G.R. No. 211303 - Dissenting 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.

To doubt an exemption is to deny it.1 I agree with Justice Leonen's opinion. Petitioner cannot claim the exemption from the payment of excise taxes for petroleum products under Section 135 of the National Internal Revenue Code after it had sold these products to tax-exempt international carriers. Nor can petitioner claim this exemption indirectly by asking for the refund of the excise taxes it already paid for the importation and purchase of the same petroleum products from its sellers after petitioner's sale thereof to tax-exempt international carriers.

Statutes granting tax exemptions are construed strictissimi juris against the taxpayer and liberally in favor of the taxing authority. Thus, a claim of tax exemption must be clearly shown and based on language in law too plain to be mistaken.

... a tax on the production, sale, or consumption of a specific commodity in a country. Section 110 of the 1986 Tax Code explicitly provides that the "excise taxes on domestic products shall be paid by the manufacturer or producer before [the] removal [of those products] from the place of production." "It does not matter to what use the article[s] subject to tax is put; the excise taxes are still due, even though the articles are removed merely for storage in some other place and are not actually sold or consumed." The excise tax based on weight, volume capacity or any other physical unit of measurement is referred to as "specific tax." If based on selling price or other specified value, it is referred to as "ad valorem" tax.2

Excise taxes are indirect taxes on activities, occupations, privileges, and consumption, such as sales and use taxes or business or license taxes. The imposition of excise taxes is generally held to be within the power of the legislature unless specifically restrained by the constitution, whether laid on particular commodities, on the privilege of pursuing particular occupations, on the privilege of declaring and receiving dividends, or on the franchises of corporations. The legislature can change or increase an excise tax during the term for which it is imposed, and it has the power to impose as many excise taxes, in addition to a tax according to value, as it sees fit.

Excise taxes must be reasonable but need not be proportional. Statutes may provide for tax liability based on possession without ownership, but the right to own and hold property cannot be made the subject of an excise tax because to tax by reason of the ownership of property is to tax ownership itself. An excise tax is not a property tax, and the constitutional requirement of uniformity therefore does not apply.

That an excise tax is not a property tax is the accepted doctrine in the Philippines, as well. In Lladoc v. Commissioner of Internal Revenue,3 the Court En Banc held that –

A gift tax is not an assessment on the properties themselves. It did not rest upon general ownership. Rather it is an excise upon the use made of the properties and upon the privilege of receiving them. It is not, therefore a property tax, but an excise tax imposed on the transfer of property by way of gift inter vivos, the imposition of which a property used exclusively for religious purposes, does not constitute an impairment of the Constitution.

The distinctive purpose or nature of excise taxes from property taxes is important for resolving this case. For it is this purpose or nature that identifies the legal incidence of taxation and concomitantly the object of the exemption from taxation. As explained elsewhere4 –

Garza next argues that the district court improperly overruled his motion to quash because the Tax Stamp Act levies a personal property tax based on weight rather than value, in contravention of Neb. Const, art. VIII, § 1. We disagree.

Our initial task is to determine what type of tax is levied by the Tax Stamp Act. Several sections of the act refer to a tax "on" or "upon" marijuana and controlled substances. See §§ 77-4302, 77-4303, and 77-4305. However, this does not, of itself, make the tax a property tax. Other sections of the act indicate that what is being taxed is the dealer's use of the substances. Section 77-4301(2) provides that "[d]ealer shall mean a person who, in violation of **456 Nebraska law, manufactures, produces, ships, transports, or imports into Nebraska, or in any manner acquires or possesses six or more ounces of marijuana" (emphasis supplied), and § 77-4302 provides that "[n]o dealer may possess marijuana or controlled *584 substances upon which a tax is imposed ... unless the tax has been paid...."

Regarding statutory interpretation, we have stated, "'As a series or collection of statutes pertaining to a certain subject matter, statutory components of an act, which are in pari materia, may be conjunctively considered and construed to determine the intent of the Legislature so that different provisions of the act are consistent, harmonious, and sensible.' " Indian Hills Comm. Ch. v. County Bd. of Equal., 226 Neb. 510, 518, 412 N.W.2d 459, 465 (1987) (quoting Wounded Shield v. Gunter, 225 Neb. 327, 405 N.W.2d 9 (1987)).

We begin our analysis by contrasting the definitions of "property" and "excise" taxes. Black's Law Dictionary (6th ed. 1990) provides the following definitions: "Excise tax. A tax imposed on the performance of an act [or] the engaging in an occupation.... A tax on the manufacture, sale, or use of goods or on the carrying on of an occupation or activity...." Id. at 563. "Property tax. An ad valorem tax ... on the value of real or personal property that the taxpayer owns on a specified date. The tax is generally expressed as a uniform rate per thousand of valuation." Id. at 1218.

We have previously held that a tax imposed on the doing of an act, including a business or license tax, is an excise tax and not a property tax. State v. Galyen, 221 Neb. 497, 378 N.W.2d 182 (1985). In Burke v. Bass, 123 Neb. 297, 242 N.W. 606 (1932), we addressed a statute which required "dealers"- persons who imported or produced fuel for use or distribution in Nebraska - to pay a tax of 4 cents per gallon on the fuel. See Galyen, supra. We held that the tax was an excise tax on the sale and use of the fuel. Burke, supra: See, also, Galyen, supra (holding that a tax of 25 cents per head of cattle sold was an excise tax); Licking v. Hays Lumber Co., 146 Neb. 240, 19 N.W.2d 148 (1945) (holding tax imposed as an annual charge on the right to maintain corporate existence, although computed based on the amount of capital stock, was an excise tax).

The tax imposed by the Tax Stamp Act does not meet the express definition of a property tax. Property taxes, by their *585 very nature, target the value of an item. See Black's Law Dictionary, supra. The tax levied by the Tax Stamp Act, however, targets individuals who put the substances to certain uses, basing its rate on the quantity involved, not the value. See §§ 77-4301 to 77-4303. Garza's argument, viewed in light of the aforementioned definitions, is non sequitur: he asserts that because the Tax Stamp Act levies a tax based on weight, not value, it is an invalid property tax. The obvious answer to this argument is that if the tax is not based on value, it is not a property tax at all.

We find that the Tax Stamp Act levies an excise tax. The Tax Stamp Act clearly targets the use or sale of the substances; the substances themselves are relevant only as a basis for computation of the tax. First, the tax levied by the act applies only to dealers, who are defined according to their actions. See §§ 77-4301(2) and 77-4302. Second, the tax applies only to possession of substances in excess of a certain amount, e.g., 6 or more ounces of marijuana. § 77-4301(2). The tax obviously aims at the activities of a certain group—individuals holding relatively large amounts of the substances—who will engage in either the distribution or large-scale consumption of the substances. If the tax was on the substances themselves, rather than on their use, the tax would apply to any individual who possessed any amount of the substances.

Our finding is consistent with the findings of courts reviewing similar taxing schemes. For example, in Burke, supra, we held the gasoline tax to be an excise tax despite the tax's being levied on each gallon of fuel. We determined that the dispositive factor was that the tax aimed at dealers' sale and use of the fuel. The Tax **457 Stamp Act similarly applies to dealers who produce, import, or acquire the substances. See §§ 77-4301 and 77-4302.

Even more persuasive is Patton v. Brady, Executrix, 184 U.S. 608, 22 S.Ct. 493, 46 L.Ed. 713 (1902), which held that the federal tax on tobacco products (precursor of 26 U.S.C. § 5701 et seq. (1988)) was an excise tax. The applicable statute levied a per-pound tax on "'tobacco and snuff, however prepared, manufactured and sold, for consumption or sale....' " 184 U.S. at 616, 22 S.Ct. at 496.

*586 In holding that the statute imposed an excise tax, the U.S. Supreme Court stated:

Ever since the early part of the civil war there has been a body of legislation ... by which, upon goods intended for consumption, excises have been imposed in different forms at some time intermediate the beginning of manufacture or production and the act of consumption. Among the articles thus subjected to those excises have been liquors and tobacco, appropriately selected therefor on the ground that they are not a part of the essential food supply of the nation, but are among its comforts and luxuries. 184 U.S. at 617, 22 S.Ct. at 496. See, also, Schenley Distillers v. United States, 153 F.Supp. 898 (W.D.Pa.1957), aff'd 255 F.2d 334, cert. denied 358 U.S. 835, 79 S.Ct. 57, 3 L.Ed.2d 72 (1958) (holding the federal tax on distilled spirits to be an excise tax).

To stress, an excise tax is an excise tax and not a property tax because the tax is on the exercise of a privilege;5 on transactions involving the transfer of property, not on the property itself.6

We refer to the following provisions of the National Internal Revenue Code (NIRC) to identify the legal incidence of the excise tax and the legislative intent on the economic incidence, if any, of this same tax:

In the case of tax-free articles brought or imported into the Philippines by persons, entities, or agencies exempt from tax which are subsequently sold, transferred or exchanged in the Philippines to non-exempt persons or entitles, the purchasers or recipients shall be considered the importers thereof, and shall be liable for the duty and internal revenue tax due on such importation.

Based on the nature of excise taxes, Justice Leonen's reading of Section 135 is not only reasonable but correct.

The dispute hinges on where the Court ought to focus in determining the exemption from excise tax: should it be on the first clause of Section 135 – on petroleum products as our highly regarded colleagues led by Senior Justice Perlas-Bernabe propound, or should it be on the words SOLD TO the following tax-exempt ENTITIES as Justice Leonen and his supporters including myself argue?

If we are to stick to the doctrine that tax exemptions are to be granted only if clearly shown and based on language in law too plain to be mistaken, and the other doctrine that excise taxes are different from property taxes in that the former are imposed on the performance of an act .... A tax on the manufacture, sale, or use of goods, then, as clear as the pristine waters of Boracay, the excise tax exemption –

first, kicks in only if the petroleum products are sold to a tax-exempt entity such as an international carrier (14 words),

and, second, is not triggered by the subsequent sale to a tax-exempt entity such as an international carrier retroactive to the sale earlier made to the non-exempt entity selling to the international carrier (28 words).

It is very easy to discern how the second one, which the dissents to Justice Leonen's opinion propound, have stretched the language of Section 135 to accommodate the words and meaning that are absent from the clear text of Section 135. The stretch is obvious - the first conclusion immediately above has only 14 words while the second one already has 28 words.

By no stretch of imagination can we thus say that the opinions contrary to Justice Leonen's, which grant tax exemption and refund to petitioner, are clearly shown and based on language in law too plain to be mistaken. To emphasize, the tax exemption in Section 135 is based on the transaction to a tax-exempt entity, i.e., an international carrier, not on the mere fact that petroleum products were sold and bought.

My conclusion, as Justice Leonen's, is supported by Section 1317 of the NIRC. Section 131 unmistakably settles the tax liability upon the owner or importer, in this case, petitioner. It also expressly disallows a claim for tax exemption, and by extension, a claim for tax refund from a turn-around transaction, e.g., sale, transfer or exchange from a tax-exempt entity to a non-exempt entity. By parity of reasoning, there should also be no tax exemption and no tax refund where a non-exempt entity like petitioner sells, transfers, or exchanges the petroleum products to a tax-exempt entity like international carriers.

By express provision of Section 131, which should also govern the interpretation of Section 135, the exemption from excise taxes is pegged NOT on the product that was the object of the transaction, but on the transaction itself with the tax-exempt entity. This is but consistent with the purpose or nature of excise taxes and the strictissimi juris reading of tax exemptions.

To repeat, petitioner is not entitled to an exemption and a refund – only the tax-exempt ultimate purchasers have been given the exemption under Section 135. The plain meaning of this tax exemption is simply to bestow this privilege on this statutorily identified tax exempt purchaser who itself in the stream of commerce is intended to use and to whom was sold the petroleum products - as opposed to petitioner which, as the middle person, merely intended to resell the petroleum products. Again, this is but consistent with the purpose or nature of excise taxes and the strictissimi juris reading of tax exemptions.

It has also been said that petitioner should be granted tax exemption and refund because of Article 24 of the 1944 Chicago Convention on International Aviation –

(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.

With due respect, this provision is not relevant to petitioner's cause. Obviously, petitioner is not an aircraft, much less, one on a flight to, from, or across the territory of another. Petitioner's fuel is not on board an aircraft; petitioner's fuel is not on arrival in the territory of another contracting State and is not retained on board on leaving the territory; petitioner's fuel is not to be not unloaded. Applying even by analogy Article 24 to petitioner's situation can hardly be the strictissimi juris envisioned in construing tax exemptions.

At any rate, petitioner has really no factual basis to claim the entirety of the refund it seeks.

To recall, the petroleum products which petitioner flipped to the international carriers, for which it now seeks a refund, came from two (2) sources. A large portion was imported. The legal incidence of the excise tax therefore correctly fell upon it as the owner or importer of this petroleum product. The other portion, though significantly smaller than the imported one, was bought from a local supplier that had earlier paid for the excise tax but passed the cost of this paid tax on to petitioner which subsequently paid for it to the supplier.

I disagree that petitioner has the standing to claim a refund for the excise tax it reimbursed to its supplier which had earlier on settled this tax.

To maintain an action for refund of taxes under the NIRC, the plaintiff must be a taxpayer which has overpaid its own taxes. The term taxpayer means an entity which pays, overpays, or is subject to pay its own taxes. Concomitantly, a non-taxpayer cannot overpay taxes, let alone, claim for refund of taxes it never paid or overpaid in the first place.

Petitioner's supplier for the other portion included the excise tax as an item in the cost of the petroleum purchased by petitioner. Obviously, its supplier refused to sell the petroleum without including the excise tax. That tax, however, is a tax imposed on the producer, manufacturer, owner, or importer. The legal incidence of the excise tax falls upon either of these persons but not upon petitioner as its purchaser.

The legislative purpose in the relevant provisions of the NIRC to lay the tax on them and only upon them could not have been more plainly revealed. The statutory provisions quoted above clearly impose the excise tax on these persons and not on their purchasers like petitioner. The result is that if the producer, manufacturer, owner, or importer does not pay the excise tax, the government cannot collect it from their vendees. The NIRC has no provision making the vendee liable for the payment of the excise tax.

The mere fact that petitioner may have borne the economic burden of the tax does not mean that it literally paid the tax. The hard reality is that petitioner agreed to pay a price that its supplier set to cover many costs, including, but not limited to, the excise tax it was not legally bound to pay for. As things stand, thus, petitioner was entitled by statute to purchase the petroleum tax-free, but since it did not do so, and since it could not have passed on the excise tax to its tax-exempt purchaser, i.e., the international carriers, there was no available remedy to it. The reason is that the legal incidence of the tax fell upon petitioner's supplier, not upon petitioner, and the NIRC did not require the supplier to pass on the excise tax to petitioner.

To repeat, petitioner has a statutory right to purchase the petroleum tax-free from its supplier. It was only its supplier that insisted upon passing on its own tax burden to petitioner through the petroleum purchase price. Since the tax burden here is that of petitioner's supplier and not upon petitioner, petitioner is without a remedy as to the other portion. It just cannot claim a refund of the excise taxes it paid to its supplier because it is not by law the taxpayer. The mere filing of the claim for refund did not transform petitioner as a non-taxpayer into a taxpayer entitled to a refund.

Since petitioner is not the taxpayer, it does not have a legally protected interest under the NIRC to pursue a claim for refund for this other portion. More, without a legally protected interest, there can be no injury in fact. Failure to establish an injury in fact alone defeats standing. If at all, petitioner's injury is an indirect one that was caused by petitioner's supplier when it included the tax cost as part of the price. The government from which the refund is claimed was not the cause of this indirect injury. Rather, it is the independent action of a third party not present in this suit - petitioner's supplier. As there is no injury in fact, nor causation by the government, redress cannot be had.

The opposing opinions bewail the awful consequences of Justice Leonen's opinion. They say that preventing petitioner from collecting a refund would result in either of four (4) things: (i) petitioner would pass the cost of the excise on to the international carriers, an economic burden that would be contrary to the legislative intent of exempting international carriers from excise taxes; or (ii) petitioner would bear the burden of the excise taxes but sell its products elsewhere, not to tax-exempt entities like international carriers which would thus deprive the latter of needed supply; or (iii) international carriers would pay for the excise tax as part of the cost of the petroleum products upon purchase and pass this cost on to the travelling public as part of the carriage price; or (iv) international carriers would pay for the excise tax as part of the cost of the petroleum products upon purchase and this Court would then create the right of this tax-exempt entities to claim a refund for the tax paid.

I respectfully recognize the opposing opinions' policy arguments. But these concerns are exclusively for Congress to weigh and determine. And for a long time, Section 135, as presently worded, remains to be the rule. I am sure that Congress has been well and very much aware of these consequences but it has stuck to the wording of Section 135. It is not for us to usurp the function of Congress. Not only is this constitutionally improper. It is also practically a bad determination as the Court has none of the facts and the means to decipher the facts necessary to resolve a policy conundrum. What is clear from the law is that only international carriers are exempt from excise tax. Whether suppliers of petroleum products would boycott international carriers is a matter that the political branches of government would have to deal with. This concern is not even part of the submissions of the parties, so even if we were to become an activist court, I do not know if this should be an issue worth considering in our resolution of the present controversy.

Further, the prohibition against petitioner from transferring the economic burden of the excise tax to international carriers and against international carriers from doing the same thing as to the riders of international carriers is explained by the history of Section 135. International carriers have been meant to purchase petroleum products locally tax-free.

Looking back, Section 142 of Commonwealth Act 466,8 the NIRC (1939), already imposed specific taxes on fuels as well as an exemption therefrom if used in aviation, be it domestic or international, thus:

Notably though, this exemption was absent under Presidential Decree (PD) 1158-A,9 the NIRC (1977), which ordained:

SECTION 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.

In case of importations the internal-revenue tax shall be in addition to the customs duties, if any.

A year later, however, PD 153910 amended Section 134 of the NIRC (1977) to reinstate the exemption, albeit limited to international carriers, viz.:

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.

Revenue Memorandum Circular 032-7811 dated April 25, 1978 bears the rationale for this exemption:

Under the old provisions of Section 134 of the Tax Code of 1977, nothing is mentioned concerning the non-taxability of petroleum products sold to international carriers for their use or consumption outside of the Philippines. However, on the basis of BIR ruling issued by then Commissioner Benjamin N. Tabios in 1965 and reiterated by then Commissioner Misael P. Vera in 1975, no specific tax was collected on removals of aviation gasoline from local oil refineries for sale to international carriers for the reason that the sale was not intended for domestic consumption.

With the promulgation of PD 1119, effective on May 15, 1977, the practice of allowing refineries to remove under bond petroleum products without the prepayment of the tax due for storage in their bonded terminals has been discontinued, except in the case of Petrophil, owned and operated by PNOC, a government-owned corporation. Hence, all petroleum products removed from the refineries are considered taxpaid upon removal therefrom although the law allows payment of tax due within 15 days from date of removal. Because of that change, petroleum products sold or delivered to international carriers were already deemed taxpaid and the oil refineries are claiming tax credit for specific taxes paid on said products sold to international carriers invoking the Tabios and Vera rulings.

While it is believed that the said ruling is erroneous because the sale by local oil companies of petroleum products to international carriers in the Philippines constitutes domestic sale and therefore, taxable, a reversal of the said ruling is not legally feasible due to the provision in the Tax Code against the retroactivity of reversals of rulings if the effect thereof would be prejudicial to the taxpayer. Furthermore, the reversal of said ruling is anticipated to result in the minimal purchase of domestic petroleum products by international carriers which could refuel fully in some nearby countries. It could also encourage international carriers to establish depots in the country and import oil products for their foreign flights using foreign exchange in the process. Countries of international carriers adversely affected by a reversal of the ruling might retaliate by imposing taxe[s] on oil products purchased by the Philippine Airlines and other domestic carriers in those countries.

In the light of the foregoing, and to foster better relationship with other countries, it has become imperative to clearly spell out in the Tax Code that petroleum products sold to international carriers for their use or consumption outside of the Philippines shall be exempt from specific taxes, provided the country of the said carries exempts from tax petroleum products sold to Philippine carriers. Hence, Presidential Decree No. 1359 has been promulgated.

In effect, starting April 21, 1978, the date Presidential Decree No. 1359 was promulgated, local oil companies may sell tax-free petroleum products to any international carrier for its use or consumption outside of the country subject, however, to the principle of reciprocity, that is, the country of such carrier shall likewise allow the sale of tax-free petroleum products to Philippine carriers.

The exemption was meant to allow international carriers to buy domestic or imported petroleum at a cheaper rate because the purchase is tax-free. Its purpose was to encourage international carriers to refuel here than in other neighboring countries which they could have easily done. It was also an incentive for international carriers not to establish re-fuelling depots here, so as to allow our country to save on foreign currencies from these carriers' avoidance of foreign currency transactions involving their importation of petroleum. Finally, the benefit was extended to international carriers registered in countries which grant a similar benefit to carriers ot Philippine registry to ensure that this benefit enjoyed by Philippine carriers elsewhere would be preserved.

Subsequently, Section 134 of PD 1158-A, as amended was split into two (2) provisions under PD 199412 dated November 5, 1985, thus:

Sec. 109. Article subject to excise taxes. —Excise taxes apply to articles manufactured or produced in the Philippines for domestic sale or consumption or for any other disposition and to things imported, but not to anything locally produced or manufactured 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 articles or products. In case of importations, excise taxes shall be in addition to the customs duties, if any.

For purposes of this Title, excise taxes herein imposed and based on weight or volume capacity or any other physical unit of measurement shall be referred to as 'specific tax' and an excise tax herein imposed and based on selling price or other specific value of the article be referred to as 'ad valorem tax.'

Section 115 was later renumbered to Sections 132 before it got incorporated in the NIRC (1997) as Sections 135(a) and (b).

Cognizant of the rationale behind the exemption, I cannot help but agree with Justice Leonen that Section 135 is a shield for international carriers rather than a benefit for importers, purchasers, and manufacturers. If we were to give real meaning to the exemption as rightfully suggested by our esteemed colleagues, then, Section 135 should be interpreted as preventing sellers from shifting the burden of paying excise taxes on petroleum products directly or indirectly to international carriers. Otherwise, the purpose of the law would be defeated.

This legislative purpose is reflected in the plain meaning of the language of Section 135. It states that petroleum products sold to an international carrier, among others, are exempt from excise tax. This language, plainly understood, exempts international carriers from both the legal and economic incidences of the burden of payment of the excise tax. The language of the exemption is comprehensive and exhaustive – otherwise Section 135 would have included words excluding from the exemption the pass-over of the cost of the excise tax to exempt entities themselves.

Section 135 did not change the legal incidence of excise tax – it remains payable by the producer, manufacturer, owner, or importer of the petroleum product. An international carrier is neither of these. It is simply a purchaser or end-user of the petroleum product. Government cannot collect excise tax from international carriers because they are not the statutory taxpayers. Further, Section 135 says they are tax-exempt. Hence, even assuming that the legal incidence of excise tax has been transferred to them, Section 135 exempts them nonetheless from paying this tax.

Section 135 prohibits, as well, the shifting of the economic incidence of excise taxes. Ordinarily, the burden of payment of excise taxes could be shifted to the subsequent purchaser. Passing the buck is allowed. But this shifting cannot be done with petroleum products sold to international carriers. This is because the activity or event that triggers the economic burden of the excise tax – the sale of the petroleum product – is precisely exempt from excise tax. The plain meaning of the operative words – "[pjetroleum products sold to... are exempt from excise tax...." – cannot pass the cost of the excise tax as an additional item in the selling price.

The principle behind the payment scheme for excise taxes, I believe, is similar to the Value Added Tax (VAT) treatment on imported fuel used for international shipping or air transport operations, thus:

As an indirect tax, just like excise taxes, VAT may be shifted to consumers.13 But not so when the transaction is VAT exempt. Since there is no VAT imposed, there is simply nothing to shift. More, when goods are exempt from VAT, their producers are not entitled to input VAT credit for the VAT they paid to produce the goods. Otherwise stated, the seller would be precluded from claiming refund for the VAT it previously paid. Its proper recourse is to declare the input VAT paid as a deductible expense to lower its income tax.14

It has nevertheless been argued, as above-noted, that excise taxes are the direct liability of the manufacturer or importer which may add the cost of these taxes on the price which the buyer has to pay to obtain the taxable product. It cannot therefore be said that the burden of paying the excise tax was shifted, that is, the legal incidence of the tax. What takes place is that the buyer simply agreed to purchase the product at a higher cost inclusive of the tax already paid – this is shifting the economic burden of the tax.

To repeat, however, this shifting is not allowed as regards entities exempt from excise tax arising from the sale to them of the product. To stress, the legislative history and purpose of Section 135, as reflected in the plain meaning of its language entices international carriers to buy their petroleum needs from local sources and not use foreign exchange in the process. The mode of enticement is the lower purchase price because the transaction is exempt from or exclusive of the cost of excise tax. What the international carriers have been exempt from directly cannot be taken from them indirectly through pass-on costs inclusive of the paid-for excise tax.

I understand that the argument is hinged on Philippine Acetylene Co., Inc. v. Commissioner of Internal Revenue15 decided by the Court En Banc on August 17, 1967. But I respectfully submit that to this general rule, Section 135 is the exception.

For one, Philippine Acetylene was decided before the exemption was granted to international carriers in 1978 via PD 1539. The lofty ideas behind the grant would be negated if the Court were to allow manufacturers or importers of petroleum products to incorporate the excise taxes they paid in pricing the same articles to be sold to international carriers.

For another, allowing manufacturers and importers of petroleum products to charge excise tax payments to cost of sales and subsequently claim for tax refund thereon would be tantamount to allowing them to benefit doubly from the exemption which, as earlier explained, was not even meant for them.

To illustrate, ABC imported 100,000 liters of petroleum for ₱100,000,000.00 and paid ₱10,000,000.00 in excise taxes. Under the prevailing rule, ABC can incorporate the excise taxes paid to the selling price and sell the petroleum for ₱150,000,000.00. But aside from its ₱50,000,000.00 profit, ABC can still claim for a refund of its earlier excise tax payment of ₱10,000,000.00. Resultantly, ABC is able to recoup twice the excise taxes it paid only once.

Notably here, petitioner is claiming tax refund of excise taxes paid on 24,974,294 liters of Jet A-1 fuel imported and sold to international carriers. These fuels were sourced not just from the 28,578,673 liters which petitioner itself imported, but also on the 3,192,012 liters it purchased from Chevron, which petitioner has no right to do so, as explained above, since Chevron legally paid the excise tax on its 3,192,012-liter importation. Yet, even without any right as explained above, this did not deter petitioner from collecting a refund thereon on the ground that the taxes on this purchase were allegedly billed or passed on to it by Chevron.16

Petitioner's own argument shows an actual transfer of the burden of payment of the excise taxes from buyer to buyer – the economic incidence of the tax. But when the transferee of the taxable good is an exempt entity, the latter should not bear the burden of reimbursing the tax because it is precisely exempt from paying excise tax.

But if the exempt entity, in this case, the international carrier, pays the price inclusive of the tax voluntarily and with full knowledge of its rights under the law, which should be presumed given the legal advice readily available to it, the international carrier thereby waives the exemption.

The legal incidence of the excise tax is borne by petitioner, an entity provided with no tax exempt status under the NIRC. However, if an international carrier contractually agrees to be responsible for the excise tax, that contractual commitment to pay the tax did not create a requirement to pay taxes from which the international carrier would have been exempt. An international carrier, by agreeing to pay the excise tax and then claiming tax exempt status, would in effect, attempt to convey its tax exempt status to petitioner. The same effect would take place if petitioner would be granted its claim for tax refund – this act would confer upon it a tax exempt status that only Congress can grant.

Thus, to preserve its tax exempt status, an international carrier should pay under protest and thereafter seek reimbursement of the illegal collection of the tax made by the seller from the latter, in this case, herein petitioner. Since the exempt entity is not the taxpayer contemplated by law, it has no recourse against the government but only against its seller.17

I am not an avid fan of foreign jurisprudence. Nonetheless, I often cite, refer, or even quote them when they offer clarity. That is the situation here. US court opinions are helpful persuasive authorities to explain the intricacies of the present tax case.

US courts have enunciated a test as to when a tax-exempt entity may invoke its tax-exempt status and obtain exemption or refund for taxes it may have had paid. The test is whether the legal incidence is upon the tax exempt instrumentality. If so, it need not bear the burden of payment. But, if it is affected only through increased costs of services or materials, the exemption does not lie.18 In other words, the test is whether the tax-exempt entity was required to pay the tax it was exempt from. Or whether it paid voluntarily the tax in order for it to complete and benefit from the otherwise tax-exempt transaction.(awÞhi(

Thus, as stated in the immediately preceding discussion, if an international carrier pays the price of petitioner for its petroleum products, inclusive of the excise tax without protest, then, the international carrier has no reason to complain and cannot seek a refund for the cost of the excise tax.

Another relevant citation dealing with the entire gamut of issues raised here is quoted below:

Based on the plain language, the legislative history of the statutes, and the precedent explained above, we hold that MEDCO is not exempt from paying the recordation tax in this case, and affirm the decision of the tax court. Preliminarily, we note that tax exemption statutes arc to be strictly construed in favor of the taxing authority and "[t]o doubt an exemption is to deny it." Md.-Nat'l Capital Park & Planning Comm'n, 110 Md. App. at 689 (citation omitted).

As the Court of Appeals stated in Pittman v. Housing Authority of Baltimore City, 180 Md. at 460, 462, no tax exemption will be held to result from any language of a statute which does not show an unmistakable intention of the General Assembly "to make the stipulated payment a substitute for the particular taxes for which the exemption is claimed." HN29 The plain language and legislative history of Econ. Dev. § 10-129 and Tax-Prop. § 12-108(a) fail to demonstrate any intention of the General Assembly to exempt MEDCO from paying a recordation tax where MEDCO records a deed [*317] of trust for the benefit of a private lender, such as PNC Bank. In fact, Tax-Prop. § 12-116 specifically permits the individual counties to enact their own [***53] law regarding recordation tax exemptions for transfers from a State agency, and no such law has been enacted by Montgomery County. This certainly demonstrates that there is no "unmistakable intention" to create a tax exemption for transfers of property from, or grants of security interests from, a State agency, such as the transfer involved in this case.

The language and legislative intent of Econ. Dev. § 10-129 demonstrates an intent to exempt MEDCO from paying taxes on its property or activities. Although borrowing money is clearly an activity of MEDCO, the recording of the deed for the benefit of a private entity, i.e. PNC Bank, is not. Nothing in the plain language or legislative history of Econ. Dev. § 10-129 would permit us to extend MEDCO's tax [**1087] exemption status to MEDCO's agreement to pay the recordation tax, in lieu of PNC Bank agreeing to pay the tax.

.... Atlantic Golf is an opinion regarding MEDCO's ability to issue $17 million in tax-exempt revenue bonds and use the proceeds to construct and operate a golf course for the County, and the comment regarding MEDCO's tax exempt status under to Article 41, § 567 is dicta. The Court of Appeals's decision in Atlantic Golf is not dispositive as to the meaning or legislative intent of Econ. Dev. § 10-129(a).

In short, nothing in the Court of Appeals's decision in Atlantic Golf supports the proposition that MEDCO is exempt from paying a recordation tax, for the benefit of a private entity, when MEDCO agrees to pay the tax, but the tax is not required to be paid by MEDCO. Econ. Dev. § 10-129(a) leads to precisely the opposite conclusion—i.e. when MEDCO is not required to pay the tax but agrees to do so, it may not then claim an exemption.

Similarly, we are not persuaded by MEDCO's contention that it is exempt from paying all taxes or assessments on its properties or activities, or any revenue from its properties or activities except as provided in Econ. Dev. § 10-129(b) which states that: "Property that the Corporation sells or leases to a private entity is subject to State and local real property taxes from the time of the sale or lease." According to MEDCO, subsection (a) of Econ. Dev. § 10-129 exempts it from paying any tax except that described in subsection (b)-tax on property sold or leased to a private entity. HN30 Econ. Dev. § 10-129(a), by its plain language, however, states, that MEDCO is exempt "from any requirement to pay taxes or assessments on its properties [***65] or activities, or any revenue from its properties or activities."

Thus, MEDCO must be specifically [*323] required to pay the tax, prior to claiming a tax exempt status. The interaction of Econ. Dev. § 10-129(a) and (b) is, therefore, not relevant in this case. HN31 In light of its plain meaning, the language of subsection (a) does not result in MEDCO being exempt from the payment of tax except that described in subsection (b), where MEDCO was not required to pay the tax but nonetheless agreed to pay.

[*324] [**1091] In this case, MEDCO, by agreement, accepted responsibility to pay: "(a) all filing, registration and recording costs and [*325] fees and all federal, state, county and municipal stamp taxes and other taxes, duties, imposts, assessment and charges in connection with the recordation or filing of any Loan Documents or related instruments, and any documents in connection with any foreclosure[.]" MEDCO subsequently recorded a deed of trust for the benefit of PNC Bank, and claimed that it was exempt from payment of the recordation tax, pursuant to Econ. Dev § 10-129. **1092 Econ. Dev § 10-129 provides tax exemption status to MEDCO for any taxes MEDCO is required to pay on its properties or activities. MEDCO agreed to pay the recordation tax, even though it was not required to do so. The recordation tax is an excise tax, imposed upon the privilege of recording the deed of trust in favor of PNC Bank, and is not a tax on MEDCO's properties or activities or the revenues therefrom. As stated above, a general rule pertaining to exemptions from taxation is that the exemptions apply primarily to annual property taxes and ordinarily [***71] do not apply to excises or taxes which are imposed not in lieu of property taxes, but upon the enjoyment of a privilege.

HN32 Maryland appellate courts have also previously held that a tax exemption docs not apply when the legal incidence of the tax fails to fall on the party who has the tax exempt status. In this case, the legal incidence of the recordation [*326] tax does not fall on MEDCO. Rather, the purpose of recording the deed of trust was for the benefit of PNC bank, the entity identified as the beneficiary in the Leasehold Deed of Trust, Assignment and Security Agreement. As this Court explained in Vournas, 53 Md. App. at 251, "[t]he United States Constitution immunizes the United States and its property from taxation by the States, but it does not forbid a tax whose legal incidcnce is upon a person doing business with the United States, even though the economic burden of the tax, by contract or otherwise, is ultimately borne by the United States."

We see no reason to depart from this rationale – the legal incidence of the recordation tax was borne by PNC bank, an entity provided no tax exempt status under Maryland law. MEDCO contractually agreed to [***72] be responsible for the recordation tax, and that contractual commitment to pay the tax did not create a "requirement" under Econ. Dev. § 10-129 to pay taxes from which MEDCO is exempt. MEDCO, by agreeing to pay the recordation tax and then claiming tax exempt status, in effect, attempted to convey its tax exempt status to PNC Bank.19

The doctrine of strictissimi juris of tax exemptions and the nature of excise taxes, together with a holistic reading of the provisions on excise taxes, compel me to join Justice Leonen's opinion. Petitioner has no right to claim the exemption from the payment of excise taxes for petroleum products under Section 135 of the NIRC after it had sold these products to tax-exempt international carriers. Petitioner cannot also stake a claim to this exemption indirectly by asking for the refund of the excise taxes it already paid for the importation and purchase of the same petroleum products from its sellers after petitioner had sold them to the tax-exempt international carriers.

I therefore vote to settle once and for all the artificial conundrum brought about by the divergent holdings of the Court by sticking to the clear provision of Section 135, NIRC, abandoning all rulings contrary to the present opinion of Justice Leonen, and denying the petition for lack of merit.