G.R. No. 211303 - Concurring Opinion

G.R. No. 211303, June 15, 2021,
♦ Decision, Perlas-Bernabe, [J]
♦ Dissenting Opinion, Leonen, [J]
♦ Concurring Opinion, Caguioa, [J]
♦ Dissenting Opinion, Lazaro-Javier, [J]
♦ Separate Concurring Opinion, Inting, [J]
♦ Dissenting Opinion, Zalameda, [J]

PILIPINAS SHELL PETROLEUM CORPORATION, PETITIONER, VS. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.

I concur with the ponencia in partially granting the Petition and remanding the case to the Court of Tax Appeals (CTA) to determine whether Petitioner Pilipinas Shell Petroleum Corporation (PSPC) has proven compliance with the requirements for refund of excise taxes paid on imported petroleum products sold to international carriers, pursuant to Section 135 of the National Internal Revenue Code (NIRC) of 1997, as amended.

PSPC is a corporation engaged, among others, in the business of processing, treating and refining petroleum products for the purpose of producing marketable products and by-products and the subsequent sale thereof. It ordinarily manufactures Jet A-1 fuel in its refinery in Batangas and occasionally imports finished Jet A-1 fuel in cases when the demand exceeds the supply of locally manufactured Jet A-1 fuel or the refinery shuts down. In some instances, PSPC purchases Jet A-1 fuel from other local manufacturers, such as Chevron Phils. Inc. (Chevron).1

In February and March 2006, PSPC imported 28,578,673 liters of Jet A-1 fuels and accordingly paid excise taxes at the rate of P3.67 per liter, in the total amount of P104,883,730.27.2 Within the same period, PSPC also purchased from Chevron, 3,192,012 liters of imported Jet A-1 fuel, the excise taxes due thereon at the rate of P3.67 per liter were paid for by the latter but was subsequently passed on to PSPC.3

PSPC claimed that of the imported and locally purchased fuels, a total of 24,974,294 liters were sold to various international airlines for the period covering February 27 to April 9, 2006 for their use or consumption outside the Philippines; and thus, are considered exempt from excise tax pursuant to Section 135 of the 1997 NIRC, as amended. PSPC then filed a claim for refund or tax credit with the Bureau of Internal Revenue (BIR) in the amount of ₱91,655,658.98.4

The CTA Division denied PSPC's petition applying the case of Commissioner of Internal Revenue v. Pilipinas Shell Petroleum Corporation6 (2012 Pilipinas Shell Decision), where the Court ruled that PSPC, as the manufacturer or importer of petroleum products, cannot avail itself of the tax exemption granted to the buyers or consumers under Section 135 of the NIRC of 1997, as amended. The CTA en banc affirmed the denial of PSPC's claim reiterating the Court's 2012 Pilipinas Shell Decision.7

During the pendency of the present petition, the Court, on February 19, 2014, promulgated a Resolution9 (2014 Pilipinas Shell Resolution) reversing and setting aside the 2012 Pilipinas Shell Decision. The Court held that the statutory taxpayer — i.e., the manufacturer, producer and importer of petroleum products — who is directly liable to pay the excise tax due thereon, 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 Section 135(a) of the NIRC of 1997, as amended. The Court explained that this construction of Section 135(a) is in fulfillment of the country's commitment to the international agreement and practice to exempt aviation fuel from excise tax and other impositions, and prohibit the passing of the excise tax to international carriers who buy petroleum products from local manufacturers/sellers.10

Subsequently, on September 1, 2015, the Court En Banc, in Chevron Philippines, Inc. v. Commissioner of Internal Revenue,11 (Chevron case) clarified that excise tax is a tax on property; hence, the exemption from the excise tax expressly granted under Section 135 of the NTRC must be construed in favor of the petroleum products on which the excise tax was initially imposed. In this regard, the excise taxes that the manufacturer, producer or importer paid for the production or importation of petroleum products subsequently sold to the entities or agencies named in Section 135 are considered erroneous and should be credited or refunded to the manufacturer or importer in accordance with Section 204 of the NIRC of 1997, as amended.12

Based on these prevailing jurisprudence, it was erroneous for the CTA to rule that PSPC may not claim for refund of the excise taxes paid on its importation of Jet A-1 fuels pursuant to Section 135(a) of the NIRC of 1997, as amended.

I agree with the ponencia in ruling that a manufacturer/producer or importer's right to claim for a refund of excise taxes paid on petroleum products sold to international carriers is supported by the plain text of the law.13 The doctrine laid down in the 2014 Pilipinas Shell Resolution, and further clarified by the Court En Banc in the Chevron case, does not amount to judicial legislation as, indeed, Section 135 provides a legal basis for a manufacturer or importer to claim for refund or tax credit of the excise taxes paid on petroleum products sold to international carriers and other entities enumerated therein. This, in fact, has long been confirmed by rulings issued by the BIR and previous cases decided by the Court.

Section 135 exempts from excise taxes the petroleum product itself and not the entities enumerated therein

It is a cardinal rule in statutory construction that if a statute is clear, plain and free from ambiguity, it. must be given its literal meaning and applied without attempted interpretation. The verba legis or plain meaning rule rests on the valid presumption that the words employed by the legislature in a statute correctly express its intent or will and preclude the court from construing it differently.14

A plain reading of Section 135 of the NIRC of 1997, as amended, indubitably shows that the exemption from excise taxes is granted by law to the petroleum product itself and not to the buyers, manufacturers or importers of the same. The overarching statement of Section 135 provides for the excise tax exemption and it categorically states that "[p]etroleum product sold to the following are exempt from excise tax."15 The succeeding paragraphs (a), (b), and (c) do not confer nor refer to the tax exemption. Paragraphs (a), (b) and (c) simply enumerate and describe the entities to whom petroleum products must be sold to make the excise tax exemption operative.

This interpretation of Section 135 is consistent with the nature of excise taxes as imposed under Title VI of the NIRC of 1997, as amended.

Section 129 of the NIRC of 1997, as amended, defines excise taxes as taxes applied on specific goods manufactured or produced in the Philippines for domestic sale or consumption or for any other disposition, and to those that are imported.16 The tax attaches upon the good as soon as it is manufactured or produced in the Philippines or upon its importation.17 Thus, with respect to goods produced or manufactured domestically, excise taxes are collected from the manufacturer or producer before the goods are removed or withdrawn from the place of production.18 As for imported goods, the excise taxes are collected from the importer before the goods are released from the customs house.19

The Court, in Petron Corporation v. Tiangco,20 explained that the excise tax under the NIRC is different from the traditional concept of excise taxes as a privilege or business tax, viz.:

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, 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 lax" 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:

"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, manufacture 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:

Proceeding from the foregoing, excise taxes imposed under Title VI of the NIRC of 1997, as amended, cannot strictly be considered as tax on the production, sale22 or consumption of goods and hence, should not be compared to nor be treated like Value-Added Taxes. Neither should they be considered as privilege tax imposed upon the performance or exercise of an activity.23 Excise taxes under Title VI of the NIRC are really property taxes24 because they are levied on specific goods locally produced or imported — i.e., alcohol, tobacco, petroleum, automobiles and non-essential goods, and mineral products — for domestic sale or consumption or for any other disposition.25

Verily, since the excise tax under Title VI of the NIRC of 1997, as amended attaches to the good or article itself, the exemption provided under Section 135 could only be construed to refer to the product itself which is petroleum. Thus, as aptly pointed in the ponencia, the Court, in the 2014 Pilipinas Shell Resolution, committed an oversight when it ruled that "the exemption from payment of excise tax [under Section 135 is conferred on international carriers."26 This, however, was corrected by the Court En Banc in Chevron when it held that Section 135 is "an exemption in favor of the petroleum products on which the excise tax was levied in the first place."27

Further, that the excise tax exemption under Section 135 is conferred on the petroleum product itself is bolstered by Article 24 of the 1944 Chicago Convention on International Aviation, which is now embodied under paragraph (a) of Section 135.28 Article 24 unequivocally states:

(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 hoard 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. (Emphasis, underscoring and italics supplied)

Again to stress, since the excise tax imposed under Title VI of the NIRC of 1997, as amended is a tax on the property itself, and attaches to the good and accrues as soon as the article is locally manufactured or imported, it follows that excise taxes are borne and paid by the manufacturer before the goods are withdrawn from the place of production,29 and by the importer prior to the removal of the articles from the customs house.30 Section 135, however, creates an exemption, i.e., when the manufactured or imported petroleum product is subsequently sold to the entities enumerated therein, such as international carriers, exempt agencies covered by tax treaties, and entities exempt from direct and indirect taxes, it is now deemed by law exempt from excise taxes.

Thus, as I see it, far from granting the exemption to the buyers of petroleum products, Section 135 simply provides for the proper tax treatment of manufactured or imported petroleum product after it is directly sold to the entities enumerated therein. As succinctly pointed out by Associate Justice Henri Jean Paul B. Inting (Justice Inting), Section 135 provides a condition that must be fulfilled to render the petroleum product exempt from excise taxes.31

Seen another way, Section 135 cannot be construed as a grant of tax exemption to buyers of the petroleum products because, to begin with, they are not the ones statutorily liable to pay for excise taxes.

Excise taxes partake of the nature of an indirect tax, wherein the liability for the payment thereof falls on one person but the burden may be shifted or passed on to another person.32 As discussed, under the law, the liability to pay for excise taxes on petroleum products upon their withdrawal from the place of production or importation is imposed on the manufacturer and importer. Thus, even if the buyer of the petroleum product ultimately pays for the excise tax, as when the manufacturer or importer shifts the burden thereof, this does not make the buyer the statutory taxpayer.33 When the manufacturer or importer "passes on the tax"34 to the buyer, the manufacturer or importer only shifts the "economic burden"35 of the tax and not the liability to pay the same. What the buyer then pays is not the tax per se but an additional amount that is part of the purchase price or the cost of goods or services sold.36 It is therefore illogical to consider Section 135 as an exemption granted to the buyers of petroleum product when they are not actually liable to pay for the excise tax due thereon. Again, Section 135 is crystal clear that the excise tax exemption is granted to the petroleum product itself.

Neither should Section 135 be construed simply as a prohibition to shift to the entities enumerated therein the burden of excise taxes. The Court has clarified in Philippine Airlines, Inc. v. Commissioner of Internal Revenue,37 that "this shifting process, otherwise known as 'passing on,' is largely a contractual affair between the parties."38 Moreover, I echo former Chief Justice Lucas P. Bersamin's Separate Opinion in the 2014 Pilipinas Shell case that "(t)he shifting of the tax burden by manufacturers-sellers is a business prerogative resulting from the collective impact of market forces," and to construe Section 135(a) as a mere prohibition against shifting the burden of excise taxes is to effectively deprive the manufacturers of their business prerogative to determine the prices at which they can sell their products,39 which, evidently, is not the legislative intent of Section 135.

The manufacturer and importer, as statutory taxpayer, are entitled to claim for refund of excise taxes paid on petroleum products pursuant to Section 135 of the NIRC of 1997, as amended

Section 22940 of the NIRC of 1997, as amended, allows the recovery or refund of internal revenue taxes alleged to have been erroneously, illegally or in any manner wrongfully collected. A tax is wrongfully collected when what is paid for or part of it is not legally due.41

Proceeding from the foregoing, while at the time of importation or production of the petroleum products, excise taxes imposed and collected thereon are proper, they become "improper" when such products are sold to international carriers and other exempt entities because, by operation of law, these articles are deemed exempt from excise taxes. In other words, upon the sale of the manufactured or imported petroleum products to the entities enumerated under Section 135, the excise taxes previously paid thereon become wrongfully or erroneously collected, on the basis of which a claim for refund under Section 229 may be made.

The question now is, who is entitled to claim for refund of the said erroneously paid excise taxes?

Section 204 of the NIRC of 1997, as amended, authorizes the CIR to credit or refund taxes or penalties to the taxpayer who files in writing a claim for refund or credit within two (2) years from the payment of the tax. The NIRC defines a taxpayer as any person subject to tax imposed by the Tax Code.(awÞhi( Consequently, the only person authorized by law to claim for tax refund or credit of erroneously collected taxes is the statutory taxpayer — that is, the person who has the legal obligation or duty to pay the tax.42

Accordingly, while Section 135 also does not explicitly grant the manufacturer or importer exemption from excise taxes — as the exemption is granted on the product itself — Section 135 in relation to Sections 204 and 229 of the NIRC of 1997, as amended, entitles the manufacturer and importer to claim for refund of excise taxes paid on petroleum products when these are sold to international carriers, exempt agencies covered by tax treaties, and entities exempt from direct and indirect taxes.

In fact, it has long been settled in jurisprudence, even prior to the 2014 Pilipinas Shell Resolution, that the proper party to seek a refund of excise taxes paid on petroleum products pursuant to Section 135 of the NIRC of 1997, as amended, is the manufacturer/producer or importer who paid for the excise taxes imposed on the goods produced or imported.

In Silkair (Singapore) Pte. Ltd. v. Commissioner of Internal Revenue cases,43 petitioner Silkair (Singapore) Pte. Ltd. (Silkair), an online international carrier, filed a claim for refund of excise taxes it claimed to have paid on its purchases of jet fuel from Petron Corporation. Due to the CIR's inaction, Silkair filed a Petition for Review before the CTA. The CTA denied Silkair's claim on the ground that as the excise tax was imposed on Petron Corporation as the manufacturer of petroleum products, any claim for refund should be filed by the latter; and where the burden of tax is shifted to the purchaser, the amount passed on to it is no longer a tax but becomes an added cost of the goods purchased.

Aggrieved, Silkair elevated the matter to the Court. In the first Silkair case,44 the Court affirmed the ruling of the CTA and held:

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.45 (Emphasis supplied)

A few months thereafter, the Court promulgated its Decision in the second Silkair case,46 reiterating its earlier ruling, viz.:

The Court's ruling in these Silkair cases was again reiterated in the case of Exxonmobil Petroleum and Chemical Holdings, Inc. Philippine Branch v. Commissioner of Internal Revenue49 (Exxonmobil) and in the fourth Silkair (Singapore) Pte. Ltd. v. Commissioner of Internal Revenue.50

In Exxonmobil, the seller of the petroleum product claimed for refund of the excise taxes passed on to it by the manufacturer. The Court, applying Silkair, denied the claim for refund because the seller is not the party liable for the payment of excise taxes under the law.

Further, worthy of note are the several rulings and issuances of the BIR, which confirmed the manufacturer/producer's entitlement to claim for refund of the excise taxes paid on petroleum products sold pursuant to Section 135.

Foremost is Revenue Regulation (RR) No. 3-2008,51 which provides for the requirements that a manufacturer or importer must comply with in order to avail of a tax refund or product replenishment under Section 135. Moreover, even prior to RR No. 3-2008, the BIR had issued orders and rulings which recognized the right of the manufacturer and importer, as statutory taxpayers, to claim for refund of excise taxes paid on petroleum products sold to international carriers.52 These issuances confirm that Section 135, as ruled by the Court in Silkair, 2014 Pilipinas Shell and Chevron cases, indeed entitles the manufacturer or importer to claim for refund of excise taxes paid on petroleum products sold pursuant to said provision.

Accordingly, based on these sound jurisprudence and administrative regulations, only the manufacturer/producer or importer of the petroleum product, and not the buyers or subsequent sellers thereof, are granted by law the right to claim for refund or tax credit of excise taxes paid on petroleum products sold under Section 135 of the NIRC of 1997, as amended.

The legislative objectives of Section 135 are best achieved if manufacturers or importers are allowed to claim for refund under Section 229 of the NIRC of 1997, as amended

In the 2014 Pilipinas Shell Resolution, the Court elaborated on the legislative intent of Section 135(a) of the NIRC of 1997, as amended. The Court explained that Section 135(a) was enacted in fulfillment of the country's obligation, under the Chicago convention and various bilateral agreements, not to impose excise tax on aviation fuel purchased by international carriers from domestic manufacturers or suppliers.53 This international commitment to exempt aviation fuel from taxes, duties and other fees, is intended to promote and expand international travel through avoidance of multiple taxation and ensure the viability and safety of international air travel.54 Further, the Court observed that the exemption would prevent the practice of "tankering"55 and instead encourage international carriers to purchase domestic petroleum or establish refueling depots here in our country. It would likewise avoid the Government the risk of retaliatory actions from other countries.56

The foregoing objectives will be thwarted and negated if the Court were to now be restrictive in its interpretation of Section 135 as a mere prohibition to pass on the excise tax to the buyers of petroleum products, and not allow manufacturers or importers to claim for refund of the excise tax paid thereon. In such a case, the manufacturers or importers of petroleum may be constrained to increase their prices, or may even decide not to sell to international carriers at all. Consequently, instead of preventing the practice of tankering, this restrictive interpretation would only encourage its proliferation.

On the other hand, allowing the manufacturers or importers to recover excise tax expenses on petroleum products sold to international carriers, following the clear and plain language, as well as the legislative intent, of Section 135 in relation to Sections 204 and 229 of the NIRC of 1997, as amended, may effectively make the prices of domestic petroleum internationally competitive and thus, encourage international carriers to purchase fuel in our jurisdiction. Hence, apart from fulfilling the country's treaty obligation, this holistic construction of the relevant tax provisions would help achieve the legislative objectives of Section 135. Indeed, while the rule is that tax exemptions and tax refunds should be strictly construed, the application of this rule should never defeat nor frustrate the intent or spirit of the law.

Pilipinas Shell Petroleum Corporation's claim for refund of excise taxes paid on JET A-1 fuel

It should, however, be noted that the grant of refund under Section 135 of the NIRC of 1997, as amended, is not automatic. As astutely pointed out by Justice Inting, the claimant must be able to prove compliance with the requirements provided by the law and its implementing rules.57

Moreover, there must be sufficient proof that the imported or manufactured petroleum products, upon which excise taxes were paid, were indeed the very products subsequently sold to international carriers or to the other entities or agencies named in Section 135. This is vital in this case because, as earlier discussed, aside from the imported Jet A-1 fuel, PSPC also purchased locally manufactured Jet A-1 fuel from Chevron. And of the imported and locally purchased Jet A-1 fuel, PSPC claimed that 24,974,294 liters were sold to various international airlines. Hence, to be entitled to refund under Section 135 in relation to Sections 204 and 229 of the NIRC of 1997, as amended, PSPC must prove that the 24,974,294 liters of Jet A-1 fuel sold to international carriers were sourced from the imported Jet A-1 fuel, upon which it directly paid excise taxes, and not from the Jet A-1 fuel locally purchased from Chevron, in other words, PSPC must prove that the amount claimed pertains to the excise taxes paid on its imported Jet A-1 fuel sold to various international carriers.

However, a perusal of the Decisions of the CTA, both in division and en banc, shows that the denial of PSPC's claim for refund was solely premised on the earlier 2012 Pilipinas Shell Decision. Thus, the CTA did not evaluate the evidence presented by PSPC as to whether it had sufficiently proved entitlement to claim for refund under Section 135.

In this light, and given that this Court is not a trier of facts and cannot evaluate at first instance the evidence presented during the trial, I agree that the case needs to be remanded to the CTA Division for the latter to make a factual determination on whether PSPC has sufficiently proven compliance with the requirements of Section 135 and its implementing rules.