CTA Case No. 3967

DECISION

This case invelves petitioner's claim for refund of specific tazes paid on fuels and oiis used in its mining operations pursuant to the prevision of Section =, 5 of Repub slic Act No. {4 Fund.

The facts are = stated 4: as follows: existing under and by virtue of the laws of the Republic of the Philippines. If is engaged in the business of mining copper from

DECISION -

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covering July 1983 t > June 30, 1945, petitioner purchased from Petrophil Corporation manufactured fuel oils and diesel fuel oils which were used in the operation of its mining concessions. The corresponding specific taxes imposed on the purchased fuels and oils, under Sections 154 and 156 Uormerly 142 and 145) of the National Internal Revenue Code, were passed'on and paid by petitioner to Petrophil Corporation. | On August 24, 1985, petitioner filed a claim for refund (Exh. A) with the respondent in the amount of P11,927,236.92, representing 25% of the tetal specific tazes paid on fuels and oils purchased from Petrophil Corporation for the period subject of this petition. Petitioner pointed that it had complied with the conditions provided in Section 5 in relation to Section 1 of R.A. 1435 in order to be entitled to the refund claimed. The affiday of its President and that of the President of the Chamber of Mines of the Philippines, of which petitioner is a member, stating that petitioner paid the specific taxes on its pure chases of cils and fuels ‘and that the same were actually used in its mining operations, were attached te its claim for refund.

fespondent did not act on said claim for refund. Hence, | this petition for review filed by petitioner, on Augush 25, 1945, praying for a tax credit in the tetal amount of P11,927,236.92. Respondent's special and ate mative defenses alleged that providing for the refund of 25% of the specific taxes paid by miners or forest concessionaires on manufactured oils used in their operations was repealed with the enactment of the Local

DECISION -

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amended by Presidential Decree No. 426 and its implementing regulation (Local Tax Regulations No. 1-74) issued by the Ministry of Finance on April 18, 1974. Respondent added that before the partial refund can ke granted there must be a showing that petitioner paid the additional fax under a municipal or city ordinance as provided for under Section 4 in relation with Section 5 of Republic Act No. 1435. Without any ordinance impesing an additional tax on miners and forest concessionaires, petitioner could net avail of the refund privilege under Section 5 of B.A.

sections 4 and 5 of Republic Act No. 1435 provides:

“Section 4. Municipal boards or councils thay, notwithstanding the provisions of sections one hundred and forty-two and one hundred and forty- hereinabove amended, levy an additional tax of not exceeding twenty-five per cent of the rates fixed in Said sections, on manufactured oils sold or distributed within the limits of the cily or municipality: frorifed That municipal taxes on gasoline, airplane fuel, lubricating cil and other “Section 5. The proceeds of the additional bridge funds of the political subdivision for whose whenever any oils mentioned above are used by

DECISION -

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twenty-five per cesta of the specific tax es thereon shalt be “palanded by the Collec ctor of Infernal Revenue upon submission of proof of actual usé of oils and under similar conditions enumerated iti Sub-paragraphs one and two of section one hereof, amending section one hundred forty-two of the Internal Reyenue Code: Arorided furtter That no new road shall be constructed unless the routes or location thereof shall have been approved by the Commissioner of Public Highways after a determination that such road can be made part of an integral and articulated route in the Philippine . Highway System, as required in Section twenty-six of the Philippine Highway Act of 1953.” (Emphasis supplied.)”

Furthermore, Presidential Decree No. 711 (effective July 1, 1975) abolished all existing special and fiduciary funds and transferred its funding to the General Fund Since R.A. 1435 refers to "An Act To Frovide Means For Increasing The Highway Special Fund" it follows that RA. 1435 was repealed by PD. 711. HMoreaver, granting for the sake of argument that Section 5 stilt subsists, the partial refund of specific taxes paid would be limited _ only to specific taxes paid prior to August 28, 1983.

The issue is whether or not the privilege being « claimed by petitioner under Republic Act No. 1435 has been repealed by Presidential Decree No. 426, and Presidential Decree No. Fil (Abolishing All E isting Special And Fiduciary Funds And Transferring To The General Fund The Operations and Funding Of All Special And Fiduciary Funds).

On the contention of respondent that the partial refund

DECTSION -

(.T.A. CASE NO. 3967

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showing proof that the additional taz imposed by the municipality or city pursuant to a municipal ordinance has been paid in accordance with Section 4 of R.A. 1435, the Supreme Court ii the case of Commissioner of Internal Revenue ¥. Rio Tuba Nickel Mining Corporation and The Court of Taz Appeals, GR. Nos. 83583-84, (202 SCRA 137), has ruted:

‘REX. We disagrees. To our mind, the proviso in Section 5 standing alone is enough basis for the grant of refund. xz. The statutory granteof a partial exemption from the itnposed increased specific taxes is rmanifest trom a reading of the proviso in Section 5, Republic Act 1435. As contended by Rio Tuba, there is nothing in that provise which states that before a nines can be entitled to the 254 tax refund of specific x paid on the ails if used in its operations, there sist first. be a municipal or city ordinance levying an adoitonas a not exceeding 25% of the rates fixed in ections [42 and 145 of the. Tax Code. In fact, the efi sfitire Section 5 does not even make any reference to Section 4 which empowers municipalities and cities to impose the additional tax on oils sold or distributed within their respective territorial jurisdictions. What is cleat therein is that the Revenue Commissioner shall refund 25% of the specific fax whenever ‘any oils mentioned above are used by miners or forest concessionaires in their operations’ and the procedure for refund is complied with. xxx."

With respect to the issue of whether or not PD. 711 impliedly repealed Section 5 of BA. 1435, the Supreme Court in a Resolution, dated March 25, 1992 (207 SCRA 549), modified its previous ruling in the Rio Tuba case where it stated that PD. 711 impliediy repeated the refund privilege granted te miners and loggers under R.A. 1435. The High Court observed thus:

DECISION -

C.T.A. CASE NO. 3967 “This decision was premised on the assumption that the Highway Special Fund was oné of those funds abolished and transferred to the General Fund by PD. No. 7ii which took effect on July 1, 1975.

Despite the mandate of P.D. No. 711, however, several special funds were still retained and the Highway Special Fund. was one of them.

REE HE? ZEE.

The Internal Revenue Allotments annually prepared by the Bureau of Internal Revenue in accordance with the foregoing decree showed that the Highway Special Fund continued its existence up to 1985 and was channelled to the General Fund only in 1986.

It is not clear why the Highway Special Fund was maintained for /2? pears after the effectivity of PD. No. 711 or why it was abolished in 1986. The stark fact remains that it retained its status as a Special fund up to 1985.

With the foregoing consideration, we cannot therefore state with definiteness that it was PD. Noe. 711 which impliedly repealed Section 5 of R.A. No. 1435. We can however safely conclude that Section Sof B.A. No. 1445 is now an anachronism because The rationale for the Court’s decision denying the private respondent's twin claims for refund was that the specific taxes on these manufactured oils Paid by the mining and lumber companies no longer continued up to 1985, it will be highly inequitable for the private respondent if we were to rule that no actually accrued to the Highway Special Fund (net

DECTSION -

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respondent still did net directly benefit from the projects supported by the Highway Special Fund.

We, therefore, modify our decision in this case and rule that mining and logging companies are entitled to the refund privilege granted by R.A. No. 1435 on specific taxes paid up te 1985 on manufactured and diesel fuel oils.

The specific taxes on oils which Rio Tuba paid for the aforesaid period were no longer based on the rates specified by Sections 1 and 2 of R.A. 1435 but on the increased rates mandated under Sections 153 and 156 of the National Internal Revenue Code of 1977. We note, however, that the latter law does not specifically provide for a refund to these mining and lumber companies of specific taxes paid on manufactured and diesel fuel oils.

(103 SCRA 710 [1981]}}, the Court held that the authorized partial refund under section 5 of R.A. No. 1435 partakes of the nature of a tax exernption and therefore cannot be allowed unless granted in the most explicit and categorical language. Since the grant of refund privileges must be strictly construed be the amounts deemed paid under Sections 1 and 2 sections 1 and 2 of B.A. 1435 provide:

“SECTION 1. Section one hundred and forty- two of the National Internal Revenue Code, as amended, is further amended to read as follows: "SEC. 142. Apeciffrc fax of feaaufractured ofS and offer firels - On refined and manufactured mineral oils

DECISION -

C.T.A. CASE NO, 3967 and rnotor fuels, there shall be collected the following taxes:

tb) Lubricating oils, per liter of volume capacity, seven centavos;

(c) Naptha, gasoline, and all other similar products of distillation, per liter of volume capacity, eight centavos; and “SEC. 2. Section one hundred and forty-five of the National Internal Revenue Code, as amended, is further arnended to read as follows:

“SEC. 145. Specific Fax 3B Diese? fuel off - On fuel oil, commercially known as diesel fuel oil, and on all similar fuel oils, having more or leds the same generating power, there shali be collected, per metric ton, one peso.”

In a more recent case involving the sarne parties and issue the Supreme Court ruled “that since Atlas’s claims for refund cover specific taxes paid before 1985, it should be granted the refund based on the rates specified by Sections 1 and 2 of R.A. No. 1435 and not on the increased rates under Sections 153 and 156 of the Tax Code of i977, provided the claims are not yet barred by prescription. The claim for refund on the specific tax 3 paid prier to 21 July 1976 had already prescribed because claims for refund should be made within two years from the date of payment of the tax sought to be refunded and Atlas’ judicial

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claim for refund was made only on 21 July 1978." (Commissioner of Internal Revenue v. Hon. Court of

Appeals and Atlas Consolidated Mining and Development

Corporation, GR. No. 106913, May 10, 1994) In view of the foregoing rulings laid down by the Supreme Court, the only thing left for us to do is to determine the amount of tax credit which petitioner is entitled to based on Sections 1 and 2 of R.A. No. 1435. However, the amount of tax credit shall be limited to 254 of the specific taxes paid by petitioner from August 24, 1983 because prior to said date the claim for tax credit had prescribed. . ‘ After evaluating the decumentary evidence presented by petitioner, the Court arrived at the following computation on the amount of specific taxes creditable in fayor of petitioner. (See

COMPUTATION OF THE 25% SPECIFIC TAZ REFUNDABLE

PURSUANT TO SECTION 5 IN RELATION WITH SECTIONS 1 AND 2 OF R.A. NO. 1435 Cils & Lubricants 18,.000L 0.07 /L Sec Sof RA. Mo. 1435 ——£_258 DECISION -.

C.T.A. CASE NO. 3967

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WHEREFORE, the petition for review is hereby GRANTED. Respondent is hereby ordered to refund in favor of petitioner the amount of P34,424.69, representing 25% specific taxes paid on locally purchased manufactured fuels, oils and diesel pursuant te the provision of Section 5 of Republic Act No. 1435. No costs of suit.

Ou Fr QQ

Wa ERNESTO D. ACOSTA

Presiding Judge

WE CONCUR -

WEL E.GRUBA ssociate Judge ' * RAMON 0. DE EYHA

Associate Judge

CERTIFICATION

] hereby certify that the 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 BD. ACOSTA

Presiding Judge

Court of Tax Appeals

ANNEX " A"

At l a s Co n so lidaLed Mining a nd De velopment, Cor p . Dat e 1983 Aug.

Sept.

Oc t.

Nov.

De c.

1984 Jan.

Feb.

~1a r.

Apr .

May

June

July

Aug.

Sept.

Pur c h ases o f Hanufa c ture d oi ls and fu e ls in lit ers e ntitl ed Lo the 25% refund under Sec. 1 & 2 of R.A . 143 5

AV Gas

Extra

Lubes

AV Turbo

10,000 6,000 102,000 6,000 66,000 6,000 6,.000 76,000 7,330 76,000 1,330 76,000 6,000 6,000 76,000 6,000 6,000 76,000 6,000 66 , 000 6,000 26,000 6,000 10,000 56,000 6 , 000 -s6,ooo 0,0 0 6,000 '•6. 000 6 , 000 49,9B7

Diesel

2-, 329, 378 4,921,377 2 , 202,642 G'•O, 9 20 3,537,414

ANNEX "A"

page2 Atlas Consolidated Mining and Development, Purchases of Manufactured oils and fuels in liters entitled to the 25% refund under Sec. 1 & 2 of R.A. 1435

Conversion of Liters of

Diesel into Metric Tons:

Formula:

(Diesel in Lts. x Specific Gravity) 1,000 (16,214,365 x 0.8429/I1t.)

1,000 13,667 MT of Diesel eon Corp.

Date AV Gas Extra Lubes © AV Turbo Diesel Oct. 6,000 46,000 20,000 2.,582,634 Nov. 10,000 6,000 40,000 Dec. 12,000 6,000 .

66,000 1985 Jan. 6,000 ; 46,000 Feb. 6,000 50,000 Mar. 12,000 . : 6,000 50,000 ‘Apr. 6,000 50,000 May 6,000 60,000 June . 6,000 26,000 :

Total 144,660 1,341,987 18,000 18,000 16,214,365