Excise Tax Refunds for Exported Goods: Who Can Claim Under the Tax Code

When a manufacturer exports goods and wants a refund of excise taxes paid on raw materials, a critical question arises: who may claim that refund? The Supreme Court answered this in Diageo Philippines, Inc. v. Commissioner of Internal Revenue (G.R. No. 183553, November 12, 2012), ruling that only the statutory taxpayer—the person who actually paid the excise tax to the government—may seek the refund or tax credit. This decision clarifies an important distinction for businesses engaged in manufacturing and export.

The Facts of the Case

Diageo Philippines, Inc. purchased raw alcohol from a supplier for use in manufacturing liquor products. The supplier had imported the raw alcohol and paid excise taxes on it, then passed those taxes on to Diageo as part of the purchase price. Diageo later exported its finished liquor products to Japan, Taiwan, Turkey, and Thailand.

Diageo filed claims for refund or tax credit of the excise taxes its supplier had paid, invoking the provision of the National Internal Revenue Code allowing a credit or refund for excise taxes on goods actually exported. The Commissioner of Internal Revenue denied the claims, arguing that Diageo lacked legal personality to seek the refund because it was not the party that paid the excise taxes.

The Issue

The sole question before the Court was whether Diageo had the legal personality to claim a refund or tax credit for excise taxes paid by its supplier on raw materials used in manufacturing exported goods.

The Court's Ruling

The Supreme Court denied Diageo's petition, holding that the right to claim a refund belongs to the supplier, not the purchaser.

Excise taxes are indirect taxes. The Court explained that excise taxes are imposed on goods manufactured or produced in the Philippines. While the manufacturer or producer pays the tax before removal of domestic products from the place of production, the tax can be shifted to subsequent purchasers as part of the price. However, what is shifted is only the burden of the tax, not the liability to pay it. The supplier remains the statutory taxpayer.

The statutory taxpayer is the proper party to claim a refund. The Court cited Silkair (Singapore) Pte, Ltd. v. Commissioner of Internal Revenue, stating that "[t]he 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."

No transfer of the right to claim. The Court noted that unlike the Value Added Tax system, which allows subsequent purchasers to claim input tax credits, no similar provision exists for excise taxes. When the excise tax was included in the purchase price paid by Diageo, it ceased to be a tax and became part of the cost of goods.

Tax exemptions are construed strictly. The Court emphasized that statutes granting tax exemptions are construed strictly against the taxpayer and liberally in favor of the taxing authority. Diageo failed to prove it was covered by the exemption.

Practical Takeaways

• Only the statutory taxpayer can claim excise tax refunds. If a supplier pays excise taxes on imported raw materials, only that supplier—not the manufacturer-buyer—may claim a refund or credit.

• Passing on the tax does not transfer the right to claim. Shifting the tax burden to a buyer as part of the purchase price does not make the buyer the statutory taxpayer.

• Check the law before structuring transactions. Unlike VAT, which has a credit method allowing buyers to claim input taxes, the excise tax system has no similar mechanism for non-statutory taxpayers.

• Document who paid the tax. For purposes of claiming refunds, the party that actually paid the excise tax to the BIR or customs authorities must maintain the necessary records and proof of payment.

• File claims within two years. Any claim for refund must be filed with the Commissioner within two years after payment of the tax.

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