PHILIPPINE AIRLINES, INC. v. COMMISSIONER OF INTERNAL REVENUE

REPUBLIC OF THE PHILIPPINES Court of Tax Appeals QUEZON CITY SECOND DIVISION PHILIPPINE AIRLINES, INC., CTA CASE NO. 10263 Petitioner, Present: RINGPIS-LIBAN, Chairperson, vs. MODESTO-SAN PEDRO, and FERRER-FLORES, JJ COMMISSIONER OF Promulgated: INTERNAL REVENUE, Respondent. FEB 1 8 2025 x------------------------------------------------------- ~ RESOLUTION f!l'- FERRER-FLORES, J.: For this Court's resolution are the following: 1. Motion for Partial Reconsideration (Re: Decision promulgated 27 June 2024) filed by respondent Commissioner of Internal Revenue (CIR) on July 11, 2024, with Comment (To: Respondent's Motion for Reconsideration) filed by petitioner Philippines Airlines, Inc. (PAL) on September 16, 2024; and, 2. Motion for Reconsideration (Re: Decision dated 27 June 2024) filed by PAL on July 17, 2024, without comment from the CIR as per Records Verification dated October 9, 2024. Both parties move for reconsideration of the Decision dated June 27, 2024 (assailed Decision),1 wherein the Court partially granted PAL's Petition for Review, the dispositive portion of which reads: \ 1 Docket - Vol. 4, pp. 1845 to 1886.

RESOLUTION CTA Case No. 10263 Philippine Airlines, Inc. vs. Commissioner ofInternal Revenue Page 2 of8 . WHEREFORE, premises considered, the present Petition for Review is PARTIALLY GRANTED. Accordingly, respondent is ORDERED TO REFUND OR ISSUE A TAX CREDIT CERTIFICATE, in favor of petitioner, in the amount ofP27,275,640.48, representing the latter's erroneously paid excise tax on its importations of wine and liquor products for its international flight consumption. SO ORDERED. To recall, in the assailed Decision, this Court held that PAL was able to prove that there was erroneous or illegal excise tax which was collected by the government but only to the extent of P27,275,640.48 of the excise taxes being claimed for refund. The Court expounded that PAL's exemption from payment of excise taxes on importations of alcohol and tobacco products under Presidential Decree (P.D.) No. 1590 was not repealed by Republic Act (R.A.) No. 9334. The Court found that PAL was able to fulfill the conditions for its importations to be exempt from excise tax. Specifically, PAL established that: (1) it paid corporate income tax for calendar years (CYs) 2013 to 2017, covering the period of the subject importation; (2) the subject articles are imported for use in PAL's transport operations; and, (3) PAL was able to prove that certain imported articles were not locally available in reasonable quantity, quality or price. As such, out of the total claim for refund of P43,667,566.35, the Court ordered the partial refund of P27,275,640.48, representing petitioner's erroneously paid excise tax on its importations of wine and liquor products for its international flight consumption. The CIR 's Motion {or Partial Reconsideration In his Motion for Partial Reconsideration, the CIR heavily relies on the discussion of the Court in different cases2 involving the similar claims for refund based on PAL's exemption from excise taxes on its imported alcohol products. Particularly, the CIR cites the discussions therein on the third condition for the excise tax exemption which PAL allegedly failed to comply with (i.e., that the imported articles were not locally available in reasonable quantity, quality or price). Accordingly, the CIR argues that it is incumbent upon PAL to prove that it is entitled to the refund sought and that PAL failed to discharge its burden of establishing its entitlement to the same. On the other hand, PAL counters that the case cited by the CIR is not yet final and still under appeal; thus, it still lacks legal weight to serve as reliable basis for the present Motion. Furthermore, PAL also points out that ~ the Dissenting Opinions cannot be cited as precedents and do not constitute ' PhiUppine>.Mlin�, Inc. ., Comm;,;on" of ln"mo/ Revenue, CTA D" No. I03 I I, May 23, 2023; Dissenting Opinion of Associate Justice Catherine T. Manahan in Philippines Airlines, Inc. vs. \ Commissioner ofInternal Revenue, CTA EB No . 2639, June 22, 2023 ; Dissenting Opinion of Associate Justice Jean Marie A. Bacorro-Villena in Philippines Airlines, Inc. vs. Commissioner ofInternal Revenue, CTA EB No. 2639, May 28,2024.

RESOLUTION CTA Case No . 10263 Philippine Airlines, Inc. vs. Commissioner of Internal Revenue Page 3 of 8 , legal doctrine. Instead, PAL emphasizes that, in several decisions of the Supreme Court involving the same parties and the same issues, the High Court has ruled, with finality, that the Table of Comparison Between Cost of Importing and Cost ofLocally Purchasing Commissary and Catering Supplies is more than sufficient to rule that the cost of importing commissary and catering supplies is lower than purchasing them locally. PAL 's Motion for Reconsideration In PAL's Motion for Reconsideration, it maintains that the evidence it presented sufficiently established that all imported liquors and wine products are not locally available in reasonable quantity, quality, or price. PAL claims that the third condition imposed under P.D. No. 1590 is that imported articles are not locally available in reasonable quantity, quality, or price. Thus, for purposes of complying with this condition, it is sufficient to show that the imported articles are not locally available either in reasonable (a) quality, (b) quantity; OR (c) price. We resolve. After an evaluation of the respective arguments raised by the parties, this Court finds both parties' Motions for Reconsideration bereft of merit. A cursory reading of the present Motions would reveal that the arguments of the parties involve matters which have already been considered and exhaustively discussed by this Court in the assailed Decision. In Department of Energy vs. Commissioner of Internal Revenue,3 the Supreme Court, citing Shangri-la International Hotel Management, Ltd. vs. Developers Group of Companies, Inc.,4 held that, while a motion for reconsideration, by its nature, may tend to dwell on issues already resolved in the decision or resolution sought to be reconsidered, a circumstance which should not be an obstacle for a reconsideration, petitioners must still raise matters substantially plausible or compellingly persuasive to warrant a reversal of the Court's previous ruling. Clearly, both motions failed to raise matters which are compelling enough to warrant any modification of the assailed Decision. ~ 3 G.R. No. 260912 (Resolution), August 30, 2023. 4 G.R. No. 159938 (Resolution), January 22, 2007.

RESOLUTION CTA Case No. 10263 Philippine Airlines, Inc. vs. Commissioner ofInternal Revenue Pa&e 4 of8 , At any rate, the Court emphasizes that no less than the Supreme Court has already ruled what is deemed sufficient in proving the third condition. In said cases involving the same parties,5 to prove the third condition, PAL has consistently offered before the Court of Tax Appeals (CTA) the following pieces of evidence: 1. Testimonies of PAL's Assistant Vice-President in charge of Catering and In-flight Sub-Department and/or Manager for In-Flight Materials Purchasing Division, Catering & In-flight Materials Purchasing Sub-Department; 2. Table of Comparison Between Cost of Importing and Cost of Locally Purchasing Commissary and Catering Supplies; and, 3. Price List/s for specific period/s. Upon evaluation of the CTA Division in those cases, in some instances, it deemed the above pieces of evidence, among others, sufficient to establish that the imported alcohol products were not locally available in reasonable quantity, quality, or price. On the other hand, in those cases where the CTA Division deemed the evidence insufficient, the same was reversed by the CTA En Bane or even by the Supreme Court. Notably, the Supreme Court ultimately found that the pieces of evidence presented by PAL were sufficient to prove the third condition. We summarize these cases as follows: Ruling of the CTA Ruling of the Supreme Court Relevant Periods (lm portations vis-a-vis Price Lists) I. CTA Case No. 8153, January 17, j G.R. No. 215705-07, February 22, Period of Importation: 2013. 1 2017. (2017 PAL case) October to December 2007 I I The CTA Division partially granted The Supreme Court affirmed the ruling Price Lists: I I PAL's refund finding that PAL has of the CTA granting PAL's claim for Philippine Wine Merchants , sufficiently proven its exemption from ,. refund and held that: Price List dated January I the payment of excise taxes pertaining 11,2007 only to its importation of liquors. " ... the matter as to pAL's I1 supposed noncompliance with CTA EB Nos. 1029, 1031 & 1032, I the conditions set by Section 13 I of P.D. 1590 for its imported April30,2014. ! I supplies to be exemptfrom excise The CTA En Bane affirmed the above 1 tax, are factual determinations ruIm. g. 1I that are best left to the CTA, which found that PAL had, in _ I fact, complied with the above ~--�-- I .--------��- -�- �----- ___I :.%;~::.~;::.~;:.~~~~.~~~s.~;~~~- _l -�- �- - ....................... J ' PhUipplne AM/n.,, Inc. "� Comm;,ton" ofln"mo/ Rmnue and Comm;,;on" ofCu"om,, CTA Case '\ No. 8153, January 17, 20 13; Philippine Airlines, Inc. vs. Commissioner of Internal Revenue and Commissioner ofCustoms, CTA Case No. 8198, June 2, 2015; Philippine Airlines, Inc. vs. Commissioner ofInternal Revenue and Commissioner ofCustoms, CTA Case No. 8130, December I, 2014; Philippine Airlines, Inc. vs. Commissioner ofInternal Revenue and Commissioner ofCustoms, CTA Case No. 8514, January 6, 2015.

RESOLUTION CTA Case No.10263 Philippine Airlines, Inc. vs. Commissioner ofInternal Revenue Pa~e 5 of8 . Relevant Periods Ruling of the CTA Ruling of the Supreme Court (Importations vis-a-vis Price Lists) I i CTA are unsupported by substantial evidence, its findings are binding on this Court. " I , G.R: 2 :-c__T_A_c_;~~-N~-:8-19_8_, -J_un_e_2_,_2_0_15-.--,! No. 240532 (Resolution), March rP~rl~d ofl;;;portation~:,_____,__ I 27,2019. (2019 PAL case) ! January to July 2008 The CTA Division denied PAL's I I refund holding that PAL failed to prove I The Supreme Court affirmed the ruling I Price Lists: 1 \ of the CTA grantin.g PAL's claim for ~ Ph.ilipp~ne Wine Merchants [ the third condition. I refund and held that. Pnce List (for 2008) ! CTA EB No. 1363 (Amended ! 1i I 1 I " .,.factual determinations that 1 I Decision), dated February 13,2018. 1 are best left to the CTA and ! The CTA En Bane reversed the CTA cannot be reviewed by this Court 1 I under Rule 45. The CTA is a Division's decision denying the refund. 1 The case was then remanded for I highly specialized body that ! determination of the refundable I reviews tax cases and conducts trial de novo. Thus, without any amount. showing that the findings of the 1 CTA are completely unsupported by substantial evidence, as in this The CTA En Bane found that the I case, its findings are binding on evidence presented by PAL is ii this Court". sufficient for ,the CTA Division to I evaluate that the costs of importing \ liquors are lower than purchasing them I locally. ! CTA Case No. 8198, August 14,2024. I ,___l _____,__,_,_,_J In view of the order of the CTA En i i Bane to remand the case to the CTA Division, as affirmed by the Supreme i Court, the CTA Division determined I the fmal amount refundable to PAL. ' I CTA Case No. 8130, December 1, ! G.R. No. 231638 (Resolution), 1 Period of Importation: 2014. February 17, 2021. (2021 PAL case) March to November 2007 The CTA Division denied the refund I The Supreme Court partially granted ; Price Lists: I I finding that the information gathered I PAL ' s petition and ordered the remand 1\ Philippine Wine Merchants '1, from the two price lists are seriously of the case for determination of PAL's , Price List for 2007 , deficient to justify conclusion that the I entitlement to a refund. The Supreme ! said imported items are not available in \ Court found the evidence presented I reasonable quantity, quality or price in I adequate to prove compliance with the I ! conditions for exemption, to wit: I the local market. ! ! CTA EB No. 1299, October 3, 2016. "Following prevailing jurisprudence, we are convinced The CTA En Bane affirmed the CTA I that PAL sufficiently proved Division's ruling denying the claim for I compliance with the second I condition for excise tax refund. exemption under Section 13 (b) The CTA En Bane held that the 1 (2). The CTA committed a severe evidence presented by PAL was ! departure from settled jurisprudence amounting to inadequate to prove that the imported ! abuse or improvident exercise of authority when it ruled that the liquors, wines, and cigarettes were not I pieces of evidence PAL locally available in reasonable I quantity, quality or price, and is i presented are 'inadequate' to j insufficient to establish its claim for a 1 show compliance with Section 13 1 tax refund. ! , (/:JLC?LJ:f~t!~ lYf!hc.!Yf!g~r.!~!qfty J '''' ' ' '' ' ''' ''' ''''' '''''''''''''' ' ' ' ' ' " ,,,,, ,,,,,,,,,,,,

RESOLUTION CTA Case No. 10263 Philippine Airlines, Inc. vs. Commissioner ofInternal Revenue Pa~e 6 of8- Ruling of the CTA Ruling of the Supreme Court Relevant Periods (lm portations vis-a-vis Price Lists) deferred and respected the tax court's factual findings, the Court will not hesitate to reverse its factual findings when there is a showing of gross error or I abuse on the part ofthe CTA ". !------------------�-�---------------�--------------�-------.............._. _____________....................................,...........................................- ......................._____________________________________,...............f .........................................................- ....... . �----1� 4. CTA Case No. 8514, January 6, 2015. G.R. Nos. 236343-45 & 236372-74 Period ofImportation: (Resolution), January 17, 2023. (2023 June 2007 to October 2009 1 The CTA Division partially granted PAL case) 1 PAL's refund ruling that PAL was able Price Lists: I !ts to su_b~tantiate compliance ":ith the II The Supreme Court ruled in favor of Philippine Wine Merchants 1 reqms1tes findmg that the Witnesses PAL and ordered the refund of I Price Lists for the years sufficiently corroborated that the erroneously paid excise taxes. With 2006, 2007, 2008, and , I imported liquors, wines and cigarettes regard to the third condition, the 2009, I were not locally available in reasonable Supreme Court held that: 1 i quantity, quality or price and that the I Future Trade International II said goods were In-flight Materials. " ... We also note that the Tables Price List dated April 8, ,. of Comparison and supporting 2009, price lists submitted by PAL CTA EB Nos~ 1308, 1309, & 1311 1 April30, 2014. corroborated Capinpin's 1 The Court En Bane affirmed the above 1 testimony that the imported items I Future Trade International 1 ruling. were not locally available in Price List as of February reasonable quantity, quality or 2009, 1 The Court En Bane agreed with the , price. Thus, in line with p n�e e L1' st of D uty- Free I' CTA Division's conclusion that PAL's \ evidence sufficiently established that Prevailing 1'urisprudence, We Philippines II agree with PAL that the CTA 1: the imported � liquors, wines and 1 erred in ruling that PAL has i ci�garettes were not locaIIy available in 1 z'nadequately shown z'ts 1!.,. 1 reasonable quantity, quality or price. compliance with Section 13 (b) .~l a:.:(.:~: o:.~::.n: :~:J. _~ :g_,�_ a8.~~.:.�c!.:.Z~~~~ ~~~- 1 L ................................................................................................................................................................. ..................... . ..:.: 1 . 111 _,_:,.. ....J,_P_ }_,:_,_ ::2. J.. .................................. ..... _.......J As can be gleaned from the foregoing cases, the Supreme Court gave weight to the factual findings of this Court stating that, without any showing that the findings of the CTA are unsupported by substantial evidence, its findings are binding on the Supreme Court. Stated otherwise, the Supreme Court deemed the findings of the CTA in the above cases to be supported by substantial evidence. It is also worth noting that, in the 2021 PAL case,6 the Supreme Court categorically declared that PAL sufficiently proved compliance with the condition that the imported supplies are not locally available in reasonable quantity, quality, or price, as required under Section 13(b)(2) of P.D. No. 1590.7 In said case, PAL presented Ms. Cheryl V. Capinpin's sworn \ 6 Philippine Airlines, Inc. vs. Commissioner ofInternal Revenue, G.R. No . 231638, February 17, 2021. 7 SECTION 13 . xxx (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; xxx. 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,

RESOLUTION CTA Case No. 10263 Philippine Airlines, Inc. vs. Commissioner ofInternal Revenue Page 8 of8, WE CONCUR: ~. ~-,. '-- MA. BELEN M. RINGPIS-LIBAN Associate Justice

RESOLUTION CTA Case No. 10263 Philippine Airlines, Inc. vs. Commissioner ofInternal Revenue Pa' ge. 7 of8 testimony, price list from one local supplier (i.e., Philippine Wine Merchants Price List) and the Table of Comparison, which were found to be sufficient to establish the non-availability of imported liquors and wines in reasonable quantity, quality, or price. With regard to PAL's claim that it sufficiently established that all imported liquors and wine products are not locally available in reasonable quantity, quality, or price, including those products which do not appear in any of the price lists presented, We maintain that this alone cannot serve as conclusive proof of the products' unavailability in the local market. The absence of certain alcohol products from the price lists procured by PAL does not necessarily prove its unavailability in the local market at a reasonable quantity, quality, or price, absent any categorical statement from local suppliers attesting to such fact. All told, the Court finds no compelling reason to reverse or modify the assailed Decision. WHEREFORE, premises considered, respondent's Motion for Partial Reconsideration (Re: Decision promulgated 27 June 2024) and petitioner's Motion for Reconsideration (Re: Decision dated 27 June 2024) are both DENIED for lack of merit. SO ORDERED. 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 nontransport operations and other activities incidental thereto and are not locally available in reasonable quantity, quality, or price; (Emphasis and underscoring supplied)