AN UNCONVINCING SUPREME COURT RULING

With all due respect to the highest tribunal of the land, methinks it erred in its recent decision rejecting Pilipinas Shell Petroleum Corporation's claim for a refund of more than P95 million in excise taxes it had paid to the Bureau of Internal Revenue (Philippine Daily Inquirer, May 12, 2012).

According to the report, the tribunal's First Division granted the petition of the BIR for the reversal of the June 24, 2009 decision of the Court of Tax Appeals en banc which ordered the government to return the excise taxes paid by Shell on petroleum products it had sold to international carriers of foreign registry for their use or consumption outside the country. Shell based its claim on Section 135(a) of the National Internal Revenue Code of 1997 which expressly grants excise tax exemption to international carriers for their purchases of locally manufactured petroleum products.   However, the high court sided with the BIR's stand that Section 148 of the NIRC expressly subjects such products to an excise tax before they are removed from the place of manufacture. 

The BIR had argued that the obvious intention of the tax code was to grant excise tax exemption to international carriers and exempt entities as buyers of petroleum products, and not the manufacturers or producers of said goods.  And so, considering that the excise tax attaches to petroleum products as soon as they are in existence, the high court ruled that there can be no outright exemption from the payment of excise tax on petroleum products sold to international carriers.  In the ruling penned by Associate Justice Martin Villarama, Jr., the First Division pointed out that under the law, the excise, also called specific, tax on petroleum products manufactured in the Philippines shall be paid by the producer or person having possession thereof within 15 days from the date of removal from the place of product. 

On the other hand, I submit that one need not be a lawyer -- he needs only plain common sense -- to realize that taxes paid by the manufacturer on products it offers in the market place, whether domestic or foreign, always form part of the selling price it bills to the buyer.  How then, for heaven's sake, may an international carrier avail of the tax exemption benefit provided by Section 135(a) of the tax code under a situation where the excise tax in question already forms part of the invoice value it will pay to Shell.   Or, worded slightly differently, does the court ruling mean that it should be the international carrier as buyer, not Shell as seller, that should claim for tax refund.  Assuming it does and succeeds in the process, doesn't the transaction end up like the same banana?  That is, the BIR just the same shoulders the refund.

Methinks the court should have somehow broadened its horizon in this case; rather than conveniently limited its thinking on the  "procedural" rather than on the "doctrinal" intention of the law on excise tax.  In my view, the requirement for the manufacturer of the product subject to excise tax to pay such tax within 15 days before its removal from the place of manufacture is merely procedural.  As a matter of  fact, the payment used to be required immediately before the removal, and so oil refineries were then maintaining advance deposits for specific or excise tax, otherwise removals could only be possible during normal office hours,  unlike now when such removals can be facilitated even in the wee hours of the night.  The more doctrinal provision of the law is provided under Chapter 1, Title VI of the NIRC.  It says,  "excise taxes apply to goods manufactured or produced in the Philippines for domestic sale or consumption. . ."   This is like saying it does not apply to export sales.  Sales  of petroleum products to international carriers with foreign registry are clearly neither a domestic sale transaction nor for domestic consumption, and therefore excise-tax exempt.   The law also provides that "when goods (and they include petroleum products) locally produced or manufactured are removed and actually exported without returning to the Philippines . . . . any excise tax paid thereon shall be credited or refunded upon submission of proof  of actual exportation and upon receipt of the foreign exchange payment."  Now, may I respectfully ask: Who in this case is required to submit proof of actual exportation and receipt of the corresponding foreign exchange payment, is it the buyer, or the seller-exporter or Shell?   To whom then must the refund rightly , isn't it to Shell which, in turn, for fairness sake, should eventually give it to the international carrier?

As things are, the claimed refund not being granted,  Shell in effect practically suffers nothing, since as I earlier stated, the subject excise tax had already formed part of Shell's invoice to the international carriers.  But then, it's the international carriers that ultimately suffer the brunt, in turn unduly deprived of its right to be exempted from excise tax.  Worse, the BIR has unduly collected what it is not supposed to legally collect..

At any rate, I still feel confident the Supreme Court will sooner or later reverse the recent decision of its First Division, following a relatively fairer evaluation of Shell's surely forthcoming motion for consideration.