Commissioner of Internal Revenue and Commissioner of Customs vs. Philippine Airlines, Inc.

The requirement in Section 13(2) of Presidential Decree No. 1590 that imported articles be “not locally available in reasonable quantity, quality, or price” is disjunctive; proof of any one of the three—unreasonable quantity, quality, or price—suffices to qualify the importation for tax exemption. Consequently, PAL’s showing that Jet A-1 fuel was not locally available at a reasonable price entitled it to refund, even assuming sufficient local quantity. ATRIGs are entries in official records and constitute prima facie evidence of the facts stated therein, subject to rebuttal.

Philippine Airlines, Inc. is the grantee of a legislative franchise under Presidential Decree No. 1590. Section 13(2) of that franchise exempts from taxes and duties PAL’s importations of aviation gas, fuel, and oil, provided the articles are for PAL’s use in its transport and non-transport operations and are not locally available in reasonable quantity, quality, or price. The Bureau of Internal Revenue initially confirmed the exemption in BIR Ruling No. 13-99, but on January 29, 2003 issued BIR Ruling No. 001-2003 revoking it, relying on a December 20, 2002 Department of Energy certification that aviation fuel was locally available in reasonable quantity, quality, and price. The Commissioners of Internal Revenue and of Customs are the petitioners challenging the CTA’s refund rulings.

Philippine Airlines, Inc. (PAL) is the grantee of a legislative franchise under Presidential Decree No. 1590. Under Section 13(2) of its franchise, PAL is exempt from taxes and duties 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 such articles are for PAL’s use in its transport and non-transport operations and incidental activities and are not locally available in reasonable quantity, quality, or price. The Bureau of Internal Revenue confirmed this exemption in BIR Ruling No. 13-99. On January 29, 2003, however, the BIR issued BIR Ruling No. 001-2003, which revoked the earlier issuance. Relying on the December 20, 2002 certification of the Department of Energy stating that aviation gas, fuel, and oil for use in domestic operations of domestic airline companies were locally available in reasonable quantity, quality, and price, the BIR declared that PAL’s importations would no longer be tax-exempt “for as long as there is such available domestic supply of petroleum products.”

Thereafter, on various dates between April to June 2005, PAL imported Jet A-1 fuel and paid the corresponding specific taxes due thereon under protest. PAL then lodged a request for refund with the CIR for the specific taxes it paid in the total amount of PHP 258,629,496.00. When its request remained unacted, PAL filed a judicial claim for refund before the CTA on May 7, 2007 through a Petition for Review.

Both the CIR and the COC filed their respective Answers and raised similar special and affirmative defenses: (1) PAL failed to exhaust all administrative remedies; (2) BIR Ruling No. 001-2003 is a valid interpretation of the Tax Code; (3) PAL failed to appeal BIR Ruling No. 001-2003 to the Secretary of Finance; (4) PAL in essence asked the CTA to overturn the factual determinations of the DOE, which cannot be allowed under the doctrine of separation of powers; and (5) the specific taxes purportedly paid in May and June 2005 were not properly documented. The case proceeded to trial. After the formal offer of evidence and submission of memoranda, PAL filed a Motion to Reopen Trial and/or Leave of Court to File Supplemental Memorandum, which the CTA Second Division granted on January 20, 2015. The case was again submitted for resolution.

In its original Decision, the CTA Second Division partially granted the Petition and ordered the CIR and the COC to refund or issue a tax credit certificate in favor of PAL in the reduced amount of PHP 88,542,854.00. The CTA found that PAL satisfied the conditions under Section 13 of Presidential Decree No. 1590, but it could not grant the full amount claimed because certain official receipts evidencing payment of specific taxes were denied admission for PAL’s failure to present the original receipts. The CIR and the COC filed separate Motions for Partial Reconsideration, while PAL filed a Motion for Partial Reconsideration of Decision and/or to Reopen the Case for Presentation of Evidence. The CTA Second Division granted PAL’s motion and denied the CIR and COC’s bids for reconsideration. PAL then presented an additional witness and other documentary exhibits.

The CTA Second Division later issued its September 9, 2016 Amended Decision, increasing the amount originally ordered refunded from PHP 88,542,854.00 to PHP 258,629,494.00. The CTA En Banc found that PAL sufficiently proved the requisites under Section 13 of Presidential Decree No. 1590. On the second requisite, the ATRIGs submitted by PAL stated that the Jet A-1 aviation fuel “will be used exclusively for domestic flight operation” or “will be used exclusively for daily domestic flight operation,” and the CTA En Banc treated these as entries in official records constituting prima facie evidence of the facts stated therein, supported by the testimony of PAL’s witnesses. On the third requisite, the CTA En Banc found that the ATO Certification stating that aviation fuel was not locally available in reasonable quantity, quality, or price was in line with the ATO’s general powers and stood as prima facie evidence of the facts stated therein. The CTA Second Division also observed that the domestic cost of Jet A-1 fuel would have been either PHP 329,955,751.00 or PHP 564,148,535.00 more had PAL bought from Petron Corporation or Pilipinas Shell Petroleum Corporation. No controverting evidence was presented by the CIR and the COC.

• Second Requisite — Use in Operations: Petitioners argued that PAL failed to prove the imported Jet A-1 aviation fuel would be used in its transport and non-transport operations. They maintained that the ATRIG statements were self-serving declarations supplied by PAL or its representative, not within the personal knowledge of the BIR personnel who issued them, and therefore could not be considered entries in official records constituting prima facie evidence; the testimonies and documentary evidence likewise did not prove actual use.
• Third Requisite — Local Availability: Petitioners argued that the ATO (now CAAP) was not vested with power to certify the local availability of Jet A-1 aviation fuel; only the DOE, under Republic Act No. 8479, was empowered to monitor oil prices, quality, and inventory. They also contended that the CTA misappreciated the DOE data and that there was never insufficient aviation fuel because local refiners could increase production based on demand.
• Reopening of Trial: Petitioners maintained that the CTA En Banc violated the rule that tax refunds are strictly construed against the taxpayer when it upheld the CTA Second Division’s grant of PAL’s motion to reopen the trial for presentation of additional evidence.
• Question of Fact Exception: Petitioners argued that the CTA En Banc abused its authority by misapprehending the evidence on the second and third requisites, which allegedly brought the case under an exception to the Rule 45 prohibition on questions of fact.

• Entitlement to Refund: Whether the CTA En Banc erred in upholding PAL’s entitlement to a refund of specific taxes paid for the importation of Jet A-1 aviation fuel between April to June 2005.
• Second Requisite — Use in Transport and Non-Transport Operations: Whether PAL sufficiently proved that the imported Jet A-1 aviation fuel was for its use in its transport and non-transport operations and incidental activities.
• Third Requisite — Local Availability: Whether PAL sufficiently proved that Jet A-1 aviation fuel was not locally available in reasonable quantity, quality, or price.
• Reopening of Trial: Whether the CTA En Banc erred in upholding the grant of PAL’s motion to reopen the trial for presentation of additional evidence.

• Entitlement to Refund: No. The petition must fail; PAL was entitled to refund because it adduced substantial evidence of compliance with Section 13(2) of Presidential Decree No. 1590.
• Second Requisite — Use in Transport and Non-Transport Operations: Yes. The ATRIGs constituted entries in official records and were prima facie evidence that the fuel would be used in PAL’s operations; PAL witnesses corroborated, and petitioners presented no controverting evidence.
• Third Requisite — Local Availability: Yes. The “quantity, quality, or price” requirement is disjunctive; proof of any one suffices. PAL proved the fuel was not locally available at a reasonable price, even assuming sufficient quantity.
• Reopening of Trial: No. CTA proceedings are not strictly governed by technical rules of evidence; the paramount consideration is ascertainment of truth.

• Entitlement to Refund: Section 13(2) of Presidential Decree No. 1590 lays down three requisites: (1) PAL paid its corporate income tax covering the period when the subject importations were made; (2) the articles, supplies, or materials are imported for PAL’s use 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. The first requisite was undisputed. The second and third are questions of fact best left to the CTA as a highly specialized body; under Rule 45, only questions of law may be raised, and CTA findings are binding absent a showing that they are unsupported by substantial evidence or that authority was abused. Petitioners bore the burden of showing an exception but failed. The Court found that PAL adduced substantial evidence to prove its entitlement to the conditional tax exemption.
• Second Requisite — Use in Transport and Non-Transport Operations: ATRIGs may constitute entries in official records under Section 46 (formerly Section 44), Rule 130 of the Rules of Court. The requisites are: (a) the entry was made by a public officer, or by another person specially enjoined by law to do so; (b) it was made by the public officer in the performance of his duties, or by such other person in the performance of a duty specially enjoined by law; and (c) the public officer or other person had sufficient knowledge of the facts by him stated, which must have been acquired by him personally or through official information. Petitioners claimed the third requisite was absent because the contents of the ATRIGs came from the importer. The Court rejected this: the application and issuance of an ATRIG is not a mechanical process; under Revenue Memorandum Order No. 35-2002, the BIR officer must coordinate with the Bureau of Customs for ocular inspection or laboratory analysis, may refer legal issues to the Legal Division or Law Division, and may require further substantiation, documentation, or certification from other regulatory offices. These processes arm the BIR officer with sufficient knowledge. The ATRIGs are only prima facie evidence, not conclusive; their trustworthiness rests on the disputable presumption of regularity of official duty. Once they established a prima facie case, the burden of evidence shifted to petitioners, who presented no controverting evidence. PAL’s witnesses also corroborated compliance, and the trial court’s evaluation of witness credibility is respected.
• Third Requisite — Local Availability: The CTA En Banc affirmed that the evidence adduced by PAL showed that Jet A-1 aviation fuel was not available in reasonable quantity, quality, or price at the time of importation. Petitioners focused mainly on the “quantity” aspect. The proviso uses the word “or,” a disjunctive article indicating an alternative and a disassociation of the enumerated terms. To qualify for exemption, PAL need only prove that the locally available article is either insufficient in quantity, or is of subpar quality, or is severely overpriced compared to its imported variant. Even one of the foregoing qualifications entitles PAL to exemption; a contrary reading would produce an absurd result. In this case, even assuming sufficient local quantity, PAL proved that had it sourced its aviation fuel locally between April to June 2005, it would have paid a significantly higher sum. The CTA Second Division observed that the domestic cost of Jet A-1 fuel would have been either PHP 329,955,751.00 or PHP 564,148,535.00 more had PAL bought from Petron Corporation or Pilipinas Shell Petroleum Corporation. Thus, even if there was sufficient supply, the fuel was not available at a reasonable price to PAL.
• Reopening of Trial: The law creating the CTA specifically provides that proceedings before it shall not be governed strictly by the technical rules of evidence and that the paramount consideration remains the ascertainment of truth. Procedural rules should not bar courts from considering undisputed facts to arrive at a just determination of a controversy. The CTA therefore did not err in granting PAL’s motion to reopen the trial for presentation of additional evidence.

• Section 13(2), Presidential Decree No. 1590 — Three Requisites for Tax Exemption — For PAL’s importations to be exempt, three requisites must concur: (1) PAL paid its corporate income tax covering the period when the subject importations were made; (2) the articles, supplies, or materials are imported for PAL’s use 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. The first was undisputed; the Court found substantial evidence for the second and third.
• Disjunctive “Quantity, Quality, or Price” — The phrase “not locally available in reasonable quantity, quality, or price” uses “or” disjunctively. Proof of any one—insufficient quantity, subpar quality, or unreasonable price—suffices for exemption. The Court applied this by holding that even assuming sufficient local quantity, PAL proved the fuel was not available at a reasonable price.
• CTA Factual Findings; Rule 45 Limitation — Only questions of law may be raised in a Rule 45 petition; factual findings of lower courts, especially the specialized CTA, are respected and binding unless not supported by substantial evidence or rendered with abuse. The Court applied this to the second and third requisites.
• Entries in Official Records as Prima Facie Evidence — Under Rule 130, Section 46 (formerly Section 44), entries in official records made by a public officer in performance of duty, or by a person specially enjoined by law, are prima facie evidence of the facts stated, provided the officer had sufficient knowledge acquired personally or through official information. ATRIGs satisfied these requisites because issuance involves verification processes under Revenue Memorandum Order No. 35-2002; they are not conclusive and may be rebutted, but no controverting evidence was presented.
• Presumption of Regularity of Official Duty — Official acts are presumed regular, though the presumption is disputable. The ATRIGs’ trustworthiness rested on this presumption; once they established a prima facie case, the burden of evidence shifted to petitioners.
• Statutes Should Not Be Construed to Produce Absurd Results — A law should not be construed to produce an absurd result; it should receive a sensible construction giving effect to legislative intention. The Court used this to support the disjunctive reading of the “quantity, quality, or price” requirement.
• CTA Proceedings Not Strictly Governed by Technical Rules — Proceedings before the CTA are not strictly governed by technical rules of evidence; the paramount consideration is ascertainment of truth. The Court applied this to uphold reopening of trial for additional evidence.
• Tax Exemptions for Specific Public Interests — Tax exemptions are granted for specific public interests sufficient to offset the monetary loss. The Court noted this in explaining the rationale of PAL’s exemption to keep operating costs low.

• “The separator used is the word “or”, which is a disjunctive article indicating an alternative and a disassociation of the enumerated terms. This means that to qualify for exemption, PAL need only prove that the locally available article is either insufficient in quantity, or is of subpar quality, or is severely overpriced compared to its imported variant. Even one of the foregoing qualifications would entitle PAL to exemption.” — This states the ratio decidendi on the third requisite and is the Court’s canonical interpretation of Section 13(2) of Presidential Decree No. 1590.
• “The application and subsequent issuance of an ATRIG is not a mechanical process. As provided under Revenue Memorandum Order No. 35-2002, the BIR officer must coordinate with the Bureau of Customs (BOC) if an ocular inspection of the imported articles is necessary or for purposes of laboratory analysis. The BIR officer may likewise refer an application to the Legal Division of the Regional Office or to the Law Division of the National Office if it involves legal issues on the taxability or exemption of the imported articles. Whenever there are doubts on the representations made on the application, the BIR officer may require further substantiation, documentation, or certification from other regulatory offices to authenticate the statements made by the importer. In short, various verification and processes are done prior to the issuance of an ATRIG, which presumably arms the BIR officer with sufficient knowledge of the facts contained therein.” — This explains why ATRIGs satisfy the sufficient-knowledge requisite for entries in official records.
• “However, given the prima facie case established by the ATRIGs, the burden of evidence shifted to the petitioners to rebut the same with controverting proof. However, as the CTA En Banc correctly observed, no such controverting evidence was presented.” — This states the evidentiary effect of ATRIGs and why the second requisite was sustained.
• “In sum, PAL was able to adduce substantial evidence to prove its entitlement to the conditional tax exemption of its importation of Jet A-1 fuel from April to June of 2005. Accordingly, the CTA’s grant of refund must stand.” — This is the Court’s ultimate conclusion on entitlement.

• Commissioner of Internal Revenue vs. Philippine Airlines, Inc., 742 Phil. 84 (2014) — Cited among cases where compliance with the second and third requisites under Section 13(2) was treated as a question of fact best left to the CTA.
• Republic of the Philippines vs. Philippine Airlines, Inc. (PAL), 763 Phil. 108 (2015) — Cited to the same effect: factual determinations on compliance with Section 13 conditions are best left to the CTA.
• Commissioner of Internal Revenue vs. Philippine Airlines, Inc., 806 Phil. 358 (2017) — Cited for the rule that sufficiency of proof of statutory conditions for tax exemption is factual and best left to the CTA.
• Fortune Tobacco Corp. vs. Commissioner of Internal Revenue, 762 Phil. 450 (2015) — Cited for the rule that an appeal calling for re-examination of probative value raises a question of fact; only questions of law may be raised under Rule 45.
• Commissioner of Internal Revenue vs. Spouses Magaan, G.R. No. 232663, May 3, 2021 — Cited for the exception that CTA findings may be set aside when not supported by substantial evidence or when authority was abused.
• Philippine Airlines, Inc. vs. Commissioner of Internal Revenue, 823 Phil. 1043 (2018) — Cited for the burden on the party filing the petition to show convincing evidence that the appeal falls under an exception; mere assertion is insufficient.
• UCPB General Insurance, Co., Inc. vs. Pascual Liner, Inc., G.R. No. 242328, April 26, 2021 — Cited for the requisites of the entries-in-official-records exception to the hearsay rule.
• Sps. Africa vs. Caltex (Phil.), Inc., 123 Phil. 272 (1966) — Cited in UCPB for the requisites of entries in official records.
• Ford vs. Court of Appeals, 264 Phil. 411 (1990) — Cited for the rule that entries in official records are only prima facie evidence, not conclusive.
• Dimaguila vs. Sps. Monteiro, 725 Phil. 337 (2014) — Cited for the presumption of regularity of performance of official duty.
• H.S. Pow Construction and Development Corp. vs. Shaughnessy Development Corp., G.R. No. 229262, July 7, 2021 — Cited for the respect accorded to the trial court’s evaluation of witness testimony.
• Secretary of Finance Purisima vs. Rep. Lazatin, 801 Phil. 395 (2016) — Cited for the principle that tax exemptions are granted for specific public interests.
• Mayor Vargas vs. Cajucom, 761 Phil. 43 (2015) — Cited for the rule that “or” is a disjunctive article indicating an alternative.
• Bansilan vs. People, G.R. No. 239518, 888 Phil. 832 (2020) — Cited for the rule that statutes should not be construed to produce absurd results.
• Commissioner of Internal Revenue vs. De La Salle Univ., Inc., 799 Phil. 141 (2016) — Cited for the rule that CTA proceedings are not strictly governed by technical rules of evidence and that procedural rules should not bar consideration of undisputed facts.

• Section 13(2), Presidential Decree No. 1590 — Provides PAL’s tax exemption for importations of aviation gas, fuel, and oil, subject to the conditions that they are for use in transport and non-transport operations and not locally available in reasonable quantity, quality, or price. The Court interpreted the “or” as disjunctive and applied the three requisites.
• Section 46 (formerly Section 44), Rule 130, Rules of Court — Entries in official records made by a public officer in performance of duty, or by a person specially enjoined by law, are prima facie evidence of the facts stated. Applied to the ATRIGs.
• Revenue Memorandum Order No. 35-2002 — Governs ATRIG application and issuance; requires coordination with the Bureau of Customs for ocular inspection or laboratory analysis, possible referral to the Legal Division or Law Division, and further substantiation. Cited to show the BIR officer’s sufficient knowledge.
• Rule 45, Rules of Court — Only questions of law may be raised in a petition for review on certiorari. Applied to reject factual re-examination.
• Rule 131, Sections 1 and 3(m), Rules of Court — Disputable presumption of regularity of official duty and burden of evidence. Cited in relation to the ATRIGs.
• Republic Act No. 8479 — Cited by petitioners as empowering the DOE to monitor oil prices, quality, and inventory; the Court resolved the case on the CTA’s factual findings and the disjunctive price requirement.

• Justice Gaerlan and Justice Singh concurred.
• Justice Caguioa (Chairperson) filed a concurring opinion. He agreed with the ponencia and emphasized that the ATO (now CAAP) is the proper body to determine the local availability of aviation fuel; its charter powers are broad enough to issue certifications on local availability or non-availability. He also noted that the December 20, 2002 DOE Certification predates the 2005 importations and cannot attest to availability in 2005, while the ATO certifications dated October 1, 2004 to April 20, 2010 support PAL’s claim.
• Justice Inting filed a separate concurring opinion. He concurred in the denial of the petition. He reasoned that PAL need not prove domestic use because the exemption applies to transport or non-transport operations; the presumption of ordinary course of business and regularity supports the ATRIGs; “locally available” means the inventory of locally produced or manufactured supply available for sale at the time of importation, excluding imported goods and other airlines’ inventory; and the DOE’s 2002 certification cannot govern the 2005 importations.