TITLE VI

EXCISE TAXES ON
CERTAIN GOODS
AND SERVICES
 CHAPTER 1
General Provisions

Section 129. Goods and Services Subject to Excise Taxes.

a. Certain goods manufactured or produced in the Philippines for domestic

sale or consumption and for any other disposition; and
 Goods
b. Certain Subject imported
goods/things to excise as Taxes-
well as Apply
servicestoperformed
goods in the
manufactured or produced in the Philippines for
Philippines.
domestic sale and consumption or for any other
These goods/articles
disposition and toand services
things which are subject
imported. It shallto be
excise
an taxes are:
1. Alcohol Products (Sections 141-143)
addition to the
a. Distilled imposed
Spirits value added tax.
(Section 141)
b. Wines (Section 142)
c. Fermented Liquors (Section 143)
2. Tobacco Products (Sections 144-146)
a. Tobacco Products (Section 144)
b. Cigars & Cigarettes (Section 145)
c. Inspection Fee (Section 146)
3. Petroleum Products (Section 148)
4. Miscellaneous Articles (Section 149-150)
a. Automobiles (Section 149)
b. Non-essential Goods (Section 150)
5. Mineral Products (Sections 151)
Other tax that may be imposed on goods subject to excise
tax.
The excise tax imposed herein shall be in addition to the VAT
imposed under Title IV of the NIRC of 1997, as amended.

Kinds of Excise Taxes

a) Specific Tax- refers to excise tax imposed which is based on weight or

volume capacity or any other physical unit of measurement.

b) Ad Valorem Tax- refers to the excise tax which is based on selling

price or other specified value of the goods.
Excise Taxes, defined; Concept and Nature.

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.

The excise taxes may be considered taxes on production

as they are collected only from manufacturers and producers.

Basically an indirect tax, excise taxes are directly levied

upon the manufacturer or importer upon approval of the
taxable goods from its place of production or from the customs
custody. These taxes, however, may be actually passed on to
the end consumer as part of the transfer value or selling price
of the goods sold, bartered or exchanged.
Section 130-1. Persons liable to file and pay excise taxes.

a. In the case of domestic articles. The excise taxes are collected

from manufacturers or producers before the removal of 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.
The manufacturer , producer, owner, or person having possession
of the article is the one liable for the tax. The mere fact of possession is
enough to make a person liable for the tax.

b. In the case of imported articles. The importer or owner of an

imported article is the one liable for excise tax. An importer is the
consignee of an imported article designated as such in the bill of lading,
or the person to whom the bill of lading has been duly assigned or
indorsed. In other words, the importer is the owner of the goods at the
time of withdrawal thereof from the customhouse.
In the case of indigenous petroleum, natural gas or liquefied
natural gas, the natural gas shall be paid by the first buyer, purchaser
or transferee for local sale, barter or transfer, while the excise tax on
exported products shall be paid by the owner, lessee, concessionaire or
Section 130-1. Persons liable to file and pay excise taxes.

Should domestic products be removed from the

place of production without the payment of the tax, the
owner or person having possession thereof shall be liable
for the tax due thereon.
Section 130-2. Time for Filing of Return and Payment of
the Tax; General Rule.

The return shall be filed and the excise tax paid by

the manufacturer or producer before removal of
domestic products form place of production.

1. - On locally manufactured petroleum products and

indigenous petroleum/levied under Sections 148 and
151(A)(4), respectively, of this Title. -The excise tax
shall be paid within ten (10) days from the date of removal
of such products for the period from January 1, 1998 to
June 30, 1998; within five (5) days from the date of removal
of such products for the period from July 1, 1998 to
December 31, 1998; and, before removal from the place of
production of such products from January 1, 1999 and
thereafter.
Section 130-2. Time for Filing of Return and Payment of
the Tax.

2. On metallic mineral or mineral products, or quarry

resources shall be due and payable upon removal of such
products from the locality where mined or extracted.
3. On locally produced or extracted metallic mineral or
mineral products, the person liable shall file a return and
pay the tax within fifteen (15) days after the end of the
calendar quarter when such products were removed
subject to such conditions as may be prescribed by rules and
regulations to be promulgated by the Secretary of Finance, upon
recommendation of the Commissioner. For this purpose, the
taxpayer shall file a bond in an amount which approximates the
amount of excise tax due on the removals for the said quarter.
4. On imported mineral or mineral products, whether
metallic or nonmetallic, the excise tax due thereon shall be
paid before their removal from customs custody.
Section 130-3. Place of Filing of Return and Payment of
the Tax.

Except as the Commissioner otherwise permits, the

return shall be filed with and the tax paid to any authorized
agent bank or Revenue Collection Officer, or duly authorized
City or Municipal Treasurer in the Philippines.
Section 130-4. Exceptions to the General Rule. - The Secretary of
Finance, upon recommendation of the Commissioner may, by rules
and regulations, prescribe:

(a) The time for filing the return at intervals other than the time prescribed
in the preceding paragraphs for a particular class or classes of taxpayers
after considering factors such as
volume of removals, adequate measures of security and such other relevant
information required to be submitted under the pertinent provisions of this
Code; and
(b) The manner and time of payment of excise taxes other than as herein
prescribed, under a tax prepayment, advance deposit or similar schemes. In
the case of locally produced of extracted minerals and mineral products or
quarry resources where the mine site or place of extraction is not the same
as the place of processing or production, the return shall be filed with and
the tax paid to the Revenue District Office having jurisdiction over the
locality where the same are mined, extracted or quarried: Provided,
however, That for metallic minerals processed abroad, the return shall be
filed and the tax due thereon paid to the Revenue District Office having
jurisdiction over the locality where the same are mined, extracted or
quarried.
Section 130. (B) Determination of Gross Selling Price of
Goods Subject to Ad Valorem Tax. –

Unless otherwise provided, the price, excluding the value-

added tax, at which the goods are sold at wholesale in the
place of production or through their sales agents to the
public shall constitute the gross selling price. If the
manufacturer also sells or allows such goods to be sold at
wholesale in another establishment of which he is the
owner or in the profits of which he has an interest, the
wholesale price in such establishment shall constitute the gross
selling price. Should such price be less than the cost of
manufacture plus expenses incurred until the goods are finally
sold, then a proportionate margin of profit, not less than
ten percent (10%) of such manufacturing cost and
expenses, shall be added to constitute the gross selling
price.
Section 130. (C) Manufacturer's or Producer's Sworn
Statement.

Every manufacturer or producer of goods or products

subject to excise taxes shall file with the Commissioner on the
date or dates designated by the latter, and as often as may be
required, a sworn statement showing, among other
information, the different goods or products manufactured or
produced and their corresponding gross selling price or market
value, together with the cost of manufacture or production plus
expenses incurred or to be incurred until the goods or products
are finally sold.
Section 130. (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.

However, 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.
 EXCISE TAX MAY BE PASSED
ON TO END CONSUMER
 Whether classified as specific or ad valorem tax, is
basically an direct tax imposed on the consumption of
specified list of goods or products. It is directly levied
on the manufacturer but in reality, the tax is passed
on to the end consumer as part of the selling price of
the goods sold.
 An excise tax is an indirect tax where the tax burden
can be shifted to the consumer but the tax liability
remains with the manufacturer or producer. Where
the burden of tax is shifted, the amount passed on to
the buyer is no longer a tax but a part of the purchase
price of the goods sold.
Section 131. Payment of Excise Taxes on Importer
Articles.

(A)Persons Liable. - Excise taxes on imported articles shall

be paid by the following:
1. By the owner or importer to the Customs Officers,
conformably with the regulations of the Department of
Finance and before the release of such articles from the
customhouse; or
2. By the person who is found in possession of articles which
are exempt from excise taxes other than those legally
entitled to exemption.
3. In the case of tax-free articles brought or imported into the
Philippines by persons, entitles, or agencies exempt from
tax which are subsequently sold, transferred or exchanged
in the Philippines to non-exempt persons or entitles, the
purchasers or recipients shall be considered the importers
thereof, and shall be liable for the duty and internal
Excise tax on importation of cigars and cigarettes, distilled spirits, fermented
liquors and wines into the Philippines.
The provision of any special or general law to the contrary notwithstanding,
the importation of cigars and cigarettes, distilled spirits and wines into the
Philippines, even if destined for tax and duty free shops, shall be subject to all
applicable taxes, duties, charges, including excise taxes due thereon: Provided,
however, That this shall not apply to cigars and cigarettes, distilled spirits and wines
brought directly into the duly chartered or legislated freeports of the Subic Special
Economic and Freeport Zone, crated under Republic Act No. 7227; the Cagayan
Special Economic Zone and Freeport, created under Republic Act No. 7922; and the
Zamboanga City Special Economic Zone, created under Republic Act No. 7903, and
are not transshipped to any other port in the Philippines: Provided, further, That
importations of cigars and cigarettes, distilled spirits and wines by a government-
owned and operated duty-free shop, like the Duty-Free Philippines (DFP), shall be
exempted from all applicable taxes, duties, charges, including excise tax due thereon:
Provided, still further, That if such articles directly imported by a government-owned
and operated duty-free shop like the Duty-Free Philippines, shall be labelled 'tax and
duty-free' and 'not for resale': Provided, still further, That is such articles brought into
the duly chartered or legislated freeports under Republic Acts No. 7227, 7922 and
7903 are subsequently introduced into the Philippine customs territory, then such
articles shall, upon such introduction, be deemed imported into the Philippines and
shall be subject to all imposts and excise taxes provided herein and other statutes:
Provided, finally, That the removal and transfer of tax and duty-free goods, products,
machinery, equipment and other similar articles, from one freeport to another
freeport, shall not be deemed an introduction into the Philippine customs territory.
Excise tax on importation of cigars and cigarettes,
distilled spirits, fermented liquors and wines into the
Philippines.

Articles confiscated shall be disposed of in accordance

with the rules and regulations to be promulgated by the
Secretary of Finance, upon recommendation of the
Commissioner of Customs and Internal Revenue, upon
consultation with the Secretary of Tourism and the General
manager of the Philippine Tourism Authority.

The tax due on any such goods, products, machinery,

equipment or other similar articles shall constitute a lien on
the article itself, and such lien shall be superior to all other
charges or liens, irrespective of the possessor thereof.
(B) Rate and Basis of the Excise Tax on Imported
Articles.

Unless otherwise specified imported articles shall be

subject to the same rates and basis of excise taxes applicable to
locally manufactured articles.
Section 132. Mode of Computing Contents of Cask or
Package.

1. Every fractional part of a proof liter equal to or greater than

a half liter in a cask or package containing more than one
(1) liter shall be taxed as one (1) liter;
2. Any smaller fractional part shall be exempt;
3. But any package of spirits, the total content of which are
less than a proof liter, shall be taxed as one (1) liter.
 CHAPTER II
EXEMPTION OR CONDITIONAL TAX-
FREE REMOVAL OF CERTAIN
ARTICLES
Section 133. Removal of Wines and distilled Spirits for
Treatment of Tobacco Leaf.

Upon issuance of a permit from the Commissioner and

subject to the rules and regulations prescribed by the Secretary
of Finance, manufacturers of cigars and cigarettes may
withdraw from bond, free of excise local and imported wines
and distilled spirits in specific quantities and grades for use in
the treatment of tobacco leaf to be used in the manufacture of
cigars and cigarettes; but such wines and distilled spirits must
first be suitably denatured.
Section 134. Domestic Denatured Alcohol.

1. Domestic alcohol of not less than one hundred eighty degrees

(180O) proof (ninety percent (90%) absolute alcohol) shall, when
suitably denatured and rendered unfit for oral intake, be exempt
from the excise tax prescribed in Section 141: Provided,
however, That such denatured alcohol shall be subject to tax
under Section 106(A) of this Code.
2. Provided, further, That if such alcohol is to be used for motive
power, it shall be taxed under Section 148(d) of this Code.
3. Provided, finally, That any alcohol, previously rendered unfit for
oral intake after denaturing but subsequently rendered fit or oral
intake after undergoing fermentation, dilution, purification,
mixture or any other similar process shall be taxed under Section
141 of this Code and such tax shall be paid by the person in
possession of such reprocessed spirits.
• PETROLEUM PRODUCTS SOLD TO
INTERNATIONAL CARRIERS AND EXEMPT
ENTITIES OR AGENCIES.
a) International Carriers of Philippines or Foreign
registry on their use or consumption outside the
Philippines: Provided that the petroleum sold shall
be stored in a bonded storage tank and may be
disposed of only in accordance with the rules and
regulations.

b) Exempt entities covered by tax treaties, conventions

and international agreements for their use and
consumption. Provided, that also exempt the
Philippines from similar taxes on petroleum
products sold for our carriers, entities or agencies.

c) Entities which are by law exempt from direct and

indirect taxes.
CHAPTER 3
EXCISE TAX ON ALCOHOL
PRODUCTS
• DISTILLED SPIRITS- AN EXCISE TAX SHALL BE
LEVIED, ASSESSED AND COLLECTED BASED ON THE
FOLLOWING SCHEDULES:
a) Effective on January 1, 2013
An ad valorem tax equivalent to 15% of the net retail
price (excluding the excise tax and value added tax) per proof
and in addition to imposed ad valorem tax, a specific tax of
₱20.00 per proof litter.

b) Effective January 1,2015

An ad valorem tax equivalent to 20% of net retail price.
Excise and value added tax excluded and in addition to
imposed ad valorem tax an specific tax ₱20.00 per proof litter.

c) In addition to ad valorem tax imposed, the specific tax rate

of 20.00 shall be increased by 4% every year thereafter
effective January 1,2016.
WINES
 Tax will be collected per litter of volume capacity.

FERMENTED LIQUORS
 There shall be a levied, assessed and collected an
excise tax on beer, lager beer, ale and other
fermented liquors except tube, basi, tapuy and
similar fermented liquor.
CHAPTER 4
EXCISE TAX ON TOBACCO
PRODUCTS
THERE SHALL BE COLLECTED AN EXCISE TAX ON
EACH OF THE FOLLOWING PRODUCTS OF TOBACCO.

a) Tobacco twisted by hands or reduced into a condition

to be consumed in any manner other than the
ordinary mode of drying and curing;

b) Tobacco prepared with or without use of any machine

or instruments or without being pressed or sweetened
except as other wise provided hereunder; and;

c) Fine-cut short and refuse, scraps, clippings, cuttings,

steams and sweepings of tobacco except as otherwise
provided hereunder.
CIGARS
 All rolls of tobacco or any substitute thereof, wrapped
in leaf tobacco.

CIGARETTES
 All rolls of finely-out leaf tobacco or any substitute
therefor, wrapped in paper or any other material.
CHAPTER 5
EXCISE TAX IN PETROLEUM
PRODUCTS
MANUFACTURED OILS AND OTHER FUELS
 There shall be collected on refined and manufactured
minerals oils and motor fuels.

a) Lubricating oils and greases, including but not

limited to, base stocks of oils and greases, high
vacuum distillates, aromatic extracts and other
similar preparations, and additives for lubricating
greases at per liter and kilogram.

b) Processed gas at per liter.

c) Waxes and petrolatum, per kilogram

d) Denatured alcohol to be used for motive power, per
liter capacity.

e) Naphtha, regular gasoline and other similar products

of distillation, per liter of volume capacity.

f) Leaded premium gasoline/ unleaded premium per

liter of volume capacity.

g) Aviation turbo jet fuel, per liter volume capacity,

h) Kerosene, per liter of volume capacity.

i) Diesel fuel oil, and similar fuel oils having more or
less the same generating power, per liter of volume
capacity.

j) Liquefied Petroleum gas, per liter.

k) Asphalt, per kilogram

l) Bunker fuel, an on similar fuel oils having more or

less generating power, per liter of volume capacity.
CHAPTER 6
EXCISE TAX ON MISCELLANEOUS
ARTICLES
 AUTOMOBILES
 There shall be levied, assessed and collected an
ad valorem tax on automobiles based on the
manufacturers or importers selling price, not of
excise and value-added tax.

Net manufacturers price, 2%

Importer’s Selling price up to ₱ 600,000.00

Over ₱ 600,000 to ₱ 1.1 Million 12,000 + 20% of value

in excess of ₱ 1.1 M

Over ₱1.1 Million to ₱2.1 Million ₱112,000 + 40% of value in

excess of ₱1.1 Million

Over ₱2.1 Million ₱512,000 + 60% of value in

excess of ₱2.1 Million
Case 1. Silkair PTE, Ltd. vs CIR
GR 173594, 6 February 2008

FACTS:
Silkair Pte. Ltd., a corporation organized under the laws
of Singapore which has a Philippine representative office, is an
online international air carrier. On Dec. 19, 2001, Silkair filed
with the BIR a written application for the refund of
P4,567,450.79 excise taxes it claimed to have paid on its
purchase of jet fuel from Petron Corporation from January-
June 2000. Silkair then filed a petition for review before the
CTA since the BIR had not acted on the application yet. The
Commission on Internal Revenue (CIR) opposed Silkair’s
petition on the ground that the excise tax on petroleum
products once added to the cost of the goods sold to the buyer,
is no longer a tax but part of the price which the buyer has to
pay to obtain the article.
 CTA ruled that any claim for refund of the subject excise
taxes should be filed by Petron Corporation as taxpayer since
the excise tax was imposed upon it as the manufacturer of
petroleum products, and not petitioner Silkair since it cannot
be considered as the taxpayer because it merely shouldered the
burden of the excise tax and not the excise tax itself; but
Silkair may only claim from Petron the reimbursement of the
tax burden shifted to the former by the latter; the amount
passed on to purchaser Silkair is no longer a tax but an added
cost on the goods purchased which constitutes a part of the
purchase price.

ISSUES:

1. Is Silkair entitled to a refund?

2.Whether or not Silkair is exempt from indirect taxes.
RULING:

(1.) No. The proper party to question or seek 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. Sec.
130(A)(2) of the NIRC provides that “unless 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 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.

(2) No. The exemption granted under Section 135(b) of the NIRC of
1997 and Article 4(2) of the Air Transport Agreement between RP and
Singapore cannot, without a clear showing of legislative intent, be construed
as including indirect taxes. Statutes granting tax exemptions must be
construed in strictissimi juris against the taxpayer ad liberally in favour of
the taxing authority, and if an exemption is found to exist, it must not be
enlarged by construction.
Case 2. CIR vs Fortune Tobacco Corp.
GR 157274-75, 21 July 2008

FACTS: Fortune Tobacco Corporation is a domestic corporation duly

organized and existing under and by virtue of the laws of the
Republic of the Philippines andis the manufacturer/producer of,
among others, the cigarette brands, Champion, Salem, Camel, and
Winston.
However, on January 1, 1997, R.A. No. 8240 took effect whereby a
shift from the ad valorem tax (AVT) system to the specific tax system
was made and subjecting the aforesaid cigarette brands to specific
tax under Section 142 thereof, now renumbered as Sec. 145 of the
Tax Code of 1997, pertinent provisions of which are quoted thus:
Section 145. Cigars and Cigarettes-
(A) Cigars. – There shall be levied, assessed and collected on cigars
a tax of One peso (P1.00) per cigar.
(B) Cigarettes packed by hand. – There shall be levied, assessed
and collected on cigarettes packed by hand a tax of Forty
centavos (P0.40) per pack.
 (C) Cigarettes packed by machine. – There shall be levied,
assessed and collected on cigarettes packed by machine a tax at
the rates prescribed below:
(1) If the net retail price is above Ten pesos (P10.00) per pack,
the tax shall be Twelve (P12.00) per pack;
(2) If the net retail price exceeds Six pesos and Fifty centavos
(P6.50) but does not exceed Ten pesos (P10.00) per pack, the
tax shall be Eight Pesos (P8.00) per pack.
(3) If the net retail price is Five pesos (P5.00) but does not
exceed Six Pesos and fifty centavos (P6.50) per pack, the tax
shall be Five pesos (P5.00) per pack;
(4) If the net retail price is below Five pesos (P5.00) per pack,
the tax shall be One peso (P1.00) per pack;
xxx
The excise tax from any brand of cigarettes within the
next three (3) years from the effectivity of R.A. No. 8240 shall
not be lower than the tax, which is due from each brand
on October 1, 1996. xxx
 The rates of excise tax on cigars and cigarettes
under paragraphs (1), (2) (3) and (4) hereof, shall be
increased by twelve percent (12%) on January 1, 2000.
Revenue Regulations No. 17-99 likewise provides in the last
paragraph of Section 1 thereof, “(t)hat the new specific tax
rate for any existing brand of cigars, cigarettes packed
by machine, distilled spirits, wines and fermented
liquor shall not be lower than the excise tax that is
actually being paid prior to January 1, 2000.”
For the period covering January 1-31, 2000, petitioner
allegedly paid specific taxes on all brands manufactured and
removed in the total amounts of P585,705,250.00.
On February 7, 2000, petitioner filed with respondent’s
Appellate Division a claim for refund or tax credit of its
purportedly overpaid excise tax for the month of January 2000
in the amount ofP35,651,410.00. The Tax Court granted the
refund.
ISSUES:
1. Whether or not Fortune Tobacco (respondent) is granted a
tax refund.
2. Whether or not a tax refund partakes the nature of a tax
exemption.
3. Whether or not the Government is exempt from the
application of solutio indebiti.
RULING:
1. Yes. Section 145 states that during the transition period, i.e., within the
next three (3) years from the effectivity of the Tax Code, the excise tax from
any brand of cigarettes shall not be lower than the tax due from each brand
on 1 October 1996. This qualification, however, is conspicuously absent as
regards the 12% increase which is to be applied on cigars and cigarettes
packed by machine, among others, effective on 1 January 2000. Clearly and
unmistakably, Section 145 mandates a new rate of excise tax for cigarettes
packed by machine due to the 12% increase effective on 1 January
2000 without regard to whether the revenue collection starting from this
period may turn out to be lower than that collected prior to this date.
By adding the qualification that the tax due after the 12% increase becomes
effective shall not be lower than the tax actually paid prior to 1 January
2000, Revenue Regulation No. 17-99 effectively imposes a tax which is the
higher amount between the ad valorem tax being paid at the end of the
three (3)-year transition period and the specific tax under paragraph C,
sub-paragraph (1)-(4), as increased by 12%—a situation not supported by
the plain wording of Section 145 of the Tax Code.
As we have previously declared, rule-making power must be confined to details for
regulating the mode or proceedings in order to carry into effect the law as it has
been enacted, and it cannot be extended to amend or expand the statutory
requirements or to embrace matters not covered by the statute. Administrative
regulations must always be in harmony with the provisions of the law because any
resulting discrepancy between the two will always be resolved in favor of the basic
law.
The foregoing leads us to conclude that Revenue Regulation No. 17-99 is indeed
indefensibly flawed. The Commissioner cannot seek refuge in his claim that the
purpose behind the passage of the Tax Code is to generate additional revenues for
the government. Revenue generation has undoubtedly been a major consideration
in the passage of the Tax Code. However, as borne by the legislative record, the
shift from the ad valorem system to the specific tax system
is likewise meant to promote fair competition among the players in the
industries concerned, to ensure an equitable distribution of the tax burden and to
simplify tax administration by classifying cigarettes, among others, into high,
medium and low-priced based on their net retail price and accordingly graduating
tax rates.
At any rate, this advertence to the legislative record is merely gratuitous because, as
we have held, the meaning of the law is clear on its face and free from the
ambiguities that the Commissioner imputes. We simply cannot disregard the letter
of the law on the pretext of pursuing its spirit.
Fortune Tobacco was granted a P680,387,025.00 tax refund.
2. No. A tax refund does not partake the nature of a tax exemption. There is
parity between tax refund and tax exemption only when the former is based
either on a tax exemption statute or a tax refund statute. Obviously, that is
not the situation here. Quite the contrary, Fortune Tobacco’s claim for
refund is premised on its erroneous payment of the tax, or better still the
government’s exaction in the absence of a law.
Tax exemption is a result of legislative grace. And he who claims an
exemption from the burden of taxation must justify his claim by showing
that the legislature intended to exempt him by words too plain to be
mistaken. The rule is that tax exemptions must be strictly construed such
that the exemption will not be held to be conferred unless the terms under
which it is granted clearly and distinctly show that such was the intention.
Tax refunds (or tax credits), on the other hand, are not founded principally
on legislative grace but on the legal principle which underlies all quasi-
contracts abhorring a person’s unjust enrichment at the expense of
another. The dynamic of erroneous payment of tax fits to a tee the
prototypic quasi-contract, solutio indebiti, which covers not only mistake in
fact but also mistake in law.
3. No. The Government is not exempt from the application
of solutio indebiti. Indeed, the taxpayer expects fair dealing
from the Government, and the latter has the duty to refund
without any unreasonable delay what it has erroneously
collected. If the State expects its taxpayers to observe fairness
and honesty in paying their taxes, it must hold itself against
the same standard in refunding excess (or erroneous) payments
of such taxes. It should not unjustly enrich itself at the
expense of taxpayers. And so, given its essence, a claim for tax
refund necessitates only preponderance of evidence for its
approbation like in any other ordinary civil case.
Case 3. Pilipinas Shell vs CIR
GR 172598, 21 December 2007

FACTS: Respondent is engaged in the business of processing,

treating and refining petroleum for the purpose of producing
marketable products and the subsequent sale thereof.
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.
ISSUE: Whether or not respondent is entitled to a tax
refund because allegedly, 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.
RULING: No. Court said, “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. 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. 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.