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G.R. No. 188497. April 25, 2012.

*
COMMISSIONER OF INTERNAL REVENUE, petitioner, vs. PILIPINAS SHELL PETROLEUM
CORPORATION, respondent.

Taxation; Excise Taxes; Excise taxes, as the term is used in the National Internal Revenue Code
(NIRC), refer to taxes applicable to certain specified goods or articles manufactured or produced
in the Philippines for domestic sales or consumption or for any other disposition and to things
imported into the Philippines.—Excise taxes, as

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* FIRST DIVISION.

242

242

SUPREME COURT REPORTS ANNOTATED

Commissioner of Internal Revenue vs. Pilipinas Shell Petroleum Corporation

the term is used in the NIRC, refer to taxes applicable to certain specified goods or articles manufactured or
produced in the Philippines for domestic sales or consumption or for any other disposition and to things
imported into the Philippines. These taxes are imposed in addition to the value-added tax (VAT).

Same; Same; The exemption from excise tax payment on petroleum products under Sec. 135 (a) is
conferred on international carriers who purchased the same for their use or consumption outside the
Philippines.—The exemption from excise tax payment on petroleum products under Sec. 135 (a) is conferred
on international carriers who purchased the same for their use or consumption outside the Philippines. The
only condition set by law is for these petroleum products to be stored in a bonded storage tank and may be
disposed of only in accordance with the rules and regulations to be prescribed by the Secretary of Finance,
upon recommendation of the Commissioner.

Same; Same; The Supreme Court explained that the percentage tax on sales of merchandise imposed by the
Tax Code is due from the manufacturer and not from the buyer.—In Philippine Acetylene Co., Inc. v.
Commissioner of Internal Revenue, 20 SCRA 1056 (1967), this Court held that petitioner manufacturer who
sold its oxygen and acetylene gases to NPC, a tax-exempt entity, cannot claim exemption from the payment
of sales tax simply because its buyer NPC is exempt from taxation. The Court explained that the percentage
tax on sales of merchandise imposed by the Tax Code is due from the manufacturer and not from the buyer.

Same; Same; The excise tax imposed on petroleum products under Sec. 148 is the direct liability of the
manufacturer who cannot thus invoke the excise tax exemption granted to its buyers who are international
carriers.—Considering that the excise taxes attaches to petroleum products “as soon as they are in existence
as such,” there can be no outright exemption from the payment of excise tax on petroleum products sold to
international carriers. The sole basis then of respondent’s claim for refund is the express grant of excise tax
exemption in favor of international carriers under Sec. 135 (a) for their purchases of locally manufactured
petroleum products. Pursuant to our ruling in Philippine Acetylene, a tax exemption being enjoyed by the
buyer cannot be the basis of a claim for tax exemption by the manufacturer or seller of the goods for any tax
due to it as the manufacturer or seller. The excise tax imposed on petroleum products under Sec. 148 is the
direct liability of the manufacturer who cannot thus invoke the excise tax exemption granted to its buyers
who are international carriers.

Same; Same; Indirect Taxes; Indirect taxes are taxes wherein the liability for the payment of the tax falls on
one person but the burden thereof can be shifted or passed on to another person, such as when the tax is
imposed upon goods before reaching the consumer who ultimately pays for it.—An excise tax is basically an
indirect tax. Indirect taxes are those that are demanded, in the first instance, from, or are paid by, one
person in the expectation and intention that he can shift the burden to someone else. Stated elsewise,
indirect taxes are taxes wherein the liability for the payment of the tax falls on one person but the burden
thereof can be shifted or passed on to another person, such as when the tax is imposed upon goods before
reaching the consumer who ultimately pays for it. When the seller passes on the tax to his buyer, he, in
effect, shifts the tax burden, not the liability to pay it, to the purchaser as part of the price of goods sold or
services rendered.

Same; Same; Chicago Convention; The provisions of the 1944 Convention of International Civil Aviation or
the “Chicago Convention,” which form binding international law, requires the contracting parties not to
charge duty on aviation fuel already on board any aircraft that has arrived in their territory from another
contracting state; Though initially aimed at establishing uniformity of taxation among parties to the treaty to
prevent double taxation, the tax exemption now generally applies to fuel used in international travel by both
domestic and foreign carriers.—In the case of international air carriers, the tax exemption granted under
Sec. 135 (a) is based on “a long-standing international consensus that fuel used for international air services
should be tax-exempt.” The provisions of the 1944 Convention of International Civil Aviation or the “Chicago
Convention,” which form binding international law, requires the contracting parties not to charge duty on
aviation fuel already on board any aircraft that has arrived in their territory from another contracting state.
Between individual countries, the exemption of airlines from national taxes and customs duties on a range of
aviation-related goods, including parts, stores and fuel is a standard element of the network of bilateral “Air
Service Agreements.” Later, a Resolution issued by the International Civil Aviation Organization (ICAO)
expanded the provision as to similarly exempt from taxes all kinds of fuel taken on board for consumption by
an aircraft from a contracting state in the territory of another contracting State departing for the territory of
any other State. Though initially aimed at establishing uniformity of taxation among parties to the treaty to
prevent double taxation, the tax exemption now generally applies to fuel used in international travel by both
domestic and foreign carriers.

Same; Same; The Court holds that Sec. 135 (a) should be construed as prohibiting the shifting of the burden
of the excise tax to the international carriers who buys petroleum products from the local manufacturers;
The oil companies which sold such petroleum products to international carriers are not entitled to a refund of
excise taxes previously paid on the goods.—Because an excise tax is a tax on the manufacturer and not on
the purchaser, and there being no express grant under the NIRC of exemption from payment of excise tax to
local manufacturers of petroleum products sold to international carriers, and absent any provision in the
Code authorizing the refund or crediting of such excise taxes paid, the Court holds that Sec. 135 (a) should
be construed as prohibiting the shifting of the burden of the excise tax to the international carriers who buys
petroleum products from the local manufacturers. Said provision thus merely allows the international carriers
to purchase petroleum products without the excise tax component as an added cost in the price fixed by the
manufacturers or distributors/sellers. Consequently, the oil companies which sold such petroleum products to
international carriers are not entitled to a refund of excise taxes previously paid on the goods.

Same; Tax Refunds; Tax refunds are in the nature of tax exemptions which result to loss of revenue for the
government. Upon the person claiming an exemption from tax payments rests the burden of justifying the
exemption by words too plain to be mistaken and too categorical to be misinterpreted, it is never presumed
nor be allowed solely on the ground of equity.—Time and again, we have held that tax refunds are in the
nature of tax exemptions which result to loss of revenue for the government. Upon the person claiming an
exemption from tax payments rests the burden of justifying the exemption by words too plain to be mistaken
and too categorical to be misinterpreted, it is never presumed nor be allowed solely on the ground of equity.
These exemptions, therefore, must not rest on vague, uncertain or indefinite inference, but should be
granted only by a clear and unequivocal provision of law on the basis of language too plain to be mistaken.
Such exemptions must be strictly construed against the taxpayer, as taxes are the lifeblood of the
government.

PETITION for review on certiorari of the decision and resolution of the Court of Appeals.

The facts are stated in the opinion of the Court.

The Solicitor General for petitioner.

Baniqued and Baniqued for respondent.

VILLARAMA, JR., J.:

Petitioner Commissioner of Internal Revenue appeals the Decision1 dated March 25, 2009 and Resolution2
dated June 24, 2009 of the Court of Tax Appeals (CTA) En Banc in CTA EB No. 415. The CTA dismissed the
petition for review filed by petitioner assailing the CTA First Division’s Decision3 dated April 25, 2008 and
Resolution4 dated July 10, 2008 which ordered petitioner to refund the excise taxes paid by respondent
Pilipinas Shell Petroleum Corporation on petroleum products it sold to international carriers.
The facts are not disputed.

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1 Rollo, pp. 45-66. Penned by Associate Justice Erlinda P. Uy with Presiding Justice Ernesto D. Acosta and
Associate Justices Juanito C. Castañeda, Jr., Lovell R. Bautista, Caesar A. Casanova
and Olga Palanca-Enriquez concurring.

2 Id., at pp. 68-71.

3 Id., at pp. 117-133. Penned by Associate Justice Caesar A. Casanova with Presiding Justice Ernesto D.
Acosta and Lovell R. Bautista concurring.

4 Id., at pp. 153-156.

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SUPREME COURT REPORTS ANNOTATED

Commissioner of Internal Revenue vs. Pilipinas Shell Petroleum Corporation

Respondent is engaged in the business of processing, treating and refining petroleum for the purpose of
producing marketable products and the subsequent sale thereof.5

On July 18, 2002, respondent filed with the Large Taxpayers Audit & Investigation Division II of the Bureau
of Internal Revenue (BIR) a formal claim for refund or tax credit in the total amount of P28,064,925.15,
representing excise taxes it allegedly paid on sales and deliveries of gas and fuel oils to various international
carriers during the period October to December 2001. Subsequently, on October 21, 2002, a similar claim for
refund or tax credit was filed by respondent with the BIR covering the period January to March 2002 in the
amount of P41,614,827.99. Again, on July 3, 2003, respondent filed another formal claim for refund or tax
credit in the amount of P30,652,890.55 covering deliveries from April to June 2002.6

Since no action was taken by the petitioner on its claims, respondent filed petitions for review before the CTA
on September 19, 2003 and December 23, 2003, docketed as CTA Case Nos. 6775 and 6839, respectively.

In its decision on the consolidated cases, the CTA’s First Division ruled that respondent is entitled to the
refund of excise taxes in the reduced amount of P95,014,283.00. The CTA First Division relied on a previous
ruling rendered by the CTA En Banc in the case of “Pilipinas Shell Petroleum Corporation v. Commissioner of
Internal Revenue”7 where the CTA also granted respondent’s claim for refund on the basis of excise tax
exemption for petroleum products sold to international carriers of foreign registry for their use or
consumption outside the Philippines. Petitioner’s motion for reconsideration was denied by the CTA First
Division.

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Petitioner elevated the case to the CTA En Banc which upheld the ruling of the First Division. The CTA pointed
out the specific exemption mentioned under Section 135 of the National Internal Revenue Code of 1997
(NIRC) of petroleum products sold to international carriers such as respondent’s clients. It said that this
Court’s ruling in Maceda v. Macaraig, Jr. is inapplicable because said case only put to rest the issue of
whether or not the National Power Corporation (NPC) is subject to tax considering that NPC is a tax-exempt
entity mentioned in Sec. 135 (c) of the NIRC (1997), whereas the present case involves the tax exemption of
the sale of petroleum under Sec. 135 (a) of the same Code. Further, the CTA said that the ruling in Philippine
Acetylene Co., Inc. v. Commissioner of Internal Revenue9 likewise finds no application because the party
asking for the refund in said case was the seller-producer based on the exemption granted under the law to
the tax-exempt buyers, NPC and Voice of America (VOA), whereas in this case it is the article or product
which is exempt from tax and not the international carrier.

Petitioner filed a motion for reconsideration which the CTA likewise denied.
Hence, this petition anchored on the following grounds:

SECTION 148 OF THE NATIONAL INTERNAL REVENUE CODE EXPRESSLY SUBJECTS THE PETROLEUM
PRODUCTS TO AN EXCISE TAX BEFORE THEY ARE REMOVED FROM THE PLACE OF PRODUCTION.

II

THE ONLY SPECIFIC PROVISION OF THE LAW WHICH GRANTS TAX CREDIT OR TAX REFUND OF THE EXCISE
TAXES PAID REFERS TO THOSE CASES WHERE GOODS LOCALLY PRODUCED OR MANUFACTURED ARE
ACTUALLY EXPORTED WHICH IS NOT SO IN THIS CASE.

III

THE PRINCIPLES LAID DOWN IN MACEDA VS. MACARAIG, JR. AND PHILIPPINE ACETYLENE CO. VS. CIR ARE
APPLICABLE TO THIS CASE.10

The Solicitor General argues that the obvious intent of the law is to grant excise tax exemption to
international carriers and exempt entities as buyers of petroleum products and not to the manufacturers or
producers of said goods. Since the excise taxes are collected from manufacturers or producers before
removal of the domestic products from the place of production, respondent paid the subject excise taxes as
manufacturer or producer of the petroleum products pursuant to Sec. 148 of the NIRC. Thus, regardless of
who the buyer/purchaser is, the excise tax on petroleum products attached to the said goods before their
sale or delivery to international carriers, as in fact respondent averred that it paid the excise tax on its
petroleum products when it “withdrew petroleum products from its place of production for eventual sale and
delivery to various international carriers as well as to other customers.”11 Sec. 135 (a) and (c) granting
exemption from the payment of excise tax on petroleum products can only be interpreted to mean that the
respondent cannot pass on to international carriers and exempt agencies the excise taxes it paid as a
manufacturer or producer.

As to whether respondent has the right to file a claim for refund or tax credit for the excise taxes it paid for
the petroleum products sold to international carriers, the Solicitor General contends that Sec. 130 (D) is
explicit on the circumstances under which a taxpayer may claim for a refund of excise taxes paid on
manufactured products, which express enumeration did not include those excise taxes paid on petroleum
products which were eventually sold to international carriers (expressio unius est exclusio alterius).

Further, the Solicitor General asserts that contrary to the conclusion made by the CTA, the principles laid
down by this Court in Maceda v. Macaraig, Jr.12 and Philippine Acetylene Co. v. Commissioner of Internal
Revenue13 are applicable to this case. Respondent must shoulder the excise taxes it previously paid on
petroleum products which it later sold to international carriers because it cannot pass on the tax burden to
the said international carriers which have been granted exemption under Sec. 135 (a) of the NIRC.
Considering that respondent failed to prove an express grant of a right to a tax refund, such claim cannot be
implied; hence, it must be denied.

On the other hand, respondent maintains that since petroleum products sold to qualified international
carriers are exempt from excise tax, no taxes should be imposed on the article, to which goods the tax
attaches, whether in the hands of the said international carriers or the petroleum manufacturer or producer.
As these excise taxes have been erroneously paid taxes, they can be recovered under Sec. 229 of the NIRC.
Respondent contends that contrary to petitioner’s assertion, Sections 204 and 229 authorizes respondent to
maintain a suit or proceeding to recover such erroneously paid taxes on the petroleum products sold to tax-
exempt international carriers.

As to the jurisprudence cited by the petitioner, respondent argues that they are not applicable to the case at
bar. It points out that Maceda v. Macaraig, Jr. is an adjudication on the issue of tax exemption of NPC from
direct and indirect taxes given the passage of various laws relating thereto. What was put in issue in said
case was NPC’s right to claim for refund of indirect taxes.

Here, respondent’s claim for refund is not anchored on the exemption of the buyer from direct and indirect
taxes but on the tax exemption of the goods themselves under Sec. 135. Respondent further stressed that in
Maceda v. Macaraig, Jr., this Court recognized that if NPC purchases oil from oil companies, NPC is entitled to
claim reimbursement from the BIR for that part of the purchase price that represents excise taxes paid by
the oil company to the BIR. Philippine Acetylene Co. v. CIR, on the other hand, involved sales tax, which is a
tax on the transaction, which this Court held as due from the seller even if such tax cannot be passed on to
the buyers who are tax-exempt entities. In this case, the excise tax is a tax on the goods themselves. While
indeed it is the manufacturer who has the duty to pay the said tax, by specific provision of law, Sec. 135, the
goods are stripped of such tax under the circumstances provided therein. Philippine Acetylene Co., Inc. v.
CIR was thus not anchored on an exempting provision of law but merely on the argument that the tax
burden cannot be passed on to someone.

Respondent further contends that requiring it to shoulder the burden of excise taxes on petroleum products
sold to international carriers would effectively defeat the principle of international comity upon which the
grant of tax exemption on aviation fuel used in international flights was founded. If the excise taxes paid by
respondent are not allowed to be refunded or credited based on the exemption provided in Sec. 135 (a),
respondent avers that the manufacturers or oil companies would then be constrained to shift the tax burden
to international carriers in the form of addition to
the selling price.

Respondent cites as an analogous case Commissioner of International Revenue v. Tours Specialists, Inc.14
which involved the inclusion of hotel room charges remitted by partner foreign tour agents in respondent
TSI’s gross receipts for purposes of computing the 3% contractor’s tax. TSI opposed the deficiency
assessment invoking, among others, Presidential Decree No. 31, which exempts foreign tourists from paying
hotel room tax. This Court upheld the CTA in ruling that while CIR may claim that the 3% contractor’s tax is
imposed upon a different incidence, i.e., the gross receipts of the tourist agency which he asserts includes
the hotel room charges entrusted to it, the effect would be to impose a tax, and though different, it
nonetheless imposes a tax actually on room charges. One way or the other, said the CTA, it would not have
the effect of promoting tourism in the Philippines as that would increase the costs or expenses by the
addition of a hotel room tax in the overall expenses of said tourists.

The instant petition squarely raised the issue of whether respondent as manufacturer or producer of
petroleum products is exempt from the payment of excise tax on such petroleum products it sold to
international carriers.

In the previous cases decided by this Court involving excise taxes on petroleum products sold to international
carriers, what was only resolved is the question of who is the proper party to claim the refund of excise taxes
paid on petroleum products if such tax was either paid by the international carriers themselves or
incorporated into the selling price of the petroleum products sold to them. We have ruled in the said cases
that the statutory taxpayer, the local manufacturer of the petroleum products who is directly liable for the
payment of excise tax on the said goods, is the proper party to seek a tax refund.

Thus, a foreign airline company who purchased locally manufactured petroleum products for use in its
international flights, as well as a foreign oil company who likewise bought petroleum products from local
manufacturers and later sold these to international carriers, have no legal personality to file a claim for tax
refund or credit of excise taxes previously paid by the local manufacturers even if the latter passed on to the
said buyers the tax burden in the form of additional amount in the price.

Excise taxes, as the term is used in the NIRC, refer to taxes applicable to certain specified goods or articles
manufactured or produced in the Philippines for domestic sales or consumption or for any other disposition
and to things imported into the Philippines. These taxes are imposed in addition to the value-added tax
(VAT).16

As to petroleum products, Sec. 148 provides that excise taxes attach to the following refined and
manufactured mineral oils and motor fuels as soon as they are in existence as such:

(a) Lubricating oils and greases;

(b) Processed gas;

(c) Waxes and petrolatum;

(d) Denatured alcohol to be used for motive power;


(e) Naphtha, regular gasoline and other similar products of distillation;

(f) Leaded premium gasoline;

(g) Aviation turbo jet fuel;

(h) Kerosene;

(i) Diesel fuel oil, and similar fuel oils having more or less the same generating power;

(j) Liquefied petroleum gas;

(k) Asphalts; and

(l) Bunker fuel oil and similar fuel oils having more or less the same generating capacity.

Beginning January 1, 1999, excise taxes levied on locally manufactured petroleum products and indigenous
petroleum are required to be paid before their removal from the place of production. However, Sec. 135
provides:

“SEC. 135. Petroleum Products Sold to International Carriers and Exempt Entities or Agencies.—Petroleum


products sold to the following are exempt from excise tax:

(a) International carriers of Philippine or foreign registry on their use or consumption outside the
Philippines: Provided, That the petroleum products sold to these international carriers shall be stored in a
bonded storage tank and may be disposed of only in accordance with the rules and regulations to be
prescribed by the Secretary of Finance, upon recommendation of the Commissioner;

(b) Exempt entities or agencies covered by tax treaties, conventions and other international agreements for
their use or consumption: Provided, however, That the country of said foreign international carrier or exempt
entities or agencies exempts from similar taxes petroleum products sold to Philippine carriers, entities or
agencies; and

(c) Entities which are by law exempt from direct and indirect taxes.”

Respondent claims it is entitled to a tax refund because those petroleum products it sold to international
carriers are not subject to excise tax, hence the excise taxes it paid upon withdrawal of those products were
erroneously or illegally collected and should not have been paid in the first place. Since the excise tax
exemption attached to the petroleum products themselves, the manufacturer or producer is under no duty to
pay the excise tax thereon.

We disagree.

Under Chapter II “Exemption or Conditional Tax-Free Removal of Certain Goods” of Title VI, Sections 133,
137, 138, 139 and 140 cover conditional tax-free removal of specified goods or articles, whereas Sections
134 and 135 provide for tax exemptions.

While the exemption found in Sec. 134 makes reference to the nature and quality of the goods manufactured
(domestic denatured alcohol) without regard to the tax status of the buyer of the said goods, Sec. 135 deals
with the tax treatment of a specified article (petroleum products) in relation to its buyer or consumer.
Respondent’s failure to make this important distinction apparently led it to mistakenly assume that the tax
exemption under Sec. 135 (a) “attaches to the goods themselves” such that the excise tax should not have
been paid in the first place.

On July 26, 1996, petitioner Commissioner issued Revenue Regulations 8-9618 (“Excise Taxation of
Petroleum Products”) which provides:

“SEC. 4. Time and Manner of Payment of Excise Tax on Petroleum Products, Non-Metallic Minerals and
Indigenous Petroleum.—
I. Petroleum Products

xxxx

a) On locally manufactured petroleum products

The specific tax on petroleum products locally manufactured or produced in the Philippines shall be paid by
the manufacturer, producer, owner or person having possession of the same, and such tax shall be paid
within fifteen (15) days from date of removal from the place of production.” (Underscoring supplied.)

Thus, if an airline company purchased jet fuel from an unregistered supplier who could not present proof of
payment of specific tax, the company is liable to pay the specific tax on the date of purchase. Since the
excise tax must be paid upon withdrawal from the place of production, respondent cannot anchor its claim
for refund on the theory that the excise taxes due thereon should not have been collected or paid in the first
place.

Sec. 229 of the NIRC allows the recovery of taxes erroneously or illegally collected. An “erroneous or illegal
tax” is defined as one levied without statutory authority, or upon property not subject to taxation or by some
officer having no authority to levy the tax, or one which is some other similar respect is illegal.20

Respondent’s locally manufactured petroleum products are clearly subject to excise tax under Sec. 148.
Hence, its claim for tax refund may not be predicated on Sec. 229 of the NIRC allowing a refund of erroneous
or excess payment of tax. Respondent’s claim is premised on what it determined as a tax exemption
“attaching to the goods themselves,” which must be based on a statute granting tax exemption, or “the
result of legislative grace.” Such a claim is to be construed strictissimi juris against the taxpayer, meaning
that the claim cannot be made to rest on vague inference. Where the rule of strict interpretation against the
taxpayer is applicable as the claim for refund partakes of the nature of an exemption, the claimant must
show that he clearly falls under the exempting statute.

The exemption from excise tax payment on petroleum products under Sec. 135 (a) is conferred on
international carriers who purchased the same for their use or consumption outside the Philippines. The only
condition set by law is for these petroleum products to be stored in a bonded storage tank and may be
disposed of only in accordance with the rules and regulations to be prescribed by the Secretary of Finance,
upon recommendation of the Commissioner.

On January 22, 2008, or five years after the sale by respondent of the subject petroleum products, then
Secretary of Finance Margarito B. Teves issued Revenue Regulations No. 3-2008 “Amending Certain
Provisions of Existing Revenue Regulations on the Granting of Outright Excise Tax Exemption on Removal of
Excisable Articles Intended for Export or Sale/Delivery to International Carriers or to Tax-Exempt
Entities/Agencies and Prescribing the Provisions for Availing Claims for Product Replenishment.”

Said issuance recognized the “tax relief to which the taxpayers are entitled” by availing of the following
remedies: (1) a claim for excise tax exemption pursuant to Sections 204 and 229 of the NIRC; or (2) a
product replenishment.

“SEC. 2. IMPOSITION OF EXCISE TAX ON REMOVAL OF EXCISABLE ARTICLES FOR EXPORT OR


SALE/DELIVERY TO INTERNATIONAL CARRIERS AND OTHER TAX-EXEMPT ENTITIES/AGENCIES.—Subject to
the subsequent filing of a claim for excise tax credit/refund or product replenishment, all manufacturers of
articles subject to excise tax under Title VI of the NIRC of 1997, as amended, shall pay the excise tax that is
otherwise due on every removal thereof from the place of production that is intended for exportation or
sale/delivery to international carriers or to tax-exempt entities/agencies: Provided, That in case the said
articles are likewise being sold in the domestic market, the applicable excise tax rate shall be the same as
the excise tax rate imposed on the domestically sold articles.

In the absence of a similar article that is being sold in the domestic market, the applicable excise tax shall be
computed based on the value appearing in the manufacturer’s sworn statement converted to Philippine
currency, as may be applicable.

x x x x” (Emphasis supplied.)
In this case, however, the Solicitor General has adopted a position contrary to existing BIR regulations and
rulings recognizing the right of oil companies to seek a refund of excise taxes paid on petroleum products
they sold to international carriers. It is argued that there is nothing in Sec. 135 (a) which explicitly grants
exemption from the payment of excise tax in favor of oil companies selling their petroleum products to
international carriers and that the only claim for refund of excise taxes authorized by the NIRC is the
payment of excise tax on exported goods, as explicitly provided in Sec. 130 (D), Chapter I under the same
Title VI:

“(D) Credit for Excise Tax on Goods Actually Exported.—When goods locally produced or manufactured are
removed and actually exported without returning to the Philippines, whether so exported in their original
state or as ingredients or parts of any manufactured goods or products, any excise tax paid thereon shall be
credited or refunded upon submission of the proof of actual exportation and upon receipt of the
corresponding foreign exchange payment: Provided, That the excise tax on mineral products, except coal and
coke, imposed under Section 151 shall not be creditable or refundable even if the mineral products are
actually exported.”

According to the Solicitor General, Sec. 135 (a) in relation to the other provisions on excise tax and from the
nature of indirect taxation, may only be construed as prohibiting the manufacturers-sellers of petroleum
products from passing on the tax to international carriers by incorporating previously paid excise taxes into
the selling price. In other words, re-

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Commissioner of Internal Revenue vs. Pilipinas Shell Petroleum Corporation

spondent cannot shift the tax burden to international carriers who are allowed to purchase its petroleum
products without having to pay the added cost of the excise tax.

We agree with the Solicitor General.

In Philippine Acetylene Co., Inc. v. Commissioner of Internal Revenue22 this Court held that petitioner
manufacturer who sold its oxygen and acetylene gases to NPC, a tax-exempt entity, cannot claim exemption
from the payment of sales tax simply because its buyer NPC is exempt from taxation. The Court explained
that the percentage tax on sales of merchandise imposed by the Tax Code is due from the manufacturer and
not from the buyer.

Respondent attempts to distinguish this case from Philippine Acetylene Co., Inc. on grounds that what was
involved in the latter is a tax on the transaction (sales) and not excise tax which is a tax on the goods
themselves, and that the exemption sought therein was anchored merely on the tax-exempt status of the
buyer and not a specific provision of law exempting the goods sold from the excise tax. But as already
stated, the language of Sec. 135 indicates that the tax exemption mentioned therein is conferred on specified
buyers or consumers of the excisable articles or goods (petroleum products). Unlike Sec. 134 which explicitly
exempted the article or goods itself (domestic denatured alcohol) without due regard to the tax status of the
buyer or purchaser, Sec. 135 exempts from excise tax petroleum products which were sold to international
carriers and other tax-exempt agencies and entities.

Considering that the excise taxes attaches to petroleum products “as soon as they are in existence as
such,”23 there can be no outright exemption from the payment of excise tax on petroleum products sold to
international carriers. The sole basis then of respondent’s claim for refund is the express grant of excise tax
exemption in favor of international carriers under Sec. 135 (a) for their purchases of locally manufactured
petroleum products. Pursuant to our ruling in Philippine Acetylene, a tax exemption being enjoyed by the
buyer cannot be the basis of a claim for tax exemption by the manufacturer or seller of the goods for any tax
due to it as the manufacturer or seller. The excise tax imposed on petroleum products under Sec. 148 is the
direct liability of the manufacturer who cannot thus invoke the excise tax exemption granted to its buyers
who are international carriers.

In Maceda v. Macaraig, Jr.,24 the Court specifically mentioned excise tax as an example of an indirect tax
where the tax burden can be shifted to the buyer:

“On the other hand, “indirect taxes are taxes primarily paid by persons who can shift the burden upon
someone else.” For example, the excise and ad valorem taxes that the oil companies pay to the Bureau of
Internal Revenue upon removal of petroleum products from its refinery can be shifted to its buyer, like the
NPC, by adding them to the “cash” and/or “selling price.”

An excise tax is basically an indirect tax. Indirect taxes are those that are demanded, in the first instance,
from, or are paid by, one person in the expectation and intention that he can shift the burden to someone
else. Stated elsewise, indirect taxes are taxes wherein the liability for the payment of the tax falls on one
person but the burden thereof can be shifted or passed on to another person, such as when the tax is
imposed upon goods before reaching the consumer who ultimately pays for it. When the seller passes on the
tax to his buyer, he, in effect, shifts the tax burden, not the liability to pay it, to the purchaser as part of the
price of goods sold or services rendered.

Further, in Maceda v. Macaraig, Jr., the Court ruled that because of the tax exemptions privileges being
enjoyed by NPC under existing laws, the tax burden may not be shifted to it by the oil companies who shall
pay for fuel oil taxes on oil they supplied to NPC. Thus:

“In view of all the foregoing, the Court rules and declares that the oil companies which supply bunker fuel oil
to NPC have to pay the taxes imposed upon said bunker fuel oil sold to NPC. By the very nature of indirect
taxation, the economic burden of such taxation is expected to be passed on through the channels of
commerce to the user or consumer of the goods sold. Because, however, the NPC has been exempted from
both direct and indirect taxation, the NPC must be held exempted from absorbing the economic burden of
indirect taxation. This means, on the one hand, that the oil companies which wish to sell to NPC absorb all or
part of the economic burden of the taxes previously paid to BIR, which they could shift to NPC if NPC did not
enjoy exemption from indirect taxes. This means also, on the other hand, that the NPC may refuse to pay
that part of the “normal” purchase price of bunker fuel oil which represents all or part of the taxes previously
paid by the oil companies to BIR. If NPC nonetheless purchases such oil from the oil companies—because to
do so may be more convenient and ultimately less costly for NPC than NPC itself importing and hauling and
storing the oil from overseas—NPC is entitled to be reimbursed by the BIR for that part of the buying price of
NPC which verifiably represents the tax already paid by the oil company-vendor to the BIR.”

In the case of international air carriers, the tax exemption granted under Sec. 135 (a) is based on “a long-
standing international consensus that fuel used for international air services should be tax-exempt.” The
provisions of the 1944 Convention of International Civil Aviation or the “Chicago Convention,” which form
binding international law, requires the contracting parties not to charge duty on aviation fuel already on
board any aircraft that has arrived in their territory from another contracting state. Between individual
countries, the exemption of airlines from national taxes and customs duties on a range of aviation-related
goods, including parts, stores and fuel is a standard element of the network of bilateral “Air Service
Agreements.”

Later, a Resolution issued by the International Civil Aviation Organization (ICAO) expanded the provision as
to similarly exempt from taxes all kinds of fuel taken on board for consumption by an aircraft from a
contracting state in the territory of another contracting State departing for the territory of any other State.
Though initially aimed at establishing uniformity of taxation among parties to the treaty to prevent double
taxation, the tax exemption now generally applies to fuel used in international travel by both domestic and
foreign carriers.

On April 21, 1978, then President Ferdinand E. Marcos issued Presidential Decree (P.D.) No. 1359:

PRESIDENTIAL DECREE NO. 1359

AMENDING SECTION 134 OF THE NATIONAL INTERNAL REVENUE CODE OF 1977.

WHEREAS, under the present law oil products sold to international carriers are subject to the specific tax;

WHEREAS, some countries allow the sale of petroleum products to Philippine Carriers without payment of
taxes thereon;
WHEREAS, to foster goodwill and better relationship with foreign countries, there is a need to grant similar
tax exemption in favor of foreign international carriers;

NOW, THEREFORE, I, FERDINAND E. MARCOS, President of the Philippines, by virtue of the powers vested in
me by the Constitution, do hereby order and decree the following:

Section 1. Section 134 of the National Internal Revenue Code of 1977 is hereby amended to read as
follows:

“Sec. 134. Articles subject to specific tax.—Specific internal revenue taxes apply to things manufactured or
produced in the Philippines for domestic sale or consumption and to things imported, but not to anything
produced or manufactured here which shall be removed for exportation and is actually exported without
returning to the Philippines, whether so exported in its original state or as an ingredient or part of any
manufactured article or product.

“HOWEVER, PETROLEUM PRODUCTS SOLD TO AN INTERNATIONAL CARRIER FOR ITS USE OR CONSUMPTION
OUTSIDE OF THE PHILIPPINES SHALL NOT BE SUBJECT TO SPECIFIC TAX, PROVIDED, THAT THE COUNTRY
OF SAID CARRIER EXEMPTS FROM TAX PETROLEUM PRODUCTS SOLD TO PHILIPPINE CARRIERS.

“In case of importations the internal revenue tax shall be in addition to the customs duties, if any.”

Section 2. This Decree shall take effect immediately.”

Contrary to respondent’s assertion that the above amendment to the former provision of the 1977 Tax Code
supports its position that it was not liable for excise tax on the petroleum products sold to international
carriers, we find that no such inference can be drawn from the words used in the amended provision or its
introductory part. Founded on the principles of international comity and reciprocity, P.D. No. 1359 granted
exemption from payment of excise tax but only to foreign international carriers who are allowed to purchase
petroleum products free of specific tax provided the country of said carrier also grants tax exemption to
Philippine carriers. Both the earlier amendment in the 1977 Tax Code and the present Sec. 135 of the 1997
NIRC did not exempt the oil companies from the payment of excise tax on petroleum products manufactured
and sold by them to international carriers.

Because an excise tax is a tax on the manufacturer and not on the purchaser, and there being no express
grant under the NIRC of exemption from payment of excise tax to local manufacturers of petroleum products
sold to international carriers, and absent any provision in the Code authorizing the refund or crediting of such
excise taxes paid, the Court holds that Sec. 135 (a) should be construed as prohibiting the shifting of the
burden of the excise tax to the international carriers who buys petroleum products from the local
manufacturers. Said provision thus merely allows the international carriers to purchase petroleum products
without the excise tax component as an added cost in the price fixed by the manufacturers or
distributors/sellers. Consequently, the oil companies which sold such petroleum products to international
carriers are not entitled to a refund of excise taxes previously paid on the goods.

Time and again, we have held that tax refunds are in the nature of tax exemptions which result to loss of
revenue for the government. Upon the person claiming an exemption from tax payments rests the burden of
justifying the exemption by words too plain to be mistaken and too categorical to be mis-

264

264

SUPREME COURT REPORTS ANNOTATED

Commissioner of Internal Revenue vs. Pilipinas Shell Petroleum Corporation

interpreted,29 it is never presumed30 nor be allowed solely on the ground of equity.31 These exemptions,
therefore, must not rest on vague, uncertain or indefinite inference, but should be granted only by a clear
and unequivocal provision of law on the basis of language too plain to be mistaken. Such exemptions must
be strictly construed against the taxpayer, as taxes are the lifeblood of the government.32
WHEREFORE, the petition for review on certiorari is GRANTED. The Decision dated March 25, 2009 and
Resolution dated June 24, 2009 of the Court of Tax Appeals En Banc in CTA EB No. 415 are hereby
REVERSED and SET ASIDE. The claims for tax refund or credit filed by respondent Pilipinas Shell Petroleum
Corporation are DENIED for lack of basis.

No pronouncement as to costs.

SO ORDERED.

Corona (C.J., Chairperson), Leonardo-De Castro, Bersamin and Del Castillo, JJ., concur.

_______________

Petition granted, judgment and resolution reversed and set aside.

Notes.—It may be conceded that the assailed law imposes an excise tax on cigarettes which is a form of
indirect tax, and thus, regressive in character; Nevertheless, this does not mean that the assailed law may
be declared unconstitutional for being regressive in character because the Constitution does not prohibit the
imposition of indirect taxes but merely provides that Congress shall evolve a progressive system of taxation.
(British American Tobacco vs. Camacho, 585 SCRA 36 [2009])

The person entitled to claim a tax refund is the taxpayer, but in case the taxpayer does not file a claim for
refund, the withholding agent may file the claim. (Commissioner of Internal Revenue vs. Smart
Communication, Inc., 629 SCRA 342 [2010])

Tax refunds, like tax exemptions, are construed strictly against the taxpayer
and liberally in favor of the taxing authority; It has been a long-standing policy and practice of the Supreme
Court to respect the conclusions of quasi-judicial agencies such as the Court of Tax Appeals (CTA), a highly
specialized body specifically created for the purpose of reviewing tax cases. (United Airlines, Inc. vs.
Commissioner of Internal Revenue, 631 SCRA 567 [2010])

——o0o——

© Copyright 2019 Central Book Supply, Inc. All rights reserved. Commissioner of Internal Revenue vs.
Pilipinas Shell Petroleum Corporation, 671 SCRA 241, G.R. No. 188497 April 25, 2012

G.R. No. 188497. February 19, 2014.*

COMMISSIONER OF INTERNAL REVENUE, petitioner, vs. PILIPINAS SHELL PETROLEUM


CORPORATION, respondent.

Taxation; Excise Taxes; Under Section 129 of the National Internal Revenue Code (NIRC), excise taxes are
those applied to goods manufactured or produced in the Philippines for domestic sale or consumption or for
any other disposition and to things imported.—Under Section 129 of the NIRC, excise taxes are those applied
to goods manufactured or produced in the Philippines for domestic sale or consumption or for any other
disposition and to things imported. Excise taxes as used in our Tax Code fall under two types — (1) specific
tax which is based on weight or volume capacity and other physical unit of measurement, and (2) ad
valorem tax which is based on selling price or other specified value of the goods. Aviation fuel is subject to
specific tax under Section 148 (g) which attaches to said product “as soon as they are in existence as such.”

Same; Same; Tax Exemptions; The excise tax imposed on petroleum products under Section 148 of the
National Internal Revenue Code (NIRC) is the direct liability of the manufacturer who cannot thus invoke the
excise tax exemption granted to its buyers who are international carriers.—On the basis of Philippine
Acetylene, we held that a tax exemption being enjoyed by the buyer cannot be the basis of a claim for tax
exemption by the manufacturer or seller of the goods for any tax due to it as the manufacturer or seller. The
excise tax imposed on petroleum products under Section 148 is the direct liability of the manufacturer who
cannot thus invoke the excise tax exemption granted to its buyers who are international carriers. And
following our pronouncement in Maceda v. Macaraig, Jr., 223 SCRA 217, we further ruled that Section 135(a)
should be construed as prohibiting the shifting of the burden of the excise tax to the international carriers
who buy petroleum products from the local manufacturers. Said international carriers are thus allowed to
purchase the petroleum products without the excise tax component which otherwise would have been added
to the cost or price fixed by the local manufacturers or distributors/sellers.

Same; Same; Same; Aviation Fuel; Excise tax on aviation fuel used for international flights is practically nil
as most countries are signatories to the 1944 Chicago Convention on International Aviation.—Excise tax on
aviation fuel used for international flights is practically nil as most countries are signatories to the 1944
Chicago Convention on International Aviation (Chicago Convention). Article 24 of the Convention has been
interpreted to prohibit taxation of aircraft fuel consumed for international transport. Taxation of international
air travel is presently at such low level that there has been an intensified debate on whether these should be
increased to “finance development rather than simply to augment national tax revenue” considering the
“cross-border environmental damage” caused by aircraft emissions that contribute to global warming, not to
mention noise pollution and congestion at airports). Mutual exemptions given under bilateral air service
agreements are seen as main legal obstacles to the imposition of indirect taxes on aviation fuel. In response
to present realities, the International Civil Aviation Organization (ICAO) has adopted policies on charges and
emission-related taxes and charges.

Same; Same; Same; Same; The exemption from excise tax of aviation fuel purchased by international
carriers for consumption outside the Philippines fulfills a treaty obligation pursuant to which our Government
supports the promotion and expansion of international travel through avoidance of multiple taxation and
ensuring the viability and safety of international air travel.—Indeed, the avowed purpose of a tax exemption
is always “some public benefit or interest, which the law-making body considers sufficient to offset the
monetary loss entailed in the grant of the exemption.” The exemption from excise tax of aviation fuel
purchased by international carriers for consumption outside the Philippines fulfills a treaty obligation
pursuant to which our Government supports the promotion and expansion of international travel through
avoidance of multiple taxation and ensuring the viability and safety of international air travel. In recent
years, developing economies such as ours focused more serious attention to significant gains for business
and tourism sectors as well. Even without such recent incidental benefit, States had long accepted the need
for international cooperation in maintaining a capital intensive, labor intensive and fuel intensive airline
industry, and recognized the major role of international air transport in the development of international
trade and travel.

International Law; Pacta Sunt Servanda; Under the basic international law principle of pacta sunt servanda,
we have the duty to fulfill our treaty obligations in good faith.—Under the basic international law principle of
pacta sunt servanda, we have the duty to fulfill our treaty obligations in good faith. This entails
harmonization of national legislation with treaty provisions. In this case, Sec. 135(a) of the NIRC embodies
our compliance with our undertakings under the Chicago Convention and various bilateral air service
agreements not to impose excise tax on aviation fuel purchased by international carriers from domestic
manufacturers or suppliers. In our Decision in this case, we interpreted Section 135 (a) as prohibiting
domestic manufacturer or producer to pass on to international carriers the excise tax it had paid on
petroleum products upon their removal from the place of production, pursuant to Article 148 and pertinent
BIR regulations. Ruling on respondent’s claim for tax refund of such paid excise taxes on petroleum products
sold to tax-exempt international carriers, we found no basis in the Tax Code and jurisprudence to grant the
refund of an “erroneously or illegally paid” tax.

Taxation; Excise Taxes; Tankering; With the prospect of declining sales of aviation jet fuel sales to
international carriers on account of major domestic oil companies’ unwillingness to shoulder the burden of
excise tax, or of petroleum products being sold to said carriers by local manufacturers or sellers at still high
prices, the practice of “tankering” would not be discouraged.—With the prospect of declining sales of aviation
jet fuel sales to international carriers on account of major domestic oil companies’ unwillingness to shoulder
the burden of excise tax, or of petroleum products being sold to said carriers by local manufacturers or
sellers at still high prices, the practice of “tankering” would not be discouraged. This scenario does not augur
well for the Philippines’ growing economy and the booming tourism industry. Worse, our Government would
be risking retaliatory action under several bilateral agreements with various countries. Evidently,
construction of the tax exemption provision in question should give primary consideration to its broad
implications on our commitment under international agreements.
56

BERSAMIN, J., Separate Opinion:

Taxation; Excise Taxes; Tax Exemptions; Petroleum Products; View that the excise tax exemption under
Section 135(a) of the National Internal Revenue Code (NIRC), is conferred on the petroleum products on
which the excise tax is levied in the first place in view of its nature as a tax on property, the liability for the
payment of which is statutorily imposed on the domestic petroleum manufacturer.—I write this separate
opinion only to explain that I hold a different view on the proper interpretation of the excise tax exemption
under Section 135(a) of the NIRC. I hold that the excise tax exemption under Section 135(a) of the NIRC is
conferred on the petroleum products on which the excise tax is levied in the first place in view of its nature
as a tax on property, the liability for the payment of which is statutorily imposed on the domestic petroleum
manufacturer.

Same; Same; Same; Same; View that Section 135(a) of the National Internal Revenue Code (NIRC), must
be construed only as a prohibition for the manufacturer-seller of the petroleum products from shifting the tax
burden to the international carriers by incorporating the previously-paid excise tax in the selling price.—We
thereby agreed with the position of the Solicitor General that Section 135(a) of the NIRC must be construed
only as a prohibition for the manufacturer-seller of the petroleum products from shifting the tax burden to
the international carriers by incorporating the previously-paid excise tax in the selling price. As a
consequence, the manufacturer-seller could not invoke the exemption from the excise tax granted to
international carriers.

Same; View that taxes are classified, according to subject matter or object, into three groups, to wit: (1)
personal, capitation or poll taxes; (2) property taxes; and (3) excise or license taxes.—Taxes are classified,
according to subject matter or object, into three groups, to wit: (1) personal, capitation or poll taxes; (2)
property taxes; and (3) excise or license taxes. Personal, capitation or poll taxes are fixed amounts imposed
upon residents or persons of a certain class without regard to their property or business, an example of
which is the basic community tax. Property taxes are assessed on property or things of a certain class,
whether real or personal, in proportion to their value or other reasonable method of apportionment, such as
the real estate tax. Excise or license taxes are imposed upon the performance of an act, the enjoyment of a
privilege, or the engaging in an occupation, profession or business. Income tax, value-added tax, estate and
donor’s tax fall under the third group.

Same; Excise Taxes; View that the production, manufacture or importation of the goods belonging to any of
the categories enumerated in Title VI of the National Internal Revenue Code (NIRC), (i.e., alcohol products,
tobacco products, petroleum products, automobiles and nonessential goods, mineral products) are not the
sole determinants for the proper levy of the excise tax. It is further required that the goods be
manufactured, produced or imported for domestic sale, consumption or any other disposition.—The
production, manufacture or importation of the goods belonging to any of the categories enumerated in Title
VI of the NIRC (i.e., alcohol products, tobacco products, petroleum products, automobiles and nonessential
goods, mineral products) are not the sole determinants for the proper levy of the excise tax. It is further
required that the goods be manufactured, produced or imported for domestic sale, consumption or any other
disposition. The accrual of the tax liability is, therefore, contingent on the production, manufacture or
importation of the taxable goods and the intention of the manufacturer, producer or importer to have the
goods locally sold or consumed or disposed in any other manner. This is the reason why the accrual and
liability for the payment of the excise tax are imposed directly on the manufacturer or producer of the
taxable goods, and arise before the removal of the goods from the place of their production.

Same; Same; View that the accrual and payment of the excise tax under Title VI of the National Internal
Revenue Code (NIRC) materially rest on the fact of actual production, manufacture or importation of the
taxable goods in the Philippines and on their presumed or intended domestic sale, consumption or
disposition.—Simply stated, the accrual and payment of the excise tax under Title VI of the NIRC materially
rest on the fact of actual production, manufacture or importation of the taxable goods in the Philippines and
on their presumed or intended domestic sale, consumption or disposition. Considering that the excise tax
attaches to the goods upon the accrual of the manufacturer’s direct liability for its payment, the subsequent
sale, consumption or other disposition of the goods becomes relevant only to determine whether any
exemption or tax relief may be granted thereafter.

Same; Same; View that it is the actual sale, consumption or disposition of the taxable goods that confirms
the proper tax treatment of goods previously subjected to the excise tax.—The accrual and payment of the
excise tax on the goods enumerated under Title VI of the NIRC prior to their removal from the place of
production are absolute and admit of no exception. As earlier mentioned, even locally manufactured goods
intended for export cannot escape the imposition and payment of the excise tax, subject to a future claim for
tax credit or refund once proof of actual exportation has been submitted to the Commissioner of Internal
Revenue (CIR). Verily, it is the actual sale, consumption or disposition of the taxable goods that confirms the
proper tax treatment of goods previously subjected to the excise tax. If any of the goods enumerated under
Title VI of the NIRC are manufactured or produced in the Philippines and eventually sold, consumed, or
disposed of in any other manner domestically, therefore, there can be no claim for any tax relief inasmuch as
the excise tax was properly levied and collected from the manufacturer-seller.

Same; Same; View that the excise taxes are of the nature of indirect taxes, the liability for the payment of
which may fall on a person other than whoever actually bears the burden of the tax.—The excise taxes are of
the nature of indirect taxes, the liability for the payment of which may fall on a person other than whoever
actually bears the burden of the tax. In Commissioner of Internal Revenue v. Philippine Long Distance
Telephone Company, 478 SCRA 61 (2005), the Court has discussed the nature of indirect taxes in the
following manner: [I]ndirect taxes are those that are demanded, in the first instance, from, or are paid by,
one person in the expectation and intention that he can shift the burden to someone else. Stated elsewise,
indirect taxes are taxes wherein the liability for the payment of the tax falls on one person but the burden
thereof can be shifted or passed on to another person, such as when the tax is imposed upon goods before
reaching the consumer who ultimately pays for it. When the seller passes on the tax to his buyer, he, in
effect, shifts the tax burden, not the liability to pay it, to the purchaser, as part of the price of goods sold or
services rendered.

59

Same; Same; View that the option of shifting the burden to pay the excise tax rests on the statutory
taxpayer, which is the manufacturer or producer in the case of the excise taxes imposed on the petroleum
products.—Accordingly, the option of shifting the burden to pay the excise tax rests on the statutory
taxpayer, which is the manufacturer or producer in the case of the excise taxes imposed on the petroleum
products. Regardless of who shoulders the burden of tax payment, however, the Court has ruled as early as
in the 1960s that the proper party to question or to seek a refund of an indirect tax is the statutory taxpayer,
the person on whom the tax is imposed by law and who paid the same, even if he shifts the burden thereof
to another.

Same; Same; View that the Silkair rulings involving the excise taxes on the petroleum products sold to
international carriers firmly hold that the proper party to claim the refund of excise taxes paid is the
manufacturer-seller.—The Silkair rulings involving the excise taxes on the petroleum products sold to
international carriers firmly hold that the proper party to claim the refund of excise taxes paid is the
manufacturer-seller.

Same; Same; View that the shifting of the tax burden by manufacturers-sellers is a business prerogative
resulting from the collective impact of market forces. Such forces include government impositions like the
excise tax.—The shifting of the tax burden by manufacturers-sellers is a business prerogative resulting from
the collective impact of market forces. Such forces include government impositions like the excise tax.
Hence, the additional amount billed to the purchaser as part of the price the purchaser pays for the goods
acquired cannot be solely attributed to the effect of the tax liability imposed on the manufacture-seller. It is
erroneous to construe Section 135(a) only as a prohibition against the shifting by the manufacturers-sellers
of petroleum products of the tax burden to international carriers, for such construction will deprive the
manufacturers-sellers of their business prerogative to determine the prices at which they can sell their
products.

Same; Same; View that Section 135(a) of the National Internal Revenue Code (NIRC) cannot be further
construed as granting the excise tax exemption to the international carrier to whom the petroleum products
are sold considering that the international carrier has not been subjected to excise tax at the outset.—
Section 135(a) of the NIRC cannot be further construed as granting the excise tax exemption to the
international carrier to whom the petroleum products are sold considering that the international carrier has
not been subjected to excise tax at the outset. To reiterate, the excise tax is levied on the petroleum
products because it is a tax on property. Levy is the act of imposition by the Legislature such as by its
enactment of a law. The law enacted here is the NIRC whereby the excise tax is imposed on the petroleum
products, the liability for the payment of which is further statutorily imposed on the domestic petroleum
manufacturer. Accordingly, the exemption must be allowed to the petroleum products because it is on them
that the tax is imposed. The tax status of an international carrier to whom the petroleum products are sold is
not based on exemption; rather, it is based on the absence of a law imposing the excise tax on it. This
further supports the position that the burden passed on by the domestic petroleum manufacturer is not
anymore in the nature of a tax — although resulting from the previously-paid excise tax — but as an
additional cost component in the selling price. Consequently, the purchaser of the petroleum products to
whom the burden of the excise tax has been shifted, not being the statutory taxpayer, cannot claim a refund
of the excise tax paid by the manufacturer or producer.

MOTION FOR RECONSIDERATION of a decision of the Supreme Court and SUPPLEMENTAL MOTION FOR
RECONSIDERATION of a decision of the Supreme Court.

The facts are stated in the resolution of the Court.

The Solicitor General for petitioner.

Simeon V. Marcelo, et al. for respondent.

61

RESOLUTION

VILLARAMA, JR., J.:

For resolution are the Motion for Reconsideration dated May 22, 2012 and Supplemental Motion for
Reconsideration dated December 12, 2012 filed by Pilipinas Shell Petroleum Corporation (respondent). As
directed, the Solicitor General on behalf of petitioner Commissioner of Internal Revenue filed their Comment,
to which respondent filed its Reply.

In our Decision promulgated on April 25, 2012, we ruled that the Court of Tax Appeals (CTA) erred in
granting respondent’s claim for tax refund because the latter failed to establish a tax exemption in its favor
under Section 135(a) of the National Internal Revenue Code of 1997 (NIRC).

WHEREFORE, the petition for review on certiorari is GRANTED. The Decision dated March 25, 2009 and
Resolution dated June 24, 2009 of the Court of Tax Appeals En Banc in CTA EB No. 415 are hereby
REVERSED and SET ASIDE. The claims for tax refund or credit filed by respondent Pilipinas Shell Petroleum
Corporation
are DENIED for lack of basis.

No pronouncement as to costs.

SO ORDERED.1

Respondent argues that a plain reading of Section 135 of the NIRC reveals that it is the petroleum products
sold to international carriers which are exempt from excise tax for which reason no excise taxes are deemed
to have been due in the first place. It points out that excise tax being an indirect tax, Section 135 in relation
to Section 148 should be interpreted as referring to a tax exemption from the point of pro-

_______________
1 Commissioner of Internal Revenue v. Pilipinas Shell Petroleum Corporation, G.R. No. 188497, April 25,
2012, 671 SCRA 241, 264.

62
duction and removal from the place of production considering that it is only at that point that an excise tax is
imposed. The situation is unlike the value-added tax (VAT) which is imposed at every point of turnover —
from production to wholesale, to retail and to end-consumer. Respondent thus concludes that exemption
could only refer to the imposition of the tax on the statutory seller, in this case the respondent. This is
because when a tax paid by the statutory seller is passed on to the buyer it is no longer in the nature of a
tax but an added cost to the purchase price of the product sold.

Respondent also contends that our ruling that Section 135 only prohibits local petroleum manufacturers like
respondent from shifting the burden of excise tax to international carriers has adverse economic impact as it
severely curtails the domestic oil industry. Requiring local petroleum manufacturers to absorb the tax burden
in the sale of its products to international carriers is contrary to the State’s policy of “protecting gasoline
dealers and distributors from unfair and onerous trade conditions,” and places them at a competitive
disadvantage since foreign oil producers, particularly those whose governments with which we have entered
into bilateral service agreements, are not subject to excise tax for the same transaction. Respondent fears
this could lead to cessation of supply of petroleum products to international carriers, retrenchment of
employees of domestic manufacturers/producers to prevent further losses, or worse, shutting down of their
production of jet A-1 fuel and aviation gas due to unprofitability of sustaining operations. Under this scenario,
participation of Filipino capital, management and labor in the domestic oil industry is effectively diminished.

Lastly, respondent asserts that the imposition by the Philippine Government of excise tax on petroleum
products sold to international carriers is in violation of the Chicago Convention on International Aviation
(“Chicago Convention”) to which it is a signatory, as well as other international agreements (the Republic of
the Philippines’ air transport agreements with the United States of America, Netherlands, Belgium and
Japan).

In his Comment, the Solicitor General underscores the statutory basis of this Court’s ruling that the
exemption under Section 135 does not attach to the products. Citing Exxonmobil Petroleum & Chemical
Holdings, Inc.-Philippine Branch v. Commissioner of Internal Revenue,2 which held that the excise tax, when
passed on to the purchaser, becomes part of the purchase price, the Solicitor General claims this refutes
respondent’s theory that the exemption attaches to the petroleum product itself and not to the purchaser for
it would have been erroneous for the seller to pay the excise tax and inequitable to pass it on to the
purchaser if the excise tax exemption attaches to the product.

As to respondent’s reliance in the cases of Silkair (Singapore) Pte. Ltd. v. Commissioner of Internal
Revenue3 and Exxonmobil Petroleum & Chemical Holdings, Inc.-Philippine Branch v. Commissioner of
Internal Revenue,4 the Solicitor General points out that there was no pronouncement in these cases that
petroleum manufacturers selling petroleum products to international carriers are exempt from paying excise
taxes. In fact, Exxonmobil even cited the case of Philippine Acetylene Co, Inc. v. Commissioner of Internal
Revenue.5 Further, the ruling in Maceda v. Macaraig, Jr.6 which confirms that Section 135 does not intend to
exempt manufacturers or producers of petroleum products from the payment of excise tax.

The Court will now address the principal arguments proffered by respondent: (1) Section 135 intended the
tax exemption to apply to petroleum products at the point of production;

_______________
2 G.R. No. 180909, January 19, 2011, 640 SCRA 203.

3 G.R. No. 166482, January 25, 2012, 664 SCRA 33.

4 Supra note 2.

5 No. L-19707, August 17, 1967, 20 SCRA 1056.

6 G.R. No. 88291, June 8, 1993, 223 SCRA 217.

64
(2) Philippine Acetylene Co., Inc. v. Commissioner of Internal Revenue and Maceda v. Macaraig, Jr. are
inapplicable in the light of previous rulings of the Bureau of Internal Revenue (BIR) and the CTA that the
excise tax on petroleum products sold to international carriers for use or consumption outside the Philippines
attaches to the article when sold to said international carriers, as it is the article which is exempt from the
tax, not the international carrier; and (3) the Decision of this Court will not only have adverse impact on the
domestic oil industry but is also in violation of international agreements on aviation.

Under Section 129 of the NIRC, excise taxes are those applied to goods manufactured or produced in the
Philippines for domestic sale or consumption or for any other disposition and to things imported. Excise taxes
as used in our Tax Code fall under two types — (1) specific tax which is based on weight or volume capacity
and other physical unit of measurement, and (2) ad valorem tax which is based on selling price or other
specified value of the goods. Aviation fuel is subject to specific tax under Section 148 (g) which attaches to
said product “as soon as they are in existence as such.”

On this point, the clarification made by our esteemed colleague, Associate Justice Lucas P. Bersamin
regarding the traditional meaning of excise tax adopted in our Decision, is well-taken.

The transformation undergone by the term “excise tax” from its traditional concept up to its current definition
in our Tax Code was explained in the case of Petron Corporation v. Tiangco,7 as follows:

Admittedly, the proffered definition of an excise tax as “a tax upon the performance, carrying on, or exercise
of some right, privilege, activity, calling or occupation” derives from the compendium American
Jurisprudence,

_______________
7 G.R. No. 158881, April 16, 2008, 551 SCRA 484.

65
popularly referred to as Am Jur and has been cited in previous decisions of this Court, including those cited
by Petron itself. Such a definition would not have been inconsistent with previous incarnations of our Tax
Code, such as the NIRC of 1939, as amended, or the NIRC of 1977 because in those laws the term “excise
tax” was not used at all. In contrast, the nomenclature used in those prior laws in referring to taxes imposed
on specific articles was “specific tax.” Yet beginning with the National Internal Revenue Code of 1986, as
amended, the term “excise taxes” was used and defined as applicable “to goods manufactured or produced in
the Philippines… and to things imported.” This definition was carried over into the present NIRC of 1997.
Further, these two latest codes categorize two different kinds of excise taxes: “specific tax” which is imposed
and based on weight or volume capacity or any other physical unit of measurement; and “ad valorem tax”
which is imposed and based on the selling price or other specified value of the goods. In other words, the
meaning of “excise tax” has undergone a transformation, morphing from the Am Jur definition to its current
signification which is a tax on certain specified goods or articles.

The change in perspective brought forth by the use of the term “excise tax” in a different connotation was
not lost on the departed author Jose Nolledo as he accorded divergent treatments in his 1973 and 1994
commentaries on our tax laws. Writing in 1973, and essentially alluding to the Am Jur definition of “excise
tax,” Nolledo observed:

Are specific taxes, taxes on property or excise taxes —

In the case of Meralco v. Trinidad ([G.R.] 16738, 1925) it was held that specific taxes are property taxes, a
ruling which seems to be erroneous. Specific taxes are truly excise taxes for the fact that the value of the
property taxed is taken into account will not change the nature of the tax. It is correct to say that specific
taxes are taxes on the privilege to import, manufac-

66
ture and remove from storage certain articles specified by law.

In contrast, after the tax code was amended to classify specific taxes as a subset of excise taxes, Nolledo, in
his 1994 commentaries, wrote:

1. Excise taxes, as used in the Tax Code, refers to taxes applicable to certain specified goods or articles
manufactured or produced in the Philippines for domestic sale or consumption or for any other disposition
and to things imported into the Philippines. They are either specific or ad valorem.

2.  Nature of excise taxes. — They are imposed directly on certain specified goods. (infra) They are,
therefore, taxes on property. (see Medina vs. City of Baguio, 91 Phil. 854)

A tax is not excise where it does not subject directly the produce or goods to tax but indirectly as an incident
to, or in connection with, the business to be taxed.
In their 2004 commentaries, De Leon and De Leon restate the Am Jur definition of excise tax, and observe
that the term is “synonymous with ‘privilege tax’ and [both terms] are often used interchangeably.” At the
same time, they offer a caveat that “[e]xcise tax, as [defined by Am Jur], is not to be confused with excise
tax imposed [by the NIRC] on certain specified articles manufactured or
produced in, or imported into, the Philippines, ‘for domestic sale or consumption or for any other
disposition.’”

It is evident that Am Jur aside, the current definition of an excise tax is that of a tax levied on a specific
article, rather than one “upon the performance, carrying on, or the exercise of an activity.” This current
definition was already in place when the Code was enacted in 1991, and we can only presume that it was
what the Congress had intended as it specified that local government units could not impose “excise

67
taxes on articles enumerated under the [NIRC].” This prohibition must pertain to the same kind of excise
taxes as imposed by the NIRC, and not those previously defined “excise taxes” which were not integrated or
denominated as such in our present tax law.8 (Emphasis supplied.)

That excise tax as presently understood is a tax on property has no bearing at all on the issue of
respondent’s entitlement to refund. Nor does the nature of excise tax as an indirect tax supports
respondent’s postulation that the tax exemption provided in Sec. 135 attaches to the petroleum products
themselves and consequently the domestic petroleum manufacturer is not liable for the payment of excise
tax at the point of production. As already discussed in our Decision, to which Justice Bersamin concurs, “the
accrual and payment of the excise tax on the goods enumerated under Title VI of the NIRC prior to their
removal at the place of production are absolute and admit of no exception.” This also underscores the fact
that the exemption from payment of excise tax is conferred on international carriers who purchased the
petroleum products of respondent.

On the basis of Philippine Acetylene, we held that a tax exemption being enjoyed by the buyer cannot be the
basis of a claim for tax exemption by the manufacturer or seller of the goods for any tax due to it as the
manufacturer or seller. The excise tax imposed on petroleum products under Section 148 is the direct liability
of the manufacturer who cannot thus invoke the excise tax exemption granted to its buyers who are
international carriers. And following our pronouncement in Maceda v. Macaraig, Jr. we further ruled that
Section 135(a) should be construed as prohibiting the shifting of the burden of the excise tax to the
international carriers who buy petroleum products from the local manufacturers. Said international carriers
are thus allowed to purchase the petroleum

_______________
8 Id., at pp. 492-493.

68
products without the excise tax component which otherwise would have been added to the cost or price fixed
by the local manufacturers or distributors/sellers.

Excise tax on aviation fuel used for international flights is practically nil as most countries are signatories to
the 1944 Chicago Convention on International Aviation (Chicago Convention). Article 249 of the Convention
has been interpreted to prohibit taxation of aircraft fuel consumed for international transport. Taxation of
international air travel is presently at such low level that there has been an intensified debate on whether
these should be increased to “finance development rather than simply to augment national tax revenue”
considering the “cross-border environmental damage” caused by aircraft emissions that contribute to global
warming, not to mention noise pollution and congestion at airports).10 Mutual exemptions given under
bilateral air service agreements are seen as main legal obstacles to the imposition of indirect taxes on
aviation fuel. In response to present realities, the Interna-

_______________
9 Art. 24. Customs Duty

(a)  Aircraft on a flight to, from, or across the territory of another contracting State shall be admitted
temporarily free of duty, subject to the customs regulations of the State. Fuel, lubricating oils, spare parts,
regular equipment and aircraft stores on board an aircraft of a contracting State, on arrival in the territory of
another contracting State and retained on board on leaving the territory of that State shall be exempt from
customs duty, inspection fees or similar national or local duties and charges. This exemption shall not apply
to any quantities or articles unloaded, except in accordance with the customs regulations of the State, which
may require that they shall be kept under customs supervision.

xxxx

10 See “Indirect Taxes on International Aviation” by Michael Keen and Jon Strand, IMF Working Paper
published in May 2006, sourced from Internet –
http://www.imf.org/external/pubs/ft/wp/2006/wp06124.pdf.

69
tional Civil Aviation Organization (ICAO) has adopted policies on charges and emission-related taxes and
charges.11

Section 135(a) of the NIRC and earlier amendments to the Tax Code represent our Governments’ compliance
with the Chicago Convention, its subsequent resolutions/annexes, and the air transport agreements entered
into by the Philippine Government with various countries. The rationale for exemption of fuel from national
and local taxes was expressed by ICAO as follows:

...The Council in 1951 adopted a Resolution and Recommendation on the taxation of fuel, a Resolution on the
taxation of income and of aircraft, and a Resolution on taxes related to the sale or use of international air
transport (cf. Doc 7145) which were further amended and amplified by the policy statements in Doc 8632
published in 1966. The Resolutions and Recommendation concerned were designed to recognize the
uniqueness of civil aviation and the need to accord tax exempt status to certain aspects of the operations of
international air transport and were adopted because multiple taxation on the aircraft, fuel, technical supplies
and the income of international air transport, as well as taxes on its sale and use, were considered as major
obstacles to the further development of international air transport. Nonobservance of the principle of
reciprocal exemption envisaged in these policies was also seen as risking retaliatory action with adverse
repercussions on international air transport which plays a major role in the development and expansion of
international trade and travel.12

_______________
11 Set out in the Statements by the Council to Contracting States for Airports and Air Navigation Services
(Doc 9082) and Council Resolution on environmental charges adopted in December 1996.

12 ICAO’s Policies on Taxation in the Field of International Air Transport (Document 8632-C/968),
Introduction, Second Edition, January 1994. Sourced from Internet –
http://www.icao.int/publications/Documents/8632_2ed_en.pdf.

70

In the 6th Meeting of the Worldwide Air Transport Conference (ATCONF) held on March 18-22, 2013 at
Montreal, among matters agreed upon was that “the proliferation of various taxes and duties on air transport
could have negative impact on the sustainable development of air transport and on consumers.” Confirming
that ICAO’s policies on taxation remain valid, the Conference recommended that “ICAO promote more
vigorously its policies and with industry stakeholders to develop analysis and guidance to States on the
impact of taxes and other levies on air transport.”13 Even as said conference was being held, on March 7,
2013, President Benigno Aquino III has signed into law Republic Act (R.A.) No. 1037814 granting tax
incentives to foreign carriers which include exemption from the 12% value-added tax (VAT) and 2.5% gross
Philippine billings tax (GPBT). GPBT is a form of income tax applied to international airlines or shipping
companies. The law, based on reciprocal grant of similar tax exemptions to Philippine carriers, is expected to
increase foreign tourist arrivals in the country.

Indeed, the avowed purpose of a tax exemption is always “some public benefit or interest, which the law-
making body considers sufficient to offset the monetary loss entailed in the grant of the exemption.”15 The
exemption from excise tax of aviation fuel purchased by international carriers for consumption outside the
Philippines fulfills a treaty obligation pursuant to which our Government supports the promotion

_______________
13 Outcome of the Sixth Worldwide Air Transport Conference, Item 2.6, accessed at –
http://www.icao.int/Meetings/a38/Documents/WP/wp056_rev1_en.pdf.
14 An Act Recognizing the Principle of Reciprocity as Basis for the Grant of Income Tax Exemptions to
International Carriers and Rationalizing other Taxes Imposed Thereon by Amending Sections 28(A)(3)(a),
109, 118 and 236 of the National Revenue Code (NIRC), as Amended, and for other Purposes (Approved on

15 Commissioner of Internal Revenue, et al. v. Botelho Shipping Corp., et al., 126 Phil. 846, 851; 20 SCRA
487, 492 (1967).

71
and expansion of international travel through avoidance of multiple taxation and ensuring the viability and
safety of international air travel. In recent years, developing economies such as ours focused more serious
attention to significant gains for business and tourism sectors as well. Even without such recent incidental
benefit, States had long accepted the need for international cooperation in maintaining a capital intensive,
labor intensive and fuel intensive airline industry, and recognized the major role of international air transport
in the development of international trade and travel.

Under the basic international law principle of pacta sunt servanda, we have the duty to fulfill our treaty
obligations in good faith. This entails harmonization of national legislation with treaty provisions. In this case,
Sec. 135(a) of the NIRC embodies our compliance with our undertakings under the Chicago Convention and
various bilateral air service agreements not to impose excise tax on aviation fuel purchased by international
carriers from domestic manufacturers or suppliers. In our Decision in this case, we interpreted Section
135(a) as prohibiting domestic manufacturer
or producer to pass on to international carriers the excise tax it had paid on petroleum products upon their
removal from the place of production, pursuant to Article 148 and pertinent BIR regulations. Ruling on
respondent’s claim for tax refund of such paid excise taxes on petroleum products sold to tax-exempt
international carriers, we found no basis in the Tax Code and jurisprudence to grant the refund of an
“erroneously or illegally paid” tax.

Justice Bersamin argues that “(T)he shifting of the tax burden by manufacturers-sellers is a business
prerogative resulting from the collective impact of market forces,” and that it is “erroneous to construe
Section 135(a) only as a prohibition against the shifting by the manufacturers-sellers of petroleum products
of the tax burden to international carriers, for such construction will deprive the manufacturers-

72
sellers of their business prerogative to determine the prices at which they can sell their products.”

We maintain that Section 135 (a), in fulfillment of international agreement and practice to exempt aviation
fuel from excise tax and other impositions, prohibits the passing of the excise tax to international carriers
who buys petroleum products from local manufacturers/sellers such as respondent. However, we agree that
there is a need to reexamine the effect of denying the domestic manufacturers/sellers’ claim for refund of the
excise taxes they already paid on petroleum products sold to international carriers, and its serious
implications on our Government’s commitment to the goals and objectives of the Chicago Convention.

The Chicago Convention, which established the legal framework for international civil aviation, did not deal
comprehensively with tax matters. Article 24 (a) of the Convention simply provides that fuel and lubricating
oils on board an aircraft of a Contracting State, on arrival in the territory of another Contracting State and
retained on board on leaving the territory of that State, shall be exempt from customs duty, inspection fees
or similar national or local duties and charges. Subsequently, the exemption of airlines from national taxes
and customs duties on spare parts and fuel has become a standard element of bilateral air service
agreements (ASAs) between individual countries.

The importance of exemption from aviation fuel tax was underscored in the following observation made by a
British author16 in a paper assessing the debate on using tax to control aviation emissions and the obstacles
to introducing excise duty on aviation fuel, thus:

_______________
16 Antony Seely, Taxing Aviation Fuel (Standard Note SN00523, last updated 02 October 2012), House of
Commons Library, accessed at www,parliament.uk/briefing-paper/SN00523.pdf.

73
Without any international agreement on taxing fuel, it is highly likely that moves to impose duty on
international flights, either at a domestic or European level, would encourage ‘tankering’: carriers filling their
aircraft as full as possible whenever they landed outside the EU to avoid paying tax. Clearly this would be
entirely counterproductive. Aircraft would be travelling further than necessary to fill up in low-tax
jurisdictions; in addition they would be burning up more fuel when carrying the extra weight of a full fuel
tank.

With the prospect of declining sales of aviation jet fuel sales to international carriers on account of major
domestic oil companies’ unwillingness to shoulder the burden of excise tax, or of petroleum products being
sold to said carriers by local manufacturers or sellers at still high prices, the practice of “tankering” would not
be discouraged. This scenario does not augur well for the Philippines’ growing economy and the booming
tourism industry. Worse, our Government would be risking retaliatory action under several bilateral
agreements with various countries. Evidently, construction of the tax exemption provision in question should
give primary consideration to its broad implications on our commitment under international agreements.

In view of the foregoing reasons, we find merit in respondent’s motion for reconsideration. We therefore hold
that respondent, as the statutory taxpayer who is directly liable to pay the excise tax on its petroleum
products, is entitled to a refund or credit of the excise taxes it paid for petroleum products sold to
international carriers, the latter having been granted exemption from the payment of said excise tax under
Sec. 135 (a) of the NIRC.

WHEREFORE, the Court hereby resolves to:

(1) GRANT the original and supplemental motions for reconsideration filed by respondent Pilipinas Shell
Petroleum Corporation; and

74

(2) AFFIRM the Decision dated March 25, 2009 and Resolution dated June 24, 2009 of the Court of Tax
Appeals En Banc in CTA EB No. 415; and DIRECT petitioner Commissioner of Internal Revenue to refund or
to issue a tax credit certificate to Pilipinas Shell Petroleum Corporation in the amount of P95,014,283.00
representing the excise taxes it paid on petroleum products sold to international carriers from October 2001
to June 2002.

SO ORDERED.

Sereno (CJ., Chairperson) and Reyes, JJ., concur.

Leonardo-De Castro, J., I concur but joins the opinion of J. Bersamin that the excise tax exemption applies to
the product sold to international carrier, and not to the latter.

Bersamin, J., Please see Separate Opinion.

SEPARATE OPINION

BERSAMIN, J.:

In essence, the Resolution written for the Court by my esteemed colleague, Justice Martin S. Villarama, Jr.,
maintains that the exemption from payment of the excise tax under Section 135(a) of the National Internal
Revenue Code (NIRC) is conferred on the international carriers; and that, accordingly, and in fulfillment of
international agreement and practice to exempt aviation fuel from the excise tax and other impositions,
Section 135(a) of the NIRC prohibits the passing of the excise tax to international carriers purchasing
petroleum products from local manufacturers/sellers. Hence, he finds merit in the Motion for Reconsideration
filed by Pilipinas Shell Petroleum Corporation (Pilipinas Shell), and rules that Pilipinas Shell, as the statutory
taxpayer directly liable to pay the excise tax on its petroleum products, is entitled to the refund or credit of
the excise taxes it paid on the petro-

75
leum products sold to international carriers, the latter having been granted exemption from the payment of
such taxes under Section 135(a) of the NIRC.

I CONCUR in the result.

I write this separate opinion only to explain that I hold a different view on the proper interpretation of the
excise tax exemption under Section 135(a) of the NIRC. I hold that the excise tax exemption under Section
135(a) of the NIRC is conferred on the petroleum products on which the excise tax is levied in the first place
in view of its nature as a tax on property, the liability for the payment of which is statutorily imposed on the
domestic petroleum manufacturer.

I submit the following disquisition in support of this separate opinion.

The issue raised here was whether the manufacturer was entitled to claim the refund of the excise taxes paid
on the petroleum products sold to international carriers exempt under Section 135(a) of the NIRC.

We ruled in the negative, and held that the exemption from the excise tax under Section 135(a) of the NIRC
was conferred on the international carriers to whom the petroleum products were sold. In the decision
promulgated on April 25, 2012,1 the Court granted the petition for review on certiorari filed by the
Commissioner of Internal Revenue (CIR), and disposed thusly:

WHEREFORE, the petition for review on certiorari is GRANTED. The Decision dated March 25, 2009 and
Resolution dated June 24, 2009 of the Court of Tax Appeals En Banc in CTA EB No. 415 are hereby
REVERSED and SET ASIDE. The claims for tax refund or credit filed by respondent Pilipinas Shell Petroleum
Corporation are DENIED for lack of basis.

_______________
1 671 SCRA 241 (2012).

76

No pronouncement as to costs.

SO ORDERED.2

We thereby agreed with the position of the Solicitor General that Section 135(a) of the NIRC must be
construed only as a prohibition for the manufacturer-seller of the petroleum products from shifting the tax
burden to the international carriers by incorporating the previously-paid excise tax in the selling price. As a
consequence, the manufacturer-seller could not invoke the exemption from the excise tax granted to
international carriers. Concluding, we said: —

Respondent’s locally manufactured petroleum products are clearly subject to excise tax under Sec. 148.
Hence, its claim for tax refund may not be predicated on Sec. 229 of the NIRC allowing a refund of erroneous
or excess payment of tax. Respondent’s claim is premised on what it determined as a tax exemption
“attaching to the goods themselves,” which must be based on a statute granting tax exemption, or “the
result of legislative grace.” Such a claim is to be construed strictissimi juris against the taxpayer, meaning
that the claim cannot be made to rest on vague inference. Where the rule of strict interpretation against the
taxpayer is applicable as the claim for refund partakes of the nature of an exemption, the claimant must
show that he clearly falls under the exempting statute.

The exemption from excise tax payment on petroleum products under Sec. 135 (a) is conferred on
international carriers who purchased the same for their use or consumption outside the Philippines. The only
condition set by law is for these petroleum products to be stored in a bonded storage tank and may be
disposed of only in accordance with the rules and regulations to be prescribed by the Secretary of Finance,
upon recommendation of the Commissioner.3
_______________
2 Id., at p. 264.

3 Id., at pp. 255-256.

77

xxxx

Because
an excise tax is a tax on the manufacturer and not on the purchaser, and there being no express grant
under the NIRC of exemption from payment of excise tax to local manufacturers of petroleum products sold
to international carriers, and absent any provision in the Code authorizing the refund or crediting of such
excise taxes paid, the Court holds that Sec. 135 (a) should be construed as prohibiting the shifting of the
burden of the excise tax to the international carriers who buys petroleum products from the local
manufacturers. Said provision thus merely allows the international carriers to purchase petroleum products
without the excise tax component as an added cost in the price fixed by the manufacturers or
distributors/sellers. Consequently, the oil companies which sold such petroleum products to international
carriers are not entitled to a refund of excise taxes previously paid on the goods.4

In its Motion for Reconsideration filed on May 23, 2012, Pilipinas Shell principally contends that the Court has
erred in its interpretation of Section 135(a) of the 1997 NIRC; that Section 135(a) of the NIRC categorically
exempts from the excise tax the petroleum products sold to international carriers of Philippine or foreign
registry for their use or consumption outside the Philippines;5 that no excise tax should be imposed on the
petroleum products, whether in the hands of the qualified international carriers or in the hands of the
manufacturer-seller;6 that although it is the manufacturer, producer or importer who is generally liable for
the excise tax when the goods or articles are subject to the excise tax, no tax should accordingly be collected
from the manufacturer, producer or importer in instances when the goods or articles

_______________
4 Id., at p. 263.

5 Rollo, p. 356.

6 Id., at p. 360.

78
themselves are not subject to the excise tax;7 and that as a consequence any excise tax paid in advance on
products that are exempt under the law should be considered erroneously paid and subject of refund.8

Pilipinas Shell further contends that the Court’s decision, which effectively prohibits petroleum manufacturers
from passing on the burden of the excise tax, defeats the rationale behind the grant of the exemption;9 and
that without the benefit of a refund or the ability to pass on the burden of the excise tax to the international
carriers, the excise tax will constitute an additional production cost that ultimately increases the selling price
of the petroleum products.10

The CIR counters that the decision has clearly set forth that the excise tax exemption under Section 135(a)
of the NIRC does not attach to the products; that Pilipinas Shell’s reliance on the Silkair rulings is misplaced
considering that the Court made no pronouncement therein that the manufacturers selling petroleum
products to international carriers were exempt from paying the taxes; that the rulings that are more
appropriate are those in Philippine Acetylene Co., Inc. v. Commissioner of Internal Revenue11 and Maceda v.
Macaraig, Jr.,12 whereby the Court confirmed the obvious intent of Section 135 of the NIRC to grant the
excise tax exemption to the international carriers or agencies as the buyers of petroleum products; and that
this intention is further supported by the requirement that the petroleum manufacturer must pay the excise
tax in advance without regard to whether or not the petroleum purchaser is qualified for exemption under
Section 135 of the NIRC.

_______________
7 Id., at p. 364.
8 Id., at p. 366.

9 Id., at p. 375.

10 Id.

11 No. L-19707, August 17, 1967, 20 SCRA 1056.

12 G.R. No. 88291, June 8, 1993, 223 SCRA 217.

79

In its Supplemental Motion for Reconsideration, Pilipinas Shell reiterates that what is being exempted under
Section 135 of the NIRC is the petroleum product that is sold to international carriers; that the exemption is
not given to the producer or the buyer but to the product itself considering that the excise taxes, according
to the NIRC, are taxes applicable to certain specific goods or articles for domestic sale or consumption or for
any other disposition, whether manufactured in or imported into the Philippines; that the excise tax that is
passed on to the buyer is no longer in the nature of a tax but of an added cost to the purchase price of the
product sold; that what is contemplated under Section 135 of the NIRC is an exemption from the excise tax,
not an exemption from the burden to shoulder the tax; and that inasmuch as the exemption can refer only to
the imposition of the tax on the statutory seller, like Pilipinas Shell, a contrary interpretation renders Section
135 of the NIRC nugatory because the NIRC does not impose the excise tax on subsequent holders of the
product like the international carriers.

As I earlier said, I agree to GRANT Pilipinas Shell’s motions for reconsideration.

Excise tax is essentially a tax


on goods, products or articles

Taxes are classified, according to subject matter or object, into three groups, to wit: (1) personal, capitation
or poll taxes; (2) property taxes; and (3) excise or license taxes. Personal, capitation or poll taxes are fixed
amounts imposed upon residents or persons of a certain class without regard to their property or business,
an example of which is the basic community tax.13 Property taxes are assessed on property or things of a
certain class, whether real or personal, in proportion to their value or other reasonable method of apportion-

_______________
13 Vitug and Acosta, Tax Law and Jurisprudence, Third Edition (2006), p. 26.

80
ment, such as the real estate tax.14 Excise or license taxes are imposed upon the performance of an act, the
enjoyment of a privilege, or the engaging in an occupation, profession or business.15 Income tax, value-
added tax, estate and donor’s tax fall under the third group.

Excise tax, as a classification of tax according to object, must not be confused with the excise tax under Title
VI of the NIRC. The term “excise tax” under Title VI of the 1997 NIRC derives its definition from the 1986
NIRC,16 and relates to taxes applied to goods manufactured or produced in the Philippines for domestic sale
or consumption or for any other disposition and to things imported.17 In contrast, an excise tax that is
imposed directly on certain specified goods — goods manufactured or produced in the Philippines, or things
imported — is undoubtedly a tax on property.18

The payment of excise taxes is the direct


liability of the manufacturer or producer

The production, manufacture or importation of the goods belonging to any of the categories enumerated in
Title VI of the NIRC (i.e., alcohol products, tobacco products, petroleum products, automobiles and
nonessential goods, mineral products) are not the sole determinants for the proper levy of the excise tax. It
is further required that the goods be manufactured, produced or imported for domestic sale, consumption or
any other disposition.19 The accrual of the tax liability is,

_______________
14 Id.

15 Id.

16 Petron Corporation v. Tiangco, G.R. No. 158881, April 16, 2008, 551 SCRA 484, 494; see Section 126,
Presidential Decree No. 1994, establishing the National Internal Revenue Code of 1986 (NIRC).

17 Section 129, NIRC.

18 Petron Corporation v. Tiangco, supra, citing Medina v. City of Baguio, 91 Phil 854 (1952).

19 Section 129, NIRC.

81
therefore, contingent on the production, manufacture or importation of the taxable goods and the intention
of the manufacturer, producer or importer to have the goods locally sold or consumed or disposed in any
other manner. This is the reason why the accrual and liability for the payment of the excise tax are imposed
directly on the manufacturer or producer of the taxable goods,20 and arise before the removal of the goods
from the place of their production.21

The manufacturer’s or producer’s direct liability to pay the excise taxes similarly operates although the goods
produced or manufactured within the country are intended for export and are “actually exported without
returning to the Philippines, whether so exported in their original state or as ingredients or parts of any
manufactured goods or products.” This is implied from the grant of a tax credit or refund to the manufacturer
or producer by Section 130(4)(D) of the NIRC, thereby presupposing that the excise tax corresponding to the
goods exported were previously paid. Section 130(4)(D) reads:

xxxx

(D) Credit for Excise Tax on Goods Actually Exported.— When goods locally produced or manufactured are
removed and actually exported without returning to the Philippines, whether so exported in their original
state or as ingredients or parts of any manufactured goods or products, any excise tax paid thereon shall be
credited or refunded upon submission of the proof of actual exportation and upon receipt of the
corresponding foreign exchange payment: Provided, That the excise tax on mineral products, except coal and
coke, imposed under Section 151 shall not be cred-

_______________
20 Section 130(A)(2), NIRC; Silkair (Singapore) Pte, Ltd. v. Commissioner of Internal Revenue, G.R. No.
173594, February 6, 2008, 544 SCRA 100, 112.

21 Section 130(A)(2), NIRC.

82
itable or refundable even if the mineral products are actually exported. (Emphasis supplied.)

Simply stated, the accrual and payment of the excise tax under Title VI of the NIRC materially rest on the
fact of actual production, manufacture or importation of the taxable goods in the Philippines and on their
presumed or intended domestic sale, consumption or disposition. Considering that the excise tax attaches to
the goods upon the accrual of the manufacturer’s direct liability for its payment, the subsequent sale,
consumption or other disposition of the goods becomes relevant only to determine whether any
exemption or tax relief may be granted thereafter.

The actual sale, consumption or


disposition of the taxable goods
confirms the proper tax treatment
of goods previously subjected to
the excise tax

Conformably with the foregoing discussion, the accrual and payment of the excise tax on the goods
enumerated under Title VI of the NIRC prior to their removal from the place of production are absolute and
admit of no exception. As earlier mentioned, even locally manufactured goods intended for export cannot
escape the imposition and payment of the excise tax, subject to a future claim for tax credit or refund once
proof of actual exportation has been submitted to the Commissioner of Internal Revenue (CIR).22 Verily, it is
the actual sale, consumption or disposition of the taxable goods that confirms the proper tax treatment of
goods previously subjected to the excise tax. If any of the goods enumerated under Title VI of the NIRC are
manufactured or produced in the Philippines and eventually sold, consumed, or disposed of in

_______________
22 Section 130(4)(D); Revenue Regulations No. 13-77, Section 31(c).

83
any other manner domestically, therefore, there can be no claim for any tax relief inasmuch as the excise tax
was properly levied and collected from the manufacturer-seller.

Here, the point of interest is the proper tax treatment of the petroleum products sold by Pilipinas Shell to
various international carriers. An international carrier is engaged in international transportation or contract of
carriage between places in different territorial jurisdictions.23

Pertinent is Section 135(a) of the NIRC, which provides:

SEC. 135. Petroleum Products Sold to International Carriers and Exempt Entities or Agencies.—Petroleum


products sold to the following are exempt from excise tax:

(a) International carriers of Philippine or foreign registry on their use or consumption outside the
Philippines: Provided, That the petroleum products sold to these international carriers shall be stored in a
bonded storage tank and may be disposed of only in accordance with the rules and regulations to be
prescribed by the Secretary of Finance, upon recommendation of the Commissioner; x x x

xxxx

As the taxpayer statutorily and directly liable for the accrual and payment of the excise tax on the petroleum
products it manufactured and it intended for future domestic sale or consumption, Pilipinas Shell paid the
corresponding excise taxes prior to the removal of the goods from the place of production. However, upon
the sale of the petroleum products to the international carriers, the goods became exempt from the excise
tax by the express provision of Section 135(a) of the NIRC. In the latter instance, the

_______________
23 Vilma Cruz-Silvederio, International Common Carriers and the VAT Law, http://www.punongbayan-
araullo.com/pnawebsite/pnahome.nsf/section_docs. Visited on February 19, 2013.

84
fact of sale to the international carriers of the petroleum products previously subjected to the excise tax
confirms the proper tax treatment of the goods as exempt from the excise tax.

It is worthy to note that Section 135(a) of the NIRC is a product of the 1944 Convention of International Civil
Aviation, otherwise known as the Chicago Convention, of which the Philippines is a Member State. Article
24(a) of the Chicago Convention provides —

Article 24

Customs duty
(a) Aircraft on a flight to, from, or across the territory of another contracting State shall be admitted
temporarily free of duty, subject to the customs regulations of the State. Fuel, lubricating oils, spare parts,
regular equipment and aircraft stores on board an aircraft of a contracting State, on arrival in the territory of
another contracting State and retained on board on leaving the territory of that State shall be exempt from
customs duty, inspection fees or similar national or local duties and charges. This exemption shall not apply
to any quantities or articles unloaded, except in accordance with the customs regulations of the State, which
may require that they shall be kept under customs supervision. x x x (Bold emphasis supplied.)

This provision was extended by the ICAO Council in its 1999 Resolution, which stated that “fuel … taken on
board for consumption” by an aircraft from a contracting state in the territory of another contracting State
departing for the territory of any other State must be exempt from all customs or other duties. The
Resolution broadly interpreted the scope of the Article 24 prohibition to include “import, export, excise,

85
sales, consumption and internal duties and taxes of all kinds levied upon . . . fuel.”24

Given the nature of the excise tax on petroleum products as a tax on property, the tax exemption espoused
by Article 24(a) of the Chicago Convention, as now embodied in Section 135(a) of the NIRC, is clearly
conferred on the aviation fuel or petroleum product on-board international carriers. Consequently, the
manufacturer’s or producer’s sale of the petroleum products to international carriers for their use or
consumption outside the Philippines operates to bring the tax exemption of the petroleum products into full
force and effect.

Pilipinas Shell, the statutory taxpayer,


is the proper party to claim the refund
of the excise taxes paid on petroleum
products sold to international carriers

The excise taxes are of the nature of indirect taxes, the liability for the payment of which may fall on a
person other than whoever actually bears the burden of the tax.25 In Commissioner of Internal Revenue v.
Philippine Long Distance Telephone Company,26 the Court has discussed the nature of indirect taxes in the
following manner:

[I]ndirect taxes are those that are demanded, in the first instance, from, or are paid by, one person in the

_______________
24 Supra note 1, at p. 261, citing Prohibition Against Taxes on International Airlines, prepared by The
International Air Transport Association, citing ICAO’s Policies on Taxation in the Field of International Air
Transport, ICAO Doc. 8632-C/968 (3d rd. 2000), www.globalwarming.markey.house.gov/files/. Visited on
October 5, 2012.

25 Exxonmobil Petroleum and Chemical Holdings, Inc. – Philippine Branch v. Commissioner of Internal
Revenue, G.R. No. 180909, January 19, 2011, 640 SCRA 203, 219.

26 G.R. No. 140230, December 15, 2005, 478 SCRA 61.

86
expectation and intention that he can shift the burden to someone else. Stated elsewise, indirect taxes are
taxes wherein the liability for the payment of the tax falls on one person but the burden thereof can be
shifted or passed on to another person, such as when the tax is imposed upon goods before reaching the
consumer who ultimately pays for it. When the seller passes on the tax to his buyer, he, in effect, shifts the
tax burden, not the liability to pay it, to the purchaser, as part of the price of goods sold or services
rendered.27

In another ruling, the Court has observed:

Accordingly, the party liable for the tax can shift the burden to another, as part of the purchase price of the
goods or services. Although the manufacturer/seller is the one who is statutorily liable for the tax, it is the
buyer who actually shoulders or bears the burden of the tax, albeit not in the nature of a tax, but part of the
purchase price or the cost of the goods or services sold.28

Accordingly, the option of shifting the burden to pay the excise tax rests on the statutory taxpayer, which is
the manufacturer or producer in the case of the excise taxes imposed on the petroleum products. Regardless
of who shoulders the burden of tax payment, however, the Court has ruled as early as in the 1960s that the
proper party to question or to seek a refund of an indirect tax is the statutory taxpayer, the person on whom
the tax is imposed by law and who paid the same, even if he shifts the burden thereof to another.29 The
Court has explained:

_______________
27 Id., at p. 72.

28 Exxonmobil Petroleum and Chemical Holdings, Inc. – Philippine Branch v. Commissioner of Internal
Revenue, supra note 25, at p. 220.

29 Id., at p. 222.

87

In Philippine Acetylene Co., Inc. v. Commissioner of Internal Revenue, the Court held that the sales tax is
imposed on the manufacturer or producer and not on the purchaser, “except probably in a very remote and
inconsequential sense.” Discussing the “passing on” of the sales tax to the purchaser, the Court therein cited
Justice Oliver Wendell Holmes’ opinion in Lash’s Products v. United States wherein he said:

“The phrase ‘passed the tax on’ is inaccurate, as obviously the tax is laid and remains on the manufacturer
and on him alone. The purchaser does not really pay the tax. He pays or may pay the seller more for the
goods because of the seller’s obligation, but that is all. x x x The price is the sum total paid for the goods.
The amount added because of the tax is paid to get the goods and for nothing else. Therefore it is part of the
price x x x.”

Proceeding from this discussion, the Court went on to state:

It may indeed be that the economic burden of the tax finally falls on the purchaser; when it does the tax
becomes a part of the price which the purchaser must pay. It does not matter that an additional amount is
billed as tax to the purchaser. x x x The effect is still the same, namely, that the purchaser does not pay the
tax. He pays or may pay the seller more for the goods because of the seller’s obligation, but that is all and
the amount added because of the tax is paid to get the goods and for nothing else.

But the tax burden may not even be shifted to the purchaser at all. A decision to absorb the burden of the
tax is largely a matter of economics. Then it can no longer be con-

88
tended that a sales tax is a tax on the purchaser.30

The Silkair rulings involving the excise taxes on the petroleum


products sold to international carriers firmly hold that the proper party to claim the refund of excise taxes
paid is the manufacturer-seller.

In the February 2008 Silkair ruling,31 the Court declared:

The proper party to question, or seek a refund of, an indirect tax is the statutory taxpayer, the person on
whom the tax is imposed by law and who paid the same even if he shifts the burden thereof to another.
Section 130 (A) (2) of the NIRC provides that “[u]nless otherwise specifically allowed, the return shall be
filed and the excise tax paid by the manufacturer or producer before removal of domestic products from
place of production.” Thus, Petron Corporation, not Silkair, is the statutory taxpayer which is entitled to claim
a refund based on Section 135 of the NIRC of 1997 and Article 4(2) of the Air Transport Agreement between
RP and Singapore.

Even if Petron Corporation passed on to Silkair the burden of the tax, the additional amount billed to Silkair
for jet fuel is not a tax but part of the price which Silkair had to pay as a purchaser.

In the November 2008 Silkair ruling,32 the Court reiterated:

_______________
30 Id., at pp. 222-223, citing Silkair (Singapore) Pte, Ltd. v. Commissioner of Internal Revenue, G.R. No.
173594, February 6, 2008, 544 SCRA 100, 112; Vitug and Acosta, op. cit., at p. 317, citing Commissioner of
Internal Revenue v. American Rubber Company and Court of Tax Appeals, 124 Phil. 1471; 18 SCRA 842
(1966); Cebu Portland Cement Co. v. Collector of Internal Revenue, 134 Phil. 735; 25 SCRA 789 (1968).

31 Silkair (Singapore), Pte., Ltd. v. Commissioner of Internal Revenue, G.R. No. 173594, February 6, 2008,
544 SCRA 100, 112.

89

Section 129 of the NIRC provides that excise taxes refer to taxes imposed on specified goods manufactured
or produced in the Philippines for domestic sale or consumption or for any other disposition and to things
imported. The excise taxes are collected from manufacturers or producers before removal of the domestic
products from the place of production. Although excise taxes can be considered as taxes on production, they
are really taxes on property as they are imposed on certain specified goods.

Section 148(g) of the NIRC provides that there shall be collected on aviation jet fuel an excise tax of P3.67
per liter of volume capacity. Since the tax imposed is based on volume capacity, the tax is referred to as
“specific tax.” However, excise tax, whether classified as specific or ad valorem tax, is basically an indirect
tax imposed on the consumption of a specified list of goods or products. The tax is directly levied on the
manufacturer upon removal of the taxable goods from the place of production but in reality, the tax is passed
on to the end consumer as part of the selling price of the goods sold

xxxx

When Petron removes its petroleum products from its refinery in Limay, Bataan, it pays the excise tax due on
the petroleum products thus removed. Petron, as manufacturer or producer, is the person liable for the
payment of the excise tax as shown in the Excise Tax Returns filed with the BIR. Stated otherwise, Petron is
the taxpayer that is primarily, directly and legally liable for the payment of the excise taxes. However, since
an excise tax is an indirect tax, Petron can transfer to its customers the amount of the excise tax paid by
treating it as part of the cost of the goods and tacking it on to the selling price.

_______________
32 Silkair (Singapore) Pte, Ltd. v. Commissioner of Internal Revenue, G.R. Nos. 171383 and 172379,
November 14, 2008, 571 SCRA 141.

90

As correctly observed by the CTA, this Court held in Philippine Acetylene Co., Inc. v. Commissioner of
Internal Revenue:

It may indeed be that the economic burden of the tax finally falls on the purchaser; when it does the tax
becomes part of the price which the purchaser must pay.

Even if the consumers or purchasers ultimately pay for the tax, they are not considered the taxpayers. The
fact that Petron, on whom the excise tax is imposed, can shift the tax burden to its purchasers does not
make the latter the taxpayers and the former the withholding agent.

Petitioner, as the purchaser and end-consumer, ultimately bears the tax burden, but this does not transform
petitioner’s status into a statutory taxpayer.
In the refund of indirect taxes, the statutory taxpayer is the proper party who can claim the refund.

Section 204(c) of the NIRC provides:

Sec. 204. Authority of the Commissioner to Compromise, Abate, and Refund or Credit Taxes.—The


Commissioner may —

xxxx

(b)  Credit or refund taxes erroneously or illegally received or penalties imposed without authority, refund
the value of internal revenue stamps when they are returned in good condition by the purchaser, and, in his
discretion, redeem or change unused stamps that have been rendered unfit for use and refund their value
upon proof of destruction. No credit or refund of taxes or penalties shall be allowed unless the taxpayer files
in writing with the Commissioner a claim for credit or refund within two (2) years after the payment of the
tax or penalty: Provided, however, That a return filed showing an overpayment shall be considered as a
written claim for credit or refund. (Emphasis and underscoring supplied)

91

The person entitled to claim a tax refund is the statutory taxpayer. Section 22(N) of the NIRC defines a
taxpayer as “any person subject to tax.” In Commissioner of Internal Revenue v. Procter and Gamble Phil.
Mfg. Corp., the Court ruled that:

A “person liable for tax” has been held to be a “person subject to tax” and properly considered a “taxpayer.”
The terms “liable for tax” and “subject to tax” both connote a legal obligation or duty to pay a tax.

The excise tax is due from the manufacturers of the petroleum products and is paid upon removal of the
products from their refineries. Even before the aviation jet fuel is purchased from Petron, the excise tax is
already paid by Petron. Petron, being the manufacturer, is the “person subject to tax.” In this case, Petron,
which paid the excise tax upon removal of the products from its Bataan refinery, is the “person liable for
tax.” Petitioner is neither a “person liable for tax” nor “a person subject to tax.” There is also no legal duty
on the part of petitioner to pay the excise tax; hence, petitioner cannot be considered the taxpayer.

Even if the tax is shifted by Petron to its customers and even if the tax is billed as a separate item in the
aviation delivery receipts and invoices issued to its customers, Petron remains the taxpayer because the
excise tax is imposed directly on Petron as the manufacturer. Hence, Petron, as the statutory taxpayer, is the
proper party that can claim the refund of the excise taxes paid to the BIR.33

It is noteworthy that the foregoing pronouncements were applied in two more Silkair cases34 involving the
same parties and the same cause of action but pertaining to different periods of taxation.

_______________
33 Id., at pp. 154-158.

34 Silkair (Singapore) Pte, Ltd. v. Commissioner of Internal Revenue, G.R. No. 184398, February 25, 2010,
613 SCRA 639, and Silkair (Singapore) Pte, Ltd. v. Commissioner of Internal Revenue, G.R. No. 166482,
January 25, 2012, 664 SCRA 33.

92

The shifting of the tax burden by manufacturers-sellers is a business prerogative resulting from the collective
impact of market forces. Such forces include government impositions like the excise tax. Hence, the
additional amount billed to the purchaser as part of the price the purchaser pays for the goods acquired
cannot be solely attributed to the effect of the tax liability imposed on the manufacture-seller. It is erroneous
to construe Section 135(a) only as a prohibition against the shifting by the manufacturers-sellers of
petroleum products of the tax burden to international carriers, for such construction will deprive the
manufacturers-sellers of their business prerogative to determine the prices at which they can sell their
products.

Section 135(a) of the NIRC cannot be further construed as granting the excise tax exemption to the
international carrier to whom the petroleum products are sold considering that the international carrier has
not been subjected to excise tax at the outset. To reiterate, the excise tax is levied on the petroleum
products because it is a tax on property. Levy is the act of imposition by the Legislature such as by its
enactment of a law.35 The law enacted here is the NIRC whereby the excise tax is imposed on the petroleum
products, the liability for the payment of which is further statutorily imposed on the domestic petroleum
manufacturer. Accordingly, the exemption must be allowed to the petroleum products because it is on them
that the tax is imposed. The tax status of an international carrier to whom the petroleum products are sold is
not based on exemption; rather, it is based on the absence of a law imposing the excise tax on it. This
further supports the position that the burden passed on by the domestic petroleum manufacturer is not
anymore in the nature of a tax — although resulting from the previously-paid excise tax — but as an
additional cost component in the selling price. Consequently, the purchaser of the petroleum prod-

_______________
35 Vitug, and Acosta, op. cit., at p. 25.

93
ucts to whom the burden of the excise tax has been shifted, not being the statutory taxpayer, cannot claim a
refund of the excise tax paid by the manufacturer or producer.

Applying the foregoing, the Court concludes that: (1) the exemption under Section 135(a) of the NIRC is
conferred on the petroleum products on which the excise tax was levied in the first place; (2) Pilipinas Shell,
being the manufacturer or producer of petroleum products, was the statutory taxpayer of the excise tax
imposed on the petroleum products;
(3) as the statutory taxpayer, Pilipinas Shell’s liability to pay the excise tax accrued as soon as the
petroleum products came into existence, and Pilipinas Shell accordingly paid its excise tax liability prior to its
sale or disposition of the taxable goods to third parties, a fact not disputed by the CIR; and (3) Pilipinas
Shell’s sale of the petroleum products to international carriers for their use or consumption outside the
Philippines confirmed the proper tax treatment of the subject goods as exempt from the excise tax.

Under the circumstances, therefore, Pilipinas Shell erroneously paid the excise taxes on its petroleum
products sold to international carriers, and was entitled to claim the refund of the excise taxes paid in
accordance with prevailing jurisprudence and Section 204(C) of the NIRC, viz.:

Section 204. Authority of the Commissioner to Compromise, Abate and Refund or Credit Taxes.—The Com -
missioner may — x x x

xxxx

(C) Credit or refund taxes erroneously or illegally received or penalties imposed without authority, refund
the value of internal revenue stamps when they are returned in good condition by the purchaser, and, in his
discretion, redeem or change unused stamps that have been rendered unfit for use and refund their value
upon proof of destruction. No credit or refund of taxes or penalties shall be allowed unless the taxpayer files
in writing with the Commissioner a claim for credit or refund within two (2) years after payment of the tax or
penalty:

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Provided, however, That a return filed showing an overpayment shall be considered as a written claim for
credit or refund.

IN VIEW OF THE FOREGOING, I VOTE TO GRANT the Motion for Reconsideration and Supplemental Motion for
Reconsideration of Pilipinas Shell Petroleum Corporation and, accordingly:

(a) TO AFFIRM the decision dated March 25, 2009 and resolution dated June 24, 2009 of the Court of Tax
Appeals En Banc in CTA EB No. 415; and

(b) TO DIRECT petitioner Commissioner of Internal Revenue to refund or to issue a tax credit certificate to
Pilipinas Shell Petroleum Corporation in the amount of P95,014,283.00 representing the excise taxes it paid
on the petroleum products sold to international carriers in the period from October 2001 to June 2002.
Original and supplemental motions for reconsideration granted, judgment and resolution of Court of Tax
Appeals En Banc affirmed.

Notes.—As Exxon is not the taxpayer primarily liable to pay, and not exempted from paying, excise tax, it is
not the proper party to claim for the refund of excise taxes paid. (Exxonmobil Petroleum and Chemical
Holdings, Inc.–Philippine Branch vs. Commissioner of Internal Revenue, 640 SCRA 203 [2011])

Congress’ decision to classify the Kalayaan Island Group (KIG) and the Scarborough Shoal as ‘Regime[s] of
Islands’ manifests the Philippine State’s responsible observance of its pacta sunt servanda obligation under
UNCLOS III. (Magallona vs. Ermita, 655 SCRA 476 [2011])

——o0o——

Commissioner of Internal Revenue vs. Pilipinas Shell Petroleum Corporation, 717 SCRA 53, G.R. No. 188497
February 19, 2014