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T A X AT I O N L A W

COMMISSIONER OF INTERNAL REVENUE

v. PILIPINAS SHELL PETROLEUM CORPORATIONG.R. No. 188497, 25 April 2012, FIRST DIVISION (Villarama, Jr., J .)

Sec. 135 (a) of the NIRC in relation to the other provisions on excise tax and from

the nature of indirect taxation, may only be construed as prohibiting the manufacturers-sellers of petroleum products from passing on the tax to international carriers by incorporating previously paid excise taxes into the selling price.

Pilipinas Shell Petroleum Corporation (Shell) led for a series of refundsor tax credits representing excise taxes it allegedly paid on sales and deliveriesof gas and fuel oils to various international carriers. Shell maintained that sincepetroleum products sold to quali ed international carriers are exempt fromexcise tax, no taxes should be imposed on the article, to which goods the taxattaches, whether in the hands of the said international carriers or the petroleummanufacturer or producer.

The Commissioner of Internal Revenue, on the other hand, contendedthat Shell must shoulder the excise taxes it previously paid on petroleum products

which it later sold to international carriers because it cannot pass on the tax burdento the said international carriers which have been granted exemption under Sec.135 (a) of the NIRC.

ISSUES:

1. Whether or not Pilipinas Shell can pass on to international carriers andexempt agencies the excise taxes it paid as a manufacturer or producer

2. Whether or not Pilipinas Shell has the right to le a claim for refund ortax credit for the excise taxes it paid for the petroleum products sold tointernational carriers

HELD:

Shell cannot pass on the excise taxes

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An excise tax is a tax on the manufacturer and not on the purchaser.Hence, Shell as engaged in the business of processing petroleum products, isthe one liable for the excise taxes. There being no express grant under the NIRCof exemption from payment of excise tax to local manufacturers of petroleumproducts sold to international carriers and absent any provision in the Codeauthorizing the refund or crediting of such excise taxes paid, the Court holdsthat Sec. 135 (a) should be construed as prohibiting the shifting of the burdenof the excise tax to the international carriers who buys petroleum products fromthe local manufacturers. Said provision, thus, merely allows the internationalcarriers to purchase petroleum products without the excise tax component as anadded cost in the price xed by the manufacturers or distributors/sellers. In other

words, Shell cannot shift the tax burden to international carriers who are allowedto purchase its petroleum products without having to pay the added cost of theexcise tax.

Shell has no right to claim for excise tax

The oil companies which sold such petroleum products to internationalcarriers are not entitled to a refund of excise taxes previously paid on the goods.Founded on the principles of international comity and reciprocity, P.D. No. 1359granted exemption from payment of excise tax but only to foreign internationalcarriers who are allowed to purchase petroleum products free of speci c taxprovided the country of said carrier also grants tax exemption to Philippinecarriers. Both the earlier amendment in the 1977 Tax Code and the present Sec.135 of the 1997 NIRC did not exempt the oil companies from the payment ofexcise tax on petroleum products manufactured and sold by them to internationalcarriers. Therefore, claims for tax refund or credit led by Shell is denied for lackof basis.

The language of Sec. 135 indicates that the tax exemption mentionedtherein is conferred on speci ed buyers or consumers of the excisable articlesor goods (petroleum products). Unlike Sec. 134 which explicitly exempted thearticle or goods itself (domestic denatured alcohol) without due regard to thetax status of the buyer or purchaser, Sec. 135 exempts from excise tax petroleumproducts which were sold to international carriers and other tax-exempt agenciesand entities.