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G.R. No.

210836

CHEVRON PHILIPPINES INC., Petitioner,


vs.
COMMISSIONER OF INTERNAL REVENUE, Respondent.

RESOLUTION

BERSAMIN, J.:

Excise tax on petroleum products is essentially a tax on property, the direct liability for which pertains to the statutory
taxpayer (i.e., manufacturer, producer or importer). Any excise tax paid by the statutory taxpayer on petroleum products
sold to any of the entities or agencies named in Section 135 of the National Internal Revenue Code (NIRC) exempt from
excise tax is deemed illegal or erroneous, and should be credited or refunded to the ayor pursuant to Section 204 of the
NIRC. This is because the exemption granted under Section 135 of the NIRC must be construed in favor of the property
itself, that is, the petroleum products.

The Case

Before the Court is the Motion for Reconsideration filed by petitioner Chevron Philippines, Inc. (Chevron) 1 vis-a-vis the
resolution promulgated on March 19, 2014,2 whereby the Court’s Second Division denied its petition for review on
certiorari for failure to show any reversible error on the part of the Court of Tax Appeals (CTA) En Banc. The CTA En
Banc had denied Chevron’s claim for tax refund or tax credit for the excise taxes paid on its importation of petroleum
products that it had sold to the Clark Development Corporation (CDC), an entity exempt from direct and indirect taxes.

The Motion for Reconsideration was later on referred to the Court En Banc after the Second Division noted that the CTA
En Banc had denied Chevron’s claim for the tax refund or tax credit based on the ruling promulgated in Commissioner of
Internal Revenue v. Pilipinas Shell Petroleum Corporation (Pilipinas Shell) on April 25, 2012, 3 but which ruling was
meanwhile reversed upon reconsideration by the First Division through the resolution promulgated on February 19,
2014.4 The Court En Banc accepted the referral last June 16, 2015.

Antecedents

Chevron sold and delivered petroleum products to CDC in the period from August 2007 to December 2007. 5Chevron did
not pass on to CDC the excise taxes paid on the importation of the petroleum products sold to CDC in taxable year
2007;6 hence, on June 26, 2009, it filed an administrative claim for tax refund or issuance of tax credit certificate in the
amount of P6,542,400.00.7Considering that respondent Commissioner of

Internal Revenue (CIR) did not act on the administrative claim for tax refund or tax credit, Chevron elevated its claim to
the CTA by petition for review on June 29, 2009.8 The case, docketed as CTA Case No. 7939, was raffled to the CTA’s
First Division.

The CTA First Division denied Chevron’s judicial claim for tax refund or tax credit through its decision dated July 31,
2012,9 and later on also denied Chevron’s Motion for Reconsideration on November 20, 2012. 10

In due course, Chevron appealed to the CTA En Banc (CTA EB No. 964), which, in the decision dated September 30,
2013,11 affirmed the ruling of the CTA First Division, stating that there was nothing in Section 135(c) of the NIRC that
explicitly exempted Chevron as the seller of the imported petroleum products from the payment of the excise taxes; and
holding that because it did not fall under any of the categories exempted from paying excise tax, Chevron was not entitled
to the tax refund or tax credit.

The CTA En Banc noted that:

Considering that an excise tax is in the nature of an indirect tax where the tax burden can be shifted, Section 135(c) of the
NIRC of 1997, as amended, should be construed as prohibiting the shifting of the burden of the excise tax to tax-exempt
entities who buys petroleum products from the manufacturer/seller by incorporating the excise tax component as an
added cost in the price fixed by the manufacturer/seller.

xxxx
The above discussion is in line with the pronouncement made by the Supreme Court in the case of Commissioner of
Internal Revenue v. Pilipinas Shell Petroleum Corporation (Shell case), involving Shell’s claim for excise tax refund for
petroleum products sold to international carriers. The Supreme Court held that the exemption from excise tax payment on
petroleum products under Section 135(a) of the NIRC of 1997, as amended, is conferred on international carriers who
purchased the same for their use or consumption outside the Philippines. The oil companies which sold such petroleum
products to international carriers are not entitled to a refund of excise taxes previously paid on the petroleum products
sold. x x x

xxxx

Accordingly, petitioner is not entitled to any refund or issuance of tax credit certificate on excise taxes paid on its
importation of petroleum products sold to CDC pursuant to the doctrine laid down by the Supreme Court in the Shell
case.12

Chevron sought reconsideration, but the CTA En Banc denied its motion for that purpose in the resolution dated January
7, 2014.13

Chevron appealed to the Court,14 but the Court (Second Division) denied the petition for review on certiorari through the
resolution promulgated on March 19, 2014 for failure to show any reversible error on the part of the CTA En Banc.

Hence, Chevron has filed the Motion for Reconsideration, submitting that it was entitled to the tax refund or tax credit
because ruling promulgated on April 25, 2012 in Pilipinas Shell,15 on which the CTA En Banc had based its denial of the
claim of Chevron, was meanwhile reconsidered by the Court’s First Division on February 19, 2014. 16

Issue

The lone issue for resolution is whether Chevron was entitled to the tax refund or the tax credit for the excise taxes paid
on the importation of petroleum products that it had sold to CDC in 2007.

Ruling of the Court

Chevron’s Motion for Reconsideration is meritorious.

Pilipinas Shell concerns the manufacturer’s entitlement to refund or credit of the excise taxes paid on the petroleum
products sold to international carriers exempt from excise taxes under Section 135(a) of the NIRC.

However, the issue raised here is whether the importer (i.e., Chevron) was entitled to the refund or credit of the excise
taxes it paid on petroleum products sold to CDC, a tax-exempt entity under Section 135(c) of the NIRC.

Notwithstanding that the claims for refund or credit of excise taxes 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.

Accordingly, the excise taxes that Chevron paid on its importation of petroleum products subsequently sold to CDC were
illegal and erroneous, and should be credited or refunded to Chevron in accordance with Section 204 of the NIRC.

We explain.

Under Section 12917 of the NIRC, as amended, excise taxes are imposed on two kinds of goods, namely: (a) goods
manufactured or produced in the Philippines for domestic sales or consumption or for any other disposition; and (b) things
imported. Undoubtedly, the excise tax imposed under Section 129 of the NIRC is a tax on property. 18

With respect to imported things, Section 131 of the NIRC declares that excise taxes on imported things 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, unless the imported things are exempt from excise taxes and the
person found to be in possession of the same is other than those legally entitled to such tax exemption. For this purpose,
the statutory taxpayer is the importer of the things subject to excise tax.
Chevron, being the statutory taxpayer, paid the excise taxes on its importation of the petroleum products. 19

Section 135 of the NIRC states:

SEC. 135. Petroleum Products Sold to International Carriers and Exempt Entities or Agencies. – Petroleum products sold
to the following are exempt from excise tax:

(a) International carriers of Philippine or foreign registry on their use or consumption outside the Philippines:
Provided, That the petroleum products sold to these international carriers shall be stored in a bonded storage tank
and may be disposed of only in accordance with the rules and regulations to be prescribed by the Secretary of
Finance, upon recommendation of the Commissioner;

(b) Exempt entities or agencies covered by tax treaties, conventions and other international agreement for their
use or consumption: Provided, however, That the country of said foreign international carrier or exempt entities or
agencies exempts from similar taxes petroleum products sold to Philippine carriers, entities or agencies; and

(c) Entities which are by law exempt from direct and indirect taxes. (Emphasis supplied.)

Pursuant to Section 135(c), supra, petroleum products sold to entities that are by law exempt from direct and indirect
taxes are exempt from excise tax. The phrase which are by law exempt from direct and indirect taxes describes the
entities to whom the petroleum products must be sold in order to render the exemption operative. Section 135(c) should
thus be construed as an exemption in favor of the petroleum products on which the excise tax was levied in the first place.
The exemption cannot be granted to the buyers – that is, the entities that are by law exempt from direct and indirect taxes
– because they are not under any legal duty to pay the excise tax.

CDC was created to be the implementing and operating arm of the Bases Conversion and Development Authority to
manage the Clark Special Economic Zone (CSEZ).20 As a duly-registered enterprise in the CSEZ, CDC has been exempt
from paying direct and indirect taxes pursuant to Section 2421 of Republic Act No. 7916 (The Special Economic Zone Act
of 1995), in relation to Section 15 of Republic Act No. 9400 (Amending Republic Act No. 7227, otherwise known as the
Bases Conversion Development Act of 1992).22

Inasmuch as its liability for the payment of the excise taxes accrued immediately upon importation and prior to the
removal of the petroleum products from the customshouse, Chevron was bound to pay, and actually paid such taxes. But
the status of the petroleum products as exempt from the excise taxes would be confirmed only upon their sale to CDC in
2007 (or, for that matter, to any of the other entities or agencies listed in Section 135 of the NIRC). Before then, Chevron
did not have any legal basis to claim the tax refund or the tax credit as to the petroleum products.

Consequently, the payment of the excise taxes by Chevron upon its importation of petroleum products was deemed illegal
and erroneous upon the sale of the petroleum products to CDC. Section 204 of the NIRC explicitly allowed Chevron as
the statutory taxpayer to claim the refund or the credit of the excise taxes thereby paid, viz.:

SEC 204. Authority of the Commissioner to Compromise, Abate and Refund or Credit Taxes. – The Commissioner may –

xxxx

(C) Credit or refund taxes erroneously or illegally received or penalties imposed without authority, refund the value of
internal revenue stamps when they are returned in good condition by the purchaser, and, in his discretion, redeem or
change unused stamps that have been rendered unfit for use and refund their value upon proof of destruction. No credit
or refund of taxes or penalties shall be allowed unless the taxpayer files in writing with the Commissioner a claim for credit
or refund within two (2) years after payment of the tax or penalty: Provided, however, That a return filed showing an
overpayment shall be considered as a written claim for credit or refund.

It is noteworthy that excise taxes are considered as a kind of indirect tax, the liability for the payment of which may fall on
a person other than whoever actually bears the burden of the tax. 23 Simply put, the statutory taxpayer may shift the
economic burden of the excise tax payment to another – usually the buyer.

In cases involving excise tax exemptions on petroleum products under Section 135 of the NIRC, the Court has
consistently held that it is the statutory taxpayer, not the party who only bears the economic burden, who is entitled to
claim the tax refund or tax credit.24 But the Court has also made clear that this rule does not apply where the law grants
the party to whom the economic burden of the tax is shifted by virtue of an exemption from both direct and indirect taxes.
In which case, such party must be allowed to claim the tax refund or tax credit even if it is not considered as the statutory
taxpayer under the law.25

The general rule applies here because Chevron did not pass on to CDC the excise taxes paid on the importation of the
petroleum products, the latter being exempt from indirect taxes by virtue of Section 24 of Republic

Act No. 7916, in relation to Section 15 of Republic Act No. 9400, not because Section 135(c) of the NIRC exempted CDC
from the payment of excise tax.1âwphi1

Accordingly, conformably with Section 204(C) of the NIRC, supra, and pertinent jurisprudence, Chevron was entitled to
the refund or credit of the excise taxes erroneously paid on the importation of the petroleum products sold to CDC.

WHEREFORE, the Court GRANTS petitioner Chevron Philippines, Inc. 's Motion for Reconsideration; DIRECTS
respondent Commissioner of Internal Revenue to refund the excise taxes in the amount of P6,542,400.00

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 of that amount to Chevron Philippines, Inc.

No pronouncement on costs of suit.


[ GR Nos. 205045 & 205723, Jan 25, 2017 ]
CIR v. SAN MIGUEL CORPORATION

LEONEN, J.:
These consolidated cases consider whether "San Mig Light" is a new brand or a variant of one of San Miguel
Corporation's existing beer brands, and whether the Bureau of Internal Revenue may issue notices of discrepancy that
effectively changes "San Mig Light" 's classification from new brand to variant. The issues involve an application of
Section 143 of the 1997 National Internal Revenue Code (Tax Code), as amended, on the definition of a variant, which is
subject to a higher excise tax rate than a new brand. This case also applies the requirement in Rep. Act No. 9334 that
reclassification of certain fermented liquor products introduced between January 1, 1997 and December 31, 2003 can
only be done by an act of Congress.
The Petition[1] docketed as G.R. No. 205045 assails the Court of Tax Appeals En Banc's September 20, 2012
Decision[2] affirming the Third Division's grant of San Miguel Corporation's refund claim in CTA Case No. 7708, and the
December 11, 2012 Resolution[3] denying reconsideration. The Commissioner of Internal Revenue prays for the reversal
and setting aside of the assailed Decision and Resolution, as well as the issuance of a new one denying San Miguel
Corporation's claim for tax refund or credit.[4]
On the other hand, the Petition[5] docketed as GR. No. 205723 and consolidated with G.R. No. 205045 assails the Court
of Tax Appeals En Banc's October 24, 2012 Decision[6] dismissing the Commissioner of Internal Revenue's appeal, and
the February 4, 2013 Resolution[7] denying reconsideration. The Commissioner of Internal Revenue prays for the reversal
and setting aside of the assailed Decision and Resolution, the issuance of a new one remanding the case to the Court of
Tax Appeals for the production of evidence in San Miguel Corporation's possession, or, in the alternative, the dismissal of
the Petitions in CTA Case Nos. 7052, 7053, and 7405.[8]
On October 19, 1999, Virgilio S. De Guzman (De Guzman), San Miguel Corporation's Former Assistant Vice President for
Finance, wrote the Bureau of Internal Revenue Excise Tax Services Assistant Commissioner Leonardo B. Albar
(Assistant Commissioner Albar) to request the registration of and authority to manufacture "San Mig Light," to be taxed at
P12.15 per liter.[9] The letter dated October 27, 1999 granted this request.[10]
On November 3, 1999, De Guzman advised Assistant Commissioner Albar that "San Mig Light" would be sold at a
suggested net retail price of P21.15 per liter or P6.98 per bottle, less value-added tax and specific tax. "San Mig Light"
would also be classified under "Medium Priced Brand" to be taxed at P9.15 per liter. [11]
On January 28, 2002, Alfredo R. Villacorte (Villacorte), San Miguel Corporation's Vice President and Manager of the
Group Tax Services, wrote the Bureau of Internal Revenue Chief of the Large Taxpayers Assistance Division II (LTAD II)
to request information on the tax rate and classification of "San Mig Light" and another beer product named "Gold Eagle
King."[12]
On February 7, 2002, LTAD II Acting Chief Conrado P. Item replied to Villacorte's letter.[13] He confirmed that based on the
submitted documents, San Miguel Corporation was allowed to register, manufacture, and sell "San Mig Light" as a new
brand, had been paying its excise tax for a considerable length of time, and that the tax classification and rate of "San Mig
Light" as a new brand were in order.[14]
However, on May 28, 2002, Edwin R. Abella (Assistant Commissioner Abella), Bureau of Internal Revenue Large
Taxpayers Service Assistant Commissioner, issued a Notice of Discrepancy against San Miguel Corporation. The Notice
stated that "San Mig Light" was a variant of its existing beer products and must, therefore, be subjected to the higher
excise tax rate for variants.[15] Specifically, for the year 1999, "San Mig Light" should be taxed at the rate of P19.91 per
liter instead of P9.15 per liter; and for the year 2000, the 12% increase should be based on the rate of P19.91 per liter
under Section 143(C)(2) of the Tax Code. [16] Hence, the Notice demanded payments of deficiency excise tax in the
amount of P824,750,204.97, exclusive of increments for years 1999 to April 2002. [17]
The Finance Manager of San Miguel Corporation's Beer Division wrote a letter-reply dated July 9, 2002 requesting the
withdrawal of the Notice of Discrepancy.[18] San Miguel Corporation stated, among other things, that "San Mig Light" was
not a variant of any of its existing beer brands because of "the distinctive shape, color scheme[,] and general
appearance"; and the "different alcohol content and innovative low calorie formulation."[19] It also emphasized that the
Escudo logo was not a beer brand logo but a corporate logo.[20]
On October 14, 2002, Assistant Commissioner Abella wrote a letter-rejoinder reiterating its finding that "San Mig Light
Pale Pilsen" was truly a variant of "San Miguel Pale Pilsen."[21] The letter-rejoinder cited certain statements in San Miguel
Corporation's publication, "Kaunlaran," and the corporation's Annual Report as support for its finding. [22]
On November 20, 2002, Villacorte replied by requesting that "San Mig Light be reconfirmed as a new brand . . . the
deficiency assessment be set aside and the demand for payment be withdrawn." [23]
Subsequently, three (3) conferences were held on the "San Mig Light" tax classification issue. At the conference held on
December 16, 2003, Commissioner Guillermo Parayno, Jr. (Commissioner Parayno) informed San Miguel Corporation
that five (5) members of the Bureau of Internal Revenue Management Committee voted that "San Mig Light" was
a variant of "Pale Pilsen in can," while two (2) members voted that it was a variant of "Premium," a high-priced beer
product of San Miguel Corporation.[24]
On January 6, 2004, Commissioner Parayno wrote San Miguel Corporation and validated the findings that "San Mig Light"
was a variantof "San Miguel Pale Pilsen in can," subject to the same excise tax rate of the latter—that is, P13.61 per
liter—and that an assessment for deficiency excise tax against San Miguel Corporation was forthcoming.[25]
On January 28, 2004, a Preliminary Assessment Notice (PAN) was issued against San Miguel Corporation for deficiency
excise tax in the amount of P852,039,418.15, inclusive of increments, purportedly for the removals of "San Mig Pale
Pilsen Light," from 1999 to January 7, 2004.[26]
On February 4, 2004, a Notice of Discrepancy was issued against San Miguel Corporation on an alleged deficiency excise
tax in the amount of P28,876,108.84, from January 8, 2004 to January 29, 2004.[27]
Accordingly, on March 24, 2004, Bureau of Internal Revenue Deputy Commissioner Estelita C. Aguirre (Deputy
Commissioner Aguirre) issued a PAN against San Miguel Corporation for P29,967,465.37 representing deficiency excise
tax, inclusive of increments, from January 8, 2004 to January 29, 2004.[28]
On April 12, 2004 and May 26, 2004, Deputy Commissioner Aguirre issued two (2) Formal Letters of Demand [29] to San
Miguel Corporation with the accompanying Final Assessment Notice (FAN) Nos. LTS TF 004-06-02 and LTS TF 129-05-
04, respectively, directing San Miguel Corporation to pay deficiency excise taxes in the amounts of:
P876,098,898.83, inclusive of interest until April 30, 2004, for the period of November to December 1999 at P12.52
(a)
per liter, and January 2000 to January 7, 2004 at P13.61 per liter;[30] and
(b) P30,763,133.68, inclusive of interest until June 30, 2004, for the period January 8, 2004 to January 29, 2004. [31]
San Miguel filed a Protest/Request for Reconsideration against each FAN.[32]
On August 17, 2004 and August 20, 2004, Former Large Taxpayers Service Officer-in-Charge Deputy Commissioner Kim
S. Jacinto-Henares informed San Miguel Corporation of the denial of the Protest/Request for Reconsiderations against
the two (2) FANs "for lack of legal and factual basis."[33]
G.R. No. 205723
On September 17, 2004 and September 22, 2004, San Miguel Corporation filed before the Court of Tax Appeals Petitions
for Review, docketed as CTA Case Nos. 7052 and 7053, assailing the denials of its Protest/Request for Reconsiderations
of the deficiency excise tax assessments.[34]
To prevent the issuance of additional excise tax assessments on San Mig Light products and the disruption of its
operations, San Miguel Corporation paid excise taxes at the rate of P13.61 beginning February 1, 2004.[35]
On December 28, 2005, San Miguel Corporation filed with the Bureau of Internal Revenue its first refund claim. The claim
sought the refund of P782,238,161.47 for erroneous excise taxes collected on San Mig Light products from February 2,
2004 to November 30, 2005.[36]
Due to inaction on its claim, on January 31, 2006, San Miguel Corporation filed before the Court Tax Appeals a Petition
for Review docketed as CTA Case No. 7405.[37] The Court of Tax Appeals, upon motion, later consolidated CTA Case No.
7405 with CTA Case Nos. 7052 and 7053.[38]
The Court of Tax Appeals First Division, in its Decision[39] dated October 18, 2011, granted the Petitions in CTA Case Nos.
7052 and 7053 and partially granted the Petition in CTA Case No. 7405.[40] The Decision's dispositive portion reads:
WHEREFORE, in view of the foregoing considerations, the consolidated Petitions for Review in CTA Case Nos. 7052 and
7053 are hereby GRANTED. The (1) [sic] letters dated August 17, 2004 and August 20, 2004 of respondents, denying
petitioner's Protest/Request for Reconsideration dated May 12, 2004 and July 7, 2004, respectively, and (2) Assessment
Notice Nos. LTS TF 004-06-02 and LTS TF 129-05-04 issued by respondent against petitioner for the periods of
November 1999 to January 7, 2004 and January 8, 2004 to January 29, 2004, are hereby CANCELLED and SET ASIDE.
Moreover, the Petition for Review in CTA Case No. 7405 is hereby PARTIALLY GRANTED. Respondent CIR is hereby
ORDERED to REFUND petitioner, or to ISSUE A TAX CREDIT CERTIFICATE in its favor in, the amount of SEVEN
HUNDRED EIGHTY ONE MILLION FIVE HUNDRED FOURTEEN THOUSAND SEVEN HUNDRED SEVENTY TWO
PESOS AND FIFTY SIX CENTAVOUS [sic] (P781,514,772.56), as determined below:
Claims for Over-Payment of Excise Taxes per Petition P782,238,161.47

Less: Deductions from claims:


Excise taxes due on SML removals per
1. ODI which were not paid per Returns P420,252.62
Polo Plant

Excise taxes due per Excise Tax


2. Returns were Lesser than [the] amounts 121,975.00
per ODI Polo Plant

SML Removals per shipping


3.
Memorandum were Greater than ODIs

San Fernando Plant 181,080.11


Bacolod Plant 81.18 723,388.91

Recomputed Excise Taxes for


P781,514,772.56
Refund/Issuance of Tax Credit Certificate
SO ORDERED.[41] (Emphasis in the original)

The Commissioner filed a Motion for Reconsideration with Motion for Production of Documents praying that San Miguel
Corporation be compelled to produce the following: (a) "Kaunlaran" publication for the months of October 1999 and
January 2000; (b) 1999 Annual Report to stockholders; and (c) copies of the video footage of two (2) San Mig Light
commercials as seen in its website.[42] The Commissioner claimed "that the admission of said documents would lead to a
better illumination of the outcome of the case."[43]
The Court of Appeals First Division denied the Motions in its Resolution [44] dated February 6, 2012:
WHEREFORE, premises considered, respondent's [CIR's] MOTION FOR RECONSIDERATION WITH MOTION FOR
PRODUCTION OF DOCUMENTS (Re: Decision promulgated 18 October 2011) and SUPPLEMENTAL MOTION FOR
PRODUCTION OF DOCUMENTS are hereby DENIED for lack of merit.
SO ORDERED.[45] (Emphasis in the original)

The Court of Tax Appeals En Banc, in its Decision[46] dated October 24, 2012, dismissed the Petition and affirmed the
Division.[47] It also denied reconsideration through the Resolution[48] dated February 4, 2013.
Hence, the Commissioner on Internal Revenue filed the Petition for Review on Certiorari[49] docketed as G.R. No. 205723.
G.R. No. 205045
On August 30, 2007, San Miguel Corporation filed its second refund claim with the Bureau of Internal Revenue in the
amount of P926,389,172.02.[50] Due to inaction on its claim, San Miguel Corporation filed before the Court Tax Appeals a
Petition for Review, docketed as CTA Case No. 7708, on November 27, 2007.[51]
The Court of Tax Appeals Third Division, in its Decision dated January 7, 2011, partially granted the Petition.[52] It also
denied reconsideration.[53] The Decision's dispositive portion reads:
WHEREFORE, the Petition for Review is hereby PARTIALLY GRANTED. Accordingly, respondent is hereby ORDERED
TO REFUND or ISSUE A TAX CREDIT CERTIFICATE in favor [of] petitioner in the amount of P926,169,056.74,
representing erroneously, or excessively and/or illegally collected, and overpaid excise taxes on "San Mig Light" during
the period from December 1, 2005 up to July 31, 2007.
SO ORDERED.[54] (Emphasis in the original)

On September 20, 2012, the Court of Tax Appeals En Banc[55] affirmed the Division and thereafter also denied
reconsideration. The Decision's dispositive portion reads:
WHEREFORE, the present Petition for Review is hereby DENIED for lack of merit. The assailed decision and resolution
of the Third Division of this Court promulgated on January 7, 2011 and. March 23, 2011, respectively, in CTA Case No.
7708 entitled "SAN MIGUEL CORPORATION vs. COMMISSIONER OF INTERNAL REVENUE[“], are hereby AFFIRMED.
Accordingly, petitioner is ORDERED TO REFUND or ISSUE A TAX CREDIT CERTIFICATE in favor of respondent in the
amount of P926,169,056.74, representing erroneously, excessively and/or illegally collected and overpaid excise taxes on
"San Mig Light" during the period December 1, 2005 to July 31, 2007.
SO ORDERED.[56] (Emphasis in the original)

Hence, the Commissioner on Internal Revenue filed the Petition for Review on Certiorari [57] docketed as G.R. No. 205045.
The two (2) cases were consolidated.
Respondent San Miguel Corporation filed its Comment[58] on the Petitions, to which petitioner filed its Reply.[59] The parties
then filed their respective memoranda.[60]
The issues for resolution are:
First, whether a motion for production of documents and objects may be availed of after the court has rendered judgment;
Second, whether petitioner complied with all requisites of a motion for production of documents and objects under Rule
27, such as a showing of good cause;
Third, whether "San Mig Light" is a new brand and not a variant of "San Miguel Pale Pilsen";
Fourth, whether the "classification freeze" in Rep. Act No. 9334 refers to the freezing of classification of brands, and not to
the freezing of net retail prices of brands;
Fifth, whether the deficiency excise tax assessments issued by the Bureau of Internal Revenue against respondent dated
April 12, 2004 and May 26, 2004 are valid; and
Lastly, whether respondent is entitled to a refund of excess payment of excise taxes on "San Mig Light" in the amount of
P781,514,772.56 for the period from February 1, 2004 up to November 30, 2005, and in the amount of P926,169,056.74
for the period from December 1, 2005 up to July 31, 2007.
I
Petitioner questions the denial of its Motion for Production of Documents and Objects. It argues that this motion may be
filed after pre-trial or during the pendency of the action since Rule 27, Section 1 of the Revised Rules of Civil Procedure
does not explicitly provide that it must be availed of before trial or pre-trial.[61] Petitioner contends that all requisites for
filing the motion were satisfied.[62] Assuming the Motion was belatedly filed, it should have been granted in the higher
interest of justice.[63]
Respondent counters that the Motions, which were filed only after the Court of Tax Appeals Division rendered judgment,
were belatedly filed since this mode of discovery must be availed of before trial. [64] Rule 27, Section 1 used the phrase, "in
which an action is pending"; thus, this defines which court has authority to resolve the motion and does not define when
the motion must be made.[65] Respondent contends that this remedy must be availed of before trial in order to facilitate
and expedite case preparations.[66] Respondent adds that petitioner also failed to comply with the requisites for the
motion. Specifically, the Motion did not adequately describe the contents of the documents to be produced to show their
materiality and relevance to the case.[67]
Respondent further submits that the documents and objects are immaterial and irrelevant to the issues. The documents
petitioner sought to have respondent produce are referred to as having to do with the taste, alcohol content, and calories
of "San Mig Light," when the Tax Code definition of variant has nothing to do with these matters.[68] Respondent submits
that in filing the Motions after judgment, petitioner was effectively seeking new trial, which it may only avail itself of with
"newly discovered" evidence.[69]
Rule 27, Section 1 of the Revised Rules of Civil Procedure provides:
SECTION 1. Motion for production or inspection; order. - Upon motion of any party showing good cause therefore, the
court in which an action is pending may (a) order any party to produce and permit the inspection and copying or
photographing, by or on behalf of the moving party, of any designated documents, papers, books, accounts, letters,
photographs, objects or tangible things, not privileged, which constitute or contain evidence material to any matter
involved in the action and which are in his possession, custody or control; or (b) order any party to permit entry upon
designated land or other property in his possession or control for the purpose of inspecting, measuring, surveying, or
photographing the property or any designated relevant object or operation thereon. The order shall specify the time, place
and manner of making the inspection and taking copies and photographs, and may prescribe such terms and conditions
as are just. (Emphasis supplied)

Rule 18, Section 6 of the Rules of Court on Pre-Trial requires that the pre-trial briefs shall include "[a] manifestation of
their having availed or intention to avail themselves of discovery procedures."
On July 13, 2004, this Court approved A.M. No. 03-1-09-SC, otherwise known as the Rule on Guidelines to be Observed
by Trial Court Judges and Clerks of Court in the Conduct of Pre-Trial and Use of Deposition - Discovery Measures.
Among other things, these rules direct trial courts to require parties to submit, at least three (3) days before pre-trial, pre-
trial briefs containing "[a] manifestation of the parties of their having availed or their intention to avail themselves of
discovery procedures or referral to commissioners."[70]
Republic v. Sandiganbayan[71] explained the purpose and policy behind modes of discovery:
The truth is that "evidentiary matters" may be inquired into and learned by the parties before the trial. Indeed, it is the
purpose and policy of the law that the parties — before the trial if not indeed even before the pre-trial — should
discover or inform themselves of all the facts relevant to the action, not only those known to them individually, but
also those known to their adversaries; in other words, the desideratum is that civil trials should not be carried on in the
dark; and the Rules of Court make this ideal possible through the deposition-discovery mechanism set forth in Rules 24 to
29. The experience in other jurisdictions has been that ample discovery before trial, under proper regulation,
accomplished one of the most necessary ends of modern procedure: it not only eliminates unessential issues from
trials thereby shortening them considerably, but also requires parties to play the game with the cards on the
table so that the possibility of fair settlement before trial is measurably increased...
As just intimated, the deposition-discovery procedure was designed to remedy the conceded inadequacy and
cumbersomeness of the pre-trial functions of notice-giving, issue-formulation and fact revelation theretofore performed
primarily by the pleadings.
The various modes or instruments of discovery are meant to serve (1) as a device, along with the pre-trial hearing under
Rule 20, to narrow and clarify the basic issues between the parties, and (2) as a device for ascertaining the facts relative
to those issues. The evident purpose is, to repeat, to enable the parties, consistent with recognized privileges, to obtain
the fullest possible knowledge of the issues and facts before civil trials and thus prevent that said trials are
carried on in the dark.[72] (Emphasis supplied, citations omitted)

Specifically, this Court discussed the importance of a motion for production of documents under Rule 27 of the Rules of
Court in expediting time-consuming trials:
This remedial measure is intended to assist in the administration of justice by facilitating and expediting the
preparation of cases for trial and guarding against undesirable surprise and delay; and it is designed to simplify
procedure and obtain admissions of facts and evidence, thereby shortening costly and time-consuming trials. It is
based on ancient principles of equity. More specifically, the purpose of the statute is to enable a party-litigant to discover
material information which, by reason of an opponent's control, would otherwise be unavailable for judicial scrutiny, and to
provide a convenient and summary method of obtaining material and competent documentary evidence in the custody or
under the control of an adversary. It is a further extension of the concept of pretrial. [73] (Emphasis supplied)

Consistent with litigation's quest for truth, parties should welcome every opportunity in attaining this objective, such as
acting in good faith to reveal material documents.[74]
The scope of discovery must be liberally construed, as a general rule, to serve its purpose of providing the parties with
essential information to reach an amicable settlement or to expedite trial. [75] "Courts, as arbiters and guardians of truth and
justice, must not countenance any technical ploy to the detriment of an expeditious settlement of the case or to a fair, full
and complete determination on its merits."[76]
Rule 27, Section 1 of the Rules of Court does not provide when the motion may be used. Hence, the allowance of a
motion for production of document rests on the sound discretion of the court where the case is pending, with due regard to
the rights of the parties and the demands of equity and justice.[77]
In Eagleridge Development Corporation v. Cameron Granville 3 Asset Management, Inc., [78] we held that a motion for
production of documents may be availed of even beyond the pre-trial stage, upon showing of good cause as required
under Rule 27.[79] We allowed the production of documents because the petitioner was able to show "good cause" and
relevance of the documents sought to be produced, and the trial court had not yet rendered its judgment.
In this case, petitioner filed its Motion for Production of Documents after the Court of Tax Appeals Division had rendered
its judgment. According to the Court of Tax Appeals Division, the documents sought to be produced were already
discussed in the Commissioner's Memorandum dated October 21, 2010 and were already considered by the tax court
when it rendered its Decision.[80] If petitioner believed that the evidence in the custody and control of respondent "would
provide a better illumination of the outcome of the case," it should have sought their production at the earliest opportunity
as it had been already aware of their existence.[81] Petitioner's laxity is inexcusable and is a fatal omission.
Under these circumstances, there was indeed no further need for the production of documents and objects desired by
petitioner. These pieces of evidence could have served no useful purpose. On the contrary, the production of those
documents after judgment defeats the purpose of modes of discovery in expediting case preparation and shortening trials.
We find no reversible error on the part of the Court of Tax Appeals En Banc in affirming the Division's denial of petitioner's
Motion for Production of Documents.
II
These consolidated cases involve the Tax Code provision defining new brand as opposed to variant of brand, as these
two are treated differently for excise tax on fermented liquor.
Effective January 1, 1998, Republic Act No. 8424, otherwise known as the Tax Reform Act of 1997, reproduced as
Section 143 the provisions of Section 140 of the old Tax Code, as amended by Republic Act No. 8240, governing excise
taxes on fermented liquor. Section 143 distinguishes a new brand from a variant of brand:
Sec. 143. Fermented Liquor. - There shall be levied, assessed and collected an excise tax on beer, lager beer, ale, porter
and other fermented liquors except tuba, basi, tapuy and similar domestic fermented liquors in accordance with the
following schedule:
(a) If the net retail price (excluding the excise tax and value-added tax) per liter of volume capacity is less than Fourteen
pesos and fifty centavos (P14.50), the tax shall be Six pesos and fifteen centavos (P6.15) per liter;
(b) If the net retail price (excluding the excise tax and the value-added tax) per liter of volume capacity is Fourteen pesos
and fifty centavos (P14.50) up to Twenty-two pesos (P22.00), the tax shall be Nine pesos and fifteen centavos (P9.15) per
liter;
(c) If the net retail price (excluding the excise tax and the value-added tax) per liter of volume capacity is more than
Twenty-two pesos (P22.00), the tax shall be Twelve pesos and fifteen centavos (P12.15) per liter.
Variants of existing brands which are introduced in the domestic market after the effectivity of Republic Act No.
8240 shall be taxed under the highest classification of any variant of that brand.
Fermented liquor which are brewed and sold at micro-breweries or small establishments such as pubs and restaurants
shall be subject to the rate in paragraph (c) hereof.
The excise tax from any brand of fermented liquor within the next three (3) years from the effectivity of Republic Act No.
8240 shall not be lower than the tax which was due from each brand on October 1, 1996.
The rates of excise tax on fermented liquor under paragraphs (a), (b) and (c) hereof shall be increased by twelve percent
(12%) on January 1, 2000.
New brands shall be classified according to their current net retail price.
For the above purpose, 'net retail price' shall mean the price at which the fermented liquor is sold on retail in twenty (20)
major supermarkets in Metro Manila (for brands of fermented liquor marketed nationally), excluding the amount intended
to cover the applicable excise tax and the value-added tax. For brands which are marketed only outside Metro Manila, the
'net retail price' shall mean the price at which the fermented liquor is sold in five (5) major supermarkets in the region
excluding the amount intended to cover the applicable excise tax and the value-added tax.
The classification of each brand of fermented liquor based on its average net retail price as of October 1, 1996, as set
forth in Annex 'C,' shall remain in force until revised by Congress.
A 'variant of brand' shall refer to a brand on which a modifier is prefixed and/or suffixed to the root name of the
brand and/or a different brand which carries the same logo or design of the existing brand.
Every brewer or importer of fermented liquor shall, within thirty (30) days from the effectivity of R.A. No. 8240, and within
the first five (5) days of every month thereafter, submit to the Commissioner a sworn statement of the volume of sales for
each particular brand of fermented liquor sold at his establishment for the three-month period immediately preceding.
Any brewer or importer who, in violation of this Section, knowingly misdeclares or misrepresents in his or its sworn
statement herein required any pertinent data or information shall be penalized by a summary cancellation or withdrawal of
his or its permit to engage in business as brewer or importer of fermented liquor.
Any corporation, association or partnership liable for any of the acts or omissions in violation of this Section shall be fined
treble the amount of deficiency taxes, surcharges and interest which may be assessed pursuant to this Section.
Any person liable for any of the acts or omissions prohibited under this Section shall be criminally liable and penalized
under Section 254 of this Code. Any person who willfully aids or abets in the commission of any such act or omission shall
be criminally liable in the same manner as the principal.
If the offender is not a citizen of the Philippines, he shall be deported immediately after serving the sentence, without
further proceedings for deportation. (Emphasis supplied)

On January 1, 2005, Republic Act No. 9334[82] took effect, amending Section 143 of the Tax Code to read:
Sec. 143. Fermented Liquors. — There shall be levied, assessed and collected an excise tax on beer, lager beer, ale,
porter and other fermented liquors except tuba, basi, tapuy and similar fermented liquors in accordance with the following
schedule:
(a) If the net retail price (excluding the excise tax and the value-added tax) per liter of volume capacity is less than
Fourteen pesos and fifty centavos (P14.50), the tax shall be Eight pesos and twenty-seven centavos (P8.27) per liter;
(b) If the net retail price (excluding the excise tax and the value-added tax) per liter of volume capacity is Fourteen pesos
and fifty centavos (P14.50) up to Twenty-two pesos (P22.00), the tax shall be Twelve pesos and thirty centavos (P12.30)
per liter;
(c) If the net retail price (excluding the excise tax and the value-added tax) per liter of volume capacity is more than
Twenty-two pesos (P22.00), the tax shall be Sixteen pesos and thirty-three centavos (P16.33) per liter.
Variants of existing brands and variants of new brands which are introduced in the domestic market after the effectivity of
this Act shall be taxed under the proper classification thereof based on their suggested net retail price: Provided, however,
That such classification shall not, in any case, be lower than the highest classification of any variant of that brand.
A 'variant of a brand' shall refer to a brand on which a modifier is prefixed and/or suffixed to the root name of the
brand.
Fermented liquors which are brewed and sold at micro-breweries or small establishments such as pubs and restaurants
shall be subject to the rate in paragraph (c) hereof.
New brands, as defined in the immediately following paragraph, shall initially be classified according to their suggested
net retail price.
'New brand' shall mean a brand registered after the date of effectivitv of R.A. No. 8240.
'Suggested net retail price' shall mean the net retail price at which new brands, as defined above, of locally manufactured
or imported fermented liquor are intended by the manufacturer or importer to be sold on retail in major supermarkets or
retail outlets in Metro Manila for those marketed nationwide, and in other regions, for those with regional markets. At the
end of three (3) months from the product launch, the Bureau of Internal Revenue shall validate the suggested net retail
price of the new brand against the net retail price as defined herein and determine the correct tax bracket to which a
particular new brand of fermented liquor, as defined above, shall be classified. After the end of eighteen (18) months from
such validation, the Bureau of Internal Revenue shall revalidate the initially validated net retail price against the net retail
price as of the time of revalidation in order to finally determine the correct tax bracket which a particular new brand of
fermented liquors shall be classified: Provided, however, That brands of fermented liquors introduced in the
domestic market between January 1, 1997 and December 31, 2003 shall remain in the classification under which
the Bureau of Internal Revenue has determined them to belong as of December 31, 2003. Such classification of
new brands and brands introduced between January 1, 1997 and December 31, 2003 shall not be revised except
by an act of Congress.
'Net retail price', as determined by the Bureau of Internal Revenue through a price survey to be conducted by the Bureau
of Internal Revenue itself, or the National Statistics Office when deputized for the purpose by the Bureau of Internal
Revenue, shall mean the price at which the fermented liquor is sold on retail in at least twenty (20) major supermarkets in
Metro Manila (for brands of fermented liquor marketed nationally), excluding the amount intended to cover the applicable
excise tax and the value-added tax. For brands which are marketed outside Metro Manila, the 'net retail price' shall mean
the price at which the fermented liquor is sold in at least five (5) major supermarkets in the region excluding the amount
intended to cover the applicable excise tax and the value-added tax.
The classification of each brand of fermented liquor based on its average net retail price as of October 1, 1996, as
set forth in Annex 'C', including the classification of brands for the same products which, although not set forth
in said Annex 'C', were registered and were being commercially produced and marketed on or after October 1,
1996, and which continue to be commercially produced and marketed after the effectivity of this Act, shall remain
in force until revised by Congress.
The rates of tax imposed under this Section shall be increased by eight percent (8%) every two years starting on January
1, 2007 until January 1, 2011.
Any downward reclassification of present categories, for tax purposes, of existing brands of fermented liquor duly
registered at the time of the effectivity of this Act which will reduce the tax imposed herein, or the payment thereof, shall
be prohibited.
Every brewer or importer of fermented liquor shall, within thirty (30) days from the effectivity of this Act, and within the first
five (5) days of every month thereafter, submit to the Commissioner a sworn statement of the volume of sales for each
particular brand of fermented liquor sold at his establishment for the three-month period immediately preceding.
Any brewer or importer who, in violation of this Section, knowingly misdeclares or misrepresents in his or its sworn
statement herein required any pertinent data or information shall be penalized by a summary cancellation or withdrawal of
his or its permit to engage in business as brewer or importer of fermented liquor.
Any corporation, association or partnership liable for any of the acts or omissions in violation of this Section shall be fined
treble the amount of deficiency taxes, surcharges and interest which may be assessed pursuant to this Section.
Any person liable for any of the acts or omissions prohibited under this Section shall be criminally liable and penalized
under Section 254 of this Code. Any person who willfully aids or abets in the commission of any such act or omission shall
be criminally liable in the same manner as the principal.
If the offender is not a citizen of the Philippines, he shall be deported immediately after serving the sentence, without
further proceedings for deportation. (Emphasis supplied)

On December 19, 2012, Rep. Act No. 10351, otherwise known as the Sin Tax Law,[83] was promulgated to further amend
certain provisions on excise taxes on alcohol and tobacco products. Among the amendments to Section 143 were:
Increase in the excise tax rates and transition from three (3)-tiered to two (2)-tiered tax rates starting January 1,
(1) 2014 until December 31, 2016; and to a single tax rate beginning January 1, 2017, irrespective of the price levels at
which the products were sold in the market;

All fermented liquors existing in the market at the time of the effectivity of the Act shall be classified according to the
(2) net retail prices and the tax rates provided, based on the latest price survey of the fermented liquors conducted by
the Bureau of Internal Revenue. However, any downward reclassification is prohibited;

Fermented liquors introduced in the domestic market after the effectivity of the Act shall be initially tax-classified
(3) according to their suggested net retail prices until such time that their correct tax bracket is finally determined under
a specified period; and

The proper tax classification of fermented liquors, whether registered before or after the effectivity of the Act, shall
(4)
be determined every two (2) years from the date of effectivity of the Act.
Excise taxes are imposed on the production, sale, or consumption of specific goods. Generally, excise taxes on domestic
products are paid by the manufacturer or producer before removal of those products from the place of production. [84] 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.[85]
The excise tax on beer is a specific tax based on volume, or on a per liter basis. Before its amendment, Section 143
provided for three (3) layers of tax rates, depending on the net retail price per liter. How a new beer product is taxed
depends on its classification, i.e. whether it is a variant of an existing brand or a new brand. Variants of a brand that were
introduced in the market after January 1, 1997 are taxed under the highest tax classification of any variant of the brand.
On the other hand, new brands are Initially classified and taxed according to their suggested net retail price, until a survey
is conducted by the Bureau of Internal Revenue to determine their current net retail price in accordance with the specified
procedure.
III
Petitioner argues that "San Mig Light," launched in November 1999, is not a new brand but merely a low-calorie variant of
"San Miguel Pale Pilsen."[86] Thus, the application of the higher excise tax rate for variant products is appropriate and
respondent should not be entitled to a refund or issuance of a tax credit certificate. [87]
Respondent counters that "San Mig Light" is a new brand; the classification of "San Mig Light" as a new and medium-
priced brand may not be revised except by an act of Congress;[88] and the Court of Tax Appeals did not err in granting its
claim for refund or issuance of tax credit certificate.
The refund claim in CTA Case No. 7405, subject of the Petition docketed as G.R. No. 205723, covers the period from
February 2, 2004 to November 30, 2005, while the refund claim in CTA Case No. 7708, subject of the Petition docketed
as G.R. No. 205045, covers the period from December 1, 2005 up to July 31, 2007.
We find for respondent.
Parenthetically, the Bureau of Internal Revenue's actions reflect its admission and confirmation that "San Mig Light" is a
new brand.
When respondent's October 19, 1999 letter requested the registration and authority to manufacture "San Mig Light," to be
taxed at P12.15 per liter,[89] the Bureau of Internal Revenue granted the request.[90]
The response dated February 7, 2002 of the LTAD II Acting Chief confirmed that respondent was allowed to register,
manufacture, and sell "San Mig Light" as a new brand.[91]
The Joint Stipulation of Facts, Documents and Issues in CTA Cases Nos. 7052 and 7053 dated July 29, 2005, [92] signed
by both parties, includes paragraph 1.08, which reads:
1.08. From the time of its registration as a new brand in October 1999 and its production in November 1999, "San
Mig Light" products have been withdrawn and sold, and taxes have been paid on such removals, on the basis of its
registration and tax rate as a new brand. (CTA No. 7052: Petition, par. 5.06; Answer, par. 2[e]; CTA No. 7053: Petition,
par. 5.06; Answer, par. 2[e]).[93] (Emphasis supplied)

The May 28, 2002 Notice of Discrepancy was effectively nullified by the subsequent issuance of Revenue Memorandum
Order No. 6-2003, which included "San Mig Light” as a new brand.
The Bureau of Internal Revenue issued Revenue Memorandum Order No. 6-2003 dated March 11, 2003 with the subject,
Prescribing the Guidelines and Procedures in the Establishment of Current Net Retail Prices of New Brands of Cigarettes
and Alcohol Products Pursuant to Revenue Regulations No. 9-2003. Annex "A-3" is the Master List of Registered Brands
of Locally Manufactured Alcohol Products as of February 28, 2003, and the list includes "San Mig Light,"[94] classified as
"NB" or "new brand registered on or after January 1, 1997":[95]
INTENDED MARKET REMARKS
BRAND NAME CLASS SPECIFICATION PACKAGE Domestic Date of Last
Export Status
Sale Production

B. FERMENTED
LIQUOR
1. SAN MIGUEL
CORPORATION
....
"San Mig Light" NB 330ml flint bottle 24 bots x x Active[96]
IV
Any reclassification of fermented liquor products should be by act of Congress. Section 143 of the Tax Code, as amended
by Rep. Act No. 9334, provides for this classification freeze referred to by the parties:
Provided, however, That brands of fermented liquors introduced in the domestic market between January 1, 1997 and
December 31, 2003 shall remain in the classification under which the Bureau of Internal Revenue has determined them to
belong as of December 31, 2003. Such classification of new brands and brands introduced between January 1,
1997 and December 31, 2003 shall not be revised except by an act of Congress.
....
The classification of each brand of fermented liquor based on its average net retail price as of October 1, 1996, as set
forth in Annex ‘C’, including the classification of brands for the same products which, although not set forth in said Annex
'C’, were registered and were being commercially produced and marketed on or after October 1, 1996, and which
continue to be commercially produced and marketed after the effectivity of this Act, shall remain in force until revised by
Congress.[97] (Emphasis supplied)

In her Dissenting Opinion, Court of Tax Appeals Associate Justice Cielito N. Mindaro-Grulla discussed that British
American Tobacco v. Camacho[98] explained the purpose and application of the classification freeze. [99] Her Dissenting
Opinion concludes that the classification freeze does not apply when a brand is a variant erroneously determined as a
new brand.[100]
British American Tobacco involves Section 145 of the Tax Code governing excise taxes for cigars and cigarettes.
This Court in British American Tobacco discussed that Rep. Act No. 9334 includes, among other things, the legislative
freeze on cigarette brands introduced between January 2, 1997 and December 31, 2003, in that these cigarette brands
will remain in the classification determined by the Bureau of Internal Revenue as of December 31, 2003 until revised by
Congress.[101] In other words, after a cigarette brand is classified under the low-priced, medium-priced, high-priced, or
premium-priced tax bracket based on its current net retail price, its classification is frozen unless Congress reclassifies
it.[102]
The petitioner in British American Tobacco questioned this legislative freeze under Section 145 for creating a "grossly
discriminatory classification scheme between old and new brands."[103] This Court ruled that the classification freeze
provision does not violate the constitutional provisions on equal protection.[104]
This Court discussed the legislative intent behind the classification freeze, that is, to deter the potential for abuse if the
power to reclassify is delegated and much discretion is given to the Department of Finance and Bureau of Internal
Revenue:
To our mind, the classification freeze provision was in the main the result of Congress' earnest efforts to improve the
efficiency and effectivity of the tax administration over sin products while trying to balance the same with other state
interests. In particular, the questioned provision addressed Congress' administrative concerns regarding delegating too
much authority to the DOF and BIR as this will open the tax system to potential areas of abuse and corruption. Congress
may have reasonably conceived that a tax system which would give the least amount of discretion to the tax implementers
would address the problems of tax avoidance and tax evasion.[105]

British American Tobacco discussed the legislative history of the classification freeze, but it did not explicitly rule that the
classification freeze only refers to retail price tax brackets.
In any event, petitioner's letters and Notices of Discrepancy, which effectively changed San Mig Light's brand's
classification from "new brand to variant of existing brand," necessarily changes San Mig Light's tax bracket. Based on the
legislative intent behind the classification freeze provision, petitioner has no power to do this.
A reclassification of a fermented liquor brand introduced between January 1, 1997 and December 31, 2003, such as "San
Mig Light," must be by act of Congress. There was none in this case.
V
Before Rep. Act No. 9334 was passed, the Tax Code under Republic Act No. 8240 defined a "variant of a brand" as
follows:
A variant of a brand shall refer to a brand on which a modifier is prefixed and/or suffixed to the root name of the brand
and/or a different brand which carries the same logo or design of the existing brand. [106]

This definition includes two (2) types of "variants." The first involves the use of a modifier that is prefixed and/or suffixed to
a brand root name, and the second involves the use of the same logo or design of an existing brand.
Rep. Act No. 9334 took effect on January 1, 2005 and deleted the second type of "variant" from the definition:
A 'variant of a brand' shall refer to a brand on which a modifier is prefixed and/or suffixed to the root name of the
brand.[107]

Revenue Regulations No. 3-2006, with the subject: "Prescribing the Implementing Guidelines of the Revised Tax Rates on
Alcohol and Tobacco Products Pursuant to the Provisions of Republic Act No. 9334, and Clarifying Certain Provisions of
Existing Revenue Regulations Relative Thereto" reiterated the deletion of the second type of "variant":
SEC. 2. DEFINITION OF TERMS. - For purposes of these Regulations, the following words and phrases shall have the
meaning indicated below:
....
(d) VARIANT OF A BRAND - shall refer to a brand of alcohol or tobacco products on which a modifier is prefixed
and/or suffixed to the root name of the brand. (Emphasis supplied)
For this purpose, the term "root name" shall refer to a letter, word, number, symbol, or character; or a combination of
letters, words, numbers, symbols, and/or characters that may or may not form a word; or shall consist of a word or group
of words, which may or may not describe the other word or words: Provided, That the root name has been originally
registered as such with the Bureau of Internal Revenue (BIR).
Examples of root name: "L & M", " ßΩ", "10", "Pall Mall", "Blue Ice", "Red Horse", etc.
The term "modifier" shall refer to a word, a number or a combination of words and/or numbers that specifically describe
the root name to distinguish one variant from another whether or not the use of such modifier is a common industry
practice. The root name, although accompanied by a modifier at the time of the original brand registration, shall be the
basis in determining the tax classification of subsequent variants of such brands.
Examples of modifiers:...
For beer: "Light", "Dry", "Ice", "Lager", "Hard", "Premium", etc.
Any variation in the color and/or design of the label (such as logo, font, picturegram, and the like), manner and/or form of
packaging or size of container of the brand originally registered with the BIR shall not, by itself, be deemed an introduction
of a new brand or a variant of a brand: Provided, That all instances of such variation shall require a prior written permit
from the BIR.
In case such BIR-registered brand has more than one (1) tax classification as a result of the shift in the manner of taxation
from ad valorem tax to specific tax under R.A. No. 8240, the highest tax classification shall be applied to such brand
bearing a new label, package, or volume content per package, subject to the provisions of the immediately preceding
paragraph.
ILLUSTRATION:
No. 1. —
....
In case a letter(s), number(s), symbols(s) or word(s) is/are deleted from or replaced by another letter(s), number(s),
symbol(s) or word(s) in the root name of a previously BIR-registered brand, such that the introduction of the said brand
bearing such change(s) shall ride on the popularity of the said previously registered brand, the same shall be classified as
a variant of such previously registered brand: Provided, That where the introduction of such brand by another
manufacturer or importer will give rise to any legal action with respect to infringement of patent or unfair competition, such
brand shall be considered a variant of such previously registered brand.
ILLUSTRATION:
No. 2. —

MODIFIER IS MODIFIER IS MODIFIED ROOT


ROOT NAME
PREFIXED SUFFIXED NAME
L&M Kings L & M L & M Lights M&L
10 Perfect 10 10 Menthols Ten
Blue Ice Wild Blue Ice Blue Ice Supreme Blue Iced
Red Horse Flying Red Horse Red Horse Premium Reddish Horse
Pall Mall Long Pall Mall Pall Mall Filter Pal Mall
Petitioner submits that the complete name of "San Mig Light" is "San Mig Light Pale Pilsen," and Section 143 of the Tax
Code, in relation to its Annexes C-1 and C-2, show that the parent brands of San Mig Light are RPT [108] in cans or San
Miguel Beer Pale Pilsen in can 330 ml, Pale Pilsen, and Super Dry. [109] It contends that the root name of the existing brand
is "Pale Pilsen," and RPT had the highest tax classification at the time "San Mig Light" was introduced. [110] "San Miguel
Beer Pale Pilsen" and "San Mig Light" have almost identical labels, and only these two labels bear the same "Pale
Pilsen."[111]
Respondent counters that petitioner changed its theory of the case on appeal, and this should not be allowed. [112] It
argues that petitioner categorically invoked the second part of the definition of variant in Section 143, and this part of the
definition has been deleted by Rep. Act No. 9334.[113] Moreover, petitioner made no categorical assertion on the first part
of the definition, but only a vague statement that "the root name of the existing brand is 'Pale Pilsen.'" [114] Respondent
adds that petitioner "has not specified which type of 'San Mig Light', in bottle or in can, is a variant of 'RPT' in can (San
Miguel Beer Pale Pilsen)."[115]
Petitioner, on the other hand, maintains that even during the trial stage, its theory has always been that "San Mig Light"
falls under both first and second parts of Section 143, before its amendment by Rep. Act No. 9334. [116]
A change of theory on appeal is generally disallowed in this jurisdiction for being unfair to the adverse party. [117]
Even then, the Court of Tax Appeals En Banc, in both assailed Decisions, quoted with approval the First Division's finding
that "San Mig Light" does not fall under both first and second parts of the definition of variant:
The fact that "San Mig Light" is a "new brand" and not merely a variant of an existing brand is bolstered by the fact that
Annexes "C-1" and "C-2" of RA No. 8240, which enumerated the fermented liquors registered with the BIR do not include
the brand name "San Mig Light". Instead, what were listed, as existing brands of petitioner, as of the effectivity of RA No.
8240, were as follows: "Pale Pilsen 320 ml.", "Super Dry 355 ml." and "Premium Can 330 ml." Even in Section 4 of RR
No. 2-97, which provides for the classification and manner of taxation of existing brands, new brands and variants of
existing brands, the list of existing brands of fermented liquors of petitioner does not include the brand "San Mig Light",
but merely "RPT in cans 330 ml", "Premium Bottles 355 ml.", "Premium Bottles 355 ml." and "Premium Bottle Can 330
ml." for high priced brands; and "Super Dry 355 ml.", "Pale Pilsen 320 ml.", and "Grande" for medium-priced brands.[118]
Thus, it is clear that when the product "San Mig Light" was introduced in 1999, it was considered as an entirely new
product and a new brand of petitioner's fermented liquor, there being no root name of "San Miguel" or "San Mig” in
its existing brand names. The existing registered and classified brand name of petitioner at that time was "Pale
Pilsen." Therefore, the word "Light" cannot be considered as a mere suffix to the word "San Miguel," but it is part
and parcel of an entirely new brand name, "San Mig Light." Evidently, as correctly pointed out by petitioner, "San Mig
Light" is not merely a variant of an existing brand, but an entirely new brand:
Anent the second type of "variant of brand," i.e., when a different brand carries the same logo or design of an existing
brand,records show that there are marked differences in the designs of the existing brand "Pale Pilsen " and the
new brand "San Mig Light":
a) as to "Pale Pilsen" and "San Mig Light" in bottles:
1. the size, shape and color of the respective bottles are different. Each brand has a distinct design in its packaging. "Pale
Pilsen" is in a steiny bottle, while "San Mig Light" is packed in a tall and slim transparent bottle;
2. the design and color of the inscription on the bottles are different from each other. "Pale Pilsen" has its label encrypted
or embossed on the bottle itself, while "San Mig Light" has a silver and blue label of distinctive design that is printed on
paper pasted on the bottle; and
3. the color of the letters in the "Pale Pilsen" brand is white against the color of the bottle, while that of the words "San
Mig" is white against a blue background and the word "Light" is blue against a silver background.
b) As to "Pale Pilsen" and "San Mig Light" in cans:
1. the words "Pale Pilsen" are in ordinary font printed horizontally in black on the can against a diagonally striped light
yellow gold background, while the words "San Mig" are in Gothic font printed diagonally on the can against a blue
background and the word "Light" in ordinary font printed diagonally against a diagonally striped silver background; and
2. the general color scheme of "Pale Pilsen" is light yellow gold, while that of "San Mig Light" is silver.
Though the "escudo" logo appears on both "Pale Pilsen" bottle and "San Mig Light" bottle and can, the same cannot be
considered as an indication that "San Mig Light" is merely a variant of the brand "Pale Pilsen", since the said "escudo"
insignia is the corporate logo of petitioner. It merely identifies the products, as having been manufactured by petitioner,
but does not form part of its brand. In fact, it appears not only in petitioner's beer products, but even in its non-beer
products.[119]

VI
A variant under the Tax Code has a technical meaning. It is determined by the brand (name) or logo of the beer product.
To be sure, all beers are composed of four (4) raw materials: barley, hops, yeast, and water.[120] Barley grain has always
been used and associated with brewing beer, while hops act as the bittering substance. [121] Yeast plays a role in alcoholic
fermentation, with bottom-fermenting yeasts resulting in light lager and top-fermenting ones producing the heavy and rich
ale.[122] With only four (4) ingredients combined and processed in varying quantities, all beer are essentially related
variants of these mixtures.
A manufacturer of beer may produce different versions of its products, distinguished by features such as flavor, quality, or
calorie content, to suit the tastes and needs of specific segments of the domestic market. It can also leverage on the
popularity of its existing brand and sell a lower priced version to make it affordable for the low-income consumers. These
strategies are employed to gain a higher overall level of share or profit from the market.
In intellectual property law, a registered trademark owner has the right to prevent others from the use of the same mark
(brand) for identical goods or services. The use of an identical or colorable imitation of a registered trademark by a person
for the same goods or services or closely related goods or services of another party constitutes infringement. It is a form
of unfair competition[123] because there is an attempt to get a free ride on the reputation and selling power of another
manufacturer by passing of one's goods as identical or produced by the same manufacturer as those carrying the other
mark (brand).[124]
The variant contemplated under the tax Code has a technical meaning. A variant is determined by the brand (name) of the
beer product, whether it was formed by prefixing or suffixing a modifier to the root name of the alleged parent brand, or
whether it carries the same logo or design. The purpose behind the definition was to properly tax brands that were
presumed to be riding on the popularity of previously registered brands by being marketed under an almost identical name
with a prefix, suffix, or a variant.[125] It seeks to address price differentials employed by a manufacturer on similar products
differentiated only in brand or design. Specifically, the provision was meant to obviate any tax avoidance by manufacturing
firms from the sale of lower priced variants of its existing beer brands, thus, falling in the lower tax bracket with lower
excise tax rates. To favor government, a variant of a brand is taxed according to the highest rate of tax for that particular
brand.
"San Mig Light" and "Pale Pilsen" do not share a root word. Neither is there an existing brand in the list (Annexes C-1 and
C-2 of the Tax Code) called "San Mig" to conclude that "Light" is a suffix rendering "San Mig Light" as its "variant." [126] As
discussed in the Court of Tax Appeals Decision, "San Mig Light" should be considered as one brand name. [127]
Respondent's statements describing San Mig Light as a low-calorie variant is not conclusive of its classification as
a variant for excise tax purposes. Burdens are not to be imposed nor presumed to be imposed beyond the plain and
express terms of the law.[128] "The general rule of requiring adherence to the letter in construing statutes applies with
peculiar strictness to tax laws and the provisions of a taxing act are not to be extended by implication."[129]
Furthermore, respondent's payment of the higher taxes starting January 30, 2004 after deficiency assessments were
made cannot be considered as an admission that its San Mig Light is a variant. Section 130(A)(2) of the Tax Code
requires payment of excise tax "before removal of domestic products from place of production." [130] These payments were
made in protest as respondent subsequently filed refund claims.
VII
Petitioner argues that although the Bureau of Internal Revenue erroneously allowed San Miguel Corporation to
manufacture and sell "San Mig Light" in 1999 as a "new brand" with the lower excise tax rate for "new brands,"
government is not estopped from correcting previous errors by its agents. [131]
Petitioner submits that the Notice of Discrepancy was to remedy the "misrepresentation" [132] of "San Mig Light" as new
brand. It submits that respondent's self-assessment of excise taxes as a new brand was without approval:
San Mig Light was never registered with BIR as a new brand but always as a variant. Thus, petitioner's payment of excise
taxes on San Mig Light as a new brand is based on its own classification of San Mig Light as a new brand without
approval of the BIR. Under existing procedures in the payment of excise taxes, taxpayers are required to pay their taxes
based on self-assessment system with the government relying heavily on the honesty of taxpayers. Such being the case,
any payments made, even those allegedly made as a condition for the withdrawal of the product from the place of
production, cannot be considered as a confirmation by the BIR of the correctness of such payment. [133]

Section 143 of the Tax Code, as amended by Rep. Act No. 9334, provides for the Bureau of Internal Revenue's role in
validating and revalidating the suggested net retail price of a new brand of fermented liquor for purposes of determining its
tax bracket:
'Suggested net retail price' shall mean the net retail price at which new brands, as defined above, of locally manufactured
or imported fermented liquor are intended by the manufacturer or importer to be sold on retail in major supermarkets or
retail outlets in Metro Manila for those marketed nationwide, and in other regions, for those with regional markets. At the
end of three (3) months from the product launch, the Bureau of Internal Revenue shall validate the suggested net
retail price of the new brand against the net retail price as defined herein and determine the correct tax bracket to
which a particular new brand of fermented liquor, as defined above, shall be classified. After the end of eighteen
(18) months from such validation, the Bureau of Internal Revenue shall revalidate the initially validated net retail
price against the net retail price as of the time of revalidation in order to finally determine the correct tax bracket
which a particular new brand of fermented liquors shall be classified: Provided, however, That brands of fermented
liquors introduced in the domestic market between January 1, 1997 and December 31, 2003 shall remain in the
classification under which the Bureau of Internal Revenue has determined them to belong as of December 31, 2003. Such
classification of new brands and brands introduced between January 1, 1997 and December 31, 2003 shall not be revised
except by an act of Congress.

When respondent launched "San Mig Light" in 1999, it wrote the Bureau of Internal Revenue on October 19, 1999
requesting registration and authority to manufacture "San Mig Light" to be taxed as P12.15.
The Bureau of Internal Revenue granted this request in its October 27, 1999 letter. Contrary to petitioner's contention, the
registration granted was not merely for intellectual property protection[134] but "for internal revenue purposes only":
Your request dated October 19, 1999, for the registration of San Miguel Corporation commercial label for beer bearing the
trade mark "San Mig Light" Pale Pilsen, for domestic sale or export, 24 bottles in a case, each flint bottle with contents of
330 ml., is hereby granted.
....
Please follow strictly the requirements of internal revenue laws, rules and regulations relative to the marks to be placed on
each case, cartons or box used as secondary containers. It is understood that the said brand be brewed and bottled
in the breweries at Polo, Valenzuela (A-2-21).
You are hereby informed that the registration of commercial labels in this Office is for internal revenue purposes
only and does not give you protection against any person or entity whose rights may be prejudiced by infringement or
unfair competition resulting from your use of the above indicated trademark. [135] (Emphasis supplied)

Because the Bureau of Internal Revenue granted respondent's request in its October 27, 1999 letter and confirmed this
grant in its subsequent letters, respondent cannot be faulted for relying on these actions by the Bureau of Internal
Revenue.
While estoppel generally does not apply against government, especially when the case involves the collection of taxes, an
exception can be made when the application of the rule will cause injustice against an innocent party. [136]
Respondent had already acquired a vested right on the tax classification of its San Mig Light as a new brand. To allow
petitioner to change its position will result in deficiency assessments in substantial amounts against respondent to the
latter's prejudice.
The authority of the Bureau of Internal Revenue to overrule, correct, or reverse the mistakes or errors of its agents is
conceded. However, this authority must be exercised reasonably,[137] i.e., only when the action or ruling is patently
erroneous[138] or patently contrary to law.[139] For the presumption lies in the regularity of performance of official
duty,[140] and reasonable care has been exercised by the revenue officer or agent in evaluating the facts before him or her
prior to rendering his or her decision or ruling—in this case, prior to the approval of the registration of San Mig Light as
a new brand for excise tax purposes. A contrary view will create disorder and confusion in the operations of the Bureau of
Internal Revenue and open the administrative agency to inconsistencies in the administration and enforcement of tax
laws.
In Commissioner v. Algue:[141]
It is said that taxes are what we pay for civilized society. Without taxes, the government would be paralyzed for lack of the
motive power to activate and operate it. Hence, despite the natural reluctance to surrender part of one's hard-earned
income to the taxing authorities, every person who is able to must contribute his share in the running of the government.
The government for its part, is expected to respond in the form of tangible and intangible benefits intended to improve the
lives of the people and enhance their moral and material values. This symbiotic relationship is the rationale of taxation and
should dispel the erroneous notion that it is an arbitrary method of exaction by those in the seat of power.
But even as we concede the inevitability and indispensability of taxation, it is a requirement in all democratic regimes that
it be exercised reasonably and in accordance with the prescribed procedure. If it is not, then the taxpayer has a right to
complain and the courts will then come to his succor. For all the awesome power of the tax collector, he may still be
stopped in his tracks if the taxpayer can demonstrate, as it has here, that the law has not been observed. [142]
VIII

The Tax Code includes remedies for erroneous collection and overpayment of taxes. Under Sections 229 and 204(C) of
the Tax Code, a taxpayer may seek recovery of erroneously paid taxes within two (2) years from date of payment:
SEC. 229. Recovery of tax Erroneously or Illegally Collected. — No suit or proceeding shall be maintained in any court for
the recovery of any national internal revenue tax hereafter alleged to have been erroneously or illegally assessed or
collected, or of any penalty claimed to have been collected without authority, of any sum alleged to have been excessively
or in any manner wrongfully collected, until a claim for refund or credit has been duly filed with the Commissioner; but
such suit or proceeding may be maintained, whether or not such tax, penalty, or sum has been paid under protest or
duress.
In any case, no such suit or proceeding shall be filed after the expiration of two (2) years from the date of payment of the
tax or penalty-regardless of any supervening case that may arise after payment: Provided, however, That the
Commissioner may, even without a written claim therefor, refund or credit any tax, where on the face of the return upon
which payment was made, such payment appears clearly to have been erroneously paid.
....
SEC. 204. Authority of the Commissioner to Compromise, Abate and Refund or Credit Taxes. — The Commissioner may
-
...
(C) Credit or refund taxes erroneously or illegally received or penalties imposed without authority, refund the value of
internal revenue stamps when they are returned in good condition by the purchaser, and, in his discretion, redeem or
change unused stamps that have been rendered unfit for use and refund their value upon proof of destruction. No credit
or refund of taxes or penalties shall be allowed unless the taxpayer files in writing with the Commissioner a claim for credit
or refund within two (2) years after the payment of the tax or penalty: Provided, however, That a return filed showing an
overpayment shall be considered as a written claim for credit or refund.
A Tax Credit Certificate validly issued under the provisions of this Code may be applied against any internal revenue tax,
excluding withholding taxes, for which the taxpayer is directly liable. Any request for conversion into refund of unutilized
tax credits may be allowed, subject to the provisions of Section 230 of this Code: Provided, That the original copy of the
Tax Credit Certificate showing a creditable balance is surrendered to the appropriate revenue officer for verification and
cancellation: Provided, further, That in no case shall a tax refund be given resulting from availment of incentives granted
pursuant to special laws for which no actual payment was made.
The Commissioner shall submit to the Chairmen of the Committee on Ways and Means of both the Senate and House of
Representatives, every six (6) months, a report on the exercise of his powers under this Section, stating therein the
following facts and information, among others: names and addresses of taxpayers whose cases have been the subject of
abatement or compromise; amount involved; amount compromised or abated; and reasons for the exercise of
power: Provided, That the said report shall be presented to the Oversight Committee in Congress that shall be constituted
to determine that said powers are reasonably exercised and that the Government is not unduly deprived of revenues.

In G.R. No. 205045, the Court of Tax Appeals En Banc ruled that "San Mig Light" is a new brand and not a variant of an
existing brand. Accordingly, it ordered the refund of erroneously collected excise taxes on "San Mig Light" products in the
amount of P926,169,056.74 for the period of December 1, 2005 to July 31, 2007. [143]
In G.R. No. 205723, the Court of Tax Appeals En Banc found proper the refund of erroneously collected excise taxes on
"San Mig Light" products in the amount of P781,514,772.56 for the period of February 2, 2004 to November 30,
2005.[144] It referred to, and agreed with, the findings of the Court-commissioned Independent Certified Public Accountant
Normita L. Villaruz on reaching this amount.[145] The Court of Tax Appeals also found, from the records, that respondent
timely filed its administrative claim for refund on December 28, 2005, and its judicial claim on January 31, 2006. [146]
This Court accords the highest respect to the factual findings of the Court of Tax Appeals. We recognize its developed
expertise on the subject as it is the court dedicated solely to considering tax issues, unless there is a showing of abuse in
the exercise of authority.[147] We find no reason to overturn the factual findings of the Court of Tax Appeals on the
amounts allowed for refund.
WHEREFORE, the Petitions are DENIED. The assailed Decisions and Resolutions of the Court of Tax Appeals En
Banc in CTA Case Nos. 7052, 7053, 7405, and 7708 are AFFIRMED.
EXXONMOBIL PETROLEUM AND CHEMICAL G.R. No. 180909
HOLDINGS, INC. PHILIPPINE BRANCH,
Petitioner, Present:

CARPIO, J., Chairperson,


NACHURA,
- versus - PERALTA,
ABAD, and
MENDOZA, JJ.

COMMISSIONER OF INTERNAL REVENUE,


Respondent.
Promulgated:

January 19, 2011

x ---------------------------------------------------------------------------------------- x

DECISION

MENDOZA, J.:

This is a petition for review on certiorari under Rule 45 filed by petitioner Exxonmobil Petroleum and Chemical
Holdings, Inc. - Philippine Branch (Exxon) to set aside the September 7, 2007 Decision[1] of the Court of Tax Appeals En
Banc (CTA-En Banc) in CTA E.B. No. 204, and its November 27, 2007 Resolution[2] denying petitioners motion for
reconsideration.

THE FACTS

Petitioner Exxon is a foreign corporation duly organized and existing under the laws of the State of Delaware, United
States of America.[3] It is authorized to do business in the Philippines through its Philippine Branch, with principal office
address at the 17/F The Orient Square, Emerald Avenue, Ortigas Center, Pasig City.[4]

Exxon is engaged in the business of selling petroleum products to domestic and international carriers. [5] In pursuit of its
business, Exxon purchased from Caltex Philippines, Inc. (Caltex) and Petron Corporation (Petron) Jet A-1 fuel and other
petroleum products, the excise taxes on which were paid for and remitted by both Caltex and Petron. [6] Said taxes,
however, were passed on to Exxon which ultimately shouldered the excise taxes on the fuel and petroleum products. [7]

From November 2001 to June 2002, Exxon sold a total of 28,635,841 liters of Jet A-1 fuel to international carriers,
free of excise taxes amounting to Php105,093,536.47. [8] On various dates, it filed administrative claims for refund with the
Bureau of Internal Revenue (BIR) amounting to Php105,093,536.47.[9]

On October 30, 2003, Exxon filed a petition for review with the CTA [10] claiming a refund or tax credit in the amount of
Php105,093,536.47, representing the amount of excise taxes paid on Jet A-1 fuel and other petroleum products it sold to
international carriers from November 2001 to June 2002.[11]

Exxon and the Commissioner of Internal Revenue (CIR) filed their Joint Stipulation of Facts and Issues on June 24, 2004,
presenting a total of fourteen (14) issues for resolution.[12]
During Exxons preparation of evidence, the CIR filed a motion dated January 28, 2005 to first resolve the issue of whether
or not Exxon was the proper party to ask for a refund.[13] Exxon filed its opposition to the motion on March 15, 2005.

On July 27, 2005, the CTA First Division issued a resolution[14] sustaining the CIRs position and dismissing Exxons claim
for refund. Exxon filed a motion for reconsideration, but this was denied on July 27, 2006.[15]

Exxon filed a petition for review[16] with the CTA En Banc assailing the July 27, 2005 Resolution of the CTA First Division
which dismissed the petition for review, and the July 27, 2006 Resolution[17] which affirmed the said ruling.

RULING OF THE COURT OF TAX APPEALS EN BANC

In its Decision dated September 7, 2007, the CTA En Banc dismissed the petition for review and affirmed the two
resolutions of the First Division dated July 27, 2005 and July 27, 2006. Exxon filed a motion for reconsideration, but it was
denied on November 27, 2007.

Citing Sections 130 (A)(2)[18] and 204 (C) in relation to Section 135 (a)[19] of the National Internal Revenue Code of
1997 (NIRC), the CTA ruled that in consonance with its ruling in several cases,[20] only the taxpayer or the manufacturer of
the petroleum products sold has the legal personality to claim the refund of excise taxes paid on petroleum products sold
to international carriers.[21]

The CTA stated that Section 130(A)(2) makes the manufacturer or producer of the petroleum products directly
liable for the payment of excise taxes.[22] Therefore, it follows that the manufacturer or producer is the taxpayer. [23]

This determination of the identity of the taxpayer designated by law is pivotal as the NIRC provides that it is only the
taxpayer who has the legal personality to ask for a refund in case of erroneous payment of taxes.[24]

Further, the excise tax imposed on manufacturers upon the removal of petroleum products by oil companies is an indirect
tax, or a tax which is primarily paid by persons who can shift the burden upon someone else. [25] The CTA cited the cases
of Philippine Acetylene Co., Inc. v. Commissioner of Internal Revenue,[26] Contex Corporation v. Commissioner of Internal
Revenue,[27] and Commissioner of Internal Revenue v. Philippine Long Distance Telephone Company,[28] and explained
that with indirect taxes, although the burden of an indirect tax can be shifted or passed on to the purchaser of the goods,
the liability for the indirect tax remains with the manufacturer. [29] Moreover, the manufacturer has the option whether or not
to shift the burden of the tax to the purchaser. When shifted, the amount added by the manufacturer becomes a part of
the price, therefore, the purchaser does not really pay the tax per se but only the price of the commodity.[30]

Going by such logic, the CTA concluded that a refund of erroneously paid or illegally received tax can only be made in
favor of the taxpayer, pursuant to Section 204(C) of the NIRC. [31] As categorically ruled in the Cebu Portland
Cement[32] and Contex[33] cases, in the case of indirect taxes, it is the manufacturer of the goods who is entitled to claim
any refund thereof.[34] Therefore, it follows that the indirect taxes paid by the manufacturers or producers of the goods
cannot be refunded to the purchasers of the goods because the purchasers are not the taxpayers. [35]
The CTA also emphasized that tax refunds are in the nature of tax exemptions and are, thus, regarded as in derogation of
sovereign authority and construed strictissimi juris against the person or entity claiming the exemption.[36]
Finally, the CTA disregarded Exxons argument that in effectively holding that only petroleum products purchased
directly from the manufacturers or producers are exempt from excise taxes, the First Division of [the CTA] sanctioned a
universal amendment of existing bilateral agreements which the Philippines have with other countries, in violation of the
basic principle of pacta sunt servanda.[37] The CTA explained that the findings of fact of the First Division (that when
Exxon sold the Jet A-1 fuel to international carriers, it did so free of tax) negated any violation of the exemption from
excise tax of the petroleum products sold to international carriers.Second, the right of international carriers to invoke the
exemption granted under Section 135(a) of the NIRC was neither affected nor restricted in any way by the ruling of the
First Division. At the point of sale, the international carriers were free to invoke the exemption from excise taxes of the
petroleum products sold to them. Lastly, the lawmaking body was presumed to have enacted a later law with the
knowledge of all other laws involving the same subject matter. [38]

THE ISSUES

Petitioner now raises the following issues in its petition for review:

I.
WHETHER THE ASSAILED DECISION AND RESOLUTION ERRONEOUSLY PROHIBITED
PETITIONER, AS THE DISTRIBUTOR AND VENDOR OF PETROLEUM PRODUCTS TO
INTERNATIONAL CARRIERS REGISTERED IN FOREIGN COUNTRIES WHICH HAVE EXISTING
BILATERAL AGREEMENTS WITH THE PHILIPPINES, FROM CLAIMING A REFUND OF THE
EXCISE TAXES PAID THEREON; AND

II.

WHETHER THE ASSAILED DECISIONS ERRED IN AFFIRMING THE DISMISSAL OF PETITIONERS


CLAIM FOR REFUND BASED ON RESPONDENTS MOTION TO RESOLVE FIRST THE ISSUE OF
WHETHER OR NOT THE PETITIONER IS THE PROPER PARTY THAT MAY ASK FOR A REFUND,
SINCE SAID MOTION IS ESSENTIALLY A MOTION TO DISMISS, WHICH SHOULD HAVE BEEN
DENIED OUTRIGHT BY THE COURT OF TAX APPEALS FOR HAVING BEEN FILED OUT OF TIME.

RULING OF THE COURT

I. On respondents motion to resolve first the issue of whether or not the


petitioner is the proper party that may ask for a refund.

For a logical resolution of the issues, the court will tackle first the issue of whether or not the CTA erred in
granting respondents Motion to Resolve First the Issue of Whether or Not the Petitioner is the Proper Party that may Ask
for a Refund.[39] In said motion, the CIR prayed that the CTA First Division resolve ahead of the other stipulated issues the
sole issue of whether petitioner was the proper party to ask for a refund. [40]

Exxon opines that the CIRs motion is essentially a motion to dismiss filed out of time, [41] as it was
filed after petitioner began presenting evidence[42] more than a year after the filing of the Answer.[43] By praying that Exxon
be declared as not the proper party to ask for a refund, the CIR asked for the dismissal of the petition, as the grant of the
Motion to Resolve would bring trial to a close.[44]

Moreover, Exxon states that the motion should have also complied with the three-day notice and ten-day hearing
rules provided in Rule 15 of the Rules of Court. [45] Since the CIR failed to set its motion for any hearing before the filing of
the Answer, the motion should have been considered a mere scrap of paper. [46]

Finally, citing Maruhom v. Commission on Elections and Dimaporo,[47] Exxon argues that a defendant who desires
a preliminary hearing on special and affirmative defenses must file a motion to that effect at the time of filing of his
answer.[48]

The CIR, on the other hand, counters that it did not file a motion to dismiss. [49] Instead, the grounds for dismissal
of the case were pleaded as special and affirmative defenses in its Answer filed on December 15, 2003.[50] Therefore, the
issue of whether or not petitioner is the proper party to claim for a tax refund of the excise taxes allegedly passed on by
Caltex and Petron was included as one of the issues in the Joint Stipulation of Facts and Issues dated June 24,
2004 signed by petitioner and respondent.[51]

The CIR now argues that nothing in the Rules requires the preliminary hearing to be held before the filing of an
Answer.[52] However, a preliminary hearing cannot be held before the filing of the Answer precisely because any ground
raised as an affirmative defense is pleaded in the Answer itself. [53]

Further, the CIR contends that the case cited by petitioner, Maruhom v. Comelec,[54] does not apply here. In the
said case, a motion to dismiss was filed after the filing of the answer. [55] And, the said motion to dismiss was
found to be a frivolous motion designed to prevent the early termination of the proceedings in the election case
therein.[56] Here, the Motion to Resolve was filed not to delay the disposition of the case, but rather, to expedite
proceedings.[57]

Rule 16, Section 6 of the 1997 Rules of Civil Procedure provides:

SEC. 6. Pleading grounds as affirmative defenses. - If no motion to dismiss has been filed,
any of the grounds for dismissal provided for in this Rule may be pleaded as an affirmative defense in the
answer, and in the discretion of the court, a preliminary hearing may be had thereon as if a motion to
dismiss had been filed.

The dismissal of the complaint under this section shall be without prejudice to the prosecution in
the same or separate action of a counterclaim pleaded in the answer. (Underscoring supplied.)

This case is a clear cut application of the above provision. The CIR did not file a motion to dismiss. Thus, he
pleaded the grounds for dismissal as affirmative defenses in its Answer and thereafter prayed for the conduct of a
preliminary hearing to determine whether petitioner was the proper party to apply for the refund of excise taxes paid.

The determination of this question was the keystone on which the entire case was leaning. If Exxon was not the
proper party to apply for the refund of excise taxes paid, then it would be useless to proceed with the case. It would not
make any sense to proceed to try a case when petitioner had no standing to pursue it.
In the case of California and Hawaiian Sugar Company v. Pioneer Insurance and Surety Corporation,[58] the Court
held that:

Considering that there was only one question, which may even be deemed to be the very
touchstone of the whole case, the trial court had no cogent reason to deny the Motion for Preliminary
Hearing. Indeed, it committed grave abuse of discretion when it denied a preliminary hearing on a simple
issue of fact that could have possibly settled the entire case. Verily, where a preliminary hearing appears
to suffice, there is no reason to go on to trial. One reason why dockets of trial courts are clogged is the
unreasonable refusal to use a process or procedure, like a motion to dismiss, which is designed to
abbreviate the resolution of a case.[59] (Underscoring supplied.)

II. On whether petitioner, as the distributor and vendor of petroleum


products to international carriers registered in foreign countries which
have existing bilateral agreements with the Philippines, can claim a refund
of the excise taxes paid thereon

This brings us now to the substantive issue of whether Exxon, as the distributor and vendor of petroleum products to
international carriers registered in foreign countries which have existing bilateral agreements with the Philippines, is the
proper party to claim a tax refund for the excise taxes paid by the manufacturers, Caltex and Petron, and passed on to it
as part of the purchase price.

Exxon argues that having paid the excise taxes on the petroleum products sold to international carriers, it is a real
party in interest consistent with the rules and jurisprudence.[60]

It reasons out that the subject of the exemption is neither the seller nor the buyer of the petroleum products, but the
products themselves, so long as they are sold to international carriers for use in international flight operations, or to
exempt entities covered by tax treaties, conventions and other international agreements for their use or consumption,
among other conditions.[61]

Thus, as the exemption granted under Section 135 attaches to the petroleum products and not to the seller, the exemption
will apply regardless of whether the same were sold by its manufacturer or its distributor for two reasons. [62] First, Section
135 does not require that to be exempt from excise tax, the products should be sold by the manufacturer or
producer.[63] Second, the legislative intent was precisely to make Section 135 independent from Sections 129 and 130 of
the NIRC,[64] stemming from the fact that unlike other products subject to excise tax, petroleum products of this nature
have become subject to preferential tax treatment by virtue of either specific international agreements or simply of
international reciprocity.[65]

Respondent CIR, on the other hand, posits that Exxon is not the proper party to seek a refund of excise taxes paid on the
petroleum products.[66] In so arguing, the CIR states that excise taxes are indirect taxes, the liability for payment of which
falls on one person, but the burden of payment may be shifted to another.[67] Here, the sellers of the petroleum products or
Jet A-1 fuel subject to excise tax are Petron and Caltex, while Exxon was the buyer to whom the burden of paying excise
tax was shifted.[68] While the impact or burden of taxation falls on Exxon, as the tax is shifted to it as part of the purchase
price, the persons statutorily liable to pay the tax are Petron and Caltex.[69] As Exxon is not the taxpayer primarily liable to
pay, and not exempted from paying, excise tax, it is not the proper party to claim for the refund of excise taxes paid. [70]

The excise tax, when passed on to the purchaser, becomes part of the
purchase price.

Excise taxes are imposed under Title VI of the NIRC. They apply to specific goods manufactured or produced in
the Philippines for domestic sale or consumption or for any other disposition, and to those that are imported.[71] In effect,
these taxes are imposed when two conditions concur: first, that the articles subject to tax belong to any of the categories of
goods enumerated in Title VI of the NIRC; and second, that said articles are for domestic sale or consumption, excluding
those that are actually exported.[72]

There are, however, certain exemptions to the coverage of excise taxes, such as petroleum products sold to international
carriers and exempt entities or agencies. Section 135 of the NIRC provides:

SEC. 135. Petroleum Products Sold to International Carriers and Exempt Entities or Agencies. -
Petroleum products sold to the following are exempt from excise tax:

(a) International carriers of Philippine or foreign registry on their use or consumption outside the
Philippines: Provided, That the petroleum products sold to these international carriers shall be stored in a
bonded storage tank and may be disposed of only in accordance with the rules and regulations to be
prescribed by the Secretary of Finance, upon recommendation of the Commissioner;

(b) Exempt entities or agencies covered by tax treaties, conventions and other international
agreements for their use of consumption: Provided, however, That the country of said foreign
international carrier or exempt entities or agencies exempts from similar taxes petroleum products sold to
Philippine carriers, entities or agencies; and

(c) Entities which are by law exempt from direct and indirect taxes. (Underscoring supplied.)

Thus, under Section 135, petroleum products sold to international carriers of foreign registry on their use or consumption
outside the Philippines are exempt from excise tax, provided that the petroleum products sold to such international carriers
shall be stored in a bonded storage tank and may be disposed of only in accordance with the rules and regulations to be
prescribed by the Secretary of Finance, upon recommendation of the Commissioner. [73]

The confusion here stems from the fact that excise taxes are of the nature of indirect taxes, the liability for payment of
which may fall on a person other than he who actually bears the burden of the tax.
In Commissioner of Internal Revenue v. Philippine Long Distance Telephone Company,[74] the Court discussed the nature
of indirect taxes as follows:

[I]ndirect taxes are those that are demanded, in the first instance, from, or are paid by, one person to
someone else. Stated elsewise, indirect taxes are taxes wherein the liability for the payment of the tax
falls on one person but the burden thereof can be shifted or passed on to another person, such as when
the tax is imposed upon goods before reaching the consumer who ultimately pays for it. When the seller
passes on the tax to his buyer, he, in effect, shifts the tax burden, not the liability to pay it, to the
purchaser, as part of the goods sold or services rendered.
Accordingly, the party liable for the tax can shift the burden to another, as part of the purchase price of the goods or
services. Although the manufacturer/seller is the one who is statutorily liable for the tax, it is the buyer who actually
shoulders or bears the burden of the tax, albeit not in the nature of a tax, but part of the purchase price or the cost of the
goods or services sold.

As petitioner is not the statutory taxpayer, it is not entitled to claim a


refund of excise taxes paid.

The question we are faced with now is, if the party statutorily liable for the tax is different from the party who bears the
burden of such tax, who is entitled to claim a refund of the tax paid?

Sections 129 and 130 of the NIRC provide:

SEC. 129. Goods subject to Excise Taxes. - Excise taxes apply to goods manufactured or
produced in the Philippines for domestic sales or consumption or for any other disposition and to things
imported. The excise tax imposed herein shall be in addition to the value-added tax imposed under Title
IV.

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 specified value of the good shall be referred to as 'ad
valorem tax.'

SEC. 130. Filing of Return and Payment of Excise Tax on Domestic Products. -

(A) Persons Liable to File a Return, Filing of Return on Removal and Payment of Tax. -

(1) Persons Liable to File a Return. - Every person liable to pay excise tax imposed under this
Title shall file a separate return for each place of production setting forth, among others the description
and quantity or volume of products to be removed, the applicable tax base and the amount of tax due
thereon: Provided, however, That in the case of indigenous petroleum, natural gas or liquefied natural
gas, the excise tax shall be paid by the first buyer, purchaser or transferee for local sale, barter or
transfer, while the excise tax on exported products shall be paid by the owner, lessee, concessionaire or
operator of the mining claim.

Should domestic products be removed from the place of production without the payment of the
tax, the owner or person having possession thereof shall be liable for the tax due thereon.

(2) Time for Filing of Return and Payment of the Tax. - Unless otherwise specifically
allowed, the return shall be filed and the excise tax paid by the manufacturer or producer before removal
of domestic products from place of production: Provided, That the tax excise on locally manufactured
petroleum products and indigenous petroleum/levied under Sections 148 and 151(A)(4), respectively, of
this Title shall be paid within ten (10) days from the date of removal of such products for the period from
January 1, 1998 to June 30, 1998; within five (5) days from the date of removal of such products for the
period from July 1, 1998 to December 31, 1998; and, before removal from the place of production of such
products from January 1, 1999 and thereafter: Provided, further, That the excise tax on nonmetallic
mineral or mineral products, or quarry resources shall be due and payable upon removal of such
products from the locality where mined or extracted, but with respect to the excise tax on locally
produced or extracted metallic mineral or mineral products, the person liable shall file a return and pay
the tax within fifteen (15) days after the end of the calendar quarter when such products were removed
subject to such conditions as may be prescribed by rules and regulations to be promulgated by the
Secretary of Finance, upon recommendation of the Commissioner. For this purpose, the taxpayer shall
file a bond in an amount which approximates the amount of excise tax due on the removals for the said
quarter. The foregoing rules notwithstanding, for imported mineral or mineral products, whether metallic
or nonmetallic, the excise tax due thereon shall be paid before their removal from customs custody.
xxx

(Italics and underscoring supplied.)

As early as the 1960s, this Court has ruled that the proper party to question, or to seek a refund of, an indirect tax, is the
statutory taxpayer, or the person on whom the tax is imposed by law and who paid the same, even if he shifts the burden
thereof to another.[75]

In Philippine Acetylene Co., Inc. v. Commissioner of Internal Revenue,[76] the Court held that the sales tax is imposed on
the manufacturer or producer and not on the purchaser, except probably in a very remote and inconsequential
sense.[77] Discussing the passing on of the sales tax to the purchaser, the Court therein cited Justice Oliver Wendell
Holmes opinion in Lashs Products v. United States[78] wherein he said:

The phrase passed the tax on is inaccurate, as obviously the tax is laid and remains on the manufacturer
and on him alone. The purchaser does not really pay the tax. He pays or may pay the seller more for the
goods because of the sellers obligation, but that is all. x x x The price is the sum total paid for the goods.
The amount added because of the tax is paid to get the goods and for nothing else. Therefore it is part of
the price x x x.[79]

Proceeding from this discussion, the Court went on to state:

It may indeed be that the economic burden of the tax finally falls on the purchaser; when it does the tax
becomes a part of the price which the purchaser must pay. It does not matter that an additional amount is
billed as tax to the purchaser. x x x The effect is still the same, namely, that the purchaser does not pay
the tax. He pays or may pay the seller more for the goods because of the sellers obligation, but that is all
and the amount added because of the tax is paid to get the goods and for nothing else.

But the tax burden may not even be shifted to the purchaser at all. A decision to absorb the burden of the
tax is largely a matter of economics. Then it can no longer be contended that a sales tax is a tax on the
purchaser.[80]

The above case was cited in the later case of Cebu Portland Cement Company v. Collector (now Commissioner) of
Internal Revenue,[81] where the Court ruled that as the sales tax is imposed upon the manufacturer or producer and not on
the purchaser, it is petitioner and not its customers, who may ask for a refund of whatever amount it is entitled for the
percentage or sales taxes it paid before the amendment of section 246 of the Tax Code. [82]
The Philippine Acetylene case was also cited in the first Silkair (Singapore) Pte, Ltd. v. Commissioner of Internal
Revenue[83] case, where the Court held that the proper party to question, or to seek a refund of, an indirect tax is the
statutory taxpayer, the person on whom the tax is imposed by law and who paid the same even if he shifts the burden
thereof to another.[84]

In the Silkair cases,[85] petitioner Silkair (Singapore) Pte, Ltd. (Silkair), filed with the BIR a written application for the refund
of excise taxes it claimed to have paid on its purchase of jet fuel from Petron. As the BIR did not act on the application,
Silkair filed a Petition for Review before the CTA.

In both cases, the CIR argued that the excise tax on petroleum products is the direct liability of the manufacturer/producer,
and when added to the cost of the goods sold to the buyer, it is no longer a tax but part of the price which the buyer has to
pay to obtain the article.
In the first Silkair case, the Court ruled:

The proper party to question, or seek a refund of, an indirect tax is the statutory taxpayer,
the person on whom the tax is imposed by law and who paid the same even if he shifts the
burden thereof to another. Section 130 (A) (2) of the NIRC provides that "[u]nless otherwise specifically
allowed, the return shall be filed and the excise tax paid by the manufacturer or producer before removal
of domestic products from place of production." Thus, Petron Corporation, not Silkair, is the statutory
taxpayer which is entitled to claim a refund based on Section 135 of the NIRC of 1997 and Article 4(2) of
the Air Transport Agreement between RP and Singapore.

Even if Petron Corporation passed on to Silkair the burden of the tax, the additional
amount billed to Silkair for jet fuel is not a tax but part of the price which Silkair had to pay as a
purchaser.[86] (Emphasis and underscoring supplied.)

Citing the above case, the second Silkair case was promulgated a few months after the first, and stated:

The issue presented is not novel. In a similar case involving the same parties, this Court has
categorically ruled that "the proper party to question, or seek a refund of an indirect tax is the statutory
taxpayer, the person on whom the tax is imposed by law and who paid the same even if he shifts the
burden thereof to another." The Court added that "even if Petron Corporation passed on to Silkair the
burden of the tax, the additional amount billed to Silkair for jet fuel is not a tax but part of the
price which Silkair had to pay as a purchaser."[87]

The CTA En Banc, thus, held that:

The determination of who is the taxpayer plays a pivotal role in claims for refund because the same law
provides that it is only the taxpayer who has the legal personality to ask for a refund in case of erroneous
payment of taxes. Section 204 (C) of the 1997 NIRC, [provides] in part, as follows:

SEC. 204. Authority of the Commissioner to Compromise, Abate, and Refund or


Credit Taxes. The Commissioner may

xxx xxx xxx

(C) Credit or refund taxes erroneously or illegally received or


penalties imposed without authority, refund the value of internal revenue stamps when
they are returned in good condition by the purchaser, and, in his discretion, redeem or
change unused stamps that have been rendered unfit for use and refund their value
upon proof of destruction. No credit or refund of taxes or penalties shall be
allowed unless the taxpayer files in writing with the Commissioner a claim for
credit or refund within two (2) years after the payment of the tax or penalty: Provided,
however, That a return showing an overpayment shall be considered as a written claim
for credit or refund.

xxx xxx xxx

(Emphasis shown supplied by the CTA.)[88]

Therefore, as Exxon is not the party statutorily liable for payment of excise taxes under Section 130, in relation to Section
129 of the NIRC, it is not the proper party to claim a refund of any taxes erroneously paid.
There is no unilateral amendment of existing bilateral agreements of
the Philippines with other countries.

Exxon also argues that in effectively holding that only petroleum products purchased directly from the manufacturers or
producers are exempt from excise taxes, the CTA En Banc sanctioned a unilateral amendment of existing bilateral
agreements which the Philippines has with other countries, in violation of the basic international law principle of pacta sunt
servanda.[89] The Court does not agree.

As correctly held by the CTA En Banc:

One final point, petitioners argument that in effectively holding that only petroleum products purchased
directly from the manufacturers or producers are exempt from excise taxes, the First Division of this
Court sanctioned a unilateral amendment of existing bilateral agreements which the Philippines have
(sic) with other countries, in violation of the basic international principle of pacta sunt servanda is
misplaced. First, the findings of fact of the First Division of this Court that when petitioner sold the Jet A-1
fuel to international carriers, it did so free of tax negates any violation of the exemption from excise tax of
the petroleum products sold to international carriers insofar as this case is concerned. Secondly, the right
of international carriers to invoke the exemption granted under Section 135 (a) of the 1997 NIRC has
neither been affected nor restricted in any way by the ruling of the First Division of this Court. At the point
of sale, the international carriers are free to invoke the exemption from excise taxes of the petroleum
products sold to them. Lastly, the law-making body is presumed to have enacted a later law with the
knowledge of all other laws involving the same subject matter. [90] (Underscoring supplied.)

WHEREFORE, the petition is DENIED.


COMMISSIONER OF INTERNAL G.R. No. 188497
REVENUE, Petitioner,
Present:

CORONA, C.J.,
- versus - Chairperson,
LEONARDO-DE CASTRO,
BERSAMIN,
DEL CASTILLO, and
VILLARAMA, JR., JJ.
PILIPINAS SHELL PETROLEUM
CORPORATION, Promulgated:
Respondent.
April 25, 2012
x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - x

DECISION

VILLARAMA, JR., J.:

Petitioner Commissioner of Internal Revenue appeals the Decision [1] dated March 25, 2009 and Resolution[2] dated June
24, 2009 of the Court of Tax Appeals (CTA) En Banc in CTA EB No. 415. The CTA dismissed the petition for review filed
by petitioner assailing the CTA First Divisions Decision[3] dated April 25, 2008 and Resolution[4] dated July 10, 2008 which
ordered petitioner to refund the excise taxes paid by respondent Pilipinas Shell Petroleum Corporation on petroleum
products it sold to international carriers.

The facts are not disputed.

Respondent is engaged in the business of processing, treating and refining petroleum for the purpose of producing
marketable products and the subsequent sale thereof.[5]

On July 18, 2002, respondent filed with the Large Taxpayers Audit & Investigation Division II of the Bureau of Internal
Revenue (BIR) a formal claim for refund or tax credit in the total amount of P28,064,925.15, representing excise taxes it
allegedly paid on sales and deliveries of gas and fuel oils to various international carriers during the period October to
December 2001. Subsequently, on October 21, 2002, a similar claim for refund or tax credit was filed by respondent with
the BIR covering the period January to March 2002 in the amount of P41,614,827.99. Again, on July 3, 2003, respondent
filed another formal claim for refund or tax credit in the amount of P30,652,890.55 covering deliveries from April to June
2002.[6]

Since no action was taken by the petitioner on its claims, respondent filed petitions for review before the CTA on
September 19, 2003 and December 23, 2003, docketed as CTA Case Nos. 6775 and 6839, respectively.

In its decision on the consolidated cases, the CTAs First Division ruled that respondent is entitled to the refund of excise
taxes in the reduced amount of P95,014,283.00. The CTA First Division relied on a previous ruling rendered by the
CTA En Banc in the case of Pilipinas Shell Petroleum Corporation v. Commissioner of Internal Revenue [7] where the CTA
also granted respondents claim for refund on the basis of excise tax exemption for petroleum products sold to
international carriers of foreign registry for their use or consumption outside the Philippines. Petitioners motion for
reconsideration was denied by the CTA First Division.

Petitioner elevated the case to the CTA En Banc which upheld the ruling of the First Division. The CTA pointed out the
specific exemption mentioned under Section 135 of the National Internal Revenue Code of 1997 (NIRC) of petroleum
products sold to international carriers such as respondents clients. It said that this Courts ruling in Maceda v. Macaraig,
Jr.[8] is inapplicable because said case only put to rest the issue of whether or not the National Power Corporation (NPC)
is subject to tax considering that NPC is a tax-exempt entity mentioned in Sec. 135 (c) of the NIRC (1997), whereas the
present case involves the tax exemption of the sale of petroleum under Sec. 135 (a) of the same Code. Further, the CTA
said that the ruling in Philippine Acetylene Co., Inc. v. Commissioner of Internal Revenue [9] likewise finds no application
because the party asking for the refund in said case was the seller-producer based on the exemption granted under the
law to the tax-exempt buyers, NPC and Voice of America (VOA), whereas in this case it is the article or product which is
exempt from tax and not the international carrier.

Petitioner filed a motion for reconsideration which the CTA likewise denied.

Hence, this petition anchored on the following grounds:

SECTION 148 OF THE NATIONAL INTERNAL REVENUE CODE EXPRESSLY SUBJECTS THE
PETROLEUM PRODUCTS TO AN EXCISE TAX BEFORE THEY ARE REMOVED FROM THE PLACE
OF PRODUCTION.

II

THE ONLY SPECIFIC PROVISION OF THE LAW WHICH GRANTS TAX CREDIT OR TAX REFUND OF
THE EXCISE TAXES PAID REFERS TO THOSE CASES WHERE GOODS LOCALLY PRODUCED OR
MANUFACTURED ARE ACTUALLY EXPORTED WHICH IS NOT SO IN THIS CASE.

III

THE PRINCIPLES LAID DOWN IN MACEDA VS. MACARAIG, JR. AND PHILIPPINE ACETYLENE CO.
VS. CIR ARE APPLICABLE TO THIS CASE.[10]

The Solicitor General argues that the obvious intent of the law is to grant excise tax exemption to international carriers
and exempt entities as buyers of petroleum products and not to the manufacturers or producers of said goods. Since the
excise taxes are collected from manufacturers or producers before removal of the domestic products from the place of
production, respondent paid the subject excise taxes as manufacturer or producer of the petroleum products pursuant to
Sec. 148 of the NIRC. Thus, regardless of who the buyer/purchaser is, the excise tax on petroleum products attached to
the said goods before their sale or delivery to international carriers, as in fact respondent averred that it paid the excise
tax on its petroleum products when it withdrew petroleum products from its place of production for eventual sale and
delivery to various international carriers as well as to other customers. [11] Sec. 135 (a) and (c) granting exemption from the
payment of excise tax on petroleum products can only be interpreted to mean that the respondent cannot pass on to
international carriers and exempt agencies the excise taxes it paid as a manufacturer or producer.
As to whether respondent has the right to file a claim for refund or tax credit for the excise taxes it paid for the petroleum
products sold to international carriers, the Solicitor General contends that Sec. 130 (D) is explicit on the circumstances
under which a taxpayer may claim for a refund of excise taxes paid on manufactured products, which express
enumeration did not include those excise taxes paid on petroleum products which were eventually sold to international
carriers (expressio unius est exclusio alterius). Further, the Solicitor General asserts that contrary to the conclusion made
by the CTA, the principles laid down by this Court in Maceda v. Macaraig, Jr.[12] and Philippine Acetylene Co. v.
Commissioner of Internal Revenue[13] are applicable to this case. Respondent 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 burden to the said
international carriers which have been granted exemption under Sec. 135 (a) of the NIRC. Considering that respondent
failed to prove an express grant of a right to a tax refund, such claim cannot be implied; hence, it must be denied.

On the other hand, respondent maintains that since petroleum products sold to qualified international carriers are exempt
from excise tax, no taxes should be imposed on the article, to which goods the tax attaches, whether in the hands of the
said international carriers or the petroleum manufacturer or producer. As these excise taxes have been erroneously paid
taxes, they can be recovered under Sec. 229 of the NIRC. Respondent contends that contrary to petitioners assertion,
Sections 204 and 229 authorizes respondent to maintain a suit or proceeding to recover such erroneously paid taxes on
the petroleum products sold to tax-exempt international carriers.

As to the jurisprudence cited by the petitioner, respondent argues that they are not applicable to the case at bar. It points
out that Maceda v. Macaraig, Jr. is an adjudication on the issue of tax exemption of NPC from direct and indirect taxes
given the passage of various laws relating thereto. What was put in issue in said case was NPCs right to claim for refund
of indirect taxes. Here, respondents claim for refund is not anchored on the exemption of the buyer from direct and
indirect taxes but on the tax exemption of the goods themselves under Sec. 135. Respondent further stressed that
in Maceda v. Macaraig, Jr., this Court recognized that if NPC purchases oil from oil companies, NPC is entitled to claim
reimbursement from the BIR for that part of the purchase price that represents excise taxes paid by the oil company to the
BIR. Philippine Acetylene Co. v. CIR, on the other hand, involved sales tax, which is a tax on the transaction, which this
Court held as due from the seller even if such tax cannot be passed on to the buyers who are tax-exempt entities. In this
case, the excise tax is a tax on the goods themselves. While indeed it is the manufacturer who has the duty to pay the
said tax, by specific provision of law, Sec. 135, the goods are stripped of such tax under the circumstances provided
therein.Philippine Acetylene Co., Inc. v. CIR was thus not anchored on an exempting provision of law but merely on the
argument that the tax burden cannot be passed on to someone.

Respondent further contends that requiring it to shoulder the burden of excise taxes on petroleum products sold
to international carriers would effectively defeat the principle of international comity upon which the grant of tax exemption
on aviation fuel used in international flights was founded. If the excise taxes paid by respondent are not allowed to be
refunded or credited based on the exemption provided in Sec. 135 (a), respondent avers that the manufacturers or oil
companies would then be constrained to shift the tax burden to international carriers in the form of addition to the selling
price.
Respondent cites as an analogous case Commissioner of International Revenue v. Tours Specialists,
Inc.[14] which involved the inclusion of hotel room charges remitted by partner foreign tour agents in respondent TSIs
gross receipts for purposes of computing the 3% contractors tax. TSI opposed the deficiency assessment invoking,
among others, Presidential Decree No. 31, which exempts foreign tourists from paying hotel room tax.This Court upheld
the CTA in ruling that while CIR may claim that the 3% contractors tax is imposed upon a different incidence, i.e., the
gross receipts of the tourist agency which he asserts includes the hotel room charges entrusted to it, the effect would be
to impose a tax, and though different, it nonetheless imposes a tax actually on room charges. One way or the other, said
the CTA, it would not have the effect of promoting tourism in the Philippines as that would increase the costs or expenses
by the addition of a hotel room tax in the overall expenses of said tourists.

The instant petition squarely raised the issue of whether respondent as manufacturer or producer of petroleum
products is exempt from the payment of excise tax on such petroleum products it sold to international carriers.

In the previous cases[15] decided by this Court involving excise taxes on petroleum products sold to international
carriers, what was only resolved is the question of who is the proper party to claim the refund of excise taxes paid on
petroleum products if such tax was either paid by the international carriers themselves or incorporated into the selling
price of the petroleum products sold to them. We have ruled in the said cases that the statutory taxpayer, the local
manufacturer of the petroleum products who is directly liable for the payment of excise tax on the said goods, is the
proper party to seek a tax refund. Thus, a foreign airline company who purchased locally manufactured petroleum
products for use in its international flights, as well as a foreign oil company who likewise bought petroleum products from
local manufacturers and later sold these to international carriers, have no legal personality to file a claim for tax refund or
credit of excise taxes previously paid by the local manufacturers even if the latter passed on to the said buyers the tax
burden in the form of additional amount in the price.

Excise taxes, as the term is used in the NIRC, refer to taxes applicable to certain specified goods or articles
manufactured or produced in the Philippines for domestic sales or consumption or for any other disposition and to things
imported into the Philippines. These taxes are imposed in addition to the value-added tax (VAT).[16]

As to petroleum products, Sec. 148 provides that excise taxes attach to the following refined and manufactured
mineral oils and motor fuels as soon as they are in existence as such:

(a) Lubricating oils and greases;

(b) Processed gas;

(c) Waxes and petrolatum;

(d) Denatured alcohol to be used for motive power;

(e) Naphtha, regular gasoline and other similar products of distillation;

(f) Leaded premium gasoline;

(g) Aviation turbo jet fuel;

(h) Kerosene;
(i) Diesel fuel oil, and similar fuel oils having more or less the same generating power;

(j) Liquefied petroleum gas;

(k) Asphalts; and

(l) Bunker fuel oil and similar fuel oils having more or less the same generating capacity.

Beginning January 1, 1999, excise taxes levied on locally manufactured petroleum products and indigenous
petroleum are required to be paid before their removal from the place of production.[17] However, Sec. 135 provides:

SEC. 135. Petroleum Products Sold to International Carriers and Exempt Entities or
Agencies. Petroleum products sold to the following are exempt from excise tax:

(a) International carriers of Philippine or foreign registry on their use or consumption outside the
Philippines: Provided, That the petroleum products sold to these international carriers shall be stored in a
bonded storage tank and may be disposed of only in accordance with the rules and regulations to be
prescribed by the Secretary of Finance, upon recommendation of the Commissioner;

(b) Exempt entities or agencies covered by tax treaties, conventions and other international
agreements for their use or consumption: Provided, however, That the country of said foreign
international carrier or exempt entities or agencies exempts from similar taxes petroleum products sold to
Philippine carriers, entities or agencies; and

(c) Entities which are by law exempt from direct and indirect taxes.

Respondent claims it is entitled to a tax refund because those petroleum products it sold to international carriers are not
subject to excise tax, hence the excise taxes it paid upon withdrawal of those products were erroneously or illegally
collected and should not have been paid in the first place. Since the excise tax exemption attached to the petroleum
products themselves, the manufacturer or producer is under no duty to pay the excise tax thereon.

We disagree.

Under Chapter II Exemption or Conditional Tax-Free Removal of Certain Goods of Title VI, Sections 133, 137, 138, 139
and 140 cover conditional tax-free removal of specified goods or articles, whereas Sections 134 and 135 provide for tax
exemptions. While the exemption found in Sec. 134 makes reference to the nature and quality of the goods manufactured
(domestic denatured alcohol) without regard to the tax status of the buyer of the said goods, Sec. 135 deals with the tax
treatment of a specified article (petroleum products) in relation to its buyer or consumer. Respondents failure to make this
important distinction apparently led it to mistakenly assume that the tax exemption under Sec. 135 (a) attaches to the
goods themselves such that the excise tax should not have been paid in the first place.

On July 26, 1996, petitioner Commissioner issued Revenue Regulations 8-96[18] (Excise Taxation of Petroleum
Products) which provides:

SEC. 4. Time and Manner of Payment of Excise Tax on Petroleum Products, Non-Metallic
Minerals and Indigenous Petroleum

I. Petroleum Products
xxxx

a) On locally manufactured petroleum products


The specific tax on petroleum products locally manufactured or produced in the Philippines shall
be paid by the manufacturer, producer, owner or person having possession of the same, and
such tax shall be paid within fifteen (15) daysfrom date of removal from the place of production.
(Underscoring supplied.)

Thus, if an airline company purchased jet fuel from an unregistered supplier who could not present proof of
payment of specific tax, the company is liable to pay the specific tax on the date of purchase.[19] Since the excise tax must
be paid upon withdrawal from the place of production, respondent cannot anchor its claim for refund on the theory that the
excise taxes due thereon should not have been collected or paid in the first place.

Sec. 229 of the NIRC allows the recovery of taxes erroneously or illegally collected. An erroneous or illegal tax is defined
as one levied without statutory authority, or upon property not subject to taxation or by some officer having no authority to
levy the tax, or one which is some other similar respect is illegal. [20]

Respondents locally manufactured petroleum products are clearly subject to excise tax under Sec. 148. Hence, its claim
for tax refund may not be predicated on Sec. 229 of the NIRC allowing a refund of erroneous or excess payment of tax.
Respondents claim is premised on what it determined as a tax exemption attaching to the goods themselves, which must
be based on a statute granting tax exemption, or the result of legislative grace. Such a claim is to be construed strictissimi
juris against the taxpayer, meaning that the claim cannot be made to rest on vague inference. Where the rule of strict
interpretation against the taxpayer is applicable as the claim for refund partakes of the nature of an exemption, the
claimant must show that he clearly falls under the exempting statute.[21]

The exemption from excise tax payment on petroleum products under Sec. 135 (a) is conferred on international
carriers who purchased the same for their use or consumption outside the Philippines. The only condition set by law is for
these petroleum products to be stored in a bonded storage tank and may be disposed of only in accordance with the rules
and regulations to be prescribed by the Secretary of Finance, upon recommendation of the Commissioner.

On January 22, 2008, or five years after the sale by respondent of the subject petroleum products, then Secretary of
Finance Margarito B. Teves issued Revenue Regulations No. 3-2008 Amending Certain Provisions of Existing Revenue
Regulations on the Granting of Outright Excise Tax Exemption on Removal of Excisable Articles Intended for Export or
Sale/Delivery to International Carriers or to Tax-Exempt Entities/Agencies and Prescribing the Provisions for Availing
Claims for Product Replenishment. Said issuance recognized the tax relief to which the taxpayers are entitled by availing
of the following remedies: (a) a claim for excise tax exemption pursuant to Sections 204 and 229 of the NIRC; or (2) a
product replenishment.

SEC. 2. IMPOSITION OF EXCISE TAX ON REMOVAL OF EXCISABLE ARTICLES FOR


EXPORT OR SALE/DELIVERY TO INTERNATIONAL CARRIERS AND OTHER TAX-EXEMPT
ENTITIES/AGENCIES. Subject to the subsequent filing of a claim for excise tax credit/refund or
product replenishment, all manufacturers of articles subject to excise tax under Title VI of the NIRC of
1997, as amended, shall pay the excise tax that is otherwise due on every removal thereof from the place
of production that is intended for exportation or sale/delivery to international carriers or to tax-exempt
entities/agencies: Provided, That in case the said articles are likewise being sold in the domestic market,
the applicable excise tax rate shall be the same as the excise tax rate imposed on the domestically sold
articles.

In the absence of a similar article that is being sold in the domestic market, the applicable excise
tax shall be computed based on the value appearing in the manufacturers sworn statement converted to
Philippine currency, as may be applicable.

x x x x (Emphasis supplied.)

In this case, however, the Solicitor General has adopted a position contrary to existing BIR regulations and rulings
recognizing the right of oil companies to seek a refund of excise taxes paid on petroleum products they sold to
international carriers. It is argued that there is nothing in Sec. 135 (a) which explicitly grants exemption from the payment
of excise tax in favor of oil companies selling their petroleum products to international carriers and that the only claim for
refund of excise taxes authorized by the NIRC is the payment of excise tax on exported goods, as explicitly provided in
Sec. 130 (D), Chapter I under the same Title VI:

(D) Credit for Excise Tax on Goods Actually Exported. -- When goods locally produced or
manufactured are removed and actually exported without returning to the Philippines, whether so
exported in their original state or as ingredients or parts of any manufactured goods or products, any
excise tax paid thereon shall be credited or refunded upon submission of the proof of actual exportation
and upon receipt of the corresponding foreign exchange payment: Provided, That the excise tax on
mineral products, except coal and coke, imposed under Section 151 shall not be creditable or refundable
even if the mineral products are actually exported.

According to the Solicitor General, Sec. 135 (a) 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. In other words,
respondent cannot shift the tax burden to international carriers who are allowed to purchase its petroleum products
without having to pay the added cost of the excise tax.

We agree with the Solicitor General.

In Philippine Acetylene Co., Inc. v. Commissioner of Internal Revenue [22] this Court held that petitioner manufacturer who
sold its oxygen and acetylene gases to NPC, a tax-exempt entity, cannot claim exemption from the payment of sales tax
simply because its buyer NPC is exempt from taxation. The Court explained that the percentage tax on sales of
merchandise imposed by the Tax Code is due from the manufacturer and not from the buyer.

Respondent attempts to distinguish this case from Philippine Acetylene Co., Inc. on grounds that what was involved in the
latter is a tax on the transaction (sales) and not excise tax which is a tax on the goods themselves, and that the exemption
sought therein was anchored merely on the tax-exempt status of the buyer and not a specific provision of law exempting
the goods sold from the excise tax. But as already stated, the language of Sec. 135 indicates that the tax exemption
mentioned therein is conferred on specified buyers or consumers of the excisable articles or goods (petroleum
products). Unlike Sec. 134 which explicitly exempted the article or goods itself (domestic denatured alcohol) without due
regard to the tax status of the buyer or purchaser, Sec. 135 exempts from excise tax petroleum products which were sold
to international carriers and other tax-exempt agencies and entities.
Considering that the excise taxes attaches to petroleum products as soon as they are in existence as
such,[23] there can be no outright exemption from the payment of excise tax on petroleum products sold to international
carriers. The sole basis then of respondents claim for refund is the express grant of excise tax exemption in favor of
international carriers under Sec. 135 (a) for their purchases of locally manufactured petroleum products. Pursuant to our
ruling in Philippine Acetylene, a tax exemption being enjoyed by the buyer cannot be the basis of a claim for tax
exemption by the manufacturer or seller of the goods for any tax due to it as themanufacturer or seller. The excise tax
imposed on petroleum products under Sec. 148 is the direct liability of the manufacturer who cannot thus invoke the
excise tax exemption granted to its buyers who are international carriers.

In Maceda v. Macaraig, Jr.,[24] the Court specifically mentioned excise tax as an example of an indirect tax where
the tax burden can be shifted to the buyer:

On the other hand, indirect taxes are taxes primarily paid by persons who can shift the burden upon
someone else. For example, the excise and ad valorem taxes that the oil companies pay to the Bureau of
Internal Revenue upon removal of petroleum products from its refinery can be shifted to its buyer, like the
NPC, by adding them to the cash and/or selling price.

An excise tax is basically an indirect tax. Indirect taxes are those that are demanded, in the first instance, from, or are paid
by, one person in the expectation and intention that he can shift the burden to someone else. Stated elsewise, indirect
taxes are taxes wherein the liability for the payment of the tax falls on one person but the burden thereof can be shifted or
passed on to another person, such as when the tax is imposed upon goods before reaching the consumer who ultimately
pays for it. When the seller passes on the tax to his buyer, he, in effect, shifts the tax burden, not the liability to pay it, to
the purchaser as part of the price of goods sold or services rendered. [25]

Further, in Maceda v. Macaraig, Jr., the Court ruled that because of the tax exemptions privileges being enjoyed
by NPC under existing laws, the tax burden may not be shifted to it by the oil companies who shall pay for fuel oil taxes on
oil they supplied to NPC. Thus:

In view of all the foregoing, the Court rules and declares that the oil companies which supply
bunker fuel oil to NPC have to pay the taxes imposed upon said bunker fuel oil sold to NPC. By the very
nature of indirect taxation, the economic burden of such taxation is expected to be passed on through the
channels of commerce to the user or consumer of the goods sold. Because, however, the NPC has
been exempted from both direct and indirect taxation, the NPC must be held exempted from
absorbing the economic burden of indirect taxation. This means, on the one hand, that the oil
companies which wish to sell to NPC absorb all or part of the economic burden of the taxes
previously paid to BIR, which they could shift to NPC if NPC did not enjoy exemption from indirect
taxes. This means also, on the other hand, that the NPC may refuse to pay that part of the normal
purchase price of bunker fuel oil which represents all or part of the taxes previously paid by the oil
companies to BIR. If NPC nonetheless purchases such oil from the oil companies because to do so may
be more convenient and ultimately less costly for NPC than NPC itself importing and hauling and storing
the oil from overseas NPC is entitled to be reimbursed by the BIR for that part of the buying price of NPC
which verifiably represents the tax already paid by the oil company-vendor to the BIR.[26] (Emphasis
supplied.)

In the case of international air carriers, the tax exemption granted under Sec. 135 (a) is based on a long-standing
international consensus that fuel used for international air services should be tax-exempt. The provisions of the 1944
Convention of International Civil Aviation or the Chicago Convention, which form binding international law, requires the
contracting parties not to charge duty on aviation fuel already on board any aircraft that has arrived in their territory from
another contracting state. Between individual countries, the exemption of airlines from national taxes and customs duties
on a range of aviation-related goods, including parts, stores and fuel is a standard element of the network of bilateral Air
Service Agreements.[27] Later, a Resolution issued by the International Civil Aviation Organization (ICAO) expanded the
provision as to similarly exempt from taxes all kinds of fuel taken on board for consumption by an aircraft from a
contracting state in the territory of another contracting State departing for the territory of any other State.[28] Though
initially aimed at establishing uniformity of taxation among parties to the treaty to prevent double taxation, the tax
exemption now generally applies to fuel used in international travel by both domestic and foreign carriers.

On April 21, 1978, then President Ferdinand E. Marcos issued Presidential Decree (P.D.) No. 1359:

PRESIDENTIAL DECREE No. 1359

AMENDING SECTION 134 OF THE NATIONAL INTERNAL REVENUE CODE OF 1977.

WHEREAS, under the present law oil products sold to international carriers are subject to the
specific tax;

WHEREAS, some countries allow the sale of petroleum products to Philippine Carriers without
payment of taxes thereon;

WHEREAS, to foster goodwill and better relationship with foreign countries, there is a need to
grant similar tax exemption in favor of foreign international carriers;

NOW, THEREFORE, I, FERDINAND E. MARCOS, President of the Philippines, by virtue of the


powers vested in me by the Constitution, do hereby order and decree the following:

Section 1. Section 134 of the National Internal Revenue Code of 1977 is hereby amended to read
as follows:

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.

Section 2. This Decree shall take effect immediately.

Contrary to respondents assertion that the above amendment to the former provision of the 1977 Tax
Code supports its position that it was not liable for excise tax on the petroleum products sold to international carriers, we
find that no such inference can be drawn from the words used in the amended provision or its introductory part. Founded
on the principles of international comity and reciprocity, P.D. No. 1359 granted exemption from payment of excise tax but
only to foreign international carriers who are allowed to purchase petroleum products free of specific tax provided the
country of said carrier also grants tax exemption to Philippine carriers. 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 of excise tax on
petroleum products manufactured and sold by them to international carriers.

Because an excise tax is a tax on the manufacturer and not on the purchaser, and there being no express grant under the
NIRC of exemption from payment of excise tax to local manufacturers of petroleum products sold to international carriers,
and absent any provision in the Code authorizing the refund or crediting of such excise taxes paid, the Court holds that
Sec. 135 (a) should be construed as prohibiting the shifting of the burden of the excise tax to the international carriers who
buys petroleum products from the local manufacturers. Said provision thus merely allows the international carriers to
purchase petroleum products without the excise tax component as an added cost in the price fixed by the manufacturers
or distributors/sellers. Consequently, the oil companies which sold such petroleum products to international carriers are
not entitled to a refund of excise taxes previously paid on the goods.

Time and again, we have held that tax refunds are in the nature of tax exemptions which result to loss of revenue
for the government. Upon the person claiming an exemption from tax payments rests the burden of justifying
the exemption by words too plain to be mistaken and too categorical to be misinterpreted, [29] it is never presumed[30] nor
be allowed solely on the ground of equity. [31] These exemptions, therefore, must not rest on vague, uncertain or indefinite
inference, but should be granted only by a clear and unequivocal provision of law on the basis of language too plain to be
mistaken. Such exemptions must be strictly construed against the taxpayer, as taxes are the lifeblood of the
government.[32]

WHEREFORE, the petition for review on certiorari is GRANTED. The Decision dated March 25, 2009 and
Resolution dated June 24, 2009 of the Court of Tax Appeals En Banc in CTA EB No. 415 are
hereby REVERSED and SET ASIDE. The claims for tax refund or credit filed by respondent Pilipinas Shell Petroleum
Corporation are DENIED for lack of basis.

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