GULF AIR COMPANY, PHILIPPINE BRANCH (GF) v. COMMISSIONER OF INTERNAL REVENUE

REPUBLIC OF THE PHILIPPINES ClHJR 1' (Jl,� TAX Al'l'I~ALS (,JUbLUN ClT'r EN BANC GULf' AIR COMPANY, PHILIPPINE BRANCH (GF), Peli lioner, C.T.A. EB NO. 302 (C.T.A. Case No. 7030) -versus- P rt:setlt: .41'i1S lrt, P. /. Caslm1eda, Jr. Haalista, Uy, CtlStlltuVtl, ami P~lfauca-EIIriquez, /J. COMMISSIONER 01: lN'fERN AL REVENUE, Respondent. !)t"on� u lgd ted: JAN 3 0 2008 -'/I . . I I. ( I ' , - - ~-------~-�- t: ,rl ,� X---------------------------------------------------------�------------------ ______________.:;_.,;:____X DEClSION BAUTISTA, 1-: The Case Before the Court E11 13uuc is a Petition fur Review! filed purstwnl to f~ule 8, Section 3(b) of the Revised Rtdes of the Courl of Tax Appeab, 1naying for the reversal of: .'t:-yY;/ 1 Rollu, pp. 7 - 43 with Annexes. I 14.3

DECISION E B No. 302 (CT.A. Case No. �,o30) 1. the Decision dated March 21, 2007 rendered by the Second Division of the Court ("Court in Uivision") in Cl'A Lase l\Ju. '7U3U, wltid1 dtsmisb~d petitioner's Petition for l~eview dnd affirmed the hm1l Dedsion on Disputed Assessm.ent of the L\uredu of Internal Revenue (" BIR") dated June 30, 2004, demdnding the payment of deficiency Percentage Tclx assessment issued against petitioner in the amount ul Jl33,8(Yl, 186.62 for the first, second and fourth quarters ot the yedr 2000; and 2. the Resolution of the Court in Division promulgated on June 29, 2007, which denied the Motion for r<.ecunsideration of petitioner. Based on the pMlies' "Juinl Stipublion of Facts dnd lssues"2 and the Decision of the Court in Division3, the facts of this case follows. Petitioner is a branch t)f Culf Air Company, a fureig11 corporation organized in accordance with the lavvs of The L<ingdum of Bahrain, with principal office at the Gruund Floor, Don Chua Larnko Building, Leviste St. corner Dela Costa St., Salcc:du Village, tvlakati l_'iLy Respondent is the Commbsioner of the BlR, which is the bovernment agency in charge of the assessment and collection of all nc~tinnal internal revenue taxes, fees, and charges, including the 3% Percentdge Tdx imposed under Sec. 118 of the National Internal l~evenue CLkle (" N II~C") on 2 Records, C.T.A. Case No. 7030, pp. 272 -- no. 3 C.T.A. Case No. 7030, March 21, 2007, pp. 3 - I I. 144

DECISION I E.B No. 302 (CTA Case No. N.JD) international mr carriers doing business in t-he Philippines, with principal office at the tHR NalioJtcd Ullice Building, i\ghdm 1\uad, Utlttlldn, l,2uezon City. ~ On October 25, 2001, petitioner availed of the Voluntary Assessment Program ("VAP") under Revenue Regulations 8-200 I, for its Jl)l)9 and 2000 Income Tax, 3rd Quarler of 2000 Percentage Tax, and 19~Jl) and 2000 Documentary Stamp Tax, with a total VAP payment of J}l1,964,648.00. On October 4, 2002, petitioner received a Ldter of Attlhorily dated September 30, 2002, authorizing Revenue Officers Reynoso Jtwt~ro and Welila Quimson to examine petitioner's books of cil'CU11!1ls <:llld other accounting records in connection with petitioner's claim fur refund of pen:enlage taxes for the }st, 2nd, and L11h quarters of year 2000. On April 25, 2003, Revenue Officer Jovero requested pelitiuner, thru Ms. Aida N. Florencio, Chief, I;r Audit ami Investigation Division I, to submit a summary of daily passenger uplifts for each month, a11d sample cupies of tax coupons of locally issued lickets showing net net lares aL'Lually realized by petitioner. Petitioner received said letter on Ar)ril 28, 2003. On May 8, 2003, petitioner, through ils Tax Agent, 1\luises M. Visperas, Jr., submitted a formal written reply, dated J\'lay 8, 2003, lo Rt:;vettue Utficer Jovero, thruMs. Aida l�'lureJlliu, Chief, Ll' AudiL and lnvesligaliun Division I, attaching thereto the requested summary t)f daily passenger uplifls for edch month of the quarters involved, and sample copies ul tax cuupu11s uf loL<:dly 1� 4 ;; ''

DECISION I E 8 tJo. 302 (C TA Ca;;e No. t030) issued tickets showing net revenues. As stated by petitioner in its n~ply, the claim for refund was bctbed Ult the fulluwing: "1. That passenger revenue retlected on urigitlill lax ret11rns was lldsed on one gross CAB fare of USDb'l-l.lJU J,~ulliplied by the tlltlllller uf passenger uplifts for the quarter, reduced l>y 25% ,dlmvable deduction. When the amended lax returns were filed tm 0L'tuber 25, 20lll, curred passenger revenues were cumputed considering lTliTtXlrespet live nelud revenues realized from uplifls of passengers up lu their fin,ll desliualion. This definition of laxcd)le gruss receipts was in i,tcl lakr l c~nied c~nd ratified when Revenue Regulaiiuns 15-200:2 was issued u11 [\ lMLit 31, :20ll2 (date should have read 1'\lay 30, 20tl.?. but which look dfed unly un October 26, 2002). 2. Another type uf computation error with respect to Taxable Passenger Revenue was noted in the Percentage Tux H.elunt fur the 2nd quarter of 2000 wherein the 25% allowable dedudion was erruneuusly not claimed as a deduction and thus accordingly uverslating its lax payment by 25%. 3. On the other hanlt cargo and mails revenues refleded on the original tax returns were understated as the figures thereon were merely based on amounts actually received from its General S,des Agent that is already net of the GSA override commissiun. Thus, the amended tax return corrects the understatement by reflecting the correct Cargt> and Mails taxable revenue. (This translates lu <tn additional taxalJle revenue base of PHP16,760JJ20.-!6 when the ameuded tax returns wen; tiled). 4. Kindly note that the clc~im for retund WdS limited to J>l, 2nd, and 41h quarters of 2000 as we nuted that fur lhe 3'" q uarler of 20Ull, there was an overall understatement. As an honest gesture on my dienl's t>arl, it had availed of YAP fur the 3rd quarter of 2000 1vhich was duly dtl'l~pted and qualifying certificate being duly issued by llae BIR....." On July 2, 2003, in complidliCC \villl tlte verbdl aequ<:::>t nf Revenue Officer Jovero, petitioner provided the latter a comparative analysis of cargo revenue per original return with that of the amended tax returns which resulted in additional taxable revenue of !l16,7b0,620.46 or tlte equivalent 3% tax of :1:4502,819.00. 148

DECISION ~ ' E.B. No. 302 (C.T.A. Case Nu. f030) On July -ILC 2.003, pctiti(mer received a letter from Ms. Armi S. Linsangan, Chid LT Audit dttd lnvesltg<~Liun 1, dated ]ulv l, 2lJlJj, noltlyi11g il of a proposed assessment of deficiency percentage tax or common carriers tax amounting to !432.,740,'172.03. The same leller requested petitioner to appear before an informal conference scheduled on .I uly 2cl, 2003 at lU:OL) A.M. In compliance \Vilh the Jul)' 14, 2()03 Idler, pelitiuner'~ Tax Agent, Mr. Visperas, together with its Finance Controller -- Manila, Armand Bautista and Accounts Assistant Divina Talla, allL~IHied Ute infon11al cuuference un July 24, 2003 and submitted thereat petitioner's initial cumrne!lls un the proposed deficiency percentage tax assessment. On November 4, 2003, petitioner received a Prelintitldt)' Assessment Notice ("PAN"), issuecl by Deputy Commissioner Estelita C. Aguirre ddted August 20, 2003, assessing petitioner deficiency percentage tax antotmting to P32,745,141.93, broken down as follows: Gross Receipts l'er return 753,21ll,5lo.'ltl Add: AdjuslHtettts: 8U-l,2tlll,l76.'Jj '1. Special Conuni~siun ott Passengers 1 16,ltl5,5tH.63 2. Special Cununissiun on cargo otigit1dlly 'J 1,-HLI,tr?b.-17 reported in US$ l,llll,tibH,75!)h_-l 3. Special cmnmissiun I ,765,07'!,27-U 1 on cargo originally reported in J2 52, 95~,:~7tL:1.! Total Adjut>lment .~2.5o8,5'J3 uu Gross l<.eceipls per Attdit 2t l, -lb:\,7tl5.2-1 Tax Per Audit 12,jbJ,35o.bY Amount paid per return 32,/-b, Ill 'J:I Basic Interest up to 9-3ll-lU Total 147

DECISION , E B. No. 302 (C.T A Case No. il.l30) On the same date, petitioner also received together vvith the PAN, a 2003, denying petitioner1s claim fur tax credit/ refund of excess perl:enlage tax ~.l remittance covering the J>t, 2uct, and 41h quarters of taxable year 2000, and requesting the immediate settlement of tlte Jl32,'7-15, 1111.03 deficiency percentage tax assessment. On Novernber 12, 2003, pdiliunef tiled with tlte Ullil e ul lhe De1mty Commissioner - Large 'T'axpayers ServiL:e through its Tax Agent, a letter dated on the same day, protesting the above-mentioned PAN, and rL:quesling for reconsideration of the denial uf its request t.n refund. On December 16, 2003, pditiuner re~._:eived a Furmal Letter of Demand dated December 10, 2003, dentanding lhe pctyment of the total amount of ~33,864,186.62, the detclils of whid1 are as iuliO\VS: Cross Receipts per retum jJ /'53,:2lll,5lt1.i1:i Add: Adjustmeuts: lib, W5,5ll-Ull I. Specidl Commission on 1-'asseng<~rs l) l,-lltl,ll7b.-ll 2. Specidl Cc>Immssiun Ulll ,8tJ1:i,'t'5K ll l on C<~rgo originally j ,/ll5,l )/'9,:2; -l.b 1 reported in USD 3. Specictl Commissiun 52,lJ52,J7tJ.2-l on c<~rgo origin,tlly 32,51:io,59J.tlll reported in Pl!P 20,:lb3,71:i5.2-! B,5llll,4lll.31:i Told! Adjustment Gross ReL-eipts per Audit Tax Per Audit Amount pdid per return Basic Deficiency l'ercenlctge Tax Interest up lo lJ t-lll.J-ll-1 Total 148

DECISION , E.B Ho. 302 (C.TA Case No. , u30) On December 29, 2003, petitioner filed a letter, dated on the same day, addressed to the Dei>uly l'ununissiOI\ef, prdlesling the i:.l!Ol"l'lllt.::nlioued deficiency percentage tax assessntenl and reiterating ilb request for ..,. ) reconsideration of the denial of its request tor refund. On January 24, 200:1, a Tax Verilicdlion Nutice dated J<muary H, 2004 was received by petitioner autlwri:ting Revenue Uftit.�er jl!\ eru to verify supporting documents and/ or pertinent recl>rds relative to the Request for Reinvestigation of Deficiency Percentage 'I'm,: l'rotesl Letter dated December 29, 2003 covering the l st, 2nd, and �'1111 quai'lers of taxc~l>le year 2Ullll. On July 8, 2004, petitioner received a Final Decision un Disputed Assessment from the Deputy Curnmissioner, OIC, Large Taxpayers Service dated June 30, 2004, denying its Uecernber 29,. 2003 vvritlen prulest "for lack of factual and legal basis" and re,luesling tltt: inlmedic~tl~ p<tymL~nt of the P33,Rfi4,186.62 deficiency percentage b:1x assessment. i )n August 6, :?.00:1, l)elitioner tiled a Petition for 1\ev iew with this Court, appealing the said i"illal Decision. In his Answer, resplllldettl alleged, by way of special and d!firttldli ve defenses, that petiliuner is lid[;Je lm the deficiency percentage lax fur the Iol, :?.11'1, dnd C:llli quarters llf tdX<tble yedl" :?.000 under Revenue Regulations 6-66 ddted December I, 19t>6, pr,)Viding fur the computation of gross receipts ot inletTldliondl c~ir carriers based Oil the cost of single one-way fare on d continuous and uninterrupted flight ul pe1ssengers, excess baggage, freight or cargu, including mail as retleded u11 thL~ plane

DECISION ' E B. No. 302 (C .T.A. Case No. lll30) manifest of the carriers as approved by the Civil Aeronautics Hoard ("CAW); Revenue Regulations o-oo was never dllteiided, until l11e tssuctuce ui Revellue Regulations 15-2002 on l'vlay 30, 2002; l~evenue l<egulations 15-2.Ll02 has no retroactive application; it is well seltled lklt letws lld'.'z~ nu retroactive application unless it is provided fur by the l<HV itse!C and presurnplions are in favor of the correctness of tax assessments. Petitioner presented Moises l'vf. Visperas, Jr., its Tax Agent, and Divina Talla, its Accounts Assistant, as witnesses, dild formetlly olfered documentary evidence. On the other hand, counsel fur respundent waived his right lo present evidence and moved for thirty (30) days to file his memorandum. Hotll parties were granted thirty (30) days from September 28, 2005 to file their simultaneous memoranda. LJ pon curnpliance therewith by hutll parties, the case was deemed submitted for decision on Decernber 0'1, 2006. The l~uli11g �~(tiLe Cu1trl iu Divisiou On March 21, 2007, the Court in Division rendered its Decision dismissing lhe Petition fo1~ Review. lt ruled that the correct basis ut the 3% Percentage Tax imposed under Seclion IW (A) ul the I~J(j7 NlRC on the quarterly gross receipts ot inlemational atr carriers doing busiuess in the Philippines is the fare Hppnwed by Lite CAJ3 p11rsuant to Revenue Regulations 6-66. I I /

DECISION , ; E.B. No. 302 (C.TA Case Nu.. v30) The Court in Division held thc-1t Revenue Regulations 6-66 is the applicable implt..~meltlllli, n.:gt~l,lltun clltd il b d~c~dy pruv1ded tltt.::rein tltdt gross receipt shall ue computed on the Lust uf the single Oite wc~y fc~re as approved by the CAB on the conlittuuus aJ td uninterrupted flight of passengers, excess baggage, freight or cargo i111.luding mdil, e~s refleded l)Jl the plane manifest of the carrier. The Court in Division likewise noted that petitioner cHlmitled ll!al it did not include in its gross receipts the specidl cunHltissions 011 pdssengers and cargo. Neither did it prove that such conunissions are not sul>jed to te~xation. Thus, the Court in Division concluded that respondent WdS corn:cl in cldding back the said commissions to the gruss receipt per return of pelitiuner in order to come up with the gross receipts subjed lu tax under Sedion 118 (A) of the 1997 NIRC. The Court in Division further ruled that Revenue Regulclliuns '15-2002 cannot be given retroactive applicatiun. It emphasized thdt the said regulations took effect only on October 2b, 2U02, \'vhile petiliont~r's amended tax returns were filed on October 2S, 20UI. Lastly, the Court in Division imposed the 25% penalty umier Section 2L18 of the NIRC, as well as the 20% deficiency and deliill}IIency intert�stunder Section 249(B) and (C) of the same Code. The dispositive portion of the Decision reads as fullm.vs: l r~

DECISION j E.B. No. 302 (C.T A. Case N0 Page 10 of 19 J30) "WHEREFORE, premises consid~red, the present Petition for Review is hereby DISMISSED for lack of meril. With the above modification, tile dcci::.tun ddled _)uu~� jlJ, 2.UU-1 ul the Uepuly Commissioner, OIC, Large T<npayer::; Scrv icl~ ul the Uun�.tu ut 1ntcrn<iL Revenue, is hereby AFF1Ri'vlED in all uther respeds. ALn>rdingly, petitioner is ordered tu pay lhe respondent the toted dmuunt ot 1-'orly One Million One Hundred Seventeen ThuusdnLf",~)evl~ll !lund red l hirly hnn� and Ol/]00 Pesus W-lUl/,73101), plus twenty lh'nent (2U'X:,) delinquency inleresl tltul:on umtputed frum july o, 200-1 until full payment then:_~of, pursuant to Sectiull 2-l'J (C) of flit' N/1\C ti{ �1997, as amended. SO ORDERED." Aggrieved, petitioner moved fur rec(lllbideralicm vvhich wa:o de11ied by the Court in Divisi(Jn in its Resultttiun dated jlltte 2lJ, 2U07. Hence, the prese11t recourse. The matn 1ssue submilted for resulutiun m the Petiliun lur Review is whether or not the Court in Oi visiuu erred in ruling that the gro~s receipts for purposes of computing the 3% Percentdge Tax under Seclion I W(A) of the 1997 NIRC shall be based on the rates approved by the CAB, thus warranting the inclusion of the special commissions on passe11gers and special commissions on cargo in the computation of gross receipts. Petitioner's Argulllents Petitioner guestiotts the validity or Revetllle f~egulalilltts i.H>() and posits that CAB-approved fares are notional and Me nul reflective uf the actual revenue or receipts derived or received by petitioner or its agl:11ts !rum its business as an international carrier. While CAB fares may likewise be "'�/_J//1 /

DECISION ~ E.B. No. 302 (C TA Case Nu. , J30) indicated in a ticket, it is an airline industry practice that tickets are actually sold to passengers at ct lower rdle, rangitlg I rum Jl '/u to ds ttluLlt cts "lY.:u llllly of the CAB-approved fares. ') Petitioner also disagrees with the appliccttion to llte inslanl case of the jurisprudential definition of gross receipts as the tutcil income as o~)posed to the net income. It submits that the CAl:i-appruved rate can never be considered the total incorne of pelitiuller <:ts it never received the same, whether actually or L'onstrudively. Petitioner also avers thc.1t wLile its trec~lment of the specidl nHnmissions might be contrary to Revettue Regulations 6-66, sudt ln:cltmenl is ttul cunlrary to the definition of gross receipts that it is the vvhule amount received without any deduction. The CAH �appruved I-' rice ul tit...: p!dne liLll"l i�; not the whole amount received by petitioner. 'fl1e entire anwwtl received by petiliuuer is the "net net fare" appearing in the rentittdtKe ared of the audit, tdx dnd agent's coupon of the plane ticket. The specictl commissions Me the difterence between the amounts actually received, colleded or redlized L,y J'ditiuller and the price ticket fixed by the CAB. Tlu1s, said cummissiunt::i \Vere Jtever actually received, collected or realized by petitioner and shnuld be excludL~d trom ils gross receipts. Petitioner further asserts that the decision lo charge its sales agents the CAB-approved fare is nul Lliscretionary on lite pml of peli Liom:r. It is an industry practice not to charge such fare. If petilioner strictly itnposes Lhe I {

DECISION (C.T A. Case No. t0~.J0) , E B. No. 302 same, it would not be able to sell plane tickets since its competitors '\Vottld be selling the same tickets at a lower rate. Lastly, petitioner claims that it did not apply l<.evenue Regulations 15- 2002 and even on the assumption that it did, the sc1me is allowed under Section 246 of the 1997 N lRC since the revocation or Jnu~..liiicalion of the definition of "gross receipts" under Revenue Regulations 6-bb L>y Revenue Regulations 15-2002 is beneficial to the taxpayer. Respondent's Couuter-argwueuts Respondent failed to file her Comment and Memurandum within the periods prescribed by the Court. Cunsequently, this case~ was ::;ubmitted for decision on December �ts, 2007. The l~uliug of lite Court Lll Btmc The Petition for J(eview is not impressed with merit. It is undisputed that petitioner is liable foe the 3% Perceutdge Tax or Common Carrier's Tax imposed l)ll the quarterly gross receipts of international air carriers duillg business in ll1e l'hilippines wllidt is pruvided under Section HS (A) of the t9lJ'/ NIRC, to �Pit: 11SEC. I W. Pen:enlage Tax un lnlent<.tliuncll Carriers. --- (A) Inlentdtiunc~l ctir CdJ ners duiug busi1�~~::;..; m the Philippines shall pay a lax of three perLent (3 ~~) uf their quarterly gross receipts. XXX XXX xxx." ,,/,/ 'I \j I I

DECISION 4 E. B. No. 302 (C.TA Cas0 l.u. , c-:'iti) [n this case, the bone of contention IS the determination of "gross receipts" in the afure-quuted pruvbJUll. Wllik lll<;re is nu prlJ\ isiuttlllllte lSJSJ'l NIRC on this matter, there are lwo implernenting regulatiuns which prescribe what to include in cmnputing said gross receipts. The first is Revenue Regulations 6-66 dated Decetttber l, 1966 or the "Regulations for Percentage 'fax Purposes l.H1 lnternatic,ndl Air Transport Services" and the second is I~evenue I\egulations 15-2002 dctted l'vhly 30, 2002 or the "Revenue Regulations Coverning the Imposition of lncollle Tax on the Gross Philippine Billings, Other Lncome of International Air Carriers and Common Carrier's Tax Pursuant to Sectiuns 2H( A)(3)(a), 2B(A)(l ), aud 118 of the National Internal Revenue Code ol I997... " Under Section ] 0 of Revenue f(egulat!uns 15-2002, Cmss l)hili ppine Billings, which is the basi::, lor computing the 2 �1/2% Cruss Philippines Billings Tax, is likewise used as basis in compttling the 3% ComtuLin Carrier's Tax imposed on international air carriers under Section 1W(A) of the 1997 NIRC. Thus: "SECTION 10. Cumu1on Carrier's Tax Liability Uf lnll'ru.llillJwl Airline Companies. --- Fln purposl~S 11f ddennining the Cuu1mun Carrier's Tax liability ul international ail"line comp<lnies pursuant to Sechon 118 of Lhe Codt:, gruss reLeipls shall be the same as Lhe Lclx iJdse for computing Gross Philippine Billings t't~x as prescribed l)y these Regulatious." Jt is clear from Secliun 5 of Revenue f(eglllatiulls 15-2002 lltal lhe basis now of the 3% Common Carrier's 'fax is the "uet net rate", l'iz:

DECISION \ E.B. No. 302 (C.TA Case Nu. �, J30) SECTION 5. Detennination Of Gross Philippine Billings. - (a) ln cuwpuling tor "Gruss i)hilippine Hilling~:~", there shall b~ included the tulal r.tntou11t of g.-uss revenue derived !rum passage of persons, excess baggage, cart,o and/ or 1nc1it originating from the Philippines in a L'ontiuuuus c1nd uninterrupted fligltC irrespective of the place of sale or issue cu1'a the plan~ ot p<~)'tltent uf the passage dontments: The gross revenue lur passenger~ \Jilose tid. ds ;we sllld in the Philippines she~ll be the aclual amount derived for trausportation services, for a first class, business dass ur eumomy clc~ss pdssage, CIS the case may be, on its continuous and uninterruplt:d flight from any port or point in the Philippines to its final destination in any t>urt ur point of a foreign country, as reflected in the remittance dl'ed of the tax coupon forming an integral part of the plane ticket. hlr this purpose, the Gross Philippine Billings shall be detennined by computing the monthly averctge nd fare uf cdl lhe tax cutqluns uf plane tickets issued for the month per point of final deslinatiun, per class of passage (i.e., first class, business class, or ecunomy clctss) and per classification of passenger (i.e., adult child or i11fant), ami multiplied by the corresponding total number of passengers flown for the month as declared in the flight manifest. For tickets sold outside the Philippines, the gross revenue for passengers for first class, business class or economy clt1ss passdge, as the case may be, on a continuous and uninterrupted flight from any port or point in the Philippines to final destination in any port ur point of a foreign country shall be determined using the locally available net fares applicable to such flight taking into consideraliun the seasonal fare rate established at the time of the flighC the dc~ss of passage (whether first class, l>usiness class, econumy class ur nun- revenue), the classification of passenger (whether adull, dtild or infant), the date of embarL:ttion, and the pl<~ce of fimd deslindliun. Correspondingly, lhe Gross Philippine Billings fur lid;.ets suld uulside the Philippines slldll be determined in lhe llldtHler as pruvided in the preceding paragraph. Passage documents revcdidated, exchc~nged and/ ur endutsed to another on-line international airline shc11l be included in Lhe taxdble base of the carrying airline and shall be subject to Gross Philippine Billings tax if the passenger is lifted/ boarded on an airnatl from any port or point in the Philippines towards a fun::ign destination. XXX XXX XXX I /

' OECISION E. B. No. 302 (C TA Case No.�, ~.>0) Page t5of19 The gross revenue for freight or cargo and mail shall be determined based on the revenue realized from the carriage thereof. The dmuuul t"l:dlized fur 1reigltl llf LMt.;u ~J"dl l>e b,tsed un lhe cttnouul appearing on the airway bill aiter deJuding therefrom the .tmouut of discounts granted which shall be validated. using the monthly cargo sales reports generated by the lATA Cargo Accou11ts Settlement System (lATA CASS) for air~ay bills issued through their cargo agents or the monthly reports prepared by the aidine themselves or by their general salet> agents for direct issues n1.1de. The amount realized for mails shall, on tlw uther hand, be ddermined based on the amount as rdlecled in the cMgu manifest ul the carrier. XXX X:>..X xxx" I Io\vever, 1{evenue l{egulations l ~1--2002 w hiL:h tuok effect on lklober 26,2002, expressly an1ends F(evenue Regulaliuns t>�-b6 purSlldlttl<> the former's repealing clause which provides: "SECTION ll. Repl~<tling Clause. - The provtswns of these Regulations expressly amend Revenue H.egul<~tions No. 6-h6 ils well as all other existing rules and regttlatiuns whiclt Me iucunsisleut herewith." (E111pl111fiis supplied) The foregoing clause shows that priur lu the issuance dltd effectivity of Revenue Regulations 15-2002, the applici:.ible and vcdid rule on determining gross receipts for purposes of the 3% Common Carrier's Tax is still Revenue Regulations 6-66. When the words and phrases of a stdlu te are clear and unequivocat their meaning must be determined from the language employed and the statute must be taken to mean exactly what it says.-1 Here, since the period involved in the subject assessment L:overs the I st, 2nd and 41h quarters of year 2000 and petitioner's amended percentage tax 4 Fagt:l Tabin Agricultural Corporation'� J<H.ointu, (j_l{. No. 553'.H, <>ctuber 20, 1991, :!OJ S('J<A J};'.l.

DECISION 'j E B. No. 302 (C.T.A. Case No.; vJO) returns for lhe said quarters were filed on October 25, 2001, Revenue Regulations 6-6b musl be applied tu pditiunL~r' s case. Moreover, the Court in Division, in ruling that I<evenue Regulations 15- ~ 2002 cannot be applied retruadivdy, reasoned as follows: "It cannot be g<1insc1id by the peliti(Jner lhat ils computation of the cmnmon carrier tax based un "nel nd rdte" is the coned bdsis considering that it is in accord with the comput.ltion presnihl'd by l<evenue Regulations No. 15-2002. It must be emphasized that 1\evenue Regulations No. 15-2002 touk effect only on October 26, 2002, whereas, as admilled by the petitioner in its f'vlemorandum dated October 10, 2ll05, the amended ldX returns were filed on Oduber 25, 2001, ur onL~ (I) year and one (I) ddy after. Well settled is the rule lhdl ldws, dS wdl dS rules and regulations, camwl be given relmdcLive application. AtL'lmlingly, Revenue Regulations No. 15-2002 can11ul be made appliL'dlJle in determining petitioner's l.ummon carriers tax for tile 1st, 2nd and �Hh quarters of 2000." The Court Ell Bnllc agrees. Furthennore, petitioner's contention that the said regulations can be dJ)plied reiroaclivelv db tu do so will be lavurable to the taxpayer as provided in Sectiuu 2cl6 of the I'JIJ7 N IRC, is untenable. On the retroactivity of administrative rules, the Supreme Court IJas mled that "an administrative rule interprdative of a statute and not dedcudti ve of certain rights and corresponding obligations, is given retroactive died as uf the dale of effectivity of the statule." 5 lzevenue Regulations 15-2lJU2 provided a different rule in determining gross receipts. In effect, it vests a new right to common and international carriers which was not previously graJtted under Revenue Regulations 6-66. Hence, being declarative of a new right, Revenue Regulations 15-2002 cannot be given retroactive elfect. 5 Commissioner of lnh:rnal l~evenue v. Azuccmt T. Reyes and viec ver~<~, G.R. Nos. 15'!b'J-l and 1635~ I, January 27,2006,480 SCI<.A 385, ci1i11g ,-lgpalo, Slutlllm:J' ( 'ons11w.:tion, (-I'" ed, J<JI.)8J I'� J75 I

DECISION I~ E.B. No. 302 (C.T A. Case No. h>~cl) Considering that the provisions of Eevenue Regulations 6-66 must be applied to petitioner's case, the detennittalion of gross ren~ipls nf international air carriers doing business in the Philippines mdtH.Iated under Section 5 thereoC is controlling: "SEC. 5. Gross receipts, how determined. The total amount of gross receipts derived from passage uf persons, excess baggage, freight or cargu, including mail cdrgo, originating lrum the Philippines in a continuuus and uninlerruptl:'d flight, irrt~spel'live uf the place of sale or issue and the place of payment of the tid,t::l, shall be subject to the commun carrier's percentage li!X (Sec. J02, Tax Cud e). The gross receipts shall be computed on tbe co:,;L of the single one way fare as approved by Civil Aeronautics Board on the continuous and uninterrupted flight of passengers, excess baggage, freight or cargo, including mait as reflected on the plane tnanifest of lhe carrier. XXX XXX As aptly pointed out by the Court in Uivision, the luregoing prm'ISLOn is explicit. \!\Then tlte law is clear, no interpretation is needed.o It may be said that the law may be ll<Hsh or unfair but lhdt is the L:w.' ~md it must be followed. The duty of courts is to apply the law. Dum In, :;e,/ lt'.t.7 ft is the CAB-approved fares which should be used by petitioner in lleterminiug its gross receipts for year 2UOO. Since the special ..:ummissions (JJl pc~ssenger and cargo are the difference between the amounts actually received, cullected or realized by the petiliuner dJtd lhe price of tlte tiLkd fixed by l11e CAB, such commissions must be illcluded in the gruss receipts uf petitioner tur the l'', 2nd, and 4 111 quarters of 2000 subject to the 3'i~ Common l.~arrier's Tax under 6 Ablan, Sr. v. Madarang, G.R. No. L-32'J63, Sc:ptcmllc:r 30, I'J7i, -II SCI{�\ 213. 7 Everett Steamship Corp. v. CnnHni~~iunc:r uf l 'ttst,Hns, ( ::1 .A. Ca~c: t'-ln. JO(l I, .ltillt: .25, IYtl I. 159

DECISIOtl E.B. Nu. 302 (C.T A C<~su I�Ju. , ..-..) Section 118(A) of the 1997 NIRC. Therefore, the Court in Division correctly affirmed the decisiun daLL"d JIitle JU/ 2UU-l ul tl 1e Uepulv ~\mttui::;~wner, UlC', Large Taxpayers Service of the B!R. ') In fine, the Court Ln BiillC sees no reasun lo reverse the assctiled Decision promulgated on March 21, 2007 alld lhe Resolution ddled June 2lJ, 2U07. WHEREFORE, the insldlll petitiun rs herdJy DISMISSED. Accordingly, the assailed Decision and Resulution are hereby AH~'lHMED. SO ORDERED. WE CONCUR: (i_ ...__......~ " . l . .,.J..., ERNESTO D. ACOSTA Presiding Justice (Inhibited) JUANITO C. CASTANiiDA, JH.. Associate Justice lt10

DECISION ') E.B. No. 302 (C.T A. Case No ,_J) ...., / ./ 1.."./"'-'~""�-� 0a--...---. /_.....,p;;.?,.-, CAESAR A. CASANOVA OLCA PALANCA-ENRlQUEZ Associate Justice Assul: iate Jus lice ~ CERTIFICATlON Pursuant to Section 13, Article Vlll of Lhe Constitution, it is hereby certified that the above Decision has been reached in consullalion with the men1bers of the Court En Bone before the case was dssigned to the writer of the opinion of this Court. \_ '-""-~� tsc- L._. �\_ ERNESTO D. ACOSTA Presidinvo.l us lice 161