G.R. No. 120324 . April 21, 1999.
PHILEX MINING CORPORATION, petitioner, vs. COMMISSIONER OF INTERNAL REVENUE AND THE COURT OF APPEALS, respondents.

FACTS

Philex Mining Corporation, a domestic mining company, purchased refined and manufactured mineral oils, motor fuels, and diesel fuel oils from July 1, 1980, to December 31, 1981. The specific taxes passed on to Philex for these purchases amounted to P2,492,677.22. Pursuant to Republic Act No. 1435 , which grants a 25% partial refund of specific taxes to miners for fuels used in their operations, Philex filed a claim for refund of P623,169.30 with the Commissioner of Internal Revenue (CIR) on October 22, 1982.
Pending action by the CIR, Philex filed a case for tax refund with the Court of Tax Appeals (CTA). The CTA, in a decision affirmed by the Court of Appeals, granted the claim but only to the extent of P16,747.36. The courts computed the refund based on the specific tax rates deemed paid under Sections 1 and 2 of R.A. 1435, not on the higher, amended rates under the National Internal Revenue Code (NIRC) that Philex had actually paid. Philex appealed, arguing this computation was erroneous and contrary to precedent.

ISSUE

Whether the tax refund should be computed based on the increased specific tax rates under the amended NIRC that Philex actually paid, or on the lower rates deemed paid under Sections 1 and 2 of R.A. 1435.

RULING

The Supreme Court denied the petition and affirmed the lower courts’ decisions. The refund must be computed based on the tax rates under Sections 1 and 2 of R.A. 1435, not the subsequently increased rates. The legal logic is anchored on the principle that tax refunds, being in the nature of a tax exemption, must be strictly construed against the taxpayer and in favor of the government. R.A. 1435, which created the refund privilege, specifically referred to the tax amounts under its own Sections 1 and 2. While subsequent laws like Presidential Decree No. 1158 (the 1977 NIRC) and its amendments increased the tax rates, they did not expressly amend the basis for the refund computation under R.A. 1435.
The Court clarified that the grant of a partial refund was a legislative concession because miners and lumbermen did not use public highways funded by the specific taxes. The basis for the refund is the statute that created the privilege. Since the amendatory laws did not specifically provide that the refund should be based on the new, higher rates, the original basis in R.A. 1435 controls. The Court also upheld the denial of the claim for 20% interest per annum, as interest on a tax refund is not allowable unless the tax collection was arbitrary, which was not present here.