PHILIPPINE AIRLINES, INC. v. COMMISSIONER OF INTERNAL REVENUE

REPUBLIC OF THE PHILIPPINES Court of Tax Appeals QUEZON CITY FIRST DIVISION PHILIPPINE AIRLINES, CTA Case Nos. 8708 and 8770 INC., Petitioner, Members: -versus- DEL ROSARIO, Chairperson, UY, and MINDARO-GRULLA, JJ. COMMISSIONER OF INTERNAL REVENUE, Promulgated : Respondent. JAN 13 201r ; 2:.;-s e~ � ~ -- X- -- - -- -- - - - �� ----------.---. "\ . : ------ X DECISION DEL ROSARIO, P.J.: This is a consolidation of two (2) Petitions for Review filed by Philippine Airlines , Inc. against the Commissioner of Internal Revenue, seeking the refund of the aggregate amount of Thirty Million Ninety- Nine Thousand One Hundred and Ninety-Three Pesos and Eighty-Two Centavos (P30,099, 193.82), allegedly representing excise taxes paid for its importation of alcohol and tobacco products used as commissary supplies for its international flight covering transactions made in the years 2006, and 2008 to 2012 ,1 broken down as follows: CTA CASE NO. AMOUNT OF CLAIM 8708 8770 p 26,502,912.76 Total p 3,596,281 .06 p 30,099,193.82 1 Brief Statement of the Case, Joint Stipulation of Facts and Issues ("JSFI "), CTA Docket, p. 2105. ~

DECISION Philippine Airlines, Inc. vs. Commissioner of Internal Revenue CTA Case Nos. 8708 and 8770 PARTIES Petitioner Philippine Airlines, Inc. ("PAL") is a domestic corporation duly organized and existing under and by virtue of the laws of the Republic of the Philippines, with registered address at PNB Financial Center, President Diosdado P. Macapagal Avenue, CCP Complex 1307, Pasay City. 2 On the other hand, respondent is the Commissioner of the Bureau of Internal Revenue ("BIR"), the government agency tasked with the assessment and collection of all national internal revenue taxes, fees and charges, including excise taxes paid on wines, liquors, and cigarettes under Sections 142 and 145 of the National Internal Revenue Code of 1997, as amended ("NIRC"). The Commissioner of Internal Revenue ("CIR") holds office at the BIR National Office Building, Agham Road, Diliman, Quezon City, where papers, pleadings, notices, orders, judgments, summons and other processes may be served. 3 FACTS On June 11, 1978, by virtue of Presidential Decree No. 1590 ("PD 1590") otherwise known as "An Act Granting a New Franchise to Philippine Airlines, Inc. to Establish, Operate and Maintain Air- Transport Services in the Philippines and Between the Philippines and Other Countries", PAL was granted a franchise to operate and maintain air transport services domestically and internationally.4 Under Section 13 of its franchise, PAL must comply with certain conditions to be entitled to exemption from the payment of specific taxes on all its importation of cigarettes, liquor, and wine for its commissary and catering supplies for international consumption. 5 On January 1, 2005, Republic Act No. 9334 ("RA 9334") otherwise known as "An Act Increasing the Excise Tax Rates Imposed on Alcohol and Tobacco Products, Amending for the Purpose Sections 131, 141, 142, 143, 144, 145 and 288 of the National Internal Revenue 2 Par. 1, Stipulation of Facts, JSFI, CTA Docket, p. 2105. 3 Par. 2, Stipulation of Facts, JSFI, CTA Docket, p. 2106. 4 Par. 3, Stipulation of Facts, JSFI, CTA Docket, p. 2106. 5 Par. 4, Stipulation of Facts, JSFI, CTA Docket, p. 2106. ~

DECISION Philippine Airlines, Inc. vs. Commissioner of Internal Revenue CTA Case Nos. 8708 and 8770 Code of 1997, as amended" took effect.6 Section 6 of RA 9334 provides: "SEC. 6. Section 131 of the National Internal Revenue Code of 1997, as amended, is hereby amended to read as follows: "SEC. 131. Payment of Excise Taxes on Imported Articles.- (A) Persons Liable. - Excise taxes on imported articles shall be paid by the owner or importer to the Customs Officers, conformably with the regulations of the Department of Finance and before the release of such articles from the customshouse, or by the person who is found in possession of articles which are exempt from excise taxes other than those legally entitled to exemption. In the case of tax-free articles brought or imported into the Philippines by persons, entities, or agencies exempt from tax which are subsequently sold, transferred or exchanged in the Philippines to non-exempt persons or entities, the purchasers or recipients shall be considered the importers thereof, and shall be liable for the duty and internal revenue tax due on such importation. The provision of any special or general law to the contrary notwithstanding, the importation of cigars and cigarettes, distilled spirits, fermented liquors and wines into the Philippines, even if destined for tax and duty-free shops, shall be subject to all applicable taxes, duties, charges, including excise taxes due thereon. This shall apply to cigars and cigarettes, distilled spirits, fermented liquors and wines brought directly into the duly chartered or legislated freeports of the Subic Special Economic and Freeport Zone, created under Republic Act No. 7227; the Cagayan Special Economic Zone and Freeport, created under Republic Act No. 7922; and the Zamboanga City Special Economic Zone, created under Republic Act No. 7903, and such other freeports as may hereafter be established or created by law: Provided, further, That importations of cigars and cigarettes, distilled spirits, fermented liquors and wines made directly by a government-owned and operated duty-free shop, like the Duty-Free Philippines (DFP), shall be exempted from all applicable duties only: Provided, still further, That such articles directly imported by a government-owned and operated duty-free shop, like the Duty-Free Philippines, shall be labeled 'duty-free' and 'not for resale': Provided, finally, That the removal and transfer of tax and duty-free goods, products, machinery, equipment and other similar articles other than cigars and cigarettes, distilled spirits, fermented liquors and wines, from one freeport to another freeport, shall not be deemed an introduction into the Philippine customs territory." 66 Par. 5, Stipulation of Facts, JSFI, CTA Docket, p. 2106. cr1

DECISION Philippine Airlines, Inc. vs. Commissioner of Internal Revenue CTA Case Nos. 8708 and 8770 Cigars and cigarettes, distilled spirits and wines within the premises of all duty-free shops which are not labelled as hereinabove required, as well as tax and duty- free articles obtained from a duty-free shop and subsequently found in a non-duty-free shop to be offered for resale shall be confiscated, and the perpetrator of such non-labelling or re-selling shall be punishable under the applicable provisions of this Code. Articles confiscated shall be disposed of in accordance with the rules and regulations to be promulgated by the Secretary of Finance, upon recommendation of the Commissioners of Customs and Internal Revenue, upon consultation with the Secretary of Tourism and the General Manager of the Philippine Tourism Authority. The tax due on any such goods, products, machinery, equipment or other similar articles shall constitute a lien on the article itself, and such lien shall be superior to all other charges or liens, irrespective of the possessor thereof. (B) Rate and Basis of the Excise Tax on Imported Articles. - Unless otherwise specified, imported articles shall be subject to the same rates and basis of excise taxes applicable to locally manufactured articles." On July 1, 2005, Republic Act No. 9337 ("RA 9337") otherwise known as "An Act Amending Sections 27, 28, 34, 106, 107, 108, 109, 110, 111, 112, 113, 114, 116, 117, 119, 121, 148, 151, 236, 237 and 288 of the National Internal Revenue Code of 1997, as amended, and for other purposes", expressly and specifically amended the franchise of PAL and subjected it to value-added registration and payment requirements. 7 On various dates during the years 2006, and 2008 to 2012, PAL's importations of assorted cigarettes, liquor and wines, covered by various Informal Import Declaration and Entries ("IIDE"),8 Air Waybills/Bills of Lading9 and Authority to Release Imported Goods ("ATRIG"), 10 arrived in Manila. PAL allegedly paid under protest the excise taxes on its importation of assorted liquor, wine, and cigarettes, in the amount of P30,099, 193.82, viz.: 7 Par. 6, Stipulation of Facts, JSFI, CTA Docket, p. 2106. 8 Exhibits "P-47" to "P-169" and "P-631" to "P-655". 9 Exhibits "P-170" to "P-293" and "P-656" and "P-680". 10 Exhibits "P-294" to "P-416" and "P-681" to "P-705". otl

DECISION Philippine Airlines, Inc. vs. Commissioner of Internal Revenue CTA Case Nos. 8708 and 8770 DATE OF PAYMENT OFFICIAL RECEIPT AMOUNT NUMBER 879,380.41 ' CTA Case No. 8708 Se_Qtember 23, 2011 01821203445 976,037.39 September 23, 2011 01821203423 1,436,872.69 Se_Qtember 23, 2011 01821203401 1,572,300.88 September 23, 2011 01821203388 2,913,490.60 December 9, 2011 01823441058 1,858,869.93 December 9, 2011 01823441070 3,851,455.73 December 9, 2011 01823441092 1,543,708.44 December 9, 2011 01823441036 2,213,166.08 December 29, 2011 01824011164 1 ,030,098.94 December 29, 2011 01824011007 851,018.92 December 29, 2011 01824011041 681,073.31 December 29, 2011 01824011063 2,259,632.96 December 29, 2011 01824011119 2,221,205.44 1 December 29, 2011 01824011142 2,214,601.04 December 29, 2011 01824010938 959,747.90 CTA Case No. 8770 March 7, 2012 01825602914 810,564.49 April13, 2012 01826711769 1,825,968.67 October 16, 2012 01831236149 . .30,099, 193.82 TOTAL On various dates, Gilda L. Cinco, the Acting Chief of the Warehousing Assessment Unit ("WAU") of the Bureau of Customs ("SOC"), forwarded to Silveria Salazar, the Chief of the Collection Division of the Ninoy Aquino International Airport ("NAIA") Customshouse, the documents covering PAL's payment of duties, taxes and other charges pursuant to Customs Memorandum Order ("CMO") No. 13-2005 and Revenue Regulation ("RR") No. 3-2006. On September 12, 2013, PAL filed with the SIR its administrative claim for refund in the amount ofP26,502,912.76, seeking the recovery of excise taxes paid under protest on its importation of alcohol and tobacco products for use in international flights covering payments made on September 23, 2011, December 9, 2011, and December 29, 2011. 11 On February 13, 2014, PAL filed with the SIR its administrative claim for refund in the amount of P3,596,281.06 for the excise taxes paid under protest on March 7, 2012, April 13, 2012 and October 16, 2012. 12 Due to the inaction of the CIR on PAL's administrative claims for refund, PAL filed Petitions for Review with this Court on September 19, 11 Exhibit "P-46", CTA Docket, p. 45. 12 Exhibit "P-630", CTA Docket, p. 7164. cr'\

DECISION Philippine Airlines, Inc. vs. Commissioner of Internal Revenue CTA Case Nos. 8708 and 8770 2013 and February 20, 2014, which were docketed as CTA Case Nos. 870813 and 8770, 14 respectively. The CIR filed his Answer on January 6, 2014 for CTA Case No. 870815 and on April21, 2014 for CTA Case No. 8770. 16 The two cases were later consolidated on July 21, 2014. 17 The CIR filed his Pre-Trial Brief on February 20, 2014, 18 while PAL filed its Consolidated Pre-Trial Brief on September 18, 2014. 19 The Pre-Trial Conference was held on September 25, 2014.20 The parties submitted a Joint Stipulation of Facts and Issues on October 27, 2014,21 which the Court approved in the Resolution promulgated on November 7, 2014. 22 During trial, PAL presented the following witnesses: 1. Mr. Jonathan Castillo Lee - Manager of Company Materials Handling Division of PAL; 23 2. Mr. Emmanuel Y. Mendoza - Court-commissioned Independent Certified Public Accountant ("ICPA"); 24 3. Ms. Cheryl Imelda V. Capinpin - Manager of In-flight and Commissary Materials Purchasing Division, Corporate Logistics and Services Department of PAL; 25 4. Mr. Ruel Ryan 0. Julian - Manager of Tax Services Division of PAL� 26 and ' 13 Exhibit "P-417". 14 Exhibit "P-731". 15 CTA Docket, pp. 554-573. 16 CTA Docket, pp. 185-199; 203-219. 17 Resolution dated July 21,2014, CTA Docket, pp. 1730-1731. 18 Respondent's Pre-Trial Brief, CTA Docket, pp. 579-582. 19 CTA Docket, pp. 2045-2066. 20 Minutes of the Hearing dated September 25, 2014, CTA Docket, pp. 2069-2070. 21 CTA Docket, pp. 2105-2126. 22 CTA Docket, p. 2130. 23 Minutes of the Hearing dated January 20,2015, CTA Docket, pp. 2154-2156. 241d. 25 Minutes of the Hearing dated February 17, 2015, CTA Docket, pp. 2165-2169. 26 Minutes of the Hearing dated February April28, 2015, CTA Docket, pp. 2310-2315. ct1

DECISION Philippine Airlines, Inc. vs. Commissioner of Internal Revenue CTA Case Nos. 8708 and 8770 5. Mr. Gilbert M. Galedo - Senior Planning and Purchasing Specialist of In-flight Commissary Materials Purchasing Division of PAL. 27 PAL formally offered its documentary evidence on June 26, 2015. 28 The CIR filed his Comment (Re: Petitioner's Formal Offer of Evidence) on July 15, 2015. 29 The Court admitted PAL's offered documentary evidence in a Resolution dated September 17, 2015. 30 During the hearing dated October 8, 2015, the CIR's counsel manifested that he would not be presenting any evidence as there is no report of investigation. 31 As directed by the Court, the CIR and PAL filed their memoranda on December 7, 201532 and December 14, 2015, 33 respectively. Hence, the case was deemed submitted for decision on December 18, 2015. 34 ISSUE The sole issue submitted for the resolution of this Court is whether PAL is entitled to a refund or tax credit of excise taxes in the amount of P26,502,912.56 paid on September 23, 2011, December 9, 2011, and December 29, 2011; and in the amount of P3,596,281.06 paid on March 7, 2012, April 13, 2012 and October 16, 2012, or an aggregate amount of P30,099, 193.82, on the importation of cigarettes, liquor, and wine for its in-flight and catering supplies for international consumption. PARTIES' ARGUMENTS PAL contends that under its franchise pursuant to PO 1590, it is exempt from payment of excise taxes on all its importations of cigarettes, liquor, and wine for its catering and commissary supplies 271d. 28 Formal Offer of Evidence, CTA Docket, pp. 2349-2388. 29 CTA Docket, pp. 2426-2427. 3o CTA Docket, pp. 2445-2446. 31 Minutes of the Hearing dated October 8, 2015, CTA Docket, pp. 2447-2448. 32 CTA Docket, pp. 2465-2466. 33 CTA Docket, pp. 2496-2516. 34 Resolution dated December 18, 2015, CTA Docket, p. 2518. o'\

DECISION Philippine Airlines, Inc. vs. Commissioner of Internal Revenue CTA Case Nos. 8708 and 8770 for international consumption. 35 PAL also argues that it has exhausted all administrative and judicial remedies, and complied with the requirements for filing a claim for refund or tax credit under the provisions of the NIRC. 36 PAL further claims that it has shown its compliance with the conditions laid out in PO 1590, and is thus entitled to a refund or tax credit in the total amount of P30,099, 193.82. On the other hand, the CIR insists that RA 9334 revoked the exemption granted to PAL. 37 THE COURT'S RULING PAL's exemption from taxes granted under PD 1590 was not repealed by Section 6 of RA 9334 The issue on PAL's tax exemption under its franchise, PO 1590, is not novel. No less than the Supreme Court has settled the same in the consolidated cases of Republic of the Philippines rep. by the Commissioner of Customs vs. Philippine Airlines, Inc. (PAL) and Commissioner of Internal Revenue vs. Philippine Airlines, Inc. (PAL)38 in this wise: "In CIR v. PAL, the Supreme Court has already passed upon the very same issues raised by the same petitioners. The only differences are the taxable period involved and the amount of refundable tax. We have held in that case that it is a basic principle in statutory construction that a later law, general in terms and not expressly repealing or amending a prior special law, will not ordinarily affect the special provisions of the earlier statute. A reading of the pertinent provisions of P.O. 1590 and R.A. 9334 shows that there was no express repeal of the grant of exemption: PRESIDENTIAL DECREE NO. 1590 xxxx SECTION 13. In consideration of the franchise and rights hereby granted, the grantee shall pay to the 35 Memorandum, CTA Docket, p. 2501. 36 Memorandum, CTA Docket, p. 2506. 37 Answer, CTA Docket, p. 555; Answer, CTA Case No. 8770 Docket, p. 204. 38 G.R. Nos. 209353-54 and G.R. Nos. 211733-34, July 6, 2015. cr"

DECISION Philippine Airlines, Inc. vs. Commissioner of Internal Revenue CTA Case Nos. 8708 and 8770 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 provisions of the National Internal Revenue Code; or 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; provided, that with respect to international airtransport service, only the gross passenger, mail, 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: xxxx (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; xxxx SECTION 24. This franchise, as amended, or any section or provision hereof may only be modified, amended, or repealed expressly by a special law or decree that shall specifically modify, amend, or repeal this franchise or any section or provision thereof. (Emphasis supplied) ci\

DECISION Philippine Airlines, Inc. vs. Commissioner of Internal Revenue CTA Case Nos. 8708 and 8770 REPUBLIC ACT NO. 9334 xxxx SECTION 6. Section 131 of the National Internal Revenue Code of 1997, is amended, is hereby amended to read as follows: SEC. 131. Payment of Excise Taxes on Imported Articles.- (A) Persons Liable. - Excise taxes on imported articles shall be paid by the owner or importer to the Customs Officers, conformably with the regulations of the Department of Finance and before the release of such articles from the customs house, or by the person who is found in possession of articles which are exempt from excise taxes other than those legally entitled to exemption. In the case of tax-free articles brought or imported into the Philippines by persons, entities, or agencies exempt from tax which are subsequently sold, transferred or exchanged in the Philippines to non- exempt persons or entities, the purchasers or recipients shall be considered the importers thereof, and shall be liable for the duty and internal revenue tax due on such importation. The provision of any special or general law to the contrary notwithstanding, the importation of cigars and cigarettes, distilled spirits, fermented liquors and wines into the Philippines, even if destined for tax and duty-free shops, shall be subject to all applicable taxes, duties, charges, including excise taxes due thereon. This shall apply to cigars and cigarettes, distilled spirits, fermented liquors and wines brought directly into the duly chartered or legislated freeports of the Subic Special Economic and Freeport Zone, created under Republic Act No. 7227; the Cagayan Special Economic Zone and Freeport, created under Republic Act No. 7922; and the Zamboanga City Special Economic Zone, created under Republic Act No. 7903, and such other freeports as may hereafter be established or created by law: Provided, further, That importations of cigars and cigarettes, distilled spirits, fermented liquors and wines made directly by a government owned and operated duty-free shop, like the Duty- Free Philippines (DFP), shall be exempted from all applicable duties only: Provided, still further, That such articles directly imported by a government-owned and operated duty- free shop, like the Duty-Free Philippines, shall be labeled 'duty-free' and 'not for resale': Provided, finally, That the removal and transfer of tax and duty-free ri'

DECISION Philippine Airlines, Inc. vs. Commissioner of Internal Revenue CTA Case Nos. 8708 and 8770 goods, products, machinery, equipment and other similar articles other than cigars and cigarettes, distilled spirits, fermented liquors and wines, from one freeport to another freeport, shall not be deemed on introduction into the Philippine customs territory. xxxx SECTION 10. Repealing Clause. - All laws, decrees, ordinances, rules and regulations, executive or administrative orders, and such other presidential issuances as are inconsistent with any of the provisions of this Act are hereby repealed, amended or otherwise modified accordingly. The Court has exhaustively discussed all issues similar to those in the present case in this wise: Indeed, as things stand, PO 1590 has not been revoked by the NIRC of 1997, as amended. Or to be more precise, the tax privilege of PAL provided in Sec. 13 of PO 1590 has not been revoked by Sec. 131 of the NIRC of 1997, as amended by Sec. 6 of RA 9334. We said as much in Commissioner of Internal Revenue v. Philippine Air Lines, Inc.: That the Legislature chose not to amend or repeal [PD] 1590 even after PAL was privatized reveals the intent of the Legislature to let PAL continue to enjoy, as a private corporation, the very same rights and privileges under the terms and conditions stated in said charter. x x x To be sure, the manner to effectively repeal or at least modify any specific provision of PAL's franchise under PD 1590, as decreed in the aforequoted Sec. 24, has not been demonstrated. And as aptly held by the CTA En Bane, borrowing from the same Commissioner of Internal Revenue case: "While it is true that Sec. 6 of RA 9334 as previously quoted states that 'the provisions of any special or general law to the contrary notwithstanding.' such phrase left alone cannot be considered as an express repeal of the exemptions granted under PAL' s franchise because it fails to specifically identify PO 1590 as one of d\

DECISION Philippine Airlines, Inc. vs. Commissioner of Internal Revenue CTA Case Nos. 8708 and 8770 the acts intended to be repealed .... (Emphasis supplied) Noteworthy is the fact that PD 1590 is a special law, which governs the franchise of PAL. Between the provisions under PD 1590 as against the provisions under the NIRC of 1997, as amended by 9334, which is a general law, the former necessary prevails. This is in accordance with the rule that on a specific matter, the special law shall prevail over the general law, which shall be resorted only to supply deficiencies in the former. In addition, where there are two statutes, the earlier special and the later general - the terms of the general broad enough to include the matter provided for in the special -the fact that one is special and other general creates a presumption that the special is considered as remaining an exception to the general, one as a general law of the land and the other as remaining an exception to the general, one as a general law of the land and the other as the law of a particular case. In other words, the franchise of PAL remains the governing law on its exemption from taxes. Its payment of either basic corporate income tax or franchise tax- whichever is lower - shall be in lieu of all other taxes, duties, royalties, registrations, licenses, and other fees and charges, except only real property tax. The phrase 'in lieu of all other taxes' includes but is not limited to taxes, duties, charges, royalties, or fees due on all importations by the grantee of the commissary and catering supplies, 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. However, upon the amendment of the 1997 NIRC, Section 22 of R.A. 9337 abolished the franchise tax 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. In this case, the CTA found that PAL had paid basic corporate income tax for fiscal year ending 31 March 2006. Consequently, PAL may now claim exemption from taxes, duties, charges, royalties, or fees due on all importations of its commissary and catering supplies, provided it shows that 1) such articles or supplies or materials are imported for use in its transport and nontransport operations and ~

DECISION Philippine Airlines, Inc. vs. Commissioner of Internal Revenue CTA Case Nos. 8708 and 8770 other activities incidental thereto; and 2) they are not locally available in reasonable quantity, quality, or price." (Emphases supplied) From all the foregoing, the exemption granted to PAL under PO 1590 remains and therefore PAL may still be entitled to refund or credit of the excise taxes paid on its commissary supplies used in international flights. PAL is entitled to a partial refund of the excise taxes paid Under its franchise, particularly pursuant to Section 13 of PO 1590, as amended by RA 9337, PAL is obliged to pay the corporate income tax and the value-added tax, in lieu of all other taxes, including taxes on commissary and catering supplies, provided that such articles, supplies or materials are imported for its use in its transport and non-transport operations and other activities incidental thereto and are not locally available in reasonable quantity, quality or price. Thus, in order to be exempted from taxes, duties, charges, royalties, or fees on the importation of its commissary and catering supplies, PAL must prove the following: 1. it paid its corporate income tax and VAT liabilities for the subject period of importation; 2. the imported articles, supplies or materials are intended to be used in its transport and non-transport operations and other activities incidental thereto; and 3. the imported articles, supplies or materials are not locally available in reasonable quantity, quality or price. With regard to the first requisite, PAL submitted its Annual Income Tax Returns for the fiscal years ended March 2006, March 2007, March 2008, March 2009, March 2010, March 2011, March 2012 and March 2013 to prove payment of income tax. 39 Also, PAL proved that it is a VAT-registered entity and that it accounted and paid for the VAT on its sales/receipts as evidenced by its BIR Certificates of 39 Exhibits "P-598" to "P-610", CTA Docket, pp. 2226-2264. cf!

DECISION Philippine Airlines, Inc. vs. Commissioner of Internal Revenue CTA Case Nos. 8708 and 8770 Registration, 40 Payment Forms No. 0605,41 and VAT Returns42 for fiscal years 2006 to 2012. As to the second requisite, the imported articles were described as "lnflight Materials" under the column "Description of Articles of the IIDE documents" submitted by PAL.43 Similarly, in the ATRIGs issued by CIR addressed to the Collector of Customs, it was indicated that "the shipment to be released at the Port of Manila consisting of the above described articles, will be used exclusively for international inflight consumption."44 With reference to the third requisite, records show that the excise taxes paid by PAL on September 23, 2011, December 9, 2011, December 29, 2011, March 7, 2012, April 13, 2012 and October 16, 2012 totalling to P30,099, 193.8245 pertain to its importation in the years 2006, 2008 to 2012 of assorted liquor, wine and cigarettes constituting its commissary and catering supplies for international flight consumption, detailed as follows: Date of Informal Air Waybill Exhibit of Description Excise Tax Paid Arrival Import Authority to Declaration I Bill of and Entry Release (IIDE) Lading Imported Exh. Ref. Exh. Ref. Goods (ATRIG) Exh. Ref. CTA CASE NO. 8708 13-Feb-10 "P-47" "P-170" "P-294" Asahi Super Beer p 4 800.60 "P-171" "P-295" Ballantines Scotch Whisky 25-Feb-10 "P-48" "P-172" "P-296" Asahi Super Dry, Beer Sake Wine 38 211.55 "P-173" "P-297" Volupta Rosso Volupta Blanco 28-Feb-08 "P-49" "P-174" "P-298" Camus XO Cognac Elegance 7 801.74 "P-175" "P-299" Asahi Super Dry Beer 07-Apr-10 "P-50" "P-176" "P-300" Absolute Vodka 366 840.00 "P-177" "P-301" West Ice West Menthol 15-Apr-10 "P-51" Lindemans Premier Shiraz Cabernet, 12 933.14 "P-178" "P-302" Penfolds Shiraz Cabernet 17-Apr-10 "P-52" "P-179" "P-303" Volupta Rosso 480.06 "P-180" "P-304" 28-Apr-10 "P-53" "P-181" "P-305" Johnnie Walker Black Label 95 233.32 "P-182" "P-306" Volupta Rosso Volupta Blanco 04-Jun-10 "P-54" Ballantines Scotch Whisky 21 YO 353 080.00 "P-183" "P-307" Penfolds Chardonnay, Lindemans 04-Jun-10 "P-55" "P-184" "P-308" Premier Chardonnay 49 981.95 22-Jun-10 "P-56" West Menthol 183 420.00 30-Jul-10 "P-57" 220 153.57 11-Aug-10 "P-58" 366 840.00 28-Auq-10 "P-59" 38 211.55 11-Sep-10 "P-60" 35 950.32 14-Sep-10 "P-61" 81,480.00 40 Exhibits "P-587" to "P-589". 41 Exhibits "P-590" to "P-597". 42 Exhibits "P-611" to "P-618", "P-740" to "P-747", and "P-784" to "P-785". 43 Exhibits "P-47'' to "P-169" and "P-631" to "P-655". 44 Exhibits "P-294" to "P-416" and "P-681" to "P-705". 45 Exhibits "P-31" to "P-45" and "P-627" to "P-629". ~

DECISION Philippine Airlines, Inc. vs. Commissioner of Internal Revenue CTA Case Nos. 8708 and 8770 21-Aug-10 "P-62" "P-185" "P-309" Lindemans Premier Shiraz Cabernet 49 981.951 31-Aug-10 "P-63" "P-186" "P-310" Penfolds Shiraz Cabernet 162 960.00 i 03-Sep-10 "P-64" "P-187" "P-311" 05-Sep_-10 "P-65" "P-188" "P-312" West Menthol 28 512.18 ! 63 489.96 19-Sep-10 "P-66" "P-189" "P-313" Gordon's Gin 19-Sep-10 "P-67" "P-190" "P-314" 447 950.38 Patron Silver Tequila 28 217.76 24-Sep-10 "P-68" "P-191" "P-315" Chivas Regal Whisky, Royal Salute 30-Sep-10 "P-69" "P-192" "P-316" Whisky 379,171.29 01-0ct-10 "P-70" "P-193" "P-317" 56 435.52 13-Jan-06 "P-71" "P-194" "P-318" Camus XO Cognac Elegance Ballantines Scotch Whisky, Absolute 220,153.57 01-Nov-06 "P-72" "P-195" "P-319" Vodka 7 001.64 02-0ct-10 "P-73" "P-196" "P-320" Camus VSOP Cognac Elegance 187 088.40 ! 12-0ct-10 "P-74" "P-197" "P-321" 12-0ct-10 "P-75" "P-198" "P-322" Johnnie Walker Black Label 100,881.00 16-0ct-10 "P-76" "P-199" "P-323" 284 529.08 23-0ct-10 "P-77" "P-200" "P-324" Japanese Sake Wine Japanese Beer 25-0ct-10 "P-78" "P-201" "P-325" Vin de Table Blanc, Vin de Table 6 400.80 I 28-0ct-10 "P-79" "P-202" "P-326" Rouge 183 420.00 I 29-0ct-10 "P-80" "P-203" "P-327" Penfolds Chardonnay, Lindemans 42,326.64 31-0ct-10 "P-81" "P-204" "P-328" Premier Shiraz Cabernet, Penfolds 95 233.32 01-Nov-10 "P-82" "P-205" "P-329" Shiraz Cab 665 420.00 271 600.00 06-Nov-10 "P-83" "P-206" "P-330" Camus VSOP Cognac Elegance 687 798.00 12-Nov-10 "P-84" "P-207" "P-331" 229 266.00 14-Nov-10 "P-85" "P-208" "P-332" Asahi Super Dry Beer 14-Nov-10 "P-86" "P-209" "P-333" 91,710.00 Volupta Rosso 365 097.51 21-Nov-10 "P-87'' "P-210" "P-334" 458 532.00 ! 23-Nov-10 "P-88" "P-211" "P-335" Patron Silver Tequila 687 798.00 28-Nov-10 "P-89" "P-212" "P-336" 01-Dec-10 "P-90" "P-213" "P-337" Absolute Vodka 93 471.33 03-Dec-10 "P-91" "P-214" "P-338" 28 217.76 I 10-Dec-10 "P-92" "P-215" "P-339" West KS West Ice West Menthol 29 981.37 11-Dec-10 "P-93" "P-216" "P-340" Davidoff Classic Davidoff Liqhts 3 912.96 I 6 400.80 14-Dec-10 "P-94" "P-217" "P-341" Piper Heidsieck 284 529.08 16-Dec-10 "P-95" "P-218" "P-342" 16-Dec-10 "P-96" "P-219" "P-343" Piper Heidsieck 114 637.50 Penfolds Shiraz Cabernet, 17-Dec-10 "P-97" "P-220" "P-344" Lindemans Premier 335,905.89 21-Dec-10 "P-98" "P-221" "P-345" 148 143.24 30-May-10 "P-99" "P-222" "P-346" Volupta Blanco Volupta Rosso 177,533.72 19-Jan-11 "P-100" "P-223" "P-347" Piper Heidsieck Brut 336 845.37 420 980.00 28-Jan-11 "P-101" "P-224" "P-348" Piper Heidsieck Brut 160 584.21 26-Jan-11 "P-102" "P-225" "P-349" Ballantines Scotch Whisky 21 YO & 27-Jan-11 "P-103" "P-226" "P-350" 17 YO 281 256.02 Camus XO Cognac Elegance 582 190.34 29 713.50 Grappa Red Rose/ Perla Blanca 584,742.90 Martini Dry/Sweet Vermouth cr'\ Asahi Super Dry Beer Camus VSOP Cognac Elegance Penfolds Chardonnay White, Penfolds Shiraz Cab Red, Lindemans Chardonnay White, Lindemans Shiraz Red Royal Salute Scotch Whisky, Chivas Regal Scotch Whisky, Martell VSOP Patron Silver Tequila Johnnie Walker Black Label Ballantines Scotch Whisky 17 YO & 21 YO Absolute Vodka West KS Davidoff Lights Volupta Blanco Ballantines Scotch Whisky 17 YO & 21 YO Absolute Vodka Chivas Regal Whisky, Royal Salute Whisky, Martell VSOP Coqnac Penfolds Chardonnay Camus VSOP, XO, Cognac Elegance

DECISION Philippine Airlines, Inc. vs. Commissioner of Internal Revenue CTA Case Nos. 8708 and 8770 21-Jan-11 "P-104" "P-227" "P-351" Davidoff Classic/Lights, West 566 000.00 08-Feb-11 "P-105" "P-228" "P-352" Menthol/Ice 6 911.52 23-Feb-11 "P-106" "P-229" "P-353" Asahi Super Dry 283 165.40 25-Feb-11 "P-107'' "P-230" "P-354" Ballantines Scotch Whisky 17 & 21 495 216.00 24-Feb-11 "P-108" "P-231" "P-355" YO Royal Salute Whisky 21 YO 861675.84 12-Mar-11 "P-109" "P-232" "P-356" Piper Hiedsieck 113 901.75 24-Mar-11 "P-110" "P-233" "P-357" Charles Heidsieck 212 691.50 27-Mar-11 "P-111" "P-234" "P-358" Penfolds Shiraz Cabernet Lindemans 113 200.00 06-Apr-11 "P-112" "P-235" "P-359" Premier Chardonnay 245 698.56 Camus Grand VSOP Cognac, Camus 07-Apr-11 "P-113" "P-236" "P-360" VSOP Cognac Elegance 67 449.65 08-Apr-11 "P-114" "P-237" "P-361" 7 948.24 09-Apr-11 "P-115" "P-238" "P-362" Davidoff Lights 15-Apr-11 "P-116" "P-239" "P-363" 64 124.90 21-Apr-11 "P-117" "P-240" "P-364" JW Black Label 307 291.60 09-Sep-06 "P-118" "P-241" "P-365" Queen Adelaide Cab Sauvignon, 411402.24 "P-242", Queen Adelaide Chardonnay 260 600.00 19-Nov-06 "P-119" "P-243" "P-366" Asahi Super Dry Japanese Beer 160 374.60 23-Mar-08 "P-120" "P-244" "P-367" 29-Sep-09 "P-121" "P-245" "P-368" Remy Martin VSOP 564 943.07 78 774.58 09-Feb-11 "P-122" "P-246" "P-369" Camus VSOP Cognac Elegance 239 987.52 12-Feb-11 "P-123" "P-247" "P-370" Chivas Regal Whisky 15-Feb-11 "P-124" "P-248" "P-371" 37 538.05 Salem Lights BOS 182 851.20 18-Feb-11 "P-125" "P-249" "P-372" Vin de Table Blanc, Vin de Table Rogue 688 097.06 11-Mar-11 "P-126" "P-250" "P-373" Ballantines Scotch Whisky 17 YO, 02-Mar-11 "P-127" "P-251" "P-374" Royal Salute Whisky, Carlos Brandy 154 277.78 01-Apr-11 "P-128" "P-252" "P-375" 34 665.75 Camus Cognac VSOP Elegance 60 950.40 23-Apr-11 "P-129" "P-253" "P-376" Ballantines Scotch 17 YO, Absolute Vodka 353 633.54 24-Apr-11 "P-130" "P-254" "P-377" Queen Adelaide Cabernet Sauv/Chardonnay 74 283.75 30-Apr-11 "P-131" "P-255" "P-378" 06-May-11 "P-132" "P-256" "P-379" Patron Silver Tequila 146 586.60 28-May-11 "P-133" "P-257" "P-380" Charles Heidsieck, Remy Martin 205 701.12 28-May-11 "P-134" "P-258" "P-381" VSOP J&B Rare Scotch Whisky, Gordon's 64 124.90 02-Jun-11 "P-135" "P-259" "P-382" Gin 102 218.90 04-Jun-11 "P-136" "P-260" "P-383" Lindemans Premier Shiraz Cab. 91121.40 15-Jun-11 "P-137" "P-261" "P-384" 106 663.20 16-Jun-11 "P-138" "P-262" "P-385" Camus Cognac XO Elegance Royal Salute Whisky 21 YO, Martell 92 695.40 17-Jun-11 "P-139" "P-263" "P-386" VSOP Cognac Absolute Vodka 137 138.40 18-Jun-11 "P-140" "P-264" "P-387" Queen Adelaide Cab Sauv, Queen 20-Feb-09 "P-141" "P-265" "P-388" Adelaide Chardonnay 250 145.20 21-Feb-09 "P-142" "P-266" "P-389" Penfolds Shiraz Ca, Penfolds 6 911.52 27-Feb-09 "P-143" "P-267" "P-390" Chardonnay, Lindemans Premier 09-Mar-09 "P-144" "P-268" "P-391" Chardonnay /Cabernet 81457.20 6 047.58 Absolute Vodka 81457.20 19,681.90 Remy Martin VSOP cA Martell VSOP Cognac Queen Adelaide Cab Sauv, Queen Adelaide Chardonnay Remy Martin VSOP Camus Cognac XO Elegance, Camus VSOP Cognac Elegance Patron Silver Tequila Chivas Regal Whisky, Ballantines Scotch Whisky, Royal Salute Whisky Asahi Super Dry Beer Carlsberg Beer Asahi Beer Carlsberg Beer Sky Grappa Alexander

DECISION Philippine Airlines, Inc. vs. Commissioner of Internal Revenue CTA Case Nos. 8708 and 8770 06-May-09 "P-145" "P-269" "P-392" Carlsberg Beer 97 748.64 Asahi Super Dry Beer, Hakutsuru 19-May-09 "P-146" "P-270" "P-393" Sake Wine 8,424.66 19-Jun-09 "P-147" "P-271" "P-394" Carlsberg Beer 90 417.49 25-Dec-09 "P-148" "P-272" "P-395" 198 090.00 03-Apr-09 "P-149" "P-273" "P-396" Mayne Cour Red Table Wine 97 748.64 09-Apr-11 "P-150" "P-274" "P-397" 396 180.00 15-Apr-11 "P-151" "P-275" "P-398" Carlsberg Beer 297 150.00 14-May-11 "P-152" "P-276" "P-399" Volupta Blanco Volupta Rosso 622 600.00 02-Jun-11 "P-153" "P-277" "P-400" 194 592.66 West KS/Menthoi/Ice 23-Jun-11 "P-154" "P-278" "P-401" West Light/Menthol/Ice, Davidoff 8 253.70 24-Jun-11 "P-155" "P-279" "P-402" Classic/Lights 198 090.00 30-Jun-11 "P-156" "P-280" "P-403" Gordon's Gin JW Black Label 146 586.60 05-Jul-11 "P-157" "P-281" "P-404" Sky Grappa Alexander Red and 396 180.00 07-May-10 "P-158" "P-282" "P-405" White 173,639.68 09-Jun-11 "P-159" "P-283" "P-406" 396 180.00 25-Jun-11 "P-160" "P-284" "P-407" Discipulus Syrah I Blanc 254 700.00 09-Jul-11 "P-161" "P-285" "P-408" 1 386 604.80 19-Aug-11 "P-162" "P-286" "P-409" Penfolds Chardonnay/Shiraz/Cab, 29-Aug-11 "P-163" "P-287" "P-410" Lindemans Premier 6 911.52 Chardonnay/Premier Shiraz Cab 3,169.44 10-Jul-11 "P-164" "P-288" "P-411" Volupta Blanco Volupta Rosso 520 610.44 26-Jul-11 "P-165" "P-289" "P-412" Johnnie Walker Black 421 344.36 04-Aug-11 "P-166" "P-290" "P-413" Volupta Blanco Volupta Rosso 05-Aug-11 "P-167" "P-291" "P-414" 287 283.20 West Ice Davidoff Classic 198,100.00 12-Aug-11 "P-168" "P-292" "P-415" "P-293" "P-416" Charles Heidsieck 479 971.44 16-Aug-11 "P-169" 307 291.60 "P-656" "P-681" Asahi Super Dry Beer /#26,502,912.68 Subtotal "P-657" "P-682" "P-658" "P-683" Martini Dry/Sweet Vermouth p 396 180.00 CTA CASE NO. 8770 "P-659" "P-684" Chivas Regal Whisky 12YO, 91425.60 "P-660" "P-685" Ballantines Scotch Whisky 25-Feb-11 "P-631" 21Y0/17YO, Royal Salute Whisky 268 850.00 "P-661" "P-686" 21YO 8 888.60 20-May-11 "P-632" "P-662" "P-687" Ballantines Scotch Whisky 17 & "P-663" "P-688" 21YO Absolute Vodka 118,160.68 01-Jul-11 "P-633" J&B Rare Scotch Whisky, JW Black "P-664" "P-689" Label 69 331.50 14-Sep-11 "P-634" "P-665" "P-690" 6 911.52 Winston Lights Davidoff Classic 18-Sep-11 "P-635" "P-666" "P-691" Royal Salute Whisky 21YO, Chivas 282 278.25 Regal Whisky 12YO 16-0ct-11 "P-636" "P-667" "P-692" 69 331.50 01-Nov-11 "P-637" "P-668" "P-693" Camus VSOP Cognac Elegance 205 701.12 20-Nov-11 "P-638" Volupta Rosso Volupta Blanco 148 567.50 09-Dec-11 "P-639" 09-Dec-11 "P-640" Patron Silver Tequila 97 774.60 6,911.52 18-Dec-11 "P-641" West Menthol Davidoff Lights 30-Dec-11 "P-642" Sky Grappa Alexander 07-Jan-12 "P-643" Volupta Rosso Penfolds Shiraz Cab, Penfolds Chardonnay, Lindemans Premier Chardonnay, Lindemans Shiraz Cab Asahi Super Dry Beer Volupta Rosso Penfolds Shiraz Cab, Penfolds Chardonnay Absolute Vodka Queen Adelaide Cabernet, Queen Adelaide Chardonnay Hennessy Prive Cognac, Glenmorangie Wenjun Super Asahi Super Dry Beer rjl

DECISION Philippine Airlines, Inc. vs. Commissioner of Internal Revenue CTA Case Nos. 8708 and 8770 07-Jan-12 "P-644" "P-669" "P-694" Queen Adelaide 128 758.50 14-Mar-12 "P-645" "P-670" "P-695" Cabernet/Sauvignon, Queen 307 291.60 Adelaide Chardonnay 16-Mar-12 "P-646" "P-671" "P-696" 98 945.96 24-Mar-12 "P-647" "P-672" "P-697" Camus VSOP Cognac Elegance 49 521.60 29-Mar-12 "P-648" "P-673" "P-698" Queen Adelaide Cabernet, Queen 148 564.80 30-Mar-12 "P-649" "P-674" "P-699" Adelaide Chardonnay 82,216.96 02-Apr-12 "P-650" "P-675" "P-700" 198,090.00 04-Apr-12 "P-651" "P-676" "P-701" Charles Heidsieck Brut Reserve 72,376.32 10-Apr-12 "P-652" "P-677" "P-702" 371 412.00 Piper Heidsieck 17-Apr-12 "P-653" "P-678" "P-703" 129 519.60 J&B Rare Scotch Whisky 17-Apr-12 "P-654" "P-679" "P-704" 75 472.29 19-Apr-12 "P-655" "P-680" "P-705" Volupta Blanco 163 799.04 I' 3,596,281.06 Subtotal Stolichnaya Gold 70cl P30,099,193.7446 TOTAL Piper Heidsieck Brut Camus Cognac XO Elegance, Patron Silver Tequila Penfolds Chardonnay, Lindemans Shiraz Cab/Lindemans Chardonnay Johnnie Walker Black Label To prove that the imported articles were not locally available in reasonable quantity, quality or price, PAL submitted the Judicial Affidavit of Ms. Cheryl Capinpin47, PAL's Manager for In-flight and Commissary Materials Purchasing Division, Corporate Logistics and Services Department, Philippine Wine Merchants ("PWM") Price Lists for the years 200648, 200849, 2009s0, 201 os1, 2011s2 and 2012s3, Future Trade International ("FTI") Price Lists dated April 8, 2009s4, October 1, 201 ass and for the years 2006 to 2013s6, the 2010 BIR Price Surveys7 and the reports8 of the Court-commissioned Independent Certified Public Accountant ("ICPA").s9 It is noted that the BIR Price Survey Computation submitted by PAL was based on the 2010 Price Survey conducted and published by the BIR in its Revenue Memorandum Circular 90-2012. With respect to the document described as the Price Lists from the Philippine Wine Merchants, the same was given probative value in 46 With minimal difference of ~.08. as compared to the total claim of ~30,099, 193.82. 47 Exhibits "P-750" and "P-751". 48 Exhibit "P-418". 49 Exhibit "P-419". 50 Exhibit "P-420". 51 Exhibit "P-421". 52 Exhibit "P-422". 53 Exhibit "P-732". 54 Exhibit "P-423". 55 Exhibit "P-424". 56 Exhibit "P-425". 57 Exhibit "P-783". 58 Exhibit "P-755". 59 Mendoza, Querida & Co., through its Partner, Mr. Emmanuel Y. Mendoza. t!f\

DECISION Philippine Airlines, Inc. vs. Commissioner of Internal Revenue CTA Case Nos. 8708 and 8770 the earlier cases60 brought by petitioner before the Court, albeit involving different taxable periods, in arriving at the conclusion that the costs of importing the articles are lower than purchasing them locally. A perusal of the aforesaid Price Lists from PWM and FTI as well as the 2010 BIR Price Survey shows that the following imported liquor, wine and cigarette products with excise tax payment of P14, 172,530.08 do not have corresponding local prices, to wit: IIDE ATRIG Commercial Description Excise Tax Exh Ref Exh Ref Invoice Paid CTA Case No. 8770 Exh Ref "P-48" "P-295" "P-428" Ballantines Scotch Whisky p 38 211.55 "P-49" "P-296" "P-429" Japanese Sake Wine Volupta Rosso 2,201.04 "P-430" Volupta Blanco "P-50" "P-296" Absolute Vodka 183 420.00 "P-434" West Ice West Menthol "P-435" Penfolds Shiraz Cabernet 183,420.00 "P-436" Volupta Rosso "P-53" "P-300" "P-437" Volupta Rosso, Volupta Blanco 95,233.32 "P-54" "P-301" "P-439" Ballantines Scotch Whisky 21 YO "P-55" "P-302" "P-440" Penfolds Chardonnay 353,080.00 "P-56" "P-303" "P-441" West Menthol "P-58" "P-305" "P-442" Penfolds Shiraz Cabernet 26,137.35 "P-59" "P-306" "P-443" West Menthol "P-60" "P-307" "P-444" Gordons Gin 183,420.00 "P-61" "P-308" "P-445" Patron Silver Tequila "P-62" "P-309" "P-446" 366,840.00 "P-63" "P-310" Ballantines Scotch Whisky (17 & 21 "P-64" "P-311" "P-449" 38 211.55 "P-65" "P-312" "P-450" YO) "P-453" Absolute Vodka 15,774.12 Japanese Sake Wine "P-455" Penfolds Chardonnay 81,480.00 Penfolds Shiraz Cabernet "P-458" Volupta Rosso 26,137.35 "P-459" Patron Silver Tequila "P-460" Absolute Vodka 162,960.00 "P-461" West KS, West Ice, West Menthol "P-462" Davidoff Classic, Davidoff Lights 28,512.18 "P-465" Penfolds Shiraz Cabernet "P-466" Volupta Blanco, Volupta Rosso 63,489.96 "P-68" "P-315" "P-469" Ballantines Scotch Whisky 21 YO & 17 93,471.33 "P-68" "P-315" "P-471" 285,699.96 "P-71" "P-318" YO Grappa Red Rose 2,201.04 "P-73" "P-320" 27,513.00 36,684.00 "P-76" "P-323" 183,420.00 "P-77" "P-324" 42,326.64 "P-78" "P-325" 95,233.32 "P-79" "P-326" 665,420.00 "P-80" "P-327" 271,600.00 "P-83" "P-330" 55,026.00 "P-84" "P-331" 365,097.51 "P-87" "P-334" 93,471.33 "P-89" "P-336" 14,108.88 �6 CTA Case No. 7677, 7685 and 7746 [(Decision and Amended Decision) affirmed with modifications in CTA EB 954 & 1046, October 14, 2014]; CTA Case No. 8153, January 17, 2013 (affirmed in CTA EB Nos. 1029, 1031 and 1032, April30, 2014); CTA Case No. 7935, December 20, 2012; CTA Case No. 8236, December 18,2013. \1\

DECISION Philippine Airlines, Inc. vs. Commissioner of Internal Revenue CTA Case Nos. 8708 and 8770 "P-93" "P-340" "P-475" Perla Blanca 15,872.49 "P-95" "P-342" "P-477" Penfolds Chardonnay, Penfolds Shiraz Cab 114,637.50 "P-97" "P-344" "P-479" Patron Silver Tequila 148,143.24 "P-480" to Ballantines Scotch Whisky 17 YO & 21 "P-98" "P-345" YO 93,471.33 "P-99" "P-346" "P-481" "P-482" Absolute Vodka 243,374.04 "P-100" "P-347" West KS 366 660.00 "P-483" Davidoff Liqhts "P-102" "P-349" "P-484" Volupta Blanco 54,320.00 Ballantines Scotch Whisky 17 YO 160,584.21 "P-104" "P-351" "P-485" Ballantines Scotch Whisky 21 YO 91,425.60 "P-106" "P-353" "P-487" Absolute Vodka "P-109" "P-356" Penfolds Chardonnay 41,268.50 "P-111" "P-358" "P-492" Davidoff Classic/Lights, West 148,561.92 "P-113" "P-360" "P-494" Menthol/West Ice "P-118" "P-365" Ballantines Scotch Whisky 17 YO 29,713.50 "P-120" "P-367" "P-497" Ballantines Scotch Whisky 21 YO "P-122" "P-369" "P-498" Penfolds Shiraz Cabernet 566,000.00 "P-502" Davidoff Lights 91,425.60 "P-123" "P-370" Queen Adelaide Cab Sauvignon "P-124" "P-371" "P-507" Queen Adelaide Chardonnay 123,805.50 "P-126" "P-373" "P-509" Salem Lights BOS 89,140.50 "P-129" "P-376" "P-511" Ballantines Scotch Whisky 17 YO "P-512" Ballantines Scotch 17 YO 113,200.00 "P-130" "P-377" Absolute Vodka 46,947.33 "P-513" Queen Adelaide Cabernet 20,502.32 "P-131" "P-378" "P-514" Sauv/Chardonnay "P-517" Patron Silver Tequila 260,600.00 "P-132" "P-379" "P-521" Gordon's Gin 106,404.47 Absolute Vodka 91,425.60 "P-135" "P-382" "P-523" Queen Adelaide Cab Sauv, Queen 148,561.92 "P-524" Adelaide Chardonnay "P-138" "P-385" Penfolds Shiraz Cabernet 37,538.05 "P-139" "P-386" "P-525" Penfolds Chardonnay 182,851.20 "P-144" "P-391" "P-528" Absolute Vodka "P-146" "P-393" Queen Adelaide Cabernet 30,793.62 "P-148" "P-395" "P-531" Queen Adelaide Chardonnay 182,845.44 "P-150" "P-397" "P-532" Patron Silver Tequila "P-151" "P-398" "P-537" Ballantines Scotch Whisky 21 YO 74,283.75 "P-539" Sky Grappa Alexander 59,427.00 "P-152" "P-399" "P-541" Japanese Sake Wine 22,780.35 "P-543" Mayne Cour Red Table Wine 205,701.12 "P-153 "P-400" "P-544" Volu_Q_ta Blanco, Volupta Rosso 55,465.20 West KS/Menthoi/Ice 35,656.20 "P-545" West Ice 137,138.40 West Menthol 48,887.30 "P-546" Davidoff Lights 19,681.90 Davidoff Classic Gordon's Gin 2,377.08 198,090.00 3961180.00 297,150.00 113,200.00 169,800.00 113,200.00 84,900.00 30,793.62 r:r

DECISION Philippine Airlines, Inc. vs. Commissioner of Internal Revenue CTA Case Nos. 8708 and 8770 "P-154 "P-401" "P-548" Sk'l Grappa Alexander Red and White 8 253.70 "P-155 "P-402" "P-549" 198,090.00 "P-550" Discipulus Syrah I Blanc "P-156 "P-403" "P-551" 59,427.00 "P-553" Penfolds Shiraz Cabernet 22,780.35 "P-157 "P-404" "P-554" Penfolds Chardonna_y 396,180.00 "P-159 "P-406" "P-558" Volupta Blanco, Volupta Rosso 396,180.00 "P-160 "P-407" Volupta Blanco, Volupta Rosso 254,700.00 "P-559" West Ice Davidoff Classic 64,124.90 "P-164 "P-411" Ballantines Scotch Whisky 21 YO 109 837.70 "P-562" Ballantines Scotch Whisky 17 YO 91 730.35 "P-165 "P-412" Ballantines Scotch Whisky 17 YO 146,768.56 Ballantines Scotch Whis_h 21 YO 182,845.44 "P-167" "P-414" Absolute Vodka 84 900.00 Davidoff Classic Subtotal P11,760,405.23 CTA Case No. 8770 "P-706" Volupta Rosso Volupta Blanco p 396,180.00 "P-631 "P-681" "P-707'' Patron Silver Tequila "P-632 "P-682" "P-708" West Menthol 91,425.60 "P-709" Davidoff Lights 124,258.43 "P-633 "P-683" "P-709" Perla Bianca Grappa Alexandre 144,591.57 "P-710" Red Rose Grappa Alexander "P-634 "P-684" "P-711" Volupta Rosso 4 444.30 "P-634 "P-684" "P-713" Penfolds Shiraz Cab 4,444.30 "P-635 "P-685" "P-714" Penfolds Chardonnay 118,160.68 "P-715" Volu_2_ta Rosso 24,761.25 "P-636 "P-686" "P-716" Penfolds Shiraz Cabernet 19,809.00 Penfolds Chardonnay 282,278.25 "P-638 "P-688" "P-717" Absolute Vodka 24,227.60 Queen Adelaide Cabernet 45,103.90 "P-639 "P-689" "P-719" Queen Adelaide Chardonnay 205,701.12 Glenmorangie 18 YO 104,162.06 "P-640 "P-690" "P-721" Hennessy Prive Cognac 44,405.44 "P-722" Wenjun Super 33,256.68 "P-641 "P-691" "P-725" Queen Adelaide Cabernet/Sauvignon, 37,912.56 "P-726" Queen Adelaide Chardonn~ 26,605.36 "P-642 "P-692" "P-728" Queen Adelaide Cabernet, Queen "P-729" Adelaide Chardonna_y 128,758.50 "P-644 "P-694" Charles Heidsieck Brut Reserve Volupta Blanco 98,945.96 "P-646 "P-696" Stolichnaya Gold 70cl 49,521.60 "P-647 "P-697" Patron Silver Tequila 198,090.00 "P-650 "P-700" Penfolds Chardonnay 72,376.32 "P-651 "P-701" 114,282.00 "P-653 "P-703" 18,422.37 "P-704" - p 2,412,124.85 P14,172,530.08 Subtotal TOTAL Thus, only the importation cost of the following liquor, wine and cigarette products, as computed by the ICPA, can be compared with the local prices for the same liquor, wine and cigarette products r!l

DECISION Philippine Airlines, Inc. vs. Commissioner of Internal Revenue CTA Case Nos. 8708 and 8770 reflected in the PWM and FTI Price Lists and BIR Price Survey Computation presented by PAL: Importation Retail Price if Purchased Cost per Domestically (in PHP) Bottle/Can/Pack (in PHP) per Annex E of the ICPA Report61 Per Without With BIR Excise Excise Price Excise Tax Tax Tax Paid (in PHP) IIDE ATRIG Invoice Description Survey FTI PWM CTA CASE NO. 8708 4 800.60 "P-47'' "P-294" "P-428" Asahi Super 22.36 29.03 99.47 4 200.00 5 600.70 "P-49" "P-296" "P-430" Beer 30.34 37.01 99.47 12 933.14 "P-51" "P-298" "P-432" 1 565.52 1,800.66 "P-52" "P-299" "P-433" Asahi Super Qry 238.80 245.47 99.47 480.06 "P-55" "P-302" "P-436" Camus Cognac 170.98 186.27 23,844.60 "P-57" "P-304" "P-438" XO Elegance 403.93 580.16 360.00 220 153.57 Asahi Super Dry "P-60" "P-307" "P-441" Beer 1 003.00 20 176.20 Lindemans "P-62" "P-309" "P-443" Premier Shiraz 163.26 178.54 360.00 23 844.60 "P-66" "P-313" "P-447" Johnnie Walker 380 933.20 Black Label 166.10 181.38 99.47 360.00 "P-67" "P-314" "P-448" Lindemans 497.86 674.22 1100.00 67 017.18 "P-69" "P-316" "P-451" Premier 1958.24 2 287.45 6 400.00 28 217.76 "P-70" "P-317" "P-452" Chardonnay 1 538.46 1,773.61 4 200.00 56 435.52 "P-71" "P-318" "P-453" Lindemans 630.67 865.82 1800.00 220 153.57 "P-72" "P-319" "P-454" Premier Shiraz 387.12 563.48 1 003.00 4 800.60 Cabernet 43.11 82 539.00 "P-73" "P-320" "P-455" Chivas Regal 36.44 105.14 275.00 104 549.40 "P-74" "P-321" "P-456" Whisky 89.85 105.14 275.00 "P-75" "P-322" "P-457" RoyaI SaIute 89.85 36 684.00 "P-81" "P-328" "P-463" Whisky 284 529.08 "P-82" "P-329" "P-464" Camus Cognac 162.42 177.70 360.00 1800.00 "P-83" "P-330" "P-465" VSOP Elegance 443.52 772.72 6 400.80 "P-85" "P-332" "P-467" Camus Cognac 99.47 2 540.00 687 798.00 VSOP Elegance 21.00 27.67 1984.83 2 150.00 2 540.00 229 266.00 Johnnie Walker 877.95 1 260.06 1984.83 2 150.00 Black Label 877.95 1 260.06 2,540.00 36 684.00 159.77 360.00 458,532.00 Asahi Super Drv 866.27 175.06 1,984.83 2,150.00 Vin de Table 1_248.38 Blanc Vin de Table Rogue Lindemans Premier Shiraz Cabernet Camus Cognac VSOP Elegance Asahi Super Dry Beer Piper Heidsieck Brut Piper Heidsieck Brut Lindemans Shiraz Cabernet Piper Heidsieck Brut --- 61 Exhibit "P-755". \1\

DECISION Philippine Airlines, Inc. vs. Commissioner of Internal Revenue CTA Case Nos. 8708 and 8770 "P-86" "P-333" "P-468" Piper Heidsieck 866.27 1 248.38 1984.83 2 150.00 2 540.00 687 798.00 "P-88" "P-335" "P-470" Brut 1,506.02 1 741.16 4 200.00 28 217.76 "P-90" "P-337" Camus Cognac "P-91" "P-338" "P-472" XO Elegance 47.68 49.72 430.00 400.00 3 912.96 "P-92" "P-339" "P-473" Martini 19.84 6 400.80 "P-94" "P-341" "P-474" Dry/Sweet 448.02 26.51 99.47 1 800.00 284 529.08 Vermouth 2 020.73 6 400.00 63 489.96 "P-96" "P-343" "P-476" Asahi Super Dry 491.86 777.22 1100.00 177 768.86 Beer 612.09 1 620.00 94 647.07 "P-101" "P-348" "P-478" Camus Cognac 386.38 2 349.94 1 003.00 177 533.72 VSOP Elegance 499.73 1100.00 411402.24 "P-103" "P-350" "P-486" Royal Salute 2 146.83 656.46 6 400.00 68 569.20 Scotch Whisky 621.88 941.30 2 200.00 102 218.90 "P-105" "P-352" "P-488" Chivas Regal 600.94 2 200.00 76 188.00 "P-106" "P-353" "P-489" Scotch Whisky 1 529.68 575.97 6 900.00 30 475.20 "P-107'' "P-354" "P-490" 455.70 2 200.00 170 788.10 "P-108" "P-355" "P-491" Martell VSOP 455.70 690.19 2 200.00 307 291.60 "P-109" "P-356" "P-493" Johnnie Walker 21.04 6 911.52 "P-110" "P-357" "P-494" Black Label 2 107.54 2 502.38 6 400.00 67 934.30 "P-112" "P-359" "P-495" Chivas Regal 881.14 2 500.00 495 216.00 "P-114" "P-361" "P-496" Whisky 12 YO 1 760.33 977.42 861 675.84 "P-115" "P-362" Royal Salute 2 200.00 "P-116" "P-363" "P-497" Whisky 21 YO 160.62 854.90 2 200.00 24 761.25 "P-117" "P-364" "P-498" Martell VSOP 451.29 1 050.00 136 503.50 "P-119" "P-366" P-499 Cognac 600.79 1 783.64 "P-120" "P-367" "P-501" Camus Cognac 282.39 2 350.00 76 188.00 "P-121" "P-368" "P-503" VSOP Elegance 811.25 2 200.00 245 698.56 "P-125" "P-372" "P-504" Camus Cognac 21.76 1100.00 "P-505" XO Elegance 747.78 811.25 100.00 7 948.24 "P-506" Camus Cognac 461.23 28.24 6 400.00 64 124.90 VSOP Elegance 486.07 1 099.00 307 291.60 "P-508" Camus Cognac 2 463.08 1 800.00 411402.24 "P-509" VSOP Elegance 91.49 1 293.82 2,015.40 2 150.00 1924.96 2,350.00 160 374.60 "P-510" Asahi Super Dry 2 173.01 2 047.88 63 489.96 "P-515" Royal Salute 413.16 "P-516" Whisky 647.70 177.12 360.00 395 048.64 1 773.98 806.83 78 774.58 Piper Hiedsieck 752.74 854.75 100.00 Charles 418.89 2 250.00 623,972.16 Heidsieck 64,124.90 Lindemans 28.96 Premier 1103.32 Chardonnay Camus Cognac 816.78 VSOP Elegance 867.01 Camus Cognac VSOP Elegance 104.59 275.00 JW Black Label 2 254.17 Asahi Super Dry 742.37 Japanese Beer Remy Martin 976.91 VSOP Camus Cognac 2 186.66 2 047.88 VSOP Elegance Chivas Regal 1,108.29 2/250.00 Whisky Vin de Table Blanc, Vin de Table Rogue Royal Salute Whisky Carlos I Brandy Camus Cognac VSOP Elegance Charles Heidsieck Remy Martin VSOP ~

DECISION Philippine Airlines, Inc. vs. Commissioner of Internal Revenue CTA Case Nos. 8708 and 8770 "P-126" "P-373" "P-517" J&B Rare 175.01 365.48 360.00 910.50 123 484.16 "P-127" "P-374" "P-518" Scotch Whisky 160.84 177.36 34 665.75 "P-519" Lindemans 6 900.00 "P-128" "P-375" Shiraz Cabernet 1 516.62 1 770.58 6 400.00 60 950.40 "P-129" "P-376" to 2 088.16 2 443.70 2 200.00 68 569.20 "P-520" Camus Cognac 102 218.90 "P-131" "P-378" "P-522" XO Elegance 604.88 960.43 2 350.00 Royal Salute 2,200.00 24 761.25 "P-133" "P-380" "P-524" Whisky 21 YO 159.84 176.35 360.00 2 350.00 39 618.00 "P-134" "P-381" Martell VSOP 159.84 6 900.00 64 124.90 "P-136" "P-383" "P-526" Cognac 747.23 176.35 360.00 2 200.00 102 218.90 "P-137" "P-384" "P-527" Lindemans 608.10 1100.00 106 663.20 "P-529" Premier 745.44 1102.77 2 250.00 t1_400.00 54 601.40 "P-139" "P-386" "P-530" Chardonnay 864.16 38 094.00 Lindemans 1 296.24 963.65 1 050.00 171 417.60 "P-140" "P-387" "P-532" Shiraz Cabernet 542.08 29 840.30 "P-141" "P-388" Remy Martin 2 312.71 1100.98 2 250.00 1 003.00 "P-142" "P-389" "P-533" VSOP 22.29 6 911.52 "P-143" "P-390" "P-534" Martell VSOP 1 118.12 395.00 81 457.20 "P-145" "P-392" "P-535" Cognac 14.03 1100.00 "P-146" "P-393" "P-536" Remy Martin 43.78 1 550.20 6 400.00 6 047.58 "P-147" "P-394" "P-538" VSOP 15.34 81457.20 "P-149" "P-396" "P-539" Camus Cognac 15.33 732.54 910.50 97 748.64 "P-152" "P-399" "P-540" XO Elegance 41.85 1,050.00 "P-153" "P-400" "P-542" Camus Cognac 15.45 2 668.25 6 047.58 "P-156" "P-403" "P-545" VSOP Elegance 15.55 90 417.49 "P-547" Chivas Regal 19.33 29.49 100.00 97 748.64 "P-158" "P-405" "P-550" Whisky12 YO 281.09 20.82 159.75 141 500.00 "P-161" "P-408" Royal Salute 161.17 163 799.04 "P-162" "P-409" "P-552" Whisky 21 YO 161.17 50.97 100.00 24 761.25 "P-555" Asahi Super Dry 409.88 22.13 159.75 39 618.00 "P-163" "P-410" "P-556" Beer 1,765.86 22.12 159.75 173 639.68 "P-164" "P-411" 21.76 1 386 604.80 "P-557" Carlsberg Beer 49.05 100.00 "P-166" "P-413" "P-558" Asahi Super Dry 51.69 22.24 159.75 6 911.52 Beer 443.62 22.34 159.75 "P-560" 2,010.12 47.63 40.88 3 169.44 "P-561" Carlsberg Beer 169.60 239 984.64 273.44 417.59 106 663.20 Carlsberg Beer 123 484.16 Asahi Super Dry 177.68 360.00 163,799.04 Beer Carlsberg Beer 177.68 360.00 Carlsberg Beer 600.34 West Lights 2 178.54 2 047.88 Johnnie Walker Black Label 28.96 100.00 Lindemans Chardonnay_ 53.89 430.00 Lindemans 824.56 Shiraz Cabernet 2 365.67 Johnnie Walker 360.06 Black Label 409.93 Charles Heidsieck Asahi Super Dry Beer Martini Dry/Sweet Vermouth Chivas Regal Whisky 12 YO Royal Salute Whisky 21YO J&B Rare Scotch Whi~ Johnnie Walker Black Label c#\

DECISION Philippine Airlines, Inc. vs. Commissioner of Internal Revenue CTA Case Nos. 8708 and 8770 "P-167" "P-414" "P-562" Winston Lights 19.00 47.30 60.23 113 200.00 "P-168" "P-415" "P-563" Royal Salute 2 052.73 2 408.28 Whisky 21 YO 6 400.00 68 569.20 "P-169" "P-416" "P-564" Chivas Regal 477.82 668.29 Subtotal Whisky 12 YO 460.51 816.05 1)00.00 411 402.24 CTA CASE NO. 8770 Camus Cognac VSOP Elegance 160.20 2 200.00 307 291.60 "P-636" "P-686" "P-711" 160.20 Lindemans 22.24 14 742,507.44 Premier Chardonnay 22.47 176.71 360.00 9 904.50 Lindemans 176.71 360.00 14 856.75 Shiraz Cabernet 451.59 6 911.52 "P-637" "P-687" "P-712" Asahi Super Dry 953.71 29.44 100.00 6,911.52 "P-643" "P-693" "P-718" Beer 173.10 29.67 100.00 Asahi Super Dry 946.76 "P-645" "P-695" "P-720" Beer 1 712.41 807.14 2 200.00 307 291.60 "P-648" "P-698" "P-723" Camus VSOP 158.19 "P-649" "P-699" "P-724" Cognac 158.19 1 366.39 2 015.40 2 150.00 2,500.00 148 564.80 "P-652" "P-702" "P-727" Elegance 277.60 "P-653" "P-703" "P-728" Piper Heidsieck 363.56 910.50 82 216.96 I Brut - "P-704" "P-729" J&B Rare 1 359.44 2 015.40 371 412.00 Scotch Whisky Piper Heidsieck 1966.37 6 900.00 15 237.60 Brut Camus Cognac 174.69 360.00 35 656.20 XO Elegance Lindemans 174.69 360.00 21 393.72 Shiraz Cabernet - "P-705" "P-730" Lindemans 414.10 1 050.00 163 799.04 Chardonnay 1,184,156.21 Johnnie Walker 15,926,663.65 ! Black Label Subtotal TOTAL Clearly, from the foregoing table, the cost of importing the above- enumerated liquor, wine and cigarette products is lower than purchasing them locally, except for the following: Cost per Bottle/Can/Pack in Retail Price if Purchased Peso per Annex E of Domestically the ICPA Re_l)_ort per RR 22- 2003 and Without With RMC 90-2012 Excise Excise Excise Tax Paid IIDE ATRIG Invoice Description Tax Tax CTA CASE NO. 8708 "P-52" "P-299" "P-433" Asahi Super Dry Beer 238.80 245.47 99.47 p 480.06 "P-108" "P-355" "P-496" Charles Heidsieck 1 760.33 2 173.01 2 047.88 "P-125" "P-372" "P-515" Charles Heidsieck 1 773.98 2 186.66 2 047.88 861 675.84 "P-152" "P-399" "P-545" West Lights "P-161" "P-408" "P-555" Charles Heidsieck 19.33 47.63 40.88 623 972.16 1 765.86 2 178.54 2 047.88 TOTAL 141 500.00 1 386,604.80 P3,014,232.86 o1

DECISION Philippine Airlines, Inc. vs. Commissioner of Internal Revenue CTA Case Nos. 8708 and 8770 Thus, the Court finds that PAL has sufficiently proven its exemption from the payment of excise taxes only in the amount of P12,912,430.88, computed as follows: CTA Case CTA Case No.8708 No.8770 Total P26,502,912.76 Excise Taxes Paid per Claim p 3,596,281.06 P30,099,193.82 Less: Disallowances p 11 760 405.23 p 2,412 124.85 p 14 172 530.08 Excise tax on imported liquor, wine and 3,014 232.86 - 3 014,232.86 cigarette products wherein no price comparison was presented p 14 774 638.09 p 2,412 124.85 p 17 186 762.94 Excise tax on imported liquor, wine and P11,728,274.67 p 1,184,156.21 P12,912,430.88 cigarette products where cost of importation is higher than the available local price Total Disallowances Refundable Excise Taxes Paid Evidently, the amount ofP12,912,430.88 constitutes erroneously paid excise tax which is refundable pursuant to Sections 204 and 229(C) of the NIRC of 1997, as amended. WHEREFORE, premises considered, the present consolidated Petitions for Review are hereby PARTIALLY GRANTED. The COMMISSIONER OF INTERNAL REVENUE is hereby ORDERED to refund in favor of PHILIPPINE AIRLINES, INC. the amount of Twelve Million Nine Hundred Twelve Thousand Four Hundred Thirty Pesos and Eighty-Eight Centavos (P12,912,430.88) representing erroneously paid excise tax on its importation in the years 2006, 2008 to 2012 of assorted liquor, wine and cigarettes constituting its commissary and catering supplies for international flight consumption. SO ORDERED. WE CONCUR: Presiding Justice � ~ N. M~~CwJL,. ER~P.UY CIELITO N. MINDARO-GRULLA Associate Justice Associate Justice

DECISION Philippine Airlines, Inc. vs. Commissioner of Internal Revenue CTA Case Nos. 8708 and 8770 CERTIFICATION Pursuant to Article VIII, Section 13 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. Presiding Justice