PAL vs. CIR.

(2013)

Facts
 Caltex sold 80,370 liters of imported Jet A-1 fuel to PAL for the latter’s domestic operations.
o So Caltex electronically filed with BIR its Excise Tax Returns for petroleum products.
 PAL received from Caltex an Aviation Billing Invoice for the purchased aviation fuel with $52,669 as the
excise tax. This was confirmed by Caltex in a Certification indicating:
o (a) the excise taxes it paid on the imported petroleum products amounted to P2,952,037.90, i.e.,
the peso equivalent of the abovementioned dollar amount;
o (b) the foregoing excise tax payment was passed on by it to PAL; and
o (c) it did not file any claim for the refund of the said excise tax with the BIR.
 PAL sought a refund of the excise taxes w/ the CIR.
o Basis: PD 1590 which conferred upon it certain tax exemption privileges on its
purchases/importation of aviation gas, fuel and oil.
o Also assrted legal personality to file aforesaid tax refund claim.
 CIR inaction => PAL filed petition for review with CTA.
o CTA division: denied PAL’s petition OTG that only a statutory taxpayer (Caltex) may seek a refund of
the excise taxes. Letter of Instruction 1483 also withdrew the tax exemption privileges previously
granted to PAL on its purchase of domestic petroleum products.
o CTA en banc: affirmed. It explained that the payment of the subject excise taxes, being in the nature
of indirect taxes, remained to be the direct liability of Caltex. While the tax burden may have been
shifted to PAL, the liability passed on to it should not be treated as a tax but a part of the purchase
price which PAL had to pay to obtain the goods.

Issue & Ruling

WON PAL has legal personality to file a claim for refund of the passed-on excise taxes. YES.
 Sec. 129 NIRC: excise taxes are imposed on 2 kinds of goods: a) goods manufactured or produced in the
Philippines for domestic sales or consumption or for any other disposition; and (b) things imported.
o With respect to the first kind of goods, Section 130 of the NIRC states that, unless otherwise
specifically allowed, the taxpayer obligated to file the return and pay the excise taxes due thereon is
the manufacturer/producer.
o As to the second, Section 131 of the NIRC states that the taxpayer obligated to file the return and
pay the excise taxes due thereon is the owner or importer, unless the imported articles 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.
 The propriety of a tax refund claim is hinged on the kind of exemption which forms its basis. If the law
confers an exemption from both direct or indirect taxes, a claimant is entitled to a tax refund even if it only
bears the economic burden of the applicable tax. On the other hand, if the exemption conferred only applies
to direct taxes, then the statutory taxpayer is regarded as the proper party to file the refund claim.
o In this case, PAL’s franchise grants it an exemption from both direct and indirect taxes on its
purchase of petroleum products.
o Based on Sec. 13 of PAL’s franchise1, PAL’s payment of either the basic corporate income tax or
franchise tax, whichever is lower, shall be in lieu of all other taxes, duties, royalties, registration,
license, and other fees and charges, except only real property tax.
 In other words, in view of PAL’s payment of either the basic corporate income tax or franchise tax, whichever
is lower, PAL is exempt from paying: (a) taxes directly due from or imposable upon it as the purchaser of the
subject petroleum products; and (b) the cost of the taxes billed or passed on to it by the seller, producer,

1 Sec. 13: xxx The tax paid by the grantee under either of the above alternatives shall be in lieu of all other taxes, duties, royalties, registration,
license, and other fees and charges of any kind, nature, or description, imposed, levied, established, assessed, or collected by any municipal, city,
provincial, or national authority or government agency, now or in the future, including but not limited to the following:
1. All taxes, duties, charges, royalties, or fees due on local purchases by the grantee of aviation gas, fuel, and oil, whether refined or in crude form,
and whether such taxes, duties, charges, royalties, or fees are directly due from or imposable upon the purchaser or the seller, producer,
manufacturer, or importer of said petroleum products but are billed or passed on the grantee either as part of the price or cost thereof or by
mutual agreement or other arrangement; xxx
 manufacturer, or importer of the said products either as part of the purchase price or by mutual agreement
or other arrangement.
o PAL is then endowed with the legal standing to file the subject tax refund claim.

WON LOI 1483 withdrew the tax exemption privilege granted to PAL on its purchase of domestic petroleum products
for use in its domestic operations. NO.
 Based on Section 13 of PAL’s franchise, PAL’s tax exemption privileges on all taxes on aviation gas, fuel and
oil may be classified into three (3) kinds, namely:
o (a) all taxes due on PAL’s local purchase of aviation gas, fuel and oil;
o (b) all taxes directly due from or imposable upon the purchaser or the seller, producer, manufacturer,
or importer of aviation gas, fuel and oil but are billed or passed on to PAL; and
o (c), all taxes due on all importations by PAL of aviation gas, fuel, and oil.
 Within the context of excise taxes, it may be observed that the first kind of tax privilege would be irrelevant to
PAL since it is not liable for excise taxes on locally manufactured/produced goods for domestic sale or other
disposition; based on Section 130 of the NIRC, it is the manufacturer or producer, i.e., the local refinery,
which is regarded as the statutory taxpayer of the excise taxes due on the same.
 On the contrary, when the economic burden of the applicable excise taxes is passed on to PAL, it may assert
two (2) tax exemptions under the second kind of tax privilege namely, PAL’s exemptions on (a) passed on
excise tax costs due from the seller, manufacturer/producer in case of locally manufactured/ produced
goods for domestic sale (first tax exemption under the second kind of tax privilege); and (b) passed on excise
tax costs due from the importer in case of imported aviation gas, fuel and oil (second tax exemption under
the second kind of tax privilege).
 The third kind of tax privilege applies when PAL itself acts as the importer of the foregoing petroleum
products. In the latter instance, PAL is not merely regarded as the party to whom the economic burden of the
excise taxes is shifted to but rather, it stands as the statutory taxpayer directly liable to the government for
the same.
o The Court observes that the phrase “purchase of domestic petroleum products for use in its
domestic operations” · which characterizes the tax privilege LOI 1483 withdrew · refers only to PAL’s
tax exemptions on passed on excise tax costs due from the seller, manufacturer/producer of locally
manufactured/ produced goods for domestic sale and does not, in any way, pertain to any of PAL’s
tax privileges concerning imported goods.
 In this case, Caltex imported aviation fuel from abroad and merely re-sold the same to PAL, tacking the
amount of excise taxes it paid or would be liable to pay to the government on to the purchase price.
Evidently, the said petroleum products are in the nature of “things imported” and thus, beyond the coverage
of LOI 1483 as previously discussed.

WON PAL sufficiently proved its entitlement to the tax refund. YES.
 First: PAL timely filed its claim for refund. PAL filed its administrative claim for refund on October 29,
200451 and its judicial claim with the CTA on July 25, 2006. In this regard, PAL’s claims for refund were
filed on time in accordance with the 2-year prescriptive period.
 Second: PAL paid the lower of the basic corporate income tax or the franchise tax as provided for in Sec. 13.
In its income tax return for FY 2004-2005, PAL reported no net taxable income for the period resulting in
zero basic corporate income tax, which would necessarily be lower than any franchise tax due from PAL for
the same period.
 Third: The subject excise taxes were duly declared and remitted to the BIR. Per Summary of Removals and
Excise Tax Due on Mineral Products Chargeable Against Payments attached to the Excise Tax Returns, the
excise tax rate is P3.67 per liter, which, if multiplied with 6,500 liters sold by Caltex to LBOrendain, would
equal the discrepancy amount of P23,855.00. => amount consisted with that of Aviation receipts and
Invoices.