THE Supreme Court (SC) has granted the claim of Pilipinas Shell Petroleum Corp. for more than P95 million in excise tax refunds from the Bureau of Internal Revenue (BIR).
In a decision issued on February 19, the first division of the high court through Associate Justice Martin Villarama Jr. resolved to grant the original and supplemental motions for reconsideration filed by Pilipinas Shell.
The SC affirmed 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; and direct[ed]petitioner Commissioner of Internal Revenue to refund or to issue a tax credit certificate to Pilipinas Shell Petroleum Corporation in the amount of P95,014,283.00 representing the excise taxes it paid on petroleum products sold to international carriers from October 2001 to June 2002.”
Shell filed on July 18, 2002 with the Large Taxpayers Audit and Investigation Division II of the BIR a formal claim for refund or tax credit totaling P28,064,925.15.
The oil firm filed a similar claim for refund or tax credit with the BIR in the amount of P41,614,827.99 covering the period January to March 2002.
On July 3, 2003, another claim for refund or tax credit in the amount of P30,652,890.55 covering deliveries from April to June 2002 was also filed.
The CTA, however, ruled that Shell was entitled to the refund of excise taxes in the reduced amount of P95,014,283.00 until the case reached the high tribunal.
In its verdict last year, the SC junked Shell’s claim for the same, holding that locally manufactured petroleum products are clearly subject to excise tax.
In the ruling promulgated on April 25, 2012, the SC ruled that the CTA erred in granting Shell’s claim for tax refund because the latter failed to establish a tax exemption in its favor under Section 135(a) of the National Internal Revenue Code of 1997 (NIRC).
Shell in its appeal asserted that the imposition by the Philippine Government of an excise tax on petroleum products sold to international carriers was in violation of the Chicago Convention on International Aviation (Chicago Convention) to which it is a signatory, as well as other international agreements, particularly the Philippines’ air transport agreements with the United States of America, Netherlands, Belgium and Japan.
However, in the new decision, the SC flip flopped, ruling that “[w]ithout any international agreement on taxing fuel, it is highly likely that moves to impose duty on international flights, either at a domestic or European level, would encourage ‘tankering’: carriers filling their aircraft as full as possible whenever they landed outside the EU to avoid paying tax.”
“Clearly this would be entirely counterproductive. Aircraft would be travelling further than necessary to fill up in low-tax jurisdictions; in addition they would be burning up more fuel when carrying the extra weight of a full fuel tank. With the prospect of declining sales of aviation jet fuel sales to international carriers on account of major domestic oil companies’ unwillingness to shoulder the burden of excise tax, or of petroleum products being sold to said carriers by local manufacturers or sellers at still high prices , the practice of “tankering” would not be discouraged,” the court said.
“This scenario does not augur well for the Philippines’ growing economy and the booming tourism industry. Worse, our Government would be risking retaliatory action under several bilateral agreements with various countries.
“Evidently, construction of the tax exemption provision in question should give primary consideration to its broad implications on our commitment under international agreements.”
“[W]e find merit in respondent’s motion for reconsideration. We therefore hold that respondent, as the statutory taxpayer who is directly liable to pay the excise tax on its petroleum products, is entitled to a refund or credit of the excise taxes it paid for petroleum products sold to international carriers, the latter having been granted exemption from the payment of said excise tax under Sec. 135 (a) of the NIRC.”