Mark Tax

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 other_______________
* FIRST DIVISION.
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SUPREME COURT REPORTS ANNOTATED
Commissioner of Internal Revenue vs. Pilipinas Shell
Petroleum Corporation
wise 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 main55
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55
taining 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 respondents
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
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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
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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 donors 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 andthe 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 manufacturers 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.
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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 exportcannot
escape the imposition and payment of the excise tax, subject to a future claim for tax credit
or refund once proof ofactual 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.
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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
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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.
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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 respondents 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.
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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 States
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 agree63

63
ments with the United States of America, Netherlands, Belgium and Japan).
In his Comment, the Solicitor General underscores the statutory basis of this
Courts ruling that the exemption under Section 135 does not attach to the products.
CitingExxonmobil Petroleum & Chemical Holdings, Inc.-Philippine Branch v.
Commissioner of Internal Revenue,2which held that the excise tax, when passed on
to the purchaser, becomes part of the purchase price, the Solicitor General claims
this refutes respondents 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 respondents reliance in the cases of Silkair(Singapore) Pte. Ltd. v.
Commissioner of Internal Revenue3and Exxonmobil Petroleum & Chemical Holdings,
Inc.-Philippine Branch v. Commissioner of Internal Revenue,4the 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.
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(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 taxwhich is based on weight or volume
capacity and other physical unit of measurement, and (2) ad valorem taxwhich 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.
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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, manufac66
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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 eitherspecific 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 theAm 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
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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. (Emphasis
supplied.)
8
That excise tax as presently understood is a tax on property has no bearing at all
on the issue of respondents entitlement to refund. Nor does the nature of excise tax
as an indirect tax supports respondents postulation that thetax 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.
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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). 10Mutual
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.
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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 ICAOs Policies on Taxation in the Field of International Air Transport (Document 8632-C/968),
Introduction,
Second
Edition,
January
1994.
http://www.icao.int/publications/Documents/8632_2ed_en.pdf.
Sourced
from
Internet
70
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 transportcould have negative impact
on the sustainable development of air transport and on consumers. Confirming that
ICAOs 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. 10378 14granting 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
EXEMPTIONS
TO
THE
PRINCIPLE
INTERNATIONAL CARRIERS
AMENDING SECTIONS 28(A)(3)(A), 109, 118
OF
RECIPROCITY
AND
AND
BASIS
AS
RATIONALIZING
236
OF THE
FOR THE
GRANT
OF
INCOME TAX
TAXES IMPOSED THEREON
BY
NATIONAL REVENUE CODE (NIRC),
AS
OTHER
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

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 respondents
claim for tax refund of such paid excise taxes on petroleum products sold to taxexempt 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 manufacturerssellers 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
manufacturers72
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 Governments
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 author 16 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 atwww,parliament.uk/briefing-paper/SN00523.pdf.
73

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 respondents 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
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 DIRECTpetitioner 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 petro75

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
76

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:
Respondents 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. Respondents 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 jurisagainst 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

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
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 Courts 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 Shells 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 Revenue11and 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

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 Shells motions for reconsideration.
Excise
tax
is
on goods, products or articles
essentially
tax
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
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 donors
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
liability of the manufacturer or producer
is
the
direct
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 domesticsale, 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

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 manufacturers or producers 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
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 orintended domestic
sale, consumption or disposition. Considering that the excise tax attaches to the
goods upon the accrual of the manufacturers 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
disposition
of
confirms
of
sale,
the
goods
the excise tax
the
proper
previously
consumption
taxable
tax
subjected
or
goods
treatment
to
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 goodsintended 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

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 manufacturerseller.
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.punongbayanaraullo.com/pnawebsite/pnahome.nsf/section_docs. Visited on February 19, 2013.
84
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 allcustoms or other duties. The
Resolution broadly interpreted the scope of the Article 24 prohibition to include
import, export, excise,
85

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

manufacturers or producers 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
is
the
of
the
Shell,
proper
excise
the
party
taxes
statutory
to
claim
paid
on
taxpayer,
the
refund
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.25In 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 ICAOs 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
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

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 Lashs 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 sellers 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 sellers 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
con88
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,
citingCommissioner 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

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
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 petitioners status into a statutory taxpayer.
In the refund of indirect taxes, the statutory taxpayer is the proper party who
can claim the refund.
Section204(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

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
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 manufactureseller. 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

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 Shells 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 Shells 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.:
Section204. Authority of the Commissioner to Compromise, Abate and Refund or Credit
Taxes.The Commissioner 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:
94
94

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 States
responsible observance of its pacta sunt servanda obligation under UNCLOS III.
(Magallona vs. Ermita, 655 SCRA 476 [2011])
o0o
Copyright 2015 Central Book Supply, Inc. All rights reserved.
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
_______________
* FIRST DIVISION.
242
242
SUPREME COURT REPORTS

ANNOTATED
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 respondents 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
243
VOL. 671, APRIL 25, 2012

243
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
244
244
SUPREME COURT REPORTS

ANNOTATED
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
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 misinter245
VOL. 671, APRIL 25, 2012

245
preted, 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 aclear 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 Decision 1 dated March
25, 2009 and Resolution 2 dated June 24, 2009 of the Court of Tax Appeals (CTA) En
Bancin CTA EB No. 415. The CTA dismissed the petition for review filed by
petitioner assailing the CTA First Divisions Decision 3 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.
_______________
1 Rollo, pp. 45-66. Penned by Associate Justice Erlinda P. Uy with Presiding Justice Ernesto D. Acosta
and Associate Justices Juanito C. Castaeda, 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.
246
246

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 CTAs 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 Revenue7 where the CTA also granted respondents 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.
Petitioners motion for reconsideration was denied by the CTA First Division.
_______________
5 Joint Stipulation of Facts and Issues, records (CTA Case No. 6839), p. 206.
6 Rollo, p. 119.
7 CTA Case No. 6554, November 28, 2006, Rollo, pp. 125-126.
247
VOL. 671, APRIL 25, 2012

247
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 respondents clients. It said that this Courts
ruling inMaceda v. Macaraig, Jr.8 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
inPhilippine Acetylene Co., Inc. v. Commissioner of Internal Revenue 9 likewise finds
no application because the party asking for the refund in said case was the sellerproducer 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:
I
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 LO_______________
8 G.R. No. 88291, June 8, 1993, 223 SCRA 217.
9 No. L-19707, August 17, 1967, 20 SCRA 1056.
248
248

CALLY 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
_______________
10 Rollo, pp. 17-18.
11 Id., at p. 274.
249
VOL. 671, APRIL 25, 2012

249
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 petitioners 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 NPCs right to claim for
_______________
12 Supra note 8.
13 Supra note 9.
250
250

refund of indirect taxes. Here, respondents 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 TSIs gross receipts for pur_______________
14 G.R. No. 66416, March 21, 1990, 183 SCRA 402.
251
VOL. 671, APRIL 25, 2012

251
poses of computing the 3% contractors 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% contractors 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 cases15 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 pay_______________
15 Silkair (Singapore) Pte. Ltd. v. Commissioner of Internal Revenue, G.R. No. 166482, January 25,
2012, 664 SCRA 33; Exxonmobil Petroleum and Chemical Holdings, Inc.-Philippine Branch v.
Commissioner of Internal Revenue, G.R. No. 180909, January 19, 2011, 640 SCRA 203;Silkair (Singapore)
Pte. Ltd. v. Commissioner of Internal Revenue, G.R. No. 184398, February 25, 2010, 613 SCRA 639; Silkair
(Singapore) Pte. Ltd. v. Commissioner of Internal Revenue, G.R. Nos. 171383 & 172379, November 14,
2008, 571 SCRA 141; and Silkair (Singapore), Pte. Ltd. v. Commissioner of Internal Revenue, G.R. No.
173594, February 6, 2008, 544 SCRA 100.
252
252

ment 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;
_______________
16 Sec. 129, NIRC (1997).
253
VOL. 671, APRIL 25, 2012

253
(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.17 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
_______________
17 Sec. 130, par. (2).
254
254

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. Respondents 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 818
96 (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
_______________
18 REVENUE REGULATIONS IMPLEMENTING REPUBLIC ACT NO. 8184, AN ACT RESTRUCTURING THE EXCISE
TAX ON PETROLEUM PRODUCTS, AMENDING FOR THIS PURPOSE PERTINENT SECTIONS OF THE NATIONAL INTERNAL
REVENUE CODE, AS AMENDED.
255
VOL. 671, APRIL 25, 2012

255
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. 19 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
Respondents 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.
Respondents 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.21
_______________
19 Sec. 5, id.
20 BLACKS LAW DICTIONARY, Fifth Edition, p. 486.
21 Commissioner of Internal Revenue v. Mirant Pagbilao Corporation,G.R. No. 172129, September 12,
2008, 565 SCRA 154, 165,
256
256

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
_______________
citing Commissioner of Internal Revenue v. Fortune Tobacco Corporation, G.R. Nos. 167274-75, July 21, 2008,
559 SCRA 160, 183 and Atlas Consolidated Mining and Development Corporation v. Commissioner of Internal
Revenue, G.R. No. 159490, February 18, 2008, 546 SCRA 150, 163.
257
VOL. 671, APRIL 25, 2012

257
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 manufacturers
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, re258
258

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 Revenue 22 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 fromPhilippine 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 respondents claim for refund is the express grant of excise tax exemption in favor
of international carriers
_______________
22 Supra note 9.
23 Sec. 148, par. 1.
259
VOL. 671, APRIL 25, 2012

259
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
_______________
24 G.R. No. 88291, May 31, 1991, 197 SCRA 771, 791, cited in Silkair (Singapore) Pte. Ltd. v.
Commissioner of Internal Revenue, G.R. Nos. 171383 & 172379, November 14, 2008, supra note 15, at pp.
155-156.
260
260

pay it, to the purchaser as part of the price of goods sold or services rendered. 25
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 companiesbecause to do so may be more convenient and
ultimately less costly for NPC than NPC itself importing and hauling and storing the oil
from overseasNPC 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. (Emphasis supplied.)
26
_______________
25 Commissioner of Internal Revenue v. Philippine Long Distance Telephone Company, G.R. No.
140230, December 15, 2005, 478 SCRA 61, 72, citing Commissioner of Internal Revenue v. Tours
Specialists Inc., supra note 14, at p. 413.
26 Supra note 8, at p. 256.
261
VOL. 671, APRIL 25, 2012

261
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.27 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.28Though 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:
_______________
27 Antony
Seely,
Taxing
Aviation
Fuel
House
of
Commons
Library,
accessed
at www.parliament.uk/briefing-papers/SN00523.pdf, citingIndirect Taxes on International Aviation, by

Michael Keen & JohnStrand, Fiscal Studies, Vol. 28 No. 1 2007 (pp. 6-7) and HM Treasury/Dept for
Transport, Aviation and the Environment: Using Economic Instruments, March 2003 (p. 10).
28 Prohibition Against Taxes On International Airlines, prepared by The International Air
Transport Association (IATA),globalwarming.house.gov/files/LTTR/ACES/IntlAirTransport...
262
262

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:
Section1.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.
Section2.This Decree shall take effect immediately.
263
VOL. 671, APRIL 25, 2012

263
Contrary to respondents 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
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 mis264
264

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
AppealsEn 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.
SO ORDERED.
Corona (C.J., Chairperson), Leonardo-De Castro, Bersamin and Del Castillo,
JJ., concur.
_______________
29 Michel J. Lhuillier Pawnshop, Inc. v. Commissioner of Internal Revenue, G.R. No. 166786, May 3,
2006, 489 SCRA 147, 155, citingCommissioner of Internal Revenue v. Philippine Long Distance Telephone
Company, supra note 25, at p. 74 and Commissioner of Internal Revenue v. Mitsubishi Metal
Corporation, G.R. Nos. 54908 & 80041, January 22, 1990, 181 SCRA 214, 224.
30 Province of Abra v. Hernando, No. L-49336, August 31, 1981, 107 SCRA 104, 109, citing early cases.
31 Commissioner of Internal Revenue v. Court of Appeals, G.R. Nos. 122161 & 120991, February 1,
1999, 302 SCRA 442, 453, citing Davao Gulf Lumber Corporation v. Commissioner of Internal Revenue,
G.R. No. 117359, July 23, 1998, 293 SCRA 76, 91.
32 Silkair (Singapore) PTE. Ltd. v. Commissioner of Internal Revenue,G.R. No. 184398, February 25,
2010, supra note 15, at p. 659, citingCommissioner of Internal Revenue v. Solidbank Corporation, G.R. No.
148191, November 25, 2003, 416 SCRA 436, 461.
265
VOL. 671, APRIL 25, 2012

265
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
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G.R. No. 188497.February 19, 2014.

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MOTION FOR RECONSIDERATION of a decision of the Supreme Court and

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SUPREME COURT REPORTS ANNOTATED

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SUPREME COURT REPORTS ANNOTATED

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ture and remove from storage certain articles specified by law.

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SUPREME COURT REPORTS ANNOTATED

VOL. 717, FEBRUARY 19, 2014

SUPREME COURT REPORTS ANNOTATED

Worldwide Air Transport

AMENDING SECTIONS 28(A)(3)(A), 109, 118

TAXES IMPOSED THEREON

NATIONAL REVENUE CODE (NIRC),

AMENDED, AND FOR OTHER PURPOSES (Approved on

VOL. 717, FEBRUARY 19, 2014

and expansion of international travel through avoidance of multiple taxation and

SUPREME COURT REPORTS ANNOTATED

VOL. 717, FEBRUARY 19, 2014

SUPREME COURT REPORTS ANNOTATED

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

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SUPREME COURT REPORTS ANNOTATED

VOL. 717, FEBRUARY 19, 2014

SUPREME COURT REPORTS ANNOTATED

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In its Supplemental Motion for Reconsideration, Pilipinas Shell reiterates that

on goods, products or articles

SUPREME COURT REPORTS ANNOTATED

liability of the manufacturer or producer

The production, manufacture or importation of the goods belonging to any of the

VOL. 717, FEBRUARY 19, 2014

therefore, contingent on the production, manufacture or importation of the taxable

SUPREME COURT REPORTS ANNOTATED

the excise tax

NIRC are manufactured or produced in the Philippines and eventually sold,

VOL. 717, FEBRUARY 19, 2014

SUPREME COURT REPORTS ANNOTATED

fact of sale to the international carriers of the petroleum products

VOL. 717, FEBRUARY 19, 2014

petroleum product on-board international carriers. Consequently, the

products sold to international carriers

SUPREME COURT REPORTS ANNOTATED

In another ruling, the Court has observed:

VOL. 717, FEBRUARY 19, 2014

SUPREME COURT REPORTS ANNOTATED

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

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SUPREME COURT REPORTS ANNOTATED

VOL. 717, FEBRUARY 19, 2014

It is noteworthy that the foregoing pronouncements were applied in two

SUPREME COURT REPORTS ANNOTATED

The shifting of the tax burden by manufacturers-sellers is a business prerogative

VOL. 717, FEBRUARY 19, 2014

SUPREME COURT REPORTS ANNOTATED

Provided, however, That a return filed showing an overpayment shall be considered as a

IN VIEW OF THE FOREGOING, I VOTE TO GRANT the Motion for