Commissioner of Internal Revenue v. Pilipinas Shell Petroleum
REVERSALFacts
The Antecedents: Pilipinas Shell Petroleum Corporation (respondent) filed claims for tax refund or credit for excise taxes paid on petroleum products sold to international carriers. The Commissioner of Internal Revenue (petitioner) denied these claims. Procedural History: The Court of Tax Appeals (CTA) En Banc granted respondent's claim for tax refund. In a prior Decision, this Court ruled that the CTA erred in granting the refund, holding that respondent failed to establish a tax exemption in its favor under Section 135(a) of the NIRC. The Petition: Respondent filed a Motion for Reconsideration and Supplemental Motion for Reconsideration, arguing that Section 135 of the NIRC exempts petroleum products sold to international carriers from excise tax at the point of production, that the prior ruling has adverse economic impacts, and that it violates international agreements.
Issue(s)
Whether Section 135 of the NIRC exempts petroleum products from excise tax at the point of production. Whether the prior ruling has adverse economic impacts on the domestic oil industry and violates international agreements. Whether the statutory taxpayer (manufacturer/seller) is entitled to a refund of excise taxes paid on products sold to tax-exempt international carriers.
Ruling
The Court GRANTED the Motion for Reconsideration and Supplemental Motion for Reconsideration filed by respondent Pilipinas Shell Petroleum Corporation. It AFFIRMED 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. The Commissioner of Internal Revenue was DIRECTED to refund or issue a tax credit certificate to Pilipinas Shell Petroleum Corporation in the amount of PHP 195,014,283.00 representing the excise taxes paid on petroleum products sold to international carriers from October 2001 to June 2002.
Ratio Decidendi
On the nature of excise tax and the point of exemption: The Court clarified that while excise taxes under the National Internal Revenue Code (NIRC) are now defined as taxes levied on specific articles, this does not alter the fact that the accrual and payment of excise tax on goods like petroleum products, prior to their removal from the place of production, are absolute and admit of no exception. The exemption under Section 135(a) of the NIRC is conferred on international carriers who purchase the petroleum products, not on the manufacturer or producer. The excise tax imposed on petroleum products under Section 148 is the direct liability of the manufacturer, who cannot invoke the exemption granted to its buyers. The Court reiterated that Section 135(a) should be construed as prohibiting the shifting of the burden of the excise tax to the international carriers, meaning said carriers are allowed to purchase the products without the excise tax component. However, the Court reexamined the effect of denying the domestic manufacturers/sellers' claim for refund of excise taxes already paid. On the adverse economic impact and violation of international agreements: The Court acknowledged the respondent's concerns regarding the adverse economic impact on the domestic oil industry and the potential violation of international agreements, specifically the Chicago Convention on International Aviation and bilateral air service agreements. These agreements aim to promote international air transport by avoiding multiple taxation. The Court recognized that the practice of 'tankering' (carriers filling up aircraft with fuel in low-tax jurisdictions) would not be discouraged if local manufacturers are unwilling to shoulder the excise tax burden or sell at high prices. This scenario could negatively impact the Philippines' economy, tourism industry, and risk retaliatory action under bilateral agreements. The Court emphasized the principle of pacta sunt servanda, obligating the Philippines to fulfill its treaty obligations in good faith. On the entitlement to refund: The Court reconsidered its prior ruling. It held that while the excise tax is directly the liability of the manufacturer, and the exemption is for the international carrier, the statutory taxpayer who directly paid the excise tax on its petroleum products is entitled to a refund or credit of such taxes paid for products sold to international carriers. This is in fulfillment of the government's treaty obligations under the Chicago Convention and various bilateral air service agreements, which exempt aviation fuel purchased by international carriers from excise tax. The Court found merit in the respondent's motion for reconsideration, concluding that the denial of the refund had serious implications on the government's commitment to international agreements. Therefore, the respondent, as the statutory taxpayer, is entitled to a refund or credit of the excise taxes it paid for petroleum products sold to international carriers.
Main Doctrine
The statutory taxpayer, who is directly liable for the payment of excise tax on petroleum products, is entitled to a refund or credit of the excise taxes paid for products sold to international carriers, which are granted exemption from said excise tax under Section 135(a) of the National Internal Revenue Code (NIRC), in fulfillment of treaty obligations.