Title
Republic vs. Philippine Airlines, Inc.
Case
G.R. No. 209353-54
Decision Date
Jul 6, 2015
Philippine Airlines sought a refund of excise taxes paid, claiming exemption under its franchise. The Supreme Court upheld the CTA’s ruling, affirming PAL’s tax privileges under P.D. 1590, as it was not repealed by R.A. 9334.
dispute
claim for refund
excise tax

Case Summary (G.R. No. 209353-54)

Facts Leading to the Claim for Refund

PAL sought a refund of P4,469,199.98, which it alleged to be excise tax erroneously paid. PAL made its administrative move by filing written refund claims with the Bureau of Internal Revenue (BIR) on 18 January 2007. Because the BIR did not act on the administrative claims, PAL filed two separate Petitions for Review before the CTA on 30 July 2007 and 21 December 2007, docketed as C.T.A. Case Nos. 7665 and 7713, respectively.

The CTA consolidated the two petitions and tried them jointly. On 17 April 2012, the CTA Second Division rendered a Decision granting the petitions and ordering the CIR and the COC to refund PAL the total amount of P4,469,199.98. The CIR and the COC moved for reconsideration separately on 23 April 2012 and 4 May 2012, but both motions were denied by a CTA Resolution dated 28 June 2012.

CTA en banc Proceedings and Its Denial of the Petitions

The parties’ appeals were consolidated before the CTA en banc. The CTA en banc denied both petitions. It ruled that R.A. 9334 was not expressly repealed as to the exemption embodied in P.D. 1590. In its reasoning, the CTA emphasized that P.D. 1590 was a special law governing PAL’s franchise, while R.A. 9334 was a general law; thus, P.D. 1590 must prevail. The CTA further held that the petitioners’ reliance on Cagayan Electric Power Light Co. Inc. v. CIR was misplaced because that case involved an express repeal of R.A. 5431 after subjecting all corporate taxpayers not expressly exempted to income tax.

CIR’s Position in C.T.A. EB No. 920

In C.T.A. EB No. 920, the CIR contended that PAL was not entitled to the refund because P.D. 1590, particularly Section 13, had allegedly been expressly amended by R.A. 9334. The CIR also argued that PAL failed to establish that the relevant commissary supplies were not locally available in reasonable quantity, quality, or price. According to the CIR, PAL presented only self-serving testimony from its own employee and did not present independent and credible evidence.

COC’s Position in C.T.A. EB No. 922

In C.T.A. EB No. 922, the COC argued primarily that the case should have been dismissed outright for failure to state a cause of action because it allegedly acted only as a collecting agent for the CIR. The COC also maintained that PAL failed to exhaust its administrative remedies with the COC. Like the CIR, the COC further argued that Sections 6 and 10 of R.A. 9334 repealed Sections 13 and 24 of P.D. 1590.

The CTA en banc Ruling on Exemption and Refund Eligibility

The CTA en banc held that PAL was entitled to a refund of excise taxes paid on PAL’s commissary supplies. It explained that PAL’s exemption under P.D. 1590 was not expressly repealed by R.A. 9334. It also found that PAL opted to pay its basic corporate income tax for the fiscal year ending 31 March 2006. The CTA further found that the imported articles were intended for PAL’s operations and were not locally available in reasonable quantity, quality, or price. Based on these findings, the CTA concluded that PAL met the requirements for recovery of the erroneously paid excise taxes, in the total amount of P4,469,199.98.

The Petitions Before the Supreme Court and the Consolidated Issues

After the CTA en banc ruled against them, the COC did not file a motion for reconsideration with the CTA. Instead, it directly filed a Petition before the Supreme Court attacking the CTA en banc Decision in C.T.A. EB Nos. 920 and 922, docketed as G.R. Nos. 209353-54. The CIR, on the other hand, appealed the CTA en banc Decision and its Resolution on the CIR’s motion for reconsideration, docketed as G.R. Nos. 211733-34.

Both petitions raised issues that converged on a central question: whether **Sections 6 and 10 of R.A. 9334 repealed Section 13 of P.D. 1590.

Supreme Court’s Treatment of the Controlling Law and Prior Adjudication

The Supreme Court found the petitions without merit. It reasoned that the controversy was not novel because in CIR v. PAL, the Court had already passed upon substantially the same issues raised by the same petitioners, with differences only in the taxable period and the amount of refundable tax. The Court reaffirmed the statutory construction rule that a later law that is general in terms, and that does not expressly repeal or amend an earlier special law, will not ordinarily disturb the special provisions of the earlier statute.

Textual Reading of P.D. 1590 and R.A. 9334

The Court reviewed the pertinent provisions of P.D. 1590 and R.A. 9334 and concluded that no express repeal of the exemption grant existed. It quoted P.D. 1590, Section 13, which provides that the franchise grantee shall pay, during the life of the franchise, whichever of the two alternatives yields a lower tax: either the basic corporate income tax or a franchise tax. The same provision states that the tax paid under either alternative shall be in lieu of all other taxes, duties, royalties, registration, license, and other fees and charges imposed by any authority. Among the taxes covered is the grant that the grantee shall pay no other taxes on specified importations, including “commissary and catering supplies,” subject to conditions that the articles are imported for use in PAL’s transport and nontransport operations and incidental activities, and that they are not locally available in reasonable quantity, quality, or price.

The Court also quoted P.D. 1590, Section 24, which provided that the franchise may be modified, amended, or repealed only by an express special law or decree that specifically modifies or repeals the franchise or its sections. It then contrasted this with R.A. 9334, whose Section 6 amended Section 131 of the National Internal Revenue Code of 1997, and whose Section 10 contained the general repealing clause for laws inconsistent with the Act.

Principle of Special Law Prevails Over General Law; No Demonstrated Repeal

Relying on its earlier ruling in CIR v. Philippine Air Lines, Inc., the Court reiterated that the Legislature did not revoke or amend P.D. 1590 after PAL’s privatization, revealing an intent that PAL continues to enjoy the rights and privileges stated in its charter. It emphasized that the franchise-specific repeal mechanism in P.D. 1590, Section 24 required an express special law or decree that would specifically identify the franchise provision to be repealed.

The Court also adopted the CTA en banc’s reasoning that Section 6 of R.A. 9334, although it contains the phrase “the provisions of any special or general law to the contrary notwithstanding,” did not constitute an express repeal of PAL’s franchise exemptions because it did not specifically identify P.D. 1590 as among the acts intended to be repealed. The Court thus treated P.D. 1590 as the governing special law over the later general provisions of the NIRC as amended by R.A. 9334. It held that PAL’s franchise exemption remained effective on the importation of commissary and catering supplies, provided the stated conditions were met.

Effect of Later Tax Law Changes and PAL’s Remaining Options

The Court further explained the impact of later statutory developments: it observed that the amendment of the NIRC through R.A. 9337 abolished the franchise tax and subjected domestic airlines like PAL to corporate income tax and VAT. Nevertheless, the Court held that PAL remained exempt from other taxes, duties, royalties, registrations, licenses, and other fees and charges provided it paid the corporate income tax as granted in its franchise agreement. This framework, as described by the Court, left PAL with the payment of basic corporate income tax as its mechanism under the “in lieu of all other taxes” clause, except for VAT and subject to the conditions in the franchise.

On the facts found by the CTA en banc, the Court noted that PAL had paid its basic corporate income tax for the fiscal year ending 31 March 2006. It then confirmed that PAL could claim exemption from taxes and charges due on importations of commissary and catering supplies upon proof of two conditions: first, that the items were imported for use in PAL’s transport and nontransport operations and incidental activities; and second, that the supplies were not

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