Petron v. Commissioner of Internal Revenue
REITERATIONFacts
The Antecedents: Petron Corporation, a domestic entity engaged in manufacturing and marketing petroleum products, imported alkylate on multiple occasions between July 22, 2012, and November 6, 2012. The Bureau of Customs, implementing a Bureau of Internal Revenue directive, subjected these importations to excise tax under Section 148(e) of the National Internal Revenue Code (NIRC) of 1997, as amended. This resulted in Petron paying an aggregate excise tax of P219,153,851.00. Petron subsequently filed administrative claims for refund with the Bureau of Internal Revenue, asserting that the excise taxes were erroneously, wrongfully, illegally, and excessively imposed and collected. Procedural History: Following the Bureau of Internal Revenue's inaction on its administrative claims for refund, Petron Corporation initiated two separate Petitions for Review before the Court of Tax Appeals (CTA), seeking the refund of P148,546,113.00 and P70,607,738.00. The CTA Special Second Division consolidated these cases and, in a Decision dated December 18, 2018, denied Petron's claims for refund, finding that while the claims were timely filed, alkylate was subject to excise tax as a product similar to naphtha. Petron's motion for reconsideration was denied. Subsequently, Petron filed a Petition for Review before the CTA En Banc, which affirmed the Special Second Division's decision. Petron's subsequent Motion for Reconsideration before the CTA En Banc was denied due to a lack of the required affirmative votes to overturn the prior ruling. The Petition: Petron Corporation filed a Petition for Review on Certiorari under Rule 45 of the Rules of Court, assailing the CTA En Banc's decision and resolution. Petron argues that the CTA En Banc erred in applying the rule of strict construction of tax exemptions, contending its claim is based on the absence of a law imposing excise tax on alkylate, not on an exemption. It asserts that alkylate is a product of alkylation, not distillation, and therefore not subject to excise tax under Section 148(e) of the NIRC. Furthermore, Petron claims that taxing alkylate, which is a blending component for gasoline, constitutes double taxation as the finished product (gasoline) is also taxed. The petition seeks the reversal of the CTA En Banc's decision and an order for the Commissioner of Internal Revenue to refund the P219,153,851.00 in excise taxes paid.
Issue(s)
Whether the excise tax imposed on the importation of alkylate is valid under Section 148(e) of the National Internal Revenue Code of 1997, as amended. Whether the Court of Tax Appeals erred in applying the rule of strict interpretation of tax exemptions instead of the rule of strict interpretation in the imposition of taxes; and whether the payment of excise taxes by petitioner upon its importation of alkylate was illegal and erroneous.
Ruling
The petition is granted. The Court reverses and sets aside the Decision and Resolution of the Court of Tax Appeals En Banc. The Commissioner of Internal Revenue is ordered to refund or issue a tax credit certificate to Petron Corporation in the total amount of P219,153,851.00, representing the erroneously paid excise taxes on its importation of alkylate.
Ratio Decidendi
On the validity of the excise tax imposed on alkylate: The Court held that the applicable rule in this case is the doctrine of strict construction of tax laws in favor of the taxpayer because the claim for refund is based on the absence of a law imposing excise tax on alkylate, not on tax exemption. Section 148(e) of the 1997 NIRC, as amended, imposes excise tax on 'Naphtha, regular gasoline and other similar products of distillation.' Alkylate is not expressly mentioned and is not produced by distillation, but by alkylation. The law taxes the product, not the raw materials. Alkylate is an intermediate or raw gasoline component used as a blend stock, not a finished product, differing from naphtha and regular gasoline. Applying ejusdem generis, 'other similar products of distillation' does not include alkylate. Administrative interpretations cannot override the law. The CIR's interpretation that alkylate is similar to naphtha was erroneous. On the application of rules of interpretation and the legality of excise tax payment: The Court of Tax Appeals incorrectly applied the rule on strict interpretation of tax exemptions. Tax refunds are only akin to tax exemptions when based on tax exemption or refund statutes, which is not the case here. The claim is premised on the erroneous payment of tax due to the government's exaction without a clear legal basis. Consequently, the payment of excise taxes by petitioner upon its importation of alkylate was deemed illegal and erroneous in the absence of a specific provision of law that distinctly and categorically imposes tax thereon. The doubt should be resolved in favor of the taxpayer, as non-taxability is the rule, and taxability is the exception for excise tax.
Main Doctrine
Alkylate is not subject to excise tax under Section 148(e) of the National Internal Revenue Code of 1997, as amended, as it is not a product of distillation nor is it similar to naphtha or regular gasoline, and therefore, excise taxes paid on its importation were erroneously collected and are refundable.