Silkair (Singapore) Pte, Ltd. vs. Commissioner of Internal Revenue

The statutory taxpayer on whom the excise tax is imposed by law is the proper party to claim a refund, and a shifted indirect tax becomes part of the purchase price; moreover, notice to a counsel of record who has not formally withdrawn constitutes notice to the client for purposes of reckoning the appeal period.

Silkair (Singapore) Pte, Ltd., an online international air carrier operating routes between Singapore and the Philippines, purchased jet fuel from Petron Corporation from January to June 2000. Petron, as the manufacturer, paid the excise taxes on the petroleum products before removal from its refinery and shifted the tax burden to Silkair as part of the purchase price. Claiming exemption from excise tax under Section 135(b) of the NIRC of 1997 and Article 4(2) of the Air Transport Agreement between the Philippines and Singapore, Silkair filed a claim for refund with the Bureau of Internal Revenue (BIR).

• Purchase and Claim for Refund: Silkair, an international air carrier operating Philippine-Singapore routes, purchased jet fuel from Petron Corporation from January to June 2000. Petron paid the excise taxes on the petroleum products under Section 130(A)(2) of the NIRC of 1997 before removing them from its refinery, and shifted the tax burden to Silkair by adding it to the cost of the goods. On December 19, 2001, Silkair filed with the BIR a claim for refund of P4,567,450.79 representing the excise taxes paid, invoking Section 135(b) of the NIRC and Article 4(2) of the RP-Singapore Air Transport Agreement.
• Substitution of Counsel: During the pendency of Silkair's Motion for Reconsideration before the CTA Second Division, the Bengzon Law Firm entered its appearance on September 12, 2005, without the prior withdrawal of Silkair's original counsel, JGLaw. The CTA Second Division denied the motion on September 22, 2005. JGLaw received a copy of this resolution on October 3, 2005. On October 13, 2005, JGLaw filed its Notice of Withdrawal of Appearance with Silkair's conformity. On October 14, 2005, the Bengzon Law Firm received its requested copy of the resolution.
• Appeal Period Reckoning: Silkair, through new counsel, filed a Motion for Extension of Time on October 28, 2005, and a second motion on November 11, 2005, giving itself until November 24, 2005, to file a petition. Silkair filed the Petition for Review before the CTA En Banc on November 17, 2005. The CTA En Banc dismissed the petition for being filed out of time, reckoning the 15-day appeal period from October 3, 2005—the date JGLaw received the resolution—making the last day for appeal October 18, 2005.

• Timeliness of Appeal: Petitioner argued that the appeal was timely because notice to former counsel (JGLaw) should not bind it, claiming that the entry of appearance by the Bengzon Law Firm effectively substituted counsel, rendering the receipt by JGLaw immaterial. Petitioner relied on Dolores De Mesa Abad v. Court of Appeals, where the appearance of new counsel was deemed to replace the original counsel even without formal withdrawal.
• Right to Appeal vs. Technicality: Petitioner maintained that appeal is an essential part of the judicial system and that it should not be deprived of its right to appeal based on mere technicalities regarding the reckoning of the appeal period.
• Proper Party to Claim Refund: Petitioner argued that it is exempt from indirect taxes under Article 4(2) of the RP-Singapore Air Transport Agreement, invoking Maceda v. Macaraig, Jr., which upheld a claim for tax credit by an entity exempt from "all taxes," including indirect taxes.

• Improper Party to Claim Refund: Respondent countered that Petitioner failed to prove the sale was directly made from a domestic oil company to the international carrier. Because the excise tax is imposed on the manufacturer/producer, the proper party to claim the refund is Petron Corporation, the statutory taxpayer.
• Nature of Shifted Tax: Respondent argued that when the burden of the excise tax is shifted to the purchaser, the amount passed on is no longer a tax but part of the price of the goods, precluding the purchaser from claiming a refund of a tax it did not directly pay to the BIR.

• Timeliness of Appeal: Whether the Petition for Review before the CTA En Banc was filed timely, specifically whether notice to counsel of record who had not yet formally withdrawn constitutes valid notice to the client for reckoning the appeal period.
• Relaxation of Procedural Rules: Whether petitioner's right to appeal should be upheld despite procedural lapses in the substitution of counsel.
• Proper Party to Claim Refund: Whether petitioner is the proper party to claim a refund or tax credit for excise taxes paid on jet fuel, given that the tax was shifted to it by the manufacturer.

• Timeliness of Appeal: The Petition for Review was filed out of time. Notice to counsel of record is notice to the client. Because JGLaw had not yet formally withdrawn its appearance when it received the adverse resolution on October 3, 2005, service upon JGLaw was legally service upon Silkair. The 15-day appeal period commenced on October 3, 2005, expiring on October 18, 2005. The filing of the petition on November 17, 2005, was thus 30 days late.
• Relaxation of Procedural Rules: The rule on substitution of counsel under Section 26, Rule 138 of the Rules of Court must be strictly followed; failure to comply means the original attorney remains the counsel of record. Courts cannot be expected to independently ascertain whether counsel has been changed internally by the client.
• Proper Party to Claim Refund: Petitioner is not the proper party to claim the refund. The statutory taxpayer—the person on whom the tax is imposed by law and who paid the same to the government—is the proper party to question or seek a refund of an indirect tax. Under Section 130(A)(2) of the NIRC, Petron Corporation is the statutory taxpayer. Even if the tax burden was passed on to Silkair, the shifted amount becomes part of the purchase price, not a tax. Furthermore, the exemption under Section 135(b) of the NIRC and the RP-Singapore Air Transport Agreement cannot be construed to include indirect taxes without a clear showing of legislative intent; tax exemptions are construed in strictissimi juris against the taxpayer. Maceda v. Macaraig, Jr. does not apply, as the exemption there explicitly covered "all forms" of taxes, including indirect taxes, unlike the provisions invoked by Silkair.

• Statutory Taxpayer Rule in Indirect Taxation — 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 to the government, even if the burden is shifted to another. When the burden of an indirect tax is shifted to the purchaser, the amount passed on ceases to be a tax and becomes part of the purchase price. Applied to reject Silkair's claim, as Petron Corporation, the manufacturer on whom the excise tax was imposed, is the statutory taxpayer entitled to a refund.
• Notice to Counsel of Record — When a party is represented by counsel, service of judgments, orders, or pleadings must be made upon counsel. If a party has multiple counsels of record, notice to any one of them constitutes notice to all. Notice to counsel of record is legally notice to the client. Applied to reckon the appeal period from the date original counsel received the resolution, as the new counsel's entry of appearance without the former's formal withdrawal did not sever the attorney-client relationship for purposes of service.
• Strict Construction of Tax Exemptions — Statutes granting tax exemptions must be construed in strictissimi juris against the taxpayer and liberally in favor of the taxing authority. If an exemption exists, it must not be enlarged by construction. A tax exemption does not include indirect taxes unless the exempting statute explicitly provides for it, such as by using the phrase "all forms" of taxes. Applied to deny Silkair's claim that its exemption covered indirect taxes, as the invoked provisions lacked the requisite explicit language.

• "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."
• "Where the burden of the tax is shifted to the [purchaser], the amount passed on to it is no longer a tax but becomes an added cost on the goods purchased which constitutes a part of the purchase price."
• "Statutes granting tax exemptions must be construed in strictissimi juris against the taxpayer and liberally in favor of the taxing authority, and if an exemption is found to exist, it must not be enlarged by construction."

• Dolores De Mesa Abad v. Court of Appeals — Distinguished. Petitioner invoked this case to argue that the entry of appearance of new counsel effectively replaced original counsel even without formal withdrawal. The Court distinguished it, holding that more recent jurisprudence requires strict compliance with Section 26, Rule 138 of the Rules of Court regarding the withdrawal or substitution of counsel.
• Maceda v. Macaraig, Jr. — Clarified. Petitioner invoked this case to argue that its tax exemption covered indirect taxes. The Court clarified that Maceda actually supports the taxing authority, as the exemption there explicitly covered "all forms" of taxes, demonstrating that for indirect taxes to be exempted, the statute must explicitly state so.
• Commissioner of Internal Revenue v. Philippine Long Distance Telephone Company — Followed. Cited to clarify the ruling in Maceda, emphasizing that an exemption from "all taxes" excludes indirect taxes unless the exempting statute is explicitly couched to include them.
• Philippine Geothermal, Inc. v. Commissioner of Internal Revenue — Followed. Cited to support the doctrine that the statutory taxpayer is the proper party to claim a refund of an indirect tax.
• Philippine Acetylene Co., Inc. v. Commissioner of Internal Revenue — Followed. Cited to support the principle that a shifted tax becomes part of the purchase price.

• Section 130(A)(2), National Internal Revenue Code of 1997 — Provides that unless otherwise specifically allowed, the return shall be filed and the excise tax paid by the manufacturer or producer before removal of domestic products from the place of production. Applied to establish Petron Corporation as the statutory taxpayer liable for the excise tax and consequently the proper party to claim a refund.
• Section 135(b), National Internal Revenue Code of 1997 — Exempts petroleum products sold to exempt entities or agencies covered by tax treaties, conventions, and other international agreements from excise tax, provided the country of the foreign international carrier exempts from similar taxes petroleum products sold to Philippine carriers. Interpreted strictly against the taxpayer, finding no clear legislative intent to exempt indirect taxes.
• Article 4(2), Air Transport Agreement between the Government of the Republic of the Philippines and the Government of the Republic of Singapore — Exempts fuel introduced into or taken on board aircraft by a designated airline from customs duties, inspection fees, and other duties or taxes. Interpreted strictly, holding it does not explicitly cover indirect taxes.
• Section 2, Rule 13, Rules of Court — Provides that if a party has appeared by counsel, service upon him shall be made upon his counsel or one of them, unless service upon the party himself is ordered by the court. Applied to rule that service upon JGLaw, the counsel of record, constituted valid service to Silkair.
• Section 26, Rule 138, Rules of Court — Governs the change of attorneys, requiring written consent of the client filed in court or a court order after notice and hearing, and written notice to the adverse party. Applied to hold that the failure to formally withdraw in accordance with this rule means the original counsel remains the counsel of record for purposes of service.

Quisumbing (Chairperson), Carpio, Tinga, Velasco, Jr.