CASE DIGEST: CIR vs. PILIPINAS SHELL PETROLEUM CORPORATION. GR No. 188497. February 19, 2004

FACTS:

Pilipinas Shell filed a Claim for tax refund for excise tax paid. However, such claim was denied by the CTA en banc for failure of the respondent to establish a tax exemption in its favor under section 135 (a) of the NIRC.

TAXPAYER'S ARGUMENTS:

Respondent argues that a plain reading of Section 135 of the NIRC reveals that it is the petroleum products sold to the 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 is an indirect tax which accordingly should be interpreted as referring to a tax exemption from the point of production and removal from the place of production considering that it is only at that point that an excise is imposed. Moreover, it is not like a VAT, which is imposed at every point of turn over. Respondent concludes that exemption could only refer to the imposition of the tax on the statutory seller, in this case is the respondent. Respondent further argued that the imposition of excise tax on petroleum products sold to international carriers violates the Chicago Convention to which Philippines is a signatory.

GOVERNMENT'S ARGUMENTS:

The Solicitor General underscores that the exemption does not attach to the product. It claimed that the excise tax becomes part of the purchase price when passed on to the purchaser. 

ISSUE:

Whether Pilipinas Shell, 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 payment of said excise tax under Sec. 135 (a) of the NIRC.

RULING:

Yes. Excise Taxes are imposed on certain specified articles manufactured or pronounced in, or imported, into the Philippines. Under Sec. 135 (a) of the NIRC, the manufacturers or sellers of petroleum products are prohibited from shifting the tax burden to the international carriers which deprives the manufacturers or sellers from determining prices of the product on their own prerogatives. They cannot impose or adds to the price the excise taxes to be paid to the international carriers because the latter are exempted from it pursuant to Philippines' International commitments and agreements. Hence, it is proper that a refund may be granted to manufacturers or sellers because they are the ones who will carry the burden of paying excise taxes without even shifting  a portion of it to the buyers.