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The Supreme Court upheld the decision of the Court of Tax Appeals requiring the Bureau of Internal Revenue and Bureau of Customs to refund Philippine Airlines ₱258.63 million in taxes paid for imported fuel in 2005
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The SC Third Division ruled that PAL could qualify for tax exemption on imports even if local products were available, subject to conditions
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The SC decision pertains to the airline’s importation of Jet A-1 aviation fuel between April and June 2005
The Supreme Court (SC) upheld the decision of the Court of Tax Appeals (CTA) requiring the Bureau of Internal Revenue (BIR) and Bureau of Customs (BOC) to refund Philippine Airlines (PAL) ₱258.63 million in taxes paid for imported fuel in 2005.
The high tribunal’s Third Division ruled that PAL could qualify for a tax exemption on its imports even if local products were available, provided these were of subpar quality or significantly overpriced compared to their imported counterparts.
The SC decision, which was promulgated on April 1 but only made public on July 11, pertains to PAL’s importation of Jet A-1 aviation fuel between April and June 2005.
Under its statutory franchise, the country’s flagship carrier is exempt from paying taxes and duties on the importation of aircraft-related items such as aviation gas, fuel, and oil. This exemption applies as long as these items are used for PAL’s transport and non-transport operations and are not available locally in reasonable quantity, quality, or price.
In January 2003, the BIR revoked PAL’s tax exemption, stating the airline’s importations would no longer be tax-exempt “for as long as there is such available domestic supply of petroleum products.”
Between April and June 2005, PAL imported Jet A-1 fuel and paid the corresponding taxes. It then requested a refund of ₱258 million from the BIR. While the refund request was pending, PAL filed a judicial claim before the Court of Tax Appeals (CTA) in 2007, which ultimately granted the refund.
SC denied the BIR’s petition for review, citing Section 13 (2) of Presidential Decree No. 1590 that outlined the conditions under which PAL’s importations could be exempt from taxes, emphasizing the importance of the availability, quality, and price of local products.
The high court noted the tax exemption was intended to ensure the airline would be able to keep its operating costs low. Otherwise, high operating costs “would ultimately become the burden of PAL’s passengers and clientele,” it said.
The BIR and BOC argued PAL did not meet the conditions regarding the use of imported supplies in its transport and non-transport operations, and local availability of such for a reasonable quantity, quality, or price. This argument was rejected by the SC.
“In this case, even if there had been a sufficient quantity of locally available Jet A-1 fuel, as the [BIR commissioner] and the [BOC commissioner] claimed, PAL was able to adduce proof that had it sourced aviation fuel locally between April and June of 2005, it would have paid a significantly higher sum,” the SC said in a ruling penned by Associate Justice Japar Dimaampao.
According to the CTA, the cost of buying aviation fuel from Petron Corp. or Pilipinas Shell Petroleum Corp. would have been between ₱330 million and ₱564 million more than the imported fuel.
READ: SC junks BOC motion to reconsider decision on Pilipinas Shell case
