September 1, 2105

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 2007.5 Chevron 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.

LUCAS P. BERSAMIN
Associate Justice

WE CONCUR:

MARIA LOURDES P. A. SERENO

Chief Justice

PRESBITERO J. VELASCO,
ANTONIO T. CARPIO
JR.
Associate Justice
Associate Justice

TERESITA J. LEONARDO-
ARTURO D. BRION
DE CASTRO
Associate Justice
Associate Justice
 MARIANO C. DEL
DIOSDADO M. PERALTA
CASTILLO
Associate Justice
Associate Justice

MARTIN S. VILLARAMA,
JOSE PORTUGAL PEREZ
JR.
Associate Justice
Associate Justice

(On Leave)
JOSE CATRAL MENDOZA
BIENVENIDO L. REYES*
Associate Justice
Associate Justice

ESTELA M. PERLAS-
MARIVIC M.V.F LEONEN
BERNABE
Associate Justice
Associate Justice

(No Part)
FRANCIS H. JARDELEZA**
Associate Justice

CERTIFICATION

I certify that the conclusions in the above Resolution had been

reached in consultation before the case was assigned to the writer of
the opinion of the Court.

MARIA LOURDES P.A. SERENO

Chief Justice

Footnotes

* On Leave.

** No Part.
1
 Rollo, pp. 519-531.
2
 Id. at 518.
3
 G.R. No. 188497, 671 SCRA 241.
4
 G.R. No. 188497, 717 SCRA 53.
5
 Rollo, pp. 154-155.
6
 Id. at 155-156.
7
 Id. at 153.
8
 Id. at 119-152.
9
 Id. at 98-118.
10
 Id. at 90-96.
11
 Id. at 76-88.
12
 Id. at 84-87.
13
 Id. at 69-74.
14
 Id. at 26-65.
15
 Supra note 3.
16
 Supra note 4.
17
 SEC. 129. Goods Subject to Excise Taxes. – Excise taxes
apply to goods manufactured or produced in the Philippines for
domestic sale 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." (as amended, Executive Order No.
273).
18
 Vitug and Acosta, Tax Law and Jurisprudence, Third Edition
(2006), p. 26.
19
 Rollo, pp. 155-156.
20
 See Executive Order No. 80 (April 3, 1993).
21
 SECTION 24. Exemption from Taxes Under the National
Internal Revenue Code. — Any provision of existing laws, rules
and regulations to the contrary notwithstanding, no taxes, local
and national, shall be imposed on business establishments
operating within the ECOZONE. In lieu of paying taxes, five
percent (5%) of the gross income earned by all businesses and
enterprises within the ECOZONE shall be remitted to the
national government. x x x
22
 Sec. 15. Clark Special Economic Zone (CSEZ) and Clark
Freeport Zone (CFZ). x x x

xxxx

The provisions of existing laws, rules and regulations to the

contrary notwithstanding, no national and local taxes shall
be imposed on registered business enterprises within the
CFZ. In lieu of said taxes, a five percent (5%) tax on gross
income earned shall be paid by all registered business
enterprises within the CFZ and shall be directly remitted as
follows: three percent (3%) to the National Government,
and two percent (2%) to the treasurer's office of the
municipality or city where they are located.
23
 Exxonmobil Petroleum and Chemical Holdings, Inc. –
Philippine Branch v. Commissioner of Internal Revenue, G.R.
No. 180909, January 19, 2011, 640 SCRA 203, 219.
24
 Philippine Airlines, Inc. v. Commissioner of Internal Revenue,
G.R. No. 198759, July 1, 2013, 700 SCRA 322, 332.
25
 Id. at 334.