Philippine Airlines, Inc. vs. Commissioner of Internal Revenue

A non-statutory taxpayer that merely bears the economic burden of an excise tax may claim its refund where its charter expressly exempts it from both direct and indirect taxes, including taxes billed or passed on as part of the price. Applied to PAL, exemption under Section 13 of Presidential Decree No. 1590 conferred standing despite payment by Caltex as statutory taxpayer, and the imported fuel remained exempt because LOI 1483 withdrew only the exemption for locally manufactured products for domestic sale.

Philippine Airlines, Inc. operates under Presidential Decree No. 1590, which requires payment of the lower of basic corporate income tax or a 2% franchise tax in lieu of all other taxes, including taxes on aviation fuel passed on by the seller, producer, manufacturer, or importer. The Commissioner of Internal Revenue administers excise taxes under Sections 129 to 131, 135, 204, and 229 of the National Internal Revenue Code, generally payable by the manufacturer, producer, owner, or importer as statutory taxpayer. Letter of Instruction No. 1483 later withdrew the tax-exemption privilege on PAL's purchase of domestic petroleum products for domestic operations.

For the period July 24 to 28, 2004, Caltex Philippines, Inc. sold 804,370 liters of imported Jet A-1 fuel to PAL for the latter's domestic operations. On July 26, 27, 28, and 29, 2004, Caltex electronically filed Excise Tax Returns for Petroleum Products declaring ₱1,232,798.80, ₱686,767.10, ₱623,422.90, and ₱433,904.10, respectively, or a total of ₱2,975,892.90 as excise taxes due thereon.

On August 3, 2004, PAL received an Aviation Billing Invoice for US$313,949.54, reflecting US$52,669.33 as related excise taxes. Caltex confirmed in a Certification dated August 20, 2004 that the excise taxes it paid amounted to ₱2,952,037.90, the peso equivalent of the dollar amount, that the payment was passed on to PAL, and that it had not filed any refund claim with the Bureau of Internal Revenue.

On October 29, 2004, through a letter-request dated October 15, 2004, PAL sought refund from the CIR based on Presidential Decree No. 1590, asserting exemption on purchase and importation of aviation gas, fuel, and oil including amounts passed on by the seller or importer, and asserting legal personality to claim. Due to CIR inaction, PAL filed a Petition for Review with the CTA on July 25, 2006. The CIR answered that PAL had no cause of action since Caltex paid the taxes. The CTA Division and En Banc denied the claim, finding Caltex the proper claimant and the transaction covered by LOI 1483.

• Legal Personality and Franchise Exemption: Petitioner argued that the Silkair doctrine was inapplicable because its legislative franchise expressly exempted it from both direct and indirect taxes, conferring legal personality to claim refund of passed-on excise taxes, citing Maceda vs. Macaraig, Jr.
• Entitlement to Refund: Petitioner maintained that it had the legal personality to file the refund claim and hinged its claim on its operating franchise covering purchases of aviation gas, fuel, and oil including taxes passed on by the seller or importer.

• No Cause of Action and Statutory Taxpayer Rule: Respondent countered that PAL had no personality to file the refund claim because it was not the statutory taxpayer, relying on Silkair vs. CIR that only the person on whom the tax is imposed by law and who paid the same may question or seek refund of an indirect tax even if the burden was shifted.
• Coverage of LOI 1483: Respondent argued that the purchase of aviation fuel imported by Caltex was a purchase of domestic petroleum products because the same was not purchased abroad by PAL, and thus fell within the withdrawal of exemption.

• Legal Personality to Claim Refund: Whether PAL has the legal personality to file a claim for refund of the passed-on excise taxes.
• Coverage of LOI 1483: Whether the sale of imported aviation fuel by Caltex to PAL is covered by LOI 1483 which withdrew tax exemption privileges on purchases of domestic petroleum products for domestic operations.
• Sufficiency of Proof of Entitlement: Whether PAL has sufficiently proved its entitlement to refund.

• Legal Personality to Claim Refund: Yes. PAL may claim refund of passed-on excise taxes because Section 13 of its franchise exempts it from both direct taxes and taxes billed or passed on by the seller, producer, manufacturer, or importer.
• Coverage of LOI 1483: No. LOI 1483 withdrew only the exemption for domestic petroleum products, meaning locally manufactured goods for domestic sale, not imported aviation fuel resold by the importer.
• Sufficiency of Proof of Entitlement: Yes. PAL timely filed administrative and judicial claims, paid the in-lieu tax, and proved declaration and remittance of the excise taxes subject to a reconciled ₱23,855.00 difference.

• Legal Personality to Claim Refund: Excise taxes under Sections 129 to 131 of the NIRC are payable by the manufacturer/producer for domestic goods and by the owner/importer for imported articles, but as indirect taxes their economic burden may be passed on by adding the amount to the selling price. Ordinarily only the statutory taxpayer may claim refund under Section 204(c), and exemptions under Section 135 are invoked by the statutory taxpayer, as in Silkair where Petron, not Silkair Singapore, was the proper claimant. An exception applies where the law clearly grants the burden-bearer exemption from both direct and indirect taxes, as in Maceda where NPC's charter allowed reimbursement of tax passed on in bunker fuel price. Section 13 of PAL's franchise provides payment of the lower of basic corporate income tax or 2% franchise tax shall be in lieu of all other taxes, expressly including taxes directly due from or imposable upon the purchaser or the seller, producer, manufacturer, or importer but billed or passed on to PAL as part of price or by agreement. Because the franchise covers both categories, PAL was endowed with standing despite not being the statutory taxpayer.
• Coverage of LOI 1483: Section 13 yields three privileges: (a) taxes on local purchases; (b) taxes due from purchaser or seller/producer/manufacturer/importer but billed or passed on to PAL; and (c) taxes on importations by PAL itself. For excise purposes, the first is irrelevant to PAL since the local manufacturer is the statutory taxpayer under Section 130; the second embraces passed-on costs from a local seller/manufacturer and from an importer of imported fuel; the third applies when PAL itself imports as statutory taxpayer. Textually, domestic means of one's own country or of domestic manufacture, denoting goods manufactured or produced in the Philippines for domestic sale or disposition under Section 129, as opposed to things imported. Contextually, LOI 1483's whereas clauses show intent to lift the privilege clarified in the November 17, 1969 Department of Finance Ruling that PAL's franchise covered locally manufactured fuel for domestic operations. Hence the phrase purchase of domestic petroleum products refers only to passed-on costs from sellers/manufacturers of locally manufactured goods, leaving intact exemptions for imported goods whether PAL buys from an importer or imports itself. Caltex imported the fuel and resold it with tax added to price, so the transaction involved things imported beyond LOI 1483.
• Sufficiency of Proof of Entitlement: Although not a trier of facts, resolution on the merits was proper where the trial court received all evidence and remand would not serve expediency. First, the claim was timely under the two-year period in Section 229: Caltex filed and paid on July 26-29, 2004, PAL filed administratively on October 29, 2004 and judicially on July 25, 2006. Second, PAL satisfied the in-lieu tax condition, its FY 2004-2005 income tax return reporting no net taxable income and thus zero basic corporate income tax, necessarily lower than any franchise tax. Third, declaration and remittance were proved: the ₱23,855.00 gap between ₱2,975,892.90 declared and ₱2,952,037.90 claimed corresponded to 6,500 liters sold to LBOrendain at ₱3.67 per liter, with Caltex's Certification, Summary of Local Sales, Summary of Removals, receipts, invoices, and billing invoice reconciling the volumes and amounts.

• Indirect taxes and passing on — Indirect taxes are demanded in the first instance from one person with the expectation and intention that the economic burden can be shifted to another. The statutory taxpayer may treat the tax paid or payable as part of cost and tack it to the selling price; the purchaser's additional payment is legally part of the price, not payment of tax, and the manufacturer, producer, owner, or importer remains the statutory taxpayer.
• Statutory taxpayer as proper refund claimant — Under Section 204(c) of the NIRC, the statutory taxpayer has legal personality to claim refund of taxes erroneously or illegally received. In excise exemptions under Section 135 of the NIRC, the exemption is invoked by the statutory taxpayer, not the party merely bearing the economic burden, as applied in Silkair vs. Commissioner of Internal Revenue where Petron, not Silkair Singapore, was entitled to claim.
• Exception for exemption from both direct and indirect taxes — Where the law clearly exempts the burden-bearer from both direct and indirect taxes, that party may claim refund or reimbursement even if not the statutory taxpayer. Following Maceda vs. Macaraig, Jr., an exempt entity such as NPC, and here PAL under Section 13 of Presidential Decree No. 1590, may refuse to absorb passed-on tax or be reimbursed for the verifiable tax component in the purchase price.
• Strict construction of tax exemptions — Statutes granting tax exemptions are construed in strictissimi juris against the taxpayer and liberally in favor of the taxing authority, and an existing exemption must not be enlarged by construction without clear legislative intent that indirect taxes are included.

• "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." — States the general Silkair rule applied to deny refund to a mere bearer of the economic burden before the exception for dual direct-and-indirect exemption was found applicable to PAL.
• "Because, however, the NPC has been exempted from both direct and indirect taxation, the NPC must be held exempted from absorbing the economic burden of indirect taxation." — Articulates the Maceda rationale extended to PAL to allow recovery of passed-on excise taxes where the charter covers indirect taxes.
• "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:" — Quotes the in-lieu provision of PAL's franchise establishing the scope of exemption from both direct liability and passed-on costs.
• "NOW, THEREFORE, I, FERDINAND E. MARCOS, President of the Philippines, by virtue of the powers vested in me by the Constitution, do hereby order and direct that the tax-exemption privilege granted to PAL on its purchase of domestic petroleum products for use in its domestic operations is hereby withdrawn." — Reproduces the operative withdrawal in LOI 1483 construed to apply only to locally manufactured products, not imported fuel.

• Silkair (Singapore) Pte. Ltd. vs. CIR, G.R. No. 173594, February 6, 2008 — Cited as the general rule that the statutory taxpayer, not the party bearing the burden, questions or refunds indirect tax; distinguished because PAL's franchise, unlike Section 135 and the air agreement, exempts both direct and indirect taxes.
• Maceda vs. Macaraig, Jr., G.R. No. 88291, June 8, 1993 — Followed as authority that an entity exempt from both direct and indirect taxes is exempt from absorbing passed-on burden and entitled to reimbursement of the verifiable tax component.
• Commissioner of Internal Revenue vs. Philippine Long Distance Telephone Company — Cited through Silkair to clarify Maceda: exemption from all taxes excludes indirect taxes unless the statute is couched to include them, as NPC's charter was.
• CIR vs. John Gotamco & Sons, Inc., G.R. No. L-31092, February 27, 1987 — Cited for the definition of indirect taxes as demanded from one person with expectation the burden will be shifted to another.
• Exxonmobil Petroleum and Chemical Holdings, Inc.-Philippine Branch vs. CIR, G.R. No. 180909, January 19, 2011 — Cited for the principle that the purchaser pays more for goods because of the seller's obligation as statutory taxpayer, not the tax itself.
• CIR vs. PAL, G.R. No. 180066, July 7, 2009 — Cited in support of Section 13 franchise interpretation that in-lieu payment covers other taxes except real property tax.

• Section 129, National Internal Revenue Code — Imposes excise taxes on goods manufactured or produced in the Philippines for domestic sales or disposition and on things imported; used to classify domestic versus imported petroleum products.
• Section 130, National Internal Revenue Code — Makes the manufacturer or producer liable to file return and pay excise tax on domestic products before removal; applied to show PAL is not statutory taxpayer for locally manufactured fuel.
• Section 131, National Internal Revenue Code — Makes the owner or importer liable for excise taxes on imported articles; applied to identify Caltex as statutory taxpayer for the imported Jet A-1 fuel.
• Section 135, National Internal Revenue Code — Exempts petroleum products sold to international carriers, treaty entities, and entities exempt by law from direct and indirect taxes; contrasted with PAL's franchise-based claim.
• Section 204(C), National Internal Revenue Code — Authorizes credit or refund of taxes erroneously or illegally received upon written claim within two years; basis for standing of statutory taxpayer, subject to the dual-exemption exception.
• Section 229, National Internal Revenue Code — Requires suit or proceeding for recovery of tax erroneously collected within two years from payment; applied to sustain timeliness of October 29, 2004 administrative and July 25, 2006 judicial claims.
• Section 13, Presidential Decree No. 1590 (PAL Franchise) — Provides payment of lower of basic corporate income tax or 2% franchise tax in lieu of all other taxes, including taxes on local purchases and importations of aviation fuel and taxes passed on by seller, producer, manufacturer, or importer; core basis for standing and exemption.
• Letter of Instruction No. 1483 — Withdraws PAL's exemption on purchase of domestic petroleum products for domestic operations; construed to cover only locally manufactured products, not imported fuel.

Carpio (Chairperson), Brion, Del Castillo, and Perez, JJ., concur.