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.

The doctrine of strictissimi juris is well established in tax exemptions and as a corollary, claim for tax refunds based on an alleged tax exemption. Provisions of law which grant tax exemptions must be construed strictly against the taxpayer and liberally in favor of the State. A taxpayer must justify its claim for refund or exemption by the categorical and exact wordings of the law. This Court may not supplant what is not written in the law, and a misinterpretation of statute will not carry with it the effect of stare decisis. An inaccurate or erroneous ruling may not bind this Court and restrict it from upholding its duty to preserve the true intent of the law.

On February 15, 2007, Pilipinas Shell Petroleum Corporation (Pilipinas Shell) filed a claim for refund or tax credit with the Large Taxpayers Audit and Investigation Division II of the Bureau of Internal Revenue for the recovery of excise taxes paid on Jet A-1 fuel, which were sold to various international carriers for their use and consumption outside of the Philippines.1

On September 7, 2012,2 the Court of Tax Appeals Third Division denied Pilipinas Shell's claim for refund, substantially applying the ruling of this Court in Commissioner of Internal Revenue v. Pilipinas Shell Petroleum Corporation3 (2012 Pilipinas Shell). According to the Court of Tax Appeals Third Division, excise taxes paid on Jet A-1 fuel, and subsequently sold to international air carriers, cannot be considered erroneously or illegally paid because, being the taxpayer statutorily liable to pay the excise taxes, petitioner rightfully paid what was demandable from it.

When Pilipinas Shell filed an appeal, the Court of Tax Appeals En Banc,4 affirmed the Division. Hence, Pilipinas Shell filed this Petition for Review,5 asserting that it is entitled to refund or tax credit of excise taxes, which it erroneously paid on petroleum products sold to international carriers, pursuant to the principle of pacta sunt servanda.6

The majority concludes that Pilipinas Shell's act of selling its imported petroleum products to various international carriers triggered the tax exemption under Section 135(a) of the Tax Code. Further, it found that the company's paid excise taxes on the petroleum products became erroneously or illegally collected taxes that are proper subject of a claim for refund under Sections 204 and 229 of the same law.7

In arriving at this conclusion, the majority explained that Section 135 is consistent with the nature of excise taxes, which are taxes on goods, and not taxes on persons.8 Thus, the exemption must be understood in relation to the principle that excise taxes attach to the goods "as soon as they come into existence or immediately upon importation."9 It further held that the object of Section 135 enumerates the persons or entities "to whom petroleum products must be sold to make the excise tax exemption operative."10

At issue here is the proper appreciation and application of Section 135 of the 1997 National Internal Revenue Code (NIRC), viz:

The issue presented before this Court is not a novel one. As explained by the majority, this Court has resolved two intimately similar cases: 2012 Pilipinas Shell11 and Commissioner of Internal Revenue v. Pilipinas Shell Petroleum Corporation12 (2016 Pilipinas Shell).

Similar here, the 2012 and 2016 Pilipinas Shell rulings likewise began when Pilipinas Shell sought a tax refund of the excise taxes it paid on petroleum it sold to various international carriers. It alleged that it was exempt from the payment of excise taxes on its petroleum product since these were delivered to international carriers, which were exempt pursuant to Section 135 of the National Internal Revenue Code.

In the 2012 Pilipinas Shell Decision,13 this Court denied Pilipinas Shell's prayer, stating that the tax exemption under Section 135 is conferred on specific buyers (e.g., international carriers) of petroleum products, and that it should be construed as an exemption that prohibits the shifting of the burden of the excise tax to international carriers purchasing petroleum products from local manufacturers/sellers.

This Court further held in 2012 Pilipinas Shell that, as a seller of imported petroleum products, Pilipinas Shell was neither exempt from the payment of excise taxes nor was it entitled to a refund or credit on the excise taxes it had already paid on the petroleum products. This Court declared that, while Section 135(a) of the NIRC exempted international carriers from the purchase of petroleum products with the excise tax component as an added cost in the price, it did not provide the same exception to oil companies which sold the same petroleum products to international carriers.14

Unfazed, Pilipinas Shell filed a Motion for Reconsideration which was granted by this Court's First Division in a February 19, 2014 Resolution (2014 Pilipinas Shell Resolution).15 There, Pilipinas Shell's claim for refund was allowed primarily in fulfillment of the country's commitment to international agreements, particularly the 1944 Chicago Convention on International Civil Aviation. As stated in the pertinent portion of the Resolution:

We maintain that Section 135 (a), in fulfillment of international agreement and practice to exempt aviation fuel from excise tax and other impositions, prohibits the passing of the excise tax to international carriers who buys [sic] petroleum products from local manufacturers/sellers such as respondent. However, we agree that there is a need to reexamine the effect of denying the domestic manufacturers/sellers' claim for refund of the excise taxes they already paid on petroleum products sold to international carriers, and its serious implications on our Government's commitment to the goals and objectives of the Chicago Convention.

The Chicago Convention, which established the legal framework for international civil aviation, did not deal comprehensively with tax matters. Article 24 (a) of the Convention simply provides that fuel and lubricating oils 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. Subsequently, the exemption of airlines from national taxes and customs duties on spare parts and fuel has become a standard element of bilateral air service agreements (ASAs) between individual countries.16

In addition, this Court considered the possible detrimental effect of disallowing the refund or the tax credit sought by oil companies, given the prohibition from shifting their burden on excise taxes to their exempt buyers. It was ruled that denying the oil companies' claims of refund may deter them from selling to tax exempt companies altogether. It was held that:

The importance of exemption from aviation fuel tax was underscored in the following observation made by a British author in a paper assessing the debate on using tax to control aviation emissions and the obstacles to introducing excise duty on aviation fuel, thus:

Without any international agreement on taxing fuel, it is highly likely that moves to impose duty on international flights, either at a domestic or European level, would encourage 'tankering': carriers filling their aircraft as full as possible whenever they landed outside the EU to avoid paying tax. Clearly this would be entirely counterproductive. Aircraft would be travelling further than necessary to fill up in low-tax jurisdictions; in addition they would be burning up more fuel when carrying the extra weight of a full fuel tank.

With the prospect of declining sales of aviation jet fuel sales to international carriers on account of major domestic oil companies' unwillingness to shoulder the burden of excise tax, or of petroleum products being sold to said carriers by local manufacturers or sellers at still high prices, the practice of "tinkering" would not be discouraged. This scenario does not augur well for the Philippines' growing economy and the booming tourism industry. Worse, our Government would be risking retaliatory action under several bilateral agreements with various countries. Evidently, construction of the tax exemption provision in question should give primary consideration to its broad implications on our commitment under international agreements.17 (Emphasis supplied, citation omitted)

The same 2014 Pilipinas Shell Resolution was used as basis for this Court's 2015 decision in Chevron Philippines Inc. v. Commissioner of Internal Revenue,18 which similarly involved the claim of tax refund or credit on allegedly erroneous or illegal payment of excise taxes on imported petroleum products, which were sold to tax-exempt Clark Development Corporation from the period of August 2007 to December 2007.

Aside from the doctrine laid out in the 2012 Pilipinas Shell Decision, in granting Chevron's petition, this Court held that since excise tax is a tax on property, the exemption provided in Section 135 of the NIRC must be made applicable to the product itself: petroleum. Therefore, any previous payment of excise taxes on petroleum that is later delivered to exempted entities must then be refunded or credited.19

These principles were again applied in the 2016 Pilipinas Shell20 Decision, pursuant to the principle of stare decisis. It was held:

Under the doctrine of stare decisis, the Court must adhere to the principle of law laid down in Pilipinas Shell and apply the same in the present case, especially since the facts, issues, and even the parties involved are exactly identical. Thus, the Court hereby holds that Pilipinas Shell's claim for refund/tax credit must be granted pursuant to Pilipinas Shell, as its petroleum products sold to international carriers for the period of November 2000 to March 2001 are exempt from excise tax, these international carriers being exempt from payment of excise tax under Section 135 (a) of the NIRC.

The Court further notes that during the pendency of this case, the Court, sitting en banc, rendered a decision in Chervon Philippines, Inc. v. Commissioner of Internal Revenue, which likewise involved the refund of excise taxes paid on the importation of petroleum products. Applying the principle enunciated in Pilipinas Shell, the Court granted therein petitioner Chevron Philippines, Inc.'s motion for reconsideration and directed therein respondent CIR to refund the excise taxes paid on the petroleum products sold to Clark Development Corporation in the period from August 2007 to December 2007, or to issue a tax credit certificate. The Court stated that while the claims in Pilipinas Shell and Chevron were premised on different subsections of Section 135 of the NIRC, "the basic tax principle applicable was the same in both cases — that excise tax is a tax on property; hence, the exemption from the excise tax expressly granted under Section 135 of the NIRC must be construed in favor of the petroleum products on which the excise tax was initially imposed."21 (Emphasis supplied, citations omitted)

In resolving the cases above, this Court relied on the similarities of the facts and circumstances presented by each case, and restricted itself from arriving at a different position. Constrained by the principle of stare decisis, this Court granted all the claims of refund on excise taxes paid on three grounds: (1) that it was done in fulfillment of the nation's commitment in an international agreement; (2) that denying the prayer of tax refund or credit could lead to the oil companies' refusal to sell petroleum to exempt entities and companies; and (3) since excise tax is tax on property, the exemption provided in Section 135 follows the product: petroleum. In effect, the petroleum becomes exempt from excise taxes once it is sold to exempt entities, and any payment on it must then be refunded or credited. These very same principles were again applied here.

I registered my dissent in Chevron and reiterate my points here. This Court should not perpetuate an erroneous construction of the law by adhering to precedent. Our duty to uphold the rule of law requires that we reject what appears as stare decisis.22

In its 2014 Pilipinas Shell Resolution, this Court, while maintaining that the exemption from excise tax payments under Section 135(a) of the NIRC is conferred on the international carriers, reconsidered its decision in 2012 Pilipinas Shell, and granted Pilipinas Shell's claim for refund to "give primary consideration to its broad implications on our [country's] commitment under international agreements."23

In reversing its decision in 2012 Pilipinas Shell, this Court provided an interpretation of Section 135 that was not within the text of the law. There is no provision in the NIRC that expressly exempts the owners or importers of petroleum products from paying excise taxes on the imported products.

Conversely, Section 129 of the NIRC of 1997, as amended, imposes excise taxes on two kinds of goods, namely: (1) goods manufactured or produced in the Philippines for domestic sales, consumption, or for any other disposition; and (2) imported goods, including petroleum. Section 14824 of the Code expressly subjects petroleum products to an excise tax, which shall attach to the goods as soon as they are in existence. In addition, Section 131(a) provides who are liable for the subject excise taxes:

(A) Persons Liable. — Excise taxes on imported articles shall be paid by the owner or importer to the Customs Officers, conformably with the regulations of the Department of Finance and before the release of such articles from the customs house, or by the person who is found in possession of articles which are exempt from excise taxes other than those legally entitled to exemption.

Applying the letter of the law in the case before us, Pilipinas Shell, being the manufacturer or importer of the petroleum goods and the statutory taxpayer, correctly paid the excise tax imposed on the petroleum. Its payments cannot be considered as illegally or erroneously collected taxes.

Pilipinas Shell should not acquire the exemption provided under Section 135(c) by selling the petroleum goods to international carriers. As stated in 2012 Pilipinas Shell, the manufacturer, seller, or importer cannot claim a tax exemption based on the exemption enjoyed by the buyer.25 This is aptly illustrated in La Suerte Cigar & Cigarette Factory v. Court of Appeals,26 to wit:

Excise tax is a tax on the production, sale, Gr consumption of a specific commodity in a country. . . . 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."27 (Emphasis supplied, citations omitted)

It bears reiterating that Section 135 is not a tax exemption in favor of manufacturers, sellers, and importers of petroleum products, but a tax exemption in favor of buyers, and in this case, international carriers. As correctly pointed out by the now retired Justice Mariano C. Del Castillo in his dissent in Chevron, if that was the legislature's intent, then they would have expressly provided for it, just like in Section 130(d) of the NIRC, which categorically allows the refund or credit of excise taxes paid on locally produced or manufactured goods that are subsequently exported.28 Accordingly, Section 135 merely prohibits the manufacturers, sellers, and importers from passing the burden of paying excise taxes to their tax-exempt buyers, and forces them to shoulder the burden of the excise tax.

Another primary consideration for the 2014 Pilipinas Shell Resolution, which was replicated in Chevron and 2016 Pilipinas Shell, was the possible negative effect of disallowing the refund or tax credit sought by oil companies, given their prohibition from shifting their burden on excise taxes to their exempt buyers. There, this Court granted the claim for tax refund of Pilipinas Shell to dissuade the potential decline in aviation fuel sales of local oil companies to international carriers, stating that the "construction of the tax exemption provision in question should give primary consideration to its broad implications on our commitment under international agreements."29

The majority likewise adapted this ruling, stating that the selective tax treatment would stifle international air travel and encourage international carriers to purchase fuel from low-tax or tax-free jurisdictions.30

I likewise disagree with this approach. This interpretation is based purely on a presumption or speculation of what may occur if the petroleum companies are denied of their claims for exemption. This clearly exceeds the terms of the statute.

This Court does not have the authority to enlarge the scope of a law and admit interpretations that were not intended by the legislative branch. This is most especially true when the provision of the law in question is neither vague nor ambiguous. This Court must refrain from being excessively liberal in interpreting the law, lest it be found guilty of judicial legislation, which is a constitutionally forbidden act. This was explained by the erudite former Associate Justice George A. Malcolm in Tañada v. Yulo,31 in this wise:

It is basic in statutory construction that strict interpretation is to be applied when construing tax exemptions.33 As the lifeblood of the nation, any claim of exemption must be based from an unmistakable or unquestionable language of law, otherwise, there is no exemption to speak of. There being none in this case, the proper remedy would have been a legislative amendment.34

By interpreting that Section 135 allows refunds for manufacturers, producers, or importers, the law is supplanted with a privilege which was not conferred by Congress. Nowhere in the questioned section does it state that the exemption provided to international carriers is extended to its supplier of aviation fuel, in this case, Pilipinas Shell. Moreover, a denial of petitioner's refund claim is not a violation of our treaty obligation under Chicago Convention on International Civil Aviation, given that the treaty only seeks to protect aircrafts that finds itself in another territory. Article 24(a) of the treaty states:

It is clear from the treaty that no exemption was provided for the manufacturers, sellers, or importers. The subject wording of Section 135(a), as it now stands, satisfies our treaty obligations, as it prohibits local manufacturers from passing on the excise tax to international carriers.35 Thus, petitioner's claim has no legal basis. The previous rulings of this Court, while guided with good intentions, unnecessarily expanded the wording and true intention of the law.

In view of the foregoing, the rulings of 2014 and 2016 Pilipinas Shell, and Chevron, should be abandoned and overturned and the doctrines in Philippine Acetylene Co. v. Commissioner of Internal Revenue36 and Maceda v. Macaraig, Jr.37 should still stand. I repeat what I stated in my dissent in Chevron:

Although Philippine Acetylene Co. and Maceda occurred even before the enactment of the 1997 NIRC, the same principles apply. While excise taxes on petroleum products are indirect taxes by nature—that is, the taxpayer has the option to shift its burden of the tax to the end-user, the same will not stand if the buyer is an exempt entity. Section 135 prohibits oil manufacturers, sellers, or importers from passing on their responsibility to pay excise taxes to tax-exempt buyers without extending the same exemption of tax-exempt entities to the manufacturers, sellers, or importers. Thus, if oil manufacturers or other parties are granted refunds or tax credits, they will then be afforded a privilege not granted to them by law. Moreover, the government will be made to shoulder excise taxes that were rightfully paid to begin with.

Manufacturers, sellers, and importers, like petitioner here, are not entitled to a claim of refund, or tax credit of excise taxes paid on petroleum products sold to tax-exempt entities and international carriers. The doctrine of stare decisis cannot be relied on when the cases are based on an erroneous or inaccurate interpretation of the law. Stare decisis does not bind this Court from revisiting and overruling previous rulings to preserve the true spirit of the law.

Accordingly, I vote to DENY Pilipinas Shell Petroleum Corporation's claim for refund or issuance of tax credit certificate for excise taxes paid on Jet A-1 fuel sold to international carriers. I likewise vote to sustain the September 7, 2012 Decision of the Court of Tax Appeals Third Division, and the September 9, 2013 Resolution of the Court of Tax Appeals En Banc.