G.R. No. 94210 - People vs. Calo Jr.

The dispute arose from the importation of alcohol and tobacco products by Philippine Airlines, Inc. (PAL) for its commissary supplies during international flights.
PAL had previously enjoyed tax privileges under Presidential Decree No. 1590 (PD 1590), which granted it a special franchise under which it was allowed to pay either a basic corporate income tax or a franchise tax in lieu of other taxes.
Subsequent amendments to the National Internal Revenue Code (NIRC) occurred through Republic Act No. 8424 (RA 8424) and later through Republic Act No. 9334 (RA 9334), the latter increasing excise tax rates on alcohol and tobacco products and removing certain tax exemptions.

PD 1590 was enacted on June 11, 1978, providing tax privileges as part of PAL’s franchise.
RA 8424, known as the Tax Reform Act of 1997, amended Section 131 of the NIRC concerning the payment of excise taxes on imported articles.
Effective January 1, 2005, RA 9334 further amended Section 131 of the NIRC by:

Increasing excise tax rates on alcohol and tobacco products.
Eliminating the exemption from excise taxes on importations of cigars, cigarettes, distilled spirits, wines, and fermented liquors; these imports, even if destined for duty-free shops, became subject to applicable taxes and duties.

PAL’s importations arriving in Manila between October 3, 2007 and December 22, 2007 were thus assessed excise taxes amounting to P6,329,735.21.

On September 5, 2008, PAL paid the excise taxes under protest.
On March 5, 2009, PAL filed an administrative claim for a tax refund with the Bureau of Internal Revenue (BIR), asserting its continued tax privileges under Section 13 of PD 1590.
Due to the impending expiration of the two-year prescriptive period for filing judicial claims for refund, PAL filed a petition for review on September 2, 2010, before the Court of Tax Appeals (CTA) in CTA Case No. 8153.
The CTA Second Division, after trial proceedings in which PAL’s answer was opposed by the Commissioner of Internal Revenue and the Commissioner of Customs (with the latter later declared in default), rendered a decision on January 17, 2013:

The refund claim was partially granted for the excise tax on alcohol, as PAL had sufficiently proven its tax exemption under Section 13 of PD 1590.
Conversely, for tobacco importations, PAL did not satisfy the requirement concerning the unavailability of the product locally in reasonable quantity, quality, or price, and thus was denied a refund on that portion.

Following denied motions for reconsideration in the CTA Second Division (Resolution dated June 4, 2013), the parties elevated the case to the CTA En Banc (docketed as CTA EB Nos. 1029, 1031, and 1032).
The CTA En Banc, on April 30, 2014, dismissed the consolidated petitions and affirmed the Second Division’s decision.
Petitioners (the Commissioner of Internal Revenue and the Commissioner of Customs) initiated a petition for review on certiorari, raising the sole issue concerning the applicability of excise tax on PAL’s importations.

The primary issue is whether PAL’s importations of alcohol and tobacco products for its commissary supplies are subject to excise tax, given its tax privileges under PD 1590.
Petitioners argued that Section 131 of the NIRC—as amended by RA 9334—repealed PAL’s tax privilege under Section 13 of PD 1590.
PAL contended that the special franchise provisions in PD 1590 survive despite the amendments in the general tax law and that a later law without an express repeal of the special provisions should not affect PAL’s exemptions.

Whether PAL’s importations of alcohol and tobacco products for use in its commissary supplies are subject to excise taxes as imposed by Section 131 of the NIRC, as amended by RA 9334.
Whether the tax privilege granted under Section 13 of PD 1590 has been revoked or modified by the amendments contained in Section 131 of the NIRC and the provisions of RA 9334 and RA 9337.
Whether PAL adequately complied with the conditions set by Section 13 of PD 1590 for its imported articles to be exempt from excise tax (i.e., that the supplies are imported solely for its transport/non-transport operations and that such items are not locally available in reasonable quantity, quality, or price).