COMMISSIONER OF INTERNAL REVENUE, PETITIONER, VS. RIO TUBA NICKEL MINING CORPORATION AND THE COURT OF TAX APPEALS, RESPONDENTS.

Private respondent Rio Tuba Nickel Mining Corporation (Rio Tuba)
seeks a reconsideration of the Court’s decision in G.R. Nos. 83583-84 dated
September 30, 1991 denying its claim for refund of specific taxes paid on
manufactured oils and diesel fuel oil.

The Court ruled in the decision that Section 5 of Republic Act
(R.A.) No. 1435, which granted to lumber and mining companies the privilege of
refund of twenty five (25%) percent of specific taxes paid by them 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oils are used in their operations, was impliedly repealed by Presidential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.

Under R.A. No. 1435, the specific taxes on manufactured oils and
diesel fuel oil accrued to the Highway Special Fund. The Court stated that miners and lumbermen were accorded refund
privileges under R.A. No. 1435 because they seldom use the national highways
since they have their own roads and it was unfair to subject them to the
increased tax rates and in effect make them subsidize the construction of
highways from which they did not directly benefit. According to the Court, since by virtue of P.D. No. 711, all
funds that have accrued from the various special funds are channeled to the so?called
General Fund, there is, therefore,
no need nor justification for the continued special treatment of these miners
and loggers. Thus, reasoned the Court,
since under P.D. No. 711 any government project can be the beneficiary of such
funds as long as it is for the
general welfare of the masses and it is
inevitable that sooner or later the miners and loggers will stand to
benefit from these government benefits, then the refund privilege in R.A. No. 1435
has become an anachronism. The Court
ruled that the refund privilege granted to miners and loggers under R.A. 1435
was impliedly repealed by P.D. No. 711.

This decision was premised on the assumption that the Highway
Special Fund was one of those funds abolished and transferred to the General
Fund by P.D. No. 711 which took effect on July 1, 1975.

Despite the mandate of P.D. No. 711, however, several special
funds were still retained and the Highway Special Fund was one of them.

Proof that some of these special and fiduciary funds were
retained may be extracted from the provisions of P.D. No. 1741 dated October
31, 1980 which governs the computation of national internal revenue allotments
to local government units. Section 2 of
said decree provides:

“SEC. 2. Magnitude
of Assistance – A maximum
of twenty per cent (20%) of national internal revenue taxes shall be available for national assistance to
local government units. Provided, That
the national revenue used as basis in computation shall exclude receipts
accruing to Special or Fiduciary Funds and
to Special Accounts in the General Fund, amounts authorized by law to be used
by the collecting agency, and amounts recorded as income of the General Fund
but which are charged to appropriations in the General or other Appropriations
Laws.” (Underlining supplied)

The Internal Revenue Allotments annually prepared by the Bureau
of Internal Revenue in accordance with the foregoing decree showed that the
Highway Special Fund continued its existence up to 1985 and was channeled to
the General Fund only in 1986.

It is not clear why the Highway Special Fund was maintained for
10 years after the effectivity of P.D. No. 711 or why it was
abolished in 1986. The stark fact
remains that it retained its status as a special fund up to 1985.

With the foregoing consideration, we cannot therefore
state with definiteness that it was P.D. No. 711 which impliedly repealed
Section 5 of R.A. No. 1435. We can
however safely conclude that Section 5 of R.A. No. 1435 is now an anachronism
because the Highway Special Fund, after 1985, no longer exists.

The rationale for the Court’s decision denying the private
respondent’s twin claims for refund was that the specific taxes on these
manufactured oils paid by the mining and lumber companies no longer accrued to
the Highway Special Fund. But given the
added circumstance that the Highway Special Fund which was financed by these
specific taxes still continued up to 1985, it will be highly inequitable for
the private respondent if we were to rule that no refund of
specific taxes paid up to 1985 which actually accrued to the Highway Special
Fund (not the General Fund) may be given. The private respondent still did not directly benefit from the projects supported by the Highway Special Fund.

We, therefore, modify our decision in this case and rule that
mining and logging companies are entitled to the refund privilege granted by
R.A. No. 1435 on specific taxes paid up to 1985 on manufactured and diesel fuel
oils.

Since the private
respondent’s claim for refund covers specific taxes paid from 1980 to July 1983
then we find that the private respondent is entitled to a refund. It should be
made clear, however, that Rio Tuba is not entitled to the whole amount it
claims as refund.

The specific taxes on oils which Rio Tuba paid for the aforesaid
period were no longer based on the rates specified by Sections 1 and 2 of R.A.
No. 1435 but on the increased rates mandated under Sections 153
and 156 of the National Internal Revenue Code of 1977. We note, however, that the latter law does not specifically provide for a refund to these mining and lumber
companies of specific taxes paid on manufactured and diesel fuel oils.

In Insular Lumber Co. v. Court
of Tax Appeals, (104 SCRA 710 [1981]), the Court held
that the authorized partial refund under section 5 of R.A. No. 1435 partakes of
the nature of a tax exemption and therefore cannot be allowed unless granted in
the most explicit and categorical language. Since the grant of refund privileges 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.

ACCORDINGLY, the decision in G.R. Nos. 83583-84 is
hereby MODIFIED. The private
respondent’s CLAIM for REFUND is GRANTED, computed on the basis of the amounts
deemed paid under Sections 1 and
2 of R.A. No. 1435, without interest.

SO ORDERED.

Bidin, Davide, Jr., and
Romero, JJ., concur.

Feliciano, J., on leave.