CIR v. Philippine Ace Lines, Inc. Section 14. Exemption from tax.

— All reparations goods

obtained by the Government shall be exempt from the
1968 payment of all duties, fees and taxes. Reparations goods
En banc obtained by private parties shall be exempt from the
payment of customs duties, compensating tax, consular fees
Facts: and the special import tax.
Under date of January 23, 1959, the Reparations
Section 20. This Act shall take effect upon its approval,
Commission agreed to sell to the Philippine Ace Lines the except that the amendment contained in section seven
cargo vessel M/S YAKAL and M/S MOLAVE which were hereof relating to the requirements for procurement orders
procured by the Reparations Commission from Japan for the including the requirement of downpayment by private
end-use of the latter under the Philippine-Japanese applicant end-users shall not apply to procurement orders
Reparations Agreement of May 9, 1956, at the agreed prices already duly issued and verified at the time of the passage
of P4,283,241.48 and P4,292,457.48, respectively. of this amendatory Act, and except further that the
amendment contained in section ten relating to the
insurance of the reparations goods by the end-users upon
Similar agreements involving two (2) other ocean-going cargo delivery shall apply also to goods covered by contracts
vessels were subsequently entered into by and between the already entered into by the Commission and the end-user
same parties: prior to the approval of this amendatory Act as well as goods
 one, dated November 11, 1959, referring to the purchase already delivered to the end-user, and except further that
and sale of M/S TINDALO for the price of the amendments contained in sections eleven and twelve
P7,054.177.78 and, hereof relating to the terms of the installment payments on
capital goods disposed of to private parties, and the
 the other, concerning the purchase and sale of M/S
execution of a performance bond before delivery of
NARRA under date of December 14, 1959, for the price reparations goods, shall not apply to contract for the
of P3,599,995.44. utilization of reparations goods already entered into by the
Commission and the end-users prior to the approval of this
All these agreements — invariably denominated as "Contract amendatory Act:  provided, that any end-user may apply
of Conditional Purchase and Sale of Reparations Goods" the renovation of his utilization contract with the
— stipulated, among others, that the Reparations commission in order to avail of any provision of this
amendatory Act which is more favorable to an
Commission retains title and ownership of the above-
applicant end-user than has heretofore been granted
described vessels until they were fully paid for and that in like manner and to the same extent as an end-user
the purchase prices of the vessels were to be paid by filing his application after the approval of this
Philippine Ace Lines to the Reparations Commission under amendatory Act, and the Commission may agree to
deferred payment plans in ten (10) equal annual installments. such renovation on condition that the end-user shall
voluntarily assume all the new obligations provided
The four (4) vessels referred to were thereafter delivered to for in this amendatory Act.
Philippine Ace Lines in Japan. They were taken to the
Philippines where they were registered in the Bureau of Invoking the favorable provisions of R.A. 3079, Philippine Ace
Customs in the name of the Reparations Commission. Lines then entered into "Renovated Contract(s) of
Thereafter, the vessels were operated and utilized by Conditional Purchase and Sale of Reparations Goods"
Philippine Ace Lines in its shipping business, plying between with the Reparations Commission, covering the four (4) cargo
ports of foreign countries and the Philippines. vessels it had previously acquired from the latter under the
Reparations Act.
Sometime later, however, the Commissioner of Internal
Revenue assessed against the Philippine Ace lines the CTA: It reversed the rulings of the Commissioner of
amounts of P304,428.00, P256,275.00, P499,948.10 and Internal Revenue and the Commissioner of Customs. It
P305.073.47 as compensating taxes on the M/S YAKAL, ruled:
M/S NARRA, M/S TINDALO and M/S MOLAVE, respectively,
and demanded payment of the said amounts. The sole issue presented for our consideration is
whether or not petitioner is liable for the
The Commisioner of Customs, joining the Commissioner of compensating tax on the four ocean-going vessels in
Internal Revenue, then placed the vessels under customs question.
custody at the different ports of the Philippines where they
were found at the time, and refused to give due course to the To deny exemption from compensating tax to one
"clearance" of said vessels as requested by the Reparations whose utilization contract has been renovated, while
Commission and Philippine Ace Lines, unless the granting the exemption to one who files an
compensating taxes assessed against the latter were first paid application for acquisition of reparations goods after
to the Commissioner of Internal Revenue. the approval of the new law, would be contrary to
the express mandate of the law that they both be
Respondent’s contention: Philippine Ace Lines protested subject to the same obligations and they both enjoy
said actions of the Commissioners of Internal Revenue and of the same privileges in like manner and to the same
Customs, alleging that the legal title and ownership of the extent. It would be a manifest distortion of the literal
vessels operated by it were still vested with the Reparations meaning and purpose of the law.
Commission which, under Section 14 of the Reparations
Act, was exempt from payment of all duties, fees and The decisions appealed from in both cases are
taxes on all reparations goods obtained by it. hereby reversed. Accordingly, the surety bonds filed
by petitioner to guarantee payment of the tax in
CIR and CoC: However, the said officials rejected the protest question are thereby cancelled. No pronouncement
and ruled that the compensating taxes should first be paid, as to costs.
per directive to that effect by the Secretary of Finance.
Thus this appeal.
In the meantime, Congress enacted Republic Act No. 3079
(effective June 17, 1961) which amended R.A. 1789, Petitioner’s contentions:
otherwise known as the Reparations Act, and provided as  that the CTA erred in ruling that renovation of the
follows: contracts of purchase and sale of the vessels involved in
these cases, after the approval of R.A. 3079, entitled
 Philippine Ace Lines to the exemption from payment of Indeed, appellants do not assail the Constitutionality
compensating tax under the provisions of the said law, of said Section 14, insofar as it grants exemptions to
notwithstanding the fact that the vessels referred to were end-users who, after the approval of R.A. 3079, on
acquired from the Reparations Commission long before June 17, 1961, purchased reparations goods
the approval of said amendatory Act which, by the way, procured by the Commission. From the view point of
did not expressly authorize such exemption. Constitutional Law, especially the equal protection
 that the favorable provisions of Republic Act No. 3079 clause, there is no difference between the grant of
invoked by Philippine Ace Lines and relied upon by the exemption to said end-users, and the extension of
decision of the CTA cannot include exemption from the grant to those whose contracts of purchase and
compensating tax, otherwise, had Congress intended so, sale were made before said date, under R.A. 1789.
it would have provided for such exemption in clear and
explicit terms; It is true that Republic Act No. 3079 does not
 that the tax exemption contained in Section 14 of the explicitly declare that those who purchased
amendatory Act cannot have retroactive application in reparations goods prior to June 17, 1961, are
the absence of any provision for retroactivity; and exempt from the compensating tax. It does not
 that to grant such exemption to end-users who have say so, because they do not really enjoy such
acquired reparations goods before the approval of exemption, unless they comply with the proviso
Republic Act No. 3079 would be prejudicial to the in Section 20 of said Act,  by applying for the
Government. renovation of their respective utilization
contracts, "in order to avail of any provision of the
Issue: Amendatory Act which is more favorable" to the
Whether or not Philippines Ace Lines is exempted from the applicant.
payment of compensating tax. – YES.
In other words, it is manifest, from the language of
Ruling: said Section 20, that the same intended to give such
Appellant's position calls to mind Commissioner of Internal buyers the opportunity to be treated "in like manner
Revenue vs. Bothelo Shipping Corporation, the factual and to the same extent as an end-user filing his
setting of which is on all fours with the case at bar, and where application after the approval of this Amendatory
this Court, speaking through Chief Justice Roberto Act." Like the "most favored nation clause" in
Concepcion, disposed of the same charge and contentions in international agreements, the aforementioned
clear and unequivocal terms, in the following wise: Section 20 thus seeks, not to discriminate or to
create an exemption or exceptions, but to abolish the
The inherent weakness of the last ground becomes discrimination, exemption or exception that would
manifest when we consider that, if true, there could otherwise result, in favor of the end-user who bought
be no tax exemption of any kind whatsoever, even if after June 17, 1961 and against one who bought
Congress should wish to create one, because every prior thereto. Indeed, it is difficult to find substantial
such exemption implies a waiver of the right to justification for the distinction between the one and
collect what otherwise would be due to the the other.
Government, and, in this sense, is prejudicial
thereto. In fact, however, tax exemptions may and The Court finds no reason to modify, much less depart from
do exist, such as the one prescribed in Section 14 of the conclusion reached in Bothelo, as expressed in the above-
R.A. 1789, as amended by R.A. 3079, which, by the quoted opinion of the Court there, and the same should
way, is "clear and explicit," thus, meeting the first resolve the identical problem now brought before Us in this
ground of appellant's contention. proceeding.

It may not be amiss to add that no tax exemption — WHEREFORE, the decision of the Court of Tax Appeals
like any other legal exemption or exception — is appealed from in these cases is affirmed; no pronouncement
given without any reason therefor. In much the same as to costs.
way as other statutory commands, its avowed
purpose is some public benefit or interest, which the
law-making body considers sufficient to offset the
monetary loss entailed in the grant of the exemption.
Indeed, Section 20 of R.A. 3079 exacts a
valuable consideration for the retroactivity of
its favorable provision, namely, the voluntary
assumption, by the end-user, who bought
reparations goods prior to June 17, 1961, of "all
the new obligations provided for in" said Act.

There is no constitutional injunction against

granting tax exemptions to particular persons.
In fact, it is not unusual to grant legislative
franchises to specific individuals or entities,
conferring tax exemptions thereto. What the
fundamental law forbids is the denial of equal
protection such as through unreasonable
discrimination or classification.

Furthermore, Section 14 of the Law on

Reparations, as amended, does not exempt
particular persons from the compensating tax,
but persons belonging to a particular class.