CTA Case No. 3510 (Decision)

Ul'lJI'UC OP' 't'ff� f'J1u .n �.., ,.. ,.,. ~0\JRT Of TAX Arl'f.:.Al.l Cl~.AI~~~~ CUY RIO . TUBA NICKEL MINING CORPORATION , Petitioner , - versus - C . T.A . CASES NOS . 3510 and 3899 COMMISSIONER OF INTERNAL REVENUE , Respondent . X- - - - -----X DEC I S I 0 N These are claims for partial tax refund in the sum of ~974 , 978 . 50 and ~424 , 203 . 33 as specific tax paid on oil products used in mining operations pur- suant to the provisions of Section 5 of Republic Act No . 1435. During the period from June l , 198 0 to May 31 , 1982 and from May , 1982 to March , 1983 (Exhs . A to Z , AA to ZZ, AB to AC and their sub-exhibits) peti- tioner purchased from Petrophil Corporation and/or other oil companies manufactured mineral oils , motor fuels and diesE� ' fuel oils which petitioner actually and exclusively used in connection with the exploitation and operation of its mining concessions . (Exhs . A-1 to A-9 ; TSN , 21 Feb . l98 3 , ,p~ ~ 0 ; 2 7 May 1985 , p . 17 ; 223

DECISION - CTA CASES NOS. 3510 & 3899 - 2- 26 August 1985, p. 10.) Petrophil Corporation and/or other oil compi . ~ ies paid and passed on to petitioner the specified taxes imposed under Sections 153 and 156 (formerly Sections 142 and 145) of the National Internal Revenue Code of 1977 on refined and manufactured mineral oils, motor fuels and diesel fuel oils that said oil company sold to petitioner. Petitioner under the provisions of Section 5 of Republic Act No. 1435 and the decision of the Supreme Court in Insular Lumber Co. v. Court of Tax Appeals (104 SCRA 718), filed with the respondent written claims for refund in the amount of ~974,978.50 and ~424,203.33, representing 25 % of the specific taxes collected on the refined and manufactured mineral oils, motor fuels and diesel fuel oils that petitioner utilized in its oper- -~ ations as forest concessionaira In support of the said claim for refund, petitioner submitted the affidavits of the president of petitioner and of at least two disinterested persons attesting to the fact that the refined and manufactured mineral oils, motor fuels and diesel fuel oils that petitioner purchased from Petro- phil were actually and exclusively used in the exploit- ation and operation of its forest concession.

DECISION - CTA CASES NOS. 3510 & 3899 - 3- From the time the claims for refund were filed on July 7, 1982 and September 26, 1983 up to the time the present petitions for review were filed by peti- tioner, no action was taken by respondent. Hence, petitioner filed the herein petitions for review. However, d~ring the pendency of these petitions, respondent Commissioner of Internal Revenue denied the first claim for refund on the ground that in order to ava il of the benefits of partial tax re- fund mentioned in R.A. 1435, there must be a municipal or city ordinance which imposes an additional tax of not exceeding twenty five percent (25 %) of the regular specific tax levied under Section 142 and 145 of the Tax Code in the place of petitioners operations. The second claim for refund has not yet been acted upon. These two cases were consolidated during the hearing. The evidence adduced during the trial shows that petitioner is a domestic corporation engaged for many years in the business of mining with Mining Lease Contracts duly entered into with the Republic of the Philippines. (Exhs. Et, EE-l to EE-17.) During the period pertinent to the present petitions, more parti-

DECISION CTA CASES NOS. 3510 & 3899 - 4- cularly from Jt ''le, 1980 through March, 1983, petitioner purchased from Petrophil Corporation various quantities of refined and manufactured mineral oils, motor fuels and diesel fuel oils (Exhs . A to Z , AA to zz , AB to AC and their sub-exhibits) , which petitioner actually and exclusively used in connection with the exploitation and operation of its mining claims , (Exhs . A-1 to A-9: T . S . N., 21 February 1983 , p. 10 : 27 May 1985, p. 17 : 26 August 1985 , p . 10) to run the various items of machines, equipment and motor vehicles. (Exh . FF.) The quantities in liters of diesel fuel oil , gaso- line, bunker fuel oil, aviation gas, jet fuel oil and lubricadng oil used or consumed by petitioner each month during the period June, 1980 to July, 1983 in the oper- - �.:. ations and exploitation of its mining claims , (Exhs. HH, GG and A-1) and the corresponding specific taxes therein at the rates mentioned are as follows: RIO 'IUBA NICKEL MINING CORPORATION SI.M1ARY OF FUEL , OIL AND LUBRICANTS CONSUMPTIOO (IN LITERS) FOR ~ill PERIOD JUNE 1980 TO MAY 1982 AND JUNE 1982 TO JULY 1983 QUANTITY__G_ASSPOELCINIEFIC-TAX- Q--Q-~-~-!-~L--U-~-B-E�-~A-~N-~D-!-~O--!IL-~---~-~----- --------~-------------- 1980 242 , 563 42 , 448 . 53 1 , 793 1 , 631. 63 10 ,643 8,514.40 248 , 679 43 , 518 . 83 1 , 578 1 , 435 . 98 11,788 9,430.40 JUNE 257,180 45,006.50 2,158 1,963 . 78 7,614.40 9,518 JULY AUGUST

DECISION - CTA CASES NOS. 3510 & 3899 - 5- S EPTNvffiER 472,436 82,676.30 2 ,129 1,937.39 12,615 '10 ,09 2.00 290,128 50,772.40 2,504 2,278.64 10,746 8,596.80 OC'IDBER 276,859 48,450.33 1,681 1,529.71 6,916.00 NOVEMBER 441,520 77,266.00 1,355 1,233.05 8,645 9,860.00 DECEMBER 12,325 1,861 1981 472,115 82,620.13 1,707 1,693.51 15,983 12,786.40 519,837 90,971.48 1,812 1,553.37 14,241 11,392.80 JANUARY 522,620 91,458.50 2,224 1,648.92 21 ,820 17,456.00 FEBRUARY 539,969 121,493.03 1,467 2 ,357.44 16,185 300,137 67,530.83 1,428 1,555.02 8,092.50 MARCH 206,503 46,463.18 1,307 1,513.68 9,964. 4,982.00 187,804 42,255.90 . 1,424 1,385.42 7,821 3 ,910. 50 APRIL 243,276 54,737.10 1,197 1,509.44 8, 728 4,364.00 257 ,925 5 ) .033.13 1,293 1,268.82 9,018 4,509.00 MAY 266,869 1,312 1,370.58 11,016 5,508.00 JUNE 271,437 60,045.53 1,400 1,390.72 11,318 5,659.00 438,463 61,073.33 1,484.00 10,751 5,375.50 JULY 98,654.18 1 ,388 11,745 5,872.50 AUGUST 992 SEPTEMBER 429,709 96,684.53 1,4 71.28 16,211 8,105.50 OC'IDBER 94,095.68 1,834 1,051. 52 16,853 8 ,426.50 NOVEMBER 418,203 122,160.83 1,025 1,944.04 15,631 7,815.50 DECEMBER 542,937 108,497.48 1,425 1,086.50 16,561 8,280.50 482,211 87,245.78 1,510. 50 13,084 6,542.00 1982 387, 759 _ JANUARY FEBRUARY MARCH APRIL MAY 'IDTAL In sum, the petitioner paid the following amounts of specific taxes for the various oil products it used during the periods in question: JUNE 1980 JUNE 1982 TO MAY 1982 TO JULY 1982 DIESEL Iil,774,159.51 Ii2,454,093.99 55,994 .62 GASOLINE 37,804.94 274,743.05 LUBE & OIL 19().>, 102.20 600,966.55 BUNKER ' 572,736.60 33,090.00 17,419.40 AVIATION GASOLINE 15,960.00 JET FUEL 190,102.20 TOTAL

uECISION - CTA CASES NOS. 3510 & 3899 - 6- Twenty-five percent ( 25 %) ' of ~2 , 780 , 865 . 45 is ~695 , 216 . 36; while 25 % of ~3 , 436 , 307.61 is ~859 , 076 . 90 . Respondent ~id not present any evidence against the actual specific ~xes paid on diesel , gasoline , lubri- eating oil and other oils used by petitioner during the period in question . The only issue to be resolved in this case is whether or not petitioner is entitled to the refund of 25 % of the specific taxes collected and paid in the amounts of ~695 , 216 . 36 and ~859 , 076 . 90 , on the diesel , gasoline, lubricating oil and other oils used by peti- tioner during the period in question. Petitioner contends that it is entitled to the refund of twenty-five . percent (25 %) of the specific taxes it paid on the petroleum products it purchased and actually used in the exploitation and operations of ~ its forest concession . It asserted that under the said Section 5 , Republic Act No . 1435 , it provides that - The proceeds of the additional tax on manufactured oils shall accrue to the road and bridge funds of the political subdivision for whose benefit the tax is collected : Provided , however , That when- ever any oils mentioned above are used by miners or forest concessionaires in their operations, twenty-five per centum 223

DECISION - CTA CASES NOS. 3510 & 3899 - 7- of the specific tax paid thereon shall be refunded by the Collector of Internal Revenue upon submission of proof of ac- tuaL use of oils and under similar con- dition enumerated in subparagraphs one and two of Section one hereof , amending section one hundred forty-two of the Internal Revenue Code: Provided , further , That no new road shall be constructed unless the routes or location thereof shall have been approved by the Commis- sioner of Public Highways after a determination that such rt::ad can be made part of an integral and articulated route in the Philippine Highway System , as required in section twenty-six of the Philippines High~ay Act of 1953 . (Underlining ~ � ) The "oils ment:irned above ", referred to in the proviso of the foregoing provision , are those mentioned in Section 142 and 145 of the 1939 National Internal Revenue Code, and which were amended by Sections 1 and 2 of Republic Act No . 1435 , respectively . At the time material to this case , said Sections 142 and 145 became Sections 153 and 156 , respectively of the 1977 National Internal Revenue Code . During the period involved in this case, the pro- visions of the aforesaid Sections 153 and 156 are as follows : . SEC . 153 . Sp~cific tax on manufactured oils and other fuels . On refined and manu- factured mineral oils and motor fuels , there shall be collected the following taxes which

DECISION - CTA CASES NOS . 3510 & 3899 - 8- shall attach to the articles hereunder enu- merated as soon as they are in existence as such : (a) Kerosene , per liter of volume capacity ; seven centavos ; (b) Lubricating oils , per liter of volume capacity , eighty centavos ; (c) Naphtha , gasoline , and all other similar ~roducts of disti1lation , per liter of volume capacity, ninety-one centavos ; Provided , That on premium and avia~ion gasoline , the tax shgll be one peso per liter of volume capacity ; (d) On denatured alcohol to be used for moti~e power , per liter of volume capacity , c .~ e centavo ; Provided , That unless otherwise provided for by special laws, if the denatured alcohol is mixed with gasoline , the specific tax on which has already been paid, only the alcohol content shall be subject to the . tax herein prescribed. For the purposes of this subsection , the removal of denatured alcohol of not less than 180 degree proof (90 %) absolute alcohol) shall be deemed to have been removed for motive power, unless shown to the contrary ; (e) Processed gas , per liter of volume capacity, three centavos; (f) � Thinners and solvents , per liter of volume capacity , fifty-seven centavos; (g) Liquefied petroleum gas , per kilo- gram , fourteen centavos; Provided , That li- quefied petroleum gas used for motive power shall be taxed at the equivalent rate as the specific tax on diesel fuel oil; (h) Asphalts , per kilogram , 2 ight centavos ; (i) Greases , waxes and petrolatum , per kilogram; fifty centavos ; (j) Aviation turbo jet fuel, per liter of volum~ capacity , fifty-five centavos . (As a~ended by SeQ. ~1 , P . D. No. 1672.) 230

DECISION - CTA CASES NOS. 3510 & 3899 - 9- SEC. 156. Specific tax on diesel fuel oil.- On fuel oil, commercially known as diesel fuei oil, and on all similar fuel oils, having more or less the same generating power, per liter of volume capacity, seventeen and one- half cent <' ' OS, which tax shall attach to this fu e l oil as soon as it is in existence as such. According to the law, said R.A. No. 1435, the refund shall be made out by the respondent upon sub- mission of proof by the miners or forest concessionaires of the actual use of oils and under similar conditions prescribed in subparagraphs one and two of Section 1 thereof. These requirements are the following: (1) A sworn affidavit of the producer and two disinterested persons proving that the said oils we re actually used in agriculture, or in lieu thereof. (2) Should the producer belong to any producers association or federation, duly registered with the Securities and Exchange Commission, the affidavit of the president of the federation or association,. attesting to the fact that the oils were actually used in -agriculture. (3) In the case of aviation oils, a sworn certificate satisfactory to the Collector proving that the said oils weie actually used in aviation: Pro- vided, That no such refunds shall be granted in respect to the oils used in aviation by citizens and corporations of foreign countries which do not grant equivalent refunds or exemptions in 231

DECISION - CTA CASES NOS. 3510 & 3899 - 10 - respect to similar oils used in aviation by citizens and corporation of the Philippines . In the present case , petitioner had complied with tie pertinent requirements of Section 1 of Republic Act No. 1435 . Petitioner had shown that it is a duly licensed forest concessionaire and that it actually purchased and used various oil and petroleum products during the period June 1, 1980 to March 1983 and peti- tioner had filed on July 7 , 1982 and September 26, 1983 claims for refund of 25 % of the specific taxes it paid -~ for various petroleum products it purchased and actually used during that period . It supported its claim by the sworn statement of its President (Exh. A-1) and four disinterested persons (Exh . A-2 to A-9) all attest- ing to the fact that the oils were actually used in the operation of its mining claims. These facts were ad- mitted by respondent. Consequently, with the compliance of the requirement of the law, the issue at bar is now ready for disposition and which is not without a pre- cedent. On the basis of the decision of the Supreme Court in the case of Insular Lumber Co . vs. Court of Tax Appeals, G. R. L-31057 and L-31137 , promulgated on May 29, 232

DECISION - CTA CASES NOS . 3510 & 3899 - 11 - 1981 , cited authoritatively in the decision of the Court of Tax Appeals in Atlas Consolidated Mining and Development Corporat _ion vs . Commissioner of Internal Revenue , CTA Cases Nos . 2964 and 2971 , dated November 28, 1986 and March 31 , 1986 , respectively, and Zamboanga - �.:. Wood Products , Inc . vs . Commissioner of Internal Revenue, CTA Case No . 3522 , May 15 , 1987 , wherein we held, in effect , that petitioner therein is entitled to refund of the 25 % of the specific tax on the oils used by it, which we quote : "This issue is not one of first impression . In the case of Atlas Consolidred Mining and Development Corporation vs . Commissioner of Internal Revenue , CTA Case No . 2971 , dated March 31 , 1986 , involving the same parties , this Court ruled: Resolving the question squarely in the Insular Lumber Case involving as it does Section 5 of RA No . 1435 , the Supreme Court held : "Based on the aforequoted pro- visiohs , it is very apparent that the partial refund of specific tax paid for oils used in agriculture and aviation is limited to five years while there is no time limit for the partial refund of specific tax paid for oils used by miners and forest conc8 sionaires . We find no basis in applying the limitation of the operative period provided for oils used in agriculture and aviation to 233

DECISION - CTA CASES NOS . 3510 & 3899 - 12 - the provision on the refund to miners and forest concessionaires. It should be noted that Section 5 makes refSrence to subparagraphs 1 and 2 only for the purpose of pres- cribing the procedure for refund . This express reference cannot be expanded in scope to include the limitation of the period of refund . If the limitation of the period of refund of specific taxes paid on oils used in aviation and agricul- ture is intended to cover similar taxes paid on oil used by miners and forest concessionaires , there would have been no need of dealing with oil used by miners and forest concessions s e par a t e ly a nd Se ction 5 should very well have been included in Section 1 of Republic Act No. 1435 , notwithstanding the different rate of exemption . " (Commi ss ione r of Internal Revenue v . Court of Tax Appeals and Insular Lumber Co., No . L-31137 , May 29 , 1981 ~ 104 SCRA 718). Just so and aptly enough the ruling lends settling eloquence to the precise issue raised in the instant case . The apparent patina of cogency impressed nonetheless , the respondent Commissioner of Internal Revenue ' s amended answer urged new fillips towards faulting the petitioner ' s right to the claim by alleging that the partial tax refund pri- vilege ceased upon the issuance of either any of the decrees , to wit : 1 . PO 314 - Increasing the rates of specific taxes on fuel oils on October 20 , 1973 ~ or 2 . PO 231 as amended - Enactment of the Local Tax Code on June 28 , 1973 ~ or 234

DECISION - CTA CASES NOS . 3510 & 3899 - 13 - 3. I -, 711 - Abolishing the special and fiduciary funds on July 1 , 1975; or 4. PO 1158 and PO 1158-A - Consoli- dating and codifying all internal revenue laws on June 3 , 1977. Again we are unable to give due assent to such riposte. Respondent would have substituted a quirk of alternative expedien~ cies falling sharply at odds with the com- pelling rationale of the grant , "That these lumber and mining companies seldom use the national highways because they have their own roads , they have their own compounds . xxx So that if they are not entitled to the benefit of this law it will be unfair if they will be required to pay ." (Congres- sional Records , 3d Congress , 3d Regul a t Session, May 7 , 1967 , Vol . III, No. 67 pp . 2093-2107). � Far be it from a theoretical gobbledygook , the tax privilege extended the miners/forest concessionaires (Sec . 5 , RA 1435) vis-a-vis agriculture and aviation (Sec . 1 ibid) could not have been intended for a ve.ry 1 imi ted contingency and application . Nowhere here nor there are such legal constraints of an express repeal much less effective curtailment of the operative effects of the proviso of Section 5 . It certainly did not appear to matter whether the above-mentioned decrees , either, in- creased the rates of specific taxes; or withdrew the local governments ' power to levy and collect additional specific taxes ; or abolished the special and fiduciary funds ; or consolidated and codified all the internal revenue laws . It does not make us wonder therefore that the import and force of Section 5 had been left precisely as was then contemplated to the extent that the partial tax refund accorded the 233

DECI S ION - CTA CASES NO S . 35 10 & 3 8 99 - 14 - min e r s a nd for es t c on cessi on a ir es r e - ma in e d ob tai nin g . Ne ith e r was th e r e a n a tt e mpt to undo with th e term s a nd c ondition s of th e tax c on cess ion up o n whi c h a c l ai m fo r e nti t l e me nt may b e exerc i se d s ub- j ec t to th e compli a nc e th e s t a tutor y r e qui s i tes , i . e . , " s ubmi ss ion of proof of ac tu a l u se of _o:j,l s and und e r s imil a r condition s e num e r a t e d i n s ubp a r a gr a ph s on e and two of SPct ion on e he r e of . " As had h a pp e n e d in the case a t b a r, th e r ec ord s ma k e it c l e ar th a t in s of a r as the s am e is brought to b ea r upon th e c ircum s t a nces , th e e viden ce a ddu ce d ju s tifi a bl y asse rt s co mpli a nc e th e r ef or, vi z . : 1 ) Swo r n ce rtifi ca tion o f s uppli e r Pe trophil Corpor a tion as to th e qu a ntit y of ex tra gas olin e and di ese l fuel pur- c ha se d ( Ex h s . "A" a nd "A-1" ) upon which tac k e d th e r ece ipt s of p ay me nt of s pec ifi c t axes (Ex hs . "r'", " E", "F", "F-1" to "F- 28", "G", "G-1" to "G-9 3", "H" "I" a nd "Bulk Invoi ces '' ) a nd 2) Affld a vi { s of th e p e tition e r ' s Vi ce Pres id e nt duly confirm e d b y t wo di s - i nt e r es t e d p e r s on s ( Exh . " C11 ) a nd th e Chamb e r of Min es of th e Philippin es ' Pr es id e nt (Ex h . "B" ) a tt es ting to th e ac tual use of th e fu e l oil s in th e mining op e ration for th e pe riod from Oc tob e r, 197 6 to April, 1978. So it a pp ea r s a nd we s o hold t hat th e p e ti- tion e r has f a r e d c on s i s t e nt with th e ma ndat e of th e l a w. XXX XXX XXX xxx , oe titioner a rgu es that th e r i g h t t o r '� r u n d d e p e n d s o n t h e d a t e o f use by t h e pur c hase r, not on th e d a t e of pa y me nt by th e import e r (s upplier), th e Mobil Oil Philippin es . Inde e d , thi s

DECI SION - ETA CASES NOS . 351 0 & 3899 - 15 - po s ition finds conformity in the Supreme Co urt ' s observation in the case of Co m- mis s ioner of Internal Revenue v s . Co u rt of Tax App ea l s and In s ul ar Lumber Co . , G. R. Nos . L- 3 10 57 a nd L- 3 11 3 7 , May 29 , 19!31; l04 SCR A 718 , that th8re i s n o time limit for the partial Def und of s pec ific ta x paid fo r oils used by miner s a nd forest co ncess ion aires . We agree with the view of petitioner, a lthou gh in the case of i mport ed articles , s u c h as fu e l s/oi l s u se ~ in th e in s tant case , the tax accr ues at th e time of removal from custom s c us tody (Sec . 1 34 , Tax Code) , a nd the importer (s uppl ier) pay s the specific t ax upon removal of the sa me, the right to t h e refund of th e 25% s peci fi c tax und e r Sectio n 5 of Republic Act No . 1435 , grant e d to miners a nd co n- cessionaires , hing es on the date of pay- me nt made by the s uppli er (im port er) of the s peci fi c tax . Thu s , it i s c l early s t ated in th e law , Sectio n 5 of Republic Act 1435, in its prnvi s o , " Th a t wh e n e ver a n y oil s me ntion e d a bov e are u sed by min ers or forest co ncessio naires in their operation s , twenty - five per centum of the s p ecific t~x ai d th e r eo n s hall be refunded by th e Coi_lector now Commissioner of Internal Revenue upon s ubmi ssi on of proof of actual use of oils a nd und er co nd itio ns e num erated in s ubp aragrap h s one a nd two of sec tion one h ereo f , ame ndin g section on e hundr ed forty-two of the internal reve nu e code . xxx ." ( und er lining ours . ) This is s o, beca use it is only from the time of use of the pur c haser -min er , petitioner here - in , of the oils on which the s pecific ta x has bee n paid t hat petitioner-purchas e r has c l ear l y s hown by proof that it h ad bought from the importer (s uppli er) oil products a nd that only th e n does the right to ref und the 25% s p ec ifi c t ax und er Sectio n 5 o r

DECI SI ON - CTA CASES NOS . 35 10 & 3 899 - 16 - Re publi c Act No . 14 35 arises . The clnim for r e fund by petitioner of th e amount of e779,28 3 . 89 covered by Offi c ial Receipt No . 2950384 dated June 25 , 1976 s hould be ba se d on th e date of th e actual use of th e oil pur c ha ses pur s uant to Sec tion 5 of Re publi c Ac t No . 1435 , and , hence , ha s not pre sc rib e d . WHEREFOR E , r es pondent Commissioner of Int e rnal Reve nue i s hereby order e d to refund to pe titioner Rio Tuba Nickel Mining Corporation the s um s of e6 95 , 2 16 . 36 and e8 59 , 076 . 90 as s pec i f ic ta x paid , without interest . No pronoun ce menl as to costs . SO ORDER ED . Qu ez on Cit y , Me tro Manila , Fe br ary 11 , 198 8 � ....______ ROAQUIN WE CONCUR : Pr esi d:i. g Judg e ~R~

DEC I S I ON - CTA CASES NOS . 35 10 & 3899 - 17 - CERT I I I CAT I 0 N I he r e by ce rtif y th at thi s dec i s ion was r eac he d a ft e r du e c on s ult a tion a mong th e me mb e r s o f th e Co urt o f Tax App eR l s i n acc ord a n ce with Sec tion 1 3 , Arti c l e VIII of th e Con s titut io n . Presid in g Judg e Court of Tax App ea l s 235