respondent COC formally offered his evidence consisting of Exhibits "1" to "6-a"; 19 while respondent CIR failed to make a formal offer of evidence. In the Court's Rcsolution20 dated April 7, 2014, Exhibits "1" to "6-a" were admitted as evidence. On April 3, 2014, petitioner filed a Manifestation and Request for Admission21 of the February 27, 2014 Decision22 of the Regional Trial Court (RTC) Branch 114 of Pasay City, in the case entitled "Philippine Airlines, Inc. us. Secretary of the Department of Finance and Secretary of the Department of Energy", docketed as Civil Case No. R-PSY-10-03889-CV. ThcV 13 Docket, pp. 1165 1185. 14 Docket, pp. 1224 1234. 1s Docket, pp. 1242 1257. 16 Docket, pp. 1261-1263. 17 Minutes of the Hearing, docket, p. 1535. 18 Minutes of the Hearing, docket, p. 1!167. 19 Formal Offer of Evidence, docket, pp. 1557-156!1. 2o Docket, pp. 16!19-1650. 21 Docket, pp. 1625-1628. 22 Annex "A", petitioner's "Manifestation with Request for Admission", docket, pp. 1629 1647.

DECISION CTA Case No. 7632 Court. admiUed the same tn the Resolut.ion23 dated May 6, 2014. On ~January 20, 2014, the Court required the parties to submit. their Memoranda.24 Respondent CIR filed her Mcmorandum25 on May 7, 2014; while respondent COC submiUed his Memorandum26 on June 25, 20 14; and petitioner submitted its Mcmorandum27 on ~July 7, 2014. As a result, the case was declared submiUed for decision on July 9, 2014. 28 Meanwhile, on October 31, 2014, petitioner filed a Motion to Reopen Trial and/ or for Leave of Court to File Supplemental Memorandum; which the Court granted in the Rcsolution29 dated January 20, 2015. On May 7, 2015, the case was s ubmittcd for decision anew.30 STATEMENT OF ISSUES The parties submiUed the following issues31 for resolution of this Court: 1. Whether or not. the Certification of the Department of Energy dated December 20, 2002, which is the basis of BIR Ruling No. 001-2003, dated January 29, 2003, was issued without. complying with the requirements of due process. 2. Whether or not. the aforesaid Certification, which states that aviation fuel for usc in domestic operation, is locally available tn reasonable V quantity, quality and price, is correct in so far as petitioner PAL is concerned. :l3 Docket, p. 1663. 24 Minutes of the Hearing, docket, p. 1513. 25 Docket, pp. 1668-1680. 26 Docket, pp. 1691-1766. 27 Docket, pp. 1768-1821. 28 Resolution, docket, p. 1826. 29 Docket, pp. 1859-1861. 30 Resolution, docket, p. 1899. 31 Issues to be Tried or Resolved, ,JSFI, docket, pp. 459 460.

DECISION CTA Case No. 7632 3. Whether or not BIR Ruling No. 001-2003, dated ~January 29, 2003, which is based on the subject Certification of the Department of Energy, is valid and amounts to an unauthorized amendment or alteration of P.D. No. 1590, the franchise of PAL, in violation of Section 16 and 24 thereof. 4. Whether or not PAL is exempt by virtue of its franchise, Presidential Decree No. 1590, from specific tax on its importations of ~Jet A-1 fuel for domestic operations, and therefore entitled to the refund of the following amount of specific taxes it paid to the respondent Commissioner of Customs: a. PHP58,951 ,504.00 paid under protest on May 6, 2005; b. PHP57,766,575.00 paid under protest on May 13, 2005; c. PHP29,591 ,350.00 paid under protest on ~J unc 29, 2005; d. PHP53,274,605.00 paid under protest on ~June 22, 2005; and e. PHP59,044,462.00 paid under protest on ~June 28, 2005; or a total amount of PHP258,629,496.00. 5. Whether petitioner failed to exhaust all administrative remedies before filing the instant petition with this Honorable Court thereby rendering it without jurisdiction to hear the petition. The above-enumerated issues can be summarized into two (2) main issues, to wit: 1. Whether the Court has jurisdiction over the Petition for Review; and 2. Whether petitioner is entitled to the refund of the amount of P258,629,496.00, allegedly representing the v specific taxes imposed upon its importations of Jet A- 1 fuel for its domestic flight operations.

DECISION CTA Case No. 7632 RULING OF THE COURT Petitioner timely filed its Petition for Review The Court will determine first the timeliness of the filing of the present Pctition for Review. Pertinent to the resolution of this matter arc Sections 204(C) and 229 of the NIRC of 1997, as amended, which are quoted hereunder for ready reference: "SEC. 204. Authority of the Commissioner to Compromise, Abate and Refund or Credit Taxes. - The Commissioner may - XXX XXX XXX (C) Credit or refund taxes erroneously or illegally received or penalties imposed without authority, refund the value of internal revenue stamps when they arc returned in good condition by the purchaser, and, in his discretion, redeem or change unused stamps that have been rendered unfit for use and refund 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) "SEC. 229. Recovery of Tax Erroneously or Illegally Collected. - No suit or proceeding shall be maintained in any court for the recovery of any national internal revenue tax hereafter alleged to have been erroneously or illegally assessed or collected, or of any penalty claimed to have been r collected without authority, or of any sum alleged to have been excessively or in any manner wrongfully collected, until a claim for refund or credit has been

DECISION CTA Case No. 7632 duly filed with the Commissioner; but. such suit. or proceeding may be maintained, whether or not such t.ax, penalt.y, or sum has been paid under protest. or duress. In any case, no such suit or proceeding shall be filed after the expiration of two (2) years from the date of payment of the tax or penalty regardless of any supervening cause that may arise after payment: Provided, however, That. the Commissioner may, even without. a wriUen claim theref orre' truerfnunudpoonr credit apnayymtaexn'tw. whearse on the face of t.he which made, such payment appears clearly to have been erroneously paid." (Emphasis supplied) Based on the above-quoted legal provisions, both t.he administrative and judicial claims for refund must be filed within two (2) years from the payment. of t.he tax. In other words, the two-year prescriptive period applies not only to the filing of an administrative claim for refund before respondent. CIR, but also to the filing of a Petition for Review before this Court.. Here, t.he dates of filing of petitioner's administrative and judicial claims for refund and the dates of expiration of the two-year prescriptive period for filing t.he same, are summarized as follows: ~-~------~------ ~ -~- - - - - - - ---~-- - - - - - - --------------------- DATE OF EXPIRATION DATE OF FILING DATE OF FILING PAYMENT OF OF THE 2- ADMINISTRATIVE JUDICIAL SPECIFIC TAX YEAR PERIOD CLAIM CLAIM ---- ------------ -------------- - ------- ------~----------- - - - - - - - - - - - - - -~- - - - - - ---- - - - - - - - - - - - - - - - - - - - - � - May 6, 200532 May6, 2007 2007 _ May 7, 2007 --- -------- - ����-�---- ~-_]il-_!lU~_;2_,_ ------~--------- - ---- ---- - - - - - - - - - - - - - - - - - - - - - - - - May 13, 200533 May 13, 2007 January 2, 2007 May7, 2007 June 29, 200534 June 29, 2007 January 2, 2007 May7, 2007 - -----�- - ------�----------------- -------------------- ---------------------------- - - - - - - - - - - - - ,June 22, 200535 ,June 22, 2007 January 2, 2007 May 7, 2007 June 28, 200536 June 28, 2007 ,January 2, 2007 May7, 2007 - ----�- �- -- - �-�-��- ---- --~ ---- �-------- ~ -� .... ---- ---------------------- ------- -- - - ----- --�- /r From the foregoing, it. appears that. petitioner's administrative and judicial claims for refund were timely filed, 32 Exhibit "G-IJ". 33 Exhibit "G-6". 34 Exhibit "I-IJ ". 35 Exhibit "J 5". 36 Exhibit "K 4".

DECISION CTA Case No. 7632 except for the May 6, 2005 transaction. However, since May 6, 2007 fell on a Sunday, petitioner's judicial claim was timely filed. Jurisdiction of the Court of Tax Appeals The Court of Tax Appeals is a court of special or limited jurisdiction, as such, it can only take cognizance of maUers that arc clearly within its jurisdiction.37 The CTA's jurisdiction is found in Republic Act (RA) No. 1 125, as amended by RA No. 9282, the significant parts of which arc quoted as follows: "SEC. 7. Jurisdiction.- The CTA shall exercise: (a) Exclusive appellate jurisdiction to review by appeal, as herein provided: (1) Decisions of the Commissioner of Internal Revenue in cases involving disputed assessments, refunds of internal revenue taxes, fees or other charges, penalties in relation thereto, or other maUers anstng under the National Internal Revenue Code or other laws administered by the Bureau of Internal Revenue; (2) Inaction by the Commissioner of Internal Revenue in cases involving disputed assessments, refunds of internal revenue taxes, fees or other charges, penalties in relations thereto, or other maUers anstng under the National Internal Revenue Code or other laws administered by the Bureau of Internal Revenue, where the National Internal Revenue Code provides a specific period of action, in which case the V inaction shall be deemed a denial;" (Emphasis supplied) 37 Cathay Pacific Airways, Ltd. us. Commissioner of Internal Revenue, CTA EI3 No. 717, April 17, 2012.

DECISION CTA Case No. 7632 Similarly, Section 3 of Rule 4 of the Revised Rules of the Court of Tax Appeals provides: "SEC. 3. Cases within the jurisdiction of the Court in Division. - The Court in Division shall cxcrc1sc: (a) Exclusive original over or appellate jurisdiction to review by appeal the following: (1) Decisions of the Commissioner of Internal Revenue in cases involving disputed assessments, refunds of internal revenue taxes, fees or other charges, penalties in relation thereto, or other matters arising under the National Internal Revenue Code or other laws administered by the Bureau of Internal Revenue; (2) Inaction by the Commissioner of Internal Revenue in cases involving disputed assessments, refunds of internal revenue taxes, fees or other charges, penalties in relation thereto, or other matters arising under the National Internal Revenue Code or other laws administered by the Bureau of Internal Revenue, where the National Internal Revenue Code or other applicable law provides a specific period for action: Provided, that in case of disputed assessments, the inaction of the Commissioner of Internal Revenue within the one hundred eighty day-period under Section 228 of the National Internal Revenue Code shall be deemed a denial for purposes of allowing the taxpayer to appeal his case to the Court and does not necessarily constitute a formal decision of the Commissioner of Internal Revenue on the tax case; Provided, further, that should the taxpayer opt to await the final decision of the Commissioner of Internal Revenue on the disputed assessments beyond the one hundred eighty day-period abovementioned, the taxpayer may appeal such v final decision to the Court under Section 3(a), Rule 8 of these Rules; and Provided, still further, that in the case of claims for refund of taxes erroneously or

DECISION CTA Case No. 7632 illegally collected, the taxpayer must file a petition for review with the Court prior to the expiration of the two-year period under Section 229 of the National Internal Revenue Code; XXX XXX XXX" Based on the afore-quoted provisions, the CTA has the power to determine whether petitioner is entitled to the refund of the alleged erroneously paid specific taxes inasmuch as a claim for tax refund is evidenily within the jurisdiction of this Court. As to the CTA's jurisdiction to rule on the validity of an administrative rule or regulation, the Supreme Court made the following pronouncements in the case of The Philippine American Life and General Insurance Company us. The Secretary of Finance and the Commissioner of Internal Reuenu<:f38, to wit: "Evidenily, City of Manila can be considered as a departure from Ursal in thai in spite of there being no express grant in law, the CTA is deemed granted with powers of certiorari by implication. Moreover, City of Manila diametrically opposes British American Tobacco to the effect thai it is now within the power of the CTA, through its power of certiorari, to rule on the validity of a particular administrative rule or regulation so long as it is within its appellate jurisdiction. Hence, it can now rule not only on the propriety of an assessment or tax treatment of a certain transaction, but also on the validity of the revenue regulation or revenue memorandum circular on which the said assessment is based." (Emphasis supplied) V In the case of Banco De Oro, et al. us. Republic of the Philippines, et af.39, the High Tribunal held thai: 38 G.R. No. 210987, November 24,2014. 39 G.R. No. 198756, ,January 13,2015.

DECISION CTA case No. 7632 "We agree with respondents that the jurisdiction to review the rulings of the Commissioner of Internal Revenue pertains to the Court of Tax Appeals. The questioned BIR Ruling Nos. 370-2011 and DA 378-2011 were issued in connection with the implementation of the 1997 National Internal Revenue Code on the taxability of the interest income from zero-coupon bonds issued by the government. Under Republic Act No. 1125 (An Act Creating the Court of Tax Appeals), as amended by Republic Act No. 9282, such rulings of the Commissioner of Internal Revenue are appealable to that court, thus: SEC. 7. lfurisdiction. -The CTA shall exercise: a. Exclusive appellate jurisdiction to revrew by appeal as herein provided: 1. Decisions of the Commissioner of Internal Revenue in cases involving disputed assessments, refunds of internal revenue taxes, fees or other charges, penaliies in relation thereto, or other matters arising under the National Internal Revenue or other laws administered by the Bureau of Internal Revenue; SEC. 11. Who May Appeal; Mode of Appeal; Effect of Appeal. - Any party adversely affected by a decision, ruling or inaction of the Commissioner of Internal Revenue, the Commissioner of Customs, the Secretary of Finance, the Secretary of Trade and Industry or the Secretary of Agriculture or the Central Board of Assessment Appeals or the Regional v Trial Courts may file an appeal with the CTA within thirty (30) days after the receipt of such decision or ruling or after the expiration

DECISION CTA Case No. 7632 of the period fixed by law for action as referred to in Section 7(a)(2) herein. SEC. 18. Appeal to the Court of Tax Appeals En Bane. - No civil proceeding involving matters arising under the National Internal Revenue Code, the Tariff and Customs Code or the Local Government Code shall be maintained, except as herein provided, until and unless an appeal has been previously filed with the CTA and disposed of rn accordance with the provisions of this Act. In Commissioner of Internal Revenue v. Leal, citing Rodriguez v. Blaquera, this court emphasized the jurisdiction of the Court of Tax Appeals over rulings of the Bureau Internal Revenue, thus: While the Court of Appeals correctly took cognizance of the petition for certiorari ' h o w e v e r ' let it be stressed that . the jurisdiction to review the rulings of the Commissioner of Internal Revenue pertains to the Court of Tax Appeals, not the RTC. The questioned RMO No. 15-91 and RMC No. 43-91 are actually rulings or oplnwns of the Commissioner implementing the Tax Code on the taxability of pawnshops " (Emphases supplied) Considering that what is being assailed is a ruling of respondent CIR embodied in BIR Ruling No. 001-2003, this Court is vested with jurisdiction to rule on the validity thereof. However, since this Court can properly dispose of the present f case without passing on the validity of the BTR Ruling, the

DECISION CTA Case No. 7632 Court will no longer rule on the question of validity of the subject BIR Ruling. 11 o Petitioner complied with the three (3) requisites to be exempt from all taxes under Section 13 of PD No. 1590. Section 229 of the NIRC of 1997, as amended, provides that a taxpayer may recover any national internal revenue tax that has been erroneously paid or illegally collected, any penalty claimed to have been collected without authority, or any sum that has been excessively or in any manner wrongfully collected. In order to resolve the issue of whether or not the taxes have been erroneously paid by petitioner, it must be determined first whether or not it is exempt under PD No. 1590 from specific tax on its importations of Jet A- 1 fuel for domestic operations. Section 13 of PD No. 1590 provides: "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: (a) The basic corporate income tax based on the grantee's annual net taxable income computed in accordance with the prov1s1ons of the National Internal Revenue Code; or (b) A franchise tax of two per cent (2o/o) of the gross revenues derived by the grantee from all sources, without distinction as to transport or non- transport operations; provided, that with V respect to international air-transport service, only the gross passenger, mail, 40 See Estrada us. Desierto, et al., G.R. No. 156160, December 9, 2001, citing Sotto us. Commission on Elections, 76 Phil. 516, 522 (1916), and Co Chiang and Lim Chiu Guan us. Rafael Dinglasan, et al., G.R. No. L-1266, August 29, 1917.

DECISION CTA Case No. 7632 and freight revenues from its outgoing flights shall be subject to this tax. The tax paid by the grantee under either of the above alternatives shall be in lieu of all other taxes, duties, royalties, registration, license, and other fees and charges of any kind, nature, or description, imposed, levied, established, assessed, or collected by any municipal, city, provincial, or national authority or government agency, now or in the future, including but not limited to the following: XXX XXX XXX (2) All taxes, including compensating taxes, duties, charges, royalties, or fees due on all importations by the grantee of aircraft, engines, equipment, machinery, spare parts, accessories, commissary and catering supplies, aviation gas, fuel, and oil, whether refined or in crude form and other articles, supplies, or materials; provided, that such articles or supplies or materials are imported for the use of the grantee in its transport and non- transport operations and other activities incidental thereto and are not locally available in reasonable quantity, quality, or price; xxx" (Emphasis supplied) V However, it bears to stress that, "upon the amendment of the 1997 NIRC, Section 22111 of R.A. 933711 2 abolished the 41 SECTION 22. Franchises of Domestic Airlines. - The provisions of P.O. No. 1590 on the franchise tax of Philippine Airlines, Inc., R.A. No. 7151 on the franchise tax of Cebu Air, Inc., R.A. No. 7583 on the franchise tax of Aboitiz Air Transport Corporation, R.A. No. 7909 on the franchise tax of Pacific Airways Corporation, R.A. No. 8339 on the franchise tax of Air Philippines, or any other franchise agreement or law pertaining to a domestic airline to the contrary notwithstanding: (A) The franchise tax is abolished;

DECISION CTA Case No. 7632 franchise t.ax and subjected PAL and similar entities to corporate income tax and value-added tax (VAT). PAL nevertheless remains exempt from taxes, duties, royalties, registrations, licenses, and other fees and charges, provided it pays corporate income tax as granted in its franchise agreement. Accordingly, PAL is left with no other option but to pay its basic corporate income tax, the payment of which shall be in lieu of all other taxes, except VAT, and subject to certain conditions provided in its charter"43 Hence, pursuant to Section 13 of PD No. 1590, in order for petitioner to be exempt from all taxes, including compensating taxes, duties, charges, royalties, or fees due on all importations, the following conditions must be satisfied: 1. The basic corporate income tax must be paid, under the conditions set forth in Section 13 of PD No. 1590; 2. The articles, materials or supplies imported should be for its use in its transport and non- transport operations and other activities incidental thereto; and 3. The articles, materials or supplies should not be locally available in reasonable quantity, quality or pnce. V With regard to the first requisite, petitioner filed its Annual Income Tax Return (ITR) for fiscal year ended March (B) The franchisee shall be liable to the corporate income tax; (C) The franchisee shall register for value-added tax under Section 236, and to account under Title IV of the National Internal Revenue Code of 1997, as amended, for value-added tax on its sale of goods, property or services and its lease of property; and (D) The franchisee 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. 42 An Act Amending Sections 27,28,3'1, 106, 107, 108, 109, 110, 111, 112, 113, 11'1, 116, 117, 119, 121, 1'18, 151, 236, 237 and 288 of The National Internal Revenue Code of 1997, as amended, and For Other Purposes. 43 Consolidated cases of Republic of the Philippines vs. Philippine Airlines (PAL), G.R. Nos. 209353 54, and Commissioner of Internal Revenue vs. PAL, G.R. Nos. 211733 34, ,July 6, 2015.

DECISION CTA Case No. 7632 31, 2006, and paid ihe BIR ihe amount. of P43,864,236.64 on lJuly 17,2006.11 Hence, the first requisite was satisfied. Meanwhile, as regards the second requisite, petitioner presented witnesses Mr. Elvis A. Yao45, Ms. Evelyn L. Taghap1 6, and Ms. Myra Celeste 0. Dabalos17 (the Court- commissioned Independent. Certified Public Accountant.), for purposes of proving that petitioner imported the subject lJct A- 1 fuel. Said witnesses similarly testified ihai petitioner made importations of lJct A-1 fuel on various dates from April to June 2005. In support. of ihe testimonial evidence, petitioner presented the following documentary evidence to prove that petitioner made ihe subject. importations: (1) Bills of Lading48 ; (2) Philippine National Bank19, Security Bank Corporation5o and Equitable PCI Bank51 Official Receipts; (3) Import. Declaration Entrics52; and (4) Authority to Release Imported Goods (ATRIGs)s3. Considering ihe foregoing testimonial and documentary evidence, petitioner managed to prove the fact of importation of Jet. A- 1 fuel from April io June 2005. The same witnesses testified that the subject importations were to be utilized for purposes of petitioner's domestic Oighi operations. With regard ihereio, petitioner presented various ATRIGs to show that the imported lJct A-1 fuel shall be used for its transport. and non-transport. operations. The ATRIGs states, "that according to the documents submiUed by abovementioned importer, ihe shipment to be released at the Port of :xxx consisting of the v above described articles, will be used exclusively for" daily domestic flight operation. 44 Exhibits "HH" and "HI-I 1". 45 Minutes of the Hearing, docket, p. 464. 46 Minutes of the Hearing, docket, p. 1183. 4'1 Minutes of the Hearing, docket, p. 510. 48 Exhibits "00-1" to "00-5". 49 Exhibit "LL-2". 50 Exhibit "LL-3". s1 Exhibits "LL-1", "LL-IJ", and "LL-5". 52 Exhibits "QQ 1" to "QQ 5. 53 Exhibits "PP 1" to "PP 5".

DECISION CTA Case No. 7632 An examination of t.he ATRIGs presented by petitioner shows that these arc public documents pursuant to Section 19 (a), Rule 132 of the Rules of Court, and thus, prima facie evidence of the facts stated therein. Section 19 (a), Rule 132 of the Rules of Court reads: Sec. 19. Classes of Documents- For the purpose of their presentation in evidence, documents are either public or private. Public documents are: (a) The wriUen official acts, or records of t.he official acts of the sovereign authority, official bodies and tribunals, and public officers, whether of the Philippines, or of a forcit,'ll country; The ATRIGs arc records of the Bureau of Internal Revenue, which were issued and certified by t.he Commissioner of Internal Revenue, a public officer, in the performance of her official functions; t.hus, it is clear that. the ATRIGs arc public documents pursuant to paragraph (a), Sec. 19, Rule 132 of t.he Rules of Court.. In t.he consolidated cases of Heirs of Jose Marcial K. Ochoa, ct al. vs. G & S Transport Corporation, ct al.,51 the Supreme Court. has held that. public documents under Section 19 (a) of Rule 132 refers to those recording made by a public officer, to wit: Paragraph (a) of the above-quoted provision classifies the written official acts, or records of the official acts of the sovereign authority, official bodies and tribunals, and public officers, whether of the Philippines, or of a foreign country, as public documents. As mentioned in our March 9, 2011 Decision, USAID is the principal United St.at.es agency t.hat. extends assistance t.o countries recovering from disaster, trying to escape poverty, and engaging in democratic reforms and that it is an independent federal government agency that. receives over-all foreign policy guidance from V the Secretary of State of the United States. xxx xx xxx From these, there can be no doubt. that. the 54 G.R. Nos. 170071 & 170125, ,July 16,2012.

DECISION CTA Case No. 7632 USAID is an official government agency of a foreign country, the United States. Hence, Cruz, as USAID's Chief of the Human Resources Division in the Philippines, is actually a public officer. Apparently, Cruz's issuance of the subject USAID Certification was made in the performance of his official functions, he having charge of all employee files and information as such officer. In view of these, it is clear that the USAID Certification is a public document pursuant to paragraph (a), Sec. 19, Rule 132 of the Rules of Court. Hence, and consistent with our above discussion, the authenticity and due execution of said Certification are already presumed. Moreover, as a public document issued in the performance of a duty by a public officer, the subject USAID Certification is prima facie evidence of the facts stated therein. And, there being no clear and sufficient evidence presented by G & S to overcome these presumptions, the RTC is correct when it admitted in evidence the said document. The USATD Certification could very well be used as basis for the award for loss of income to the heirs." (Emphasis supplied) Since ATRTGs are considered public documents, the authenticity and due execution of same arc already presumed. Further, as a public document issued in the performance of a duty by a public officer, the subject ASTRTGs are prima facie evidence of the facts stated therein pursuant to Section 23, Rule 132 of the Rules of Court, which provides that "public documents consisting of entries in public records made in the performance of a duty by a public officer arc prima facie evidence of the facts therein stated." Therefore, in the absence of any clear and sufficient evidence to overcome the above presumptions, the testimonies of petitioner's witnesses and the statement in the ATRTGs, which provides that the shipment (Jet A- 1 aviation fuel) will be used exclusively for daily domestic flight operation, arc prima facie evidence that indeed the subject aviation fuel will be used exclusively in petitioner's flight operations and other activities incidental thereto. Anent the third requisite that the aviation fuel is not locally available in reasonable quantity, quality or price,~

DECISION CTA Case No. 7632 petitioner emphasizes the testimony of Ms. Glendaly Dela Cruz ("Ms. Dela Cruz"),ss Senior Science Research Specialist of the Oil Industry Competition and Monitoring Division of the DOE, that for the period covering 2005, domestic and international demand is greater than local refinery production and that the 2002 DOE Certification could not possibly cover the years subsequent to the time of its issuance, since the data pertaining to the years subsequent to the issuance of the 2002 DOE Certification were not yet available at the time. Petitioner also presented the Certifications issued by the Air Transportation Office ("ATO"), now known as the CAAP, subscqucnt to the 2002 DOE Certification, which shows that at the time of the subject importations, there was no locally available \Jet A-1 aviation fuel in reasonable quantity, quality and price.s6 In addition, petitioner points out the Report of the court- commissioned Independent Certified Public Accountant (ICPA) showing the comparison of the cost of importation of aviation turbo jet fuel or \Jet A-1 and the cost of domestic purchases of aviation turbo jet fuel using the price quotations issued by local oil companies for the period from April 2005 to \June 2005 (relating to petitioner's payments of specific taxes for the period from May 2005 to \June 2005). The ICPA found that: "the cost per liter of importation of aviation turbo jet fuel or \Jet A-1 per liter for the period from April 2005 to June 2005 (relating to petitioner's paymcnts of Specific Taxes for the period from May 2005 to June 2005) is consistenily lower than the cost of aviation turbo jet fuel or \Jet A-1 if purchased locally from Petron Corporation and/ or Pilipinas Shell Petroleum Corporation. Based on the said comparison, it appears that the aviation turbo jet fuel or \Jet A-1 for the period from April 2005 to June 2005 (relating to petitioner's payments of Specific Taxes for the period from May 2005 to \J unc 2005) was not locally available at reasonable price based on the price quotations submitted by Pctron V Corporation and Pilipinas Shell Petroleum Corporation." 55 Exhibit "'f7". 56 Exhibits "MMM" to "D5".

DECISION CTA Case No. 7632 According to the TCPA, it would have cost the petitioner additional P329,955,751 (Exhibit WW) and P564, 148,535 (Exh bit XX) had it purchased from Petron Corporation and Pilipinas Shell Petroleum Corporation, respectively, the same volume of aviation turbo jet fuel or Jet A- 1. Concerning the requirement that the aviation fuel is not locally available in reasonable quantity, petitioner made a comparison between the total refinery production and the total industry petroleum products demand using the Table of Data57 which was prepared and provided by the DOE, and concluded that in all years from 1998 to 201 0, the figures for all types of petroleum products, including jet fuel or kerosene, show that the demand far outstripped the local refinery production. It continues that in each of the years included in the Table of Data (including the year 2005), the total refinery production was never enough to meet the total demand. In light of the foregoing, the Court is convinced that at the time of the importations subject of this case, there was lack of locally available ~Jet A-1 fuel in reasonable quantity, quality or price. That having been settled, the Court will now verify the amount of specific taxes paid by petitioner and determine the amount that may be refunded to petitioner. Petitioner is entitled to a refund/tax credit in the total amount of P88,542,854 for the specific taxes imposed on its importations of Jet A- 1 aviation fuel. Petitioner seeks the refund or the issuance of tax credit certificate in the total amount of P258,629,496.00, allegedly representing specific taxes imposed on its importations of ~Jet A- 1 aviation fuel for domestic Oight operations during the period of April to ~June 2005. Now, to prove that the said specific taxes have been duly paid and remitted, petitioner presented official receipts (OR) issued by the Bureau of Customs (BOC) or the Authorized~ 57 Exhibit "87".

DECISION CTA Case No. 7632 Agent Banks (ABB) of the BOC. The specific taxes as shown in the ORs amount to P258,628,496.00, viz: Offical Date of Date of Specific Taxes Pa_yment per ORs issued Receipts (ORs) Importation by the AABs of the BOC Exhibit "F-5" ____t.pril_1_�_,_;2QO~____ Mc:ty_9f>, 2Q_Q~ Exhibit "H-5" J\pril 22, 2005 May 13, 2005 57,766,575.00 Exhibit "I-4" June 07, 2005 June 29, 2005 29,591,350.00 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -� - -----����---- ------------ - - - - - - - - - - - - - - - - - - - - .... --~---��- Exhibit '\J-5" June 14, 2005 June 22, 2005 53,274,605.00 P258,628,496.00 However, in the Resolution58 dated January 2, 2013, this Court denied the admission of the ORs marked as Exhibits "H- 5", "J-5" and "K-4" for petitioner's failure to submit the ori1:,rinal documents for comparison. Thus, the amount of 170,085,642.00 shall be deducted from petitioner's claim for refund/tax credit, to wit: Specific Taxes being claimed for refund/ tax 258,628,496.00 credit as shown in the ORs LESS: Specific Taxes supported by O~s which were denied admission: Exhibit "H-5" 57,766,575.00 Exhibit "J-5" 53,274,605.00 J':_)C_hibi~ "K-4" �2,Q~4,i_6_~_._()0 _ ____ 1_7Q,_Q8~,6'1-_~_._QQ _ 88,542,854.00 Hence, considering the evidence presented by petitioner, v it has only proven and substantiated its entitlement to a tax refund or issuance of tax credit certificate in the amount of P88,542,854.00. ss Docket, pp. 1160 1164.

DECISION CTA case No. 7632 WHEREFORE, premises considered, the instant Petition for Review is PARTIALLY GRANTED. Accordingly, the respondents arc ORDERED TO REFUND or TO ISSUE A TAX CREDIT CERTIFICATE to petitioner Philippine Airlines, Inc. in the amount of P88,542,854.00, representing the specific taxes paid for the importation of ~Jet A-1 aviation fuel for its domestic flight operations for the period of April to June 2005. SO ORDERED. AMELIA R. COTANGCO-MANALASTAS Associate ~J usticc WE CONCUR: _g2 ~c.aY-~~~� CAESAR A. CASANOVA Associate ~Justice JUANITO C. CASTANEffA, JR. Associate ~Justice

DECISION CTA Case No. 7632 CERTIFICATION Pursuant to Section 13, Article VIII of the Constitution, it is hereby certified that the conclusions in the above Decision were reached in consultation before the case was assigned to the writer of the opinion of the Court's Second Division. ~~ c.~~.Q-. JUANITO C. CASTANEifA, JR. Acting Presiding \J u sticc