FIRST DIVISION

[CA-G.R. SP No. 82902. September 13, 2004.]

SILKAIR (SINGAPORE) PTE. LTD., petitioner, vs. COMMISSIONER OF INTERNAL REVENUE, respondent.
DECISION
SALAZAR-FERNANDO, J p:
Before this Court is a Petition for Review under Rule 43 from the Decision and Resolution dated July 28, 2003,
and March 1, 2004, respectively, of the Court of Tax Appeals in CTA Case No. 6130, entitled "Silkair (Singapore)
Pte. Ltd. Petitioner, vs. Commissioner of Internal Revenue, Respondent", the dispositive portions of which read
as:
A. Decision dated July 28, 2003
"In the light of the foregoing, petitioner's claim for refund in the amount of P5,007,043.39 allegedly representing
erroneously paid excise tax for the period July 1, 1998 to December 31, 1998 is hereby DENIED for lack of
merit. aHCSTD
SO ORDERED." 1
B. Resolution dated March 1, 2004
"WHEREFORE, the instant Motion for Reconsideration is hereby DENIED for lack of merit.
SO ORDERED." 2
Petitioner Silkair (Singapore) Pte. Ltd., (Silkair for brevity) is a foreign corporation organized under the laws of
Singapore and duly licensed with the Securities and Exchange Commission to engage in business in the
Philippines as an on-line international carrier operating the Cebu-Singapore-Cebu and Davao-Singapore-Davao
routes. From July 1, 1998 to December 31, 1998, it purchased aviation fuel from Petron Corporation for its use in
the international flights and paid the excise taxes thereon in the sum of P5,007,043.39 which was advanced by
Singapore Airlines, Ltd. to Petron Corporation.
Believing that it erroneously paid the excise taxes, in October 1999, petitioner Silkair filed an administrative claim
for refund in the amount of P5,007,043.39 representing excise taxes paid on its purchase of jet fuel from Petron
Corporation. 3
For failure of respondent Commissioner of Internal Revenue (CIR for brevity) to act on the administrative claim
for refund, petitioner Silkair filed a Petition for Review with the Court of Tax Appeals (CTA) on the ground that
pursuant to Section 132 of the 1995 Tax Code, petroleum products, which include jet fuel, are exempt from
excise tax by carriers for international flights. TaISEH
In the assailed decision of the CTA, it was held that while petitioner Silkair was able to prove the reciprocity
clause requirement, it failed to satisfy the requirements of Section 135 of the 1997 Tax Code, i.e., storage of the
petroleum products in the bonded storage tank.
Hence, this petition based on the following grounds:
"5.1 THE HONORABLE COURT OF TAX APPEALS ERRED WHEN IT DID NOT CONSIDER AS DISTINCT
AND SEPARATE INSTANCES OF EXEMPTIONS PARAGRAPHS (A), (B) AND (C) OF SECTION 135 OF THE
NATIONAL INTERNAL REVENUE CODE OF 1997;
5.2 THE COURT OF TAX APPEALS ERRED WHEN IT RULED THAT THE PROVISO FOUND IN
PARAGRAPH (A) LIKEWISE APPLIED TO PARAGRAPH (B) OF SECTION 135 OF THE NATIONAL INTERNAL
REVENUE CODE OF 1997;
5.3 THE HONORABLE COURT OF TAX APPEALS ERRED WHEN IT HELD THAT PETITIONER HAD TO
FULFILL THE REQUIREMENTS OF THE PROVISO UNDER SECTION 135 (A) OF THE NATIONAL INTERNAL
REVENUE CODE OF 1997 REGARDING STORAGE OF THE PETROLEUM PRODUCTS SOLD IN A BONDED
STORAGE TANK. HCEcAa
5.4 THE HONORABLE COURT OF TAX APPEALS ERRED WHEN IT DENIED PETITIONER'S CLAIM FOR
REFUND."
Petitioner Silkair raises the issue on the alleged proper construction of Section 135 of the 1997 NIRC, which
reads as:
"SEC. 135. Petroleum Products Sold to International Carriers and Exempt Entities or Agencies. —
Petroleum products sold to the following are exempt from excise tax:
(a) International carriers of Philippine or foreign registry on their use or consumption outside the Philippines:
Provided, That the petroleum products sold to these international carriers shall be stored in a bonded storage
tank and may be disposed of only in accordance with the rules and regulations to be prescribed by the
Secretary of Finance, upon recommendation of the Commissioner;
(b) Exempt entities or agencies covered by tax treaties, conventions and other international agreements for
their use or consumption; Provided, however, That the country of said foreign international carrier or exempt
entities or agencies exempts from similar taxes petroleum products sold to Philippine carriers, entities or
agencies; and
(c) Entities which are by law exempt from direct and indirect taxes."
It is claimed that paragraphs (a), (b) and (c) of Section 135 of the 1997 NIRC, the applicable law, should be
taken separately and distinctly from each other. The requirements in paragraphs (a) and (b) should be made to
apply only to the respective paragraph to which it is appended. HAICET
A reading of the first line of Section 135, i.e., "Petroleum products sold to the following are exempt from excise
tax" indubitably shows several instances where international Carriers and Exempt Entities and Agencies
purchasing petroleum products are exempt from paying excise tax. In short, the requirements for the exemption
as indicated following the word/s "provided" and "provided, however" are limited to the particular provision to
which it was appended.
The exemption provided for in paragraph (a) carries the following restrictions:
1. The petroleum products must have been sold to international carriers of Philippine or foreign registry;
2. The international carriers must have used or consumed the petroleum products outside the Philippines;
and
3. The petroleum products sold to these international carriers shall be stored in a bonded storage tank and
may be disposed of only in accordance with the rules and regulations to be prescribed by the Secretary of
Finance, upon recommendation of the Commissioner. ADCEcI
From the CTA's findings, petitioner Silkair complied with requirements 1 and 2 but failed to prove or show that
the petroleum products were stored in a bonded storage tank and were disposed of only in accordance with the
prescribed rules and regulations.
On this aspect alone, this Court finds the dissenting opinion 6 of CTA Justice Ernesto D. Acosta correct that in
requirement No. 3 (storage in a bonded warehouse) is addressed to the oil companies or dealers maintaining
bonded storage tank and not to petitioner Silkair, pursuant to Section 158 of the NIRC.
Likewise, the dissenting opinion correctly stated that:
"Granting for purposes of argument, that it is a must requirement under Section 135 (A), however, the tax
exemption can still be justified under Section 135 (b), "exempt entities or agencies covered by tax treatise,
conventions and other international agreements for their use or consumption". The condition set by this provision
is that the country of said foreign international carrier or exempt entities or agencies from similar taxes petroleum
products sold to Philippine carriers, entities or agencies. There is no requirement that the fuel sold should come
from a bonded storage tank." 7
The majority opinion of the CTA erroneously conjoined the requirement of paragraph (b) with the requirements of
paragraph (a). HCTAEc
In paragraph (b), the only requirement is that the country of said foreign international carrier exempts from
similar taxes petroleum products sold to Philippine carriers. The reciprocity clause in the Air Transport
Agreement between the Government of the Republic of the Philippines and Government of the Republic of
Singapore executed on July 11, 1974 substantially complied with the requirement of Section 135 (b). This was
concurred by the CTA in its Decision dated July 28, 2003. Hence, petitioner Silkair is deemed exempted from
payment of excise tax on the petroleum products.
Notwithstanding the above disquisition, there appears a faux pas in the claim for refund.
The Tax Code provides for the administrative and judicial remedies of a taxpayer in instances or erroneous
collection of taxes.
By taxpayer is meant the person adversely affected by the action taken by the Commissioner. The Supreme
Court, in Cebu Portland Cement Co. vs. Collector of Internal Revenue, 8 ruled that in indirect taxes, like an
excise tax, the proper party who can question or seek a refund of the tax is the person on whom the tax is
imposed by law and who paid the tax even when he shifts the burden thereof to another. This is bearing in mind
that indirect tax is paid by the manufacturer or dealer of the product which was passed on the purchaser as part
of the purchase price. Thus, it was held that:
"The tax provided under this section of the code is imposed upon the manufacturer or producer and not on
purchaser. On this matter of who bears the burden of the sales tax, this Court, after an extensive research on the
subject, said:
We begin with the an analysis on the nature of percentage (sales) tax imposed by Section 186 of the Code. Is it
a tax on the producer or on the purchaser? Statutes of the type under consideration, which impose a tax on
sales, have been described as 'act(s) with schizophrenic symptoms', as they apparently have two faces — one
that of a vendor tax, and the other, a vendee tax. Fortunately, for us, the provisions of the Code throw some light
on the problem. The Code states that the sales tax 'shall be paid by the manufacturer or producer,' who must
make a true and complete return of the amount of his, her or its gross monthly sales, receipts or earnings or
gross value of output actually removed from the factory or mill warehouse . . .'
xxx xxx xxx
It may indeed be that the economic burden of the tax finally falls on the purchaser; when it does the tax becomes
a part of the price which the purchaser must pay. It does not matter that an additional amount is billed as tax to
the purchaser. The method of listing the price and tax separately and defining taxable gross receipts as the
amount received less the amount of the tax added, merely avoids payment by the seller of the tax on the amount
of the tax. The effect is still the same, namely, that the purchaser does not pay the tax. He pays or may pay the
seller more for the goods because of the seller's obligations, but that is all and the amount added because of the
tax is paid to get the goods and for nothing else. IcEaST
But the tax burden may not even be shifted to the purchaser at all. A decision to absorb the burden of the tax is
largely a matter of economics. Then it can no longer be contended that a sales tax is a tax on the purchaser."
It follows that it is petitioner, and not its customers, that may ask for a refund of whatever amounts it is entitled
for the percentage or sales taxes it paid . . ." 9
This simply means that petitioner Silkair cannot ask for a refund since it is not the taxpayer under the law. This is
without saying that Petrol Corporation, the taxpayer, may seek for a refund since it is not exempt from paying
excise tax. Respondent CIR correctly observed that petitioner Silkair made the erroneous payment of passed-on
excise tax, not with the BIR, but with the seller, Petron Corporation.
All told, it is hereby concluded, that petitioner Silkair is exempt from paying excise tax on petroleum products
purchased in the Philippines by virtue of Section 135 (b) but it is not the proper party to seek for the refund of an
indirect tax like an excise tax. Hence, this petition should fail. SCETHa
WHEREFORE, premises considered, the petition is hereby DENIED for lack of merit and ordered DISMISSED.
SO ORDERED.
Garcia and Abdulwahid, JJ ., concur.
Footnotes
1. Rollo, p. 71
2. Ibid., p. 88
3. Rollo, p. 101
4. Ibid., p. 75
5. Ibid., p. 23
6. Rollo, p. 72
7. Rollo, pp. 72–73
8. 25 SCRA 789
9. Ibid., pp. 796–797