SILKAIR (SINGAPORE) PTE LTD., v. THE COMMISSIONER OF INTERNAL REVENUE

REPUBLIC OF THE PHILIPPINES COURT OF TAX APPEALS QUEZON CITY SILK.AIR (SINGAPORE) PTE LTD., Petitioner, -versus- C.T.A. CASE NO. 5710 THE COMMISSIONER OF INTERNAL Promulgated: REVENUE, MAR 0 8 2001 Respondent. x-----------------------------------------------------------x DECISION This is a petition for review filed by the Petitioner, SILKAIR (SINGAPORE) PTE LTD., against Respondent COMMISSIONER OF INTERNAL REVENUE, for the latter's failure to act on the former's claim for refund in the amount of P4,382,769.05 allegedly representing its erroneously paid excise taxes on petroleum products Uet fuel) for the period January 1, 1997 to June 30, 1997. As represented, Petitioner is a foreign corporation organized under the laws of Singapore with a Philippine Representative office duly licensed to transact business in the Philippines by the Securities and Exchange Commission with office address at Suite 302, Cebu Holdings Center, Cardinal Rosales Avenue, Cebu Business Park, Cebu City. On November 12, 1993, by virtue of Resolution No. 202(93), the Civil Aeronautics Board (CAB) approved the petition of Petitioner for the issuance of a regular operating 40ti

DECISION- CTA Case No. ~710 Page 2 permit (Foreign Air Carrier's Permit) as a foreign mr earner with routing Singapore/Cebu/Singapore (Exh. B). For the period January 1, 1997 to June 30, 1997, Petitioner purchased aviation jet fuel from PETRON Corporation and paid the imposed excise tax thereon in the total amount ofP4,382,769.05. Petitioner believes that the jet fuel purchased from ,PETRON is not subject to excise tax pursuant to BIR Ruling No. 339-92, dated December 1, 1992 (Exh. D) which declared that the Cebu link of the route Singapore/Cebu/Singapore is an international flight by an international carrier, hence petroleum products purchased and consumed on its flights are exempt from excise taxes. For this reason, Petitioner on December 28, 1998, filed with Respondent a claim for refund of the aforesaid excise taxes amounting to P4,382,769.05 (Exh. C), contending that it falls within the ambit of Section 132 of the Tax Code. Section 132 (now 135) ofthe Tax Code specifically provides, thus: Section 132. Petroleum products sold to foreign international carriers. - Petroleum products sold to an international carrier for its use or consumption outside of the Philippines shall not be subject to excise taxes, Provided: That the country of said carrier exempts from similar taxes petroleum products sold to Philippines can�iers. A day after or on December 29, 1998, Petitioner filed with this Court the instant Petition for Review. Petitioner repleads its stance a quo in the instant petition while Respondent in his Answer argued that (1) to be entitled to the claimed refund, petitioner must show compliance with the conditions laid down in Section 132 (now 135) of the Tax Code; (2) assuming that a foreign law is applicable, the same must be proven as a fact; (3) when a

.. DECISION- ; CTA Case No. 571 0 ' Page 3 tax exemption is claimed, it must be shown indubitably to exist, for every presumption is against it, and a well founded doubt is fatal to the claim; (4) Petitioner must show that it has complied with the provisions of Sections 204(3) [now 204(C)] and 230 (now 229) of the Tax Code, and (5) claims for refund of taxes are cor~strued strictly against claimants, the same being in the nature of an exemption from taxation. The issues to be resolved by the Court are (1) whether or not petitioner's claim for refund has already prescribed, (2) whether or not Petitioner has shown compliance with the conditions set forth in Section 132 (now 135) of the Tax Code, and (3) whether or not the petroleum products Get fuel) purchased from PETRON by Petitioner are subject to excise taxes. With regard to the issue of prescription, there is no doubt that Petitioner's claim for refund has not yet prescribed. The aviation jet fuel purchased by the Petitioner from PETRON is a locally manufactured petroleum product hence the excise tax levied on it must be paid within fifteen (15) days from the date of removal thereof from the place of production [Section 127 (now 130), NIRC]. In the case of Aras Asan Timber Company, Inc. vs. Commissioner of Internal Revenue, CTA Case No. 3524, December 17, 1993, this Court declared that the specific taxes paid on the petroleum products, except lubricating oil and grease, purchased by a taxpayer falls due on the 15111 day following the date of its removal, thus: "The Tax Code provides for the judicial remedy of filing a claim for refund within a period of two (2) years from the date of payment of the tax pursuant to the provision of Section 230 (formerly Section 292). Section 135 (now Section 127) of the Tax Code insofar as pertinent provides "that specific taxes on locally manufactured petroleum products

DECISION- CTA Case No. 5710 Page4 levied under Sections 153, 155 and 156 ofthis title, except lubricating oil and grease, shall be paid within fifteen (15) days from '�he date of removal thereof from the place of production. XXX XXX XXX Following the provision of Section 135 of the Tax Code, the specific taxes paid on the rest of the petroleum products purchased by petitioner falls due on the 151h day following the date of its removal. Therefore, all shipments of petroleum products, except oils and lubricants, paid by petitioner 15 days prior to October 8, 1980 or on September 23 , 1980 are deemed paid on October 8, 1980 [the petition for review having been filed on October 8, 1982] which is well within the two-year prescriptive period as prescribed under Section 230 of the National Internal Revenue Code. The specific taxes collected from petitioner on its purchases of petroleum products other than oils on Septemb~r 23, 1980 shall be paid within 15 days from the date of its removal or on October 8, 1980. It follows that on October 8, 1980, purchases of locally manufactured petroleum products, except oils, on September 23, 1980 are deemed paid. Thus, purchases of fuels prior to September 23, 1980 have prescribed." Therefore, applying the above ruling in the case at bar, the purchase by Petitioner of the aviation jet fuel on January 1, 1997 (the earliest date of delivery) is deemed paid on January 16, 1997 (which is fifteen [15] days from January 1, 1997), hence it is from this date that the two-year prescriptive period commences to run. Since the instant petition was filed with this Court on December 29, 1998, We rule that the Petitioner's claim for refund falls within the two-year period prescribed in Section 230 (now 229) of the 1997 Tax Code, quoted below: Section 230. Recovery of tax erroneously or illegally collected. - No suit or proceeding shall be maintained in any court for the recovery of any national internal revenue tax hereafter alleged to have been erroneously or illegally assessed or collected, or of any penalty claimed to have been collected without authority or of any sum alleged to have been excessive or in any manner wrongfully collected, until a claim for refund or credit has been duly filed with the Commissioner; but such suit or proceeding may be

DECISION- CTA Case No. 5710 Page 5 maintained, whether or not such tax, penalty, or sum has been paid under protest or duress. In any case, no such suit or proceeding shall be begun after the expiration of two years from the date of payment of the tax or penalty regardless of any supervening cause that may arise after payment: Provided, however, That the Commissioner may, even without a written claim therefor, refund or credit any tax, where on the face of the return upon which payment was made, such payment appears clearly to have been erroneously paid. x x x. 0 In CTA Case No. 5655, involving the same parties promulgated on May 24, 2000, the Court ruled that indeed there was an Air Transport Agreement between the Government of the Republic of the Philippines and the Government of the Republic of Singapore executed on July 11, 1974. Article 4(2) of the same, quoted below, provides that the Government of Singapore is obliged to grant Philippine air carriers exemption from payment of excise taxes on petroleum products, thus, the second issue must be ruled in the affirmative. "AIR TRANSPORT AGREEMENT BETWEEN THE GOVERNMENT OF THE REPUBLIC OF THE PHILIPPINES AND THE GOVERNMENT OF THE REPUBLl2 OF SINGAPORE The Government of the Republic of the Philippines and the Government of the Republic of Singapore, hereinafter described as the Contracting Parties, Being parties to the Convention on International Civil Aviation and the International Air Services Transit Agreement both opened for signature at Chicago on the 7'h day ofDecember, 1944, and Desiring to conclude an agreement for the purpose of establishing and operating air services between and beyond their respective ten�itories, Hereby agree as follows: XXX 41 0

DECISION- CTACaseNo. 5710 Page6 ARTICLE 4 XXX 2. Fuel, lubricants, spare parts, regular. equipment and aircraft stores introduced into, or taken on board aircraft in the territory of one Contracting Party by, or on behalf of, a designated airline of the other Contracting Party and intended solely for use in the operation of the agreed services shall, with the exception of charges corresponding to the service performed, be exempt from the same customs duties, inspection fees and other duties or taxes imposed in the territory of the first Contracting Party, even when these supplies are to be used on the parts of the journey performed over the territory of the Contracting Party in which they are introdt:.;:ed into or taken on board. The materials referred to above may be required to be kept under customs supervision and control." XXX Moreover, the aforequoted Air Transport Agreement between the Philippines and Singapore is not a mere moral obligation but creates a legally binding obligation between the Philippines and Singapore. It forms part of the laws of the countries involved in accordance with most fundamental rule in international law, known as pacta sunt servanda - international agreements must be performed in good faith. Hence, both parties must fulfill the obligations undertaken. As to the last issue, this Court has already resolved the same in CTA Case No. 5382, promulgated June 7, 1999, entitled Silkair (Singapore) PTE, Ltd. vs. The Commissioner of Internal Revenue with Entry of Judgment dated June 25, 1999, anchored on factual circumstances on all fours with the instant petition. The Court in said case likewise ruled that the petroleum products purchased by Petitioner from PETRON are not subject to excise taxes, thus: "With regard to the third issue, We alsc, see the matter as a fait accompli. Respondent's BIR Ruling No. 339-92, likewise, unmistakably

DECISION- CTA Case No. ~71 U Page 7 acknowledged the representation of the Petitioner therein through supporting documents that the laws of Singapore exempt Philippine carriers from similar taxes on petroleum products sold to them. Again, Respondent is in clear estoppel." Clearly, We find no compelling justification to deviate from the wisdom of Our decision in the aforesaid case, thus, the legal issues having been settled, what remains to be resolved by the Court involves factual matters and that is whether or not Petitioner has established by evidence its claimed refund. To support its claim for refund, Petitioner adduced in evidence, inter alia, a Certification from Petron dated November 26, 1997 (Exh. E) and various ATAPET' s - BIR Form No. 2319A-E, to prove that PETRON Corp. remitted to Respondent the excise taxes on the sale of jet fuel to Petitioner for the period hnuary 1997 to June 1997 (Exhs. M to M-11 ); various Aviation Delivery Receipts/Invoices and Cash Receipts issued by PETRON Corp. to Singapore Airlines (Exhs. K to K-174, inclusive), to prove that PETRON Corp. billed/charged and collected from Singapore Airlines the excise taxes on its jet fuel purchases. Petitioner also presented the letter dated June 16, 1992 of the General Manager in the Philippines of Singapore Airlines addressed to PETRON Corp. (Exh. 1), to prove that (1) Singapore Airlines had ceased operation in Cebu starting June 2, 1992 and that Petitioner, its subsidiary airline will take over its direct flight Singapore- Cebu-Singapore on the same date, (2) Singapore Airlit~es requested PETRON Corp. to extend the same credit line to Petitioner from the said date and (3) before the execution of the Sales Agreement between Silkair and PETRON Corp. which took effect on January 1, 1995, PETRON Corp. was already supplying the jet fuel requirements of Petitioner since June 2, 1992 under the same credit line previously extended to Singapore Airlines.

I ,; . ,. ,.,, ''i� ' DECISION- CTA Case No. 5710 Page 8 Moreover, Petitioner presented in evidence the report of Mr. Ruben Rubio of SGV & Co. (Exh. L), to prove that indeed the claimed refund of Petitioner was properly supported by proper documents. After a minutiose scrutiny of the evidence presented by Petitioner (Exhs. A to M-11, inclusive) and considering that Respondent failed to dispute or controvert the testimonial and documentary evidence of Petitioner, the Court finds no other recourse but to grant the relief sought by Petitioner. IN THE LIGHT OF ALL THE FOREGOING, the instant Petition for Review is GRANTED. Respondent is hereby ORDERED to ~FUND or ISSUE a Tax Credit Certificate to herein Petitioner in the amount of P4,382,769.05, representing the latter's erroneously paid excise taxes for the period January 1, 1997 to June 30, 1997. No costs. SO ORDERED. ~ls>,~ ERNESTO D. ACOSTA Presiding Judge I CONCUR: 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 the Constitution ERNESTO D. ACOSTA Presiding Judge