CTA Case No. 2036 (Decision)

JUS '' REPUBLIC OF THE PHILIPPIME8 COURT OF TAX APPEALS QUEZON CITY BAGANGA BAY FOREST WORKING UNIT, Petitioner, -� versus - C.T.A. CASE NO. 2036 COMMISSIONER OF INTERNAL REVENUE, Respondent. :X - - - - - - - - - :X DE C 0N This is a claim for refund by petitioner of the amount of P14~730.76 representing 25% of the specific tax paid on manufactured oils and other fuels (petroleum products) in its logging operations during the period from June 1967 to March 1969~ inclusive: Petitioner is a registered co- partnership organized and e x isting under and by virtue of the laws of the Phi lippine s~ with principal office at the 3rd floor of CMS Building~ Pasong Tamo Extension~ Makati~ Met ro Manila~ and a duly licensed forest concessionaire. On August 29~ 1969 petitioner filed with the respondent a written claim for the � refund of the sum of P14~730.76~ representing 25% of the s pec ific taxes paid on the said fuel oils and other fuel s 244

.' DECI SI ON CTA CASE NO. 2036 - 2- us e d in th e logging operations du ring the period from June , 1967 to Marc h 1, 19E.9, put' s u ant t o Secti on 5 of R.n. No. 1L~3 5 . Likewise, petitioner f iled the instant petition for review on August 29 , 1969. The case at b ar� h as been submitted fo r dec i s i on bas e d on the p 1e ad i n g s and r e c ot' d s of the case, sans the memor� and1.1m of the p arties . The sole i ss ue po s ed in this appei'\l is vJhethet' o r no t the 25 ~ s pecific t ax exemption on petroleum products used in it s logging operations is limited to a p eri od of five (5) ye ar s fro m th e effectivity of R.A. No. 14 35. The case at bar pursua nt to the re solution of thi s Cour�t dated May 30, 1989 has been archived c on siderin g that the issue invo lved i s simi l ar to t ha t o f At 1 as Co 11 s o 1 i d at e d Mi n i n g em d De v e 1 o p men t Corpora t i on v s � Co mmi s s i o n e r o f I n t e t ' n <'l 1 Re v en u e , CTA CASE NO. 2971 p end ing before the Supreme Court in G.R. No. 93631. The Supr� eme Cour�t l ater on sustained the rul in g of this court in G. R. No. 3631, At 1as Consolidated Mining and Development Corporation vs . Comm issioner of In te rnal Revenue, 1� n 1�t s d ecision 24

DECISION CTA CASE NO. 2036 -3 dated November 12~ 1990. We quote the decision of the Court of Tax Appeals in C.T.A. Case No. 2971~ which was sustained by the Supreme Court i~ .G.R. No. 3631 to wit: Section 1. Section one hundred and forty-two of the National Internal Revenue Code~ as amended~ is further amended to read as follows: "Sec. 142. Specific Tax on manufactured oils and other fuels. "Whenever any of the oils mentioned above are~ during the five years from June eighteen~ nineteen� hundred and fifty two~ used in agriculture and aviation~ fifty per centum of the specific tax paid thereon shall be refunded by the Collector of Internal Revenue upon submission of the following: "(1) A sworn affidavit of the producer and two disinterested persons proving that the said oils were actually used in agriculture~ or 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 association or federation~ attesting to the fact that the oils were actually used in agriculture. X X X X. II Sec . 3. >~ ~�~ !�~ 246

DECISION CTA CASE NO. 2036 - 4- Sec . 4. }! N >: Sec. 5. The proceeds of the additional ta x 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 whenever any oils mentioned a bove are used by miners or forest concessionaires in their operations~ twenty - five per centum of the specific ta x paid thereon shall be refunded by the Collector of Internal Revenue upon submission of proof of actual use of oils and under similar conditions enumerated in subparagraphs one and two of section one hereof, amending sec tion one hundred forty - two of the Internal Revenue Code. x x x. Respondent in rej ecting petitioners' claim holds on to the view earlier invoked in a case of the same mold that~ "The privilege of a partial refund granted by Section 5 of RA No. 1435 to those using oils in their mining op e rations~ like the partial refund of specific tax paid on oils used in ag riculture and aviation granted by Sections 142 and 145 of the old Ta x Code, as amended by Republi c Act No. 1435, is limited to a period of five (5) years counted from June 14~ 1956, the date the said Republic Act No. 1435 took effect~ or only until June 14~ 1961." More specifically, "The petitioner is not entitled to a partial refund of specific taxes because the fuel oils allegedly used by it in its mining operations were used after June 14, 1961, or after the exemption under Republic Act No. 1435 had already e>:pired." Resolving the question squarely in the Insula~ Lumber Case involving as i t does Section 5 of RA No. 1435, .the Supreme Court held: "Based on the aforequoted provi sions , it is very apparent that the partial refund of 24 '7

DECISION CTA CASE NO. 2036 - 5- 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 concessionaires." We find no basis in applying the limitation of the operative period provided for oils used in agriculture and aviation to the provision on the refund to miners and forest concessionaires. It s hould be noted that Section 5 makes reference to subparagraphs 1 and 2 only for the purpose of prescribing 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 specifc taxes paid on oils used in aviation and agriculture is intended to cover similar taxes paid on oil used by miners and forest concessionaires~ there would have be e n no need of dealing with oil used in mining and fores t concessions separately and Section 5 should very well have been included in Section 1 of Republic Act No. 1435, notwithstanding the different rate of e:�:emption." (Commissioner 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 insta nt case. The apparent patina of cogency impressed nonetheless , the respondent Commissioner of Internal Revenue 's amended answer urged new fillips toward s f aulting the petitioner's right to the claim by alleging that the partial ta x refund pr i vi 1 e.ge ceased upon the issuance of either any of the decrees, to wit: 1. PD 314 Increasing the rates of specific taxes on fuel oils on October 20, 1973; or 2. PD 231 as amended - Enactment of the Local Tax Code on June 28, 1973; or 3. PD 711 - Aboli s hing the special and fiduciary funds on July 1, 1975; or 248

DECISION CTA CASE NO. 203G - E. - 4. rD 1 15 8 and PO 1 158 - A C o n s o 1 i d a t i n g a n r.l c o d i f y i n g a 11 i n t e l' n a 1 t�even u e l r"l~IS on June 3 , 1'377. Again ~�H? a re unable to give d�Je assent to s uch riposte. Respondent w~uld have substituted a quirk of alternative expedienc ie s f a lling s h a rply at odds with the compelling rational!" of the gran t , "That th ese lu mber a nd mining c ompanies s e ldom u se the national highways bE:>c a use they h a ve their own t' oad s , they have their own comp o unds. x H H So that if they are not entitled to the benefit of thi s law it will be unfair if they will be r�equired to pay ." <Co ngl- E:'Ssional Recor ds , 3d Congress , 3d Regular Session, May 7, 1'36 7 , Vol. 111, 1\lo . 67 pp. 2093 - 2107 >. Far� be it fr� om a theoretical gobbledygoo!<, the tax privileg e eHt e nded the minPl' /forest con c essiona i res <Sec. 5 , RA 1435> vis - a - vis a g riculature and a viation <Sec. 1 ibid> could not h~ve been intended fo a ver y limited contingency and app lication. Nowhere het� e nor thet�e a1'e such 1 egal constraints of an expre s s repea l - much l!"ss effectiv~ cut a ilme nt of the operative eff~ c ts o f t h e p r� o v i s o o f S e c t i o n 5. It c er t a i n 1y did not a pp r>ar to matter� whether t hP abovc> - mentioned d ec rees , either , in cre ;~sed �. he rate s of specific t a xes ; or withdrew the lo ca l government s ' po~Jf:>r to levy r\nd collPct additi. onal specifi c ta>< !?s ; Ol' abolished the specia l a nd f iduciary funds; or-� con s olidated and codified all the intE-rnal t' e v p n u e l.:tw s . It does not make us wond e r therefo1'e th a t the import and force of Section 5 had b een l eft precisely as was then con templat e d to the extent that the p artial tax refund accor- ded the min ers and fores t conce s si onai res rem ained obtaining. Neith er was there a n attem pt. to undo with the terms and c onditions of the tax concession upon which a c laim f or entitlement may be eHercised s ubjec t to the comp l iance the statutory requisites, i.e., "submission of proof of actual use of oi 1 s and under

DECISION CTA CASE NO. 2036 - 7- similar conditions enumerated in subparagraphs one and two of Section one hereof." As had happened in the case at bar~ the records make it clear that insofar as the same is brought to bear upon the circumstances~ the evidence adduced ' justifiably asserts compliance therefor, viz.: 1) Sworn certification of supplier Petrophil Corporation as to the quantity of extra gasoline and diesel fuel purchased (E>:hs. "A" and "A-1") upon which tacked the receipts of payment of specific taxes (Exhs. "D" ~ "E", "F", "F-1" to "F-28", "G" ~ "G-1" to "G-93"~ "H", "I" and "Bulk Invoices") and 2) Affidavits of the petitioner's Vice President duly confi~med by two disinterested persons ( E>:h. "C") and the Chamber of Mines of the Philippines' President (E>:h. "B") attesting to the actual use of the fuel oils in the mining o~eration for the period from October~ 1976 to April~ 1978. So i t appears and we so hold that the petitioner has fared consistent with the mandate of the law." This decision conforms with the resolution of the Supreme Court in the case of Commissioner of Internal Revenue versus Rio Tuba Nickel Mining Corporation and the CTA~ G.R. Nos. 83583-84, dated March 25~ ~ 992 , lfl hi c h ru 1ed that " :o::�: m.J,n.!..o_g_.....?.m.d. l.Qg_q_,t.o_g__._c;:_: qffi.Q.~.!J..A.�'..?.______~_r::.�. . . _ �'J}_t_j....t.l.�.Q.._ !;.Q..__..._.! .b.�... -.. ..r:.�..f..!JJlQ. Said the Supreme Court: "The Court ruled in the decision that Section 5 of Republic Act (R.A.) No. 1435~ which granted to lumber and mining 2 irJ- u ~

DECISION CTA CASE NO. 2036 - 8- companies the privilege of refund of twenty five (25/.) percent of specific taxes paid by them . when such oils are used in their operations, was impliedly repealed by Presidential Decree (P.O.) No. 711 which abolished all special and fiduciary funds. Under R.A. No. 1435 , the specific ta xes on manufactured oils and diesel fuel oil accrued to the High~ay Special Fund. The Court stated that miners and lumbermen were accorded refund privileges under R.A. No. 1435 because they seldom use the national highways since they have their own roads and it was unfair t~ subject them to the increased tax rates and in effect make them subsidize the construction of highways from which they did not directly benefit. According to the. Court, since by virtue of P.D. No. 711, all funds that have accrued from the various special funds are channeled to the so-called General Fund, there i ~, therefore, no need nor justification for the continued spec ial treatment of .these miners and loggers. Thus, reasoned the � Court , since under P . D. No. 711 any government project can be the bene ficiary of such funds as long as it is for the general welfare of the masses and it i s inevitable that sooner or later the miners and loggers will stand to benefit from these government benefits, then the refund privilege in R.A. No. 1435 has become an anachronism. The Court ruled that the refund privilege granted to miner and loggers under R.A. 1435 was impliedly repealed by P.D. No. 711. This decision was premised on the assumption that the highway Special Fund was one of those funds abolished and transferred to the General Fund by P.D. No. 711 which took effect on July 1 ' I 1975. 251

DECISION CTA CASE NO. 2036 - 9- Despite the mandate of P.D. No. 711~ however~ several special funds were sti ll retained and the Highway Sp~cial Fund was one of them. Proof that some of these special and fiduciary funds were retained may be extracted ffom the provisions of P.D. No. 1741 dated October 31~ 1980 whi ch governs the computation of national internal revenue allotments to local government units. Section 2 of said decree ~rovides: "SEC. 2. Magnitude of Assistance A maximum of twenty per cent (20%) of national internal revenue ta xes shall be available for national assistance to local government units. Provided~ That the national revenue used as bas is in computation shall exclude receipts accruing to Special or Fiduciary Funds and to Special Accounts in th e General Fund~ amounts authorized by law to be used by the collecting agency~ and amounts recorded as income of the General Fund but which are charged to appropriations in the General or other Appropriations Laws." (Under- lining supplied) The Internal Revenue Allotmen ts annually prepared by the Bureau of Internal Revenue in accordance with the foregoing decree showed that the Highway Special Fund continued its existence up to 1985 and was channeled to the General Fund only in 1986. It is not clear why the Highways Special Fund was maintained for 10 years after the effectivity of P.D. No. 711 or � 252

DECISION CTA CASE NO. 2036 - 10 - why it was abolished in 1986. The stark fact remains that it retained its status as a special fund up to 1985. With the foregoing consideration~ we cannot therefore state with definiteness that it was P.O. No. 711 which impliedly repealed Section 5 of R.A. No. 1435~ We can however safely conclude that Section 5 of R.A. No. 1435 is now an anachronism because the Highway Special Fund~ after ,.: 1985~ no longer exists. The rationale for the Court's decision denying the private respondent's twin claims for refund was that the specific taxes on these manufactured oils paid by the mining and lumber companies no longer accrued to the Highway Special Fund. But given the added circumstance that the Highway Special Fund which was financed by � these s pecific taxes still continued up to 1985~ i t will be highly inequitable for the private respondent if we were to rule that no fefund of specific taxes paid up to 1985 which actually accrued to the Highway Special Fund (not the General Fund) may be given. The private respondent still did not directly benefit from the projects supported by the Highway Special Fund. We ~ . :t.tJg_c~ .f9..C~. 3._J!l.Q.Q_!.f.Y_ Q..I,tL_____qg_c;j,_� _j.J;>JJ ..t.f.L ...i.b..! .?.._.:.. t.. <;..?.!.?..�L.~!.l9.._.,,__r..h.\..!J�'L.t.h~. ._ r.!t!.IJ.j,_IJ..Q...........~.O.Q. lg.ggJ..o.Q.......~.QJ!l.P.~.o....t.�.?. ...--~.r:g__,__�lnJ;.J....tJ..�.Q.___,__t.,p____J;.b�. r.�..f. !:,..m.9.......PLt..Y...;i.,..l.�.Q.~.......Q..r..~.o...t.�.9_.....Q.y. _�t!.e-!'_.N_o .~.--J..-4.~-~- Po.__?..J.!.�..~..i..f..!..c;.........t..~..::;. ~.?.._.P~..!.Q._......_!:,.~P.---t-Q.............!.9.Q.~--� --�..Po.. ffi.S\..r.:thL'f..~h..t.h\C�l.Q...._......~.O..Q__,.............Q..!.g_�.~l-. . .--f-1:.-.t~.l-. . -. . .Q.;i.,..t?...! .. <U.n.Q.gr:.?..~.R.c..t. o.g........9 ..'=.\.r:.?._.~-- ) Since the private respondent 's claim for refund covers specific taxes paid from 1980 to July 1983 then we find that the private respondent is entitled to a refund. It should be made clear, however, that Rio Tuba is not entitled to the whole amount it claims as refund." 253

"'' DECISION CTA CASE NO. 2036 - 11 - WHEREFORE, respondent Commissioner of Internal Revenue is hereby ordered to grant a tax refund to petitioner, Baganga Bay Forest Working Unit, the amount of P14,730.76 representing 25X of the specific taxes paid on petroleum products for the period from June, 1967 to March, 1969. Without pronouncement as to costs. SO ORDERED. Quezon City~ Metro M anila ~ Arti6l p20, 1992. ' r--_ . CONST � ROAIJU IN ,~soci ate Judge WE CONCUR: <t~Q.~ ERNESTO D. ACOSTA Presiding Judge S~ DADIVAS ~ALES Acting Associate Jydge 254

DECISION CTA CASE NO. 2036 - 12 - CERTIFICATION I hereby certify that this decision was reached after due consultation among the members of the Court of Tax Appeals in accordance with Section 13~ Article VIII of t he Constitution. ~~\tt'"~ ERNESTO D. ACOSTA Presiding Judge Court of Tax Appeals 255