Commissioner of Customs vs. Esso Standard Eastern, Inc.

The exemption from "customs duty" granted to petroleum concessionaires under Article 103 of Republic Act No. 387 includes exemption from the special import tax imposed by Republic Act No. 1394, because the special import tax is a charge upon importation and thus essentially a customs duty or at least partakes of the character thereof. Where a statute is ambiguous, courts may examine extrinsic aids such as the history of enactment and the purpose of the legislature in determining legislative intent, and repeal by implication is not favored unless the repugnancy between statutes is irreconcilable and clear.

Respondent Esso Standard Eastern, Inc. (formerly Standard-Vacuum Refining Corporation (Phil.)) is the holder of Refining Concession No. 2, issued by the Secretary of Agriculture and Natural Resources on December 9, 1957, and operates a petroleum refining plant in Limay, Bataan. Under Article 103 of Republic Act No. 387, the Petroleum Act of 1949, a concessionaire may import free of customs duty all equipment, machinery, material, instruments, supplies, and accessories during the five years following the granting of any concession. The Petroleum Act was enacted to promote the exploration, development, exploitation, and utilization of the petroleum resources of the Philippines, and its provisions on tax exemptions reflect the legislative policy of encouraging investment in the petroleum industry.

Respondent Esso Standard Eastern, Inc. (formerly Standard-Vacuum Refining Corporation (Phil.)) is the holder of Refining Concession No. 2, issued by the Secretary of Agriculture and Natural Resources on December 9, 1957, and operates a petroleum refining plant in Limay, Bataan. Under Article 103 of Republic Act No. 387, the Petroleum Act of 1949, which provides that "[d]uring the five years following the granting of any concession, the concessionaire may import free of customs duty, all equipment, machinery, material, instruments, supplies and accessories," Esso imported certain articles and was assessed the special import tax, which it paid under protest.

The importations subject to the disputed assessments were: (1) one carton of scientific instruments with C & F value assessed a special import tax of P31.98 (Airport Protest No. 10); (2) one carton of recorder parts with C & F value of $221.56, assessed P43.82 (Airport Protest No. 11); (3) one carton of valves with C & F value of $310.58, assessed P60.72 (Airport Protest No. 12); (4) one box of parts for Conversion boilers and Auxiliary Equipment with C & F value of $2,389.69, assessed P467.00 (Airport Protest No. 15); (5) one carton of X-ray films with C & F value of $132.80, assessed P26.00 (Airport Protest No. 16); and (6) one carton of recorder parts with C & F value of $750.39, assessed P147.00 (Airport Protest No. 17). The total amount assessed and paid under protest was P775.62.

The Collector of Customs held on February 16, 1962, that Esso was subject to the payment of the special import tax provided in Republic Act No. 1394, as amended by R.A. No. 2352, and dismissed the protest. On March 1, 1962, Esso appealed to the Commissioner of Customs, who on March 19, 1965, affirmed the Collector's decision. On July 2, 1965, Esso filed a petition with the Court of Tax Appeals for review. The Court of Tax Appeals reversed the Commissioner's decision and ordered the refund of P775.62, holding that the special import tax is an impost or charge on importation and thus essentially a customs duty, or at least partakes of the character thereof. The Court of Tax Appeals cited the similarity in the basis of computation of the customs duty and the similarity in phraseology between Section 3 of R.A. No. 1394 and Section 9-01 of the Tariff and Customs Code.

• Distinct Nature of Special Import Tax: Petitioner contended that the special import tax under Republic Act No. 1394 is separate and distinct from the customs duty prescribed by the Tariff and Customs Code, and that the exemption enjoyed by Esso from customs duties under the Petroleum Act of 1949 does not include exemption from the special import tax.

• Legislative Intent in R.A. No. 1394: Petitioner argued that a perusal of R.A. No. 1394 shows that the legislature considered the special import tax as a tax distinct from customs duties, as Section 2(a) of the law made separate mention of "customs duties" and "special import tax" when providing for the President's power to suspend the reduction of the special import tax.

• Exemptions Not Presumed: Petitioner maintained that if Congress intended to exempt holders of petroleum refinery concessions from the special import tax, such exemption should have been clearly stated in the statute, since exemptions are never presumed and must be expressed in the clearest and most unambiguous language, not left to mere implication.

• First Assignment of Error: Petitioner argued that the Court of Tax Appeals erred in holding that the term "customs duty" in Article 103 of Republic Act No. 387 includes the special import tax imposed by Republic Act No. 1394.

• Second Assignment of Error: Petitioner argued that the Court of Tax Appeals erred in holding that exemption from payment of customs duties under Republic Act No. 387 includes exemption from payment of the special import tax.

• Special Import Tax as Customs Duty: Respondent Esso leaned heavily on the same arguments as those given by the Court of Tax Appeals, the burden of which is that the special import tax law is a customs law.

• Plain Meaning of the Statute: Respondent relied on the plain and obvious meaning of words, arguing that the special import tax is an impost or charge on the importation or bringing into the Philippines of all goods, articles, or products subject thereto, and that the phrase "import tax on all goods, articles or products imported or brought into the Philippines" in explicit and unambiguous terms simply means customs duties.

• Character of the Tax: Respondent argued that being a charge upon importation, the special import tax is essentially a customs duty, or at least partakes of the character thereof, and thus falls within the exemption granted under the Petroleum Act.

• Scope of Exemption: Whether the exemption enjoyed by respondent Esso from customs duties granted by Republic Act No. 387, or the Petroleum Act of 1949, should embrace or include the special import tax imposed by R.A. No. 1394, or the Special Import Tax Law.

• Repeal by Implication: Whether the tax exemption privileges granted under R.A. No. 387 were abrogated or repealed by R.A. No. 1394.

• Scope of Exemption: Yes. The exemption from customs duties under Article 103 of Republic Act No. 387 includes exemption from the special import tax imposed by R.A. No. 1394, because the special import tax is a charge upon importation and thus essentially a customs duty or at least partakes of the character thereof.

• Repeal by Implication: No. R.A. No. 1394 did not repeal the tax exemption privileges granted under R.A. No. 387, as repeal by implication is not favored unless the repugnancy between the two statutes is irreconcilable and clear, and the legislature's intent to preserve the petroleum industry incentives was manifest from its failure to include the Petroleum Act among the statutes repealed.

• Scope of Exemption: The Court examined the records thoroughly and determined that the only issue was the interpretation of the two statutes involved. Applying the fundamental rule in the construction of statutes, the Court stated that particular clauses and phrases should not be taken as detached and isolated expressions, but the whole and every part thereof must be considered in fixing the meaning of any of its parts. Every statute should receive such construction as will make it harmonize with the pre-existing body of laws. The Court also noted that courts may take judicial notice of the origin and history of the statutes which they are called upon to construe and administer. Examining the title of R.A. No. 387 and the provisions of Articles 102, 103, and 104, the Court found that the intent of the Philippine legislature was to encourage the exploitation and development of the petroleum resources of the country, declaring in no uncertain terms that the intensification of the exploration for petroleum must be carried on even if no taxes may be collected from the industry. The Court found that R.A. No. 1394 repealed six prior statutes dealing with special levies on importation, but spared R.A. No. 387, which had granted more concessions and tax exemption privileges than any of the repealed statutes. The Court concluded that Congress saw fit to preserve the privileges granted under the Petroleum Law of 1949 to keep the door open to the exploitation and development of the petroleum resources of the country. The Court cited Molina vs. Rafferty, 37 Phil. 545, where the Court inquired into the purpose of the legislature in establishing exemptions for agricultural products, as a parallel for examining legislative purpose in construing tax exemption provisions.

• Repeal by Implication: The Court held that repeal by implication is not favored unless it is manifest that the legislature so intended. As laws are presumed to be passed with deliberation and with full knowledge of all existing ones on the subject, it is logical to conclude that in passing a statute it was not intended to interfere with or abrogate any former law relating to the same matter, unless the repugnancy between the two is not only irreconcilable but also clear and convincing as a result of the language used, or unless the latter act fully embraces the subject matter of the earlier. The Court observed that Congress lined up for revocation by R.A. No. 1394 six statutes dealing with special imposts or levies, yet failed to include the Petroleum Law of 1949 among those it chose to repeal, despite the tremendous amount of revenues it was losing under the latter. The reason was clear: the legislature wanted to continue the incentives for the continuing development of the petroleum industry. The Court also noted that R.A. No. 387 had not been repealed by R.A. No. 2352, which expressly abrogated Section 6 of R.A. No. 1394 but did not repeal any part of R.A. No. 387. Therefore, the exemption granted by Republic Act No. 387 still stands.

• Statutory Construction — Determination of Legislative Intent — Where a statute is ambiguous, courts may examine both the printed pages of the published Act as well as extrinsic matters that may aid in construing the meaning of the statute, such as the history of its enactment, the reasons for the passage of the bill, and the purposes to be accomplished by the measure. The Court applied this doctrine in interpreting R.A. No. 1394, which appeared ambiguous, by examining the history and purpose of both R.A. No. 387 and R.A. No. 1394 to determine the true intent of the legislature.

• Statutory Construction — Harmonization with Pre-existing Laws — Particular clauses and phrases of a statute should not be taken as detached and isolated expressions, but the whole and every part thereof must be considered in fixing the meaning of any of its parts. Every statute should receive such construction as will make it harmonize with the pre-existing body of laws. Antagonism between the Act to be interpreted and existing or previous laws is to be avoided, unless it was clearly the intention of the legislature that such antagonism should arise and one amends or repeals the other, either expressly or by implication.

• Repeal by Implication — Repeal by implication is not favored unless it is manifest that the legislature so intended. As laws are presumed to be passed with deliberation and with full knowledge of all existing ones on the subject, it is logical to conclude that in passing a statute it was not intended to interfere with or abrogate any former law relating to the same matter, unless the repugnancy between the two is not only irreconcilable but also clear and convincing as a result of the language used, or unless the latter act fully embraces the subject matter of the earlier. The Court applied this doctrine in holding that R.A. No. 1394 did not repeal the tax exemption privileges under R.A. No. 387.

• Tax Exemptions — Strict Construction — Exemptions are never presumed; they must be expressed in the clearest and most unambiguous language and not left to mere implication. While the Court acknowledged this principle as argued by petitioner, it nonetheless found that the legislative intent to preserve the petroleum industry incentives was manifest from the history and purpose of the statutes.

• "If we are to adhere, as we should, to the plain and obvious meaning of words in consonance with settled rules of interpretation, it seems clear that the special import tax is an impost or a charge on the importation or bringing into the Philippines of all goods, articles or products subject thereto, for the phrase 'import tax on all goods, articles or products imported or brought into the Philippines' in explicit and unambiguous terms simply means customs duties." — This passage, quoted from the Court of Tax Appeals' decision, articulates the reasoning that the special import tax is essentially a customs duty because it is a charge upon importation.

• "The title of Republic Act No. 387 and the provisions of its three articles just cited give a clue to the intent of the Philippine legislature, which is to encourage the exploitation and development of the petroleum resources of the country." — This passage states the Court's finding on the legislative intent behind the Petroleum Act of 1949, which was central to the Court's interpretation of the exemption provision.

• "On the contention of herein petitioner that the exemptions enjoyed by respondent ESSO under R.A. No. 387 have been abrogated by R.A. No. 1394, We hold that repeal by implication is not favored unless it is manifest that the legislature so intended." — This passage states the Court's application of the doctrine against implied repeal, which was decisive in holding that the Petroleum Act's exemptions remained in force.

• "As observed earlier, Congress lined up for revocation by Republic Act No. 1394 six statutes dealing with the imposition of special imposts or levies or the granting of exemptions from special import taxes. Yet, considering the tremendous amount of revenues it was losing under the Petroleum Law of 1949, it failed to include the latter statute among those it chose to bury by the Special Import Tax Law. The reason for this is very clear: The legislature wanted to continue the incentives for the continuing development of the petroleum industry." — This passage explains the Court's reasoning that the legislature's failure to repeal the Petroleum Act despite its revenue cost demonstrated a clear intent to preserve the tax exemptions granted to petroleum concessionaires.

• Molina vs. Rafferty, 37 Phil. 545 — Cited as a parallel case where the Court inquired into the purpose of the legislature in establishing a tax exemption, holding that the exemption of agricultural products was due to the belief that by exempting agricultural products from the tax, the farming industry would be favored and the development of the resources of the country encouraged. The Court applied the same approach in determining the legislative purpose behind the Petroleum Act's tax exemptions.

• U.S. vs. De Guzman, 30 Phil. 416 — Cited for the rule that courts may take judicial notice of the origin and history of the statutes which they are called upon to construe and administer, and of facts which affect their derivation, validity, and operation.

• U.S. vs. Palacio, 33 Phil. 208 — Cited for the doctrine that repeal by implication is not favored unless the repugnancy between two statutes is irreconcilable and clear, or unless the latter act fully embraces the subject matter of the earlier.

• Article 103, Republic Act No. 387 (Petroleum Act of 1949) — Provides that during the five years following the granting of any concession, the concessionaire may import free of customs duty all equipment, machinery, material, instruments, supplies, and accessories. The Court interpreted this provision to include exemption from the special import tax under R.A. No. 1394.

• Article 102, Republic Act No. 387 (Petroleum Act of 1949) — Provides that no special taxes or levies shall be applied to concessions, and concessionaires shall not be subjected to provincial, municipal, or other local taxes or levies, nor shall any sales tax be charged on petroleum produced from the concession. The Court cited this provision as evidence of the legislative intent to encourage petroleum exploration and development.

• Article 104, Republic Act No. 387 (Petroleum Act of 1949) — Provides that no export tax shall be levied upon petroleum produced from concessions granted under the Act. The Court cited this provision as further evidence of the legislative policy of granting tax incentives to the petroleum industry.

• Section 1, Republic Act No. 1394 (Special Import Tax Law) — Imposes a special import tax on all goods, articles, or products imported or brought into the Philippines, irrespective of source. The Court examined this provision in relation to the exemption under the Petroleum Act.

• Section 2(a), Republic Act No. 1394 (Special Import Tax Law) — Makes separate mention of "customs duties" and "special import tax" in providing for the President's power to suspend the reduction of the special import tax. Petitioner relied on this provision to argue that the legislature considered the two taxes as distinct, but the Court did not find this argument persuasive in light of the legislative history and purpose.

• Section 6, Republic Act No. 1394 (Special Import Tax Law) — Declares that the tax provided in Section 1 shall not be imposed against importation of machinery and/or raw materials to be used by new and necessary industries. The Court noted that R.A. No. 2352 expressly abrogated this section but did not repeal any part of R.A. No. 387.

Castro (Chairman), Makasiar, Muñoz Palma, and Martin, JJ., concurred.