PILIPINAS SHELL PETROLEUM CORPORATION v. COMMISSIONER OF INTERNAL REVENUE

REPUBLIC OF THE PHILIPPINES Coon of Tax Appeals QUEZON CITY SECOND DIVISION PILIPINAS SHELL PETROLEUM C.T.A. CASE NO. 6554 CORPORATION, Petitioner, Members: -versus- CASTANEDA, JR., Chairperson UY, and PALANCA-ENRIQUEZ, JJ. COMMISSIONER OF INTERNAL Promulgated: REVENUE, NOV 2 8 2006 / Respondent. X- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -� ---------- 7X DECISION CASTANEDA, JR., J.: This is a Petition for Review seeking the refund/tax credit of the amount of FORTY NINE MILLION FIFTY EIGHT THOUSAND SEVEN HUNDRED THIRTY THREE PESOS and 09/100 (P49,058,733.09) allegedly representing excise ta xes paid by petitioner on its sales and deliveries of petroleum products to various international carriers for their use or consumption outside the Philippines , covering the period November 2000 to March 2001. Petitioner is a corporation duly organized and existing under the laws of the Philippines with office address at Shell House , 156 Valero Street, Salcedo Village , 1227 Makati City. It is engaged, among others , in the

DEC ISION C.T.A. CASE NO. 6554 Page 2 of2 l business of processing , treating and refining petroleum products for the purpose of producing marketable products and by-products and subsequent sale thereof. Respondent, on the other hand , is the duly appointed Commissioner of Internal Revenue , holding office at the SIR National Office Building located at Agham Rd., Diliman , Quezon City. During the period November 2000 to March 2001 , petitioner allegedly sold and delivered petroleum products to various international carriers of Philippine or foreign registry for their use or consumption outside the Philippines. Except for those delivered at the port of Zamboanga, the petroleum products sold and delivered by petitioner to the international carriers were sourced by petitioner from its tax-paid inventories stored at its various depots and installations. As regards the petroleum products delivered by petitioner at the port of Zamboanga , it allegedly "borrowed ' tax-paid petroleum products from Petron Corporation pursuant to a "loan or borrow" agreement between them . Excise taxes previously paid by Petron Corporation on the "borrowed " petroleum products were allegedly billed/passed on by Petron Corporation to petitioner. Petitioner, in turn , sold and delivered these "borrowed" petroleum products to various international carriers docked at the port of Zamboanga , net of excise taxes . Petitioner avers that for the total volume of petroleum products sold and delivered by it to various international carriers , for their use and consumption outside the Philippines, covering the period November 2000 to

DEC ISION C.T.A. CASE NO. 6:5:54 March 2001 , it paid the corresponding excise taxes in the total amount of P49,058,733.09, computed as follows : Month Product Volume Specific Amount November 2000 Gas Oil in Liters Tax Rate p 6,248,213.80 December 2000 Fuel Oil January 200 1 Gas Oil 3,833,260 1.63 99,691 .50 February 2001 Fuel Oil 332,305 0.30 7,435,440. 60 Gas Oil 1.63 March 2001 Fuel Oil 4 ,561,62 0 0 .30 343 ,299.00 TOTAL Gas Oil 1,144,330 1.63 12 ,289,932 .68 7,539 ,836 0.30 Fuel Oil 1,981 ,805 1.63 594,541 .50 Gas Oil 5 ,277 ,586 8,602 ,465.18 Fuel Oil 0.30 2,194 ,118 1.63 658,235.40 7,425,161 0.30 12,103,012.43 2,279 ,670 683 ,901 .00 ~ 49 05B,Z33 09 On June 5, 2001 and September 5, 2001 , petitioner filed two separate formal claims for refund or tax credit with the Large Taxpayers Audit & Investigation Division II of the Bureau of Internal Revenue , seeking the recovery of excise taxes paid on its sales and deliveries of petroleum products to international carriers during the periods November to December 2000 and January to March 2001, in the amounts P14,126,644.90 and P34 ,932,088.19, respectively or a total of P49,058,733.09. 1 There being no action on the part of the respondent on its claims and to toll the running of the statutory period of two (2) years within which to file a judicial claim for refund , petitioner filed the instant Petition for Review on October 25, 2002 . On December 11 , 2002 , respondent, by counsel, filed an Answer raising the following Special and Affirmative Defenses: 6. Petitioner failed to demonstrate that the tax subject of the case at bar was erroneously or illegally collected ; 7. Taxes paid and collected are presumed to have been made in accordance with law and regulations, hence , not refundable ; 1 Pars. 4 & 5, Joint Stipulation of Facts and Issues

DEC LSION C.T.A. CASE NO. 655 4 Page 4 of2 J 8. In an action for tax refund/credit, the burden of proof is on the taxpayer to establish its right to refund and failure to adduce sufficient proof is fatal to the action for tax refund/credit; 9. It is incumbent upon the petitioner to show that it has complied with the provisions of Section 204 in relation to Section 229 of the Tax Code , as amended; and 10. Claims for refund are construed strictly against the claimant for the same partakes [of] the nature of exemption from taxation (Commissioner of Internal Revenue vs. Ledesma, No. L-13509, January 30, 1970, 31 SCRA 95) and as such , they are looked upon with disfavor (Western Minolco Corp. vs. Commissioner of Internal Revenue, 124 SCRA 121). Petitioner presented evidence to buttress its case while respondent's counsel manifested that this case has no report of investigation .2 On May 11 , 2006, with petitioner's submission of Memorandum on April 12, 2006, and respondent's failure to file his Memorandum within the period granted, the case was considered submitted for Decision . The parties mutually agreed to limit the issues to be resolved by this Court, as follows : 1. Whether or not petitioner has complied with the requirements under section 229 of the National Internal Revenue Code of 1997 for the recovery of internal revenue taxes that have been erroneously, wrongfully, illegally or excessively assessed or collected; 2. Whether or not the country of registry of the various international vessels that purchased petroleum products from petitioner during the period from November 2000 to March 2001 exempts from excise or similar taxes petroleum products sold to Philippine vessels ; 3. Whether or not the petroleum products sold and delivered by petitioner to various international carriers during the period from November 2000 to March 2001 for the latter's use or 2 Record s, p. 232

DECISION C.T.A. CASE NO. 6554 Page 5 of2 l consumption outside the Philippines are exempt from excise tax; and 4. Whether or not petitioner is entitled to the recovery of excise taxes it paid on petroleum products sold and delivered by petitioner to various international carriers for their use or consumption outside the Philippines. Petitioner alleges that under Section 135 of the 1997 National Internal Revenue Code (NIRC) , petroleum products sold to international carriers (whether of Philippine or foreign registry) are exempt from excise taxes provided that: (a) the petroleum products are consumed outside the Philippines; and (b) in the case of foreign international carriers, their country of registry exempt from excise or similar taxes petroleum products sold to Philippine carriers . To quote: 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 . Petitioner contends that with respect to the foreign international carriers , their respective country of registry exempts from excise or similar taxes petroleum products sold to Philippine carriers. Therefore, the petroleum

DECISION C.T.A. CASE NO. 6554 Page 6 of2 1 products sold and delivered by petitioner to these various international carriers, for their use or consumption outside the Philippines, are exempt from excise taxes pursuant to Section 135 above. In relation thereto , Section 130(A)(2) provides: SEC. 130. Filing of Return and Payment of Excise Tax on Domestic Products. - (A) Persons Liable to File a Return, Filing of Return on Removal and Payment of Tax. - (1) XXX (2) Time for Filing of Return and Payment of the Tax . - 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 place of production: Provided, That the excise tax on locally manufactured petroleum products and indigenous petroleum levied under Sections 148 and 151(A)(4), respectively, of this Title shall be paid within ten (1 0) days from the date of removal of such products for the period from January 1, 1998 to June 30, 1998; within five (5) days from the date of removal of such products for the period from July 1, 1998 to December 31, 1998; and, before removal from the place of production of such products from January 1, 1999 and thereafter xxx (Emphasis Supplied) Thus, petitioner posits that for the petroleum products it sold and delivered to various international carriers of Philippine or foreign registry for their use and consumption outside the Philippines for the period November 2000 to March 2001 , it paid the excise taxes due thereon upon removal thereof from its place of production save for the petroleum products delivered by petitioner at the port of Zamboanga which were paid by Petron Corporation to the BIR upon removal thereof from the place of production . Petitioner, however, claims that Petron Corporation shifted or passed-on to it the excise tax component of the "borrowed" petroleum products. Petitioner asseverates

DECISION C.T.A. CASE NO. 6554 Page 7 of2 1 that "borrowed" petroleum products emanated from a "Loan or Borrrow" Arrangement. 3 The Court finds partial merit in petitioner's claim. With respect to the first issue submitted to the Court for resolution , Section 229 of the National Internal Revenue Code provides : SEC. 229. Recovery of Tax Erroneously or Illegally Collected. - No suit or proceeding shall be maintained in any court for the recovery of any national internal revenue tax hereafter alleged to have been erroneously or illegally assessed or collected , or of any penalty claimed to have been collected without authority, or of any sum alleged to have been excessively or in any manner wrongfully collected, until a claim for refund or credit has been duly filed with the Commissioner, but such suit or proceeding may be maintained, whether or not such tax , penalty, or sum has been paid under protest or duress. In any case, no sucll suit or proceeding shall be filed after the expiration of two (2) years from the date of payment of the tax or penalty regardless of any supervening cause that may arise after payment: Provided, however, That the Commissioner may, even without a written claim therefor, refund or credit any tax, where on the face of the return upon which payment was made, such payment appears clearly to have been erroneously paid . In the present case, the administrative claims for refund were made on June 5, 2001 and September 5, 2001, while the judicial claim was filed on October 25 , 2002 . On the other hand, Section 130(A)(2) of the 1997 NIRC requires that payments of excise taxes on petroleum products should be made before withdrawal of the products from their place of production and the subject claim involves excise taxes paid from November 2000 to March 2001. 3 Exhibit A

DECISION C.T.A. CASE NO. 6554 Page 8of2 1 A scrutiny of the records reveals that the earliest withdrawal and payment of the excise tax for deliveries made in November 2000 , were made on October 26, 2000 and October 27, 2000 , respectively. Hence, counting two (2) years from these dates , petitioner was able to timely file both the administrative and judicial claims for refund in compliance with Section 229 of the 1997 NIRC . Thus , We shall proceed to the other issues raised. Being interrelated , the same shall be discussed jointly. In the case of Commissioner of Internal Revenue vs. Pilipinas Shell Petroleum Corporation, CTA EB No. 91, November 25, 2005 (CTA Case Nos. 6506 & 6559), 4 it was held : Finally, considering that Petitioner's sale of fuel oil to NPC is exempt from the payment of excise taxes, then Petitioner may rightfully recover the excise taxes it paid to PSPC (Pilipinas Shell Petroleum Corporation) . And as correctly pointed out by Petitioner, since it ended up shouldering the specific tax component of the fuel oil , it is but just and reasonable to allow it to recover what it would have otherwise have passed on to NPC had it not been for NPC's exemption from indirect taxes . 'The view which refuses to accord exemption from indirect tax because the tax is first paid by the seller disregards realities and gives more importance to form than to substance . Equity and law always exalt substance over form' xxx." While the above case deals with sale of petroleum products to tax exempt entities whose exemption from excise tax falls under Section 135(c) of the 1997 NIRC, and this case deals with fuel oil sold to international carriers whose exemption fall under Section 135(a) of the same Code, the above pronouncement of the Court of Tax Appeals En Bane, applies by analogy since in this case , petroleum products were sold to an entity exempt from the 4 Citing Shell Philippines Petroleum Corporation (now Pilipinas Shell Petroleum Corporation) vs. Commissioner of Internal Revenue, promulgated on July 26, 2000, with entry of judgment dated November 24, 2000

DECISION C.T.A. CASE NO. 65 54 Page 9 of2 1 payment of excise tax, and petitioner ended up shouldering the tax since it cannot pass on the excise taxes to the tax-exempt buyer. It likewise would not be amiss to cite BIR Ruling No. 051-99 which in part states : xxx "[S]ince your petroleum product witl1drawals are for use by entities or agencies exempt from excise tax under Section 135 of the Tax Code of 1997, and that the petroleum products are to be delivered to the tax-exempt entities within ten (1 0) days (for the period January 1, 1998 to June 30, 1998); within five (5) days (for the period July 1, 1998 to December 31, 1998) from the date of removal of such products ; and before removal from the place of production of such products (from January 1, 1999 and thereafter), you are allowed to claim a tax credit/refund of the excise taxes paid on petroleum products sold to tax exempt entities or agencies, subject to the two-year prescriptive period under Section 229 of the Tax Code of 1997. Furthermore, the excise taxes paid on petroleum products sold and physically delivered to tax-exempt entities beyond ten (1 0) days (for the period January 1, 1998 to June 30, 1998), five (5) days (for the period July 1, 1998 to Dec. 31, 1998) after date of refinery withdrawal shall be recovered by you by filing claims for tax credit/refund with the Appellate Division , this Bureau . xxx" As correctly pointed out by petitioner Section 135(a) of the 1997 NIRC is quite clear. Among those exempted from excise taxes on petroleum products are those sold to international carriers of Philippine or foreign registry for their use or consumption outside the Philippines . Under Section 135, there are three requirements for a valid claim of exemption : First, that the petroleum products are used and consumed outside the Philippines by international carriers of Philippine or foreign registry; Second, that the that such petroleum products be stored in a bonded storage tank and disposed of in accordance with the rules and regulations prescribed by the Secretary of Finance, upon recommendation of Commissioner; and

DE CIS ION C.T.A. CASE NO . 6554 Page JO of2 1 Third, that the country of said international carrier exempts from similar taxes petroleum products sold to Philippine carriers . In this case , the commissioned Independent Certified Public Accountant of Joaquin Cunanan & Co., Mr. Jose Tayag , Jr., in his final report dated October 19, 2004, made the following findings: "Based on the results of our examination of the Company's accounting and related records, including the relevant documents that support the Company's claims for tax refund or credit with respect to specific taxes imposed under Section 130 (A)(2) of the NIRC, we are of the opinion that the Company is entitled to a refund of P41 ,985,139.49 representing excise taxes paid on petroleum sold to international vessels for use or consumption outside the Philippines. We believe that the amount of P7 ,073 ,593 .60 is not refundable . We verified that � The Company paid the excise taxes of P49,058,733.09 on its withdrawal of petroleum products of 28,637,463 liters of gas oil and 7,932,228 liters of fuel oil for the period November 2000 to March 2001 which were subsequently sold to international carriers, net of the related excise taxes . This means that the Company did not pass onto these international carriers the cost of excise taxes it paid upon withdrawal. We have classified the excise tax payments of P49 ,058,733.09 based on the results of our examination as follows : a. With complete documents and , therefore , refundable (P41,985,139.49) Of the amount refundable of P41 ,985,139.49, the amount of P39,305,419.49 (Annex C) represents excise taxes on petroleum products sold to international vessels which were sourced from the Company's own tax-paid inventories; Of the amount refundable of P41 ,985, 139.49, the amount of P2 ,679,720 (Annex F) represents excise taxes on petroleum products sold to international vessels which were borrowed from Petron 's tax-paid inventories;

DECISION C.T.A. CASE NO. 6554 Page 11 of2 1 b. With incomplete documents or exceptions and, therefore , not refundable (P7,073,593.60) Excise taxes of P7 ,073,593.60 (Annex D) broken down as follows : As of October 19, 2004 , the Company failed to furnish some documents for us to complete our verification on the excise tax claims amounting to P1,451 ,937 .15 having a total volume of 607,905 liters of gas oil and 1,536,840 liters of fuel oil. The Company failed to provide DFA certification on several countries granting excise tax exemption to Philippine-registered vessels on their purchase of petroleum products while docked in foreign ports. Total claims for deliveries to countries without reciprocity agreement amount to P4,941 ,196.77 having a total volume of 2,629,449 liters of gas oil and 2,183,983 liters of fuel oil. Pursuant to Maritime Industry Authority Memorandum Circular No. 166, Philippine-Registered domestic ships may be allowed to temporarily engage in international voyages provided that the company obtains a special permit. Excise taxes on deliveries of petroleum products to domestic ships without special permit amount to P681 ,459.68 having a total volume of 402 ,736 liters of gas oil and 80,000 liters of fuel oil. Total amount of excise tax payment with incomplete documents or with exceptions amounted to P7 ,073,593.60. � We have seen the related documents where deliveries of petroleum products to international carriers at the port of Zamboanga were sourced from Petron . Total excise taxes paid to Petron on its deliveries (November 2000 to March 2001) to the Company is P2,679,720 representing 1,644 ,000 liters of gas oil. xxx � The certified true copy of the bunkering permit [Exhibit 'W-1 ' to 'W-75'] of each international carrier that we inspected to establish its nationality were obtained by the Company from Bureau of Customs .

D E C IS IO N C.T.A. CASE NO. 6554 Page 12 of2 l � Based on the reconciliation of advance payments and excise taxes due xxx, we noted the following inconsistencies which do not affect the amount refundable : xxx The inconsistencies noted xxx do not affect the amount of the claim because the beginning and ending balances of the advance payment are sufficient to cover the inconsistencies thus noted. After effecting the exclusion on excise tax claims amounting to P7,073 ,593.60 due to unavailability of certain documents (original or duplicate original copies) , deliveries to countries without reciprocity agreement, and deliveries to domestic vessels without special permit to ply international route , it is our opinion that the Company is entitled to a refund of P41 ,985,139.49 representing excise taxes paid on petroleum products sold to international vessels for their use or consumption outside the Philippines. Our conclusion relates only to the Company's claims for tax refund or credit and does not extend to other components of the Company's financial statements . This final report is solely in connection with the tax case involving claims for specific tax refund or credit filed by the Company now pending with the CTA (CTA Case No. 6554) and should not be used for any other purpose. "5 (References Omitted) As verified by the Independent Certified Public Account, petitioner is entitled to a refund in the total amount P41 ,985,139.49 , broken down as follows : P39,305,419.49 (representing excise taxes on petroleum products sold to international carriers which were sourced from the Company's own tax-paid inventories) ; and P2 ,679 ,720 .00 (representing excise taxes on petroleum products sold to international carriers which were borrowed from Petron' tax-paid inventories). In its Memorandum , petitioner prayed that judgment be rendered declaring its entitlement to a refund or tax credit in the amount of 5 Exhibit U

DECISION C.T.A. CASE NO. 6554 Page 13 of2 1 P41 ,985,139.49 and ordering respondent to grant a refund or tax credit in the same amount. It is noteworthy that petitioner's prayer with respect to the amount of refund already considers the report of the commissioned independent CPA Moreover, petitioner justified its claim in the amount of P2,679,720.00 in this manner: 1. Considering that petitioner does not have a depot or installation in Zamboanga for the storage of tax-paid petroleum products, petitioner 'borrowed' petroleum products from Petron Corporation , pursuant to an 'Agreement for Rationalized Operations of Bulk Fuel Storage Plant' entered into by petitioner and Petron Corporation. Petitioner, in turn , sold and delivered the 'borrowed' petroleum products to international vessels docked at the port of Zamboanga, net of excise taxes. The petroleum products 'borrowed by petitioner from Petron Corporation were later on replaced/repaid by petitioner with petroleum products of the same kind . 2. The petroleum products 'loaned' by Petron Corporation to petitioner for the period December 2000 to March 2001 for delivery to tax-exempt international carriers of Philippine or foreign registry were sourced by Petron Corporation from its tax-paid inventories, meaning the excise taxes due thereon had already been paid by Petron Corporation to the BIR upon removal thereof from the place of production. 3. Inasmuch as petitioner would later on replace/repay the 'borrowed' petroleum products, Petron Corporation only billed petitioner the excise tax component pertaining to the petroleum products 'borrowed'. In other words , Petron Corporation shifted or passed-on to petitioner the excise tax component of the 'borrowed' petroleum products as and when the same were 'loaned' by Petron Corporation to petitioner. 4. However, the amounts billed by petitioner for the sale and delivery of the 'borrowed ' petroleum products to various international vessels docketed at the port of Zamboanga , during the period December 2000 to March 2001 , were net of excise taxes. Thus, petitioner ultimately had to bear the excise tax component of the 'borrowed ' petroleum products sold and delivered at the port of Zamboanga ." 6 6 Memorandum for Petitioner, Records, pages 237 - 238

DECISION C.T.A. CASE NO. 6554 Page 14 of21 Notwithstanding the above explanation , the claimed amount of P2 ,679,720.00 representing excise taxes on petroleum products sold to international carriers which were borrowed from Petron Corporation 's tax-paid inventories is disallowed . Section 130(A)(2) and Section 204 of the National Internal Revenue Code of 1997 read : SEC 130. Filing of Return and Payment of Excise Tax on Domestic Products. - (A) Persons Liable to File a Return, Filing of Return on Removal and Payment of Tax. - (1) XXX (2) Time for Filing of Return and Payment of the Tax. 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 place of production : xxx SEC. 204. Authority of the Commissioner to Compromise, Abate and Refund or Credit Taxes. - The Commissioner may- (A) XXX (B) XXX (C) Credit or refund taxes erroneously or illegally received or penalties imposed without authority, refund the value of internal revenue stamps when they are returned in good condition by the purchaser, and , in his discretion, redeem or change unused stamps that have been rendered unfit for use and refund their value upon proof of destruction . No credit or refund of taxes or penalties shall be allowed unless the taxpayer files in writing with the Commissioner a claim for credit or refund within two (2) years after the payment of the tax or penalty: Provided , however, That a return filed showing an overpayment shall be considered as a written claim for credit or refund . Clearly, petitioner in this case is not the proper party to claim for the refund of the amount of P2 ,679,720.00 representing excise taxes on petroleum products sold to international carriers which were borrowed from Petron Corporation 's tax-paid inventories. There was no erroneously or

DECISION C.T.A. CASE NO. 6554 Page 15 of2 1 illegally collected excise tax because the taxes were indeed due and demandable at the time the petroleum products were withdrawn from their place of production . Petron Corporation, as the taxpayer statutorily liable to pay the excise taxes thereon , merely paid what was demandable from it. In addition , petitioner did not pay and remit the tax to the Bureau of Internal Revenue. And since the excise taxes were paid by Petron Corporation, petitioner cannot seek for the refund thereof because it is not the taxpayer entitled the remedy provided by law in Section 204 of the National Internal Revenue Code of 1997. As held in the case Commissioner of Internal Revenue vs. Si/kair (Singapore) PTE. LTD.,7 "the right to claim for the refund of excise taxes paid on petroleum products lies with Petron Corporation who paid and remitted the excise tax to the BIR at the point of removal of the petroleum products from the refinery and not respondent xxx, to whom the tax burden was merely passed on". However, this Court finds petitioner entitled to the refund/tax credit of the amount of P39,305,419.49 representing excise taxes paid on the petroleum products it sold to international carriers of foreign or Philippine registry for consumption outside the Philippines. The amount of P39,305,419.49 representing excise taxes on petroleum products sold to international carriers were sourced from the Company's own tax-paid inventories [which according to the commissioned independent CPA was substantiated by documentary evidence, such as Bunkering Permit (Exhibits W-1 to 75) ; Receipts for Marine Bunker Fuel (Exhibits X-1 to X-96) ; Sales 7 CfA EB Case No. 25 (CfA Case No. 5996), Resolu tion, December 5, 2005

DECISION C.T.A. CASE NO. 6554 Page 16 of2 1 Invoices (Exhibits BB-1 to BB-82) ; Billing details (Exhibits Y-1 to Y-82); Pricing details (Exhibits Z-1 to Z-82) ; Official Receipts (Exhibits AA-1 to AA-62)] . After a careful review of the conclusion reached by the commissioned independent CPA8 with reference to the documentary evidence offered by petitioner, We find that: (1) Petitioner made advance payments of excise taxes from November 2000 to March 2001 in the total amount of P826 ,000,000.00, 9 summarized as follows : Exhibit Date Amount T-4-3 October 27, 2000 p 122,000 ,000 .00 T-13-3 November 16, 2000 T-5-3 November 24 , 2000 26,000 ,000 .00 T-28-3 December 21, 2000 4,000 ,000 .00 T-25-3 December 15, 2000 T-22-3 December 12, 2000 67 ,000 ,000 .00 T-40-3 January 16, 2001 129 ,000,000 .00 T-44-3 January 23 , 2001 T-45-3 January 24 , 2001 26,000,000 .00 T-50-3 January 31 , 2001 28, 000,000.00 T-53-3 February 6, 2001 16 ,000 ,000.00 T-64-3 February 23, 2001 23 ,000,000 .00 T-80-3 March 21 , 2001 21 ,000 ,000 .00 T-68-3 March 1, 2001 34,000 ,000 .00 T-72-3 March 7, 2001 101,000 ,000.00 T-76-3 March 13, 2001 40,500 ,000 .00 44 ,000,000 .00 56,500,000.00 58,000,000.00 T-77-3 March 14 , 20 01 30,000,000 .00 Total Advance Payments E! 826,000,000.00 (2) Petitioner made several withdrawals of gas and fuel oils from its refinery evidenced by Withdrawal Certificates10 during the period from November 2000 to March 2001 for total volume in liters of 218,458,032 and 51,418,644, respectively . The related excise taxes of P356,081,702.16 and P12,425,593 .20 of the said withdrawn petroleum products were already paid as evidenced by Daily Products 8 Exhibit U 9 Annex B, commissioned independent CPA report (Exhibit U); Exhibits T-4-3, T-13-3, T-5-3, T-28-3, T- 25-3, T-22-3, T-40-3, T-44-3, T-45-3, T-50-3, T-53-3, T-64-3, T-80-3 , T-68-3, T-72-3 , T-76-3, T-77-3 10 Exhibits V-1 to V-51

DEC lSTON C.T.A . CASE NO . 6554 Page 17 of2 1 Deliveries Report,11 Daily Removals and Excise Tax Due to Petroleum Products 12 Excise Tax Returns 13 in relation to Payment Form (B IR Form No. 0605) for advance payment of excise tax. 14 Details of withdrawals of gas and fuels oils and their corresponding excise tax dues are shown below: Withdrawal of Gas Oil Exhibits Withdrawal Date Volume Exhibits Excise Tax V-1 Certificate No. 10/2612000 12 ,09 7,104 T-1; T-1 -1 & T-1-2 at P1.63 per liter V-2 10,583,242 T-2; T-2-1 & T-2-2 V-3 50287 11/5/2000 T-3; T-3-1 & T-3-2 of Gas Oil V-4 50366 11/1212000 5,779,858 T-4; T-4-1 & T-4-2 p 19,718,279.52 V-5 50392 11/15/2000 12,954 ,579 T-5; T-5-1 & T-5-2 V-6 50454 11/23/2000 T-6 ; T-6-1 & T-6-2 17,250,684.46 V-7 50489 12/20/2000 8,092 ,005 T-7; T-7-1 & T-7-2 9,421 ,168.54 V-8 50689 12/14/2000 8,956,585 T-8 ; T-8-1 & T-8-2 V-9 50670 12/1 1/2000 7 ,378,925 T-9; T-9-1 & T-9-2 21 ' 111 ,073.77 V-10 50659 11 ,278,834 T-'10; T-10-1 & T-10-2 13 , 189 ,968 .15 V- 12 50582 12/5/2000 9,665 ,348 T-11 ; T-11-1 & T-1 1-2 14 ,599,233.55 V- 15 50560 11/29/2000 8,862 ,172 T-12; T-12-1 & T-12-2 12,027,647 .75 V-18 50784 12/30/2000 9 ,638,712 T-13; T-13- 1 & T-13-2 18,38 4 ,49 9.42 V - 20 50802 10,396 ,608 T-14; T-14-1 & T-14-2 15,754 ,517 .24 V-2 1 50844 1/4/2001 7,210,329 T-14 ; T-14-1 & T-14-2 14,44 5,340.36 V-23 50891 1/15/2001 3,413 ,397 T-15; T-15-1 & T-15-2 15,7 11,100.56 V-25 50920 1/22/2001 7,329,969 T-16; T-16- 1 & T-16-2 16,946,471 .04 V-27 50929 1/22 /2 001 4,846 ,226 T-17; T-17-1 & T-17-2 11,752,836.27 V -32 52257 1/23/200 1 7,340 ,480 T-18; T-18-1 & T-18-2 V-36 52288 1/30/2001 1 ,6 12 ,1 0 9 T-20; T-20-1 & T-20-2 5,563,837 .11 V-37 60346 8,912,686 T-20; T-20-1 & T-20-2 11 ,947,849.47 V-40 60380 2/5/2001 4,580, 398 T-21 ; T-21-1 & T-21 -2 V-42 6041 2 2/18/2001 14,466 ,020 T-22; T-22-1 & T-22-2 7 ,899,3 4 8 .38 V-43 60427 2/22/200 1 7 ,324 ,349 T-23; T-23-1 & T-23-2 11 ,964,982.40 V -47 60643 2/22/200 1 4 ,948,132 T-25; T-25- 1 & T-25-2 V -49 60443 2/25/2001 12,821 '766 T-26 ; T-26-1 & T-26-2 2,627,737 .67 V-50 60602 312012001 8,977 ,354 T-27; T-27-1 & T-27-2 14,527,678.18 TOTAL 60611 2128/2001 4 ,799,209 60490 3112/200 1 4 191 636 7 ,46 6 ,048 .74 311312001 218 458 032 23 ,579,612.60 311 1/2001 11 ,938,688.87 8,065,455.16 20,899,478.58 14,633,087.02 7 ,8 22,710 .67 6 ,832,366 .68 P35608170216 Withdrawal of Fuel Oil Exhibits Withdrawal Date Volume Exhibits Excise Tax V- 11 Certificate No. 11129/2000 2,107,380 T-10; T-10-1 & T-10-2 At P0.30 per liter V-13 1,092 ,062 T-12; T-12-1 & T- 12-2 50524 11412001 of Fuel Oil 50732 p 632,2 14.00 327,618 .60 11 Exhibits T- 1-2 to T-27-2 12 Exhibits T- 1-1 to T-27-1 13 Exhibits T- 1 to T-27 14 Exhibits T-4-3 to T-80-3

DECISION C.T.A. CASE NO. 6554 Page 18 of21 V - 14 50733 1/4/2001 2,050,081 T-12; T-12-1 & T-12-2 6 15,024 .30 V - 16 50873 1/15/2001 1 ,512, 4 20 T-13; T-13-1 & T-13-2 453 ,726.00 V-17 50874 1/15/2001 1,900,512 T-13 ; T-13-1 & T-13-2 570,153.60 V - 17 50874 1/ 15/200 1 1,921,976 T-13; T-13-1 & T-13-2 576,592 .80 V-19 50892 1/22/2001 2 ,085,070 T-14 ; T-14- 1 & T-14-2 625,521.00 V -22 50896 1/23/2001 1,144,621 T-15; T-15- 1 & T-15-2 343,386.30 V-2 4 50964 1/30/200 1 1,527 ,360 T-16; T-16-1 & T-16-2 458 ,2 08 .00 V-26 50978 2,117,592 T-17 ; T-17-1 & T-17-2 635 ,277.60 V -28 60370 2/5/2001 1,869,278 T-18; T-18-1 & T-18-2 560,783.40 V-29 60369 2/18/2001 T-18; T-18-1 & T-18-2 296,922.60 V-29 60369 2/18/200 1 989,742 T-18; T-18-1 & T-18-2 160,697.40 V-31 60347 2/18/2001 535 ,658 T-18 ; T-18-1 & T-18-2 1,421 ,828.10 V-34 60379 2/18/2001 4 ,739,427 T-19; T-19-1 & T-19-2 220 ,844 .1 0 V-34 60379 2/2 1/2001 736 ,147 T-19; T-19-1 & T-19-2 339,944.10 V-35 60378 2/2 1/2001 1,133,1 47 T-19 ; T-19-1 & T-19-2 454 ,7 9 3 .10 V-38 60391 2/21/2001 1,515,977 T-21; T-21-1 & T-21-2 376,6 08 .90 V-39 60392 2/25/2001 11 ,255,363 T-21; T-21-1 & T-21 -2 843,689.70 V-41 60564 2/25/2001 2 ,8 1 2 , 2 9 9 T-22; T-22-1 & T-22-2 452 ,007.90 V-44 60454 3/20/2001 1,506 ,6 9 3 T-23; T-23-1 & T-23-2 557,592 .6 0 V-45 60474 2/28/2001 1,858 ,642 T-24; T-24-1 & T-24-2 323,751.30 V-46 60475 1,079 ,171 T-24 ; T-24-1 & T-24-2 455,599.2 0 V-48 60495 3/6/2001 1,518 ,664 T-25; T-25-1 & T-25-2 388 ,078 .50 V-51 60492 3/6/2001 1,293 ,595 T-27 ; T-27-1 & T-27-2 334 730.10 TOTAL 3/ 12/20 01 1 115 767 ~2 ~25 fi9J 2.0 3/ 11/2001 5.1 , ~:18 �44 TOTAL EXCISE TAX ON WITHDRAWALS OF GAS AND FUEL OIL P368.507.295.36 Thus, from November 2000 to March 2001 , petitioner's total advance payments of excise tax amounting to P826,000,000.00 is greater than the excise ta x due of P368,507,295.36 for the sa id withdrawn petroleum products .15 Indeed, during November 2000 to March 2001 , petitioner sold and delivered a total of 23,353 ,373 liters of gas oil and 4,131,405 liters of fuel oil to various tax-exempt international carriers of Philippine or foreign registry, net of the related excise taxes. The said sales and deliveries to tax-exempt international carriers are duly supported by Bunkering Perm it, showing among 15 See Annex~ commissioned independent CPA report (Exhibit U) in relation to the pertinent documentary evidence referred therein.

DECISION C.T.A. CASE NO. 6554 Page 19 of2 1 others the nationality of the vessel ;16 Receipts for Marine Banker Fuel ;17 Sales Invoices ;18 Billing details ;19 Pricing details ;20 Official Receipts ;21 in relation to the Certification issued by the Department of Foreign Affairs22 listing therein the name of the countries that grant tax exemption to Philippine- registered carriers. Further, the petroleum products which were sold to various tax-exempt international carriers of Philippine or foreign registry were used or consumed outside the Philippines.23 (see Annex A of this Report) IN VIEW OF ALL THE FOREGOING , petitioner's claim is hereby GRANTED in the reduced amount of P39 ,305,419.49, computed as follows : Volume (in Liters) Gas Oil Fuel Oil @ P1.63/Liter Month Gas Oil Fuel Oil p 6,033,053.80 @P0 .30/Liter Total November 2000 p 6,033,054 December 2000 3,701,260 0 5,831' 178.30 p 0.00 January 2001 9,298 ,4 93 .11 6,023,052 February 2001 3,577,4 10 639,580 6,507 ,155.60 191,874.00 9,700,810 Marcil 2001 10,396, 117.18 6,564 ,783 Total 5,70 4,597 1,341,055 1:!38 065 99Z 99 402,316 .50 10983721 E39 305 419 49 3,992 ,120 192,090 57 ,627 .00 6,3 77,986 1,958,680 587 604 .00 23 353 3Z3 4 131 405 1:!1 239 421 50 Accordingly , respondent is hereby ORDERED to REFUND or to ISSUE A TAX CREDIT CERTIFICATE in favor of petitioner in the amount of THIRTY NINE MILLION THREE HUNDRED FIVE THOUSAND FOUR HUNDRED NINETEEN & 49/100 PESOS (P39,305,419.49) representing excise taxes paid by petitioner on petroleum products sold to international 16 Exhibits W- 1 to W-75 17 Exhibits X- 1 t o X-9 6 18 Exhibits BB- 1 to BB-82 19 Exhibits Y- 1 to Y-82 z 20 Exhibits -1 to Z-82 21 Exhibits AA-1 to AA-62 22 ExhibitS 23 Exhibits L to L-9

DECISION C.T.A. CASE NO . 6554 Page 20 of2 1 carriers which were sourced from its own tax-paid inventories. SO ORDERED. Ca3'U~ ANI~ TO C<.?C. a AST TAN~ED, A, J~s..2t- _ Associate Justice WE CONCUR : ~ OLGA P~ ALANcrt~IQUEZ AEs~~'~'cYe Associate Justice ATTESTATION attest that the conclusions in the above Decision were reached in consultation before the case was assigned to the writer of the opinion of the Court's Division . C2~~ ~ .aY-~/ :J~R.. CJ'UANITO C. CASTANEDA, Associate Justice Chairperson

DECISION C.T.A. CASE NO. 6554 Page 21 of21 CERTIFICATION hereby certify that the decision was reached after due consultation with the members of the Division of the Court of Tax Appeals in accordance with Section 13, Article VIII of the Constitution . ~ ~-(I~ ERNESTO D. ACOSTA Presiding Justice

ANNEX "A" Country of Bunkering RMBF * Invoice Volume in Liters Registry Month Vessel Phili ppines Permit No. Exhibit No. Exhibit Number Exhibit Gas Oil Fuel Oil Panama November 2000 FoxHound Panama 1850 W-1 5906 X- 1 9 10916792 BB-1 48 , 100 Panama MillionT Panama 1694 W-2 5645 X-2 9 1090828 1 BB-2 54, 11 0 Panama MT Angela Panama 1728 W-3 5904 X-4 9 109 16 199 BB-3 54 1, 120 Panama MT Angela Panama 1833 W-4 5648 X-5 9 10916797 BB-4 541 , 120 Philippines MT Demetrius 1762 W-5 5650 X-6 9 109 1620 1 BB-5 54 1, 120 MT Golden Alpha 1790 W-6 5902 X-7 9 10916203 BB-6 541 , 120 MT Golden Alpha 1848 W-7 5905 X-8 9109 16794 BB-7 300,620 MT Kuotai 1752 W-8 5903 X-9 9 10916200 BB-8 54 1,120 MTKuotai 1809 W-9 5649 X-10 910916204 BB-9 54 1, 120 Royal Progress 1702 W-10 5646 X-II 910890500 BB-10 5 1,710 Sub-total 3,701,260 J)ecember 2000 Foxhound Philippines 1850 W-1 5907 X-12 910952544 BB-11 541 ,120 253 ,010 Golden Zebra Panama 1928 W-12 5924 X-13 910953646 BB-12 60 , 130 32, 160 Ho FengNo. 8 Panama 1954 W-13 5929 X-14 910953584 BB-13 107,850 Ho FengNo. 8 Panama 1954 W-13 5928 X- 15 910953584 BB-13 36,070 Isla Bohol Philippines 197 1 W-14 5933 X- 16 910954246 BB-14 48,240 Isla Bohol Philippines 197 1 W-14 5934 X- 17 910954245 BB-15 541, 120 96,480 MT Golden Ace Panama 1892 W-15 5912 X- 18 910950713 BB-16 54 1, 120 10 1,840 MT Kuotai Panama 1960 W-16 5932 X-19 910954243 BB-17 54 1, 120 639,58 0 MT Liberty Panama 1899 W-17 5918 X-20 910950690 BB-18 MV Royal Progress Philippines 1946 W-18 5927 X-21 910953568 BB-19 42 ,090 Norell a Malaysia 1940 W-19 5925 X-22 910953594 BB-20 Pacific Dragon Panama 1867 W-20 59 13 X-23 910947070 BB-2 1 192,400 Pacific Dragon Panama 1867 W-20 59 15 X-24 9 10947064 BB-22 Paci fie Dragon Panama 1936 W-2 1 5930 X-25 910954244 BB-23 54 1, 120 Silver Star Panama 19 16 W-22 59 19 X-26 9 10952565 BB-24 54 1, 120 Sunny Hawk Panama 1882 W-23 59 11 X-27 9 10950720 BB-25 3,577, 410 Sub-totlll January 2001 Angelo Amate Italy 0 122 W-24 5965 X-28 9 11 024640 BB-26 42 ,087 2 10,840 Angelo Amate Italy 0 122 W-24 5962 X-29 911024640 BB-26 541 , 120 316,265 Asian Star Panama 0064 W-25 5955 X-30 9 1099 11 68 BB-27 541 , 120 139,360 Asian Star Panama 0064 W-25 5957 X-3 1 9 10984460 BB-28 54 1, 120 G inga Falcon Panama 0 11 4 W-26 5966 X-32 9 1099200 1 BB-29 541 , 120 248,700 Golden Ace Panama 0113 W-27 596 1 X-33 9 10990282 BB-30 65 ,980 Golden Alpha Panama 0066 W-28 5953 X-34 9 10985002 BB-3 1 36,070 101 ,840 Golden Alpha Panama 0098 W-29 5959 X-35 9 1099 1345 BB-32 84, 170 128 ,640 Heunga Star Greece 0029 W-32 5946 X-38 9 10984435 BB-35 58,920 Heunga Star Greece 0072 W-33 5951 X-39 9 10984454 BB-36 129,430 Helios Panama 0062 W-35 5948 X-43 9 10990 160 BB-38 72, 150 1,341 ,055 Helios Panama 0062 W-35 5950 X-44 910990083 BB-39 National Honor Hongkon 0 105 W-37 5960 X-48 91099 1950 BB-41 541 , 120 Pacitic Dragon Panama 0035 W-38 5970 X-49 9 10984452 BB-42 54 1, 120 Pacific Dragon Panama 0035 W-38 5972 X-50 911023091 BB-43 54 1, 120 Pacific Ocean G reece 0 138 W-39 597 1 X-5 1 91 1025729 BB-44 541, 120 Spring Orca Panama 0059 W-40 5947 X-52 9 1098499 1 BB-45 54 1, 120 Sun Treasure Panama 007 1 W-4 1 5969 X-53 9 1009 1870 BB-46 54 1, 120 Sunny Hawk Panama 003 1 W-42 5942 X-54 9 109850 10 BB-4 7 Sunny Hawk Panama 0074 W-43 5954 X-55 910984973 BB-48 5,704,597 Sunrise Ivy Panama 00 13 W-44 5937 X-56 910984962 BB-49 TBN VI Panama 0037 W-45 5943 X-57 9 10984981 BB-50 Ten Hiro Panama 00 16 W-46 5938 X-58 91098444 1 BB-5 1 Sub-total February 2001 Fair Iris Panama 0 156 W-47 4175 X-59 9 11 024290 BB-52 20,000 Fair Iris Panama 0 156 W-4 7 4176 X-60 9 11 024290 BB-52 16,000 Fair Iris Panama 0 156 W-47 4177 X-6 1 9 11 024290 BB-52 12,000 Global Falcon Panama 0204 W-48 5984 X-62 9 11 024725 BB-53 541 , 120 Golden Ace Panama 0223 W-49 5989 X-63 9 11 024733 BB-54 54 1, 120 Golden Alpha Panama 0217 W-50 5988 X-64 9 11 024730 BB-55 54 1, 120

Country of Bunkering RMBF * Invoice Volume in Liters Registry Month Vessel Phi lipp ines Permit No. Exhibit No. Exhibit Number Exhibit Gas Oil Fuel Oil Panama Isla Bohol Panama 0202 W-51 5993 X-65 9 11062093 BB-56 60,090 Panama Janesia Asphalt Panama 0 182 W-52 5983 X-66 9 11026065 BB-57 36,080 Panama MtAngela Panama 0179 W-54 5982 X-68 9 11 024726 BB-59 541, 120 Panama Mt Ginga Falcon Panama 0 114 W-55 598 1 X-69 911024721 BB-60 54 1, 120 Panama Mt Sunny Hawk 0170 W-56 5978 X-70 9 11 024713 BB-61 541 , 120 Mt Sunrise Ivy 0 159 W-57 5973 X-7 1 9 11 024712 BB-62 541,120 MV Ace Eagle 0201 W-58 5986 X-72 91 1026286 BB-63 96,200 YongAn 0224 W-59 1554 X-73 9 11 026083 BB-64 24,000 YongAn 0224 W-59 1556 X-74 9 11 026083 BB-64 32,000 YongAn 0224 W-59 1555 X-75 9 11 026083 BB-64 100,000 Sub-total 3,992,120 192,090 March 2001 Asian Star Panama 0847 W-60 5668 X-76 9 11065160 BB-65 102,210 Panama 0847 W-60 5672 X-77 91 1065160 BB-65 48, 100 Asian Star Panama 0847 W-60 5669 X-78 9 11 065160 BB-65 Panama 0367 W-61 5664 X-79 911064699 BB-66 90,186 Asian Star Panama 0367 W-61 566 1 X-80 911064699 BB-66 168 ,680 Panama 0367 W-61 5663 X-81 91 1065054 BB-67 541 ,120 643,180 Cinta Panama 0869 W-62 5666 X-82 911063368 BB-68 541,120 2 14,400 Panama 0842 W-63 5657 X-83 9110632 16 BB-69 541,120 C int a Panama 0371 W-64 5667 X-84 9 11 064928 BB-70 54 1, 120 74,850 Panama 0258 W-65 5997 X-85 911063156 BB-71 54 1, 120 857,570 Cinta Panama 0834 W-66 5656 X-86 911063 197 BB-72 541, 120 Panama 0806 W-67 565 1 X-87 911063175 BB-73 54 1, 120 1,958,680 Golden Zebra Panama 0826 W-68 5655 X-88 911063191 BB-74 4,131,405 Panama 0808 W-69 5654 X-89 9 11063180 BB-75 84, 170 Liberty Sun Panama 0253 W-70 5652 X-90 911062099 BB-76 101 ,000 Panama 0253 W-70 5653 X-91 911062110 BB-77 Maple Galaxy Netherlands 0281 W-7 1 6000 X-92 911063077 BB-78 54 1, 120 Panama 039 1 W-72 5673 X-93 9 11 098602 BB-79 54 1, 120 Mt Excelsior Panama 0358 W-73 5658 X-94 91 1063366 BB-80 54 1, 120 Panama 0295 W-74 5999 X-95 9 11 063172 BB-81 54 1,120 Mt Golden Alpha Panama 02 70 W-75 5998 X-96 9 11 063168 BB-82 6,377,986 23,353,373 Mt KuoTai Mt Spring Bay MtSun Vry Pacific Dragon Paci fie Dragon Rotterdam VI Sea Crane Spring Orca Sunny Hawk Sunrise Ivy Sub-total TOTAL � Receipt for Marine Bunker Fuel