Excise Tax Refund: Who Is the Proper Claimant Under Philippine Law

Silkair (Singapore) Pte. Ltd., an international airline, purchased aviation jet fuel from Petron Corporation for its flights in 1999. Petron passed on the excise tax to Silkair as part of the purchase price, and Silkair later sought a refund of nearly P9 million from the Bureau of Internal Revenue. The question reached the Supreme Court: when an excise tax is shifted to a buyer, who has the legal right to claim a refund?

In Silkair (Singapore) Pte. Ltd. v. Commissioner of Internal Revenue (G.R. Nos. 171383 & 172379, November 14, 2008), the Court answered clearly—only the statutory taxpayer, the manufacturer, may claim the refund. This ruling is essential for businesses that purchase goods subject to excise tax, as it clarifies the difference between bearing the economic burden of a tax and being legally liable for it.

The Facts of the Case

Silkair, a Singaporean airline with routes to and from the Philippines, bought aviation jet fuel from Petron throughout 1999. Petron added the excise tax of P3.67 per liter to the price Silkair paid. Silkair filed claims for refund with the Commissioner of Internal Revenue, arguing that it was exempt from excise tax under the National Internal Revenue Code and under the Air Transport Agreement between the Philippines and Singapore.

The Court of Tax Appeals denied the claims, holding that Petron, as the manufacturer, was the statutory taxpayer and therefore the only party entitled to seek a refund. Silkair elevated the case to the Supreme Court.

The Issue

The sole issue was whether Silkair, as the purchaser who bore the economic burden of the excise tax, was the proper party to claim a refund of the taxes paid.

The Ruling: The Statutory Taxpayer Alone May Claim the Refund

The Supreme Court denied Silkair's petition and affirmed the rulings of the Court of Tax Appeals. The Court held that 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 was shifted to another.

The Court reasoned that under the National Internal Revenue Code, excise taxes are imposed on specified goods manufactured or produced in the Philippines. The manufacturer or producer is required to file the return and pay the excise tax before removing the products from the place of production. Petron, as the manufacturer, was therefore the person subject to tax and the person liable for the tax.

The Distinction Between Tax Liability and Tax Burden

The Court emphasized a critical distinction in indirect taxation. An excise tax is an indirect tax because the burden can be shifted to the consumer, but the liability to pay the tax remains with the manufacturer. When Petron passed on the tax to Silkair, the amount added to the price was not a tax paid by Silkair—it was simply part of the purchase price of the fuel.

Citing Commissioner of Internal Revenue v. Philippine Long Distance Company (G.R. No. 140230, December 15, 2005), the Court explained that when a seller passes on a tax to a buyer, the seller shifts the tax burden, not the liability to pay it. The buyer pays more for the goods because of the seller's obligation, but the buyer does not become the taxpayer.

The Exemption Argument Does Not Change the Outcome

Silkair argued that its tax exemption under the National Internal Revenue Code and the Air Agreement would be rendered useless if only Petron could claim the refund. The Court was not persuaded. The exemption entitled Silkair to purchase fuel free of excise tax, but the proper mechanism was for Silkair to present a valid exemption certificate to Petron before the purchase, so that Petron would not pass on the tax.

The Court noted that the supply contract between Silkair and Petron contained exactly such a provision, requiring the buyer to deliver a valid exemption certificate if entitled to purchase fuel free of taxes. Silkair failed to do so, and this failure could not be remedied by claiming a refund as if it were the taxpayer.

Practical Takeaways

• Only the statutory taxpayer may claim excise tax refunds. Under Philippine law, the manufacturer or producer is the taxpayer for excise tax purposes, even if the tax burden is shifted to the buyer.
• Shifting the burden does not shift the liability. When a seller adds an excise tax to the selling price, the additional amount becomes part of the price of the goods. The buyer does not become the taxpayer.
• Tax-exempt buyers must act before the purchase. An exemption from excise tax must be invoked by presenting a valid exemption certificate to the seller at the time of purchase, not by seeking a refund afterward.
• Review supply contracts carefully. Buyers who are entitled to tax exemptions should ensure their purchase agreements contain mechanisms for invoking the exemption before the transaction is completed.
• File refund claims within the prescriptive period. Under the National Internal Revenue Code, a claim for refund must be filed within two years after payment of the tax, and only by the statutory taxpayer.

This article is general information and not legal advice. For your specific situation, consult a lawyer or ask ASG Legal AI.