G.R. No. 198759. July 1, 2013.

*
PHILIPPINE AIRLINES, INC., petitioner, vs.
COMMISSIONER OF INTERNAL REVENUE, respondent.

Taxation; Excise Taxes; Under Section 129 of the National

Internal Revenue Code (NIRC), as amended, excise taxes are
imposed on two (2) kinds of goods, namely: (a) goods
manufactured or produced in the Philippines for domestic sales or
consumption or for any other disposition; and (b) things imported.
—Under Section 129 of the National Internal Revenue Code
(NIRC), as amended, excise taxes are imposed on two (2) kinds of
goods, namely: (a) goods manufactured or produced in the
Philippines for domestic sales or consumption or for any other
disposition; and (b) things imported. With respect to the first kind
of goods, Section 130 of the NIRC states that, unless otherwise
specifically allowed, the taxpayer obligated to file the return and
pay the excise taxes due thereon is the manufacturer/producer.
On the other hand, with respect to the second kind of goods,
Section 131 of the NIRC states that the taxpayer obligated to 

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* SECOND DIVISION.

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file the return and pay the excise taxes due thereon is the owner
or importer, unless the imported articles are exempt from excise
taxes and the person found to be in possession of the same is
other than those legally entitled to such tax exemption.
Same; Indirect Taxes; Jurisprudence states that indirect taxes
are those which are demanded in the first instance from one
person with the expectation and intention that he can shift the
economic burden to someone else.—Jurisprudence states that
indirect taxes are those which are demanded in the first instance
from one person with the expectation and intention that he can
shift the economic burden to someone else.  In this regard, the
statutory taxpayer can transfer to its customers the value of the
excise taxes it paid or would be liable to pay to the government by
treating it as part of the cost of the goods and tacking it on to the
selling price.  Notably, this shifting process, otherwise known as
“passing on,” is largely a contractual affair between the parties.
Meaning, even if the purchaser effectively pays the value of the
tax, the manufacturer/producer (in case of goods manufactured or
produced in the Philippines for domestic sales or consumption or
for any other disposition) or the owner or importer (in case of
imported goods) are still regarded as the statutory taxpayers
under the law. To this end, the purchaser does not really pay the
tax; rather, he only pays the seller more for the goods because of
the latter’s obligation to the government as the statutory
taxpayer.
Same; Tax Refunds; Section 204(c) of the National Internal
Revenue Code states that it is the statutory taxpayer which has the
legal personality to file a claim for refund.—Section 204(c) of the
NIRC states that it is the statutory taxpayer which has the legal
personality to file a claim for refund. Accordingly, in cases
involving excise tax exemptions on petroleum products under
Section 135 of the NIRC, the Court has consistently held that it is
the statutory taxpayer who is entitled to claim a tax refund based
thereon and not the party who merely bears its economic burden.
Same; Same; The propriety of a tax refund claim is hinged on
the kind of exemption which forms its basis.—It may be observed
that the propriety of a tax refund claim is hinged on the kind of
exemption which forms its basis. If the law confers an exemption
from both direct or indirect taxes, a claimant is entitled to a tax

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324 SUPREME COURT REPORTS ANNOTATED

Philippine Airlines, Inc. vs. Commissioner of Internal Revenue

refund even if it only bears the economic burden of the applicable

tax. On the other hand, if the exemption conferred only applies to
direct taxes, then the statutory taxpayer is regarded as the proper
party to file the refund claim.
Same; Same; Tax Exemptions; In view of Philippine Airline’s
payment of either the basic corporate income tax or franchise tax,
whichever is lower, it is exempt from paying: (a) taxes directly due
from or imposable upon it as the purchaser of the subject
petroleum products; and (b) the cost of the taxes billed or passed on
to it by the seller, producer, manufacturer, or importer of the said
products either as part of the purchase price or by mutual
agreement or other arrangement.—PAL’s payment of either the
basic corporate income tax or franchise tax, whichever is lower,
shall be in lieu of all other taxes, duties, royalties, registration,
license, and other fees and charges, except only real property tax.
The phrase “in lieu of all other taxes” includes but is not limited
to taxes that are “directly due from or imposable upon the
purchaser  or  the seller, producer, manufacturer, or importer of
said petroleum products but are billed or passed on the grantee
either as part of the price or cost thereof or by mutual agreement
or other arrangement.” In other words, in view of PAL’s payment
of either the basic corporate income tax or franchise tax,
whichever is lower, PAL is exempt from paying: (a) taxes directly
due from or imposable upon it as the purchaser of the subject
petroleum products; and (b) the cost of the taxes billed or passed
on to it by the seller, producer, manufacturer, or importer of the
said products either as part of the purchase price or by mutual
agreement or other arrangement. Therefore, given the foregoing
direct and indirect tax exemptions under its franchise, and
applying the principles as above-discussed, PAL is endowed with
the legal standing to file the subject tax refund claim,
notwithstanding the fact that it is not the statutory taxpayer as
contemplated by law.
Remedial Law; Civil Procedure; Courts; Supreme Court;
Appeals; The Supreme Court is not a trier of facts and often,
remands cases to the lower courts for the determination of
questions of such character.—It is hornbook principle that the
Court is not a trier of facts and often, remands cases to the lower
courts for the determination of questions of such character.
However, when the trial court had already received all the
evidence of the parties, the Court may

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resolve the case on the merits instead of remanding them in the

interest of expediency and to better serve the ends of justice.

PETITION for review on certiorari of the decision and

resolution of the Court of Appeals.
   The facts are stated in the opinion of the Court.
   Zambrano & Gruba Law Offices for petitioner.
  Office of the Solicitor General for respondent.

PERLAS-BERNABE, J.:
Before the Court is a petition for review on certiorari1
assailing the May 9, 2011 Decision2  and September 16,
2011 Resolution3  of the Court of Tax Appeals (CTA)  En
Banc  in CTA EB Case No. 588 which denied petitioner
Philippine Airlines, Inc.’s (PAL) claim for refund of the
excise taxes imposed on its purchase of petroleum products
from Caltex Philippines, Inc. (Caltex).
The Facts
For the period July 24 to 28, 2004, Caltex sold 804,370
liters of imported Jet A-1 fuel to PAL for the latter’s
domestic

_______________
1 Rollo, pp. 13-50.
2  Id., at pp. 64-85. Penned by Associate Justice Cielito N. Mindaro-
Grulla, with Presiding Justice Ernesto D. Acosta (on wellness leave), and
Associate Justices Juanito C. Castañeda, Jr., Lovell R. Bautista, Erlinda
P. Uy, Caesar A. Casanova (on wellness leave), Olga Palanca-Enriquez,
Esperanza R. Fabon-Victorino, and Amelia R. Cotangco-Manalastas,
concurring.
3  Id., at pp. 55-63. Penned by Associate Justice Cielito N. Mindaro-
Grulla, with Presiding Justice Ernesto D. Acosta, and Associate Justices
Juanito C. Castañeda, Jr., Lovell R. Bautista, Erlinda P. Uy, Caesar A.
Casanova, Olga Palanca-Enriquez, Esperanza R. Fabon-Victorino, and
Amelia R. Cotangco-Manalastas, concurring.

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326 SUPREME COURT REPORTS ANNOTATED

Philippine Airlines, Inc. vs. Commissioner of Internal
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operations.4 Consequently, on July 26, 27, 28 and 29, 2004,

Caltex electronically filed with the Bureau of Internal
Revenue (BIR) its Excise Tax Returns for Petroleum
Products, declaring the amounts of P1,232,798.80,
P686,767.10, P623,422.90 and P433,904.10, respectively, or
a total amount of P2,975,892.90, as excise taxes due
thereon.5
On August 3, 2004, PAL received from Caltex an
Aviation Billing Invoice for the purchased aviation fuel in
the amount of US$313,949.54, reflecting the amount of
US$52,669.33 as the related excise taxes on the
transaction. This was confirmed by Caltex in a
Certification dated August 20, 2004 where it indicated
that: (a) the excise taxes it paid on the imported petroleum
products amounted to P2,952,037.90,  i.e., the peso
equivalent of the abovementioned dollar amount; (b) the
foregoing excise tax payment was passed on by it to PAL;
and (c) it did not file any claim for the refund of the said
excise tax with the BIR.6
On October 29, 2004, PAL, through a letter-request
dated October 15, 2004 addressed to respondent
Commissioner of Internal Revenue (CIR), sought a refund
of the excise taxes passed on to it by Caltex. It hinged its
tax refund claim on its operating franchise,  i.e.,
Presidential Decree No. 15907  issued on June 11, 1978
(PAL’s franchise), which conferred upon it certain tax
exemption privileges on its purchase and/or importation of
aviation gas, fuel and oil, including those which are passed
on to it by the seller and/or importer thereof. Further, PAL
asserted that it had the legal personality to file the
aforesaid tax refund claim.8

_______________
4 Id., at p. 68.
5 Id., at pp. 68-69.
6 Id.
7  “An Act Granting A New Franchise To Philippine Airlines, Inc. To
Establish, Operate and Maintain Air-Transport Services In The
Philippines and Other Countries.”
8 Rollo, pp. 69-70.

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Due to the CIR’s inaction, PAL filed a Petition for

Review with the CTA on July 25, 2006.9 In its Answer, the
CIR averred that since the excise taxes were paid by
Caltex, PAL had no cause of action.10
The CTA Division Ruling
Relying on  Silkair (Singapore) Pte. Ltd. v.
CIR11  (Silkair), the CTA Second Division denied PAL’s
petition on the ground that only a statutory taxpayer
(referring to Caltex in this case) may seek a refund of the
excise taxes it paid.12 It added that even if the tax burden
was shifted to PAL, the latter cannot be deemed a statutory
taxpayer.
It further ruled that PAL’s claim for refund should be
denied altogether on account of Letter of Instruction No.
1483 (LOI 1483) which already withdrew the tax exemption
privileges previously granted to PAL on its purchase of
domestic petroleum products, of which the transaction
between PAL and Caltex was characterized.13
PAL moved for reconsideration, but the same was
denied in a Resolution14  dated January 14, 2010,
prompting it to elevate the matter to the CTA En Banc.

The CTA En Banc Ruling

In a Decision dated May 9, 2011,15 the CTA En Banc

affirmed the ruling of the CTA Second Division, reiterating
that

_______________
9  Id., at p. 70.
10 Id.
11 G.R. No. 173594, February 6, 2008, 544 SCRA 100.
12 Rollo, p. 112-113.
13 Id., at pp. 116-124.
14 Id., at pp. 87-102. Penned by Associate Justice Erlinda P. Uy, with
Associate Justices Juanito C. Castañeda, Jr. and Olga Palanca-Enriquez,
concurring.
15 Id., at pp. 64-85.

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328 SUPREME COURT REPORTS ANNOTATED

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it was Caltex, the statutory taxpayer, which had the

personality to file the subject refund claim. It explained
that the payment of the subject excise taxes, being in the
nature of indirect taxes, remained to be the direct liability
of Caltex. While the tax burden may have been shifted to
PAL, the liability passed on to it should not be treated as a
tax but a part of the purchase price which PAL had to pay
to obtain the goods.16 Further, it held that PAL’s exemption
privileges on the said excise taxes, which it claimed
through its franchise, had already been withdrawn by LOI
1483.17
Aggrieved, PAL filed a motion for reconsideration which
was, however, denied in a Resolution dated September 16,
2011.18
Hence, the instant petition.
The Issues Before the Court
The following issues have been presented for the Court’s
resolution: (a) whether PAL has the legal personality to file
a claim for refund of the passed on excise taxes; (b) whether
the sale of imported aviation fuel by Caltex to PAL is
covered by LOI 1483 which withdrew the tax exemption
privileges of PAL on its purchases of domestic petroleum
products for use in its domestic operations; and (c) whether
PAL has sufficiently proved its entitlement to refund.
The Ruling of the Court
The petition is meritorious.

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16 Id., at p. 80.
17 Id., at pp. 81-82.
18 Id., at pp. 55-63.

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A. PAL’s legal personality to file

a claim for refund of excise taxes.
The CIR argues that PAL has no personality to file the
subject tax refund claim because it is not the statutory
taxpayer. As basis, it relies on the  Silkair  ruling which
enunciates that the proper party to question, or to seek a
refund of an indirect tax, is the statutory taxpayer, or the
person on whom the tax is imposed by law and who paid
the same, even if the burden to pay such was shifted to
another.19
PAL counters that the doctrine laid down in  Silkair  is
inapplicable, asserting that it has the legal personality to
file the subject tax refund claim on account of its tax
exemption privileges under its legislative franchise which
covers both direct and indirect taxes. In support thereof, it
cites the case of Maceda v. Macaraig, Jr.20 (Maceda).
The Court agrees with PAL.
 Under Section 129 of the National Internal Revenue
Code (NIRC),21  as amended, excise taxes are imposed on
two (2) kinds of goods, namely: (a) goods manufactured or
produced in the Philippines for domestic sales or
consumption or for any other disposition; and (b) things
imported.22

_______________
19 Id., at pp. 153-161.
20 G.R. No. 88291, June 8, 1993, 223 SCRA 217. This is the resolution
denying the petitioner’s motion for reconsideration of the Court’s May 31,
1991 Decision in the same case and in effect, upholding the tax refund
claim of the National Power Corporation.
21 Republic Act No. 8424, otherwise known as the “Tax Reform Act of
1997.”
22 SEC. 129. Goods Subject to Excise Taxes.—Excise taxes apply to
goods manufactured or produced in the Philippines for domestic
sales or consumption or for any other disposition and to things
imported. The excise tax imposed herein shall be in addition to the
value-added tax imposed under Title IV. (Emphasis and underscoring
supplied)
x x x x

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With respect to the first kind of goods, Section 130 of the

NIRC states that, unless otherwise specifically allowed, the
taxpayer obligated to file the return and pay the excise
taxes due thereon is the manufacturer/producer.23
On the other hand, with respect to the second kind of
goods, Section 131 of the NIRC states that the taxpayer
obligated to file the return and pay the excise taxes due
thereon is the owner or importer, unless the imported
articles are exempt from excise taxes and the person found
to be in possession of the same is other than those legally
entitled to such tax exemption.24
While the NIRC mandates the foregoing persons to pay
the applicable excise taxes directly to the government, they
may, however, shift the economic burden of such payments
to someone else — usually the purchaser of the goods —
since excise taxes are considered as a kind of indirect tax.
 Jurisprudence states that indirect taxes are those which
are demanded in the first instance from one person with
the

_______________
23 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.—
x x x x
(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 form place of production x  x  x. (Emphasis and underscoring
supplied)
x x x x
24 SEC. 131. Payment of Excise Taxes on Imported Articles.—
(A) Persons Liable.—Excise taxes on imported articles shall be
paid by the  owner or importer  to the Customs Officers, conformably
with the regulations of the Department of Finance and before the release
of such articles from the customshouse, or by the person who is found in
possession of articles which are exempt from excise taxes other than those
legally entitled to exemption. (Emphasis and underscoring supplied)

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expectation and intention that he can shift the economic

burden to someone else.25  In this regard, the statutory
taxpayer can transfer to its customers the value of the
excise taxes it paid or would be liable to pay to the
government by treating it as part of the cost of the goods
and tacking it on to the selling price.26  Notably, this
shifting process, otherwise known as “passing on,” is
largely a contractual affair between the parties. Meaning,
even if the purchaser effectively pays the value of the tax,
the manufacturer/producer (in case of goods manufactured
or produced in the Philippines for domestic sales or
consumption or for any other disposition) or the owner or
importer (in case of imported goods) are still regarded as
the statutory taxpayers under the law. To this end, the
purchaser does not really pay the tax; rather, he only pays
the seller more for the goods because of the latter’s
obligation to the government as the statutory taxpayer.27
In this relation, Section 204(c)28 of the NIRC states that
it is the statutory taxpayer which has the legal personality
to

_______________
25 CIR v. John Gotamco & Sons, Inc., G.R. No. L-31092, February 27,
1987, 148 SCRA 36, 40.
26 See Silkair Singapore Pte. Ltd. v. CIR, G.R. Nos. 171383 & 172379,
November 14, 2008, 571 SCRA 141, 156.
27 Exxonmobil Petroleum and Chemical Holdings, Inc.-Philippine
Branch v. CIR, G.R. No. 180909, January 19, 2011, 640 SCRA 203, 222,
citing Justice Oliver Wendell Holmes’ opinion in Lash’s Products v. United
States, 278 U.S. 175 (1928).
28 SEC. 204. Authority of the Commissioner to Compromise, Abate,
and Refund or Credit Taxes. The Commissioner may—
x x x x
(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

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332 SUPREME COURT REPORTS ANNOTATED

Philippine Airlines, Inc. vs. Commissioner of Internal
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file a claim for refund. Accordingly, in cases involving

excise tax exemptions on petroleum products under Section
13529 of the NIRC, the Court has consistently held that it is
the statutory taxpayer who is entitled to claim a tax refund
based thereon and not the party who merely bears its
economic burden.30
For instance, in the Silkair case, Silkair (Singapore) Pte.
Ltd. (Silkair Singapore) filed a claim for tax refund based
on Section 135(b) of the NIRC as well as Article 4(2)31  of
the Air

_______________
 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. (Emphasis and underscoring supplied)
29 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 of 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.
30 See the three (3) subsequent Silkair cases namely: (a)  Silkair
Singapore Pte. Ltd. v. CIR, supra note 26; (b) Silkair Singapore Pte. Ltd.
v. CIR, G.R. No. 184398, February 25, 2010, 613 SCRA 638; and
(c) Silkair Singapore Pte. Ltd. v. CIR, G.R. No. 166482, January 25, 2012,
664 SCRA 33. See also  Exxonmobil Petroleum and Chemical Holdings,
Inc. v. CIR, supra note 27.
31 Fuel, lubricants, spare parts, regular equipment and aircraft stores
introduced into, or taken on board aircraft in the territory of one
Contracting party by, or on behalf of, a designated airline of the

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Transport Agreement between the Government of the

Republic of the Philippines and the Government of the
Republic of Singapore. The Court denied Silkair
Singapore’s refund claim since the tax exemptions under
both provisions were conferred on the statutory taxpayer,
and not the party who merely bears its economic burden.
As such, it was the Petron Corporation (the statutory
taxpayer in that case) which was entitled to invoke the
applicable tax exemptions and not Silkair Singapore which
merely shouldered the economic burden of the tax. As
explained in Silkair:
 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.
Section 130(A)(2) of the NIRC provides that “[u]nless
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.”
Thus, Petron Corporation, not Silkair, is the statutory
taxpayer which is entitled to claim a refund based on
Section 135 of the NIRC of 1997 and Article 4(2) of the Air
Transport Agreement between RP and Singapore.
Even if Petron Corporation passed on to Silkair the
burden of the tax, the additional amount billed to Silkair for
jet fuel is not a tax but part of the price which Silkair had to
pay as a purchaser.32 (Emphasis supplied)

_______________
other Contracting Party and intended solely for use in the operation of
the agreed services shall, with the exception of charges corresponding to
the service performed, be exempt from the same customs duties,
inspection fees and other duties or taxes imposed in the territories of the
first Contracting Party, even when these supplies are to be used on the
parts of the journey performed over the territory of the Contracting Party
in which they are introduced into or taken on board. The materials
referred to above may be required to be kept under customs supervision
and control.
32 Supra note 11, at p. 112.

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However, the abovementioned rule should not apply to

instances where the law clearly grants the party to which
the economic burden of the tax is shifted an exemption
from both direct and indirect taxes. In which case, the
latter must be allowed to claim a tax refund even if it is not
considered as the statutory taxpayer under the law.
Precisely, this is the peculiar circumstance which
differentiates the Maceda case from Silkair.
To elucidate, in Maceda, the Court upheld the National
Power Corporation’s (NPC) claim for a tax refund since its
own charter specifically granted it an exemption from both
direct and indirect taxes, viz.:

x  x  x [T]he Court rules and declares that the oil

companies which supply bunker fuel oil to NPC have to pay
the taxes imposed upon said bunker fuel oil sold to NPC. By
the very nature of indirect taxation, the economic burden of
such taxation is expected to be passed on through the
channels of commerce to the user or consumer of the goods
sold.  Because, however, the NPC has been exempted
from both direct and indirect taxation, the NPC must
be held exempted from absorbing the economic
burden of indirect taxation. This means, on the one
hand, that the oil companies which wish to sell to NPC
absorb all or part of the economic burden of the taxes
previously paid to BIR, which they could shift to NPC if
NPC did not enjoy exemption from indirect taxes. This
means also, on the other hand, that the NPC may refuse to
pay the part of the “normal” purchase price of bunker fuel
oil which represents all or part of the taxes previously paid
by the oil companies to BIR. If NPC nonetheless
purchases such oil from the oil companies — because
to do so may be more convenient and ultimately less
costly for NPC than NPC itself importing and hauling
and storing the oil from overseas — NPC is entitled to
be reimbursed by the BIR for that part of the buying
price of NPC which verifiably represents the tax
already

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paid by the oil company-vendor to the BIR.33

(Emphasis and underscoring supplied)

Notably, the Court even discussed the Maceda ruling in

Silkair, highlighting the relevance of the exemptions in
NPC’s charter to its claim for tax refund:

Silkair nevertheless argues that it is exempt from

indirect taxes because the Air Transport Agreement
between RP and Singapore grants exemption “from the
same customs duties, inspection fees and other duties or
taxes imposed in the territory of the first Contracting
Party.”  It invokes  Maceda v. Macaraig, Jr.  which
upheld the claim for tax credit or refund by the
 National Power Corporation (NPC) on the ground
that the NPC is exempt even from the payment of
indirect taxes.
Silkair’s argument does not persuade. In Commissioner
of Internal Revenue v. Philippine Long Distance Telephone
Company, this Court clarified the ruling in Maceda v.
Macaraig, Jr., viz.:
It may be so that in Maceda vs. Macaraig, Jr., the
Court held that an exemption from “all taxes” granted
to the National Power Corporation (NPC) under its
charter includes both direct and indirect taxes. But
far from providing PLDT comfort,  Maceda  in fact
supports the case of herein petitioner, the correct
lesson of  Maceda  being that an exemption from “all
taxes” excludes indirect taxes, unless the exempting
statute, like NPC’s charter, is so couched as to
include indirect tax from the exemption. Wrote
the Court:
x  x  x However, the amendment under
Republic Act No. 6395 enumerated the details
covered by the exemption. Subsequently, P.D.
380, made even more specific the details of the
exemption of NPC to cover, among others,

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33 Supra note 20, at p. 256.

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336 SUPREME COURT REPORTS ANNOTATED

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both direct and indirect taxes  on all

petroleum products used in its operation.
Presidential Decree No. 938 [NPC’s amended
charter] amended the tax exemption by
simplifying the same law in general terms. It
succinctly exempts NPC from “all forms of
taxes, duties[,] fees…”
The use of the phrase “all forms” of taxes
demonstrates the intention of the law to give
NPC all the tax exemptions it has been enjoying
before . . .
x x x x
It is evident from the provisions of P.D. No.
938 that its purpose is to maintain the tax
exemption of NPC from  all forms  of taxes
 including indirect taxes as provided under R.A.
No. 6395 and P.D. 380 if it is to attain its goals.
The exemption granted under Section 135(b) of the NIRC
of 1997 and Article 4(2) of the Air Transport Agreement
between RP and Singapore cannot, without a clear showing
of legislative intent, be construed as including indirect
taxes. 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.34 (Emphasis and underscoring supplied)

Based on these rulings, it may be observed that the

propriety of a tax refund claim is hinged on the kind of
exemption which forms its basis. If the law confers an
exemption from both direct or indirect taxes, a claimant is
entitled to a tax refund even if it only bears the economic
burden of the applicable tax. On the other hand, if the
exemption conferred only applies to direct taxes, then the
statutory taxpayer is regarded as the proper party to file
the refund claim.

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34 Supra note 11, at pp. 112-114.

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Revenue

In this case, PAL’s franchise grants it an exemption

from both direct and indirect taxes on its purchase of
petroleum products. Section 13 thereof reads:

SEC. 13. In consideration of the franchise and rights

hereby granted, the grantee [PAL] shall pay to the
Philippine Government during the life of this franchise
whichever of subsections (a) and (b) hereunder will result in
a lower tax:
(a) The basic corporate income tax based on the
grantee’s annual net taxable income computed in
accordance with the provisions of the National
Internal Revenue Code; or
(b) A franchise tax of two per cent (2%) of the gross
revenues derived by the grantee from all sources,
without distinction as to transport or nontransport
 operations; provided, that with respect to
international air-transport service, only the gross
passenger, mail, and freight revenues from its
outgoing flights shall be subject to this tax.
The tax paid by the grantee under either of the above
alternatives shall be  in lieu of all other taxes, duties,
royalties, registration, license, and other fees and charges of
any kind, nature, or description, imposed, levied,
established, assessed, or collected by any municipal, city,
provincial, or national authority or government agency, now
or in the future,  including but not limited  to the
following:
1. All taxes, duties, charges, royalties, or fees due on
local purchases by the grantee of aviation gas, fuel, and oil,
whether refined or in crude form, and whether such taxes,
duties, charges, royalties, or fees are directly due from or
imposable upon the purchaser or the seller,
producer, manufacturer, or importer of said
petroleum products but are  billed or passed on the
grantee  either as part of the price or cost thereof or
by mutual agreement or other arrangement; provided,
that all such purchases by, sales or deliveries of aviation
gas, fuel, and oil to the grantee shall be for ex-

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338 SUPREME COURT REPORTS ANNOTATED

Philippine Airlines, Inc. vs. Commissioner of Internal Revenue

clusive use in its transport and nontransport operations and

other activities incidental thereto;
2. All taxes, including compensating taxes, duties,
charges, royalties, or fees due on all importations by the
grantee of aircraft, engines, equipment, machinery, spare
parts, accessories, commissary and catering supplies,
aviation gas, fuel, and oil, whether refined or in crude form
and other articles, supplies, or materials; provided, that
such articles or supplies or materials are imported for the
use of the grantee in its transport and transport operations
and other activities incidental thereto and are not locally
available in reasonable quantity, quality, or price;
(Emphasis and underscoring supplied)
x x x x

Based on the above-cited provision, PAL’s payment of

either the basic corporate income tax or franchise tax,
whichever is lower, shall be in lieu of all other taxes,
duties, royalties, registration, license, and other fees and
charges, except only real property tax.35 The phrase “in lieu
of all other taxes” includes but is not limited to taxes that
are “directly due from or imposable upon the
purchaser  or  the seller, producer, manufacturer, or
importer of said petroleum products but are billed or
passed on the grantee either as part of the price or cost
thereof or by mutual agreement or other
36
arrangement.”  In other words, in view of PAL’s payment
of either the basic corporate income tax or franchise tax,
whichever is lower, PAL is exempt from paying: (a) taxes
directly due from or imposable upon it as the purchaser of
the subject petroleum products; and (b) the cost of the taxes
billed or passed on to it by the seller, producer,
manufacturer, or importer of the said products either as
part of the purchase price or by mutual agreement or other
arrangement. Therefore, given the foregoing direct and
indirect tax exemptions under its fran-

_______________
35 SEC. 13 of PAL’s franchise. See also CIR v. PAL, G.R. No. 180066,
July 7, 2009, 592 SCRA 237, 250.
36 SEC. 13(b)(1) of PAL’s franchise.

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chise, and applying the principles as above-discussed, PAL

is endowed with the legal standing to file the subject tax
refund claim, notwithstanding the fact that it is not the
statutory taxpayer as contemplated by law.
B. Coverage of LOI 1483.
LOI 1483 amended PAL’s franchise by withdrawing the
tax exemption privilege granted to PAL on its purchase of
domestic petroleum products for use in its domestic
operations. It pertinently provides:

NOW, THEREFORE, I, FERDINAND E. MARCOS,

President of the Philippines, by virtue of the powers vested
in me by the Constitution, do hereby order and direct that
the  tax-exemption privilege granted to PAL on
its  purchase of domestic petroleum products for use
 in its domestic operations  is hereby withdrawn.
(Emphasis and underscoring supplied)

On this score, the CIR contends that the purchase of the

aviation fuel imported by Caltex is a “purchase of domestic
petroleum products” because the same was not purchased
abroad by PAL.
The Court disagrees.
Based on Section 13 of PAL’s franchise, PAL’s tax
exemption privileges on all taxes on aviation gas, fuel and
oil may be classified into three (3) kinds, namely: (a) all
taxes due on PAL’s local purchase of aviation gas, fuel and
oil;37 (b) all taxes directly due from or imposable upon the
purchaser or the seller, producer, manufacturer, or
importer of aviation

_______________
37 The pertinent portion of PAL’s franchise reads:
1. All taxes, duties, charges, royalties, or fees due on local
purchases by the grantee of aviation gas, fuel, and oil, whether refined
or in crude form x x x. (Emphasis and underscoring supplied)

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340 SUPREME COURT REPORTS ANNOTATED

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gas, fuel and oil but are billed or passed on to PAL;38  and
(c), all taxes due on all importations by PAL of aviation gas,
fuel, and oil.39
Viewed within the context of  excise taxes, it may be
observed that the  first kind  of tax privilege would be
irrelevant to PAL since it is not liable for excise taxes on
locally manufactured/produced goods for domestic sale or
other disposition; based on Section 130 of the NIRC, it is
the manufacturer or producer, i.e., the local refinery, which
is regarded as the statutory taxpayer of the excise taxes
due on the same. On the contrary, when the economic
burden of the applicable excise taxes is passed on to PAL, it
may assert two (2) tax exemptions under the  second
kind  of tax privilege namely, PAL’s exemptions on (a)
passed on excise tax costs due from the seller,
manufacturer/producer in case of locally manufactured/
produced goods for domestic sale (first tax exemption under
the second kind of tax privilege); and (b) passed on
 _______________
38 The pertinent portion of PAL’s franchise reads:
x  x  x and whether such taxes, duties, charges, royalties, or fees are
directly due from or imposable upon the purchaser or the seller, producer,
manufacturer, or importer of said petroleum products but are billed or
passed on the grantee either as part of the price or cost thereof or by
mutual agreement or other arrangement; (Emphasis and underscoring
supplied)
x x x x
39 The pertinent portion of PAL’s franchise reads:
2. All taxes, including compensating taxes, duties, charges, royalties,
or fees due  on all importations by the grantee  of aircraft, engines,
equipment, machinery, spare parts, accessories, commissary and catering
supplies, aviation gas, fuel, and oil, whether refined or in crude form and
other articles, supplies, or materials; provided, that such articles or
supplies or materials are imported for the use of the grantee in its
transport and transport operations and other activities incidental thereto
and are not locally available in reasonable quantity, quality, or price;
(Emphasis and underscoring supplied)
x x x x

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excise tax costs due from the importer in case of imported

aviation gas, fuel and oil (second tax exemption under the
second kind of tax privilege). The second kind of tax
privilege should, in turn, be distinguished from the  third
kind of tax privilege which applies when PAL itself acts as
the importer of the foregoing petroleum products. In the
latter instance, PAL is not merely regarded as the party to
whom the economic burden of the excise taxes is shifted to
but rather, it stands as the statutory taxpayer directly
liable to the government for the same.40
In view of the foregoing, the Court observes that the
phrase “purchase of domestic petroleum products for use in
its domestic operations” — which characterizes the tax
privilege LOI 1483 withdrew — refers only to PAL’s
tax exemptions on passed on excise tax costs due from
the seller, manufacturer/producer of locally
manufactured/ produced goods for domestic
41
sale   and does not, in any way, pertain to any of
PAL’s tax privileges concerning imported
goods,42  may it be (a) PAL’s tax exemption on excise tax
costs which are merely passed on to it by the importer
when it buys imported goods from the latter (the second tax
exemption under the second kind of tax privilege); or (b)
PAL’s tax exemption on its direct excise tax liability when
it imports the goods itself (the third kind of tax privilege).
Both textual and contextual analyses lead to this
conclusion:
First, examining its phraseology, the word “domestic,”
which means “of or relating to one’s own country”43 or “an

_______________
40 See SEC. 129 in relation to SEC. 131 of the NIRC.
41 The first tax exemption under the second kind of tax privilege,
relating to the first type of excisable articles under SEC. 129 of the NIRC.
42 The second type of excisable articles under SEC. 129 of the NIRC.
43 BLACK’S LAW DICTIONARY, 9th Ed. (2009), p. 557.

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342 SUPREME COURT REPORTS ANNOTATED

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article of domestic manufacture,”44  clearly pertains to

goods manufactured or produced in the Philippines for
domestic sales or consumption or for any other
disposition45  as opposed to things imported.46  In other
words, by sheer divergence of meaning, the term “domestic
petroleum products” could not refer to goods which are
imported.
Second, examining its context, certain “whereas
clauses”47 in LOI 1483 disclose that the said law was
intended to lift the tax privilege discussed in Department
of Finance (DOF) Ruling dated November 17, 1969 (Subject
DOF Ruling) which, based on a reading of the same,
clarified that PAL’s franchise included tax exemptions on
aviation gas, fuel and oil which are manufactured or
produced in the Philippines for domestic sales (and not only
to those imported).48 In other words, LOI

_______________
44 http://www.merriam-webster.com/dictionary/domestic?show=0
&t=1372905302 (visited January 25, 2013).
45 The first type of excisable articles under SEC. 129 of the NIRC.
46 The second type of excisable articles under SEC. 129 of the NIRC.
 47 WHEREAS,  by virtue of a ruling of the Department of
Finance, now Ministry, dated November 17, 1969, domestic
petroleum products sold to PAL for use in its domestic operations are
exempt from the payment of specific and ad valorem taxes;
WHEREAS,  this tax-exemption privilege enjoyed by PAL has
resulted in serious tax base erosions and distortions in the tax
treatment of similarly situated enterprises; (Emphasis and underscoring
supplied)
x x x x
48 By way of background, the Subject DOF Ruling was issued in
response to a letter seeking for the DOF’s opinion regarding the scope of
the “imposition of the specific tax on aviation gasoline and other
fuels  purchased locally  by airline companies  direct from local
sources of production for use in domestic flight operations.” The conflict
stemmed from the import of BIR Ruling No. 65-116, issued on October 5,
1965, which “exempted from the specific tax aviation fuel and other fuel
oils imported by [PAL], and similar

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1483 was meant to divest PAL from the tax privilege which
was tackled in the Subject DOF Ruling, namely, its tax
exemption on aviation gas, fuel and oil which are
manufactured or produced in the Philippines for domestic
sales. Consequently, if LOI 1483 was intended to withdraw
the foregoing tax exemption, then the term “purchase
of domestic petroleum products  for use in its domestic
operations” as used in LOI 1483 could only refer to “goods
manufactured or produced in the Philippines for domestic
sales or consumption or for any other disposition,” and not
to “things imported.” In this respect, it cannot be gainsaid
that PAL’s tax exemption privileges concerning imported
goods remain beyond the scope of LOI 1483 and thus,
continue to subsist.
In this case, records disclose that Caltex imported
aviation fuel from abroad and merely re-sold the same to
PAL, tacking the amount of excise taxes it paid or would be
liable to pay to the government on to the purchase price.
Evidently, the said

_______________
 franchise grantees but not those locally purchased by them for use
in domestic flight operations.”  Through the Subject DOF Ruling, the
DOF eventually overturned BIR Ruling No. 65-116, clarifying that PAL’s
franchise also conferred upon it tax exemption privileges concerning
aviation gas, fuel and oil which are manufactured or produced in the
Philippines for domestic sales and not only to those imported. The DOF
stated:
In view thereof, and considering that Ruling No. 65-116 of the
[BIR] is not in harmony with the established doctrine laid down by
the Supreme Court on the matter, this Department hereby modifies
the same and rules that aviation gasoline and other fuel oils
directly purchased for domestic consumption by airline companies
which are exempt from the payment of specific tax pursuant to
their franchise are  also exempt from the payment of specific
tax on their domestic purchases of the same articles provided
such airline companies are already owners and possessors of such
products prior to or at the time of their removal from the place of
production or bonded warehouses of the local refineries. x x x (See
Subject DOF Ruling, pp. 3-4; emphasis and underscoring supplied)

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petroleum products are in the nature of “things imported”

and thus, beyond the coverage of LOI 1483 as previously
discussed. As such, considering the subsistence of PAL’s
tax exemption privileges over the imported goods subject of
this case, PAL is allowed to claim a tax refund on the excise
taxes imposed and due thereon.
C.  PAL’s entitlement to refund.
It is hornbook principle that the Court is not a trier of
facts and often, remands cases to the lower courts for the
determination of questions of such character. However,
when the trial court had already received all the evidence
of the parties, the Court may resolve the case on the merits
instead of remanding them in the interest of expediency
and to better serve the ends of justice.49
Applying these principles, the Court finds that the
evidence on record shows that PAL was able to sufficiently
prove its entitlement to the subject tax refund. The
following incidents attest to the same:
First, PAL timely filed its claim for refund.
 Section 22950  of the NIRC provides that the claim for
refund should be filed within two (2) years from the date of
payment of the tax.

_______________
49 “x  x  x On many occasions, the Court, in the public interest and
expeditious administration of justice, has resolved action on the merits,
instead of remanding them for further proceedings, as where the ends of
justice would not be subserved by the remand of the case or where the
trial court had already received all the evidence of the parties.” (Apo
Fruits Corporation v. CA, G.R. No. 164195, February 6, 2007, 514 SCRA
537).
50 SEC. 229. Recovery of Tax Erroneously or Illegally Collected.—
x x x x
In any case, no such suit or proceeding shall be filed after the
expiration of two (2) years from the date of payment of the tax or

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Shortly after imported aviation fuel was delivered to

PAL, Caltex electronically filed the requisite excise tax
returns and paid the corresponding amount of excise taxes,
as follows: 

DATE OF FILING AND FILING REFERENCE

PAYMENT NO.
July 26, 2004 074400000178825
July 27, 2004 070400000179115
July 28, 2004 070400000179294
July 29, 2004 070400000179586

PAL filed its administrative claim for refund on October

29, 200451 and its judicial claim with the CTA on July 25,
2006.52  In this regard, PAL’s claims for refund were filed
on time in accordance with the 2-year prescriptive period.
 
Second, PAL paid the lower of the basic corporate
income tax or the franchise tax as provided for in the afore-
quoted Section 13 of its franchise.
In its income tax return for FY 2004-2005,53  PAL
reported no net taxable income for the period resulting in
zero basic corporate income tax, which would necessarily be
lower than any franchise tax due from PAL for the same
period.
Third, the subject excise taxes were duly declared and
remitted to the BIR.
Contrary to the findings of the CTA that the excise taxes
sought to be refunded were not the very same taxes that
were

_______________
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.
51 Rollo, p. 69.
52 Id., at p. 70.
53 Exhibits “VVV” - “BBBB,” CTA Rollo, pp. 573-596.

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346 SUPREME COURT REPORTS ANNOTATED

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declared in the Excise Tax Returns filed by Caltex54

(underscoring the discrepancy of P23,855.00 between the
amount of P2,975,892.90 declared in the said returns and
the amount of P2,952.037.9055  sought to be refunded), an
examination of the records shows a sufficient explanation
for the difference.
In the Certification56 of Caltex on the volume of aviation
fuel sold to PAL and its Summary of Local Sales57  (see
table below), Caltex sold 810,870 liters during the subject
period out of which 804,370 liters were sold to PAL, while
the difference of 6,500 liters58 were sold to its other client,
LBOrendain.

  DATE OF SALE
DOCUMENT July 24, July 25, July 26, July 27, July 28, TOTAL
2004 2004 2004 2004 2004
Certification 174,070 158,570 187,130 166,370 118,230 804,370
Summary of 177,070 158,570 187,130 166,370 121,730 810,870
Local Sales
DIFFERENCE 3,000 0 0 0 3,500 6,500

Per Summary of Removals and Excise Tax Due on

Mineral Products Chargeable Against Payments attached
to the Excise Tax Returns,59 the excise tax rate is P3.67 per
liter, which, if multiplied with 6,500 liters sold by Caltex to
LBOrendain, would equal the discrepancy amount of
P23,855.00.
Further examination of the records also reveals that the
amount reflected in Caltex’s Certification is consistent with

_______________
54 Exhibits “PPP” - “SSS,” CTA Rollo, pp. 339-357.
55 Rollo, p. 126.
56 Exhibit “GGG,” CTA Rollo, p. 321.
57 Exhibit “DDD,” CTA Rollo, pp. 314-315.
58 810,870 liters minus 804,370 liters.
59 CTA Rollo, pp. 48-49, 53-54, 58-59, and 63-64.

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the amount indicated in Caltex’s Aviation Receipts and

Invoices60 and Aviation Billing Invoice.61
Thus, finding that PAL has sufficiently proved its
entitlement to a tax refund of the excise taxes subject of
this case, the Court hereby grants its petition and
consequently, annuls the assailed CTA resolutions.
WHEREFORE, the petition is hereby GRANTED. The
May 9, 2011 Decision and September 16, 2011 Resolution of
the Court of Tax Appeals En Banc in CTA EB Case No. 588
are ANNULLED and SET ASIDE. Respondent
Commissioner of Internal Revenue is
hereby  ORDERED  to refund or issue a tax credit
certificate in favor of the petitioner Philippine Airlines, Inc.
in the amount of P2,952,037.90.
SO ORDERED.

Carpio (Chairperson), Brion, Del Castillo  and  Perez,

JJ., concur.

Petition granted, judgment and resolution annulled and

set aside.

Notes.—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. (Silkair
[Singapore] Pte., Ltd. vs. Commissioner of Internal
Revenue, 613 SCRA 638 [2010])
Excise taxes, which apply to articles manufactured or
produced in the Philippines for domestic sale or
consumption or for any other disposition and to things
imported into the Philippines, is basically an indirect tax.
(Silkair [Singapore] Pte. Ltd. vs. Commissioner of Internal
Revenue, 664 SCRA 33 [2012])
——o0o—— 

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60 Exhibits “G” to “BBB,” CTA Rollo, pp. 264-311.
61 Exhibit “CCC,” CTA Rollo, pp. 312-313.

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