G.R. No. 83583 -84 March 25, 1992
COMMISSIONER OF INTERNAL REVENUE, petitioner, vs. RIO TUBA NICKEL MINING CORPORATION and THE COURT OF TAX APPEALS, respondents.

FACTS

Private respondent Rio Tuba Nickel Mining Corporation (Rio Tuba) sought reconsideration of the Court’s decision dated September 30, 1991, which denied its claim for a refund of specific taxes paid on manufactured oils and diesel fuel oil. The earlier decision ruled that Section 5 of Republic Act (R.A.) No. 1435, granting lumber and mining companies a 25% refund of specific taxes paid when such oils are used in their operations, was impliedly repealed by Presidential Decree (P.D.) No. 711, which abolished all special and fiduciary funds. The rationale was that under R.A. No. 1435 , the specific taxes accrued to the Highway Special Fund, and the refund privilege was justified because miners and lumbermen seldom used national highways. With the abolition of special funds and the transfer of accruals to the General Fund by P.D. No. 711, the special treatment was deemed unnecessary. However, upon reconsideration, it was established that despite P.D. No. 711’s mandate, several special funds were retained, including the Highway Special Fund, which continued to exist up to 1985, as evidenced by P.D. No. 1741 and the Internal Revenue Allotments prepared by the Bureau of Internal Revenue. The Highway Special Fund was channeled to the General Fund only in 1986. Rio Tuba’s claim for refund covered specific taxes paid from 1980 to July 1983.

ISSUE

Whether Rio Tuba is entitled to a refund of specific taxes paid on manufactured oils and diesel fuel oil under Section 5 of R.A. No. 1435 , considering the continued existence of the Highway Special Fund up to 1985 and the subsequent increase in tax rates under the National Internal Revenue Code of 1977.

RULING

The Court modified its previous decision. It ruled that mining and logging companies are entitled to the refund privilege granted by R.A. No. 1435 on specific taxes paid up to 1985, as the Highway Special Fund, to which these taxes accrued, continued to exist until then. Since Rio Tuba’s claim covered payments from 1980 to July 1983, it was entitled to a refund. However, the refundable amount was not the full amount claimed. The specific taxes paid were based on the increased rates under Sections 153 and 156 of the National Internal Revenue Code of 1977, which did not provide for a refund to these companies. Following Insular Lumber Co. v. Court of Tax Appeals, which held that the partial refund under R.A. No. 1435 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 Sections 1 and 2 of R.A. No. 1435 , not the increased rates. Accordingly, the claim for refund was granted, computed on the basis of the amounts deemed paid under R.A. No. 1435 , without interest.