SECOND DIVISION

[ G.R. No. 215705-07. February 22, 2017 ]

COMMISSIONER OF INTERNAL REVENUE AND COMMISSIONER OF
CUSTOMS, PETITIONERS, VS. PHILIPPINE AIRLINES, INC.,
RESPONDENT.

DECISION

PERALTA, J.:

Before the Court is a petition for review on certiorari seeking the reversal and setting
aside of the Decision[1] and Resolution[2] of the Court of Tax Appeals (CTA) En Banc,
dated April 30, 2014 and December 16, 2014, respectively, in CTA EB Nos. 1029, 1031
and 1032. The assailed judgment affirmed the January 17, 2013 Decision[3] and June 4,
2013 Resolution[4] of the CTA Special 2nd Division in CTA Case No. 8153.

The controversy in the instant case, which gave rise to the present petition for review
on certiorari, revolves around the interpretation of the provisions of Presidential Decree
No. 1590 (PD 1590), otherwise known as "An Act Granting a New Franchise
to Philippine Airlines, Inc. to Establish, Operate, and Maintain Air Transport Services in
the Philippines and Other Countries" vis-a-vis Republic Act No. 9334 (RA 9334),
otherwise known as "An Act Increasing the Excise Tax Rates Imposed on Alcohol and
Tobacco Products, Amending for the Purpose Sections 131, 141, 142, 145, and 228 of the
National Internal Revenue Code of 1997." PD 1590 was enacted on June 11, 1978, while
RA 9334 took effect on January 1, 2005.

Prior to the effectivity of RA 9334, Republic Act No. 8424 (RA 8424), otherwise known
as the "Tax Reform Act of 1997," was enacted and took effect on January 1, 1998,
thereby amending the National Internal Revenue Code (NIRC). Section 131 of the NIRC,
as amended by RA 8424, provides:
SEC. 131. Payment of Excise Taxes on Imported Articles. -

(A) Persons Liable. — Excise taxes on imported articles shall be paid by the owner or
importer to the Customs Officers, conformably with the regulations of the Department of
Finance and before the release of such articles from the customs house, or by the person
who is found in possession of articles which are exempt from excise taxes other than
those legally entitled to exemption.

In the case of tax-free articles brought or imported into the Philippines by persons,
entitles, or agencies exempt from tax which are subsequently sold, transferred or
exchanged in the Philippines to non-exempt persons or entitles, the purchasers or
recipients shall be considered the importers thereof, and shall be liable for the duty
and internal revenue tax due on such importation.

The provision of any special or general law to the contrary notwithstanding, the
importation of cigars and cigarettes, distilled spirits and wines into the Philippines,
even if destined for tax and duty free shops, shall be subject to all applicable taxes,
duties, charges, including excise taxes due thereon: Provided, however, That this
shall not apply to cigars and cigarettes, distilled spirits and wines brought directly
into the duly chartered or legislated freeports of the Subic Special Economic and
Freeport Zone, crated under Republic Act No. 7227; the Cagayan Special Economic
Zone and Freeport, created under Republic Act No. 7922; and the Zamboanga City
Special Economic Zone, created under Republic Act No. 7903, and are not
transshipped to any other port in the Philippines: Provided, further, That
importations of cigars and cigarettes, distilled spirits and wines by a government-
owned and operated duty-free shop, like the Duty-Free Philippines (DFP), shall be
exempted from all applicable taxes, duties, charges, including excise tax due
thereon: Provided, still further, That if such articles directly imported by a government-
owned and operated duty-free shop like the Duty-Free Philippines, shall be labeled "tax
and duty-free" and "not for resale": Provided, still further, That is such articles brought
into the duly chartered or legislated freeports under Republic Acts No. 7227, 7922 and
7903 are subsequently introduced into the Philippine customs territory, then such articles
shall, upon such introduction, be deemed imported into the Philippines and shall be
subject to all imposts and excise taxes provided herein and other statutes: Provided,
finally, That the removal and transfer of tax and duty-free goods, products, machinery,
equipment and other similar articles, from one freeport to another freeport, shall not be
deemed an introduction into the Philippine customs territory.

Articles confiscated shall be disposed of in accordance with the rules and regulations to
be promulgated by the Secretary of Finance, upon recommendation of the Commissioner
of Customs and Internal Revenue, upon consultation with the Secretary of Tourism and
the General manager of the Philippine Tourism Authority.

The tax due on any such goods, products, machinery, equipment or other similar articles
shall constitute a lien on the article itself, and such lien shall be superior to all other
charges or liens, irrespective of the possessor thereof.

(B) Rate and Basis of the Excise Tax on Imported Articles. - Unless otherwise specified
imported articles shall be subject to the same rates and basis of excise taxes applicable to
locally manufactured articles.[5]
On January 1, 2005, RA 9334 took effect, Section 6 of which amended the abovequoted
Section 131 of the NIRC and, accordingly, reads as follows:
SEC. 131. Payment of Excise Taxes on Imported Articles. -

(A) Persons Liable. - Excise taxes on imported articles shall be paid by the owner or
importer to the Customs Officers, conformably with the regulations of the Department of
Finance and before the release of such articles from the customs house, or by the person
who is found in possession of articles which are exempt from excise taxes other than
those legally entitled to exemption.

"In the case of tax-free articles brought or imported into the Philippines by persons,
entities, or agencies exempt from tax which are subsequently sold, transferred or
exchanged in the Philippines to non-exempt persons or entities, the purchasers or
recipients shall be considered the importers thereof, and shall be liable for the duty
and internal revenue tax due on such importation.

"The provision of any special or general law to the contrary notwithstanding, the
importation of cigars and cigarettes, distilled spirits, fermented liquors and wines
into the Philippines, even if destined for tax and duty-free shops, shall be subject to
all applicable taxes, duties, charges, including excise taxes due thereon. This shall
apply to cigars and cigarettes, distilled spirits, fermented liquors and wines brought
directly into the duly chartered or legislated frecports of the Subic Special Economic
and Freeport Zone, created under Republic Act No. 7227; the Cagayan Special
Economic Zone and Freeport, created under Republic Act No. 7922; and the
Zamboanga City Special Economic Zone, created under Republic Act No. 7903, and
such other freeports as may hereafter be established or created by law: Provided,
further, That importations of cigars and cigarettes, distilled spirits, fermented
liquors and wines made directly by a government-owned and operated duty-free
shop, like the Duty-Frec Philippines (DFP), shall be exempted from all applicable
duties only: Provided, still further, That such articles directly imported by a government-
owned and operated duty-free shop, like the Duty-Free Philippines, shall be labeled 'duty-
free' and 'not for resale': Provided, finally, That the removal and transfer of tax and duty-
free goods, products, machinery, equipment and other similar articles other than cigars
and cigarettes, distilled spirits, fermented liquors and wines, from one freeport to another
freeport, shall not be deemed an introduction into the Philippine customs territory."

"Cigars and cigarettes, distilled spirits and wines within the premises of all duty-free
shops which are not labelled as hereinabove required, as well as tax and duty-free articles
obtained from a duty-free shop and subsequently found in a non-duty-free shop to be
offered for resale shall be confiscated, and the perpetrator of such non-labelling or re-
selling shall be punishable under the applicable provisions of this Code.

"Articles confiscated shall be disposed of in accordance with the rules and regulations to
be promulgated by the Secretary of Finance, upon recommendation of the Commissioners
of Customs and Internal Revenue, upon consultation with the Secretary of Tourism and
the General Manager of the Philippine Tourism Authority.

"The tax due on any such goods, products, machinery, equipment or other similar articles
shall constitute a lien on the article itself, and such lien shall be superior to all other
charges or liens, irrespective of the possessor thereof.

"(B) Rate and Basis of the Excise Tax on Imported Articles. - Unless otherwise specified,
imported articles shall be subject to the same rates and basis of excise taxes applicable to
locally manufactured articles."[6]
The amendment increased the rates of excise tax imposed on alcohol and tobacco
products. It also removed the exemption from taxes, duties and charges, including excise
taxes, on importations of cigars, cigarettes, distilled spirits, wines and fermented liquor
into the Philippines.

Thereafter, PAL's importations of alcohol and tobacco products which were intended for
use in its commissary supplies during international flights, were subjected to excise taxes.
For the said imported articles, which arrived in Manila between October 3, 2007 and
December 22, 2007, PAL was assessed excise taxes amounting to a total of
P6,329,735.21.

On September 5, 2008, PAL paid under protest. On March 5, 2009, PAL filed an
administrative claim for refund of the above excise taxes it paid with the Bureau
of Internal Revenue (BIR) contending that it is entitled to tax privileges under Section 13
of PD 1590, which provides as follows:
Section 13. In consideration of the franchise and rights hereby granted, the grantee
shall pay to the Philippine Government during the life of this franchise whichever of
subsections (a) and (b) hereunder will result in a lower tax:
(a) The basic corporate income tax based on the grantee's annual net taxable income
computed in accordance with the provisions of the National Internal Revenue Code; or

(b) A franchise tax of two per cent (2%) of the gross revenues derived by the grantee from
all sources, without distinction as to transport or nontransport operations; provided,
that with respect to international air-transport service, only the gross passenger, mail,
and freight revenues from its outgoing flights shall be subject to this tax.
The tax paid by the grantee under either of the above alternatives shall be in lieu of
all other taxes, duties, royalties, registration, license, and other fees and charges of
any kind, nature, or description, imposed, levied, established, assessed, or collected
by any municipal, city, provincial, or national authority or government agency, now
or in the future, including but not limited to the following:
1. All taxes, duties, charges, royalties, or fees due on local purchases by the grantee of
aviation gas, fuel, and oil, whether refined or in crude form, and whether such taxes,
duties, charges, royalties, or fees are directly due from or imposable upon the purchaser
or the seller, producer, manufacturer, or importer of said petroleum products but are
billed or passed on the grantee either as part of the price or cost thereof or by mutual
agreement or other arrangement; provided, that all such purchases by, sales or deliveries
of aviation gas, fuel, and oil to the grantee shall be for exclusive use in its transport and
nontransport operations and other activities incidental thereto;

2. All taxes, including compensating taxes, duties, charges, royalties, or fees due 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, that such articles or supplies or materials are imported for the use of the
grantee in its transport and transport operations and other activities incidental
thereto and are not locally available in reasonable quantity, quality, or price;

3. All taxes on lease rentals, interest, fees, and other charges payable to lessors, whether
foreign or domestic, of aircraft, engines, equipment, machinery, spare parts, and other
property rented, leased, or chartered by the grantee where the payment of such taxes is
assumed by the grantee;

4. All taxes on interest, fees, and other charges on foreign loans obtained and other
obligations incurred by the grantee where the payment of such taxes is assumed by the
grantee;

5. All taxes, fees, and other charges on the registration, licensing, acquisition, and
transfer of aircraft, equipment, motor vehicles, and all other personal and real property of
the grantee; and

6. The corporate development tax under Presidential Decree No. 1158-A.

The grantee, shall, however, pay the tax on its real property in conformity with existing
law.

For purposes of computing the basic corporate income tax as provided herein, the grantee
is authorized:

(a) To depreciate its assets to the extent of not more than twice as fast the normal rate of
depreciation; and

(b) To carry over as a deduction from taxable income any net loss incurred in any year up to
five years following the year of such loss.[7]
Considering that the two-year prescriptive period for filing a judicial claim for refund
was about to expire and the BIR was yet to act on its claims, PAL filed a judicial claim
for refund, via a petition for review, with the CTA on September 2, 2010. The case,
docketed as CTA Case No. 8153, was raffled-off to the Second Division of the tax court.
Respondent CIR filed his Answer, while respondent COC was declared in default for
failure to file his Answer and Pre-Trial Brief. Thereafter, trial ensued.

On January 17, 2013, the CTA Second Division issued a Decision[8] partially granting
PAL's claim for refund. The dispositive portion of the said Decision reads:
WHEREFORE, the instant Petition for Review is hereby PARTIALLY GRANTED.
Accordingly, respondents are hereby ORDERED to REFUND to petitioner the amount
of P2,094,985.21, representing petitioner's erroneously-paid excise tax on September 5,
2008.

SO ORDERED.[9]
The CTA Second Division found that PAL was able to sufficiently prove its exemption
from the payment of excise taxes pertaining to its importation of alcoholic products and
since it already paid the disputed excise taxes on the subject importation, it is entitled to
refund. However, the tax court ruled that, with respect to its subject importation of
tobacco products, PAL failed to discharge its burden of proving that the said product
were not locally available in reasonable quantity, quality or price, in accordance with the
requirements of the law. Thus, it is not entitled to refund for the excise taxes paid on such
importation.

The herein parties filed separate motions for reconsideration, but these were all denied by
the CTA Second Division in its Resolution dated June 4, 2013.

Consequently, the parties appealed to the CTA En Banc via separate petitions for review,
docketed as CTA EB Nos. 1029, 1031 and 1032, which were later consolidated.

On April 30, 2014, the CTA En Banc rendered a Decision dismissing the consolidated
petitions and affirming in toto the assailed Decision of the CTA Second Division.

The parties filed their respective motions for reconsideration, but the CTA En
Banc denied them in its Resolution dated December 16, 2014.

Hence, the instant petition for review on certiorari raising a sole issue, to wit:
Whether PAL's alcohol and tobacco importations for its commissary supplies are subject
to excise tax.[10]
In the present petition, petitioner argues that:
I.

Section 131 of the NIRC revoked PAL's tax privilege under Section 13 of P.D. No. 1590
with respect to excise tax on its alcohol and tobacco importation.

II
Assuming that it is still entitled to the tax privilege, PAL failed to adequately prove that
the conditions under Section 13 of P.D. No. 1590 were met in this case.[11]
The main question raised in the instant case is whether the tax privilege of PAL provided
in Section 13 of PD 1590 has been revoked by Section 131 of the NIRC of 1997, as
amended by Section 6 of RA 9334.

The Court rules in the negative.

This issue is not novel. Thus, as in previous cases resolving the same question and
involving substantially similar factual backgrounds, the ruling will not change.

In the fairly recent case of Commissioner of Internal Revenue and Commissioner of

Customs v. Philippine Airlines, Inc.,[12] the core issue raised was whether or not PAL's
importations of alcohol and tobacco products for its commissary supplies are subject to
excise tax. This Court, ruling in favor of PAL, held that:
It is a basic principle of statutory construction that a later law, general in terms and not
expressly repealing or amending a prior special law, will not ordinarily affect the special
provisions of such earlier statute. So it must be here.

Indeed, as things stand, PD 1590 has not been revoked by the NIRC of 1997, as amended.
Or to be more precise, the tax privilege of PAL provided in Sec. 13 of PD 1590 has not
been revoked by Sec. 131 of the NIRC of 1997, as amended by Sec. 6 of RA 9334. We
said as much in Commissioner of Internal Revenue v. Philippine Air Lines, Inc. [G.R. No.
180066, July 7, 2009, 609 Phil. 695]:
That the Legislature chose not to amend or repeal [PD] 1590 even after PAL was
privatized reveals the intent of the Legislature to let PAL continue to enjoy, as a private
corporation, the very same rights and privileges under the terms and conditions stated in
said charter. x x x
To be sure, the manner to effectively repeal or at least modify any specific provision of
PAL's franchise under PD 1590, as decreed in the aforequoted Sec. 24, has not been
demonstrated. And as aptly held by the CTA en banc, borrowing from the
same Commissioner of Internal Revenue case:
While it is true that Sec. 6 of RA 9334 as previously quoted states that "the provisions of
any special or general law to the contrary notwithstanding," such phrase left alone cannot
be considered as an express repeal of the exemptions granted under PAL's franchise
because it fails to specifically identify PD 1590 as one of the acts intended to be repealed.
xxx

Noteworthy is the fact that PD 1590 is a special law, which governs the franchise of PAL.
Between the provisions under PD 1590 as against the provisions under the NIRC of 1997,
as amended by 9334, which is a general law, the former necessary prevails. This is in
accordance with the rule that on a specific matter, the special law shall prevail over the
general law, which shall be resorted only to supply deficiencies in the former. In addition,
where there are two statutes, the earlier special and the later general — the terms of the
general broad enough to include the matter provided for in the special - the fact that one
is special and other general creates a presumption that the special is considered as
remaining an exception tothe general, one as a general law of the land and the other as the
law of a particular case.
Any lingering doubt, however, as to the continued entitlement of PAL under Sec. 13 of
its franchise to excise tax exemption on otherwise taxable items contemplated therein,
e.g., aviation gas, wine, liquor or cigarettes, should once and for all be put to rest by the
fairly recent pronouncement in Philippine Airlines, Inc. v. Commissioner
of Internal Revenue. In that case, the Court, on the premise that the "propriety of a tax
refund is hinged on the kind of exemption which forms its basis," declared in no
uncertain terms that PAL has "sufficiently prove[d]" its entitlement to a tax refund of the
excise taxes and that PAL's payment of either the franchise tax or basic corporate income
tax in the amount fixed thereat shall be in lieu of all other taxes or duties, and inclusive of
all taxes on all importations of commissary and catering supplies, subject to the condition
of their availability and eventual use. x x x[13]
In the more recent consolidated cases of Republic of the Philippines
v. Philippine Airlines, Inc. (PAL)[14] and Commissioner
of Internal Revenue v. Philippine Airlines, Inc. (PAL),[15] this Court, echoing the ruling in
the abovecited case of CIR v. PAL, held that:
In other words, the franchise of PAL remains the governing law on its exemption from
taxes. Its payment of either basic corporate income tax or franchise tax - whichever is
lower - shall be in lieu of all other taxes, duties, royalties, registrations, licenses, and
other fees and charges, except only real property tax. The phrase "in lieu of all other
taxes" includes but is not limited to taxes, duties, charges, royalties, or fees due on all
importations by the grantee of the commissary and catering supplies, provided that such
articles or supplies or materials are imported for the use of the grantee in its transport and
nontransport operations and other activities incidental thereto and are not locally
available in reasonable quantity, quality, or price.[16]
On July 1, 2005, Republic Act No. 9337 (RA 9337) took effect thereby further amending
certain provisions of the NIRC. Section 22 of RA 9337 specifically provides as follows:
SEC. 22. Franchises of Domestic Airlines. - The provisions of P.D. No. 1590 on the
franchise tax of Philippine Airlines, Inc., R.A. No. 7151 on the franchise tax of Cebu
Air, Inc., R.A. No. 7583 on the franchise tax of Aboitiz Air Transport Corporation, R.A.
No. 7909 on the franchise tax of Pacific Airways Corporation, R.A. No. 8339 on the
franchise tax of Air Philippines, or any other franchise agreement or law pertaining to a
domestic airline to the contrary notwithstanding:

(A) The franchise tax is abolished;

(B) The franchisee shall be liable to the corporate income tax;

(C) The franchisee shall register for value-added tax under Section 236, and to account
under Title IV of the National Internal Revenue Code of 1997, as amended, for value-
added tax on its sale of goods, property or services and its lease of property; and

(D) The franchisee shall otherwise remain exempt from any taxes, duties, royalties,
registration, license, and other fees and charges, as may be provided by their
respective franchise agreement.[17]
Thus, this Court held in the abovecited PAL consolidated cases:
However, upon the amendment of the 1997 NIRC, Section 22 of R.A. 9337 abolished the
franchise tax and subjected PAL and similar entities to corporate income tax and value-
added tax (VAT). PAL nevertheless remains exempt from taxes, duties, royalties,
registrations, licenses, and other fees and charges, provided it pays corporate income tax
as granted in its franchise agreement. Accordingly, PAL is left with no other option but to
pay its basic corporate income tax, the payment of which shall be in lieu of all other
taxes, except VAT, and subject to certain conditions provided in its charter.[18]
It bears to note that the repealing clause of RA 9337 enumerated the laws or provisions of
laws which it repeals. However, there is nothing in the repealing clause, nor in any other
provisions of the said law, which makes specific mention of PD 1590 as one of the acts
intended to be repealed.

Lastly, as in the abovecited cases, petitioners in the present petition again raise the issue
regarding PAL's alleged failure to comply with the conditions set by Section 13 of PD
1590 for its imported tobacco and alcohol products to be exempt from excise tax. These
conditions are: (1) such supplies are imported for the use of the franchisee in its
transport/non-transport operations and other incidental activities; and (2) they are not
locally available in reasonable quantity, quality and price.[19] However, as this Court has
previously held, the matter as to PAL's supposed noncompliance with the conditions set
by Section 13 of P.D. 1590 for its imported supplies to be exempt from excise tax, are
factual determinations that are best left to the CTA, which found that PAL had, in fact,
complied with the above conditions.[20] The CTA is a highly specialized body that
reviews tax cases and conducts trial de novo. Thus, without any showing that the findings
of the CTA are unsupported by substantial evidence, its findings are binding on this
Court.[21]

WHEREFORE, the instant petition for review on certiorari is DENIED. The assailed
Decision and Resolution of the Court of Tax Appeals En Banc, dated April 30, 2014 and
December 16, 2014, respectively, in CTA EB Nos. 1029, 1031 and 1032
are AFFIRMED.

SO ORDERED.
Carpio, (Chairperson), Leonardo-De Castro,* Mendoza, and Leonen, JJ., concur.

March 8, 2017

NOTICE OF JUDGMENT

Sir/Madam:

Please take notice that on February 22, 2017 a Decision, copy attached herewith, was
rendered by the Supreme Court in the above-entitled case, the original of which was
received by this Office on March 8, 2017 at 2:00 p.m.

Very truly yours,

MA. LOURDES C.
PERFECTO
Division Clerk of Court

By:

(SGD)
TERESITA AQUINO
TUAZON
Deputy Division Clerk
of Court

*
Designated Additional Member in lieu of Associate Justice Francis H. Jardeleza, per
Raffle dated March 5, 2015.
[1]
Penned by Associate Justice Erlinda P. Uy with the concurrence of Associate Justices
Juanito C. Castañeda, Jr., Lovell R. Bautista, Caesar A. Casanova, Esperanza R. Fabon-
Victorino, Cielito N. Mindaro-Grulla and Amelia R. Cotangco-Manalastas, Annex "A" to
Petition; rollo, Vol. I, pp. 155-174. Presiding Justice, Roman G. Del Rosario wrote a
Dissenting Opinion; rollo, Vol. I, pp. 175-189.
[2]
Annex "B" to Petition, id. at 43-45. This time, Presiding Justice Del Rosario concurred
with the majority opinion.
[3]
Penned by Associate Justice Juanito C. Castañeda, Jr., with the concurrence of
Associate Justices Caesar A. Casanova and Cielito N. Mindaro-Grulla, Annex "I" to
Petition; rollo, Vol. I, pp. 484-508.
[4]
Annex "K" to Petition; rollo, Vol. II, pp. 607-615.
[5]
Emphasis supplied.
[6]
Emphasis supplied.
[7]
Emphasis supplied.
[8]
Penned by Associate Justice Juanito C. Castañeda, Jr., with the concurrence of
Associate Justices Caesar A. Casanova and Cielito N. Mindaro-Grulla.
[9]
Rollo, pp. 507-508. (Emphasis in the original)
[10]
Id. at 119.
[11]
Id. at 119-120.
[12]
G.R. Nos. 212536-37, August 27, 2014, 733 SCRA 741.
[13]
CIR, et al. v. PAL, supra, at 749-751.
[14]
G.R. Nos. 209353-54, July 6, 2015, 761 SCRA 620.
[15]
G.R. Nos. 211733-34, July 6, 2015, 761 SCRA 620.
[16]
Commissioner of Internal Revenue, et al. v. PAL, supra note 12, at 630.
[17]
Emphasis supplied.
[18]
Id. at 630-631.
[19]
Commissioner of Internal Revenue, et al. v. Philippine Airlines, Inc., supra note 12.
[20]
Id.; Republic v. Philippine Airlines, Inc. Commissioner of Customs
v. Philippine Airlines, Inc., supra notes 14 and 15.
[21]
Id.