Commissioner of Internal Revenue

vs.

Pilipinas Shell

Cecille Carmela T. de los Reyes

Philippine Christian University

Taxation Law

Professor: Atty. Antonio Bonilla

G.R. 188497 (2014)

Penned by: J. Villarama

In a previous decision dated 2012the SC ruled that the CTA erred in granting respondent

(Pilipinas Shell s) claim for tax refund because it failed to establish a tax exemption in its favor

under Sec. 135 (a) of the National Internal

Revenue Code.

Hence, for Resolution is the

Motion for

Reconsideration filed by

Pilipinas Shell.

PILIPINAS

SHELL argues

that:

A plain reading of Sec. 135 of the NIRC reveals

that it is the petroleum products

sold to international carriers

which are exempt from excise tax

being an indirect tax

Sec. 135 in relation to Sec. 148 should be

interpreted as referring to a tax exemption

from the point of production and removal from the place of production considering

that it is only at that point that an excise tax

is imposed.

It is unlike the VAT which

is imposed at every point

of turnoverfrom production to wholesale to

retail and to end-consumer.

When a tax paid by the

statutory seller is passed

on to the buyer; it is no

longer in the nature of tax

but an added cost to the

purchase of the product sold.

Respondent fears that imposing an excise tax to

international carriers could lead to cessation of

supply of petroleum products to international

carriers, retrenchment of employees of domestic

manufacturers/ producers to prevent further

lossesor worse, shutting down of their production of jet A-1 fuel and aviation gas due to

unprofitability of sustaining operations.

They also claim that the imposition by the Philippine

Government of excise tax on petroleum products sold

to international carriers is in violation of Chicago

Convention on International Aviationto which it is a signatory

As well as other international agreements like the RP s air transport agreements with the USA, Netherlands, Belgium

and Japan.

Solicitor General

underscores the statutory

basis of this Court s ruling that exemption under Sec.

135 does not attach to the

products.

Citing Exxonmobil Petroleum & Chemical Holdings,

Inc. Philippine Branch v. Commissioner on Internal Revenue; which held that excise tax when passed on

to the purchaser becomes part of the purchase pricethe Solicitor General claims that this refutes

respondent s theory that the exemption attaches to the petroleum products itself and not to the purchaser for it

would have been erroneous for the seller to pay the

excise tax and inequitable to pass it on to the

purchaser if the excise tax exemption attaches to the

product.

ISSUE:

Is the imposition of excise

tax on petroleum products

sold to international carriers

valid?

COURT RULING

Excise taxes used in our Tax Code falls

under two types:

(1) specific tax based on weight or volume

capacity and other physical unit of

measurement

(2) ad valorem tax which is based on

selling prices of other specific value of the

goods.

Excise Tax (Petron Corporation v.

Tiangco)

Excise tax is a tax upon performance,

carrying on, or exercise of some right,

privilege, activity, calling or occupation.

Over the years, an excise tax as used in

the Tax Code has been defined as taxes

applicable to certain goods or articles

manufactured or produced in the

Philippines for domestic sale or

consumption or for any other disposition

and to things imported into the

Philippines.

Nature of excise taxthey are imposed directly on certain specific goods.

Excise tax on aviation fuel used for

international flights is practically nil

as most countries are signatories to

the 1944 Chicago Convention on

International Aviation.

Article 24 of the Chicago

Conventionhas been interpreted to prohibit taxation of aircraft fuels

consumed for international transport.

This treaty obligation is pursuant

to which our Government supports

promotion and expansion of

international air travel. (pacta sunt

servanda)treaties are expected to be in good faith.

Hence, the Court holds Pilipinas Shell is

entitled to a refund or credit of the excise tax it

paid for petroleum products sold to

international carriers; in the amount of P95

million +

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