G.R. Nos. 212536-37, August 27, 2014.
COMMISSIONER OF INTERNAL REVENUE and COMMISSIONER OF CUSTOMS, Petitioners, vs. PHILIPPINE AIRLINES, INC., Respondent.

FACTS

Respondent Philippine Airlines, Inc. (PAL) was granted a franchise under Presidential Decree No. 1590 (PD 1590). Section 13 of PD 1590 provides that PAL shall pay either a basic corporate income tax or a franchise tax, and the tax paid “shall be in lieu of all other taxes, duties, royalties… including… taxes… due on all importations by the grantee of… commissary and catering supplies… provided, that such articles… are imported for the use of the grantee in its transport operations.” On January 1, 2005, Republic Act No. 9334 (RA 9334) took effect. Its Section 6 amended Section 131 of the National Internal Revenue Code (NIRC) to state that the importation of cigarettes and alcoholic products “shall be subject to all applicable taxes… the provision of any special or general law to the contrary notwithstanding.” Pursuant to this amended NIRC provision, PAL was assessed and paid under protest excise taxes on its February and March 2007 importations of cigarettes and alcoholic drinks for its commissary supplies used in international flights. PAL filed administrative claims for refund, which were not acted upon, prompting it to file a petition before the Court of Tax Appeals (CTA). The CTA Second Division granted PAL’s claim for refund. The CTA en banc affirmed the decision, holding that PAL’s tax exemption under its franchise was not withdrawn by RA 9334. The petitioners, the Commissioner of Internal Revenue and the Commissioner of Customs, filed the present petition.

ISSUE

Whether or not PAL’s importations of alcohol and tobacco products for its commissary supplies are subject to excise tax, or whether PAL remains exempt under its franchise.

RULING

The Supreme Court DENIED the petition and AFFIRMED the assailed CTA en banc Decision. PAL’s importations are NOT subject to excise tax; it remains exempt under its franchise. The Court ruled that the tax exemption privilege under Section 13 of PD 1590, PAL’s special charter, has NOT been expressly revoked by Section 6 of RA 9334, which amended the NIRC. The rule is that a later general law does not repeal an earlier special law unless the repeal is express and specific. The phrase “the provision of any special or general law to the contrary notwithstanding” in RA 9334 is not sufficient to constitute an express repeal of the specific exemption in PD 1590, as it fails to specifically identify PD 1590. Furthermore, Section 24 of PD 1590 provides that the franchise may only be modified, amended, or repealed expressly by a special law that specifically refers to it. RA 9334, being a general law, did not comply with this requirement. The Court also cited its prior ruling in Philippine Airlines, Inc. v. Commissioner of Internal Revenue (G.R. No. 198759, July 1, 2013), which recognized PAL’s entitlement to the exemption and refund for similar importations. Therefore, PAL is entitled to a refund of the erroneously paid excise taxes.