G.R. No. 144440; September 1, 2004
COMMISSIONER OF CUSTOMS, petitioner, vs. PHILIPPINE PHOSPHATE FERTILIZER CORPORATION, respondent.

FACTS

Respondent Philippine Phosphate Fertilizer Corporation (Philphos), a PEZA-registered enterprise operating within the Leyte Industrial Development Estate, purchased fuel and petroleum products from Petron Corporation for use in its fertilizer manufacturing. Petron, as the importer, paid the corresponding customs duties and passed this cost on to Philphos as part of the selling price. For the period October 1991 to June 1992, Philphos indirectly paid ₱20,149,473.77 in customs duties through this arrangement.
Philphos sought a refund from the Bureau of Customs, claiming exemption under Section 17 of Presidential Decree No. 66 (the EPZA Law), which grants tax and duty exemptions to supplies brought into an export processing zone. The Bureau denied the claim. The Court of Tax Appeals (CTA) ruled in favor of Philphos and ordered the issuance of a Tax Credit Certificate. The Court of Appeals affirmed this decision.

ISSUE

Whether Philphos is entitled to a refund or tax credit for the customs duties it indirectly paid on the fuel and petroleum products purchased from Petron.

RULING

Yes, Philphos is entitled to the refund. The Supreme Court affirmed the decisions of the CTA and CA. The Court applied Section 17(1) of the EPZA Law, which explicitly exempts from customs duties all “merchandise, raw materials, supplies, articles, equipment, machineries, spare parts and wares” brought into the export processing zone. The fuel purchased by Philphos constitutes “supplies” used directly and indispensably in its manufacturing process and is therefore covered by this exemption.
The Court rejected the Commissioner’s arguments. First, the claim is not barred by the finality of Petron’s importation liquidation. The exemption inures to the benefit of the PEZA-registered enterprise (Philphos), not the importer-seller (Petron). The duty, though initially paid by Petron, was ultimately shouldered by Philphos, the entity legally entitled to the exemption. Second, Section 18(i) of the EPZA Law, which pertains to refunds for duties paid on supplies subsequently exported from the zone, is inapplicable as the fuel was consumed within the zone and not re-exported. The proper basis is the general exemption under Section 17. The payment made by Philphos constituted a case of solutio indebiti, as it paid a debt that was not legally due. Tax exemptions are construed strictly, but the law’s language here is clear and unequivocal in granting the exemption to zone enterprises.