Exxonmobil Petroleum and Chemical Holdings, Inc. - Philippine Branch vs. Commissioner of Internal Revenue

The proper party to claim a refund of an indirect tax is the statutory taxpayer—the person on whom the tax is imposed by law and who paid it—even if the economic burden is later shifted to another. A purchaser to whom the excise tax is passed on as part of the purchase price is not considered the taxpayer and cannot file a claim for refund under Section 204(C) of the National Internal Revenue Code.

Manufacturers of petroleum products are required by Sections 129 and 130 of the 1997 National Internal Revenue Code to pay excise taxes upon removal of the goods from the place of production. Section 135 of the same Code exempts petroleum products sold to international carriers from excise tax, provided certain conditions are met. Because excise taxes are indirect taxes, manufacturers commonly add the tax to the price charged to their buyers. A dispute arose when a distributor that purchased tax-paid fuel and later sold it to exempt international carriers sought to recover the excise taxes embedded in the purchase price.

• The Parties and Business: Exxonmobil Petroleum and Chemical Holdings, Inc. — Philippine Branch is a foreign corporation authorized to do business in the Philippines, engaged in selling petroleum products to domestic and international carriers.
• Purchase and Tax Payment: From November 2001 to June 2002, Exxonmobil purchased Jet A-1 fuel and other petroleum products from Caltex Philippines, Inc. and Petron Corporation. The excise taxes on those products were paid and remitted by Caltex and Petron as manufacturers but were passed on to Exxonmobil as part of the purchase price.
• Sales to International Carriers: Exxonmobil sold a total of 28,635,841 liters of Jet A-1 fuel to international carriers free of excise tax. The excise taxes that Exxonmobil had effectively shouldered on those volumes amounted to ₱105,093,536.47.
• Refund Claim: Exxonmobil filed administrative claims for refund with the Bureau of Internal Revenue and, when these were not acted upon, filed a Petition for Review with the CTA seeking a refund or tax credit of the same amount, invoking the exemption under Section 135 of the NIRC.
• CTA’s Dismissal: The CTA First Division granted the Commissioner’s motion to preliminarily resolve the issue of proper party, dismissed the petition, and held that only the manufacturer is the statutory taxpayer entitled to claim a refund of excise taxes. The CTA En Banc affirmed, emphasizing that indirect taxes are the liability of the manufacturer and that the shifted tax is not a tax paid by the purchaser but part of the purchase price.

• Proper Party: Petitioner maintained that having ultimately paid the excise taxes when the burden was shifted by the manufacturers, it was the real party in interest. The exemption under Section 135 of the NIRC attaches to the petroleum products themselves, not to the seller, and thus applies regardless of whether the products were sold by the manufacturer or a distributor.
• No Legislative Distinction: Petitioner argued that Section 135 does not require the exempt sale to be made by the manufacturer, and that legislative intent was to make the exemption independent from the tax-imposition provisions of Sections 129 and 130 of the NIRC.
• Pacta Sunt Servanda: Petitioner contended that the CTA’s ruling effectively sanctioned a unilateral amendment of bilateral agreements between the Philippines and other countries by limiting the exemption to direct purchases from manufacturers.
• Procedural Error: Petitioner asserted that the Commissioner’s “Motion to Resolve” was essentially a motion to dismiss filed out of time—after the Answer and after evidence had begun—without compliance with the three-day notice and ten-day hearing rules under Rule 15 of the Rules of Court, and should have been denied outright.

• Proper Party — Statutory Taxpayer: Respondent countered that excise taxes are indirect taxes; the liability to pay falls on the manufacturer (Caltex and Petron) under Section 130 of the NIRC, while the burden was merely shifted to petitioner as part of the purchase price. Only the statutory taxpayer has the legal personality to claim a refund under Section 204(C) of the NIRC.
• Nature of Shifted Tax: Respondent maintained that the additional amount passed on to the purchaser is no longer a tax but part of the purchase price, citing jurisprudence that the purchaser does not pay the tax itself but pays more for the goods because of the seller’s tax obligation.
• Procedural Propriety: Respondent argued that the ground of improper party was pleaded as an affirmative defense in the Answer, and under Rule 16, Section 6 of the Rules of Civil Procedure, a preliminary hearing may be conducted on such defense even after the Answer is filed. The motion was intended to expedite proceedings, not to delay.

• Preliminary Hearing on Affirmative Defense: Whether the CTA erred in granting the Commissioner’s motion to resolve first the issue of proper party, considering the motion was filed after the answer and allegedly without compliance with notice and hearing rules.
• Proper Party to Claim Excise Tax Refund: Whether petitioner, as a distributor and vendor of petroleum products to international carriers, is the proper party to claim a refund of excise taxes statutorily paid by the manufacturers but whose economic burden was shifted to petitioner.

• Preliminary Hearing on Affirmative Defense: The CTA did not err. Under Rule 16, Section 6 of the 1997 Rules of Civil Procedure, a ground for dismissal pleaded as an affirmative defense in the answer may be the subject of a preliminary hearing as if a motion to dismiss had been filed. The Commissioner raised the issue of proper party in its Answer, and the motion for preliminary hearing was squarely authorized. The question was the keystone of the entire case, and resolving it preliminarily served judicial economy. The ruling in California and Hawaiian Sugar Company v. Pioneer Insurance was applied: where a single issue can settle the entire case, there is no reason to proceed to full trial.
• Proper Party to Claim Excise Tax Refund: Petitioner was not the proper party. Excise taxes on domestic petroleum products are imposed by law on the manufacturer or producer, who must file the return and pay the tax before removal under Sections 129 and 130 of the NIRC. An excise tax is an indirect tax; the manufacturer may shift the economic burden to the purchaser by including it in the price, but the legal liability remains with the manufacturer. The proper party to claim a refund of an indirect tax is the statutory taxpayer—the person on whom the tax is imposed by law and who paid it—even if the burden is shifted. This doctrine, consistently applied from Philippine Acetylene and Cebu Portland Cement to Silkair, holds that the amount added because of the tax is part of the purchase price, not a tax paid by the buyer. Consequently, petitioner could not claim refund under Section 204(C) of the NIRC, which requires the “taxpayer” to file the claim. The ruling did not amend any bilateral agreements; the exemption under Section 135 remains available, and the manufacturer may claim any refund due.

• Statutory Taxpayer in Indirect Taxes — In an indirect tax, the person statutorily liable for payment is the one on whom the tax is imposed by law (the statutory taxpayer). The economic burden may be shifted to another as part of the purchase price, but the shifted amount is not a separate tax paid by the purchaser. Only the statutory taxpayer possesses the legal personality to claim a refund of taxes erroneously or illegally collected under Section 204(C) of the NIRC. The Court reaffirmed this principle by applying Philippine Acetylene, Cebu Portland Cement, and Silkair.
• Preliminary Hearing on Affirmative Defenses — Under Rule 16, Section 6 of the Rules of Civil Procedure, when a ground for dismissal is pleaded as an affirmative defense in the answer, the trial court may, in its discretion, hold a preliminary hearing on that defense. The procedure is designed to abbreviate litigation by resolving potentially dispositive issues without full trial.

• “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.”
• “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.”
• “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 seller’s obligation, but that is all.” (Justice Holmes, Lash’s Products v. United States, adopted in Philippine Acetylene)

• Philippine Acetylene Co., Inc. v. Commissioner of Internal Revenue, 127 Phil. 461 (1967) — Applied; established that an indirect tax is imposed on the manufacturer, not the purchaser, and only the manufacturer may claim a refund.
• Cebu Portland Cement Company v. Collector of Internal Revenue, 134 Phil. 735 (1968) — Applied; reaffirmed that the manufacturer, not the customer, is entitled to refund of percentage or sales taxes.
• Silkair (Singapore) Pte, Ltd. v. Commissioner of Internal Revenue, G.R. No. 173594, Feb. 6, 2008; G.R. Nos. 171383 & 172379, Nov. 14, 2008 — Applied; directly on point that a buyer of jet fuel (international carrier) is not the proper party to claim excise tax refund.
• California and Hawaiian Sugar Company v. Pioneer Insurance and Surety Corporation, 399 Phil. 795 (2000) — Applied; supported the propriety of a preliminary hearing on a dispositive affirmative defense.
• Commissioner of Internal Revenue v. Philippine Long Distance Telephone Company, G.R. No. 140230, Dec. 15, 2005 — Cited for the definition and nature of indirect taxes.

• Sections 129 and 130, National Internal Revenue Code of 1997 — These provisions define excise taxes as imposed on goods manufactured or produced in the Philippines for domestic sale, and identify the manufacturer or producer as the person liable to file the return and pay the tax before removal. The Court relied on these to determine the statutory taxpayer.
• Section 135, National Internal Revenue Code of 1997 — Exempts petroleum products sold to international carriers from excise tax, subject to conditions. The exemption is attached to the products, but the right to claim refund is governed by the general refund provision and the identity of the taxpayer.
• Section 204(C), National Internal Revenue Code of 1997 — Authorizes the Commissioner to credit or refund taxes erroneously or illegally received, but requires that a claim be filed by the “taxpayer.” The provision was interpreted to limit standing to the statutory taxpayer.
• Rule 16, Section 6, 1997 Rules of Civil Procedure — Allows grounds for dismissal pleaded as affirmative defenses to be heard in a preliminary hearing. Applied to uphold the procedural step taken before the CTA.

Associate Justices Antonio T. Carpio (Chairperson), Antonio Eduardo B. Nachura, Diosdado M. Peralta, and Roberto A. Abad concurred. Chief Justice Renato C. Corona certified the decision.