G.R. No. 182045 : Gulf Air Company, Philippines Branch v.

Commissioner of Internal
Revenue

THIRD DIVISION

G.R. No. 182045 : September 19, 2012

GULF AIR COMPANY, PHILIPPINE BRANCH (GF), Petitioner, v. COMMISSIONER

OF INTERNAL REVENUE, Respondent.

DECISION

MENDOZA, J.:

Before the. Court is a Petition for Review on Certiorari under Rule 45 of the 1997
Revised Rules of Civil Procedure assailing the January 30, 2008 Decision 1  and the
ςrνll

March 12, 2008 Resolution2  of the Court of Tax Appeals (CTA) En Bane in C.T.A. E.B.
ςrνll

No. 302 (C.T.A. Case No. 7030) entitled "Gulf Air Company, Philippine Branch (GF) v.
Commissioner of Internal Revenue."

The Facts

Petitioner Gulf Air Company Philippine Branch (GF) is a branch of Gulf Air Company, a
foreign corporation duly organized in accordance with the laws of the Kingdom of
Bahrain.3ςrνll

On October 25, 2001, GF availed of the Voluntary Assessment Program of the Bureau of
Internal Revenue (BIR) under Revenue Regulations 8-2001 for its 1999 and 2000
Income Tax and Documentary Stamp Tax and its Percentage Tax for the third quarter
of 2000, paying a total of P 11,964,648.00.4 Ï‚rνll

GF also made a claim for refund of percentage taxes for the first, second and fourth
quarters of 2000. In connection with this, a letter of authority was issued by the BIR
authorizing its revenue officers to examine GFs books of accounts and other records to
verify its claim.5 ςrνll

After its submission of several documents and an informal conference with BIR
representatives, GF received its Preliminary Assessment Notice on November 4, 2003
for deficiency percentage tax amounting to P 32,745,141.93. On the same day, GF also
received a letter denying its claim for tax credit or refund of excess percentage tax
remittance for the first, second and fourth quarters of 2000, and requesting the
immediate settlement of the deficiency tax assessment. 6 ςrνll
GF then received the Formal Letter of Demand, dated December 10, 2003, for the
payment of the total amount of P 33,864,186.62. In response, it filed a letter on
December 29, 2003 to protest the assessment and to reiterate its request for
reconsideration on the denial of its claim for refund. 7
ςrνll

On June 30, 2004, the Deputy Commissioner, Officer-in-Charge of the Large Taxpayers
Service of the BIR, denied GFs written protest for lack of factual and legal basis and
requested the immediate payment of the P 33,864,186.62 deficiency percentage tax
assessment.8 ςrνll

Aggrieved, GF filed a petition for review with the CTA. 9  On March 21, 2007, the Second
ςrνll

Division of the CTA dismissed the petition, finding that Revenue Regulations No. 6-66
was the applicable rule providing that gross receipts should be computed based on the
cost of the single one-way fare as approved by the Civil Aeronautics Board (CAB). In
addition, it noted that GF failed to include in its gross receipts the special commissions
on passengers and cargo. Finally, it ruled that Revenue Regulations No. 15-2002,
allowing the use of the net net rate in determining the gross receipts, could not be
given any or a retroactive effect. Thus, the CTA affirmed the decision of the BIR and
ordered the payment of P 41,117,734.01 plus 20% delinquency interest.10 Ï‚rνll

GF elevated the case to the CTA En Banc which promulgated its Decision on January 30,
2008 dismissing the petition and affirming the decision of the CTA in Division. It found
that Revenue Regulations No. 6-66 was the applicable rule because the period involved
in the assessment covered the first, second and fourth quarters of 2000 and the
amended percentage tax returns were filed on October 25, 2001. Revenue Regulations
No. 15-2002, which took effect on October 26, 2002, could not be given retroactive
effect because it was declarative of a new right as it provided a different rule in
determining gross receipts.11ςrνll

GF subsequently filed a motion for reconsideration but the same was denied by the CTA
En Banc in its March 12, 2008 Resolution.

Hence, this petition.

The Issue

GF relies upon the following grounds for the allowance of its petition: chanroblesvirtuallawlibrary

The honorable CTA En Banc erred in affirming the ruling of the Court in Division
summarized on pages 8 to 9 of the January 30, 2008 decision, as follows:

1. That the correct basis of the 3% Percentage Tax imposed under Section 118(A) of
the 1997 NIRC on the quarterly gross receipts of international air carriers doing
business in the Philippines is the fare approved by the CAB pursuant to Revenue
Regulations 6-66; that Revenue Regulations 6-66 is the applicable implementing
regulation and it is clearly provided therein that gross receipt shall be computed on the
cost of the single one way fare as approved by the CAB on the continuous and
uninterrupted flight of passengers, excess baggage, freight or cargo including mail, as
reflected on the plane manifest of the carrier; and
2. That the respondent was correct in adding back the special commissions on
passengers and cargo to the gross receipt per return of petitioner in order to come up
with the gross receipts subject to tax under Section 118(A) of the 1997 NIRC. 12 ςrνll

The sole issue to be resolved by the Court, as identified by the tax court, is whether the
definition of "gross receipts," for purposes of computing the 3% Percentage Tax under
Section 118(A) of the 1997 National Internal Revenue Code (NIRC), should include
special commissions on passengers and special commissions on cargo based on the
rates approved by the CAB.13 ςrνll

The Courts Ruling

The petition has no merit.

GF questions the validity of Revenue Regulations No. 6-66, claiming that it is not a
correct interpretation of Section 118(A) of the NIRC, and insisting that the gross
receipts should be based on the "net net" amount the amount actually received,
derived, collected, and realized by the petitioner from passengers, cargo and excess
baggage. It further argues that the CAB approved fares are merely notional and not
reflective of the actual revenue or receipts derived by it from its business as an
international air carrier.14 ςrνll

GF also insists that its construction of "gross receipts" to mean the "net net" amount
actually received, rather than the CAB approved rates as mandated by Revenue
Regulations No. 6-66, has been validated by the issuance of Revenue Regulations No.
15-2002 which expressly superseded the former.

Finally, GF contends that because the definition of gross receipts under the questioned
regulations is contrary to that given under the other sections of the NIRC on value-
added tax and percentage taxes, the legislative intention was to collect the percentage
tax based solely on the actual receipts derived and collected by the taxpayer. Given
that Revenue Regulations No. 6-66 allegedly conflicts with Section 118 of the NIRC as
well as with the other sections on percentage tax, GF concludes that the former was
effectively repealed, amended or modified by the NIRC. 15 ςrνll

Section 118(A) of the NIRC states that:

Sec. 118. Percentage Tax on International Carriers.

(A) International air carriers doing business in the Philippines shall pay a tax of three
percent (3%) of their quarterly gross receipts.

Pursuant to this, the Secretary of Finance promulgated Revenue Regulations No. 15-
2002, which prescribes that "gross receipts" for the purpose of determining Common
Carriers Tax shall be the same as the tax base for calculating Gross Philippine Billings
Tax.16  Section 5 of the same provides for the computation of "Gross Philippine
ςrνll

Billings": chanroblesvirtuallawlibrary

Sec. 5. Determination of Gross Philippine Billings.

(a) In computing for "Gross Philippine Billings," there shall be included the total amount
of gross revenue derived from passage of persons, excess baggage, cargo and/or mail,
originating from the Philippines in a continuous and uninterrupted flight, irrespective of
the place of sale or issue and the place of payment of the passage documents.

The gross revenue for passengers whose tickets are sold in the Philippines shall be the
actual amount derived for transportation services, for a first class, business class or
economy class passage, as the case may be, on its continuous and uninterrupted flight
from any port or point in the Philippines to its final destination in any port or point of a
foreign country, as reflected in the remittance area of the tax coupon forming an
integral part of the plane ticket. For this purpose, the Gross Philippine Billings shall be
determined by computing the monthly average net fare of all the tax coupons of plane
tickets issued for the month per point of final destination, per class of passage (i.e.,
first class, business class, or economy class) and per classification of passenger (i.e.,
adult, child or infant) and multiplied by the corresponding total number of passengers
flown for the month as declared in the flight manifest.

For tickets sold outside the Philippines, the gross revenue for passengers for first class,
business class or economy class passage, as the case may be, on a continuous and
uninterrupted flight from any port of point in the Philippines to final destination in any
port or point of a foreign country shall be determined using the locally available net
fares applicable to such flight taking into consideration the seasonal fare rate
established at the time of the flight, the class of passage (whether first class, business
class, economy class or non-revenue), the classification of passenger (whether adult,
child or infant), the date of embarkation, and the place of final destination.
Correspondingly, the Gross Philippine Billing for tickets sold outside the Philippines shall
be determined in the manner as provided in the preceding paragraph.

Passage documents revalidated, exchanged and/or endorsed to another on-line

international airline shall be included in the taxable base of the carrying airline and shall
be subject to Gross Philippine Billings tax if the passenger is lifted/boarded on an
aircraft from any port or point in the Philippines towards a foreign destination.

The gross revenue on excess baggage which originated from any port or point in the
Philippines and destined to any part of a foreign country shall be computed based on
the actual revenue derived as appearing on the official receipt or any similar document
for the said transaction.

The gross revenue for freight or cargo and mail shall be determined based on the
revenue realized from the carriage thereof. The amount realized for freight or cargo
shall be based on the amount appearing on the airway bill after deducting therefrom
the amount of discounts granted which shall be validated using the monthly cargo sales
reports generated by the IATA Cargo Accounts Settlement System (IATA CASS) for
airway bills issued through their cargo agents or the monthly reports prepared by the
airline themselves or by their general sales agents for direct issues made. The amount
realized for mails shall, on the other hand, be determined based on the amount as
reflected in the cargo manifest of the carrier.

xxx [Emphasis and underscoring supplied]

This expressly repealed Revenue Regulations No. 6-66 that stipulates a different
manner of calculating the gross receipts: chanroblesvirtuallawlibrary

Sec. 5. Gross Receipts, how determined. The total amount of gross receipts derived
from passage of persons, excess baggage, freight or cargo, including, mail cargo,
originating from the Philippines in a continuous and uninterrupted flight, irrespective of
the place of sale or issue and the place of payment of the ticket, shall be subject to the
common carriers percentage tax (Sec. 192, Tax Code). The gross receipts shall be
computed on the cost of the single one way fare as approved by the Civil Aeronautics
Board on the continuous and uninterrupted flight of passengers, excess baggage,
freight or cargo, including mail, as reflected on the plane manifest of the carrier.

Tickets revalidated, exchanged and/or indorsed to another international airline are

subject to percentage tax if lifted from a passenger boarding a plane in a port or point
in the Philippines.

In case of a flight that originates from the Philippines but transhipment of passenger
takes place elsewhere on another airline, the gross receipts reportable for Philippine tax
purposes shall be the portion of the cost of the ticket corresponding to the leg of the
flight from port of origin to the point of transhipment.

In case of passengers, the taxable base shall be gross receipts less 25% thereof.
[Emphasis and underscoring supplied]

There is no doubt that prior to the issuance of Revenue Regulations No. 15-2002 which
became effective on October 26, 2002, the prevailing rule then for the purpose of
computing common carriers tax was Revenue Regulations No. 6-66. While the
petitioners interpretation has been vindicated by the new rules which compute gross
revenues based on the actual amount received by the airline company as reflected on
the plane ticket, this does not change the fact that during the relevant taxable period
involved in this case, it was Revenue Regulations No. 6-66 that was in effect.

GF itself is adamant that it does not seek the retroactive application of Revenue
Regulations No. 15-2002.17  Even if it were inclined to do so, it cannot insist on the
ςrνll

application of the said rules because tax laws, including rules and regulations, operate
prospectively unless otherwise legislatively intended by express terms or by necessary
implication.18
ςrνll

Although GF does not dispute that Revenue Regulations No. 6-66 was the applicable
rule covering the taxable period involved, it puts in issue the wisdom of the said rule as
it pertains to the definition of gross receipts.

GF is reminded that rules and regulations interpreting the tax code and promulgated by
the Secretary of Finance, who has been granted the authority to do so by Section 244
of the NIRC, "deserve to be given weight and respect by the courts in view of the rule-
making authority given to those who formulate them and their specific expertise in their
respective fields."19 ςrνll
As such, absent any showing that Revenue Regulations No. 6-66 is inconsistent with
the provisions of the NIRC, its stipulations shall be upheld and applied accordingly. This
is in keeping with our primary duty of interpreting and applying the law. Regardless of
our reservations as to the wisdom or the perceived ill-effects of a particular legislative
enactment, the court is without authority to modify the same as it is the exclusive
province of the law-making body to do so. 20  As aptly stated in Saguiguit v. People,21
ςrνll ςrνll

xxx Even with the best of motives, the Court can only interpret and apply the law and
cannot, despite doubts about its wisdom, amend or repeal it. Courts of justice have no
right to encroach on the prerogatives of lawmakers, as long as it has not been shown
that they have acted with grave abuse of discretion. And while the judiciary may
interpret laws and evaluate them for constitutional soundness and to strike them down
if they are proven to be infirm, this solemn power and duty does not include the
discretion to correct by reading into the law what is not written therein. 22 ςrνll

Moreover, the validity of the questioned rules can be sustained by the application of the
principle of legislative approval by re-enactment. Under the aforementioned legal
concept, "where a statute is susceptible of the meaning placed upon it by a ruling of the
government agency charged with its enforcement and the Legislature thereafter re-
enacts the provisions without substantial change, such action is to some extent
confirmatory that the ruling carries out the legislative purpose." 23  Thus, there is tacit
ςrνll

approval of a prior executive construction of a statute which was re-enacted with no

substantial changes.24 ςrνll

In this case, Revenue Regulations No. 6-66 was promulgated to enforce the provisions
of Title V, Chapter I (Tax on Business) of Commonwealth Act No. 466 (National Internal
Revenue Code of 1939), under which Section 192, pertaining to the common carriers
tax, can be found: chanroblesvirtuallawlibrary

Sec. 192. Percentage tax on carriers and keepers of garages.

Keepers of garages, transportation contractors, persons who transport passenger or

freight for hire, and common carriers by land, air, or water, except owners of bancas,
and owners of animal-drawn two-wheeled vehicles, shall pay a tax equivalent to two
per centum of their monthly gross receipts. [Emphasis supplied]

This provision has, over the decades, been substantially reproduced with every
amendment of the NIRC, up until its recent reincarnation in Section 118 of the NIRC.

The legislature is presumed to have full knowledge of the existing revenue regulations
interpreting the aforequoted provision of law and, with its subsequent substantial re-
enactment, there is a presumption that the lawmakers have approved and confirmed
the rules in question as carrying out the legislative purpose. 25  Hence, it can be
ςrνll

concluded that with the continued duplication of the NIRC provision on common carriers
tax, the law-making body was aware of the existence of Revenue Regulations No. 6-66
and impliedly endorsed its interpretation of the NIRC and its definition of gross receipts.

Although the Court commiserates with GF in its predicament, it is left with no choice but
to uphold the validity of Revenue Regulations No. 6-66 and apply it to the case at
bench, thus upholding the ruling of the CTA.There is no cause to reverse the decision of
the tax court. As a specialized court dedicated exclusively to the study and resolution of
tax issues, the CTA has developed an expertise on the subject of taxation. 26The Court
cannot be compelled to set aside its decisions, unless there is a finding that the
questioned decision is not supported by substantial evidence or there is a showing of
abuse or improvident exercise of authority. 27  Therefore, its findings are accorded the
ςrνll

highest respect and are generally conclusive upon this court, in the absence of grave
abuse of discretion or palpable error.28 ςrνll

On a final note, it is incumbent on the Court to emphasize that tax refunds partake the
nature of tax exemptions which are a derogation of the power of taxation of the State.
Consequently, they are construed strictly against a taxpayer and liberally in favor of the
State such that he who claims a refund or exemption must justify it by words too plain
to be mistaken and too categorical to be misinterpreted. 29  Regrettably, the petitioner in
ςrνll

the case at bench failed to unequivocally prove that it is entitled to a refund. ςηαοblενιrυαllαωlιbrαr

WHEREFORE, the petition 1s DENIED. The January 30, 2008 Decision and the March 12,
2008 Resolution of the Court of Tax Appeals in CT.A. E.B. No. 302 (C.T.A. Case No.
7030) are hereby AFFIRMED. ςrαlαωlιbrαr

SO ORDERED.