Diageo Philippines, Inc. vs. Commissioner of Internal Revenue

Only the statutory taxpayer—the person on whom the tax is imposed by law and who paid the same—can claim a refund of indirect excise taxes, even if the burden of the tax is shifted to the purchaser as part of the price.

Diageo Philippines, Inc. purchased raw alcohol from a supplier who imported the alcohol and paid the corresponding excise taxes. The excise taxes were included in the purchase price passed on to Diageo. Diageo used the alcohol to manufacture liquor products, which it subsequently exported to Japan, Taiwan, Turkey, and Thailand, receiving foreign currency proceeds. Invoking Section 130(D) of the Tax Code, Diageo filed with the Bureau of Internal Revenue applications for a refund or tax credit corresponding to the excise taxes paid by its supplier.

• Nature of Business: Diageo is a domestic corporation engaged in importing, exporting, manufacturing, and selling beverages and liquors, registered with the BIR as an excise tax taxpayer.
• Purchase of Raw Materials: Between November 1, 2003, and December 31, 2004, Diageo purchased raw alcohol from a supplier. The supplier imported the raw alcohol and paid the excise taxes thereon before selling it to Diageo. The purchase price included the excise taxes paid by the supplier, totaling P12,007,528.83.
• Exportation: Diageo exported its locally manufactured liquor products—made using the purchased raw alcohol—to Japan, Taiwan, Turkey, and Thailand, receiving the corresponding foreign currency proceeds.
• Claim for Refund: Within two years from the time the supplier paid the excise taxes, Diageo filed applications for tax refund or issuance of tax credit certificates with the BIR. The CIR failed to act upon the claims, prompting Diageo to elevate the matter to the CTA.

• Real Party in Interest: Petitioner argued that it is a real party in interest entitled to recover the refund or tax credit because it stands to be benefited or injured by the judgment.
• Statutory Interpretation of Section 130(D): Petitioner maintained that the tax privilege under Section 130(D) applies to every exporter, not just manufacturer-exporters, provided the statutory conditions are met: (1) the goods are exported; (2) the exporter submits proof of exportation; and (3) the exporter submits proof of receipt of foreign exchange payment.

• Lack of Legal Personality: Respondent countered that Diageo lacks the legal personality to institute the claim for refund because it was the supplier, not Diageo, that paid the excise taxes.

• Legal Personality to Claim Refund: Whether Diageo has the legal personality to file a claim for refund or tax credit for the excise taxes paid by its supplier on the raw alcohol it purchased and used in the manufacture of its exported goods.

• Legal Personality to Claim Refund: The petition lacks merit. The right to claim a refund or credit of excise taxes under Section 130(D) belongs to the statutory taxpayer—the person on whom the tax is imposed by law and who paid it. Although excise taxes are indirect taxes that can be passed on to the purchaser, the liability to pay remains with the manufacturer or seller. When the supplier passed the excise taxes on to Diageo, what was shifted was not the tax itself but an additional cost of the goods sold. Unlike the Value Added Tax, which allows a subsequent purchaser to claim a refund or credit of input taxes passed on by a supplier, no equivalent provision exists for excise taxes. Furthermore, statutes granting tax exemptions are construed stricissimi juris against the taxpayer; Diageo failed to prove it is covered by the exemption under Section 130(D).

• Indirect Tax Shifting Doctrine — Indirect taxes are those where the liability for payment falls on one person but the burden can be shifted to another. When the seller passes on the tax to the buyer, the tax burden is shifted as part of the price of goods sold or services rendered, but the liability to pay the tax remains with the statutory taxpayer. The purchaser shoulders an additional cost of goods, not the tax itself. Applied to hold that Diageo merely bore the cost of the tax, not the legal liability, and thus could not claim a refund.
• Statutory Taxpayer Rule on Refunds — The proper party to question or seek a refund of an indirect tax is the statutory taxpayer, defined as the person on whom the tax is imposed by law and who paid the same, even if the burden is shifted to another. Applied to rule that Diageo, not being the statutory taxpayer, lacked legal personality to claim the excise tax refund.
• Strict Interpretation of Tax Exemptions — Statutes granting tax exemptions are construed stricissimi juris against the taxpayer and liberally in favor of the taxing authority. A claim of tax exemption must be clearly shown and based on language too plain to be mistaken. Applied to reject Diageo's broad interpretation of Section 130(D), as the provision did not explicitly grant refund privileges to non-statutory taxpayers.

• "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."
• "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."
• "Unlike the law on Value Added Tax which allows the subsequent purchaser under the tax credit method to refund or credit input taxes passed on to it by a supplier, no provision for excise taxes exists granting non-statutory taxpayer like Diageo to claim a refund or credit."

• Silkair (Singapore) Pte, Ltd. v. Commissioner of Internal Revenue, G.R. 173594 — Controlling precedent; established that the proper party to seek a refund of an indirect tax is the statutory taxpayer who paid it, even if the burden is shifted.
• Commissioner of Internal Revenue v. Seagate Technology (Phil.), G.R. No. 153866 — Distinguished; allowed the subsequent purchaser under the VAT tax credit method to refund or credit input taxes passed on by a supplier, a mechanism absent in excise tax law.
• CIR v. PLDT Co., G.R. No. 140230 — Followed; defined indirect taxes as those where liability falls on one person but the burden can be shifted to another.
• Philippine Acetylene Co., Inc. v. Commissioner of Internal Revenue, G.R. No. 19707 — Followed by the CTA; ruled that the right to claim a refund of an indirect tax is available only to the manufacturer or seller primarily liable.
• Quezon City v. ABS-CBN Broadcasting Corp., G.R. No. 166408 — Followed; reiterated the doctrine of strictissimi juris construction of tax exemptions.

• Section 130(D), National Internal Revenue Code of 1997 — Provides the credit for excise tax on goods actually exported. Interpreted to mean the claimant must be the person who paid the excise tax, as the phrase "any excise tax paid thereon shall be credited or refunded" requires the claimant to be the same person who paid the excise tax.
• Section 130(A)(1) and (2), NIRC — Enumerate the persons liable to file a return and pay the excise tax (manufacturer or producer before removal from the place of production). Applied to establish that the supplier, not Diageo, was the statutory taxpayer.
• Section 204(C), NIRC — Requires that the taxpayer file a claim for credit or refund within two years after payment. Interpreted to mean the statutory taxpayer is the one entitled to claim the refund.
• Section 22(N), NIRC — Defines "taxpayer" as any person subject to tax. Applied to define the statutory taxpayer as the person legally liable to file a return and pay the tax.
• Section 110(B), NIRC — Governs the VAT tax credit method. Distinguished to highlight the absence of a similar provision allowing non-statutory taxpayers to claim refunds for excise taxes.
• Rule 3, Section 2, Rules of Court — Defines a real party in interest. Cited by the CTA En Banc to rule that only persons primarily liable for excise taxes are proper parties for a refund.

Carpio (Chairperson), Brion, Del Castillo, Perez