G.R. No. 117359 July 23, 1998
DAVAO GULF LUMBER CORPORATION, petitioner, vs. COMMISSIONER OF INTERNAL REVENUE and COURT OF APPEALS, respondents.

FACTS

Petitioner Davao Gulf Lumber Corporation, a licensed forest concessionaire, purchased refined and manufactured mineral oils and motor and diesel fuels from various oil companies from July 1, 1980 to January 31, 1982. These were used exclusively in its forest concession operations. The oil companies paid the specific taxes imposed under Sections 153 and 156 of the 1977 National Internal Revenue Code (NIRC), which were passed on to the petitioner. On December 13, 1982, petitioner filed a claim for refund with the Commissioner of Internal Revenue (CIR) for P120,825.11, representing 25% of the specific taxes paid, based on Section 5 of Republic Act No. 1435 and the case of Insular Lumber Co. vs. Court of Tax Appeals. Petitioner submitted proof of actual use of the oils. The claim was not acted upon, prompting petitioner to file a petition for review with the Court of Tax Appeals (CTA). The CTA granted a partial refund but only in the amount of P2,923.15, disallowing some claims due to prescription and for not being included in the original administrative claim. The CTA also computed the refund based on the tax rates deemed paid under RA 1435, not the higher rates actually paid under the NIRC. The Court of Appeals affirmed the CTA decision. Hence, this petition.

ISSUE

Whether petitioner is entitled to a refund of 25% of the specific taxes it actually paid under Sections 153 and 156 of the NIRC, or only of the taxes deemed paid under the rates in Sections 1 and 2 of RA 1435.

RULING

The petition is not meritorious. The Supreme Court affirmed the decision of the Court of Appeals. The refund under Section 5 of RA 1435 must be computed based on the specific tax deemed paid under Sections 1 and 2 of RA 1435, not on the higher rates actually paid under the subsequently amended NIRC provisions. The Court applied the principle that tax exemptions (and by extension, tax refunds) are construed strictly against the grantee and liberally in favor of the government. The language of Section 5 of RA 1435, which refers to the refund of “twenty-five per centum of the specific tax paid thereon,” must be read in conjunction with the entire law. Since Section 5 is part of RA 1435, the “specific tax paid” refers to the tax imposed by Sections 1 and 2 of the same Act. The Court rejected the argument that the ruling in Insular Lumber mandated a refund based on the actually paid taxes, clarifying that said case only dealt with the prescriptive period for claiming the refund, not the tax base for computation. The rationale for the partial refund—that concessionaires do not directly benefit from the Highway Special Fund financed by the specific taxes—ceased when the Fund was abolished in 1985, but the refund for purchases made prior thereto, as in this case, remained valid. However, the grant is limited to the rates specified in the law granting the privilege.