G.R. No. 106913 May 10, 1994
COMMISSIONER OF INTERNAL REVENUE, petitioner, vs. HON. COURT OF APPEALS and ATLAS CONSOLIDATED MINING AND DEVELOPMENT CORPORATION, respondents.

FACTS

Private respondent Atlas Consolidated Mining and Development Corporation (Atlas) operates a mining concession in Toledo City, Cebu. It purchased and consumed tax-paid extra gasoline and diesel fuel for its mining operations from Mobil Oil Philippines during the periods of July-December 1976, January-December 1977, and January-May 1978, paying specific taxes totaling P3,641,579.02. On July 19, 1978, Atlas filed a written claim with the Commissioner of Internal Revenue for a tax credit of P910,394.76, representing 25% of the specific taxes paid on said fuel oils pursuant to Section 5 of Republic Act No. 1435 . As no action was taken, Atlas filed a judicial claim for refund with the Court of Tax Appeals (CTA) on July 21, 1978. The CTA granted the refund in full on November 28, 1986. The Commissioner appealed to the Court of Appeals, arguing that the refund privilege under R.A. No. 1435 had been repealed by subsequent decrees and that part of the claim had prescribed. The Court of Appeals affirmed the CTA decision on February 19, 1992, but held that claims for payments made before July 21, 1976, had prescribed, limiting the refundable amount to P910,394.76 (payments from July 21, 1976, onward). The Commissioner’s motion for reconsideration was denied. The Commissioner then filed the instant petition, conceding entitlement to a refund based on a subsequent Supreme Court Resolution but contending that the refund should be computed based on the original tax rates in R.A. No. 1435 , not the increased rates under the 1977 Tax Code.

ISSUE

Whether the tax refund to which Atlas is entitled should be computed based on the original tax rates specified in Sections 1 and 2 of R.A. No. 1435 or on the increased rates prescribed under subsequent laws like the 1977 Tax Code.

RULING

The Supreme Court GRANTED the petition and MODIFIED the decision of the Court of Appeals. The Court ruled that the tax refund to be granted to Atlas must be computed on the basis of the rates prescribed under Sections 1 and 2 of R.A. No. 1435 , not the increased rates under Sections 153 and 156 of the 1977 Tax Code. This ruling is based on the Court’s Resolution of March 25, 1992, in Commissioner of Internal Revenue vs. Rio Tuba Nickel Mining Corporation, which held that the refund privilege under R.A. No. 1435 for mining and logging companies on specific taxes paid on manufactured and diesel fuel oils continued up to 1985. However, since the grant of a partial refund partakes of the nature of a tax exemption and must be strictly construed against the taxpayer, the basis for the refund shall be the amounts deemed paid under the original sections of R.A. No. 1435 . Furthermore, the refundable amount shall be limited to payments made prior to July 21, 1976, consistent with the prescription rule. The Commissioner was ordered to revise the computation accordingly and remit the refundable amount, without interest, to Atlas within sixty days from the finality of the decision.